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Capacity Building Practical Aspects

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

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Capacity Building Practical Aspects

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  1. J. B. Nagar CPE Study Circle of WIRC of ICAI Capacity Building Practical Aspects CA Niranjan Joshi 23rdDecember 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.

  2. 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 presentationThese 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.

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

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

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

  6. Clients Expectation from Practice Units • Experience, Expertise and Efficiency • Multi – location presence • One Stop Solution • Size / Back up / Team / Alternatives • Capacity Building

  7. Does the size Matters?

  8. ICAI – Capacity Building Measures

  9. Capacity Building • Reading & Research Development • Specialization / Expertise • Sharing Resources / Knowledge Pool • Human Talent • Infrastructure, MktRequirement / Challenges • Ability to Handle Complex /diverse areas • Ability to Handle Volume assignments • Ability to reach across state / country

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

  11. Important Points to Achieve VISION • 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

  12. ICAI – Capacity Building Measures • Networking of CA Firms • Merger of CA Firms • Corporate form of Practice

  13. Concept of Networking Honey Bee Nest Polyclinic

  14. Concept of Networking of CA Firms A & Affiliates B & Associates A & Co CD & Co

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

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

  17. What should I look for when Networking? • Geography / Location • Specialisation / Expertise

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

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

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

  21. Contents • Networking of CA Firms • Merger of CA Firms • Corporate Form of Practice

  22. Merger

  23. Background • Recommendation NareshChandra 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

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

  25. Contents • Networking of CA Firms • Merger of CA Firms • Corporate Form of Practice

  26. Concept • Permitted by ICAI w.e.f. 1st 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.

  27. 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.

  28. 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 8th March 2002 regarding ceiling on Non-Audit Fees is applicable in relation to MCC

  29. 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

  30. 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

  31. 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.

  32. 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 make provision for the growth engine: • to enable conversion of small to medium firms • to enable conversion of medium to large firms. • Expansion of Client base of the practicing units • Enhance the group profitability in long term • A merged big entity will always be superior to a network arrangement.

  33. 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.

  34. 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

  35. Limitations of Merger • 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 pre-merger may not continue to be the same • Reluctance to share Specialization • Conservative thinking • Difficulty in trusting the other professional’s competencies

  36. Future of SME Firms • 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

  37. If we don’t act now?

  38. 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

  39. 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

  40. Professional Opportunities • International Financial Reporting Standard • Employment • Audit Assignments • Consultancy • Banks and Financial Sectors • Public Sector Assignments • Tenders • MNCs in India & Indian MNCs Abroad

  41. ICAI – PDC Portal

  42. ICAI – Networking Portal – www.caconnecat.co.in

  43. ICAI Capacity Building Initiative

  44. 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

  45. Conclusion • “Take Risks in your life” • - If you win, you can lead, • - If you loose, you can guide. • Swami Vivekananda

  46. Questions???

  47. !!! Thanks !!! CA Niranjan Joshi, B.Com., FCA, DISA (ICAI) Email: nvjca1@gmail.com Cell: 9819078061

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