ICAI Proposes Changes to CA Act to Enable Bigger Accounting and Consulting Firms

The Institute of Chartered Accountants of India (ICAI) is preparing a set of proposed changes to the Chartered Accountants Act with the objective of enabling Indian accounting and consulting firms to expand their scale and compete more effectively with global professional services networks such as the Big Four.

The proposed reforms are expected to focus on creating a regulatory framework that gives Indian Chartered Accountants greater flexibility in consultancy and advisory services while maintaining safeguards applicable to the profession.

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The proposals are likely to be submitted to the Ministry of Corporate Affairs (MCA). Any amendment to the Chartered Accountants Act would ultimately require the approval of Parliament.

ICAI Seeks Larger Indian Professional Services Firms

The proposed changes come against the backdrop of efforts to develop large Indian professional services organisations capable of competing with international accounting and consulting firms.

The Centre has been encouraging the development of domestic professional entities that can operate at a larger institutional scale and capture a greater share of the global auditing and consulting market.

The global market for auditing and consulting services is estimated at around $240 billion, according to the report.

An ICAI official indicated that the institute expects its proposals to be ready within approximately two months.

The proposed regulatory changes are therefore being positioned as part of a broader effort to strengthen the institutional capacity of Indian professional firms rather than merely increasing the size of individual CA practices.

Measured Deregulation of Non-Assurance Services

One of the key proposals under consideration relates to the rules governing non-assurance services provided by Chartered Accountants.

ICAI is proposing a measured deregulation in this area, which could provide CAs with greater flexibility to undertake consultancy and advisory assignments.

Non-assurance services broadly include professional activities other than statutory audit and other assurance engagements. Greater flexibility in such services could allow CA firms to expand their advisory capabilities and develop broader professional offerings.

The proposal, however, is described as measured deregulation, indicating that the objective is not to remove professional safeguards altogether but to create greater flexibility within the existing regulatory framework.

Focus on Larger Accounting and Consulting Firms

The proposed reforms are also aimed at enabling Indian accounting firms to achieve greater scale.

The existing professional-services landscape includes numerous relatively small and medium-sized firms, while global networks have developed large multidisciplinary organisations with significant resources and specialised teams.

ICAI’s proposed framework seeks to facilitate the development of Indian firms that can undertake larger and more complex assignments and compete with international firms.

The move could also provide Indian firms with greater opportunities to build specialised expertise in areas such as taxation, regulatory advisory, financial consulting, risk management and other professional services.

Multidisciplinary Professional Entities

Another significant element of the proposed reforms is the expansion of the framework for multidisciplinary entities.

Under the proposed approach, CA firms could potentially work alongside professionals regulated under other professional laws.

The expanded framework is expected to facilitate participation by professionals such as:

Company Secretaries
Cost Accountants
Advocates
Engineers
Architects
Actuaries
Other professionals and professional entities

The objective is to bring together complementary areas of expertise and enable professional organisations to provide a wider range of services.

Revisiting Networking and Corporate Practice Rules

ICAI is also considering revisions to its 2021 networking guidelines and the 2006 guidelines governing practice in corporate form.

The proposed review could be important for CA firms seeking to operate through larger organisational structures.

The existing regulatory framework has traditionally placed considerable emphasis on the individual professional and partnership-based structure of the profession. A revised framework could potentially provide firms with greater institutional flexibility while continuing to regulate professional conduct and independence.

The exact nature of the changes, however, will depend on the proposals eventually submitted by ICAI and the subsequent consideration of the Ministry of Corporate Affairs.

Government to Examine ICAI Proposals

The proposed changes are not immediately applicable.

ICAI is expected to formulate and submit its recommendations to the Ministry of Corporate Affairs. The MCA will then examine the proposals.

If the recommendations require amendments to the Chartered Accountants Act, legislative changes would have to be considered and approved by Parliament.

Therefore, the proposals should currently be viewed as regulatory recommendations under consideration rather than final changes to the CA regulatory framework.

Push for Indian Firms to Compete Globally

The initiative also reflects a larger policy objective of developing Indian professional-services firms with international capabilities.

The push for larger Indian entities has been discussed in the context of creating firms that can compete with major global professional-services networks.

The Prime Minister had earlier called for Indian entities to achieve a stronger presence among the world’s leading professional organisations. The proposed changes by ICAI are being framed in this broader context of increasing the global competitiveness of Indian professional services.

Greater Institutional Scale for Professional Services

ICAI’s proposed reforms could potentially alter the way larger CA practices structure and expand their operations if the recommendations are accepted and the necessary legal changes are made.

A larger multidisciplinary structure could allow professionals from different fields to work together and combine their expertise under a more integrated organisational framework.

For businesses and clients, such a model could also mean access to multiple professional services through larger Indian entities.

At the same time, the regulatory framework would need to address issues such as professional independence, accountability, conflict of interest, ethical standards and the responsibilities of professionals operating within multidisciplinary organisations.

What Happens Next?

The immediate next step is for ICAI to finalise its proposals and place them before the Ministry of Corporate Affairs.

The MCA will examine the recommendations and determine whether changes to the existing legal framework are required. Any amendments to the Chartered Accountants Act would then have to go through the legislative process.

Consequently, the proposed reforms are likely to remain subject to consultation, regulatory examination and, where necessary, parliamentary approval before they become law.

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