issue 2 year 2013 issue date- 30th sept. 2013 from p. d’s...
TRANSCRIPT
It’s a great pleasure for me to present the Second Issue of the RTI Newsletter for September 2013. There are some developments that has taken place after publication of last issue are worth mentioning. . During the six month we conducted 25 courses on non-EDP side and 15 courses on EDP side. Though all Non-EDP and EDP trainings were highly appreciated by trainees among non –EDP courses, courses like Audit of PPP Projects, Awareness of ISSAI’s, Au-dit Evidence, Audit Reporting, Com-
munication & Motivation, All India Workshop on Facilitation skills, All India workshop on corporate govern-ance, All India Training Programme on Development skills were all time hit. On EDP side Courses like EDP training for newly promoted MTS, IT Audit, All India Training on DBA ac-tivities, All India training on Training for Trainers in IDEA were highly ap-preciated by trainees. In addition to these trainings we had mid-term RAC meeting to re-view the training process of this RTI. Training performance of RTI was dis-cussed during the RAC meeting and RAC members appreciated our ef-forts in training.
Abdul Rauf
Principal Director
From P. D’s Desk
Issue Date- 30th Sept. 2013 Issue 2 Year 2013
Indian Audit & Accounts DepartmentIndian Audit & Accounts DepartmentIndian Audit & Accounts Department
Regional Training Institute, MumbaiRegional Training Institute, MumbaiRegional Training Institute, Mumbai
NewsletterNewsletterNewsletter
Our Mission :-
To organize and
conduct training courses in strategic skills in general sub-jects relating to audit including Corporate F i n a n c e /Governance, Munici-pal Audit.
To impart requisite
knowledge and skills in information tech-nology to enable audit of information systems and to pro-vide essential EDP skills.
To act as a develop-
ment centre for courses / course-ware for delivery of these courses in In–house training units and training centres.
Inside this issue:-
Courses we conducted/Photo Gallery 2
An Article on Corporate Governance 3-5
Crossword 6
Contact Us :- GN Block, Plot No. C-2, Bandra Kurla Complex, Behind Asian Heart Institute, Mumbai - 400051 Ph-022-26521902, Fax-022-26522627
A life spent making mistakes is not only more honorable but more useful than a
life spent doing nothing.
George Bernard Shaw
Page No.
2
Courses we conducted during the 6 months
General Courses :-
1. Accounting and Auditing Standards &
Analysis of Financial Statements including
IFRS
2. Schedule VI Major Changes
3. Writing of Annual Performance Assess-
ment Report (APAR)
4. Audit of PPP Projects
5. Regulations on Audit & Accounts
6. Awareness of ISSAIs (Three courses)
7. Audit Evidence (Three courses)
8. Audit Reporting (Three Courses)
9. Statistical Sampling in Audit
10. Preparation and Conduct of DPC Meeting
and maintenance and Implementation of
Rosters
11. Internal Control and Internal Audit
12. Induction course for AAOs/AOs
13. Communication and Motivation
14. Preparation and Certification of Finance
Additional / Special Trainings Seminars
1. All India Training on DBA activities of VLC Oracle 11g (Two courses)
2. All India training programme on Training for Trainers in IDEA
3. As per Hqtrs directions 2 days programme on Performance Audit was arranged at RTI,
Mumbai on behalf of National Institute of Financial Management (NIFM), Delhi for the
officers of SAI, Nepal
4. A Half day seminar on Working in Harmony was conducted for the Officers and Staff of
RTI, Mumbai
Accounts and Appropriation Accounts
15. All India Workshop on Facilitation Skills
16. All India Training Programme on Cor-
porate Governance
17. All India Training Programme on Devel-
opment of Management Skills
IT Trainings :-
1. MS Word
2. Special course in EDP for newly re-
cruited MTS
3. MS Excel (Two courses)
4. IT Audit (Level 1a) (MS Word & Excel)
(Three courses)
5. MS Office (Word, Excel, Power point)
6. IDEA (Two courses)
7. IT Audit (Level 1b) (Concept of IT Au-
diting)
8. MS Access
PHOTO GALLERY
Training for SAI Nepal Officers Oracle DBA Training
Oracle DBA Training
Corporate Governance
Train the Trainers
Train the Trainers
SAI Nepal-Performance Audit
3
Introduction
The idea of 'Corporate Governance'
has been gaining currency over recent
times. In India, the New Companies
Bill, 2013 contains provisions which
emphasise on Corporate Governance
as never before. Some of these are -
increase in the number of directors,
provision for resident directors, de-
lineation of the term 'Key Managerial
Personnel' and independent directors
in the statute, expressly specified du-
ties of directors, statutory provisions
on Nomination and Remuneration
committee and norms for Audit Com-
mittee. If we have to understand the
reasons for its increasing influence in
modern times, we may do well to
study its genesis and evolution from a
historical and socio-economic per-
spective. The term 'Corporate Governance' sig-
nifies that it is applicable to
'Corporates' and that it is a system of
'governance'. The dictionary meaning
of 'governance' is 'to rule', 'to control',
'to direct' or 'to influence something'.
'Corporate Governance' is a set of ei-
ther recommendatory (guiding) or
mandatory (legally established) prin-
ciples, which would ensure that the
affairs of a 'corporate' body are car-
ried out in the best interests of all its
stakeholders. The term 'Corporate' is
explained in the following paragraphs.
Pre-Industrial era ethics
Till the dawn of the Industrial Revolu-
tion, most economic activities were
run by self-sustained proprietary enti-
ties, largely based on agriculture (with
a landlord as the proprietor and culti-
vators as his workforce) and a minor-
ity engaged in businesses (artisans
and traders). All these activities were
mostly hereditary and hence there was
a job for everyone and there was a
person for every job. There was inher-
ent specialisation and assured employ-
ment. There was always enough for
meeting everyone's needs. Needs were
limited. Greed was practically un-
known. Contentment was the order of
the day, leading to inherent ethical
standards, as there was no necessity
for aspiring for anything beyond
what was already available and thus
no need for competition. Social clans and trade guilds were
built along the lines of occupation.
The concept of family honour and
reputation of these individual clans
or guilds and their individual mem-
bers was built around their excel-
lence in their respective occupations.
The zeal to ensure this reputation
reflected in their value addition to
the society. Thus, there was an in-
built system of work ethics which
facilitated commitment and responsi-
bility.
The Industrial Revolution
With the Industrial Revolution, soci-
ety saw a sea-change. Traditional
occupations were zealously replaced
by assembly-line production on ma-
chines. Focus shifted from agricul-
ture to industry. Artisans lost their
relevance, as mills would produce
standardised output in a day of what
they could produce in a month. New
medicines evolved which banished
old world diseases, improved lon-
gevity, reduced death rates and
thereby increased population. There
was a large pool of unemployed la-
bour, which was soon absorbed into
the ever-growing industries. As with all other novel ideas, all this
was mistakenly considered as a
panacea for all ills and that it would
lead to a land of milk and honey.
Demand grew with population and
with the temptations of novel goods
available in plenty. The satiation of
needs was replaced by increasing
desires and greed for pleasure. Ava-
rice replaced legitimate ambition.
With this, work ethics also changed.
There was less of commitment and
responsibility and more influence of
the lure of profits. The only factor
that would counter-balance this was
market competition as the forces of
demand and conspicuous consump-
tion could be curtailed only by the
sword of rising prices. The old pro-
prietary or guild system of govern-
ance could no longer sustain this
(Continued on page 4)
Corporate Governance
4
onslaught. In this competitive environment, initially,
large-scale exploitative industrialists gained
the upper hand, while smaller businesses
could not survive. There was a commensu-
rate rise in banking and credit systems. Due
to growth in business, the necessity of draw-
ing credit grew. But, due to volatility, de-
faults became common. Defaults were costly
for businessmen, as not only were their busi-
nesses at stake, but also their personal for-
tunes would be attached by lenders in case
of default. The need arose for smaller businesses to
consolidate. This led to the emergence of a
new form of business entity, known as a
'corporate' entity. The distinguishing feature
of 'corporate' entity was that it had a separate
legal status from its proprietors. The provi-
sion for attachment of personal property of
businessmen owning these entities, for meet-
ing the liabilities of these entities was lim-
ited to only the businessmen's stake or funds
invested in the entity and not to their entire
personal wealth. This was called 'limited
liability' as opposed to the 'unlimited liabil-
ity' of proprietary firms. Laws had to be framed to accord recognition
to this new concept, under which 'corporates'
would be 'born' as soon as they were regis-
tered or 'incorporated' under the relevant
laws. Examples of corporates are companies,
co-operative societies and such other regis-
tered bodies. This provided balanced market
competition, which acted as a bulwark
against domination by a few exploitative
groups and restored order and a sense of re-
lief for entrepreneurs. However, this brought
with it a fresh set of problems.
Corporate Control
Without the fear of loss of personal property
in the event of business default, entrepre-
neurs became over-enthusiastic. They started
resorting to unethical practices to stem com-
petition. Over-trading and over-exploitation
of resources and profiteering by promoters/
directors/ major share-holders at the cost of
other stakeholders became the norm, which
soon caught the attention of law-making au-
thorities. A need was felt to impose restric-
tions and controls on business practices, for
transparency in accounting and management
and representation of all stakeholders. With rampant growth, stakeholders were no
longer just the businessmen and creditors.
The state had an interest in tax revenues from
these large businesses. Employees' groups
emerged to protect employees' interests. Con-
sumer activism grew to protect consumer inter-
ests. Large sections of the general public had
also developed an investment culture by invest-
ing in shares, debentures and other securities of
companies. Thus, it increasingly became the
state's responsibility to ensure the credibility of
its entire economic system by preventing unethi-
cal and uncontrolled activities of corporate enti-
ties. Corporate activities by now formed the larg-
est chunk of economic activities of any state. All over the world, restrictive and regressive
laws were framed to restrict and control activities
of managements of corporates to conform to
strict standards, such as industrial licensing, la-
bour laws, consumer protection laws, environ-
ment protection legislation, revenue legislation,
tariffs (e.g. : -tariffs for insurance in India), pro-
duction quotas (in communist economies) and
control procedures (Controller of Capital Issues
in Indian capital market), etc. Powerful agencies
were established under each law with nearly di-
rect investigative and punitive powers. Some
countries even briefly toyed with the idea of
'nationalising' all businesses (irrespective of
whether they were core areas of priority for gov-
ernment functions or not), inspired by the short-
lived ideas of socialism and its extremist version,
communism. This phase was also characterised by growing
scale and complexities of business operations,
growing population, creation of new agencies
and intermediaries in goods and service deliver-
ies for employing this population, rise of interna-
tional trade, rise of information technology and
over-taking of the industrial sector by service
sector. These were areas of new challenges. Governments could no longer afford to impose
direct stringent control or restrictions over corpo-
rate activities. The degree of complexities which
both mundane and important activities have de-
veloped is evident from the following examples. In ancient times, a brave Greek soldier called
Pheidippides is said to have run over 40kms.
from Marathon to Athens to deliver the message
that the Greeks had defeated the Persians in bat-
tle. He then lost his life due to sheer exhaustion,
after this 'marathon' effort. This was an example
of a hard-working, but simple, direct and dedi-
cated method of doing work. . In modern times,
probably a similarly placed messenger would
prefer to send a video of the Greeks winning the
battle over a Chinese-made mobile, running on
Indian software, with the help of mobile towers
made of metal from Africa and technology de-
Continued on page 5)
5
veloped in the US, technology which the user
would barely even understand, let alone control. Another example is that of TDS returns in In-
dia. A government office used to file paper
TDS returns manually directly with the Tax
department and issue deduction certificates.
Now, the computerised returns have to be filed
with an agency called NSDL at a cost and TDS
certificates have to be generated online from
another agency called TRACES.
This reflects the multiplicity of agencies, the
complexity and the wide-spread and uncontrol-
lable nature of modern business. In a way, all
this has become necessary to accommodate
economic wants of an ever-growing population
guzzling more and more resources in a quest for
more and more personal and selfish comforts,
irrespective of the ethical effects. With such
tendencies becoming all ‑ pervading, govern-
ments across the world realised that these obvi-
ous changes were irreversible. Direct stringent
controls would not only not work anymore, but
also, on the contrary, depress genuine business,
discourage enterprise, reduce efficiency and
give scope for authoritarian and corrupt re-
gimes. This would result in a most undesirable
situation. Only the market mechanism which
would force prices beyond the reach of ever-
demanding customers would impose austerity
and operate to ultimately curb such tendencies.
Corporate Governance for free and fair
competition
Ultimately, the benefits of free competition and
market determined economic system were re-
discovered. What was required was only the
addition of the idea of 'fair' competition as well
to make it 'free and fair' competition. The gov-
ernment now only needed to facilitate and guide
the functioning of corporates by establishing
codes of governance and ensuring their imple-
mentation and not to smother business or artifi-
cially stifle competition by imposing restric-
tions and interference. Thus, was born the idea of modern 'corporate
governance' whereby the system of regulatory
agencies without direct intervention (e.g.: -
IRDA, SEBI in India) was emphasised upon.
Corporate Governance implied strengthening
and broad-basing internal management and con-
trols, encouraging voluntary compliance and
self-regulation by corporates. Government
would step in only by imposing penalties on
defaulting entities. For this, internal non-
governmental framework of checks and bal-
ances would be created, rather than imposing
Government licensing or the Government
perennially investigating entities directly for
compliance of laws. Corporate Governance codes give all stake-
holders a sense of security that the business
practices of the corporates are credible, fair,
transparent and in the best interests of all
stakeholders, the society and economy at
large. In India, during various periods of
time, both when direct government controls
operated and when these were relaxed, de-
tailed provisions were introduced in statutes
and rules and regulations thereunder, as given
below. These were to ensure promoters'/ di-
rectors' stake and responsibilities and partici-
pation in the business, internal control sys-
tems, independent directors, representatives
of minority shareholders, creditors and differ-
ent classes of shareholders, government
nominees on the governing bodies of corpo-
rates, such as Board of Directors of compa-
nies, etc. Management responsibilities were
also tightened by including provisions for
directors' remuneration and Directors' respon-
sibility statement on accounts. Independent
Audit, formats for detailed auditors' report
and opinion on true and fair view presented by
accounts and provisions for audit committees
were introduced. Attendance of directors in
board meetings, quorum, etc., thereby ensur-
ing participative management, was enforced
by laying down legal provisions. Limitations
on number of directorships in Companies,
etc. were imposed for ensuring competence,
focus and commitment in corporate manage-
ment. Submission (manual and later elec-
tronic) of returns on various aspects of corpo-
rate functioning were introduced. The profes-
sion of Company Secretaryship was given
statutory recognition. Secretarial Standards
and compliance procedures are also now be-
ing implemented as part of corporate govern-
ance. Facilities like allowing payment of divi-
dends were linked to prudent provision of
depreciation, thereby encouring voluntary
compliance. Clause 49 of SEBI’s listing
agreement lays down corporate governance
norms. As and when loopholes are observed, such as
the ‘Satyam” scam of the recent past, new
measures are being put in place to plug these.
Thus, Corporate Governance is a dynamic
and evolving concept, which need to keep
track of changes in the business environment.
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F inance Crossword
Across 2. The month of an option or futures contract that has
the latest delivery date
3. A stock index
7. A debt instrument
8. A Capital Budgeting Technique.
11. US law to tighten corporate reporting
12. A Financial Statement
Down 1. Difference between buying and selling price of a
security
2. The value printed on the security document.
4. A person or company who buys book debts from
another person or company
5. The lender of last resort for the Government.
6. Gift by will
9. Level of a company's net debt compared with its
equity capital.
13. A charge that discourages withdrawals by investors
before maturity
14. A demand by a company to shareholders to pay a
further instalment on partly paid shares.
RAC Meeting