Leeladhar rakes up corporate accounting issues

The Reserve Bank of India (RBI) today highlighted the general perception that accounting statements have failed to inform of the drift of financial affairs of a company towards impending failure.

In his address at the Western India Regional Council of the Institute of Chartered Accountants of India, V Leeladhar deputy governor, RBI, today said this has catalysed debate on issues like accounting standards and auditor independence on the one hand, as well as issues of integrity and personal deviance on the other.

"Post-mortem reports of accounts and of administrative lapses of failed companies given by liquidators / regulators / inspectors give us an insight into accounting as well as regulatory lapses and provide a stark contrast between the 'true and fair' picture of the organisation at various points of time in its life and what it was reported to be," he added.

The deputy governor's speech comes at a time when the RBI had banned Price Waterhouse & Co from auditing banks' accounts and the Calcutta high court putting a stay on the ban.

The RBI's ban was a fallout of the scandal surrounding Global Trust Bank.

This is despite Price Waterhouse having qualified the accounts of the private sector bank, and the RBI had also come out with its own inspection report.

The un-serviceability of accounts to give a true and fair picture of what lay in store, the inaction of regulators to gauge the pulse of the forthcoming events and the ethical failures of the organisational culture or of individuals that perpetuated acts of commission or omission painted a picture of a systems failure that often got blurred with the media focus on personalities and on deviant behaviour.

This in turn has brought back into focus the quest for codes and standards as well as the issue of values and ethics in business, said Leeladhar.

The accounting, regulatory and ethical failures subsuming the system, the cultural ethos and individual deviance have squarely resituated professional values and ethics and the broader governance issues onto the centre stage of boardroom concerns, he added.

The endeavour in accounting and finance is geared to improve the reliability of financial statements. This makes them more credible and increase shareholders' confidence.

Confidence in financial statements reduces the cost of capital and makes the markets more efficient. Thus, in a market economy, quality accounts, audits and the integrity of professionals create an enabling environment for economic efficiency and corporate growth, said Leeladhar.