Presentation to the Institute of Chartered Accountants of India Australian Chapter

2. 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

3. 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

4. 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

5. 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

6. 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)

7. 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

8. 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

9. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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)

22. Thank you