Audited annual reports may face scrutiny

The ministry of corporate affairs is working on a proposal according to which audited annual accounts of companies would be scrutinised on a regular basis. Currently, the government directs special audits only in cases where irregularities come to light. The development follows a proposal from a high-level committee on financial sector reforms. The Planning Commission constituted panel, chaired by former IMF chief economist Raghuram Rajan, had proposed that a review of such annual accounts would result in greater public confidence in company reports. Emergence of large financial conglomerates and holding companies makes such a system of supervision a necessity, goes the argument. Even as the proposal is at a deliberative phase, government officials say that in case the panel’s recommendations are accepted, amendments will have to be made to the Company Law. At present, companies are mandated to submit their accounts to the registrar of companies (RoC). The accounts are required to be audited by an authorised chartered accountant before they are submitted to the RoC. The present law does not call for review of all accounts submitted before the RoCs, but it has a provision wherein suspect companies go through a special audit. In cases where the government is of the opinion that a company is being mismanaged or its financial position is endangering its solvency, the government can order special audits. While acknowledging that regular review could lead to harassment for companies, the panel has also called for setting up of a monitoring mechanism to ensure that corporates do not face difficulties. While the ministry of corporate affairs is supposed to review the accounts of unlisted companies, capital market regulator Sebi should take up the review of listed companies. Strengthening ties between the ministry and the Sebi has also been recommended for effectiveness and greater coordination. By Ms.Bobby Aanand, Metropolitan Jury

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