Lok Sabha has approved Companies Bill, 2012. While the Bill addresses important issues in corporate governance and mergers and acquisitions, it has also introduced clauses to enhance financial reporting.
Companies now have to prepare a consolidated financial statement for the parent company and its subsidiaries similar to the standalone financial statement. The consolidated financial statement should be presented at the company’s annual general meeting.
A company can reopen its books of account and recast its financial statements if
the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements.
For court-approved schemes of arrangement/ amalgamation, the Bill now has a rule similar to the one required by the Securities Exchange Board of India for listed companies, wherein auditors have to certify that the scheme’s accounting follows accounting standards.
The Bill has also indicated the useful life for fixed assets, which companies have to consider when preparing financial statements. These useful lives are closer to the actual use of the underlying assets. If a company picks a useful life that is different from what is indicated, it shall disclose the justification for it.
The passage of the Companies Bill and the provisions on financial reporting are positive steps towards international best practices.
Newer avenues for revenues
The ATM industry in India has witnessed interesting developments in the recent past. After the Government initiated a large-scale (approximately 60,000) deployment of ATMs through public sector banks, the Reserve Bank of India has opened up this space for non-banking entities through the White Label ATM model. This is meant to widen the reach of banking services and achieve financial inclusion. The model is already in use in some countries in varied forms. It opens newer avenues of revenue generation. Firms investing in this initiative have a huge opportunity to target a vast untapped market by providing basic ATM (cash dispensing) as well as value-added services. Those who can get their business model right, along the lines of an optimal location strategy, compelling product features, differentiated pricing models and viable partnerships for a robust ecosystem, will emerge winners.
For a better tomorrow
The Companies Bill 2012 is historic for more reasons than one. This Bill is significant as it seeks to codify the law on class action for the first time. Allowing class action suits would go a long way in institutionalising minority protection and shareholder activism, say corporate law experts. Shareholders or depositors could approach a Tribunal and seek an award for damages, compensation from a company, its directors and auditors for any crime such as fraud or insider trading. In Indian law, there is no provision for either class action or for individuals seeking compensation in case of fraud and insider trading. In 2009, Indian individual shareholders of scam-hit Satyam Computer Services tried to mount a class action against the company. However, the Supreme Court dismissed their application, presumably in the absence of specific provisio allowing class action suits.
Foundation route open for CSR
India Inc may have a cause for cheer. Parking a company’s funds into a foundation floated by a promoter for social causes would be counted as corporate social responsibility (CSR) spend. The only catch is that it is entirely the company’s responsibility to ensure that the funds are spent by the foundation within the earmarked time, and for the specified activities. The reason for this is that the proposed reporting requirements will require a company to provide details to the Corporate Affairs Ministry as to how much of the funds with the foundations have actually been spent for the said CSR activities.