Ethical Issues In Accounting And Corporate Governance-B.V.Raghunandan

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Ethical Issues in Accounting & Corporate Governance -B.V.Raghunandan, SVS College, Bantwal National Conference, St.Aloysius College, Mangalore March 19, 2010

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Tracing the sources of accounting scandal and suggesting a blue print for the radical changes that should be incorporated in the regulatory framework in India

Transcript of Ethical Issues In Accounting And Corporate Governance-B.V.Raghunandan

Page 1: Ethical Issues In Accounting And Corporate Governance-B.V.Raghunandan

Ethical Issues in Accounting & Corporate Governance

-B.V.Raghunandan, SVS College, Bantwal

National Conference,

St.Aloysius College, Mangalore

March 19, 2010

Page 2: Ethical Issues In Accounting And Corporate Governance-B.V.Raghunandan

Ethical Issues

• Narrow Approach-Protection of Shareholders’ Interests

• Protection is proved to be a myth time and again

• Failure of All the Agencies and Bodies

• Quite a lot of academic discussion

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Corporate Governors

• Promoters• Managers• Independent Directors• Other Directors• Rating Agencies• Stock Exchange• SEBI• Ministry of Finance• Auditors & ICAI

Page 4: Ethical Issues In Accounting And Corporate Governance-B.V.Raghunandan

Promoters and Managers

• The main adversaries against shareholders’ interests

• Powers to appoint auditors, rating agency etc

• Manipulates the accounts under the guidance of the auditors

• Misguided for achieving short-term goals

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Independent Directors & Other Directors

• Both SEBI and Ministry of Finance are fighting over the issue of number of independent directors rather than their role

• Many a time, related indirectly to promoters and managers, hence having a vested interest

• Denied access to sensitive financial information

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Rating Agencies• Depends upon the promoter for

engagement

• Existence of multiple credit agency gives the promoters and managers to go shopping for the desired rating

• Band wagon mentality (even after a scam breaks out, they continue to recommend the security of the company for investment)

• Claim ‘no access to extra information’

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Stock Exchange

• Clause 49 of Listing Agreement

• Trading in the securities in the market is its main concern

• Evinced no interest in financial reporting

• Inspite of demutualisation, no serious efforts are made even in stock price manipulation

• It leaves every matter of corporate governance to SEBI

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Securities & Exchange Board of India

• More concerned with day-to day management

• Concentration is on securities trading in the stock market

• Lacks wisdom and works against the interest of the investors

• Should have a wing to scrutinise the financial reporting

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Ministry of Finance

• Like any other Ministry

• Locking the gates after the horses are stolen

• Inefficient and procedure-ridden

• Subject to political lobbying

• Shifting the blame to other regulatory agencies

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Legal Framework

• Clause 49 of Listing Agreement

• Companies Act

• SEBI Act

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Possibility of Total Failure

• All the Regulations can be defeated

• International Accounting Firms are experts in violation

• Bandwagon Mentality• No Foolproof Method of

Evaluation• Even cash can be

manipulated

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The Auditors• Depends upon the

Management to be appointed

• Guides the Management in Manipulation

• Acts against the interest of the shareholders

• PriceWaterHouse Cooper performs the role of thief and a policeman simultaneously

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Nature of Accounting Standards

• Ever-changing

• Deliberately made complex

• Scope for creative accounting

• Monopoly of ICAI in spite of NACAS

• Vested interest of the members

• Enforcers and Violators are the same entity

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Agenda for Clause 49

• Role of Independent Directors

• Government identifying and preparing a database of independent Directors without any vested interest

• Independent Directors should be vested with the powers of appointing the Auditors

• Expanding the role of independent directors in financial reporting

• Academicians with accounting knowledge as independent directors

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Agenda for Accounting Standards

• Based on the assumption that accounting is a passive function and not an active one

• Should be fairly fixed for a long period of time

• NACAS should be made powerful

• CAs should be barred from being members of NACAS

• Academicians with no vested interest can be made members of NACAS

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Agenda for Accounting Profession

• Monopoly of CA for accounting and auditing must be done away with

• Members of ICWAI, ICSI and ICFAI must be eligible to audit the accounts

• Post-Graduation in Business Administration and Commerce with dedicated accounting and auditing knowledge should create accounting and auditing professionals

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THANK YOU