The government is set to raise the threshold for independent verification of corporate transactions in the Companies Bill , diluting a proposal it made before a key Parliamentary panel. The threshold would now be fixed at 1% of a company’s annual turnover as against 5 lakh suggested by the corporate affairs ministry before the Parliamentary Standing committee on finance.
This means auditors would have to verify all transactions above the 1% threshold with counter parties, such as banks, to ensure their authenticity.
“The proposal to raise the threshold of transactions that would require an independent verification from auditors merit consideration,” said a senior official in the ministry of corporate affairs, adding that representation in this regard has been made by the industry.
As of now, an audit is primarily a review of a company’s financial statement to establish its truth and fairness. Auditors usually do not go into the veracity of the numbers.
The move to get the transactions independently verified is aimed at checking corporate frauds, like the one involving Satyam Computer Services (now called Mahindra Satyam).
The Institute of Chartered Accountants of India (ICAI) had opposed the 5 lakh threshold saying it would make audits cumbersome. The accounting regulator had argued that almost every transaction of a large company is above this limit.
The relaxation, however, comes with a rider. The government would prescribe a stringent set of internal audit norms which companies would be required to follow. The Bill would also give ‘audit standards’ a statutory recognition, meaning a violation would attract penal action. Currently, accounting standards do not have the force of law.