The Hindu Business Line : The battle of numbers

IT HAS taken one intrepid chartered accountant in south India to fight a case till the High Court, protesting against the move of the Institute of Chartered Accountants to impose restrictions on the number of tax audits a chartered accountant or a firm of chartered accountants can do.

The High Court did not concur with the ICAI's decision to restrict audits amongst chartered accountants. The court called this practice unacceptable while ruling in favour of the chartered accountant. Its judgment states that this measure is unconstitutional and arbitrary — both of which are not acceptable as per the Constitution of India.

The ICAI seems to be keen to take this fight to the finish by knocking at the doors of the Supreme Court. It appears supremely confident since the Supreme Court, in an earlier ruling, agreed with the Madhya Pradesh High Court decision saying that these were self-regulatory measures and neither unconstitutional nor arbitrary.

Of course, this is not a first from the Institute — it dictates how many audit personnel a partner can train et al.

Irrespective of the apex court decision, it would be in the fitness of things to bring a touch of realism to the entire debate. The restriction is normally "per partner". It has become a norm that if a firm of chartered accountants is to bid for large audits, the number of partners is expected to be about 10-12.

These norms apply for the central statutory audits of banks as well as a few navratna audits. Assuming that the restricted number of tax audits is 20 per partner and a firm has 10 partners, 200 tax audits is the maximum a firm can conduct with a greenshoe option to increase this count by increasing the number of partners. The number of firms in India that have more than 200 tax audits could probably be counted out.

However, assuming that a firm does exceed the number of audits, it does not necessarily guarantee that a chartered accountant who has just qualified and has entered practice gets these audits. It is an intense market out there and the audit might as well go to a person known to the firm that has exceeded the count. With India giving the nod to the WTO diktats, one could soon see foreign accounting and legal firms coming to India and plying their wares.

This would only increase the pressure on the accounting firm that is scouting for fresh opportunities.

The way out would be to merge and consolidate. Small and medium firms should join hands and create a model whereby none of the partners is worse off than what they were and a pan-India presence encourages variety in the nature of assignments handled.

Although this has commenced in a small way in India, it has not taken off full-steam due to lurking doubts in the minds of firms that are to be merged about the viability of the new model. A very common stumbling block during mergers — cultural differences — adds to the reluctance.

However, if one gets the right fit, this would make eminent logic to the small firms of chartered accountants who are shopping for audits and also to the slightly bigger firms of chartered accountants who are constantly seeking qualified managers. This would be the only way out of this situation.

(The author is a Hyderabad-based chartered accountant.)

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