ICAI explores PE funding for consultancy, accounting

The Institute of Chartered Accountants of India (ICAI) is considering permitting private equity funding in the non-audit services offered by accounting firms. This proposal involves creating a clear distinction between assurance services, such as statutory audits, and non-assurance services like consultancy, accounting, and advisory.

ICAI president Prasanna Kumar D explained that the internal committee will assess whether it is feasible to separate these two areas of practice to allow for private equity investment, thereby promoting growth. Assurance services will remain protected from such investment due to concerns about maintaining auditor independence. The committee is currently examining global models and regulations from countries that have allowed private equity investments in accounting firms.

Before forming a recommendation, the committee will study these existing models and the historical context of such investments. If approved, the proposal would first require approval from the ICAI council and then an amendment to the Chartered Accountants Act, necessitating government consideration. According to Jean Bouquot, president of the International Federation of Accountants (IFAC), private equity is a relatively new phenomenon in the global accountancy profession.

However, the key requirement remains compliance with professional ethics, audit standards, and maintaining independence. An IFAC study revealed that private equity investment has led to significant consolidation in the industry, with numerous transactions taking place in a relatively short period. The rapid advancement of artificial intelligence (AI) is also transforming the accounting profession.

While AI provides accountants with access to vast amounts of data, experts stress that professional judgment, skepticism, and ethical considerations remain crucial. IFAC CEO Lee White cautioned against relying solely on AI-generated advice, emphasizing the importance of professional obligations and the need for due care in tax and accounting services, even when provided by AI.