Empanelment Process for Chartered Accountant Firms in India: A Complete Guide

Introduction to Empanelment for Chartered Accountant Firms in India

The Chartered Accountant (CA) firms and Limited Liability Partnerships (LLPs) empanelment process of conducting statutory audits of Public Sector Undertakings (PSUs) in India is a competitive procedure administered by the Office of the Comptroller and Auditor General (CAG) of India. The elaborate process guarantees that only skillful and experienced firms perform key governmental auditing, thereby providing transparency and accountability in public fiscal management.

Eligibility Criteria for Application

Who Can Apply?

Eligible Firms: A CA or LLP firm in India must have at least one full-time Fellow Chartered Accountant (FCA) who would be either a partner or a sole proprietor to be entitled to apply for empanelment. The status mentioned above must be eligible to be statutory auditors under Sections 139(7) and 139(5) of the Companies Act, 2013, and conduct audits for autonomous as well as statutory bodies.

Application Time Schedule

2025-26 Cycle: It will accept online applications from January 7, 2025, to February 17, 2025. Firms should submit their status up to January 1, 2025, and online acknowledgement along with supporting documents up to February 28, 2025.

Empanelment and Selection Criteria in detail

Selection of CA firms for PSU audits relies primarily on an official point-based scoring system initiated in collaboration with the Institute of Chartered Accountants of India (ICAI). The system assesses firms on both quantitative and qualitative parameters to ensure the process is equitable and merit-oriented.

A. Scoring Parameters

Experience of the Firm

0.5 points for each calendar year of operation (with one or more full-time FCA's), up to a maximum of 15 points.
Calculation begins from the constitution date or the date of joining the oldest partner, whichever is earlier.

Full-Time FCA Partners

5 points for each of the first five full-time FCA partners.
2.5 points for each subsequent FCA partner beyond five.

Full-Time ACA Partners

3 points to the first five partners (FCA partners are also included).
1.5 points to each additional partner beyond five.

Long Association with the Firm

Points awarded on years with firm:
- 5 points for over 25 years
- 4 points for over 20 years
3 points for more than 15 years
2 points for more than 10 years
1 point for more than 5 years but not more than 10 years

Full-Time CA Employees
- 1 point for every full-time CA employee, subject to a limit of 20 points.
CISA/ISA Qualified Personnel

2 points for every eligible partner (maximum three partners); maximum 6 points.
1 point for each eligible employee (up to a maximum of three employees); up to 3 points.

B. Special Observations on Point Eligibility

Definition of Full-Time Partner: A full-time partner must not be affiliated with any other firm or in other professional employment. Remuneration thresholds, varying by city and partnership type, preclude a nominal commitment.
Merger Considerations: New partner points are awarded after one year and long-association points after five years following a merger.

Selection Process for Audit Fee Brackets

A. Audits with Fees Up to Rs 5.00 Lakh

Method of Selection: Firms are short-listed purely on their point scores, with larger scores being allocated to larger fees in audits to preserve proportionality.

B. Audits with Fees over Rs 5.00 Lakh

Eligibility Criteria:

Six CAs of whom five have to be full-time partners and one has to be a paid CA employee.
There has to be an association of at least 10 years, three of at least five years, and two of at least one year.
At least 10 years old is the requirement for the company.

Criteria for Allotment:

Partnership size and partnership duration, number of staff of CA, geographical reach, sector experience, compliance with service tax/GST, and history regarding handling massive audits.

Disqualifications and Compliance Requirements

Pending Legal/Disciplinary Matters: Firms or partners having pending cases or convictions against them by agencies like the CBI/ED are disqualified.
Professional Misconduct: Any past misconduct under the Chartered Accountants Act, 1949, in the last five years renders one ineligible.
Suppression of Information: Misrepresentation on applications subjects one to disqualification and potential disciplinary action.

Process of Application

Online Submission: Applications must be submitted through CAG's portal, and firms must update their profile as of January 1 of the application year.
Document Submission: Apart from the online recognition, firms need to provide hard copies of supporting documents like company registration, partner details, CA employee credentials, GST/PAN, and prior audit histories by the specified date.
Validation: Decent verifications are conducted by the office of CAG, and any variations can cause rejection.

Further Insight on Empanelment

Audit Experience: Detailed histories of audit assignments (especially those above Rs 25,000 fee) for the last five years must be provided.
Preference for Sectoral Experience: Firms with sectoral experience in government-sponsored service sector projects would be preferred.
Past Performance Evaluation: Performance on previous assignments is considered while evaluating new audits.
No Guarantee of Audit Assignment: Empanelment does not ensure audit allocation; assignments depend on CAG’s requirements and the firm's ranking.

Conclusion

The rigorous and methodical empanelment process ensures that only the most competent CA firms are allocated to audit public sector entities, maintaining transparency and accountability in financial management. Adhering to the eligibility criteria, enhancing their capabilities, and complying with conformity ensures a better chance at effective empanelment.

Companies should monitor their performance and accounts on a daily basis in a bid to stay competitive in this very critical area of public finance auditing.