Steps to Prevent Corporate Frauds

 
 
Rajya Sabha 

The events relating to Satyam Computer Services Ltd. relate to a particular company and do not represent a failure of the regulatory system and relevant Regulatory authorities. The events have been caused by an apprehension of fraud and possible falsification of the financial statements of the company having implications under the Companies Act, 1956, Indian Penal Code, SEBI Act and other allied statutes. 

The Ministry of Corporate Affairs has ordered investigation under the Companies Act, 1956, to be carried out by Inspectors drawn from the Serious Fraud Investigation Office, into the affairs of Satyam Computer Services Ltd. including, inter-alia, into the involvement and role, if any, of independent directors, internal and statutory auditors of the company and exercise of due diligence by the statutory auditors to ensure true and fair financial reporting. 

There is already an elaborate regulatory framework in place to deal with such incidents. This framework, under the Companies Act, 1956 (the “Act”), provides for disclosures by companies for information of the stakeholders about the state of affairs of such companies, have been mandated. To facilitate making of such disclosures by companies, and for stakeholders and regulatory agencies to easily access and view them, Government has set up an electronic registry with round - the clock - access through internet. The Government has powers of inspection of the books of accounts of companies and also to investigate their affairs, if need be, under the Act. In addition, the Act provides for appointment of independent, statutory auditors to audit the accounts and report to the shareholders. Such audited accounts are also displayed on the electronic registry for general viewing. While the reporting requirements are regulated under the Companies Act, 1956, the conduct of auditors is regulated under the Chartered Accountants Act, 1949. In addition, for listed companies, compliance with these statutory requirements is required to be certified by a company secretary in practice, who in turn is regulated under the Company Secretaries Act, 1980. 

Government has amended the Chartered Accountants Act, 1949 and the Company Secretaries Act, 1980 in 2006 to provide for a more effective disciplinary mechanism to deal with cases of misconduct by Chartered Accountants, Company Secretaries respectively. In 2006, the Government has notified Accounting Standards to enable accounts of companies to be drawn up and disclosed on the basis of fair, transparent and internationally accepted principles. The Government has also introduced Companies Bill, 2008 in the Lok Sabha to provide for a comprehensive revision of the Companies Act, 1956 including, inter alia, provisions that would enable more effective checks against irregularities/frauds by companies. 

This information was given by Shri Prem Chand Gupta, Minister of Corporate Affairs, in a written reply to a question in the Rajya Sabha today.