7th April

Emperor’s new clothes

The article criticizes the NACAS (National Advisory Council on Accounting Standards) for allowing the suspension of AS11. Altering the accounting standard is not the answer to the huge M-2-M forex losses on which the corporates are sitting right now.

In spite of opposition of ICAI, the Centre overruled the objection and held on the decision by NACAS to suspend AS11 and allow corporates to create a special reserve to park exchange differences and write them off over a period of time. They would also have to redraw the accounts retrospectively from December 2006. But altering the accounting standard doesn’t seem to be the answer to huge mark-to-market losses the corporates have registered. Nor does this change the reality of the losses. Although these are only potential losses and not the realized ones, the same accounting standard helped them register inflated profits and valuations when the tide was on their side. However, government could not prevent the lobbying of corporates just like in US where the government allowed corporates to hold toxic assets in their books without marking them down to the current miserable market prices. 

However, what needs to be done has already been suggested several time by TOI i.e. to make corporates publish two books of accounts, one with mark-to-market prices and one without it so that investors and general public get the true picture.

Auditor gets a reprieve

The article talks about the reprieve received by PWC from after the Satyam CFO cleared PWC role in the fraud. However, this calls for improvement in quality of auditing with some special attention to cross-checking the financials and accounts of the company. 

While PWC has been cleared of the fraud, it only clears from criminal offenses and not from the charges of negligence while auditing. Simplest thing like verification of bank statements wasn’t done directly but through Raju brothers which was a grave mistake. If not criminal, then it certainly calls for disciplinary actions by the regulators. Internal check systems needs to be improved, especially cross-reviewing of the work done by partners to ensure best quality of audit. With abysmal record of disciplinary actions against errant members, ICAI hasn’t played a good role as regulator who is an important determinant of quality professional services rendered. While this time ICAI shows alacrity, even the auditors have become cautious with document verifications. However, this should not amount to over-cautiousness and increase the time as well as cost of audit. 

While peer review of audits is set to become a norm, join audits should become mandatory for companies crossing a certain threshold of revenues.

Under the TV gaze

The article ironically indicates the importance of TV in making people believe in something which has happened like in the case of girl flogging in Pakistan’s Taliban controlled area.

Disgust came from Pakistani public only after the episode was shown on TV, months after it actually occurred. This episode is enough to indicate the horror lurking around in our, as well as Pakistani’s near-neighborhood. While we were unconcerned when the same terrifying acts were going on in Afghanistan, it was much because perhaps it wasn’t televised in other countries. While Taliban never pretended any sanity apparently, the episode is only an extension to the chap who killed healthcare workers delivering polio drops. According to their theory it’s a western plot to turn warriors into impotent idiots. While women suffer inarguably in this expression of godliness, the latest news is the declaration of money under the central income support scheme as “haram” by the Taliban folks. The chaps expressed regret to be unable to provide identity cards to their women, although ironically it’s puzzling for them to see women having an identity. 

While the Child Parliament comes to the rescue of Pakistanis by condemning the girl flogging case, this must cower the Taliban now. But we should put it on TV first.