CA vs MBA - Where is the Difference

Introduction - This is part of a discussion a fellow Chartered Accountant is having with regard to the changes our community (read CAs and CA students) wants from the new Central Council and Regional Council for the betterment of the CA course. I put forward here my views regarding the changes required in the syllabus.

Changes required - The first and foremost change that needs to be done, a thing which was necessary for the last two decades, is a proper change in the syllabus. That has never been done. Unfortunately. Not just a change for the heck of it. 

Abolish the MCQ pattern of exams - Not MCQ. Abolish the MCQ pattern of questions at every stage of the CA exams right from Foundation, IPCC to the Final exams and throw it into the dust bin. 

Case studies. Adopt the case study method of learning. Introduce the case study method of teaching. Something which qualified Chartered Accountants don't know. They ask yeh case study kya hota hai Sir? 

Make case studies a compulsory 20-mark question in all papers. In every exam. You want quality. All of us want quality among CAs who qualify. And we will get quality. 

Many of us in our community refer to the highly paid MBAs. I have been a full time MBA faculty at some very good b-schools for a decade at Mumbai and Delhi NCR till 2013. And I am telling this from my experience there in teaching and placements. 

In a recent MCS class of mine someone was asking. Sir, why do the MBAs earn more than us? A very important question for us. And time to sit down and find the answers. 

I still believe the CA final examination to be the most difficult exam I ever had.

Conclusion - This is just one change which has come to my mind. Since we at the Institute of Chartered Accountants of India will be having a new team of 32 elected and 8 nominated Central Council members very soon as well as all Regional Councils pan India with new elected members I think this is the best time to put on our thinking caps and suggest further meaningful changes. This discussion will continue.  

Note - This article was first published on LinkedIn on 26th October, 2021.

ICAI may introduce the Open Book examination Method - My Views

First, The Institute of Chartered Accountants of India (ICAI) should find out by making a global search from similar institutes recognised internationally, what to ask. What should Chartered Accountants know? What are the subjects that should be first thrown to the dustbin from the present syllabus? They can cross-check with ICAI UK, CFA USA, ICSI, ICMAI and the IIM syllabus to see the benchmark.

Second, what are the subjects Chartered Accountants should study from CPT till the Final exams? Full subjects. For example, in IPCC, a very important subject, Strategic Management is a 50-mark paper which has been combined with an unrelated subject, Information Technology also having 50 marks to make it a full paper of 100 marks. A 50-year old method.

Third, comes the paper pattern. Abolish and throw into the dustbin outdated concepts for professional exams like the MCQ pattern. 

Fourth, and very important introduce the case study method of learning. Introduce the case study method of teaching. Make case studies a compulsory question in every paper. 

Fifth, how effective and better the open book exam will be for Chartered Accountants? At this point of time only time will tell us. 

The Concept - An open book exam is one in which students can give answers using their textbooks and notes. Open exams are intended to educate students on how to assimilate data and integrate it thoughtfully and thoroughly. In an open book test, the emphasis is on application rather than remembering knowledge.

ICAI Updates - ICAI is reviewing the possibility of conducting the open book exams and if the same is finalised by February 2022, it will be implemented within six months to one year.

Currently only an elective paper is covered under the open-book system. Students can be given situational case studies during the exams if they can find a solution to it by referring to the book.

This article was first published in LinkedIn on 4th November, 2021. 

To be continued  

What are Non Audit Services and Why Auditors are Debarred from it

The prime motive of introducing the provisions under Section 144 of the Companies Act, 2013, is apparently to ensure the enhanced independence and accountability of the auditors. 

Guidance Note on Independence of Auditors issued by the Institute of Chartered Accountants of India (ICAI) provides valuable inputs to understand the same.

Independence being a subjective term is one of the most important pre requisites for any auditor before serving any organization, in line with the Code of Ethics prescribed by the ICAI.

Non-audit services are any professional services provided by a Chartered Accountant (audit firm) during the period of an audit engagement which are not connected to an audit or review of an institution's financial statements.

Section-144 - An auditor appointed under Companies Act, 2013 shall provide to the company only those services as are approved by the Board of Directors or Audit Committee, but excluding the following services (whether rendered directly or indirectly to the company or its holding company or subsidiary company, namely:

(a) accounting and book keeping services;

(b) internal audit;

(c) design and implementation of any financial information system;

(d) actuarial services;

(e) investment advisory services;

(f) investment banking services;

(g) rendering of outsourced financial services;

(h) management services; and

(i) any other kind of services as may be prescribed

Prof N. Narayanaswamy, retired Professor of Finance, IIM Bangalore and Chairman, Technical Advisory Board, NFRA, suggests that audit firms should publish an annual report of professional activities undertaken and an external supervisory board to evaluate their audit quality. He has also suggested how small audit firms can go about the job.

Revenues from audit as well as non audit fees should be given. Non-audit fees received disproportionately higher than audit fees has been a big debate for reform the world over including India. 

Cases that right now come to my mind and on which I have written extensively over the last one year are the violations made by Deloitte and KPMG (BSR & Associates LLP) in this regard as statutory auditors of IL&FS for 2017-18. The appointment of both were illegal due to their provision of non-audit services. Two companies of IL&FS Group paid a total of Rs. 6.57 cr Non-audit Fees to Deloitte from 2013-14 to 2017-18. The above revenue does not include services provided by Deloitte and its affiliates to other group companies of IL&FS. 

Do refer to the detailed reports published, available on NFRA website, and action taken by NFRA in this regard. Only after reading these two case studies you will have a clear idea about the violations made and the quantum of fees received illegally by these two firms. Also the punishment given by NFRA.

This article was first published in LinkedIn on 6th November, 2021. 

To be continued   

FIR against SREI Promoters and Directors

The case relates to an alleged bank fraud.

The Uttar Pradesh police has registered a first information report (FIR) against crisis-ridden SREI Group’s promoters and directors of certain companies for an alleged bank fraud. The FIR was registered on the basis of a complaint filed by Bhupendra Nath.

The Jaunpur police station has forwarded the matter to the Economic Offences Wing (EOW). 

The Jaunpur Police has, in the FIR, named 22 directors and promoters of SREI Group under relevant sections of the Indian Penal Code.

Hemant Kanoria and Sunil Kanoria, former promoters of SREI Infrastructure Finance are not aware of any such FIR.

The Reserve Bank of India had, on October 4, superseded the board of SREI Infrastructure Finance Ltd (SIFL) and SREI Equipment Finance Limited, owing to governance concerns and defaults by the two companies in meeting their various payment obligations. 

Rajneesh Sharma, Ex- Chief General Manager of Bank of Baroda, was appointed as Administrator of these companies.

FIR Complaint

The complainant, Bhupendra Nath, went to SREI-run Jan Suvidha Kendra for some work, and was duped by the employees of SREI. He found that many criminal activities were being carried out at the Jan Suvidha Kendra, including bank fraud of more than Rs.16,000 cr. 

He reported the fact that at the Jan Suvidha Kendras, money was charged at the whims and fancies of the employees and the amount varied from Rs.1,000 to Rs. 25,000 for the works which are either free or for which a very nominal fee of not more than Rs 100 is charged.

Initially, he filed the police complaint and seeing no effective action he approached the court with 4,000-5,000 pages documentary evidence; upon which the Chief Judicial Magistrate ordered the registration of FIR against the accused persons. 

The 29-pages of the FIR covers detailed methodology as to how the Jan Suvidha Kendras are run and also how the alleged bank fraud to the tune of Rs.16,000 crore was perpetrated through such Kendras.

To be continued

Lenders’ claims worth Rs 22,000 cr from SREI admitted

The administrator appointed by the Reserve Bank of India (RBI) has admitted a total amount of claims worth Rs 22,910.4 cr out of a combined amount of Rs 25,115 cr as demanded by the commercial lenders of SREI Infrastructure Finance Limited and its wholly owned subsidiary SREI Equipment Finance Limited. 

The administrator, Rajneesh Sharma, has rejected claims worth around Rs 1604.6 cr of the commercial banks, while Rs 601.3 cr has been under verification as on November 19, 2021.

The Kolkata bench of the National Company Law Tribunal (NCLT) on October 8 gave its approval to start insolvency proceedings against SREI Infrastructure Finance Limited and SREI Equipment Finance Limited after RBI filed insolvency applications against the two companies.

The central bank filed the insolvency petitions against the two companies just after the Bombay high court dismissed a petition filed by two promoters of SREI group challenging RBI’s decision to supersede the boards of these companies and initiate insolvency proceedings against them.

The second meeting of the Committee of Creditors (CoC) of SREI Equipment Finance Limited was convened and conducted on November 29.

To be continued

Amazon Fined Rs. 200 cr - The Deal To Buy Future Retail Suspended - The 10-point Cheat Sheet

This comes amidst a bitter legal battle between Amazon and Future Group over the latter's proposed ₹ 24,713 cr deal with Reliance Retail.

The Competition Commission of India (CCI) suspended its approval for Amazon's deal to acquire a stake in retailer Future Coupons Pvt. Ltd. and imposed a Rs. 202 cr penalty for hiding facts and making false statements while seeking regulatory approvals in 2019.

The Amazon-Future Coupons deal approval shall be kept in abeyance.

The 10-point Cheat Sheet to this Big Story

1. Amazon suppressed the actual scope of the deal and made false statements while seeking approvals to invest in Future Group. CCI considers it necessary to examine the deal afresh.

2. This comes amidst a bitter legal battle between Amazon and Future Group over the latter's proposed Rs. 24,713 cr deal with Reliance Retail - the country's largest retailer in terms of revenue.

3. In 2019, Amazon had entered into a deal worth Rs. 2,000 cr with Future Group. As part of the deal, Amazon had acquired 49 per cent stake in Future Coupons - the promoter firm of listed Future Retail - which also owns 7.3 per cent equity in Future Retail through convertible warrants.

4. Future Retail would be able to place its products on Amazon's online marketplace. Additionally, Amazon had the right to buy into the flagship Future Retail after 3-10 years.

5. In August 2020, Reliance Retail Ventures said that it will acquire the retail and wholesale business, and the logistics and warehousing business of Future Group for Rs. 24,713 cr.

6. Amazon objected to Future's deal with Reliance, saying that it was a violation of a non-compete clause and a right-of-first-refusal pact it had signed with Future. The terms agreed in its 2019 deal of buying the 49 per cent stake in Future's gift voucher unit prevents the parent company - Future Group, from selling its Future Retail business to certain rivals, including Reliance.

7. Future Group complained to the antitrust body that Amazon had concealed facts over their deal. In June, the CCI sought an explanation from Amazon saying it hid factual aspects of the transaction by not revealing its strategic interest in Future Retail while seeking approvals.

8. While approving the deal in November 2019, CCI had also mentioned that the order shall stand revoked if, at any time, the information provided by the acquirer was found to be incorrect.

9. Earlier this week, Amazon had warned the antitrust body that revoking its 2019 deal with the Future Group would send a negative signal to foreign investors and allow Reliance to further restrict competition.

10. The CCI order will potentially dent Amazon's attempts to block the sale of Future's retail assets to Reliance Retail. The ruling could also have far-reaching consequences for Amazon's legal battles with Future.

To be continued   

At Last ICAI to get Powers to Punish Firms

A Bill moved in Parliament to empower The Institute of Chartered Accountants of (India) ICAI, ICMA and ICSI to take disciplinary action against erring firms. This demand is long overdue. 

The representation of the three professional bodies has been diluted on the composition of the respective Disciplinary Committees.

So long they could only act against their members and not against the firms they represented. The new Bill requires every firm to get registered with the concerned Institutes. 

The Councils will have to maintain a Register of Firms with details of pendency of actionable information or complaint or imposition of penalty against them. The Councils are empowered to remove a firm the Register of Firms if it has been debarred from undertaking any professional activities of a Chartered Accountant in practice under any law or by any competent court. 

For speedy disposal of disciplinary cases the Bill specifies a time limit of 270 days.

Significant Change

Revamping the composition of the Disciplinary Committees and the Board of Discipline. This will act as a blow to the three professional institutions. It takes away their powers to guide the outcome in disciplinary mechanism. 

The Presiding Officer of the Disciplinary Committee will be a non member of the Institute which would mean that the President of these Institutes can no longer be the Presiding Officer.

The Bill shifts to two Institute members and three non members including the Presiding Officer appointed by the Government. Earlier it was the other way round.

The blow has been softened by allowing the selection of the Presiding Officer from a panel recommended by the Council of the Institutes.

To be concluded    

The Big Four firms ask employees and partners to disclose this year's crypto investments.

 The Big Four firms - Deloitte, PwC, EY and KPMG - have asked their executives and partners to disclose cryptocurrency investments made by them or their family members during the year.

Deloitte and PwC partners have to disclose investments as small as Rs.10. The firms fear conflict of interest if partners or their family members hold digital currencies.

As part of the annual risk-assessment process, the Big Four firms have also sought details of investments in non-fungible tokens (NFT) or other crypto assets.

A non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a blockchain, a form of digital ledger. NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.

Bitcoin and other cryptocurrencies are the most prominent uses of blockchain technology, and they are examples of fungible tokens.

-Please note that bitcoins crypto assets may be considered as fungible..

Execs could face fine or be sacked if they fail to make disclosures.

Many of the Big Four projects involve directly working with the Reserve Bank of India (RBI) and the government. And they want to be above board.

The focus is mainly on the partners of the Big Four firms. There are about 1,600 partners in the Big Four firms who head service functions like consultancy, taxation or audit.

In the Big Four, the compliance department is tasked with verifying whether partners are making full disclosures.     

ICAI is planning to make CA course simpler by removing some subjects. If this happens would it be a right decision? (Source Internal)

The following is my response to what CA Yogesh Verma, Associate Relationship Manager, IndusInd Bank has written above. He is conducting a vote with readers having to respond with a Yes or No.

CA Yogesh Verma - The bad things continue to happen in our community defined as Chartered Accountants and CA students. Given below are some of them but not in any order.

1. CA course is made still simpler. As updated by you.

2. Remove some subjects. As updated by you.

3. Do not introduce the case study method of learning. You can refer to the MBA syllabus and question papers in individual subjects to understand what this is. It is used and applicable to all MBA courses pan India.

4. Do not introduce the case study method of teaching.

5. Continue with the outdated MCQ pattern of exams (for any professional course) from Foundation till the CA final exams.

6. Continue with another outdated idea of a combination of half subjects in a professional course as important as this. Example. IPCC Paper-7. Enterprise Information Systems and Strategic Management. Or Information Technology and Strategic Management.

You may note here that Strategic Management is a very important and a compulsory subject in the MBA syllabus pan India. A subject I have taught for a decade till 2013 in some of the best business schools in Mumbai and Delhi NCR. 

But it seems for Chartered Accountants it isn't.

To be continued         

Who is to blame for the Indian government encroaching on ICAI's powers?

 #supriowrites #icai 

Who is to blame for the Indian government encroaching on ICAI's powers?

What has not Happened

I have written for long on the reasons and consequences of what has not happened for two decades due to The Institute of Chartered Accountants of India (ICAI) not having the power to punish an audit firm however big it is. For the unintiated, The Chartered Accountants Act, 1949 has not given this power to ICAI till date.

Why this most important requirement of ICAI has not happened in spite of the nation being looted in regularity by scamsters and fraudsters settled comfortably with the loot in some corner of this planet. 

Yes not even after the National Financial Reporting Authority (NFRA) formed in 2018 as our disciplinary regulator.

What is Happening Now

A Bill moved in Parliament to empower ICAI, ICMA and ICSI to take disciplinary action against erring firms. Something long overdue. I didn't expect this to happen. But it has.

It is a rude awakening for ICAI's rank and file.

ICAI is a statutory body set up by an Act of Parliament which enjoys a large amount of functional autonomy. 

In 2018, NFRA, having enhanced powers, was set up. And now, the bill seeks to overhaul the disciplinary mechanism of ICAI, as well as those for Company Secretaries and Cost Accountants - ICAI and ICMA.

The ICAI is understandably unhappy that its domain has been encroached upon. Once again, after NFRA. The bill puts a government appointee as the head of the Disciplinary Committee, the ultimate authority to punish members for violations. 

Our community says that only a Chartered Accountant can interpret accounting rules in a way to do justice to the role. However, the functioning of the Committee, headed by prominent members of ICAI leaves much to be desired.

Adjudications are inordinately delayed leaving room for much to happen. The final orders against the auditors of Satyam (PwC) came 5 years after the scandal broke out in 2009. The Satyam scam is the story of India's biggest corporate fraud. ICAI argued its hands were tied up because of judicial interventions.

If ICAI wants to blame someone for this sorry state of affairs it is only itself. Once considered to be the most formidable of financial regulators it lost its domination over the last two decades, most of all among its own members. 

It has not been able to make any progress in the two areas members still look up to it the most – protecting small and medium audit firms from the dominance of large MNC-networked firms, Deloitte, PwC, KPMG, EY and so on; and to punish firms that facilitated the biggest financial scams over the last two decades. The latest amendment helps with the latter, as it gives ICAI the powers to proceed against audit firms.

It may be argued that this coincides with a fall from grace for institutions across the board, ICAI’s troubles are different in that they are mostly unsolicited. Perhaps a bigger soul searching is called for.

To be concluded  

The Big Four firms ask employees and partners to disclose this year's crypto investments.

The Big Four firms - Deloitte, PwC, EY and KPMG - have asked their executives and partners to disclose cryptocurrency investments made by them or their family members during the year.

Deloitte and PwC partners have to disclose investments as small as Rs.10. The firms fear conflict of interest if partners or their family members hold digital currencies.

As part of the annual risk-assessment process, the Big Four firms have also sought details of investments in non-fungible tokens (NFT) or other crypto assets.

A non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a blockchain, a form of digital ledger. NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.

Bitcoin and other cryptocurrencies are the most prominent uses of blockchain technology, and they are examples of fungible tokens.

Please note that bitcoins crypto assets may be considered as fungible..

Execs could face fine or be sacked if they fail to make disclosures.

Many of the Big Four projects involve directly working with the Reserve Bank of India (RBI) and the government. And they want to be above board.

The focus is mainly on the partners of the Big Four firms. There are about 1,600 partners in the Big Four firms who head service functions like consultancy, taxation or audit.

In the Big Four, the compliance department is tasked with verifying whether partners are making full disclosures.    

Has the Proposed Chartered Accountancy Bill Rubbed us the Wrong Way?

Has the Proposed Chartered Accountancy Bill Rubbed us the Wrong Way?

It seems our community (read - Chartered Accountants) feels that the three non-members (read - non CAs), supposed to have shallow knowledge of audit and assurance, cannot deliver fair judgement in the proposed Disciplinary Committee of ICAI. 

This alters the power equation in favour of the three non-members in the committee which oversees complaints and enquiries pertaining to misconduct of members. 

Our community interprets the move as another attempt by the government to assert control over us after the creation of the National Financial Reporting Authority (NFRA) in 2018.

The Bill proposes inclusion of two CAs and three non-CAs (government nominees) in the Disciplinary Committee from two non-CA nominees and three members.

It proposes to have a non-member as the presiding officer of the Disciplinary Committee. It seems this has annoyed our community a lot as the President of ICAI holds considerable influence over the committee's decisions.

The proposals have come after allegations that ICAI Disciplinary Committee has gone very slow and yet to take any tough decision.

The move will not affect the Big Four but small and medium audit firms have to be careful.

ICAI's powers to influence decisions of the Disciplinary Committee will be mostly diminished. 

Our community feels that the government wants to assert control as in NFRA.

It also feels that the approach in most fraud cases has been to go only after the auditors.

It seems the government is about to take away ICAI's powers and see to it that the President as well as ICAI can no more influence the decisions of the Disciplinary Committee.

There is a general inclination against self regulation in our community. The proposed Bill is an attempt by the government to act in an independent way and reduce ICAI's power and influence over the profession.

The main concern in our community is that non-members do not understand our profession, its practicalities and intricacies. If the proposed changes happen there would be an independent and unbiased view in several aspects. 

Over time auditing has become highly technical and specialised. The scope of audit is quite clearly defined through multiple standards. The proposed changes may result in more decisions based on individual judgement than those driven by the governing standards.

Conclusion

The government has proposed the suggested changes after frequent allegations that ICAI Disciplinary Committee had been very slow and too lethargic. It has never taken tough disciplinary actions against the members and particularly the respective audit firms. The cases dragged on for years together. 

I can give numerous examples of violations that have taken place in our community over the last three decades with nothing ever happening to the culprits. The members or the audit firm. I leave that discussion for another occasion.