Malegam panel wants cos to disclose loans to arms

MUMBAI: The Securities and Exchange Board of India (Sebi) committee on accounting standards has recommended a number of measures to improve corporate disclosures and make it difficult for companies to commit irregularities.
The YH Malegam committee has suggested, among other things, that companies disclose annually the loans and advances given to subsidiaries and associate companies. However, the committee has taken a view that it is not desirable to prescribe quarterly disclosure of loans, advances and investments. Such disclosures should be made in the annual accounts only.
It has also recommended a limited audit of quarterly results of companies from the first quarter of ‘03-04 and a full audit of half year results from the fiscal ‘04-05. Currently quarterly and half yearly results are unaudited. Companies should also be asked to prepare a risk report every year which will be a part of the annual report, the committee has suggested.
The recommendations come amidst global investor displeasure over a series of corporate scandals that have caused losses worth millions of dollars and sent high-flying companies hurtling to bankruptcy. The Malegam committee has invited suggestions from the public on these measures.
Every year, a number of companies give loans and advances to their subsidiaries and associate companies. These are often not reported in detail. Sometimes, these funds are for genuine purposes, but on other occasions, they are not.
The committee deliberated on ways to stop the illegal siphoning of shareholder funds, and reached a few decisions.
It has suggested that loans and advances to subsidiaries and to associate companies be reported, giving both the names of the companies involved and the amount given.
Companies should also report loans and advances where there is no repayment schedule and no interest paid. Other recommendations of the committee include audit of the consolidated half yearly results and disclosure of qualifications by auditors.
If a company’s accounts have been qualified by the auditors, it should explain to the stock exchange the reason behind the qualification and when the company will be able to publish accounts without qualifications.