BALANCE SHEET IRRELEVANT FOR INVESTORS???

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.