Brushing aside fears that it was sacrilegious to criticise established accounting standards in a room packed with hundreds of chartered accountants, Gautam Doshi, group managing director of Reliance-Anil Dhirubhai Ambani Group, decided it was time to turn the tables.
Arguing that major standards on financial instruments were incomplete, unwarranted and some even illogical, he said: “I want to do my accounts in a certain way, but the standards say different things. Why can’t I go to a court and get an order that allows me to account the way I want to, (and especially) if that accounting makes more sense to me?” he asked a stunned audience.
Doshi was speaking at the Institute of Chartered Accountants of India’s (ICAI) regional conference here on Friday.
Citing several examples of regulations, he said: “We have a host of regulatory requirements. So many regulators and legislators are looking at them and emphasising them continuously. Though they approve of them, yet one feels that more than half of them are, perhaps, unwarranted,” he said.
Citing an example to underscore his point, he highlighted Section 72A of the Income-tax Act and a case where a loss-making company intends to merge with a profitable one to avoid carrying forward its losses and paying taxes on profits.
”If you want to merge them, 72A will come in the way. You can only do a forward merger to the profit making company, that too if you comply with a host of conditions,” Doshi continued. “I can’t see any reason why they put ten conditions on a forward merger, to allow the loss to be carried forward and no conditions on a de-merger, to allow the transfer of the loss,” he argued.
Maintaining that major standards on financial instruments were incomplete, Doshi added: “The act had been drafted that way, because different sections have been drafted at different times, and nobody has really applied their mind to them,” Doshi spoke against several accounting standards that corporates had to face.
He also cited regulations that he thought were counter intuitive that applied to the application of depreciation, limited liability partnerships and restrictions on certain types of monopolies. “There is recourse through sections 391 and 394 of the Companies Act. A company can petition through them. If the court is convinced that what you have written is logical, reasonable and in public interest, then the court will sanction it, effectively allowing you to write your own laws,” Doshi said.
“It is driven by your imagination,” he further added, “There is really no limit to the type of agreements you can make and the types of agreements you can’t make.”
Other speakers at the conference of the Institute of Chartered Accountants of India (ICAI) also deliberated on the greater accountability of corporate auditors, in the wake of the Satyam scam.
”Auditors need to be more agile and vigilant in detecting financial irregularities,” ICAI President Amarjit Chopra said. “A simple disclaimer or a general hands-off attitude will not work any more.”
Former boss of Satyam Computers Ramalinga Raju had allegedly cooked the company’s books, in the process perpetrating India’s biggest ever case of corporate fraud.
Speakers have also sought a rethink by the government on the compulsory rotation of auditors. They have suggested that the rotation should be mandatory for only the top 200 to 300 companies.