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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 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: -
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.
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
[See Rule 3 of Guidelines of Network amongst the firms registered with The Institute of Chartered Accountants of India]
(in order of preference) if the Network 2. _______________ has a distinct name 3. _______________ 4. _______________
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) _____________________
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 AFFILIATION1. 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
4. Name and address of the firm/member willing to dissociate from 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.
Form `E 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 firms 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.
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]
_____________ _______________ _____________ _______________ 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 __________
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: ________________________
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]
(in order of preference) 2. _________________ 3. ________________
Firm Name/Member Name Firm Regn. No./M.No.
_________________________________ _________________________________ _________________________________ _________________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]
4. Ownership pattern of the Company
Name of the Member Membership No. 1.________________________ _____________ 2.________________________ _____________ 3.________________________ _____________
(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.
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