Last month witnessed two significant events essential for the coming of age of the Indian accounting profession.
To start with, The Institute of Chartered Accountants of India (ICAI) signed an MoU with the Institute of Chartered Accountants of England & Wales (ICAEW) permitting the members of either institute to acquire membership of the other by clearing a minimal number of exams. This, definitely, is a great achievement for the ICAI, and the entire leadership behind it deserves to be congratulated. This is a goal, which was being pursued for more than one and a half decades. Mutual recognition between India and the UK was undone in the early 90s by measures taken by the Board of Trade in the UK and the Indian leg of the recognition was withdrawn in the mid 90s. At the same time when industry, trade & commerce was increasingly becoming borderless, Indian accountants were fenced within the political boundaries of India. This MoU has the potential of defeating the isolation decade and making the Indian profession become a truly global player.
The European Commission (EC) made a landmark announcement last week. The Generally Accepted Accounting Principles (GAAP) of six countries in the world United States, Japan, Canada, India, China and South Korea were declared to be equivalent to International Financial Reporting Standards (IFRS). This followed a positive opinion given by the European Parliament and all member states to the European Securities Committee in the previous month. While this is a testimony to the application and rigor of Accounting Standards in India, it also acknowledges the fact that the fundamental genetic material of Indian accounting standards are the purveyor of IFRS.
Though these developments would definitely bring cheer in these gloomy times, but at the same time, there is a pertinent clause added to it. In its announcement, the EC said that the situation in four of these six countries, i.e., India, China, Canada and South Korea, would be reviewed no later than 2011. Also the EC would regularly monitor the ongoing status of equivalence and report to the member states and Parliament. Thus, we cannot remove our foot from the accelerator of convergence to global standards.
Indias growing clout in the accounting world has a lot to do with its status as an emerging economy with a strong growth rate and deep-pocket investors who are venturing abroad. It is a matter of pride that India has more than 200 companies, many of them medium sized, whose debt or equity is listed in Europe.
Membership of this exclusive club brings many responsibilities and expectations. In addition to converging with IFRS by 2011; and continuing to satisfy EC equivalence criteria in the forthcoming equivalence tests, we would have to converge our auditing standards, - particularly the standards for joint audits. The market place, regulators and ICAI will have to move towards the international goal of qualification free public balance sheets, where accounts are recast in order to remove audit qualifications before they are accepted in a public domain. The MCA in its new Companies Bill has proposed independence requirements, which would help in achieving convergence with global independence standards. The logical extension of all such convergences is to encourage multi-disciplinary partnerships and the government has already done its bit by amending the CA Act to permit it.
This week, the Securities Exchange Commission (SEC) has also voted on the necessity of its 500 largest companies to file financial reports from 2009 using the Extensible Business Reporting Language (XBRL). Similar adoption of XBRL by a number of the other developed countries would mean that India would also have to soon walk on that path. Sebi has already constituted a committee and I feel, this will be the next big thing that will occupy our attention.
A seat at the high table comes with a lot of obligations, but also with unique opportunities. Opportunities to place the concerns of the emerging economies on the world stage; opportunities to take leadership in developing SME (Small, Medium Enterprise) focused standards; opportunities to highlight the talent in the country; opportunity to open up new horizons of global mobility for our professionals. We only hope and fervently wish that all such opportunities are grasped with both hands and we do not falter on any of the heightened expectations that the world has from us.
The author is director, Ernst & Young India Pvt Ltd. The views expressed herein are the personal views of the author and do not necessarily represent the views of Ernst & Young Global or any of its member firms.