The ICAI must shed its ‘Licenses Raj’ load and become more relevant to the needs of the changing world; (Institute of Internal Auditors) IIA may not be a bad idea. The Bill to amend the Chartered Accountant Act, 1949, the law that governs the Institute of Chartered Accountants of India (ICAI), was passed in the Lok Sabha on Wednesday. The Bill was introduced in Parliament on 17 December 2021.
Key Takeaways Are as Follows:
a) The ICAI’s disciplinary committee and board of discipline will be charred by non-CA, and its elected council members will no longer be in a majority in them.
Governance and Administration:
b) The term of the ICAI’s council will be raised from 3-to 4 years, and the maximum number of consecutive terms for its elected members will be cut to two from the current three.
c) The ICAI’s secretary will replace the ICAI’s president as its chief executive and perform the functions to be specified.
d) The ICAI will appoint its auditor from the Comptroller and Auditor General of India’s panel of CA Firms.
e) The Government will form a coordination committee for the ICAI and the Institutes of Cost Accountant and Company Secretaries of India.
If done well these changes should strengthen the ICAI’s accountability, governance, and administration. The Parliamentary Committee on finance has endorsed these changes and has further recommended an end to the ICAI’s monopoly in the certification.
About CA training in India
Exams and Articleship are the ‘Rights’ of passage for CA aspirants. The exams are reputedly hard to crack. The 3-year Articleship gives hand on proper training. This means that the senior industry managers deplore that many CAs don’t have what it takes to succeed in the corporate world such as analytical ability, critical thinking, appreciation of the business context, and grasp of technology, and communication and presentation skills.
CA aspirants don’t have in-class interaction. Also, the coaching is focused on cracking exams than facilitating understanding and application. Of Course, the unpredictability of exam outcomes doesn’t help.
Adding on, today’s school passed out think that careers like in MBA, Engineering, Law, AI/ML. Data Science, and Web Design. So, it’s no surprise that CA student enrollment in 2021 was a third lower than in 2001.
The ICAI’s record in disciplining its members is even more problematic. There have been persistent complaints that the ICAI is not acting promptly against its errant members. In 2018, the government 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. And as a result, the ICAI will be effectively reduced to an examination board.
Chartered Accountancy is an odd fusion of medieval, colonial, and licensed raj institutions and practices. Articleship is a source of economical, and tame, labor for some practitioners. The idea of training by members of a trade association goes back to medieval guilds.
Much of the work that a CA does yell for is a remnant of the license Raj. Many businesses and professions have changed beyond recognition as a result of the economic reforms in 1991. The demutualized and technology-driven National stock Exchange has transformed sock-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 properly licensed profession like law, the 5-year degree has become a sought-after qualification.
In contrast, CA has not kept pace with the development and changes in India’s dynamic economy and changing society. The ICAI was set up in 1949 largely as the Indian version of the UK institute. Its evolution since then has mirrored the rise of the license raj that was titled by the uncompetitive capital, capital, product, and labor markets, worthless form-filling and box-ticking, and incredibly high tax rates.
Chartered Accountant in the Changing World
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 with technology. Artificial Intelligence, robotics, and all other technological advances are likely to reduce the need for human intervention in accounting. Also, recent administrative reforms aimed at ease of doing business and ease of living, such as faceless tax assessment, easy filing of tax returns, prompt refunds, the rising threshold for a tax audit, and the abolition of GST audit have greatly reduced the availability of captive, government-mandated, make-work business for CAs.
Puzzlingly, overseas accountancy qualifications such as ACCA and CIMA are getting more popular in India, perhaps because they are well-recognized worldwide, are most relevant to current and future needs, and are accepted even in India by global companies and global accounting firms.
IIA (Indian Institutes of Accounting)
The Parliamentary Committee’s suggestion to set up a string of (IIAs) Indian Institutes of Accounting on the lines of IITs and IIMs is innovative.
IIAs will offer a 5-year full-time and degree-based in accounting, auditing, and related areas and their graduates as well.
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. The ICAI and IIAs are way too different, they have to compete for the same talent pool.
Accounting institutes in all other countries including the UK 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 enough.