1. Debits and credits are twins of Accounting,
On which depend the efficacy of Accounts.
2. 'Debits and credits' are like two genders,
The former structure accounts as the latter life.
3. Commercial transactions are reduced in books to figures.
On which depend living figures.
4. Audit without assurance is like
A heart, that's without beat.
5. What a medical check up to health,
Audit is to accounts.
6.' Qualification' is the gradation of acquired knowledge,
But, 'qualification' is degradation in audit language.
7. Inherent Control and Detection risks in audit are akin to
- Genetic Control and Diagnostic risks in doctoring.
8. Flashy accounting, bereft of 'true and fair' is as bad
As tasty food, that's without hygiene and healthy.
9. Adjustment entries are to correct errors in accounts, as
Adjustments are vital for true and fair life.
10. Showy accounts inflating figures are akin to
Lipsticks applied to a pig to turnout a princess!
11. 'Internal-check' is as important to accounts as
'white- cell' in the blood stream to fight the disease out.
12. 'Cooking food' is a skill for aesthetic eating,
But, 'cooking figures' is diabolic to trap by window-dressing.
13.Mother is 'true' since delivered through her womb, but,
Father is only 'hearsay' that's the base of 'true and fair' in audit report!
.
14. Accountants 'act' in maintaining accounts 'true and fair', while
Auditors 'react' in giving opinions on 'true and fair' to the intended.
15. 'Profit and loss' is the cause' and 'Balance sheet' is the 'effect' in accounts
Based on 'Science' built on 'cause and effect', that's also karmic theory.
Commentary
Common Phenomenon between life and accounts
As two genders- male and female- structure life, debits and Credits structure accounts. A male can be a father, son, husband, friend depending on relation. Similarly, a female play different roles as mother,daughter, wife, friend etc. depending on relation. Debits can be expense, assets and anything that comes in, depending on position. Likewise, credits can be liability, income and what goes out depending on position. But, there is one 'common -gender' in real life that is 'friend'. I'm doubtful whether there is such a common phenomenon, that's singularity; in inter relationship between debits and credits. Could it be capital? Again, individually, these genders can play these roles in different periods of time only depending on age structure. But, that occurrence is visible in book figures —expenses that are debits are capitalized as assets on specific situations.
Fraud and errors in life and accounts
Both are subject to errors and frauds, though basically are committed by living figures. It is said error is human but, animals also commit errors. But, fraud is the brain child of the 'sixth sense' and in that nous; it is the prerogative of human kingdom. Even for sex, human kingdom pays bribes! Therefore, so long as human kingdom is in existence in the present form, it will be difficult to erase deceit wholesale but can be guarded against by instituting a process in check and control against fraud. Therefore, accounts are susceptible to errors and frauds as a bequeathal. Hence, what's called for is installing a system to guard against the risks that cause errors and frauds embedded in the arrangement.
Then, what is risk and how to go about?
'We need not worry very much on risk but wary, since we face risk in every of our activity. When mother conceives, there is a risk of abortion. Because of that, will she not conceive? In every birth, there is a risk of death. Because of that, should we stop births ending the future generation? If we walk on roads, there is a possibility of knocking down. Does it mean that we should not stir out? If a doctor operates, there is a chance of patient collapsing. Does it mean operations are to be banned?' We may continue the list that will be never ending.
'Then, how to guard against risk is the immediate reaction?
'Now, what we should do is to get to know the weaknesses and vulnerabilities to existing risks so as to put in place a control mechanism to ward off the risks or at least mitigate the risks besides putting into practice a sustainable improvement in the system to guard against recurrence'.
"In the books of accounts, risks are caused either by errors or frauds. There are basic differences between the two. 'Errors' normally happen in books. Errors happen by slip but not on the lip!". 'It must be understood that it is not the figures in the books that cause errors but by the human elements involved, since error is human. It is not known how far is it correct to call errors as human, since
even animal kingdomcommits error! At the most, we can say errors are accidental. inadvertent, unintentional and not deliberate. errors may happen by slip, that is commission.Therefore,by omission or commission errors creep in the books.
'Then, what is fraud?'
'It is deliberate, intentional and deceptive. Fraud is committed and enacted deceptively by human kingdom only. Isn't it? Animals cannot commit fraud since they cannot think; hence, the sixth sense is the major culprit. Fraud, therefore, is a major risk that should be nipped in the bud before it assumes cancerous proportion. In fact, there should be zero tolerance for/on corruption'.
'By placing proper internal check and internal control system, they could be guarded against and warded off. The former that is 'internal-check' is acting like 'white – cell' in the blood stream to fight the disease out and the latter, that is, 'internal- control, is the system we install to guard against and monitor errors and fraud rooted in the system.
Instituting a system alone may not root the problem out. That may help in arresting any misshapes and untoward but cannot root out the errors and frauds lock stock and barrel. Therefore, a continuing watch in and by system is the only panacea as periodical medical check-up for the human kingdom. As the changing climatic situations warrant developing medical care, internal controls and internal checks are to be updated to nail the evil effects of errors and frauds.
Inherent Control and Detection risks in audit are akin to Genetic Control and Diagnostic risks in doctoring
Doctors ask their patients family history that is genetic control and through that process trace the possibility of bequeathed weakness. Further, go out for further checks and tests including scanning depending on the respective conditions of the patients. Similarly, auditors are go for the background of the company—the members of the Board of Directors, the type of business, the recent trajectory of business growth etc., that will highlight the safety signal of the company in question. Further, Internal check study highlight the possible weak spots to nail the situation. As demand warrants, the auditors examine the existence of proper internal control to ensure proper accounting.
In spite, it may creep in and happen; then, they are to be rectified by proper adjustments in real life as against adjustment entries in books to set right things to give a true and fair view.
Role of Reconciliation in Books and Real Life:
'Accounts deal with figures. They are classified into different sets of figures, as debtors, creditors, banks, lessees, etc. We human beings as social animals necessarily have to interact and deal with figures in flesh and blood on day today. They are classified into father, mother, brothers, sisters, wife etc. Accounting figures though not have life per say, they have a lot of bearing and influence on figures hosting life They are not the mere numbers in the books, but figures that matter very much for figures in flesh. Therefore, periodical reconciliation is a must. If there is no reconciliation, it may lead to friction even to the extent of court cases and eventual business disconnect. In what way, it's different from family feuds where, of late, lack of understanding has caused irreparable breaks in relations to the extent of even divorce between couples. Reconciliation is equally important among states, again controlled by figures in flesh.' Reconciliation is as important between/among people involved as paramount between two sets accounts in the respective books to eschew miss-happenings, untoward and disputes.
Role of Standards--- to be maintained by living figures and book figures
Next important is to set and maintain standards to live proper by the human beings as against comply with standards set for proper accounting for true and fair value. World is reduced to a global village. People move around the world in search for betterment of life and environment. Today, when there is cold in America, we tend to sneeze it here. In fact, global trotting is the order of the day requiring changes for throttling, that's adjusting to the scenario around. Stakeholders are spread across the globe- a day may dawn whence the human kingdom may settle in other planets- therefore; accounting standards should be such that they are understood across- spread in the same wave length as similarly as human kingdom sets standards for themselves to maintain the level of decency.
As human kingdom has set its own presentation style depending on age, placements, and situations foreword and forward for bequeathals, accounting figures are to be presented in different financial statements depending on the nature, period foreword and carry forward to serve the stakeholders.
But, regarding disclosure norms?
Disclosure norms are aesthetically different for living figures from book figures. The disclosure norms for living figures are evolved over the period by the various cultures, decorum developed by the passage of time, conventions or other legal requirements of the day. Discloser standards of living beings relay age group; and depend on the form of living beings-whether human kingdom or animal kingdom. There is no much dress code for children just born- say babies- they crawl around naked and no nuisance of it- in fact, parents like and love their children in that unclothed dress style at that innocent age. Beyond that juvenile, dress code operates and in some dispensation, it is too rigid gender wise. For animal kingdom, dress code is the same as unclothed right from inception. Neither obligation nor restriction is on them. They roam around without any stint of obscene. For human kingdom, dress code is altogether different depending on the profession –military, police, etc. since coming under uniform dress code. On the top of this, what is to be enacted- (disclosure norms) in bed room cannot be enacted in drawing room. That is the unwritten ethics. At this point of time, it crosses rather flashes in my mind to the relevant portion of a poem on 'BEACH' written by this author and published by Phoenix International to highlight how the trivial nature of entertainment may spark discomfiture and awkwardness bordering on obscene inviting wrath from criminal law. What is emphasized is there should be a sense of decorum to be maintained. The relevant portion is quoted below verbatim to radiant the sentiment.
"Since no space for lovers' game,
In their tiny match box houses,
Where they could only lie flat,
As there're only small flats.
Old ones find solace in the beach,
Sometimes strolling for a walk in the beach,
Apparently to have a sea breeze,
But ending up in stealing a she- breeze!
Whence skirts and minis are dancing to the breeze,
To the rhythm of the ups and downs of the waves in the beach,
Igniting spark in the beach,
Creating for others sparkles in the beach".
Coming to Disclosure Norms for Book Figures they are dictated by various standards and other legal and regulatory requirements. By and large, all Accounting Standards prescribe the minimum disclosures that every entity has to comply with. There are specific standards only for disclosures like Related Party Disclosures understanding the importance of transactions with relative parties. Even Companies Act have specific Sections for transactions with related parties thoughtful of any possible under hand----to ward of any hanky-panky. Besides, the entities are encouraged more disclosures so long as they are not detrimental to the interest of the entities. It means disclosers are privy to the stakeholders spread across the globe.
Disclosures of living figures (human kingdom) beyond accepted decency are discouraged, in fact, a taboo inviting the wrath of criminal law as an obscene act, but, what about book figures? It is an offence only if not disclosed. Disclose and merrily disclose!
It is as clear as thin air while the disclosure code (dress style) of human kingdom even today vastly varies country to country and culture to culture, the disclosure code for book figures are converging across the globe for better understanding of the figures in the books in the globalized atmosphere.
Maya theory in accounts
'What's Maya theory all about and how accountants faithfully follow that in the presentation of financial statements'?
What you see with thy naked eyes need not real exist,
What couldn't be seen may not say non- exist". 'That's the Maya Theory'.
In other words, "One (You) can see the sky up in the space with naked eyes. But, if you can go up and up where is it? Nowhere to trace, isn't it? You go to the seabed you see the horizon. Go further and further, reacheth not. You could see a mirage in the midst of desert, but couldn't get at it. Why? Because, all these are nothing but optical illusions, creating fantasies. Now, you could realize well 'what we see with our naked eyes need not real exist'.
Then, we can also elucidate "what couldn't be seen could not be said 'no exit".
How?
'Again you can see the flowers with your naked eyes, but seethe not the fragrance emitting from the flowers. You can see the coffee you drink but not its flavour. You can see the Sāmbhar with your eyes but not the salt dissolved in the Sāmbhar. Can you deny the existence of either the fragrance of the flowers or the flavour of the coffee or the salt dissolved in the Sāmbhar? Definitely not. This is a fact of life and true of accounts also.' Very similarly, there are intangible assets like goodwill that could not be seen by naked eyes but have value- existence.
'You know what goodwill is? Goodwill is placed on the top of all the intangible assets in the schedule of Non-Current assets. Why? It's as intangible as the fragrance from the flowers. As the fragrance invites bees and people to flowers, goodwill creates brand. It has its own value since gathers business. Though intangible, accountants assign value to it'.
'Of all the intangibles GOD is the greatest. He is not seen with naked eyes but felt and realized. Similarly, goodwill or any intangible asset is, and every business house strives to build up the same'.
Illusion and Impairment
'Further, how this theory of illusion is adopted by the accountants is the real question.' This can be explained with the following analogy.
'All know how much everyone is very much attached to his/her mother. Today, what one is, it is all because of her. She fed and brought up their children to the present level. Naturally ones' reverence and respect to her are unquestionable. But, when she died, what's ones' bounden duty is to give her last rites. Ones attachment to her can't shroud his/her duties and responsibilities. No one can keep her body permanently in the house. Ones attachments to her should not cloud one's thoughts. The body will stink and the society will not permit it. At this point of time, one should be detached in outlook. And realize the fact she is dead and give her last rites. That's all about'.
'Very similarly, certain assets might have outlived their utilities. No doubt, they might have given economic benefits over the periods. But, when a particular asset stops giving economic benefits either because it becomes unviable for operations or becomes obsolete due to technological change or market perception, the fact is to be recognized. It is as good as dead since stopped giving economic benefits. It cannot continue to decorate the books of accounts. It will start stinking. Hence, no false attachments blur our actions. As a prudent accountant, the fact is recognized and impaired. Now, one can understand the analogy is correct and perfect. Though the subject asset exists for visual eyes, in physical form, in reality, it doesn't exit'.
Karma Theory in Accounts
Life is not a simple bed of rosé but with its associated thorns. Profit or Loss accounts are for the periods to which they relate. 'Periods create issues! "Profit is distributed to the stakeholders and loss dents the net worth. What's left out is either carried to reserve to increase the net worth or to dent the net worth in the balance Sheet. So also, individuals build up their credentials, thereby their value by their good work to themselves, their families and the society at large.The value created by good work in turn command respect with reverence that is carried forward not only to future to fall back upon in this birth but also to the next birth under 'karmic theory' according to which 'what you sow that one will reap'. The balance Sheet of life is the carry forward of your good and lingering with bad ones. Now one can draw similarities in between. On profit, you have to pay tax and the balance only carried to reserve in the balance sheet. If not paid, it will sit on provision or liability to discharge. What would befall on life if one did not discharge ones' obligation or responsibility is the curse that will tax one's life as a carryover sin with all its miseries? As all the liabilities would pursue as unsettled obligation in financial statements, the peccadillo will chase one's life even to the following births. Similarly, the good deeds, known in Sanskrit as 'Punya' (for which there is no equivalent word in English!) would formulate into assets to draw inspiration".
In nut shell, Profit and loss is the cause' and Balance Sheet is the 'effect' to carry to carry forward that is the 'Law of Karma' in accounting perception.
Audit of accounts and life
The next is 'how audit is interrelated to books of accounts and life?'
'What's white cell to blood stream, audit is to accounts'. As the white cell in the blood stream that fights the disease flight, it's the audit that gives assurance to the users of the accounts'.
'We are all living figures, but very much connected day in and day out with the figures in the books. On the top of this, the auditors who are also living figures are giving assurance to all stake holders spread across on the figures in the booksThe latter may have no life but a lot of say on well-being or otherwise of the living ones. In nut shell, the figures in flesh and blood figure out figures in the books to figure (shape) the status of the former in life'
Audit Report
Audit report is on 'true and fair' view of the financial statements of a client for a specified period. It is said 'mother is true and father is faith' meaning that one is certain that he/she is born out of the womb of 'mother' but 'father' is known through known source that is why it is based on 'faith' as every religion is established. Then, what is fair view implies the presentation of financial statements in true faith without any element of bias in a very fair manner. How nicely 'true and fair view' used in audit report reflects human relations and sentiments?
P.S: The above commentary is based on the author's book on 'Discussion Galore"
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