The ICAI, on July 08, 2021 has notified the revised Form 18 i.e. disclosure of particulars relating to office and firms under the Chartered Accountants Regulations, 1988 through Notification No. 1-CA(7)/197/2021, dated July 8, 2021 the ‘Chartered Accountants (Amendment) Regulations, 2021. With the change in form 18, CA firms are now allowed to have partnership with CMAs, CSs, Advocates, Engineer, Architects, others permitted under section 53 B of the CA Regulations. Regulation 190 of the Chartered Accountants Regulations, 1988 provides for ICAI to keep up a register of offices and firms of the Chartered Accountants in practice. Further, it provides that a CA in practice or a firm of CAs shall within one month of the approval of the trade/firm name, or commencement of practice, furnish Form No. 18 detailing particulars regarding his office or the firm to ICAI or for changes in the constitution/address of the firm/CA.
The ICAI further amended the Form 18 in Schedule A to the CA Regulations that provide the format of furnishing of particulars of offices and firms of the CAs with ICAI, to include the details of partners holding certificate of practice (CA/Company Secretary/Cost Accountant) and details of partners holding professional qualifications other than CA/Company Secretary/Cost Accountant, permitted as per Regulation 53B of the CA Regulations.
The Institute of Chartered Accountants of India has issued a notification no. Na.1-CA(7)/116/2008 way back on dated 25-9-2008 incorporating sixteen amendments to the Chartered Accountants Regulations, 1988. One of the major amendments was provision on multidisciplinary partnership firms. Earlier vide Chartered Accountants (Amendment) Act, 2006 [w.e.f. 17.11.2006] the provision of First Schedule of the Chartered Accountants Act, 1949 amended substantially and central government has allowed multidisciplinary partnership firms. The amendments were under two regulations i.e. 53 A & 53 B. The Regulation 53A prescribed the qualifications to share profits / remuneration / commission / brokerage etc. and prescribed qualifications of an eligible partner who is not a member of The Institute of Chartered accountants Of India. It took almost three years to prescribe other qualifications (professionals occupying such qualifications) which are eligible for valid partnership or to share profits / remuneration with a practicing chartered accountant. However, in the above mentioned notification of July 2021 only regulation 53 B is live now which opens a way to have partnerships with the members of the other institutions.
Regulation 53B prescribed qualifications for an eligible partner
(a) Company Secretary, member, The Institute of Company Secretaries of India, established under the Company Secretaries Act, 1980;
(b) Cost Accountant, member, The Institute of Cost and Works Accountants of India established under the Cost and Works Accountants Act, 1959;
(c) Advocate, member, Bar Council of India established under the Advocates Act, 1961;
(d) Engineer, member, The Institution of Engineers, or Engineering from a University established by law or an Institution recognized by law.
(e) Architect, member, The Indian Institute of Architects established under the Architects Act, 1972;
(f) Actuary, member, The Institute of Actuaries of India, established under the Actuaries Act, 2006.
(g) Professional bodies or Institutions outside India whose qualifications on accountancy are recognised by the Council under sub-section (2) of section 29 of the Act. Section 29 talks about the reciprocity (1) where any country, specified by the Central Government in this behalf by notification in the Official Gazette, prevents persons of Indian domicile from becoming members of any institution similar to the Institute of Chartered Accountants of India or from practicing the profession of accountancy or subjects them to unfair discrimination in that country, no subject of any such country shall be entitled to become a member of the Institute or practice the profession of accountancy in India. (2) Subject to the provisions of sub-section (1), the Council may prescribe the conditions, if any, subject to which foreign qualifications relating to accountancy shall be recognised for the purposes of entry in the Register.
The multidisciplinary model
A multidisciplinary firm is one which offers both audit and other services under the same brand name or say one umbrella. Other services are often referred to as non-audit services, and include non-audit consulting services, in addition to services that have a significant relevance to the audit such as focused engagements addressing specific risks identified by audit committees but are outside the scope of the financial statement audit. The growth of multidisciplinary firms is congruent to the fast pace of change and specialized nature of businesses. The aim to offer investors and financial statements users with assurance that financial information is prepared by the rules often requires the expertise of specialists who span a range of industries. Thus, a multidisciplinary practice will provide integrated services from both Chartered Accountants and non-Chartered Accountants. In a multidisciplinary partner-ship, Chartered Accountants will share fees or enter into partnerships with professionals from different disciplines e.g., A company Secretary , A Cost & Management accountant , a lawyer , an engineer, an architect and others.
The thought of a Multidisciplinary Firm is a two-way affair. As long as the corresponding institution or profession don’t prescribe the same accommodating regulations, there is no use of such provisions. There is already a provision that Chartered accountants can register themselves as Advocate. However, when a chartered accountant approached the Bar Council of India, they prescribed a condition of exclusive practice of law. So the want of law practice is required to dispense a chartered accountant practice to start practice of law. One such case is of a Past President of the institute of Chartered Accountants of India, who left his Chartered Accountancy practice for joining a practice of law.
However, The Institute of Company secretaries of India, already prescribed Regulation 165A , where A member in practice may form multi-disciplinary firm with the member of other professional bodies as prescribed under regulations 168A and 168B by the regulating guidance of the Council for functioning and regulation of such multidisciplinary firm and Regulation 168A prescribes membership of The Institute of Chartered Accountants of India as recognized Other Professional bodies for the purposes of clauses (2), (3) and (5) of Part I of the First Schedule to the Act.
However, The Institute of Cost Accountants of India has advised its members not to form the Multidisciplinary Firms. Only the future will tell the reciprocal arrangements among the professional institutes. The major decision will be required from the Bar Council of India established under the Advocates Act, 1961 related to joining of Advocates to a Chartered Accountant firm.
Is it good for a small CA FIRM?
Clients select CA firms after checking the quality of service such as accessibility, responsibility, timelines, efficiency, and authoritative data. Chartered accountants have three practicing options such as sole proprietary, partnership and Limited liability partnership firms. The new provisions can be beneficial for partnership firms and LLP however the same will not be beneficial for 75% of the firms which are sole proprietary firms unless they decide to shred their shell of proprietorship and join a bandwagon of partnership. Among these models, limited liability partnership firms are the big firms having already exposure to Multidisciplinary and for them it’s most profitable. The acts of the partners are independent in the case of the LLP but it is not so in the partnership firms.
Audit firms provide different services and the history from global big four company’s states that the partnership with law firms make audit firms successful. Way back, the concept of multi-disciplinary practice evolved in the UK. By this time financial transparency and corporate governance created interest between auditors and clients. So, globally multidisciplinary practice proved as successful.
MDP in Indian Vs. International scenario
Presently, chartered accountants firm can have an association with members of the other professional bodies through employment or special purpose vehicle. The plethora of services offered by a multidisciplinary practicing firm are secretarial, auditing, accounting, systems control, legal, risk management, risk assessment, and valuation. The services of a chartered accountancy firm are divided into core area services and management consultancy services. The different needs of the companies like launching a project, getting a license, transfer of funds, mergers, amalgamation and restructuring of business processes, and complying tasks. The transfer of data from one firm to another for different services makes the work faster and easier. As the work gets complete in less time it is charged with comparatively less cost. As there are multiple partners some partners are unconnected which makes the evaluation of risk mandatory. The partners are jointly, personally, and severally liable for the obligations.
Multidisciplinary practice in the model of LLP would be more helpful as the liability is restricted. The guidelines of ICAI states that the disciplinary action in India will be levied over each partner and not over the firm. So, ICAI is in the position to prescribe restrictions on multidisciplinary practice for the smooth functioning of Multidisciplinary partnership firms. However NFRA, the new regulator is already in the disciplinary mechanism having coverage on all the job options. The companies Act 2013 empowered NFRA as a statutory body for accounting and auditing standards in India. The COE of NFRA statutory body states that from the olden day’s professions need a regulatory body to track the conduct of the professionals and control the prevailing competition in the profession.
Networking systems in between the audit firms of India contribute to common brand name, shared ownership, common quality management practices, common strategic management, profit-sharing, and cost-sharing. In the United States of America Enron scandals and World Com insisted on the independent model than the self-regulatory model. As the accounting standards of different companies are different there is a lack of uniformity in the accounting practices.
The Chartered accountants of Indian soil cannot be comparing with the international perceptions. Here, more than 90% of the Chartered Accountants will not be on the list of beneficiaries due to the said changes. No profession is lower than other profession but it’s a worldwide perception that it’s quite laborious and intelligent to become a Chartered Accountants. In many of its quarter, the said changes are taken as suicidal missions to drag down the profession for no reason. The profession of Chartered accountancy will definitely be at loss at large.
The unanswered questions
The implementation of Multidisciplinary practice has raised many questions about its utility for 75% of the small proprietary firm. In the present scenario, the benefits are out of their reach. The firms which are having a good exposure of Multidisciplinary practices are led by the Big 4 firms. Will this be only advantageous to such firms?
Those advocating MDPs say these business arrangements provide both convenience and wider choice to the public. Consumers looking for a wide range of professional services have the added advantage of getting services at one-stop and firms embracing MDPs would be in a position to reduce overhead and share profits.
There are concerns about potential conflicts of interest. If power was equally shared between a lawyer and a chartered accountant, who would have the last word? Would it be the lawyer’s need for client/solicitor privilege or the auditor’s requirement for complete independence from a client? A chartered accountant could form a MDP with an architect, if the architect supports the practice of auditing, but not for the purposes of fronting a real estate practice. How will it go long run?
Some of the details of the new arrangements are still being worked out, including capping on the level of other non-audit services the audit firm may provide to its public interest entity audit clients. Ethical standards should also make sure that audit partner remuneration cannot consider cross-selling of non-audit services. This is certain that there will be sweeping regulatory changes to accommodate the new initiation.
|1||Multi-disciplinary Partnership Formation guidelines as per CA Act, 1949|
|2||FAQs on Multi-disciplinary Partnership Firm of CA in Practice|
|3||Multidisciplinary CA Firms – Boon Or Bane|
|4||ICAI notifies Revised FORM 18; Allows Partnership with CA, CS, CMA etc.|