capacity building practical aspects

Capacity BuildingPractical Aspects

Restriction on Disclosure and Use of DataThe 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.

CA Niranjan Joshi

J. B. Nagar CPE Study Circle of

WIRC of ICAI

23rd December 2012Andheri - Mumbai

223.12.2012CA Niranjan Joshi

DisclaimerThese 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.

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

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)?

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

Its time to re define our strategies

Clients Expectation from Practice Units

Experience, Expertise and Efficiency

Multi – location presence One Stop Solution Size / Back up / Team / Alternatives Capacity Building

Does the size Matters?

ICAI – Capacity Building MeasuresCapacity Building

Measures 2005

Networking MergersManagement

Consultancy Services Companies

Capacity Building

Reading & Research Development Specialization / Expertise Sharing Resources / Knowledge Pool Human Talent Infrastructure, Mkt Requirement / Challenges Ability to Handle Complex /diverse areas Ability to Handle Volume assignments Ability to reach across state / country

Concept - Capacity Building For CA Firms

Story of Hare & TortoiseFast and Consistent will always beat the slow

and steadyWork to your competenciesPooling resources and working as team will

always beat individual performersNever give up when faced with failureCompete against situation not against rival

Be STRATEGIC

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

ICAI – Capacity Building Measures

Networking of CA Firms

Merger of CA Firms

Corporate form of Practice

Concept of Networking

Honey Bee Nest

Polyclinic

Concept of Networking of CA Firms

A & CoA &

Affiliates

B & Associates

CD & Co

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

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.

What should I look for when Networking?

Geography / Location

Specialisation / Expertise

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

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

ICAI GuidelinesWho 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 & AssociatesEthical compliance is must

Contents

Merger of CA Firms

Corporate Form of Practice

Merger

Background 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

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

Contents

Merger of CA Firms

Corporate Form of Practice

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.

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.

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

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

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

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.

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.

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.

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

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

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

If we don’t act now?

DO’sRemove I from our minds and think for

WESenior / Junior concept must be

redefinedSourcing & Execution must be the core

areasMerger should not be only for PSU /

Bank WorkPrivate Sector Opportunities should be

tappedAdmission & Retirement of Partner must

be defined

Dont’sTotal power should not be put a single

partner/individualMultiple power centers /processes

should be avoidedAvoid creating immoveable propertiesNo ambiguity regarding key areas such

as sharing of profits, responsibility, retirement & admission of partners

Professional OpportunitiesInternational Financial Reporting Standard- Employment- Audit Assignments- ConsultancyBanks and Financial Sectors Public Sector AssignmentsTendersMNCs in India & Indian MNCs Abroad

ICAI – PDC Portal

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

ICAI Capacity Building Initiative

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

Conclusion

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

Questions???

CA Niranjan Joshi, B.Com., FCA, DISA (ICAI)Email: nvjca1@gmail.com

Cell: 9819078061

!!! Thanks !!!

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