Winds of change are blowing across the accounting regulatory structure in India. The Companies Act, 2013 enabled the creation of the National Financial Reporting Authority (NFRA) with powers to scrutinise the work done by audit firms. Now, a parliamentary panel has endorsed the setting up of Indian Institutes of Accounting (IIAs) on the lines of the IITs and IIMs. With every new regulation, other bodies are treading on the turf of the Institute of Chartered Accountants of India (ICAI).

The reason given for setting up IIAs is that advanced countries have multiple bodies that are empowered to qualify and licence accountants. There are two issues in this approach: the fact that India is not considered to be an advanced country (whatever parameters are used for this) and that we are benchmarking ourselves with these advanced countries.

The corporate landscape in India — of which small and medium enterprises constitute a major part — is very different from those in advanced countries. A significant majority of Indian enterprises do not have to follow international accounting or tax standards, making such benchmarking odious.

Specialised areas

The proposed IIAs are to offer a five year under-graduate course in accounting and would add on a post-graduate course later. The course would focus on specialised areas such as forensic accounting, business analytics, cyber security, valuation and international tax. Those who pass the course would be entitled to the designation Certified Professional Accountants (CPAs).

Assuming that IIAs are set up in 2023, the first batch of CPAs would come out in 2028. On a rough estimate, the ICAI has about 800,000 students on their rolls right now. Given the low pass percentage, it can be estimated that about 100,000 would have completed the course by 2028. IIAs can be expected to turn out around 10,000 CPAs in 2028.

The million dollar question is going to be: Will there be enough opportunities for both CAs and CPAs in 2028? The number of accountants who opt for self-employment is miniscule compared to the ones who opt for employment in industry. Small and medium enterprises are increasingly being exempted from audits of all kinds on the grounds of improving the ease of doing business — leaving too many professionals chasing too few clients.

If the ICAI and IIA continue licensing accountants separately, Indian industry should be able to provide employment opportunities — a tough ask however resilient the economy may be. Much before 2028, it is expected that artificial intelligence and machine learning will take over routine and repetitive tasks that accountants do. The argument here is that if technology can enable cars to be driven, they should surely be able to pass repetitive journal entries. Only value-added services would need human intervention. This would lead to another issue which is not much debated — underemployment.

While the concept of IIAs across the country sounds impressive, the government should consider employability and other factors to decide whether IIAs would necessarily have to be established as a separate body. From all angles, the ICAI is already a pan-India educational institution with reasonable infrastructure and some amount of goodwill. One of the solutions could be to set up IIAs as a separate segment within the ICAI itself.

Disciplinary committee

The other recommendation which the parliamentary panel has made is to beef up the disciplinary action against erring audit firms by nominating an independent person as chairman of the Disciplinary Committee. There is an opinion doing the rounds that in most disciplinary cases, the ICAI has acted too late and too timidly.

Too many accounting accidents have occurred over the past few years to ignore the need for a strong disciplinary mechanism. All regulators should join hands and ensure that there is a strong and robust Disciplinary Board whose actions would act as a warning to audit firms to stick to the straight path.

The writer is a chartered accountant

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