ICAI’s global networking norms restrictive: Big Five

The international networking guidelines being worked upon by the Institute of Chartered Accountants of India (ICAI) are restrictive, two partners at Big Five audit firms told FE. Recently, the ICAI president Ranjeet Kumar Agarwal said that the final guidelines, which will define the engagement rules between Indian CA firms and global firms, will come out in the current financial year.

“The draft guidelines that we have received from the institute have many restrictions, which might not enable Indian CA firms to scale up and compete with global audit firms as the institute has envisaged,” said a senior partner at Big Five firm, on condition of anonymity.

As per the draft guidelines, the code of ethics of ICAI will be applicable to all “network components” who would be part of a network. “This is not going to work in cases like a domestic CA firm tying up with a tech firm for tech tools. How can the institute apply code of ethics on such non-CA firms,” said partner at another Big Five firm.

The draft guidelines also talk about restricting “network components” from advertising. Practicing CAs in India are prohibited from soliciting clients or professional work, either directly or indirectly by circular, advertisement and personal communication. “To extend this rule to foreign partner firms will make it difficult for domestic firms to attract a valuable partner. The idea is to give freedom to domestic firms to form alliances where they can grow in size and scale,” said the partner quoted above.

The ICAI has also said that the accounting services can only be provided by CAs. The domestic CA firms believe that there are many accounting services such as book-keeping which can be provided by non-CAs as well. “The statutory audit services can only be provided by CAs because it’s mandated under the Companies Act. Similarly, the tax audit services can only be provided by CAs because it’s mandated under the I-T Act. To confine other accounting services to just CAs would limit the scope of the partnerships,” said a partner quoted above.

The draft guidelines said that the ICAI will havE supervisory powers over the “network components”. “In a partnership, if a foreign firm doesn’t have its accountants practicing in India or if the foreign firm doesn’t hold equity stake in the partnership, it would be unfair for ICAI to have supervisory powers over such a partnership involving a foreign firm,” said the partner quoted above.

At the end of FY24, there were about 96,000 CA firms in India with about 75,000 of them being proprietorships and small and medium-sized firms. Just about 24,000 firms had more than 2 partners and some 400 firms had 10 or more partners.