Regulating 'champions': Accounting, legal education systems need to upgrade

Illustration: Binay Sinha
Accounting and legal services are among the 12 ‘champion’ sectors the government plans to promote through a Rs 50-billion fund. 

In recent years, significant global convergence on accounting and reporting standards has thrown open huge opportunities for Indian businesses and professionals to provide finance and accounting services globally. However, many practitioners feel that certain systemic weaknesses in the regulatory framework have held the profession back when it comes to tapping global opportunities.  

“While the Indian chartered accountant is proficient, the Indian degree is not accepted as enabling practice of accountancy in many jurisdictions,” says Dinesh Kanabar, CEO, Dhruva Advisors. 

Being a regulated profession, the accountancy sector is subject to qualification and licensing regime globally. “Artificial limitations for market protection need to be addressed by following principles of reciprocity,” says Naveen N D Gupta, president, Institute of Chartered Accountants of India (ICAI). 

The way forward, say professionals, is to ease access to markets by entering into Memoranda of Understanding with foreign accountancy institutes through mutual recognition of each other’s qualification standards.

The Indian accounting education system needs to upgrade and aligned to match and meet the challenges of globalisation, feel many practising professionals. 

“The curricula in most universities are outdated and need alignment with market requirements,” says Sai Venkateshwaran, partner and head - Accounting Advisory Services at KPMG in India. This has resulted in Indian finance and accounting service providers largely being able to focus only on the lower end transactional processing work, he adds.

What does not help matters is the rift in the profession between multinational network accounting firms and their small and mid-sized Indian brethren. The ICAI, the self-regulator of the accounting profession, has historically been dominated by small and mid-sized firms. The Institute’s newly-elected president Naveen N D Gupta feels that the government must initiate measures to prevent surrogate practices by foreign multinational firms. This leads to a severe imbalance in the level playing field for Indian firms, he adds.

Amarjit Chopra, chairman, National Advisory Committee on Accounting Standards (NACAS), and former president of the Institute agrees, with him. “The challenge before the government is to promote Indian firms,” he says. 

Chopra suggests that in government tenders for appointment of auditors, parameters should be such as to encourage Indian firms. "The government should facilitate measures for increased consolidation and networking of small practices to grow bigger," says Gupta.

 When it comes to the legal services sector, most practitioners favour a revamp of the regulatory setup.  Jyoti Sagar, chairman & founder, J Sagar Associates, feels that there is a need to unshackle the profession from the 18th-century regulations. 
“Revamp the regulatory framework with a futuristic outlook and vision,” he suggests. 

The government itself plays a key role in influencing the direction and health of the legal profession. “The government should minimise its own litigation. At present it is the largest litigant,” points out Lalit Bhasin, president, Society of Indian Law Firms, which represents many large and mid-sized law firms. The surfeit of obsolete, outdated, overlapping laws does not help the profession. “These need to be rationalised,” says Bhasin. 

Sagar stresses on the need to improve standards of legal education. “Current situation of 100,000 plus law school graduates per annum with 1,600 law schools of completely inconsistent standards is not a sustainable way of building a ‘champion’ profession,” he says.

Shardul S Shroff, executive chairman, Shardul Amarchand Mangaldas, is of the view that a key hurdle in the growth of the legal services out of India is the absence of reciprocity to the same extent and same terms as the foreign country’s law firms expect. “These arrangements have to be bilateral and negotiated country-wise,” he says.  The arrangements should be such that the disciplinary and tax jurisdiction is based in India for accessing the domestic market. The tax net should be adequately extended to cover foreign practitioners in India, he adds.

One thing that binds most Indian law firms is the fear of foreign law firms holding sway over them if allowed to practice in the country. The Society of Indian Law Firms that vehemently opposed entry of foreign law firms in the country has veered to the view of their phased entry spread over a number of years. Indian law firms continue to remain wary of back-door entry of foreign law firms into the country. “There must be a restriction in practising Indian law directly or through fronts or through surrogates or facade firms,” says Shroff. 

Most Indian firms feel that the government, before allowing the entry of foreign law firms, should first do away with several of the restrictions on their operations. A pet peeve of these firms is their inability to advertise their services or practice through limited liability partnership model.

Nishith Desai, founder and managing partner of Nishith Desai Associates, is in favour of giving higher service export benefits to law firms to encourage them to tap legal services market globally. He is also in favour of relaxing the GST mechanism as applicable to the legal services sector.  “Currently the government collects GST under reverse charge mechanism on legal services and also collects IGST without giving any credit for GST collected on a reverse charge basis,” he explains. This, he feels, is unfair and in effect leads to the government collecting tax twice. 

Many legal honchos point out that the profession has become capital expensive, especially for acquiring technologies, building global brands and international marketing. 

Shroff is in favour of the creation of a technology fund to enable public service to Indian lawyers and clients by enabling the use of Artificial Intelligence for strengthening lawyers’ competitive ability and speed of delivery. “Any attempt to strengthen the legal profession must be rooted in technology advance,” he says.

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