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Report of the Kumar Mangalam Committee on Corporate Governance
Accounting Standards and Financial Reporting
Over time the financial reporting and accounting standards in India have been upgraded. This however is an ongoing process and we have to move speedily towards the adoption of international standards. This is particularly important from the angle of corporate governance. The Committee took note of the discussions of the SEBI Committee on Accounting Standards referred to earlier and makes the following recommendations:
The companies should be required to give consolidated accounts in respect of all its subsidiaries in which they hold 51 % or more of the share capital. The Committee was informed that SEBI was already in dialogue with the Institute of Chartered Accountants of India to bring about the changes in the Accounting Standard on consolidated financial statements. The Institute of Chartered Accountants of India should be requested to issue the Accounting Standards for consolidation expeditiously.
Segment reporting where a company has multiple lines of business.: Equally in cases of companies with several businesses, it is important that financial reporting in respect of each product segment should be available to shareholders and the market to obtain a complete financial picture of the company. The Committee was informed that SEBI was already in dialogue with the Institute of Chartered Accountants of India to introduce the Accounting Standard on segment reporting. The Institute of Chartered Accountants of India should be requested to issue these Accounting Standards expeditiously
Disclosure and treatment of related party transactions.: This again is an important disclosure. The Committee was informed that the Institute of Chartered Accountants of India had already issued a preliminary exposure draft on the subject. The Committee recommends that the Institute of Chartered Accountants of India should be requested to finalise this at the earliest. In the interim, the Committee recommends the disclosures set out in Clause 7 of Annexure-2
Treatment of deferred taxation : The treatment of deferred taxation and its appropriate disclosure has an important bearing on the true and fair view of the financial status of the company. The Committee recommends that the Institute of Chartered Accountants of India issue Accounting Standard for the treatment of deferred tax liability.
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