PITFALLS IN STARTING PRACTICE FOR FRESH CA’s
INTRODUCTION
I started out in practice with a very idealistic view of the profession. My articleship was done from a small firm wherein the major experience was in accounting and internal audit. There was no income tax experience whatsoever. Post qualification, I joined M/s A.F. Fergusons and gained tremendous exposure in audits of large companies. My performance as an audit manager, was noticed and I was sent on deputation to KPMG Peat Marwick in Malawi, Africa. I gained greater exposure and experience in how a scientific audit is carried out plus the degree of professionalism necessary to carry out independent audits. After I came back, I realised that starting my own practice would be a challenge which I would love to face even though this did not give me the exposure for tax practice, more of that later. The desire to be independent and the ability to think on one’s feet is a pre-requisite for setting up a successful practice.
It is very important at the outset to assess your strengths and weaknesses before embarking on an independent practice. Make a list of your weaknesses, and work on them to increase your own confidence and ability to interact with both your clients and the various statutory authorities. Make another list with all your strengths – it is very important, over a period of time, to convert your weaknesses into strengths. You need to decide the focus area of your practice and work on the same. Fresh CA’s in reality do not have much of a choice, as they have to project / have an overall competency in the various fields of practice. Clients come to you with the expectation that you will handle their entire financial affairs – sales tax, excise, income tax, accounts, audit – amongst them. You cannot afford to say I do not do sales tax or income tax as you run the risk of losing a client.
One must bear in mind that the raw material for any professional practice is one’s time and intelligence and the end product is money in one form or another. You have to make a proper billing system based on your time cost. Also bear in mind that any mistake or error you make affects your clients’ pocket. This is because your decisions and advice have a direct bearing on your clients’ finances. Any mistake could lead to the client paying either additional taxes or penalties, which could lead to further litigation and costs. Thus you should ensure that the advice you give is after due deliberation and study of the various provisions of law. This will ensure that you enter into minimum litigation, and gain the confidence of your client. The spin-off benefits could be more clients through referrals from satisfied customers.
ATTITUDE AND APPROACH
Honesty and integrity is very important for staying in the profession. This may sound like a paradox – but it is true. This approach pays in the long run. In the early years of practice, one will come across situations exposing both the client and yourself to situations of vulnerability. This is especially true at the time of Income Tax / Sales tax /Excise scrutiny or appellate hearings. One should rise above temptations to take short cuts demeaning the profession as well as the efforts you have taken to pass a rigorous professional course. It is always difficult to take the road less traveled because it is fraught with difficulty, but believe me the fruits of success and the feeling of satisfaction it gives is worth the effort. After all, a good nights sleep at the end of a trying day is always worth it.
My initial years of practice were very difficult because clients always expected their cases to be “settled” – I always found it jarred with my sense of integrity and my knowledge. It is one thing to fight a tax case based on records and returns filed and something else all together to make an unethical compromise. I have handled complex cases successfully, but in the end it always boils down to “settlement”. This is something nobody teaches you to handle or exposes you to managing while you are undergoing training. The clients’ attitude is – “always ‘settle’ as ‘goodwill’ and forget it”. Remember another thumb rule – client’s will ALWAYS make adjustments with the officer and not your legitimate fees. This led to another unfortunate practice wherein the consultants started including their ‘cut’ in the sum to be given as “settlement dues”. In my opinion this is in extremely poor taste and makes our noble profession into nothing more than a brokerage or ‘dalali’. The question then arises – “How does one do ethical tax practice?”
The answer to the above question lies in your approach to the profession. At the outset, when negotiating with a new client you should clearly lay down the guidelines for a working relationship. Get an engagement letter from the client wherein your services are clearly described and fees specified. Explain to your clients the benefits of declaring the correct income, paying honest taxes and sleeping peacefully at night! Explain the various deductions which can legitimately be claimed by proper tax planning and have the client pay the advance tax in time – these two simple steps will lessen your burden considerably. I have found a simple solution for dealing with tax officers and clients. I attend the scrutiny proceedings and present whatever records are called for professionally, agreeing to reasonable disallowances if warranted and after that bringing the client into the picture. After explaining to the client the salient parts of the expected assessment order and getting his concurrence to the same, the client and the officer, after discussions agree on the final assessment order. I do not mean to sound sanctimonious – but that is the manner in which I have been able to live with my integrity intact. I am not saying this is the correct way or the only way – but each person will need to find his own feet and his own methodology in fighting this cancer of corruption pervading our society.
Today my approach has led to success both - for myself and my clients. All my clients pay reasonably honest taxes declaring correct incomes – this makes our job much easier. Any income tax scrutiny can be handled with confidence because you are sure that your clients’ books are clean. This straightforward approach has led to a lot of referrals leading to an increase in clients and work. This has happened after a long struggle for the first twelve years of my practice. The enduring thing to remember is that every pitfall one faces can be treated as a fresh challenge to be converted into an opportunity. This was my formula to a successful career – not monetary success initially but enduring, professionally satisfying success – that’s what’s important.
CONCLUSION
It is of paramount importance to chalk out your key practice areas, adopt a practical and realistic - though honest approach, and be true to your principles and follow the Code of Conduct laid down by the Institute of Chartered Accountants in letter and spirit. This will, with the passage of time prove to be your recipe for success and will also contribute to cleansing the system of wrong practices over a period of time.
I started out in practice with a very idealistic view of the profession. My articleship was done from a small firm wherein the major experience was in accounting and internal audit. There was no income tax experience whatsoever. Post qualification, I joined M/s A.F. Fergusons and gained tremendous exposure in audits of large companies. My performance as an audit manager, was noticed and I was sent on deputation to KPMG Peat Marwick in Malawi, Africa. I gained greater exposure and experience in how a scientific audit is carried out plus the degree of professionalism necessary to carry out independent audits. After I came back, I realised that starting my own practice would be a challenge which I would love to face even though this did not give me the exposure for tax practice, more of that later. The desire to be independent and the ability to think on one’s feet is a pre-requisite for setting up a successful practice.
It is very important at the outset to assess your strengths and weaknesses before embarking on an independent practice. Make a list of your weaknesses, and work on them to increase your own confidence and ability to interact with both your clients and the various statutory authorities. Make another list with all your strengths – it is very important, over a period of time, to convert your weaknesses into strengths. You need to decide the focus area of your practice and work on the same. Fresh CA’s in reality do not have much of a choice, as they have to project / have an overall competency in the various fields of practice. Clients come to you with the expectation that you will handle their entire financial affairs – sales tax, excise, income tax, accounts, audit – amongst them. You cannot afford to say I do not do sales tax or income tax as you run the risk of losing a client.
One must bear in mind that the raw material for any professional practice is one’s time and intelligence and the end product is money in one form or another. You have to make a proper billing system based on your time cost. Also bear in mind that any mistake or error you make affects your clients’ pocket. This is because your decisions and advice have a direct bearing on your clients’ finances. Any mistake could lead to the client paying either additional taxes or penalties, which could lead to further litigation and costs. Thus you should ensure that the advice you give is after due deliberation and study of the various provisions of law. This will ensure that you enter into minimum litigation, and gain the confidence of your client. The spin-off benefits could be more clients through referrals from satisfied customers.
ATTITUDE AND APPROACH
Honesty and integrity is very important for staying in the profession. This may sound like a paradox – but it is true. This approach pays in the long run. In the early years of practice, one will come across situations exposing both the client and yourself to situations of vulnerability. This is especially true at the time of Income Tax / Sales tax /Excise scrutiny or appellate hearings. One should rise above temptations to take short cuts demeaning the profession as well as the efforts you have taken to pass a rigorous professional course. It is always difficult to take the road less traveled because it is fraught with difficulty, but believe me the fruits of success and the feeling of satisfaction it gives is worth the effort. After all, a good nights sleep at the end of a trying day is always worth it.
My initial years of practice were very difficult because clients always expected their cases to be “settled” – I always found it jarred with my sense of integrity and my knowledge. It is one thing to fight a tax case based on records and returns filed and something else all together to make an unethical compromise. I have handled complex cases successfully, but in the end it always boils down to “settlement”. This is something nobody teaches you to handle or exposes you to managing while you are undergoing training. The clients’ attitude is – “always ‘settle’ as ‘goodwill’ and forget it”. Remember another thumb rule – client’s will ALWAYS make adjustments with the officer and not your legitimate fees. This led to another unfortunate practice wherein the consultants started including their ‘cut’ in the sum to be given as “settlement dues”. In my opinion this is in extremely poor taste and makes our noble profession into nothing more than a brokerage or ‘dalali’. The question then arises – “How does one do ethical tax practice?”
The answer to the above question lies in your approach to the profession. At the outset, when negotiating with a new client you should clearly lay down the guidelines for a working relationship. Get an engagement letter from the client wherein your services are clearly described and fees specified. Explain to your clients the benefits of declaring the correct income, paying honest taxes and sleeping peacefully at night! Explain the various deductions which can legitimately be claimed by proper tax planning and have the client pay the advance tax in time – these two simple steps will lessen your burden considerably. I have found a simple solution for dealing with tax officers and clients. I attend the scrutiny proceedings and present whatever records are called for professionally, agreeing to reasonable disallowances if warranted and after that bringing the client into the picture. After explaining to the client the salient parts of the expected assessment order and getting his concurrence to the same, the client and the officer, after discussions agree on the final assessment order. I do not mean to sound sanctimonious – but that is the manner in which I have been able to live with my integrity intact. I am not saying this is the correct way or the only way – but each person will need to find his own feet and his own methodology in fighting this cancer of corruption pervading our society.
Today my approach has led to success both - for myself and my clients. All my clients pay reasonably honest taxes declaring correct incomes – this makes our job much easier. Any income tax scrutiny can be handled with confidence because you are sure that your clients’ books are clean. This straightforward approach has led to a lot of referrals leading to an increase in clients and work. This has happened after a long struggle for the first twelve years of my practice. The enduring thing to remember is that every pitfall one faces can be treated as a fresh challenge to be converted into an opportunity. This was my formula to a successful career – not monetary success initially but enduring, professionally satisfying success – that’s what’s important.
CONCLUSION
It is of paramount importance to chalk out your key practice areas, adopt a practical and realistic - though honest approach, and be true to your principles and follow the Code of Conduct laid down by the Institute of Chartered Accountants in letter and spirit. This will, with the passage of time prove to be your recipe for success and will also contribute to cleansing the system of wrong practices over a period of time.
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