Indian regulations on financial reporting are being aligned to international practices and the introduction of Internal Financial Controls (IFC) in the Companies Act 2013 is reflective of this trend. The trend underscores two important evolutions in globalised business; Governance and Technology. As technology adoption in businesses is growing rapidly, businesses have to rely on controls more and more while boards have to ensure that a robust control environment is designed and deployed to achieve business objectives. To this effect, the Companies Act, 2013 has imposed specific responsibilities on the Board of Directors towards the company's internal financial controls and requires the board to state that they have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. While similar reporting requirements have existed elsewhere in the world (in US it's the Section 404 under Sarbanes Oxley Act, the Turnbull Guidance on Internal Control with the London Stock Exchange for listed companies and Japan's Financial Instruments and Exchange Law (J-SOX) are similar rules for public companies), in India there was no such requirement until the new act came into force. As part of Internal Financial Controls, Indian public and private companies are expected to establish frameworks that provide assurances about the soundness of governance and internal controls, elaborated as follows -For listed companies, the management would have to identify and document financial and non-financial controls (referred to in the act as policies and procedures for orderly and efficient conduct of business), assure the boards of the adequacy of such controls and also demonstrate results of testing operating effectiveness of such controls.For unlisted companies, the Directors' Report for FY 2014-15 would have to disclose adequacy of controls related to financial statements.Annual reports for the year FY 14-15 will be required to have Director Responsibility Statement carrying disclosure on what steps companies have taken to implement Internal Financial Controls.Additionally, for both listed and private companies, it is mandated that from FY 2015-16, statutory auditors would be expected to make opine on operating effectiveness of controls related to financial reporting.As with many other important provisions of the new Act, Internal financial control has been made a board and individual director's responsibility. This means enhanced level of engagement and scrutiny by the board and directors into IFC framework of a company and whether such frameworks are "adequate" and "effective". Currently, many companies are assessing the impact these new requirements will have on the operations and processes of the company, including the financial reporting process.Role of Board of DirectorsOne of the significant implications of the new Companies Act, 2013, is the reporting responsibilities of the director and auditors with regard to internal financial controls. Consequent to the formal responsibility introduced under the 2013 Act, the role of the Board and the Audit Committee in the oversight of internal control has become increasingly critical. In case of listed companies, the directors are expected to play an important role in establishing the control environment, including clarity of expectations regarding integrity and ethics and adherence to codes of conduct and creating clear accountability for performance of internal control responsibilities. The board's assessment of the risk of management overrides internal control and to that effect, some of the other responsibilities for the board of directors include establishing open lines of communication between management and the board, as well as providing separate lines of communication such as whistle blower hotlines. The need for boards to perform this self-evaluation and that of the committees and individual directors and ensure maintenance of appropriate skills and expertise is a critical success factor in meeting the new requirement of the 2013 Act.Role of Audit CommitteesAudit committees are expected to place a stronger emphasis than before on internal financial controls and risk management. In context of the act, the expectations of the audit committee's role have expanded due to enhanced company and external auditor reporting requirements, along with an increased focus on compliance by regulators. It may also be advisable to seek results on the effectiveness of IFC on a real time basis while also understanding how management addresses the risks highlighted by test of internal controls. The act also necessitates for statutory auditors to assert whether the company has adequate internal financial controls in place and the operating effectiveness of such controls. To this effect, the audit committee will need to view their controls framework from an auditability standpoint with requisite documentation to the satisfaction of external auditors.Treating IFC as a bridge to excellence in governanceMany enterprises today have siloed approaches to compliance and controls with sporadic documentation. Towards this end, by placing more accountability and responsibility on the Board and Audit Committee with respect to internal financial controls, the 2013 Act is attempting to align the corporate governance and financial reporting standards with global gold standards. Establishing the right internal controls provides greater assurance that a corporation will achieve its operating, financial reporting and compliance objectives and making governance more robust and wholesome.It is critical therefore that businesses approach Internal financial controls as an opportunity to improve overall business performance through bringing excellence models, structured policies & procedures, technology enablement and not consider it as mere compliance served to 'tick in the box'. Apart from the obvious solutions of improving control environment, Internal Financial Controls can enhance shareholder and investor confidence in the longer term. Companies can use this opportunity to internally promote a culture of compliance and integrity among employees. Compliance for the sake of compliance, has less appeal than if residual or other long term benefits can't be derived from compliance efforts. Enterprises need to recalibrate on how to take advantage of the effort that will undoubtedly be expended towards enhancing their Internal Financial Controls; to achieve more deep rooted benefits of improving their operating effectiveness, adopting leading technologies to enable better efficiencies and thereby creating a future ready business.The author is, Sachin Paranjape, Senior Director at Deloitte in India
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How powerful a company can be? Can it bail out a developed country or buy a few of the world's largest companies? Yes! Apple has enough cash reserves today to bail out Greece! Apple, one of the world's most valuable brands with market capitalization around $700 Billion and cash reserves close to $200 Billion, has the capacity to buy all of Uber, Tesla, Twitter, Netflix, Dropbox and a few more.
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Sandeep Bamzai writes how even Bangladesh, once described as a basket case, has emerged as a better manufacturing option for the world including Indian companiesSandeep BamzaiOver the weekend I went to purchase a high end geared bike for my son. I was told Firefox is the best, so I went shopping with my son in tow. The bikes looked sleek and my son selected one priced rather exorbitantly. On checking, I realised that the price range extended from Rs 10,000 to Rs 120,000. Dang, I was buying only the cheaper version. By now I was curious and I asked the store manager which part of China the bikes came from. To my horror and surprise, the bikes are made in Bangladesh. The company is helmed by Indian promoters - Shiv Inder Singh and Pradeep Mehrotra. In February 2013, they shut their manufacturing plant in Sri Lanka, owned by one of the promoters, and moved it to Bangladesh to avail lower duty benefits. The Gurgaon store that I went to sells approximately 1,400 bikes annually. You can do your math given that they are priced at anything between Rs 10,000 to Rs 120,000. And with fitness and raahgiri dominating people's mindsets, the sales will only be going up in the days to come. Mystified, I wanted to know more about Firefox and why it was being manufactured in Bangladesh and assembled locally in India in this day and age of Make In India? Why is it that premium bikes were being manufactured in Sri Lanka and Bangladesh when they should be made in India given that Indians were behind the enterprise anyway? As I dug more I discovered that the manufacturing plant in Lanka was operated by Intertrend Ltd, which is led by Firefox Bikes' majority stakeholder Pradeep Mehrotra. The plant's major output was consumed by European markets. Checking the internet, I discovered that Singh a key shareholder in the Company but also its MD had at the time of the relocation said, "The EU has some human rights violation issues with Sri Lanka because of which EU took away the zero-duty benefit from bicycle exports from Sri Lanka. So, the business of the company's other promoter got affected." Firefox Bikes pays an "additional duty" of 6.5 per cent for products coming from the Bangladesh plant, he added. When asked about the investment in relocating and setting up a new plant in Bangladesh, Singh said it was borne by Mehrotra and his company. In the interview, he added that the Bangladesh plant has an initial production capacity of 50,000 units per month as against 25,000 units in the erstwhile Sri Lankan unit. The Bangladesh plant can be expanded up to a monthly capacity of 75,000 units. Curiosity remain unsated and I wondered why top Indian manufacturers with large domestic plants - Hero, Atlas, BSA/Hercules, Avon and a whole host of others - were not taking the risk and getting into what is obviously a high yielding lucrative market. Shiv Inder Singh, a Doon School, IIT and IIFT alumnus is the brain behind the operation. But this story not so much about Firefox bikes but equally about the Bangladesh growth story. Sitting quietly in our backyard, Bangladesh has grown on the twin engines of micro credit and garment exports. The numbers themselves tell a story. Yes, a third of its population of 150 million still lives in acute poverty, but there is affluence and steady growth too. Between 2004 and 2014, Bangladesh averaged a GDP growth rate of 6 per cent. The bulwark of the economy is export led industrialisation. Cheap and cost effective sweat shops are turning out premium quality goods and products. Case in point being Firefox bikes. The country's garment industry is the second-largest in the world. Other key sectors include pharma, shipbuilding, ceramics, leather goods and electronics. Described as a Frontier Five nation, it is classified as a Next Eleven Emerging Market. A recent opinion poll described Bangladesh with the second most pro capitalist population in the developing world. The world and in the Firefox case, its Indian promoters have realised that there are other fish to fry. If a country like Bangladesh, once referred to as a basket case, is willing to provide manufacturing incentives to back its low labour cost arbitrage, then there are learnings for India to transpose. India cannot be about rhetorical sloganeering, it has to translate this empty talk with pro active policy and a bedrock of incentives for real time manufacturing to take place. On Tuesday morning one read that Xiaomi phones are being assembled in Andhra Pradesh, I would have preferred if that read manufactured. What is preventing India from becoming a formidable manufacturing hub and migrating upwards, distancing itself from the stigma of being the world's back office? And I mean genuinely a manufacturer's delight not just for Indian companies but for global corporations. Why can't Apple manufacture the iPhone and other products in India instead of China? The emergence of Foxconn in Taiwan as the contract manufacturer for the global heavies with revenues of $131 billion is another example of what human ingenuity backed by best of breed policies can do. From Kindle to the iPhone, from blackberry to xbox one, from PS4 to the iPad, they manufacture everything. Similarly, the Firefox story on a much smaller scale is something to take note of. A few years short of 60, Shiv Inder Singh tapped into the expertise of his friend Pradip Mehrotra who had a bicycle manufacturing facility in Taiwan. With seed money of Rs 4 crore, the duo launched Firefox bikes out of an office in Greater Noida by hiring 10 people in 2004. In the first year of operations, they sold 1,200 bikes. Now they are selling bikes worth Rs 75 crore. Time for us to wake up and smell the coffee. Before the world passes us by.
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On 15 August 2014, Prime Minister Narendra Modi in his speech, which was over one hour long, outlined his priorities in the coming days. I was lucky to have listened to it and derive inspiration also. I clearly remember his saying that "Let's think beyond 'what about me' and look at the nation". This was a clarion call for all of us to join in whatever government was trying to do.
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Swaraj has been embroiled in controversies before for being in proximity with offenders, writes D.P. Sharan Whether it is on humanitarian or other ulterior grounds, the absconding former IPL commissioner, Lalit Modi, is not the only offender who has invoked the blessings of Sushma Swaraj. The outcry over the proximity issue of Foreign Affairs Minister Sushma Swaraj with Lalit Modi has, indeed, assumed even greater significance in the light of the fact that she holds a key portfolio in the Government of India and the Modi Government has been left with no option except to stand by her for obvious reasons. But the past bears testimony to the fact that allegations have been leveled against Swaraj to protect the interests of persons of dubious characters time and again - albeit playing different roles in the corridors of power. If the news archives are to be believed, on two occasions in particular, Swaraj had been embroiled in controversies for being in proximity with offenders. In the most infamous of recent scams, Swaraj's name figured for her alleged connection with scamsters. She was alleged to have provided patronage to the accused such as Reddy brothers - involved in illegal mining - of the erstwhile Yeddyurappa Cabinet in Karnataka and Manoj Jaiswal, an accused in the Coalgate scam from the Abhijit Group in particular. The two Reddy brothers, G. Janardhan Reddy and G. Karunakar Reddy - both were Tourism and Revenue Ministers, respectively in the B.S. Yeddyurappa Government in Karnataka - were alleged to be kingpins of the illegal mining scam at Bellary and the Belekeri port scam as well in the State. In 2009, the Supreme Court had appointed a Central Empowerment Committee that recommended action against the Reddys-owned Obulapuram Mining Company and an FIR was filed by the Central Bureau of Investigation. The Lokayukta or ombudsman of the Karnataka State, Santosh Hegde, had also indicted the Reddy brothers in the illegal mining scandal. Swaraj was believed to be the political mentor of Reddy brothers who had nothing to do with politics till 1999. As per details available on different websites, the Reddy brothers became public figures during the Lok Sabha elections in 1999 while campaigning for Swaraj who was contesting the election from Bellary against Sonia Gandhi. Although Swaraj lost the election, she remained a patron of the Reddys and kept on frequenting Bellary for reasons best known to her only. However, when they were implicated in the illegal mining case and the CBI started tightening its noose around their necks, the Reddy brothers called on Swaraj at her residence in Delhi in July 2010, ostensibly in order to demonstrate their political clout to ward off the threat of their possible arrests. Swaraj left no stone unturned to protect the interests of Reddys and when the BJP Central leadership resolved to remove them from the Yeddyurappa Cabinet exercising damage-control measures, Swaraj stepped in to stop the move. They were put behind bars in connection with the illegal mining case in September 2011. Consequently, the first ever BJP Government in southern India could not survive the graft charges against the Reddys and Yeddyurappa had to step down. Interestingly, the Reddy brothers could succeed in obtaining bail from the Supreme Court in January 2015 - only after the BJP came to power at the Centre in 2014. But, meanwhile, the CBI is investigating the 'cash for bail case' in connection with the alleged connivance by the Reddys to obtain bail from the Hyderabad Special Court judge in the Obulapuram Mining Company case. Subsequently, the Reddy brothers formed their own separate party and proposed to merge with the BJP in 2014. Surprisingly, it was Sushma Swaraj who could not afford to accept the proposal and opposed the merger to the hilt presumably to salvage her own image. Subsequently, the second controversy sparked off on her link with the accused of the most infamous Coalgate scam, Manoj Jaiswal of the Abhijit Group. Jaiswal was accused of amassing a series of coalblocks by dubious means, using his clout in the corridor of powers. Incidentally, Swaraj's photographs with Jaiswal and his family members - while attending the wedding ceremony of the latter's daughter in Nagpur - were made public and shared on different media portals. Other political stalwarts that included then Union Coal Minister, Sriprakash Jaiswal, L.K. Advani, Nitin Gadkari, Murli Manohar Joshi, Sanjay Nirupam, Vijay Darda were, however, also present on the occasion. While Sriprakash Jaiswal denied the allegation of having family relations with Manoj Jaiswal and claimed immunity from the charges of being part of the wedding ceremony on the ground that it was attended by Advani and Swaraj too, a few senior leaders of her own party had implicitly questioned the relevance of the presence of Swaraj - apart from Sriprakash Jaiswal and others - on the occasion. Lalit Modi is a proclaimed absconder in IPL money laundering case and believed to have fled to UK. As such, unlike earlier occasions, the stench of unscrupulous protection by Swaraj to an offender this time amounts to 'perjury' on the part of the Government of India too. The pertinent question is: How can Lalit Modi be an absconder in the eyes of the law of the country while, at the same time, he is in touch with the Foreign Affairs Minister of the country disclosing his whereabouts to seek safety in a foreign country and a passage to move to Portugal for his wife's treatment? Efforts are afoot by Swaraj loyalists to allay the issue and turn the needle of suspicion on others that may lead to the removal of the Chief Minister of Rajasthan, Vasundhra Raje Scindia. She is alleged to have helped Modi to obtain Residency Status in UK and whose son is learnt to have business relations with Modi. (The views expressed in this column are personal)
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Sandeep Bamzai says banks have been bled to death by promoters who couldn't care less, they have used their heft and networking skills to get sweetheart dealsThe Government may have decided to man up and extend a bail-out package to embattled state owned banks. But the extent of the hole is such that no one has a genuine idea of how deep it is. While the Govt is expected to infuse Rs 70,000 crore into these ailing public sector banks by 2018-19, what is required is Rs 180,000 crore. Agreed that it is a beginning and that as much as Rs 20,000 crore of this Rs 70,000 crore will be used to recapitalise the banks in 2015-16, the first tranche itself is weak given the state of disrepair the banks find themselves in. As much as Rs 10,000 crore is dedicated for the weaker banks, banks which in the eventuality of a stress test will fail the catechism. In the last Union budget, Govt had earmarked Rs 7940 crore for this long overdue exercise, now an additional Rs 11,500 crore will be given. In a new Moody's Investor's Service survey dated July 27, the findings suggest that Indian banks will remain challenged by poor asset quality. Regarding Indian banks, there was a 60:40 split between respondents who expected some improvements in asset quality trends in FY2016 compared to the previous financial year, versus those who saw a stable trend. Moody's reckons that Indian banks' problem loan ratios are unlikely to fall in FY2016. However, the new NPL (non performing loan) formation rate will probably decelerate. Sandeep BamzaiIn line with this view, the majority of respondents expected no significant increases in the capital levels of Indian state-owned banks over the next two years, and little progress to improve creditor rights of banks over the next three years. We consider that Indian state-owned banks have little capacity to improve their generally weak capital buffers through retained earnings, while external capital infections – including from the government – will likely remain scarce. That sounds like a definite vote of no confidence from the rating agency. Normally, we take the 'gora' view in our stride and our extremely squeamish about paying heed to their advice. Unfortunately, the excesses committed within the state owned banking system over the lost decade of UPA gives one the heebie jeebies. Loans were advanced courtesy the rampant culture of cronyism as wealth was redistributed by the UPA to its cronies. A back door license permit raj was thus installed where everyone who was 'in' with them was extended favours, be it spectrum allocation on a first come first served basis or discretionary coal block allotments or dipping into the Commonwealth Games Games contracts goody bag. But the worst part and most hurtful to the economic main frame was the emasculation of the public sector banking system. It was done with great disdain as darbari Oligarchs were created without so much as a by your leave. Loans were disbursed with greased lightning, guns were held to the temples of the bank chairman and sweetheart deals distributed with alacrity. Take the Kingfisher and Deccan Chronicle cases and you will understand how and why. Throw in the arrest of the Syndicate Bank chairman S K Jain and the circle is complete in terms of comprehending the gargantuan fraud perpetrated on the nation. Jain took a bribe of Rs 50 lakh for enhancing the credit limit of some companies in violation of banking rules. In a probe headed directly by ex CBI chief Ranjit Sinha who personally monitored the phone intercepts, Jain's network of his brother and a chartered accountant who functioned as go between were snared. Rs 21 lakh cash, gold and jewellery to the tune of Rs 1.68 crore and fixed deposits worth Rs 68 crore were found at CJain's residence during raids. Bhushan Steel and Prakash Industries were both guilty of offering bribes to Jain. The malfeasance had been exposed but it was only symptomatic of the malaise affecting the state owned banks. Calls are frequently made by fin min officials to provide X.Y,Z a loan. Earlier this year in February, T Venkatram Reddy and his brother Vinayak Ravi Reddy were arrested by CBI for their alleged involvement in a Rs 358 crore fraud pertaining to Canara bank. The Reddy brothers - promoters of the Deccan Chronicle Holdings all told availed of Rs 1230 crore loans over time from Canara Bank by entering into a criminal conspiracy to cheat the bank. But this was just a tip of the almost Rs 4217 crore that the company owes multiple lenders. Venkat Ram Reddy reportedly wanted to clone Vijay Mallya's lifestyle and in many ways aped his look and style including buying a IPL franchise for $107 million in 2008. His lavish lifestyle straight out of Lifestyles of the Rich and Famous followed Mallya's in letter and spirit including luxury cars like Bentley, Lamborghini, Porches and a Bugatti - all in multiples.Inspired by Mallya he even became an MP. The man who T Venkat Ram Reddy set out to mirror - Dr Vijay Mallya - has joined him in this extraordinary tale of indebtedness. His tale a spitting image of Reddy's - loans and equity at premium - from public sector banks means that his airline Kingfisher has been shut down and brought the once flamboyant King of Good Times to ruin. Of the Rs 7000 crore lent to Kingfisher, banks can now hope to recover peanuts. A 17 bank consortium led by SBI can never hope to recover this money - SBI has recovered Rs 155 crore out of Rs 1623 due. Of the shares and trademarks pledged to banks at premium valued at Rs 4000 crore, they aren't worth the paper they are printed on - Rs 5.5 crore. These are public deposits that people like Reddy and Mallya have used to run their own failing operations. Banks have been bled to death by promoters who couldn't care less, they have used their heft and networking skills to get sweetheart deals The bribe for loan scam which saw S K jain being arrested was an astronomical Rs 8000 crore write off involving Era Group, Tayal Group, Sterling Biotech, Arshiya International, Shiv Vani Group, Bhushan Steel and Prakash Industries among others. Uco Bank, Bank of Maharashtra, Syndicate Bank and Canara Bank were involved with Pawan Bansal, MD Altius Finserv acting as the centrifuge. and connecting the calls between the corporates and the bank chairmen. The absence of a Bankruptcy Act in India is the single biggest reason why corporates and their bosses along with smooth middle men get away. But more about another time. Indian state run Banks need large dollops of cash to cure their books, piffling amounts will not improve their problems. A capital deficit govt needs to overhaul the entire system and usher in transparency and governance to remove the widespread opacity that exists in loan disbursal. Jain or Reddy's arrest will hardly act as a deterrent, human ingnuity knows no bounds.
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Turning an idea into a successful commercial story is the most abiding dream of the GenNext today. Gone are the days when the youth hankered after the safety of a regular job. Today, what is important is following your passion and starting your own enterprise.BW Businessworld salutes this spirit; it organised the Young Entrepreneur Conference and Awards to felicitate the spirit of enterprise in today’s youth. The event was held on 23 July 2015 at The Leela Ambience, Gurgaon.BW Businessworld honoured these young turks in its issue dated 23 June 2015.On the sidelines of the awards ceremony, BW Businessworld organised a conference that saw some of the best minds from the startup sector discuss the key attributes of entrepreneurial success.(This story was published in BW | Businessworld Issue Dated 24-08-2015)
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Early days of the Web were all about discovery and learning. When did it transform into an ensnaring shopping monster? Mala Bhargava takes a look Those who were-n’t around for the birth of the Web and everything online will have missed it. Building up, the Internet became a space of discovery, useful information and new opportunities. Very young people today will never have known the wonder of it all. When I look at the Internet now, I see a massive trap, a shopping monster with its jaws around your wallet. And that, coming from me, a confirmed shopaholic, says a lot. Think of how the pressure to buy is put on any user of the Internet or services that it makes possible. Here’s how it goes: I wake to an alarm. But that’s on days when I’m lucky. Take today. Before my alarm sounded, a soft notification sound woke up me. Thinking it could be someone from the family, I picked up my phone only to find myself staring bleary-eyed at a message from some entity I would like to throttle. “Have a terrific Tuesday! Get Rs 500 for purchases above Rs 1500. Hurry!” I mumble to the anonymous thing to take Rs 500 to shut up forever and wonder how exactly these DND things work and why is it that we have to make a special request not to be disturbed from companies that have no right to disturb us in the first place — whose life is it anyway? I try to go back to sleep but my sheer annoyance won’t let me and I decide to check if I have any work messages from overenthusiastic colleagues already. No I don’t, but I do have lots of good morning messages from the banks whose hapless customer I happen to be. Citibank reminds me about my reward points which I must shop to get, HDFC offers its loans and American Express, whose Gold card I just terminated, urges me to get a Gold card. Do Gmail’s filters work at all? I move on, in utter disgust, and decide to catch up on the news, extremely important for a journalist, after all. I immediately bump into some breaking news — Kejriwal and the Delhi Police are fighting over being called names. Same names we’ve always called them ever since anyone can remember. But it’s entertaining, so I click in to look. Before I do any such thing, an ad comes flying at me telling me it’s the best time to buy property in Gurgaon. I dump the news and reach for my tea. May as well start the day with some deep thinking. But wait. Dominos has other ideas. It seems I really must get a pizza right away. Oh, and Big Basket also reminds me that I should use my points to shop for more or lose them. I jump out of bed and try to leave the room. Just then, a phone call pulls me back. Office? No, Airtel. Do I want a postpaid connection? For heaven’s sake, we’re talking on Airtel’s postpaid connection! I am on the point of abuse when the startled dude hangs up. So let’s move on. It’s going to be time to work soon so I figure I should grab the time to look for a book I’ve been meaning to locate. My still sleepy fingers slip on the keypad and all I type is “rug”. Google goes crazy. It should be telling me what a rug is, but all in good time. First, do I want to shop for a rug on Google? Do I want one from FabFurnish? How about from Home Stop? The entire page of results is just buying suggestions because Google thinks that’s personalising it for me. I haven’t even gotten into the day yet, but the fact that it’s going to be filled with buying buttons, recommendations, promoted messages, push notifications from PayTM and Mobiqwik and Ola and Uber and Nature’s Basket and Vero Moda, doesn’t escape me for a moment. It’s not even 9 a.m., I’m already in the control of the online buying monster. I can leave, but I can never hide. (This story was published in BW | Businessworld Issue Dated 24-08-2015)
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