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PROVISIONS CONTAINED IN THE COMPANIES ACT
We will now outline the different points covering corporategovernance which wereincludedrecently in the CompaniesAct.
1. National Financial Reporting Authority
National Financial Reporting Authority will be set up. Institute of Chartered Accountants of India earlier had many of the powers vested in the Financial Reporting Authority. This authority will formulate the accounting and auditing standards. It will monitor and enforce compliance of these standards. To this end, it will oversee the quality of the professions like accountancy, auditing and financial analysis connected with these matters. The authority will investigate professional and other misconduct that chartered accounts or their firms maycommit.
Every company has to appoint an auditor. Listed and other specified companies can appoint an individual auditor for a five year term and a firm for two consecutive terms of five years each. Any firm having a same partner or partners shall not be appointed in its place. The remuneration of auditors shall be fixed by the company in its general meeting. It means that the decision can be taken neither by the managementnor by the board but only by the general body of shareholders. This removes chances of collusion between management and the auditors.
Every auditor of a company shall have a right of access at all times to the books of account and vouchers (signed receipts for payments made) of the company. An auditor can demand (as a matter of right) from the company officials such information and explanation as he may consider necessary for the performance of his duties as auditor. The law enjoins upon the auditors some matters on which they must conduct a special inquiry and include in their report.
The Companies Act imposes a special obligation on auditors, company secretaries in practice and cost accountants of a company. If during the course of the performance of their duties they notice that an offence involving fraud is being or has been committed against the company by its officers or employees, they have to report the matter to the Central Government. The government will prescribe the time limit and method for making such reports. The law prohibits the auditors from providing banking, financial and similar services to the company. This is intended to avoid conflict of interest and to preserve the auditor’s independence. Otherwise, the company may entice auditors with alluring financialassignments.