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New stringent corporate laws make CFOs, auditors quit companies

Posted Date : 05-Nov-2015 , 08:33:16 am | Posted By CASANSAAR print Print
The chief financial officer of a BSE-listed infrastructure company recently quit his job within months of joining, fearing he could be prosecuted because his employer — part of a group that has half a dozen other listed firms —was fabricating its accounts. 

"They literally made three sets of balance sheets; one for the auditor, one for the banks and one for everyone else," the former CFO said on the condition that he and his former employer would not be named. He had quit one of the biggest oil companies in the country to join the infrastructure company about six months ago and now he is hunting for a job with some auditing firms in Mumbai at 55. It may sound like a one-off case, but it's not; industry insiders say there have been several incidents of CFOs and other professionals fleeing from such companies, and that such cases have increased in the past six months due to stricter laws. 

Under the new regulations around corporate governance, company secretaries, CFOs, auditors and independent directors risk landing in jail for irregularities and few such executives are willing to continue with such organisations. The new Companies Act and Internal Financial Controls (IFC) have made it tough for not just those found in connivance with the promoter in a fraud but even for those senior executives turning a blind eye to the issue. In a similar case, an official recently quit a cement company, which is part of a known conglomerate. "There is a ballooning debt problem. For some years the company somehow managed to show the debt lower than what it actually is with some 'creative accounting', but that has become impossible now as the problem has become too big," the person told ET on condition of anonymity. 

The official, who had a crucial role in the company, feared that if there is an investigation ever in the company, he could be one of the people who may land up in trouble. Industry trackers say that while most promoters who indulge in these practices remain defiant, many professionals are not willing to take that risk. "The new rules are aimed at ending the malice in some companies and I am glad that the professionals are taking this seriously," said Manoj Fadnis, president at the Institute of Chartered Accountants of India. "As far as we are concerned, we have always taken a tough stand and we would bar anybody who is found to be involved in a scam or anything that is remotely against the regulations," said the head of the CA institute. 

In many cases, even the role of the auditors in the past has come under the scanner. The former CFO quoted earlier claimed that the auditor of the infrastructure firm knows about the whole cooking up of books but was ignoring it. ET reached out to the auditor, which is part of a known professional network. The audit head of the firm said resignations by professionals should not be construed as a problem issue as "people move out". Many audit firms are, meanwhile, dropping "risky accounts". Some are doing a thorough risk assessment of companies before accepting their audit. Some of the smaller auditors are taking a middle route by asking their clients to clean up their books before the next financial year, when the regulatory environment becomes stricter due to the new regulations, industry sources said. 

"We have told our clients to do all the adjustments before March 31, as otherwise we would have no choice but to reflect all the issues in the audit report," said the head of a Mumbai-based audit firm. (Economic Times)
 
 
 
 
 
 
 

Category : Corporate Law | Comments : 0 | Hits : 1220

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