‘We need innovative financial products that are devoid of gambling elements’

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: The global financial crisis has underlined the need for responsible corporate governance. Many of the nuances are explained in R Venkata Subramani’s latest book Accounting For Investments: Equities, Futures and Options published by John Wiley and Sons. A chartered accountant by profession, Subramani is the chief operations officer of Chennai-based Variman Capital Markets Services and is responsible for valuation and accounting, partnership allocation and accounting for companies. He has also taught at the Institute of Chartered Accountants of India and the University of Madras. Subramani in an interview to FE’s Saikat Neogi explains the changes in the accounting process after the global slowdown, credit default swaps and peer review of accounts. Excerpts:

How has the financial crisis underscored the need for greater responsible corporate governance within financial institutions?

It is now a known fact that some large financial institutions did push under the carpet certain losses in some innovative products either to dress up the periodical results or to protect employee bonuses. When the already inflated and heated up markets developed cracks, these unhealthy practices came to the limelight as these could no longer be covered up. The losses snowballed with domino effect, resulting in all round lack of trust amongst the financial institutions per se, which aggravated the situation calling for bailout measures from the government. Though this originated in the US, some of these events replicated in other parts of the world. Perhaps, a lot of these could have been minimised if there were a greater responsible corporate governance within financial institutions.

What are the accounting lessons that one can learn from the global economic crisis?

Accounting is based on common sense. If something defies common sense, it obviously cannot stand the test of time. Accounting standards are designed to provide uniformity in accounting and reporting and to ensure adequate disclosures are made about all aspects of material transactions. The lesson that one needs to learn from this crisis is that the regulatory compliance and reporting and disclosure requirements set forth in accounting standards should be followed in spirit for their own welfare in the long run or else it will boomerang on the entire financial community sooner than later. If there is a trouble, it’s better to bring it to limelight soon and never resort to cover up by applying ‘accounting skills’.

What kind of innovations are called for in the global financial institutions in the near future?