In this edition of MyInd Interview, Pramod Kumar Buravalli, the co-founder of MyInd.net, spoke with Raghu Aiyar, Senior Partner & CEO , KS Aiyar  & Co, Chartered Accountants.

They discussed about the Launch of India’s first global Indian Head Quartered Audit Alliance - The KS Aiyar Alliance

1.         Please tell us about KS Aiyar and Co? How did your journey into the world of Accounting begin?

K S Aiyar & Co, is the first Indian Audit firm, and is currently in its 121^st year and counting. Mr Kalyan Subramani  Aiyar  the founder of the firm is recognized as Father of Accountancy by the ICAI and is the founder of the Sydenham College of Commerce in Mumbai and founder of Byramji Jeejibhoy Institute amongst his other contributions to the profession.  Being a visionary and committed to the profession he was responsible for having articleship (internship) training in India recognized – until then interns had to sail to the UK to complete their training.

Being an admirer of my grandfather Late Shri Arjun K S Aiyar, it was natural for me to select the Chartered Accountancy profession. Qualifying on the exams, I joined the firm, and worked my way up in the firm. I am also a member of the American Institute of CPA’s, and worked in the US, and aam  Associate member of  Chartered Institute of Arbitrators, UK, besides being a qualified software professional, with a Bachelors in economics, mathematics and statistics. Its been a good 3 ½ decades in the profession and in   external auditing in particular  which is my chosen line.

2.         Before the British era started and the process of British Law taking over all aspects of Indian Life, what was the Accounting practice followed in India?

History tells us that India was a prosperous country and had trade relations across the globe both far and wide before the British era. Our cloth and spices amongst many other items were in great demand across the world.

The flow of the Indian GDP as a proportion of world GDP is an interesting statistic. India's share of world GDP was:

13th Century Before Moghuls invaded - 44%

When Moghuls left - 24%

When Brits left in 1947-  4%

When Congress Left (2014) - 1.6%

Now after 2014 the graph is once again Moving up - Courtesy Hon Narendra Modi .

It is therefore  conceivable that India during that period had the best of accounting systems and methods  when it had such a  large  presence in Global GDP. In fact it t went well beyond accounting systems where , a Kautiliya was  perhaps the first economist who understood the link between ethical conduct of business and prosperity – something that reads like a page out of the current day corporate governance research!

3.         The past hundred years have seen a lot of turmoil in the Auditing and Accounting world. Every Company that has seen their fortunes dip or worse, plummet towards bankruptcy seem to be indirectly blaming their Accounting Departments. Are Accountants always the elephant in the room?

Accountants as book-keepers record a transaction as it happens or after a transaction has been completed. Accurate accounting and recording of business transactions of a company reflects the financial health of the company. While accountant records the transaction, the decision to originate the transaction is generally not with the accountant, much less with the auditors. In such a situation if the company has suffered any financial losses, to blame the accountant and accounting by the accountant   for the financial bankruptcy of the company would be rather incorrect. There are innumerable instances where in the so called “ in the interest of business “, accountants and accounting takes a back seat which finally takes the business to bankruptcy and the accountant is blamed.  Current  problems that are faced are   not that simple.  It is found that at some point if accountants in the business, start colluding with the business persons in cooking up the books, then problem gets magnified as it tests the governance mechanism and the audit processes  - internal and external. Quite often these are caught and reported.

Things however  get very difficult when these two sets of auditors start making compromises and collude with those cooking up the books. This collusion of auditors is seen mainly to happen for the following reasons. There may be fear of loss of client. There may be bribes offered  to the auditors. The auditor may be over ambitious  and or greedy, and want to put   his business growth over and above his  duties. The auditors may also buy into the client’s ambitions and start working against the interests of other stakeholders. There are numerous possibilities. At the end of   it, it points to a failure of the audit framework which is defective and actively complicates the process of dishonesty of the auditor. This is where the Western rules of auditing have to be re-written when applied in India. Most of the time the framework is taken as a given and professional bodies do not work on re-visiting basics. Those auditors with vested interests working towards their  commercial gains rather than good governance and probity in business, develop the framework  in many situations. For example the Western auditing framework is actively developed by the so called Big N firms or those who have been trained and honed in the way they work. It is obvious that we need a modern day Chanakya – who can provide us with inputs for a new framework of laws and regulations governing the audit profession!

4.         Please tell us about your new venture- KSAA Global and what inspired to embark on it?

The KSAA Global is the first Alliance of Indian audit firms of repute and standing in their respective territories across the country. The Alliance will also go global. The Alliance will be of member firms from across the country from each State and Union Territory leading to a Pan India presence. The inspiration for the alliance is none other than the Hon Prime Minister Shri Narendra Modi, who on July 1, 2017, at the ICAI foundation day gave a vision to the Indian CA fraternity to be part of the Big 8 accounting firms from the current 4. In response to this vision, The KS Aiyar Alliance will be a platform of Indian firms across the country with 3000 to 4000 head count. The Alliance will empower the member firms with scale and capability to provide the desired expert services to the Indian MNCs both in India and globally. The Alliance will also work to harness the young Chartered Accountants.The Alliance will protect the individual identity of each member firm. Our objective as KSAA is radically opposite and different to the Network model of the Big N firms which submerge all the members in one branding identity. Our approach is totally opposite to the volume-driven approach of the Big N – we believe that for audit firms to be truly empowered, small is beautiful – large impersonal brands cause a loss of individual  ethics  and since audit is a quasi-judicial service  it is not and never has been akin to consulting activity. The Alliance members will provide individual ethical service while also being a part of an Alliance to match and meet large sized corporate expectations

5.         To counter the growth of the Big 4 global Auditing firms, Indian auditors have long been demanding for a level-playing field, and have accused the accounting giants of circumventing laws to grow their businesses. How uphill of a climb is it to get a foot in the door in the global Auditing pie?

The Indian Audit firms are not against fair competition but against unfair competition and a lop-sided playing-field. A Report of the ICAI in 2003 reconfirmed in 2011, and now the recent order of the Hon Supreme court in February 2018, has repeatedly held that the Big 4 have circumvented the law of the land with impunity. The Hon Supreme court has directed the Government of India, the ICAI the Enforcement Directorate to investigate the laws broken by the Big 4. An IIM-A study on the benefit of appointing Big N auditors has reported that there is a perception that the reporting and quality of audit by the Big 4 justifies the high fees charged by them, while in fact it is only a perception that such benefits accrue to the companies. The IIM-A report goes on to say that there is no superiority in the quality of financial statements audited by Foreign Audit Firms. This goes to prove that the accusation by the Indian Audit firms were correct and based on facts. Indian audit firms need to become strong locally, which will enable them to compete in the international global business. The KS Aiyar Alliance is the right step in this direction.

6.  The Securities and Exchange Board of India (SEBI) recently banned Pricewaterhouse Coopers for having failed to uncover irregularities in Satyam's accounts over several years that were subsequently revealed in 2009 by Ramalinga Raju, the company's chairman at the time. Why still do Indian companies continue to engage foreign Auditing firms?

The recent ban by SEBI on PWC and the order of the Hon Supreme court exposes the wrongs and illegalities adopted by the Big N. This will surely correct the market perception of appointing Big N in near future. While some companies are forced  from their international  partners to appoint Big N, the Indian companies will take a serious relook to engage Big N

7.         A detailed study (Jacob, Desai and Agarwalla 2015) was done to examine the audit fees paid by BSE 500 companies for the period between 2000 and 2013 and found that the Big Four charge a significantly higher fee compared to non-Big Four auditors. While the Big Four charge an average fee of 1.94 basis points of sales (1.86 basis points of assets), the corresponding number for non-Big Four auditors is only 0.93 basis points of sales (0.66 basis points of assets). A basis point is one-hundredth of a percentage point. That report suggested that though the quality of the audit provided by the Big Four auditors is no different from that of non-Big Four auditors, the market perceived it to be better and hence companies were willing to pay significantly higher fees to the Big Four. Will the Indian infatuation of Gora Skin never die?

We are not aware of this report. We will need to study it. The report however broadly seems to echo the IIM-A  study referred to above which also says that market perception is manipulated by the Big N firms so as to charge premium of 2or 3 times of what Indian firms charge.

8.   We know have taken advantage of your precious time and carpet bombed you with a whole spectrum of questions but on a different note, how do you spend time when not looking at numbers and charts?

Yoga, Music, Reading – these keep me quite engrossed!

Thank you for speaking to us.