CHALLENGES FACED BY LOCAL CA FIRMS IN INDIA
Table of Contents
SAFEGUARD & CHALLENGES FACED BY LOCAL CA FIRMS IN INDIA
BRIEF INTRODUCTION
- Our Govt. believes and at the same time wants that the Global Big-8 firms should be including the 4 Indian Accounting Firms. However, this is often not going to happen until our own Govt. decides to promote local firms and thereby provides some kind of support, and create an environment for the same.
- It’s alarming that local Service Providers don’t seem to be being given grade playing field and not much opportunity is given to expand their infrastructure, invest in R&D and improve the standard of services as per global standards.
- Even the government, various regulators, and bankers favor some Large Multinational Service Providers (MSPs) and have little or no room for local service providers when it involves deciding the high-ticket assignments.
- Several entry barriers are created for small and medium service providers and that they are struggling to create entry into large Corporate, Govt. organizations, PSUs, Banks and regulators like RBI, SEBI, etc.
- It’s a matter of proven fact that majority of Audits and Consultancy assignments of big and enormous Corporates and Govt owned entities are undertaken by these MSP/MAFs, directly or indirectly.
BASIC PROBLEM / CHALLENGES FACED BY LOCAL CA FIRMS IN INDIA
It has become a typical practice that a lot of EOI/RFPs for large assignments are designed/drafted in an exceedingly manner that favors only Multinational Accounting Firms and doesn’t even allow local firms to participate. the whole tendering/bidding process has become a mockery of the system and an eye-wash, designed for the sake of formalities. Many large Govt. Institutions, banks and PSUs are following this unethical practice to keep the local firms unfree. Only small and petty assignments are left for local firms, for whom fee is so competitive that it doesn’t even cover the price of execution in most cases.
In quite a systematic manner, the multinational firms have been constantly snatching the opportunities from the hands of Indian Service Providers. India has become an open ground for these Multinationals who do whatever they desire by using all means for getting assignments in their favor. Today, even Income Tax Dept. is taking Services of those MAFs. Being an Indian CA, I extend my concern and worry towards my very own fraternity and, therefore, will discuss about how the intervention of Multinational Accounting Firms has negatively impacted the small and medium accounting firms in India.
It is painful to determine that Local Indian CA Firms are struggling at every level and not being provided grade playing field even by our own Public Sector Banks, Corporates, Regulators, and Govt. owned institutions. Multinational Firms have been constantly invading every sector, charging exorbitantly high fees with very little amount of value addition. It’s time Govt. should realize the gravity of things and think in favor of Indian Service Providers and save its resources.
It is believed that ICAI, being our Alma-mater, must step-in and approach the government. To provide for some protective measures , in order to save the interest of small and medium Indian Service Providers.”
SUGGESTIONS & SAFEGUARD LOCAL CA FIRMS IN INDIA
We would suggest following immediate action points to safeguard local CA Firms and provide a medium to them to grow big:
- There’s an urgent need to take appropriate action against the MAFs and their Networking Firms (which is long overdue) who are operating in India by flouting various norms including violation of CA Act and FDI rules. Despite my repeated RTIs, no data has been shared with me on what action is taken against these entities on the direction of the Supreme Court within the case of S Sukumar V/s ICAI. The protective attitude of our sitting council members towards these networking firms speaks lots about their intentions. they’re guarding the rich and large Multinational Accounting Firms (who are becoming huge foreign funding), instead of protecting the local CA Firms. The Code of Conduct and Ethics are meant just for Indian Firms and not for them. they’re freely sponsoring business awards, events, TV debates, etc. under their name and taking assignments through their local network firms. Unfortunately, such kind of luxury isn’t available to local CA firms.
- The need of the hour is that a delegate of ICAI should meet RBI, Bankers, PSUs, and various Ministries to tell them about ground realities and provides protection to Indian CA Firms a minimum of in Govt. Depts., PSBs, PSUs various other local Authorities and Regulators. MAFs could also be allowed as long as no Indian Service Providers are available for that specific Service. I can quote many instances where Indian CA Firms weren’t given an opportunity to Participate within the Tendering Process. this could not happen in our own country, which is stuffed with qualified, experienced, talented, and hardworking professionals.
- The selection criteria for tenders and various assignments should be designed as per the necessities of the assignment and not as per the whims and fancies of the Tender issuing Authorities. Technical Parameters should tend more importance than the Turnover of the applicant. Even a personal should be eligible for applying for a young if he has the required competence, experience, and caliber to deliver.
- No Multinational Service Provider (including its Associate, Partner, Network Firm, etc.) be allowed to participate in Tenders of Govt. PSBs, PSUs, or the other Public Authority or Local Body.
- A young Committee (as our Council Members are always prompt in making committees) should be formed to prevent various malpractices within the allotment of tenders and bidding processes. The grievance of members associated with tenders should be addressed on priority. this situation is specified you retain writing to the Institute but nobody is there to handle your concern. This ends up in unrest amongst the fraternity members and ultimately results in several malpractices. If there’s a chosen authority to handle these grievances, I’m confident that members wouldn’t adopt unethical means to urge any assignment. In most of the cases, tendering system has been misused by the Tender-issuing agencies and they do so, by collecting high amounts of processing fees and EMD. There are instances where these authorities have collected processing fees above the number of the whole cost of the assignment. of these cases must be decided upon seriously by PDC of ICAI.
The above measures will definitely help in generating more and more professional opportunities for tiny and medium Service Providers and permit them to grow big. we are able to grow big on condition that we put our house in order.
No one should be allowed to become so big that he starts destroying others, and every one of us must need to be powerful and resourceful enough to safeguard ourselves. Steps to be taken to promotion of local Firms for various assignments of Public Sector Undertakings, Govt. bodies, and Banks.
LOW BIDDING ON APPOINTMENT OF AUDITORS & OTHER ASSIGNMENTS
The Government, Regulators, and various other Stakeholders should be worried and anxious about the falling standards of quality, deliverance, and performance, not just in commission Sector, but also in sectors like Infrastructure, Construction, and Manufacturing.
The main problem, or we can say the sole culprit of the above problem is low-bidding or the L1 concept. It also shows the utter distress being face by the businesses/service providers and the kind of race in which they compete with each other to grab an assignment/work at any cost. Somewhere this has got to stop and a far better sense should prevail.
How can we improve the standard of Services could be a big question? Without improving the strategy of Selection and paying a decent fee to service providers, we are able to neither improve the standard of labor, nor we will actually fix accountability. Good quality always comes at a price. Thus, if one pays for peanuts, they will surely get monkeys only.
The Govt and Society at large are perplexed on how big frauds occur despite Audits being done and despite following all norms of appointment of Auditors. This goes for the other assignment in PSUs, Banks, or the other Govt. authority.
SOLUTION
The only solution to the present problem is to try and do away with the System of choosing Service Providers on L1 basis. Moreover, this system of choosing Service Providers doesn’t recognize the caliber of a personal, who may be more experienced, knowledgeable, and has more capability than any established organization.
PROBLEMS FACED IN TENDER PROCESS
My Second Point needed to be discussed is to tackle the difficulty of flawed tendering process. This issue has been repeatedly raised and communicated with you all and you’ve got given me an awesome response and echoed my voice. thanks to the positive response to my mail, I made a decision to meet the then Vice-President of ICAI and highlighted this issue, and gave my suggestions to handle this issue. But as usual, there’s a scarcity of willingness or some unknown constraints which stop them from taking any bold decision.
Before I reached for the meeting, a committee was purportedly formed to tackle the difficulty of low bidding but that was only for the sake of my meeting, and thereafter nothing happened. Thereafter, the VP told me that they can’t take any action Suo-Motto against any firm thanks to low bidding and that they need a proper and a formal complaint. After discussion, I even lodged a formal complaint with that committee in respect of some of the recent tender, but again, nothing happened. I repeatedly followed up over the mails, but as usual, you never get any reply from this type of irresponsible system.
I feel that nobody is happy about selecting agencies for any kind of work on L1 basis. this method has done more damage to the standard of Services and performance than the rest. Therefore, the blame squarely lies with Govt. and its agencies like CVC, who are not recognizing and even looking up to thethese important matter for years. The sufferers are people like us, who need to deliver services by following certain standards of quality, regardless of the fee. Unfortunately, our Institute has never escalated this matter before CVC or various ministries and has no zeal to speculate time on such issues
SUGGESTING MEASURES
- TO beat the menace of vague and abnormally low bidding in tenders associated with our profession, the ICAI should frame some guidelines, and allotment be done by using CAG panel. Technical qualification should be provided with certain Points, along with the Category allotted by CAG and MEF respectively.
- So as to safeguard the interest of small firms, all assignments valuing above Rs. 10 lacs should be allotted to 2 or more firms where one firm may be a previously established firm and also the other(s) can be a small or new upcoming firm. Even Individual professionals having rich experience should be a priority. this may end the constraint of lack of experience in any specific field. Otherwise, it becomes a Chicken n Egg like situation where there’s always an issue, how are you able to gain experience without getting the assignment.
- Fee for the Professional Assignment should be decided by the Tender issuing authority on the basis of quantum of work involved and in line with the quality Rate-Card published by ICAI. The Tender Issuing Authorities can always consult ICAI if the rate card can’t be followed for any specific assignment. Here again, comes the problem of Image Building which we want to figure upon, as I suggested in my first Agenda Point.
- Last but not the least, strict Suo-Motto actions be taken against members, involving in under-cutting of competition and following unethical means to grab work. The Institute should be vigilant and rather than a peer-review (which I feel is an utter failure), the matter should be brought up to a specific team of experienced professionals directly reporting to PDC of ICAI.
The World Bank has in place certain norms for handling “Abnormally Low Bidding” and also the same will be referred for handling various assignments where CAs are bidding. We cannot let things deteriorate within the hands of some professionals who want to urge assignments at any cost without caring about the quality of work.
- As we are all aware, C&AG changed its empanelment policy for Chartered Accountants (CA) firms for the FY 2023–2024.
- The points for Partners & duration of the firm’s relationship were reduced under that policy, and points for peer review were added.
- If Firm has been performing peer review for the the past nine years, it will get 25 points.
CONCLUSION
After most discussion with fellow professionals, the sole question that arises in my mind is, who are these people that are getting Professional Assignments through Tenders and what special/unique techniques they follow to qualify for a selected assignment and what’s the basis of calculating the minimum value of assignment (minimum bid value). we’d like some policy to tackle this important issue. Till then, we’ve got no option but to observe the deterioration happening before our eyes.
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