CHAPTER - III

CORPORATE DISCLOSURE
ENVIRONMENT
IN INDIA

Sr. No.

Contents

Page No

Introduction

71

Corporate disclosure and the Indian Companies Act

73

Corporate disclosure and ICAI

80

Corporate disclosure and SEBI

95

Informational needs of Users and Management

Preferences

107

Contents of corporate financial reporting

108

Conclusion

111

INTRODUCTION
It is to be expected that environmental conditions in a country will affect
the accounting and disclosure practices that develop there. This idea has been
discussed and investigated by several writers. Zeff (1971) 1, Abu- Jbarah (1972)2,
Choi and Mueller (1978)3, and Arpan and Radebaugh (1981)4, demonstrated that a

host of environmental variables affect any nation's accounting and disclosure system.
Similarities in accounting are based on similarities in environmental and economic
characteristics.
India has had trading links with Western Europe from the early sixteenth
century. The British East India Company increased its influence until, by the middle
of the nineteenth century. In 1858 the East India Company was taken over by the
British government and until independence was attained in 1947, most of India was
administered directly by the United Kingdom. Accounting and financial reporting
practices were therefore largely based on the UK model although developments since
independence meant that significant difference have arisen. 5
Corporate disclosure in India is governed (private sector) by five major
factors, i.e.,
a)

Indian Companies Act,

1 Zed S.A, "Forging Accounting Principles in Five Countries", Stipes Publishing Company, North
Holland, 1971.
2 Abu-Jbarah, 1-LM, "A Sub- entity basis for Financial Reporting by Multi-National Firms: A Cluster
Analysis Approach" unpublished Ph.D dissertation, University of Wisconsin, 1972.
3 Choi, F.D.S and Mueller, G.G, "An Introduction to Multi-national Accounting", Prentice-Hall, 1978,
pp. 23-28.
4 Arpan, J.S and Radebaugh, L.H, "International Accounting and Multi-National Enterprises", Warren,
Gorham and Lamont, 1981, p.43.
5 Claire Marston, op. cit, p.2.

71

b)

Pronouncements of the Institute of Chartered Accountants of

India (ICAI),

c)

Securities and exchange board of India regulations,

d)

Users informational needs, and

e)

Managements' preferences.

As shown in Figure 3.1, the factors taken together constitute the

corporate disclosure environment in India.

Figure 3.1
Corporate Disclosure Environment In India

Indian Companies
Act

Users informational
needs

72

CORPORATE DISCLOSURE AND THE INDIAN COMPANIES

ACT
In India, the companies Act, governs the disclosure of information in the
annual reports by the companies.
i)

UNDER THE COMPANIES ACT OF 1882

The history of financial reporting in India dates back to 2 centuries ago.

Although the first statutory Act giving a legal recognition to the preparation of
balance sheet under the prescribed form, however, on the optional basis, was passed
in 1857, which was then converted into compulsory basis by the Act of 1866, but the
comprehensive Act, recasting and overhauling all the pervious ones was passed only
in 1882, known as the Indian companies Act, 1882.
Under the Act of 1882, provisions pertaining to the balance sheet and its
audit were contained in compulsory section, 74, whereas, for others, viz., profit and
loss account, laying and circulation of annual accounts, contents of auditor's report,
director's report and so on were contained in the optional regulations 78 to 94 of
Table A.
ii)

UNDER THE COMPANIES ACT OF 1913

The Indian companies Act, 1913 [Act No.VII of 1913] came into force
with effect from 1 s April 1914. A new form of balance sheet was introduced and
many new items were required to be disclosed therein, e.g., loans were required to be
shown separately as secured and unsecured, similarly, on the asset side, mode of
73

valuation of investments, capital expenditure like, commission or brokerage not

written off, were required to be stated.

iii) UNDER 1111, COMPANIES AMENDMENT ACT OF 1936

The Companies Amendment Act No XXII of 1936, again drastically
amended the provisions about financial reporting. Many of the provisions connected
with the profit and loss account and the director's report, which were up-till now
contained in the optional regulations of Table A were brought to the Act itself.
As far as the disclosure of details in the balance sheet was concerned,
many items dissimilar in nature were mixed together, e.g., shares issued as bonus
shares on account of capitalization of reserve were mixed up with shares issued for
consideration other than cash, stating nearly all reserves under one head without
having any regard for capital or revenue, reserve and provisions, mixing of all
miscellaneous outstanding liabilities under one sub-head, 'other finance', etc.
As regards profit and loss account, regulation no. 107 of Table A, made
it obligatory for all expenditure to be brought into the profit and loss account,
whereas, no such requirement existed for income with the result that capital profits
and income of an exceptional nature.
In the absence of detailed provisions, many companies gave only the
amount of gross profits without disclosing the amount of sales, purchases, stocks,
selling expenses, commission and discounts. Even the profit appropriations were not
disclosed.

74

iv) UNDER '1111E COMPANIES ACT OF 1956

In conformity with British legacy, independent India adopted its first
companies Act in 1956. The Shastri committee in 1956 had introduced certain
modifications in compilation and reporting aspects. Under the recommendations of
this committee, part- I of schedule VI section 211 has been improved upon; from the
capital head, share premium account has been shifted to reserves and surplus; current
liabilities were segregated into two classes i.e., (a) current liabilities, and (b)
provisions; current assets were subdivided into (a) current assets and (b) loans and
advances.
Contingent liabilities not provided for, have been deleted and relegated
to footnote status. Under current assets, sundry debtors have been regrouped as (a)
due for more than 6 months and (b) others. As regard to part- II of schedule VI,
Shastri committee suggested that an adequate form of profit and loss account should
be defined and made compulsory by law.
In India, the report of company law committee (Bhaba committee),
which was formed before enacting the companies Act of 1956, stated as follows:
"... The form of balance sheet and the contents of profit and loss
account should be such as would make available to the shareholders as much
information relating to the affair's of the company as it is possible to disclose".
Section 211 (1) & (2), schedule VI of the companies Act, 1956 for the first time spelt
out the need for disclosure of 'true and fair view' of the state of affairs' of the
company.

75

Some of the sections of the companies Act 1956, have significant

bearing on disclosure of information in the annual report, they are:
Section 210:

Board of directors of every company to lay before the

shareholders at the annual general meeting, a balance sheet and a profit and loss
account for a financial year.
Section 211 (1):

Balance sheet to give 'true and fair view' of the state of affairs

of the company as at the end of accounting period. Balance sheet should be prepared
as per schedule VI, part I of the companies Act 1956.
Section 211 (2):

Profit and loss account to give 'true and fair view' of the profit

or loss for the financial year. Information should be disclosed in the profit and loss
account as prescribed in part II of schedule VI, of the companies Act 1956.
Section 211 (6):

Information to be disclosed by way of notes and such notes to

form part of the accounts, i.e., balance sheet and profit and loss account.
Section 212:

Balance sheet, profit and loss account, auditor's report and

director's report of the subsidiary company to be attached to the balance sheet of the
holding company.
Section 216:

Auditor's report should be attached to the balance sheet.

Section 217:

Director's report to the shareholders to cover the following;

a)

State of company's affairs;

b)

Amount to be carried to reserve;

c)

Dividend recommended;

d)

Material changes / events after balance sheet date in so far as they

affect the financial position of the company; and

76

e)

Material changes in the nature of business of the company and its

subsidiaries.

Section 227 (1A):

Auditors to enquire and report adverse findings on certain

matters.
Section 227 (2);

Auditor to report to the members of the company, on accounts

examined by him and on every balance sheet and profit and loss account and
annexure thereto.
Section 227 (3):

Contents of auditor's report.

Section 641 (1):

Central government vested with powers to alter disclosure

requirements in schedule VI.

V. UNDER I'HE COMPANIES (AMENDMENT) ACT OF 1973

The companies (amendment) Act of 1973 required the disclosure of the

following information in the financial statements:
1. Specified details in respect of investments and profit earned or loss incurred in
partnership firm in which the company is a partner.
2. Quantities and amounts in respect of the turnover of each class of goods.
3. Break-up in quantity and value in respect of each class of raw materials
consumed or purchased.
4. Class-wise break-up of quantity and value in profit and loss account in respect
of opening and closing stock of goods manufactured or purchased.
5. Break-up of expenditure on salary, wages and bonus in respect of employees
drawing a remuneration of Rs.3000 p.m or more. (This limit of Rs.3000 p.m
77

has been increased to Rs.6000 p.m by amendment made to the companies Act
in 1988) and
6. Quantitative details regarding licensed capacity, installed capacity and actual
production in respect of each class of goods manufactured.
A high powered expert committee known as Sachar committee, has
recommended that the balance sheet and profit and loss account should be prepared in
vertical form. The committee has suggested the inclusion of the following items in the
director's report:
a) Amount of deposits received from the public during the year; total
repayments during the year and outstanding with a break-up of dues
within one or two years.
b) Brief particulars of prosecutions which resulted in a fine of Rs. 1000
or more in any one case, or in imprisonment of any of the directors or
officers of the company.
c) Particulars of unclaimed and unpaid dividends.
d) Details of any investments in corporate bodies, firms or joint ventures,
which have not yielded any return during the year.
e) Particulars of material liability.
f) Statement of unprovided liabilities.
g) Details about the company's social activities.
h) Statement indicating the loss suffered by the company in any division.

78

i) Accounting ratios, such as ratio of current assets to current liabilities,

inventory to sales, trade receivables to sales, net income to net sales,
etc.
j) Key limiting factors' preventing full utilization of installed capacity of
plant and machinery.
k) Number of shares held by each director carrying not less than 20 per
cent of the total voting rights.
1) Particulars of any contract in which directors or their spouses or
dependent children have interest, and
m) Statement regarding compliance of statutory norms and guidelines in
respect of managerial appointment and remuneration and intercompany investment and loans.
VI. UNDER THE COMPANIES (AMENDMENT) ACT, 1988

The amendments of 1988 have brought drastic changes in the provisions

on disclosure contained in the companies Act, 1956. Report of the board of directors
to include the following matters:
Conservation of energy.
Technology absorption.
Foreign exchange earnings and outflow.
Another significant amendment, which affects corporate disclosure, has
been made in section 219 of the companies Act, 1956. This amendment gives a
choice to the listed companies either to send detailed accounts to their shareholders
or a statement containing only the salient features. However, it is obligatory to send a

79

copy of the detailed accounts free of cost to a shareholder, in case he demands the
same within 21 days time prior to meeting.

VII. UNDER '171E COMPANIES (SECOND AMENDMENT) BILL, 1999

AND AMENDMENT ACT OF 2000.

The companies amendment Act 2000, requires the disclosure of the

following information in the annual report:
1. Under section 217, subsection newly inserted (2AA) the director's report shall
also include a 'Director's responsibility statement'.
2. Under section 211, while preparing accounts one thousand rupees shall be
substituted by ten thousand.
3. In section 227 (3), an additional clause (e) is added. It states that the
observations or comments of the auditor should be typed in bold or should be
italicised.

CORPORATE DISCLOSURE AND ICAI

ICAI, being the premier professional accounting body in India, plays a
pivotal role in regulating the disclosure practices of the companies both in the public
sector and the private sector. With a view to regulate the corporate disclosure
practices, it issues accounting standards, guidance notes and expert opinions, holds
the competition for the best presented published accounts annually and organizes a
number of seminars, workshops and conferences on various dimensions of corporate
disclosure.

80

Since different accounting and reporting practices are followed by the

corporate sector in India, ICAI constituted the Accounting Standard Board (ASB) in
April 1977. The basic objective of ASB is to harmonies the diverse accounting
policies and practices being followed by companies in India, keeping in view the
international developments in the field of accounting. To achieve this objective ASB
has undertaken to formulate and propagate the 'Accounting Standards' and to
persuade the concerned parties to adopt them in the preparation and presentation of
the financial statements. ASB has issued 15 accounting standards till date [as on
March 31, 20001.
Besides these accounting standards, the institute has also issued some
exposure drafts, guidance notes and expert opinions by the corporate sector in India,
for the preparation of the financial statements, shall make the statement comparable
and more relevant to their users.
The institute also arranges a number of seminars, workshops and
conferences covering different aspects of financial reporting, every year. These
programmes are specifically conducted for the members of the institute and the
officials working in different organizations, who are related to the preparation of the
corporate annual reports.
ICAI holds a competition annually for selecting the best-presented
accounts. This competition is held for three categories of organizations:
1. Companies in public and private sectors and non-financial statutory
corporations.
2. Financial institutions and banks in the public and private sectors; and

81

3. Port trusts, municipal corporations, public utilities not registered under the
companies Act, co-operative societies, public trusts, educational and
research institutions.
SOME IMPORTANT FACTORS GENERALLY CONSIDERED FOR ME
AWARD OF SHIELDS AND PLAQUES FOR IRE BEST-PRESENTED
ACCOUNTS.6
1. Compliance with the legal requirements in the preparation and presentation of
financial statements as specified by the companies Act, 1956 and other
relevant statutes.
2. Basic quality of accounts as judged from the qualifications in the auditor's
report, notes to the accounts and compliance with the generally accepted
accounting principles such as, those recommended in the accounting
standards, statements, guidance notes, etc., issued by the council of the ICAI
and its various committee.
3. The nature and quality of information presented in the accounts to make the
disclosure meaningful. For example;
* Cash flow statement.
Sufficient details of revenues / expenses for financial analysis, e.g.,
distinction between manufacturing cost, selling cost, administrative
cost.
Use of vertical form as against the conventional 'T' form; judicious
use of schedules; use of subtotals; manner of showing comparative
figures; ease of getting at figures.
6

The Chartered Accountant, ICAI, New Delhi, July 1999, p.205.

82

: To what extent additional financial information is provided to the

readers through charts and graphs.
Extent of clarity, lucidity and comprehensiveness of the information
contained in the financial statements in the context of a layman.
Financial highlights and ratios including earning per share.
Inclusion of one or more of the information like, value added
statement, break-up of operations, organization chart, location of
factories/branches, human resources accounting, inflation adjusted
accounts, social accounts.
4. How informative are the (i) director's report and / or (ii) chairman's
statement? The following aspects are considered relevant in this regard;
(a)

Availability of information regarding different segments and units of

the entity i.e., whether details about each product / service and units,
whether located in the same area or spread in different geographical
locations, are given.

(b)

Information regarding financial operations, capital raised during the

year, financial requirements, borrowings, etc. in respect of multiproduct / multi- unit organizations, whether details as per above have
been given for financial operations.

(c)

Employee relations.

(d)

Industry problems and problems peculiar to the enterprise.

(e)

Information regarding social concern (e.g., contribution to

conservation and development of environment and ecology).

83

(f)

Information on contribution to community development projects,

particularly in areas around location of entity (e.g., medical
institutions, educational institutions, provision of sanitary and drinking
water, etc).

(g)

Post- balance sheet events not requiring adjustment in accounts but

material enough to warrant disclosure and future plans, programmes,
market conditions, profitability, forecast, environment friendliness,
etc.

(h)

Manner of review of performance plans and prospects by the

company.

5, Layout of contents, general appearance, presentation and quality of printing.

6. Timeliness in presenting accounts based on the date of the notice of the annual
general meeting in respect of which the annual report is circulated to the
shareholders.
ICAI awards a silver shield for the best-presented accounts to the
organization from each of the first two categories and a plaque to the best-presented
account to an organization from the third category. Three plaques are awarded for the
next highly commended accounts from category (i). By holding such competitions,
the institute motivates companies and other organizations to disclose the relevant and
useful information in the published accounts so as to make them comprehensive,
informative and useful to investors and other users.
The concept of 'one market economy' due to liberalization is going to
have far reaching implications on disclosure practices in. India. Accounting practices

84

and disclosure the world over are going to be standardized. Therefore, ICAI has to go
a long way but in a short span of time to stand at par with the professional accounting
bodies in other countries like, AICPA, ICAEW, CICA, etc.

ACCOUNTING STANDARDS
Accounting standards may be defined as a media of information system
through which complete and fruitful information about a business enterprise may be
supplied to all interested parties.
Accounting practices differ from country to country. Though,
international accounting standards have not so far been fully developed, the efforts
are being made to evolve such standard in accounting, which may be uniform and
consistent to the possible extent and may be accepted with minor adjustments in all
the countries, so as to make the accounting results measurable and comparable.

ACCOUNTING STANDARDS IN INDIA

In India, the statements on accounting standards are issued by the ICAI,
to establish standards that have to be complied with to ensure that financial
statements are prepared in accordance with the generally accepted accounting
principles in the country. These standards are largely drawn from the International
Accounting Standards (as India is a member of the IASC), suitably modified to cater
to the requirement of local business.
In order to examine the compliance of accounting standards by the
selected Indian public limited companies, the following research methodology has
been followed:

85

METHODOLOGY
i.

The study was limited to the period from 1995-96 to 1999-00, i.e., for five
years.

ii.

The study was also limited to 125 selected public limited companies.

iii.

The reporting pattern of the companies was judged through annual reports of
the selected companies [compiled from the data collected through 'index of
disclosure' as shown in Appendix II].
Table 3.1 presents the 'compliance of accounting standards by selected

companies', both in absolute figures as well as in per cent for the years 1995-96 to
1999-00. A cursory look at this table reveals the following:
(1) Almost all the selected companies [100%] complied with the provisions of
Accounting standard no.1 (Accounting policies), no.3 (cash flow statement), no. 6
(Accounting for depreciation) and no.10 (accounting for fixed assets).
(2) None of the selected companies have (0%) complied with the provisions of
Accounting standard no.7 (accounting for construction contract).
(3) Some of the other accounting standards on which there has been very low level of
compliance by the selected companies are Accounting standard no.9 (revenue
reCognisation), Accounting standard no.12 (accounting for government grants)
and Accounting standard no.14 (accounting for amalgamation).
(4) One of the possible reasons for the low level of compliance on certain accounting
standards by the selected companies may be, transactions of this nature might not
have occurred during the period of study.

86

Compliance of accountin
Sr.No

Table 3.1
standards by selected companies
No of companies disclosing (per cent)

Accounting standards

95-96

96-97

97-98

I-

98-99

99-2000

AS-1 Accounting policies

125 (100)

125 (100)

125 (100)

125 (100)

125 (100)

AS-2 Valuation of inventories

110 (88)

112 (89.60)

115 (92)

117(93.60)

117(93.60)

AS-3 Cash flow statement

AS-4 Contingencies and events occuring after

124 (99.2)

125 (100)

125 (100)

125 (100)

125 (100)

99 (79.2)

99(79.2)

99(79.2)

99(79.2)

100(80)

balance sheet date

AS-5 Prior period and extra ordinary items and
changes in accounting policies

73(58.4)

78(62.4)

82(65.6)

91(72.8)

92(73.6)

AS-6 Depreciation accouning

125(100)

125(100)

125(100)

125(100)

125(100)

AS-7 Accounting for construction contract

AS-8 Accounting for research and development

122(97.6)

123(98.4)

124(99.2)

124(99.2)

124(99.2)

AS-9 Revene recognization

19(15.2)

20(16)

30(24)

35(28)

40(32)

10

AS-10 Accounting for fixed asstes

AS-11 Accounting for effects of changes in foreign

125(100)

125(100)

125(100)

125(100)

125(100)

11

exchange rates

117(93.6)

122(97.6)

123(98.4)

123(98.4)

123(98.4)

9(7.2)
12(9.6)
16(12.8)
AS-13 Accountign for Investments
123(98.4)
124(99.2)
124(99.2)
AS-14 Accounting for Amalgamation
2(1.6)
2(1.6)
2(1.6)
AS-15 Accounting for retirement benefites
67(53.6)
69(55.2)
83(66.4)
Compiled from the annual reports of the selected companies from 1995-96 to 1999-06.
87

24(19.2)
124(99.2)
2(1.6)
97(77.6)

24(19.2)
124(99.2)
2(1.6)
106(84.8)

12
13
14
15
Source:

AS-12 Accounting for Government grants

(5) There has been a gradual improvement in the compliance of the accounting
standards over the period of study.
(6) All the selected companies have provided information in a statement form,
regarding the accounting policies.
(7) Most of the selected companies have provided depreciation on straight-line basis
at the rates specified in schedule XIV of the companies Act, 1956.
(8) Most of the companies have prepared separate schedules of fixed assets,
depreciation, investments, inventories, etc.
(9) All companies have provided information regarding contingent liabilities, in the
footnotes or notes in balance sheet.
(10) Most of the accounting standards were partially complied with by the selected
companies, as was evident from their annual reports.
Table 3.2 presents the 'Disclosure pattern of selected companies,
regarding Accounting Standards', both in absolute figures as well as in percentage for
the years 1995-96 to 1999-00. A cursory look at this table reveals the following:
a. There has been a gradual improvement in the compliance of the accounting
standards by the selected companies over the period of study.
b. The highest compliance percentage of the companies is 86.67. To name a few
of the companies, which have attained the highest level of compliance are
Bannari Amman Sugars Ltd, ELGI Equipments Ltd, Hindustan Lever Ltd,
Indo Gulf corporation Ltd, Linc pens & plastics Ltd, LML Ltd, Navneet
Publications (India) Ltd, Reliance Industries Ltd and so on.

88

Table 3.2
Disclosure pattern of Selected Companies regarding Accounting Standard
Sr. No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

Company
ABB - ASEA BROWN BOVERI LIMITED
ABS INDUSTRIES LTD.
ACC (THE ASSOCIATED CEMENT COMPANY LTD)
ACGL (AUTOMOBILE CORPORATION OF GOA LTD)
A)ANTA PHARMA LTD.
ALFA LAVAL (INDIA) LTD.
APAR INDUSTRIES LTD.
APOLLO TYRES LTD
ARVIND MILLS LTD
ASIAN HOTELS LTD
ASIAN PAINTS (INDIA) LTD
RUM AUTO LTD
BA.IAJ HINDUSTHAN LTD
BANNARI AMMAN SUGARS LTD
BATA INDIA LTD
BIMETAL BEARINGS LTD
BIRLA YAMAHA
BIRLA 3M LTD
BIRLA ERICSSON OPTICAL LTD

No of Accounting standard complied with (Total out of 15)

95-96
96-97
97-98
98-99
99-2000
Total Percent Total Percent Total Percent _ Total Percent Total
Percent
12
80
12
80
12
12
80
80
12
80
11
73.33
11
73.33
11
73.33
11
73.33
11
73.33
10
66.67
10
66.67
10
66.67
10
66.67
10
66.67
10
66.67
10
66.67
10
66.67
10
66.67
10
66.67
9
60
9
60
9
60
9
60
10
66.67
9
60
60
9
9
60
60
9
9
60
9
60
10
66.67
11
73.33
66.67
10
66.67
10
11
73.33
11
73.33
11
73.33
11
73.33
11
73.33
9
60
60
9
9
60
9
60
10
66.67
10
66.67
66.67
10
66.67
10
66.67
10
66.67
10
10
66.67
10
66.67
10
66.67
10
10
66.67
66.67
12
80
12
80
12
12
73.33
11
80
80
10
66.67
10
66.67
11
73.33
11
73.33
11
73.33
11
73.33
11
73.33
11
73.33
13
86.67
13
86.67
9
60
9
60
9
60
9
60
9
60
10
66.67
10
66.67
10
66.67
10
66.67
11
73.33
9
60
9
60
9
66.67
60
10
66.67
10
9
60
66.67
10
66.67
11
10
10
66.67
73.33
9
60
9
60
60
10
66.67
10
66.67
9
89

20 BLUE STAR LTD

21 BPL LTD
22 CABLE CORPORATION OF INDIA LTD
23 CADBURY INDIA LTD
24 CAMPHOR &ALLIED PRODUCTS LTD
25 CAPRIHANS INDIA LTD
26 CEAT LTD
27 CENTURY ENKA LTD
28 CENTURY TEXTILES AND INDUSTRIES LTD
29 CHAMBAL FERTILISERS AND CHEMICAL LTD
30 CHEMPLAST SANMAR LTD
31 CHICAGO PNEUMATIC INDIA LTD
32 CIBA SPECIALTY CHEMICAL (INDIA) LTD
33 CIPLA LTD
34 COATES OF INDIA LTD
35 COLGATE - PALMOLIVE (INDIA) LTD
36 CREST COMMUNICATION LTD
37 CYBERTECH SYSTEMS AND SOFTWARE LTD
38 DABUR INDIA LTD
39 DAEWOO MOTORS
40 dalmia cement (BHARAT) LTD
41 DEEPAK FERTILIZER & PETROCHEMICAL CORPORATIOr
42 DIGITAL EQUIPMENT (INDIA) LTD
43 E.I.D.-PARRY (INDIA) LTD
44 E.MERCK (INDIA) LTD
45 ELGI EQUIPMENTS LTD
46 FERRO ALLOYS CORPORATION LTD
47 finolex INDUSTRIES LTD

11
10
11
11
11
10
10
11
11
10
10
11
8
11
9
9
8
11
10
11
10
10
12
10
11
11
10
10

73.33
66.67
73.33
73.33
73.33
66.67
66.67
73.33
73.33
66.67
66.67
73.33
5333
73.33
60
60
53.33
73.33
6647
73.33
66.67
66.67
80
66.67
7333
73.33
66.67
66.67
90

11
10
11
11
11
10
10
11
11
10
10
11
10
11
9
9
9
11
10
11
11
10
12
10
11
13
10
10

73.33
66.67
73.33
73.33
73.33
66.67
66.67
73.33
73.33
66.67
66.67
73.33
66.67
73.33
60
60
60
73.33
66.67
73.33
73.33
66.67
80
66.67
73.33
86.67
66.67
66.67

11
10
11
11
11
10
10
11
11
10
10
11
10
11
9
9
9
11
11
11
12
10
12
10
11
13
10
10

73.33
66.67
73.33
73.33
73.33
66.67
66.67
73.33
73.33
66.67
66.67
73.33
66.67
73.33
60
60
60
73.33
73.33
73.33
80
66.67
80
66.67
73.33
86.67
66.67
66.67

11
11

11
11
11
10
10
11
11
10
10
11
10
11
11
9
9
11
11
11
11
10
12
10
11
13
10
10

73.33
73.33
73.33
73,33
73.33
66.67
66.67
73.33
73.33
66.67
66.67
73.33
66.67
73.33
73.33
60
60
73.33
73.33
73.33
73.33
66.67
80
66.67
73.33
86.67
66.67
66.67

11
11

11
11
11
10
10
11
11
10
10
11
11
11
11
9
9
11
11
11
12
10
12
10
11
13
10
10

73.33
73.33
73.33
73.33
73.33
66.67
66.67
73.33
73.33
66.67
66.67
73.33
73.33
73.33
73.33
60
60
73.33
7333
73.33
80
66.67
80
66.67
73.33
86.67
66.67
66.67

48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75

GERMAN REMEDIES LTD

GLAXO INDIA LTD
GOA CARBON LTD
GODREJ FOODS LTD
GODRE3 SOAPS LTD
GOODRICKE GROUP LTD
GRASIM INDUSTRIES LTD
GREAVES LTD
GUJARAT AMBUJA CEMENTS LTD
GUJARAT NARMADA VALLY FERTILIZER CO LTD
GUJARAT SIDHEE CEMENT LTD
GUJARAT STATE FERTILIZER & CHEMICALS LTD
HINDUSTAN LEVER LTD
HITECH DRILLING SERVICES INDIA LTD
I. T.C. LTD
ILLINOIS TOOLS WORKS INDIA LTD
INDO GULF CORPORATION LTD
ISPAT ALLOYS LTD
KINETIC ENGINEERING LTD
LARSEN & TOUBRO LTD
LINC PEN & PLASTICS LTD
LML LTD
MAFATLAL DYES & CHEMICALS LTD
MAHINDRA & MAHINDRA LTD
MAKERS LABORATORIES LTD
MOTOR INDUSTRIES CO LTD
MRF LTD
NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD

11
11
11
9
10
12
12
8
12
10
11
12
12
10
11
9
12
9
10
10
11
11
9
11
9
9
12
9

73.33
73.33
73.33
60
66.67
80
80
53.33
80
66.67
73.33
80
80
66.67
73.33
60
80
60
66.67
66.67
73.33
73.33
60
73.33
60
60
80
60
91

11
111
11
9
10
12
12
9
12
10
11
12
12
10
11
9
12
9
10
11
11
11
9
12
9
9
12
9
,

73.33
73.33
73.33
60
66.67
80
80
60
80
66.67
7333
80
80
66.67
7333
60
80
60
66.67
73.33
7333
7333
60
80
60
60
80
60

11
11
11
10
10
12
12
10
12
12
11
12
12
10
11
10
12
9
10
10
12
11
9
11
9
9
12
9

73.33
73.33
73.33
66.67
66.67
80
80
66.67
80
80
73.33
80
80
66.67
73.33
6667
80
60
66.67
66.67
80
73.33
60
73.33
60
60
80
60

11
11
11
11
10
12
12
10
12
11
11
12
13
10
12
10
13
9
10
12
13
13
9
12
9
9
12
10

73.33
73.33
7133
7333
66.67
80
80
66.67
80
73.33
73.33
80
86.67
66.67
80
66.67
86.67
60
66.67
80
86,67
86,67
60
80
60
60
80
66.67

n
11
11
11
10
12
12
11
12
12
11
12
13
10
11
10
13
9
11
12
13
13
9
12
9
9
12
10

73.33
73.33
73.33
73.33
66.67
80
80
73.33
80
80
73.33
80
86.67
66.67
73.33
66.67
86.67
60
73.33
80
86.67
86.67
60
80
60
60
80
66.67

76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103

NAVNEET PUBLICATION (INDIA) LTD

NICHOLAS PIRAMAL INDIA LTD
NIRLON LTD
NOVARTIS INDIA LTD
PARKE - DAVIS
PETRON ENGINEERING CONSTRUCTION LTD
PHIL CORPORATION LTD
PHILIPS INDIA LTD
PORRITTS & SPENCER (ASIA ) LTD
PROCTOR & GAMBLE HYGIENE AND HEALTH CARE LTD
RAJSHREE SUGARS & CHEMICALS LTD
RALLIS INDIA LTD
RELIANCE INDUSTRIES LTD
SANDVIK ASIA LTD
SATYAM COMPUTER SERVICES LTD
SESA GOA LTD
SKF BEARING INDIA LTD
SOUTHERN PETROCHEMICALS INDUSTRIES
SRF INDIA LTD
STERLTTE INDUSTRIES INDIA LTD
SUN PHARMACEUTICAL INDUSTRIES LTD
SUNDRAM FASTENERS LTD
SURAl DIAMONDS INDIA LTD
TATA CHEMICALS
TATA STEEL
TATA TEA LTD
TELCO LTD
THE GREAT EASTERN SHIPPING CO, LTD

11
11
8
8
11
8
9
9
9
8
10
11
12
9
12
8
9
11
9
9
10
9
9
11
13
11
12
11

73.33
73.33
53.33
53.33
73.33
53.33
60
60
60
53.33
66.67
73.33
80
60
80
53.33
60
73.33
60
60
66,67
60
60
73.33
86.67
73.33
80
73.33
92

12
11
8
8
11
8
9
9
9
8
10
11
12
9
12
8
9
11
9
9
10
9
9
11
13
11
12
11

80
7333
53.33
53.33
7333
5333
60
60
60
53.33
66.67
73.33
80
60
80
53.33
60
73.33
60
60
66.67
60
60
73.33
86.67
73.33
80
73.33

12
11
8
8
11
10
10
10
9
8
11
11
13
9
13
9
9
12
9
10
11
9
10
11
13
12
13
11

80
73.33
53.33
53.33
73.33
66.67
66.67
66.67
60
53.33
73.33
73.33
86.67
60
86.67
60
60
80
60
66.67
73.33
60
66.67
73.33
86.67
80
86.67
73.33

13
13
9
8
12
10
10
10
9
9
11
11
13
10
13
12
9
12
10
10
11
11
10
11
13
12
13
11

86.67
86.67
60
53.33
80
66,67
66.67
66.67
60
60
73.33
73.33
86.67
66.67
86.67
80
60
80
66.67
66.67
73.33
73.33
66.67
73.33
86.67
80
86.67
73.33

13
13
9
8
13
11
10
11
9
9
11
11
13
10
13
12
10
12
10
10
11
11
10
11
13
12
13
11

86.67
86.67
60
53.33
86.67
73.33
66,67
73.33
60
60
73.33
73.33
86.67
66,67
86.67
80
66.67
80
66.67
66.67
73.33
73.33
66.67
73.33
86.67
80
86.67
73.33

104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125

THE INDIAN HOTELS COMPANY LTD

THE INDIAN SMELTING & REFINING CO. LTD
THIRUMALAI CHEMICALS LTD
TIMEX WATCHES LTD
TITAN INDUSTRIES LTD
TITANOR COMPONENTS LTD
TVS - SUZUKI LTD
UNITED PHOSPHORUS LTD
UNIVERSAL CABLES LTD
VAM ORGANIC CHEMICALS LTD
VASHISTI DETERGENTS LTD
VINDHYA TELELINKS LTD
VINYL CHEMICAL INDIA LTD
VITARA CHEMICALS LTD
VOLTAS INDIA LTD
WARTSILA NSD INDIA LTD
WHIRLPOOL OF INDIA LTD
WIMCO LTD
WIRES FABRICS LTD
WYETH LEDERLE LTD
ZENITH LTD
ZUARI INDUSTRIES LTD

11
8
10
5
9
12
10
9
10
10
7
9
6
6
10
10
9
8
8
6
8
11

73.33
53.33
66.67
33.33
60
80
66.67
60
66.67
66.67
46.67
60
40
40
66.67
66.67
60
53.33
53.33
40
53.33
73.33

11
8
10
6
10
12
10
9
10
10
8
9
7
7
11
10
10
8
8
7
9
11

73.33
5133
66.67
40
66.67
80
66.67
60
66.67
66.67
53.33
60
46.67
46.67
73.33
66.67
66.67
53.33
53.33
46.67
60
73.33

Source: Compiled from the annual reports of the selected companies from 1995-96 to 1999-00.

93

11
8
9
9
10
12
9
12
10
11
9
9
7
8
12
10
10
10
9
9
9
13

73.33
53.33
60
60
66.67
80
60
80
66.67
73.33
60
60
46.67
53.33
80
66.67
66.67
66.67
60
60
60
86.67

11
9
10
9
10
12
10
12
11
12
9
9
9
9
11
11
10
10
9
10
11
13

73.33
60
66.67
60
66.67
80
66.67
80
73.33
80
60
60
60
60
73.33
73.33
66.67
66.67
60
66.67
73.33
86.67

11
8
10
9
10
12
10
12
11
12
9
10
9
9
12
11
11
10
10
10
11
13

73.33
53.33
66.67
60
66.67
80
66.67
80
73.33
80
60
66.67
60
60
80
73.33
73.33
66.67
66.67
66.67
73.33
86.67

c. The lowest compliance percentage of the company is 33.33, by Timex

Watches Ltd, for the year 1995-96.
d. In case of 56 companies the compliance percentage remains the same in 199900, as it was in 1995-96.
SHORTCOMINGS

Major shortcomings of the system of formulating, issuing, enforcing and

policing the accounting standards were as under:
1) Clear direction is lacking as to which accounting standard should or should
not be applied by a company belonging to a specific industry, while
maintaining accounts.
2) Law does not back the accounting standards issued by the ICAI. As there is no
law in the country to compel private enterprises to comply with the standards
issued by the ICAI, making them 'mandatory' the significant level is lowered.
3) The ICAI is not an autonomous body. As a result certain interested groups
may easily influence the standards setters. These groups may influence the
standard setters' decisions for their benefit.
4) Company law, which directs and regulates business accounting and reporting
are formulated and enforced by government. The companies therefore,
consider accounting standards as an additional burden to comply with.
5) Lack of awareness about the cost and benefit of compliance of the accounting
standards may be the cause why most of the companies don't comply with the
standard.
94

The ASB should be made autonomous, so that, there is least interference

from government or other interests. The ICAI should take steps to lay down standard
accounting practices in other areas that have not yet been covered by it.

CORPORATE DISCLOSURE AND SEBI

The Securities and Exchange Commission (SEC) regulates corporate
disclosure in USA and supports the accounting standards issued by the Financial
Accounting Standard Board of AICPA.
The government of India has established 'The Securities and Exchange
Board Of India' (SEBI) on the pattern of SEC of USA, on April 12, 1988 to promote
orderly and healthy development of the securities markets and to provide adequate
investor protection. As a part of capital market reforms the first step which the
government took was to grant statutory recognition to the Securities and Exchange
Board of India as a regulatory body for the capital market in February 1992.
One of the specific objectives of SEBI is to provide a high degree of
protection to the rights of investors and their interests through adequate, accurate and
authentic information and its disclosure on a continuous basis. SEBI has released an
approach paper in August 1988 to evolve a comprehensive securities law and to
develop an integrated framework to deal with all aspects of securities market
including better investor safeguard.
The SEBI proposes to rationalize the financial information contained in
the balance sheet and profit and loss account and supplement it by disclosure of non-

95

financial information and statements by management, adequate to form a reasonable

judgment about the company's affairs and prospects 7.
SEBI's Organisation

SEBI's activities have been divided into five operational departments

headed by an Executive Director and legal department headed by General Counsel
and investigation department by Chief of Investigation.
1. Primary Market Department.
2. Issue Management & Intermediaries Department.
3. Secondary Market Department Policy, Operations and Exchange
administration, Insider trading, etc.
4. Secondary Market Department Inspection of Stock Exchanges, non-member
intermediaries.
5. Institutional Investment Department.
Objectives of SEW

According to the preamble of the SEBI Act, the following are the
objectives of setting SEBI:
To protect the interests of investors in securities.
To promote the development of securities market.
To regulate the securities market.

CFA, Newsletter, August 1988, p.5.

96

Rules, Regulations and Guidelines issued by SEBI

SEBI has issued a series of guidelines, clarifications, rules and
regulations to develop, stabilize, consolidate and strengthen the Indian Capital
Market. To name a few: 1. SEBI (Portfolio Managers) Rules and Regulations, 1992.
2. Introduction of Stock-invest (9-1-1992) and subsequent modifications.
3. Guidelines on free pricing of issues (13-4-1992).
4. Guidelines for disclosure and investor protection (11-6-1992) and subsequent
clarifications.
5. SEBI (Stock Brokers and sub- brokers) Rules and Regulations (20-8-1992).
6. SEBI (Insider Trading) Regulations, 1992 (19-11-1992).
7. SEBI (Merchant Bankers) Rules and Regulations, 1992 (22-12-1992).
8. SEBI (Mutual Fund) Regulations, 1993 (20-1-1993).
9. SEBI (Registrars to an issue and Share Transfer Agents) Rules and
Regulations, 1993 (31-5-1993).
10. SEBI (Underwriters) Rules and Regulations, 1993 (8-10-1993).
11. SEBI (Debenture Trustees) Rules and Regulations, 1993 (29-12-1993).
12. SEBI (Bankers to an Issue) Rules and Regulations, 1994 (14-7-1994).
13. SEBI (Custodian of Securities) Regulations, 1996 (16-5-1996).
14. SEBI (Depositories and Participants) Regulations, 1996 (16-5-1996).

97

SEBI and investor grievance and guidance

SEBI has an investor grievance and guidance division, which handles

investor complaints. The complaints received by SEBI from investors are categorized
as under-

Type

Nature of Complaint

Non-receipt of refund orders/ allotment letters.

II

Non-receipt of dividend.

III

Non-receipt of share certificates/ bonus shares.

IV

Non-receipt of debenture certificates/ interest on debenture/ redemption

amount of debentures/ interest on delayed payment of interest on debentures.

Non-receipt of annual reports, right issue forms/ interest on delayed receipt

of refund orders/ dividend, etc.

SEW and surveillance systems

SEBI has sought the assistance of US Stock Market regulatory body,

Securities and Exchange Commission (SEC) for setting up sophisticated market
surveillance mechanisms within the SEBI. Surveillance system in NASDAQ and
New York Stock Exchange. work on set parameters, which trigger off alarms
whenever there is unusual trading activity. Once this is achieved, surveillance system
in India will be at par with that at NASDAQ or NYSE. Detection of untoward
fluctuations in volume and prices would be easier within the regulatory body. This

98

system has been successfully implemented by both NYSE and NASDAQ, London,
etc. 8
The SEBI, constituted a 12 member committee headed by MR. Y.H.

Malegam, chartered accountant to review the existing disclosure requirements in

offer documents and recommend additions thereto and modifications thereof, so that
the disclosure assist in achieving the objectives for which SEBI was set up. The
committee's 65-page report was released on 29 th June 1995.

The highlights of recommendations are:

All of SEBI' s requirements on disclosure should be consolidated in a single
document issued in loose-leaf form, which can be periodically updated in a
systematic fashion.
The prospectus should disclose the actual expenditure incurred on the project
upto the date of filing the draft prospectus with SEBI.
In respect of financial information disclosed in the prospectus, adjustments
needed must, wherever possible, be made in the statement of assets and
liabilities and in the statement of profit and loss account itself and not
indicated by way of notes.
In the statement of profit and loss account the turnover disclosed should be
bifurcated into:
i)

Turnover of products manufactured by the company and

ii)

Turnover of products traded in by the company.

Sanjiv Agarwal, "Manual of Indian Capital Market", Bharat Law House, New Delhi, 1997, pp. 88102.

99

 The prospectus should disclose details of 'Other Income' in all cases where
such income exceeds 20% of the net profit before tax.
The prospectus should disclose all significant policies followed in the
preparation of the financial statements.
The prospectus should disclose specified accounting ratios for each of the
accounting periods for which financial information is given.
All financial information given in the prospectus including accounting ratios
should be audited.
Normally the prospectus should not disclose projections of future profits.
Projected earnings should not be used as a justification for the price.
The prospectus should disclose as justification for the issue price:
1. EPS pre-issue for the last three years (as adjusted for changes in
capital);
2. P/E pre-issue and comparison thereof with industry P/E where
available;
3. Average return on net worth in the last three years;
4. Minimum return on increased net worth required to maintain preissue EPS;
5. NAV based on last balance sheet;
6. NAV after issue and comparison thereof with the issue price.

100

 The prospectus should disclose management's discussion and analysis of the

financial position and result of the operations presented in the financial
statements. 9
The SERI had appointed a committee under the chairmanship of Shri.
Kumar Mangalam Birla with terms of reference to suggest measures to improve the

standard of corporate governance disclosure practices in the annual reports.

10 A

brief abstract of the report is given below:

SUGGESTED LIST OF ITEMS TO BE INCLUDED IN THE REPORT ON
CORPORATE GOVERNANCE IN THE ANNUAL REPORT OF COMPANIES.
1) A brief statement on company's philosophy on code of governance.
2) Board of directors,
:* Composition and category of directors for example, promoter,
executive, non-executive, independent non-executive, nominee
director, which institution represented as lender or as equity investor.
Attendance of each director at the BOD meetings and the last AGM.
Number of BOD meetings held, dates on which held.
3) Audit committee,
Brief description of terms of reference.
Composition, names of members and chairperson.
Meetings and attendance during the year.
4) Remuneration committee,
Sanjiv Agarwal, ibid, pp. 621-628.
/ "Report on Corporate Governance", Chartered Secretary, vol. No. )00C, no.3, March 2000, p.380.

101

 Brief description of terms of references.

Composition, names of members and chairperson.
Attendance during the year.
: Remuneration policy.
Details of remuneration to all the directors, as per format in main
report.
5) Shareholders committee,
Name of non-executive director heading the committee.
Name and designation of complaint officer.
Number of shareholders complaints received so far.
Number of complaints not solved to the satisfaction of shareholders.
Number of pending share transfers.
6) General Body Meetings,
Location and time, where last three AGM held.
Whether special resolutions were put through postal ballot last year,
details of

voting pattern.

Person who conducted the postal ballot exercise.

Special resolutions proposed to be conducted through postal ballot.
Procedure for postal ballot.
7) Disclosures,
Disclosure on materially significant related party transactions, i.e.,
transaction of the company of material nature, with its promoters, the

102

directors, or the management, or their subsidiaries or relatives, etc, that

may have potential conflict with the interests of company at large.
Details of non- compliance by the company, penalties strictures
imposed on the company by stock exchange or SEBI or any statutory
authority, on any matter related to capital markets, during the last three
years.
8) Means of communication,
Half- yearly report sent to each household of shareholders.
Quarterly results.
The newspapers, which normally publish the report.
Any website, where displayed.
+ Whether it also displays official news releases, and
The presentations made to institutional investors or to the analysts,
Whether "Management discussion and analysis" (MD & A) is a part of
annual report or not.
9) General shareholder information,
AGM, date, time and venue.
Financial calendar.
Date of book closure.
Dividend payment date.
Listing on stock exchanges.
Stock code.
Market price data; high, low during each month in last financial year.
103

 Performance in comparison to broad based indices such as BSE

sensex, CRISIL index. etc.
Details about registrar and transfer agents.

+ Share transfer system.

Distribution of shareholding.
Dematerialization of shares and liquidity.
Outstanding GDRs / ADRs / warrants or any convertible instruments,
conversion date and likely impact on equity.
Details on plant locations.
Address for correspondence.

CII TASK FORCE DESIRABLE DISCLOSURE OF CORPORATE

GOVERNANCE

A task force was setup by the Confederation of Indian Industry (CII)

with Shri. Rahul Bajaj, as chairman. The task force had prepared a draft code on
`desirable disclosure of corporate governance', that was released in April 1998 11 . A
summarized version of the code is given below:
(1) STRUCTURE OF THE BOARD AND NUMBER OF MEETINGS
A single board if it performs well, can maximize long-term value of
equity for the shareholders, just as well as two or multi-tiered board. The full board
should meet a minimum of six times a year, preferably at an interval of two months,

11

Report of the CII task force on, "Desirable disclosure of corporate governance: A code",

Secretary, vol. XXVII, no.5, May 1997, PP. 580- 586.

104

Chartered

and each meeting should have agenda items that require at least half a day's
discussion.

(2) COMPOSITION OF NON- EXECUTIVE DIRECTORS

A listed company with a turnover of Rs. 100 crore and above should
have professionally competent and acclaimed non-executive directors, who should
constitute at least 30 per cent of the board, if the chairman of the company is a nonexecutive director, and at least 50 per cent of the board, if the chairman and managing
director (CMD) is the same person.

(3) CEILING ON DIRECTORSHIP

No single person should hold directorship in more than 10 companies.
The ceiling excludes directorship in subsidiaries (where the group has over 25 per
cent but not more than 50 per cent equity stake).

(4) ROLE OF NON-EXECUTIVE DIRECTOR

For non-executive directors to play an important role in maximizing
long-term value of shareholders', they need to become active participants in boards,
not passive advisors, and know how to read a balance sheet, profit and loss account,
cash flow statement and financial ratios and have some knowledge of various
company laws. This, of course, excludes those who are invited to join boards as
expert in other fields, such as science and technology. Sufficient sitting fees should be
paid to non-executive directors to induce serious effort by them.

(5) COMMISSION / STOCK OPTION TO NON-EXECUTIVE DIRECTORS

To secure better efforts from non-executive directors, companies should
pay commission, over and above the sitting fees, for the use of the professional
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inputs. An appropriate mix of commission and stock option should be considered, to

align the non-executive directors towards keeping an eye on short-term profits as well
as longer-term value of shareholders.
(6) ATTENDANCE OF BOARD MEETINGS
While re-appointing members of the board, companies should give the
attendance record of the concerned directors. As a general practice, one should not reappoint any non-executive director who has not attended a minimum of 50 per cent of
the total board meetings.
(7) KEY INFORMATION
In the interest of good governance certain key information must be
placed before the board, and must form part of the agenda papers.
(8) AUDIT COIVEVITTTEE
The listed companies with either a turnover of over Rs.100 crore or a
paid up capital of Rs.20 crore, whichever is less, should setup audit committee within
two years. Audit committee consists of at least three members, all drawn from nonexecutive directors, who should have adequate knowledge of finance, accounts and
basic elements of company law.
(9) ADDITIONAL SHAREHOLDER INFORMATION
Under additional shareholder information, listed public companies
should give data on high and low monthly average share prices in all the stock
exchanges, where the company is listed, for the reporting years, a statement on value
added and greater details on business segments or divisions.

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(10) CONSOLIDATION OF GROUP ACCOUNTS

Consolidation of group accounts should be optional and subject to the
financial institutions allowing companies to leverage on the basis of group assets and
the income-tax department using the group concept in assessing corporate incometax.
The present study reveals that only Bajaj Auto Ltd disclosed corporate
governance, as per CII guidelines and SEBI guidelines, in the annual report for the
year 1999-00.

INFORMATIONAL NEEDS OF USERS AND MANAGEMENT

PREFERENCES
A company is at present accountable for its performance and affairs not
only to the shareholders but also to the other 'stakeholders'. In alternative terms,
companies are now obliged to serve the additional informational needs of the users of
the annual report, even though not mandatory under the law. Suppliers of the
information (management) must make best efforts to 'disseminate' information such
that the actual supply of information matches with the 'expectations' of the
consumers of the information (users). [Vasa1,2000] 12

There are bodies like the law, ICAI and SEBI that govern the disclosure
of information but the consideration of the user's informational needs is of paramount
significance in this regard. Corporate reporting, to be useful, must satisfy the
informational needs of the users.
Vasal, V.K, "Extended Corporate Reporting and Indian Public sector- Some Evidence", Journal of
Accounting & Finance, volume 14, no.2, September 2000.
12

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The users prescribe the information needed by them for the purpose of
their decision- making. Even the regulatory bodies like, government, ICAI, and SEBI,
etc, consider the informational requirement of the users, while making law,
pronouncements or rules regarding disclosure.
Which information is to be disclosed in an annual report, ultimately
depends on the management preferences and beliefs regarding disclosure. A
conservative management may be reluctant to disclose greater information, whereas,
an open-minded organization may opt for liberal disclosure policies. In India, most of
the organizations, especially in the private sector, are conservatives and hence do not
favour-expanded disclosure in annual reports.

CONTENTS OF CORPORATE FINANCIAL REPORTING

All the information, which meets the needs of the users, should be
disclosed. The quantity of information to be disclosed also depends upon the basic
objective of financial reporting, needs and expectations of users and the environment
prevailing in the country.
In an under developed country environment, companies disclose mainly
statutory requirements, like balance sheet, profit and loss account, auditor's report,
and a few schedules as appendices, whereas, in developed countries, where economic
environment is predominant, an adequate disclosure involves, besides the above
mentioned statutory requirements, a lot of non-statutory information like, value added
statement, employees welfare statement, social report, environmental report,

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shareholders information, investors guide, price level adjustment account and human
resource accounting, etc.
In India, the presentation of corporate financial reporting is an annual
report. It contains two types of reporting:
I.

Statutory reporting,

II.

Non- statutory reporting.

The matters included in the reporting are either accounting information

or non-accounting information.

L STATUTORY REPORTING

The companies Act 1956, section 209 to 233 B give the statutory
guidelines in connection with the accounts and audit of the company.

A) ACCOUNTING INFORMATION

1. Balance sheet [schedule VI, part I, section 211].

2. Profit and loss account [schedule VI, part II, section 210 (2) of income
statement].
The financial statement also includes schedules and notes and the form may
be vertical or horizontal.
B) NON- ACCOUNTING INFORMATION

1. Boards' / Director's report [section 217].

2. Auditor's report [section 227 (4A & 233B)].

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The respective section prescribes the particulars to be included in the report.

NON- STATUTORY REPORTING

The recent trend in the corporate sector is to focus on more details in

report, which is not required by the act.

A) ACCOUNTING INFORMATION

a)

Inflation accounting.

b)

Human resources accounting.

c)

Social accounting.

d)

Statement of value added / economic value added / market value

added / enterprise value added.

e)

Financial history and ratios.

f)

Statistical presentation graphs, etc.

g)

Statement of transaction in foreign currency.

B) NON- ACCOUNTING INFORMATION

i. Chairman's report.
ii. Corporate objective and profile.

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CONCLUSION
This chapter has attempted to discuss the corporate disclosure
environment in India. The environmental factors that have been examined are those
that might be expected to influence corporate disclosure practices.
The corporate disclosure requirements have been expanded considerably
over the years in response to various provisions of the Indian Companies Act.
ICAI deserves appreciation for its constructive role in regulating the
corporate disclosure practices in India. ICAI has contributed significantly to the
development of corporate disclosure practices especially since the commencement of
the accounting standards setting programme. Disclosure of accounting policies has
improved, methods of treating various items have been prescribed and so comparison
between companies has been facilitated.
SEBI has been in existence over a decade. It has been somewhat
successful in discharging its primary function of protecting the interest of investors in
securities. Though there seems to be much promise in SEBI, it is yet to be seen as to
what extent it really regulates the corporate disclosure in India.
The informational requirements of the users and the willingness on the
part of the management to disclose the information, also plays very important role in
corporate disclosure environment.

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