Balance-Sheet Credibility Must Be Restored

Multiplicity of regulations and interpretations, amidst the temptation to resort to window-dressing, have caused a muddle

- R Anand

Balance sheets are like statistics. What they reveal is interesting. What they conceal is exciting. Corporate balance sheets have developed and evolved over time, and today the complexity of balance sheets, with the added spice of new accounting standards, is mind-boggling. Annual reports are a maze of information and literature. A cynic remarked: “With the information overload in annual reports, it is virtually impossible to unearth where the profit and loss account and balance sheet are hidden.”

The next question that arises is how credible are corporate balance sheets today, in the backdrop of several corporate scandals and failures? For India to become a $5-trillion economy, it is imperative that financial information and corporate balance sheets are accurate and credible. Global and Indian investors invest in Indian companies on the strength and weight of these numbers. Directors on corporate boards and auditors of companies are mandated to ensure that the numbers stand scrutiny.

Role of the CFO

The chief financial officer (CFO) is the nerve centre for the dissemination of financial information. Historically, the CFO was called the chief accountant, whose main focus was to ensure the annual accounts are properly drawn up and presented. The job was repetitive, unexciting and mundane but essential in the overall corporate ecosystem.

A bulk of the accounting tasks was manual until the 1980s. The emergence of technological tools like Tally and SAP and the 1991 reforms changed the role of the chief accountant. He was forced into multi-tasking activities like dealing with bankers, rating agencies, regulators, treasury managers, etc. Today, the job description of a CFO is very different. He has become a power centre in his own right.