The presentation discusses the role of governance in corporate contexts, particularly through the lens of consolidated financial statements (CFS) as a tool for enhanced accountability and decision-making. It emphasizes the importance of good corporate governance structures to maximize long-term shareholder value while meeting the needs of various stakeholders. Additionally, it highlights the challenges and complexities involved in automating the preparation of CFS, advocating for better practices and technology integration in financial reporting.

1. Governance through Consolidated Financial
Statements
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

2. Structure of Talk
• Governance
• Concepts of Consolidation
• Transforming Consolidated Financials as
Governance Tool
• Questions
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

3. Objective of my ‘Talk’
• To Sensitize towards role of financial
community in Governance.
• To bring concepts of BI,DW,DM in perspective
& progress toward value addition
• An initiative is overdue for Automation of BI
• Application of Decision Support System &
prospective thinking
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

4. Governance
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

5. What is Governance
Objective of Corporate (Company or Group)
Predictability to stack holders
How to Achieve:
* Microscope *Telescope * Combination
* Combination Sequence
 Microscope on top of Telescope
 Telescope on Microscope
GRC (Governance, Risk and Compliance) - Superset Domain
• Oxford English Dictionary defines “Governance” as the act, Manner, fact or
function of governing, sway, control
• The word has Latin origins that suggest the notion of ‘steering’. It deals with the
processes and systems by which an organization or society operates.
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

6. What is Governance
Governance
Governance relates to decisions that define expectations, grant
power or verify performance. Needs setup to administer these
processes and systems
Management
The act of getting people together to accomplish desired goals.
Management comprises planning, organizing, leading or directing
and controlling means the act of getting people together to
accomplish desired goals.
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

7. What is Corporate Governance
Corporate governance is the set of processes,
customs, policies, law and institutions affecting the
way a corporation is directed, administered or
controlled.
A system of checks and balances between the board,
management and investors to produce an efficiently
functioning corporation, ideally geared to produce
long-term value
The Cadbury Committee report defines it as “the
system by which companies are directed and
controlled”.
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

8. What is Corporate Governance
It is a system of structuring, operating and controlling a
company with a view to achieve long term strategic goals to
satisfy shareholders, creditors, employees, customers and
suppliers, and complying with the legal and regulatory
requirements, apart from meeting environmental and local
community needs.
An internal system encompassing policies, processes and
people, which serves the needs of shareholders and other
stakeholders, by directing and controlling management
activities with good business savvy, objectivity and integrity.
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

9. What is Corporate Governance
• “Corporate governance is the system by which companies are directed and
managed. It influence how the objectives of the company are set and
achieved, how risk is monitored and assessed, and how performance is
optimized.”
•“Good corporate governance structures encourage companies to create value
(through entrepreneurism, innovation, development and exploration) and
provide accountability and control systems commensurate with the risk
involved.”
•Corporate governance is as much about systems, procedures and policies as
it is about culture, values and ethics
• It embraces risk management and compliance
• Good governance leads to better accountability
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

10. Why Corporate Governance
"enhancement of the long-term
shareholders value while at the same time
protecting the interests of other
stakeholders."
CORPORATE GOVERNANCE is needed to
create a corporate culture of
consciousness, transparency and openness.
It refers to combination of laws, rules,
regulations, procedures and voluntary
practices to enable the companies to
maximize the shareholders long-term value.
It should lead to increasing customer
satisfaction, shareholder value and wealth.”
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

11. Level of Corporate Governance
• Commitment, policy, board responsibilities,
STRUCTURAL
continuous improvement
ELEMENTS
•Identification of issues, operating
procedures, breaches and complaints, record
OPERATIONAL
keeping, internal reporting
ELEMENTS
•Education and training, visibility and
MAINTENANCE communication, monitoring and assessment,
ELEMENTS review, liaison
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

12. Conceptualizing Corporate Governance
Performance
Process Standard
Policies Efficiency
Effectiveness
Corporate Culture
Predictabilit
Consciousness Internal System y
Disclosure Controlling
Transparency Operating
Objectivity
Openness Structuring
Integrity
Accountability
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

13. Difference between
Corporate Governance &
Management
CORPORATE CORPORATE
GOVERNANCE MANAGEMENT
External Focus Internal focus
Governance
Governance assumes Management
an open system assumes a closed
system
Governan Strategy-oriented Task oriented
ce
Management
Concerned with Concerned with
where the getting the company
Company is going there
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

14. Concepts of
Consolidation
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

15. • Basics on Consolidation
– How did the concept emerge - Enron
– Legal Footing
– The process as per AS – different modes of consolidation
– Definition of Control
– Global perception on CFS
• Complex group Structures
• Markets and CFS – Value relevance
• CFS challenges
• Inference
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

16. Kreuger Crash of the early 1930s.
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

17. Enron Scandal made headlines…..
“off–balance sheet” partnerships that hid billions of
dollars of liabilities.
Enron used about 500 such SPEs and thousands of
other questionable partnerships
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

18. www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
18
CA Sandesh Mundra,
Automating the CFS……….. CA Sandesh Mundra

19. Indian Scenario
• India - Standalone & CFS (From 2001)
• Only CFS – No? (Only US/UK)
• No Guidance in Companies Act
• SEBI Compliance
• Income tax – No recognition
• FDI - US $ 154 billion in 07-08
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

20. Indian Scenario
• 1,490 BSE companies have subsidiaries out of 5732
• 13.8 per cent have not provided CFS
• CFS on annual basis
• Option to publish quarterly
• Reading the profits
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

21. Comparison
Name Revenue Revenue Profit Profit
standalone Consolidated Standalone Consolidated
IRB Infra 267 cr 2438 cr 90 cr 454 cr
Shopper’s 12 cr -1.5 cr
Stop
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

22. Reporting Entity
• Identifying the boundary
• the economic activities in single / multiple
entities
• CFS vs Standalone - HO vs Branch
• Dividend and Taxes
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

23. Value Relevance for Markets
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

24. Legal Eye
• Mandatory for Listed entities as per Listing
Agreement but no mention in the Companies
Act
• Proposed in the new Companies Bill, 2011,
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

25. New Companies Bill 2011
Financial statements
• Section 129 - If the company has one or more
subsidiary companies, associate companies or
joint ventures, the financial statements of
these companies and joint ventures will have
to be consolidated and these consolidated
financial statements will also be required to
be placed before the General Meeting.
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

26. Bird’s eye view…..
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

27. The Journey ….
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

28. Complex structures
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

29. Evolution of the definition of “Control”
 More than 50% in nominal value of shares
 More than 50% in voting rights
 More than 50% in voting rights or control of
composition of BOD
 Consideration of potential voting rights for calculation
of 50%
 Power to govern operating and financial policies of the
entity
 Special Purpose Entities
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

30. Challenges in Consolidation:
• Multi Currency
• Various methods of consolidation
• Various Accounting Standards (AS, IFRS, etc.)
• Various types of entities: Branch, Partnership firm,
Private Limited companies, Limited companies
• Various Relationships in consolidation: Subsidiaries,
Joint Venture, Associates, etc
• Out of books effects – Goodwill / Minority
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

31. Important Definitions:-
Consolidated financial statements are the financial statements of a
group presented as those of a single economic entity.
Control is the power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities.
Non-controlling interest is the equity in a subsidiary not attributable,
directly or indirectly, to a parent.
A subsidiary is an entity, including an unincorporated entity such as a
partnership, that is controlled by another entity (known as the parent).
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

32. Consolidation Process
Trial
Balances -
Alignment
Balance
Sheet
Consolidation
Profit and
Loss
Account
Cash Flow
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

33. www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

34. Critical issues
• Changes in Stake
• Changes in Relationship
• Accounting Policy Adjustment and the impact
on Minority and Goodwill
• Upstream and Downstream transactions
• Cash Flow Statement
• Equity Accounting vs. Proportionate
• Deferred Tax Accounting
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

35. Maintenance of Two books of
Accounts
• Standalone books of Subsidiary at
carrying values
• Fair Value Books for the purposes of
consolidation.
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

36. Current Scenario
• Time and Repetitions
• Staff Deployment
• Human Dependency
• Lack of Reliability
• Bulky Data
• Decentralised Working not possible
So a lot of time is spent on compliance rather than
inference ?
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

37. Transforming
Consolidated Financials
as Governance Tool
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

38. A Journey of Preparation of
Consolidated Financials
Walkthrough results is
Process is Manual cum office automation tool oriented
Knowledge of financial team is quite low of this Domain
Control Structure is hardly visible
Accuracy and Transparency is Person Dependent
(‘Worship the Hero’, CMM-SEI-Level 0)
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

39. Perspective of Consolidated Financials
• Rule Engine to remove ‘Fat’ (Objective Perspective)
• Compliance (Operational Perspective)
• Decision support tool
 Govt. (How Corporate Behave in Structuring)
 Corporate group (MIS)
• Business Intelligence (inside out -Beyond Transaction
Processing)
 Analytics
 Data Warehousing & Mining
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

40. Consolidated Financials
Inference (BI - Analytics)
• Key Performance Indicators
 Analysis of Indicators
 Behavior Pattern
 Vertical Specific Standards
 Establish Benchmark
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

41. Consolidated Financial Cockpit
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

42. Automation Status
• 1980’s of books A/c stage for financial
consolidation
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

43. #9
Automation – Change in Orientation
• Quick availability through automation
• BI perspective compromises
– Trade Off - Time Vs Accuracies
• Technology Pace – Cloud and BYOD
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

44. Challenges of Consolidated Financial
Automation
• Base
– Rule, Interpretation, Precedence
• Complexity has never been issue – Clarity is the Issue
• Technology
– Heterogeneous Technology
• Different Hardware and Software in same Group
• Dynamics of Changes
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

45. Consolidated Financials
can create
Impact on Governance
• Decisions based on pattern
(Informed Decision)
• Decision for processes
• Decision for Policy and Priorities
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra

46. Contact Details
Aarna Soft Solutions Private Limited
Consoxle – Automating the Consolidated Financial Statements
Email: info@aarnasoft.net
Mobile: +91 9426024975
Web: www.consolidationofaccounts.com
Thank You !
www.consolidationofaccounts.com Presentation by Dr Kalpesh Parikh
Automating the CFS……….. CA Sandesh Mundra