The third-party report over Toshiba Corp's marked the most
damaging event to their brand in 140 year history by breaking an accounting
scandal of overstatement of profits going back to the 2008 financial year. The chief
executive Tanaka and a string of other senior officials resigned on Tuesday for
their roles in the country's biggest accounting scandal in years. Monday's
report by an outside panel of accountants and lawyers said Toshiba had
overstated its operating profit by 151.8 billion yen ($1.22 billion), roughly
triple Toshiba's initial estimate. The Japanese Institute of Certified Public
Accountants will interview accountants at Ernst & Young Shin Nihon and
check documents for major items they may have overlooked, intentionally or
otherwise.
Its only replay of the 2010 episode on Indian soil related to
satyam. India rocked by the accounting scandal on the same lines of overstating
profits, cash in hand , fake turnover&
fake tax credits . It was a fraud, which misled the market and other
stakeholders by lying about the company’s financial health. Even basic
facts such as revenues, operating profits, interest liabilities and cash
balances were grossly inflated to show the company in good health. The role of
external third party auditors, who were tasked to ensure that no financial
bungling is undertaken to carry out promoters’ interest or hide facts, has also
been brought into question. The auditors were having illegal professional
affiliation with of Price water house. The Indian arm PricewaterhouseCoopers
was the statutory auditor of Satyam Computer Services when the report of the
scandal in the account books of Satyam Computer Services when the report of scandal in the
account books of Satyam Computer Services broke.
In India, The accounting professional growth is like an unguided
target less missile. No field work is there. No regulator assurances are there.
These targets less missiles may have a deadly impact. Some time someone,
somewhere may hit own Dron and may blame it as enemy Dron. In fact, we require
the Americans Patriot missiles to intercept as many targets less missiles are
in operation. There are yearnings among us to return to the gold old days when
the firms were small, there were leaders of great stature and camaraderie
rather than competitive rivalry were the rule. In India, the Big 4 has
destroyed the Tana bana of the profession.
TRANSFORMATION
OF INDIAN NATIONAL FIRMS TO INTERNATIONAL FIRMS
Our profession has
definitely gone through a transformation that largely parallels the rapid
expansion of the economy. It was in the last 15 years the growth of the
profession went through on the footprints of Big 4. The nationalist top firms
have adopted a route to become larger by holding the hands and coverage of Big
4 firms. The Big 4 firms have largely absorbed the local firms and spread their
wings to big corporations. Slowly these firms have entered in to midsized
corporate houses and after 15 years they are looking for a final assault over
smaller nationalized firms. No one can beat them. The only authority, i.e. the
council of ICAI, which can check them and restrict them is now by and large at
the disposal of the Big 4 being their paramount presence at council. The next
few years shall be marked by their presence at the 40 hot seats and they know
how they shall swallow the entire respectable accounting professional
opportunity.
All firms who sat
on the lap of the Big 4 have expanded by employing member’s at the large number
and to fulfill their clients’ needs they became international in scope. These
firms have devoted a great deal of efforts towards establishing affiliations on
a worldwide basis. The gap is quite clear between largest Big 4 firm and the
remainder of the profession. Their first target is the firms of national level
spread over to the whole country. These national level firms were built
preliminary by serving big corporate, midsized and smaller houses. But these
big corporate houses have already slipped and reached at Big 4. Mid Sized firms
are slipping day by day. Presently BIG 4 doesn’t care for the smaller corporate
houses.
THE EMERGENCE OF THE
BIG 4
The Big 4 firms and its destructive style of practice emerged
around the turn of the century. These Big 4 firms can be found a pest and it
gives a destructive institutional character. A character that is changing
everyday as their features are their teachers are being arranged, the recast
& the group on day to day bases. These firms are having a huge no. of
chartered accountants as their associates. They are salaried chartered
accountants and they devote their full efforts to the firm’s clients. To
provide them with the necessary incentive the firm holds out the prospects of
eventual promotion to partnership, but only after prolong probationary period
during which the associates work under the supervision & the tutelage of
their seniors and are gradually assigned increased responsibility. The strategy
is simple to recruit young. The presence of a steady supply of highly
qualified, but inexperienced young recruits is one of the key ingredients of
the big law firm.
The
core element of Big 4 firms is the promotion to partnership. Another way is to
have a directorship of the associated companies dealing with the matters after
than assurance or directors, partners, & employed chartered accountants are
not equal, but are arranged in a hierarchy with command and supervision in the
former. But they for them CA practice around the promotion to partnership
patterns became the industry standard.
The
future of a Chartered accountant firm has already surfaced with a keynote that
the work in the hands of these firms are not evenly distributed. Out of about
2,17,000 chartered accountants, fifty-two percent are in employment, and
forty-eight percent, in public practice, The employment percentage is bound to
increase as more and more qualified CAs are taking up jobs, rather than going
into practice through professional CA firms.
INTERNATIONAL
/ MULTI-NATIONAL ACCOUNTING FIRMS
In 2010, ICAI issued a document that MAFs are
operating illegally in India. The fact is that Accounting Firms popularly known
as BIG 4 firms are not operating at Indian soil by their own name. They are
engaged in surrogate practice by their own ways and means. In India, the top affiliated firms decline
their affiliation with international firms but the international surveys of
accounting networks across world, India stood 7th among the world
network. After Satyam , ICAI forced to take up the issue and it has done its
duty with the diplomatic language of yes or no. An aggressive council member
from SIRC forced council to release the report at public domain. The Said
report titled as REPORT ON OPERATION OF MULTINATIONAL NETWRORK ACCOUNTING FIRMS
IN INDIA. The report carries observations, summarization of responses from
MNAF, findings and recommendations.
Many points were observed and placed before the council. Some of the alarming
points were:
a.
As per agreement members firms (Not
necessarily Indian firms) are required to refer the work among themselves and
referral fee of specified percent was payable /receivable.
b.
Firms found using brand names and logos.
c.
Their emails carried the name of
international brands duly mentioned on their parsonal cards thus establishing
their affiliation with international audit firms.
d.
Many firms were found making payments to
international firms at specified percent.
e.
One firm used “Associated Firm
throughout the world”.
f.
Remittances were also received from non
members and they haven’t disclosed the purpose.
g.
Firms were registered with similar /
identical names
NO ACTION
AGAINST MULTI-NATIONAL ACCOUNTING FIRMS
ICAI missed an golden opportunity to throw them out after the
Satyam episode. The reasons were quite unclear. The first part was submitted to
the government was nothing but a story written and directed by ICAI bosses. The
second part was prepared, but torch holders of ICAI changed. They deliberated
on the second part of the report and declare it as non understandable. A task
force was made to go through the report and without any strong recommendation;
the same was submitted to Government.
The Institute of Chartered Accountants of India should take
strongly act against the going on malpractices by the Big 4 firms. The
disciplinary actions should initiate sou moto through the Disciplinary
Directorate against their surrogate practice. A legal injunction shall be
obtained from the higher courts for their malfunctioning.
Also neglected is the lack
of action against MAFs knowing that they are operating illegally in India and
harming the CA profession in India. The government of India is very keen to see
that Indian services are exported as per WTO, GATS and similar arrangements.
However, given that the vice president in office himself represents MAF, office
bearers do not take action against the wrong doings of the MAFs. This is, in
spite of the fact that at regulatory level also, various matters have been
viewed seriously and strictures have been passed. 20% of the nomination on the committees
of ICAI comprises representatives of the MAFs like Big 4s. The undue importance
to MAFs has increased to such extent that the IFRS Foundation is organizing
programmes with KPMG in India instead of with ICAI. The saffron party has
recently appointed one among Big 4 to audit their expenditure and to present
before election commission. The present coal allocation was again and again
consulted with the Big 4. So where are any obstacles in
their growth in India.
MISSION OF A CA
PROFESSIONAL FIRM
It is a bare truth that chartered Accountant profession needs
progressive dimension of running a successful Audit firm. Another truth is that
in today’s national & global area, A Chartered Accountant prepared himself
to do more and to make new. It is time that every chartered Accountant with the
vision & desire to create new avenues must also be able to successfully
administer his or her practice. Here vision is not a luxury, but a necessity
otherwise there shall be confusion & disharmony.
Unfortunately, in the last 10/15 years, the regulator has given a
way and developed a meaningless four-layer
model of professional practice.
1. LAYER- FIRST - Big 4 firms with international affiliations.
2. LAYER- SECOND - Big firms at National Level
3. LAYER –THIRD - Midsized Local /Regional Firms
4. LAYER –FOURTH - Small Local Firms
|
LAYER
|
STATUS
|
2003
|
2013
|
|
|
FIRST
|
16 to 20 partners
|
25
|
56
|
|
|
FIRST
|
10 to 15 partners
|
104
|
277
|
|
|
|
|
|
|
|
|
SECOND
|
6 to 9 partners
|
824
|
1,272
|
|
|
|
|
|
|
|
|
THIRD
|
3 to 5 partners
|
3,629
|
6,129
|
|
|
|
|
|
|
|
|
FOURTH
|
2 Partners
|
7,464
|
8,316
|
|
|
FOURTH
|
Proprietary
|
33,561
|
38,132
|
|
|
|
Total
|
45,607
|
54,182
|
|
Fortunately, we still have a time to roll back the disaster and to
promote same playing field to the practicing chartered accountants. The four corrective measures are need of the hour
and be taken up seriously by the regulator of accountancy professional
practice.
1. The most
effective protection against poor practice of the individual/small practitioner
of fourth Layer and to provide a framework for the protection of the national
level second/third layer firms.
2. Next,
Should initiate to dispense and destroy the flimsy conditions of turnover,
strength, location of the chartered accountant firm for appointment and
allotment of audits.
3. That
culture of joint auditors or associate auditors be replaced with the ongoing
defective pattern of appointment and allotment of audits for solely looking
towards the partner.
4. Finally, The
professional regulatory body should regulate a national framework of assurance
of same playing field to all and to work on to destroy the illegal operations
of layer First Big 4 firms .
THE SOCIETY OF LAW FIRMS HAULED BIG
4 FIRMS RECENTLY
The reality is that Big 4 are huge international audit
organizations, the largest accounting firms in the world and some of the most
influential professional people on earth. They work through an intricate network
of high level contacts and special relationships. Their influence is pervasive
touching, cash
