Even before the dust has settled on the Enron-Andersen fiasco, we have the accounting misdeeds of WorldCom, Merck and Xerox in line. Can this happen in India? The idea is not as far-fetched as it might first seem. Readers are invited to write in with their views on the issue.
THE REVERBERATIONS of the accounting misdeeds of US companies have reached Indian shores. Even before the dust has settled on the Enron-Andersen fiasco, a series of new financial earthquakes, with their epicentres in the US, have begun to wreak havoc on international investors–WorldCom, which overstated profits to the tune of $4 billion; Merck, which did not account for $12 billion worth of sales; and Xerox, which claims it bribed Indian officials to get government contracts. The sheer scale of daring makes the Harshad Mehtas, the C.R. Bhansalis and the Ketan Parekhs look like petty pickpockets. Scams involving banks, stocks and allied regulators, RBI and Sebi seem like a waste of time, when so much more can be done by simply cooking the books.
Can this happen in India? Well, the idea is not as far-fetched as it might first seem. There are two institutions that participate in the publishing of balance sheets–the company’s management and its auditors. Once the balance sheet has been signed by the management, it is presented to all shareholders, and regulators like the Department of Company Affairs or Sebi (Securities and Exchange Board of India). The corruption of numbers, therefore, can be done by two sets of people–the management and the auditors. That is bad enough; what makes it worse is the ignorance of the regulators and the investors.
Opinion in Outlook Money