FDI in Accounting and Auditing Sectors

Accounting & Auditing Services - Relevant extract from Economic Survey 2012-13.

Accounting and Audit Services

10.53 Accounting, auditing, and book-keeping services are a part of ‘business services’. Accounting services have been growing at around 6-7 per cent since 2005-6 with 7.1 per cent growth in 2011-12.The accounting profession in India is highly developed with the potential to play a greater role internationally. As per WTO data, in the US $ 44.5 billion ‘other business services’ exports of India in 2010, the legal, accounting, management, and public relations
services with a value US$ 8.6 billion had a share of 19.3 per cent. This is around five times less than the US exports of US $ 39.1 billion and three times less than China’s exports of US$22.8 billion.

10.54 The accountancy service providers in India are self-regulated through a combination of statutory bodies like the Institute of Chartered Accountants of India (ICAI), the Institute of Cost and Work Accountants of India, and the Institute of Company Secretaries of India (ICSI). There are 53,197 active CA firms as of 27 December 2012. Indian accounting firms are increasingly getting integrated and are providing associated services such as management consultancy, corporate finance, and advisory services in addition to their core business of accounting, auditing, and tax services. Given the high potential for accounting and audit services both domestically and in exports through the outsourcing mode, there is need to revamp the professional development framework to expand the talent pool, deepen the expertise, and enhance the flow of high quality accountancy professionals. Tapping the outsourcing market of the US and other developing countries in niche areas like actuarial and accountancy services would depend on the

availability of high-quality experts in tax, insurance, and pension laws of the US and other countries and encouraging setting up of back offices of foreign firms in India. Tie-ups of domestic firms with foreign firms can help gain expertise and markets which would otherwise not be individually available for small domestic accountancy firms. This would also need relaxation in some domestic regulations and obtaining due recognition to Indian qualifications through mutual recognition agreements (MRAs). As with legal services, FDI in accounting services will help improve the competitiveness of the Indian market, and link it better to global markets.

Accountancy services:

While the accountancy professionals were hitherto allowed to operate either as a partnership firm or as a sole proprietorship firm or in their own name since the Indian regulations do not permit exceeding 20 professionals under one firm, the emergence of Limited Liability Partnership (LLP) structure is likely to address this impediment. However, the number of statutory audits of companies per partner is restricted to 20. FDI is also not allowed in this sector and foreign service providers are not allowed to undertake statutory audit of companies as per the provisions of the laws in India. There are also domestic regulations like prohibition on the use of individual logos for partnership and single proprietorship accounting firms. These regulations need to be relaxed and streamlined to facilitate tie-ups and penetrate foreign markets given the potential for exporting these services by the outsourcing mode.