NEW DELHI: Finance minister Pranab Mukherjee has asked the country's auditing fraternity to be vigilant against "window dressing" of financials by companies, and highlighted the need for stringent disclosure norms on complex financial instruments. 

"Accountants have a critical role in guarding against window dressing of balance sheets that encourages entities to take more and more risk until they are dangerously leveraged," Mr Mukherjee said on Tuesday at a conference organised by the Institute of Chartered Accountants of India. 

"We need to craft credible and consistent rules and regulations for financial markets to prevent a race to the bottom where capital leaks out to the areas with the weakest regulation. We must encourage stronger disclosure standards for systematically important financial institutions as well as complex and sophisticated financial products," he said. 

The minister's comments gain significance in the backdrop of the recently-unearthed fraud at the Gurgaon branch of Citibank , involving diversion of depositors' money to the stock market. 

"Managers have the incentive to be more forthcoming on good news about the company's performance and prospect, but may want to hold back bad news. If financial performance is volatile, the function of a sound accounting procedure is to report it," Mr Mukherjee said. 

The minister highlighted the need for strong corporate governance principles, noting that corporate bankruptcies globally have shown that businesses fail not due to adverse market situations, but due to lack of adequate corporate governance. 

"A company that is transparent and follows standardised accounting practices and encourages free flow of information will find it easier to sail through bad times and secure the support of stakeholders in times of difficulties," Mr Mukherjee said. Good corporate governance command a premium , he added. 

Mr Mukherjee commended the ICAI for its efforts to align the country's accounting standards with the globally-accepted International Financial Reporting Standards (IFRS), set to be introduced selectively from April 1 this year. 

The new standards would enable financial statements to be more transparent and faithfully represent the actual financial position and performance of the entity , Mr Mukherjee said. 

On sustaining growth, he said the challenge before the country was to sustain high rate of economic expansion and cross the double-digit growth barrier. "The challenge now is to sustain this high GDP growth over the extended period of time and find the means to cross the double digit growth barrier in the coming years." 

The minister said the economic recovery witnessed in the recent times has been broad based, with agriculture, industry and services contributing to the growth momentum. The economy recorded a growth of 8.9% in the first half of the current fiscal, after registering a growth of 7.4% in 2009-10. "The Indian economy has recovered robustly in 2010-11, recording one of the fastest growth rates in the world," he said. 

Earlier, speaking at the same event, minister of corporate affairs Salman Khurshid said the convergence of Indian accounting standards with IFRS was part of the government's commitment at the G20 summit and his ministry was working hard to meet the deadline.