While Industrial Development Bank of India and General Insurance Corporation have rejected the recommendation made by the working group in its report on the Companies Act, 1956, in regard to the DRS, Life Insurance Corporation, Unit Trust of India and Industrial Finance Corporation of India have favoured the suggestion.

The Government had earlier formed a working group to suggest amendments to the Companies Act, 1956, in a bid to improve corporate governance in companies. The working group subsequently recommended that there should be a specific statement on the responsibilities of the director of a company and also suggested the publication of the DRS in its annual accounts.

The statement will also make all directors, (instead of only the managing director or wholetime directors), liable for allcontraventions which take place with their consent or connivance or are attributed to negligence on their part.

Disagreeing with the working group's recommendation, IDBI, the largest term lending institution, has said that a DRS does not serve any additional purpose for improving corporate governance.

The companies are as such required to have a sound internal audit system commensurate with the size so that compliance of items which were suggested for inclusion in DRS can be verified and checked by the internal auditor, it said.

IDBI has suggested that the idea of DRS should be dropped and instead the external auditors can make their comments regarding the compliance in their report. This can be considered as a substitute for DRS.

GIC, too, has said that it does not approve of the recommendation as it will lead to holding nominee director responsible for an act to which he is not a party.

LIC, however, said it is in favour of the working group's report. It has said that the key point is that thecode of corporate governance should not be limited to the DRS alone. Corporate governance standards need to be recommended by industry associations and other professional bodies and, if required, such standards may need to go beyond the scope of their legal or regulatory codes of conduct, suggested LIC.

UTI has welcomed the recommendation with a rider that the statement should only be signed by wholetime executive directors.

IFCI has also accepted the recommendation of the working group saying that DRS would encourage greater disclosure and transparency as it would indicate that the applicable accounting standards have been followed along with proper explanation relating to any material departure.

Also, the DRS would ensure that the directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year, notedIFCI.

Insight -- Of little use

A directors' responsibility statement may be of little use. Instead of glancing through the auditor's report for the qualifications, one will have to go through the DRS. Notes to accounts are the management's responsibility and normally the management presents its side of the story for the matter which has attracted qualifications. One agrochemical company, for example, defers expenses incurred on leasing business, which only shows that unless companies are pulled up for such obnoxious accounting practices, mere disclosures willl not help.