The Hindu Business Line : Auditors' date with directors

The Department of Company Affairs thinks nothing of this intriguing identity of dates (Circular No. 7 of April 26, 1974). Yet, one often wonders why this is so. The Companies Act has envisaged the following sequence of events: preparation of accounts, audit and directors' report giving explanation on qualifications and adverse comments in the auditor's report. It is all very fine for the Department to say that the audit in fact commences much ahead of preparation of final accounts and, therefore, the mere fact that the auditor's report bears the same date as the one on which the accounts are signed is no reflection on the quality of the audit work. But what matters is public perception. As it is, there is a fair amount of cynicism on the role of audit. And the scandalous identity of dates only fuels this cynicism.

How can the accounts be examined, audit report prepared and directors' views thereon elicited all in a day? is a question that is often asked. It is true that auditors have a head start. It is equally true that if the sequence were to be followed there would be a need for two board meetings — one to approve the accounts and another one to give comments on auditor's report. But then like justice, audit too must not only be done but seen to have been done. It is time the ICAI took a fresh look at this issue.

Creditors' woes

WHAT remedy has an unsecured creditor got in respect of the amounts due to him from a sick company registered with the BIFR?

Sanjay, e-mail

The securities law ushered in recently has made the lot of banks and financial institutions a lot better — among other things, they do not have to move court to enforce their security. The lot of unsecured creditors, however, continues to be as vulnerable as ever. Their lot is indeed unenviable. They cannot insist on security lest they lose business. And when their outstandings turn sour, the law lets them stew in their own juice.

Safety net

FROM time to time, some people voice their concern over the lack of safety net in the capital market. What exactly are they asking for?

Nidhi Dayal Mathur, New Delhi

Safety net is a possible fallback option for the investors in the primary market. If a company issues Rs 10 shares to public at a premium of Rs 35, there must be a guarantee that the market price for a period of say six months from the date of the issue would not fall below Rs 45, and if does fall below the issue price, somebody stands guard to buy the shares from the original subscribers at the issue price of Rs 45. This `somebody' may be the promoters or the merchant bankers who vouchsafed the public issue. The move is being resisted in our country because almost all public issues are based on and preceded by book-building, an exercise in price discovery. And book-building has invariably resulted in an exaggerated premium. No one, therefore, wants to stick his neck out. But should the provision of safety net become mandatory, it would be good for the investors in another respect as well — it will have a sobering effect on the book-building process with the companies becoming conscious of the pitfalls of charging a mindless premium.

E or S

IF A bond is held jointly on "either survivor" basis, will income therefrom be deemed to be that of the survivor even if steps are not taken to get the bond registered in the individual name of the survivor?

A. S. Panchapakesan, Erode

Yes. On the death of a joint owner, the ownership automatically devolves on the survivor. Indeed, that is the raison d etre of "either or survivor" arrangement. As a corollary, the income from the bond too will devolve on the survivor which hitherto was that of both.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

Tapan Bandopadyaya, Kolkata

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