J B Nagar CPE Study Circle of WIRC

J. B. Nagar CPE Study Circle of WIRC of ICAI Capacity Building Practical Aspects CA Niranjan Joshi 23 rd December 2012 Andheri - Mumbai Restriction on Disclosure and Use of Data The data in this document contains trade secrets and confidential or proprietary information of SARDA & PAREEK, Chartered Accountants, the disclosure of which would provide a competitive advantage to others. As a result, this document shall not be disclosed, used or duplicated, in whole or in part, for any purpose other than to evaluate SARDA & PAREEK. The data subject to this restriction are contained in the entire document.

Disclaimer These are my personal views and can not be construed to be the views of the ICAI or my firm. No representations or warranties are made by the WIRC with regard to this presentation These views do not and shall not be considered as a professional advice. This presentation should not be reproduced in part or in whole, in any manner or form, without our written permission. CA Niranjan Joshi 2 23. 12. 2012

Present Scenario n Over Dependence on Statute Based Audits - Tax Audits, VAT Audit, - Bank Audits, Company Audit, PSU audit n Increasing Competition within Profession n Increased Cost of Attest Function n Increasing Compliance with Technical Standards n Stagnated Fees Structure n Reduction in availability of Quality Human Talent n Increased compliance requirement CA Niranjan Joshi 3 23. 12. 2012

Questions for us n Has my firm identified business goals (2013 and beyond)? n Have we developed long-term strategies for securing our position in the market? n Have we thought about competition? n Have we thought about growing compliance requirements (DTC, IFRS, GST, Companies Act, SAP)? CA Niranjan Joshi 4 23. 12. 2012

The Changing Scenario n The Business Environment today is characterized by “Change”. n Economies, Markets, Industries and Companies are being transformed for ever. n Convergence has blurred Industry structures. n The definition of competition has changed for ever. Its time to re define our strategies CA Niranjan Joshi 5 23. 12. 2012

Clients Expectation from Practice Units l Experience, Expertise and Efficiency l Multi – location presence l One Stop Solution l Size / Back up / Team / Alternatives l Capacity Building CA Niranjan Joshi 6 23. 12. 2012

Does the size Matters? CA Niranjan Joshi 7 23. 12. 2012

ICAI – Capacity Building Measures 2005 Networking Mergers CA Niranjan Joshi 8 Management Consultancy Services Companies 23. 12. 2012

Capacity Building l Reading & Research Development l Specialization / Expertise l Sharing Resources / Knowledge Pool l Human Talent l Infrastructure, Mkt Requirement / Challenges l Ability to Handle Complex /diverse areas l Ability to Handle Volume assignments l Ability to reach across state / country CA Niranjan Joshi 9 23. 12. 2012

Concept - Capacity Building For CA Firms Story of Hare & Tortoise n Fast and Consistent will always beat the slow and steady n Work to your competencies n Pooling resources and working as team will always beat individual performers n Never give up when faced with failure n Compete against situation not against rival Be STRATEGIC CA Niranjan Joshi 10 23. 12. 2012

Important Points to Achieve VISION l l l l l Invest time for development Realise your true value Identify what client needs Be proactive, rather than being reactive Position yourself appropriately Specialise in one area - Value added service, over compliance related Invest in knowledge domain, technology & infrastructure Be an entrepreneur, prepare to invest first Determine Revenue to Profit Ratio first CA Niranjan Joshi 11 23. 12. 2012

ICAI – Capacity Building Measures n Networking of CA Firms n Merger of CA Firms n Corporate form of Practice CA Niranjan Joshi 12 23. 12. 2012

Concept of Networking Honey Bee Nest Polyclinic CA Niranjan Joshi 13 23. 12. 2012

Concept of Networking of CA Firms A & Co A& Affiliates B& Associates CD & Co CA Niranjan Joshi 14 23. 12. 2012

Concept n Joining together of CA firms with the objective of displaying collective resources. n Each firm to retain independent status n Network to act as facilitation and not to do business on own n Registration with ICAI CA Niranjan Joshi 15 23. 12. 2012

Objective n To capture globalization the emerging opportunities of n To achieve the sustainable growth n To create large firms which are able to provide services to larger organization n To provide ‘One Stop Shop’ competitive global service market. CA Niranjan Joshi 16 in prevailing 23. 12. 2012

What should I look for when Networking? n Geography / Location n Specialisation / Expertise CA Niranjan Joshi 17 23. 12. 2012

Roadmap n Identifying Firm/ Members n Meeting of Minds n Presentation by all the members identifying their Strengths / Weaknesses / Resources / Clients / Financials / Area of Interest / Ideas n Discussion on Vision n Commonality of Goals / Objectives n Agreement – Roles and Responsibilities n Income Sharing n Trial Period not more than 3 years n Successful Implementation CA Niranjan Joshi 18 23. 12. 2012

ICAI Guidelines n Can a Proprietor join a network? n Proprietory / Partnership as well as individual members are allowed to join network n Can I join more than one network? n Allowed to join only one Formal network n Can we pull all the resources for pitching for work? n Can show combined strength of network members as a pool of resources, manpower, expertise and location CA Niranjan Joshi 19 23. 12. 2012

ICAI Guidelines n Who can sign the report? n Only the firms forming network are eligible to issue / sign / attest any Certificate / Report / professional Document / Assignment. n What are the procedures formation of network? n Declaration to be submitted in prescribed format n Distinct name is approved by ICAI n & Affiliates should be used as suffix instead of & Co or & Associates n Ethical compliance is must CA Niranjan Joshi 20 23. 12. 2012

Contents n Networking of CA Firms n Merger of CA Firms n Corporate Form of Practice CA Niranjan Joshi 21 23. 12. 2012

Merger CA Niranjan Joshi 22 23. 12. 2012

Background n n n n n Recommendation Naresh Chandra Committee Legal Limitations- Partnership Act, 1932 Limited Liability Partnerships (LLP) Merger to precede Demerger Formal Documentation of Merger Demerger to be recognised Demerger to be in built in Merger Demerged Entity to be entitled to Same Name Restoration of Seniority possible CA Niranjan Joshi 23 23. 12. 2012

Concept n Merger of CA firms in One Partnership Firm with the objective of displaying collective resources. n Only One Firm remains in existence n Firm will work on its own and carry out business of its own (not merely facilitation) n Registration with ICAI / Partnership Deed n Objective and Roadmap similar to Networking CA Niranjan Joshi 24 23. 12. 2012

Contents n Networking of CA Firms n Merger of CA Firms n Corporate Form of Practice CA Niranjan Joshi 25 23. 12. 2012

Concept ■ Permitted by ICAI w. e. f. 1 st October 2006 ■ Permitted Practicing CA’s to render Management Consultancy and Other Services by issuing guidelines for practice in Corporate Form. ■ Management Consultancy Company (MCC) shall restrict itself only to Management Consultancy and Other Services permitted by the council in pursuance to section 2(2)(iv) of the Chartered Accountants Act, 1949. ■ The object clause shall restrict itself to such services only and an undertaking to that effect shall be given by such company. CA Niranjan Joshi 26 23. 12. 2012

Corporate Form of Practice Statistics ■ All provisions of the Companies Act, 1956 and other laws are applicable to a company formed under the act shall be applicable to MCC ■ MCC not permitted to advertise, not to use logo. ■ Members to retain full time COP besides being Managing Director / Whole Time Director of MCC ■ Member continue to train Article / Audit Assistant ■ No restriction on quantum of equity holding of member either individually or with relatives in such company. CA Niranjan Joshi 27 23. 12. 2012

Corporate Form of Practice Statistics ■ MCC shall apply for name approval Form ‘G’ ■ Name to indicate area of “Management Consultancy & Other Services” ■ After name approval registration with ICAI in Form ‘H’ ■ Ethical compliance is must ■ Notification No. 1 -CA(7)/60/2002 dated 8 th March 2002 regarding ceiling on Non-Audit Fees is applicable in relation to MCC CA Niranjan Joshi 28 23. 12. 2012

Practical Issues – Capacity Building Lack of awareness Lack of Guidance Sharing of Resources (Infrastructure, Competency, Human Resources) Financial Constraints Conflict of interest Less control over work carried out by other affiliates of the Network CA Niranjan Joshi 29 23. 12. 2012

Practical Issues – Capacity Building Appointment, Powers & Functions of the Managing Committee of the Network Administration / Operating Procedures of Network Contribution of membership fees to meet administration cost of the Network HR Policies Dispute settlement procedure Identifying ‘Engagement Partner’ to be responsible for assignments of the Network Issuing training materials, newsletters etc. to affiliates of the Network CA Niranjan Joshi 30 23. 12. 2012

Practical Issues – Capacity Building Common library for the member firms Appointment of Technical Director to make references Peer Review of the member firms Determine methodology for drawing resources from each member firm Compensation to member firms for resources to be drawn from them Development of software, database etc. for member firms. CA Niranjan Joshi 31 23. 12. 2012

Objectives of Merger Fusion of two or more existing CA firms to: ∞ ∞ ∞ develop core competencies to render professional services of a large range spread over bigger geographical area. ∞ ∞ to enable conversion of small to medium firms to enable conversion of medium to large firms. To make provision for the growth engine: Expansion of Client base of the practicing units Enhance the group profitability in long term A merged big entity will always be superior to network arrangement. CA Niranjan Joshi 32 23. 12. 2012 a

Advantages of Merger As a growth engine Merger of CA firms enables growing firms in conversion of small firms to medium firms and medium firms to large firms. Merger provides with the firms a competitive edge to capture opportunities arising out of globalization. Merger enables consolidation of experience , expertise, manpower, financial and infrastructure resources thereby leading to creation of large firms which are able to deliver one stop shop. Risk bearing capacity increases. CA Niranjan Joshi 33 23. 12. 2012

Advantages of Merger Ability to provide training Investment in technology/infrastructure Promotes specialisation Dependence on large clients reduces Capability to handle assignments of complexity and dynamics Merger is an alternative for growing firms as a growth engine Expansion of Client base of the merged firm Enhance the group profitability in long term CA Niranjan Joshi 34 23. 12. 2012

Limitations of Merger Ø Ø Ø Ø Selection of firm – finding the right fit Lack of vision The merged entity losses its trade name The Merged Entity loses its seniority forever. Lurking fear that the relationship with the firm premerger may not continue to be the same Reluctance to share Specialization Conservative thinking Difficulty in trusting the other professional’s competencies CA Niranjan Joshi 35 23. 12. 2012

Future of SME Firms v v v v Limited empanelment based work Limited growth opportunity in statute based work Increased compliance related work Availability / retention of human talent CPE – New Developments / Updates / Technology Specialisation Value adds gaining more importance Networking & Merger is must CA Niranjan Joshi 36 23. 12. 2012

If we don’t act now? CA Niranjan Joshi 37 23. 12. 2012

DO’s Remove I from our minds and think for WE Senior / Junior concept must be redefined Sourcing & Execution must be the core areas Merger should not be only for PSU / Bank Work Private Sector Opportunities should be tapped Admission & Retirement of Partner must be defined CA Niranjan Joshi 38 23. 12. 2012

Dont’s Total power should not be put a single partner/individual Multiple power centers /processes should be avoided Avoid creating immoveable properties No ambiguity regarding key areas such as sharing of profits, responsibility, retirement & admission of partners CA Niranjan Joshi 39 23. 12. 2012

Professional Opportunities International Financial Reporting Standard - Employment - Audit Assignments - Consultancy Banks and Financial Sectors Public Sector Assignments Tenders MNCs in India & Indian MNCs Abroad CA Niranjan Joshi 40 23. 12. 2012

ICAI – PDC Portal CA Niranjan Joshi 41 23. 12. 2012

ICAI – Networking Portal – www. caconnecat. co. in CA Niranjan Joshi 42 23. 12. 2012

ICAI Capacity Building Initiative CA Niranjan Joshi 43 23. 12. 2012

Conclusion There is a difference between an objective and actions. Unless you understand your objective, you will be wasting your time in actions. Know your objective first. -Swami Vivekananda CA Niranjan Joshi 44 23. 12. 2012