Bringing to account

Long after the much vilified Arthur Andersen, and closer home, Satyam Technologies became dubious poster-children for manipulative accounting, the belated step by capital market regulator Sebi this week to tighten the bolts on accounting abuses is welcome.

The decision to bar for specific periods auditing firms indulging in shady accounting practices will help meet the demands of mandatory public disclosure norms and legislations like Clause 49 for listed companies, incidentally promulgated in 2005 to ensure corporate accountability well before the Satyam scandal broke in 2009.

Sebi’s intentions are a step forward in empowering investors and helping them understand their rights which is an inalienable part of achieving a market meritocracy, though it could be a case of too little, too late.

Sebi is yet to decide the period of debarment for specific offences or decide the exact quantum of fines to be paid in each case or the broad criteria under which it will enforce debarments. While the regulator specified its Scores (SEBI Complaints Redress System) authentication guidelines in June last year for listed companies after numerous investor complaints of shoddy accounting practices, it acted on the same only in recent months.

Scores finally came into force on August 13, with companies given just a month to comply with it. In the interim, serious acts of non-compliance have been noted from several quarters, including the Satyam-ish practice of understating debt and overstating profits where the list of suspended companies on BSE alone now run into the hundreds.
Little wonder that it said that accounting is an area where a lot is said, barring the things that we really need to know.

To add to Sebi’s woes, the ministry of company affairs still has no clear guidelines on procedures to be adopted in ascertaining that independent directors and auditors are truly independent. It is to the market regulator’s credit that it has been working quietly on fixing various auditing outcomes with direct investor implications for many years, but with mixed results.

What is clear is that compliance will not be easy to ensure as long as existing accounting models place undue emphasis on preserving share price stability and obliging investor and market forces with ever higher margins during the quarterly results season. Hence, Sebi’s move to join the war with oversight assistance from the bourses will tighten the screws on auditor malfeasance.

Comments (+)