ICAI is preparing to launch a digital networking platform aimed at serving as a catalyst for building a global Indian accounting firm. While the detailed contours of the initiative are yet to unfold, the platform is expected to help CA firms connect and showcase their profiles across the country. However, true consolidation into a national or international Indian firm or network requires a clear strategy, robust planning, and the necessary resources at the firm level, supported by a conducive regulatory framework and institutional backing. Merely coming together for sharing clients or assignments will take no where and falls much short of the vision of creating Indian firms with a genuine national and global footprint.
International Accounting Networks and imminent need for total recast International networks of accounting firms act as central coordinating bodies for member firms practicing in different jurisdictions worldwide. They aim to promote growth by ensuring seamless, consistent, and high-quality client service across the world under one brand. Networks facilitate a common strategy, standardized organizational structure, and client service by the member firms. Member firms use the network’s brand name and professional and technical resources. India needs to act holistically in pursuit of a truly global network originating in India.
Guidelines from ICAI for promoting multinational firms have remained elusive for a long time to what is needed, as newspaper reports suggest. While proposed guidelines alone may not be enough, the current dispensation originating 75 years ago needs to be recast and rewritten, not as yet another run-of-the-mill step, in order to enable much-needed transformation.
Challenges for Domestic Accounting Firms
Domestic accounting firms have been facing enormous challenges in getting professional opportunities and creating professional and technological capabilities to match global standards of professional services. While they require a supportive ecosystem and sustained institutional and capacity-building efforts, the first and foremost requirement is to ensure that the regulatory framework in India promotes, and does not inhibit, growth and consolidation of firms.
History of the Big Four over the years provides enough guidance for firms, government, and regulators for charting a strategic path. It is important that the applicable regulatory framework appreciates and recognizes the fundamental difference between a domestic network and an international network having member firms subject to regulatory regimes different from that in India. It also needs to take cognizance of the manner in which the Big Four and other foreign networks are structured, organized, and operational.
Need for Vision, Investment, and Institutional Support
First and foremost, accounting firms in India must have a vision and commitment to grow and become global, overcoming legal, organizational, governance, technology, financial, and cultural issues across different jurisdictions. ICAI needs to introspect and recast its educational curriculum, students’ articleship program, and professional development strategy to focus beyond accounting, audit, and tax to include entrepreneurial, strategic, and managerial practice inputs.
One needs to ask why a startup in accounting cannot become a unicorn, and what needs to be done to make that happen. Another limitation in becoming a global network is the investment needed in technology, talent acquisition and development, and organizational infrastructure. Hardly any accounting firm or group of them in India can afford this. The Government and ICAI, with huge funds at their disposal, together need to create an earmarked fund for financing startup networks. Private equity outside India has succeeded in creating many networks competing well with the Big Four. Why is India hesitant to explore that?
Another impediment is that the government and its entities have a bias in favor of the Big Four, despite domestic firms having the requisite competence to deliver quality. In fact, the government should come out with a policy to reserve or give preference in giving assignments, and give tax incentives, on the lines of MSMEs, for Indian networks meeting minimum technical, infrastructural, and organizational criteria.
Regulatory Framework and Networking Guidelines
A regulatory framework is needed for facilitating networking with accounting and other professional firms in different countries and to provide Indian networks a level playing field comparable to that available to the Big Four in India and abroad. Big Four firms have surrogate firms in India to provide audit and non-audit services, which are structured in a manner violating applicable regulations. Pragmatism in guidelines under contemplation by ICAI should effectively curb this.
ICAI and the National Financial Reporting Authority (NFRA), while blaming the Big Four for lack of transparency, have also been expressing concerns regarding cost/revenue/profit sharing arrangements between the Big Four and their member firms in India. While this is concerning, ICAI should, as a principle, otherwise stay away from the governance, management, and cost/revenue sharing arrangements between Indian networks and their members, whether in India or outside.
Level Playing Field and Advertising Guidelines
Multinational firms have distinct advantages due to their ability to spend huge sums on publicity globally without restriction. Domestic firms, if they are to grow and become global, find restrictive measures counterproductive, as they are not provided a level playing field. Instead, ICAI should monitor the actions of firms to ensure that advertisements are factual, not excessive, and not unbecoming of the profession, and penalize malpractices. ICAI should allow advertisement and publicity with these don’ts in mind. Outside India, domestic firms should be free to take advertisement and promotional measures, as their global counterparts can.
Multinational firms and their surrogate firms in India have flouted regulations with total disregard, often finding one alibi or another. Ironically, ICAI has remained largely unaware/ bliss fully ignorant . As a consequence, domestic firms have suffered the most, losing their competitive edge.
Nature of International Networks
An international network is not a global partnership, single firm, or multinational corporation. It does not provide accountancy or other services to clients. Firms that are part of these networks are separate legal entities and are subject to applicable regulatory frameworks in their respective countries. Member firms do not act as agents of the network or of any other member of the network. Therefore, the network should not be held liable for any action of its member firms. Similarly, member firms inter se cannot be held liable. The proposed framework of ICAI must take this into account.
About the Author: Dr Ashok Haldia, Former Secretary, Institute of Chartered Accountants of India (ICAI)
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