The Lok Sabha on Wednesday approved a Bill to amend the Chartered Accountants Act, 1949, the law that governs the Institute of Chartered Accountants of India (ICAI). It also amends the Cost and Works Accountants Act, 1959 and the Company Secretaries Act 1980. Introduced in the Lok Sabha on December 17, 2021, and titled the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021, the key changes it proposes are: Discipline: the ICAI’s disciplinary committee and board of discipline will be chaired by non-chartered accountants (CA), and its elected council members will no longer be in a majority in them. And then, governance and administration: the term of the ICAI’s Council will be raised from three to four years, and the maximum number of consecutive terms for its elected members will be reduced to two from the current three; the ICAI’s Secretary will replace the ICAI’s president as its chief executive and perform the functions to be specified; the ICAI will appoint its auditor from the Comptroller and Auditor-General of India’s panel of CA firms; and the Government will form a coordination committee for the ICAI and the Institutes of Cost Accountants and Company Secretaries of India.
If done well, these changes should strengthen the ICAI’s accountability, governance, and administration. The Parliamentary Standing Committee on Finance has endorsed these changes and has further recommended an end to the ICAI’s monopoly in certification.
Training, disciplinary record
Exams and articleship are the rites of passage for CA aspirants. The examinations are reputedly hard to crack. The three-year articleship gives hands-on training. That said, senior industry managers bemoan that many CAs do not have what it takes to succeed in the corporate world, i.e., analytical ability, critical thinking, appreciation of the business context, grasp of technology, and communication and presentation skills. CA students do not have in-class interaction. Also, the coaching is focused on cracking examinations rather than facilitating understanding and application. Of course, the unpredictability of examination outcomes does not help. Further, today’s school leaver thinks about ‘cool’ careers such as pursuing an MBA, law, AI/ML (artificial intelligence and machine learning), data science and web design. So, it is no surprise that CA student enrolment in 2021 was a third lower than in 2010.
The ICAI’s record in disciplining its members is even more problematic. There have been persistent complaints that the ICAI is lax in acting against errant members. On the occasion of Chartered Accountants Day on July 1, 2017, the Prime Minister, Narendra Modi, was critical of the CA community for its lack of quality and integrity. It was a serious indictment of the ICAI’s self-regulation. In 2018, the Government had set up the National Financial Reporting Authority as India’s first independent regulator of accounting and audit. The proposed changes in the composition of the ICAI’s disciplinary arms will further limit its role. As a result, the ICAI will be effectively reduced to an examination board.
Historical baggage
Chartered accountancy is an odd fusion of medieval, colonial and licence raj institutions and practices. Articleship is a source of cheap, and tame, labour for some practitioners. The idea of training by members of a trade association goes back to medieval guilds. Much of the work that CAs do and clamour for is a remnant of the licence raj. Many businesses and professions have changed beyond recognition as a result of the economic reforms initiated in 1991. The demutualised and technology-driven National Stock Exchange of India has transformed stock-broking. Indian IT and pharma companies now compete successfully with the best in the world. India’s entertainment industry has a worldwide audience. Even in a licensed profession such as law, the five-year degree has become a sought-after qualification.
In contrast, CA has not kept pace with the changes in India’s dynamic economy and changing society. The ICAI was set up in 1949, largely as the Indian version of the U.K. institute. Its evolution since then has mirrored the rise of the licence raj that was characterised by uncompetitive capital, product and labour markets, worthless form-filling and box-ticking, and incredibly high tax rates. The focus of Indian business back then was on how to make money by beating the system rather than by improving efficiency, relevance and competitiveness. CAs greatly benefited from that system. They kept beseeching the government for mandatory work such as issuing import utilisation certificates, tax audit, public sector bank branch audit, concurrent audit, and so on. Most of such work is of dubious value. Ironically, among CAs, “professional development” does not mean skill upgradation but is a code for getting low-value work from government entities. Elected council members have no reason to rock the boat. This is not sustainable.
AI/ML is already playing a significant role in medical diagnosis and legal drafting and case analysis. Accounting and auditing are more amenable to the replacement of humans by technology. AI, robotics, and other technological advances are likely to reduce the need for human intervention in accounting. Also, recent administrative reforms aimed at enabling ease of doing business and ease of living, such as faceless tax assessment, easy filing of tax returns, prompt refunds, rising threshold for tax audit, and abolition of Goods and Services Tax audit have greatly reduced the availability of captive, government-mandated, make-work business for CAs. Puzzlingly (or perhaps not), overseas accountancy qualifications such as the Association of Chartered Certified Accountants (ACCA) and Chartered Institute of Management Accountants (CIMA) are gaining popularity in India, perhaps because they are recognised worldwide, are more relevant to current and future needs, and are accepted even in India by global companies and global accounting firms.
Having IIAs
The Parliamentary Committee’s suggestion to set up a string of Indian Institutes of Accounting (IIAs) on the lines of the Indian Institutes of Technology (IIT) and the Indian Institutes of Management (IIM) is innovative. The IIAs will offer a five-year full-time and broad-based degree in accounting, auditing and related areas and their graduates. At one level, they will end the ICAI’s statutory monopoly over certification. More competition should result in better quality and higher standards of conduct. Though the ICAI and the IIAs are different, they have to compete for the same talent pool. At another level, the IIAs can greatly enhance the quality of education with a wholesome curriculum. By broadening access, they can make the accounting community more inclusive and socially diverse.
Accounting institutes in other countries including the United Kingdom have changed. The Bill and the Parliamentary Committee’s report can be seen as efforts to drag the ICAI to the contemporary world, kicking and screaming if needed. The ICAI’s leadership needs to ponder and explain the reforms to its membership. It would be wise to read the proposed changes as a warning and respond maturely.
R. Narayanaswamy is a retired Professor of Finance and Accounting, Indian Institute of Management, Bangalore, and Chair, Technical Advisory Committee of the National Financial Reporting Authority. The views are personal
