Wednesday, July 9, 2008
AS-30 ? A premature birth
In an environment where usage of complex and hybrid financial instruments is increasingly becoming common; where innocuous sale, purchase and rental transactions might conceal hidden derivatives; where sophisticated instruments have been made available to Indian Corporates; India could not afford to exist without Accounting Standards which prescribe measurement, accounting, presentation and disclosure norms for these instruments.
Accountability of independent directors
Accountability of independent directors
The ongoing global financial crisis has had its effect on a wide variety of persons and events. With losses mounting to more than $400 billion, financial companies have given pink slips to more than 83,000 employees while top bosses at global financial brands such as Citi, Merrill Lynch and UBS have also packed their corner offices and left.
While there can be no doubt that these top bosses own responsibility for the misadventures of the entities they run, a debate is raging abroad about the role that independent directors play in this scenario and whether the top boss is solely responsible.
The debate also criticises the Sarbanes Oxley Act (SOX) of neutralising directors’ efficiency by increasing the burden of financial and regulatory compliance and neglecting the bread-and-butter role of monitoring company strategy.
Surveys of the composition of the boards of eight prominent financial institutions revealed that two-thirds of these boards had no significant experience in banking business and less than half had financial industry service. Stithapragna
Independent directors are defined by their name — independent. They are supposed to function like Stithapragna — the concept mooted in the Mahabharata — whose job role can be defined to be one who is sleeping when others are awake and awake when others are sleeping. He is duty-bound to raise the red flag when he spots an inherent issue which the others could not do merely because they possess a non-independent status.
While this is a tall order, if one visualises a situation in which out of a board of eight, seven agree for vetting a not-so-foolproof risk management policy and all eyes point to the independent director for his nod, chances of his raising a storm are limited as he would opt for a go-with-the-masses policy.
The International Accounting Standards Board (IASB) and other bodies such as the Income-Tax Appellate Tribunal (ITAT) have a solution for this by encouraging the dissenter to document his dissent. While a hare-brained proposal could be dissented, it is the day-to-day decisions taken by the board with no clue as to the implications in the future which could defy normality.
A recent notification from the Institute of Chartered Accountants of India (ICAI) urging companies to mark-to-market derivative losses led to litigation between banks that sold exotic derivatives and the entities that bought them with eyes blindfolded.
Examples in Wall Street have shown that a vast majority of the directors could not fathom the intricacies of a derivative transaction. Indian Situation
The revised Clause 49 of the Listing Agreement in India mandates that if the chairman of the board is a non-executive director, at least one-third of the company’s board should comprise independent directors. If the chairman is an executive director, at least one-half (or 50 per cent) should be independent directors.
The eligibility criteria are laid down in the revised Clause 49 of the Listing Agreement. While the crème-de-la-crème of independent directors have enough directorships of eminent companies, it is the mid-rung and lower mid-rung companies that seek truly independent directors.
All events — whether a crisis or a scam — occur the biggest in the US as its exposure to the complicated world of finance is extreme.
However, financial institutions and banks in India are feeling a minor tremor from the global situation which could act as a warning signal for the future.
A robust and transparent risk-management policy — validated at frequent intervals, being transparent with significant issues amongst all stakeholders in the company and constant communication — seems to be absolutely critical now.
The ongoing global financial crisis has had its effect on a wide variety of persons and events. With losses mounting to more than $400 billion, financial companies have given pink slips to more than 83,000 employees while top bosses at global financial brands such as Citi, Merrill Lynch and UBS have also packed their corner offices and left.
While there can be no doubt that these top bosses own responsibility for the misadventures of the entities they run, a debate is raging abroad about the role that independent directors play in this scenario and whether the top boss is solely responsible.
The debate also criticises the Sarbanes Oxley Act (SOX) of neutralising directors’ efficiency by increasing the burden of financial and regulatory compliance and neglecting the bread-and-butter role of monitoring company strategy.
Surveys of the composition of the boards of eight prominent financial institutions revealed that two-thirds of these boards had no significant experience in banking business and less than half had financial industry service. Stithapragna
Independent directors are defined by their name — independent. They are supposed to function like Stithapragna — the concept mooted in the Mahabharata — whose job role can be defined to be one who is sleeping when others are awake and awake when others are sleeping. He is duty-bound to raise the red flag when he spots an inherent issue which the others could not do merely because they possess a non-independent status.
While this is a tall order, if one visualises a situation in which out of a board of eight, seven agree for vetting a not-so-foolproof risk management policy and all eyes point to the independent director for his nod, chances of his raising a storm are limited as he would opt for a go-with-the-masses policy.
The International Accounting Standards Board (IASB) and other bodies such as the Income-Tax Appellate Tribunal (ITAT) have a solution for this by encouraging the dissenter to document his dissent. While a hare-brained proposal could be dissented, it is the day-to-day decisions taken by the board with no clue as to the implications in the future which could defy normality.
A recent notification from the Institute of Chartered Accountants of India (ICAI) urging companies to mark-to-market derivative losses led to litigation between banks that sold exotic derivatives and the entities that bought them with eyes blindfolded.
Examples in Wall Street have shown that a vast majority of the directors could not fathom the intricacies of a derivative transaction. Indian Situation
The revised Clause 49 of the Listing Agreement in India mandates that if the chairman of the board is a non-executive director, at least one-third of the company’s board should comprise independent directors. If the chairman is an executive director, at least one-half (or 50 per cent) should be independent directors.
The eligibility criteria are laid down in the revised Clause 49 of the Listing Agreement. While the crème-de-la-crème of independent directors have enough directorships of eminent companies, it is the mid-rung and lower mid-rung companies that seek truly independent directors.
All events — whether a crisis or a scam — occur the biggest in the US as its exposure to the complicated world of finance is extreme.
However, financial institutions and banks in India are feeling a minor tremor from the global situation which could act as a warning signal for the future.
A robust and transparent risk-management policy — validated at frequent intervals, being transparent with significant issues amongst all stakeholders in the company and constant communication — seems to be absolutely critical now.
Govt Will adopt Accrual System of Accounting
Accrual-based accounting system on cards
Our Bureau NEW DELHI INWHAT could be a step towards ensuring a transparent accounting system that would reflect the true position of the country’s financial health, the government has accepted, in principle, a gradual move from cash-based to accrual-based accounting. Acknowledging the essential benefits of the accrual-based accounting pattern, under which revenues and expenditure are shown in the books even when they are realised later, controller general of accounts V N Kaila on Thursday said that the government was positive towards changing the old accounting method. “There are definite benefits of accrual accounting that cannot be ignored. The decision makers can know the full cost of services they are providing, and this would result in better resource allocation, better management of assets and liabilities,” said Mr Kaila, speaking at the diamond jubilee function of accounting body ICAI. Speaking on issues involved in transitioning to the accrual system of accounting, Mr Kaila said that there are various factors that have created a demand for a transition to accrual system of accounting, such as the changing information needs of the decision makers, the implications of the Fiscal Responsibility and Budget Management Act and outcome-oriented budgeting. Cash-based accounting is a method of book keeping that records financial events based on cash flows and cash position. Revenue is shown in the books when cash is received and expense is recognised when cash is paid. On the other hand, under accrual accounting, revenue is shown in the balance sheet when it is earned and realised, regardless of when actual payment is received. Overall, accrual-based accounting would create a desirable measure of the complete financial health of the government, he added.
Publication:Economic Times Delhi;
Date:Jul 4, 2008;
Section:Economy & Corporate;
Page Number:22
Our Bureau NEW DELHI INWHAT could be a step towards ensuring a transparent accounting system that would reflect the true position of the country’s financial health, the government has accepted, in principle, a gradual move from cash-based to accrual-based accounting. Acknowledging the essential benefits of the accrual-based accounting pattern, under which revenues and expenditure are shown in the books even when they are realised later, controller general of accounts V N Kaila on Thursday said that the government was positive towards changing the old accounting method. “There are definite benefits of accrual accounting that cannot be ignored. The decision makers can know the full cost of services they are providing, and this would result in better resource allocation, better management of assets and liabilities,” said Mr Kaila, speaking at the diamond jubilee function of accounting body ICAI. Speaking on issues involved in transitioning to the accrual system of accounting, Mr Kaila said that there are various factors that have created a demand for a transition to accrual system of accounting, such as the changing information needs of the decision makers, the implications of the Fiscal Responsibility and Budget Management Act and outcome-oriented budgeting. Cash-based accounting is a method of book keeping that records financial events based on cash flows and cash position. Revenue is shown in the books when cash is received and expense is recognised when cash is paid. On the other hand, under accrual accounting, revenue is shown in the balance sheet when it is earned and realised, regardless of when actual payment is received. Overall, accrual-based accounting would create a desirable measure of the complete financial health of the government, he added.
Publication:Economic Times Delhi;
Date:Jul 4, 2008;
Section:Economy & Corporate;
Page Number:22
US under pressure to agree to 2050 emission target
US under pressure to agree to 2050 emission target
The European Union and green groups piled pressure on the United States on Monday to agree to a target to halve global greenhouse gas emissions by mid-century and back the need for rich countries to set 2020 goals as well.
The European Union and green groups piled pressure on the United States on Monday to agree to a target to halve global greenhouse gas emissions by mid-century and back the need for rich countries to set 2020 goals as well.
Cut wasteful spend & manpower cost, improve supply chain
Cut wasteful spend & manpower cost, improve supply chain
India Inc is looking to generate more bang from the available resources to tide over a high inflation regime. The corporate sector, which is facing a cost-push inflation largely stoked by global factors, has realised that inflation is here to stay. The overwhelming consensus during the ET CEO Roundtable on inflation was that Indian companies would need to focus on productivity to stay afloat
India Inc is looking to generate more bang from the available resources to tide over a high inflation regime. The corporate sector, which is facing a cost-push inflation largely stoked by global factors, has realised that inflation is here to stay. The overwhelming consensus during the ET CEO Roundtable on inflation was that Indian companies would need to focus on productivity to stay afloat
Competition in public-pvt projects: Finance Ministry mulls two options
Competition in public-pvt projects: Finance Ministry mulls two options
One option is to adopt the threshold qualification parameters and the other is to increase the number of players in bidding for a project.
One option is to adopt the threshold qualification parameters and the other is to increase the number of players in bidding for a project.
Govt makes overseas call for Hutch-Voda details
Govt makes overseas call for Hutch-Voda details
Sources close to the development said that the Indian government had sought the ‘sale and purchase’ agreement that Vodafone International Holdings had entered into with Hong Kong’s Hutchison. This comes even as the tax authorities and the company battle out their dispute on payment of capital gains tax in the Bombay High Court.
Sources close to the development said that the Indian government had sought the ‘sale and purchase’ agreement that Vodafone International Holdings had entered into with Hong Kong’s Hutchison. This comes even as the tax authorities and the company battle out their dispute on payment of capital gains tax in the Bombay High Court.
Volatile markets leave future IPOs in limbo
Volatile markets leave future IPOs in limbo
Volatile markets are giving the heebie-jeebies to promoters looking to raise funds through initial public offerings (IPOs). The fate of several proposed public issues looking to collectively raise Rs 10,000 crore is in limbo. Among large companies, UTI MF is reported to have deferred its plans to go public.
Volatile markets are giving the heebie-jeebies to promoters looking to raise funds through initial public offerings (IPOs). The fate of several proposed public issues looking to collectively raise Rs 10,000 crore is in limbo. Among large companies, UTI MF is reported to have deferred its plans to go public.
Kingfisher may buy SpiceJet in all cash deal
Kingfisher may buy SpiceJet in all cash deal
Another round of consolidation in the domestic skies seems imminent with UB Group chairman Vijay Mallya engaging in talks with two major shareholders of SpiceJet to buy the budget carrier in an all-cash deal
Another round of consolidation in the domestic skies seems imminent with UB Group chairman Vijay Mallya engaging in talks with two major shareholders of SpiceJet to buy the budget carrier in an all-cash deal
Google wants logins cut from YouTube data
Google Inc., the owner of YouTube, said it's seeking to remove users' login information from a database of all videos viewed on YouTube that it must turn over to Viacom Inc.
A federal judge in New York presiding over Viacom's copyright infringement lawsuit against Google told the search-engine company this week to give Viacom its "logging database" containing records of every video viewed, the login name of the person who watched it, and the Internet address of the viewer's computer.
Viacom, owner of Comedy Central and MTV Networks, wants the information to find out if YouTube viewers watch more copyrighted shows such as "South Park" and "The Colbert Report" than other videos in an effort to strengthen its $1 billion lawsuit against Google.
"We are disappointed the court granted Viacom's overreaching demand for viewing history," Catherine Lacavera, Google's senior litigation counsel, said yesterday. "We will ask Viacom to respect users' privacy and allow us to anonymize the logs before producing them under the court's order."
A Viacom spokesman didn't return a call seeking comment after business hours.
Viacom sued YouTube last year, claiming it allows users to post clips from its copyrighted shows without permission.
Google, based in Mountain View, Calif., has denied Viacom's claims in the lawsuit, saying YouTube follows the law by removing copyrighted material when it becomes aware of it.
US District Judge Louis L. Stanton authorized full access to the YouTube logs after Viacom and other copyright holders argued that they needed the data to show whether their copyright-protected videos are more heavily watched than amateur clips.
The data would be disclosed only to the plaintiffs
A federal judge in New York presiding over Viacom's copyright infringement lawsuit against Google told the search-engine company this week to give Viacom its "logging database" containing records of every video viewed, the login name of the person who watched it, and the Internet address of the viewer's computer.
Viacom, owner of Comedy Central and MTV Networks, wants the information to find out if YouTube viewers watch more copyrighted shows such as "South Park" and "The Colbert Report" than other videos in an effort to strengthen its $1 billion lawsuit against Google.
"We are disappointed the court granted Viacom's overreaching demand for viewing history," Catherine Lacavera, Google's senior litigation counsel, said yesterday. "We will ask Viacom to respect users' privacy and allow us to anonymize the logs before producing them under the court's order."
A Viacom spokesman didn't return a call seeking comment after business hours.
Viacom sued YouTube last year, claiming it allows users to post clips from its copyrighted shows without permission.
Google, based in Mountain View, Calif., has denied Viacom's claims in the lawsuit, saying YouTube follows the law by removing copyrighted material when it becomes aware of it.
US District Judge Louis L. Stanton authorized full access to the YouTube logs after Viacom and other copyright holders argued that they needed the data to show whether their copyright-protected videos are more heavily watched than amateur clips.
The data would be disclosed only to the plaintiffs
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