True and fair financial reporting: a tool for better corporate governance

Abstract

Purpose

Transparency of financial information promotes corporate growth. The purpose of this paper is to concentrate on the need for strengthening the law governing true and fair corporate accounting. The first part of the paper concentrates on nexus between the importance of transparency in accounting embodied under the provisions of the Companies Act in India and in the UK. Second, the paper focuses on the board of director's duty to prevent corporate fraud through proper financial reporting.

Design/methodology/approach

The methodology for this study is analytical. Comparative study of the law governing accounting provisions in India and UK is also looked into.

Findings

The law governing financial transparancy envisaged under the Companies Act in India makes it obligatory on the part of the companies to disclose the material information relevant to the investors. However, the directors of the company often show an unreal picture of the financial position of the company, so as to retain the existing shareholders and to attract more investors. This can be avoided if the composition of audit committees in the companies includes a few representatives of shareholders who are competent to asses the true and fair view of the company accounts prepared by the auditors.

Research limitations/implications

The focus of this research paper is mainly on the legal regimes and the accounting and auditing provisions of India and the UK.

Originality/value

The paper shows that the Companies Act in India should strengthen the accounting provisions and it should mandate the compulsory observance of accounting standards.

Citation

Pallisserry, F. (2012), "True and fair financial reporting: a tool for better corporate governance", Journal of Financial Crime, Vol. 19 No. 4, pp. 332-342. https://doi.org/10.1108/13590791211266331