With accounting standards that keep changing from hour to hour, the balance sheets become irrelevant pieces of garbage. Yes, you will have statutory compliance, but the investor is thoroughly misled

There is wonderful news for companies that are sitting on liabilities in foreign currency. The corporate affairs ministry has put its foot in the domain of the guild called the Institute of Chartered Accountants of India (ICAI) and said that these liabilities can be ignored from the accounting statements till 2020. Effectively, losses on foreign exchange can be taken directly to the balance sheet, without going through the profit and loss account! 

This is very much like the ministry of health changing the name of a terminal disease from, say, cancer, to a minor disorder like ‘fever’. Everyone should be happy.

It is amazing how the government comes in to fool the investing public. The Reserve Bank of India (RBI) comes in and relaxes norms relating to recognition of bad debts. It permits banks to ‘reschedule’ loans so that they do not have to reduce their profits on account of doubtful loans. And the stupid banks will report ‘higher’ profits and pay taxes on it too! And the brokerages will come out with research reports that will end up comparing apples with tomatoes.  

The length to which the government bodies connive with industry bodies to hide things from investors is amazing. And the body called ICAI just keeps it mouth shut.

Now, the accounting standards are supposed to be the sole domain of the ICAI. If the RBI or the corporate affairs ministry permits laxity in accounting norms, should the former toe the line? Is it not the job of the ICAI to qualify the accounts and quantify precisely the impact on the bottomline due to changes brought about by some fiat issued by a third party? If they do not do this, they are not being true to their profession and the investors have a right to seek explanations from the auditors. The auditors should simply ignore the change in reporting standards permitted by some unrelated entities and expose the scam for what it is.

It is no wonder that Indian equities are viewed with suspicion. With accounting standards that keep changing from hour to hour, the balance sheets become irrelevant pieces of garbage. Yes, you will have statutory compliance, but the investor is thoroughly misled.

In case, the rupee gains and there are exchange profits, will the companies stop reporting these? Why are rules and norms being designed to simply pretend that things are fine when they are not? There seems to be a concerted effort between various government agencies and the industry associations to fool the investing public at large. And in this, bodies like the ICAI have become a ‘handmaiden’, who does not care about the fact that it owes legal allegiance to the shareholders and not to the promoters.

The end result would be financial results that are boosted by heavy doses of ‘steroid’ and even the analyst body would not do anything about this. The promoters will use these fairy-tale accounts to raise more money from the public and the banking system. The banking system will in turn use these fairy-tale customers to boost their numbers and fool the public.

It is best to avoid all companies with any kind of foreign exchange liabilities. One simply does not know whether the company is already bust or just bluffing.