Even before the dust has settled on the Enron-Andersen fiasco, we have the accounting misdeeds of WorldCom, Merck and Xerox in line. Can this happen in India? The idea is not as far-fetched as it might first seem. Readers are invited to write in with their views on the issue.
Gautam Chikermane
THE REVERBERATIONS of the accounting misdeeds of US companies have reached Indian shores. Even before the dust has settled on the Enron-Andersen fiasco, a series of new financial earthquakes, with their epicentres in the US, have begun to wreak havoc on international investors–WorldCom, which overstated profits to the tune of $4 billion; Merck, which did not account for $12 billion worth of sales; and Xerox, which claims it bribed Indian officials to get government contracts. The sheer scale of daring makes the Harshad Mehtas, the C.R. Bhansalis and the Ketan Parekhs look like petty pickpockets. Scams involving banks, stocks and allied regulators, RBI and Sebi seem like a waste of time, when so much more can be done by simply cooking the books.
Can this happen in India? Well, the idea is not as far-fetched as it might first seem. There are two institutions that participate in the publishing of balance sheets–the company’s management and its auditors. Once the balance sheet has been signed by the management, it is presented to all shareholders, and regulators like the Department of Company Affairs or Sebi (Securities and Exchange Board of India). The corruption of numbers, therefore, can be done by two sets of people–the management and the auditors. That is bad enough; what makes it worse is the ignorance of the regulators and the investors.
Opinion in Outlook Money
Showing posts with label accounting profession. Show all posts
Showing posts with label accounting profession. Show all posts
Saturday, June 15, 2002
Monday, April 15, 2002
'We are watchdogs, not bloodhounds': ICAI president
Pointing out fraud is for the regulators. Our job is to give them the information. What they do with it is their business.
Gautam Chikermane
When Ashok Chandak took charge as president of the Institute of Chartered Accountants of India (ICAI) on 5 February 2002, his role, it seemed, was cut out. A month into being in office (on March 8), against the backdrop of the dubious role of Andersen, the Enron auditors, in the US energy giant’s debacle, he passed his first resolution, which stated that an accounting firm cannot charge a company higher fees for consulting than for auditing its accounts. As head of the first accountants body to do so in the world, Chandak has caught the post-Enron-and-the-resultant-clean-up bus running. In an interview with Gautam Chikermane, Chandak touches upon the various aspects of regulating accountants. Scalded by criticism of the ICAI’s regulatory role (See 'Make accountants accountable'), Chandak began the interview on the front foot. Excerpts:
Do you think the accounting profession is accountable?
In the past 50 years, we have had the best self-regulatory mechanism–1,650 cases have been sent to the high court, an equal number would have been punished by the institute. The total number of cases considered: more than 10,000. Now, you tell me how many have been found guilty in other self-regulated organisations. I would say that we have the best record of regulation in the country. Besides, you should not look at statistics alone. You should consider the quality of regulation.
Why then are aspersions being cast on the profession today? Why is it felt that accountants are not accountable?
You say that auditors don’t do their jobs. Fine. Can you give me just 10 audit reports where the various regulators who get these reports (Registrar of Companies, Income Tax authorities, banks, RBI, Sebi or the stock exchanges) have taken action on the basis of the auditor’s qualifications? You won’t be able to do that because nobody takes these reports seriously. We are not regulators–and we don’t want to be regulators.
Interview in Outlook Money
Gautam Chikermane
When Ashok Chandak took charge as president of the Institute of Chartered Accountants of India (ICAI) on 5 February 2002, his role, it seemed, was cut out. A month into being in office (on March 8), against the backdrop of the dubious role of Andersen, the Enron auditors, in the US energy giant’s debacle, he passed his first resolution, which stated that an accounting firm cannot charge a company higher fees for consulting than for auditing its accounts. As head of the first accountants body to do so in the world, Chandak has caught the post-Enron-and-the-resultant-clean-up bus running. In an interview with Gautam Chikermane, Chandak touches upon the various aspects of regulating accountants. Scalded by criticism of the ICAI’s regulatory role (See 'Make accountants accountable'), Chandak began the interview on the front foot. Excerpts:
Do you think the accounting profession is accountable?
In the past 50 years, we have had the best self-regulatory mechanism–1,650 cases have been sent to the high court, an equal number would have been punished by the institute. The total number of cases considered: more than 10,000. Now, you tell me how many have been found guilty in other self-regulated organisations. I would say that we have the best record of regulation in the country. Besides, you should not look at statistics alone. You should consider the quality of regulation.
Why then are aspersions being cast on the profession today? Why is it felt that accountants are not accountable?
You say that auditors don’t do their jobs. Fine. Can you give me just 10 audit reports where the various regulators who get these reports (Registrar of Companies, Income Tax authorities, banks, RBI, Sebi or the stock exchanges) have taken action on the basis of the auditor’s qualifications? You won’t be able to do that because nobody takes these reports seriously. We are not regulators–and we don’t want to be regulators.
Interview in Outlook Money
Friday, March 15, 2002
Make accountants accountable
The checks and balances that govern the accountants' working are not enforced with any rigour.
Gautam Chikermane
AT RS 50,000 crore, the most valuable company on the Indian stock exchanges is Hindustan Lever. About 2.5 million of its shares are traded every day. There are 131 mutual funds–investing on behalf of hundreds of thousands of investors–that hold this company, of which 111 have it among their top 10 holdings. Together, they have invested almost Rs 2,000 crore in the company. This is aside from over Rs 10,000 crore other investors have invested. Why? Because this MNC has been among the best companies in India. Why do I say that? Consistently good performance– over the past 10 years, its sales have grown at 22 per cent and net profits at 34 per cent per annum. Who says so? The company’s accountants, A.F. Ferguson and Lovelock & Lewes. As a financial journalist, it’s my job to study the balance sheets and profit and loss statements of companies. When I pore over an annual report, I assume that the accountants who have passed the accounts written by the company have checked the numbers, tallied them and presented them so that an investor can make an informed decision to buy or sell the stock; lenders can decide whether the company has the capacity to pay back; and tax authorities can see whether it has paid the taxes due.
But what if Lever’s accountants were wrong? Worse, what if they had been conniving with the management to deliberately misinform, say, by overstating profits so that the share price did not plunge, or understating them and diverting the excess money into the pockets of the directors (and themselves)? Will the Lever stock that has appreciated over 15-fold in the past decade inspire the same loyalty in future? Will it continue to be sought after? Will it continue to be valued higher than peers Procter & Gamble or Nirma, whose PE (price-to-earnings) ratios are 20 to 25 points lower? Will it continue to attract the top talent from business schools and from across corporate India? The recent high-profile debacle of Enron has all the answers.
Column in Outlook Money
Gautam Chikermane
AT RS 50,000 crore, the most valuable company on the Indian stock exchanges is Hindustan Lever. About 2.5 million of its shares are traded every day. There are 131 mutual funds–investing on behalf of hundreds of thousands of investors–that hold this company, of which 111 have it among their top 10 holdings. Together, they have invested almost Rs 2,000 crore in the company. This is aside from over Rs 10,000 crore other investors have invested. Why? Because this MNC has been among the best companies in India. Why do I say that? Consistently good performance– over the past 10 years, its sales have grown at 22 per cent and net profits at 34 per cent per annum. Who says so? The company’s accountants, A.F. Ferguson and Lovelock & Lewes. As a financial journalist, it’s my job to study the balance sheets and profit and loss statements of companies. When I pore over an annual report, I assume that the accountants who have passed the accounts written by the company have checked the numbers, tallied them and presented them so that an investor can make an informed decision to buy or sell the stock; lenders can decide whether the company has the capacity to pay back; and tax authorities can see whether it has paid the taxes due.
But what if Lever’s accountants were wrong? Worse, what if they had been conniving with the management to deliberately misinform, say, by overstating profits so that the share price did not plunge, or understating them and diverting the excess money into the pockets of the directors (and themselves)? Will the Lever stock that has appreciated over 15-fold in the past decade inspire the same loyalty in future? Will it continue to be sought after? Will it continue to be valued higher than peers Procter & Gamble or Nirma, whose PE (price-to-earnings) ratios are 20 to 25 points lower? Will it continue to attract the top talent from business schools and from across corporate India? The recent high-profile debacle of Enron has all the answers.
Column in Outlook Money
Wednesday, December 13, 2000
The race for intangibles
The day accountants calculate intangibles accurately, investors will give them a standing ovation.
Gautam Chikermane
"May I speak to Mr Gautam Chiker...er...er...?"
Yes, this is Gautam.
"I read your article No future in accounts. It was the worst article I’ve ever read! It shows our profession in bad light. Besides, there are many things that are untrue, inaccurate and written with vested interests in mind."
Vested interest? He had my attention. I’m used to angry calls from readers, but never has anyone accused Intelligent Investor of harbouring vested interests. Who’s?
THIS READER, an accountant with one of India’s leading firms, went on like this for some time. Meanwhile, I was bombarded with similar sentiments on e-mail and through letters (To read a representative sample of these responses, follow this link). The article was written to illustrate how accountants, who are best placed to work out the value of intangibles in a business (intellectual capital, brands, franchisees, and so on), are the least concerned about valuing it, and warned them that if they continued their innovation-free practice, they would become redundant. For lack of space I had omitted an important point: that Indian minds are among the best in the world and I have full confidence that if intangibles have to be valued, an Indian has a great chance of doing it. Wake up, my accountant-countrymen, put your minds to this global problem, and help the rest of us calculate wealth more efficiently.
Opinion in Outlook Money
Gautam Chikermane
"May I speak to Mr Gautam Chiker...er...er...?"
Yes, this is Gautam.
"I read your article No future in accounts. It was the worst article I’ve ever read! It shows our profession in bad light. Besides, there are many things that are untrue, inaccurate and written with vested interests in mind."
Vested interest? He had my attention. I’m used to angry calls from readers, but never has anyone accused Intelligent Investor of harbouring vested interests. Who’s?
THIS READER, an accountant with one of India’s leading firms, went on like this for some time. Meanwhile, I was bombarded with similar sentiments on e-mail and through letters (To read a representative sample of these responses, follow this link). The article was written to illustrate how accountants, who are best placed to work out the value of intangibles in a business (intellectual capital, brands, franchisees, and so on), are the least concerned about valuing it, and warned them that if they continued their innovation-free practice, they would become redundant. For lack of space I had omitted an important point: that Indian minds are among the best in the world and I have full confidence that if intangibles have to be valued, an Indian has a great chance of doing it. Wake up, my accountant-countrymen, put your minds to this global problem, and help the rest of us calculate wealth more efficiently.
Opinion in Outlook Money
Wednesday, November 15, 2000
No future in accounts
Accountants must realise that their 500-year-old system is irrelevant in the new knowledge-based economy.
Gautam Chikermane
THAT WE'RE living in the Information Age is a cliche. We, as consumers, investors, workers, citizens, are all becoming part of a new knowledge-based world. But the one profession that doesn’t seem to understand this, and is, in fact, obscuring assessment of the true wealth created by companies and, therefore, investors, is that of accountants. It’s a profession that’s living in an information autarchy, unaware of, unconcerned about, and untouched by its customers -- investors, governments, and companies. As an industry that has often been accused of concealing rather than revealing the workings of its paymaster, the company, accountants are today standing at a crossroads. Their sole link to the new world: computing prowess that allows them to run the same numbers faster.
Column in Outlook Money
Gautam Chikermane
THAT WE'RE living in the Information Age is a cliche. We, as consumers, investors, workers, citizens, are all becoming part of a new knowledge-based world. But the one profession that doesn’t seem to understand this, and is, in fact, obscuring assessment of the true wealth created by companies and, therefore, investors, is that of accountants. It’s a profession that’s living in an information autarchy, unaware of, unconcerned about, and untouched by its customers -- investors, governments, and companies. As an industry that has often been accused of concealing rather than revealing the workings of its paymaster, the company, accountants are today standing at a crossroads. Their sole link to the new world: computing prowess that allows them to run the same numbers faster.
Column in Outlook Money
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