Category Archives: Business

Ikea bets big on India but keeps meatballs off the menu

MUMBAI: Furniture giant Ikea is set to open its first store and restaurant in India after years of trying but arguably its most famous item is off the menu — Swedish meatballs.

Ikea, the world’s biggest furniture retailer, will next month cut the ribbon on a massive 37,000 square metre outlet in Hyderabad, complete with a 1,000-seater cafeteria.

The restaurant will be Ikea’s largest and will cater to local tastes, with religious sensitivities in India dictating that beef and pork, staples of Swedish meatballs, will not be served.

“There will be chicken meatballs and vegetarian balls,” Patrik Antoni, Ikea’s deputy country manager for India, told AFP during an interview in the Indian financial capital of Mumbai.

“Fifty percent of the food will be Swedish inspired, salmon and shrimp dishes and so on. We’ll also have quite a few Indian dishes like dal makhani, biryani, samosas,” he added.

The Swedish multinational, which revolutionised household furnishings with its range of affordable ready-to-assemble products, is betting big on India as it seeks new revenues away from its key Western markets.

Ikea plans to invest $1.5 billion in Asia’s third-largest economy as it seeks to lure price-sensitive Indians away from satisfying their furniture needs at local, family-run shops.

Ikea has already spent close to $750 million procuring sites for four stores, including the Hyderabad one which will open in July on a date that is yet to be announced.

Outlets in Mumbai, Bangalore and the capital New Delhi will follow, Antoni said, without putting a timescale on them. He added that Ikea will then look at Pune, Chennai, Ahmedabad, Surat and Kolkata.

“We are very bullish and excited about the Indian market. Normally, we would test a market by opening one store but in India, we are going all out and expanding,” said Antoni.

At 37,160 square metres the Hyderabad store will be comparable in size to an average Indian shopping mall. It will have 850 employees and is expected to attract several million visitors a year.

As well as its wide range of international items Ikea will also sell goods uniquely suited to the Indian market.

Alongside its popular Billy bookcases and Poang chairs, Ikea will also offer spice boxes and kitchen appliances to make traditional Indian staples such as idlis (rice cakes).

“We have done over a thousand home visits and interviewed people to try to understand their needs, dreams, aspirations and how they feel about their home,” explained Antoni.

More than 1,000 products priced under 200 rupees ($2.94) will be on sale.

India, with its abundant supply of cheap labour, is not known for its “DIY” culture so Ikea has teamed up with UrbanClap, an online platform that helps connect handymen with consumers.

Ikea, founded in 1943 by late Swedish entrepreneur Ingvar Kamprad, operates 418 stores in 49 markets. In May it announced that it would expand into South America with stores in Chile, Colombia and Peru.

The home goods behemoth first tried to enter India in 2006 but was foiled by strict foreign direct investment (FDI) rules that required foreign companies to sign up with a local partner.

Seven years later the rules were relaxed to allow foreign businesses to own retail stores operating under a single brand, clearing the way for Ikea’s entry into India.

The Swedish company hopes its walk-in stores and famed restaurant will be a unique selling point as it goes up against popular Indian online furniture retailers Pepperfry and Urban Ladder.

It will also have to contend with Walmart. The world’s largest retailer has agreed to buy a majority stake in Indian e-tailer Flipkart, which sells a wide range of home furnishings.

Ikea’s global sales grew by five percent on-year in 2017 as it recorded annual revenues of 38 billion euros ($47 billion).

The firm hopes access to India’s growing middle class in the country of 1.25 billion people will open up new revenue streams.

Analysts, however, warn it faces a long journey in a crowded market.

“Profitability will take some time for Ikea in India,” Sowmya Adiraju, an analyst at research firm Euromonitor, told AFP.

How to deal with the home loan rate hike

NEW DELHI: Four-and-a-half-years ago the RBI had hiked policy rates, and it increased the repo rate again by 25 basis points on 6 June. However, even before the RBI announced the rate hike, a clutch of banks increased their MCLR by up to 10 bps, pushing up home loan and other lending rates.

Impact on the pocket

For retail borrowers lulled by the prolonged benign interest rate regime, the spike in repo rate is a clear signal to tighten the purse strings, as marketwatchers expect at least one more round of policy rate hike. Home loan borrowers will have to bear the increase in the interest burden. “Looking at the global and domestic developments, interest rates are expected to further harden moderately after September 2018. This may lead to an increase of 25-30 bps in home loan interest rates in the next 6-7 months,” says Deo Shankar Tripathi, MD and CEO, Aadhar Housing Finance Ltd.

On a ₹50 lakh home loan with an interest rate of 8.5% and repayment tenure of 20 years, a 10 bps hike can push up the EMI by ₹317. Therefore, a hardening rate scenario, some fear, will affect the home loan segment. However, others caution against the assumption that rates will only move vertically from here, given the monetary policy’s neutral stance. Further rate increases will depend on an assortment of factors, including crude price and inflation movements.

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From home loan borrowers’ perspective, however, the interest cost has increased for now and they have to devise strategies to cushion the impact. Given the scenario, what tools can one use to keep a tight lid on their interest outgo? While there is no easy way out of external factors like these, we outline the steps you can take to minimise their effect.

Increase EMI, retain tenure

Borrowers will have to tweak their approach to mitigate the impact of rising rates. Most lenders, by default, extend the repayment tenure instead of increasing the EMIs. Even if you do not feel the impact immediately, the fact is that your interest burden will mount as the tenure increases. “The borrowers should increase the EMI and insist on tenure reduction. This works in favour of the borrowers,” explains Vipul Patel, Founder, Mortgageworld, a loan consultancy firm.

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Look before you switch

While transferring your loan to a new lender, who is offering a lower interest rate, can result in savings, especially because banks are barred from levying any foreclosure charges on floating rate loans, it also depends on your balance repayment tenure. If you have recently taken a home loan, the tedious process of making the switch may not be worth the effort. A shift might make sense only if the increase is of 50 bps or more.

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Older borrowers can explore the option even if the difference is narrower, after a cost-benefit analysis. But if you are closer to the final repayment date, it may not make sense to go through the hassle even if the difference is 50 bps, as the savings may not justify the switch.

According to Mortgageworld’s calculations, if a borrower servicing a home loan with an outstanding amount of ₹50 lakh, an interest rate of 9% and balance tenure of 22 years decides to move to a new lender offering an interest rate lower by 50 basis points, she will net savings of close to ₹11.08 lakh. Even if she has to shell out processing and associated charges of say ₹15,000, the entire exercise will work in her favour. On the other hand, if she were to take this step after 20 years, the savings will be down to around ₹76,000.

“Some lenders, with a view to attracting more clients, may keep rates nominally low, but borrowers should not forget the incidental charges,” points out independent financial counsellor V.N. Kulkarni. He recommends a switch only if the differential is at least 100 basis points.

Make part payment

Another measure you can consider to reduce the interest burden is to make a part prepayment. “Pay off a part of loan instead of investing in low-yield deposits or investments,” says Kulkarni. The savings you make on interest payable could more than make up for the interest you forgo.

Steer clear of pitfalls

Finally, don’t let the rate hike cloud your judgement while taking a fresh home loan or opting for balance transfer. Whether you are a first-time home loan-seeker, new borrower or an existing one, beware of some mistakes that borrowers tend to make. Signing up for a fixed-rate loan in the backdrop of the recent rate hike is one. “Despite the current small hike, the overall outlook for interest rates is benign. Borrowers with fixed interest rates will be stuck with their loans and refinancing will not be a great option later as fixed rates are subject to foreclosure charges, making it a costly proposition,” says Patel.

If you are planning to buying a property that is currently under construction, look for a lender whose terms and conditions protect your interests. “Take a home loan from a lender who will pay the builder according to the stages of construction. I do not advise full payment of agreement value in properties under construction,” says Tripathi. Finally, take a loan on the basis of your repayment capacity—factoring in your income, living expenses and commitments —rather than what the bank is willing to approve. “This is a longterm commitment. Restrict the EMI to 35-40% of the post-tax income,” says Patel.

'The best time to buy a home'

(By Renu Sud Karnad)
NEW DELHI: The Indian housing sector is in a sweet spot now, as the thrust given to housing has been extremely beneficial not only for developers but also homebuyers and lenders. Flagship government schemes like Pradhan Mantri Awas Yojana and developments such as granting of infrastructure status to affordable housing, 100% tax exemption on profits for developers building affordable homes, implementation of RERA, and the subsidy schemes for first time buyers of residential property are expected to create supply as well as help satisfy housing demand and improve urban infrastructure.

Though there has been a minor increase in interest rates recently, they are still quite low compared to 2011-12. The prevailing rate of interest at HDFC is 8.55% for home loans up to ₹30 lakh. A borrower is eligible for tax deduction of ₹2 lakh on the interest paid on home loans under Section 24B and ₹1.5 lakh on principal paid under Section 80C. This could reduce the effective interest rate on the loan to less than 4%.

The schemes for EWS and LIG are available up to 31 March 2022 and for MIG up to 31 March 2019. Also, the latest decision to relax the eligibility criteria by increasing the carpet area to 160 sq mt for MIG-I and 200 sq mt for MIG-II reflects the government’s intent to encourage home buyers, especially in smaller towns. With property prices steady, low interest rates, higher income levels, huge subsidies for firsttime buyers, fiscal benefits, expected economic growth, etc, this is perhaps the best time for an end user to buy a house.

The author is the MD, HDFC Ltd

GSTN tools to beat tax evasion?

NEW DELHI: Almost a year into providing platform for tax collection, GST Network (GSTN) is developing applications and tools for tax officers to help analyse data of their assessees and check possible evasion, a senior official said. GSTN, the company handling the technology backbone GST, has over the last 11 months provided a platform for businesses to file their returns and pay taxes every month.

GSTN CEO Prakash Kumar said the next focus of the company will be on providing data analytics and improving user interface on the GSTN portal, besides developing backend system for assessment, audit, appeal and advance ruling for 27 states. “This is a broad state-wise data generated by GSTN, based on which officers can look into the returns filed by taxpayers in his jurisdiction and spot mismatches,” Kumar said. agencies

Maharaja out of way, Vistara to announce fleet expansion, international plans soon

NEW DELHI: With bidding for Air India out of its way, Tata Sons-Singapore Airlines (SIA) JV Vistara is all set to announce its fleet expansion plans — including a significant order for wide body planes for medium to long haul foreign routes — early this week. The full service airline will also give its international flights roadmap as it is now eligible to go abroad with over 20 planes in its fleet. Sources say the announcement may be made as early as Monday or Tuesday.

Vistara had expressed interest in AI divestment. Once it did bid for the airline it was clear that the airline will grow organically. The airline has been in talks with both Boeing and Airbus for fleet expansion order for a while now and the order is ready to be announced. In fact, while big Indian airlines — AI, Jet, IndiGo, SpiceJet and GoAir — changed their baggage policies last week, Vistara did not announce any change as the same will be made once the international plans are rolled out in coming months, say sources.

The airline did not officially comment on its plans and its stand has been it will do so at the right time. “Tata’s deep pockets and SIA’s long haul experience will ensure a steady expansion of Vistara’s overseas footprint. The only thing holding its growth will be the crippling lack of airport infra in India where big airports like Delhi, Mumbai and major traffic growth centres like Patna have no slots to offer. India has been the world’s fastest growing aviation market in last few years but surprisingly no attention has been paid to augmenting airport infra,” said an aviation industry insider.

Vistara, which currently operates Airbus A-320 fleet, is learnt to be eyeing the Boeing’s wide body B-787 Dreamliner for its medium haul international flights. The airline is reported to have opted to buy six Dreamliners with an option to buy four more. These planes can fly nonstop to places like Europe and Australia from India. AI has been using the B-787s on these routes. Jet also has Dreamliners on order but it is not certain when — and if — it will eventually take those planes. On its plane orders also, Vistara has said it will comment at the appropriate time on its fleet plans.

Vistara had earlier this year sought the aviation ministry’s clearance to start international operations to a number of places in Gulf and southeast Asia like Hong Kong, Singapore, Bangkok and Dubai. In February, Vistara had said told TOI: “: “Our plan is to start international operations in the second half of this year with our existing fleet of Airbus A-320s and fly to destinations within the aircraft’s range. At the same time, we are reviewing the type of aircraft we’ll need to support our future plans of international expansion so that we can commence medium haul routes (between 5-9 hours) after launching the regional/short-haul international routes. (We’re) interested in long haul flights and will commence when the time is right.”

Rishad Premji’s pay up 250% to Rs 5.9 crore for FY18

BENGALURU: Rishad Premji, chief strategy officer and a director on the Wipro board, was awarded the highest percentage increase in salary for the last fiscal. The salary rose by 250% to Rs 5.9 crore. Saurabh Govil, president and chief HRO, also saw his salary soar by 136% to Rs 6.6 crore, according to the company’s latest annual report.

In comparison, CEO Abidali Neemuchwala, who was paid in US dollars, got an equivalent of Rs 6.3 crore in gross salary, Rs 1.7 crore in variable pay, Rs 10.2 crore in other annual compensation, along with various perks, taking his total compensation to Rs 18.2 crore, up 35%. “Computation of remuneration to CEO and executive director is on an accrual basis and includes amortisation of ADS restricted stock units (RSUs) granted to him, which vests over a period a time. This also includes RSUs that vest based on performance parameters of the company,” the report said.

Rishad, son of executive chairman Azim Premji, got Rs 93.3 lakh in salary, Rs 53.5 lakh in allowances and Rs 4.1 crore under commission/incentives/variable pay, along with other perks. Remuneration includes salary, allowances, commission, performance based payments, perquisites and company’s contribution to provident fund and superannuation. It also includes the value of restricted stock units (RSUs) exercised, if any, by employees.

The hikes awarded to the key management personnel come at a time when the average salary hike for Wipro this year was about 6-7% and double digits for top performers. Azim Premji’s salary increased by 10% to Rs 87 lakh. In his letter to shareholders, the czar of the Indian IT industry said in the current dynamic environment, people are often trapped by “false choices.”

“Through my years in Wipro, I have learnt that not getting trapped by these choices is at the heart of enduring success…Do we have to shed what is old to become new? It is far more effective if we are both, old and new. We must retain the strengths and learnings of the past, as we embrace the future by developing new capacities and innovative approaches,” he said.

AIIB to pump $200m into Indian infra fund

MUMBAI: The Asian Infrastructure Investment Bank (AIIB) will pump $200 million into the National Investment & Infrastructure Fund (NIIF). The funding was announced by economic affairs secretary Subash Chandra Garg ahead of the third AIIB annual meeting which will be attended by Prime Minister Narendra Modi on Tuesday.
“The $200-million investment is in two phases. AIIB will invest $100 million now and another $100 million in the future,” Garg said. Beijing-based AIIB has approved $4.4 billion of investments of which the largest — $1.2 billion — is in India.

The NIIF, a fund of funds set up by India to take interest in infra projects, has a corpus of $6 billion and its largest investor so far is the Abu Dhabi Investment Authority (ADIA), which has invested $250 million.

Garg said, “With this kind of a vehicle utilised, it will be possible to multiply the investment in infrastructure to a large multiple.”

Moreover, six projects worth $1.9-billion are in the pipeline, of which $475 million is for the Mumbai Urban Transport Project-III. Three are in Andhra Pradesh — Andhra Pradesh Rural Roads Project, Andhra Pradesh Urban Water Supply and Septage Management Improvement Project and Amaravati Sustainable Capital City Development Project. The remaining investment, besides NIIF and Mumbai Urban Transport Project-III, is the West Bengal Major Irrigation and Flood Management Project.

AIIB VP Danny Alexander said the bank is also interested in the fund of funds as it will lead to a higher inflow into the infra sector.

The sanctioned projects are Madhya Pradesh Rural Connectivity Project ($140 million), Bangalore Metro Rail Project ($335 million), Gujarat Rural Roads (MMGSY) Project ($329 million), Andhra Pradesh 24X7 – Power for All ($160 million), Transmission System Strengthening Project ($100 million) and Morgan Stanley India Infrastructure Fund ($150 million).

E-commerce firms cash in on FIFA frenzy in India

NEW DELHI: Indians usually ‘bleed blue’ with cricket fever, but the ongoing FIFA World Cup has the nation donning yellow, green, red and white as Indian supporters cheer for their favourite teams in the team jerseys.

Sale of team jerseys, as well as that of footballs and other gear, have seen strong growth on various e-commerce platforms in India over the last two weeks with Argentina, Germany and Brazil emerging as the top favourites.

And it is no surprise that customers are keen on getting their hands on jerseys of football stars like Cristiano Ronaldo (Portugal), Lionel Messi (Argentina) and Neymar Jr (Brazil).

“We have witnessed a sharp spike in football-related products which includes footballs, jerseys, shorts and tracks. The football world cup is a big revenue driver for the Sports Business with Football contribution to business increasing by 40 per cent over April-June,” Myntra VP and Head (Sports, Footwear and Accessories) Puspen Maity told .

Maity added that merchandise associated with players like Neymar, Messi and Ronaldo are particularly in demand and the company expects the trend to strengthen as the tournament progresses.

ShopClues said its platform has seen an average sale of around 4,000 footballs per day for the last 16 days. “Other merchandise like jerseys etc have also seen a spike. We are selling about 300-350 fan jerseys every day,” the spokesperson said.

According to Snapdeal, there have been a big jump in demand for football-related merchandise on their platform from Delhi-NCR, Mumbai, Goa, Chennai, Kolkata and the North-eastern markets.

Interestingly, Snapdeal has also seen a spike in the sales of bean bags, recliners and home theatre systems, indicating that viewers are looking at cheering for their favourite team from the comforts of their homes.

And its not just the men who are hooked on. According to Flipkart VP (Fashion) Rishi Vasudev, about a third of its football-related merchandise is coming from women.

“Clothing and jerseys have seen close to 20x jump in sales with 95 per cent of sales in jerseys and fan t-shirts alone… Flipkart this year saw an opportunity and stocked official merchandise for men, women and kids. This has paid off with a third of the sales coming from women’s merchandise,” he noted.

Rival Amazon has seen similar trends with shoppers looking for not just jerseys but also training equipment, shin guards, nets, football video games, collectibles like bobbleheads and even referees’ whistles.

To cash in on the frenzy, it has gone a step ahead and trained its Alexa-powered ‘Echo’ smart speakers to not only offer match updates but also provide interesting tidbits so users can ask “Alexa, what country has won the most World Cups?”.

Revenue from e-commerce in India to touch $52 billion by 2022: Report

NEW DELHI: The revenue from e-commerce amounted to $25 billion in India in 2017, and is likely to grow by 20.2 per cent per year to hit $52 billion by 2022, says a report.

According to a report by Admitad, in 2017, 37 per cent of the population comprised of internet users, 14 per cent of whom made online purchases regularly. This population’s share of internet users is expected to grow to 45 per cent by 2021. The number of online buyers is expected to grow to 90 per cent.

Most purchases (56 per cent) are made via desktop. Smartphones account for 30 per cent of purchases, said the digital and affiliate marketing company’s report.

However, with mobile penetration expected to reach 54 per cent of the population by 2020, m-commerce has a high potential in India, and will likely be responsible for 70 per cent of e-commerce revenue.

The report noted that about 57 per cent of Indians prefer to pay on delivery, while 15 per cent prefer to pay with debit cards, and 11 per cent credit cards.

“However, this is all likely to change in the near future. With a growing number of mobile users and the government encouraging citizens to use non-cash payment, there should be an increase in digital transactions in the coming decade,” it said.

Interestingly, India ranks second in the world for the number of internet and smartphone users, outpacing the US.

Meanwhile, China is the global leader in terms of number of internet users and online buyers. In 2017, the percentage of internet penetration rose to 53 per cent. Even more, 42 per cent of the population made online purchases regularly.

Business pressure & external regulation have changed the way audit firms work

The position of an auditor in an Indian company is no longer an exalted one. Unlike in the not too distant past, when new auditor engagements were discussed politely between a company’s promoter and the heads of audit firms, the process has now moved to the procurement department of the company.
Rotation norms that mandate a change in auditor after 10 years for all listed entities (about 6,000) and certain unlisted entities kicked in from April 2017. The earlier norm of not accepting an audit assignment because fees were lower than the previous year’s was removed when the Chartered Accountants Act was amended in 2006. What followed last year, as rotations kicked in, was an aggressive round of tendering, with audit firms vying for each other’s business, and some of the top ones offering discounts of up to 30%. One company even held a reverse auction among audit firms with open bids.

Senior auditors who spoke to ET Magazine said significant fees were lost in the process — some estimates put it at Rs 100 crore for the big auditors. The top 1,516 companies paid around Rs 1,937 crore as fees for 2016-17. The loss for the entire industry could be as much as Rs 1,000 crore, some estimates say.

Cost pressures — the pressure of taking on fresh audits in new companies, which require more manpower in the first year — have been telling on the audit firms.

Indian firms and those aligned with global networks, which include the Big Four — PwC, Deloitte, E&Y and KPMG — and others such as Grant Thornton and BDO.

One of the fallouts of the pressure the auditor or chartered accountant (CA) community is facing in India due to regulatory pressure and public scrutiny has been the spate of auditor resignations midway through their assignments. So far in 2018, auditors in 30 listed companies have quit before completing their assignments. That is double the number for the full years of 2016 and 2017. Several were in May 2018 alone.

Audit firms

In a sign of things to come, in January 2018, the Securities and Exchange Board of India (Sebi) had passed an order on the decade-old Satyam Computer case, barring audit firm Price Waterhouse, Bengaluru, and the two auditors from certifying company accounts for three years. It also banned firms associated with PricewaterhouseCoopers (PwC) for audits for two years. Sebi ordered the recovery of Rs 13 crore of wrongful gains with interest from Price Waterhouse and two erstwhile partners.

In March 2018, the government notified the formation of the National Financial Regulatory Authority (NFRA) to regulate and monitor chartered accountants. The provision for NFRA was part of the new companies’ bill that was passed in 2017. This meant an external body will regulate the auditors, instead of the Institute of Chartered Accounts of India. There would be greater scrutiny and the days of self-regulation was over.

Unlike in the past, where an audit firm could sacrifice a partner and escape, now the firm itself is getting banned and its brand is getting affected

Roopen Roy founder, Sumantrana

Auditing Auditors

  • In July 2017, PM Modi, addressing an event, asked CAs to look out for tax evasion and work for the nation in preventing fraud.
  • Uday Kotak committee on corporate governance said auditors must ascribe a value to the qualifications in the audit and also provide clear reasons for resignations.
  • In January 2018, Sebi barred auditing firms under the Price Waterhouse network from auditing accounts for two years. PwC has challenged the order.
  • In March 2018, the govt cleared the setting up of the National Financial Regulatory Authority to oversee auditors, setting the stage for the end of regulatory powers of the Institute of Chartered Accountants of India.
  • Mid-term resignations by auditors in 2018 so far are already double the number seen in 2017. Price Waterhouse, Deloitte among the auditors who have quit audits mid-way.

“Times have changed. Expectations are higher,” says N Venkatram, the managing partner and CEO of Deloitte Haskins and Sells, the largest audit firm in India by fees and number of audits. Referring to auditor resignations, Venkatram points out that 30 resignations should be viewed in the context of 6,000 listed entities that are audited. Resigning from an audit is a valid course of action when the scope of work is restricted, including situations in which the auditor has limited access to sufficient information to complete his work on a timely basis. This course of action, available under the auditing standards, should be exercised carefully after consideration of facts and circumstances, he says.

High Stakes
Deloitte resigned from the audit assignment of Manpasand Beverages on May 26, citing a delay in providing significant information sought by it. When Pricewater House auditors resigned from the two audit assignments recently (one in April and the other in May), they listed out how the management of the two companies, Vakrangee Ltd and Atlanta Ltd, did not agree to their request for more information and specific details. The growing number of resignations is a clear signal that auditors are not ready to carry on audits in companies that have dodgy practices. It seems even greater regulatory scrutiny is on the anvil.

Last week, the Sebi board has decided to issue a consultation paper on whether professionals like chartered accountants should be registered with it also. This would mean the markets regulator’s scanner would cover auditors and chartered accountants as well. A scrutiny of the role played by chartered accountants was signalled by none other than Prime Minister Narendra Modi when he spoke at an ICAI event in July 2017. A CA’s signature had immense faith and it should not be broken, he said, and asked them: “Who did you work for after demonetisation? Client or country?”

Three months later, the Uday Kotak committee on corporate governance submitted its report, which recommended that auditors must assign reasons when they resign from audit assignments. If auditors certify accounts with a qualification — flagging lack of adequate information to verify a transaction — the auditor has to quantify it, too, said the panel.

Improving Corporate Governance
Corp Governance

Venkatram points out that in mature markets such as the US, the auditor does not have the option of qualifying the accounts. This would compel management and auditor to agree on the accounting treatment as the regulator would not accept the filing of financial statements with a qualified audit opinion.

The president of ICAI, Naveen Gupta, did not want to comment on the issue of greater scrutiny on auditors or the ICAI losing its role as a prime regulator of the profession. He said: “Whatever we do is in close coordination with the ministry of corporate affairs.”

Queries mailed to the ICAI public relations department were not answered till the time of going to press.

However, other senior members of the profession were more forthcoming. Chartered accountant Jairaj Purandare, who was chairman of EY India and regional managing partner of PwC, said he felt happy at the display of spine and courage shown by members of the profession by resigning from audit assignments. “There is heightened risk awareness now because of external regulators. And the focus on governance has driven up the risk perception in the eyes of auditors and made them more cautious in their approach,” says Purandare, who has now started his own tax practice.

There is heightened risk awareness now because of external regulators. Focus on governance has made auditors more cautious

Jairaj Purandare founder, JMP Advisors

Changing Times
A big positive change in the last few years is that whistleblower and shareholder activism is forcing companies to change their top management. It was a letter from a whistleblower that blew the lid off in the Satyam Computer scandal. The letter to the auditors had alleged the company faked its assets and income. Finally in January 2009, the chairman of the company, B Ramalinga Raju, said the company’s accounts were falsified. Whistle-blower action was the nemesis of CEOs at large companies such as Infosys and Air Asia India, too. The recent action at ICICI Bank, where the board has ordered an independent inquiry into the conduct of managing director and chief executive officer Chanda Kochhar, is also the result of sustained pressure by a shareholder whistle-blower.

Fortis, too, felt the tremors, albeit of proxy advisory firms, when Bengaluru-based InGovern and Mumbai-based IiAS compared it with Satyam. The advisory firms said the company had lent to other entities owned by promoters Malvinder Mohan Singh and Shivinder Mohan Singh. The reports questioned the role of auditors, too, (Deloitte, in this case) which had not certified the accounts of the company for the second quarter of 2017-18.

The promoters resigned in the second week of February 2018. An InGovern report later that month said Deloitte should have spelt out the reasons for not certifying the accounts for the second quarter and flagged the problematic loans forwarded by the company to entities owned by the promoters. Sources , however, say that the accounts at Fortis had not reached the auditors at all and the said promoter entities were declared as such only in December 2017. The entire episode, however, is an example of the kind of pressure that auditors are facing these days.

Founder and managing director of InGovern Shriram Subramanian says the atmosphere in the country has definitely changed and there is greater scrutiny on corporate governance. Newspaper headlines today discuss succession at companies like ICICI Bank, he says, something that would not have happened five years ago. “Regulators are baring their teeth, proxy advisory firms are piling on pressure and the auditors are under pressure.” There is one more tool that has not yet been used to counter corporate fraud—class-action suit. “Manpasand lost Rs 2,000-3,000 crore in market capitalisation. If a class-action suit is filed, it may have its impact on the auditors too,” he adds.

Roopen Roy, who was country leader at Deloitte Consulting and a PwC veteran, says in the current atmosphere, auditors may suffer from “guilt by association” if they audit companies with dodgy books of accounts.

Roy, who started consulting firm Sumantrana after retiring, says the appetite for taking such risks is lower at chartered accountant firms. “Unlike in the past, where an audit firm could sacrifice a partner and escape, now the firm itself is getting banned and its brand is getting affected.” He also points out to another broad hint that Prime Minister Modi had dropped at the ICAI event, when he said large Indian CA firms should start competing with the Big Four. China has actually helped home-grown Chinese audit firms grow through policy intervention.

In February 2018, the Supreme Court ordered a committee be set up to monitor the functioning of the four — E&Y, PwC, Deloitte and KPMG.

Chartered accountants often love to point out that they are w a t c h d ogs and not bloodhounds — meaning their role is to verify and certify and not be a detective . In their statutory roles, CAs say they do financial audits, and not forensic checks on companies.

But when faced with tough negotiations to win audit assignments, on the one hand , and increased scrutiny from public and authorities and the actions of whistle-blowers and activists, on the other , more CAs seem to be ready to adopt a more aggressive tone. Whatever their role might be, it is important that auditors do not come across as lapdogs.


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