Accounting Historians Journal

Volume 33 Article 7
Issue 2 December 2006

2006

Creation of the Institute of Chartered Accountants of India: The

first steps in the development of an indigenous accounting
profession post-independence
Shraddha Verma

Sidney J. Gray

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Verma, Shraddha and Gray, Sidney J. (2006) "Creation of the Institute of Chartered Accountants of India:
The first steps in the development of an indigenous accounting profession post-independence,"
Accounting Historians Journal: Vol. 33 : Iss. 2 , Article 7.
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nstitute of Chartered Accountants of India: The first steps in the development of an indigenous accountin

Accounting Historians Journal

Vol. 33, No. 2
December 2006
pp. 131-156

Shraddha Verma
UNIVERSITY OF YORK
and
Sidney J. Gray
UNIVERSITY OF SYDNEY

THE CREATION OF THE INSTITUTE

OF CHARTERED ACCOUNTANTS OF
INDIA: THE FIRST STEPS IN THE
DEVELOPMENT OF AN INDIGENOUS
ACCOUNTING PROFESSION
POST-INDEPENDENCE

Abstract: This paper applies the theoretical framework proposed by

McKinnon [1986] to the creation of the Institute of Chartered Ac-
countants of India (ICAI) which represented an important change to
the accounting system in India post-independence. The development
of the ICAI is categorized into three phases: source, diffusion, and
reaction. Intra-system activity, trans-system activity, and the socio-
economic and political environments are shown to influence all stages
of the change. Within these phases, the paper focuses on the involve-
ment of the state in the development of the ICAI, credentialism and
the importance of the title “chartered,” the disciplinary powers of the
ICAI, and the issue of mutual recognition and reciprocity with foreign
professional accounting organizations.

INTRODUCTION
This paper applies the theoretical framework of McKinnon
[1986] to the creation of the Institute of Chartered Accountants
of India (ICAI) and focuses on the involvement of the state in
the development of the ICAI, credentialism and the importance
of the title “chartered,” the disciplinary powers of the ICAI, and
mutual recognition and reciprocity. The paper traces the process
of change from the initial proposal to establish the ICAI to its
operation in its first years with a focus on the factors influencing
the creation of the Institute and its practices. The path of profes-

Acknowledgments: The authors would like to thank Steve Toms, Suki Sian,
Mattias Beck, and members of the Cardiff Business School for their comments.

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132 Accounting Historians Journal, December 2006

sionalization is then compared with similar processes in other

post-colonial states.
The research is informed by the accounting history lit-
erature, in particular that related to the sociology of professions.
Within this literature, there have been two main approaches
to the study of professions, a functionalist-based view and a
more critical, conflictual view which predominantly informs
this paper. The critical view proposes that professions function
as self-interested, occupational groups which act in ways to
promote themselves and their members in order to gain rewards
associated with professional standing. These include both finan-
cial rewards and other more intangible benefits such as prestige,
status, and influence [Freidson, 1973; Larson, 1977; Abbot, 1988;
Macdonald, 1995].
Within this critical approach to the accountancy profes-
sion, key themes have included the study of closure in different
socio-economic and political contexts; the understanding of the
state-profession relationship, including the importance of senior
bureaucrats in the development of accounting professions; and
the interface between imperialism and accounting professions.
Chua and Poullaos [1993], in particular, have called for histori-
cal analyses of specific accounting professionalization projects
in different economic, social, and political conditions. Their
interests include an analysis of the state-profession axis, a more
nuanced tracing of the process of professionalization, and an
exploration of unintended consequences within the profession-
alization process.
Within the accounting history literature, there have been a
significant number of studies of accounting professions in the
Anglo-Saxon context; for example, studies of accounting profes-
sions in the U.K., U.S., and Australia [Lee, 1985, 1997; Kedslie,
1990; Chua and Poullaos, 1993, 1998, 2002; Robson et al., 1994;
Shackleton, 1995; Walker and Shackleton, 1995, 1998; Carnegie
and Parker, 1999; Carnegie and Edwards, 2001; Walker, 2004].
Only recently have researchers started to study accounting pro-
fessions in non-Anglo-Saxon states and in post-colonial states
[Annisette, 1999, 2000; Dyball and Valcarcel, 1999; Susela, 1999;
Yapa, 1999; Uche, 2002; Xu and Xu, 2003; Bakre, 2005a, b; Sian,
2006]. Our study seeks to add to this literature with an explora-
tion of the creation of the ICAI in 1949 and a comparison of the
trajectory of professionalization in post-independence India to
other British colonies.
In the context of a study of accounting professions in post-
colonial states, India is important for several reasons. India was

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nstitute of Chartered Accountants of India: The first steps in the development of an indigenous accountin

Verma and Gray: Institute of Chartered Accountants (India) 133

one of the first countries to be colonized by the British and was

important enough to have an office dedicated to it, the India Of-
fice, separate from the Colonial Office which dealt collectively
with all other British colonies. India was also one of the first
countries to gain independence from Britain after World War II,
and the path of professionalization there showed some interest-
ing features, falling between the processes of professionalization
in settler and non-settler post-colonial states. Today, India is the
largest secular democracy in the world and is becoming increas-
ingly important in economic terms.
During the colonial period, India was governed by Britain
with indigenous Indians having little input on how India was
governed. It was only after independence that Indians were able
to implement their own approaches to governance. Key develop-
ments in the creation of an indigenous institute occurred very
soon after independence. The ICAI was established in 1949, just
two years after independence. This early period of independence
(1949-1955) was an important time for the accounting profes-
sion in India. As a time period, this era also differs from other
studies in which professionalization has been examined in the
late 18th and early 19th centuries or in post-colonial states gain-
ing independence in the 1960s.
There has been one major study on the professionalization
of accounting in India, undertaken by Kapadia [1972]. This
study extends the work of Kapadia by analyzing the creation of
the ICAI using the theoretical framework proposed by McKin-
non [1986]. This approach places the analysis of the creation
of the ICAI within the professionalization accounting literature
and compares the process in India to that of other post-colonial
states.
The article is structured as follows. The theoretical frame-
work applied in this paper is discussed next, followed by an
outline of the creation of the ICAI. There then appears a discus-
sion of the political, economic, and social environments of India
at independence and an analysis of key events in the creation of
the ICAI in 1949. Its operations until 1955 within the context of
the theoretical framework are analyzed. We conclude by com-
paring the process of professionalization seen in India with that
of other post-colonial states.

THE THEORETICAL FRAMEWORK

McKinnon [1986] has proposed a theoretical framework
based on social systems theory for studying accounting change

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134 Accounting Historians Journal, December 2006

and development. Within this framework, the accounting system

is viewed as one of the social systems in the country of study,
neighbored by other social systems which affect and are affected
by that accounting system. What is important are not the techni-
cal outputs of the system but the interactions within the system
and between systems, the institutional environment surrounding
the system, and the authorities who formulate regulations and
influence the process of accounting change, both from within
the accounting system and from neighboring systems. All sys-
tems operate within the cultural and social context of the coun-
try, which affects both the interactions between different parts of
the accounting system and the interactions with its neighboring
systems. Explanations for change events are provided in terms
of four major aspects: intrusive events, intra-system activity,
trans-system activity, and the environment [Harrison and McKin-
non, 1986; McKinnon, 1986]. The framework, as applied in this
paper, is shown in Diagram 1.


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ˆÌÃʘiˆ} LœÀˆ˜}ÊÃÞÃÌi“Ã

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The source phase encompasses the factors or events caus-

ing change to occur. The diffusion phase looks at how change is
dispersed and accommodated within the system, and the reac-
tion phase chronicles how the accounting change is modified
subsequent to the diffusion phase. Both the diffusion and reac-

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nstitute of Chartered Accountants of India: The first steps in the development of an indigenous accountin

Verma and Gray: Institute of Chartered Accountants (India) 135

tion phases encompass intra-system activity, activity between

the different components of the accounting system, and trans-
system activity, activity between the accounting system and its
neighboring systems.
Intra-system activity involves interactions between regu-
latory authorities within the accounting system, including
government departments directly involved in the regulation of
accounting and professional accounting bodies. Trans-system
activity involves interactions between the accounting system and
its neighboring social systems. It is expected that in any country
the social systems that are most likely to affect the accounting
system are the political, legal, corporate, economic, financial,
and international systems. The political and legal systems and
parliament are assumed to exert important influences on the
accounting system primarily because accounting regulation in
most countries incorporates some elements of statutory regula-
tion. Corporate sector actors as preparers of accounting infor-
mation are involved in processes of accounting change and, as
such, also influence accounting systems. Accounting information
can be linked to economic decision making and performance
measurement; hence, economic and financial systems may also
influence accounting systems. Finally, international systems also
influence accounting systems as, for example, the influence of
one country over accounting systems in another through spheres
of influence [Parker, 1989] or with the influence of international
bodies such as the International Accounting Standards Board.
The political, economic, social, and/or environmental contexts
of the country affect all social systems and all phases of change
and, as such, also impact the accounting system.
In this paper, the theoretical framework is applied to the
creation of the ICAI in 1949 and to key issues in the first six
years of its operation. The paper focuses on the main regulatory
authorities within the accounting system and their interactions,
as well as interactions between the accounting system’s au-
thorities and interested parties from neighboring systems who
influenced the ICAI’s creation. McKinnon’s framework is used
to inform, guide, facilitate, and structure the research without
constraining the analysis of the relationships between key inter-
est groups involved in accounting change [Chua and Poullaos,
1993, 1998]. Furthermore, the paper explores the influence of
the socio-economic and political environments on the process of
change.
Data for the analysis of the creation of the ICAI come
from several sources: parliamentary reports and debates on

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136 Accounting Historians Journal, December 2006

the Charted Accountants Act, 1949; the Chartered Accountants

Amendment Act, 1955; the journal of the ICAI, the Chartered
Accountant, which has been published monthly since July 1952;
and secondary sources on the development of the ICAI. In addi-
tion, semi-structured interviews were undertaken in 1998 with
different parties interested in accounting in India. Interviewees
were asked about different accounting changes in India – what
led to the changes, the process of change, and the factors influ-
encing the change. The interviewees were not able to provide
direct information on the creation of the ICAI as access to indi-
viduals directly involved was no longer possible. However, the
interviewees were able to provide supporting information as to
the general processes of change in the country and the key par-
ties involved in the process, thus providing valuable support for
the archival data. Specifics of these data sources are detailed in
the primary sources section of the references.
In the next section, the process which led to the creation
of the ICAI and its operations to 1955 is outlined, followed by
a brief discussion of the socio-economic and political environ-
ments of India at independence.

THE CREATION OF THE ICAI

The creation of the ICAI can be broken down broadly into
two periods – the diffusion phase from 1930 to 1949 and the
initial reaction phase from 1949 to 1955. The earlier period cov-
ers the years leading to the foundation of the Institute while the
later period featured those events subsequent to its creation.
The ICAI was established in 1949, soon after independence,
by the Chartered Accountants Act, 1949. However, the process
can be traced back to an earlier time, in particular to the 1930s
when the Indian Accountancy Board (IAB), one of the main in-
stitutions involved in the birth of the ICAI, was itself born.
Auditors in India, known as registered accountants, had
been required to register with local governments since 1913. The
IAB was created in 1932 by the government of India using pow-
ers given to it under the Companies (Amendment) Bill, 1930.
The role of the IAB was to advise the governor general on all
matters of administration relating to accountancy and auditing
and to assist him in maintaining the standards of qualification
and conduct of persons enrolled on the register of accountants
[Companies (Amendment) Bill, 1930].
It was intended by the accountants on the IAB that the IAB
would, in time, develop into an autonomous accounting profes-

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nstitute of Chartered Accountants of India: The first steps in the development of an indigenous accountin

Verma and Gray: Institute of Chartered Accountants (India) 137

sion in India, very much along the lines of the British model
with an accounting profession independent of the government
and other interested parties, headed by an independent account-
ing institute run by elected members. This had not occurred by
the time of independence, and the first aim of the Indian ac-
countants was to implement this plan.
The Indian accountants on the IAB initiated the creation of
the ICAI through discussions with the Ministry of Commerce
(MC) regarding the possibility of setting up an accounting insti-
tute. The initial strategy was to establish an independent private
accounting institute run by an elected council of accountants
which, it was hoped, would have informal government backing.
However, very early on, this process came under the control of
the MC which was itself influenced by the Ministry of Finance
(MF). What emerged was a very different institutional structure
than that envisaged by the IAB. The ICAI was eventually given a
parliamentary charter and was operationalized under the Char-
tered Accountants Act, 1949 [The Chartered Accountants Act,
1949; Indian parliamentary debates on the Chartered Account­
ants Bill 1948, April 1949; Kapadia, 1972].
The ICAI was born within six months of the Chartered Ac-
countants Act becoming law in May 1949. The council of the
ICAI was staffed with elected representatives from the member-
ship plus nominated representatives from the government, both
the MC and the MF, as well as from chambers of commerce rep-
resenting the corporate sector. The council held its first meeting
on November 15, 1949, and elected G.P. Kapadia, an important
figure in the creation of the ICAI, as its first president.
The ICAI gained some authority from its statutory basis
and government backing. However, it still needed to persuade
the government and the wider community of its expertise and
credentials in accounting. In particular, it wanted to demon-
strate to the government and wider interest groups that the ICAI
was indeed the leader of a “reputable profession” with strong
procedures and processes and which regulated its members
­effectively. The reasons for this desire were two-fold: first, the
ICAI sought to pre-empt any undue interference by the govern-
ment in their affairs and, second, it wanted to prevent the devel-
opment of rival professional accounting organizations.
The ICAI did this by seeking to establish a strong, compe-
tent secretariat and to develop processes to deal with examina-
tions, education, professional ethics, and discipline. In doing so,
the Indian professional institute was able to control entrance
into the newly formed organization, to implement its own edu-

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138 Accounting Historians Journal, December 2006

cational and training requirements using internally controlled

professional examinations and articleship requirements, and
to begin the articulation of ethical rules. In practice, there was
little interference from the government and others outside the
Institute in these matters. In adopting these practices, the ICAI
modeled itself very much on the British design, that of a pri-
vate-sector professional body setting its own examinations and
training regulations, but without adopting British accounting
qualifications directly.
Throughout the period, there were both formal and social
interactions between the ICAI and the government. For example,
government officials were represented on the council of the ICAI
and were invited to attend key functions. On the whole, there
was support for the ICAI. The government expected the ICAI
to create a strong, semi-independent, and ethical accounting
profession. The corporate sector and other parties interested in
accounting supported the ICAI with only a few issues needing to
be resolved. The first of these was the issue of mutual recogni-
tion and reciprocity, discussed below. The second was the cre-
ation of a second professional accounting institute, the Indian
Institute of Cost and Works Accountants, which is outside the
scope of this paper [Indian parliamentary debates on Chartered
Accountants Bill 1948, April 1949; editorials, Chartered Account­
ant, 1952-1960; Indian parliamentary debates on Chartered Ac-
countants Amendment Bill 1955, April 1955].

THE POLITICAL, ECONOMIC, AND SOCIAL

ENVIRONMENTS OF INDIA AT INDEPENDENCE
India gained independence from the British in 1947 after a
long colonial period. The economy inherited by India at inde-
pendence was in a very poor state, predominantly due to British
imperial policies. During the period of colonization, the econo-
my of India had been run mainly in the interests of Britain. For
example, it was British policy that India produce raw materials
and foodstuffs which were exported to Britain while British
manufactured goods, fashioned from these same raw materials,
were in turn exported back to India. This import/export policy
was very much in the interests of British entrepreneurs. In addi-
tion, much of the economic surplus generated by India had been


References for the discussion that follows are Panikkar, 1964; Spear, 1978;
Kumar, 1982; Kulke and Rothermund, 1990; Jalan, 1992; Rothermund, 1993;
Brass, 1994; Brown, 1994; Joshi and Little, 1994; Dreze and Sen, 1996.

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Verma and Gray: Institute of Chartered Accountants (India) 139

exported back to Britain or spent on British administration and

the British army. India was left with a predominantly agrarian
economy using low-productivity methods with little use of fertil-
izers and irrigation to improve output.
Foreign capital, especially British firms, dominated industry
in India, either directly through ownership or indirectly through
managing agencies. Some Indian family-based companies such
as the Tata group ran successful businesses, for example in iron
and steel, but these were insignificant in comparison to Brit-
ish-run companies. At independence, what little Indian industry
there was produced low-technology, low-productivity, low-wage,
and labor-intensive goods, concentrated in only a few selected
industrial sectors such as textiles. There was little production
of capital goods and a lack of infrastructure industries, mod-
ern banking, and insurance. Overall, India’s economy was very
underdeveloped with low per-capita income, poor economic
growth, prevalent poverty, and little industrialization. In ad-
dition, India also had to deal with problems arising from the
partition of India into India and Pakistan. A large and violent
migration of people between the two new nation states created a
large number of refugees.
India also inherited some advantages at independence, in-
cluding both tangible and intangible assets. Numbered among
tangible assets were a national transport system, some develop-
ment projects (such as food growing and irrigation projects),
and some reserves of foreign exchange. Intangible assets in-
cluded an established political party, the Congress Party, which
had gained much experience while opposing the British rule of
India; an attitude of monetary and fiscal conservatism; and an
administrative apparatus to run the institutions in India after
independence.
The problems outlined above were initially tackled by the
Congress Party led by Jawaharlal Nehru, a western-educated,
Fabian socialist who held strong beliefs on economic develop-
ment, social welfare, and foreign affairs, and who dominated
the political landscape of India until his death in 1964. Many
political, economic, and financial institutions and systems were
implemented in this period. The political system adopted by In-
dia at independence was similar to that seen in Britain in many
ways with a cabinet-style government led by a prime minister
and supported by a strong civil service. India chose a federal
structure and a system of parliamentary democracy in which
there was both centralized and regional government. Responsi-
bility for economic and social planning, trade and commerce,

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140 Accounting Historians Journal, December 2006

commercial and industrial monopolies, and trade unions was

shared between central and local government.
Despite his Marxist tendencies, Nehru did not lead India
towards communism. Instead, he introduced a mixed economy
in which there was a role for both private and public enterprise
and in which socialist ideals were operated within a secular
democracy. The key elements of the economic system that were
implemented soon after independence included central planning
of the economy, the development of a large public sector, control
and licensing of private enterprise, price control within the pri-
vate sector, the use of import substituting policies, the introduc-
tion of a predominantly public financial sector with nationalized
banking and insurance, state control of foreign investment, pro-
tective tariffs, and prohibition of imports. These were all enacted
using legislation promulgated by Parliament and governmental
resolutions and ordinances.
Social reform also took place under Nehru with the outlaw-
ing of untouchability, the introduction of quotas for ex-untouch-
ables in government services, and the passing of laws improving
the rights of women in the Hindu Succession Act (1955) and
the Hindu Marriage Act (1956). The Hindu Succession Act gave
women equal rights with men in the matter of succession to
property, while the Hindu Marriage Act provided women protec-
tion and rights in marriage and divorce. Once again much of the
social reform took place through legislative means with strong
involvement by government bodies.
Despite initial optimism for strong economic growth and
rapid social reform in the early 1950s, India started to face many
economic problems from the late 1950s onwards. For instance,
there was deterioration in the balance of payments which led to
India’s needing foreign aid, which was explicitly included for the
first time in the third five-year plan.
The period 1949 to 1955 was an important time for eco-
nomic and social development in India. It is in this time period
that the ICAI was created.

ANALYSIS OF THE CREATION OF THE ICAI USING

THE THEORETICAL FRAMEWORK
The analysis of the creation of the ICAI using McKinnon’s
framework focuses on four main issues: the state-professional
axis in determining the structure of the ICAI, credentialism and
the importance of the designation “chartered,” disciplinary pro-
cedures of the ICAI, and mutual recognition and reciprocity.

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nstitute of Chartered Accountants of India: The first steps in the development of an indigenous accountin

Verma and Gray: Institute of Chartered Accountants (India) 141

THE STATE-PROFESSIONAL AXIS IN DETERMINING THE

STRUCTURE OF THE ICAI
The Source Phase: The cause for the early creation of the ICAI
in 1949 can be traced to events in the period before indepen-
dence. The ideal of an autonomous and independent accounting
profession had been inherited from the colonial period, and
the groundwork for an independent profession, based on the
U.K. model, had been put in place with the creation of the IAB
in 1932. The IAB had been set up to advise the government on
all issues relating to accounting and auditing, including the
registration of Indian auditors, and continued in existence until
1949. Initially the members were nominated and represented
senior British and Indian accountants; later the IAB contained
both nominated and elected members.
The intention of the Indian members of the IAB was to
develop an indigenous accounting profession headed by an in-
dependent institute, but such a structure had not emerged at in-
dependence. The Indian members of the IAB wished to establish
an accounting profession based on the U.K. model soon after
independence. This vision had been discussed with the govern-
ment representatives on the IAB with a view to gaining their
support for the professional institute.
One of the main reasons that persuaded the government to
support the development of an accounting profession came from
outside the accounting system. There was the perception in the
government that accounting was an important tool for economic
development [Report of the Company Law Committee, 1952]. In
particular, some of the key aims of the government at indepen-
dence were rapid economic growth, together with social devel-
opment leading to a fairer distribution of wealth. The perception
held at this time was that accounting could help facilitate both
these aims by allowing for the provision of comparable informa-
tion across the corporate sector, facilitating decision making.
It was also thought that the provision of information within
the accounting system might help encourage the private sector
to act in ways congruent to the government’s aims, and that a
stronger audit framework would help monitor the actions of
directors and perhaps curb abuses within the corporate sector.
Finally, it was also assumed that accounting might also provide
information for national economic planning purposes [Report
of the Parliamentary Committee on the Chartered Accountants
Bill, 1948; Report of the Company Law Committee, 1952; Report
of the Company Law Amendment Committee, 1957].

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142 Accounting Historians Journal, December 2006

The Indian accountants on the IAB were therefore seen as

instrumental in changing the accounting system, but it was clear
that they would not be able to do this without the authorization
and approval of the government. The MC, in particular, had to
be persuaded by the IAB that an accounting profession was im-
portant. The government became supportive of the accounting
profession due to the social and economic concerns of the time.

The Diffusion Phase: During the diffusion phase, intra-system

activity between the Indian members of the IAB and the MC,
and trans-system activity between the Indian members of the
IAB and the MF, influenced the formation of the ICAI and its
structure. The Indian accountants on the IAB at independence
argued strongly for an independent, autonomous accounting
institute and profession, very much along the lines of the Insti-
tute of Chartered Accountants in England and Wales (ICAEW)
in the U.K. [Kapadia, 1972; Chakravorty, 1994; interviews with
senior representatives of the accounting profession]. The senior
accountants on the IAB discussed this with the MC representa-
tives on the IAB, but no immediate action was taken. The MC
representatives were more cautious about the creation of a com-
pletely independent accounting institute and decided to consider
carefully the question of an accounting institute and what form
this institute should take if considered appropriate.
The members of the IAB continued to argue their case to
members of Parliament, government ministers, and government
officials and, in 1948, persuaded the MC to agree to the creation
of an institute to head the Indian accounting profession. Al-
though the British model would have been preferred by the In-
dian accountants, the MC was not amenable. The MC proposed
a quite different institutional framework, an accounting institute
set up under statutory legislation promulgated by Parliament,
with government and corporate sector representation on the
council heading the institute. The British accounting model was
seen as inappropriate in the social and political environment of
India at this time. Strong government involvement characterized
all areas of political, economic, and social life. Corporate regula-
tion, economic planning, and social affairs were all subject to
ordinances, statutes, and involvement of government bodies. As
a consequence, an independent profession was not a possibility
at this juncture in India. The British model, wherein practicing
accountants band together and evolve into an accounting pro-
fession headed by an institute through a variety of closure tech-
niques, was not on the cards. Instead, the ICAI was established

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Verma and Gray: Institute of Chartered Accountants (India) 143

by statutory legislation with government involvement in both

the process of formation of the ICAI and in the ICAI itself.
In 1948, the MC prepared a memorandum on a scheme
for an autonomous association of accountants in India and
requested feedback on its ideas. In particular, it solicited opin-
ion on a proposed name for the institute and whether foreign
qualifications should be recognized [Kapadia, 1972]. The MC
also required the IAB to set up an expert committee to review
the proposed scheme. The MC set the terms of reference for the
expert committee and required the committee to be subject to
its approval. The terms of reference were to embody the tenta-
tive scheme for an autonomous association of accountants and
to indicate whether the institute could be set up by amendments
to existing laws or whether new legislation was necessary. The
expert committee was formed on May 1, 1948 by the IAB and
approved by the MC on May 13, 1948.
During its review of the MC’s proposals for the creation of
the accounting profession, the expert committee of the IAB con-
ducted a detailed study of the constitutions of foreign account-
ing associations and accountants outside India. In particular, it
studied the workings of the ICAEW in the U.K. and the Society
of Certified Public Accountants of New York. It was also in fre-
quent contact with the MC on the proposals it was considering
so as to discuss proposals before they became finalized [editori-
als, Chartered Accountant, 1952-1960; Kapadia, 1972; interviews
with senior representatives of the accounting profession].
The IAB’s expert committee submitted its report on the
autonomy scheme proposed by the MC together with a draft of
possible legislation in July 1948. The main recommendations in-
cluded that a professional accounting institute, called the ICAI,
should be set up by a special act of Parliament, the Chartered
Accountants Act. The members of the institute would initially be
Indian registered accountants, renamed chartered accountants.
The role of the ICAI would be to set examinations for ICAI mem-
bership, regulate the training of its members, regulate certifi-
cates of practice given to its members, and exercise disciplinary
procedures over its members. The affairs of the ICAI would be
managed by the council consisting of 15 elected representatives,
one nominated representative of the corporate sector, and three
nominated representatives of central government. The council
of the ICAI and the accounting profession would be completely
autonomous, free from control from the central government,
except in a small number of matters which would be agreed and
specified in the Chartered Accountants Act.

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144 Accounting Historians Journal, December 2006

During this period, the Indian accountants tried to restrict

outside involvement in the institute and tried to minimize the
perceived adverse effects of the institutional form that had been
imposed on them. Their aim was to retain as much control over
the admission, educational, and disciplinary requirements of
accountants as was possible in the socio-economic and politi-
cal climate of India at this time. For example, they obtained an
informal agreement that governmental involvement in the new
institute would be kept to a minimum and that is was not the
government’s intention to be involved in its daily operations.
In this period, there were two main areas of contention and
debate – the use of the designation “chartered,” and the issue of
reciprocity and mutual recognition. Both issues were resolved
through intra-system activity between the MC and the Indian
accountants on the IAB. The former was settled in the diffu-
sion phase and the latter, straddling the diffusion and reaction
phases, was finally resolved in the reaction phase.
Once the expert committee had reported, the MC reviewed
the report of the expert committee and approved its recom-
mendations to form an accounting institute, the ICAI, headed
by a council run by elected members but with governmental
representation as well. The MC then prepared a circular on the
proposals to set up the ICAI which it distributed to all govern-
ment departments. At this stage, trans-system activity played
an important role in the processes of the proposed accounting
institute. The MF, unhappy with the disciplinary procedures of
the institute with respect to taxation matters and interactions
between the Central Bureau of Direct Taxes (CBDT) within the
MF and Indian accountants on the IAB, significantly altered the
disciplinary procedures of the proposed institute. Once this is-
sue had been resolved, the Chartered Accountants Act, 1949 was
promulgated through the parliamentary system and the ICAI
was formed.
Once established, the authority of the ICAI was not com-
pletely reliant on its own status and reputation which it devel-
oped over a period of time using a variety of strategies to gain a
monopoly over competing, would-be accounting organizations.
The authority of the ICAI and the accounting profession came,
in some part, from statutory authority and governmental back-
ing with approval given to an accounting system more akin to
that of some European countries [Bocqueraz 2001; Ramirez,
2001]. Thus, although not an intended outcome, the accounting
profession ultimately gained some credibility through the direct
involvement of the government. The Indian accountants had to

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Verma and Gray: Institute of Chartered Accountants (India) 145

accept this intrusion and revise their initial professionalization

strategy. They had to work with the MC’s proposals in order to
try to minimize the government’s involvement as far as possible
[Kapadia, 1972; interviews with senior representatives of the ac-
counting profession].

CREDENTIALISM AND THE IMPORTANCE OF

THE DESIGNATION “CHARTERED”
The name of the institute was determined by intra-system
activity in the diffusion phase, by interactions between the Indi-
an members of the IAB and the MC. The IAB had suggested that
the name of the institute might be “The Institute of Chartered
Accountants of India.” The MC was concerned about using the
name “chartered accountant.” It argued that this might cause
some problems with the British accounting profession since the
name might be deemed to be too similar to that of the ICAEW
in the U.K. In particular, after consultation with the Ministry of
Justice (MJ), the MC argued that the term “charter” had become
associated with a British royal charter and, thus, should not be
used by the IAB for the proposed institute. In addition, some
Indian accountants who had travelled to the U.K. and qualified
with the ICAEW raised some objections to the use of the term
“chartered accountant.” These accountants argued that this
might cause some confusion in the corporate sector as to the in-
stitute with which accountants had qualified. The British quali-
fied accountants wished to be distinguished from accountants
qualified in India as they expected that they would have higher
status and gain more work than Indian qualified accountants
[Indian parliamentary debates on the Chartered Accountants
Bill 1948, April 1949; Kapadia, 1972; interviews with senior rep-
resentatives of the accounting profession].
The IAB was able to argue successfully that the name “In-
stitute of Chartered Accountants of India” was appropriate and
that no confusion would arise with this name [Kapadia, 1972].
The name was of great importance to the IAB due to the percep-
tion of quality, prestige, and status that had become associated
with the term during the colonial period as well as the prefer-
ence for audit work accorded to chartered accountants in this
period. Any other term in the IAB’s opinion would signal a low-
er-status profession and was, thus, undesirable. At the request
of the IAB, the MC obtained further advice from the MJ, which
advised that the proposed accounting institute be set up under
a parliamentary charter. Thus, the MC was finally persuaded

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146 Accounting Historians Journal, December 2006

that the name of the proposed institute could be the “Institute of

Chartered Accountants of India” and the issue was resolved.

DISCIPLINARY PROCEDURES
An important role for the proposed ICAI was disciplinary.
The expert committee’s report proposed that this was to be
undertaken internally by a disciplinary committee. The CBDT
within the MF raised objections to the proposal. It was unhappy
that the ICAI should have complete autonomy to conduct dis-
ciplinary proceedings with regards to income tax matters and
argued that it would be too much to expect a relatively new
profession to deal with issues such as vested interests and inde-
pendence. Indeed, other professions with much older traditions
and histories than the accounting profession (e.g., the legal
profession) were not self-regulating but instead were controlled
by the courts. In addition, investigation of cases of professional
misconduct in income tax matters by the Council of the ICAI
might involve confidential information about assesses which
was not desirable and contrary to the Income Tax Act, 1922 [In-
dian parliamentary debates on the Chartered Accountants Bill
1948, April 1949; Kapadia, 1972].
The CBDT argued in favor of tightening control over the ac-
counting and auditing profession. Specifically, it suggested that
the list of persons prevented from being chartered accountants
should be expanded to include anyone who had been dismissed
from public service and anyone upon whom a final order of pen-
alty had been imposed under the income tax laws. The Bureau
also argued that the definition and scope of audit needed to be
more tightly defined so that auditor negligence could be more
easily determined, that auditors of private companies should
possess the same qualifications as auditors of public companies,
and that the involvement of accountants in cases of under pay-
ment of tax should be classed as gross negligence [Indian parlia-
mentary debates on the Chartered Accountants Bill 1948, April
1949; Kapadia, 1972].
The IAB were particularly concerned about the MF’s objec-
tions. It wanted as independent an institute as possible which
would deal with all disciplinary proceedings and tax-related is-
sues on its own. The IAB defended its proposals arguing that au-
tonomy was important for the profession and that government
involvement in professional misconduct matters would seri-
ously affect the standing and reputation of the profession. It also
raised the issue that the MF had informally agreed previously to

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Verma and Gray: Institute of Chartered Accountants (India) 147

an autonomous profession and suggested that the Ministry was

now being unreasonable by withdrawing its agreement. Finally,
it argued that other accounting professions in the world had
similar powers to that proposed for the Indian institute by the
IAB. Particular reference was made to the accounting profes-
sions in the U.K. and U.S. [Indian parliamentary debates on the
Chartered Accountants Bill 1948, April 1949; Kapadia, 1972].
The MC considered the viewpoints of both the IAB and the
MF before drafting the Chartered Accountants Bill. This bill
included most of the recommendations made by the IAB’s expert
committee with the exception of its recommendations on the
disciplinary process. On this issue, the MC initially accepted
the MF’s suggestions and gave the CBDT and the MF powers to
deal with disciplinary matters relating to income tax [Kapadia,
1972].
The Chartered Accountants Bill was introduced into Parlia-
ment on September 1, 1948, and was referred to a select com-
mittee for review on February 1, 1949. The IAB was unhappy
with the disciplinary provisions in the Chartered Accountants
Bill as it considered that the proposals would undermine the
independence and autonomy of the accounting profession and
the institute. The provisions also indicated a lack of trust in the
accounting profession which would be detrimental to the inter-
ests of the accounting profession [Indian parliamentary debates
on the Chartered Accountants Bill 1948, April 1949; Kapadia,
1972]. Thus, there was direct conflict between the IAB and the
MF. The IAB considered control over disciplinary matters by the
MF to be unacceptable, while the MF thought that ICAI control
over income tax cases to be inappropriate.
Meetings were held between Kapadia, a senior member of
the expert committee of the IAB and later the first president of
the ICAI, the Minister of Commerce, and the CBDT to try and
resolve the conflict. Initially, these meetings were not successful.
It appeared that the bill might not be promulgated since agree-
ment could not be reached on the disciplinary issue. However,
the negotiations continued outside of the formal parliamen-
tary system when Kapadia met with the Finance Minister and a
compromise was reached [Kapadia, 1972]. The institute would
be given powers to deal with all disciplinary issues through its
disciplinary committee. However, the disciplinary process would
be monitored by government representatives on the council of
the institute. In addition, all disciplinary proceedings relating to
income tax matters and other public interest matters would be
subject to approval of the high courts which would be empow-

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148 Accounting Historians Journal, December 2006

ered to alter any penalties imposed by the institute [Kapadia,

1972]. The IAB was not happy with this compromise but ac-
cepted that it was probably the best that it could hope to achieve
at this point in time.
The importance of informal interactions in the determina-
tion of the outcome of the professionalization project ultimately
proved to be more important than the formal interaction be-
tween interested parties within the parliamentary system. The
importance of the interaction between the government and the
IAB was also crucial in determining the outcome of accounting
change and the development of the accounting profession in
India. In this case, two different government departments influ-
enced the process of accounting change.

MUTUAL RECOGNITION AND RECIPROCITY

The issue of mutual recognition and reciprocity was seen
to be important in both the diffusion and reaction phases of the
creation of the ICAI.

The Diffusion Phase: In the diffusion phase, the Indian ac-

countants on the IAB were keen that the proposed ICAI should
be recognized by the ICAEW and other foreign professional
accounting bodies on a mutual recognition basis. The MC was
keen for the ICAI to continue to recognize foreign professional
accounting bodies, in particular the ICAEW without any condi-
tions attached to this recognition. At first the expert committee
proposed that members of foreign accounting institutes would
only be recognized by the Indian institute if members of the
ICAI were recognized on a reciprocal basis. The MC put pres-
sure on the expert committee to include provisions to recognize
foreign qualified accountants, in particular British chartered
accountants, with no reciprocity requirement. The MC perceived
this as important for their relationship with the U.K. authorities,
in particular with the Board of Trade [Kapadia, 1972]. The Indi-
an members of the ICAI rather reluctantly included recog­nition
provisions in their scheme which did not specifically require
mutual recognition and reciprocity. However, they also included
a provision that the ICAI would recognize accountants with for-
eign qualifications but typically on a reciprocal basis. This was
acceptable to the MC at this stage.

The Reaction Phase: In the reaction phase, the issue of mutual

recognition and reciprocity became important once again. The

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Verma and Gray: Institute of Chartered Accountants (India) 149

ICAI initially asked the MC for help in negotiations with U.K.

authorities concerning ICAI recognition. In response, the MC
initiated discussions with the British authorities on the issue of
reciprocity. However, it was not successful and the ICAI was not
given mutual recognition status. While accountants qualified
with the ICAI were given practicing rights in the U.K., this fell
far short of the mutual recognition desired. At this stage, the
ICAI wished to withdraw recognition of professional accounting
bodies that did not recognize it. The MC was concerned since
it perceived that its interests and negotiation position on other
issues might be impaired if goodwill with the U.K. authorities
was lost over the reciprocity issue. It therefore put pressure on
the ICAI to continue to recognize British professional account-
ing bodies and their qualifications both at meetings of the ICAI
council and in written letters directed to the council [Indian par-
liamentary debates on the Chartered Accountants Amendment
Bill 1955, April 1955; Kapadia, 1972].
The ICAI did eventually succumb to this pressure, but it did
not do so totally. The ICAI proposed issuing regulations on reci-
procity, which would allow the recognition of foreign qualifica-
tions, but only conditionally. These included a requirement that
the foreign qualified accountant must be resident in India, that
recognition would be for five years, that the accountant would
not be allowed to vote for or become a member of the ICAI
council, and that recognition would usually be accorded only if
recognition was reciprocal [Kapadia, 1972].
This was a compromise between the ICAI’s and the govern-
ment’s positions. Many members of the ICAI, including council
members, felt that they had given in to the government by allow-
ing foreign accountants to be recognized without a reciprocal
arrangement. However, they also recognized that the govern-
ment did have power to regulate the ICAI under the Chartered
Accountants Act and that the government had indicated that it
would override the ICAI if necessary. Hence, the ICAI accepted
that it had little choice in bowing to the will of the government
since its position might have been weakened further had the
government insisted on full recognition of U.K. qualifications
with no reciprocal measures at all [Indian parliamentary debates
on the Chartered Accountants Amendment Bill 1955, April 1955;
Kapadia, 1972].
Despite the actions of the ICAI, the government was not
happy with the reciprocity provisions. In 1955, it amended the
Chartered Accountants Act and, contrary to the wishes of the
ICAI, the government took the power to specify foreign account-

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150 Accounting Historians Journal, December 2006

ing qualifications acceptable in India [Indian parliamentary

debates on the Chartered Accountants Amendment Bill 1955,
April 1955; Kapadia, 1972]. In the reaction phase, the ICAI was
given some autonomy to carry out its activities, but the govern-
ment proved itself to be more influential than the ICAI on issues
which it considered important.
The reaction phase is indicative of the power relationship
within the state-professional axis in India. On unimportant
­issues, such as operational structure, the government let the
ICAI progress with little interference. However, on any issue
which had wider implications, such as relations with the U.K.,
the government acted quickly and unequivocally to force its will
on the ICAI even if previous legislation had to be amended to
achieve this.

DISCUSSION
Recent work on the professionalization of accounting in­
dicates that there are many different trajectories possible and
that the outcomes of professionalization projects are varied
[Walker, 2004]. It has also been noted that there are particular
differences between the professionalization processes in British
settler and non–settler colonies post-independence [Chua and
Poullaos, 1993, 1998, 2002; Annisette, 2000, 2003].
In broad terms, settler states with dominion rights have
seen the development of rival professional accounting bodies
which have entered into a variety of inclusionary and exclusion-
ary closure strategies at different periods of time. The process
of professionalization has involved both local and metropolitan
agencies. What has generally resulted has been the development
of local accounting bodies following the British model. However,
exact replication of the British model is not in evidence. Instead,
a variety of professional structures have developed in different
states [Chua and Poullaos, 1993, 1998].
Studies of professionalization have been undertaken in non-
settler states where independence was gained in the 1960s and
professional accounting institutes were formed in the 1960s and
1970s. While different professional outcomes have occurred in
these non-settler states, some commonalities remain. These in-
clude the use of legislation in supporting the accounting profes-
sion, local professions developing only post-independence, the
use of Association of Certified Chartered Accountants (ACCA)
qualifications, the importance of both formal and informal in-
teractions, and issues of race and imperialism within the profes-

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Verma and Gray: Institute of Chartered Accountants (India) 151

sionalization process [Annisette, 2000, 2003; Uche, 2002: Bakre,

2005a, b; Sian, 2006].
India is an interesting case since it falls somewhere between
the two identified groupings. The professionalization project
in India started before independence with the British Govern-
ment looking to create job opportunities for Indians. The British
Government, deciding that accountancy was an “appropriate”
profession for Indians, established qualifications to allow Indian
accountants to become registered accountants and to undertake
audit work [Companies Amendment Act, 1930]. This is in direct
contrast to the treatment of the indigenous population in other
non-settler states before independence where accountancy was
not deemed suitable for the local population and professional-
ization only commenced post-independence [Annisette 2000,
2003; Sian, 2006].
As in other colonial states, the U.K. chartered accountancy
profession was held up as the ideal professional organization,
the best professional model under colonial rule to which ­Indian
accountants could aspire. That an accounting institute was
set up so quickly after independence may be ascribed to the
­existence of an Indian accounting profession which revered the
British model. However, this model was not adopted in India
since it was not congruent with the socio-economic and political
environments at independence when most social and economic
reform was taking place with government involvement and the
wide use of statutory legislation and governmental ordinances.
Models of professionalization are unlikely to be successful if
they are not congruent with the socio-economic and political
environment of the country.
The state-professional axis was crucial on the path of pro-
fessionalization with the ICAI established by statute and with
governmental membership on the ICAI’s council and involved
in its disciplinary procedures. The state took early control of the
professionalization process; intra-governmental activity influ-
enced the structure of the ICAI. To some extent, the MC allowed
the ICAI to operate with the autonomy it desired, but only when
the interests of the Ministry were not impacted, as illustrated
by the mutual recognition dispute. Throughout the process of
establishing the ICAI, informal interactions between key parties
were important, a pattern observed in other professionalization
studies [Uche, 2002; Sian, 2006].


The exception is Kenya, a settler colony with more similarities to non-settler
states than other settler states.

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152 Accounting Historians Journal, December 2006

Credentialism was an important issue for the Indians on the

IAB, as for all other professionalization projects, both in settler
and non-settler states. The designation “chartered” was adopted
after debate with the MC in consultation with the MJ due to the
signals of status and quality attached to the term.
British qualifications were not adopted, and ACCA qualifi­
cations were not recognized in India. This route to becoming an
accountant was therefore not available in India [Companies Act,
1956] in contrast to other non-settler states [Annisette, 2000,
2003; Uche, 2002, Bakre, 2005a, b; Sian, 2006]. Instead, the ICAI
council chose to set up its own exams, disciplinary procedures,
and code of ethics and did not choose to use British accounting
qualifications directly. However, the examination structures were
similar to those of the British chartered accountancy profession,
indicating the continuance of the imperial influence on the ICAI
post-independence. Ideals and practices which had come to be
accepted as superior in the colonial period continued to be re-
garded as superior post-independence.

CONCLUSION
In this paper, the theoretical framework proposed by Mc­
Kinnon [1986] has been applied to the creation of the ICAI in
1949. The framework appears to be useful in analyzing instances
of accounting change in India, in this case in the development of
the ICAI post-independence. The analysis of this change to the
accounting system into source, diffusion, and reaction phases
appears to be useful as different issues and concerns and dif-
ferent interested parties affect the process differently at differ-
ent stages of change. McKinnon’s framework recognizes the
importance of the social, political, and economic environments
on accounting and links accounting to other social systems. This
is confirmed, in this case, by the taxation system affecting the
structure of the ICAI in relation to its disciplinary procedures.
The analysis of intra-system and trans-system activity also ap-
pears to facilitate the analysis of interactions between different
parties interested in the accounting system.
However, the framework does have some limitations. The
model is complex and the identification of the diffusion and re-
action phases may not always be straightforward. Exactly when
one phase ends and another begins is not always clear. In reality,
the reaction phase may include some events which themselves
could be studied as independent changes. There may be some
overlap between the phases. Furthermore, the reaction phase

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Verma and Gray: Institute of Chartered Accountants (India) 153

of one event may become part of the source or diffusion phase

of another event. In addition, not all changes will feature all
three phases and all types of activity. Nevertheless, for purposes
of structuring the analysis, the split into diffusion and reaction
phases and the analysis of intra and trans-system activity appear
to be useful in this study as is the centrality of the social, politi-
cal, and economic environments on the creation of the ICAI.
This paper presents one episode in the development of the
accounting profession in post-independence India. Further
research is needed on the professionalization of accounting in
India, both pre and post-independence. Particular issues that
need addressing in the pre-independence period include the
development of the local accounting profession under colonial
rule, the impact and influence of local and imperial agencies on
the trajectory of professionalization, and an exploration of the
differences and commonalities between the process of profes-
sionalization in India and other colonial states. Within the post-
colonial period, the study of further episodes in the development
of the Indian accounting profession to explore the trajectory of
professionalization in this period would be useful. Particular
episodes that need to be analyzed include interactions with the
Indian Institute of Cost and Works Accountants, standard set-
ting by the ICAI, accounting regulation within the companies
acts, and taxation standards.

REFERENCES

Primary Sources:
Indian parliamentary legislation, reports, and debates reviewed:
Companies (Amendment) Bill, 1930
Report of the Parliamentary Committee on the Chartered Accountants Bill, 1948
Indian parliamentary debates on the Chartered Accountants Bill, 1948
Chartered Accountants Act, 1949
Report of the Company Law Committee, 1952
Indian parliamentary debates on the Chartered Accountants (Amendment) Bill,
1955
Companies Act, 1956
Report of the Company Law Amendment Committee, 1957

Summary of Interviewees:
three representatives from multinational companies in India
three representatives from Indian companies
three representatives of stock exchanges (two from stock exchanges and one
from the Securities and Exchange Board of India)
one representative from an international accounting firm
two representatives from Indian accounting firms (also, former presidents of the
ICAI)

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154 Accounting Historians Journal, December 2006

34 representatives of the Indian accounting institutes (two from the ICAI, one
from the ICWAI, and one from the ICSI)
two Indian academics
two representatives from the Department of Company Affairs
one representative from the tax authorities

Secondary Sources:
Abbott, A. (1988), The System of Professions (Chicago: University of Chicago
Press).
Annisette, M. (1999), “Importing Accounting: The Case of Trinidad and Tobago,”
Accounting, Business & Financial History, Vol. 9, No. 1: 103-133.
Annisette, M. (2000), “Imperialism and the Professions: The Education and
­Certification of Accountants in Trinidad and Tobago,” Accounting, Organiza­
tions and Society, Vol. 25, No. 7: 631-659.
Annisette, M. (2003), “The Colour of Accountancy: Examining the Salience of
Race in a Professionalisation Project,” Accounting, Organizations and Soci­
ety, Vol. 28, No. 7/8: 639-674.
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