Reminiscences about the profession

This narrative cannot begin without acknowledging a deep debt
of gratitude to two benefactors, Mr. V. D. Chowgule, and the Hinduja family, who
respectively facilitated my entry into Articles in London (1966) and passage
into industry (2002) gently, swiftly and with future prospects that could hardly
have been bettered.

An entry to ICAI membership in 1971 as a UK CA, under a
facility open up to mid 90s, and paradoxically shut during my own presidency,
gave me relief from examinations, and seemed almost providentially designed by
ICAI founding fathers, to set the duller lot free from the severer struggles
with Indian legislation, bestowing on me large leisure to brood over coming to
terms with Mumbai’s ground reality, on return from PW London Office.

On joining a large firm in India (1972), my first impressions
were of contrasts, difficult to reconcile. Firms with quality clientele to match
today’s multinational LLPs, but squeezed by an oppressive tax regime, worked in
rudimentary environments with non-existent creature comforts, the serene
antithesis of the later-day CA offices modelled after five-star lounges.
Unctuous peons donning traditional round black topis served feeble beverages —
reverentially to ‘Saabs’, obsequiously to ‘Seths’, deferentially to visiting
clients, and indifferently to other inmates.

CAs rode the high tide of sought-after tax expertise,
following doomed attempts by the business community to find cheer in the tax
regime then extant under the FERA-cum-Licence Raj, except through the most
abstruse tax planning, on a scale now hardly credible even to modern tax
planners.

The finest minds upon graduation craved Articles, enchanted
by the premium CA qualification. Some of the gems who trained during those
years, including under me, are today leaders of many sectors in India and
abroad, too numerous to recount.

Managers were deemed successful if staff rooms were empty
(there was no hot-desking then). It was seen as a sign of success (billable
hours was the main saleable product, as it is today) if the little ones were
ticking up chargeable hours in client offices, while the big ones turned
disputation into argument in tax offices, and escalated these before tax
Tribunals, — the latter appellate forum already under relentless surrender to
the rival black-gowned profession.

Members of our profession were imperceptibly but irreversibly
consigning themselves to meaner and less rewarding rungs on the ladder of
representational work. When the enduring tale of our profession is eventually
written, the scribes shall have the unenviable task of scripting a durable
record of the price we paid for neglecting the two engines that could have
navigated us to greater prosperity and good fortune — presentation skills, and
language skills. The neglect of these skills virtually handed on a platter to
MBAs and other disciplines, traditional preserves, over which CAs could easily
have retained hegemony.

The inherent tragedy of the CA in India is that — the CA Act
keeps members from doing that which is not prescribed, whereas the Advocates Act
keeps non-members from doing whatever the black-gowned profession does. So the
CA Act shackles CAs while the Advocates Act shackles competition.

Extensions of accounting like costing, management accounting
and financial management had by 70s been popularised, covered by authoritative
ICAI pronouncements, and become common enough to be put to general account. The
concept of accounting had changed, from one of maintenance of books and tracking
asset changes, to complex resource allocations and forward looking measurements
that support decisions for the efficient maximisation of profit. These
specialisms were subsumed by management consultancy, which turned esoteric, and
gradually the more lucrative work was captured by brand names, mostly non-CAs,
able to win predatorily priced assignments, and function with impunity outside
any regulatory framework whatsoever.

Gradually, all perceived ‘value added’ domains moved away
from the core attest function.

Audits had progressed, beyond the’ post factum technique of validating profit or loss and asset changes, to prescriptive regulator-driven reporting regimes, notably the requirements of October 1973 obliging verifications of capacities, turnover, production and stock quantities categorised by licensed sublimits, to be published in Annual Reports; and MAOCARO 1975 (forerunner of current CARO) requiring explicit subjective judgmental statements that broke new ground, augmenting responsibility and chargeable hours to perform extra work, without commensurate rise in fees, because clients saw little benefit to their businesses from that work. Astute, information-hungry bureaucracy had spotted an ideal intermediary to cater to regulator needs at no cost. So, over the years MAOCARO items elongated like the legendary Hanuman tail. One benefit that flowed to the membership from MAOCARO was a formal resuscitation of Internal Audit.

ICAI formed an Audit Committee on 17th September 1982, the date, I entered the Council. The ICAI President retiring on that day had lectured me on book keeping two decades back at college. I wondered if his farewell symbolised departure of quality from those hallowed premises, but was reassured to observe the elders that stayed on in the Council. They were learned men, rather serious, looking as though they would never surrender to any form of mirth, except maybe a twitch of a smile, if elected President.

Accent was as much on redistribution of work as on creation of new work; ‘Tax Audit’ was a notable milestone in creation of new work. Curiously though, the more comprehending minds among the then seniors, were, at least initially, not enthused by this source of perennial new work – it was seen as too risky.

The pet themes in rationing audits were ‘rotation’ which was rumoured tri-annually, and ‘ceiling’ which was mooted more recurrently. The latter was eventually enacted at 20 audits per partner and the former dumped, not because this was a triumph of self preservation by the old guard, but because many rotationists had done so well over the decade, as to see life differently. In the first draft of the new Companies Bill, the proposed ceiling on large audits was misprinted as 2 instead of 20 per partner. The first copies arrived as I was hosting a dinner for a former ICAI President. He had just declined a dessert that I had offered to order. Together we noticed the unexpected steep diminution in the ceiling on large audits at 2 per partner, without realising it was a misprint. He lightened the gloom by announcing that he would change his mind, and have the dessert after all, as this might be among the last occasions that it would be on offer. Obviously I had been wrong about elders not having a sense of humour – they did!

The big scramble in audit was for empanelment to win audits of nationalised banks, insurance companies and PSUs. The appearance of a senior bureaucrat with dispensing powers at any gathering could metamorphose ‘service’ into ‘servility’. This may have been the first dent in a system which had earlier taught members to aspire, but not to grovel.

Hopes about uplifting audit as a deterrent to corporate quixotry, through a convergence of statistical sampling and unprecedented advances in information technology, died early . Technology and sampling were used to boost margins by justifying drastic reductions in work and costs, by many, but almost institutionalised by a large international organisation that collapsed some years ago causing much misery. Given the disability that an auditor can neither issue summons, nor examine on oath, nor disclose the most horrendous client sins except in a court proceeding, auditing is probably destined to veer towards forensic investigations with statutory support. Some international firms have made commendable progress in this, without formal backing.

The Licence Raj also required numerous attestations – there was a boom in what was referred in vernacular as ‘certificate work’. Agents scouted impecunious young CAs even deep into the mofussil to entice ‘certifications’ of illusory end users and fictitious consumptions of the costliest imports.

Fleeing  the  shackles:

Fault lay not with the hapless membership, but in the stagnant economy and archaic regulatory shackles that offered little opportunity, except perhaps through emigration. Thousands went west, and as many gravitated to the Gulf. They did well, and did their country and calling proud.

The Council contained competent and clean professionals. But in a closed economy, an unseemly proportion of time was drained on volumes of disciplinary cases punishing puny sins – no more than tiny ads, minor indirect solicitations, and acceptance of minuscule audits without prior NOCs, mainly by members struggling for the economic necessities of life. Large established wrongdoers, including CAs outside professional practices, were seldom booked.

Tax:

Before the blossoming of other specialisms, the absorption with taxation as a discipline was near total. When established CAs of that era crossed fifty years of age, it would not have been uncommon to see their interest in the finer points of fiscal interpretations sublimated to become the principal passion of existence, replacing all other zests. 1985 broke the tax spell and ushered in Financial Services which were already waiting in the wings to come centre stage.

Finance:

The risks assumed by financial institutions in ex-tending term loans soon brought forth a new breed of CAs to help borrowers satisfy the information needs of lenders. This work quickly extended to an appraisal of justifications for projects before committing funds. The ICAI published the Back-ground Material on Project Evaluation in 1988, but well before that, entrepreneurs increasingly saw CAs as facilitators and procurers of much-needed finance, rather than number crunchers peering at small print, while big picture concerns went unnoticed. The evolution of a learned but backward looking timid lot into a dynamic pack not lacking commercial nous, became agreeably evident.

Industry :

An important lesson the profession was learning; was, that sectors outside traditional audit, especially industry sector, would value as advisors only those professionals who were providers of solutions, not those who stopped short of a solution after finding the root of a problem, howsoever painstakingly researched that finding of the problem root may be. For many of us brought up in the traditional mould, this may have been a bitter pill to swallow. But it is important to bear in mind that if the perceptions of society about us professionals do not coincide with our self perception, then it is we professionals who become irrelevant, not society, nor those who hold the purse strings that generally influence the perceptions of society.

Standards    – ASB,  IASB & IFRS

The Council did take worthy initiatives in line with world trends. Accounting Standards Board was set up in 1977. But contrary to popular impression, our thrust, at least initially, was not market-driven. I was Chairman of ASB for some years, thereafter on Steering Committees of International Accounting Standards (IAS) and finally India’s nominee on the main Board of IAS for a full Term. I worked closely with Sir David Tweedie, later IASB Chairman, and luminaries from US, Europe and Japan. International Standard Setter meetings occurred in exotic places in the world, and at times went on for nearly a week. The scholarship and erudition round the table was so profound as to be intimidating. But the humility was amazing. I once complimented Jim Lisenring, Vice-Chairman of US FASB, that his oration on the subtler aspects of financial instruments was the most brilliant piece I ever heard; and he shot back “that proves you have not been around in the world enough”. Incidentally the divide on debatable issues between the two sides of the Atlantic was at least as wide as between the two sides of the Pacific. The Board included such experienced individuals as could elucidate the most intractable technical problems with astounding clarity using examples of transactions in a small shop. Belying the irrepressibly drab image of beancounters, some delegates regaled us with the wittiest after-dinner speeches.

Installation of IFRS, including in US corporations, may well represent the single biggest opportunity for ICAI members during the next decade.

Capital markets and Bank NPAs:

For much of our formative years, my generation was awed by an authority known as the Controller of Capital Issues that obliged industry to seek our pricey attestation on intricate application forms, designed to obstruct rather than facilitate, the issue of capital or bonus shares. This controller vanished overnight, a little before the new SEBI-sponsored arrangements were fully in place, leaving an interregnum during which a number of adventurous souls including CAs had more than their share of fun.

In one of his famous plays Shakespeare has written an oft-quoted line “let us kill all lawyers”. He was terribly wrong, not only because he exaggerated the foibles and banalities of the calling he named, but because he had never met merchant bankers before he wrote that line. Had he met merchant bankers, he may not have dished out this dire prescription to others.

One of the Managing Directors at Bear Stearns (which folded up later) led the Financial Analysts in the IASB in discussing many issues including derivatives, hedge instruments, options, off-balance sheet items, etc. She would sometimes ask me how she had come through, and I would reassure her that she had not exhibited the characteristics implicit in the sounds of her firm name i.e., ‘neither ‘Bear’ nor ‘Ste(a)rn(s)’. Uncannily though, I had then, and still have today, an instinct against some of the new fangled financial instruments, and particularly their accounting.

I have a foreboding of worse disasters to come, because the malaise is no longer confined to bankers and capital market intermediaries, but includes modern CFOs, some belonging to our own profession. So obsessed are the CFOs with ‘selling’ bankable balance sheets to Analysts and Investors and presenting their Business to audiences from an external perspective, that, an in-depth expertise in specialist areas like Risks including Tax risks, and Regulatory requirements, have become for them the least important areas of their work. This folly is compounded by the cordial assent which these incorrect priorities now seem to receive, even from the more comprehending minds, in Industry and Profession.

If I were asked to muse in retrospect, on who should be regarded as the biggest offender against financial discipline, I would not accuse the business community. On the contrary, given the spate of acquisitions abroad, the Indian businessman must be seen as a defender, not offender, by those who care about the Indian Economy.

Pre-liberalisation era curbed genuine entrepreneurship, denying the scarce foreign exchange to the worthy enterprise, while at times releasing it for the not so deserving. One instance may suffice to illustrate incondite loans in foreign exchange.

A consortium of nationalised banks had lent a humongous sum in US dollars to a project spear-headed from India with some foreign individuals as stakeholders. The project was located in an island in the Indian Ocean. Costs and Interests escalated and were additionally funded. The Banking consortium sent me to investigate. With the benefit of hindsight, it would appear this was done by the lead banker, more to allay the disquiet among some bankers in the consortium, than to ascertain what went on. I turned out to be a bad choice for them. In a show of excessive confidentiality, instead of the easier route via Bahrain, I was flown east-ward and then back on a long flight across the Indian Ocean westward. I think it was intended that I have a whale of a time for a week, and return home with a tutored report. My total rejection of any alcoholic stimulant on the island and a punctilious application of mind to Books and Records soon soured the pitch. As a professional, and as a human being, I was grieved to see an instance of how the scarce resources of a poor country seemed to have been applied by those appointed to guard those resources. On return, unsurprisingly I was cold shouldered, and received only superficial acknowledgement, with just one exception. One bank official had the courage to openly support my findings, and when these ran into a dead end, the grace to orally share his suspicion that the report had been dumped. This outstanding officer later rose to be Chairman of one of the oldest nationalised banks, partially reinforcing my faith in the survival of virtue in an ocean of compromise.

Tenure in Council:

I was re-elected five times to the ICAI Council over 16 years 1982-1998.

In 1994 I became Vice-President solely because, the councillors disenchanted with me were marginally less than the number disenchanted with the other contestant who was actually a far more deserving candidate than I was.

Jack of all:

Every few years, Council resolutions expanded the list of what could be includible as permissible work to be performed by CAs. Like troops attempting to hold more ground than what their supply lines could sustain, the spread became thinnest at the core. Adjacent competencies waxed, while traditional proficiencies may have waned.

Sadly, members in industry gradually saw our Institute activities as somewhat less relevant, and in later years, one was never certain how much of the participation at seminars, was spurred by mandatory CPE.

Weaning away:

Meanwhile tribes that were initially tiny, like Company Secretaries, Internal Auditors, and Financial Analysts made considerable headway. They cultivated, inter alia, better relationships with key officials in Ministries of immense relevance to the Professions. ICAI was more established, but may have been perceived as somewhat insular by those whose opinion mattered most, during critical phases of growth and development. There was a joke that our policy towards competition appeared to be to, first disregard, thereafter ban our members joining those bodies, and after such banning had conferred upon those bodies the halo of martyrdom that ensured their survival, consider mutual exemptions from examinable subjects.

Change:

Elections had always been an undercurrent in the Council, and with exponential growth in the number of members, elective merit loomed larger. Elected councillors, could be seen as outstanding CAs who happened to have good PR, or perceived as outstanding PR persons who happened to be CAs. Fortunately, sufficient numbers of CAs of great merit still obtain on the Council. Only time can tell how many of the challenges that came along – whether it be the electronic age, the growing role of rival disciplines, or more vitallythe avalanche of Foreign Service Suppliers post 1993 – were proactively met with foresight by those at the helm including me.

New Order:

A New Order evolved in which professional services organisations, some of whom are integral parts of international networks, endeavour to offer advice using a multidisciplinary business-focussed approach.

To view the New Order as unwelcome would be an exercise in misinformation and prejudice. The change heralded much that was good and some of it exceptionally good. First of all, the New Order destroyed oligarchies that had existed earlier. Equality of opportunity is a principle far better served by the New Order in the first decade of the 21st century than was ever served during the preceding half century. Equally importantly, aspiring talented CAs unable to flourish in their own practice can now join the very large establishments more easily than they could ever have become part of the erstwhile oligarchies. Besides, it is only the New Order that has made it possible for large numbers of CAs to receive pecuniary rewards far higher than those ever expected in the past. Moreover, under the current new dispensations, the large residue is annually shared locally with remarkable fairness, and reportedly with an equity that contrasts favourably with the skewed slopes for profit sharing ordained in the past. Finally and happily, the local top brass of all the new large CA establishments in India are overwhelmingly members of ICAI.

Shangri-la :

These reminiscences could hardly be complete without a kind word for those who encouraged my drift in a turbulent upheaval from profession to industry. But for this, I would have missed out on the most rewarding and happiest working years 2002 onwards, which at this moment of writing seem to grow richer by the day. From 1966 to 2002, for 36 years, I deprecated my role in Kipling’s words – “those who report on deeds performed by others are not equal to those that perform deeds worthy of being reported”. Now I am performing the deeds, and the uniquely benign Promoter Family I closely work for, have afforded me roles, in exciting realms of modern international business and wealth creation.