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Accounting Standards uniformly
Finance Minister’s Address at 42nd Annual Conference of
Sourhtern India Regional Council of ICAI on November 27, 2010
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 recognized and appreciated across the globe. There has
been a significant increase in the economy’s 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 globalization 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 India’s 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 standardized 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 company’s 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 company’s
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
misdemeanor. 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. |
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