Tata Finance Limited

Tata Finance LimitedCase AnalysisCarbon, FamilaSamson, Christine May

Table of Contents

CASE BRIEF3Case Abstract3Auditors Dilemma3Auditors Question4Research Question4CASE CONTEXT4Tata Group4Tata Code of Conduct6Ownership and Corporate Structure13Nature of the Entity14Operations14Investing15Financing15Market15Industry15Regulatory Body- Financial Regulatory Bodies in India18RESEARCH QUESTIONS20Question 1.20Question 2.21Question 3.23Question 4.24Question 5.26

CASE BRIEF

Case Abstract

The accounting scandal at Tata Finance involved a little-known subsidiary of the company, Niskalp Investment & Trading Company. The subsidiary, after incurring huge losses from its large investment in technology stocks, uses intercorporate deposits to maintain its minimum capital adequacy ratio. Moreover, the company opts to desubsidiarise Niskalp to protect its balance sheet by not having to disclose the losses of its subsidiary anymore. This measure failed to remedy the companys financial problem. After the condition was revealed to the public, Tata group dismissed Dilip Pendse, the senior operating officer for making the unauthorized investments. Pendse claimed that Tata group executives were aware of the fraudulent transactions but the latter disagreed to his statement. To clear their names, Tata retained AFF to investigate the scandal. The audit report confirmed Penses allegation and criticized the quality of the companys corporate governance. Upon public disclosure, AFF retracted the report and dismissed Kale. This has caused AFFs reputation in distress.

Auditors Dilemma

The A. F. Ferguson & Companys dilemma is whether to withdraw of their audit report after it was publicly known. The report which was expected to clear the names of Tata Groups executives turned out to support Dilip Pendses allegation that they were aware of the deceitful transactions. AFFs independence was threatened by Tata Group because the firm audits several of the largest Tata companies and this close affiliation enhanced AFFs stature and prestige within the countrys accounting profession. As an independent auditor, AFF has a responsibility to the public. In order to maintain public trust and confidence in the accounting profession, AFF must adhere to standards of ethical conduct that embody and demonstrate integrity, objectivity, and concern for the public.

Auditors Question

How can the auditor decide on withdrawing the audit report?

Research Question

1.What are the criteria to be considered by the auditor to establish quality audit report?

2. What are the standards involved in withdrawing an audit report?

3.What are the threats posed by the engagement to the auditor?

4.How should the auditor deal with these threats?

5.What recommendations can be made to reinforce the independent audit function?

CASE CONTEXT

Tata Group

In the 10th century a group of Iranians fled Iran as refugees in search of somewhere to practise their religion freely. The Iranshah Atash Behram at Udwada - the most scared fire temple in India, which houses the flame that brought by the Parsis on their flight from Iran. They finally ended up on the shores of Gujarat and were granted leave to stay there, thus founding the Indian Parsi community (Parsi being Gujarati for Persian). Over the next centuries, Zoroastrianism survived with just a few minor cultural differences creeping in India. The Zoroastrian response to the increasing urbanisation and cultural diversity of the 20th century was one of flexibility and integrity that reflected the three core values of good thoughts, good words and good deeds. The respect for Zoroastrianism grew through its generous and healthy contributions to the societies it encountered, and its reputation for the honesty of its businessmen.

Although there was a decline of the priesthood and the global dispersion of the sparse population of remaining Zoroastrians has become a serious issue for the survival of the Zoroastrian faith. However, the same readiness to defy adversity and insistence on remaining true to the values of Zoroastrianism prevails. These are the same qualities which have ensured its survival for the last 3000 years. The Parsis were among the most ardent supporters of Indias long struggle to become independent of Great Britain. Indias largest privately owned company is controlled by a Parsi family, as is the Tata Group, Indias largest conglomerate. It has helped shape the economic and political history of India over the past century.

Tata Group is one of India's largest and most respected business groups. Its name is synonymous with India's industrialization by seeding Indias pioneering business sectors. A visionary entrepreneur, an avowed nationalist and a committed philanthropist Jamsetji Nusserwanji Tata (J.N. Tata) laid the foundations of Tata Group when he started a private trading firm in 1868. The three great ideas of his life: setting up an iron and steel company, generating hydroelectric power and creating an institution that would tutor Indians in the sciences. None of these ideas would come to fruition while Jamsetji Tata lived, but they were realised in full measure by those who followed him.

In 1874, Jamsetji Nusserwanji Tata set up the Central India Spinning Weaving and Manufacturing Company Limited and thus marked the Group's entry into textiles. In 1887, he formed a partnership firm, Tata & Sons, with his elder son Sir Dorabji Tata and his cousin Ratanji Dadabhoy Tata. His younger son Sir Ratan Tata joined the firm in 1896. In 1902, the Indian Hotels Company was incorporated to set up the Taj Mahal Palace and Tower, India's first luxury hotel, which opened in 1903. This was the most dazzling of the Tata enterprises that came into being during Jamsetji Nusserwanji Tatas lifetime. Legend has it that Jamsetji Nusserwanji Tata set his mind on building it after being denied entry into one of the city's fancy hotels for being an Indian. Today, the Taj Group of Hotels is a byword for luxury and quality, with standout properties across the world.

In 1904, Jamsetji Nusserwanji Tata died in Germany, the chairmanship of the Tata Group passed to the elder of his two sons, Sir Dorab Tata, who accomplished the daunting task of turning his fathers extraordinary ideas into reality. Sir Dorab was the force behind the setting up, in 1905, of the Tata Iron and Steel Company. Seven years later, India's first iron and steel plant, in Jamshedpur in the eastern part of the country, had started its production. In 1910, the Tata Group broke new ground once again, this time by generating hydroelectric power from a site near Bombay. In 1911, seven years after his death, Jamsetji Tatas long-cherished dream of establishing an institution where Indians could cultivate their scientific temper was realised. The Indian Institute of Science, set up in Bangalore, would nurture some of the brightest minds in India. In 1912, Tata Steel introduced eight-hour working days well before it became statutory in much of the West, and the first Tata provident fund scheme was started in 1920 (governmental regulation on this came into force in 1952). The Tata townships, and the facilities they have, are an example of the manner in which the Tata Group extends itself to care for its employees.

In 1917, Tata Oil Mills Company was established to make soaps, detergents and cooking oils. In 1932, Tata Aviation Service, the forerunner to Tata Airlines and Air India, Indias national carrier, took to the skies. The maiden flight in the history of Indian aviation took off from Drigh Road in Karachi, now in Pakistan, with JRD Tata at the controls of a Puss Moth. In 1953, the Indian government nationalised Air India. Its Trusts have instituted the Tata Institute of Social Sciences in 1936; India's first cancer hospital, the Tata Memorial in 1941, and in 1945, the Tata Institute of Fundamental Research, which became the cradle of India's Atomic energy program. In 1939, Tata Chemicals, presently, the largest producer of soda ash in India, was established. In 1945, Tata Engineering and Locomotive Company (renamed Tata Motors in 2003) was established to manufacture locomotive and engineering products. In 1954, India's major marketing, engineering and manufacturing organisation, Voltas, was established. In 1962, Tata Finlay (now Tata Tea), one of the largest tea producers, was established. In 1968, Tata Consultancy Services (TCS), India's first software services company, was established as a division of Tata Sons. In 1970, Tata McGraw-Hill Publishing Company was created to publish educational and technical books. In 1984, Titan Industries, a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO), was set up to manufacture watches.

In 1996, Tata Teleservices (TTSL) was established to lead the Group's foray into the telecom sector. In 1998, Tata Indica, India's first indigenously designed and manufactured car, was launched by Tata Motors. In 2000, Tata Tea acquired the Tetley Group, UK. This was the first major acquisition of an international brand by an Indian business group. In 2001, Tata entered into insurance business in joint venture with Tata AIG. In 2007, Tata Steel acquired Corus the fifth largest steel company in the world.

The Tata Group presently employs about 350,000 people. Taking good care of this large family is a priority for the Group, and it has a tradition to stay true to while doing so. The Zoroastrian beliefs can best be summed up by the maxim: Humata, Hukhta, Hvarshta. The creed translates in English to Good Thoughts, Good Words, Good Deeds. Zoroastrians try to live their daily lives by this creed. Zoroastrians work towards improving the local community and society in general.