ethical issues in accounting and corporate governance-b.v.raghunandan
DESCRIPTION
Tracing the sources of accounting scandal and suggesting a blue print for the radical changes that should be incorporated in the regulatory framework in IndiaTRANSCRIPT
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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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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
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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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