ACCOUNTING FOR GOOD

IN EARLIER DAYS, some businesses maintained two books of accounts. One represented the genuine figures, and were meant for the owner; the other, a “slightly” doctored version, was for the income tax officials.

- Kiran Karnik

Many would contest this statement but for two contrary reasons. A few would say that this is gossip and fiction, that only a single set of accounts was maintained. Others would argue that this was incorrect for two reasons: it was not “some”, but many who followed this practice, and that it was not only in “earlier days” that this was done. Whatever the history and facts, is it now time for a third set of accounts?

Of course, fudging is now difficult because of requirements to have accounts audited by an independent firm, for transparency and to fulfil other compliances. Another safeguard is the possibility of cross-matching various figures, thanks to the growing digitisation of the economy and the tax system. Yet, smart operators find loopholes to cook up figures. Though many frauds are exposed, indicating that the monitoring systems are functioning, we do not know how many get away.

In many cases of accounting fraud, the promoter is the perpetrator, making money at the cost of the country (by evading taxes) or by cheating other investors of their fair share of profit or defrauding banks. There could also be collusion to, for example, boost the share price and market valuation. To get away with such cheating is no longer easy, yet greed and temptation continue to entice some. Even so, there is little doubt that a parallel book of accounts is becoming rare.

THE BUSINESS RESPONSIBILITY REPORT