Disclosure of appropriate financial information is essential to enable sound business
and investment decisions by investors. The role of financial reporting and disclosures
is to communicate information that supports business decision-making by the business
entities, stakeholders as well as the investing public. In order for information
to be useful in the decision making process, it must be timely, relevant, accurate
and reliable. No longer can a simple set of financial reports satisfy the needs
of informed investors or the demands of company creditors. Financial reporting has
to reflect the true and fair state of affairs of the financial position of a business
entity, be consistent with applicable accounting standards and be certified by auditors
and company boards and disclosed in accordance with the requirements of the Companies
Act, 1956.
The phenomenon of corporate fraudulent financial reporting has battered investors'
confidence in financial reporting, the accounting profession and global financial
markets. It has not only caused severe damage to corporations and banks but also
harmed small investors who have lost considerable amounts of money. With the increasing
complexity of financial structures and the intensity of business competition, fraud
has become increasingly important in the eyes of the regulators.
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