Q15: Which of the following is not true about
investigation?
a) To know financial position
b) To know extent of fraud
c) Covers Several years
d) Mandatory under companies Act for all
companies
Answers
Explanation:
Proper and accurate compilation of financial information of a corporate and its disclosure, in a manner that is standardized and understood by stakeholders, is central to the credibility of the corporates and soundness of investment decisions by the investors. The preparation of financial information and its audit, therefore, needs to be regulated through law with stringent penalties for non-observance. It would however, not be feasible for the law to prescribe all the details guiding the treatment of this subject. This is a technical matter which needs to be gone into by experts keeping in view the requirements of proper disclosures of financial information in the interests of healthy corporate governance. However, once developed, use of such principles should be mandated through law. Accounting Standards serve a vital function in this respect. These should be developed keeping in view international best practices and provided statutory backing. There should be integration of Accounting Standards with substantive law.
Institutional mechanism for developing Accounting Standards
2. The present statute provides for a mechanism for development of Accounting Standards. We understand that Accounting Standards for the use of Indian corporate sector, taking into account International Accounting Standards, are being developed through the instrumentality of the National Advisory Committee on Accounting Standards (NACAS). This is an important aspect that needs to be pursued. In the meantime, the Institute of Chartered Accountants of India (ICAI) has done useful work in prescribing operational standards of accounting to fill the gap till Accounting Standards could be notified. We expect that the process of notification of Accounting Standards, incorporating international best practices, would be completed shortly.
3. The Committee took note of the contribution made by the ICAI and the NACAS in development of proposals for Accounting Standards and took the view that the existing institutional mechanism for formulating and notifying Accounting Standards under the Companies Act, 1956 may be retained.
Holding-Subsidiary Accounts and Consolidation
4. The Committee took the view that consolidation of financial statements of subsidiaries with those of holding companies should be mandatory. The Committee discussed the question of the manner of maintenance of accounts of entities other than companies but controlled by companies registered under the Act. With the proposed consolidation of accounts by holding companies, the Committee felt the need for prescribing maintenance of proper records by a non-corporate entity which is controlled by a company to which the provisions of the Act apply. This is because companies are now increasingly controlling entities such as partnership firms, special purpose vehicles, associations, etc. which are
Maintenance of Records Outside the Country