This article has been written by Apeksha Choubey pursuing Diploma in International Contract Negotiation, Drafting and Enforcement, and has been edited by Oishika Banerji (Team Lawsikho).
It has been published by Rachit Garg.
Table of Contents
Introduction
Chartered Accountancy is one of the most renowned professions all over the world. In the present competitive world, Chartered Accountant (CA) firms are playing a vital role in the economic growth of India. These firms are providing valuable financial services to various clients, including business, individuals and government. Nowadays, their services are not limited to only audit and accounting but these consist of advisory, tax planning, capital planning, preparation and maintenance of books of accounts, management & consultancy, business laws formation etc. These firms are involved in every phase of business right from setting-up, managing, controlling, compliance, merger and dissolution etc. Further, these firms assumed additional responsibilities and accountability due to enhanced compliance requirements in rules and regulations imposed by government for big corporate and other sectors to safeguard the rights and interests of the stakeholders, investors, employees, creditors, banks, financial institutions and society at large. However, with growing competition and complexities in the economic environment, these CA firms are facing many challenges and hindering their growth and development presently in India. In this article, we will discuss these economic challenges in detail thereby trying to understand its impact and think of corrective measures required to remove bottlenecks from their growth pathway.
COVID-19 impact on CA firms in India
The pandemic resulted in a nationwide lockdown which stopped up all the economic activities of every person, family and sectors. This affected CA firms as they were unable to provide their services to their clients and on the other hand clients also could not pay their fees on time due to shutting down and slow growth of their business. There are many other factors also which impacted their work such as new work from home culture, adapting to new technologies to perform remote field work in place of face to face discussion, availability of work force during pandemic considering family condition of employee, supply of new computer hardware devices to all employees whenever required and lack of funds to avail new hardware devices and technologies.
With indication of recession in early 2023 and impact of world economic events including collapse of two major American banks – Silicon valley banks and Silvergate crypto bank and global crisis of Credit Suisse bank making situation more worse. Governments and major financial authorities are making serious efforts all over the world to control this crisis and it is clear that it will take time to reform and build ourselves capable of overcoming this situation.
Increased competition among CA firms
Increased competition is the most significant challenge in the industry in today’s world with the drastic improvement in digital technology which resulted in setting up a firm and providing online services from anywhere in the world became easy and speedy. Digital age provided every one with global access to reach worldwide clients within a few seconds of click. Due to all these factors, competition becomes much more intense which makes it quite difficult for small and new firms to survive in the market for the long term. It is very essential for them to keep themselves updated for continuous government norms and information development, explore and learn better services to provide value and expand their services to the global market to serve clients in a better way through improvement in their operational efficiency.
Inadequate infrastructure and technology
Another challenge pertains to inadequate infrastructure and technology base. Many software applications have been launched in the market which shifted the entire work culture to automation from manual tasks which obviously consumes a lot of time and failing to adopt advanced technology poses a risk of losing business. Artificial Intelligence (AI) is also growing in demand from the past few years which is trying to replace human beings in almost every area of work. However, the one-time cost of investment in this software, availing AI and its maintenance are really expensive for these firms. CA firms need to adapt with new digital technology and build necessary infrastructure to fulfil client’s requirements in the fastest and most economical way. They should take technology training to get equipped with proper usage of it and also to reduce external dependencies to avoid extra cost. Various types of financing support are available to avail this opportunity.
Compliance with regulatory compliance
As we all know, chartered accountants and their firms are regulated by Institute of chartered Accountants of India (ICAI) which has ultimate responsibility to control unlawful practices and save the nation from serious frauds and illegal practices. ICAI imposed various laws and regulations on both companies & clients and their CA firms. Therefore, CA firms have dual accountability, firstly to comply with laws and regulations, principles framed for them to act with utmost due diligence and independence while performing their work for clients and secondly to confirm and assure that clients are also making their business as the various rules and regulations made by government and other authorities to safeguard interest of all segments of the nation related directly or indirectly with client business.
This also acts as a critical challenge for them to perform their duties with utmost care, otherwise failure to comply with these laws and regulations will result in severe penalties and fines. We have seen many recent changes in the Information Technology Act, 2000, the Companies Act 2013, taxation reforms, cyber laws, introduction of GST etc.
It will require highly equipped CA professionals and other staff to comply with these laws and regulations on an on-going basis. Hence, they have to invest in well trained and experienced resources to avoid penalties and fines and for maintaining goodwill of the firm as well in the long term.
Lack of skilled workforce
This challenge is correlated with one explained above where to comply with laws and regulation of government, directives set by ICAI and laws of other governing applicable institutions such as Tax authorities, they require skilled, experienced and trained professionals. The country has a significant shortage of skilled and qualified chartered accountants. This shortage results in an increase in hiring and retention cost of these professionals as a whole. Further, the cost of hiring unskilled staff proves more disaster in terms of their poor services to clients due to absence of knowledge and skills that require performing work with utmost responsibility and ultimately resulting in loss of clients. Much time and cost is also involved in arranging training for existing staff to make them upgrade in current changing development in laws and regulations and technology.
This problem can be solved by promoting training and development programs in the firms for personal and professional learning. Human resources ratio should be a mix of both new qualified entrants and experienced staff which will develop a competent and qualified workforce in terms of knowledge and adaptation to new ways and latest technology.
Conclusion
In conclusion, the economic challenges facing CA firms in India are multifaceted including the impact of COVID-19, increased competition, inadequate infrastructure and technology, regulatory compliance, and the lack of skilled labour. Many of these challenges are inevitable in some or other situations and every business will face these in the given point of time. However, still there are several ways to overcome these challenges with conscious and continuous efforts:
- To minimise operating cost by promoting virtual working culture among their employees and clients.
- Expand services to the global market with help digital marketing and technology.
- Develop adequate infrastructure and invest in the latest technology.
- On-line low cost training to existing staff to adapt with latest technology updates to achieve efficiency at work.
- Develop strategies to remain in a competitive market with innovations in their best services and provide value to the clients.
- Regular upskilling as per expectation of client’s requirement.
- To keep themselves updated with frequent changes in laws and regulation in their expertise area of services.
- Fuller utilisation of conferences and on-line sessions conducted by ICAI to stay updated with amendments in policies and rules.
- Appointment of new talents and providing opportunities to them to grow and expand which definitely result in social development and knowledge sharing in the firms.
- Digital networking expansion activity aids in image building and open opportunities at global level.
- Make optimum use of banks and financial institutions to avail short and long term fund requirements as governments are also promoting small start-ups and mid-size business for their overall upliftment.
- Constructive use of AI can also produce phenomenal jobs and services at reduced cost.
With the right approach, these challenges will certainly convert into cost-effective and beneficial opportunities and consequently, it will contribute towards overall economic development and growth of the country. There is also a strong necessity to increase awareness in the country among growing small and mid –sized business firms towards the importance of compliance of direct and indirect tax, audit practices and documentation, Generally Accepted Accounting Principles (GAAP) applicability. Accordingly, avenues will open for these CA firms to serve the numerous clients with valuable services and make a prosperous country by reducing frauds and corruption like tax evasion and cheating people, avoid big scams having major financial and negative branding implications and set back the Indian economy.
References
1. 2022 Business challenges for Top accounting firms in India – Kanakkupillai
2. 5 Biggest Challenges of Being a CA Professional? – AJ Next
3. Top 7 Issues Accountants Face – Accounting Seed
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