1. “MERGER & NETWORKING OF CA FIRMS”
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CA Rohit Ruwatia Agarwal
(ACA, L.L.B,M.COM,CCCA, FAFP) `
“MERGER & NETWORKING OF CA FIRMS”
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2. Let’s Starts with some quick facts about our profession
Associates V/s Fellow

3. Historical analysis of No of CA’s in India

4. “Those who win are those who believe they can”
Ultimately your only competition is with yourself
“Those who win are those who believe they can”

5. Let’s Starts with some quick facts about our profession
COP V/s NON COP

6. Region wise Fellow & Associate Members with or without COP
As on

7. Region wise Percentage of Fellow & Associate Members without COP

8. COP V/s NON COP

9. Let’s Starts with some quick facts about our profession
Proprietorship
V/s
Partnership

10. Categorization of CA firms in India
As on
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC))

11. Categorization of CA Firm

12. Proprietor V/s Partner
APPROX FIG.

13. Proprietor V/s Partner

14. Proprietor V/s Partner

15. Growth Chart in last Decade

16. MEF Data &

17. For a small & medium practice to grow, the firm has to “THINK BIG”
For a small & medium practice to grow, the firm has to “THINK BIG”. Success comes only to doers & not lookers and observers. Success demands maximum efforts. The key success in life is to have faith in oneself.

18. Conclusions from Statistical Analysis :-
The Maximum Number of CAs are Bachelors or Spinsters whose Spouses are not CAs.
There are Maximum Number of Mom & Pop Firms as evidenced by the large number of Small Partnership Firms.
The Large sized firms are few & include probably the big Multinationals also.

19. Categorization of professional practice
Brains (expertise) practice:
Hire us because we are smart.

20. Categorization of professional practice
Grey Hair (experience) practice:
Hire us because we have been through this before.

21. Categorization of professional practice
Procedural (efficiency) practice:
Hire us because we know how to do this and can deliver it efficiently

22. The success lies in Pareto principle!!
It says that 80% of results are achieved from only 20% of the efforts expended. Typically this principle holds true for a Chartered Accountant’s practice, where the majority of the time is taken up satisfying the needs of clients who represent an insignificant portion of total business.
Categorization into A, B & C list for clients.

23. Have I asked these questions to myself ?
Has my firm identified its business goals for 2016 (and beyond)?
Are you getting the work you deserve ?
Are you charging the fees you Ought to charge ?
Have I thought about my competitors and how I might lose out my clients to them?
What is the direction you wish to give your practice ?
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC)) 23

24. ICAI Initiative Capacity Building Measures 2005 Networking Mergers LLP
MCS
MDP

25. Different types of corporate CA Firms
(ICAI Region wise-September 2016)
Firm Type
NRO
CRO
WRO
SRO
ERO
Total
Merger
1025
1323
803
180
347
3678
Networking 20 8 31 32 12
103
Networking abroad 5 1 17 28 59
MCS 52 18 15 4
107
LLP 42 10
162 48 21
283

26. Strategy for Networks & Mergers :-
In order to have an orderly and sustainable growth of the CA firms, it is desirable that the coming together of the firms begins with networking and then matures to mergers.
Networking will enable the firms to develop working relationships with each other.
There can be mergers without networking.

27. Net working of CA Firms

28. Major classification of Networks
Formal Network
Referral (Informal) Network

29. Formal Network
Formal Network means a network amongst two or more firms registered with The Institute of Chartered Accountants of India (ICAI), where the object of network is to use the collective resources of the affiliates for execution of professional services of one or more type at one and/or at multi-locational points.
A Firm
B Firm
Formal Network
Through ICAI

30. Referral (Informal) Practice
Referral Practice means a practice to refer professional work by a firm to one of its associate/affiliate either situated at a different place or rendering professional services not provided by it, to the user of the service. The pre-domain objective of such a network is not to pool in their collective resources and exhibit them as those belonging to one particular set of professionals.

31. What is the Concept of Net working?
Joining together of different CA firms with the object of display of collective resources.
Each Firm to retain Independent Status.
Network to act as facilitation and not to do business on own.
Registration with ICAI.

32. What should I look for when Net working ?
Cost & time effective service
To satisfy the multi-locational clients
To Provide & accelerate multi-disciplinary services
Empowering the small firms
Consolidation of small & medium firms
Dissemination of Professional Expertise & Experience
Training & Sharing Methodologies
Networking will lead to Merger of Firms

33. What are the Guidelines of ICAI?
Can a Proprietor also join a network?
Proprietary/partnership firms as well as individual Members are permitted to form a Network. A network can be constituted as a partnership firm or LLP or a company subject to the guidelines of ICAI
Can I join more than one Formal network?
Firms having common partners are allowed to join only one Formal network.
Can we pool all the resources for pitching of work?
Can show combined strength of network members as a pool of resources, expertise, manpower & location.

34. What are the Guidelines of ICAI?
Approval of Name of the Network from ICAI by filling Form A & ICAI will approve or reject the name within 30 days from the date of receipt of application.
Mere approval of name shall not entitle the Network to carry on practice in its own name.
After the name is approved, the Network has to get registered itself to ICAI by filling Form- B within a period of 3 months from the date of approval of name of the network.
Change in constitution of Registered Network shall be done with in 30 days from the date of change in Form- C

35. Ethical Compliance ?
Any firm of the Network doing Statutory Audit than no other firm of the Network can accept internal audit or book keeping or such other professional assignments which are prohibited for Statutory Audit firm.
In cases where rotation of firms is prescribed, no member firm of the Network can accept appointment as an auditor in place of any member of the Network which is retiring.
Network may advertise to the extent permitted by ICAI & the firms of the Network are allowed to use word “ Network Firms” on their professional stationery.

36. Who will be liable for Disciplinary action?
Who can sign the Report?
Only the firms forming Network are eligible to issue / sign / attest any Certificate / Report / professional document / assignment.
Who will be liable for Disciplinary action?
In case of alleged violation of the provisions of the CA Act, Regulations framed there under, guidelines/direction laid down by the Council from time to time and Code of Ethics by the Network firm, the proprietary/partnership firms/individual Member constituting the Network would be answerable.
….What are the Guidelines of ICAI?

37. Can I disassociate from the Network?
Name of a network ?
To distinguish a “Network” from a “firm” of Chartered Accountants, the words “& Affiliates” should be used after the name of the network and the words “& Co.” /“& Associates” should not be used.
The firms constituting the network is permitted to use the words “Affiliates/Members of ……..” (a formal network of Indian CA firms) on their professional stationery.
Can I disassociate from the Network?
Firm may disassociate with network by sending the declaration and the concurrence/acceptance by other firms of the network firm shall not be required.
….What are the Guidelines of ICAI?

38. Networking Practical Aspects-
Mission Statement : The perspective of different firms could be varying. Goal congruence between a Sole Proprietor and a Partner would be difficult.
Fees Sharing : The extent of fee sharing amongst the different firms of a network would have to be based on some rational and logical considerations. This may not work when the matter is on pure referral basis.
Command Structure : There can be only one Captain. Any organization structure has to be headed by one leader. The work emanating from one firm done by the local network firm can bring vastly different results due to management capabilities.

39. Mergers of CA Firms
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC))

40. INTRODUCTION
In the Corporate world, merger and demerger have become universal practices for securing survival, growth, expansion and globalization of enterprise and achieving multitude objectives.
Merger is the fusion of two or more existing companies.
On the other hand, demerger signifies a movement in the company just opposite to merger.
To incorporate the spirit of Corporate World and to imbibe the consultation creed, probably the Council of ICAI used the term `merger’ and `demerger’ of CA Firms.
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC))

41. Why Merge ? Improved efficiency through in-house specialization
Increased credibility and recognition
Attracts talented human resources
Enhances circle of influence
Greater investment in training, technology and infrastructure
Shared burdens and tensions
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC))

42. Framework lead down by ICAI
Merger Agreement has to be filed with the Institute within 30 days from the date of Agreement.
The Reconstitution Agreement/Partnership Deed shall be filed with the Registrar of Firms.
After the merger of the firms, the Institute will freeze the names of the merging firm and shall not allot the same names to any other firm for 3 Years.
Seniority granted to the new firm from the date of establishment of the firm under whose name the merged entity operates.
New name for merged firm possible without losing seniority.
Demerger possible within 5 years of merger
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC))

43. Criteria for Bank Branch Audit

44. Criteria for Bank Branch Audit
Even proprietorship concern without bank audit experience may be considered as hitherto.
The proprietary concerns of Chartered Accountants with 1 paid CA, 2 professional staff and not having any statutory branch audit experience of a nationalized bank or of a private sector bank will be treated at par with the partnership firm after deducting their 3 years seniority from the date of their establishment.

45. Criteria for SCA of PSB’s
Standing of the firm for 15 years ( from the date of 1 full time FCA continuously with the firm)
Minimum 7 CA’s, 5 full time, 2 more can be partner or employee, 1partner for 15 years,10 years, 2 with 5 years, 1 partner for 1 year should have continuous association with the firm.
4 FCA, 2 PARTNERS(No paid employee) with 15 & 10 years experience in practice also paid CA without any break converted into partner will be counted for experience.
Minimum 15 yr exp of Bank audit & 5 yr exp of PSU
2 CA’s must be CISA/ISA

46. There is no shortcut to success and no substitute to hard work
There is no shortcut to success and no substitute to hard work. But hard work must be in the right direction in order to yield the fruits of success.

47. Firms A & Co, B & Co. merge in C & Co during the year
(a)   All three firms are empanelled in bank branch auditors panel and audit is allotted to M/s B& Co. only. In the above case, B& Co. will be allowed to take up the audit assignment in the name of C & Co. provided C& Co. has not been rested /denied audit/appointed as SCA in any PSB during the year. All the partners of the firm will be required to give an undertaking that they in their individual capacity/ in association with any audit firm have not /will not undertake statutory audit of any other public sector banks during that particular year. (b)   Both A & Co, B & Co are empanelled in bank branch auditors panel and audit is allotted to M/s B& Co only. In the above case the name of the firm C & Co. being not on panel will not be eligible to take up the audit assignment. However, if the ICAI certifies that the merged firm (C& Co.) has the same registration number as either one of the merging firms and that the change in the name is only on account of merger, the firm may be allowed to take up the audit assignment in the name of C& Co.

48. Policy of Empanelment of CA Firms and Selection of Auditors of PSUs
Chartered Accountant firms in India with at least one full time  FCA (Partner/Sole Proprietor) can apply for empanelment with this office for allotment of audit of Public Sector Undertakings.  
The criteria for empanelment and selection of statutory auditors have been arrived at after due consultation with the Institute of Chartered Accountants of India.
Selection of CA firms for appointment as statutory auditors of PSUs whose audit fees are up to Rs 1.50 lakh
The selection is made by correlating the point score earned by each firm of Chartered Accountants towards empanelment with the size of the audit fee.  

49. The point score is based upon the experience of the firm, number of partners and their association with the firm, number of Chartered Accountant employees, as detailed below: 

50. Selection of CA firms for appointment as statutory auditors of PSUs where audit fee is above Rs 1.50 lakh ( Major Audits)
Standing of the firm for 10 years ( from the date of 1 full time FCA continuously with the firm)
Minimum 6 CA’s, 5 full time, 1 more can be partner or employee, 1partner for 10 years & 3 Partner for 5 Year continuous association with the firm.
 Allotment of major audits is based not only on the size of the firm considering the number of partners, and their association with the firm, number of Chartered Accountant employees, and the Zone in which the firms’ head office is located but also on the basis of factors such as sectoral experience, service tax paid by the firm on assurance services, capability of handling big audits, past performance, eligibility of the firm to conduct a particular audit, location of the firm’s branch offices etc.

51. Full time partner means-Total Compensation by a exclusive CA partner as below-

52. All members (sole proprietors/partners/ CA employees) will get points if they were exclusively associated with the firm throughout the calendar year immediately preceding the year of empanelment.
 In case of merger, the partners of the merging firms will be assigned points after one year of merger and points for partner’s association to be given after five years from the date of merger.

53. DEMERGER–A TOOL TO FACILITATE MERGER
It is the fear that acts as a barrier in the process of merger of firms. The merger had to precede the demerger.
Demerger cannot be used as a hanging sword on the merged entity. Therefore to balance out between the two opposite issues i.e., (a) the need to demerge and (b) the probable misuse of this right to demerge, it is prescribed that the demerger in the manner can be demanded only within a period of 5 years from the date of merger.
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC))

54. DEMERGER–A TOOL TO FACILITATE MERGER
The clear rules of demerger will facilitate the merger.
In case of 75% or more of the continuing partners of one of the erstwhile merging firm have demerged after giving due notice to the other partners, then in such case, 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.
CA Rohit Ruwatia Agarwal (Chairman YMEC (CIRC))

55. …Do’s Purpose of Merger should not be only for PSU / Bank Work
Remove I from our minds and think for WE
Senior / Junior concept must be redefined
Sourcing & Execution must be the core areas
Purpose of Merger should not be only for PSU / Bank Work
Private Sector Opportunities should be tapped
Rules for Admission & Retirement of Partner must be defined

56. Merger Practical Aspects :-
Organizational Philosophy: The Merger results in one firm. The constituent partnership firms get dissolved into one body which is represented by the reconstituted partnership deed.
Profit Sharing: The role of each partner is determined by the seniority and the professional experience. The corresponding profit sharing ratio is accordingly determined.
Decision making Authority: The main partners of the erstwhile merging firms were having decision making authority in their respective firms. The authority for making decisions will now be generally given to a Managing Partner or to a Committee of Partners.

57. Difference Between Networks & Mergers :-
Network is like Live in Relationship. There are interse` set rules which are legally enforceable and binding on the firms and the partners in a network. A network generally adopts a set of code of conduct called byelaws which are incorporated into an Agreement for governing the member firms of the network.
Merger is like a Marriage. It is a contract marriage. The contract terms are legally stipulated in the Reconstituted Partnership Deed.

58. CONVERSION OF PARTNERSHIP FIRM INTO LLP
The process of conversion of a CA firm is same as other partnership firm into LLP but certain points need the attention-
The name of the LLP shall include the word Chartered Accountant.
The partnership firm converting into LLP shall first apply for name approval to MCA.
The partners of the firm shall apply in ICAI Form No. ‘117’ and the ICAI Form No. ‘18’ along with copy of name registration received from the Registrar of LLP and submit the same with the concerned Regional office of the ICAI.

59. The following guidelines relating to seniority and other criteria shall be followed for registration of LLP with ICAI.
only one similar/identical firm name shall be approved and remaining firm registered with ICAI, either desires to convert into LLP or not, a change in the firm name shall be required.
The name of the LLP may be like `X & Co. LLP’ or `X & Associates LLP’ and no other suffix shall be approved and registered by ICAI.
The registration number (with minimum 6 numbers) of LLP with ICAI, shall remain the same FRN allotted to the firm before the conversion by ICAI.
Inter-se seniority among the firms shall be given to LLP as per existing policy of ICAI. In other words, LLPs shall carry the same seniority, as the firms shall otherwise have under the existing policy of ICAI. In case of merger of two LLPs, same rules, as applicable to firms merging, shall apply.

60. If we don’t act now, is this the Future?

61. A man's reach should exceed his grasp
- by Robert Browning
means to achieve anything worthwhile, a person should attempt even those things that may turn out to be impossible.

62. Last but not the Least
If everything is coming towards you, it only means you are driving in the wrong lane.
Merger or Networking is the beginning of a journey and not a destination

63. THANK YOU CA.Rohit Ruwatia (Agarwal)
Chairman- Young Members Empowerment Committee
Regional Council Member, CIRC
The Institute of Chartered Accountant
(Setup by an act of parliament)
- Managing Partner -
Ruwatia & Ruwatia, Manish K Agarwal & Associates,
N RV & Company, Kedia & Company
(Jaipur, Udaipur, Didwana, Chaksu)
Address- B-130, Jhotwara Industrial Area, Jaipur
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