CA Jayant Gokhale Networking & Mergers for CA s Practical Issues Presentation by CA Jayant Gokhale - Mumbai E-mail: jayant @icai.org
PRACTISING UNITS IN INDIA CA Jayant Gokhale
CA Jayant Gokhale WRO SRO ERO CRO NRO Network Firm s Networking Firms Netwo rk Firm s Netw o r k Firms Netwo rk Firm s Netw or k Firms 9 27 5 19 7 16 5 19 15 43
STATUS OF MERGED/DEMERGER FIRMS CA Jayant Gokhale Region Total Merger till date Total No of Partners as on date Total No of Prop as On Date Number of Firms involved in Merger (Active today) Partne r Sole proprietary Number of Firms involved in De Merger (Active today) Partner Sole proprietary Western 364 850 7 101 228 11 21 Southern 154 470 6 63 88 3 12 Eastern 179 511 5 41 114 10 22 Central 385 1045 11 86 306 15 51 Northern 470 1351 5 107 322 18 47 TOTAL 1552 4227 34 398 1058 57 153
STATUS OF CA FIRMS CA Jayant Gokhale 35000 30000 25000 20000 15000 10000 5000 0 43 Share of CA Firms 1552 13594 Network Merger Partnership Firm 32198 Proprietory Firm Value
ICAI S INITIATIVES FOR CAPACITY BUILDING GUIDELINES FOR NETWORK RULES FOR MERGER-DEMERGER GUIDELINES FOR PRACTICE IN CORPORATE FORM
GUIDELINES FOR NETWORK Came into force w.e.f. 6 th January, 2005 The idea was to encourage association of firms without having to change the existing constitution of firms so that- The resources like turnover, infrastructure, manpower, location for execution etc. could be collectively used Expertise and Experience could be brought together and Multifarious professional services could be efficiently provided to clients Clients having multi-locational requirements could be served
WHAT IS NETWORKING? An arrangement between two or more firms to use their collective resources (turnover, infrastructure, manpower, location for execution etc.) to deliver professional services to clients, of one or more types at same or multi-locational points
HOW TO FORM A NETWORK? 1. Identify areas where pooling of resources are required 2. Explore interested CA members / firms who fit the above requirements 3. Organise a meeting of all such interested members so that terms of Networking can be discussed and formalised. 4. Apply for approval of name of the Network
HOW TO FORM A NETWORK? (CONTD.) 5.Formalise the Network arrangement by means of an MOU / Agreement 6. Frame the bye-laws to address the administrative aspects of the Network 7. Get the Network registered with the Institute.
CHOOSING A NAME The name must be distinct and standards prescribed in Regulation 190 of the CA Regulations, 1988 for approval of names of CA Firms shall be applicable to the name of Network also. The application for approval of name is to be made in Form A. The words &Affiliates should be used after the name of the network. The words & Co. / &Associates should not be used.
CHOOSING A NAME (CONTD.) The firms constituting the network are permitted to use the words Affiliates/Members of (a network of Indian CA firms) on their professional stationery. A network may work without a name also.
REGISTRATION OF NETWORK Network shall evaluate for itself whether or not it is a formal network requiring registration with the Institute. A Formal network is required to be registered with the Institute in Form B Referral Practice requires no registration.
AGREEMENT BETWEEN THE AFFILIATES OF A NETWORK Agreement should make provisions for: - Long-term relation between the affiliates Admission of new member / affiliate to the Network Minimum service level to ensure quality of service Sharing of Risks & Revenues Sharing of information received from clients by affiliates Exit Strategy
BYE-LAWS BETWEEN THE AFFILIATES OF A NETWORK Appointment, Powers & Functions of the Managing Committee of the Network Administration / Operating Procedures of Network Contribution of membership fees to meet administration cost of the Network Define HR Policies Dispute settlement procedure Identifying Engagement Partner to be responsible for assignments of the Network Issuing training materials, newsletters etc. to affiliates of the Network
BYE-LAWS BETWEEN THE AFFILIATES OF A NETWORK (CONTD.) hartered accountant Common library for the member firms Appointment of Technical Director to make references Peer Review of the member firms Determine methodology for drawing resources from each member firm Compensation to member firms for resources to be drawn from them Development of software, database etc. for member firms.
GUIDELINES FOR OPERATION OF NETWORK Only one firm / member can respond to any enquiry, showing collective strength of the Network The Network shall obtain consent of the client to engage an affiliate in discharging the professional assignments. Only the firm/member forming Network can issue/sign/attest any certificate/report/professional document/assignment. The affiliates of Network shall be answerable for any violation of the CA Act, CA Regulations, the Code of Ethics and the Guidelines / Directions of Council.
RESTRICTIONS ON NETWORK Network shall not Advertise Network shall not obtain any business in its name. Network is not recognised for any empanelment, hence the eligibility of individual firms to seek empanelment is not affected. A firm / individual can form part of only one formal Network.
ETHICAL COMPLIANCES OF A NETWORK Once the relationship of Network arises, whether registered or not, it must comply with the following: - The ethical standards prescribed by the Institute from time to time. If one affiliate is statutory auditor of an entity, then the other affiliates shall not accept any professional assignments of the same entity
ETHICAL COMPLIANCES OF A NETWORK (CONTD.) (CONTD.) Where rotation of firm if prescribed, no affiliate can accept appointment as an auditor in place of any affiliate of the Network which is retiring. This restriction shall not apply in case of appointment as Statutory Central Auditor of Govt. Agencies/Undertakings such as PSUs, PSBs, FIs etc. Network must comply with the Ceiling on Nonaudit Fees as prescribed in Para 5(b) of the Guidelines of Network
EXIT FROM A NETWORK An affiliate may exit from a Network by sending a declaration in Form C to the Institute and also to each and every constituent of the Network. The concurrence of the same by other affiliates of the Network is not required The Revised Networking Guidelines are under finalisation
RULES FOR MERGER-DEMERGER The idea was fusion of two or more existing CA firms to develop core competencies and to render professional services of a large range spread over bigger geographical area. To make provision for the growth engine to enable conversion of small firms to medium firms and medium firms to large firms. Expansion of Client base of the practicing units and enhance the group profitability in long term A merged big entity will always be superior to a network arrangement.
OBJECTIVES OF MERGER OF CA FIRMS To capture the emerging opportunities of globalization To achieve the sustainable growth To create large firms which are able to compete with the international firms To provide One Stop Shop in prevailing competitive global service market.
RULES OF MERGER & DEMERGER OF FIRMS The Institute has prescribed rules for Merger & Demerger of Firms This Rule is known as Rules of Merger & Demerger Amongst the Firms Registered with the Institute of Chartered Accountants of India
RULES OF MERGER & DEMERGER OF FIRMS (CONTD.) This Rule has been published in the February 2005 issue of the Journal The Chartered Accountant The effective date of these Rules is 6 th January, 2005
STEPS TO GET MERGED WITH OTHER FIRMS To effectuate merger, a merger agreement in Form E is to be filed with the Institute within 30 days from the date of the agreement. The reconstitution agreement/ partnership deed shall be filed with the Registrar of Firms. Upon the merger of the Firms, the Institute will freeze the names of the merging firms and shall not allot the same names to any other firm.
STEPS TO GET DEMERGED FROM OTHER FIRMS (CONTD.) The merger agreement itself shall contain the terms and conditions for demerger.therefore no concurrence/ acceptance is required from the continuing partners. The only condition is to be satisfy that demerger can be demanded within a period of 5 years from the date of merger to avail the benefits as specified in the Rules. In case 75% or more of the continuing partners of one of the erstwhile firm(s) are willing to demerge then they can do so after giving due notice in Form F to the other partners and to the Institute.
STEPS TO GET DEMERGED FROM OTHER FIRMS (CONTD.) After giving due notice to the other partners, the merger shall come to an end And if the remaining erstwhile merging firms / partners of the erstwhile merged firm decided to continue, then they should enter into a fresh Merger/Partnership Agreement.
Thank You All Jayant Gokhale July 12, 2011 29 ch hartered accountant