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Vol
3, Issue No.9, September 2003 |
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| The
Department of Company Affairs (DCA) and the Institute of Chartered
Accountants of India (ICAI) are studying the activities of multinational
accounting firm (MAF) in India to see if they have violated any
laws of country. In order to educate the public, the government
and other establishment about the true character of the MAFs who
are mis-characterized as superior to Indian Chartered Accountancy
Firm, CAAC had held conventions in over 30 location across the
country. It has also prepared white paper on MAFs. While the government
had given a cooling period of 5 to 10 years for all major industries
before opening them to global competition, the accounting professional
was left to fend for itself, that too with out level playing field.
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| Corporate governance should not stifle wealth creation in a business, disclosures should be only to an extent that they don't blunt the business edge of a corporation, and good corporate governance cannot be mandated or legislated, were the messages sent across to the business and investor community at a seminar organised by the Confederation of Indian Industry (CII). Infosys Technologies’ founder chairman Mr. NR Narayana Murthy pointed out the need to bring in a set of strong independent directors on company boards who can stand against the management on issue of corporate governance. Securities
and Exchange Board of India (SEBI) Chairman G. N. Bajpai said
that disclosures and interventions could not be legislated. He
added that corporate governance rating would be a good step towards
providing better corporate governance. He said the approach for
rules on corporate governance should be on substance, and not
on form. Mr. Bajpai also called for a dynamic approach to laws
and regulations.
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The Companies (Amendment) Bill 2003 will have to undergo a lot of changes before it is enacted by the Parliament. Eminent industry leaders and accounting experts have suggested significant changes to be made in the Bill, especially on the issue of the appointment of independent directors and auditors. The Bill in the current form was debated upon at the seminar organised by the Confederation of Indian Industry (CII). Speakers at the debate included experts in the Company Law like YH Malegam, who is also the chairman of the SEBI committee on accounting standards and co-chairman of Doloitte Haskins & Sells. Mr. Malegam also called for changes to be made in sections on preference capital, distribution of dividend and distribution of bonus out of revaluation reserve. He cautioned that discussion of future prospects by a company in its annual report under management discussion and analysis could be subject to a lot of abuse. Department
of Company Affairs (DCA) Joint Secretary Mr. Rajiv Mehrishi
said that the bulk of the Bills was similar to the 1997 Bill
which had been in the public domain for long. He told delegates
that DCA was open to all the provisions of the Bill. He added
that the Bill should be a deterrent to unfair business practitioners.
He assured that it would be the endeavor of the DCA to plug
the loopholes to the extent possible.
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Facing oppositions from companies, the Department of Company Affairs (DCA) might go slow on reserving seats for women on Company Board. "Since, some sections are opposing the proposal it will be difficult for us to convince lawmakers said the DCA officials. Industry chambers have objected to the provision for a women's quota. The Bill provides for inclusion of women on company board with the aim of giving them greater representations. Company law should not be used to achieve social objectives: a Federation for the Indian Chamber of Commerce and Industry report said. The
department is also planning to raise the sitting fees of directors
to at least twice the present level Rs. 5,000. A notification
to this effect will be issued shortly. It will also exempt certain
professionals from undergoing prescribed training for independent
director. The matter of providing a cooling off period for employees
taking up audit assignment and approval of shareholders for transferring
shares would also be taken up. The department however will push
for prohibition of multi-layered subsidiaries and limiting investment
through one agency to keep a check on the sources of funds. Officials
said a parent company could have as much subsidiaries as it wanted,
only grandchildren would not be allowed. |
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It was not easy for hawks in the Central Council of the Institute of Chartered Accountants of India to clinch the decision on mandatory rotation of the auditors in listed companies. The result of the vote on the issue early this week reveals those favoring auditors rotation won the day with a wafer thin margin. According to ICAI sources there was a vertical split in the 29 member central council, which includes 6 government nominees. There were three absentees including Shri G C Shrivastava, joint Secretary in the revenue department, Rajiv Mehrishi, Joint secretary in the department of Company Affairs. A dozen members voted against the rotation of auditors and lost by a single vote. At least two past presidents of ICAI as well as present president R Bupathy and vice president Sunil Goyal were against the proposal of mandatory auditor’s rotation, the sources said. Three members from auditors firm, domestic affiliates of the big four, also did not favour the motion. The Council decided in favour of rotation. That applies to listed companies, plus those in which the public is substantially interested; but the decision is subject to the opinion of ICAI’s members – to be got via referendum. The referendum will also ascertain the opinion on whether, if rotation of auditors finds favour, it can be coupled with the system of joint auditors. The ICAI is also seeking the opinion of the members on the aspect of making the “joint auditor system a mandatory feature in listed companies along with rotation of audit firms”. The questionnaire to the members would take care of all possible alternatives relating to the two main issues – joint auditor system and rotation of audit firms,” Mr Bupathy, President of the ICAI said. A joint auditor system is a system where every listed entity would have two independent audit firms appointed as statutory auditors. The two firms usually act as a check on each other and take turns in auditing the different functional areas of a company. The Council
also gave their nod for revision in the guidance note on book
profit tax (Section 115JB of IT Act).
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The Department of Company Affairs (DCA) is in a quandary over the issue of notifying the Institute of Chartered Accounts of India’s (ICAI) Accounting Standards (AS) 1 to 23 as the specified standards that should be adopted under the Companies Act, 1956. “We are going slow on this even though the National Advisory Committee on Accounting Standards (NACAS) had recommended the notification of Accounting Standards (AS) 1-23 of ICAI. In the process of notification, we should not end up adding to the problem,” Mr. Rajiv Mehrishi, Joint Secretary in the Department of Company Affairs (DCA), said. Speaking at the National Accounting Convention organized by the Associated Chambers of Commerce and Industry of India (Assocham), Mr. Mehrishi pointed out that the DCA has realized that the Accounting Standards of ICAI would have to be read with the interpretations issued by the Institute. So far, ICAI has issued six interpretations, which are legally binding. “Our problem is how to handle the interpretations. If we are merely going to notify As 1-23 as standards that are specified under Companies Act, then the companies tomorrow may claim that they need not adhere to the ICAI’s interpretations. We have to figure out a way so that there are no overlaps or confusion,” he said. (Source:
Business Line, July 30, 2003)
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The ICAI central council decision on mandatory rotation of audit firms cannot be binding on corporates although auditors flouting the institute’s diktal, if at all it is approved by all members, could face disciplinary action. The disciplinary action could be as severe as being debarred to practice for a few years or even a CA/firm’s name being struck off the register of members. The provision for mandatory rotation of the auditors would need to be incorporated into the Companies Act, 1956, for it to be binding on companies, listed or otherwise. As yet, there is no provision in the Act that requires companies to change its auditors every few years and there is no such clause in the Amendment Bill introduced in the Rajya Sabha last session. And opposition to the provisions of the Amendment Bill is any indication, the Department of Company Affairs (DCA) would be unwilling to incorporate any fresh provisions on rotation of the audit firms. For the record, although the Naresh Chandra Committee on corporate governance and auditor-company relationship had recommended rotation of partners of an audit firm responsible for audit of listed companies every five years, the DCA has not included it in the Bill.
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| © 2001 Academy of Corporate Governance |
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