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?"
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
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.
are opposed to the commercial presence of foreign accounting
firms in this country"
R. Bupathy/President/ Institute of Chartered Accountants
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,
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.
The trading of charges in the ICAI-Big Four
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
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.
Illusory Spectrum Woes
Hiving its retail business will cripple IOC.
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.
Our take on who's right, who's not.
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.
After tests of its own, the government announces that the pesticide
content in products of the two companies, is well within prescribed
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.
Evidence of infestation has been found in too many samples to dismiss
it as a one-off thing.
A responsible corporate should work towards improving its distribution-level
processes rather than pass the buck.
Metro flouting India's
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.
Metro is focusing on sales to retailers and institutions.
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.
cotton yield per acre is among the lowest in the world.
The environmental interests of the country must be protected, but
it would be absurd to boycott GM seeds.