Summary:
Over the years the Indian Accounting and Audit professionals throughs its Almamater - The Institute of Chartered Accountants of India (ICAI) - have managed to create a chaotic organization for themselves. The profession through ICAI has diversified into specialist fields like - Valuation, Insolvency & Bankruptcy, Company law, Management & Business Finance, Forensic audit and Fraud detection being few examples. This is clearly have a bearing on the quality of the profession and also the professionals. I set out to argue that ICAI needs to reorient itself and become focussed on its core competency - Accounting and Audit.
Background:
I had earlier written a blog (https://financeconcept4mjp.blogspot.com/2017/07/112369-no-of-people-to-change-economic.html) on how Chartered Accountants (CA) can contribute to progress in society. An early morning discussion with a friend who is also a CA set me off to write this blog. It got further firmed up by the statement of Shri. Atul Kumar Gupta (present ICAI chairman) who stated that the "ICAI has not lost its teeth". I present a case in this blog of how the CA Profession has to get its own act right before contributing to the society.
I will try and layout the landscape first: - ICAI is a Self Regulating Organisation (SRO) of member chartered accountants in India. Currently there are about 0.29 million members. Of these only 50% have chosen to apply for licence to practice as registered accountants. The balance 50% have found their call working for corporates / businesses in various functions. Thus about around 140,000 members are effectively in control of an important function of Audit in a country of 1.4 billion people and about 1.2 million registered companies.
Issues that need to be addressed:
1. Academic requirement to qualify: There are also about 0.15 million students enrolled (at various levels of examination) aspiring to be members. On average about 0.1 million students appear for entrance exams every half year. The qualifying percentage drops from about 35% (at entrance test level) to about 10% (at final exams which lead to qualifying as professional accountant). These numbers are important to set the context. i am outlining specific thoughts in the matter now:
a. Resetting expectation to qualify: Primarily the ICAI course is for enabling Accounting and Audit professionals. A review of the range of subjects (around 8 including various laws) that student expected to be "expert" before passing exams is quite diverse and beyond a point irrelevant. The challenge is excacerbated by the fact that student who does pass all these subjects is largely relegated to a career with limited growth prospects. Resetting expectation from students of being expert in Accountancy and Audit should ideally be a fair criteria. Once a student has qualified as a Professional Accountant (generally by age of 22), he / she can make choices for further specialisation involving any domain like Taxation, Finance, Fraud, et al. Alternatively provide students with some certification for demonstrating capability in certain subjects to ensure student can pursue meaningful career options in the subject. ICAI should promote these certification in industry and thus create employment options.
b. Total Cost of the course for student: It needs to be noted that ICAI in the year 2019 enjoyed a surplus of around INR 250 crores largely on the back of earning from student fees. Compulsory paid courses on Soft skill and presentation have been introduced for students. With technology adoption, cost of administering and invigilating should reduce and benefits should be passed on to students. I remember qualifying as Chartered Accountant in early 2000's for total cost of less than INR 5000. These numbers have become hyperinflated with students not getting any value expect for the binary result of "Pass" and "Fail".
2. Practice rationalization:
a. Regulatory Standard setting: India's commercial entities (in terms of numbers) are still largely small and medium enterprises (SME). When these SME's get incorporated to enjoy limited liability, then a lot of complaince & documentation standards become mandatory. Thus a complex Tax regulation compounded by extensive audit regime makes it constricting for business to focus on its core competencies. ICAI would need to work towards complaince and documentation being toned down further to brass tacks for these SME's. 140,000 practising members having to audit and report on millions of Audit reports (estimated at 30 million which works to per capita 200 plus reports) in limited time would be a huge task. Thus quality would suffer. ICAI should undertake a study on the cost of these compliance and documentation vs the ideal size of such commercial entities. Relaxing complainces in favor of encouraging SME's to get incorporated would be better social and commercial trade off for all parties involved.
b. Delineating the roles of member and their own practice regulation: Given the relatively small numbers of professional accountants, it is obvious that enforcing standards and ensuring minimum quality would become difficult. Over the years this organization design of ICAI has led to increased lobbying to protect practioners and enlarge their scope of work (like introduction of Insolvency and valuation practice). Thus we find many Accounting firms offering range of services in the name of one shop stop resulting in commercial conflicts. It is best to use external agency to perform the function of practice review.
c. De-politicizing the practice: Based on 2019 figure, ICAI has 164 branches. This works out to about less than 850 practicing members per branch. 99 of these branches have their owned office. One can safely say that these expenses towards real estate are not direct contributory towards the profession's development. the reason for such investment can be inferred based on underlying dynamics of the decision making body (which is political as governing body members are elected periodically). This is one of the examples. Detailed review of the operations would highlight many more misallocation of resources.
d. Ensuring quality of continuous professional development programs: ICAI promotes a range of forums like study circles, industry specific / domain specific committee's and regional level managing committees to assist in professional development. The forums conduct various seminars / workshops and programs in line with the expectations of the members. However the identification and evaluation of resource person conduction such seminars / workshops require to spruced up. Further subsidized study group visits for members are often seemingly abused for personal travel plans of members. Overall substantial dilution of the benefits from such programs can be observed when one has informal chats with members. A professional accountant is evolving along the lines of "Jack of All, Master of None".
3. Maintaining Not for Profit ethos:
For a body like ICAI which is SRO, consistent surplus from operations would need to be truly examined. As of 2019, ICAI has aggregate surplus of more than INR 1200 crores which is invested in various government securities. Annual investment income was around INR 140 crores in 2019. The investment income seems to be largely used for purpose of creating physical infrastructure (Read land and building). Investing surplus in real estate and government bonds seems counterintuitive to a Not for Profit organization. Exploring endowments towards subsidizing examination related expenses for students and running subsidized skill development courses for students could be a lot more productive option.
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