Special course to help independent directors read financial statements

Training by the Indian Institute of Corporate Affairs is expected to help improve compliance

The Indian Institute of Corporate Affairs (IICA) plans to soon introduce a special course that will enable independent directors (IDs) to read financial statements better, said sources.

“The course would be especially for people who are likely to become or are already members of an audit committee,” said one source.

Recent corporate scams have put the spotlight on company directors who the government feels failed to detect signs of trouble. However, IDs have become more aware and vocal about lapses and disagreements in company affairs.

Nisaba Godrej earlier this month resigned as an independent director on the board of luggage and travel accessories maker VIP Industries, citing differing views on leadership, accountability, and succession planning. Marc Desaedeleer resigned from the board of Suzlon Energy over "transparency". Crisis-hit Paytm Payments Bank is another example: Independent directors have quit the firm citing personal reasons.

 

IDs on audit committees are required to ensure that the audit process is fair and transparent. A need was felt to educate them on the basics of accounting and auditing so they can raise red flags and ask the right questions, said sources.

There are some 29,000 independent directors registered with the IICA.

Experts feel that a special course would advance corporate governance and align with requirements under Section 149(6) of the Companies Act, 2013, which emphasises the importance of IDs having expertise and integrity.

“By equipping them with robust financial literacy, the IICA is not only fostering compliance but also mitigating potential legal liabilities arising from financial mismanagement or oversight,” said Sonam Chandwani, managing partner at KS Legal & Associates.

The government, through a notification in October 2019 that came into effect from December 2019, brought a mandate for IDs to pass a qualifying exam that would set a foundational standard. The IICA conducts the exam.

However, several exceptions were made to mandatory self-assessment tests including for practicing chartered accountants, company secretaries, cost accountants, and advocates of court with an experience of more than 10 years.

The Company Law requires all listed companies to have a third of their board members as independent directors. Their role is to ensure the interests of minority shareholders are protected and act as overseers outside the influence of the firm.