It’s a great pleasure for me to present the Second Issue of the RTI Newsletter for September 2013. There are some developments that has taken place after publication of last issue are worth mentioning. . During the six month we conducted 25 courses on non-EDP side and 15 courses on EDP side. Though all Non-EDP and EDP trainings were highly appreciated by trainees among non –EDP courses, courses like Audit of PPP Projects, Awareness of ISSAI’s, Au-dit Evidence, Audit Reporting, Com-

munication & Motivation, All India Workshop on Facilitation skills, All India workshop on corporate govern-ance, All India Training Programme on Development skills were all time hit. On EDP side Courses like EDP training for newly promoted MTS, IT Audit, All India Training on DBA ac-tivities, All India training on Training for Trainers in IDEA were highly ap-preciated by trainees. In addition to these trainings we had mid-term RAC meeting to re-view the training process of this RTI. Training performance of RTI was dis-cussed during the RAC meeting and RAC members appreciated our ef-forts in training.

Abdul Rauf

Principal Director

From P. D’s Desk

Issue Date- 30th Sept. 2013 Issue 2 Year 2013

Indian Audit & Accounts DepartmentIndian Audit & Accounts DepartmentIndian Audit & Accounts Department

Regional Training Institute, MumbaiRegional Training Institute, MumbaiRegional Training Institute, Mumbai

NewsletterNewsletterNewsletter

Our Mission :-

To organize and

conduct training courses in strategic skills in general sub-jects relating to audit including Corporate F i n a n c e /Governance, Munici-pal Audit.

To impart requisite

knowledge and skills in information tech-nology to enable audit of information systems and to pro-vide essential EDP skills.

To act as a develop-

ment centre for courses / course-ware for delivery of these courses in In–house training units and training centres.

Inside this issue:-

Courses we conducted/Photo Gallery 2

An Article on Corporate Governance 3-5

Crossword 6

Contact Us :- GN Block, Plot No. C-2, Bandra Kurla Complex, Behind Asian Heart Institute, Mumbai - 400051 Ph-022-26521902, Fax-022-26522627

A life spent making mistakes is not only more honorable but more useful than a

life spent doing nothing.

George Bernard Shaw

Page No.

2

Courses we conducted during the 6 months

General Courses :-

1. Accounting and Auditing Standards &

Analysis of Financial Statements including

IFRS

2. Schedule VI Major Changes

3. Writing of Annual Performance Assess-

ment Report (APAR)

4. Audit of PPP Projects

5. Regulations on Audit & Accounts

6. Awareness of ISSAIs (Three courses)

7. Audit Evidence (Three courses)

8. Audit Reporting (Three Courses)

9. Statistical Sampling in Audit

10. Preparation and Conduct of DPC Meeting

and maintenance and Implementation of

Rosters

11. Internal Control and Internal Audit

12. Induction course for AAOs/AOs

13. Communication and Motivation

14. Preparation and Certification of Finance

Additional / Special Trainings Seminars

1. All India Training on DBA activities of VLC Oracle 11g (Two courses)

2. All India training programme on Training for Trainers in IDEA

3. As per Hqtrs directions 2 days programme on Performance Audit was arranged at RTI,

Mumbai on behalf of National Institute of Financial Management (NIFM), Delhi for the

officers of SAI, Nepal

4. A Half day seminar on Working in Harmony was conducted for the Officers and Staff of

RTI, Mumbai

Accounts and Appropriation Accounts

15. All India Workshop on Facilitation Skills

16. All India Training Programme on Cor-

porate Governance

17. All India Training Programme on Devel-

opment of Management Skills

IT Trainings :-

1. MS Word

2. Special course in EDP for newly re-

cruited MTS

3. MS Excel (Two courses)

4. IT Audit (Level 1a) (MS Word & Excel)

(Three courses)

5. MS Office (Word, Excel, Power point)

6. IDEA (Two courses)

7. IT Audit (Level 1b) (Concept of IT Au-

diting)

8. MS Access

PHOTO GALLERY

Training for SAI Nepal Officers Oracle DBA Training

Oracle DBA Training

Corporate Governance

Train the Trainers

Train the Trainers

SAI Nepal-Performance Audit

3

Introduction

The idea of 'Corporate Governance'

has been gaining currency over recent

times. In India, the New Companies

Bill, 2013 contains provisions which

emphasise on Corporate Governance

as never before. Some of these are -

increase in the number of directors,

provision for resident directors, de-

lineation of the term 'Key Managerial

Personnel' and independent directors

in the statute, expressly specified du-

ties of directors, statutory provisions

on Nomination and Remuneration

committee and norms for Audit Com-

mittee. If we have to understand the

reasons for its increasing influence in

modern times, we may do well to

study its genesis and evolution from a

historical and socio-economic per-

spective. The term 'Corporate Governance' sig-

nifies that it is applicable to

'Corporates' and that it is a system of

'governance'. The dictionary meaning

of 'governance' is 'to rule', 'to control',

'to direct' or 'to influence something'.

'Corporate Governance' is a set of ei-

ther recommendatory (guiding) or

mandatory (legally established) prin-

ciples, which would ensure that the

affairs of a 'corporate' body are car-

ried out in the best interests of all its

stakeholders. The term 'Corporate' is

explained in the following paragraphs.

Pre-Industrial era ethics

Till the dawn of the Industrial Revolu-

tion, most economic activities were

run by self-sustained proprietary enti-

ties, largely based on agriculture (with

a landlord as the proprietor and culti-

vators as his workforce) and a minor-

ity engaged in businesses (artisans

and traders). All these activities were

mostly hereditary and hence there was

a job for everyone and there was a

person for every job. There was inher-

ent specialisation and assured employ-

ment. There was always enough for

meeting everyone's needs. Needs were

limited. Greed was practically un-

known. Contentment was the order of

the day, leading to inherent ethical

standards, as there was no necessity

for aspiring for anything beyond

what was already available and thus

no need for competition. Social clans and trade guilds were

built along the lines of occupation.

The concept of family honour and

reputation of these individual clans

or guilds and their individual mem-

bers was built around their excel-

lence in their respective occupations.

The zeal to ensure this reputation

reflected in their value addition to

the society. Thus, there was an in-

built system of work ethics which

facilitated commitment and responsi-

bility.

The Industrial Revolution

With the Industrial Revolution, soci-

ety saw a sea-change. Traditional

occupations were zealously replaced

by assembly-line production on ma-

chines. Focus shifted from agricul-

ture to industry. Artisans lost their

relevance, as mills would produce

standardised output in a day of what

they could produce in a month. New

medicines evolved which banished

old world diseases, improved lon-

gevity, reduced death rates and

thereby increased population. There

was a large pool of unemployed la-

bour, which was soon absorbed into

the ever-growing industries. As with all other novel ideas, all this

was mistakenly considered as a

panacea for all ills and that it would

lead to a land of milk and honey.

Demand grew with population and

with the temptations of novel goods

available in plenty. The satiation of

needs was replaced by increasing

desires and greed for pleasure. Ava-

rice replaced legitimate ambition.

With this, work ethics also changed.

There was less of commitment and

responsibility and more influence of

the lure of profits. The only factor

that would counter-balance this was

market competition as the forces of

demand and conspicuous consump-

tion could be curtailed only by the

sword of rising prices. The old pro-

prietary or guild system of govern-

ance could no longer sustain this

(Continued on page 4)

Corporate Governance

4

onslaught. In this competitive environment, initially,

large-scale exploitative industrialists gained

the upper hand, while smaller businesses

could not survive. There was a commensu-

rate rise in banking and credit systems. Due

to growth in business, the necessity of draw-

ing credit grew. But, due to volatility, de-

faults became common. Defaults were costly

for businessmen, as not only were their busi-

nesses at stake, but also their personal for-

tunes would be attached by lenders in case

of default. The need arose for smaller businesses to

consolidate. This led to the emergence of a

new form of business entity, known as a

'corporate' entity. The distinguishing feature

of 'corporate' entity was that it had a separate

legal status from its proprietors. The provi-

sion for attachment of personal property of

businessmen owning these entities, for meet-

ing the liabilities of these entities was lim-

ited to only the businessmen's stake or funds

invested in the entity and not to their entire

personal wealth. This was called 'limited

liability' as opposed to the 'unlimited liabil-

ity' of proprietary firms. Laws had to be framed to accord recognition

to this new concept, under which 'corporates'

would be 'born' as soon as they were regis-

tered or 'incorporated' under the relevant

laws. Examples of corporates are companies,

co-operative societies and such other regis-

tered bodies. This provided balanced market

competition, which acted as a bulwark

against domination by a few exploitative

groups and restored order and a sense of re-

lief for entrepreneurs. However, this brought

with it a fresh set of problems.

Corporate Control

Without the fear of loss of personal property

in the event of business default, entrepre-

neurs became over-enthusiastic. They started

resorting to unethical practices to stem com-

petition. Over-trading and over-exploitation

of resources and profiteering by promoters/

directors/ major share-holders at the cost of

other stakeholders became the norm, which

soon caught the attention of law-making au-

thorities. A need was felt to impose restric-

tions and controls on business practices, for

transparency in accounting and management

and representation of all stakeholders. With rampant growth, stakeholders were no

longer just the businessmen and creditors.

The state had an interest in tax revenues from

these large businesses. Employees' groups

emerged to protect employees' interests. Con-

sumer activism grew to protect consumer inter-

ests. Large sections of the general public had

also developed an investment culture by invest-

ing in shares, debentures and other securities of

companies. Thus, it increasingly became the

state's responsibility to ensure the credibility of

its entire economic system by preventing unethi-

cal and uncontrolled activities of corporate enti-

ties. Corporate activities by now formed the larg-

est chunk of economic activities of any state. All over the world, restrictive and regressive

laws were framed to restrict and control activities

of managements of corporates to conform to

strict standards, such as industrial licensing, la-

bour laws, consumer protection laws, environ-

ment protection legislation, revenue legislation,

tariffs (e.g. : -tariffs for insurance in India), pro-

duction quotas (in communist economies) and

control procedures (Controller of Capital Issues

in Indian capital market), etc. Powerful agencies

were established under each law with nearly di-

rect investigative and punitive powers. Some

countries even briefly toyed with the idea of

'nationalising' all businesses (irrespective of

whether they were core areas of priority for gov-

ernment functions or not), inspired by the short-

lived ideas of socialism and its extremist version,

communism. This phase was also characterised by growing

scale and complexities of business operations,

growing population, creation of new agencies

and intermediaries in goods and service deliver-

ies for employing this population, rise of interna-

tional trade, rise of information technology and

over-taking of the industrial sector by service

sector. These were areas of new challenges. Governments could no longer afford to impose

direct stringent control or restrictions over corpo-

rate activities. The degree of complexities which

both mundane and important activities have de-

veloped is evident from the following examples. In ancient times, a brave Greek soldier called

Pheidippides is said to have run over 40kms.

from Marathon to Athens to deliver the message

that the Greeks had defeated the Persians in bat-

tle. He then lost his life due to sheer exhaustion,

after this 'marathon' effort. This was an example

of a hard-working, but simple, direct and dedi-

cated method of doing work. . In modern times,

probably a similarly placed messenger would

prefer to send a video of the Greeks winning the

battle over a Chinese-made mobile, running on

Indian software, with the help of mobile towers

made of metal from Africa and technology de-

Continued on page 5)

5

veloped in the US, technology which the user

would barely even understand, let alone control. Another example is that of TDS returns in In-

dia. A government office used to file paper

TDS returns manually directly with the Tax

department and issue deduction certificates.

Now, the computerised returns have to be filed

with an agency called NSDL at a cost and TDS

certificates have to be generated online from

another agency called TRACES.

This reflects the multiplicity of agencies, the

complexity and the wide-spread and uncontrol-

lable nature of modern business. In a way, all

this has become necessary to accommodate

economic wants of an ever-growing population

guzzling more and more resources in a quest for

more and more personal and selfish comforts,

irrespective of the ethical effects. With such

tendencies becoming all ‑ pervading, govern-

ments across the world realised that these obvi-

ous changes were irreversible. Direct stringent

controls would not only not work anymore, but

also, on the contrary, depress genuine business,

discourage enterprise, reduce efficiency and

give scope for authoritarian and corrupt re-

gimes. This would result in a most undesirable

situation. Only the market mechanism which

would force prices beyond the reach of ever-

demanding customers would impose austerity

and operate to ultimately curb such tendencies.

Corporate Governance for free and fair

competition

Ultimately, the benefits of free competition and

market determined economic system were re-

discovered. What was required was only the

addition of the idea of 'fair' competition as well

to make it 'free and fair' competition. The gov-

ernment now only needed to facilitate and guide

the functioning of corporates by establishing

codes of governance and ensuring their imple-

mentation and not to smother business or artifi-

cially stifle competition by imposing restric-

tions and interference. Thus, was born the idea of modern 'corporate

governance' whereby the system of regulatory

agencies without direct intervention (e.g.: -

IRDA, SEBI in India) was emphasised upon.

Corporate Governance implied strengthening

and broad-basing internal management and con-

trols, encouraging voluntary compliance and

self-regulation by corporates. Government

would step in only by imposing penalties on

defaulting entities. For this, internal non-

governmental framework of checks and bal-

ances would be created, rather than imposing

Government licensing or the Government

perennially investigating entities directly for

compliance of laws. Corporate Governance codes give all stake-

holders a sense of security that the business

practices of the corporates are credible, fair,

transparent and in the best interests of all

stakeholders, the society and economy at

large. In India, during various periods of

time, both when direct government controls

operated and when these were relaxed, de-

tailed provisions were introduced in statutes

and rules and regulations thereunder, as given

below. These were to ensure promoters'/ di-

rectors' stake and responsibilities and partici-

pation in the business, internal control sys-

tems, independent directors, representatives

of minority shareholders, creditors and differ-

ent classes of shareholders, government

nominees on the governing bodies of corpo-

rates, such as Board of Directors of compa-

nies, etc. Management responsibilities were

also tightened by including provisions for

directors' remuneration and Directors' respon-

sibility statement on accounts. Independent

Audit, formats for detailed auditors' report

and opinion on true and fair view presented by

accounts and provisions for audit committees

were introduced. Attendance of directors in

board meetings, quorum, etc., thereby ensur-

ing participative management, was enforced

by laying down legal provisions. Limitations

on number of directorships in Companies,

etc. were imposed for ensuring competence,

focus and commitment in corporate manage-

ment. Submission (manual and later elec-

tronic) of returns on various aspects of corpo-

rate functioning were introduced. The profes-

sion of Company Secretaryship was given

statutory recognition. Secretarial Standards

and compliance procedures are also now be-

ing implemented as part of corporate govern-

ance. Facilities like allowing payment of divi-

dends were linked to prudent provision of

depreciation, thereby encouring voluntary

compliance. Clause 49 of SEBI’s listing

agreement lays down corporate governance

norms. As and when loopholes are observed, such as

the ‘Satyam” scam of the recent past, new

measures are being put in place to plug these.

Thus, Corporate Governance is a dynamic

and evolving concept, which need to keep

track of changes in the business environment.

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F inance Crossword

Across 2. The month of an option or futures contract that has

the latest delivery date

3. A stock index

7. A debt instrument

8. A Capital Budgeting Technique.

11. US law to tighten corporate reporting

12. A Financial Statement

Down 1. Difference between buying and selling price of a

security

2. The value printed on the security document.

4. A person or company who buys book debts from

another person or company

5. The lender of last resort for the Government.

6. Gift by will

9. Level of a company's net debt compared with its

equity capital.

13. A charge that discourages withdrawals by investors

before maturity

14. A demand by a company to shareholders to pay a

further instalment on partly paid shares.

RAC Meeting