ICAI collecting information from Multi-National Accounting Firms to check violation of service norms

The Government has said that the Institute of Chartered Accountants of India (ICAI) is the Regulator for Chartered Accountancy profession in India and it is collecting information whether top multi-national firms have flouted norms to provide services in the country. Giving this information in reply to a question in the Rajya Sabha, the Minsiter for Corporate Affairs, Shri Salman Khurshid told the House that as far as the functioning of multinational accounting firms is concerned the Ministry has collected the following information from the relevant Central Govt. Departments:

• Department of Commerce has stated that as per the revised offer made by India in document dated 12th August 2005 commitments have been made in respect of Accounting and Book keeping services (CPC-862) excluding Audit services.

• Department of IPP has informed that India has not made any commitment for auditing services and legal consultancy services. However in these sectors Foreign Direct Investment (FDI) is permitted upto 100 percent on automatic route subject to applicable laws/ sectoral rules and regulations.

• RBI has informed that under the extant FDI policy and FEMA regulations, foreign entities incorporated outside India are permitted to invest in shares / compulsorily convertible preference shares / compulsorily convertible debentures of Indian companies incorporated in India or set up Joint Ventures/Wholly Owned Subsidiaries in India which are required to be incorporated in India subject to, amongst other things, sectoral caps specified under the FDI policy. As such, Chartered Accountancy (CA) business / legal services do not figure in the list of sectors specified by the FDI policy and would, in general, fall under the ‘other’ clause, where 100 per cent FDI under the automatic route is allowed. In general, however, CA activities / legal services are carried out by partnership firms. Under the extant FEMA regulations, foreign investment in a partnership firm is only allowed to Non Resident Indians (NRIs) and that too, on a non-repatriation basis. Therefore, this route cannot be accessed by Multinational CA firms / legal firms for setting up CA / legal partnership firms in India. The RBI has stated that it has not issued any permission for setting up of branch/liaison office to any multinational CA firm to extend CA services in India.