The Economy-Accountancy Nexus

It is a matter of common knowledge that no economy can thrive or sustain itself without robust financial management. To build a credible economy, the facets of governance in terms of accountability, transparency and credibility must be upheld across various sectors contributing to the Gross Domestic Product. No other profession can boast of a more proximate nexus with an economy of a nation than the accountancy profession, which got chartered by the Government in 1949, even before India became a Republic. We must, therefore, play an active role in catalysing reforms and creating values so that India emerges as a strong economic power in the Comity of Nations.

Transformative Growth Trends: Demographics & Roles

The profession has grown with a creamy layer of youth entering its fold, thereby bringing down the average age of the profession:

• Surge in Women Chartered Accountants: The entry of girl students into the CA curriculum has been accelerating over the last two decades, resulting in a sizable growth in women CAs. In 2000, the women CA population was hardly 8% of the total membership of ICAI. Whereas, now it is 29% as 1,05,275 women CAs are among the total strength of 3,67,429 members.
• Shift from Practice to Industry: During the 1980s, CAs holding a certificate of practice (COP) constituted over 75%, whereas those in Industry were hardly one-fourth. However, today about 58% (2,11,769) are not holding COP (in Industry / corporate roles) and those in practice are only 42% (1,55,660).
• C-Suite & Governance Leadership: Many of our members have risen to CFO, CEO, and top corporate leadership roles. Instead of merely playing the number-crunching role, CAs have evolved as strategic thinkers and decision-makers. Many members, both men and women, serve on Company Boards as Independent Directors and invariably head Audit Committees. Notably, the Reserve Bank of India (RBI) has mandated that only a person with a Chartered Accountant qualification can be a CFO in Banks.

Knowledge and Skills: Sustained Pedalling

The accountancy profession today stands on the threshold of dynamism and change. We need to be diligent in knowledge management and innovation. Any laxity in this regard on our part could be fatal. The Government, regulators, society, and clients expect the profession to take proactive measures for knowledge updating and skill upgrading.

“The accountancy profession today stands on the threshold of dynamism and change. We need to be diligent in knowledge management and innovation.”

In the core areas of our practice, such as the assurance function and the non-core areas, such as consultancy/advisory functions, we need to be empowered consistently. Any inaction can create a void that those outside our profession will fill. John F Kennedy once said that there are risks and costs to action, but they are far less than the long-range risks of comfortable inaction. Practising the accountancy profession is like riding a bicycle, and continuing professional education is akin to sustained pedalling. Needless to mention, that one only falls off if he stops pedalling.

Quality in service delivery leads to excellence, which is a definite attribute that paves the way for the growth and development of the profession. However, there are limits to the excellence we can achieve on a narrow base. The profession must innovate and re-engineer itself to a new trajectory of divergence and efficiency, evolving new products, services, systems, procedures, and methodologies to maximise utility while minimising cost.

The Digital Era: Technology Supplements, Cannot Substitute Auditors

We need to embrace technology and use tools and gadgets to improve the quality and efficiency of our service delivery. As Charles Darwin mentioned, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” We need to stay relevant in the digital era that has come to be known for disrupting business practices. Digitisation can disrupt accountants’ routine, repetitive, and mundane tasks as automated mechanisms usurp them.

“We need to embrace technology and use tools and gadgets to improve the quality and efficiency of our service delivery.”

However, audits cannot be substituted by mechanised systems as technology can support and supplement audits but can’t substitute auditors. Automation cannot replace the audit function because the auditor’s scepticism, diligence, and professional judgement, duly backed by an intuitive common-sense approach, cannot be factored within artificial intelligence under any circumstances. These virtues are inevitable in ensuring comprehensive reporting and appropriate disclosures to stakeholders. Consequently, despite digitisation, the audit function will sustain itself forever.

Digitisation facilitates enhanced data accuracy and seamless information flow during audit functions. Data analytics enables audit professionals to draw findings and reach conclusions with precision and speed, even across enormous volumes and geographical spreads of client operations, achieving cost competitiveness and scale.

Contribution on ESG (Environmental, Social & Governance)

Measuring financial results is comparatively straightforward, and so is the reporting function. But measuring contribution to and performance on ESG parameters is challenging. The intent behind ESG reporting is to ensure corporates care for the planet (environment), care for people (social), and earn profit only through good governance by adhering to regulatory and ethical frameworks.

The original prescription of Business Responsibility Reporting (BRR) has evolved into Business Responsibility and Sustainability Reporting (BRSR), introduced by SEBI in 2021, grounded on the nine principles of the National Guidelines for Responsible Business Conduct (NGRBC). Internationally, standards include Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and the Taskforce on Climate-related Financial Disclosures (TCFD). CAs in corporate and internal audit roles can lead by establishing metrics, processes, and controls for verified ESG data collation.

Capacity Building: Mandatory Joint Audits for Listed Entities

Although Indian CA firms are growing in a calibrated manner, very few have a national presence with partner strength beyond 20. Most firms, including LLPs, are small and medium-sized (SMPs). These firms do not get exposure to handle large corporates, cannot invest in scaling infrastructure, and require support to enter sunrise services.

“ICAI should focus on capacity building in the accounting profession, and one such area is empowering small and medium-sized firms and enabling the consolidation of such firms to scale up.”

To achieve this, it would be prudent to enable the appointment of a small or medium-sized firm and a large firm as joint auditors for listed companies above a certain turnover threshold. In other words, the Joint Auditors’ concept prevalent in Public Sector Undertakings (PSUs) and Banks should be formally extended to listed entities. Further steps include:

• Providing centralized knowledge portals with checklists and templates for SMPs.
• Organizing intensive practical workshops in emerging specialized practice areas.
• Encouraging firm networking, consolidation, and mergers by eliminating statutory deficiencies.

Global Reach: Creating the "Big 8" with Indian Global Networks

ICAI must take initiatives to enable Indian firms to go global. Many firms are ready to expand into overseas jurisdictions directly or through network mechanisms, but regulatory shackles must be modernized to facilitate seamless establishment abroad. If an Indian firm joins a global network strictly for knowledge-sharing without capital infusion, foreign control, or profit repatriation, such affiliations must be encouraged.

Furthermore, Indian firms must be empowered to pioneer and establish global accounting networks headquartered in India. As the Hon’ble Prime Minister suggested on CA Day (1st July 2017), the present BIG 4 should become BIG 8, and at least 4 Indian CA firms should emerge as global leaders.

The Challenging VUCA Environment & Regulatory Oversight

The business environment has transformed into a VUCA world (Volatility, Uncertainty, Complexity, and Ambiguity). The individual value system is degenerating due to greed, leading to corporate scams and flouting of governance where least expected. Society tends to believe that an audit should unearth all frauds, blurring the distinction between an investigation and an audit and widening the expectation gap.

Beginning with the Satyam case, followed by Punjab National Bank (Nirav Modi) and IL&FS, auditor accountability has faced unprecedented scrutiny:

• Companies Act, 2013 & Class Action Suits: Section 245 empowers shareholders with class action suits against both management and auditors.
• Firm-Level Liability: Under Section 147(5), the entire audit firm can suffer consequences for lapses in the audit function, not just the signing partner.
• NFRA Scrutiny: The National Financial Reporting Authority (NFRA) aggressively penalizes audit lapses and gross negligence. While members must bridge the performance gap, ICAI must take proactive measures to close the expectation gap.

Value Systems & Ethical Anchor

ICAI must periodically advise the Government on corporate governance policy reforms. However, law alone cannot prevent fraud — if changing laws prevented fraud, corporate scams would have ceased in the US following the Sarbanes-Oxley Act (SOX). Instead, scams continued on a massive scale.

As Mahatma Gandhi said, “There is enough for everyone’s needs but not for anyone’s greed.” Fraud persists when human desire breaches sanity. Effective deterrence requires speedy investigation, fast-track trials, and stringent punishment under zero tolerance for unethical conduct.

Lord T.B. Macaulay observed: “The measure of a man’s real character is what he would do if he knew he would never be found out.” Ability may take a professional to the top, but staying there requires character and integrity; otherwise, the fall is destructive. In innovation and technology, one should swim with the current, but in values and principles, one should stand like a rock.

Conclusion

As we continue our glorious journey, we must adapt to unfolding socio-economic changes. As French philosopher Jean-Paul Sartre noted, we have no destinies other than those we forge. We must safeguard the goodwill our forefathers built over 75 years, actively partnering in nation-building for a credible economy. Functioning with independence, excellence, and integrity, we have the potential to emerge as the profession of the future.

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Author may be reached at: eboard@icai.in