priyanka narale (PCC student) (407 Points)
22 December 2008R we all so mean? why cant we be faithfull?
or you all haven't read the article I posted. if it is so plz just spen ur 10 mins to read it and understand the seriousness.
If u had gone through the article and feel that it be carried on in the same way then let me tell u . i will make each and every effort to bring this matter to light. i will write a letter to institute.
plz dont be so mean .......... atleast let me know what u think of this......
Krunal Raichura
(Financial Advisory)
(2134 Points)
Replied 22 December 2008
I appreciate your thoughts and I can understand what people are going through in the current turmoil.
However, I would like to say that it is not right to conclude that auditors were guilty. If you go through the IFRS and US GAAP, you will realise that the mark-to-market and fair value concepts are pretty complex and they can always give a wrong message to those who dont understand them.
Further, the series of events that took place in US from 2001 till date are very strange and have created a very volatile environment which even the best of analysts, auditors never could think of.
As far as your friend and many other investors like him are concerned....I would like to say that the learning lesson is that stock market prices are not a function of only the balance sheet and P&L audited by CAs, but there is something much more beyond financials that goes in determining stock prices. Stock prices are based on demand and supply conditions. This demand and supply comes from participants of stock market which includes everybody....it includes CAs, MBAs, newspaperwala's, chaiwala's, doctors, lawyers, engineers...etc. All these people have their own ideologies of understanding things and everybody has different experiences and mindsets which influence their expectations and decisions and therefore their decisions as well. So a company may have bright fundamentals....but these may not be understood by the market participants for quite a long time and therefore the stock prices may not go up...similar is the case for vice-versa.
Therefore, in the light of incomplete knowledge about facts about these crisis and regarding the quality of statements...it is premature to blame anybody.
The second issue is regarding professional misconduct and unethical behaviour by the CA you mentioned about. That is a serious issue and one should act upon it. But in my knowledge this has very less relevance to your friend loosing money in stock market cos and what you mentioned about the auditors of certain cos as the facts & circumstances out there are pretty different.
Wishing you and your friend good luck.
koolleo87
(1268 Points)
Replied 22 December 2008
its not about stock markets and A/c practices, Its bout ethics and integrity.
its bout a CA who is concerned bout his fees rather than the employees who ll get affected due to the management of the COmpany.
priyanka narale
(PCC student)
(407 Points)
Replied 23 December 2008
ok, sir i appriciate ur participation n am convinced to some extent, coz environmental factor must be considered. As per my knowledge stock prices depend on company's future plan, its current situation, its prospect too. and demand- supply changes because investors plan their investments based on these factors....... dont u think so?
But i m not the only one who thinks CA's r responsible. check this lik n u will know
www.rediff.com/money/2008/oct/15bcrisis.htm
ant my friends case is just an example to all of us know the seriousness of this matter. and its too big thing 4 him coz he's judt 24, just like u and me. his life has an question mark before he started enjoying life. 300000 means more than crores to him coz its the result of hord work 4 about 15 years...........
Krunal Raichura
(Financial Advisory)
(2134 Points)
Replied 23 December 2008
As per my knowledge stock prices depend on company's future plan, its current situation, its prospect too. and demand- supply changes because investors plan their investments based on these factors....... dont u think so?
Investors as I mentioned earlier include everyone...i.e. literate, illiterate people...it includes lawyers, engineers, CAs, MBAs, housewifes, workers, chaiwala's and panwala's as well. You cannot assume that all these participants plan their investments and that too based on the factors u mentioned because it is beyond the capacity of some of the classes of investors understand those factors. Analysing the financials is so difficult even for best of analysts that I dont see anyway a common man would be able to do it.
Demand supply situations are also based on rumours, manipulation and false news.
Today the environment is such that it is next to impossible to predict future prospects.
Even in the article you have shared with us, there is no direct blame on CA's...it is just a possibility that is explored. I do not rule out the possibility of the auditor's reponsibility for misstatements in financial statements, all that I want to say is we shouldn't conclude so because of limited information and knowledge.
In your friends example, I must say one thing which I am sure all educated Investors will agree...is that your friend or any investor should have invested only the corpus i.e. the extra money available which a person doesn't need for his education, marriage, health etc. The money that should go to stock markets is the extra money which a person wont need for the next 10-15 years. Your friend has definitely not followed the basic rule of investing.
priyanka narale
(PCC student)
(407 Points)
Replied 23 December 2008
ok forget about my friend what about rest of the ppl. so u want to say CA's r in no way culprits?
if it is so then what according to u r the duties of CA?
u r right that the article signifies just the possibility, coz sources dont have necessary proofs, proofs r not available coz enough efforts were not taken to uncover the truth.
priyanka narale
(PCC student)
(407 Points)
Replied 23 December 2008
What is subprime crisis? How it caused financial mayhem?
Although there are many reasons responsible for bringing the world to the doorstep of financial doom, the main cause of this financial disaster is said to be the sub-prime loan.'
So what is this sub-prime loan? And why has it caused global panic?
Sub-prime mortgage loans (or housing loans or junk loans) are very risky. But since profits are high where the risk is high, a lot of lenders get into this business to try and make a quick buck.
A sub-prime loanSub-prime loans are dicey as they are given to people with unstable incomes or low creditworthiness. These individuals are not financially sound enough to be given a loan when judged under the strict standards that should normally be followed by a bank or lending institution.
Now tell me, while auditing banks, auditors r supposed to get into the pros and cons of such lending i.e see whether enough security is provided, NPA, etc. Am I right?
Now also u r of the opinion that auditors r not guilty. this lending were found to be the root cause of this situation.
Krunal Raichura
(Financial Advisory)
(2134 Points)
Replied 23 December 2008
Let me make it clear that in India, we hardly have any subprime loans.
Subprime as such would not have been so disastrous had interest been steady.
From 2001 onwards, for almost 17-20 consecutive FOMC meetings interest rates were reduced..they went down from 4.5% to 1%. This was the step which was taken by FED to give life to the US economy. With so much reduced interest rates, US economy and housing showed signs of strenght. A lot of people borrowed in this time. Rather, a lot of people got into the business of lending.
Then again the FED started increasing rates from 1% to almost 5.25% today.
Now, as per the accounting principles, if you see the accounting of such loans, the results just don't become comparable because the value of these loans at 1% interest rate and 5% interest rate is just incomparable. And all this happened very fast. I would like you to see the FED rate graph for this matter. Similar is the case when the exchange rates fluctuate too much. For more on this, please refer to Dolphy Sir's book on IFRS.
All this has happened outside India, so there is no reason to blame CA's because they had no role to play in subprime business nor in the accounting and auditing of such businesses.
Secondly, what I mentioned about your friend not only applies to him, but it is a general statement. If somebody puts in some money in stock markets, and expects that after 2 years when he/she wants to pursue MBA, he/she will have double or triple money then it shows nothing but lack of common sense and foolishness. Anyone who will invest in stock market the money he requires for education/marriage/health etc could face a tough time in case the markets dont work in his favor. Market is not a servant of anybody, it has its own ways of doing what it wants.
Inspite of not having subprime problems, if the Indian Stock Market has fallen a lot, then there are other reasons for this fall. These reasons are the liquidation of stocks from the global financial institutions and a genral slowdown in earnings with high inflation etc. Do the CAs have any control over FII money or over inflation or over the earnings of the company?
CA's have absolutely no role to play in the subprime crisis and nor do they have any role to play in the fall of the sens*x and nifty.
Look at the NPA's of the Indian Banks. You will be proud of our regulators and CA's!
The point is that people who were leveraged in the stock markets made losses and are wiped out of the market now. This is nothing new and this will continue. People who are long term investors and have conviction in the India story would continue to hold on to their stocks and maybe invest at lower levels. Im sure you will agree that our fundamentals are far better than a lot of developed countries today. We are far better positioned that others.
CAclubindia
