Guidelines for Aggregation of CA Firms by ICAI: All You Need to Know

The Institute of Chartered Accountants of India (ICAI) has taken a significant step toward transforming the Indian accounting and auditing landscape by notifying guidelines for the aggregation of Chartered Accountant (CA) firms. These guidelines, which align with the vision articulated by Union Finance Minister Nirmala Sitharaman, aim to create a robust framework for the formation of large, home-grown accounting firms capable of competing with global giants like the Big Four (Deloitte, PwC, EY, and KPMG). This move is part of India’s broader ambition to develop a Viksit Bharat by 2047, with the accounting profession playing a pivotal role in this transformation.

[BREAKING] ICAI notifies Aggregation of CA Firm LLPs Guidelines [Read Notification]

A Brief History: India’s Vision for Home-Grown Big Four Firms

For decades, the global accounting and auditing industry has been dominated by the Big Four firms, which handle a significant share of audits for multinational corporations and large enterprises. Despite India producing some of the world’s finest Chartered Accountants, the country has lacked home-grown firms of comparable scale and global reach. Indian CAs have often risen to leadership positions within the Big Four but have not been able to establish similar firms within India.

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Recognizing this gap, Finance Minister Nirmala Sitharaman has been a vocal advocate for creating Indian firms that can compete on the global stage. During her address to the Bihar chapter of the ICAI, she emphasized the need for an Indian firm to join the ranks of the Big Four. She urged the ICAI to make this a priority in their 100-day agenda for Viksit Bharat, highlighting Bihar’s potential to lead this initiative. “You should establish a CA firm strong enough to be recognized as a top four company… What stops us from doing it?” she asked, challenging the ICAI and Indian CAs to rise to the occasion.

The newly notified guidelines for the aggregation of CA firms are a direct response to this vision. By enabling smaller firms to come together and form larger entities, the ICAI aims to create firms with the scale, resources, and expertise to handle complex global audits and attract international clients.

Key Features of the ICAI Guidelines for Aggregation of CA Firms

The guidelines provide a comprehensive framework for the aggregation of CA firms into Limited Liability Partnerships (LLPs). Here are the key aspects:

1. Definitions and Eligibility

• Institute/ICAI: The governing body of Chartered Accountants in India.
• LLP: Limited Liability Partnerships registered with the ICAI.
• Parent LLP: An LLP with more than 50% CAs as partners that admits another LLP as a partner.
• Partner LLP: An LLP with more than 50% CAs that joins another LLP.

Eligibility is restricted to full-time practicing CAs or LLPs with over 50% CA partners. At least two practicing CAs must be part of the LLP at all times. The majority criteria (50%) apply to both the number of partners and their share in profits.

2. Formation and Registration

• The formation of LLPs is governed by the Chartered Accountants Act, 1949, the LLP Act, 2008, and related circulars.
• When four Indian LLPs, each with over 50% CA partners, join together, they can form a new LLP.
• The name approval process aligns with existing ICAI regulations and the LLP Act.
• The combined entity must register with the ICAI, which will issue a unique registration number.

3. Governance and Operations

• The Board of Management, led by authorized managing partners, will oversee operations, compliance, strategic decisions, and dispute resolution.
• Partner LLPs can practice independently but must adhere to the terms outlined in their agreement.
• No rotation of audits or joint audits between partner LLPs is allowed.

4. Resource Pooling and Compliance

• Partner LLPs can pool resources, operate under common policies, and use shared technology, provided these actions comply with the CA Act and ICAI Code of Ethics.

5. Reconstitution, Exit, and Closure

• Changes in LLP partners must be registered, but the LLP’s continuity, rights, and obligations remain unaffected.
• The guidelines specify processes for exiting as a partner or closing an LLP, in line with ICAI and regulatory rules.

6. Additional Provisions

• A Doc Locker system will be provided for secure document storage and access.
• A Grievance Redressal Cell will address emerging issues.
• Body corporates (e.g., companies) cannot be partners in a parent LLP.

The Road Ahead: Building India’s Big Four

Set Up a Big-Four like Indian Firm: Finance Minister tells ICAI

The aggregation guidelines mark a significant step toward creating large, competitive Indian accounting firms. By enabling smaller firms to combine their strengths, the ICAI aims to foster innovation, enhance service quality, and build global credibility. This initiative aligns with the government’s vision of making India a developed nation by 2047, with the accounting profession playing a key role in economic growth.

Finance Minister Sitharaman’s call for policy changes to attract industry to eastern states like Bihar, West Bengal, and Odisha further underscores the importance of regional development in this vision. By leveraging local talent and creating a conducive ecosystem, India can nurture home-grown firms that rival the Big Four.

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In conclusion, the ICAI’s guidelines for the aggregation of CA firms are a game-changer for the Indian accounting profession. They provide a clear pathway for firms to scale up, compete globally, and contribute to India’s journey toward becoming a developed nation. As Indian CAs embrace this opportunity, the dream of an Indian Big Four firm may soon become a reality.

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