The Hindu Business Line : `Redefine accounting services as accounting technology'

"The most significant aspects of international trade in accountancy services were the widespread nature of local qualifications and licensing requirements."

Kolkata , Dec. 28

ACCOUNTING services have to be redefined as `accounting technology' which can move side by side with information technology, especially in this era of globalisation where the new mantra is business process outsourcing, under which services can be rendered from one corner of the globe to another.

Making a presentation on "Tax, accounts and Finance profession in WTO perspective", post-Hong Kong Ministerial, at a national meet organised by the Accountants' Library here recently, Dr D.R. Agarwal, Director, Institute of International Trade, Kolkata, said Mode-1 of the General Agreements on Trade and Services (GATS) under WTO provides for cross supply of services through e-commerce or IT.

Dr Agarwal said the three key components of IT, accounting expertise and the legal framework of GATS/WTO services have to be properly synchronised for optimum utilisation of the limited economic resources available. Citing the rider that accounting is a personalised service, he said movement of natural persons under Mode-4 should be granted more market access to justify the benefit of globalisation for developing countries.

According to him, concentration of accounting services with the `Big Four' (Deloitte Touche Tohmatsu, PricewaterhouseCoopers, Ernst & Young and KPMG) under Mode-3 may jeopardise the interests of the small and medium accounting firms.

Dr Agarwal said under WTO, accountancy services under GATS are broadly classified as a) Accounting and Auditing Services, encompassing financial auditing and accounting review; b) Compilation of financial statements; c) Other accounting services; and d) Book-keeping services, except tax returns.

Giving an overview of the global accountancy profession, he said the most significant aspects of international trade in accountancy services were the widespread nature of local qualifications and licensing requirements. The `Big Four' accountancy firms, according to him, are forming an international network of local firms in a bid to overcome the restrictive national requirements.

Dr Agarwal said the certification value of the big four accounting firms was now so large that virtually all of the Fortune 500 US-based companies are audited by the Big Four, and a high percentage of the next 500 are also audited by these Four.

Suggesting that delivery of accounting services was today highly dependent on the physical presence of local establishments (commercial presence under Mode-3), he said the larger accountancy firms make liberal use of short-term consultancy (temporary presence method) in their efforts to mobilise specific sources of expertise within their firms.

The four Modes of delivery of services

GATS recognises four Modes of delivery of services. These are: Mode 1 - Commitments at existing levels of market access on a non-discriminatory basis across sectors of interest to members, and removal of existing requirements of commercial presence.

Mode 2 - Commitments at existing levels of market access, as mentioned above, and Commitments on Mode 2 where commitments on Mode 1 exist;

Mode 3 - Commitments on enhanced levels of foreign equity participation, and removal or substantial reduction of economic needs tests, and commitments allowing greater flexibility on the types of legal entity permitted; and

Mode 4 - New or improved commitments on the categories of contractual services suppliers, independent professionals and others, delinked from commercial presence, to reflect inter alia, removal or substantial education of economic needs tests and indication of prescribed duration of stay and possibility of renewal, if any. It also includes new or improved commitments on categories of intra-corporate transferees and business visitors.