The Sebi
panel on disclosure and accounting standards has suggested that listed firms
must submit audited balance sheets every six months against the current
practice of doing it once a year.
Wiser after
the Rs.7,136 crore Satyam Computer Services Ltd. fraud, a committee of capital
market regulator Securities and Exchange Board of India, or Sebi, on Monday
recommended a slew of measures to make financial reporting by listed firms
more transparent and less confusing for investors.
The Sebi
panel on disclosure and accounting standards has suggested that listed firms
must submit audited balance sheets every six months against the current
practice of doing it once a year.
“. . . . A
more frequent disclosure of the asset-liability position of companies would
assist the shareholders in assessing the financial health of the companies,
thereby helping them in making informed investment decisions,” the panel said
in a discussion paper on the Sebi website.
The paper is
open for public comments till 25 September. In one of the biggest accounting
scandals in Indian corporate history, B. Ramalinga Raju, founder and former
chairman of Satyam, confessed on 7 January to having fudged the company’s
account books to the tune of Rs.7,136 crore over several years.
The panel is
also in favour of reducing the time available for companies to file their
audited financial results from 60 days to 45 days for each of the first three
quarters of a fiscal year. For the last quarter and full year, firms can
continue to follow the 60-day norm.
The audited
consolidated annual earnings need to be reported within 60 days instead of the
earlier 90.
“When
companies report unaudited numbers, in many cases, a lot of variation is found
when final numbers are released at the end of the year and investors often
have an annual surprise. Half-yearly audit will reduce such surprises to a
great extent,” said Suresh Surana, director, Astute Consulting and Business
Services Pvt. Ltd, a Mumbai-based consulting firm.
While it is
good news for investors, for auditors it will mean more work and more
stringent timelines, he said.
The Sebi
panel has also suggested that from now on, companies with subsidiaries should
report only consolidated earnings and such reports should give details about
turnover, profit after tax and profit before tax on a stand-alone basis as a
footnote. Companies now report both stand-alone and consolidated results,
often confusing investors.
Many firms
with subsidiaries file their consolidated results on the exchanges long after
they file their stand-alone numbers.
“In the
light of the various options given to listed entities, it was seen that
several categories of financial results in respect of a particular period for
an entity were disseminated in public domain, which tends to confuse the
investors at large,” the committee said.
At the end
of the last quarter, listed firms have an option to either submit un-audited
last quarter financial results within one month from the end of the last
quarter or go for consolidated audited results for the full year after 90
days.
So, if a
firm opts to submit annual audited results in lieu of last quarter financial
results, there is no information available in the public domain about its
financials for about five months or more, and this could make the shares of
the firm prone to insider trading, the panel has pointed out.
It has made
the audit committee of a company responsible for ensuring that the chief
financial officer (CFO) of a company “has the necessary accounting or related
financial management expertise”.
Surana of
Astute Consulting said the role of CFOs has become very demanding and will be
more difficult with the international financial reporting standards coming
into effect from April 2011.
Following
the Satyam scam, its chief financial officer Srinivas Vadlamani along with
Ramalinga Raju, his brother and Satyam’s former managing director B. Rama Raju,
and two Price Waterhouse auditors Srinivas Talluri and S. Gopalakrishnan were
arrested. They continue to be in jail even as investigations by various
agencies, including Sebi and the Central Bureau of Investigation, have been
on.
(Source :
Internet & Media Reports, 12-10-2009)
