From the CNBC-Moneycontrol website -
https://www.moneycontrol.com/news/management/the-statethe-icai_430509.html
Given below, the excerpts from the scene that happened at a show on CNBC channel.
The State of the ICAI!
It is one of the country’s most important regulators and it is having a rather lousy year. The Institute of Chartered Accountants of India or ICAI started 2009 on the Satyam note. India’s biggest corporate fraud involving two PricewaterhouseCoopers (PwC) auditors, one of whom was an ICAI counsel member. It is ending the year with the ugly incident of an alleged Booth capturing during the council elections. A year that incidentally is the diamond jubilee year of the ICAI. What is going on at the ICAI? Is it a crisis of leadership or has politicking ruined this system? Can Chartered Accountants (CA) be asked to regulate their own fraternity or do we need an outsider to do so?
DD Rathi, Group Executive President, Aditya Birla Management Corporation and Sunil Talati, Former President of ICAI - year 2007 & 2008 and Senior Partner at Talati & Talati, discuss the issue.
Anchor: I should also mention here that we had two other members, who were going to join us at this panel Uttam Prakash Agarwal, President of ICAI and OP Vaish, Government Nominee at the ICAI counsel. Unfortunately Mr Agarwal disapproved of the fact that we had another counsel member here on this discussion and decided to leave the discussion seconds before we started.
Uttam Prakash Agrawal, President, ICAI said, “When the President is already with you I do not want that any other council member should be in the discussion. It is our protocol of our Institute, only the President go to the media. I will not be able to continue. If there are other people, its ok but from my own council, I can not. I can not break the rules as a President, other colleague may break the rules and regulations, I can not break as a President. Let other people take the enjoyment on a media level, I cannot. DD Rathi is there I have no problem. He is an outsider; I have no problem but two gentlemen are already in my council. Talati is my good friend, he knows everything. He will give you whatever you want, he is an expert. But on the screen we cannot sit together that is our protocol of the Institute. I am not participating. “
Anchor: Mr OP Vaish then little angered by the comments Mr Agarwal made and not wanting to be part of any controversy also stood up and left just seconds before we started this discussion. Unfortunately the two of them are not here. Mr Agarwal, I was hoping would defend his institute against the many allegations I have. But he is not here to do that, that task now falls upon DD Rathi and Sunil Talati.
Here is a verbatim transcripttt of an exclusive interview with DD Rathi and Sunil Talati on CNBC-TV18. Also watch the accompanying video.
Q: It has been a really difficult year for the ICAI. What is going on?
Rathi: I take Satyam and Booth capturing as one-off incidence. I am not worried that Satyam happened because not a matter of merely the institute. It is a question of very well organised fraud.
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Q: There are symptoms of the malaise that has afflicted ICAI. The inability to redress these situations and the fact that the system has become so political, you now have Booth capturing. This sounds like a political election?
Rathi: Really speaking Satyam fraud institute or no institute, I do not think it could have been avoided. CAs and auditors are not meant for detecting these kinds of frauds. I am saying that when I am not a part of practising fraternity so I must have little more confidence in what I say. But they are one-off incidence. Similarly, booth capturing, it maybe stupid act of one stupid individual, it cannot tarnish the image of great organisation like Institute of CA. But I see more and more challenges coming in FY11, when you will see lot of new regulations coming in like new accounting standards like International Financial Reporting Standards (IFRS).
Q: Is the ICAI equipped to deal with all of that?
Rathi: I think you are better person to respond to that question. But I am a CA with almost over 40 years of experience may not be in practise but of course in the industry and I strongly believe that what a little I could achieve is because of my qualification as a CA and as a member of the institute. I am very much attached to this profession but like anyone else I also feel sorry not because of these two incidence, which took place but a constantly lowering standard of the institute.
Q: Some candidates spent sums of as high as Rs 1 crore in election canvassing or campaigning. What is this, is this crisis of leadership, has this system become so political that we need to re-invent this system of appointing council members? What is going wrong?
Talati: I would put it as a mixed bag. These are aberrations, either you take Satyam or the last instance of Booth Capturing. Institute or any fraternity of chartered accountants should not be blamed for Satyam, it is a total failure of corporate governance and nobody is answering that. We have immediately taken action on that member and got him removed from all the committees. The disciplinary proceedings have started. There is a system which we have to follow, that is going on and not only media and the whole fraternity and citizens of India know that strict action will be taken.
Q: In annual report, there are almost three pages devoted to the yoga camp and to the orientation camp held this year and one small paragraph devoted to Satyam. If this is the importance in your annual report of what is one of the biggest incidents of fraud in corporate India and the way ICAI is dealing with it, this is a very sorry way of redressing this system?
Talati: I appreciate that and that what is the President’s purgative. One particular leader or leadership may or may act in a particular way.
Q: Are you saying it’s a crisis of leadership in this specific instance and not a systemic issue?
Talati: I would say this is a joint responsibility of the entire council.
Q: I have a set of questions that I was going to put to the President of the council. I have spoken to dozens of members of the council and CAs in the last three days and the allegations I hear against the President range from trivia, to absurd to very serious. For instance he asked for the President’s photograph to be put up in every branch Chairman and regional council Chairman’s office and this was put out by a circular. He made a public comment about ICICI’s Bank audit regarding mortgage situations, which was then retracted. A decanting note that came out then from the ICAI against the NACAS’s decision on Forex accounting, that was a serious descanting note because all of corporate India was confused is to why ICAI was taking a contrasting position to what NACAS had put out. I am told that the President and VP are at such loggerheads that they don’t talk to each other any more, just evidence of politics that has entered this institute. I am also told that lakhs of rupees were spent in this jubilee year on yoga camp and a cricket match and like I pointed out all we know of the Satyam report is that it is yet to reach fruition that is one small paragraph?
Talati: The issue of spending lakhs of rupees is one issue and let us not go into a family dispute that arises within the family. The question is of good governance. What is good governance? We have the healthiest of the tradition that council on the fist day gives majority of the powers to the President. In good faith these resolutions are passed and powers are wasted with the President. If one or more presidents are not coming up to the expectations of the fraternity or the council as you pointed out. But that is all in this year 2009 and we are here to correct all those.
Q: So you are saying these problems are only pertinent to this year 2009, this loss of quality only happened this year?
Talati: I won’t put it as a loss of quality. This is a different approach, different attitude and different working style.
Q: Mr Rathi is saying about declining standards?
Talati: I totally agree that yes, a highest ethical standard must be followed by every single CA.
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Q: Is that being followed?
Talati: I am really sorry to say but yes it is not being followed the way public perception is there.
Q: One more question about government nominees. There are eight on the council and they are meant to be there for an oversight, they barely even attend meetings and when they do that is for about 15-20 minutes. They are too busy with their jobs to be able to pay attention. Mr OP Vaish had admitted that to me on phone one day saying that the problem is we are not getting the participation that we need from government nominees and so there is no oversight, do you agree?
Talati: Yes and all of them are not in a position to attend fully and that is where the issue has to be addressed by them more than by us. When they are appointed with good faith by government it is their primary duty to attend.
Q: The next point that I am going to come to is the fact that there is just too much conflict in this entire situation. Would you be comfortable if Securities and Exchange Board of India (SEBI) was run by a broker? If the Chairperson of SEBI was a broker and not Mr Bhave or Mr Damodaran has been the instances in the past, where they are actually public service officials, officials appointed by the government. Would you have that much confidence in SEBI if it was run by a broker? If not which I suspect your answer is going to be Mr Rathi then why should we have confidence in a regulator that is run by the very same fraternity members that it proposes to regulate – Chartered Accountants?
Rathi: The system has worked even before I was born. From that day the system is working or maybe just about the time I was born. Fifty nine years of working, few years of not working up to that standard that doesn’t mean the system is bad. But yes there are key issues, which need to be addressed. Let me clarify, I do not endorse or deny what you said in your opening statement. But I would say if true and I repeat the word ‘if true’ then it is a very sad situation. But I do not know whether it is true or not.
Q: What the booth capturing?
Rathi: Not the booth capturing. The expenses you read out.
Talati: What I am trying to say is if you are focusing only on 2009 events and ignoring what has happened from 1949 to 2008 – it’s highly unfortunate.
Q: How are we concerned with the quality of regulation 15 years ago?
Talati: There is no question of conflict of interest. Chartered accountants are the best people to govern this and the time has proved; the regulators, the challenges have proved.
Q: Would you be confident in a SEBI that is run by a broker?
Q: Would you be confident in a SEBI that is run by a broker?
Talati: It is not a question of what SEBI is doing.
Q: Would you be confident in a market regulator that is run by one of the market participants?
Talati: If a perfect, valid gentleman is a broker and is head of SEBI, I would have not even slightest of the objection. That’s what has been happening all throughout an institute. Best of the professionals from the country are representing the institute.
Rathi: Let us turn it to a more productive side. Whichever maybe the system xyz, ultimately it all boils down to a question of good governance, best ethics and right people being in the place. Merely if you think that you change the regulator and everything will be set right, I will differ with you very respectfully. I feel sad that institute who is in power in my opinion in any case is drastically curtailed. They are not the only one who set accounting standards, they are not the only one who set auditing standards. They have participation but their role is getting diluted and it doesn’t make me happy. The fault could of the institute of council members or somebody else.
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Q: Whose fault is then? What is the problem there, if the problem is not conflict what is the problem?
Q: Whose fault is then? What is the problem there, if the problem is not conflict what is the problem?
Rathi: What is a council; the members are not the only constituents. Firstly, you have the council members who are to be elected. I think there has to be a quality of a council member.
Q: It was a question I was going to put to Mr Uttam Prakash Agrawal, I am going to now put it to you all.
Rathi: I am not a substitute.
Q: You brought up quality of the professional. CB Bhave, M Damodaran, look at the Insurance Regulatory and Development Authority (IRDA) regulators, they all have long track records of public service, government service all of that. What is the track record of any kind of regulatory service that any of these ICAI Presidents have? They are just practising chartered accountants. In fact the term of one year Vice President and one year is President means that they all very know before they become Vice President and President that they have only two years in a regulatory position, post which they are going to go back to private practise. I am told by many council members included that much of their time is spend furthering their own private interest because they are going to go back to private practise?
Talati: I would just not tolerate this remark. Let me clarify very clearly most of the council member elected are sacrificing their family life, they are sacrificing their professional practise. I am the sufferer; I know how much I have suffered. You are sighting exceptions as a set standard. Let me tell you in journalism – we have yellow journalism, all TV or all media are not bad. So, one particular person or group of people doing something not to the satisfaction of many cannot be blamed on the institution as a whole.
Rathi: How do you improve the quality of council? As I mention one is the council member itself – it has to be a high quality. One of the qualities of course rightly or wrongly has to be popular among the members because he gets elected, he doesn’t get selected. If you add a selection process then all rank holders will automatically become the council members. But let’s recognise that after all individuals set the standards, individual set the rules.
Q: Do we have quality members according to you right now? What do we need to do to ensure we have quality members?
Rathi: We could make the judgement but let me tell you how we can improve the process. Secondly, let us not spare the Electoral College itself. I cited to you one famous quote that “Citizens of the country get the type of government they deserve”. Similarly, the CA members will get the type of council members they deserve.
Talati: I very much appreciate.
Q: But why should India Inc or why should the investing community suffer the consequences of poor electoral choices of chartered accountants?
Talati: Let me say in a happy note that elections have been just over and fraternity this time have been conscious.
Rathi: Let’s talk of electoral reforms which we need.
Q: I understand there is a position of a CEO, which has in many over the past many years seen a diminishing of powers. Is one possible option to be that you return the council and its leadership the President and the Vice President to simply and advisory role and strengthen the CEOs role, allow the CEO to be someone who comes in from the outside who not necessarily is a chartered accountant and he is the person who then sets the long term agenda for this institute who ensure that there is unbiased regulatory work going on?
Rathi: Let us strike a balance between the things. What we are trying to say that 26 elected members will perform poorly as compared to one executive. It will be difficult for me to agree to that. I am not out of 26 and I do not want the position of that one person either. Let me give my independent frank opinion, you need to reform the election process. You need to refine or you need to balance the position of secretary, which you call it CEO I call it secretary position and have a balance between the two. You definitely need a strong secretary, who must have the courage of conviction to stand up and say that look if this expenditure being incurred is wrong it is wrong. He must rise to the occasion and say that. But merely by replacing the council, all the powers going into one executive it is replacing by one smaller evil by bigger evil. I do not know, I do not have a reply because we have not tried that system.
Q: Are you in favour of separating the regulatory role from the role of training, educating and qualifying chartered accountants? Do you believe that the ICAI needs to have two separate roles as is the case in many countries, where the body itself does not regulate its own profession?
Rathi: Some is many, many is many. We are just thinking of replacing one system.
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Q: I am asking, I am not saying we should.
Rathi: I do not think you should.
Talati: We are the second largest in the world except two countries nobody has such a divided role - Regulator’s function for the members for the students.
Q: What can we do to improve this system? Even if your anguish is that right now most of the problems lay on the door step of one or two individuals – what do we do to improve the system? For instance I am told that the President can be elected even by a very few number of votes because of the preferential voting system. Does that system need to come to a correction?
Rathi: No. Actually do not elect president of the institute merely elect the Vice President of the institute.
Q: What difference is it going to make?
Rathi: It is going to make a difference because a Vice President should not be ensured perhaps or begin with a President. Think about it. Time has changed, the world has changed, you have enough number of reforms, which you can make.
We have an old system, when we did not have computers you know that a member can only vote at a designate booth, why he can vote anywhere, now we do not have problems on that.
Q: How is it going to ensure better quality of people being elected?
Rathi: A lot of the senior people on the days of election they travel – what you are trying to tell me and I defer with you. Let me take that chance today that if you have problem in your finger instead of treating it through antibiotic please chop off your hand, we can’t do that.
Q: How deeply set in the corruption?
Talati: It is for the fraternity now to wake up and see yes everybody votes and selects the best of the council. Recently elections are over. I am confident that this council should be one of the best council.
Q: On what basis are you hoping that this would be a good council when this same process is at work in electing this council and has been at work? In the last two years electing the earlier leaders who you are unhappy with?
Talati: I am very happy that you are asking this. I am telling you confidently that the message has gone loud and clear that if we are remaining inactive that is what the democracy say that more damages are done by literate people by remaining inactive rather than illiterate people doing wrong.
Q: So you do not think anything needs to change?
Talati: Only thing the approach attitude and the extent that they are have found shortfall.
Q: Approach and attitude has to come from within?
Rathi: Let me come back to you, merely by changing the regulatory rule what are you going to achieve.
Q: I am not, I am asking you, do you agree or believe that it has to change- Mr Talati is saying very clearly that nothing needs to change except the attitude.
Rathi: Not attitude. The whole process has to be reformed. I am always against reservation but look at the participation of members in industry. I blame myself partly for that is zero.
Q: Actually that is a good thing because I am not really sure, we had various corporate representatives while they were still serving their corporate jobs as part of the council or otherwise as part of the governing body whether that would lead to biasness in any form or allegations of biasness because that just creates one more layer of opacity- you do not need interest groups as part of the governing council in any fashion?
Talati: I would say that yes institute is the appropriate and perfect body. Council election and election of Vice President is time tested, repeatedly discussed and decided in council 10 times, in my nine year tenure and we all feel that this system is fine. If at sometime, some people or some good governance is missing it is right time to be awakening.
Talati: I would say that yes institute is the appropriate and perfect body. Council election and election of Vice President is time tested, repeatedly discussed and decided in council 10 times, in my nine year tenure and we all feel that this system is fine. If at sometime, some people or some good governance is missing it is right time to be awakening.
Q: So you are saying that leadership of the last few years is an aberration, the call is already gone out to the fraternity to elect better leaders. Are you hopeful of change starting with this new council that is being elected which we will know of in January?
Talati: Absolutely, February 5.
Rathi: Simple. I think the process is the regulations, the rules all that are time tested. The problem has been with implementation and modifying them in line with the changing times. I think council has to rise to the occasion, rise above their own personal interest, if any I do not want to go into debate that they have or they do not have and look towards development of the professional, look towards bringing back the profile the professional had few years back and enrich it.
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