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Presentation to the Institute of Chartered Accountants of India Australian Chapter International Conference Andrew Stringer Director, Asia Institute of Chartered Accountants Australia. India Proposed reforms – governance and other considerations
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Presentation to the Institute of Chartered Accountants of India Australian Chapter International Conference Andrew Stringer Director, Asia Institute of Chartered Accountants Australia • India • Proposed reforms – governance and other considerations • Growth – when operations extend overseas • Australia • Australian regulatory settings, including foreign investment policy • Opportunities for ICAI members in Australia • Accounting Profession in Australia
India – some of the proposed reforms • Corporate governance • An increasingly globalised business environment • Duties of directors for the first time set out • To act in accordance with Articles of company, in good faith, reasonable care and skill, avoid conflicts of interest, among others • Directors – at least one third to be independent • Independent directors to abide by a code included in the Bill • Independent directors – maximum of two consecutive five year terms, then must have a three year time-out • Addressing gender issues – at least one female director
India – some of the proposed reforms • Audit committees • Required – for all listed companies • Minimum of three directors with a majority of independent directors • Majority including chair to be able to read and understand financial statements • More focus on the role of boards – and in particular the audit committee
India – some of the proposed reforms • Audit and auditors • Audit firms to rotate every ten years – with a five year time out provision • Individual auditors to rotate every five years • Auditing standards now mandatory • Audit committee to approve any non audit services • Auditor has duty to report any fraud that has been, or is being perpetrated • Audit Oversight • National Financial Reporting Authority – role in formulating accounting and auditing standards • Also power to monitor and enforce compliance with accounting and auditing standards
India – some of the proposed reforms • Other • Nomination and Remuneration committees required – minimum of three with at least half to be independent directors • Stakeholder relationship committee required when company has large number of shareholders / other finance providers (>1000)
Proposed reforms – impact • Corporate governance – front and centre • A major factor in encouraging foreign investment • Alignment with other major jurisdictions • Higher levels of accountability • More clarity around directors’ duties • Need for financial literacy of directors • Premium on independence – both directors and auditors • Audit committee’s importance emphasised • Interactions between audit committee and auditor a vital component of transparency and quality • India the ‘awakening giant’ – reforms very positive for attracting investment
Proposed reforms – impact • Audit oversight • Creation of body independent of profession – important for the way the regulatory environment is perceived both internally and externally • An important factor in perceptions of capital markets and to their functioning • An equally important factor as Indian audit clients expand internationally
India – expanding overseas • Consider – apart from normal commercial considerations • Regulatory environment • Reporting requirements • Depth and independence of accounting / auditing profession • Auditor for Indian investor(s) will need to be instructing and monitoring the work of other auditors in other countries – required skill set
Background to Australia • Government • Federation • Bicameral legislation • Federal government powers cover corporations, business taxation, trade practices • Strong prudential regulation • Economy • GDP $1.4 trillion • GDP growth – average past 10 years 3.2% (India 7.3%) • CPI approximately 2-3% • Interest rates 3.75% • Exchange rate $AUD = $US 1.00 • Major trading partners; China, Japan and USA • Unemployment 5.0% • Listed companies 2200
Corporate Regulation • Establishment and operation of companies covered by Corporations Act 2001 • Most foreign companies conduct business in Australia through an Australian incorporated subsidiary or as a registered foreign company • Registered foreign companies are required to appoint a local agent, have a registered office in Australia and lodge its financial statement with the Australian Securities Commission (ASIC) which is the corporate regulator • Competition subject to Trade Practices Act – prohibits price agreements and other agreements which reduce competition
Corporate Regulation • Trade Practices Act administered by the Australian Competition and Consumer Commission which can prohibit mergers and acquisitions which could substantially lessen competition in the market • Financial Institutions subject to additional regulation by the prudential regulator the Australian Prudential Regulatory Authority (APRA) • Incorporation is simple: • Buy an “off the shelf” company • Generally a proprietary company • One shareholder • Registered office • One or more directors of which at least one resides in Australia • Companies are required to prepare and lodge audited financial statements if controlled by a foreign company
Foreign Investment Policy • Regulated by Foreign Acquisitions and Takeovers Act 1975 • Foreign Acquisitions and Takeovers Regulation 1989 Approval required for: • Acquisitions of 15% (40% in aggregate) or more in a business with total assets of A$244 million (approx US244$) or the proposed acquisition values the business at A$244m or more • Direct investment by a foreign government or agency (includes sovereign wealth funds) • Acquisition is in a sensitive area: • Real estate • Airports • Banking • Media • Telecommunications • Transport (civil aviation and shipping) • Exemptions for private investors: • Purchased directly from a developer of new residential dwelling • Interest in commercial property valued at less than A$53 million (approx US$53m) • Rural land below A$244 million
Guidelines for Foreign Government or Agencies • Investor’s operations independent of relevant foreign government • Transparency and commerciality of operations • Degree of concentration or control in the industry concerned • No adverse impact on revenue or other policies • Impact on national security • Impact on operations and directions of the Australian business • Acquisitions in energy and resource areas have received publicity
Guidelines for Foreign Government or Agencies • Practice • Generally 99% of applications approved • Certain conditions may be imposed (e.g. less than 50% equity) • Notice period • Generally 30 days to respond • Transaction to be completed within 12 months • Generally approved for acquisition of listed entity involving full or partial bid only for the bid period
Taxation • Corporate tax rate of 30% of taxable income • Taxable income = Assessable income less allowable deductions • Resident Company • Incorporated in Australia • Carries on business in Australia • Majority of voting rights controlled by residents • Central management and control in Australia • Non Resident Company • 30% tax on Australian source income • Interest (10%) dividends, royalties (30%) subject to withholding tax • Double Tax Agreement • Agreement with India provides for withholding tax rates of 15% for dividends and interest and 10-15% royalties
CGT (Capital Gains Tax) • Applies to disposal of assets and is calculated on net capital gain • Foreign resident individuals subject to CGT on disposal of real estate located in Australia • Disposal of 10% or more of entity whose value is principally real estate • Repatriation of profits • No restrictions or foreign exchange controls • Retirement Income Contribution • Employers required to contribute 9% of employee's salary or wages into an Australian Superannuation Fund Individual Tax rates • $0 - $18k Nil • $18k – 37k 19% • $37k - $80k 32.5% • $80k - $180k 37% • $180k+ 45% • Plus 1.5% Medicare levy – slightly different rates apply for non residents
Tax Year • Normally 1 July to 30 June • Franked dividends • Generally if company pays dividend out of income that has been subject to Australian tax, franking credit applies • Franked dividends to non residents exempted from withholding tax to extent dividend franked • GST (Goods & Services Tax) • 10% GST applies to most goods and services • Businesses receive input tax credit • Fringe Benefits Tax • Applies to certain employee benefits. Separate tax payable by employer. Rate 46.5% • Stamp Duty • State tax. Levied on transfer of land, goodwill. Rate varies 5 – 6% of value • Payroll Tax • State tax. Varies but approximately 6% on payrolls in excess of $600k • Assessment • Self assessment applies • Losses can be carried forward
Opportunities for ICAI members in Australia • Leverage the connection with India • Consider – ICAA membership • Participate in ICAA affairs – discussion groups and others • Leverage opportunities via this connection
Australian Accounting Profession • Structure • Public practice • Business • Not for profit • Concentration of Big 4 • Professional bodies • Registration and Regulation • Auditors • Tax agents • Financial planners • Audit inspections • Standard Setting • AASB (Australian Accounting Standards Board) • AUASB (Auditing and Assurance Standards Board) • APESB (Accounting Professional & Ethical Standards Board)