Scaling up Indian CA firms: ICAI issues exposure draft on Code of Ethics

In a move aimed at supporting the government’s vision of creating a domestic Big Four-type firm, the Institute of Chartered Accountants of India (ICAI) has proposed significant changes in its Code of Ethics, including new norms for advertising, fees as well as revisions in the definition of public interest entities.
 
The ICAI has issued an exposure draft on its Code of Ethics and has sought comments by November 26. “…the 12th edition of the ICAI Code of Ethics was issued with effect from July 1, 2020. Due to changes then, revisions have been proposed in the Code of Ethics,” it said.
 
One of the key changes proposed by the draft is to enable practising Chartered Accountants to form partnerships with other professionals under insolvency professional entities (IPEs) and resolution vehicle entities (RVEs).
 
It has also proposed a change in the definition of Public Interest Entity (PIE) to include an entity one of whose main functions is to take deposits from the public. It has proposed the insertion of new independence provisions, like non-acceptance of audit work for public interest entities (PIEs), such as listed companies, where the auditors have provided non-audit services to the same company. The move is seen to come after the National Financial Reporting Authority (NFRA) pointed out issues with the auditors’ independence in many of its annual inspection reports of top audit firms. On the fee front, the ICAI has raised the reporting threshold to 20% for PIEs
 
The ICAI has also proposed changes in Council Guidelines for Advertisement, 2008 to make them more contemporary, including inclusion of “contemporary form,” “directories,” in the definition of “write-up.”, removal of limit of font size and the requirement to mention membership number/FRN. At present, ICAI mandates that the font size should not be more than 14 in write ups.
 
It has also proposed amendments to the Website Guidelines to align them with present times, and making the same applicable to recognised domestic networks also
 
At present, Indian CA firms have limited global visibility and have a lack of institutional branding and they cannot have their own specific logos for personal branding, which are seen to put them at a disadvantage compared to international firms.
 
The ICAI has also suggested that amendments to the Guidelines for Practice in Corporate Form to include services such as forensic accounting, administrative services, research analysis recognized by a regulator, social impact assessment and evaluation, CSR impact, business responsibility and sustainability reporting, and artificial intelligence and permitting the development of websites, subject to requisite amendments.
 
It has also proposed a new Chapter on Ethics Standards for Sustainability Assurance, outlining requirements for sustainability assurance providers while providing sustainability assurance engagement.

Experts noted that the proposed amendments are much needed and relevant to the current day scenario. Prateek Agarwal, Partner, Nangia & Co LLP said the changes are aligned with the broader vision of the government to create large audit and advisory firms out of India. “These amendments will also help in forming Multi-Disciplinary Partnership firms that can provide unregulated and regulated services like auditing, secretarial and legal under a single firm. Also, some of the changes particularly around Sustainability Assurance proposed in the new draft are in convergence with the International Code of ethics already introduced,” he said, adding that the amendments are relevant and well-intended although much more still needs to be done to take the profession to the next level.
 
Charanjot Singh Nanda, President, The Institute of Chartered Accountants of India said that they require support in five key areas.
 
“Regulatory benefits such as permitting domestic CA firms to advertise, technology and finance to scale up, a change in mindset and training and capacity building are essential to help Indian firms to scale up,” he said on Sunday.  
 
In a recent interaction ICAI President Charanjot Singh Nanda had said that Indian CA firms require support in five key areas to become a global entity. “Regulatory benefits such as permitting domestic CA firms to advertise, technology and finance to scale up, a change in mindset and training and capacity building are essential to help Indian firms to scale up,” he had said.