Great expectations

Given the initial press release by the government about the directions and the thrust of the now finalised Companies Bill, it is clear that potentially this has the ability to become the most significant piece of corporate legislation in the past few decades. From what is evident, there has been a structured thought process; targeted towards rationalisation of processes; clear separation of procedural non-compliances from substantive issues; leveraging and extending the Ministry’s highly successful e-enablement endeavours of MCA-21, for empowering corporate stakeholders.

Of particular interest would be the efforts to spark investor activism and enable investors to take part in “class action suits”. Companies, the legal systems of the country and investors would have to mature overnight in this brave new world.

From early indications, the profession of independent valuers will receive a great fillip. Right from valuation of non-cash considerations for allotment of shares to fair valuations in case of business combinations, and valuations of property, plant and equipment, intangibles, as well as off Balance Sheet assets and liabilities - valuers would play a most critical role. The valuation profession would have to step up to the plate as corporate India looks set to be entering the subjective world of fair valuation. Uniform valuation standards and oversight would be required, but above all, the country would need many more valuation professionals.

It is a bit of a let down that early pronouncements , while talking in somewhat great detail about the convergence/adoption of international best practices on trade law and valuation frameworks, skirts the issue of convergence of global accounting and auditing frameworks. There have been statements on recognition, of both auditing and accounting standards. This seems to indicate that the Act may still retain the right, to prescribe through subordinate legislation, the accounting framework. This falls short of the MCA’s self declared position of converging to IFRS by 2011. However, pending availability of the entire Act the jury is still out on this one.

Preliminary indication of procedural de-bottlenecking, like speeding up the incorporation process, removal of limits in the number of partners of professional firms, and providing a single forum for approval of all mergers and acquisitions were overdue and are welcome. But, as with most such good intentions, final judgement would await actual execution. The challenge is whether the mind sets and skill sets of the officials implementing these can be changed overnight.

When discussions on this Act begun a couple of years back, there was great focus on reducing the size of the Act and the number of sections. The temptation to achieve this by liberal use of the “as may be prescribed” phrase appears great. This would leave the door open for proliferation of rules and regulations and frequent amendments therein. If this happens, very soon we are going to land back again in a web of complexity which the present Act wants to undo.

For the first time in recent memory, initial news of the provisions in the new Act have sounded the right notes and raised great expectations. We hope we shall not be let down.


This article appeared in the 08 September 2008 edition of Business Standard, which is available at this link.

Nostradamus of the accounting world

Prescience or the ability to see into the future is a gift sparingly given to humans. It is a mixed blessing, for such people are often inadequately recognised in life. Pesi Narielvala was the only such person I was privileged to personally witness up close. A philosopher among accountants, an orator par excellence, his vision was astounding. He realised, for accounting to become a universal language, it must be codified. Single-handedly, he started the technical directorate of the Institute of Chartered Accountants (ICAI), dictating landmark professional standards such as the Guidance Note on Expenditure during Construction. This was way back in 1970, when the International Accounting Standards Board, the US Financial Accounting Standard Board and our own Accounting Standards Board were yet to be formed. The framework for Special Reports and Certificates developed by him is the only framework that even today Indian accountants rely on when issuing a certificate or even an examination report for an IPO.

At a time when it was unheard of, Pesi in his capacity as President of ICAI was instrumental in forming the Accounting Standards Board. In fact, he stood up to great opposition by the chambers of commerce and the industry to the basic concepts of standardisation. Today, when the industry and regulators have finally acknowledged the importance of standards, their justified grouses have not been heeded by anybody apart from Pesi who recognised these issues and stood by the industry despite their initial opposition towards him. In ICAI’s journal some time back, Pesi justified industries unrest regarding the accounting profession treating industries as “soft targets” while promulgating standards, but doing lesser than what it should have to “sell” these standards to the tax authorities, regulators and other groups, whose attitude towards standards compounded industries problems in implementation. Pesi was convinced that professional excellence had to receive primacy over ICAI’s tendency to seek equal distribution of work amongst its members. Not a popular view, but one which will survive the test of time. He was apprehensive about the rate of growth in the availability of information not matching with our capacity to develop applications to make meaningful use of it.

He often remarked that the complete change of mindset that technological advances warranted was not adequately evidenced since “one may change ones mind several times a day but one is fortunate to possess the wisdom to change ones mindset even once in a lifetime”. On the archaic issue of prohibition of advertising by accounting professionals, Pesi was confident that ultimately the need for the consumer to know the product he was buying would triumph. As recent amendments indicate this is actually materialising.

A keen supporter of globalisation, Pesi was convinced that it entailed giving up narrow sectoral and nationalistic concepts of sovereignty. He argued that when we could converge on standards of aviation, nutrition and environment what was so sacrosanct about accounting and auditing that we felt insecure about adopting international standards. Further, he prophesied that mere convergence of accounting would not work and would be a disaster if it was not accompanied by a convergence of interpretations, performance standards, and monitoring standards. In fact, counter intuitively he argued that convergence of knowledge standards - where highest quality of standards are known and practiced by professionals,- would not help, unless there was convergence of standards of understanding among the stakeholders and lay users.

Always a student, Pesi was a rank holder in the examinations of economics and law of Calcutta University in the 1940s and the English Institute of Chartered Accountants. At the age of eighty plus he took up and mastered IFRS, the new body of professional standards and in one of his last public appearances captivated the audience at a chamber of commerce with his technical insights thereon.

His prescience was legendary, in the 1980s he singled out a freshman speaker at a conference and said “you will go a long way in the profession”, 10 years later that person became the youngest in history to head a major accounting profession in the world. A person of strict discipline- he would complete reading all his daily papers, fold them and place them in the dustbin before half past ten in the morning, - on the August 8, he called his secretary of the past three decades in the morning and made her write down how he would like to divide some of his possessions among all his attendants and loyal helpers who had been with him over the years. At the end of this before he sat down to lunch, he said to her, “Anne, now I can die in peace”. He did so, — in the night, — after dinner.

This article appeared in the 01 September 2008 edition of Business Standard, which is available at this link.