New Delhi, Aug 29: The government is planning to ask companies to compulsorily come out with consolidated accounts— which includes acounts of all subsidiary companies, both wholly-owned and those where the company has majority stake. This is being done in order to check various kinds of corporate frauds and malpractices.
A final decision on this is likely after the department of company affairs (DCA) examines a report submitted recently by the national accounting standards advisory committee.
DCA secretary Vinod Dhall, who was speaking at a CII workshop on accounting standard today, said “recent experiences in the stock market show that there is a necessity to make consolidated accounts mandatory.”
The issue of consolidated statements assumes importance in the wake of some recent inter-corporate dealings some of which were alleged to have been dealt with in a controversial Ferguson’s report of Tata Finance Limited, which was later withdrawn. The report had highlighted a series of deals involving group companies and alleged that the companies had traded in each others’ shares in a manner that helped some of them report higher profits from treasury operations or dividend income. It was also reported that some of them routed money to those buying the shares through inter corporate deposits.
Dhall said this need arose due to the various transactions, including cyclical transactions, between the companies and their related parties, especially subsidiary companies. “There are a large number of subsidiaries of companies... consolidated accounts can result in detection of any cover-up of fund flow,” he said. The need for consolidated annual accounts also arose since a large number of Indian companies have been opting for overseas listing, he added.
The high level committee headed by Naresh Chandra is also looking into the various aspects of auditor-corporate relationship, Dhall said.
The committee will look into aspects such as the independence of auditors and the need to have random review of company accounts.
“The home truth,” Dhall said, “is that auditors are appointed by the management and there is a lot of dependence of the auditors on the management, which needs to be transformed into independence.”
Dhall also mentioned the need to set stringent norms for preferential allotments, employee stock options and other payouts by company managements, adding that increasing instances of discrepancies in these payouts have come to light.
“Preferential allotments as a provision was inserted in the Companies Act to tackle certain situations like large funds infusion or entering into tieups for technology transfer. We need to lay down stringent norms for pricing and other norms of such allotments,” he said.
Again, in the case of employee stock option schemes, he said many discrepancies have come to light in the US where these schemes were used by the promoters to offload stakes.
“We need to determine how much of total emoluments of senior managers can be given in the form of stock options,” he said, adding “we have to see whether there should be a cap on these incomes.”