Auditors will have moral challenges: Arun Maira

Interview with Member, Planning Commission of India

In the new Companies Act regime - with more stress on self-regulation by companies - corporate auditors may face CAG-like dilemma, says Arun Maira, member, Planning Commission of India. In an interaction with Sudipto Dey, the former India chairman of The Boston Consulting Group builds a case for reducing the number of regulations governing businesses - keeping only the necessary and effective ones. Edited excerpts:

Your first reactions to the new Companies Act.

After 50 years, we have a comprehensive legislation governing corporates. To my mind, there are three aspects of the new Companies Act to draw attention to. First, the whole idea is to modernise the structure of corporate governance. The second is the attempt to simply procedures. The third issue is the mandatory two per cent CSR (corporate social responsibility) spend.

The first two were long overdue. The responsibility is now shifting to companies to meet procedural requirements, and for auditors to vet them. However, I have a big problem with the third aspect.

Making CSR spend mandatory is a bad idea. The rest of the world is moving forward towards the concept of a corporate's broad responsibility to the society. Corporates just can't get away by spending three-five per cent on the side if the processes by which they do business are damaging the society or the ecology. There could also be a tendency of politicians directing that spend.

Will the new Act make it easy to do business in India?

India ranks very poorly when it comes to business regulation. The ministry (of corporate affairs) now needs to get into a consultation process with industry while the rules get framed. All the stakeholders need to participate in framing of the rules.

What, in your view, could the government do to further facilitate the ease of doing business in the country?

The country - at the Centre and the states - must adopt the practice of Business Regulatory Impact Analysis (BRIA), which many developed and some developing countries have adopted. In this process, the requirements of all stakeholders that could be affected by a regulation are understood. A systematic evaluation could be done of the impact of any proposed regulation, or of the existing regulations, too, on the stakeholders to devise the best regulations that will serve the purposes of society.

In this process, the numbers of regulations are also reduced so that only the most necessary and effective regulations are retained.

In the Act, a lot of stress has been put on the role of directors in a Board to meet corporate governance-related concerns. How well placed is this move?

It is inevitable that the roles and responsibilities of directors, especially independent directors, will get emphasised when companies want less regulation by the government, and more self-management of their own conduct.

Someone has to take responsibility that the company is doing the right things not only towards the shareholders but also the society.

How do you see the role of auditors changing under the new regime?

In the new era, in which companies want more self-regulation, the auditors will have increasing moral challenges. They cannot be just endorsers of the numbers the companies provide them. They will have to comment on whether the numbers provide sufficient information to confirm that the board and the company are doing the right things, too.

In a way, the dilemma faced by the CAG (thr Comptroller and Auditor General) - about mere audit of numbers or also comments on intent - will have to be increasinkgly faced by independent corporate auditors too.