Aberrations in recognition norms – by ankit bhatia

Good evening !

At the outset .. conceded  ..  in the affirmative .. its a fiscal scribble  ..  stands acknowledged – the receipt of inducement for financial prudence attributing scribble 🙂

Certain pertinent fact’s perusal .. in a financial journal .. consequent promptness  ..

Well  ..  perusal of certain factual extracts, infra, attributable to the financial sector of India, certainly, rather assertively, jolted my inquisitive being – to the extent attributable to the cache of the fiscal recognition practices – in Indian financial statements – to the extent witnessed by me – in consulting assignments as well as in a global investment bank – having regard to the liberal aberrations rendered to this sector – in the Companies Act – as well as – abatement rendered to the banking corporations – from the stringent fiscal recognition norms alike of the Impairment of Assets by the supreme financial regulator – being the supreme statutory body of Institute of Chartered Accountants – in their preview statement on the – applicability of accounting standards by the financial regulator.

“..As a recent research brought out by EY and titled Unmasking India’s NPA issues – can the banking sector overcome this phase? points out: “While corporate borrowers have repeatedly blamed the economic slowdown as the primary factor behind it[i.e. defaulting on bank loans], periodic independent audits on borrowers have revealed diversion of funds or willful default leading to stress situations..

..Nevertheless, despite many willful defaults, banks don’t declare such defaulters as willful defaulters. The RBI defines “willful default” as a situation where a borrower has defaulted on the payment/repayment obligations despite having the capacity to pay up. Or the borrower hasn’t utilized the loan amount for the specific purpose for which the loan was disbursed and diverted the money for other purposes. Or the borrower has siphoned off the funds. Or the borrower has defaulted on the loan and at the same time sold off the immovable property which acted as the collateral against which the loan had been granted..” – ‘The-real-story-behind-the-bad-loans-of-Indian-banks’ by Vivek Kaul.

Subsequent to such facts, pertinent curiosity by a skeptic devil’s advocate would be – why banking corporations are not subjected to alike stringent norms of fiscal recognition ? (since corporate laws grant this statutory aberration to the banking sector) Why not the same fiscal benchmark – alike of the stringent norms – complied by the global corporations – while – they claim ‘aggrieved’ status – vs the auditors – demonstrating such stringent norms – to the extent – that they even compute the net realizable values statistically – attributing the demonstrable evidence – to the expected cash flows vs the historical values in the fiscal statements. Statutory auditors put the onus on the management – to demonstrate evidence in support of fiscal assertions.

Ought not banking corporations too – be mandated to pursue alike most stringent fiscal recognition practices – as stringently as by other corporates? So as to be comparable – on the same benchmark – as others? (hence, whereas, I concede that, in this limited extent, I am oblivious to the requirements in B.R.Act, RBI guidelines, I am asserting the comparable benchmark assertion here!!)

Well  ..  to a startling contrast  ..  my experience in global investment bank, I absolutely concede that all multinational corporations are, anything but sporadically, prompted to claim ‘aggrieved’ status – vs the Chartered Accountants – who subject their fiscal recognition practices to most stringent skeptic lens – prior to legally conceding their fiscal recognition practices – under statutory certificates !! They are sought – demonstrable economic rationality as well as the evidence – in support of expected imminent, medium term, & long term cash flows – attributable to every receivable, failing which, a qualified opinion is rendered in the statutory opinion – highlighting the pertinent reservations regarding the same – in fiscal statements !!

As an addendum, be jolted by this  ..  in my experience of consulting assignments / global investment bank – In statutory assurance reports of global corporations, Chartered Accountants are technically stringent to the extent of computing the IRRs, probability driven weighted averages, discounted cash flows, net realizable values of all material receivables – so as to be conforming to the stringent benchmarks of the accounting standard on ‘Impairment’.

Perusing the aforesaid facts, grave concern, at least to me, is that why not the synonymous stringent norms – as are adhered to – by corresponding global corporations – for technical computation of fiscal impairment to whole strata of asset group – not being complied with by the banking corporations – so as to be adherent to similar benchmark of financial recognition – as other global corporations ? – specially when the fiscal status is of supreme significance – in the case of a banking corporation?

Obscure  ..  Is’nt it ?

Be jolted guys  ..

Adios !!