A big legal push to reform the CA profession

The ICAI must shed its ‘Licence Raj’ baggage and become more relevant to the needs of the changing world; IIAs may not be a bad idea

The Bill to amend the the Chartered Accountants Act, 1949, the law that governs the Institute of Chartered Accountants of India (ICAI), was passed in Lok Sabha on Wednesday. The Bill was introduced in Parliament on December 17, 2021. 

The key changes are:

Discipline: (a) the ICAI’s disciplinary committee and board of discipline will be chaired by non-CAs, 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 three to four 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; and

(e) 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.

CA training

Exams and articleship are the rites of passage for CA aspirants. The exams are reputedly hard to crack. The three-year articleship gives hands-on training. That said, senior industry managers bemoan 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, grasp of technology, and communication and presentation skills.

CA students 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.

Further, today’s school leaver thinks about ‘cool’ careers like MBA, law, AI/ML, data science and web design. So, it’s no surprise that CA student enrolment in 2021 was a third lower than in 2010.

Disciplinary record

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 the Chartered Accountants day on July 1, 2017, Prime Minister Narendra Modi ticked off 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 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 started in 1991. The demutualised and technology-driven National Stock Exchange 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 like 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 UK 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.

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 UK 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.

Most of such work is of dubious value. Ironically, among CAs “professional development” does not mean skill upgradation but is code for getting low-value work from government entities. Elected council members have no reason to rock the boat. This is not sustainable.

CA in a 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 replacement of humans by technology. Artificial intelligence, robotics, and 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, rising threshold for tax audit, and abolition of GST audit have greatly reduced the availability of captive, government-mandated, make-work business for CAs.

Puzzlingly (or perhaps not), overseas accountancy qualifications such as ACCA and CIMA are getting more popular 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.

Indian Institutes of Accounting

The Parliamentary Committee’s suggestion to set up a string of Indian Institutes of Accounting (IIAs) on the lines of IITs and IIMs is innovative. The IIAs will offer a five-year full-time and broad-based degree in accounting, auditing and related areas and their graduates.

The Parliamentary Committee’s suggestion to set up a string of Indian Institutes of Accounting (IIAs) on the lines of IITs and IIMs 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, 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 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.

PRASHANT NAKWE– The writer is a Retired Professor of Finance and Accounting, Indian Institute of Management, Bangalore, and Chair, Technical Advisory Committee of the National Financial Reporting Authority. Views expressed are personal

13 thoughts on “A big legal push to reform the CA profession”

  1. if government set-up Accounting institute like IIMs & iITs bookworms will indeed benefits and pass out in good grades and earn a certificate who intern will be recruited and employed by corporates instead of creating more jobs why are we so used to working under someone who measure us.
    Why don’t you rather encourage others how to create more jobs than certificate, or you don’t have that in mind.

  2. Mohit Agarwal

    I don’t agree with the writer. Yes, profession needs some changes like giving joined position to non CA’s disciplinary committee, audit by CAG etc.
    But I don’t see need on IIA. Qualities of CA’s are still better than outputs of other profession. Govt should pay their attention on the quality of engineers and doctors (other than top Institutes) are producing. Overhauling in those profession in need of the hour.
    No need the puncture the tyres of car which is running smooth

      1. Venkataraman V.B.

        I agree with you. CA needs to update itself to meet challenges in the corporate world. Focus should be on case analysis rather than rote learning. Make CAs tech savvy and focus on real analytical skills rather than paper pushing and form filling clerks and babus .

  3. Respected writer, I think you need to research properly on the topic and history of icai. also please look in to how other accounting bodies in the world operate. You will find out that idea of IIA is lacks vision. Also it brings in reservation in accounting profession which was done on meritorious grounds in previous 3 bodies. And you know what reservation has done to this country.

    1. The author has clearly articulated the rot that has set in in the CA profession, which has lost much of its credibility due to the various reasons described by the author. Government has taken some right steps to stem the rot. Only when the certification monopoly in audits and taxation is ended by creating competition by opening the fields to others like CMA and CIS, efficiency will become visible.

  4. Why not the BJP auditors also be appointed from a panel of CA approved by ICAI. That’s what we call fairness. Not one rule for crooked bodies and another rule for professionals

    1. This is just a rediculous idea, the author has just read something from outside sources and written it. They don’t has understanding of what CA’s are doing. And how can anyone assure that IIA will is the only solution. Do IIT’NS or IIM aluminy don’t lack any thing?? Are they perfect?? ICAI has done a tremendous job in the past years for the growth of economy.

  5. K Vijay Srinivas

    Yes nice article by the writer TO SHOW HIS GRATITUDE FOR WHAT EVER BENEFIT HE GOT FROM THE BEAUROCRATICS. But can he advise and add in future article that IIA should not accept reservations based on caste or religion, can he also add that the fee should be as less as Rs. 100000 for the entire course put together, can he also add that entrance should be as tough as CPT or CA Foundation and only after securing 50% after considering negative marks should be admitted,l to IIA, can he also add that not just passing IIA but student has to undergo 3 years of training to get qualified… Every Tom Dick and Harry jumps into conclusion just based on some public opinions and to gain appreciation of some beaurocratics, gain popularity in media publiscations and does not dare to take opinion as Professional as he has no confidence in his own statement and hence disclaims as personal opinion… Dare he suggest creating parallel course for Medicine because few doctors failed or LLB because few Advocates could not get justice.

  6. I welcome the move and decision taken by the Government. For now I will comment only on few points.
    My detailed comments will be posted after I read amendment bill completely.
    1.It is good that disciplinary committee will be headed by Non CA to rule out any biasness as Modi ji rightly pointed out on 1st July 2017(in Indra Gandhi Auditorium on GST day) that only a handful CAs are held guilty for their misconduct.
    2 composition of disciplinary committee will comprise of more non CAs than CAs.
    3. Audit of ICAI accounts by CAG appointed auditors etc.
    3. A platform of CAs who go by or support government move may /should also be built up.
    4. Can I fix appointment with the author to express my view in more elaborate way.

  7. Dear writer,
    Do you think blaming everything on CAs’, can stop all the frauds and everything? We all know the source of frauds is always in the political and governance system, instead of filling those loopholes, u all are targeting CAs’, who are actually the most knowledgeable professional in terms of accounting and taxation.
    Without the help of CAs’, the GST will not be functioning, we all know how many problems were there and only because ICAI helped, the government was able to implement it properly.
    Don’t ignore the contribution this fraternity has made, there are black sheeps in every profession, don’t target a single profession.

    And of course why there is no proper disciplinary actions on lawyers too, and other professionals also
    Please respect our hardwork and knowledge.

  8. If the govt think so we have monopoly and our disciplinary mechanism is not good what about doctors and lawyers, doctors doesn’t have any act are governed by medical council then take over them too but the govt won’t we all know why

  9. Rajveer Singh

    Mr Nakwe, i will here respond to your article and not to other commentators, since majority seems to be from CA fraternity themselves and hence exhibited biased view of the subject.
    Firstly i appreciate your efforts in beautifully articulating here the present situation of CA profession in our country and the manner in which recent ammendments may affect it.
    Secondly you logically brought forth how CA profession being remniscent of License raj lags behind in todays age of of data science and AI/ML. Here its obvious that CA course pedagogy is less relevant to Corporate culture.
    However the article falls short on addressing the problem in broader context. There have been many industry and Govt sponsored surveys that have
    revealed that majority of candidates with professional education like Engineering or MBA lack in industry relevant skills and aren’t employable. The problem understood in wider context lies in our education system that emphasize more on rot learning than gaining knowledge applying it. ICAI administrators being part of the larger community can’t be expected to have a divergent understanding from the society.
    Secondly Indian professional ecosystem lacks cross skilling that allows super specialized professionals. Here i am refering to concept of specialized professional from one area entering in another profession. In USA we find many Phd/MS in physics, maths, CSE, lawyers, liberal arts, economics pursuing MS in Finance/Financial engg/ Accountancy/ Marketing utilizing theor prior knowledge & skills in one field in another area. Howeber in India we have plain Bcom/Bsc/BA graduates with little/no prior work experience pursuing CA course. Barring top rank holders who get into Big4, few get into Corporate/MNC work envoirnment to learn. The 3 years articleship is nothing more than accounts/audit assistant work profile. The artciles don’t gain insights in any industry/sector barring accounting entries. So whatever these practising CAs learn is self acquired knowledge over no of years. Now compare this with MBA/ LLB from a good institute, post his education he may work in a Commercial Bank, Corporate litigation, finance dept in Public Company he will acquire immense knowledge, if such persons are given a window to enter CA profession with articleship exemption, they will be more knowlegable and mature professionals. In USA, UK, Australia Accounting bodies provide such flexibilty and gateway to experienced professionals in ACCA, CIMA, CPA whereas India lacks such free thought.
    As regards the proppsed IIAs are concerned, it os a good concept provided ot creates a new breed of Accountants. However a 5 yrs period tenure for a graduate program os more than logically needed when 4 years qill suffice to cover the relevant curriculum. This could be BS in Accounting & finance of lines of American Higher education system.

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