Patrick de Cambourg, the chief executive of France-based audit firm Mazars, employs more than 10,500 professionals and has revenues of ¤767 million. He also has degrees in political science, literature and public law and is a chartered accountant. In an interview with John Samuel Raja D, he says principles are more important than rules when it comes to corporate governance.
There have been several corporate governance issues post- Enron in different countries. Do you think there could be a convergence of regulations?
Convergence according to me is getting to a reliable level of information that is necessary for functioning of capital markets and development of business. Before we get into convergence, we need to identify factors that are important in corporate governance. First of all you need good management. We need to ensure that all the links in the management chain are strong enough.
Management has to operate in an environment that has rules and at the same time possess entrepreneurship and innovation. So, the responsibility of the management and accountability of CEOs and CFOs and his team are important. We believe rules play a role but principles are the key. There is a Spanish proverb which, roughly translated, says: “If you create one rule or more rules, you create immediately a trick to turn around the rule”.
What is the second component of good governance?
The second link for good governance is the board. In most jurisdictions, the role of independent directors is considered something significant and needs to be fulfiled professionally, which means the directors need to spend time and have adequate experience.
If I am shareholder, I would like to have the right candidate who should be rewarded properly. I am not saying we should have professional independent directors but they should conduct themselves professionally.
What skill sets do independent directors need to have?
The position of the board requires extreme care to make it a respectable body. Independent directors should have two key competencies: Risk and financial analysis, and judgment .
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I am not saying marketing or scientific knowledge is not necessary. Financial risk analysis is important as we need to have people who can relate to the environment and see quickly where the risks are. Also they need to be a good judge of people.
Where does auditors’ role fit in?
Auditors are also linked. The key aspect is that auditing should not be taken as a commodity. In most jurisdictions, the auditing profession is moving from self-regulation to an independent oversight body. In a democratic body, auditors have nothing to hide.
Auditors themselves should be transparent and bring out annual report. They have to operate without familiarity; therefore, rotation, independent review and joint audit are necessary.
In India, the Institute of Chartered Accountants of India takes disciplinary action against its members. But you prefer an independent oversight body?
I am in favour of a strong professional body but accountable to another body representing the society in general.
Though you don’t wish to comment on the Satyam affair, can you explain how it is possible to manipulate a cash flow statement?
I have a personal view. We started with cash in the 16th century where merchants accounted for cash. Then you had contracts, legal obligations and liabilities, so you moved to an accrual system. Then we incorporated accrual value and the ‘myth of fair value’ of the balance sheet. What’s happening today is that cash is paramount and thus the importance of the cash flow statement.
One can overvalue assets, underestimate liabilities and create fictitious assets including cash. At the end of the day, cash flow is another way to see the accounting statement. If one accounting element is wrong, the cash flow statement too will be wrong.
Normally what’s the process of verifying bank accounts and cash balances?
Auditing a bank account is the most basic. The auditor has to ask the CFO (chief financial officer) to give a letter asking the banks to answer queries posed by external auditors. After getting the letter, the auditors themselves should post the envelope to the bank. Thereafter, answer from the banks should be to the auditors directly.