CAG Guidelines for Empanelment of CA Firms/LLPs and Appointment of Auditors

Under the Companies Act, 2013, the Comptroller & Auditor General (CAG) of India has the authority to appoint auditors for government companies and government-controlled other  companies.

To do this, the CAG prepares a list (called empanelment) of eligible Chartered Accountant (CA) firms and LLPs. Any CA firm or CA-LLP in India can apply for this empanelment online, as long as it has at least one full-time Fellow Chartered Accountant (FCA) as a partner or sole proprietor.

Criteria of empanelment

The rules for yearly empanelment and selection of auditors were decided after proper discussion with the Institute of Chartered Accountants of India and other stakeholders. All firms and LLPs that are empanelled are given marks based on different criteria, which are explained below.

The document also explains certain situations in which firms or LLPs may either not be empanelled at all or may be empanelled but still not chosen for appointment as auditors.

Quantitative Parameters

1. Points for Full-Time CA Partners / Sole Proprietors

i. Points are given for up to 20 full-time CA partners, based on their qualification and seniority.

i(a). FCA partners/sole proprietors get 3 points each.

i(b). ACA partners get 2 points each.

(For the first 10 partners, full points are given. For the next 10 partners, only half of these points are given.)

i(c). Additional points are given for how long the partner has been associated with the same firm/LLP (counted from the firm’s formation date or the partner’s joining date, whichever is later):

0.5 points for each partner associated for more than 5 years and up to 10 years, and 1 point for each partner associated for more than 10 years

2. Points for Full-Time CA Employees

Points are awarded for up to 20 full-time CA employees.

• 1 point each for the first 10 CA employees
• 0.5 points each for the next 10 CA employees

3. Experience of the Firm / LLP

The firm gets 1 point for every completed calendar year of experience, subject to a maximum of 20 points. Experience is counted from the formation date of the firm/LLP, which is defined as the later of:

• the date when the firm was formed with at least one full-time FCA, or
• the date when the longest-associated existing CA partner joined the firm.

4. Turnover from Audit Services

Points are given only for turnover from audit services, not from consultancy or other work.

• The maximum points available are 10.

Qualitative Parameters

5. Peer Review by ICA I

• If the firm/LLP is peer reviewed by ICAI, it can get up to 25 points.

6. Audit Experience

• Based on the firm’s audit experience, up to 40 points can be awarded.

7. Additional Qualifications of Full-Time CA Partners/ Sole Proprietor

A maximum of 25 points can be earned for additional qualifications and skill development.

a. For professional qualifications like DISA, CISA, CPA, CIA, CFE, DIRM, DFI, etc.:

• 1 point for the first qualification
• 0.5 points for the second qualification

Each CA partner can get points for only two qualifications, and only up to 20 partners are considered.

b. For ICAI certification courses such as IND AS, Forensic Accounting, GST, AML, AI, etc.:

• 0.5 points for the first qualification
• 0.25 points for the second qualification

8. Additional Qualifications of Full-Time CA Employees

A maximum of 20 points can be earned for CA employees.

a. For professional qualifications like DISA, CISA, CPA, CIA, CFE, DIRM, DFI, etc.:

• 0.8 points for the first qualification
• 0.4 points for the second qualification

b. For ICAI certification courses such as IND AS, GST, AML, AI, etc.:

• 0.4 points for the first course
• 0.2 points for the second course

Each employee can get points for only two qualifications, and only up to 20 employees are counted.

9. Regulatory Penalties and Professional Misconduct

• If the firm was issued an advisory or reprimanded by ICAI, QRB, NFRA, or any regulator in the previous year, the total score is reduced by 10%.
• If any partner or employee is found guilty of professional misconduct, the firm’s score is reduced by 10% for each such person, and no points are given for that individual.
• If a court or authority stays or cancels the punishment, the reduction does not apply during that period.

10. Debarment by Regulators or Government Authorities

• If the firm/LLP is debarred by any regulator or government authority, it will not be empanelled for the debarment period.
• If the firm is removed as auditor by NCLT under Section 140(5), it will not be empanelled during the removal period.
• If a court stays or cancels the action, this restriction is suspended during the stay.

11. Conviction under the Companies Act, 2013

• If a CA firm/LLP or any of its partners is convicted under the Companies Act, 2013, the firm is not eligible for empanelment.

12. Criminal Cases (CBI/ED/SFIO)

• If only an FIR is registered and no charge sheet is filed as of January 1st of the year, the firm may be empanelled, but no audit will be allotted during that time.
• If a charge sheet is filed or a trial is pending, the firm is not eligible for empanelment.
• If there is a criminal conviction, the firm is not eligible for empanelment.
• If a court stays the case, quashes proceedings, or acquits the accused, the firm becomes eligible again, subject to submission of court orders.
• If there is no FIR/Charge-sheet against a firm but its partner is accused, then if the accused partner leaves the firm before 1st January, the firm becomes eligible.
• Convictions by any law enforcement agency are treated the same as those by CBI/ED/SFIO.

13. Performance Assessment by CAG

If the firm’s performance grade is below 50%:

• 1st year: 10% reduction in points next year
• 2nd year: 20% reduction
• 3rd year: No audit allotment

14. Performance Assessment by Other Regulators

If performance is found unsatisfactory by other government bodies using the CAG list:

• 1st year: 10% reduction
• 2nd year: 20% reduction
• 3rd year: No audit allotment

15. Refusal of Audit Allotted by CAG

If a firm or LLP refuses an audit assignment (for reasons other than legal disqualification):

• First-time refusal: Its total score will be reduced by 10% in the next year.
• Second time refusal: Its total score will be reduced by 20%.
• Third time refusal: The firm/LLP will not be given any audit assignment in the next year.

Allotment of Audits

1. Selection of firms/LLPs for appointment as audit, where the audit fee is up to Rs. 5.00 lakh: CA firms/LLPs are selected automatically through a software system.

2. Selection of firms/LLPs for audits where the audit fee is more than Rs. 5.00 lakh (called Major Audits).

For more information, refer to the pdf