Financial Daily from THE HINDU group of publications
Wednesday, Mar 13, 2002
DCA should reject `qualified' accounts: ICAI chief
NEW DELHI, March 12
THE Department of Company Affairs (DCA) should not accept or take on record the annual accounts of companies that have been qualified by auditors, the President of the Institute of Chartered Accountants of India (ICAI), Mr Ashok Chandak, has said.
"The DCA or the regulator should direct companies to mandatorily revise such accounts in line with the auditor's qualifications. The accounts should be accepted only after revision of accounts or after getting suitable explanations. Otherwise, audit qualifications have very little meaning," Mr Chandak told Business Line here.
He pointed out that such a strict approach from the regulator would force managements to be wary of audit qualifications and enhance the level of information sharing between the management and the auditors.
"In most cases, the managements merely state in their directors' report that the qualifications or observations made by the auditors and their references in the notes to accounts are self-explanatory. There are no further explanations in the directors' report in discharge of their responsibility," Mr Chandak said.
A senior ICAI official pointed out that market regulators abroad were very strict about audit qualifications. "A mere observation in the auditor's report or non-adherence to specific accounting standards can even result in companies becoming ineligible for raising funds from capital markets. A number of Indian companies have found it difficult to raise funds in foreign capital markets on account of the regulatory demands for clean financial statements," the official said.
Meanwhile, ICAI will once again press the Reserve Bank of India (RBI) to direct listed banks to adopt the institute's accounting standard on consolidated financial statements (CFS) for consolidation of their financial statements.
RBI had set up a working group to look into the various parameters and norms that need to be adhered by banks for preparation and presentation of consolidated financial statements.
"Even as a final decision is awaited from the regulator, I think our standard is very clear in its language. Enterprises that go in for consolidation should do so in compliance with this standard. Otherwise, our members will have to qualify such accounts," Mr Chandak said.
The ICAI's Accounting Standard on Consolidated Financial Statements (CFS), which came into effect in respect of accounting periods commencing on or after April 1, 2001, lays down the procedures and principles for preparation and presentation of CFS.
CFS is presented by a parent (holding enterprise) on the economic activities of a group. The ICAI standard states that an enterprise that presents CFS should prepare and present these statements in accordance with AS-21.
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