Certification of projections:
Arjuna (A) – Oh God! I am really fed up. I feel I should not sign any document at all.
Shrikrishna (S) – What happened? You have been signing so many things – reports, certificates and what not!
A – Yes. But that is inviting trouble for myself.
S – If you sign diligently and carefully, why should there be any trouble. That is your very profession. That is your bread and butter.
A – I know. But people expect us to sign anything and everything under the sun! Regulators, Bankers make us sign any kind of certificate.
S – If you are not comfortable, don’t sign it. Who is forcing you to do so?
A – The relationship, Bhagwan, our relationship with client creates pressure on us.
S – Don’t make general statements. What exactly is your worry?
A – Now see, many of our clients apply for bank loans. They submit project reports. Quite often, it is prepared by us only.
S – Nothing wrong about it. Then?
A – Bankers insist that we should sign the projections.
S – How can you certify the projections? You should refuse.
A – That’s the difficulty. We CAs have not been taught to say ‘No’ at all. We try to help the client anyhow.
S – True. But client also should appreciate your difficulty.
A – That does not happen. It is a one-way traffic. They always expect us to compromise and oblige.
S – But they never reciprocate! Is it not?
A – You said it! The client sits on our head because he is impatient for the loan. The Banker also pressurises us. And many of us succumb to it.
S – Client takes the loan and in due course, becomes an NPA. Right?
A – Yes. And then the first scapegoat is the chartered accountant! Banks routinely file complaint to our Institute. We are trapped!
S – So clients emotionally blackmail you that they are not getting the loan because of your unwillingness to sign. In such a case, you should clearly tell them that your Institute does not permit you to sign any projections.
A – But I don’t understand why bankers insist on our doing irregular things?
S – Because that helps them save their skin. If anything goes wrong, they can pass the blame on you people.
A – But why can’t we sign the projections?
S – You are asking an elementary question. Paarth, you can certify only what is factual. That is the very meaning of ‘certificate’. Projections are essentially based on assumptions; and are always uncertain. If you venture to do that, you will be a ‘fortuneteller’ and not a chartered accountant.
A – Tell me, is there is no way out at all? Because if I refuse to sign, client says he can obtain signature from hundreds of other CAs.
S – You people lack unity. That is why people take you for a ride. The quacks bring disrepute to your profession. They can sign anything.
A – And that spoils our relationship with the client. He feels unhappy with us!
S – You should read and understand AAS-35 – now SAE 3400. It does permit you to sign projections if you fulfil certain conditions.
A – What are those conditions?
S – I can’t explain all the details. But broadly, the assumptions should be realistic and reasonable. They should be clearly stated. Even hypothetical assumptions should be consistent with the purpose of the information.
A – What other things should we see?
S – If any study or survey is done by some agency, you should obtain the report. You should also study the track record and history of the entity. Moreover, projections should be restricted to a reasonable time period in future. Further, you should also judge the management’s competence to prepare proper projections.
A – I think I should also read that SAE 3400 and show it to the client.
S – Most important, you should ensure a clear engagement letter and also insist that all the representations of the management are in writing and signed by them.
A – My friends at district level areas find it all the more difficult to tackle such situations. They have very limited work opportunities and have to compromise on many things.
S – And there is often an unhealthy rivalry.
A – I feel the Council or its Committee should take up the matter with the managements of the Banks and ask them not to insist on such things.
S – Yes. And your local associations and study circles also can make representations to the Banks.
A – There is yet another problem. One bank asked a CA to give a certificate that all statutory dues have been paid. How can one certify that? In our country, there are hundreds of laws. It is impossible to visualise all of them.
S – Very true. In such cases, you should specify the various laws that are commonly applicable to such entities and restrict your certificate to only those statutes. There cannot be a generalised certificate. Even under CARO, only specific laws are covered.
A – But tell me. If one gives such certificate, who is going to see that? Banks say it is just for their record.
S – So long as everything is smooth, there is no problem. But once the unit starts defaulting in servicing the loans, banks will take out all these certificates. And it is a serious misconduct. It is gross negligence as well as lack of due diligence. Many disciplinary cases are coming up on this count! And not following the accounting and auditing standards is clearly a misconduct.
A – I will take up this issue in our study circle and do something concrete to save our fellow-members.
S – Good. That is why you are so dear to me!
Om Shanti!
