Saturday, January 29, 2011

Blaming complex rules-is it shooting the messenger?

Accounting rules(IFRS, GAAP) and legal rules(laws, regulations) are often blamed for their rigidity, antique nature, 'obstructive' nature, illogical etc. But since we mostly listen to the affected party('business')'s view point, I thought it is time to present the other view point also in this post
  1. Rules aim to govern reality: Governments do not wake up and decide to adopt rules for fun. They do so to address a malaise/issue in society. For instance, laws are mainly to resolve disputes and accounting rules aim to prevent window dressing. Rules are often 'locking the stable after the horse has bolter' type of response. For example, the famed US SOX Act was passed after scams like Enron, Tyco broke out. It takes time to make changes and by then things do get obsolete
  2. If unregulated, capitalists go haywire:-When we design the perfect economic system and incentive systems to correct market failures, then we do not need so many 'rules'. But till this Utopian vision emerges, we need rules to protect(or atleast try to protect) society from business
  3. It merely reflects reality:- For instance, accounting of financial instruments is blamed for the crisis(!) but this could well be due to the complexity of the underlying instruments themselves
Points (1) & (3) make the case that before joining in a critique of any rule, we should try looking at the core issue beyond emotional appeals. 

Friday, January 7, 2011

Are professional institutes(ICAI/ICSI/ICWAI) really self regulating?

One does not expect businessmen to discipline themselves but professionals(lawyers/doctors/CA's/CS/CWA's etc) are expected to do so. Even the consumer courts/HC/SC give reliance to the findings of the disciplinary bodies of those institutes before entertaining public complaints against these professionals.

The case for professional self regulation has been that
  1. only a professional can appreciate and critique the work of another('peer review' also based on this)
  2. Professionals work in the public interest and so can be trusted to self regulate themselves.
Sadly, this trust seems to have been some what misplaced. When a professional is arrested, the profession is certainly brought into disrepute. When ICAI, ICSI and ICWAI were slow to act on the press reports, the Ministry of Corporate Affairs(MCA) had to direct them via this letter issued in Dec-10 to take suo-motu notice of such publicly reported cases. The list of professionals (against whom such action is pending) has to be mentioned.

As an aspiring member of all 3 institutes, it saddens me to note that the MCA had to take such a severe step. Even a layperson(let alone an informed member) would expect speedier investigation by the institutes( into professional misconduct resulting in arrest) than by the investigating agencies. Hopefully, the MCA letter will restore some public confidence into efficacy of 'self regulation'