Ministry of Corporate Affairs (MCA) has worked out new parameters for scrutiny of companies. These are based on reports on the Satyam fraud investigation. In instructions to the Registrar of Companies (RoC), MCA has pointed to ‘cash at bank’ as a vital parameter for scrutiny. Till now, the auditor’s certificate was sufficient.

After the Satyam episode, it has been decided that the RoC should not only look at the balance sheet but also check the veracity of the certificates. This could be done either internally or in coordination with other regulators. The RoC will now not only verify cash at bank but also cross-check. In the case of Satyam, which had shown Rs 3,800 crore (Rs 38 billion) as cash at bank, the auditors had relied on a bank statement provided by the company.

Sources said the auditors are required to confirm from the bank to verify the amount. “It is important to check this parameter, as it indicates the financial health of the company, based on which company shareholders, analysts and other outsiders make an assessment,” said the source.

Another important criterion for scrutiny is “related party transactions”. These are business transactions done by a company with companies or outfits owned by relatives of the promoters or own subsidiaries.

” If more than 50 per cent of business transactions by a company are with related parties, then the balance sheet will be scrutinised and  its officials will be asked for explanation,” said sources.

Then, there is the use of funds. Under this, if a company is using more than half its funds in activities other than the stated objective in the memorandum of association (MoU) given to the registrar of companies, the balance sheet will be examined.

These purposes could be loans to subsidiary companies, other companies,  investments in mutual funds or  stock market, real estate or in foreign exchange transactions when the company does not have much business with foreign exchange exposure, etc.

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