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An Agenda for MCA - Accounting bodies India

Dear Mr. Rahul Roy,
director, Ernst & Young India Pvt. Ltd.

I refer to your article "An agenda for MCA" on Business Standard and agree with your views on Independent regulator with oversight over the profession, Quality Review Board, amendment to Acts on ICAI, ICWAI and ICSI and Indian accounting body being represented in the global regulatory body.

I have a different view on merging the accounting bodies in India for administrative reasons and cutting costs. Having a single accounting body may its own advantages, but the question is it in public interest?

The questions that comes to mind are

Should we have

  • One University in India that provides all courses ?
  • One car company that can provide cars on economies of scale ?
  • One telecom company for the country
  • Single party for democracy and governance.
  • Should the accounting and internal audit department be merged to save costs.

During pre-liberalisation era, when things were highly controlled, the quality suffered since the public had no choice.

Accounting in India today.

The ICAI/ICWAI Acts: The scope of respective Acts are for regulating the members in the respective profession. Both the Acts under Section 2 outlines the scope of practise. However some of the practice areas are determined by other laws which may not be in harmony with section 2 of ICWAI/ICAI Act (recent amendment in Central Excise Act). The legalisation were passed in 1950s and 1960 to control and regulate the profession of accountancy by government.

Today, there is no independent body for setting Accounting Standards or Audit Standards or an independent regulator in true sense in India. And the government leans on ICAI to take up the roles wherever there is a gap.  According to press note of MCA dated 13th May 2008

"The work of formulating down accounting standards for the companies operating in India was initiated when the Institute of Chartered Accountants of India (ICAI), a statutory body regulating the accounting profession in the country, first took up this task in 1977".
However, the accounting standards prepared and issued by the ICAI were mandatory only for its members, who, while discharging their audit function, were required to examine whether the said standards of accounting were complied with. With the amendment of the Companies Act, 1956 through the Companies (Amendment) Act, 1999, accounting standards as well as the manner in which they were to be prescribed, were provided a statutory backing."

Who can practice accountancy in India?

An individual can practice accountancy in India when he is a member of ICAI. Similarly public can only avail accounting services from a member of ICAI. The reason ICAI - it has statutory backing for  almost 99% of accountancy practice in India. Is it not unfair that public has very little choice? Public have choices for choosing a professionals like lawyers, doctors, architect  or an engineer who have qualified from any university in India. These professions are also regulated profession by Medical Council of India, Bar council etc. However there is little choice in case of accountancy profession.

You had mentioned

"As against developed economies which have an average of one chartered accountant (CA) for every 800 people in its population, India has an extremely low ratio of one CA for every 9,000 persons."

Countries like UK/USA/Australia/Canada have multiple accounting bodies. Further they have independent regulators to set standards and the accounting bodies have to ensure their members provide services, uphold ethics as per the standards and in public interest. As there are multiple accounting bodies, the public have the choice to avail services from member of any accounting body and they do have choice to become the member of any recognised accounting body to practise accountancy. You may also observe that logical choice for E&Y, India  is to hire and train members of ICAI rather than members of any other accounting body. This may not be the case in E&Y in UK where they hire and train members of ICAEW, ACCA, CIMA, ICAI etc.

The foundation of democracy is the public institutions act as a check and balance so that no single institution dominates or acts against public interest. I feel, India should adopt a similar approach.

Recent Legislations

Indian economy has been developing at a fast pace, so she has to keep up the pace of reforms and legislations.

E.g. Competition Act 2002. The objective

An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.

(c) "cartel" includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services;

This makes it necessary for ICAI / ICWAI Act being amended and scope redefined so that rules are in harmony. The accounting bodies  in India advise their members on minimum fees to be charged for the services provided to their customers / clients.  The design of the ICAI / ICWAI Acts is regulate their own members, (and  not a  regulatory body in true sense)  they may  fall under the definition of cartel as association of service providers. As a responsible public accounting bodies in India, ICAI/ICWAI should have advised the GOI on making amendment in light of new laws !!!

India had been adopting and customising legalisations from the developed countries. However there is a gap between the old laws and the current laws  adopted since the old laws are not updated fast for the framework to be effective.

I feel, India needs a radical changes in Regulatory Framework in Accounting wherein there are independent bodies to set accounting / auditing standards performing and accounting bodies to train their members to perform those roles. There should be one more body in India  like ACCA, UK or CPA, Australia where the training route is through working with the business. The accounting bodies may retain their specialisation. The practice areas should be equally available to all accounting bodies. But they have to demonstrate they have resources, procedures, technical standards in education and CEP / CPD programmes so that their members are able to perform accountancy services under various Acts. This will ensure a level play in a regulated environment.

The regulatory body reviews the standards on an ongoing basis which should compel the accounting bodies and their members to raise standards in public practice. In democratic India, Public accountancy bodies should play an active role and advice their stakeholders like government, members, business on the ever changing business environment. And they should keep keep each other bodies in check and balance and in public interest.

With Regards,

Santosh Puthran


Press Note from MCA
Section 2.2 of ICWAI Act
Section 2.2 of ICAI Act
Sec 25 (1) of ICWAI Act Sec 24A of ICAI Act
Word "Chartered" hot debate in India
Members to be known as CharteredAccountants by virtue of Section 7


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