On December 16, 2003, just three days before the scheduled beginning of the Institute of Chartered Accountants of India's (ICAI) 30-member council elections, most of its 1,15,000 members got an e-mail in their in-boxes. It was a powerpoint file that coaxed, cajoled and even warned its recipients against voting for candidates who represented the Big Four global accounting firms, namely KPMG, PricewaterhouseCoopers (PWC), Ernst & Young, and Deloitte, Touche & Tohmatsu. Purportedly sent out by the Chennai-based Chartered Accountants' Action Committee for Level Playing Field (CAACLPF)-quite a mouthful, but an organisation that is headed by Swadeshi Jagran Manch and MNC-basher S. Gurumurthy, himself a ca and an ICAI member-the e-mail was the beginning of yet another round in the war against the Big Four or, in Gurumurthy's more colourful description, "multinational accounting firms".

The swadeshi vs. videshi fight in the Indian audit industry is relatively recent. More than a decade back foreign consultancy firms-the Big Four included-were allowed to set up shop in India. To be sure, these firms were allowed to operate as consultants in India, but not as accounting firms. And that rule still holds good. But Indian audit firms-with the CAACLPF as their crusader-allege that the Big Four are blatantly operating as accounting firms by proxy through their Indian associates. The accusations gained momentum last July when the CAACLPF released a "white paper" on multinational accounting firms, accusing them of entering the Indian market surreptitiously and advocating their removal from the country. The current spat is a continuation of that.

IT'S TIME FOR CHANGE The CEOs of the Big Four in India are mincing no words in taking on the swadeshis.

IAN GOMES Country Managing Partner (India), KPMG "It is imperative that any firm or company in India or for that matter, any regulatory body, should look at the larger picture of branding India Inc." RATHIN DUTTA CEO (Indian Operations), PWC "It was the duty of the ICAI, as a regulatory body, to have appraised the government of the true facts regarding the Big Four." N.V. IYER Co-Chairman, Deloitte Touche Tohmatsu "Since the ICAI is not a trade union of chartered accountant members, it should restrict itself to its regulatory function." KASHI N. MEMANI Chairman & Country Managing Partner, India, Ernst & Young "The ICAI's mindset needs to change to take into account the changing nature of the profession." R. BUPATHY President, ICAI "We are only asking for a level-playing field, merely asking for reciprocity with other countries."

Although caaclpf and Guru-murthy have denied having anything to do with the December e-mail, the powerpoint file reeks of swadeshi fervour, accusing the Big Four of "turning the ICA of India into ICA of America" and that electing their representatives would not only mean "mortgaging their own future, but also pledging the country's honour". The CAACLPF charges the Big Four of operating by proxy-through their Indian associates-and of even remitting "hundreds of crores of rupees" to their parent entities, thereby harming the interests of Indian accountancy and audit firms. The Big Four deny all these charges. All auditing work is undertaken by Indian firms (read associates of the four), which are the ones-and not the four big ones-that sign off the audited balance-sheets of their clients. Moreover, they say that since the Big Four had clearly separated their consulting arms from their auditing entities, it makes even lesser sense to point a finger at these firms.

Besides, says Rathin Dutta, CEO of the 130-year-old PWC's Indian operations, none of the Big Four firms is foreign-owned or managed, or pays any royalty for the use of the name. "We don't pay a single paisa for the free, non-exclusive use of the PWC name. We are all members of an international network of independent firms, each of which is a national firm in its respective country."

Not Just Us Vs Them

But the problems with the Indian audit and accounting industry go beyond mere pre-election rabble rousing and shrill posturing. Even as Indian companies have grown-some of them into giants with transnational operations-the Indian chartered accountants' community has remained small and fragmented. There are an estimated 48,640 audit firms in India, the majority of them having just a handful of clients. Most of the firms are small and have remained so, thus limiting the size of their businesses.

Partly, it's a result of antiquated laws. India's Chartered Accountant Act, which regulates the audit and accounting profession, is of 1949 vintage and was amended just once in 1959. Add to that the Companies Act, which dates back to 1956, and the regulating body ICAI, whose policies are inward looking. Many believe the laws as well as the ICAI have not kept pace with the changing times and needs of clients. Says Rahul Roy, Partner, Batliboi & Co., Ernst & Young India's audit partner, and a former ICAI president himself: "The law has not kept pace with the changing imperatives of global finance as well as the explosion in numbers of chartered accountants.'' Today, CAS are no longer just restricted to "audit and attest'' function, but have branched out into corporate finance, mergers and acquisitions, cost reduction strategies-areas that can be loosely defined as consulting.

But the CA Act prohibits members (read all CAs) from entering into multi-disciplinary partnerships. So Indian audit firms cannot complement their skills by inducting engineers, MBAs and others to provide holistic consulting services-like their counterparts in developed markets (and even their own local clients like Infosys or Wipro) are able to do. Besides, the act prohibits CAs from charging "success or contingent" fees unlike their consultant counterparts who can. For instance, a consultant can charge a certain percentage of the cost or expenses saved by a client following the consultant's recommendations, but a ca cannot. Moreover, the first schedule of the ca Act disallows ca firms from soliciting business through advertising, leaving them to depend entirely on word-of-mouth publicity. That isn't all. CA firms, which cannot be anything but partnership firms, are also restricted to a maximum of 20 partners-a foreclosure of any ambition that they may have to scale up and grow.

Time For Reform

Antiquated laws, an insular regulator, a fragmented industry that is not keeping step with the rapidly changing requirement of clients, and the current swadeshi-videshi conflict can together spell only one thing: a dire need for reform. ICAI's President-in-office R. Bupathy believes ca firms should be allowed to corporatise and move from being unlimited liability partnerships to limited liability entities like merchant banks or consultancy firms. Others like Ernst & Young's Chairman and Country Managing Partner, India, Kashi N. Memani, believe that ca firms should consolidate in order to grow: "Consolidation would not only help the smaller firms service bigger clients, but put them in competition with the Big Four."

But don't expect any big changes in the law, the regulating body or the industry any time soon. True, there is a bill-the Chartered Accountant Amendment Bill, 2003-that was introduced in the Rajya Sabha in December 2003, but its aim is to increase government control over ICAI rather than any real reforms. As for the swadeshi-videshi shindig, it's far from over. Just wait for ICAI's presidential elections (scheduled for February 5, 2004) to be over and you can expect some more fireworks.