 "Martyn van Wensveen")
Even as India Inc assesses the impact of the changes brought about by the new Companies Act, Martyn van Wensveen, partner and global head of financial management, KPMG, says this could have a significant impact on the role of the CFO within an organization. Recognised as one of KPMG's leading financial management experts, Wensveen tells Sudipto Dey, that Indian CFOs should look out for new opportunities created by the introduction of such new regulations.Edited excerpts:
How do you assess Indian companies when it comes to compliance with international and domestic laws and regulations?
Indian companies have a long way to go when it comes to compliance with international and domestic laws. Most companies are still in the reactive mode, and need to focus more on self-governance and compliance. The new Companies Act is the right step in this direction, which will help in strengthening the corporate governance framework in the country.
How do you see the impact of the new Act on the CFO's role in the organisation?
Generally speaking, changes in the companies Act can have a direct impact on the governance structure of the affected companies and sometimes an indirect impact on existing (legal) requirements and mandates of (non) executive directors.
As the regulatory requirements are increased, CEOs and CFOs must put the necessary first-line procedures and controls in place to ensure that compliance with the new Act is safeguarded.
The second line of defence to ensure compliance is typically performed by the internal audit department (validation role). Finally, the external auditor should check this as well as part of their third line of defence assurance role (to the extent it impacts the external financial reporting requirements).
All of the above can have a significant impact on the role of the CFO as he or she is responsible for ensuring these changes are properly embedded in the "business as usual" operations.
From a compliance perspective to the new Act, what do's and don'ts should the CFOs keep in mind?
It is CFO's primary responsibility to ensure that awareness is raised, and impact of the proposed changes on the company is understood. This could be done through a quick impact assessment study that covers all three lines of defence. For high-impact changes, sufficient transition period has to be taken into account, and implementation ownership for the required changes is clearly assigned to the relevant people in the organisation.
Last, but not the least, try to look for new opportunities created by introduction of such new regulations (for example, need for alliances, legal restructuring, improved controls, etc).
Do you think the impact of the change is yet to sink in in the CFO fraternity?
CFOs are aware about the changes on a broad level, but there is a huge amount of uncertainty on the impact of these changes on the companies.
Many changes proposed in the Act are expected to have a wide ranging impact in areas such as financial reporting, corporate governance, holding structure of companies, appointment and rotation of auditors, mergers and acquisitions, etc. CFOs are currently trying to decipher the impact of these changes on their company.
