By T. V. Mohandas Pai, Chartered Accountant
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Chartered Accountants in the 21st Century“It’s not the strongest of the
species that survive, nor the most intelligent, but those most responsive to
change”
The 21st century will be unique as we will see the balance of
economic power shift to Asia from the western world which has dominated the
previous 400 years. With India and China growing at over 9%, for the first time
in human history, we will see 40% of the world population experiencing growth at
this level with multiple ramifications in every sphere. Asia will also reap the
benefits of a demographic transition as it has a very young population, with
lesser dependence, growing in a high-growth ecosystem. At the same time, the
developed world is seeing the rise of an ageing population, with increased
dependence and social security costs.
Advances in technology, creation of the World Wide Web,
massive reduction in costs of telecommunications and the democratisation of
travel is creating linkages, totally shaking up national markets. Transnational
flow of capital has reduced the ability of nations to control their currency and
their own economy, creating an interdependence never seen before. Free flow of
capital has led to the rise of giant transnationals, which today make up 60% of
global trade and command huge resources. Because of the wide diversity of
ownership and business, the world has become much smaller than we can imagine.
Cross-border movement of national persons is creating new risks and new
opportunities. In a world driven by innovation, the only true competitive
advantage would be the capability and talent of the human resources that every
nation or business entity can command.
The global economy is being driven by the knowledge
revolution. Knowledge transcends boundaries, while businesses transform from
being multinational to transnational. The world has now become a global village.
Collaboration, networking, mergers, consolidation, and partnerships, all are
creating an interdependent world.
In this knowledge era, our success depends on what we know
and what we do with what we know and in what we need to excel. Those who are
able to take advantage of these changes will pioneer the creation of wealth and
the advent of new business models.
Changing Indian scenario :
So, welcome to change and welcome to growth.
India has led this change globally, growing at 9% p.a. for
the last four years. The rapidity of the change, and the opportunities that it
has thrown up, has tremendously increased opportunities for every profession and
also created a global market for services. The demand for Chartered Accountants
(CA) both in the profession and in industry has led to shortages with massive
increases in compensation. The profession needs to reflect on the opportunities
and take full advantage of growth. Because of the global nature of the change,
one also needs to scan the globe for trends and prepare oneself in terms of
increasing competence levels.
Industry is in need of complex specialised services and is
being forced to look elsewhere and this is becoming a matter of concern. The
growth of the BPO/KPO sector providing global services, has brought in massive
use of technology to deliver services and over a period of time created a large
pool of talent, unheard of anywhere else. In the short run, this has led to a
severe shortage of talent and large increases in compensation, creating room for
other professionals to run in. Professional practice is suffering with over 85%
of new members joining industry and large-scale flow of talent out of the
system. This, along with the increased demand from industry would lead to
consolidation of practices and reshape the profession. Small enterprises are
deprived of the services of CAs, impeding their growth, calling for new policy
responses. Welcome to the 21st century.
CAs are also becoming CEOs of local and transnational
enterprises, creating role models of the future.
The Chartered Accountant is India’s best known and most
widely respected professional. It represents years of business studies, work
experience, and the highest standards of professional ethics and objectivity.
But it is based on the model of yesterday and needs to reshape to meet the needs
of tomorrow. It should not be a profession of historic glory, but rather should
write its own history in this new era.
Role of CA :
Because of globalisation CAs are providing specialised
services in all areas that their global compatriots in developed nations
deliver, such as International Accounting, International Taxation, Business
Valuation, Cross-border structuring and Mergers and Acquisition, Investment
analysis, etc.
Some areas which are in great demand are discussed below.
(1) Financial Analysis :
Analysis of routine and non-routine transactions and
preparing analyst’s reports for various equity research firms, provide inputs
for the credit rating agencies, creating the basis for merger/business
combination decisions, etc.
CAs having a sound financial knowledge and analytics, and a
deep understanding of generally accepted accounting principles, are able to
comprehend transactions including benchmarking the policies adopted by the
company against the best in industry.
(2) International Tax and Domestic Management :
As companies globalise rapidly, demand for international tax
services and use of DTT’s is growing multifold. Domain expertise in
international tax laws is becoming a hygiene factor. Such services are becoming
the basis of determining business outcome in firms and have moved away from
playing the role of a traditional interface. Specialisation in complex areas
such as Transfer Pricing is of great value.
In the domestic area, reduction of tax rates and advent of
technology have changed the face of traditional tax planning. With exponential
growth in the services sector, complexities in indirect taxes such as service
tax are on the increase calling for tax strategies to drive business.
(3) Risk Assessment :
Risk management has become the prime focus in Boardrooms round the world. The recent sub-prime crisis has demonstrated the need for more stringent risk management practices and elevated the practitioners to a much higher level. CAs have become reviewers of system design, indentifying deficiencies and advising management on more efficient systems.
International regulations like SOX compliance have opened an area of services, from designing of internal control processes, mapping risks, establishing benchmarks and indentifying processes to mitigate them. Internal Auditors have been empowered through strong corporate governance practices to report directly to the Audit Committee, post-discussion with management, which provide them with the authority together with the responsibility to carry out their functions in the truest sense.
(4) Experts in International Financial Reporting Standards (IFRS):
The world is moving rapidly to a single set of high-quality global standards for accounting, increasing access to capital and enhancing comparability of performance. CAs have to rapidly enhance their expertise in accounting to prepare themselves. The advent of a global IFRS would expand the market for services, with the entire globe being the playfield. Most countries in the world are short of specialised accounting talent and unable to cope with the growth of their economies and are sourcing talent from outside. The transition to a single IFRS globally also creates unprecedented opportunities to our CAs.
(5) Management Accounting:
The drive to use real-time information for business decision-making has exponentially increased demand for management accounting in firms. With the capital markets becoming increasingly short-term and analysts’ attention focussed on quarterly results, this area is expected to grow rapidly in future. Budgeting, performance evaluation, cost management, and asset management to increase returns are creating a pull factor. Management accountants have become part of executive teams involved in strategic planning or development of new products.
(6) International Finance and Currency Management:
With the increasing convertibility of the rupee, firms are borrowing globally to reduce cost of capital and to grow more rapidly. Capital has ceased to become a constraint and exposure to international finance, capital markets and currency management is determining success of CAs. This is also driving the need to have competency in compliance and reporting, as capital is raised from different markets and the regulatory need increases.
(7) Investment Banking and Financial Services:
Investment banking is dominating the financial services landscape. Never has the world seen such a surfeit of capital and such low interest rates. Developed countries are forced to have low interest rates to keep their consumption going, increasing liquidity and thereby opportunities for investment banking. Sadly, the best global talent is gravitating to this area, reducing innovation in the sciences. The growth of hedge funds has increased volatility in the commodities markets, increasing costs for ordinary people. As this industry offers a fascinating and fast-paced growth to CAs, a change in outlook is called for. The traditional financial services area including financial consultancy services, advice and negotiation with regard to mergers and acquisitions, formulation of nursing programmes and rehabilitation packages for revival of sick units is also seeing growth.
(8) Corporate Finance and Control:
Corporate finance and control is fast emerging as a specialised function in many companies and the routine accounting function is being delinked from the finance function. Role of CA in corporate finance revolves around mobilisation and utilisation of financial resources for short-term and long-term purposes from domestic and overseas markets through a proper mix of debt and equity, with the goal of optimising returns. Treasury management has become an integral part of corporate finance.
(9) Investment Management:
With low interest rates and increased liquidity, the capital markets and the money markets have witnessed the introduction of new instruments and intense interplay of demand and supply which have increased the volume of activity. Investors increasingly entrust their funds to mutual funds, creating demand for portfolio managers. A portfolio manager’s job is very challenging since it involves the balancing of risks and rewards through skillful shuffling of the portfolio and maximising the return on investment. With significant growth of the mutual fund industry, the demand for portfolio managers will further escalate.
(10) Functional Specialists and Partners in Information Technology:
Multinational companies with globally dispersed operations require enterprise resource planning (ERP) solutions for optimising their organisational functions. These include designing efficient supply-chain management systems, designing financial systems to obtain information across the organisation seamlessly. A CA with his financial expertise can partner with software engineers in designing and customising these systems to cater to each client’s requirement. This is a high-demand emerging area with global opportunities.
(11) KPO/BPO and ITES :
In a country that has become the breeding ground for the BPO industry, finance and accounts (F&A) outsourcing is fast attracting CAs. While BPOs are cashing in on the Indians’ affinity to numbers, a global work culture, coupled with a much better remuneration, is luring accounts graduates and CAs towards the offshoring wave.
The potential applications of KPOs tend to be much more advanced and wider than Information Technology or Business Process Outsourcing. Compared to other business models, KPOs require high domain expertise. Speed of response is also very important, without compromising the quality of products or services.
The key areas that are outsourced in KPO include business analytics, asset accounting management, financial analysis, payroll management and financial research & investigations. It is evident that there are a number of lucrative opportunities for CAs who are willing to take advantage of this market.
It is worthy of mention that the US has developed an xml-based language for financial reporting language called eXtensible Business Reporting Language (XBRL),which provides a tag with a standardised definition to each data element in the financials. This would also bring in KPa opportunities for India.
The BPO/KPO industry has the potential to create a further shortage of accounting skills in India, as their exposure to the global market makes India the accounting office of the world.
Skills & competencies:
Indian CAs have proven themselves to be amongst the best in the class globally. The Institute has developed a Competency Framework to map the full range of competencies expected of a Chartered Accountant at the point of admission to membership.
CA Competencies = Skills + Knowledge + Attitudes
These competencies have been developed by Indian CA profession over many years and have recently been revised to reflect the needs of the public and the profession for the 21st century.
The CA Competency Map defines the level proficiency candidates must demonstrate in each of the competency areas to qualify for their designation. The new CA Competency Map sets out specific expectations for CAs in competency areas of specific domain competencies and personal attributes.
CAs cannot stop learning upon obtaining their degree and attaining membership to the profession. The responsibility to deliver and keep one-self competent to deliver starts from that day. Their responsibilities include :
(1) Being innovative:
In today’s world knowledge is power. Success will go to those who survive downturns through constant innovation. Hence, the learning process will have to be continuous. CAs have to ensure effective continuous professional learning.
(2) The power of technology:
Adopting newer technology is a pre-requisite to faster and accurate processing. A CA cannot afford to waste time in performing mundane functions as such businesses are looming under the threat of obsolescence. With the e-revolution in the financial sector, audits have gone online, internal controls are being tested off-site, desk-top due diligence is being done and thus the profession has to evolve new strategies for analysing the potential weakness in each of these systems for tackling many of the white-collar crimes that could be part of an automated society.
(3) Specialisation :
Specialisation is the need of the hour. CAs will have to distinguish themselves with their skills. They can build their expertise in areas such as taxation, auditing, cyber laws, IS audit, corporate finance, international taxation and international accounting standards.
(4) Building soft skills:
Acquiring soft skills such as communication skills, interpersonal skills and managerial expertise has become very critical for being a good CA. CAs need to have good negotiation skills to communicate financial implications with clarity at strategic t level.
(5) Leadership:
New members of the profession are the leaders of tomorrow. They need to groom themselves to take business decisions and should not restrict themselves to financial areas. They should build themselves as well as the profession towards a truly world-class standard.
Role of ICAI:
ICAI, as the professional body for Indian CAs, would need to reshape its role to playing a more global role in changing the global financial architecture. It has to focus more on preparing its members to the new challenges, take the lead in developing the profession in the emerging markets and participate in global forums to set standards.
Certain areas where ICAl can play a pivotal role in enhancing the quality of members are :
- Intensive courses and certifications in the areas of international accounting standards, XBRL, international taxation, business valuation and other specialised areas. These should be conducted by eminent persons in the profession.
- Internal activities of ICAI including the project being undertaken should be available on the ICAI website. Minutes of the meeting should be well documented and comments received on draft publications should also be available on the website.
- ICAI should encourage exchange programme for members of different countries to share ex-periences and learn from global practices.
- Tie-ups should be made with all international bodies for enabling members to access international research materials, publications and global best practices.
- Provide executive education courses for non-finance professional in areas of common interest.
- Raise sufficient funds for research for matters which are issues faced by a large number of entities.
- Involve in extensive collaborations with global corporations for placement with lucrative offers to make this a very covetable profession.
- ICAI should enter into reciprocity arrangements with other countries for global acceptance of the degree.
Last but not the least, Indian CAs should be looked upon as the best accounting professionals of the world. To achieve this goal, ICAl has to market its potential in the global markets, convincing global corporations to receive their accounting and au-diting services from India.
Conclusion:
India’s GDP is expected to grow from US $ 1.2 trillion to US $ 2.5 trillion in the next ten years and to US $ 5 trillion by 2028. It is a time of unprecedented growth and opportunity. Every year India itself needs at least 25,000 new chartered accountants and the number will only grow further as the economy grows. The entire globe is looking to India to get the accounting talent to lubricate the global markets. All of us should be prepared for the global markets with skills comparable to the best in the world. CAs have to lead India in this century. Posterity will not judge us kindly if we do not rise to the occasion.
As Peter Drucker once said “One cannot manage change. One can only be ahead of it”.
