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Institute of Chartered Accountants of India

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There is a body called the “Institute of Chartered Accountants of India” (ICA). It is supposed to set
standards for fair accounting, transparency in communication of financials to anyone who reads an
audited annual report, apart from being obliged to make written comments on any aspect that they
find unreasonable or not satisfactorily explained. In law, they are supposed to be appointed by the
shareholders. In practice, it is the promoter who appoints and at every AGM there is a routine
resolution that is approved by the shareholders. The shareholder is not given any information about
the audit firm, its capabilities or its size. The shareholder in reality, has no control or clue about who
his auditor his.
Over the years, there has been total laxity and dilution in accounting standards in India, in the guise
of ‘conforming’ to International Standards. I have been analysing balance sheets over time and I can
see the disclosure standards falling dramatically.
Let me start with subsidiary companies. In the past, the annual report would have the full accounts,
with schedules, of the subsidiary companies. Today, it is missing. If the company is somewhat liberal,
it may put up the subsidiary companies’ accounts on its websites. This presumes that every
shareholder has internet access. However, unless you sit down with a detailed paper report in your
hand, the net does not allow one for a friendly read or enable you to move from page to page, quickly.
Companies have abused the internet to upload accounts in various formats that are difficult to read
and engage in cross references. Now, one understands that there is a move to make reporting in one
uniform language, but it seems unlikely that things will get any better. Why not continue with the
practice? I see that the companies have managed to lobby the government, in the garb of ‘green’
movement and move to electronic delivery of annual reports. I do hope that this will not be
mandatory. I still love the old fashioned printed annual report.
To tell you what the disclosure standards have come down to, let me take the annual report of
Reliance Industries Limited, one of the most widely followed companies in India. I read from the P&L
account that the sales for the year 2010-11 were Rs.248641 crores. However, what product/s the
company sold cannot be fathomed from the accounts. There is no schedule that gives the break-down
of the sales. Of course one schedule gives “production meant for sale” listing different products and
quantities, but no value. Whether it was sold and what it contributed, the accounts do not tell me.
Same is the case with purchases. Manufacturing & other expenses were Rs.211823 crores. The
explanatory schedule gives one line saying “Raw Material Consumed” Rs.193234 crores! Wonder what
it was? The language used is in the singular, so it must be one mighty raw material indeed! A small
item of Rs.68 lakh of lease rent is detailed in this schedule but something that is ninety percent, is
dismissed in one line!
If I go to the balance sheet, it is very impressive indeed. Net worth of Rs.151548 crores! The net block
of fixed assets is slightly larger than this. Investments made by the company is Rs.37,651 crore. If I go
to the “Consolidated” accounts, this figure drops to Rs.21596 crores. I see that the company has listed
142 ‘related parties’! It will take expert scanning and working to fathom out how much money is
invested in any associate, what stake the company has etc., Also, different year end dates for many
subsidiaries / associates add to the chaos. There are three pages in small print which give ‘financial
information’ of 120 subsidiaries! The print size bothers me and I give up on the balance sheet.

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There is a body called the “Institute of Chartered Accountants of India” (ICA). It is supposed to set standards for fair accounting, transparency in communication of financials to anyone who reads an audited annual report, apart from being obliged to make written comments on any aspect that they find unreasonable or not satisfactorily explained. In law, they are supposed to be appointed by the shareholders. In practice, it is the promoter who appoints and at every AGM there is a routine resolution that is approved by the shareholders. The shareholder is not given any information about t ...
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