The coronavirus pandemic crisis has brought the spotlight over the domestic firms which want some degree of independence. Audit firms provide different services and the history from global big four company’s states that the partnership with law firms make audit firms successful. In India, the Government of India is planning to introduce revisions to the networking guidelines of the audit firms. Way back before to twenty years the concept of multi-disciplinary practice evolved in the UK. By this time financial transparency and corporate governance created interest between auditors and clients. So, globally multidisciplinary practice proved as successful. The Competition and markets authority from the UK examines that the standards and competitive factors with audit firms are resilient to the changing economic conditions. This blog brings out the MDP challenges with globalization.
Different types of CA firms
Clients select CA firms after checking the quality of service such as accessibility, responsibility, and deliverables with timelines, efficiency, accurate figures, follow regulations, and authoritative data. If all these points are met then the client continues the service. Chartered accountants have four job options as Freelancing, sole proprietary ship, and partnership and Limited liability partnership firms. Among these models, limited liability partnership firms are the firms that are profitable as it has the model of a corporate company and partnership firms. Partnership agreements are not to build trust but it is for common understanding. There will be no issues in the best partnership agreements and it has a common understanding. In the case of LLP, the financial statements are duly signed and there is transparency in the financial statements. The acts of the partners are independent in the case of the LLP but it is not so in the partnership firms.
Advantages of MDP
The services of a chartered accountancy firm are divided into core area services and management consultancy services. The member of a chartered accountancy firm can have a partnership with other professional bodies through employment or special purpose vehicle. The plethora of services offered by an MDP is secretarial, auditing, accounting, systems control, legal, risk management, risk assessment, and valuation. The different needs of the companies like launching a project, getting a license, transfer of funds, mergers, amalgamation and restructuring of business processes, and complying tasks. The transfer of data from one firm to another for different services makes the work faster and easier. As the work gets complete in less time it is charged with comparatively less cost.
The risk management in terms of civil liability needs to be focused on when running MDP type of firms. As there are multiple partners some partners are unconnected which makes the evaluation of risk mandatory. The partners are jointly, personally, and severally liable for the obligations. MDP in the model of LLP would be advantageous as the liability is restricted. Global case studies also mark that the LLP model is good for MDP than the partnership model. The guidelines of ICAI states that the disciplinary action in India will be levied over individual partners and not over the firm. So, ICAI is in the position to prescribe restrictions on MDP’s for the smooth functioning of Multidisciplinary partnership firms.
International stories about MDP
In the UK, audit firms structure consist of two models such as independent model and multiple front line SROs. FRC, RSB, and RQB monitor the tasks of these firms. In the year 2002, Mr. Naresh Chandra was appointed as chairperson to a high-level committee on corporate audit. The expert committee suggested reforms to the company law. The committee recommended an independent model like PCAOB. The competition from international policies becomes a concern for the policymakers. The national advisory committee on accounting and auditing standards checks the quality of audits across the corporate world. Auditing forms the base for business decisions and investment decisions. So, the importance of auditing pays the way for economic growth.
Networking systems in between the audit firms of India contribute to common brand name, shared ownership, common quality management practices, common strategic management, profit sharing, and cost-sharing. In the United States of America Enron scandals and WorldCom insisted on the independent model than the self-regulatory model. As the accounting standards of different companies are different there is a lack of uniformity in the accounting practices.
In China, CICPA, CSRC, and the ministry of finance take disciplinary actions against auditors with listed entities. Ministry of finance takes care of accounting processes and CICPA takes care of audit quality. In India, regulatory bodies like SEBI and RBI take care of professional accountability. The companies Act 2013 empowered NFRA as a statutory body for accounting and auditing standards in India. The COE of NFRA statutory body states that from the olden day’s professions need a regulatory body to track the conduct of the professionals and control the prevailing competition in the profession. But, the international market influences the independent model than the self-regulatory model. So, the recent trend urges many countries around the globe to implement the independent model than the regulatory model.