Redesign Institute of Chartered Accountants of India for today (lessons from NSE)

Prof R Narayanaswamy of IIM Bangalore in this piece argues for revamping ICAI:

Those who midwifed the Institute of Chartered Accountants of India in 1949 would hardly recognise it in 2018: deficient self-regulation, riddled with conflict of interest, churlish election campaigns… They could not have imagined 2.5 lakh members being ruled by 40 mostly unexceptional people filling as many committees. Unquestionably, the ICAI needs fixing. The recent report of a committee of experts is a reality check on the state of affairs and the future of the audit profession.

The committee has concluded that the term ‘multinational accounting firm’ is a “misnomer”. Indian chartered accountant firms that are part of the Big Four and other international networks are registered in India and staffed by members of the ICAI. Big firms spend more on technology and training and pay higher salaries. Medium and small firms should merge in order to compete with them. Many CA firms are family outfits, regarded as heirlooms to be inherited. If they want to grow, they should become professional enterprises. Concerns about anti-competitive conduct are best handled by the Competition Commission of India.

That said, there are questions about a Big Four affiliation. Audit firms, especially the too-big-to-fail ones, should improve their governance by having independent supervisory boards.


ICAI’s governing council is fraught with conflict. First, CAs elect the council members, who are expected to discipline them.

Second, council members compete with other CAs for business, but their office and contacts give them an unfair advantage. There is a high risk of self-dealing with no effective safeguards.

Third, council members give opinions on matters that may be later examined by the council. Finally, council members prescribe the CA curriculum and set the examination, and concurrently run coaching shops. Ominously, the number of such ‘edupreneur-CAs’ appears to be increasing over the years.

He suggests to revamp the whole thing:


Two radical changes are required.

First, the ICAI should be restructured as a demutualised organisation. An independent board should govern the ICAI. The board may comprise professionals selected by a nomination committee appointed by those who have a stake in financial reporting, including accountants, investors, bankers, lawyers, insurers, government, and regulators. A team of professionals should manage the organisation and report to the board. Education, training, examination, and research can be managed by autonomous divisions. The National Medical Commission which has recently replaced the Medical Council of India can be the model.

Second, the government should introduce competition in the grant of accounting credentials. The monopoly of the ICAI should be ended by setting up a new, demutualised organisation, called The Institute of Certified Public Accountants of India. Many countries, like Australia, Brazil, France, Germany, Indonesia, Iran, Ireland, Malaysia, and the U.K., have more than one recognised accountancy body.

The National Stock Exchange is an example of how demutualisation and competition can transform a disgraced trade. In the 1990s, it was set up as an alternative to the broker-owned, conflict-ridden Bombay Stock Exchange. For much of its existence, the NSE has led in market capitalisation, trading volume, new products, technology, and investor trust.

The ICAI faces the worst crisis of credibility in its history. “You never want a serious crisis go to waste,” said Rahm Emmanuel, who served as Chief of Staff to U.S. President Barack Obama. There can be no better way to benefit from the crisis than making sure the accounting profession is fit for purpose.


India’s institutions of yore are all leaking. We need fixes for several of them including ICAI..



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