True and fair financial reporting: a tool for better corporate governance
| Pages | 332-342 |
| Published date | 05 October 2012 |
| DOI | https://doi.org/10.1108/13590791211266331 |
| Date | 05 October 2012 |
| Author | Fincy Pallisserry |
| Subject Matter | Accounting & finance |
True and fair financial reporting:
a tool for better corporate
governance
Fincy Pallisserry
School of Law, Christ University, Bangalore, India
Abstract
Purpose – Transparency of financial information promotes corporate growth. The purpose of this
paper is to concentrate on the need for strengthening the law governing true and fair corporate
accounting. The first part of the paper concentrates on nexus between the importance of transparency
in accounting embodied under the provisions of the Companies Act in India and in the UK. Second, the
paper focuses on the board of director’s duty to prevent corporate fraud through proper financial
reporting.
Design/methodology/approach – The methodology for this study is analytical. Comparative
study of the law governing accounting provisions in India and UK is also looked into.
Findings – The law governing financial transparancy envisaged under the Companies Act in India
makes it obligatory on the part of the companies to disclose the material information relevant to the
investors. However, the directors of the company often show an unreal picture of the financial position
of the company, so as to retain the existing shareholders and to attract more investors. This can be
avoided if the composition of audit committees in the companies includes a few representatives of
shareholders who are competent to asses the true and fair view of the company accounts prepared by
the auditors.
Research limitations/implications – The focus of this research paper is mainly on the legal
regimes and the accounting and auditing provisions of India and the UK.
Originality/value – The paper shows that the Companies Act in India should strengthen the
accounting provisions and it should mandate the compulsory observance of accounting standards.
Keywords India, United Kingdom,Accounting, Auditing, Corporategovernance, Legislation,
Directors reports,Investor protection, Auditors liability
Paper type Research paper
Introduction
A corporation is a social institution and a country’s economy depends on the efficiency of
its company (Cadbury Committee Report, 2012). It represents the interest of various
stakeholders therefore it is regulated internally and externally[1]. Two constituencies
are central to the intra-corporate governance scheme (Bough, 1985). These are the board
of directors and the shareholders. Both these constituencies are treated as the “organ” of
the company (Davies, 1997)[2]. The board of directors possesses the real information
relating to the financial position of the company compared to the shareholders and the
third parties. Audited balance sheets and income statements and cash flow statements
along with the supporting disclosures form the foundation of the firm specific
information set available to investors and regulators (Bushman and Smith, 2003).
Financial scandals such as Enron’s have led globally to higher corporate governance
and auditing standards. According to the study on the economic impact of auditors’
liability regimes by London economics and according to the Interim Report of the
Committee on Capital Markets Regulation, important reasons for relaxing auditor
The current issue and full text archive of this journal is available at
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JFC
19,4
332
Journal of Financial Crime
Vol. 19 No. 4, 2012
pp. 332-342
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791211266331
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