1. ICAI PUNE Page 1 "Glimpse into the practice of future (Services, Industries, Size, Skill-sets, etc) - Global & Indian Scenario" Presented by : Sagar Shah International Liaison Partner & Head – Indirect taxes BDO India LLP

2. Current Scenario Economy Policy Paralysis Budget 2013 was the turning point in terms of the investors’ confidence in our country Overruling of the landmark decision of the Supreme Court in case of Vodafone and subsequent high pitch transfer pricing cases have led to erosion of confidence in doing business in India to a great degree Awakening of the Giant The new BJP government led by Mr Narendra Modi that came to power in May 2014 has made several high pitch announcements of policy changes that should facilitate renewed interest in ‘Doing business in India’ by the Global business community Although there has been a lot of traction at policy level, there has not been a significant change at the grass root level The slew of initiatives introduced by the Modi Government could translate into opportunities for business to grow and corresponding opportunity for our Profession as well ICAI PUNE Page 2

3. Current Scenario Going forward Are we seeing green shoots? Economist predict that the Indian economy would continue to grow at the rate of 6-7% in the near future and by 2017, overtake China’s GDP growth Fair expectation that on the back of reforms introduced and a stable business and tax regime, the foreign investment inflows into India would revive and fill up the much needed gap With the Modi government perceived as a business-friendly reformist regime, Leaderspeak suggest that the image of India in the international business community has changed and there is a large optimism to invest in India ICAI PUNE Page 3

4. Current Scenario Initiatives by the Government Business Reforms Make in India Digital India Smart Cities Ease of Doing Business in India Tax and Regulatory Reforms Introduction of GST IFRS/IND AS Legal and Banking Reforms Super Regulator for Broadcasting, IT, Telecom and Regulator for Real Estate Ordinance Route – Mining, Land Acquisition etc Pricing of Exit – Fair Value Buyout Norm ICAI PUNE Page 4

5. Current Scenario Profession across the globe In a survey, ‘The Future of Employment-How Susceptible are jobs to Computerization?’ – September 2013, Tax Preparers, Audit and Accountant jobs are considered to be susceptible between 94-97% (most vulnerable) The Economist survey on professional fees reveal that across the globe, year-on-year the fee levels are dropping Globalization of services as in the case of manufacturing and IT could mean reduction of cost over a period of time, the benefit of which would go to the big players; however, on the other hand, India as a leader of services exporter could benefit significantly from such development It is anticipated that the Big 4s will get bigger in the time to come; in the space outside the Big 4, a trend of consolidation is being noticed across Networks Weaker Networks are finding it hard to survive and sustain in the light of market dominance by the Big 4s followed by mid-market leaders such as BDO, Grant Thornton, RSM ICAI PUNE Page 5

6. Current Scenario Profession in India The new government seems committed to ensure a stable tax regime in our country and to this effect, is taking several measures to reduce tax litigation which is bugbear of foreign investors The Audit rotation contemplated in the new Companies Act i.e. to set in from 2017 has the potential to completely change the way audit is practiced in our country Introduction of GST would set course for a simplified business environment. The Ministry of Corporate Affairs has drawn up a roadmap for implementation of Ind AS (convergence with IFRS) with effect from 1 April 2016 Introduction of IT as a driver for compliance is likely to reduce compliance burden for companies; new service opportunities to provide IT enabled services Use of technology by professional service firms has the potential to transform how services are delivered to a client resulting into reduction of cost, improve efficiency and substantially increase capability to deliver to the clients ICAI PUNE Page 6

7. Challenges faced by our Profession Macro… Professional Curriculum The professional curriculum needs to be tuned to the to the fast-paced development in business environment and prepare CAs to deliver to clients in such an environment If the profession is unable to deliver or handle the professional opportunities, the CA fraternity would miss the bus and the opportunity which it otherwise should be capable of harnessing Areas where the curriculum needs to be strengthened to deliver the results: - How to develop and market professional opportunities; understanding tools that would help you to get better - Assignment approach to theory; competing with MBA curriculum - In-depth IT knowledge, which would be the platform to deliver services in future - Acquiring leadership and management skills ICAI PUNE Page 7

8. Challenges faced by our Profession … Macro Services Bottlenecks It is debatable whether the bar on using global network brands is working for or against the practicing Chartered Accountants Chartered Accountants, especially medium and small firms, are unable to brand themselves better and also publicize quality of their Network association Compliance oriented environment & Perception Management Excessively regulated environment with undue stress on compliance is taking a toll on the profession; thwarting opportunities to provide value added services to clients The perception amongst the business fraternity for Chartered Accountants needs to be change from an Auditor/Tax Consultant to a Business Advisor ICAI PUNE Page 8

9. Challenges faced by our Profession Micro… Fee levels – Indian Chartered Accountants are forced to deliver services at a sub- standard level as compared to their international counterparts Hiring the best talent – Because of lower fees and profitability, Indian firms are unable hire and retain the best talent Portfolio of services – Indian firms have been traditionally focusing on compliance and litigation working Saturation in existing services – Audit and tax services have reached a saturation point; the demand for such services is not growing commensurate with the capability of the Profession to deliver Audit Rotation/ GST/IFRS - Disadvantage to small firms as they may not get equivalent work that they lose out; GST may simplify the laws and procedures thereby reducing the involvement of Chartered Accountants Role of Advisory Services –Businesses do not find value proposition in advisory services offered and hence the fees are not upto the levels they ought to be ICAI PUNE Page 9

10. Challenges faced by our Profession … Micro Investment – There is usually a limited capability to invest in facilities, infrastructure, talent etc; at times the perspective and willingness to invest is not there Securing Governance, Leadership and Succession – There is a need to institutionalise the practice, Accounting firms generally do not have leadership and succession planning Exit – The goodwill and brand developed by firms is not encashable; the value proposition in profession is not being realized ICAI PUNE Page 10

11. Challenges faced by our Profession Comparison with other professions ICAI PUNE Page 11 ProfessionComparison LegalConventionally commands good fee levels; ability to attract best talent Consulting & advisoryValue proposition assignments, better fee levels IT ConsultingFlow of substantial work with the focus on technology; large opportunity encashed on time and material basis Medicine – Hospital chains Institutionalization happening in the space, focus on franchise model Investment bankingDominated by large banks and boutique firms, value proposition assignments brings better fees on success Recruitment firmsExistence of global players; entering into several value-added services besides recruitment

12. Challenges faced by our Profession Comparison with other countries ICAI PUNE Page 12 CountriesComparison USA Highly developed profession The last of the 100 firms has a revenue of US $ 32.00 mn (Rs.200 crs approx.) UK Existence of several mid-sized firms and small firms with healthy revenues China Significant Government support to non-Big 4s Many professional opportunities on account of growing economy Most countries have a mandatory China desk Developed countries Most of the professional firms operate in a stagnant economy, however, even then command large size of revenue

13. Global Networks Type of Networks An International Network is an association of independent accounting and consulting firms from different parts of the world Through this association, the member firms share resources- from practice management solutions to marketing initiatives, client referrals and staffing issues Currently, the landscape of Affiliations seem as under: ICAI PUNE Page 13 Big 4s Networks – 1 Firm Per Country Network – Multiple Firms Per Country

14. … Global Networks Global Ranking ICAI PUNE Page 14 Network/ AssociationNo of Offices Revenue in US$ bn No of Partners Deloitte89634.29,538 PwC75834.010,002 Ernst & Young70927.4n/a KPMG700+23.48000+ BDO1,3287.024,111 Grant Thornton600+4.52,500 RSM International7323.93,279 Baker Tilly7383.42,576 Mazars4001.32,998 As per the latest information available in public domain

15. … Global Networks Structure of the Network/ Association The co-ordinating entity is usually organized as a LLP/corporate entity and overseas the functioning of the network Association of independent accounting firms Association does not provide professional services in its own name Each firm is a separate legal entity organised under the laws of the country in which it practices and is locally owned and managed Member firms are not members/ partners of any one entity, nor legal partners of each other nor is any one firm responsible for the services rendered by another firm Cost of coordinating the network is usually funded by member firms The Network does not wish to make profit out of its member firms ICAI PUNE Page 15

16. What it takes to build a world class organization Networking Opportunities in India ICAI PUNE Page 16 Accounting Firms in India %s are approximate

17. The Big Picture… Assessing the size of investment and carrying out cost benefit analysis Investment Brand building, event sponsoring, Thought leadership Profiling your presence Determining key cities where presence is required and establishing offices in such cities Physical presence Understanding client’s business, providing advisory services, sector specialization, full service offerings, venture into new professional opportunities Service offerings ICAI PUNE Page 17

18. … The Big Picture Brining on board partners and teams having sector specialization, ability to work in teams, business development skills Partners & Team Focus on providing services to Multinationals, Corporates and the Organized sector Changing Client Profile Importance from a business development perspective Networking Domain expertise, bring on board experience of working with competing businesses, understand business of client across services Sector Specialization ICAI PUNE Page 18

19. … The Big Picture Relevant for growth; acquiring new partners, new competencies, presence in geographies Mergers Vital to grow; showcase move away from proprietary to institutional approach Talent & Client Acquisition Importance of a planned approach; Annual and Medium Term Business Plan Business Plan ICAI PUNE Page 19

20. New Services With a large team sizes and access to the best technology, Professional services firm have several options that hitherto are out of reach of domestic firms -Consulting initiatives in the Enterprise Risk Management (ERM) framework -Global effort to assist corporations with outsourcing -Actuarial consultancy departments -Information security and privacy, data quality and integrity, project risk, business continuity management, internal auditing and IT control assurance. -Technology integration, strategy and operations, human capital -Dispute, personal and commercial bankruptcy, forensics, e-discovery, document review, advisory, capital projects consulting and valuation services. -Public Sector practice ICAI PUNE Page 20

21. Step-wise Growth Plan for Small & Medium sized Firms Critical to growth of a professional service firm is the desire to change and also realize limitation and challenges that confront them Desire to Change It will be beneficial to itemize this limitation and challenges and create a plan to overcome them Road-map for Change Seek partnering approach. Complementary competencies enable access new markets and benefit most from existing relationships Partnering Approach – Combine Competencies Most would seem reluctant to agree but having an upscale infrastructure makes a huge contribution in the growth of your practice Change Profile – Office location ICAI PUNE Page 21

22. …Step-wise Growth Plan for Small & Medium sized Firms Vital to pick up new competencies and invest time to learn in order to benefit from sunrise opportunities Learn new competencies You would be surprised at the amount of investment that is required to be made to build a robust services firm Need to Invest Value-added services is way to go; think that your firm could provide every conceivable professional service that a client would seek Focus on what the Clients want ICAI PUNE Page 22

23. Key Areas – Focus & De-focus Page 23 Execution Business Development Relationship Development Knowledge Management Systems and Processes Non-core participation

24. How do we resolve? Page 24 Managing People – Get the best HR policies (appoint a good HR team). – Align major policies globally with some minor city centric flavour (e.g. local holidays).. Different Cultures – Create your own culture and blend it with the local culture – learn to stay with differences.. Is everyone the same… “Remembering the Titans” Different Dynamics of Industry - Understand the city and the industry – Financial Services - Mumbai; IT - Bangalore/Hyd/Pune/Gurgaon; Auto – Delhi/Pune/Chennai; Logistics – Mumbai/Chennai/kolkatta… Varied Client expectation – A MNC has different expectation vis a vis a promoter driven company – Is it Delhi or Chennai Different Cost structure – Salaries, Conveyances, Rents …Create policies and structures.. Decide on Buy Vs Rent for offices, fit outs, cabs etc. Confidentiality & Integrity – Have your most trusted person in the team at important levels in each city. Also create a systematic review mechanism and a great IT infrastructure – this is especially required in an organic growth scenario. Control over data – Create a common central server – look at options available in IT – if banks can do this worldwide when they are handling money – we can surely do it..

25. …Step-wise Growth Plan for Small & Medium sized Firms ICAI PUNE Page 25 Move away from Compliance driven practice that don’t seem to provide value to clients Low paying clients and clients that would not grow or be relevant tomorrow Hanging on to losing proposition Finally, Believe in Yourself Most of the successful firms started small and was led by seemingly average professionals Anyone can do it Global Services Transformation – Are Indian CA firms insulated?