Sucheta Dalal :Lobbying Against The Big Four (9 June 2003)
Sucheta Dalal

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Lobbying Against The Big Four (9 June 2003)  



Indian lawyers v/s foreign lawyers; Indian ITES (IT Enabled Services) companies v/s foreign ITES companies proliferating in India; Indian chartered accountants v/s foreign chartered accountants — these are some of the major ongoing business battles in India today. None of them are campaigns of the Swadeshi Jagran Manch, but real battles for survival. While the lawyers obtained a stay from appropriate courts against amending the Advocates Act to allow foreign law firms to operate in India, chartered accountants have set up a Chennai-based organisation called The Chartered Accountants’ Action Committee (www.ca-actioncommittee.org), to lobby for “a level playing field” between Indian and foreign accounting firms.

Its avowed aim is to lobby against foreign accounting firms operating in India without reciprocal opportunities for Indian firms to expand overseas; to fight the “backdoor” entry of foreign accountants into India; create awareness among Indian accountants and to expose the hollowness of the Big Four accounting firms’ reputation.

The association makes a simple point: although the entry of foreign accountants is not part of India’s commitments under the General Agreement on Tariffs and Services (GATS), some select international audit firms have been licensed by the Reserve Bank to enter India in the garb of consultancy companies. This, says the Action Group, is a part of an “autonomous liberalization programme” of the government “which is way ahead of any WTO requirement”. Each of these global accounting firms followed up its entry permit through separate “inexplicable” arrangements with Indian accounting firms. However, since there is no commitment from other countries to open up their accounting sector, the Chennai Group claims that it shrinks opportunities for Indian firms to grow their business by expanding overseas.

Moreover, a decade of liberalisation has allegedly seen a steady decline in their business opportunities in India. That’s because Indian companies seeking overseas listing needed auditors with foreign connections to recast their accounts according to American Generally Accepted Accounting Practices. Indian IT companies bidding for overseas listing felt that foreign audit firms lent more credibility to their accounts. And the Indian government also began to seek their advice on everything from speeding up reforms, to policies on foreign direct investment, privatisation, globalisation and planning. Like other foreign companies, these companies grow rapidly by employing the kin of policy makers to open the doors to new business.

In the past, there was little opportunity to challenge the growth of the Big Four, because of their phenomenal clout and international leverage. Look at the contrast. India has only 52 firms with more than 10 partners (Source: ICAI Journal) while the multinational accounting giants operate in nearly 120 countries, employ between 80-140,000 employees each and are expected to have a collective turnover exceeding $60 billion (Rs 300,000 crore) for the year 2002-03. This, says the Chennai lobby, is “approximately Rs 25,000 crore more than the receipt from all taxes direct and indirect of the government of India for the entire year 2002-03”.

It was such an impossible fight that even the former Securities and Exchange Commission (SEC) Chairman Arthur Levitt could do nothing to regulate them better. The wave of recent accounting scandals in the US ought to have changed all that. But it hasn’t. Despite the demise of Arthur Andersen under the weight of the Enron scandal and the billions of dollars paid by KPMG, PriceWaterhouseCoopers (PWC), Deloitte Touche and Ernst & Young (E&Y), the halo of the Big Four has remained undimmed in India. They continue to hog business, charge high fees and even advise the government on policy decisions without anyone attempting to put their operations in perspective.

The Indian accountants’ lobby has collated a set of known facts which when seen together are startling enough to merit serious consideration. For instance: Although the Big Four operate in 120 countries, each of them is head-quartered in a tax haven and discloses little about itself. They are powerful enough to have blocked all attempts to regulate them until the scandal exposed the flaws in their operations and practices. They are being investigated under the Fair Trade Practices Act in the UK. Moreover, they have paid billions of dollars as fines in America alone and are facing dozens of lawsuits following many accounting scandals. For instance, E&Y has paid $ 548 million in the FDIC case, $ 400 mn in the savings & loan scandal, $ 335 mn in the case of Cendant and faces a whopping $ 2.2 bn law suit filed by the Swiss State of Geneva in the Bank of Cantonale case. Ironically, the case is based on the findings of a year-long study by PWC.

PWC itself has paid up nearly $ 200 million in fines and has been accused of compromising on independence in over 70 companies. KPMG paid well over $ 200 mn in fines, with two large cases yet to be decided (Xerox and Jinzhou Port Company). And Deloitte has paid $ 23 mn and has half a dozen investigations pending in high profile cases such as Adelphia, Royal Ahold etc. Clearly, the Indian accounting lobby has a case when it says that the Big Four don’t deserve their reputation, but then the record of many Indian firms is equally tacky.

Two of the biggest Indian firms have come out rather badly in the Tata Finance imbroglio. Moreover, every vanishing company or mega-scam such as CRB Corporation has had chartered accountants who got away unpunished. Thanks to the notorious reluctance of the Institute of Chartered Accountants of India (ICAI) to punish dubious members, it has failed to create a credible differentiator even among the Indian firms, barring a dozen top accounting firms.

The Chennai lobby has to recognise that its effort cannot be sustained on the basis of exposing the Big Four and campaigning at the lowest common denominator by raising “swadeshi” issues such “national pride” and “national interest”. It has to put in place a strong self-cleansing and self-regulatory mechanism and demonstrate that the best Indian firms are fit to compete in the global marketplace.


-- Sucheta Dalal



 



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