The Financial Reporting Council (FRC) has asked all listed companies and respective auditors to prepare 'accurate' and 'truthful' financial statements.
The instruction followed some inconsistencies detected in the financial statements of at least 20 companies. The statements, allegedly, have been prepared 'violating' international standards on auditing.
"The companies and their auditors concerned have been requested to take effective steps to formulate accurate and truthful financial statements," the FRC said.
"Otherwise, legal steps will be taken as per the Financial Reporting Act (FRA) 2015," it added.
The companies which came under FRC scrutiny prepared their statements for the year that ended on December 31, 2018.
A number of listed banks, financial institutions, insurers and multinational companies prepare financial statements for the year ending on December 31.
To this end, the FRC has posted an advertisement on its website so that the errant companies and auditors can take appropriate measures.
It also called for seeking help from the council in preparing financial statements maintaining accounting standards.
When asked, FRC chairman CQK Mustaq Ahmed said they had arranged a hearing for the companies and auditors while re-auditing their financial statements.
"We can go tough with companies and auditors concerned as per the FRA (Financial Reporting Act) 2015 for making financial statements in breach of standards on accounting."
"Initially, we're warning them as the relevant rules are still to be finalised," Mr Ahmed told the FE.
He said the FRC would also scrutinise other statements which are yet to be published for the year ended on December 31, 2018.
"We hope the companies will come out of the practice of preparing window-dressed balance sheets," said Mr Ahmed.
"Otherwise, the FRC will take action against the companies and auditors responsible for preparing faulty statements," he went on to say.
Echoing Mr Ahmed, FRC executive director Mohammad Anwarul Karim expressed the hope that they would be able to play a due role once required manpower is given and rules are finalised in time.
After re-auditing, the FRC found that some 20 listed companies did not maintain international standards on auditing to prepare their statements.
According to the FRC findings, the companies' expenses and loss provisions were not mentioned in the financial statements.
"Some companies have not mentioned 'related party transactions' in the audited financial statements and some have avoided the issue," the FRC said.
Mr Karim said the companies belonging to large business groups must have 'related party' transactions.
"But these companies are avoiding related party transactions in financial statements, whereas multinational companies make such statements maintaining standards on accounting," he cited.
The firms adjusted the estimated cost or income deviation of previous year with equity without including it into current year's income or expenditure.
"Write-off on expired and non-functional stock and impairment of assets were also not taken into account while making the statements," the FRC said.
It further said that preparing financial statements without mentioning "Key Audit Matters
Paragraph' and 'Other Information Paragraph' is a violation of international standards on accounting.
Parliament passed the FRA 2015 to ensure transparency in the accounting of listed and non-listed companies.
Later, the FRC was established in 2016 that started formal operation in July 2017 following the appointment of its chairman.
Mr Ahmed said approval of an organogram required to appoint necessary manpower is at the final stages.
