The Hindu Business Line : Booked for no books

COUGHLINS Law, attributed to Laurence C. Coughlin, states: "Don't talk unless you can improve the silence." If one glances through some of the provisions of the Concept Paper (CP) on company law, one would get the impression that some clauses could have been kept intact since the recommended provisions do not simplify the law.

CAO

Section 2(17) of the CP defines chief accounts officer (CAO) and takes us to Section 88(1) which mandates every public company fulfilling certain criteria to appoint a CAO. Section 51(3) of the CP, the section requiring companies to maintain books of account on an accrual basis and according to the double-entry method, gives a choice of five persons to maintain books of account: a) managing director; b) manager; c) chief accounts officer; d) whole-time director in charge of finance; and e) any other person charged with this duty.

In spite of the virtually endless list that could fall under category (e), the CP deems it fit to bestow the ultimate responsibility on the directors of the company. Unwilling to leave any stone unturned, the CP says that in case none of the above has been ordained, every director shall be liable for punishment.

If a CAO is mandatory for certain public companies, the necessity to thrust the onus of ensuring maintenance of books of account to other persons seems unnecessary. If one concludes that the provisions are meant for private limited companies, the footnote at the end of the penalties schedule, which states that the mandatory levy of minimum penalty is meant only for public limited companies, puts a spanner in the works.

Read sequentially, this would have us conclude that private limited companies that do not prescribe the person who maintains books of account could escape the penal provisions. However, the penalties schedule in the CP threatens imprisonment at the slightest provocation. It could not have been the intention of the legislature that a director of a private limited company could be imprisoned for not maintaining prescribed books of account while a director of a public limited company could escape imprisonment by paying a monetary fine for the same offence.

NACAS v ICAI

Section 53(7) of the CP minces no words to state that the Accounting Standards prescribed by the National Committee on Accounting Standards (NACAS) would be what companies have to follow. Just as the Reserve Bank of India has done for Accounting Standards to be followed by banks, one assumes that NACAS would toe the line for most of the standards prescribed by the Institute of Chartered Accountants of India (ICAI) with a little bit of modifications to suit specific industries.

This assumes importance because of the fact that Section 59(4) of the CP gives the Central Government the power to discuss with the ICAI any issues regarding the format and content of the audit report to be issued by the auditors.

The ICAI would not take any major deviation in its accounting standards lightly. Section 58 of the CP talking about auditors, does not surprise when it states that practising members of the ICAI would qualify as auditors.

In case NACAS comes up with radical accounting standards, members of the ICAI could be in a quixotic position since, on the one hand, they would be guilty of professional misconduct if they do not report deviations from the standards prescribed by the ICAI and, on the other, they would be violating the provisions of the Concept Paper by not following the NACAS guidelines.

All the more reason for NACAS and the ICAI to team up together and prescribe uniform accounting standards. Given the NACAS's record, the CP could prescribe the Accounting Standards issued by the ICAI as a guidance for companies to follow.

(The author is a Hyderabad-based chartered accountant.)

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