Let us take a look at CA's CMA's and CS, i.e., Chartered Accountants, Cost & Management Accountant and Company secretaries. The services of these three professionals are essential requirements for a commercial entity. Commercial entity refers to, Proprietorship, Partnership, Limited Liability Partnership, Private Limited Company, Public Limited Company, Government Company and Foreign Company that are operating a commercial activity in India.
CA - Chartered Accountants
Generally, CA's perform verification of accounts and Statutory Audits. After satisfying its correctness certify regarding the truth and fairness of the Financial Statements as per due procedure, prepare according to statutory requirements covering all aspects like CARO and release reports as required for certain entity under consideration.
CA's perform these activates and follow the AS, i.e., Accounting Standards, CA Institute's guidelines, Companies Act requirements, Income Tax Act requirements while drawing out a report on the Financial Statements.
The Financials as certified by CA's are submitted to Banks, MCA, Income Tax and for such other purpose/s or requirements.
When a certified Financial Statements of a company is submitted to a Bank from where a commercial entity has borrowed funds, Banks expect to know that the stocks are genuine, valuation of such stocks, Genuine value of Sundry Debtors, Genuine value of sundry creditors and such other related information.
But in addition to these requirements, the Society at large expect little more than all these from a CA. What is it?
We also to take note that a CA, Chartered Accountant or a firm of Chartered Accountants are appointed by a Business Entity as per acceptable ways and means such as through references, Board recommendation and follow rotation as per Companies Act.
- We read in print media regarding internal frauds and financial misstatements in corporations of multiplying values. With regard to internal frauds, it may be committed by either the owners themselves or by their employees. A CA is expected to identify fraudulent activities though a watchdog and caution the management and even move ahead to report the same so that the other authorities become aware of the same. This is when their role is complete.
- Instead, sometimes a CA finds ways and means to safeguard himself and such an activity gets reported later. This too we have read in some corporate fraud cases.
- Banks rely entirely on Financial Statements as audited by a CA. When frauds are reported, then the Financial Statements as submitted by a CA is in doubt. A CA needs to take this into account apart from statutory requirements such AS, MCA etc. Though, a CA may not be able to alter a (possibly) fraudulent stock valuation, he/she could at least leave a mention of caution in Notes to Accounts, then routinely conducting his duties. A little more cautiousness will avoid bank frauds wherein public money is utilised.
- Mismanagement by promoters/owners are also a matter which can be detected/noticed by a vigilant CA. In some cases, such large-scale activities are noticed in the society and the credibility of the Financial system is shaken.
It could be true that a CA performs such activities as required to satisfy those who appoints them and follows all the statutory requirements. But as the Financial Statements reflect all the transactions and activities undertaken by the company in a year, a CA could be a little more vigilant and extend.
There should be a reporting agency under the Central Government reporting to the concerned ministries and departments of Central Government, like the system of Law and justice. We may not like Financial reporting to be equalised with Criminal justice, but we hear & notice such a large scale of funds, say Rs 5 Lakh crore of NPA's in recent past leave alone several Lakhs of crores having written off by Banks, in earlier decades would/could have been saved. Public money could have been saved.
It is true that most of CA's adhere to the requirements, but we also hear more are getting arrested in recent past which denotes that there is certainly a decay.
CMA - Cost and Management Accountants
They perform predominantly Cost Audit, essentially for large corporations where there is a requirement as per Companies Act. Such certified documents are submitted to Banks for a facility availed by such business enterprise, predominantly on stock held by an enterprise, MCA, etc.
In addition, a CMA has been authorised to perform such other reporting, filing, issue of certificate/s, GST Audits & filing and many such avenues are now open including representing in IBC, MCA filing with due certification and such that.
By and large, we do not hear about misrepresentation of public funds being at risk due to a Certification by CMA which denotes that this professional activity is functioning with appropriate checks and balances.
CS - Company Secretaries
CS performs activities in a Business enterprise in meeting the Secretarial requirements of Private and Public Limited Companies such as with regard to conduct of its Board Meeting, Annual General Meeting and or shareholders meeting, reporting and filing of a required certificate with the MCA with regard to a company's activities more relevant to adherence to requirements of Companies Act and its rules.
Though financial management also comes under the purview of a CS, it restricts to reporting to the MCA.
By and far, we do not hear or notice any anomaly by a Professional CS which affects the Financial System either a Company or Banks or the Nation.
We are all aware that in the last 2-3 decades several IPOs were floated. Later, about 3 lakh such companies' names were struck off by the Registrar of Companies as it came to the notice of the Government and the Registrar of the fraudulent purposes of incorporation of those companies. Nevertheless, those companies earned between 10-100 crores like free money (being public money) through IPOs.
It is certainly a question, of how such companies were permitted to be incorporated and perform activities with the presence of checks by professionals?
In the Hindu scriptures Yama and Niyamas are activities to be followed for a healthy living. There are 5 Niyamas - They are AHIMSA (Non-Violence) SATHYA (Truthfulness) ASTEYA (Non stealing) SHOUCHAM (Purity) & INDIRYANIGRAHA (Control of sense organs).
The author, V Murali Dharan is a Chief Financial Officer in a Real Estate Firm and has industry experience of over 30 years in various fields say, Direct, Indirect Taxation, Company Law, Accounting - including identifying revenue leakage, Audit and General Management & Human resources.
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