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A few issues simmer in the Naresh
Chandra report-
March 25, 2003 There are still a few issues to be sorted out on the Naresh Chandra Committee report, which has recommended that an audit firm, along with its subsidiaries, associates or affiliated entities, should not derive more than 25 per cent of its business from a single corporate client. The committee was set up to look into corporate governance. According to N Santhanam, the Chief Financial Officer of Nicholas Piramal, in order to sort out these issues, audit firms should be appropriately graded according to the kind of business which they can undertake. The grading of auditors can be done by taking into consideration the number of partners, the standing of the firm, the revenue earning capacity of the firm among others. “They have to be graded in a meaningful way,” he said. Putting a cap on the amount of business that an audit firm can undertake would actually impact smaller audit firms. While quality review goals are not felt to be really stressed upon, “there are too many controls,” Santhanam points out. There is a need for a periodic review of the systems in place, he said. The Sarbanes Oxley Act has also said that systems in place need to be constantly reviewed and updated so that they are in tune with current practices. “Cheques and balances are important and these are some of the things that a chief financial officer has to address today because today it is no more just the question of only the accounting,” Santhanam said.
“We have to ensure that as the organisation
is spreading, we have to have a proper system. You have to look
for solutions outside the organisation to provide information for
thess type of things and we have to ensure that the IT system is
in place.” “By pressing a button you can have a consolidated view of the organisation from a financial perspective,” said Arjun Erry, director, sales, SAS India. “If you look at the investments that have gone into the organisations, they have mainly gone into transactional systems. For banks these are core banking solutions, for the manufacturing sector it is the entrepreneur resource planning solutions, hospitality industry companies are implementing property management systems. These are all essentially transactional systems. But, with the number of transactions increasing, different transactional systems in an organisation are also important.” With respect to independent directors, Santhanam said that the fact that these directors will not be made responsible for criminal and civil liabilities should encourage more such directors to sit on the board of companies. However, the only issue, according to Santhanam, is that independent directors in India are not paid well. “Internationally independent directors are paid $25,000 to come on board which is discouraging many companies in India from doing so,” he said. The committee has recommended that 50 per cent of the board should be made up of independent directors. Another issue is that independent directors have to be selected from different professionals such as doctors, surgeons or lawyers, teachers or a school principal. “But a little bit of training is required for them,” said Santhanam. He also suggested that the term of the independent director should be lengthened to around 15-20 years so that some continuity is maintained. “This time element is very important,” said Santhanam. |
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