A Five-Decade Retrospective: Growth & Core Activities

Nationwide, our membership has increased to over 3,50,000 from the 15,000 odd members that we had when I qualified. Not only has the number of members gone up, but the nature of the work that they perform has widened tremendously. My own town now has a large industrial base and there is a huge information technology industry. The services outsourcing industry which began with Information Technology now covers a wide gamut of services including business process outsourcing for a wide range of functions. And the scope is truly global. And I see our members deeply engaged in a wide spectrum of activities.

I said earlier that change is the only constant, but it is the rate of change that we see now that is truly breath-taking. And that only seems to be increasing as days go by.

And some of these changes seem to be impacting the roots or the core of our profession. While our professional education prepares us for multiple roles in a variety of social and economic endeavours, the core of our profession rests on two activities — measurement and attestation. And I believe that some of the changes that I see around us impact these core activities fundamentally. The impact is not only about how we measure but also what we measure. And finally, what is it that we attest.

These changes open extraordinary doors for us, and if we do not respond proactively, they may threaten our relevance to the society in the years to come. In this connection, I would like to talk about three sweeping changes that are affecting our profession and would hugely impact it over the next two decades:

1. Digitization
2. Artificial Intelligence
3. Sustainability

“While our professional education prepares us for multiple roles in a variety of social and economic endeavours, the core of our profession rests on two activities – measurement and attestation.”

1. Complete Digitization & The India Stack

Large scale computerization has been around in India for at least the last three decades. Since personal computers became affordable in the 90s, practically no business of any size runs on manual systems. In that sense, digitization has been around for some years now. But what is staggering now is the complete digitization of complex business systems.

In a large company, it covers not only every aspect of a business such as every employee, every SKU (Stock Keeping Unit), and every machine, but also the interconnected systems for their entire eco-system including vendors, customers, dealers as well as statutory authorities. When digitization encompasses almost every facet of a business, and when the scale of the business is huge, attestation function presents some special challenges. Deep understanding of information technology then becomes the core part of our professional tools:

• How do we ensure that the business logic applied in the systems is correct?
• How do we ensure that the business logic that has been informed to us is actually implemented?
• How do we ensure that no exceptions are created?
• How do you ensure the integrity of all the functions?

These are serious issues. Digitization presents opportunities for us in designing proper control systems — actually I consider this to be a forte of our profession.

The Roots of Auditing: Listening vs. Technical Testing

Coming to the attestation of large-scale digitized systems, I believe that while we need to depend on the knowledge of technology, we also need to go back to our core or roots of the auditing function. We cannot forget that “auditing” has its roots in the Latin word “audire”, which means listening. Sometimes in our deep dive into information technology, we may forget to “listen” to the organizational vibes. I believe that it is very important for us to get a “smell” of the company whose results we are attesting. You can only get that when you “listen” to the vibes in the company. The culture of an organization trumps or overrides all its systems. Too often, we see that technically correct auditing with all IT tests and documentation misses out on the “listening or smelling” test, with dire consequences. I personally believe that these are the roots of our profession that we need to hark back to while operating in an environment of high level of digitization.

The Sweep of the India Stack, ONDC & Account Aggregators

The level of digitization is even higher when we look at the world-famous “India Stack”. This covers the interconnected systems of Jan Dhan, Aadhaar, eSign, Digilocker, UPI and Mobile, but which is now being extended to ONDC and aggregators:

• ONDC (Open Network for Digital Commerce): ONDC may become the platform for large-scale buyer-seller meets covering a huge part of our GDP.
• Account Aggregators (AA): Financial data is now being collated as part of a single platform with a set of ‘Account Aggregators’ which are authorised by accredited agencies such as RBI, IRDA, SEBI etc. AAs will help in improving the applicant’s overall experience and in turn, scale up the consumption of financial products in the marketplace.
• Direct Benefit Transfer (DBT): Covers tens of millions of accounts spread across the country across numerous bank accounts.

As this digitization sweeps across the country, our members can play a stellar role in expanding its scope: designing control systems, assisting in cross-country roll-out by helping merchants onboard the ONDC, and assuring transactions across these massive networks.

2. Artificial Intelligence

The talk about artificial intelligence has been going on for at least a couple of decades. But, what at one point in time, seemed like a distant possibility, has now suddenly become a reality with the advent of ChatGPT. ChatGPT has broken into the scene like a colossus striding across the stage. With the presence of this technology, the entire spectrum of “digitization” that we were witnessing so far looks like a trailer to a high-impact movie.

In understanding artificial intelligence, I think it is important to answer three questions: What does it mean? How does it operate? What would its potential uses be in the years to come?

“Artificial intelligence clearly refers to the intelligence of the machine where the machine thinks by itself without a human being laying down the decision rules.”

The current artificial intelligence products work through Large Language Models (LLMs). Essentially, they are based on scouring through billions of records currently available on the internet and using them as language models by the mechanism of “back propagation”. The software arrives at the next word in any text on the basis of the previous words, using the knowledge it has gleaned from the billions of documents on the web, building a complete cognate text. Essentially, it is combining all the knowledge inside the digital world to create a new story, picture, document, or code.

This mechanism can be used for multiple cases of decision making: interpreting pictures, generating stories, or constructing automated decision-trees. One can imagine, in the times to come, banks using it to go through their huge loan portfolios to decide which of them they will carry forward, which of them they will write off or create a provision for — generated not by a hard-coded human decision-tree, but by patterns learned from past actions.

The Transparency and Attestation Dilemma

While there are many conversations about employment effects or the propagation of bias, the most critical part to me is the lack of clarity about how AI makes decisions in specific cases. This lack of transparency in decision-making can be a major issue. The usage of artificial intelligence in any financial decision-making can expose an entity to decisions where the underlying logic is unknown. This creates fundamental problems for an attesting profession like ours, and our profession will need to develop methodologies to overcome this hurdle.

3. Sustainability: Beyond Financials and GDP

Concerns about sustainability are a major change sweeping across the globe. This is going to impact the process of decision-making at a corporate level as well as at national level, and therefore, it is also going to change the information used for such decision-making.

For long, businesses have run on the core principle of “free enterprise” — namely, that every sale to a customer is a vote that the customer is paying for value received; therefore, higher revenue and profit signify higher value created for society. The financial results of an undertaking were used to justify investments and determine societal capital allocation.

We are now beginning to realize that this summation of individual value creation does not equate to societal value creation. This classical mechanism does not take into account the destruction of the environment or damage to biological diversity. Consequently, society may suffer while individual consumers and businesses gain short-term value.

The world is now looking not just at revenue and profit, but at the societal and planetary footprint of an enterprise:

• How much CO₂ does the working of an undertaking generate?
• What negative impact does it have on biodiversity?
• How much of global natural resources are consumed?
• How much waste is generated?

Since what gets measured gets managed, collecting data on ESG (Environment, Social, and Governance) sustainability is an extraordinary opportunity for our profession. For our profession to remain relevant, we must rapidly expand beyond financial measurement and attest across comprehensive non-financial sustainability dimensions.

Re-evaluating the Yardstick of National Progress

This measurement evolution touches national progress as well. For too long, nations have relied on a single metric: growth in Gross Domestic Product (GDP). Increase in GDP has always been equated with increase in prosperity. Now, there is a growing realization that GDP is a very inadequate measure of true growth: GDP can grow when one group digs ditches today and a second group fills them up tomorrow. GDP does not give recognition to growing income disparities, nor does it recognize the immense value created by unpaid workers.

New measures of national prosperity are now under active global debate, presenting a tremendous opportunity for Chartered Accountants to lead in non-financial measurement, social impact reporting, and societal attestation.

Conclusion

We began this article with the theme of change and its increasing velocity. We believe that our profession is at the cusp of yet another wave of change. We have an opportunity to shape these changes and to contribute to human development.

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Authors may be reached at: eboard@icai.in