The Hindu Business Line : If you're at a loss on laws...

IT'S always a pleasure to read publications from the Bombay Chartered Accountants' Society (www.bcasonline.org). Here's one such: Law & Business - a compendium, by Anup P. Shah. Instead of cursing the existence of plethora of laws and the corruption they entail, the Society formed two committees to study how laws impacting business affect the auditor and the `operating person' (that is, owner or professional manager). Awareness of laws can make CAs contribute effectively as business advisers, though an accountant is not expected to be a law expert.

Thus, the foreword to the collection of 27 enactments notes that an acquaintance with these laws will help the auditor in raising relevant questions to guide the management.

The book packs in less than 300 pages a discussion of real estate laws such as the ones on registration, mortgages and Stamp Duty; commercial laws, including the Contract Act, and that on works contract; intellectual property laws on trademark, copyright, and patent; financial laws encompassing enforcement of security, debt recovery, competition, prevention of money laundering, and securities; civil laws on attachment of property, insolvency, succession, wills, benami transactions, and limitation; and lastly, criminal laws including directors' responsibilities.

When discussing `limitation', Anup suggests that auditors can perform a value-added service to clients by enlightening them about the periods of limitation in respect of suits. Useful book for CAs who like to overcome their limitations in the knowledge of laws.

SFCs at the service of SMEs

AS a subject, financial assistance to small and medium enterprises (SMEs) doesn't look dramatic. But they constitute 90 per cent of enterprises in most countries, worldwide?

"They are the driving force behind a large number of innovations and contribute to the growth of the national economy through employment creation, investments and exports," www.wipo.int would inform.

To encourage them, the State Financial Corporations Act, 1951 was enacted.

Over more than half a century, there have been many impediments in the progress of SFCs, and a major one has been in the form of defaulting SMEs. "Several hundred crores of public money are lying stuck-up in litigation cases in different courts, including the High Courts and subordinate courts.

While the corporation is expected to act fairly in the matter of disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the instalments in time unless prevented by insurmountable difficulties," writes Justice V. M. Sahai in his foreword to Malik & Srivastava's Detailed Commentary on the State Financial Corporations Act, 1951, from Law Publishers India P Ltd (www.lawpublishersindia.com). The book has been revised under the guidance of R. K. Srivastava of the U. P. Financial Corporation, and C. S. Lal, an ex-district judge, plus a panel of lawyers, and their effort shows in the form of thorough dissection of each section of the Act, supplemented by case laws.

An interesting discussion is that of Section 37, on `audit', that has seen four amendments. Reporting responsibility comes in sub-section 3 thus: "The auditors shall make a report to the shareholders upon the annual balance-sheet and accounts, and in every such report they shall state whether in their opinion the balance-sheet is a full and fair balance-sheet containing all necessary particulars and properly drawn up so as to exhibit a true and correct view of the state of affairs of the Financial Corporation."

An odd section is 25-B and it permits SFC to receive "gifts, grants, donations or benefactions from Government or any other source."

Helpfully, gift has not been defined. It is a different matter that many borrowers think that the loans they take from SFCs are as good as gifts.

On the topic of gifts, again, the book carries elsewhere the U. P. Financial Corporation (Staff) Regulations, 1961, which discusses a tricky situation: "If an employee cannot without giving undue offence refuse a gift of substantial value, he may accept it but shall report the fact of acceptance immediately to the Managing Director and shall thereafter act as he may direct. Substantial value is that value which will be determined by the Board from time to time."

Ideal read for CAs who have SMEs among their clientele.

Beware of disaster frauds

CHETAN Dalal has written on Detection of Frauds for the Professional Development Committee of The Institute of Chartered Accountants of India (www.icai.org). In the preface, Pankaj Jain writes, "Society tolerates a certain level of bending of rules - simply because it is not possible to police everybody. What society does not tolerate is premeditated and malicious breaking of rules and systems. That is crime."

Well, that seems a bit bent as a definition of crime, but we can tolerate that, before moving on to Chetan's engaging discussion of fraud.

Frauds can cause disaster, but there is what is known as `disaster fraud' that thrives in tsunami-type situation. "In the event of a calamity such as fire, floods, earthquakes and other accidents, naturally the organisation is reeling from the aftermath and shock," explains Chetan. "It becomes impractical or impossible to comply with systems and procedures, and information and evidence can be easily suppressed."

There's more: "Knowledge of asset location and whereabouts, weaknesses and strengths of controls and access to other sensitive information can be used or misused. Assets, valuables and information can be stolen, sold, damaged or destroyed for ulterior purposes."

What's the solution? "Every insurance claim has to be carefully scrutinised and examined from several angles to ensure that all clues fit in satisfactorily. It is dreadfully simple for a claimant to inflate the claim and later explain it away as an error if caught.

The insured also has the convenience of stating that all records are lost or are in a disarray and cannot be retrieved."

A book you'd love to read for the many anecdotes and cases that Chetan sprinkles across the pages.

BooksOfAccount@TheHindu.co.in

D. Murali

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