What is ICAN?
Institute of Chartered Accountants of Nepal (ICAN) is an institute established for as per Nepal Chartered Accountants Act 2053 for development of the accounting profession in Nepal. The institute is an autonomous and a body corporate.
What rights does the Act confer to ICAN?
Let’s only focus on the rights of ICAN that may hint its authority to set the fees for professional services provided by its members:
Section 5 of the Act states that it is the objective of ICAN
- To play the role of a regulatory body to encourage the members to carry on accounting profession being within the extent of the code of conduct in order to consolidate and develop accounting profession as a cause for economic development of the nation.
- To develop, protect and promote the accounting profession by enabling professional accountants understand their responsibility towards the importance of accounting profession and accountancy.
The Professional Guidance Committee formed under Section 13 of the Act is responsible in preparation of code of conduct for members and accounting professional, to amend and submit it to the council for acceptance.
Further to this, the authority conferred to ICAN by Section 11 of the Act are:
- To monitor as to whether or not the members and Members holding Certificate of Practice have acted in conformity with the prescribed professional code of conduct.
- To initiate actions, in accordance with the recommendation of the Disciplinary Committee, against members holding Certificate of Practice for their acts and actions done in contravention of the professional code of conduct.
- To safeguard rights and interests of the members and to protect and promote their reputation.
- To carry out any other functions that deem to be necessary to attain the objectives laid down by this Act.
Is professional fee setting justified?
Responsibility of ICAN
We could say that as per the provisions of the Act, for upholding the professional code of ethics, the national contribution of the accounting/auditing profession and prevalent practices, ICAN could easily assume its responsibility to set the minimum professional fees in this regard, in order to set the minimum standards of the professional services.
Minimum Wage Fixing Convention, 1970
Nepal is a member of Minimum Wage Fixing Convention, 1970. Each Member of the International Labour Organisation who have ratified the Minimum Wage Fixing Convention, 1970 has undertaken to establish a system of minimum wages which covers all groups of wage earners whose terms of employment are such that coverage would be appropriate. The convention is aimed to consider its part in protecting disadvantaged groups of wage earners, and protection for wage earners against unduly low wages, while taking into consideration to the needs of developing countries.
We can see in the objective of the ratification that even in the case of setting minimum wage, country can set it out exceptionally to meet the needs of the its developing economic situation. Clearly, it cannot be construed that, by the power of this ratification, any regulatory would be able to set the minimum fees in regard to the professional fees, disregarding the provisions under Contract Laws, Consumer’s Right Protection Laws and general principle of Free Economy.
IFAC and International Practice
ICAN is a member of a global organization called International Federation of Accountants (IFAC). The organization supports the development, adoption and implementation of international standards for accounting education, ethics, and the public sector as well as audit and assurance. It supports four independent standard-setting boards, which establish international standards on ethics, auditing and assurance, accounting education, and public sector accounting. It also issues guidance to encourage high quality performance by professional accountants in business and small and medium accounting practices.
Meaning, being a member of IFAC, ICAN would support the development and adoption of the guidelines of the IFAC, but IFAC would in no case disregard the provision of Free Economy, Consumer’s Rights and Fundamentals of Contract between the Parties to implement the criteria for minimum professional fees.
Why is not ICAN able to set professional fees to its members?
As per the Fundamentals of Contract Law
The service provided by the accountant cannot be evaluated on the basis of intangible and cost of production like tangible goods. ICAN, despite being a body for development of accounting profession in Nepal, cannot set professional fees contrary to the current practice of determining the fees for service based on mutual discussion between the service provider and the customer based on the qualification, experience, reputation and time taken by the service provider, time spent by his expertise as per the need, customer’s need and service provider’s supply and availability.
The first of the existing legal provisions is the Contract Laws. Contract Laws provides that the parties to the contract shall be autonomous in choosing the form and content of the contract, the amount of the return, the terms of the contract and the nature of the treatment for breach of contract and the determination of measures to resolve disputes as agreed. Since the service of audit is provided by contractual agreement, the parties are free to specify the terms of the contract regarding the taking or giving of services. Although the Acts relating to their respective organizations provide general guidance on the issue of access to services, it is not generally considered to restrict the contractual agreement and the autonomy of the parties. But the legal provisions on Contract Laws cannot be cannot be ignored in the exercise of contractual freedom.
As per the Consumer's Right Protection Laws and Competition Laws
Also, the decision of ICAN to set professional fees will be in opposition to the laws mentioned in the Consumer Protection Act, 2075 BS where only the Government of Nepal has the right to determine the pricing and policy of consumer services. The decision to fix the remuneration of the Institute of Chartered Accountants of Nepal will be a violation of the fundamental right to free profession and employment as provided by the Constitution of Nepal and also interferes with the right to fix professional fees and set fees competitively. In the context of those provisions of the Act, no one is allowed to create a situation where consumers are deceived or their right to purchase goods and services is freely informed and competitive.
Firstly, Consumer Protection Act, 2075. Section 6(1)(Ga) of the Act states that the consumer shall have the “right to be confident in the choice of consumer goods or services at as competitive a price as possible.” Section 24 of the Act also gives consumers the right to be heard or compensated against unfair trade practices or exploitation. Secondly, another act related to the sale and purchase of goods and services is the Competition, Promotion and Market Protection Act, 2063 BS mentions the actions against fair competition. In Section 3(Ka) of the said act, the act of “directly or indirectly determining the purchase or sale price of any good or service or setting the conditions of purchase and sale of such good or service” is found to be against competition.
Case Laws and Current Market Practice
Case Laws
Although the charging of fees so set, does not imply an agreement or an attempt to compromise, the nature of the task of fixing the minimum fee seems to be anti-competitive.
This is further clarified by the case Everest Bank Limited vs. Institute of Chartered Accountants of Nepal.
Current Market Practice
On the one hand, the Nepal Chartered Accountants Act 2053 does not seem to give the right to explicitly fix the remuneration of chartered accountants. However, as per the international practice, looking at the fee schedule, a fees usually indicative of the professional cost can be recommended by ICAN to its members. However, this should not restrict any professional accountant or auditor to accept fees below to the fees so scheduled. ICAN as a regulatory body of its members may however, if any auditor accepts any appointment at a fee below the fees schedule, review the audit working paper, documents and files, as my be, to assess the quality of audit. If ICAN is not satisfied with the quality of audit, the firm/partner of the firm may be subject to disciplinary actions of ICAN. Such fee schedule should indicate clearly that the fees are indicative to the prevalent market practice however it doesn’t violate the contractual freedom between the parties to set fees by charging less than the prescribed minimum fee.
And yet again, ICAN has issued a minimum fee directive, what about it?
After the decision on Everest Bank’s Case, ICAN has again introduced “Directive for members for determination of audit fees and standard of the Audit Firms, 2078. Chapter 3 of the Directive has provided the schedule for the minimum fees required to be set by the members / firms under Institute of Chartered Accountants of Nepal (“ICAN”). The minimum fees are set as a mandatory requirement rather than recommendation. So the members and firms under ICAN are bound to follow the requirement set by the Directive.
However, this should also be looked from the precedent laid down by Supreme Court of Nepal in the case of Everest Bank v. ICAN. The supreme court had clarified the matter with a conclusion that the act of prescribing the minimum fee is in principle against the competition laws and freedom of contract. Supreme court had considered the fact that institutions similar to ICAN in SAARC countries (viz. India, Bangladesh) had issued such minimum fees as recommendatory amount rather than a mandatory minimum fees. Further, the guideline is said to have formulated by virtue of Section 11 of the Nepal Charted Accountant Act 2053. The court had also provided the view that the Section 11 doesn’t provide the power to prescribe the fees or any minimum fees of the auditors. Rather Section 11 is associated primarily with professional development in terms if auditing services. So, in reference of the precedent, there are valid reasons to believe that the Directive issued by ICAN is in disobedience to the decision made by the court in the case of EBL v/s ICAN. Bluntly, this Directive doesn’t seem so legit.