Finance Ministers Address at 42nd Annual Conference of Southern India Regional
Council of ICAI
Union Finance Minister Mr. Pranab Mukherjee asked Chartered Accountants to apply
Accounting Standards uniformly and assist in presenting the true picture of the
financial health of the company while ensuring accountability in all aspects. He
said that we should not fiddle with Accounting Standards, even if financial
performance of a company is volatile. Shri Mukherji was addressing the 42nd
Annual Conference of Southern India Regional Council of the Institute of
Chartered Accountants of India (ICAI) in Kochi today.
The Finance Minister said that standardizing of
the accounting practices help in mitigating the problem of information asymmetry
between various stake holders such as managers, owners and creditors. He said,
while managers have the incentive to be more forthcoming on good news about the
companys performance and prospects, they may want to hold back bad news. But
the accountants as information intermediaries between managers and shareholders
need to identify and recognise losses at an early stage, thereby mitigating
asymmetry in information, the minister added.
The Finance Minister Mr. Mukherjee said that, as
India gets more integrated with the global economy, we must have stronger
disclosure standards in keeping with the international best practices. He said
that, we must also build stronger supervisory frameworks to provide incentive
for more responsible corporate conduct. Mr. Mukherjee said that the Chartered
Accountants must be aware that the Ministry of Corporate Affairs has brought out
voluntary guidelines for corporate governance in December 2009,he urged all
companies to adopt this guideline in the spirit of self regulation.
Mr. Mukherjee said that recently there have been
instances where the auditing community has been found wanting in its
professional propriety while valuing complex financial products.He said that, he
is confident that ICAI as a mentor will plug those loopholes. He further said
that must promote and encourage ethical use of information by avoiding,
controlling and disclosing conflicts wherever they arise. While doing so we
should ensure that the procedures established to control conflicts are not
porous, he added.
Concluding his address Mr. Mukherjee said that as
the Government and the market regulators continue to exercise vigil on the
markets, it is up to the other stakeholders to contribute their share in
ensuring good governance. He said that good governance makes for growth and long
term sustainability in business.
The Complete text of the address of the Finance
Minister Mr.Pranab Mukherjee is given below:
I am very happy to be here today at the 42nd
Annual Conference of Southern India Regional Council of the Institute of
Chartered Accountants of India (ICAI. I believe this is a prestigious annual
event which has become well known for deliberating topical issues of
professional importance to your association. Issues like the International
Financial Reporting Standards (IFRS) and the imminent implementation of our tax
reforms have a bearing on the future of our reporting and disclosure framework
which needs attention of a forum such as this.
2. If one were to go back a decade, few would
have anticipated the Indian GDP to grow at rates of 8-9 per cent, or our stock
market indices- SENSEX and NIFTY- to reach the levels that we see today. The
resilience that India has demonstrated in recent times has been recognised and
appreciated across the globe. There has been a significant increase in the
economys capacity to absorb shocks without major disruptions. It reflects a
maturing of our management of economic policy and developments. That this has
happened even as the economy has become far more globally integrated over the
years indicates that globalisation and economic resilience can go hand in hand.
3. We have all contributed to this progress in
our respective domains. Let me complement ICAI for their initiative to work with
financial institutions in streamlining and fine tuning the financial reporting,
auditing and accounting architecture of India. Such efforts create greater
awareness among stakeholders about the challenges and opportunities that we have
before us and help in identifying issues that need to be addressed for
accelerating and sustaining the development tempo.
4. The Government is aware of the fact that
Indias economic legislation needs to be progressive and be in tune with global
norms and best practices. Towards this end we have introduced the Direct Taxes
Code Bill. The thrust of the Code is to improve efficiency and equity of our tax
system by eliminating distortions in the tax structure, introducing moderate
levels of taxation and expanding the tax base. The language has been simplified
to enable better comprehension, remove ambiguity and encourage voluntary
compliance. The new Code is designed to provide stability in the tax regime as
it is based on well accepted principles of taxation and best international
practices. I am confident that together with GST, this will streamline the tax
administration of the country by making it efficient and equitable.
5. We have concluded tax information exchange
agreements with eight countries and jurisdictions including Bahamas, Bermuda,
British Virgin Islands, Isle of Man, Jersey, Monaco, Cayman Islands and
Argentina. Active negotiations are in progress with other jurisdictions. The
renegotiation of Double Taxation Avoidance Agreement (DTAA) with treaty partners
is being actively pursued and a revised DTAA with Switzerland has already been
signed.
6. Indian companies are increasingly accessing
the global markets to meet their capital needs by listing their securities on
the stock exchanges outside India. To be able to communicate and effectively
engage with the world we need a common language that is understood by every
market in the world. This was the main objective of converging our national
accounting standards with IFRS. India as a member country of G20 is committed to
achieving a single set of high quality global accounting standards. The use of
globally acceptable accounting framework helps in promoting investors
confidence and brings more clarity and uniformity for users of financial
statements.
7. The use of standardised accounting practices
helps in mitigating the problem of information asymmetry between various
stakeholders such as managers, owners and creditors. While managers have the
incentive to be more forthcoming on good news about the companys performance
and prospects, they may want to hold back bad news. The accountants as
information intermediaries between managers and shareholders need to identify
and recognise losses at an early stage, thereby mitigating asymmetry in
information. Accounting standards have to be based on principles, be uniformly
applied and assist in presenting the true picture of the financial health of the
company, while ensuring accountability in all respects.
8. This will help in avoiding unknown risks and
allow everyone to have a fair assessment of the company. If financial
performance is volatile, the function of a sound accounting procedure is to
report the volatility. Volatility in the market can be managed by risk
management tools. We should not fiddle with accounting standards to fix such
problems.
9. The responsibility for corporate governance is
multilayered. Within a company internal audit department is the proverbial foot
soldier to detect and prevent fraud on a day to day basis. The Board of
Directors have the ultimate responsibility for in-house oversight. At the
external level there are several components like market regulators, external
auditors, tax authorities, banks and financial institutions besides investor
groups or associations. Providing essential financial information on a companys
performance to its shareholder and other stakeholders is an integral and
important part of good corporate governance.
10. We need to regulate better and at the same
time ensure that regulation does not degenerate into obsessive control. While
too tight a regulation may lead to a lack of development in financial products,
a very lack regulatory structure may encourage financial misdemeanour. Indeed,
market regulation is no longer viewed as an irrelevant intrusion but is
considered necessary to help achieve developmental goals. The recent experience
from the global financial crisis has reinforced this belief.
11. As India gets more integrated with the global
economy, we must have stronger disclosure standards in keeping with the
international best practices. We must also build stronger supervisory frameworks
to provide incentive for more responsible corporate conduct. I am sure you are
all aware that the Ministry of Corporate Affairs brought out voluntary
guidelines for corporate governance in December 2009. I urge all companies to
adopt this guideline in the spirit of self regulation.
12. Recently there have been instances where the
auditing community has been found wanting in its professional propriety while
valuing complex financial products. I am confident that ICAI as a mentor will
plug those loopholes. We must promote and encourage ethical use of information
by avoiding, controlling and disclosing conflicts wherever they arise. While
doing so we should ensure that the procedures established to control conflicts
are not porous. As the Government and the market regulators continue to exercise
vigil on the markets, it is up to the other stakeholders to contribute their
share in ensuring good governance. Indeed, good governance makes for growth and
long term sustainability in business.
I wish you all an enriching deliberation and a
successful conference.
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