Chapter 12

Corporate Creative Accounting in India: Extent and Consequences

Bhabatosh Banerjee

Gain all you canBut not at the expense of your conscience.

John Wesley1

12.1 INTRODUCTION

India started liberalising its economy in 1991 and since then a number of measures have been adopted by the federal and state governments to make India a key player in the global market.2 A notable feature of the current growth phase is the sharp rise in the rate of investment in the economy.3 Over recent years, India has developed its corporate sector, stock markets and accounting profession (Banerjee, 2005). The growing importance of the corporate sector calls for its efficient working and greater transparency (about 34 000 new companies are added annually). However, the prevalence of creative accounting and fraud in Indian companies hinders this.

The Indian regulatory environment comprises five parts. First, the Companies Act, modelled on the British Companies Act, lays down provisions regarding company formation, capitalisation, accountability, mandatory reporting, audit, liquidation, etc. (Banerjee, 2002; Das Gupta, 1977). Second, the Ministry of Corporate Affairs (MCA), Government of India (www.dca.nic.in), is responsible for the collection, compilation, maintenance and dissemination of basic statistics on the Indian corporate sector. Registered companies are required to file certain documents and returns under the provisions of the Companies Act, 1956. The most important of these are the annual ...

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