Financial Daily from THE HINDU group of publications
Tuesday, Dec 24, 2002
Financial Daily from THE HINDU group of publications Tuesday, Dec 24, 2002 |
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Corporate Governance Corporate - Accounting Standards CEOs, CFOs must okay accounts: Panel Our Bureau
NEW DELHI, Dec. 23 THE Naresh Chandra Committee on Corporate Audit and Governance has recommended a slew of measures aimed at reducing the scope for " accounts fixing" by corporate India by increasing the level of penalties for corporate wrongdoings, besides seeking to fix more accountability on the promoters and auditors of companies. The committee, which submitted its report to the Finance Minister, Mr Jaswant Singh, here today, has in particular recommended that chief executive officers (CEOs) and chief financial officers (CFO) of all listed companies and public limited companies with paid-up capital and free reserves exceeding Rs 10 crore or turnover exceeding Rs 50 crore should certify "correctness" of the annual audited accounts. It has also suggested the setting up of a corporate serious fraud office in the Department of Company Affairs (DCA) that would be manned by specialists from various disciplines. The committee has, however, not recommended statutory rotation of audit firms, but favoured compulsory audit partner rotation — a measure that is in line with the recently enacted Sarbanes Oxley Act of the US. "We have taken into account the views of eminent persons, the practice internationally and the fact that there is no conclusive proof of the gains before deciding that audit firm rotation is not suitable for us," Mr Naresh Chandra told newspersons here. The committee has suggested that the partners and at least 50 per cent of the engagement team (excluding article clerks and trainees) responsible for the audit of either a listed company or companies whose paid-up capital and free reserves exceed Rs 10 crore or companies whose turnover exceeds Rs 50 crore should be rotated every five years. It has also held that persons who are compulsorily rotated could, if need be, allowed to return after a break of three years — a measure that is in line with the European Union and IFAC. While broadbasing the definition of independent directors, the committee has also recommended changes to the composition of the audit committees. It has suggested that audit committees should consist entirely of independent directors. An audit committee charter would have to be prepared and this charter would lay down the role and functions of the audit committee. A recommendation has also been made to insert provisions in the definition chapters of certain Acts to specifically exempt non-executive directors and independent directors from certain criminal and civil liabilities. Further, the committee has recommended a review of the statutory limit on sitting fees, although ideally it should be a matter to be resolved between the management and shareholders. To ensure that independent directors have adequate presence and strength on the board, the committee has recommended that "not less than 50 per cent of the board of directors of any listed company as well as unlisted public limited companies with a paid-up share capital and free reserves of Rs 10 crore or a turnover of Rs 50 crore and above should consist of independent directors".
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