The Competition Commission of India (CCI) has been taking a strong stand against cartel allegations, and imposing penalties against companies accused of cartelisation. CCI’s actions are in line with international developments, with over 120 countries adopting and enforcing anti-competitive laws. These laws aim to punish agreements or acts restricting competition and entities that abuse their dominance. They also aim to regulate mergers or acquisitions, which may have an significantly adverse effect on competition. PwC’s survey on global economic crime reveals interesting insights into anti-competitive behaviour around the world:
Anti-competitive behaviour accounts for seven per cent of the total economic crimes suffered by the organisations in 2011. The number is expected to go up to 16 per cent in the near future
Anti-competitive behaviour has doubled since 2009 — the second largest increase in types of crime after cybercrime
When the Companies Bill, 2011 (Bill) was last tabled in the Lok Sabha, it was sent back to the Standing Committee for review. Here are the comments and suggestions:
The Bill did not have any clause similar to Section 90 of the Companies Act, 1956, which is a savings provision for private limited companies with respect to types of share capital/voting rights, and so on — it is proposed that such provisions be included
With respect to corporate social responsibility, the minimum spend of two per cent appears mandatory with the use of the words “should ensure” instead of “make every endeavour to ensure”
Appointment of auditor should be subject to ratification at every AGM
Option given to the members of requiring rotation of partner and the audit team every year has been altered to “at such interval as may be resolved by the members”
Empowering members of a company to pass a resolution to reduce the number of companies in which the auditor or the audit firm shall be appointed as auditor, has been omitted
Auditor's liability to “any other person concerned or interested in the company” should be clearly defined, and not be left open ended
Whole time directors should also be included in the definition of “Key Managerial Personnel”
Technical defaults which are minor infractions of law should not carry criminal liability
The term private placement should be properly defined in the statute
Timelines should be prescribed with respect to purchase of own shares by companies
Board of Directors Report to include impact/implications of Government Directives on the financial position of a Government Company
Miles to go on forex dislosures
Markets have experienced significant volatility with the Rupee depreciating to its all time low. Current accounting standards require disclosure of foreign exchange gains and losses being taken through income statement; and only the related derivative losses being booked on account of prudence. However, these disclosures are not enough for analysts — they forecast a business’s future cash flows, but volatility around foreign currency makes it challenging for them. Hence, they are interested in:
What are the drivers of the foreign exchange gain or loss number reported in the financial statements?
What are the exposures the entity has to different currencies? How are they managed?
Whether FX risk management policy is compliant with changing RBI and other regulatory requirements?
This understanding of the entity’s strategy for managing forex exposure gives analysts insight into the quality and sustainability of performance. Managers could help analysts by making the additional disclosures.
Going after audit qualifications
In its press release on June 26, the Securities Exchange Board of India (SEBI) mentioned that a mechanism would be put in place to process qualified annual audit reports filed by the entities listed with stock exchanges and Annual Audit Reports, where accounting irregularities have been pointed out by Financial Reporting Review Board of the Institute of Chartered Accountants of India (ICAI-FRRB). This is to enhance the quality of financial reporting done by listed entities. It has been decided that:
Deficiencies in the present process would be examined and rectified;
Qualified Audit Report review Committee (QARC) would be created by SEBI to guide it in processing qualified audit reports;
Annual audit reports to the stock exchanges would be filed along with the applicable Forms;
Exchanges would refer these reports to SEBI/QARC;
Cases where qualifications are significant and Company’s explanations are unsatisfactory would be referred to the ICAI-FRRB. If it is opined that the qualification is justified, SEBI may mandate restatement of the accounts with a requirement to inform the same to the shareholders.