KPMG calls for accounting reform in India

The development of India’s economy is being held back by protectionist restrictions on the accounting profession, according to one of the industry’s most senior global figures.

Speaking to the Financial Times in Hong Kong, Sir Michael Rake, international chairman of KPMG, said accounting reform in India was “essential” in order for it to achieve its full economic potential. Read original article

In sharp contrast, he said, China had shown itself more willing to lift restrictions to allow international accounting firms to develop large local businesses. KPMG’s main peers are PwC, Deloitte and Ernst & Young.

His comments underscore the continued frustration of international accounting firms over measures they say stifle foreign entrants in India and shield the indigenous audit profession from genuine competition.

Accounting firms in India are subject to a bewildering array of regulations that international companies claim inhibit the development of both the local profession and the ability of Indian corporations to access the best global advice.

Firms can service no more than 30 statutory audit clients per partner and local firms cannot join a “big four” international network unless the bosses of that network agree not to have any other office in the country.

Also, the number of partners a firm in India can employ is limited to 20 while the number of students larger firms can recruit each year is limited to a ratio of two per partner. India has 130,000 chartered accountants, fewer than in the UK, and the profession is dominated by smaller firms and sole practitioners.

Sir Michael said: “The restrictions put in place in India are inevitably going to hold back the ability of the profession to train accountants to service a fast-growing economy.

“We operate in a more complex situation than we would like. However, there are discussions ongoing that could result in changes. We are making progress.”

Sir Michael, who steps down from KPMG later this year to become chairman of BT, the UK telecoms group, said accounting authorities in India and the UK were discussing bilateral reforms that could result in a relaxation of the partner/trainee formula from two to six.

India complains its accountants are unfairly disadvantaged by restrictions in developed markets that prevent them from practising overseas without requalifying.

Big four accounting firms in China operate largely free of restrictive regulations. KPMG has recruited 1,700 trainees on the mainland this year as part of a large expansion plan. But the Chinese authorities have in the past year launched a “bigger, stronger” policy to nurture domestic accounting firms able to compete with their international rivals.

Many of India’s largest companies are seeking to go global, highlighted by Tata’s $12bn (£6.1bn, €9bn) acquisition of Corus, the Anglo-Dutch steelmaker, earlier this year.