ICAI: Structural reform?

On CNBC-TV18’s show, The Firm, to give some answers and some solutions on structural reform on ICAI are MM Chitale, Former President of ICAI; YM Kale, Former President of ICAI and Group President of Hinduja Group (India); and TV Mohandas Pai, Director & Head - HR at Infosys.

Published on Sat, Dec 19, 2009 at 15:38
Source : CNBC-TV18

Excerpts from the discussion:
Q: Last week when we debated this issue another well-known CFO DD Rathi termed the state of affairs ICAI as a continuous lowering of standards at the institute. Would you agree with that assessment? Do you think there is need for change?

Pai: The institute reflects the state of society today; today we have society where intellectual thought and intellectual leadership is not given the same kind of respect as earlier. But we need to understand the context in which the institute has been set up.

Q: What are the seeds of the slide, according to you?

Kale: I will tell you but before that please understand that the nature of the Chartered Accountants Act is very different from the Advocates Act or other acts. The Chartered Accountants Act keeps CAs from doing anything except what is prescribed whereas other acts keep others from doing what is prescribed for their profession.

In other words, the CA Act shackles CAs whereas other acts shackle competition. Starting with this inherent disadvantage, let us examine, in the light of what I just told you, where the seeds of the slide came?

The seeds of the slide are: first, the sacrifice of language skills; and in that I do not blame the present council. If you want to blame someone, blame me. Blame my generation, which did not foresee that the entrance examination, the papers, the quality — if you do not insist on a grammatically simple correct communication and if that does not become the prerequisite of the qualification, then we are merely amassing a lot of regulatory framework and accountancy.

Q: That is not where the change needs to stop, do you believe that is where the change needs to stop. What more do we need to do?

Pai: I think the change needs to start at the organization level. We have a president and vice president appointed for a year – that is too short a time for them to make an impact and very president wants to start new programmes and make an impact rightly so because they have been elected for a year. I think we need to have a permanent structure with possibly a president, a president being appointed for five years, not by the membership but by the council and then the chairman of the council being appointed by an election every year maybe there is a better solution or maybe the chairman is appointed for every two years that will give enough time to really do some work. This idea of having one year creates a different kind of pressure.

The second thing we need to do very clearly is to make enforcement mechanism for discipline is taken considerably. Because like you said about Satyam the fact that it took seven months for any action to be taken sends a wrong message. I am not saying that the institute is wrong. They probably had their reasons but public perceptions is important like Kale said in the profession confidence of the public in the profession is the most important asset and for that you need to act and you need to act decisively to show people that you are acting like the government did for Satyam. The government acted within three months, they didn’t take seven months so the institute has to act.

Lastly, setting standards for the entire country in terms of accounting standards and auditing standards. There too I think there is a slight conflict of interest. The world has moved away from that so I think the whole matrix of how the institute runs, how the act is conceptualized needs a further debate as an issue because the world has moved on. Society has moved on and we have a structure of the 1940s and 1950s.

Kale: Your India Inc — as you often call it on your shows — is so obsessed with the producing of bankable balance sheets to please investors and analysts alike, that today the book keeping rectitude has come very low on their priorities. I am sorry to say that these incorrect priorities receive cordial ascent from large sections of society, which should know better. Therefore a part of this blame must rest upon a much wider section than you imagine.

Q: We cannot blame everything on socio-cultural changes in society. At the end of the day, we cannot say that the quality of the regulator depends on the quality of people in the society?

Kale: Independence is an in-eradicable human instinct, which even antidotes our social instinct. That is ultimately a state of mind.

Q: Fabulous articulation is not going to help the ICAI from the situation it is in.

Pai: Let me put it in perspective. You are more than 150,000 members; you have maybe 500,000 students who are getting trained and a large number getting article, you have a standard setting process which is becoming extremely complex because of globalisation, you have a disciplinary process which requires much more investment to be done. To me it’s a management challenge; the management challenge is enormous, it’s not what it was in 1950 or 1960 but instead of smaller and India is growing at 9%. Do we have this structure and institute to take care of India’s requirement for the next five-ten years? I would say no. If we are out of step with what India needs and I would not say that the institute exist only for its members even though there is a purpose. I would say the institute exist for a public purpose and the public purpose is to ensure that its credibility to financial statement and the regulation of a profession to serve public interest.

So public interest to me predominate the profession and professional needs. So I would say the complexity of management itself makes its incumbent that the whole gamut of activities that the institute does at this point of time requires a re-look. I am only asking for a debate. I am a member of the institute; I am a very proud member. I am extremely proud of the institute; I stand up for institute at all point of time but it will put public interest first before the institute and public interest to my mind demands that we re-look, we debate, we come out with an appropriate structure for the next 10-20 years.

Q: You can keep rolling the ball back in the India Inc’s court, so to speak, that is a different problem but the fact is that if the change does not come from within it has to come from outside – from outside the only person who can do that is the government that is why I think this ICAI mentioned that?

Kale: Public interest is paramount and for that, a service providing profession must not be allowed to turn into a survival business. Today there are two kinds of chartered accountancy profession developing. One are doing are eking out their living, reducing themselves to meaner and meaner lower rungs of representational ladder and there is another where these are basically marketing organizations who happen to perform in the domain of accounting and auditing.

Pai: Mr Kale has put it in his inimitable style and great language that there is a need for change. I have got a proposal. I think we should have a group set up by the institute itself to do a social audit, consisting of past presidents possibly Chitale and Kale, two eminent jurists, two businessmen and two young members of not more than 10 years in profession because whatever changes is going to come is going to impact them.

They must sit down, introspect, look into the future, talk to a lot of people and look at what is happening and come out of a model for the next 10-20 years. Unless we do that constantly how will the public believe us because the public only sees the bad things, they do not see the good things. Look we ensure the financial integrity of this country.

Let me clear we are the professionals which will ensure the financial integrity of this country. The balance sheets and everything that we sign that is function make sure the financial system is stable and runs. We have a great genesis for finance and accounting. We perform extremely important role to keep this country going. But we must introspect, we must come out of the view and tell the government this is the change we want instead of letting many other things come into the middle and go on hitting us and demeaning us and telling us we are bad. We are not bad we are good people. We have a noble profession. Yes, 4-5% something’s go wrong it could happen anywhere but we have to introspect, we have got to talk of about it otherwise we are going to have the outside world overwhelmed like Kale said we will not be able to counter.

Q: You do not want the government to step in but if the institute itself does not do anything from within then the government and other agencies will be forced to step in. We are not trying to find solutions on a 20-minute television show. Is your assessment that the council today is actually even willing to introspect?

Chitale: Everybody who thinks seriously about the matter must be willing to introspect and a programme like this is quite useful in the sense that if somebody is not willing to introspect at least this will force them to do that. So to that extent the debate is most welcome. I agree that there is a need for a change but the change does not mean taking a complete 360-degree upturn.

Q: What do we do?

Kale: Those who merely report upon deeds performed by others can hardly be equal to those who perform the deeds worthy of being reported. Therefore we must teach this profession to aspire but and not to grovel.

Q: What you have told me in many words is that you are hopeful for change. Do you believe that considering how politicizes the process has got in today, I mean, last week we were discussing, it may be one of but we were discussing an instance of booth capturing in council elections — this is absurd. Do you believe that the system today, which is so politicized is even willing to introspect?

Kale: I should hope so.


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