Companies to be asked to declare balance sheets every quarter

To enhance disclosure norms and present investors with quality information on solvency of firms, the finance ministry and the Sebi are considering a proposal to make it mandatory for companies to declare their balance sheets every quarter.

To enhance disclosure norms and present investors with quality information on solvency of firms, the finance ministry and the Securities and Exchange Board of India Sebi are considering a proposal to make it mandatory for companies to declare their balance sheets every quarter. At present, companies are required to share their balance sheets with investors and the capital markets regulator Sebi only once a year.

What has prompted the government and the regulator to move quickly on this aspect is the current economic slowdown and its impact on the profitability of companies. 8220;Investors must get to know about the solvency of the firms too and not just the profit and loss P038;L account,8221; a finance ministry official told The Indian Express. At present, companies share only their P038;L statements every quarter

8220;With a number of large firms going bust across the globe, investors need to know about the liquidity and solvency of the companies they invest in to make a sound choice,8221; the official said. The P038;L account does not reflect the debt liability of the company, which a balance sheet does. A decision on the same may be taken over the next few weeks after Sebi concurs with the proposal, he added.

Account receivables and payables are reflected in the balance sheet, which reflect any default of payments by customers. On the payables side, it will reflect whether the company has enough liquidity to pay back suppliers. Moreover, many companies show their foreign exchange losses only in the balance sheet, which makes such a disclosure even more essential to adjudge the health of the company.

The move is being made to maintain more transparency in the market. The capital markets regulator Sebi had mandated quarterly disclosures of profit and loss data of listed companies in the early 1990s. A direct impact of this was that insider trading had come down significantly.

8220;Sometimes companies increase their account receivables to reflect higher revenues on which cash is yet to be received. Such non-cash based revenues have been a problem in certain real estate companies. Disclosure of the same will increase transparency on quality of numbers,8221; a senior Mumbai investment banker said.

India has been lagging behind on disclosure norms compared to practices in the international market. Quarterly balance sheet disclosures are already necessitated in leading markets such as the US, the UK, Singapore and Australia. 8220;The move will bring India closer to international disclosure standards,8221; the banker said.