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IPL is more of a money game than of Cricket where ManagementAccountants could play the role of first, second and third umpire all puttogether.

Manas Kr Thakur

Chairman, EIRC of ICWAI

IPL, the mega cricket event in India leads to a more difficult financial fiasco and crisis in the

Indian Economy and Financial Sector. Started from sourcing of fund to finance the team toauctioning the broadcasting rights, every where the lack of transparency and inadequatecorporate governance is noticed. The lack of transparency is also emphasized when the CharteredAccountant appointed as auditor of different teams as well as IPL committees failed to highlightthe financial irregularities in their audit report. After the financial fraud had taken place, theGovernment now have called for enquiry by the enforcement directorate, Income TaxDepartmental enquiry and enquiry by other authorities including Register of Companies etc. TheIndian Premier League (IPL), which began a trend of auctioning cricketing talents by itsfranchises, seems to have signaled the beginning of a possible accounting issue in future. IPL isthree seasons old, but the names of auditors who have certified the financial results of the teamsare still in the dark. A host of government agencies have waded into a wide-ranging probe on

possible tax evasions and other offenses by IPL teams, emboldened by the controversiessurrounding the tournament. The ministry too is gathering details about the franchises, includingtheir agreements with the IPL, bidding arrangements and equity structure from the RoCs.

To understand the financial fiasco and fraud that had taken place, let us understand the differentareas where suspected fraud and mismanagement may took place. The detailed inquiryproposed by the ICWAI could unearth the collusion between IPL teams and their auditors overtheir revenue classification and source of funds. Another aspect that is likely to catch its attentionis the high valuations for the IPL teams. Valuation, though not strictly done by charteredaccountants (CA appointed by the different team management) is a complex accounting method.

Just like the scam of Satyam ICAI has sought the financial statements of the eight IndianPremier League franchises to study if their auditors complied with accounting standards and bestpractices after the incidence had actually taken place and in no place any proactive initiative hadtaken place.

It is interesting to note that all the IPL team are predominantly owned by different companies,like Kolkata Knight Riders (KKR) is owned ny Red Chilli Entertainment Pvt Ltd. A company

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is formed to mobilize greater amount of fund from different sources both domestically as well asinternationally and at the same time to get the shelter of corporate veil. It is interesting to notethat Register of Companies (ROC) has also initiated measures to lift te corporate veil andinvestigate into the issue in depth. However, in such cases, disciplinary actions have since beeninitiated against any of the auditors or the learned members of the Institute of Chartered

Accountants of India. The kind of financial irregularities we are talking about could not havebeen possible without the knowledge of the auditors, said the financial experts of the profession.

Violation of FEMA provision / Benami holding of shares & Taxability

There have been reports that funds from tax havens like Mauritius have been pumped into theleague by various franchises in violation of FEMA provision. The Enforcement Directorate(ED) has already registered a case against the Indian Premier League (IPL) under Foreign

Exchange Management Act (FEMA) to inquire into unauthorised transfer of foreign funds. Thecase, registered, is the first by ED against IPL after it received preliminary information that fundsfrom abroad, without the permission of RBI, might have trickled in, they said. It is reported thatthat funds from tax havens like Mauritius have been pumped into the league by variousfranchises in violation of FEMA provisions.

As of now, the ED has registered a case against unknown persons and would make an inquiryinto the aspect of transfer of foreign funds. ICWAIs research team would like to intervene intothe issue and go for a detailed scrutiny into the scam and trace out the source of the fund andchannalisation thereof from different countries including Mauritius.

With the battle to oust Indian Premier League commissioner Lalit Modi shifting to the Board ofControl for Cricket in India, the Centre on Wednesday turned its full attention to allegations thatthe wheels of the T20 juggernaut were being lubricated by political influence peddling andillegal infusion of funds. In a coordinated move, Income Tax officials in Mumbai swooped downon three event management and broadcast firms connected to the IPL, while IT investigatorssought financial and shareholding details from the 10 team-owning franchisees across India.

Amid swirling allegations of benami shares involving politicians and their relatives in the IPL,the Finance Ministry has constituted eight enforcement teams. Their investigations will be spreadout across the country with I-T offices in Mumbai, Kolkata, Chandigarh, Delhi, Kochi,Hyderabad, Bangalore and Pune asked to source out information about financial transactions,

money flows and team ownership across all franchises. The Research team of ICWAI may in allthe way help the Enforcement Wing of the Finance Ministry to unearth background towardsformation of certain shell companies'' at mauritius suspected of routing unaccounted moneyinto IPL franchises.

Income Tax Default

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In Kolkata and Chennai, taxmen visited the offices of the Kolkata Night Riders (KKR), ownedby Bollywood superstar Shah Rukh Khan, and India Cements, which owns the Chennai SuperKings team, seeking information on the investments made by their managements in the IPL. I-T officials are slated to visit the premises of the other six IPL teams in their quest forinformation.

In Mumbai, a team of over 50 I-T officials started search operations on the premises of MultiScreen Media, World Sports Group and Pat Magnarella Management. Since it is alleged thatMSM paid WSG a facilitation fee of $80 million for the IPL telecast rights, a deal in which theIPL management is said to be involved. There have been reports that funds from tax havens likeMauritius and the Cayman Islands have been pumped into the league by various franchisees inviolation of FEMA provisions. An investigation by a Joint Parliamentary Committee wouldimmediately be initiated. This is not the first time that IPL has run into a controversy with theincome-tax department. During IPL-1, the tax department had collected more than Rs 90 croreas TDS (tax deducted at source) after investigations while this year also after the returns for IPL-1 have been filed, some cases have already been selected for scrutiny, Although IPL-2 was not

held in India, the taxmen are keeping a close watch on the returns being filed by the parties. Asfor IPL-3, Rs 110 crore has been collected as advance tax, and Rs 40 crore more is expected.

CORPORATE GOVERNANCE & TRANSPARENCY

The Corporate Affairs Ministry has promised to step in if the shareholding and equity structuresbehind the franchises are found to be hazy and there are company law compliance issues. It is,however, not yet ready to give a clean chit to all the IPL franchises on the corporate governancefront. If shareholding pattern of any of the franchises is found to be hazy, there will be acompany law issue and we will then get involved. On our part, we are already doing the duediligence, Mr Salman Khurshid, Corporate Affairs Minister, told when he was asked if the IPL

and its business model were throwing up corporate governance issues.

They are looking hazy because nobody has asked anyone to disclose yet. We have the filings.They are available to the public also on MCA-21. There is a general feeling that it is hazy, butthey may or may not be hazy.

Mr Khurshid also felt that it would be appropriate to wait for the agencies under the FinanceMinistry, which are looking into IPL and its franchises' funding, to come to some prima-facieconclusion and further told that let the Finance Ministry arrive at some prima-facie conclusions.If they feel there is a corporate law aspect involved, then we will come into the picture. We arealso doing our own due diligence. You can't just shut your eyes to what is happening,

The ICWAI under the aegis of the Ministry of corporate Affairs, Government of India would liketo investigate into the fiasco of breaching the Corporate Governance by all the IPL franchisesand companies and would like to bring in transparency and financial discipline.

Regulatory oversight

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The Corporate Affairs Ministry also made it clear that its regulatory oversight would not extendto either IPL or BCCI as both of them are not corporate entities. We will come into the pictureonly when there is a company law matter. The research team is in the process of investigating indetail the oppression of the regulatory framework and would come out suggestion towardsbringing in good governance and transparency.

With sport events such as IPL turning into money-spinning ventures, ICWAI as a premieraccounting & financial institute of the country has decided to look into the ways and means ofcalculating the fair value of talents hired by the sports industry. How to account for suchassets that can even turn liabilities or how to put a fair value over such talents are all

issues that has been discussed/ analyzed elaborately by ICWAIs research team. These areemerging areas for the accounting profession. With the kind of development taking place in thesports and entertainment industry, one has to take a futuristic view and identify the possibleaccounting issues related to talents, and the research team of the institute is venturing into thefollowing areas to ensure greater Transparency, Good Governance, Compliance and greaterProfessional Ethics :

1. Valuation of the team2. Valuation of the Individual team member / sports personality3. Valuation of discount cards, coupons, that could be redeemed in any franchise, anywhere4. The bidding arrangement

5. Equity Structure of the team / companies owing the teams6. financial irregularities7. Possible nexus with the auditors,8. Cross Country sourcing of funds9. Money laundering from funds from tax havens like Mauritius.

10. Gross violation of Foreign Exchange Management Act (FEMA) Provisions11. Inquiry into the aspect of transfer of foreign funds.

12.13. Possible intervention of Enforcement Directorate in the probe14. Taxability opf the Event Management Firms15. Identification of benami holding of shares & detection of money flow therein16.

Unearthing the suspected of routing unaccounted money into IPL franchises throughShell Companies set up in Mauritius.17. Identification of untaxed income of the team owners / companies engaged and brand

ambassadors18. Taxability pf Broadcasting / telecasting Rights19. Bid evaluation & Tendering procedure20. Transparency in Tendering & Auction Procedure

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21. Correct determination of Transfer Pricing in cross country transaction relating toBroadcasting / telecasting Rights

22. Proper Corporate Governance23. Bringing in Financial Discipline24. Corrective measure regarding regulatory oversight

25. Investigation into the scam on behalf of the Register of Companies26. Introduction of Proper Disciplinary actions against persons involved in the fraudincluding the Auditors/ Accounting Bodies etc

ICWAIs research team highlights that the systems of discount cards, coupons, that could beredeemed in any franchise, anywhere to be considered as newly emerging practices and needs adeeper look for its accountability. The recommendations/ suggestions of ICWAIs research teamcan lead to newer accounting standards / valuation standard in India or new guidelines to existingones. It has the mandate to collaborate with other institutions, universities, financial institutions,corporate bodies and professional institutes at the national and international levels. Detailsanalysis of the above called for a comprehensive investigation' into the profiteering big-business

enterprise in the name of cricket..

The ICWAIs research team is in the process of preparing technical guidelines on accounting forsimilar events held/ to be held in India or abroad and the manner of revenue recognition thereof.

Conclusion

With the experience of Satyam Scam and similar other several economic frauds/ corruptionsin the country, the research wing of ICWAI believes that any organization, company, entity orevent wherever the accounts are audited by the members of the Institute of CharteredAccountants of India, should be peer reviewed by the member of the Institute of Cost & Works

Accounts only to ensure transparency, Good Corporate Governance, Investor protection,compliance of all statutory provisions & legal obligations and top of the all professional ethics.The Institute is also the process to get in touch different Government Authority / Ministry toprobe the Great economic scam and to frame a guideline / guidance note towards reducing suchscam in future.

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