Taking the investor for a ride—with government sanction

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.

 

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    COMMENTS

    Nagesh Kini FCA

    9 years ago

    Apparently Vinod Arora is new to the audit profession. Just by saying AS 11 he simply cannot validate his stand.
    The auditors not only winked at but connived in Satyam, allowing the fraud to go on for seven long years.The punishment is meted out not to the lead partner or the one who has signed but the lowest in the team.
    The partner was stated to be the Chairman of ICAI's Ethics Committee! And they are out on bail.
    The SEC has come out heavily no the company, our SEBI, and Courts are still mulling over the issue.
    Our auditors merrily attest the accounts that are neither true nor fair, nor fairly true or at best neither for the right price.What has happened to GTB?
    Our so-called Regulators SEBI, RBI and IRDA are toothless watchdogs that can not bite leave alone growl.
    The new Companies Bill ought to remedy the malady.

    REPLY

    Vinod Arora

    In Reply to Nagesh Kini FCA 9 years ago

    These kind of baseless allegations and discussions are the only reasons which make the virtual platforms on internet, useless and less trustworthy. I dont know you want to discuss AS 11, Satyam, GTB, ICAI or something else, but I am sure that this portal is also surrounded with fake identities and discussions. Although I am in CA Profession for more than 20 years, but it does not make difference if the discussion is on logical grounds even if i am a fresh CA. It also does not make sense, if someone who pretends to be seasoned but utters invalid comments. Its no wonder in India that there are people, those who have never been to Politics or to any School/College, discussing about competence of PM or President !! They also dont find takers except in election days. However when the things are legal, only logic prevails.

    nagesh kini

    In Reply to Vinod Arora 9 years ago

    There is absolutely nothing baseless or invalid comments whatsoever.
    Thanks for letting me know that you are a CA of 20 years, I've put in double that period and all of it in corporate audit both in the private and public sectors. I can very claimed to be more 'seasoned' a term you have chosen to use.
    When we are talking of Balance Sheets and Investor Protection, pray how does politics and going to school arise at all?
    Satyam and GTB were gross audit failures. Why don't you comment on that?

    Narendra Doshi

    9 years ago

    Dear Bala,
    Well said and THIS IS THE ETERNAL TRUTH. NEVER FORGET IT IS YOUR OWN HARD EARNED MONEY WHEN you INVEST ANYWHERE.

    Prakash

    9 years ago

    I suggest that this article (link given below) be read to understand and know the plight of investors in this country.

    http://www.firstpost.com/investing/dear-...

    REPLY

    Narendra Doshi

    In Reply to Prakash 9 years ago

    Dear Prakash,
    This sentence from the link summarizes aptly for ALL TIMES to come.
    "The only way an investor can protect himself is by learning to take care of his money himself."
    NEVER FORGET THIS and then INVEST.

    Vinod Arora

    9 years ago

    Its disgusting to read such Articles which are based on a highly narrow approach about ICAI and Audit Profession. Probably there is a lack of understanding of the Author on the Role of ICAI and the Auditors. Still the Auditors will quantify the impact on the accounts and disclose in due course so that investors can understand the impact of deferment by MCA/NACAs of implementation of AS 11 of ICAI. ICAI and Auditors will be doing their role, where is the doubt? Would request Author to look into the broader picture before stepping into passing wrong judgements. Rgds.

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