It was the best of times; it was the worst of times; a historian may thus sum up, the last two months. The wo-rld reeling from depres-sion; divided by theories of greater regulations ver-sus greater stimulus; waking up to the reality of shifting of power from West to East and North to South; came together at the G-20 with a mature declaration that focused on fundamental changes to the financial and regulatory landscape and greater emphasis on risk management.

The accent was more on solutions which transcended political boundaries and actively promoted harmonised universal regulation and efforts; from, accounting to climate change; financial stability boards to tax havens; to strengthening multi-lateral institutions and processes.

Back home last month, the Rakesh Mohan Committee (RMC) came out with a landmark report on assessment of Indias financial sector. Observations in the report pertaining to the committees views on accounting and auditing standards; oversight mechanism over the processes of auditing; IFRS convergence and accrual based accounting, merit serious reading as the committee comprised a group of the countrys most experienced and influential bureaucrats. I am sure this report would go ahead to become a watershed in the regulation of financial markets and infrastructure.

The above areas commented upon by RMC have traditionally been overseen by the ICAI, as a Self Regulatory Organization (SRO). This has been the traditional model in most countries.

However, an SRO like ICAI has to continuously walk a tight rope between its role as a regulator and its role as an industry association seeking greater professional development opportunities for its members. The more ICAIs role is seen as leaning towards the latter, greater will be the clamour for truncating its regulatory role as the tone of certain recommendations in the RMC report suggests.

The report also recommends quick convergence with IFRS; removal of ICAIs functional control over both the Accounting Standards Board (ASB) and the Auditing and Assurance Standards Board (AASB); alignment of Indian Auditing Standards with International ones and auditors being made answerable to various regulators like RBI, SEBI, etc. for entities falling within their scope and by implication, not only to ICAI. It also talks about transforming the Quality Review Board (QRB) to an active independent oversight body.

I still maintain that most of the processes mentioned above (other than that of the independent oversight body) can be more efficiently addressed within the construct of the ICAI, provided clear Chinese Walls are set up. With this in mind, more than a decade ago, we had formed an independent company called ICAI Accounting Research Foundation (ARF). It is time that all the standard setting processes are migrated to the ARF and it is granted full functional autonomy.

Peer review as a quick test mechanism has become fashionable but there is lack of clarity with ICAI cond-ucting its own peer reviews, which are CA firm specific; SEBI conducting peer reviews which are listed company specific and QRB waiting in the wings to conduct its own peer review as an independent oversight board.

There is an urgent requirement for clarity in this matter. Also, in a recent technical publication, the

ICAI has held that a succes-sor auditor cannot view working papers of a predecessor auditor since that would tantamount to violation of client confidentiality. This is cont-rary to international norms and the RMC has also commented upon restricted access to work-papers.

The recent public difference of opinion between NACAS (National Advisory Committee on Accounting Standards) recommended and Government enacted change to AS-11 and ICAIs views in this matter could have been avoided. Clearly as per Section 211(3C) of the Companies Act, any AS has to be first recommended by ICAI. The Central Government under the advice of NACAS can only choose from ICAIs recommendations.

So, it may be argued that the manner in which the standard was finally notified, without ICAIs endorsement violates this clause. That said, the amendment itself has been very well drafted and does not sacrifice the spirit of the standard as there is provision for a very transparent disclosure requirement. This should have provided the grounds for a reconciliation of views.

It is a sign of the times where NACAS is intruding into ICAIs traditional domain of standard setting and ICAIs role as the sole regulator of its members being questioned. Potentially different Accounting Standards can be notified under the Income Tax Act, SEBI already makes stipulations on accounting measurement and disclosures; the RMC is talking about elevating FEDAI to an SRO status while other agencies are getting active in peer reviews and high level committees are clamoring for independence to the Accounting and Auditing Standard setting processes.

According to me, the issue is one of perception, but in todays world of limited attention spans, perception matters more than reality. The ICAI must progressively address and answer such perceptions else it runs the risk of being reduced to a professional/continuing education body only.