When a promoter chairman of a large company was asked about the two top items that were bothering him, he said “Compliance and more compliance”.
Regulatory overload
One of the main reasons is several regulators have stepped in with a host of compliance requirements notably in the Financial Services domain — RBI/SEBI/ Corporate Affairs/NFRA/IRDA to name a few. The common thread among all regulators is to improve the overall compliance ecosystem and thereby protect the interests of all stakeholders notably small investors. But the variance in approach among the regulators must be avoided.
A fast growing company needs a robust internal compliance system in place — strong enough to ensure that all returns are filed on time and accurately. With the growing threat of cyber attacks compliance focus in this area is getting more attention.
There are customised compliance tools available and adopted by companies to handle the area of compliance but manual intervention is a must for cross checking. There are also a host of regulations covering factories and labour laws across the Central and State domain which need to be covered.
Almost every notice of any statutory authority is being shared with the Audit Committee with elaborate discussions on the manner of dealing with the same.
The financial impact particularly relating to income tax and GST are huge and could dent the net worth of even the strongest of companies.
The entire Audit machinery — Both Internal and Statutory — focuses a lot on compliance part in the presentations bringing out some of the best practices as well. There are two parts of compliance which get equal attention.
Technical and procedural
One is the technical part of adherence to regulations and the other is the procedural part of filing before the authorities. On the technical part if there are issues of interpretation one has to deal with the pros and cons of the view taken. On the procedural part there cannot be any compromise on the timelines and and the accuracy of the information reported. The challenge before the Compliance team is that sometimes the same information is being sought by different regulators except that the form is different.
So is there a solution to the above mentioned issues? There has to be a fine balance between - Doing business vs dealing with compliance.
The crucial question here is — What is the yearly capex and opex cost of compliance in a year and how do we measure the tangible and intangible benefits derived from it?
Should this cost be monitored as a percentage of turnover or the size of the balance sheet? It is a no brainer that smaller companies have limitations on compliance cost spends and prefer to outsource the same.
Cost of fire fighting is a separate cost altogether. It will be ideal if the respective regulators along with the companies come up with a common compliance tool or kit which can serve as a meeting point. This would ease the compliance burden.
As costs of compliance keep mounting should there not be some incentive scheme for companies incurring these costs? After all it is the image of India Inc that is at stake. We cannot get into a situation where the companies feel that paying penalty is an easier option than compliance. The day is not far off when the Chief Compliance Officer will become more powerful and invincible than the Chief Executive Officer.
The writer is a Chartered Accountant