Kray-ah-teef Accounting!

Increase in assets debit it, Decrease in assets credit it. My brains used to explode with such obscure jargons and with a torpor mindset in my first accounting class as my accounting teacher took it as a standard that everyone knows the basics and he is just refreshing it. But later when I entered the world of finance and with developing interest, I  came to know the significance  of these accounting standards and their influence on the image of the company, the business as a whole and especially to shareholders who hold the business and  impart meaning to them.I was happy studying finance during my management days which inoculated knowledge within me but also exposed me to the dark side of it when I started learning the ways with how finance professionals do Window Dressing in balance sheets and P and L accounts which when caught became Frauds. Every intellect of finance while completing CA or CFA or MBA in finance gets a idea how to manipulate balance sheets and income statements to have a feel good effect on shareholders and market as well as they reveal your smartness to the top management.Since a better balance sheet and P and L account helps to show a stronger market position,helps to influence market share, reduce liability for taxation, hide liquidity problems, ward take off bids,satisfy the demand of major investors and thus window dressing later was better known as creative accounting.

The Satyam fraud which happened during my management days made a deep impact on my mind. The reason was Satyam visited my campus last year and I was on verge of getting selected .Well the surprise was ,the HR lady was a banking head and was so much gaga about the company.The friends who later joined satyam, what really  happened to them is of  no use to discuss here but what is more important is Satyam ended with 5361 crore as inflated cash, which in reality was 5040 crores.The accrued interest of 376 crore,liability of 1230 crore, overstated debtors position and even operating margin of approx 590 crore diff with the actual. The Satyam case retreated the need of International Financial Reporting Standards in India where ENRON made the reason to have proper financial reporting standards in countries like US as well. Enron reported to have 100 billion dollars of revenue where Arthur Andersen did amazing creative accounting ways to show ENRON as a blue chip company and the company misused the shareholders hard earned money in various ways.While Kenneth lay had paid the price , Ramalinga Raju survived the loopholes of Indian standards of dealing such cases.


IFRS is basically International Financial Reporting Standards issued by International Accounts Standard board(IASB). 100 countries have implemented IFRS and are coordinating with them and IASB is a 14 member board from nine countries which decide the Standards. The accounting standards have been built because there are differences in US GAAP and Indian GAAP as well as accounting standards followed in different countries.

Small and Medium companies in India are still not prepared for IFRS.The IFRS is a costly exercise which includes an overhaul of operational and IT processes apart from training cost. The government had hinted for preparing a watered version of IFRS.The ICAI has indicated that all entities having excess of 1000 crore will implement IFRS.

I was amazed when during my session at IIM Calcutta one of the finance head of a leading Multinationals told me the difference in auditing standards of Price water coopers and KPMG. Probably with implementation of IFRS the base would be built for better and transparent accountancy. The day is near when innocent shareholders will not be mesmerized with wrong data and rising figures as there would not be any space for creative accounting but rather will reveal the real health of company and its standard.Lets Hope industry developing ethical standards with such transparent methods,the day is not far when implementation of these would be read as case studies in management classes rather than ENRON and SATYAM fraud cases.

Jai ho!