Domestic audit firms may be allowed to convert into the limited liability partnership (LLP) format without compromising on the length of their operation. The central council of the Institute of Chartered Accountants of India (ICAI) will soon take a call on this.
The proposed move will help these firms take on their global heavyweights such as PriceWaterhouseCooper (PWC) and Deloitte on the Indian turf. The foreign firms do audits along with a wide range of consultancy activities through their Indian associates and subsidiaries. Two other global majors, KPMG and Ernst & Young, are also present through their exclusive partnerships with Indian audit firms.
The proposal is meant to make LLP an attractive option for even the leading audit firms with decades of presence. With LLPs allowing unlimited scale-up opportunities, home-grown audit firms expect to grow enough to compete with their global counterparts.
According to ICAI President G Ramaswamy, the decision, once approved by the council, will also help young chartered accountants (CAs) to become partners in established firms.
“We have constituted a small group to come out with the rules and regulations for audit firms that opt for the LLP format. This makes pooling in resources and partners easy and small firms can merge to form large entities. Today, all big banks and corporate entities prefer big audit firms. LLPs will thus give a corporate look to this profession,” Ramaswamy said.
The proposal basically says that if a 20-year-old audit firm decides to convert into LLP tomorrow, it will be allowed to say that it has been into this business for 20 years and so on. LLPs are a hybrid entity between a corporation and a partnership firm, where the liability of partners is limited to their agreed contribution.
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However, audit firms that prefer to grow in size by utilising this format will not be able to replicate the business model of global audit majors at least for now. Current rules do not allow CAs to form multi-disciplinary partnerships and offer comprehensive management consultancy, tax advisory and audit services which the global leaders offer.
Ramaswamy said the days of multi-disciplinary services were also not very far as the ministry was working on an amendment to the existing laws to permit the formation of such partnerships in the country.