Sucheta Dalal :Pot Calling The Kettle Black? (14 July 2003)
Sucheta Dalal

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Pot Calling The Kettle Black? (14 July 2003)  

On Sunday, July 13, the Chennai based Chartered Accountants’ Action Committee (CAAC) council ensured a high profile release of its White Paper against the Big Four global accounting and consultancy firms (PriceWaterHouseCoopers, Ernst and Young, KPMG and Deloitte Touche and Tohmatsu) at a function geared to demonstrate the group’s political might.

But even as the Chennai council readies for a war on behalf of swadeshi accounting firms, the Chartered Accountants (CA) are plagued by controversy and split down the middle over various substantive issues.

CA sources tell me that the exaggerated importance given to the Big Four accounting firms is certainly unwarranted, especially in the light of their involvement in a spate of corporate scandals in the US. But it is equally short-sighted to address this through a swadeshi campaign, they say.

The issues raised by the Chennai council ought to have been addressed by the Institute of Chartered Accountants of India (ICAI), which is an autonomous, representative body that regulates the profession and administers the examination process for qualifying as CAs. But instead of debating the CAAC’s white paper, the ICAI is mired in a controversy of its own. Last week, the ICAI issued an advertisement refuting a news report about a coaching class for CAs in Chennai that are allegedly connected to the ICAI president, R Bhupaty. The advertisement pointed out that the CA examination process is completely independent and that the examination committee does not get to see the papers.

Curiously enough, although the advertisements threw around words like “malicious” and “malign” in order to defend its examination process, it skirted the main issue entirely — and that is whether its president R Bhupaty is connected with Prime Academy of Chennai, a reputed coaching class for CAs. By doing so, ICAI has only worsened the controversy.

Mr Bhupaty admits to us that his wife Renuka is a “shareholder” in Prime Academy, but skirts the issue of whether or not she manages it. His critics say that Renuka is only a front for her husband; and Mr Bhupaty himself promises to disclose all in a press release that was to be issued on Saturday (unfortunately after the deadline for this column). He was also at pains to point out that the examination process conducted by the ICAI was foolproof and the examination committee does not see the examination papers.

That is exactly what the ICAI advertisement said. It could well be that Mr Bhupaty has indeed been extremely scrupulous about his dealings and maintained a Chinese wall between his role as president and his stake in Prime Academy.

But it still raises doubts and suspicions especially since ICAI conducts the CA examinations. That the charges have been made at a time when the accounting profession, all over the world is under a scanner for its role in burying corporate scandals and helping to fudge accounts, makes it even worse.

On checking with the Department of Company Affairs (DCA), under whose overall supervision the ICAI is supposed to function, we find that the government too is uncomfortable with ICAI’s advertisements to defend personal allegations against the president. But it hopes that the institute will resolve the issue on its own, without forcing it to intervene. Former ICAI president PK Mallik believes that the controversy has sullied the institute’s reputation and an investigation is necessary to “clear the air”. What they may also need is a change in its eligibility criteria for presidentship.

The ICAI’s indecisiveness brings us to the issue of the swadeshi campaign kicked off by HRD minister Murli Manohar Joshi at Chennai. Several leading CA firms wonder why the campaign only targets the Big Four and their surrogate connection with Indian accounting firms? Is it because scores of firms already have similar foreign tie ups that they are loath to give up?

They believe that Indian accounting firms must compete freely in the world market and are capable of holding their own. Shailesh Haribhakti of Haribhakti & Co says: “frankly it is very difficult to close the doors to foreign firms. We have to compete”. He hopes that the commerce minister Arun Jaitley will permit him to raise the issue of global, reciprocal market access for Indian CAs at the World Trade Organisation meeting at Cancun. Three former presidents of the ICAI, Pesi Narielvala, Prasanta Mallik and Salil Gupta, have also dismissed the bogey of foreign firms. In a joint statement they say: “A considerable volume of work involving accounting and tax service is now regularly outsourced to India from foreign countries. There is no reason why our members should not have the opportunity to perform this work”. They further say: “to deny this right is merely to shift valuable professional work away from our members to other professionals who may render the same service in a corporate form”.

Vinod Jain, a member of the Central Council of ICAI (June 2003 issue of ICAI Journal) calls for an open debate on the subject and says that national as well as global opportunities for CAs would “increase considerably” and Indian firms must “prepare themselves to face these challenges” through national and international alliances. He calls for an open debate to evolve suitable solutions.

Global access to CAs would not only be welcomed by a large swathe of accountants, but at the May 5, 2003 meeting of the National Association of State Boards of Accountancy of the US, there was even a discussion about evolving a Mutual Recognition Agreement (MRA) of qualifications with the ICAI. The Chennai campaign may jeopardise this effort.

The two controversies couldn’t have come at a worse time for the ICAI. Reacting to allegations that the ICAI works like a closed club that seldom (if ever) punishes its members, the DCA has already been trying to strengthen the ICAI’s regulatory and supervisory structure. ICAI too had recently stepped up its disciplinary actions. But that process has probably suffered a setback. If the ICAI cannot resolve divergent views within the accounting community, can it represent Indian accountant’s interests abroad?

And, can the DCA be a mere spectator to the turmoil within this profession? The White Paper released at Chennai needs an official debate rather than a political campaign. Only then can its positive suggestions be accepted and its jingoism rejected outright. But for that to happen, the government must step in and ensure that the ICAI is capable of discharging its duties without bias or controversy.
-- Sucheta Dalal