Cos Bill to change corporate accounts

Cos Bill to change corporate accounts
Sanjay Sardana

NEW DELHI, JULY 24: The government is likely to change the way the corporate accounts look today. Among various proposals expected to be included in the Companies Bill are presentation of consolidated financial statements, making cash flow statement mandatory for all public companies, disclosing the earning per share along with proper analysis, prescribing a stringent audit report format with an adverse opinion under specific circumstances and treatment of deferred taxation.

Further, the managements are likely to be made responsible for rectifying the inappropriate accounting treatment, directors will be made to give comments on auditors' objections and qualifications and giving the follow-up action proposed to be taken.

The government is also likely to give a go ahead to the formation of the national advisory committee on accounting standards to advise the Central Government on formulation and laying down of accounting policies and accounting standards.

Other proposals like the improvement in disclosure norms in companies' accounts, distinguishing the fixed assets and liabilities properly and distinguishing fixed assets into tangible and intangible are likely to be passed.

The Companies Bill, 1997 is slated to be tabled in the Parliament on July 27 and is expected to introduce these measures to improve the disclosures in the companies' accounts to bring them at par with the international standards.

The Institute of Chartered Accountants of India has highlighted the need to improve the quality of profits disclosed in the P&L account through separate disclosures regarding prior items, extraordinary items, exceptional items, changes in accounting policies and change in accounting estimates.

In respect of consolidation of accounts, ICAI has recommended that presentation of group accounts be made mandatory and this should be in addition to and not in substitution of the requirement to present individual accounts of the company. It has been felt that individual financial statements are crucial to a number of people concerned including shareholders, creditors and government authorities. Keeping this in view, ICAI has drafted an alternative format of financial statements which would go a long way in improving the disclosure.

The proposal also restricts the corporates in announcing dividends. In case the auditors' have qualified the quantum of profits, companies will be allowed to declare dividends out of the profits after adjustments for qualifications.

Disclosure norms in schedule I are expected to be improved further to the international level and all assets and liabilities are proposed to be categorised under long term and short term only. It has also been proposed that `investments' should also be categorised into long term investments and current investments.

Corporates are further likely to be forced to write-off the losses before declaring any dividends. The amount of dividend should also be transferred to a special dividend account immediately on declaration.

ICAI has urged that companies should not be allowed to `buy back' their own shares only out of fresh issues of shares and not out of a debt issue. ICAI feels that debentures or other form of debt have to be repaid and thus the funds so raised will not remain in the company. ICAI has also sought a proposal to bar the chartered accountants in employment to conduct company audits.