A closer look at whistle-blowing

PwC’s survey on whistle-blowing reveals interesting insights into the mechanism, whichtranscends from a bandwagon effect.

Highlights of the report are:

Whistle-blowingis becoming a common means to stem misconduct and unethical behaviour. Seventy-one per cent of respondents confirmed having a formal whistle-blowing mechanism in place to combat economic crime.

Non-reporting of unethical practices can be attributed tocorruption and lack of proper legal framework in India.

Fifty-seven per cent of respondent organisations do not give access to external stakeholders. On the contrary, providing access to whistle blowing arrangements to third parties will reflect high standards of ethical practice.

Ninety-seven per cent of organisations allowed anonymity of the complainant, but only 78per cent had a supporting non-retaliation policy for the user of the mechanism.

Some myths about audit

There are certain misconceptions tagged to the auditing profession, the result being the widening expectation gap between the user, society, and auditor:

That an audit is a guaranteeof the efficiency and effectiveness with which the management has managed the affairs of the entity.

That an audit is a guarantee as to the future viability of the company.

Anauditor’s unqualified opinion is to be regarded as a clean chit with regard to financial health of the entity.

The financial statements of the entity are free from any fraud/error.

An audit endorses an entity’s policy decisions.

Theauditor’s opinion is a comment on the use of entity’s resources.

An audit provides a positive assurance that a business is a safe investment, and will not fail.

A clean audit opinion provides assurance that future events will not affect the entity’s ability to continue functioning.

Sorting out complexities

Some best practices that can help companies in dealing with the complexity and managing their tax accounting are:

Integrating accounting and tax functions to make sure they work together seamlessly.

Considering software solutions other than Excel.

Performing the tax calculation concurrently or earlier on in the financial reporting cycle, than at the end.

Considering and planning for tax consequences of planned transactions.

Preparing adequate supporting documentation.

Keeping track of changes in tax regulations and thinking through the impact.

Regular updates and training for tax practitioners.

Call for more clarity on tax positions

There is a lot of debate around this topic internationally. Those who set the standards in the US came out with prescriptive guidelines on this topic a few years ago, which require companies to follow a rigorous two-step approach to identify and account for such transactions. The associated disclosures have been a bone of contention, since they potentially give away a lot of sensitive information to the tax authorities and invite additional scrutiny. International Financial Reporting Standards (IFRS) does not address the issuein specific, and practices vary.Generally Accepted Accounting Principles (GAAP) in India donot have any specific guidance on this topic. Areas where the law is not clear include transfer pricing, determination of the tax status of a company and acceptability of specific deductions claimed.

Accounting for carbon emission rights

Accounting practices for carbon emission rights (CERs) vary. CERs represent a unit of greenhouse gas reduction that has been generated by an entity, and certified by the UN under the Clean Development Mechanism provisions of the Kyoto Protocol. Examples of projects generating CERs include reforestation schemes, and investment in clean energy technologies. The entity that receives CER certificates can trade or sell them to other entities, or may use them to fulfil a company’s or group’s requirements as part of the EU emissions trading scheme. To ensure consistency, the Institute of Chartered Accountants of Indiarecently released a ‘Guidance Note on Accounting for Self-generated Certified Emission Reductions’. This guide deals with the followingareas: whether CER is an asset; when should it be recognised, and how to measure it; and presentation and disclosure requirements.

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