NOV 23, 2003
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Motherhood In
Advertising

Motherhood appeals in Indian advertising were once assumed not to change very much. Well, guess what?


Universal Advertising
So, which shall it be for the Indian market—universally watchable or culture-specific ads? The debate.

More Net Specials
Business Today,  November 9, 2003
 
 
LEADER
Four Under Peril
India's accounting fraternity is up in arms against what it terms 'the dishonest practices' of the Big Four accounting firms. Blame it on business rivalry.

Kashi Memani is a placid man. The 64-year-old Chairman and Country Managing Partner of Ernst & Young (E&Y) is rarely given to outbursts of anger and it wouldn't be entirely out of place to resort to the adjective grandfatherly to describe his demeanour. Ask him about the recent campaign against E&Y and others of its ilk-Pricewaterhouse Coopers (PWC), KPMG, and Deloitte Touche Tohmatsu-by the Institute of Chartered Accountants of India (ICAI), and, seemingly, the entire 1,10,000-strong Indian accounting fraternity-and he throws his hands up in despair and launches into an uncharacteristically high-pitched outburst on the unfairness of it all. The nub of his argument: he can't understand why Indian accounting's highest regulatory body should be targeting E&Y. "We don't even fall within the jurisdiction of ICAI, since we are just another consulting firm like Boston Consulting Group, A.T. Kearney, or McKinsey & Co. So why us?"

Point, Counterpoint
Illusory Spectrum Woes
MNC's In Trouble

That seems a reasonable question. E&Y, after all, isn't an audit firm in India; all audit is done by its associate S.R. Batliboi & Company, and it concentrates on professional advisory services related to taxation, risk management, mergers and acquisitions, and the like-all management consultancy services that it is permitted to offer according to Indian law. "We have been complying with all Indian government regulations all along," says Ian Gomes, the Country Managing Partner of KPMG, unable to hide his surprise at the campaign against his firm. Like E&Y, KPMG, PWC, and Deloitte do not operate in the audit business. That's taken care of by associates Bharat S. Raut (KPMG), Lovelock & Lewes and PriceWaterhouse (PWC), and S.B. Billimoria, Deloitte Haskins and Sells, C.C. Choksey, and Fraser & Ross (Deloitte).

In trouble: (L-R) Deloitte's N.V. Iyer, E&Y's Kashi Memani, PwC's Rathin Dutta, and KPMG's Ian Gomes

Still, the chagrin of the four is inexplicable. Distinction between the associates and the Big Four has always been vague; it is common for employees of the associates to move across to the parent's international operations; even within the country, it was always clear that auditors working for the associates were actually working for the parent, and that the associate-relationship was one of those necessary irritants engendered by Indian regulations. For instance, Memani himself spent most of his working life as a partner at Batliboi. And an internet search on K.R. Girish (one of kpmg's best known tax experts in the late 1990s, he is now a partner at RSM & Co, throws up the fact that the man "was instrumental in building KPMG's tax practice in the technology industry". Only Girish actually worked for Bharat S Raut & Co. This writer chose the Girish example because he, along with three other auditors (their surnames were Makhija, Periera, and Kapadia) applied to the ICAI in 1997 for registration under the name KPMG, a request that was turned down by the association in 2002 on the suspicion that this was a move by KPMG to take up audit work under its own name (For the record, the firm has always denied its role in the affair). The simple point is this: The Big Four cannot take refuge behind some fine-print distinctions now because such differences have never been clearly articulated before, and it is quite likely (as the Indian-lobby alleges) that companies may have given business to the associates on the strength of these relationships. The accounts of Infosys Technologies, a company listed on NASDAQ, for instance, are audited by Bharat S. Raut & Company.

"We are opposed to the commercial presence of foreign accounting firms in this country"
R. Bupathy/
President/ Institute of Chartered Accountants of India

That could explain why nationalism's stormy petrel and Swadeshi Jagran Manch founder S. Gurumurthy, a member of ICAI himself, is at the forefront of a campaign that accuses the four firms under question of allowing multinational audit firms a "backdoor entry" into India, even while the General Agreement on Trade and Services (gats) is still being negotiated by World Trade Organisation. This is backed by the claim that, although the Big Four have licences from Reserve Bank of India to operate as consulting firms, they provide "attestation and assurance services by using the device of surrogate arrangements". "How can they be separate firms when they sometimes operate from the same premises and use the same telephones," says an agitated member of ICAI. "We are opposed to the commercial presence of foreign accounting firms in this country," says R. Bupathy, President, ICAI.

His argument: the Indian accounting certification isn't recognised in the US and the UK, and non-professional barriers such as visas, residency requirements, and a high mandatory professional liability insurance prevent Indian accountants from making a mark in the west. "We are only asking for a level playing field," says Bupathy, who is convinced that while firms such as E&Y and KPMG may not be directly repatriating profits, they must be making some sort of payments to use the parent's name. PWC's Chairman and CEO, Rathin Dutta believes the entire controversy is unnecessary because, his company is "a member of a worldwide network of independent firms, each of which is a national firm in its country". He objects to PWC being described as "a multinational firm".

The real issue, however, is one of competition. Recently, when State Bank of India advertised for an auditor, it mandated that only firms with a turnover higher than Rs 500 crore could apply, a caveat that shut the door on all firms except the associates of the Big Four. And the local arms of multinationals display a justifiable-preference for the Big Four's associates. The Indian government will have to think long and hard about easing curbs on the entry of multinational audit firms but it is unlikely to do so given the political implications; why, while countries like China and Japan are working towards a single global accounting standard by 2005, India continues to be stuck in its groove.


Point, Counterpoint
The trading of charges in the ICAI-Big Four fight.

Charge: The Big Four are subsidiaries of international firms and indirectly pay some kind of fee to use the name.

Defence: They are Indian firms; they neither pay any royalty, nor repatriate any money to their affiliate partners, which, in turn, do not have any stake in them.

Charge: Since the Big Four have both audit and consultancy firms in their fold they enjoy undue advantages.

Defence: PWC (the consulting firm's partners could hold shares in the audit firm) acknowledges the existence of a relationship but claims that this has been done away with. The other firms say they never had this relationship.

Charge: The Big Four indulge in surrogate advertising which is against Indian laws.

Defence: Audit firms are allowed to advertise in other countries, and there is little they can do about such advertisements being seen in India.

Charge: Internal audit should be restricted only to accounting firms.

Defence: Internal audit is basically a non-statutory audit and can involve anything from auditing the production process to marketing of products.

Charge: The Big Four's presence in India weakens India's negotiating stand at the General Agreement on Trade and Services, which will discuss the entry of foreign audit firms into India on a reciprocity basis by 2005.

Defence: There is no reason why this should happen.

Charge: The audit firms connected with the consulting firms have become synonymous with them; they should break away from the consulting firm.

Defence: The audit and consultancy firms are separate entities there is no reason why this needs to be done.


CELLULAR TELEPHONY
Illusory Spectrum Woes

Hiving its retail business will cripple IOC.

India's cellular telephony companies, especially those providing services in the metros, claim the lack of spectrum is one reason for the poor quality of service (dropped calls, quality of reception, and the like). Numbers provided by India's telecom regulator show how far this is from the truth. Next time around, patient customer, protest.


MNCs in Trouble
Our take on who's right, who's not.

Pesticides in Colas
The Centre for Science and Environment tests samples of 12 leading brands and finds that all of them (including Coca Cola and Pepsi) contain pesticides in quantities far higher than those prescribed by European Union safety standards.
The Company Version: Our products meet all prescribed Indian standards.
Fact: After tests of its own, the government announces that the pesticide content in products of the two companies, is well within prescribed norms.
BT's Take: We'd like to wait for the Joint Parliamentary Committee investigating the issue to present its findings.

Worms in Cadbury Chocolates
Fungi and worms are found in chocolates.
The Company Version: It's not us, it's the distributors. However, we will see whether storage facilities at retail level can be improved.
Fact: Evidence of infestation has been found in too many samples to dismiss it as a one-off thing.
BT's Take: A responsible corporate should work towards improving its distribution-level processes rather than pass the buck.

Metro flouting India's retail laws
The Indian retail and wholesale trade alleges that Metro, a German retail giant that recently entered the wholesale business in India, is actually flouting Indian laws by dabbling in retail.
The Company Version: We respect local laws.
Fact: Metro is focusing on sales to retailers and institutions.
BT's Take: The government should allow multinationals to enter the retail trade, and Metro doesn't seem to have flouted any rules as yet.

Killer Cotton Seeds
Activists allege that genetically modified BT Cotton seeds (resistant to the boll worm) is destroying native seeds and could soon put farmers at the mercy of multinational seed companies.
The Company Version: International experience shows BT Cotton is safe.
Fact: India's cotton yield per acre is among the lowest in the world.
BT's Take: The environmental interests of the country must be protected, but it would be absurd to boycott GM seeds.

 

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