Over the past 75 years, the accounting profession in India has burgeoned into one of the largest globally, with over 400,000 Chartered Accountants (CAs) and approximately 100,000 CA firms. Despite this substantial growth, no Indian accounting firm matches the global scale or profile of the Big Four multinational accounting firms. However, a notable achievement is that non-Big Four firms audit companies listed on the NSE with a combined market capitalization exceeding 40%. Among these, Walker Chandiok and Co LLP has emerged as the fourth-largest firm by the number of listed companies audited.
Historical Attempts at Consolidation
India has witnessed isolated instances of accounting firm consolidation through mergers, acquisitions, or localized networks and alliances. While the size of an accounting firm or network does not inherently guarantee the quality of audit or professional services, larger firms or networks benefit from pooled resources, enhanced synergies, technological advancements, and greater capacity to serve diverse clients across various jurisdictions. Such scale brings with it professional competencies, technical infrastructure, and leadership that are crucial for delivering value, particularly to larger and growing clients.The Prime Minister’s Vision and Regulatory Challenges
In 2017, the Prime Minister’s call for Indian firms to join the ranks of the Big Four highlighted the need for strategic, legal, and regulatory responses. However, initiatives by the ICAI, first in 2005 and later in 2021, have yet to create a viable framework for firm consolidation. The recent paper on the LLP model for networking issued by the ICAI is a step in the right direction, aiming to facilitate LLPs in joining networks. This framework, while offering guidance, also presents challenges and will need to evolve based on compliance experiences and client confidence. Its effectiveness will depend on its ability to ensure regulatory ease and a level playing field with existing foreign networks.The Path to Successful Consolidation
The success of creating a substantial network or large firm hinges on the firms’ ability to strategize and transform themselves holistically. This transformation will depend on the firms’ commitment to growth, quality work, and client value. Successful consolidation requires strategic, organizational, operational, and cultural alignment among member firms. Essential considerations include defining the network’s core purpose, business and financial models, admission criteria, value propositions, governance structures, and policies for maintaining independence while fostering coordination. Key focus areas should include brand development, risk management, quality adherence, client reach enhancement, product development, technical support, and knowledge sharing. Harmonizing cultural differences among member firms is crucial for a cohesive network operation.
Financial and Structural Challenges
Building a larger firm or network demands significant investment, which may be beyond the reach of many member firms. The current audit fee structure in India is insufficient for generating the necessary funds internally, and regulatory reluctance to address this issue complicates matters. Alternative financing methods, such as innovative debt and equity products, should be explored. Identifying firms that are a good fit for the network may also be challenging. Therefore, developing a mentoring system for ambitious firms willing to improve and grow is crucial. The network should be perceived as a long-term business partnership rather than a mere referral arrangement.
Entrepreneurial Vision and Legal Acumen
Establishing a network or merging firms into a larger entity requires entrepreneurial vision, meticulous planning, and adept management of the transition. Accounting firms must familiarize themselves with the legal requirements, processes, and intricacies involved, which may be particularly challenging for smaller firms. Orientation programs and model documentation for setting up networks, governance systems, and financial structures will be essential.
The Long Road Ahead
Transforming into a large, multi-disciplinary network or accounting firm is a long-term endeavor requiring a supportive ecosystem and sustained institutional and capacity-building efforts. It will take years for an Indian network to achieve global status, with its member firms spread worldwide, rather than Indian firms growing domestically by joining foreign networks. This ambitious goal demands exceptional efforts from all stakeholders involved.
In conclusion, while the journey towards establishing a global presence for Indian accounting firms is fraught with challenges, the potential for growth and transformation remains significant. Strategic planning, regulatory support, and a commitment to excellence will be key to realizing this vision.
About the Author: Ashok Haldia, seasoned finance expert and Chartered Accountant
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