Sir,
Like any other professional Chartered Accountant, I am also reluctant to lift my pen and start writing. This is a nightmare for the Editor who expects a feed back through a column “Readers’ Views”. Successive editors, including yours truly, have failed to excite the readers to write. I therefore thought of taking a first step myself and comment on the editorial of October 2011.
I entirely agree with your view that “Preparation of financial statement is universally an object driven exercise, the reflection of the true state of affairs is rarely one of them.” It is certainly a bold written admission, but “true and fair state of affair” is many times a wishful thinking, a daydream or a utopia.
Accounting Standard and Auditing Standards and many variations thereof like IFRS, Ind. AS, AS original seem to be Greek and Latin to a businessman. You have referred to such standards as written in ‘Sanskrit’. I honestly believe that they must have been written in a language 10 times difficult than Sanskrit. Sanskrit is a very sweet and a lyrical language, much easier to understand, but not the language of so called Standards.
Standard also means that which is static, stands tall, guides a person like a lamppost when he is stranded in rough seawater. Standard is supposed to be a guide for a long time. It could be like a constitution — cannot be changed so easily. We however have standards, which undergo frequent changes like the rates of tax in annual Finance Acts.
The well-publicised, highly appreciated benefit of Standards is stated to be the easy understandability of financial statements by the users in the global village. One can digitise the terms, standardise the phrases but can we then effectively communicate? Language is supposed to be a means of communication, but it changes in tone, accent, meaning every 25 to 30 kilometres geographically. Any attempt for a universal accounting language is bound to be a solid ground for universal confusion. It will make most of the users of financial statements dependent on the so called experts for understanding the accounts of an entity in which they wish to invest. It would be therefore very easy to fool the retail investors whose exit may not be anticipated by the standard setters.
The crux of the matter is ‘cash flow’, both inflow and outflow. Any attempt of standardisation, which affects credit line (Inflow of either debt or equity) of a business entity or the tax burden (outflow of capital) of such an entity is likely to face stiff resistances and a devise would be tried to circumvent the reality. I have heard in one public meeting that at times mergers and acquisitions are undertaken to avoid facing an inconvenient accounting standard.
I do not undermine the importance or the necessity of standardisation. However, the rate of so called creation, setting up and most important — changes in such standards is alarming and confusing and if this persists, then the object of ‘true and fair’ would certainly be a story from fairy tale.
