ABSTRACT

ON

Reporting Practices
in
Indian Companies
PRESENTED TO THE

Faculty of Commerce

DRAVIDIAN UNIVERSITY, KUPPAM

FOR

Ph.D. IN COMMERCE

RESEARCH SUPERVISOR: SUBMITTED BY:

DR. INDERJIT SINGH SHAM LAL

Senior Faculty Member,

Department Of Commerce,

Govt. Bikram College of Commerce, Patiala

(Punjab).

Department of Commerce
DRAVIDIAN UNIVERSITY, KUPPAM - 517425,
CHITTOOR, Andhra Pradesh.
INTRODUCTION
The key to long-term success is the quality of leadership and its influence on
all a company’s relationships. Communication - alongside strength of character and
strategy is in turn at the heart of good leadership and relationships. Reporting is in its
turn one aspect of strong communication, and a particularly important part in creating
a sense of confidence in a company. The communication medium became very
important in case of Joint Stock Company where the central of business is practically
divorced, from the ownership of shares. In such cases the maintenance of accurate
accounts and their reporting to the shareholders is necessary to enable proprietors of
the company to see the results of the activities of the director whom they appoint to
manage the business in which their funds are applied. In case of joint stock company
provisions are laid down relating to keeping of proper accounts, the preparation of
financial statements and their reporting to the shareholders who are scattered at
different and for away places. It is very essential for the Board of Directions to lay
before the company’s annual general meeting a copy of Profit and Loss Account and
Balance Sheet together with director’s and auditor’s report. All these documents are
also termed as published accounts and annual reports. The annual report provides a
balanced overview of our results and financial position at the end of the year and
satisfies all regulatory requirements. The purpose of the Annual Report is to give
stakeholders a view of business, what drives it, what affects it, how we measure
ourselves going forward.

The Indian Companies Act of 1882 was the first comprehensive piece of
legislation related to the disclosure of information in the financial statements. Mainly
based on the British Act of 1862, it required compulsory preparation of balance sheet
and its audit but preparation of profit and loss account and directors’ report etc. were
governed by optional regulations which companies were not bound to adopt. The
Companies Act of 1913 corrected the situation to some extent and revised the form of
balance sheet though some provisions related to the preparation of profit and loss
account the directors’ report, among others continued to be governed by optional
regulations. These were made compulsory by the Companies Amendment Act of 1936
which, by amending many existing provisions and adding new ones, went a long way
in improving the law regarding disclosures keeping in view the information needs of
the users of financial statements.
 The legal framework relating to companies was materially changed between
1882 and 1956. The quantity and quality of information reported in the financial
statements underwent major and substantial changes. Notwithstanding major and
significant change in the information disclosure requirements, both quantitatively and
qualitatively, much was desired to be done yet. Under the companies Amendment Act
of 1936, though all companies were required to disclose the amount of gross profits,
they were not compelled to report the amounts of sales affected, purchases, selling
expenses and many other items. The principles of accounting which should be
followed in preparation of financial statements were not laid down, as a result of
which the generally accepted accounting principles were not followed, accounting
policies were not consistently applied from year to year and no distinction was drawn
between capital and revenue items. Also, while preparing balance sheet, items
essentially dissimilar in nature were grouped together and not shown separately and
bonus shares resulting from the capitalisation of reserves were grouped together with
shares issued for consideration other than cash. These were only a few of the many
important omissions corrected not until 1956 when the companies act of 1956 was
passed.

The part of the company’s law relating to financial reporting was again
amended in 1960, 1965 and 1969 and 1974 by passing Amendment Acts and in
1961, 1971 and 1973 by issuing Notifications. The various successive changes in
the law have required more and more information to be reported in the annual
reports of companies.

NEED OF THE STUDY

Generally speaking, current management and corporate reporting practices are

focused primarily on backward-looking information reflecting in part their
stewardship orientation. Most financial reporting and performance indicators only
provide a picture that shows how effective a company was in the past in utilising its
resources. They provide little systematic information about the capacity of the
company to generate future revenues. Investors need an overview of all value drivers
of the company to better assess the potential of the company and its ability to achieve
sustainable results. They can obtain this information through market sources and/or
directly through corporate reporting. Hear market sources also mostly depend upon
the annual report of the company.

Investors want fast growth as well as security of their funds. Some time their
fund is unsecured due to false corporate disclosure. Rise in corporate crimes in the
recent past both in India and abroad have put a buzzword of the modern business
world. Followings are the some of the crime committed recently. This summarized
view of these corporate crimes just show the need to study the proper corporate
disclosure practices.

Corporate Crime Global Scene

Company Charges
1. World Com : Improper accounting of $ 3.9 bn in expenses,
leading to bankruptcy.

2. Adelphia : Allegedly gave Rigas family $ 1 bn in hidden loans;

fudge the number of subscribers.

3. Imclone System : Charges of insider trading on ex-CEO Samuel

Waksal and other.

4. Tycolnt’l : Alleged misuse of the company money by CEO

Kozlowaski to buy art and other things.

5. Enron : Off balance sheet deals used to hide debts and

inflate earning.

6. AOL Warner : AOL division accused of improperly accounting for

some advertising revenue.

7. Hindustan Lever Ltd. : Allegation of insider trading.

8. Xerox : Financial Fraud

9. Tata Finance : Former Managing Director Dilip Pendse cheats the

company of more than Rs. 400 crore for his
personal benefit.

10 Unit Trust of India : Indiscriminate investment by UTI in ICE stocks.

.

11 Satyam Ltd. : Recent big corporate scam in India by the CEO of

the company Ramalinga.
.
 Source:

The above list of corporate defaulters shows that the investor’s money may be
move into wrong hands if there is no high range of transparency in corporate reports
published by companies and the transparency comes only when all the public and
private companies include each and every information in there annual report without
any misleading information. Mostly companies weather it is public company or
private company try to show only that types of information which gives positive
effect on their goodwill. They always try to hide their weaknesses. So there must be a
proper study to know what they show and what they hide.

All the private and public companies, plead that their annual reports contain
all the relevant information which are required under law for the benefit of internal as
well as external users. But there is lot of difference between the disclosure trends
between public and private companies. As the number of studies have been conducted
on the corporate reporting practices in India, but there no attempt has so far been
made to compare the reporting practices of public and private companies in India.
The proposed study shall be an attempt in this direction.

OBJECTIVES OF THE STUDY

Followings shall be the objectives of the proposed research work.

1. To study the reporting practices of the public and private companies in India.
2. To compare the trends of reporting practices adopted in sample public and
private companies.
3. To study the investors’ perceptions regarding the disclosure of information in
their companies.
4. To find out the areas of agreement and disagreement between the investors’
requirements and disclosure practices.
5. To study suitable measures and make suggestions to improve financial
reporting and disclosure practices