Editorial
The year gone by was a significant one in many ways — one
witnessed the severe worldwide economic downturn, failure of large international
financial services institutions, and the terrorist attack on Mumbai. It has also
been a year which has witnessed significant acquisitions of established and
reputed medium-sized chartered accountancy firms by the Big Four worldwide
accounting firms in India. One hears rumours of considerations running into
multiples of the gross turnover being paid for the acquisitions.
Earlier, in the 1990s, one had witnessed significant
recruitment of individual practising chartered accountants by the Big Four. A
few large firms had joined the ranks of the Big Four. A large number of fresh
chartered accountants were recruited by them since then. Acquisition of
mid-sized firms has been a new trend in India. One also now witnesses the
practice of job hopping becoming common in the ranks of the Big Four, to such an
extent that whenever one meets a friend who’s part of the Big Four, one is
tempted to ask “With whom are you currently working ?”.
The changing trend of acquisition of medium-sized practices
indicates a trend of consolidation of the accounting profession. With practice
becoming even more demanding and challenging, the need to have skills in
different spheres of practice is becoming all the more imperative. The
significant influx of foreign companies in the industrial and services sectors
has increased client expectations from the profession regarding quality of
service and speed of response. Therefore, every accountancy firm, whether large,
medium or small, feels the need to have professionals with high level of skills
in different areas of practice. Given the shortage of such professionals,
obviously firms are willing to go to great lengths to acquire such
professionals. The larger the acquirer firm, the greater is its need and
willingness to pay better remuneration and acquisition consideration.
With many of the significant Indian firms having been
acquired, does such acquisition and consolidation signal the end of the road for
small and medium practices ? It is no doubt true that, given the appetite of the
Big Four for acquisitions and recruitment, many such medium and small firms are
finding it increasingly difficult to attract and retain good people. However,
the very high scale of fees charged by the Big Four makes the fees charged by
local Indian firms seem highly attractive to medium-sized corporates, which
desire value for money. The challenge for local firms is really to ensure the
quality of their service, while charging reasonably well so as to be able to pay
employees well, while retaining enough differentiation from the fees charged by
the Big Four, to attract clients.
The worldwide experience shows that the largest corporates
normally prefer the Big Four, at least for statutory audits. The fees charged by
the Big Four are also significantly higher than the fees charged by other firms.
The number of people employed by the Big Four normally exceeds the number of
people employed by other firms.
On the other hand, with the increasing need being felt for
segregation of the auditor and the consultant, there is now potential for
rendering non-audit services even to large corporates. Further, to some extent,
the personalised services which a medium or small firm can provide to a client
can give it an edge over a large firm. A niche practice will always have a good
scope.
One also needs to keep in mind that being a part of the Big
Four is not an unmixed blessing, with only high remuneration and high-quality
clients. It also brings with it pressures to perform, pressures to market one’s
services and bring in clients, etc. Burnout due to such pressures is also a
distinct possibility, with early retirement, even with the retirement age being
far lower than in other industries. To a great extent, being a part of the
practice of a Big Four firm requires one to have the attitude of an employee of
a business, rather than that of a traditional professional.
There are many of us who choose not to be a part of the
hectic life that being a part of the Big Four entails. With the Indian economy
still growing, though at a slower pace, there is potential for such
professionals as well. There is enough work available for accounting
professionals at all levels. It only requires a gearing up by each of us in
terms of quality, networking and knowledge sharing (and perhaps joining hands)
with other similar-minded professionals. The Society provides a platform for
such interaction to each one of us, which we should take full advantage of.
Wishing each one of you a happy and professionally fulfilling new year !
Gautam Nayak
