Corporate Governance Regulations, Accounting Standards and Case Studies of Scams That Changed India, UK and USA
The objective of this paper is to give an overview of and do a subjective international comparison of regulations pertaining to some aspects of corporate governance systems of India, UK and USA. Interestingly, all three are common law countries. In terms of governance regulations in common law countries, there are two main approaches. First approach is the highly prescriptive ‘apply or die’ approach which is best exemplified in the Sarbanes–Oxley Act (SOX) 2002 of USA, which involves significant financial and criminal penalties for non-compliance. On the other hand, the second approach is the more self-regulated principles-based ‘apply or explain’ approach which is best exemplified in the Cadbury Code of 1992 in UK which was subsequently developed into the UK Combined Code. Even though the Indian Company Law, 1956 was based on the British Law, but now the Companies Act, 2013 represents an important next step in the journey of evolution of Corporate governance in India. Overall, today, India presents a hybrid picture. On the other hand, the accounting standards that are followed are IFRS (which are considered “principle based” compared to US GAAP (which are considered “rule based”). So, even in terms of accounting standards, UK is more flexible compared to USA. In this area, Indian Accounting Standards (IndAS) have converged to IFRS. So, after comparing the nature of regulations of India, UK and USA, the paper elaborates on case studies of corporate governance frauds in the three selected countries which happened just before a major Act was enforced and kind of acted as a trigger for some of the provisions of the Act or the Act itself and the lessons learnt from them. Satyam scam in India happened before Indian Companies Act, 2013 while Maxwell Pension Fund scandal in 1990s was the precursor to Cadbury Committee report in UK and Enron scandal in 2001 triggered the Sarbanes Oxley Act in USA in 2002. The paper concludes by drawing the lessons learnt from them.