Question

What risk management strategies might an Accounting Firm employ in the country of India in which you plan to expand?

Answer 1

The Accounting firm, in its plan to expand into India, can employ several strategies toward its Risk Management. A structured plan re the same is as below.

• Strategic Risk ---- One major risk would be regarding the assessment of the market potential vis-à-vis the Growth and competition prospects in India. India is a vast, highly populous and fast changing land with an intense concentration of Accounting/Audit/Consultancy firms with all big players already being well established for a while. The scope and prospect for a new entrant needs to be carefully examined/ascertained as any probable withdrawal or exit can come at a substantial loss of money and reputation.

It is thus important that a proper feasibility study gets undertaken, deploying experts with relevant knowledge and skills before any commitment gets made.

• Operational Risk ---- The Profitability from operations and the management approach/control aspects might well be substantially different from a typically western climate.

A thorough Profitability projection and analysis should be made and carefully vetted before investments get put in.

Further, the management style/attitude and general work culture of employees should be carefully monitored to mitigate operational risks arising therefrom.

• Compliance Risk --- India is governed by a complex and elaborate set of laws and regulations which might differ from where the Firm’s HO is based. The firm would be at a serious legal/compliance risk if not taken due care re this and adopted suitable expertise to mitigate, if not avoid the same.

An local professional firm can be hired and due plans/structures can be discussed with them to ensure the compliance get duly taken care of. Even when the firm would become operational in India, a legal cell or a legal firm on a retainer-ship basis should form a part of the set-up to take care of this risk.

• Financial Risk --- Elements as fast changing cost structure, inflation, tax rate changes, changes in the regulatory framework, collection/cashflow problems etc can pose a threat to the profitability, asset-worth or liquidity of operations.

A proper prior assessment of all such features alongwith a distinct plan to address the potential risk would be important to deal with this.

• Reputation Risk ----- The required standards, market expectations and local aspirations of the new country will have to met. Any failure thereto can cause, apart from anything else, a loss of reputation which understandably has been earned by the firm over years of work.