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Figure 4: Shows the Corporate Sector Accountability in India.

. Source: Prepared by the author on the basis of relevant information collected. A. Legal Components i. Companies Act, 1956 ii. Banking Companies Act, 1949 iii. Insurance Act, 1938 iv. The Securities and Exchange Board of India (SEBI) Act, 1992 v. Income Tax Act 1961 B. Institutional Components i. Registrar of Joint Stock Companies ii. Stock Exchange in India (BSE, NSE) iii. Public Accounts Committee

(PAC) in India iv. Comptroller and Auditor General of India

CORPORATE ACCOUNTABILITY IN INDIA

C. Professional Accounting Bodies i. The Institute of Chartered Accountants of India (ICAB) ii. The Institute of Cost and Works Accountants of India (ICWAI)

An evaluation of each of the components of above-mentioned chart is done by the following way: A. Legal Components i. Companies Act, 1956 ii. Banking Companies Act, 1949 iii. Insurance Act, 1938 iv. The Securities and Exchange Board of India (SEBI) Act, 1992 v. Income Tax Act 1961

Background: This is the main legal framework for companies in India. The British Government originally adopted this Act in India on 27 March 1913 that came into force on 1 April 1914 that was modeled on the English Act 1908. The then name of the Act was Indian Companies Act 1913. With a view to provide a shape of British Companies Act 1929, Indian Companies Act 1913 was quite extensively amended in 1936. However, there were a number of occasions for amendment during this period of time. Several acts were passed from 1850 onwards. The first act, passed in 1850, was known as joint stock companies Act. This was followed by two Acts of 1857 and 1860 but the Act of 1866, which followed soon after, repealed all the previous enactment and this Act itself was repealed in turn by the Act of 1882.This last mentioned Act remained on the statute book up to 1913, though in the mean time, it was amended several times to meet the demands of the commercial world. The Indian Companies Act of 1913 was passed with the object of consolidating and amending the law relating to trading companies and was mainly based upon the English Companies Act of 1908, with certain additional precisions to meet the

peculiar business conditions obtaining in this country. Since the Indian Act closely followed the English company Law the decisions of the English courts under the latter were also generally followed by the courts in India. This Act of 1913, however did not provide for certain peculiarities of the Indian commercial world, such as the managing agency, and was, therefore found to be highly unsatisfactory in several respects in the course of its working. Eventually extensive amendments were introduced in the Act by the Indian Companies (Amendment) At of 1935, which came into operation on 15th January 1937. The vast number of amendments introduced by this Act of 1937, however involved a few omissions; but they were sought to be removed by frequent amendments in the subsequent years. The Act of 1913 was however repealed d by present Companies Act1956 which was bought into force from 1st April 1956.This followed the acceptance by the Government of the recommendation of what is known as the Bhabha Committee which consisted of some Member of Parliament. This committee submitted a detailed report in 1952, and Bill incorporating the amendment suggested by it was introduced in the Lok Sabha in 1953 and became subsequently Act of 1956.This Act, while adopting the scheme and most of the provisions of the UK Companies Act of 1948, marked a distinct improvement on the Act of 1913 in several respects and sought to ensure an efficient and honest management of companies governed by the Act. In India, the Companies Act, 1956, is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Act contains the mechanism regarding organisational, financial and managerial and all the relevant aspects of a company. It provides for the powers and responsibilities of the directors and managers, raising of capital, holding of company meetings, maintenance and audit of company accounts, powers of inspection, etc. The Act applies to whole of India

and to all types of companies, whether registered under this Act or an earlier Act. But it does not apply to universities, co-operative societies, unincorporated trading, scientific and other societies.

Contents of the Companies Act 1956: There are different provisions laid down in the said Act for ensuring better disclosure of financial and non-financial health of the companies, Appendix-2 shown at the end of the chapter shows the elaborate discussion of the various provisions of accounting, reporting, and auditing of the companys activities. A very short description of the different important provisions for disclosure is given below in Table-4: Table 4
A very short description of the different important provisions for disclosure

Sections
209 210 211 212 213 214 215 216 217 218 219 220 221 222 223

Contents Provisions for keeping


BOOKS OF ACCOUNT TO BE KEPT BY COMPANY

Provisions for ANNUAL ACCOUNTS AND BALANCE SHEET


FORM AND CONTENTS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT BALANCE SHEET OF HOLDING COMPANY TO INCLUDE CERTAIN PARTICULARS AS TO ITS SUBSIDIARIES. FINANCIAL YEAR OF HOLDING COMPANY AND SUBSIDIARY RIGHTS OF HOLDING COMPANY'S REPRESENTATIVES AND EMBERS AUTHENTICATION OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. PROFIT AND LOSS ACCOUNT TO BE ANNEXED AND AUDITORS' REPORT TO BE ATTACHED TO BALANCE SHEET. DIRECTOR'S REPORT. PENALTY FOR IMPROPER ISSUE, CIRCULATION OR PUBLICATION OF BALANCE SHEET OR PROFIT AND LOSS ACCOUNT. RIGHT OF MEMBER TO COPIES OF BALANCE SHEET AND AUDITORS' REPORT. THREE COPIES OF BALANCE SHEET, ETC., TO BE FILED WITH REGISTRAR. DUTY OF OFFICER TO MAKE DISCLOSURE OF PAYMENTS, ETC. CONSTRUCTION OF REFERENCES TO DOCUMENTS ANNEXED TO ACCOUNTS. CERTAIN COMPANIES TO PUBLISH STATEMENT IN THE FORM IN TABLE F IN SCHEDULE

224 225 226 227 228 229 230 231 232 233 234

APPOINTMENT AND REMUNERATION OF AUDITORS. PROVISIONS AS TO RESOLUTIONS FOR APPOINTING OR REMOVING AUDITORS. QUALIFICATIONS AND DISQUALIFICATIONS OF AUDITORS. POWERS AND DUTIES OF AUDITORS. AUDIT OF ACCOUNTS OF BRANCH OFFICE OF COMPANY. SIGNATURE OF AUDIT REPORT, ETC. READING AND INSPECTION OF AUDITOR'S REPORT. RIGHT OF AUDITOR TO ATTEND GENERAL MEETING. PENALTY FOR NON-COMPLIANCE WITH SECTION 225 TO 231. PENALTY FOR NON-COMPLIANCE BY AUDITOR WITH SECTIONS 227 AND 229. POWER OF REGISTRAR TO CALL FOR INFORMATION OR EXPLANATION.

Evaluation:

The Companies Act, 1956 is the principal landmark legislation that governs companies in India. Companies in our country have by and large played and are playing an important role in our industrial and economic development. In response to the changing business environment, the Companies Act, 1956 has been amended from time to time so as to provide more transparency in corporate governance and protect the interests of small investors, depositors and debenture holders, etc. The post reforms corporate India has witnessed tremendous growth and expansion as a result of deregulation and procedural simplification of Company Law. Thus, the Companies Act, 1956 in India, is always a step ahead of other corporate and economic legislations towards ensuring the good Corporate Governance in the liberalized global economy (Dr. L. Usha 2013) . Chakraborty (1994) identified that there is need of key changes between Indian Companies Acts pre independence and the Companies Act 1956 post independence. The process of changing the Indian Companies Act started at independence in 1947 and ended with the promulgation of the Companies Act 1956. Very soon after its promulgation, the Companies Act 1956 had to be revised due to problems in its operation. In the diffusion phase, the process of change was started by the

Ministry of Commerce and progressed by the Ministry of Finance. The process involved setting up an ad hoc committee, the Company Law Committee 1952, to consider and report on amendments necessary to the Indian Companies Act and promulgation of the Companies Bill 1953 through Parliament leading to the Companies Act 1956. In the reaction phase of the change, the Companies Act 1956 was revised due to criticisms of the Act and this was also carried out by initially constituting an ad hoc committee, the Company Law Amendment Committee 1957 to consider the necessary amendments to the Companies Act and then amending the Companies Act 1956 in 1960 via the Companies Bill, 1960. The Government felt that corporate regulation, including accounting regulation, was needed to encourage companies to behave in ways that would help the national economic objectives of economic growth with social equality and fairness, particularly in the areas of equity between capital, management and labour, the creation of employment in the country and a fairer distribution of wealth in companies (Aiyar, 1956). As such it was felt that accounting needed to be regulated by statutory means and the Government, rather just than by accountants, who themselves were in the process of major change with the setting up of the Institute of Chartered Accountants of India. The changes to the accounting system were therefore initiated from outside the accounting system and linked to changes in the Companies Act and to general economic and social concerns. The Ministry of Corporate Affairs of the Government of India has been taking many initiatives for overhauling the Companies Act, 1956 through major amendments, circulars and notifications. To make Indian business and companies competitive and globally recognisable, a need was felt that format of Financial Statements of Indian corporates should be comparable with international format. Since most of the Indian Accounting Standards are being made at par with the

international Accounting Standards, the changes to format of Financial Statements to align with the Accounting Standards will make Indian companies competitive on the global financial world. Taking cognizance of imperative situation and need, the Ministry of Corporate Affairs revised the existing Schedule VI to the Companies Act, 1956 and made it applicable to all companies for the Financial Statements to be prepared for the financial year commencing on or after April 1, 2011. The Institute through its Corporate Laws & Corporate Governance Committee undertook the exercise of bringing out a Guidance Note for the benefit of the members of the profession. This Guidance Note replaces its earlier publication titled Statement on the Amendments to Schedule VI to the Companies Act, 1956 which was first introduced in the year 1976.

The corporate laws of an economy are a sine qua non for economic growth. In todays global economic scenario, entrepreneurs are looking forward to economies that have the best, compact and easy laws and procedures that facilitate quick establishment of companies. The Indian Company Law, which had its legislative origin after independence, had gone through a number of amendments since 1956. The Ministry of Corporate Affairs has been taking timely and pro-active initiatives by making the existing law simple, compact with less cumbersome procedures. Apart from the large number of sections contained in the Act, there are a number of Schedules to the Companies Act, 1956 which the Ministry has been re-looking at from time to time. With its total makeover at this juncture, it is almost at par with the laws elsewhere in the globe and making the country as a platform for inviting off-shore investments. As Accounting Standards have become mandatory and more so the road map towards convergence of IFRS has been drawn up, Schedule VI to the Companies

Act, 1956 became an important piece of document, which necessitated the Ministry very recently to revise in terms of contents, format and to align itself with that of existing Accounting Standards. The Revised Schedule VI to the Companies Act, 1956 became applicable to all companies for the preparation of Financial Statements beginning on or from 1.4.2011. It is a major step and members of the profession have a greater role and responsibility in its preparation. To facilitate the preparation of Financial Statements in compliance with the Revised Schedule VI, the ICAI has brought out this Guidance Note for the benefit of its members (ICAI). ii. The Banking Companies Act 1949. The Banking Companies Act, presently known as Banking Regulation Act was enacted owing to safeguard the interest of the depositors, control abuse of powers by some bank personnel controlling the banks in particular and to the interest of Indian economy in general. However, it should be remembered that this Act is in addition to, and not, except as otherwise provided, in derogation of the Companies Act, 1956 and any other law for the time being in force.. Since, some historic events took place in Indian Banking System, detailed discussion on the various provisions of the Act would leave some scope of incompleteness without mentioning those developments. The Social Control Act of 1968 under the leadership of the then Deputy Prime Minister, Mr. Morarji Desai was an amending act of the Banking Regulation Act. The followings were the main provisions of this amending Act: Bigger banks have to be managed by whole time chairman possessing special knowledge and practical experience of the working of a banking company or of finance, economics or business administration The majority of the directors had to be persons with special knowledge or practical experience in any of the areas such as accountancy, agriculture,

rural economy, banking, co-operative, economics, finance, law, small scale industries At least two directors had to possess special knowledge and practical experience in respect of agriculture, rural economy and co-operation. The banks were also prohibited from making any loans or advances, secured or unsecured to their directors or to any companies in which they have substantial interest. But, considering the social control measure as inadequate one, the Government of India took another historic decision of Nationalization of 14 Indian banks through an ordinance under the leadership of the then Prime Minister Mrs. Indira Gandhi and, accordingly, with effect from 19th, July, 1969 those 14 banks were taken over by the Govt. of India under the Banking Companies(Acquisition & Transfer of Undertakings) Act of 1969. Again in 1980 another six banks were taken over on 14th March, 1980 under the Banking Companies(Acquisition and Transfer of Undertakings Act)1980. No foreign banks were nationalized. On the other hand, well before nationalization, State Bank of India Act, 1955 was enacted to convert Imperial bank of India to SBI and in 1959 State Bank of India(Subsidiary) Act was passed and eight Indian banks were made subsidiaries to State Bank of India. As a result in the Indian Banking System, the number of public sector banks figured to 29(20 nationalized & 9 banks comprising SBI & 8 subsidiaries). However, at present no of public sector banks is 27 after merging of nationalized bank New Bank of India with Punjab National Bank in 19 93 and amalgamation of two subsidiaries of SBI viz. State Bank of Bikaner and State Bank of Jaipur into one as State Bank of Bikaner & Jaipur. Besides these, in Indian banking system there are indigenous old private banks, new generation private banks and foreign banks. Moreover, Regional Rural Banks, Co-operative

banks, Land Development Banks are in existence besides a few industrial or Development Banks. Banks in India and their activities are regulated by Banking Regulation Act 1949. Legal Provision: Section 29 of the Act prescribes the requirements for Every Banking Company incorporated in India, in respect of all business transacted by it and through its branches in India, shall prepare a balance sheet and profit & loss account as on the last working day of the Accounting year (which was earlier calendar year, now April to March i.e. 31st March) in the Form A and B given in the third schedule of the Act. The amalgamated Balance Sheet and Profit Loss should be signed by the CMD and at least three Directors where there are more than three directors or where there are not more than three directors, by all the directors. In case of banking companies incorporated outside India by the principal officer of the company in India. The provisions of the Companies Act, 1956, relating to the balance sheet and profit and loss account of a company shall also be applicable to the profit and loss account and balance sheet of a banking company, in so far as they are not inconsistent with the provision of the Act. Evaluation: The Bill, an amendment to the Banking Regulations Act of 1949, was introduced in the Lok Sabha in March 2011. Among other proposals, it seeks to keep mergers and acquisitions in the sector under the purview of RBI, the sector regulator. C Rangarajan, chairman of the Prime Minister's Economic Advisory Council and a former RBI governor, had suggested that RBI should consider issuing new bank licences without amending the Banking Regulations Act.

"There is scope for more banks to come in as they come with new ideas," Rangarajan had said. "I think if old regulations are inadequate, then they must be modified. Otherwise, RBI can also consider using old regulations on the basis of which it can give new licences." But RBI has indicated that it would be open to issuing new bank licences only when it is given more powers to regulate the sector. The Banking Laws (Amendment) Bill seeks to give RBI the power to supersede bank boards as well as inspect other arms of banks, such as mutual funds and insurance, to ensure that their operations do not pose any systemic risk to the lenders. The group of ministers on amendment to the Competition Act is exploring the possibility of extending the scope of the Competition Commission of India across all sectors. The Banking Laws (Amendment) Bill also seeks to allow private banks to raise the voting rights to 26% from a maximum of 10% as recommended by a parliamentary standing committee. However, for buying more than 5% of equity stake, approval of RBI will be mandatory. The parliamentary committee, which had approved the changes, had also said that M&As should not be kept out of the competition regulator's purview forever. It had said that this should be considered as a special case and an "expedient measure" to be revisited after both Reserve Bank and Competition Commission have gained some experience. iii. Insurance Act, 1938 Origin: Under British dominion, the first Act on Insurance was enacted in 1912, which was called Act 5 of 1912 which regulated Provident Insurance Societies Act 6 of 1912 and Act 20 of 1928. The former being related to Life

Insurance business and the later being dealt with statistical matters is concerning non-life Insurance business by the external entities. With the increase in the volume of insurance business in India, a need arose for more exhaustive legislation. As a result, a Bill was prepared on 1925. The Act 6 of 1912 was based on Insurance Company Act 1909. The amending of the 1909 Act became imperative and Government of India was awaiting the result of the amendment of 1909 Act. But such wait became too long. In the meantime, another legislation was passed in 1928. The Government of India in 1935 took the initiative to reform Insurance business and deputed Mr. S.C. Sen to look into the probable deficiencies and lacunas in the insurance industry. In 1936, the company Act 1913 was amended. Mr. Sen recommendations regarding insurance business were submitted to the Government. It was decided that effective supervision of Insurance industry is necessary to see whether they operate under sound business principle. The schemes proposed by any company were expected to be transparent and unsound schemes were not accepted. The books of accounts and documents were thoroughly scrutinised. Investment policies on assets of the companies were changed for better protection of the interests of the insured. The Insurance Bill was passed on 26th February, 1938 and came into effect on 1st July, 1938 vide Notification No. 589 1 (4) / 38 as The Insurance Act 1938 (4of 1938). Till 2005, 25 amendments regarding this Act has been made. Provisions for Disclosure: There are some provisions to ensure the disclosure of financial conditions of insurers of India. These are: Section-11: Insurers need to prepare a balance sheet, a profit and loss account and revenue accounts for every class of business. Section-12: Insurers need to prepare accounting and financial statements such as balance sheet, profit and loss account, revenue accounts and profit and loss

appropriation accounts, etc. and these statements need to be audited unless they are subject to audit under Companies Act. Evaluation: The following points are interesting with regard to the evaluation of the provisions laid down in the Act: This is a very old Act; it does not have enough provisions to disclose financial health of insurers. There are contradictions in different provisions of the Act. For example, section 11 Requires preparation of no profit and loss appropriation account on the one hand. On the other hand, section 12 requires that profit and loss appropriation account should be audited. After enactment of the Companies Act 1994, it is now needed to audit the accounts prepared. But there are no provisions for the qualification of auditors. The Act is silent on the disclosure of accounting policies including valuation of investments and does not require a directors report. In the absence of a directors report, there is hardly any way of obtaining qualitative information about the companies. In 1993, Malhotra Committee was formed to evaluate the Indian insurance industry and recommend its future direction. The Committee was set up with the objective of complementing the reforms initiated in the financial sector. In 1994, the Malhotra Committee submitted the report. Based on the recommendations of the Committee, the country has witnessed radical changes in the insurance industry, both in general and life insurance. The setting up of regulatory authority Insurance Regulatory and Development Authority (IRDA) and the issue of new regulations followed the Committee report. The entry of new private insurers into the sector has given momentum to the competition and the growth. As of now, the total number of companies registered with IRDA is 14 in Life sector and 13 in Non-life sector. The IRDA Rules also specify the disclosure requirements, general instructions for preparation of financial statements, and also the contents of the Management Report. iv. The Securities and Exchange Board of India (SEBI) Act, 1992

Origin: India is a federal state with unitary bias. This is perhaps why, unlike in the USA, there is no separate company law for any state in India. Apart from professional regulation, corporate financial reporting in India is governed primarily by one Central Act i.e., the Companies Act, 1956. Another body that has a major influence in reshaping Indian financial reporting is the Securities and Exchange Board of India (SEBI). The Companies Act, 1956 prescribes the financial reporting requirements for all the companies registered under it. The reporting requirements that are imposed by the SEBI through its Guidelines and through the Listing Agreement are in addition to those prescribed under the Companies Act. SEBI requirements are to be followed by the companies listed on the Indian stock exchanges. The Companies Act and the SEBI requirements together provide the legal framework of corporate reporting in India. The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for Regulating the business in stock exchanges and any other securities markets Registering and regulating the working of stock brokers, sub-brokers etc. Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices

Calling for information, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries, self - regulatory organizations, mutual funds and other persons associated with the securities market. SEBI has used its power to order changes in listing agreement and such changes are instrumental to bring about improvement in disclosure practices of listed companies in their annual reports. Listing agreement is the standard agreement between a company seeking listing of its securities and the stock exchange where listing is sought. Any stock exchange has power to alter the clauses of listing agreement unilaterally, and companies listed with that exchange are bound to accept such changes to enjoy the facility of listing. Thus, whenever the SEBI suggests any change, it is incumbent on the listed companies to follow such a change. In effect, the SEBI has power to direct the listed companies to follow any changed disclosure requirements. Provisions / Contents: The disclosure requirements under the Listing Agreement for the presentation of annual reports by listed companies are discussed below. Though there are some overlapping reporting requirements for annual reports under the Listing Agreement and under the Companies Act, many requirements under the Listing Agreement supplement the requirements under the Companies Act for the listed companies. Table-5 Short Description of the The Securities and Exchange Board of India Act, 1992 Clause Clause 32 Contents Dispatch of a copy of the complete & full annual report to the shareholders Clause 32 Clause 32 Clause 36 Disclosure on the Y2K preparedness level Disclosure of Cash Flow Statement Disclosure of material developments and price sensitive

information Clause 40B Clause 41 Clause 48B Compliance with Takeover Code Disclosure of interim unaudited financial result Disclosure regarding listing fee payment status and the name and address of each stock exchange where the companys securities are listed Corporate governance report Compliance with Accounting Standards issued by the ICAI

Clause 49 Clause 50

Source: Summarized by the author on the basis of The Securities and Exchange Board of India Act 1992
Evaluation:

Disclosure and flow of information fall into three categories, namely, disclosure at the time of a public offering, on-going or periodic disclosure after listing of securities and transaction-related disclosures. SEBI enhanced the disclosures required of a company at the time of a public offering by building on the requirements in the Companies Act, 1956. The increase in disclosures was necessitated by the quantitative growth of the market and the freedom to price issues had also raised questions about the quality of issues entering the market. (SEBI, 1996). SEBIs disclosure standards are not limited to accounting information presented in the prospectus. It extends to other issue-related communications such as advertisements. As a result, the disclosure requirements relating to an issue and currently in vogue are a far cry from the relatively rudimentary requirements specified in the Companies Act (G Sabarinathan).

The continuing disclosure regime under the Companies Act that was in force prior to the establishment of SEBI suffered from three principal shortcomings (i) low frequency, at once a year (ii) insufficient and poorly administered deterrents

against non compliance; and (iii) a common set of disclosure obligations for companies with limited as well as widely distributed ownership. In order to improve the frequency of disclosure, SEBI constituted a committee in 1996 to examine the question of continuing disclosure7 . SEBI directed stock exchanges to implement most of the recommendations of the committee.8 Continuing disclosure requirements were further enhanced in 1999-2000. With the introduction of the corporate governance requirements in 2000- 01, disclosure of materially significant related-party transactions with promoters, directors, management, subsidiaries, relatives and so on were added. In order to institutionalize the evolution of the continuing disclosure process, SEBI entered into a collaborative initiative with the Institute of Chartered Accountants of India (ICAI) and formed the National Committee on Accounting Standards (NACAS). Over the years, the disclosure requirements have started mandating a more detailed presentation of the performance of the company.

SEBI has also focused on the flow of information on the trading side. SEBI started by insisting that the brokers notes to their clients indicated the price and the brokerage separately for the orders that they executed for their clients (SEBI, 199293). SEBI then followed it up by asking brokers to account for their own proprietary funds deployed in the trade and client funds separately (SEBI, 199394). Rudimentary as it might sound, these were big steps forward in improving transparency levels in trade execution. The introduction of open electronic limit order books in all the exchanges was perhaps the second and the most important step in increasing the transparency of trades. Following SEBIs directive, exchanges have improved the flow of trade-related information by taking advantage of technology and minimizing instances of gaps in flow of information as in the case of off market transactions, such as block trades, which are now

required to be routed through the electronic trading systems of the stock exchange. Exchanges have also been required to invest in market surveillance systems which could help detect insider trading or market manipulation transactions. Overall, the analysis in Sabarinathan (2010) indicates that the regulations now require a copious flow of information which should result in a substantial improvement in the discovery of prices, both at the time of an issuance as well as once the securities are listed for trading. The process of the SEBI has resulted in a changed regime for imposition of financial disclosure requirements that is quick and does not require lengthy process of legislative changes. By virtue of the provisions contained the Listing Agreement (Clause 50), listed companies are now under legal compulsion to comply with all the accounting standards issued by the ICAI. V. Income Tax Act 1961 Origin: In India, this tax was introduced for the first time in 1860,by Sir James Wilson in order to meet the losses sustained by the Government on account of the Military Mutiny of 1857.Thereafter ,several amendments were made in it from time to time. At last In 1886,a separate Income tax act was passed. This act remained in force up to, with various amendments from time to time. In 1918, a new income tax was passed and again it was replaced by another new act which was passed in 1922.This Act remained in force up to the assessment year 1961-62 with numerous amendments The Income Tax Act of 1922 had become very complicated on account of innumerable amendments. The Government of India therefore referred it to the law commission in1956 with a view to simplify and prevent the evasion of tax.. The law commission submitted its report-in September 1958, but in the meantime the Government of India had appointed the Direct Taxes Administration Enquiry Committee submitted its report in 1956.In consultation with the Ministry of Law finally the Income Tax Act, 1961 was passed.

The Income Tax Act 1961 has been brought into force with 1 April 1962.It applies to the whole of India and Sikkim(including Jammu and Kashmir).Since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the Union Budget every year which also contains Finance Bill. After it is passed by both the houses of Parliament and receives the assent of the President of India, it becomes the Finance act. Besides this ,amendments have also been made by various Amendment acts, for instance, Taxation laws Amendment Act, 1984, Direct Taxes Amendment Act,1987, Direct Taxes Law(Amendment)Acts of 1988 and 1989,Direct Tax Law (Second amendment)Act,1992 and1993, are mostly based on the recommendation of Chelliah Commiyye Report. Contents: The following Table-6 summarizes the various provisions for the financial disclosure of companies of different forms. Table-6 Summary of Contents of Income Tax Act 1961 Sections 115JB(2) Contents Annual accounts including profit and loss account prepared will be placed before the Annual General Meeting. 145A 40A(2) method of inventory valuation any expenditure in respect of which a payment has been or is to be made to a relative or associate concern, so much of the expenditure as is considered to be excessive or unreasonable shall be disallowed by the Assessing Officer. 43A Exchange differences to be adjusted against the actual cost of the asset 35DD Deduction of one-fifth of such expenditure is allowed for five successive previous years, beginning with the previous year in

which amalgamation takes place 43B Deduction is allowable only on the basis of actual payment in respect of employers contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. 32 145 Depreciation is allowed in case of Leases It provides that the income chargeable under the head Profits and gains of business or profession and Income from other sources have to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee
Source: Summarized by the Researcher himself on the basis of Income Tax Act 1961

Evaluation: The objective of Income Tax Act 1961 is to collect revenues from the various sectors of the society. Although the Income Tax Act 1961 has significant influences on the financial and disclosure practices of India , this is not primarily intended to provide guidelines for published accounts to the company. The Income Tax Authority gains reasonable power to obtain required financial information about the companies. However, normally, the authority of taxes does not disclose information obtained by them. One important point is that companies need to keep and produce information to the tax authority so that they recognize their information for the tax purposes. On the basis of that information, the tax the companies may get exemption and fiscal incentives such as tax holidays, allowable deductions, etc. This is a sort of indirect encouragement of keeping and reporting financial conditions of companies in India. But one striking point is that there are different allegations from the entrepreneurs in India that the tax authority is controversial body in terms of fairness in performing their jobs. Income Tax Act, 1961, which came into force on 1st April, 1962, has been amended and re-

amended drastically. It has there for become very complicated both for the administering authorities and the tax-payers. B. Institutional Components i. Registrar of Joint Stock Companies ii. Stock Exchange in India (BSE, NSE) iii. Public Accounts Committee (PAC) in India iv. Comptroller and Auditor General of India

Following section critically evaluates the institutional arrangements in India for the proper disclosure of financial conditions of companies of different forms. i. Registrar of Joint Stock Companies Sub-section 40 of Section 2 of the Companies Act 1956 defines Registrar as: (40) "Registrar" means a Registrar, or an Additional, a Joint, a Deputy or an Assistant Registrar, having the duty of registering companies under this Act; With the power vested under Section 609 of the said Act, the Central Govt. appoints Registrars, and Additional, Joint, Deputy and Assistant Registrars for various States and Union Territories in India. Apart from the primary duty of registering companies incorporated in the respective states and the Union Territories, ROCs are also responsible for ensuring that the Companies comply with statutory requirements under the said Act. Generally most of the States are having one ROC except the State of Maharashtra and the State of Tamilnadu. These two States have two registrar of a company each.

The registrar of a company has two functionsregistry function and regulatory function. The regulatory function involves keeping a check on the companies and making sure that they are not violating the Companies Act. At present, if a company fails to file its annual returns to the registrar of a company then the latter has the regulatory authority to issue them a notice and file a case against them in the local court. In this case, there is a need for a direct interface with the public and the registrar of a company of different states will be active for this purpose. The registration of companies has become very easy after the government introduced an e-governance mode called MCA-21. The MCA-21 project is a computerisation programme which has helped the companies to file their companys documents electronically. The project is a public private partnership project of the government in which Tata Consultancy Services is the private player and also the partner. This project is technologically advanced and also saves a lot of time of the companies which initially used to go waste in loads of paperwork ii. Stock Exchange in India (BSE, NSE) Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of the organization gather to trade company stocks or other securities. The members may act either as agents for their customers, or as principals for their own accounts. Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerized. The trade on an exchange is only by members and stock broker do have a seat on the exchange.

Indian stock market marks to be one of the oldest stock market in Asia. It dates back to the close of 18th century when the East India Company used to transact loan securities. In the 1830s, trading on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading was broad but the brokers were hardly half dozen during 1840 and 1850. An informal group of 22 stockbrokers began trading under a banyan tree opposite the Town Hall of Bombay from the mid-1850s, each investing a (then) princely amount of Rupee 1. This banyan tree still stands in the Horniman Circle Park, Mumbai. In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania' in India began with the American Civil War broke and the cotton supply from the US to Europe stopped. Further the brokers increased to 250. The informal group of stockbrokers organized themselves as the The Native Share and Stockbrokers Association which, in 1875, was formally organized as the Bombay Stock Exchange (BSE). BSE was shifted to an old building near the Town Hall. In 1928, the plot of land on which the BSE building now stands (at the intersection of Dalal Street, Bombay Samachar Marg and Hammam Street in downtown Mumbai) was acquired, and a building was constructed and occupied in 1930. Premchand Roychand was a leading stockbroker of that time, and he assisted in setting out traditions, conventions, and procedures for the trading of stocks at Bombay Stock Exchange and they are still being followed. In 1956, the Government of India recognized the Bombay Stock Exchange as the first stock exchange in the country under the Securities Contracts (Regulation) Act. The most decisive period in the history of the BSE took place after 1992. In the aftermath of a major scandal with market manipulation involving a BSE member

named Harshad Mehta, BSE responded to calls for reform with intransigence. The foot-dragging by the BSE helped radicalise the position of the government, which encouraged the creation of the National Stock Exchange (NSE), which created an electronic marketplace. NSE started trading on 4 November 1994. Within less than a year, NSE turnover exceeded the BSE. BSE rapidly automated, but it never caught up with NSE spot market turnover. The second strategic failure at BSE came in the following two years. NSE embarked on the launch of equity derivatives trading. BSE responded by political effort, with a friendly SEBI chairman (D. R. Mehta) aimed at blocking equity derivatives trading. The BSE and D. R. Mehta succeeded in delaying the onset of equity derivatives trading by roughly five years. But this trading, and the accompanying shift of the spot market to rolling settlement, did come along in 2000 and 2001 - helped by another major scandal at BSE involving the then President Mr. Anand Rathi. NSE scored nearly 100% market share in the runaway success of equity derivatives trading, thus consigning BSE into clearly second place. Today, NSE has roughly 66% of equity spot turnover and roughly 100% of equity derivatives turnover. iii. Public Accounts Committee (PAC) in India The Public Accounts Committee (PAC) is a committee of selected members of Parliament, constituted by the Parliament of India, for the auditing of the expenditure of the Government of India. The Public Accounts Committee is formed every year with a strength of not more than 22 members of which 15 are from Lok Sabha, the lower house of the Parliament, and 7 from Rajya Sabha, the upper house of the Parliament. The term of office of the members is one year. The Chairman is appointed by the Speaker of Lok Sabha. Since 1967, the chairman of the committee is selected from the

opposition. Earlier, it was headed by a member of the ruling party. Its chief function is to examine the audit report of Comptroller and Auditor General (CAG) after it is laid in the Parliament. Comptroller and Auditor General (CAG) assist the committee during the course of investigation. None of the 22 members shall be a minister in the government. iv. Comptroller and Auditor General of India The Comptroller and Auditor General (CAG) of India is an authority,

established by the Constitution of India under Chapter V, who audits all receipts and expenditure of the Government of India and the state governments, including those of bodies and authorities substantially financed by the government. The Comptroller and Auditor General is also the external auditor of government-owned companies. The reports of the Comptroller and Auditor General are taken into consideration by the Public Accounts Committees, which are special committees in the Parliament of India and the state legislatures. The Comptroller and Auditor General is also the head of the Indian Audit and Accounts Department, which has over 58,000 employees across the country. The CAG is mentioned in the Constitution of India under Article 148 - 151.The CAG is ranked 9th and enjoys the same status as a judge of Supreme Court of India in Indian order of precedence. C. Professional Accounting Bodies i. The Institute of Chartered Accountants of India (ICAB) ii. The Institute of Cost and Works Accountants of India (ICWAI)

i. The Institute of Chartered Accountants of India (ICAB)

The Institute of Chartered Accountants of India (ICAI) is a statutory body established under the Chartered Accountants Act, 1949 (Act No. XXXVIII of 1949) for the regulation of the profession of Chartered Accountants in India. During its 61 years of existence, ICAI has achieved recognition as a premier accounting body not only in the country but also globally, for its contribution in the fields of education, professional development, maintenance of high accounting, auditing and ethical standards. ICAI now is the second largest accounting body in the whole world. ICAI has its Headquarters at New Delhi with 5 Regional Offices at Mumbai, Chennai, Kanpur, Kolkata, New Delhi and 114 branches spread all over the country. In addition, it has also set up 18 chapters outside India and an office in Dubai. The affairs of ICAI are managed by the Council in accordance with the provisions of the Chartered Accountants Act, 1949 and the Chartered Accountants Regulation 1988. The Council consist of 40 members of whom 32 are elected by the members and remaining 8 are nominated by the Central Government to represent the Comptroller and Auditor General of India, Central Board of Direct Taxes, Department of Company Affairs and other stakeholders Functions Of The ICAI The main functions of ICAI of the Chartered Accountants of India are prescribing qualifications for membership, holding examinations and arranging practical training of candidates, enrollment of members, publication and maintenance of register of members qualified to practice the profession, carrying on activities for development of the profession and regulation and maintenance of status and standard of professional qualification of the members. ICAI conducts examinations

all over the country, provides postal coaching, oral coaching and arranges practical training, enabling students to qualify for the profession. It also organises seminars, workshops etc., and provides library facilities. ICAI conducts research and brings out handbooks and publications/ monologues on the subject of direct interest to the profession. It explores the opportunities for employment of its members. In addition, it issues certificates of practice to its members and exercises disciplinary Jurisdiction* as quasi-judicial authority over their profession and their conduct. ICAI coordinates with Universities on shaping their accountancy curriculum linked with the Chartered Accountancy course. It also publishes monthly journals for Members and for Students. Besides regulating the profession, ICAI is a national standards setting body in India and the Accounting Standards framed by it are given statutory recognition under various statutes. The Indian Accounting Standards have almost been harmonised with the International Accounting Standards (see Annexure).. In addition, the ICAI issues from time to time, various Guidance notes, monographs, etc. for the guidance of its members on various new technical issues. The ICAI also issues Auditing & Assurance Standards (AAS) which codify the audit practices to be followed by the members of the Institute, whenever an audit is carried out. The AASs are mandatory in nature. The ICAI has issued 34 AAS so far which meet the international benchmarks and expectations (see Annexure).

ii. The Institute of Cost and Works Accountants of India (ICWAI) It was during the early years of World War II, that the concept of cost as an independent entity made its beginning in the industrial circles of the world. Due to the prohibitive cost of defense operations, the then governments at war found it difficult to ascertain the price of defence purchases and thus evolved the concept of

cost + contracts. This forced the contractors to submit the cost of the work to be undertaken by them, in order to be awarded the contract. 1945 brought the end of the war, and the nations ravaged by the effects of war began large-scale reconstruction of their economies through industrialisation. The end of colonialism meant that many nations gained their independence, and this process increased rapidly. The late forties and fifties can really be termed the golden era of industrialisation. The importance of cost accounting as being central to the formation of government policies provided the foundation of the rapid growth of the profession. What began as a mere exercise in estimating the cost later developed into a movement for efficiency and optimum utilisation of scarce resources. The Institute of Cost Accountants of India (erstwhile The Institute of Cost and Works Accountants of India) was first established in 1944 as a registered company under the Companies Act with the objects of promoting, regulating and developing the profession of Cost Accountancy. On 28th May, 1959, the Institute was established by a special act of Parliament, namely, the Cost and Works Accountants Act, 1959 as a statutory professional body for the regulation of the profession of cost and management accountancy. It has since been continuously contributing to the growth of the industrial and economic climate of the country. The Institute of Cost and Works Accountants of India is the only recognised statutory professional organisation and licensing body in India specialising exclusively in Cost and Management Accountancy. A Cost Accountant is a person who offers to perform or perform services involving the costing or pricing of goods and services or the preparation, verification or certification of cost accounting and related statements.

The head office is situated at 12, Sudder Street, Kolkata 700 016 and operates through four regional councils are Kolkata, Chennai, Delhi and Mumbai as well as through a number of important chapters situated elsewhere in India and abroad. Objectives of the Institute

To develop the Cost and Management Accountancy function as a powerful tool of management control in all spheres of economic activities.

To promote and develop the adoption of scientific methods in cost and management accountancy.

To develop the professional body of members and equip them fully to discharge their functions and fulfill the objectives of the Institute in the context of the developing economy.

To keep abreast of the latest developments in the cost and management accounting principles and practices, to incorporate such changes are essential for sustained vitality of the industry and other economic activities.

To exercise supervision for the entrants to the profession and to ensure strict adherence to the best ethical standards by the profession.

To organise seminars and conferences on subjects of professional interest in different parts of the country for cross-fertilisation of ideas for professional growth.

To carry out research and publication activities covering various economic spheres and the publishing of books and booklets for spreading information of professional interest to members in industrial, education and commercial units in India and abroad.

3.6 Observations, Conclusion and Recommendations Observations