Study Sees Motive As An Attempt To Exceed Market Expectations
Times of India - Sept 23rd
With recession tightening its grip on global economy and the stock market in a state of flux, more and more Indian companies are tinkering with their financial statements to meet market expectations, a study has claimed.
According to a report prepared by Pune-based Indiaforensic Consultancy Services (ICS), 1,200 companies listed on domestic stock exchanges have forged their financial results. The figure includes 20-25 firms whose stocks make the benchmark sensex and Nifty indices. The study called 'Early Warning Signals of Corporate Frauds' has alleged that such improper accounting includes deferring revenue and inflating expenses.
The ICS study — which started earlier this year and concluded on August 30 — examined 4,900 companies listed on the BSE and 1,288 companies listed on the NSE. The consultancy carried out a survey among 340 auditors that included chartered accountants who are ICAI members as well some chartered accountancy students and the results were based on the response it received.
As per the study, as many as 73% of respondents said the motive for committing accounting statement frauds was to exceed expectations of stock market analysts. "For unlisted firms, such frauds are typically carried out to avoid taxes, attract foreign investment and mobilise funds," the study said.
The study examined 11 sectors that include real estate, retail, banking, manufacturing, insurance, public sector undertakings, mutual funds, transport and warehousing, media and communications, oil & gas and information technology. "The manufacturing sector, which contributes about 28% of India's GDP, is the most ridden with fraud, said 20% of the auditors who responded to the survey, largely because of the peculiar nature of the business and the procedural complexities. Realty and public sector undertakings came second," the study adds.
The ICS study noted that some 25% of the respondents said between 20% and 30% of their clients manipulate financial statements.
Happy Investing
Padmanabhan
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