DNA EXCLUSIVE: CA firms will soon be told to disclose deals with global partners

Domestic accounting firms that collaborate with multinational players will likely be asked to disclose their financial transactions with the foreign partner to the Institute of Chartered Accountants of India starting January 1, 2019.

According to a draft review report of the ICAI, a copy of which has been accessed by DNA, any arrangement with multinationals accounting firms including licences, affiliations and network will have to be mandatorily registered with the top professional accounting body.

The move may not go down well with global firms, particularly the Big Four – EY, KPMG, Deloitte & PwC – that provide professional services to many Indian companies. The final report is expected to be released in the second week of September.

Following a Supreme Court order on February 23, the ICAI had formed an 8-member committee to examine the operations of multinational accounting firms that camouflaged with Indian entities.

"Every member holding Certificate of Practice /Indian CA Firms having affiliation/networking/ licensing agreement by whatever name called, with International network shall file Annual Information Report to the Institute, disclosing, inter alia, the details of the remittances made to and received from overseas on account of networking arrangements, the nature and purpose of such receipts and payments, material changes to the covenants of the partnership deed, entry and exit of new partners in every year," reads the draft.

According to industry experts, few Indian CA firms work as dual agents. They portray themselves as multinational brands to bag big-ticket projects from corporates as well as the government and charge hefty fees. As far as the ICAI is concerned, they claim that they are purely Indian CA firms.

A former partner at one of the Big Four firms told DNA on the condition of anonymity that Indian firms pass the price of the brand to the parent foreign entity in the guise of knowledge-sharing fees. In fact, representatives of such CA firms carry two visiting cards, including one of the global partner to impress upon the client. Experts said many multinational accounting firms flout various norms, particularly the accounting regulations, RBI Act, and those on foreign direct investment.

Some experts said the ICAI failed to follow up on its own efforts to check this practice. In the aftermath of the Satyam scam, the apex body of CAs had in 2011 set up an expert panel which pointed the "nature of extra benefits accrued to the Indian CA firms having foreign affiliation".

According to former ICAI president Amarjit Chopra, "The ICAI during 2010-11 had prepared a report on this aspect through a group headed by Subodh Agarwal. It is imperative to understand the umbrella under which these firms operate. There needs to be clarity with regard to their understanding of sharing of knowledge, human resources, expenses, profits or any other mode of transfer of funds etc."

Chopra said it is also essential to identify the "real objective of a global accounting firm's entry into India, whether it is consultancy or audit services in a clandestine manner".

Earlier, the ICAI had sent the draft report seeking comments of its members, including the Indian CA firms holding the brand names of the Big Four. Apparently, these firms were fiercely opposed to the draft.

"The entire approach of the group is based on misappreciation of the relationship of the network, and this will only discourage the Indian firms to grow. Let us not take retrograde steps. In the today's economy with more globalization of the clients, the ICAI should be more proactive to support the Indian firm to grow and to provide level playing field to all the firms through revised code of ethics," responded a partner at Ernst & Young LLP to ICAI.

DNA's made several attempts to seek responses from the ICAI and the spokespersons of the Big Four accounting firms through email, but to no avail. Sources in one these four firms who wished not to be quoted said the companies will respond once the ICAI's final report is out.

ICAI GOES FOR TOUGH MEASURES

• ICAI wants Indian firms to register deals like licences, affiliations & network from Jan 1
   
• Experts say foreign firms get a lot of leeway as they piggyback on their Indian partners
   
• CA firms with links to global accounting companies say the move will limit the growth of Indian accounting firms