Beena Parmar
Moneycontrol News
Time has come now to ask more companies to publish integrated reporting with both financial and non-financial information as a mandate in their financial statements, according to one of the longest-serving former Reserve Bank of India (RBI) board members.
“We have a situation which is ironic that on one hand there are a lot of efforts going on accounting standards with greater sophistication and so on and on the other hand, the relevance of the financial statements themselves is being questioned,” said YH Malegam, veteran chartered accountant who was RBI board member for 21 years.
Malegam was speaking at a panel discussion along with Chairman of Edelweiss Group Rashesh Shah at Fifth Annual two-day Corporate Governance Summit, Gatekeepers of Governance.
He pointed out it takes both financial and non-financial information as a combination to report to shareholders to address their concerns. “And perhaps now the time has come for the need to have more and more companies to publish this integrated reporting as a mandate and that it should be required.”
The comments come amid the rising debate of corporate governance across several companies and their boards not able to detect any hidden information from the company’s financial statements.
Till very recently it was believed that the whole function of accounting was to provide information to only one group of stakeholders -- the shareholders.
However, Malegam said, “In recent years, we have found that there are a large number of stakeholders who have a stake in the financial statements -- the bankers, rating agencies, regulators and, in fact, what is happening is that shareholders are using financial statements less than the other stakeholders.”
Shareholders no longer get their information from financial statements but analysts are asking for information on a real-time basis. And therefore, as far as the “so-called financial statements are concerned, analysts don't need them and shareholders don't read them”, he said.
Shah pointed out there is a need for a “multi-tiered or multi-layered approach (of reporting) to deal with complexity and depending on who the end user is. We have data and analysis and there needs to be an MIS (management information system).”
He said we are getting to a stage in accounting where we need transformational approaches because the incremental approach will not allow us to conform to the new economy and complexities.
Malegam further said frauds in companies result in a vitiation of financial information by providing incorrect information. “Frauds through related parties, diversion of funds, through the creation of shell companies or multiplicity of subsidiaries, etc... I think there is a responsibility that the corporate governance must accept.”
On accounting standards, Shah said we have come a long way but a lot more needs to be done because the world is changing.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
