Tier based Accountancy Practice in India - Will it help

23 December 2009 |

Background: Accounting bodies in India are based on UK accounting concept and their governance is more of less similar to the UK bodies.

The public accounting practise in India are mostly driven by compliance audits i.e. certification by accountants in submission of returns / documentation to government / public authorities. Unlike in the UK where the public accountants are more in advisory / outsourcing services rather than audit.

In professions like medicine you will find doctors based on their skills and expertise e.g. General Physician, Heart surgern or optician, ophthalmologist where the patient consult the doctors with right skills and expertise. However similar categorisation does not exist in public practise of accountancy in India.

Public accountants in India like Chartered Accountants / Cost Accountants or Company Secretary can undertake accountancy / audit work for any client irrespective of size of the client ie. small company or large company or partnership or level of expertise of the work audit, compliance audit like tax audit / excise audit, corporate finance, corporate recovery, forensic, tax, people services, transaction services, and risk advisory.

Majority of Accounting firms in India are small in size and they are plenty in number. The public practise is primarily driven by the government notification and compliance services. So they would not like to come out of the comfort zone and their accounting bodies lobby with the government to get such.Moreover there is little incentive for them to go for advisory or consulting assignments since that would involve skills and expertise and continue to do what they are doing.

The advisory / consulting practise assignments are done by Big 4 accountancy firms (who call themselves as network of firms) or large accounting firms and their skills / expertise are continually enhanced as they work at multinational level.

The pointers to my thoughts are whether the regulating bodies in India are addressing the current issues faced by various stakeholders ?
  • India has an extremely low ratio of one CA for every 9,000 persons - Mr Rahul Roy. How it can be addressed ?
  • Indian businesses are increasingly being organised. Look around you will find Shopping Malls, freight companies, courier companies etc which 20 years earlier was run by government or sole proprietors.
  • The government is issuing notifications every other day for certification of documents to be submitted to government authorities. Is it the time to have an accountants with lesser expertise who can perform certifications.
  • Certified Accounting Technician courses by ICAI/ICWAI. ICAI has attempted to convert the Inter CAs to CAT. What is the benefit of CAT qualification to the holder of the qualification. Can he practise ?
  • Will the users of accounting services benefit when there is a tier in practitioners of accounting services. (A parallel example, you can go to an optician for checking whether you have number in your eye, but you go to ophthalmologist better guidance due to his expertise in the area).
  • Is there a classification of accountants in practise based on expertise, so that you as a member of public know who to go for a service ?
  • Are you happy with how the accounting profession is regulated in India ? Do you feel there are unregulated firms that provide accounting services can be brought under regulatory umbrella
  • Is there a need to have another accounting body who members would specialise in compliance based audits for government authorities
  • Will practising accountants oppose such changes ? What does Code of Ethics say ?
Is tier based accounting qualification / practise required for India benefit the public. Will it help to regulate the profession better.(Unregulated accountants offer book keeping services )

Example:

Tier 1 - Accounting Technician

They should be to provide book keeping services, filing minor returns to small companies

Tier 2 - Inter passed of CA/ICWAI - (For namesake let me call them Certified Accountants)

They would able provide accounting services for small/medium companies and can do compliance based audit prescribed by government authorities(selected audit assignments). They cannot offer advisory / consulting services. The skill/expertise required for compliance audit is less since it is question of applying the rules correctly.

To give an example: If you are asked to compute current ratio, then it is matter of applying formula. However whether current ratio 2.0 is appropriate for your company and industry then it would require expertise to comment since it will based on various factors.


Tier 3 - Fully qualified accountants like ICWA/CA/CS

They would provide services to medium / large companies offering full range of services work audit, compliance audit, corporate finance, corporate recovery, forensic, tax, people services, transaction services, and risk advisory. The focus of the practising firms should be able to go towards advisory services and would be able to compete with Big 4. (Just like Indian IT firms are competiting with MNCs).


A tier based structure for accounting qualification and practise in India would encourage more people to pursue accountancy. Each level of qualification would require passing of exams / practical training and membership. The practitioners should be regulated and monitored by an independent Public Oversight body.

And it will help to regulate the Accounting profession in India better. Moreover it would encourage the fully qualified accountants to raise the standards of public practice. With MRAs in place, it would help the Indian Accounting firms to open practises abroad.

I would invite your views on this subject keeping in mind the current issues / practises India is facing and solutions that would help to solve the problem (without referring to accounting bodies in UK/Australia/US where the business environment is capitalist).

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