What’s next for CA firm Practice?

What’s next for CA firm Practice?

Over the years, the society at large has placed a high level of trust, confidence and reliance on the auditing profession, with the very few exceptions, in our country the profession of chartered accountancy has shown objectivity and integrity towards its role into the economy. The relevance of the future itself to the accounting professionals transcends its relevance to coming up standards because these standards are setting the future of this profession. We believe that much that will happen in the years ahead is already viewable and understandable.

Fewer opportunities for the profession will definitely going to pose challenges to both individual Chartered Accountants and to their regulator, the Institute of Chartered Accountants Of India. There is a phenomenal growth of Chartered Accountants in the last one decade and a new trend is shaping up that a considerable number of members have been taken up employment in preference to practice on account of opportunities and the best payout in the industry.

We can say that our membership base is shifting to industry and it’s a positive sign because it is directly related to the feature that there is acceptance of the chartered accountant in different fields of trade and industry. It is credibility to the worth of education undertaken by the newcomer chartered accountant and that’s why he is acceptable to the proposition of different industries. Certainly those chartered accountants who are coming out with flying colors from ICAI have a head start as they have been trained in core domain of accounting and auditing which is far above in comparison to other professionals.

INDUSTRY VS PRACTICE

However, movement of fresh CA towards industry will not affect the profession in practice in long run, though many feel that it would affect the profession. The young members generally say that the movement of newly qualified members towards industry will affect the profession in long run, but majority of the senior members opined that it would make no big difference. Industry Vs self practice is an old debatable issue and every side is having its own merits and demerits without any reconciliation between the two. . The following data demonstrates the shift in strength from holding a certificate of practice to employment. The data clearly demonstrate that this profession is served by the young as about 50% of the present strength has entered the profession in the last one decade.

Year	COP	%	No COP	%	Total
2000	65,843	71%	27,137	29%	92,980
2005	78,158	63%	45,388	37%	123,546
2011	84,618	50%	85,992	50%	170,610
2012	91,487	48%	101,026	52%	192,513
2013	1,03,636	48%	1,13,483	52%	2,17,119
2014	1,12,324		1,17,355		2,29,679

PARTNERSHIP & SOLE PROPRIETORS

The big Indian accountancy firms have affiliated themselves to grow big and enjoy global exposure. Multinationals are establishing subsidiaries of large size in India. Many prominent accountancy firms have already tied up with the International brands and are working as affiliate to them. The professional firms are conscious of this inevitable change of the profession and are gearing up for restructuring. For that very purpose they have to expand their firm size. The presence of BIG 4 in India is subject to scrutiny. As per the regulator ICAI, the arrangement is unlawful and the firms are operating illegally. The firms have failed to share with the regulator about their arrangements with their principals abroad and also there are unanswerable receipts and payments from and to foreign sources.

A CA practicing solely or in a smaller group may be hindered from professional development or his development may be slow owing to his limited work exposure. In small-sized firms, CA’s exposure is usually limited to the traditional areas such as accounting, auditing and taxation. Moreover, the clientele of sole proprietorships and small firms grows at a slow pace and may remain same over many years, restricting the opportunity of working with new clients and on new assignments. In contrast, CAs who are part of larger firms get exposure to a diverse range of functions such as M&As, IPOs, transaction and business advisory services, or financial consultancy, etc. which contributes considerably to their professional development in the long run. Further, firms in non-metro cities offer relatively less professional exposure than the firms in metro cities where business opportunities are large-scale.

YEAR	Proprietary	2 partners	3-5 partner	6 – 10 partner	11 – 20 partner	Total
2000	30517	7036	3189	703	48	41493
2001	31144	7161	3275	707	52	42339
2002	31788	7299	3317	810	54	43268
2003	33561	7464	3629	881	72	45607
2004	33957	7728	4036	961	92	46774
2005	32697	8032	4526	1009	108	46372
2006	31950	8028	4607	989	129	45703
2007	32165	7843	4525	941	130	45604
2008	32001	7705	4440	919	145	45210
2013	38132	8316	6129	1272	333	54,182

 THE CHANGE OF CA FIRMS TREND IN LAST DECADE

The figures related to the firms of our profession are alarming and clearly shows the unbalanced playing field. Most of the firms are small and medium practitioners (SMPs). The number of firms is being increased manifold. The work in the hands of the firms is squeezing day by day. Now sole proprietors are being shunted out in phased manner. There is no logic to give preference to partnerships because ultimately it has to be signed by one Chartered Accountant and the responsibility was also limited to the signatory. Now NAFRA shall take care of this gap and shall extend their arm against the firm. This change is neither normal nor growth oriented. This change is coming up due to various conditions advanced in many quarters related to strength of the firms and this number game is the only reason that members are joining their hands. It is directly related to professional opportunities. Auditing has never been an easy profession, particularly in small firms, and this is especially so today. We are witnessing thrust on partnership because our regulator has failed to impress upon the audit entities the concept of associate auditor or joint auditor.

Composition	No. of Firms
	2003	%	2013	%	% Growth In last decade
Proprietary	33,561	73.58	38,132	70.38	14%
2 Partners	7,464	16.36	8,316	15.06	11%
3 to 5 partners	3,629	7.99	6,129	11.31	69%
6 to 9 partners	824	1.80	1,272	2.64	54%
10 to 15 partners	104	.22	277	.51	166%
16 to 20 partners	25	.05	56	.10	124%
Total	45,607	100%	54,182	100%	19%

Network amongst two or more firms is an arrangement to facilitate the better functioning of the affiliate member firms in the interest of the profession & not for acquisition of any gain. Such Network shall include the formal network to use the collective resources such as turnover, infrastructure, human resources and location for execution of professional services of one or more type. Having been successfully adopted by many firms in the developed nations, ‘networking’ is another option for growth of small and medium sized firms in India in the current scenario but many riders have been placed on the terms and conditions which makes the whole exercise of Net Working Scheme is dead scheme . Being member of the Capacity building committee for small and medium firms, many serious attempts were made to give some oxygen to this dead scheme but all gone in vain.

MEF FACTOR RELATED TO FIRM: A CASE STUDY OF 2010

As on 31^st March 2010, The ICAI data depicts that out of there were 73462 full time practicing members spread over to 50000 odd firms as at 31^st march 2010. Out of 50000 firms only 29000 firms have applied under MEF. This is to be mention that exact reconciliations are not possible at a certain date because both the base dates are different The left out firms are having a big share of firms running in initial three year. This is to assume that only 58% % of the firms are inclined towards the Bank Audits. The revenue income of these practicing firms are dominated from the bank Audits fees. In the year 2010, the total number of 28829 firms applied through MEF.

CATEGORY	NO. OF MEF APPLICATIONS
I	1237
II	2165
III	3908
IV	11016
IV SP	5866
Sub total	24192
PART2 (Ineligible)	1172
PART3 (Ineligible)	3045
Total	28829

It is unknown to many that the Banks are having region base bank audit allotment procedure. The Banks with the approval of RBI has created five regions for the audit and auditors availability. The strength of the auditors is being segregated to these regions and then the allotment procedure stars. This segregation is also not giving expected results but the same is still in use.

REGION	Category I	Category II	Category III	Category IV	TOTAL
North	354	495	735	2387	3971
South	260	439	948	4277	5924
East	189	271	445	2532	3437
West	184	398	699	3946	5227
Central	250	562	1081	3740	5633
Total	1237	2165	3908	16882	24192

 Though all the states of the country have been placed under the respective regions their boundaries have no impact on this region theory. The following chart clearly shows that the states where top categories are in less numbers they are directly benefitted by C& AG and other Government assignments.

STATE	CAT I	CAT II	CAT III	CAT IV	TOTAL
Assam	3	15	22	329	369
Meghalaya	0	0	0	11	11
BIHAR	11	31	56	142	240
Jharkhand	13	29	55	148	245
Arunanchal				2	2
West Bengal	153	217	358	1893	2621
Nagaland				6	6
Manipur				2	2
Orissa	33	39	65	280	417
Sikkim				5	5
Tripura				4	4
And & Nik		1			1
U P	108	234	432	1421	2195
Utrakhand	4	17	26	140	187
Delhi	250	269	314	872	1705
Punjab	27	85	165	826	1103
Haryana	18	91	179	452	740
Chandigarh	31	24	40	100	195
J & K	21	9	17	76	123
Himachal	7	17	20	61	105
Rajasthan	69	124	271	940	1404
Gujrat	36	123	216	1419	1794
Maharashtra	148	271	472	2433	3324
Goa		3	11	94	108
MP	35	86	185	704	1010
Chatishgarh	10	41	56	245	352
Andra Prades	67	121	264	1112	1564
Karnataka	38	79	179	1223	1519
TamilNadu	122	175	377	1345	2019
Kerala	33	61	121	580	795
Pondichiary		3	7	17	27
TOTAL	1237	2165	3908	16882	24192

Now the profession has spread over to hundred of the cities but the professional firms are concentrated on the metro cities of the country. Out of the total strength of firms approx 42.66 % of the firms belong to only 13 cities of the country. Again a considerable point is that more than 63% of the firms at the 13 cities belong to small category firm. So the partnership pattern and priority being given to partnership is a kind of reservation of work for the few. It is certain that some key drivers are being ignored which are vital for the growth of Accountancy profession.

Metro Cities	Category I	Category II	Category III	Category IV	Total
Delhi	250	269	314	871	1704
Mumbai	90	139	237	753	1219
Chennai	98	106	204	558	966
Kolkatta	149	200	320	1584	2253
Bangalore	33	61	123	691	908
Hyderabad	43	68	147	480	738
Pune	17	40	74	324	455
Patna	11	24	35	74	144
Chandigarh	31	24	40	100	195
Jaipur	53	59	117	201	430
Ahmadabad	21	63	109	529	722
Lucknow	24	35	46	132	237
Kanpur	26	42	86	197	351
	846	1130	1852	6494	10322

What has been discussed above is a case of the entry level CA professional and the mid career movement if someone opts for transition from practice to industry and vice versa. Similarly enhancement of the strength of the partnership firms also require in depth consideration of the various modalities. From the institutional perspective, ICAI sees no rights or wrongs in either practice versus employment or sole proprietorship verses partnerships. The ICAI has formulated these frames keeping in view of the requirements of different segments of society and the effort are on to continue this process of building a well grounded professional.

(About the Author- Author was Member of ICAI- Regional Research Committee 2013-14 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email amresh_vashisht@yahoo.com or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA)

- See more at: http://taxguru.in/chartered-accountant/whats-ca-firm-practice.html#sthash.RYRCdISr.dpuf - See more at: http://taxguru.in/chartered-accountant/whats-ca-firm-practice.html#sthash.RYRCdISr.dpufOver the years, the society at large has placed a high level of trust, confidence and reliance on the auditing profession, with the very few exceptions, in our country the profession of chartered accountancy has shown objectivity and integrity towards its role into the economy. The relevance of the future itself to the accounting professionals transcends its relevance to coming up standards because these standards are setting the future of this profession. We believe that much that will happen in the years ahead is already viewable and understandable.

Fewer opportunities for the profession will definitely going to pose challenges to both individual Chartered Accountants and to their regulator, the Institute of Chartered Accountants Of India. There is a phenomenal growth of Chartered Accountants in the last one decade and a new trend is shaping up that a considerable number of members have been taken up employment in preference to practice on account of opportunities and the best payout in the industry.

We can say that our membership base is shifting to industry and it’s a positive sign because it is directly related to the feature that there is acceptance of the chartered accountant in different fields of trade and industry. It is credibility to the worth of education undertaken by the newcomer chartered accountant and that’s why he is acceptable to the proposition of different industries. Certainly those chartered accountants who are coming out with flying colors from ICAI have a head start as they have been trained in core domain of accounting and auditing which is far above in comparison to other professionals.

INDUSTRY VS PRACTICE

However, movement of fresh CA towards industry will not affect the profession in practice in long run, though many feel that it would affect the profession. The young members generally say that the movement of newly qualified members towards industry will affect the profession in long run, but majority of the senior members opined that it would make no big difference. Industry Vs self practice is an old debatable issue and every side is having its own merits and demerits without any reconciliation between the two. . The following data demonstrates the shift in strength from holding a certificate of practice to employment. The data clearly demonstrate that this profession is served by the young as about 50% of the present strength has entered the profession in the last one decade.

Year	COP	%	No COP	%	Total
2000	65,843	71%	27,137	29%	92,980
2005	78,158	63%	45,388	37%	123,546
2011	84,618	50%	85,992	50%	170,610
2012	91,487	48%	101,026	52%	192,513
2013	1,03,636	48%	1,13,483	52%	2,17,119
2014	1,12,324		1,17,355		2,29,679

PARTNERSHIP & SOLE PROPRIETORS

The big Indian accountancy firms have affiliated themselves to grow big and enjoy global exposure. Multinationals are establishing subsidiaries of large size in India. Many prominent accountancy firms have already tied up with the International brands and are working as affiliate to them. The professional firms are conscious of this inevitable change of the profession and are gearing up for restructuring. For that very purpose they have to expand their firm size. The presence of BIG 4 in India is subject to scrutiny. As per the regulator ICAI, the arrangement is unlawful and the firms are operating illegally. The firms have failed to share with the regulator about their arrangements with their principals abroad and also there are unanswerable receipts and payments from and to foreign sources.

A CA practicing solely or in a smaller group may be hindered from professional development or his development may be slow owing to his limited work exposure. In small-sized firms, CA’s exposure is usually limited to the traditional areas such as accounting, auditing and taxation. Moreover, the clientele of sole proprietorships and small firms grows at a slow pace and may remain same over many years, restricting the opportunity of working with new clients and on new assignments. In contrast, CAs who are part of larger firms get exposure to a diverse range of functions such as M&As, IPOs, transaction and business advisory services, or financial consultancy, etc. which contributes considerably to their professional development in the long run. Further, firms in non-metro cities offer relatively less professional exposure than the firms in metro cities where business opportunities are large-scale.

YEAR	Proprietary	2 partners	3-5 partner	6 – 10 partner	11 – 20 partner	Total
2000	30517	7036	3189	703	48	41493
2001	31144	7161	3275	707	52	42339
2002	31788	7299	3317	810	54	43268
2003	33561	7464	3629	881	72	45607
2004	33957	7728	4036	961	92	46774
2005	32697	8032	4526	1009	108	46372
2006	31950	8028	4607	989	129	45703
2007	32165	7843	4525	941	130	45604
2008	32001	7705	4440	919	145	45210
2013	38132	8316	6129	1272	333	54,182

 THE CHANGE OF CA FIRMS TREND IN LAST DECADE

The figures related to the firms of our profession are alarming and clearly shows the unbalanced playing field. Most of the firms are small and medium practitioners (SMPs). The number of firms is being increased manifold. The work in the hands of the firms is squeezing day by day. Now sole proprietors are being shunted out in phased manner. There is no logic to give preference to partnerships because ultimately it has to be signed by one Chartered Accountant and the responsibility was also limited to the signatory. Now NAFRA shall take care of this gap and shall extend their arm against the firm. This change is neither normal nor growth oriented. This change is coming up due to various conditions advanced in many quarters related to strength of the firms and this number game is the only reason that members are joining their hands. It is directly related to professional opportunities. Auditing has never been an easy profession, particularly in small firms, and this is especially so today. We are witnessing thrust on partnership because our regulator has failed to impress upon the audit entities the concept of associate auditor or joint auditor.

Composition	No. of Firms
	2003	%	2013	%	% Growth In last decade
Proprietary	33,561	73.58	38,132	70.38	14%
2 Partners	7,464	16.36	8,316	15.06	11%
3 to 5 partners	3,629	7.99	6,129	11.31	69%
6 to 9 partners	824	1.80	1,272	2.64	54%
10 to 15 partners	104	.22	277	.51	166%
16 to 20 partners	25	.05	56	.10	124%
Total	45,607	100%	54,182	100%	19%

Network amongst two or more firms is an arrangement to facilitate the better functioning of the affiliate member firms in the interest of the profession & not for acquisition of any gain. Such Network shall include the formal network to use the collective resources such as turnover, infrastructure, human resources and location for execution of professional services of one or more type. Having been successfully adopted by many firms in the developed nations, ‘networking’ is another option for growth of small and medium sized firms in India in the current scenario but many riders have been placed on the terms and conditions which makes the whole exercise of Net Working Scheme is dead scheme . Being member of the Capacity building committee for small and medium firms, many serious attempts were made to give some oxygen to this dead scheme but all gone in vain.

MEF FACTOR RELATED TO FIRM: A CASE STUDY OF 2010

As on 31^st March 2010, The ICAI data depicts that out of there were 73462 full time practicing members spread over to 50000 odd firms as at 31^st march 2010. Out of 50000 firms only 29000 firms have applied under MEF. This is to be mention that exact reconciliations are not possible at a certain date because both the base dates are different The left out firms are having a big share of firms running in initial three year. This is to assume that only 58% % of the firms are inclined towards the Bank Audits. The revenue income of these practicing firms are dominated from the bank Audits fees. In the year 2010, the total number of 28829 firms applied through MEF.

CATEGORY	NO. OF MEF APPLICATIONS
I	1237
II	2165
III	3908
IV	11016
IV SP	5866
Sub total	24192
PART2 (Ineligible)	1172
PART3 (Ineligible)	3045
Total	28829

It is unknown to many that the Banks are having region base bank audit allotment procedure. The Banks with the approval of RBI has created five regions for the audit and auditors availability. The strength of the auditors is being segregated to these regions and then the allotment procedure stars. This segregation is also not giving expected results but the same is still in use.

REGION	Category I	Category II	Category III	Category IV	TOTAL
North	354	495	735	2387	3971
South	260	439	948	4277	5924
East	189	271	445	2532	3437
West	184	398	699	3946	5227
Central	250	562	1081	3740	5633
Total	1237	2165	3908	16882	24192

 Though all the states of the country have been placed under the respective regions their boundaries have no impact on this region theory. The following chart clearly shows that the states where top categories are in less numbers they are directly benefitted by C& AG and other Government assignments.

STATE	CAT I	CAT II	CAT III	CAT IV	TOTAL
Assam	3	15	22	329	369
Meghalaya	0	0	0	11	11
BIHAR	11	31	56	142	240
Jharkhand	13	29	55	148	245
Arunanchal				2	2
West Bengal	153	217	358	1893	2621
Nagaland				6	6
Manipur				2	2
Orissa	33	39	65	280	417
Sikkim				5	5
Tripura				4	4
And & Nik		1			1
U P	108	234	432	1421	2195
Utrakhand	4	17	26	140	187
Delhi	250	269	314	872	1705
Punjab	27	85	165	826	1103
Haryana	18	91	179	452	740
Chandigarh	31	24	40	100	195
J & K	21	9	17	76	123
Himachal	7	17	20	61	105
Rajasthan	69	124	271	940	1404
Gujrat	36	123	216	1419	1794
Maharashtra	148	271	472	2433	3324
Goa		3	11	94	108
MP	35	86	185	704	1010
Chatishgarh	10	41	56	245	352
Andra Prades	67	121	264	1112	1564
Karnataka	38	79	179	1223	1519
TamilNadu	122	175	377	1345	2019
Kerala	33	61	121	580	795
Pondichiary		3	7	17	27
TOTAL	1237	2165	3908	16882	24192

Now the profession has spread over to hundred of the cities but the professional firms are concentrated on the metro cities of the country. Out of the total strength of firms approx 42.66 % of the firms belong to only 13 cities of the country. Again a considerable point is that more than 63% of the firms at the 13 cities belong to small category firm. So the partnership pattern and priority being given to partnership is a kind of reservation of work for the few. It is certain that some key drivers are being ignored which are vital for the growth of Accountancy profession.

Metro Cities	Category I	Category II	Category III	Category IV	Total
Delhi	250	269	314	871	1704
Mumbai	90	139	237	753	1219
Chennai	98	106	204	558	966
Kolkatta	149	200	320	1584	2253
Bangalore	33	61	123	691	908
Hyderabad	43	68	147	480	738
Pune	17	40	74	324	455
Patna	11	24	35	74	144
Chandigarh	31	24	40	100	195
Jaipur	53	59	117	201	430
Ahmadabad	21	63	109	529	722
Lucknow	24	35	46	132	237
Kanpur	26	42	86	197	351
	846	1130	1852	6494	10322

What has been discussed above is a case of the entry level CA professional and the mid career movement if someone opts for transition from practice to industry and vice versa. Similarly enhancement of the strength of the partnership firms also require in depth consideration of the various modalities. From the institutional perspective, ICAI sees no rights or wrongs in either practice versus employment or sole proprietorship verses partnerships. The ICAI has formulated these frames keeping in view of the requirements of different segments of society and the effort are on to continue this process of building a well grounded professional.