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Present Status of Practising
Chartered Accountants
Our Chartered Accountants have
world class competency in accountancy profession. Not only in India rather we
can be major player in world service sector. However Indian CA firms have
certain limitations which we need to look into. A major impediment is probably
the size of our firms. More than 70.5% of CA firms are proprietary firms and
about 23% of them have 2 to 3 partners. Firms having partners between 4 and 10
are hardly 6% and firms having partners more than 10 are less than 0.5%. Thus we
see that large firms constitute a very minuscule percentage of the total firms
registered with ICAI.
A number of barriers and
limitations plug the growth of small firms into large firms. In the globalised
world the demand of service users includes multi locational and integrated “One
Stop Shop” services. Most of the clients demand a “Single Window Point” or one
firm to handle their all business issues, relating to the various assignments.
The clients now expect a quicker and globally accepted solution.
Needless to say that this is the
high time we should accept a change in our mindset and move forward for
developing size of the firm through Networking & Merger. This option is always
better than to have proprietary and small firms. Considering competition,
prospective clients’ need, demographics and market trends ICAI has taken
initiatives in the form of capacity building measures to develop Indian
Chartered Accountant firms.
The concept of capacity building
measures basically includes: -
(i) Networking
(ii) Merger & Demerger
(iii) Practice in Corporate Form
Networking
The Institute of Chartered
Accountants of India has announced the rules for networking amongst the
chartered accountants. In Network, one does not need to be partner but one can
have affiliation with a CA firm bearing advantages of partnership alike and
benefits of building capacity to serve the clients at different locations or in
different areas of the services. The ICAI in the rules of networking defines the
Network as “Network amongst two or more firms means an arrangement to facilitate
the better functioning of the affiliate member firms in the interest of the
profession and not for acquisition of any gain. Such Network shall include the
formal Network to use the collective resources such as turnover,
infrastructures, manpower, location for execution of Professional services of
one or more type.”
Formal network means a network
amongst two or more firms registered with ICAI, where the object of network is
to use the collective resources of the affiliates for execution of professional
services of one or more types at one and/or at multi-locational points. The
resources would include financial, technical and other logistic support required
to execute the professional assignments. In such type of network, the common
resources may be pooled and exhibited together before the service user as those
belonging to one particular set of professionals.
Explanation —
Name for Network
The Network may have distinct name, which should be approved by the Institute. To distinguish a “Network” from a “firm” of Chartered Accountants, the word “& Affiliates” should be used after the name of the network and the words & Co.”/”& Associates” should not be used. The prescribed format of application for approval of Name for Network is as per the Form ‘A’. Standards prescribed in Regulation 190 of the Chartered Accountants Regulations, 1988 shall be applicable to the name of Network. However, even if a name is provided and subsequently it is found that the same is undesirable then, the said name can be withdrawn at any time by the Institute. The Institute shall reject any undesirable name and the provisions in respect of name of companies as prescribed in the Companies Act, 1956 shall be applicable in spirit. The network is not permitted to advertise nor to use logo. The firms constituting the network are permitted to use the words “Affiliates/Members of …” (a network of Indian CA firms) on their professional stationery. Network may work without a Name also.
Registration for the Network
Formal Network is required to be
registered with the Institute as per the prescribed Form B. The Referral
Practice requires no registration. Referral Practice means a practice to refer
professional work by a firm to one of its associate/affiliate either situated at
a different place or rendering professional services not provided by it, to the
user of the services. The purpose behind such a network is not to pool in their
collective resources and exhibit them as those belonging to one particular set
of professionals.
If a different Indian Firms are
networked with a common Multinational Accounting Firm (MAF) then irrespective of
the presence/absence of any ‘affiliate’ relationship between the Indian Firms
inter se, they shall be considered as a part of network. As such for these
firms the registration with the Institute is not mandatory. It is only if these
Indian Firms decide to constitute a formal network, then the registration with
the Institute is mandatory.
Ethical Compliance
It will be necessary for the
networked firms to comply with all applicable ethical requirements prescribed by
Institute. Thus if one firm of the network is the statutory auditor of an entity
then the associate firm should not accept internal audit or book keeping or such
other professional assignment which are prohibited for the statutory auditor
firm. The ceiling of charging non audit fees; i.e., three times of the statutory
audit fees is collectively applicable in relation to the networking firms. In
those cases where rotation is prescribed by any regulatory authority, no member
firm of the network can accept appointment as an auditor in place of any member
firm of the network which is retiring. However, this restriction shall not apply
in case of appointment as Statutory Central Auditor of Government
agencies/Undertaking such as Public Sector Undertakings (PSUs), Public Sector
Banks and Financial Institutions etc.
Consent of Client:
The network
shall obtain consent of the client to engage an affiliate in discharging the
professional assignments.
Constitution
The Network can be between
proprietary, partnership firms and individual members. A proprietary,
partnership firms and individual members are allowed to join only one formal
network. Firms having common partners shall join only one network.
Scope
The Network itself will not carry
on any business for acquisition of gain for itself and only act as a facilitator
for its members/constituent Member firms to pursue their professional jobs. Only
one Firm/Member can apply on behalf of the Network showing the collective
strength of all the constituent firms of the Network, when responding to any
enquiry. Only the firm(s)/Member(s) forming Network are eligible to
issue/sign/attest any certificate/report/professional document/assignment.
Bye-laws
To streamline the networking, a
network shall formulate operational bye-laws. Bye-laws may contain the following
clauses on which the affiliates of the network may enter into a written
agreement among themselves:
Network with entities outside India
The duly
authorized representative(s) of the Indian Member firm (s)/Member Constituting
the Network shall file a declaration with the Institute in Form `D’ for
registration.
Proprietary/Partnership firms as well as individual members shall be permitted
to join such Network with entities outside India. Provided that the
proprietary/partnership as well as individual member are allowed to join only
one formal network and firms having common partners shall join only one such
network.
Exit
A constituent Member firm/Member
of a Network can exit from the network by sending the declaration in Form ‘C’
to the Institute and also to each and every constituent of the network. The
concurrence/acceptance of the same by other firms forming part of the network
firm shall not be required.
Conclusion
This sort of Networking would be
stepping stone for the mergers and acquisitions of the firms. The Institute has
also announced the rules for the same. Once one is comfortable with these
networking one can go for bigger partnership firms get the advantage of the big
work to follow. This will help the firms to build competitive advantage over
others. The firms will also be able to build up their brands.
The survival of small chartered
accountants firms depends on their ability to re-engineer themselves. This type
of networking will be one of the ways of re-engineering of the firms. Let us
make the best out of the facility provided by the Institute.
MERGER & DEMERGER
In the corporate world, merger and
demerger have become universal practices for securing survival, growth,
expansion and globalization of enterprise and achieving multitude of objectives.
Merger is the fusion of two or more existing companies. On the other hand,
demerger signifies a movement in the company just opposite to merger. ‘Demerger’
is also used to describe spinning off of an “undertaking” of a Corporate entity.
MERGER
In order to have an orderly and
sustainable growth of the CA firms, it is desirable that the coming together of
the firms begins with networking and then matures to mergers. Networking will
enable the firms to develop working relationships with each other. However, it
is not to suggest that there cannot be mergers without networking.
The mergers should be effected to
develop core competencies and to render professional services of a larger range
spread over bigger geographical area. A merged big entity will always be
superior to a network arrangement.
To effectuate merger, a merger
agreement in Form ‘E’ is to be filed with the Institute within 30 days from the
date of the agreement. The re-constitution agreement/partnership deed shall be
filed with the Registrar of Firms. Upon the merger of the firms, the Institute
will freeze the names of the merging firms and shall not allot the same names to
any other firm.
DEMERGER
The merger has to precede the
demerger and demerger can be demanded within a period of 5 years from the date
of merger.
The merger agreement itself shall
contain the terms and conditions for demerger. Therefore no
concurrence/acceptance is required from the continuing partners. The merger
agreement shall stipulate that in case 75% or more of the continuing partners of
one of the erstwhile firm(s) are willing to demerge then they can do so after
giving due notice in Form ‘F’ to the other partners and to the Institute. In
case 75% or more of the continuing partners of one of the erstwhile merging firm
have demerged after giving due notice to the other partners, then in such case,
the merger shall come to an end and if the remaining erstwhile merging
firms/partners of the erstwhile merged firm decided to continue, then they
should enter into a fresh Merger/Partnership Agreement.
The Constitution Certificate
issued by the Institute to the demerged firm shall state the original date of
establishment, the date of its merger and the date of the demerger. For the
purpose of computing the seniority of the firm, the total period will be
reckoned from the original date of establishment.
The Demerged Firm is entitled to
practice in its old trade name, which existed at the time of merger.
GUIDELINES FOR PRACTICE IN
CORPORATE FORM
To empower the members to face the
emerging challenges in the service sector as well as to equip them for the
opportunities in the non-audit service area, the Council decided to allow
members in practice to hold the office of Managing Director, Whole-time Director
or Manager of a body corporate within the meaning of the Companies Act, 1956
provided that the body corporate is engaged exclusively in rendering Management
Consultancy and Other Services permitted by the Council in pursuant to Section
2(2)(iv) of the Chartered Accountants Act, 1949 and complies with the
conditions(s) as specified by the Council from time to time in this regard.
The members can retain full time
Certificate of Practice besides being the Managing Director, Whole-time Director
or Manager of such Management Consultancy Company. There will be no restriction
on the quantum of the equity holding of the members, either individually and/or
along with the relatives, in such Company. Such members shall be regarded as
being in full-time practice and therefore can continue to do attest function
either in individual capacity or in Proprietorship/Partnership firm. They are
also entitled to train articled/audit assistants.
Management Consultancy Company
means a Company which complies with the Guidelines for Practice in Corporate
Form issued by the Institute. Management Consultancy & Other Services or MCS
means ‘Management Consultancy & Other Services’ permitted by the Council in
pursuance to Section 2(2)(iv) of the Chartered Accountants Act, 1949. The
expression “Management Consultancy and other Services” shall not include the
function of statutory or periodical audit, tax (both direct taxes and indirect
taxes) representation or advice concerning tax matters or acting as liquidator,
trustee, executor, administrator, arbitrator or receiver, but shall include the
following:
NAME OF MANAGEMENT CONSULTANCY
COMPANY
The Management Consultancy Company
shall have a distinct name which shall be approved by the Institute. The
prescribed format of application for approval of name for Management Consultancy
Company is at Form ‘G’. The name of Management Consultancy Company may indicate
the area of ‘Management Consultancy & Other Services’ permitted by the Council
from time to time. Standards prescribed in Regulation 190 of the Chartered
Accountants Regulations, 1988 shall be applicable to the name of the Management
Consultancy Company. However, even if a name is provided and subsequently it is
found that the same is undesirable then, the said name can be withdrawn at any
time by the Institute. The provisions in respect of name of companies as
prescribed in the Companies Act, 1956 shall be applicable in letter and spirit.
The Management Consultancy Company shall neither be permitted to advertise nor
to use logo.
REGISTRATION OF MANAGEMENT
CONSULTANCY COMPANY
After approval of the name under
Guideline 3 and incorporation under the Companies Act, 1956, the Management
Consultancy Company is required to be registered with the Institute in a
prescribed Form ‘H’.
ETHICAL COMPLIANCE
Once the Management Consultancy
Company is registered with the Institute as per the Guidelines, it will be
necessary for such a Company to comply with the following requirements: -
APPLICABILITY OF COMPANIES ACT, 1956 AND OTHER LAWS
All the provisions of the
Companies Act, 1956 and other laws that are applicable to a Company formed under
the Companies Act, 1956 shall be applicable to the Management Consultancy
Company. The Guidelines are in addition to the provisions contained in the
Companies Act, 1956.
Benefits available to members if the Guidelines framed are complied with:
Violation of Act
In case of
alleged violation of the provisions of the Act, Regulations framed thereunder,
guidelines/directions laid down by the Council from time to time and Code of
Ethics, in case of Network Firm, the proprietary/partnership firm(s)/individual
Member constituting the Network would be answerable and in case of Corporate
form of practice, the individual practitioner/sole-proprietorship
firm/partnership firm in general and the Managing Director/Whole-time
Director/Manager of such company in particular, would be answerable.
Annexure
Form `A’
APPLICATION FOR APPROVAL OF NAME FOR NETWORK OF FIRMS
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
[See Rule 3 of Guidelines of
Network amongst the firms registered with The Institute of Chartered Accountants
of India]
1. Proposed name of Network 1. _______________
(in order of preference) if the Network 2.
_______________
has a distinct name 3. _______________
4. _______________
2. Name(s) of the Firm Name/ Firm Regn. No./
firm(s)/Member(s) Member Name M.No.
forming network 1. ____________ ______________
2. ____________
______________
3. ____________
______________
4. ____________
______________
3. Address of the Office of the Network
_________________________________
_________________________________
_________________________________
_________________Pin _____________
E-mail (if any) _____________________
4. We hereby declare that the above firm(s)/Member(s) proposed/have entered into an understanding to form a network in accordance with Guidelines of Network amongst the firms registered with The Institute of Chartered Accountants of India and further affirm and confirm that the partner signing the application has been duly authorised by the other partners of the respective firms.
Place : ……………………….. Name(s) with Membership No(s).
and signature(s) of duly authorized
Date : ……………………….. Partner(s)/Proprietor(s) of the
firms/
Member constituting Network
Form ‘B’
DECLARATION FOR REGISTRATION OF FORMAL NETWORK AMONGST FIRMS REGISTERED WITH ICAI
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
PARTICULARS OF NETWORK HAVING INDIAN AFFILIATION
1. Name of the Network
2. Address of the Network
3. Names
and addresses of firms/Member constituting the Network
4. (a) Date of formation of Network
5. We undertake to comply with the guidelines/directions laid down by the
Council regarding Network from time to time.
We hereby declare that:
(a) the network constituents have entered into an agreement to form this
network.
(b) that the partner(s) signing this declaration has been duly authorized by the
other partners of the firm
Place : ……………………….. Name(s) with Membership No(s).
and signature(s) of duly authorized
Date : ……………………….. Partner(s)/Proprietor(s) of the
firms/
Member constituting Network
Form ‘C’
DECLARATION FOR DISSOCIATION
FROM A NETWORK
THE INSTITUTE OF CHARTERED
ACCOUNTANTS OF INDIA
[See Rule 12 of Guidelines of
Network amongst the firms registered with The Institute of Chartered Accountants
of India]
1. Name of the Network 2. Address of the Network 3. Names and addresses of firms constituting the Network
In pursuance to the Rule 12 of Guidelines of the Network issued by The Institute
of Chartered Accountants of India, We/I hereby declare our dissociation from the
Network w.e.f. …………………………
I hereby
declare that I have been duly authorised by the other partners to issue this
declaration.
Place : ……………………… Name with Membership No(s).
and signature(s) of duly authorized
Date : ……………………… Partner(s)/Proprietor of the
firm/
Member dissociating from the Network
Form `D’
DECLARATION TO BE FILED FOR NETWORK WITH
ENTITIES OUTSIDE INDIA
THE INSTITUTE OF CHARTERED ACCOUNTATNS OF INDIA
PARTICULARS OF NETWORK WITH ENTITIES OUTSIDE INDIA
Name(s) of Firm(s) Firm Registration Number(s)
Verification
I/We solemnly declare and affirm that the information provided is true and
correct to my/our knowledge and belief.
Note:
Form `E’
FORMAT OF MERGER AGREEMENT THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA [See Rule 3 of Rules of Merger & Demerger amongst the firms registered with The Institute of Chartered Accountants of India]
We, (1)………… (2) ………… (3) ……………… partners of (1)
M/s. A & Co. (2) M/s. B & Co. & (3) …………………… execute this Merger Agreement on
this ____ day of ______, at ___________:
The date of
establishment, name of the partners, their membership nos, are as follows:-
The date of
establishment, name of the partners, their membership nos, are as follows :-
3. ……………………………………………………………………………………
Now, therefore, in consideration of mutual
promise herein made and the consideration hereunder expressed, the parties
hereto mutually covenant and agree as follows:
We, all the
partners of the merged firm ……………………………………… understand that this merger has the
following consequences in pursuance to the decision of the Council of the
Institute: -
(i) They shall be entitled to the total seniority acquired i.e. their earlier
pre-merger seniority and the years during which they were in merged firm.
(ii) They are entitled to their old firm’s name.
Provided in case, 75% is a fraction, then the same shall be rounded off to the
next number.
IN WITNESS WHEREOF, the
Partners of the Merged firm M/s…………………………. hereto set their hands on this
agreement in the presence of the witnesses.
Form `F’
NOTICE FOR DEMERGER
THE INSTITUTE OF CHARTERED
ACCOUNTANTS OF INDIA
[See Rule 4(i) of Rules of
Merger and Demerger amongst the firms registered with The Institute of Chartered
Accountants of India]
1. We the following persons Name(s) Membership No.(s)
_____________
_______________
_____________
_______________
being partners of M/s ___________ which merged with the firm M/s ________as per
merger agreement dated ________ willing to demerge with effect from ____
2. We are the partners of the erstwhile Merging firms, M/s ___________ merged
with M/s. ____________ & constitute the merged firm __________ with effect from
_______. The Merger Agreement dated ________ and Form 18 were filed before the
Institute on __________
3. We constitute 75% or ____ % of the continuing partners of the erstwhile firm M/s. _________
4. This demerger is
within a period of 5 years from the date of merger.
5. We desire that our
pre-merger name be allotted to us.
________________________
Place: ________________________
Date: ________________________
Signature of all the Partners of the Erstwhile Firm M/s. ________willing to demerge.
Form
`G’
APPLICATION FOR APPROVAL OF NAME
FOR
PROPOSED MANAGEMENT CONSULTANCY COMPANY
THE INSTITUTE OF CHARTERED
ACCOUNTANTS OF INDIA
[See Guideline 3 of Guidelines
for Practice in Corporate Form]
1. Proposed name of the Company 1. _________________
(in order of preference) 2. _________________
3. ________________
2. Name of the Members/firm along with name of partners forming proposed Management Consultancy Company
Firm Name/Member Name Firm
Regn. No./M.No.
3. Address of the Registered Office of the proposed Management Consultancy Company
_________________________________
_________________________________
_________________________________
_________________Pin _____________
Tel. No. __________________________
Fax No. __________________________
E-mail ___________________________
Website Address
___________________
4. Ownership pattern of the
Company
5. Name of the member proposing to
become Managing Director/Whole-time Director/Manager
Name of the Member Membership No.
1.______________________
______________
2_______________________
______________
3.______________________
______________
Place : ……………………….. Name(s) with Membership No(s).
and signature(s) of duly authorized
Date : ……………………….. Partner(s)/Proprietor(s) of the
firms
Form ‘H’
DECLARATION FOR REGISTRATION OF MANAGEMENT CONSULTANCY
COMPANY
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
[See Guideline 4 of Guidelines
for Practice in Corporate Form]
1. Name of the Management Consultancy Company 2. Address of the
4. Ownership pattern of the
Company
5. Name of the member(s) proposing to become Managing Director/Whole-time Director/Manager
Name of the Member Membership No.
1.________________________
_____________
2.________________________
_____________
3.________________________
_____________
6. Number and Date of Incorporation Certificate
(Please enclose Incorporation Certificate issued
by the ROC)
I/We hereby declare that the
Management Consultancy Company shall render Management Consultancy & Other
Services which are prescribed by the Council of the Institute from time to time
pursuant to powers under Section 2(2)(iv) of the Chartered Accountants Act,
1949. This Company has been constituted in compliance with the Guidelines for
Practice in Corporate Form issued by the Institute.
I/We hereby declare that I/We shall comply with Clauses (6) & (7) of Part I of the First Schedule to the Chartered Accountants Act, 1949 and such other directions as may be issued by the Institute from time to time in this regard.
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