Sebi directs Rolta to streamline accounting

The Securities and Exchange Board of India (Sebi) has directed Rolta India Ltd to discontinue its practice of including the cost of self-assembled capital equipment or any capitalisable item in sales revenue in the future, and not to adopt, in future, any accounting practice inconsistent with relevant Indian or international accounting standards.

The markets watchdog passed the order on July 20, 2004. Investigations were carried out by Sebi on the company after it was found to have violated accounting norms.

Investigations found that the company had violated the provisions of Regulation 5 of SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 1995 by adopting, for seven consecutive years an improper accounting practice of including the cost of item partaking the nature of fixed asset in the sales.

"This practice followed by Rolta India Ltd has the potential of influencing the price of the scrip and misleading the investors," said the order.

By inclusion of the cost of self assembled capital equipment in the sales, the company has adopted inappropriate accounting and though the practice did not apparently impact the profit or loss, it had distorted the sales turnover figures, said the Sebi order.

The sales growth rates for 2001 were highlighted at a level better than what they would have been but for the accounting practice followed "Thus, the practice followed by Rolta had the potential of misleading investors and influencing the price of the scrip, as borne out by the behaviour of the share price subsequent to its improper accounting policy catching the public attention," the order has observed.

According to the order the market price of Rolta's share was hovering over Rs 140 towards the end of May 2002.

The company had sent the audited annual accounts for the year 2001 and notice for the annual general meeting on May 24, 2002.

The price fell sharply to Rs 119.50 on July 11, 2002, when the company issued a press release clarifying its accounting policy in question. It steadily fell thereafter to as low as Rs 83 by July 31, 2002.