Accounting & Auditing Shenanigans - I - Auditors withdraw audit report after circulation

Unthinkable has happened - Auditors Withdraw audit report after circulation

The almost unthinkable has happened , just a day before the AGM, Deloitte Haskins & Sells, the auditors of Financial Technologies has withdrawn its audit report for fiscal 2012-13. These results had been released on 30th May and also dispatched to the shareholders. 

The auditor citing crises in NSEL held the accounts as unreliable withdrew its report. 

This may have been due to the fact that NSEL’s auditor, Mukesh P Shah & Co, has also withdrawn its audit report.

The issue - NSEL, promoted by FTIL, has to settle some 6,000 Crs dues to 148 members/brokers, representing 13,000 investor clients, after its trade was suspended on July 31 by government orders. Investigations have revealed related insiders, missing stocks, frauds & other misuse. 

The institute of Chartered Accountants (ICAI) has launched an investigation into the matter which basically means assessing the auditors, their procedures, gaps, overlooking & any related ultra vires etc.

Is it enough ?? remember Satyam - nothing real happened then , hope this time they haul these guys over hot coals. 

This raises few pertinent questions – 

- are the auditor reports reliable

- Tenure & fees of auditors

- Can the auditors hide behind sample checks

Reliability appears very low & you need to do your own due diligence.

As the public probity increases , the agencies confront white collar crime more often, the role of auditors, validity of their reports have come into question time & again. 

Long Tenures , Proximity often comes to play whether its a deliberate issue or sheer over confidence, then Satyam happens !

A sudden jump in auditor fees is another big give away !

Ever greening of loans ( happily used by banks) or amending Accounting standards of ICAI to help companies overcome prudence and capitalise interest costs - Power Projects, point to Govt's debatable example setting.

Solution - Honest & sufficient oversight either by an ICAI wing or some other statutory body, which should look for such interesting variations, ask relevant questions and also red flag Org & Auditors for immediate future. 

Severely punishment for the guilty partners & the firms too. 

The statement of FTIL on the Auditors' act and other relevant issues is attached for perusal

FTIL Statement

RBI Moves - Bans 0% loans & Additional Charges on Debit Cards

Today the RBI asked the banks to stop giving zero interest loans normally offered both on high value purchases & on credit card purchases.

They want full disclosure of costs to the customers – another cheating avenue gone 

So what are 0% loans really, nothing but a camouflaged marketing gimmick where the costs are routed via inflated processing fees and other charges which are not disclosed upfront while the gullible consumer is happy that he isn’t paying any interest. 

FMCG sales before festive seasons will sure be hit. 

No Additional charges to be levied on debit card purchases
 

In another move, the RBI said no additional charges can be levied by merchants on payments for goods by debit cards. 

Businesses levy fee as a %age of the transaction value as charges on customers who are making payments for purchase of goods and services through debit cards. 

These are unjustified & not permissible as per their agreements with banks.

Guru Speak !

“Unless you can watch your stock holding decline by 50% without becoming panic stricken , you should not be in the stock market !!!”

— Warren Buffett

A brief note of caution on 20% - 80% Housing Loan schemes

All the people investing in 20% / 80% schemes of builders should be aware that the builder has taken his full money from the bank and in event of default you are equally liable viz the bank can come after your assets. More so if the project is incomplete , there is no asset per se except land and a structure kind.

This is a serious issue and should be kept in mind.

Those who want to speculate via this route seem very vulnerable.

Your assets means all assets

If you have a family member jointly signing with you , even all their assets are covered in this ambit !

So If you have to enter into such an arrangement , do it only with the top firms in Reality sector but with knowledge that you are equally & fully involved !

btw - what is top firm these days  

ps - this will be more important for people around you with medium income levels trying to get rich quick or board the property train in a big way...in such difficult recessionary times , jobs aren't so certain & secure , vulnerability is much higher..please guide them well & earn some Karma points !!

Gamblers’ Fallacy

Today morning I was reading how this fallacy affects the human mind and that it has taken with it many a great stalwarts. I drew some analogies with Stock market trading but more about that later.

On 18th August, 1913 stunned crowds around a roulette in Monte Carlo found a ball landing on the black twenty six times in a row and only on the twenty seventh it landed on the red. By that time many who kept increasing stakes looking for a long overdue red occurrence had lost millions and were already paupers. 

This notion feeds on a human perception that there is a “ balancing nature “ somewhere, that if something has been happening more frequently in the past, it will happen less frequently in the future. 

Though highly appealing to the human mind, it is false, especially for random, Independent events.

Lets take another example, if one has flipped a fair coin 21 times the probability of 21 heads is 1 in 2,097,152 but if we interpret it rationally, the probability of the next head (or even tail) is simply ½, yes 1/2 only !

Not only people look for a variance, at times a gambler can even take a reverse stand. He may decide that given this consistent tendency towards heads, a head is a more likely an event. He then see’s some mystical correlation and continues betting on heads. 

Both of these notions are based on a fallacy that Universe somehow carries a memory of the past results, which tend to favour or disfavor the future outcomes. 

Please be sure that the coin or the ball, do not remember that it fell on a black all this while or it flipped head each time and you choosing a Head or a Tail, Black or a Red depends on your personal choice, whether you prefer the first option or the second.

Now lets imagine if you were forced to bet say a 20% of your net worth on the next event, what would you do – Heads or tail , Black or red ? think hard where you stand ?

Now lets stretch it a bit more - Joe and Sam are at the race track betting on horses.

Joe: "You see that horse over there? He lost his last four races. I'm going to bet on him." 

Sam: "Why? I think he will probably lose." 

Joe: "No way, 

Sam. I looked up the horse's stats and he has won half his races in the past two years. Since he has lost three of his last four races, he'll have to win this race. So I'm betting the farm on him." 

Sam: "Are you sure?" 

Joe: "Of course I'm sure. That pony is due, man...he's due!"

Now lets replace the Race track with Stock market , Horse with say share X and lo ….we get stock market trading !!

You would see people spending hours trying to demystify the trends of individual shares, markets etc. based on what they did yesterday, first hour, after lunch or the last hour, before & after Christmas holidays , how much was bought, what was the price rise and what not. They have raised it to the level of a science, but you can draw your own conclusions based on the foregoing.

When we talk about companies, we talk about their businesses, factories, managements, people, finances, product portfolios , future pipelines, and many other such things, these are all interdependent events.

Only the rigor of detailed analyses & in depth understanding can help reduce the odds and increase predictability. 

Thus long term investing is the way forward.