 "Will take action against firms such as Liberty House: NCLAT")
Emphasising that business integrity is extremely important for economic growth, appellate tribunal NCLAT's Chairperson Justice Ashok Bhushan on Tuesday said companies have the first responsibility of preparing a set of accounts that can be trusted.
He asserted that constant vigil needs to be exercised so that each element of the transparency and governance chain works properly and to its best capacity.
The chairman of the National Company Law Appellate Tribunal (NCLAT) was speaking at the international conference on 'Transparent Financial Reporting and Audit Quality - Pillars of Corporate Governance', organised by the National Financial Reporting Authority (NFRA) in the national capital.
"Companies have the first responsibility of preparing a set of accounts that can be trusted. In several cases, weak accounting practices have led to financial scandals. If record keeping is not proper, financial results are not accurate, the entire business environment suffers," Bhushan said.
If the financial position is not presented fairly, he said that raising money from institutions and investors becomes difficult.
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"Even though large investors do have better bargaining positions than small investors, we have seen instances where they have been misled into investing in companies where financials have been window-dressed and oversight mechanisms have not worked as effectively as expected," he noted.
As the nation aspires to be amongst the top three economies of the world, Bhushan said that business integrity is extremely important to support growth and ensure investors' confidence and protection.
In his speech, he also mentioned about corporate frauds that had happened in the country and that in several cases, audits have not done enough and in extreme cases audit has acted in or even colluded with management interest at the cost of shareholder interest.
"If the auditor fails to point out infirmities and this goes on year after year, it amounts to misleading the investors and the lenders. In certain cases, it may amount to cheating. We have seen numerous cases in India where money was diverted and auditors did not perform required procedures to detect the anomalies...," he said.
At the conference, NFRA Chairperson Ajay Bhushan Prasad Pandey said that when the regulator began its operations, the focus was on enforcement approach rather than supervisory approach as the prevailing scenario demanded that kind of medicine.
"... we have added a new tool to our Regulatory Tool kit called firm-wide audit quality inspections. This is keeping in tune with one of our functions to drive a systemic improvement in the audit quality and provide an opportunity for remedial actions by the audit profession," he said.
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