Learnings From a Few Recent Instances

2023 has just started and I have learnt a lot from a few professional instances that have crossed my path so far this year.

Recently, I had three separate instances happen that allowed me to understand my profession better and also gain insight into the ethics and principles of the profession. I am penning them down here for reading in the future and reflecting upon the same at a later stage of my life as well as for sharing these learnings with you all.

Business of Fear

As the leader of our India Entry Advisory Team, I prefer to be the single point of contact for our clients till their business is set up and running in India. This includes the incorporation, FEMA compliances and obtaining initial registrations necessary to run the business. In one such case, the overseas client had global operations and operates across the world in many countries, through subsidiaries. Our team was engaged to assist this client with setting up their business in India. We guided them with the legal structure to select and consulted them with the available address options that they had for the registered office. As they were still finalising a leasehold property where their long-term office would be, they chose to go ahead with their Indian Ops’ head’s residential address as the registered office. They were in the technology business and all the related aspects were discussed while choosing the registered office including the shifting thereof. Capitalisation requirement was also discussed and closed with the client, as to what would be the initial requirement and scale of operations; further capitalisation requirements and mode for funding the same along with applicable compliances were discussed and explained to the client. All of the questions of the client were answered by our team.

The Client had their global payroll processed by one of the International Networks of Accounting Firms across all countries where they operated. They were also in touch with them for the payroll services for India. However, this International Network in India has a member firm (Firm A) which operates, inter alia, across the same spectrum of services that we offer and sensed an opportunity to intrude over our engagement. All this happened while we waited for the company to be incorporated; forms for which were filed by our secretarial team on Day 0.

Up to Day 21, the Ministry of Corporate Affairs did not process the incorporation form. On Day 22, we got an update that the Company was incorporated and that the application was forwarded to the CBDT for allotment of PAN and TAN. Here, we got the subsidiary of a foreign company incorporated with a foreign director at the first go despite the havoc that the new MCA portal has laid across. Nonetheless, our wait for the certificate of incorporation continued as up to Day 50, we could not get the certificate of incorporation.?

All across this time, the overseas client was getting impatient as to how it could take so long to get the company incorporated. We shared the snippets in the news articles as well as explained the reality that it was a major overhaul of systems at the regulator’s end and that it was just a case of the timing being inappropriate. We had also raised various tickets with the MCA and also under the CPGRAMS to curtail the anxiety that the client was facing.

In this meantime, Firm A, driven by their internal financial targets and taking advantage of the client’s anxiety, was watering the seed of doubt over the capabilities of our team citing meaningless points and poking the client at every possible occasion. Firm A painted such a picture to the overseas client about Indian regulations and created an unwanted fear in the client’s mind which led them to believe that it was an offence to have a residential premise as the registered office of the Company (while their entire Indian workforce was to work from home till they finalised an office premise). This coupled with all other useless doubts that Firm A had constantly bombarded into the client’s mind led them to question us with all of them. It was only now (around Day 45) that we understood that someone is misinforming them and we explained the entire situation. They counter-questioned that using a residential address as the registered office is somewhat causing the delay; we explained that this point was baseless. We tried our best and explained that this delay was only on account of a system integration issue at the Regulator’s end and nothing more. Two days later, the client started questioning that PAN allotment won’t take place for the Company as the registered office is shown at a residential address, hence, the delay. I was losing my patience; yet maintained my cool and responded that they needed to be patient as it was nothing but a system glitch.?

Our support tickets on MCA resulted in only one response i.e., the application has been forwarded to the CBDT and the COI shall be issued on receipt of the same. This was a result of the integration issue between the MCA’s V3 website and the Income Tax Portal. Nonetheless, on Day 51, we got the certificate of incorporation with PAN and TAN, and that too at the first go!

I am a firm believer that the client does not have to know the compliances applicable to them; it is what they pay us for. Our team gets it done super smoothly and that is the hallmark of our service. The client has to focus on business. Whereas, Firm A projected a whole lot of misinformation to create doubt in the client’s mind and cast a cloud of uncertainty on the client’s business itself; spreading misinformation is not only blatantly wrong but also grossly unethical in our profession.

Financial targets and motives of a few should not tarnish our profession with the vice of pushing others down to raise oneself.

Misnomer that “Big is Better”

Recently, on LinkedIn, I came across a post from a senior professional, representing an international network in India. The person had mentioned that a red flag for the existence of fraud in a company could be gauged from the size of its auditors! I was in utter disbelief at such a statement and chose to read through the entire post. While there were disclaimers to the generality of the statement, the person went on to create a sense that small audit firms cannot do large audits. The person also highlighted that often for large frauds, you’ll have small audit firms as auditors. The person also mentioned that where there are large audit firms, and fraud happens, it is bound to be large because large audit firms audit large clients (which if do fraud, would be large in size). In this world of overflowing information, creating a sensation is a way to grab attention, but is it correct?

In today’s world, technology’s accessibility has been universal and everyone has similar access. With medium-sized firms also investing a lot in SaaS products, the technological edge is no longer a function of size. Moreover, processes are also being followed under the standards of quality control (SQC) and internal processes at many firms now. Hence, my simple yet humble submission to this argument is that not all 5000+ workforce of any firm or network work on a single engagement to establish that big is better. It is just the engagement team of a firm that works on an engagement and the comparison should be limited to that. Size in the profession should not matter if the quality of the services matches (or even exceed in many cases of personal experience). Moreover, if we look at the reality, the so-called “people resources” of these network firms have climbed up the ladder by hopping from one ladder to the other, neither staying loyal nor deserving the jump. With these numbers, network firms pitch for the work showing the strength of numbers. The clients need to understand that those numbers are not going to be on the ground working! It is only limited to the engagement team, and that should be complemented with the technology and processes necessary to deliver quality services and decide on the service provider.

Again, my learning here is that a person, especially in a responsible position should not sensationalise for personal interests, especially basing it on excerpts of a sensational report, just to ride the traction it gets.

Rigid breaks; Flexible bends

Recently, one of my clients had a peculiar transaction to undertake. It was not a vanilla transaction and hence, they needed some advice. The counterparty of the transaction was represented by an adviser, who had more professional experience than my age! We respectfully heard each other and discussed the pros and cons of various transaction alternatives. I was suggesting a way which was pragmatic and involved no tax cost. However, it had a peculiar assumption to make, which was nothing but a reflection of fact, supported by substance. However, the form of the records was slightly counter suggestive and hence, the entire discussion continued. All through the discussion, I did not put my foot down; however, I was met with the stubborn outlook of the senior professional with a clear statement that this would be the only way in which his client would proceed with the transaction, which involved a huge uncalled/unwarranted tax cost for my client. The transaction was between relatives (relatives even as per the definition of the Income-tax Act, 1961), so I explained to my client that just due to the adamancy of the other professional, you should not end up paying millions of rupees in tax. I explained to him that we need to find someone whom the senior professional would heed to. We suggested a few senior counsels for taking an opinion on the matter, and the senior professional mentioned that he would be comfortable with the opinion that the chosen senior counsel provides. I explained the case to the senior counsel and the facts and the senior counsel concurred with the suggested alternative that I had provided. The client was happy as he was saving a lot of unwarranted tax and I just learnt – Rigid breaks; Flexible bends.

I hope the above learnings may be useful to you for growing as a professional. Please provide your feedback by liking or commenting on this post so that I am encouraged and motivated to write more.

Views expressed are personal.