Interaction Between Internal, External Auditors Urged Sought

Setting up of an audit committee will facilitate better communication between external and internal auditors, says noted chartered accountant Malegam.

Speaking at a seminar on the draft companies bill organised by the Federation of Indian Chambers of Commerce & Industry in Mumbai yesterday, Malegam termed the non-attachment of subsidiary company accounts as a retrograde step. Consolidation of accounts should be made compulsory to eliminate effects of inter company transfers, he added.

Auditors of a holding company should be given the right to examine the accounts of subsidiary companies for better control, he said. The accounts of an associate company (a company in which the holding company has a stake of 25 per cent or more) must also be reflected in the accounts of the holding company, he said. Remedial action for sick companies has started too late, remarked the chartered accountant. Under the UK law, he pointed out, an EGM has to be called within 28 days of disclosure of sickness, so that companies do not go beyond the point of no return. Segmented information for operating profits, assets, etc of individual segments should be made compulsory, he said.

 

Commenting on the share buy-back proposal, he said the mechanism was fraught with risks as there was no mention of prices at which shares were to be purchased. Either an absolute price should be fixed or a formula framed for arriving at the purchase price, he said.

In the case of deposits, Malegam was of the opinion that two additional safeguards should be provided. There should be a lien in favour of depositors, and trustees should be appointed to take care of depositors interests, he said, adding that the limit of 20 for a partnership not should be applied for professional partnerships.

The managerial remuneration for companies growing at a fast rate would not be high enough as net profits for the year would be lower due to the higher depreciation charged for greenfield projects, Malegam said.

Plea to ban sops for FD brokers

Our Financial Bureau M U M B A I

J M Financial chief Nimesh Kampani yesterday said incentive payments to brokers of fixed deposits should be banned. Companies should disclose the interest payment to brokers to ensure transparency. The new companies bill should have provisions to prosecute companies which do not give adequate information to deposit holders. At the same time, deposit holders should be told that high risk and high returns move in tandem, he said. Kampani said the authority of finalising the price in a bookbuilding issue should rest with the promoter of the company. A common due date of payment needs to be specified for institutional buyers so that all the commitments are honoured after price determination.

Bombay Stock Exchange president M G Damani stressed that there was a need to strengthen listing agreement with companies so that necessary action could be taken by the stock exchange and the regulator in case of a breach.

At a recent BSE governing board meeting, said Damani, the Sebi representative had bemoaned that a large number of companies faced prosecution and much time was taken while computing the penalties.

He said that in cases of bad deliveries arising out of signature difference, companies often held on to the shares for months and did not take the necessary action of informing the bourse in time.