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“Consolidation of accounts is a must….” - Views on News from Equitymaster
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  • Oct 20, 2000

    “Consolidation of accounts is a must….”

    A Chartered Accountant by profession, Mr. Rajesh S. Shah is the President of Bombay Chartered Accountant Society. He has more than 20 years of experience in auditing and taxation. He is also a lecturer in colleges for 12 years.

    In an interview with equitymaster.com, Mr. Rajesh S. Shah spoke about the role that Bombay Chartered Accountants’ Society has played in reforming accounting standards. He also shared his views on consolidation of accounts and future prospects of chartered accountants as a profession.

    EQM: How have BCAS as an organisation played in reforming accounting standard in India?

    Mr. Shah: BCAS is a voluntary organisation of 7,800 practicing chartered accountants. Our main thrust is on improving the existing accounting and auditing standards and enunciate the need for it to those who are practicing auditing.

    As we are more concerned about accounting standards, we have initiated a research wing where we practically go through each and every accounting standard and advice our members on how it has to be followed. Moreover in the last five years, we have published three or four publications, which indicates how standards have to be followed, various methods of accounting by various auditors, pitfalls and grey areas.

    So, the journals from our institute are basically with an objective to help them in understanding various accounting standards and how each auditor handles it. Moreover, we are planning seminars on emerging norms like borrowing cost of related parties, which is expected to come at any time. Within 6 months our institute would be coming out with a minimum of 8-10 new accounting standards in line with the international best practices. Basically we want the accounting standards to be followed in the same spirit for which the institute was promulgated. Definitely these initiatives have helped us in enlightening our members.

    EQM: Since a lot of consolidation is happening in the industry right now, when do you think consolidation of accounts would become mandatory for Indian companies?

    Mr. Shah: Consolidation accounting in necessary given the fact more and more companies are registering outside India and so they have started following the US-GAAP. Yes, I agree that we are lagging behind on this front to a great extent. But, we have been representing from our side to emphasize that consolidation of accounting must be done.

    However, I think, it may take anywhere between 6 to 8 months to actually start implementing consolidation of accounts as uniformity in accounting standards is required before we start consolidation accounting. Unless this is done, it won’t make any sense.

    EQM: Which accounting method do you think should be followed for consolidation? Is it pooling of interest method or purchase agreement method?

    Mr. Shah: There have been different opinions about this but we feel pooling of interest method is the better one as post-consolidation, the interest of both the parties in the new entity has to be pooled in to quantify the synergy.

    EQM: Should not the companies come out with a quarterly balance sheet along with their results?

    Mr. Shah: Yes, companies should come out with quarterly balance sheet along with their results. But again it would be an unaudited balance sheet and there are some grey areas. First, it would be difficult for the company as well as for the auditing firm to prepare quarterly balance sheets. Second, you need proper back-office systems to come out with quarterly review, which most of the companies do not have. But going forward, I see this happening over the next four or five years.

    EQM: Where do you see profession of Chartered Accountants five years down the line?

    Mr. Shah: If you see the way things are moving right now, I think within two years the whole scenario of accounting standards would be changing given the fact that more and more companies have started to follow the US GAAP. To this extent I think the profile of CAs would also change from a mere tax planner to a wider spectrum. The focus would be on US GAAP, Mergers and Acquisitions and other international accounting standards. Today lot of back-office work for US companies is done in India, I foresee that the US companies would set up their back-office systems in India to do their international tax planning also.

    EQM: Could you please tell us your view on integration between institutes like ICWAI, ICAI and ACS and when do you see that happening?

    Mr. Shah: Still it is a very nascent stage because there are lot of procedural cum organisational policy differences between institutes, which have to be sorted before integrating our operations. Moreover, partnership agreements and disciplinary regulations also need to be resolved for smoother flow of accounting and auditing standards.

    I personally welcome this move as we would be able to offer all services under one roof, be it, accounting, auditing, tax planning, costing, law and secretarial functions. But, I think integration would take atleast four to five years.

    EQM: Please tell us about your favorite books and personalities those have influenced you?

    Mr. Shah: ‘First Things First’ by Stephen Cole, as it puts forth how to prioritize work and attitude.

    I like our Prime Minister Atal Bihari Vajpayee since he has kept his identity separate from Bharathiya Janata Party.



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