India to Revamp 'Accountant' Definition to Boost Domestic Audit and Advisory Firms

In a move to promote domestic audit and advisory firms to grow big in size, the government is planning changes in the relevant rules to modify the definition of “accountant” for the purpose of Safe Harbour rules that will facilitate CA firms to offer different services to global clients with lesser regulatory hurdles. “The tweaks in the definition can hugely benefit Indian audit and advisory firms since safe harbour rules determine who can provide cross-border accounting, costing and related services with predefined margins and tax certainty. Broadening of the definition would allow more Indian firms to qualify for these activities,” an official told FE. In the Budget speech, finance minister Nirmala Sitharaman said that “to support PM Modi’s vision of home-grown accounting and advisory firms to become global leaders, I propose to rationalise the definition of accountant for the purposes of Safe Harbour rules.” Officials said that the government feels that the current definition of “accountant” is restrictive as it’s limited to practicing CAs and certain foreign-recognised cost professionals. Due to this, domestic firms have to often rely on international affiliations or networks to participate in global assignments. Experts said that for accountants, a rationalised definition would expand the pool of professionals eligible to operate under the safe harbour framework. This modification could also unlock new opportunities to provide cross-border services in areas such as accounting support, costing services and transfer pricing-linked work. “A rationalised definition could broaden the pool of professionals eligible to undertake Safe Harbour related attestation and compliance work, creating new opportunities,” said Karan Marwah, partner and CFO advisory leader at Grant Thornton Bharat. Further, if the definition is recalibrated to better reflect the scale and capabilities of Indian firms, they would be able to independently offer cross-border services without depending on foreign partnerships. This can enhance their competitiveness, support expansion outside India, and build adjacent competencies. With lower compliance requirements, the domestic firms will be able to build deeper specialisations and strengthen their global delivery capabilities. Though some experts said the Budget announcement is just a policy signal, and the impact will depend on the precise drafting of the notified rules, including who qualifies as an accountant and what exactly must be certified. Following the PM’s call to create large domestic audit and advisory firms that can rival global Big Four (Deloitte, KPMG, PwC and EY), the government swung into action last year by holding a series of inter-ministerial meetings involving Prime Minister’s Office (PMO) to strategise on fostering the growth of home-grown firms. The proposals being discussed by the panel included easing curbs on advertising by professional service providers like CAs, lawyers and company secretaries, and allowing them to engage in brand-building. Also, discussions were held to possibly restrict the participation of foreign advisory firms in government contracts. In September last year, the ministry of corporate affairs (MCA) invited public comments on a discussion which laid out the reasons and approach to establish Indian multi-disciplinary partnership (MDP) firms.