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CASE 8.10 INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Synopsis This case examines the development of the accounting profession in India with a particular focus on the regulatory agency that has oversight responsibility for that profession. After gaining independence from Great Britain in 1947, India’s government established a regulatory structure for its financial reporting system generally patterned after that of Great Britain and, to a lesser extent, the United States. India’s Parliament passed a federal securities law that requires public companies to issue annual financial statements audited by an independent accounting firm. Unlike in the United States where the accounting profession is regulated at the state level, India’s Parliament created a federal agency, the Institute of Chartered Accountants of India (ICAI), to oversee the new nation’s accounting profession. The ICAI has a wide range of responsibilities that include issuing or approving accounting and auditing standards, administering the series of examinations that must be successfully completed to become a Chartered Accountant (CA), and sanctioning CAs and accounting firms that have violated their statutory, ethical, or other professional responsibilities. Instead of the U.S.’s “prescriptive” financial reporting model, the ICAI embraces the British “true and fair” financial reporting model. One major criticism of India’s financial reporting system is that the nation’s independent audit function has historically been much less rigorous, and thus less effective, than that of either Great Britain or the United States. India’s central government adopted a protectionist mindset after the nation gained independence from Great Britain in 1947. The central government’s overall social and economic policy changed abruptly in 1991 when a nationwide financial crisis nearly bankrupted the country. The so-called “liberalization movement” that began in 1991 encouraged foreign companies and professional firms to become actively involved in the Indian economy. The major international accounting firms took advantage of this new mindset to significantly expand their operations in India. During the 1990s, the large international accounting firms allegedly took control of India’s accounting profession and the nation’s markets for accounting, auditing, and business consulting services. The ICAI charged that those firms used a variety of illicit and even illegal methods to quickly “colonize” those markets. In 2002, the ICAI commissioned a large-scale study of the alleged takeover of the Indian accounting profession by the major international accounting firms. The resulting report released in 2003 created a storm of controversy, not only in India, but throughout the global accounting profession.
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94 Case 8.10 Institute of Chartered Accountants of India Institute of Chartered Accountants of India—Key Facts 1. Britain’s colonial rule left a lasting imprint on India’s financial reporting system, including
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