15.01.2009

Politics & the Nation

• PriceWaterhouseCoopers admits goof up and owns up responsibility for the Satyam audit debacle
• Seeing perhaps that all escape routes are getting closed, the firm had no option but to admit that there was a goof up of its audit of Satyam.
• Though it blamed it on the incorrect financial statements given by Satyam, it cannot escape the blame as it was supposed to verify the veracity of the statements submitted by the firm.
• Now it is to be seen whether the ICAI will just be content with taking strict action against the signing partner or will it go beyond and act against the firm itself.
• The Enron goof up has cost Arthur Anderson its life; as it was banned from auditing practice in the US.  Will a similar thing happen to PwC?  Let's wait and watch the developments.
• I have a feeling that such goof ups are common place in the audit of, if not all, at least many other companies in India.  The SEBI appeared to have a similar feeling and is reportedly considering peer review of audits conducted of major companies which have a web of sister or related firms.  
• Meanwhile the new three member board has announced that KPMG and Deloitte will be the joint auditors of Satyam to recast the accounts of the firm.  Mind you, these are not statutory auditors; as yet.  Statutory auditors have to be appointed by the shareholders; not by the board.
• The Satyam saga has brought to fore the issue of corporate governance.
• A very good piece that is written in this context by an expert in the field is well worth our attention.  Take a look.
• Is it short-sightedness on the part of Obama?
• The reports that Obama administration will be looking at increasing non-military aid to Pakistan are really worrisome for India.
• In the light of the experience of Pakistan diverting aid meant for battling Al Qaeda for buying weapons to fight India, the reactions such plans of the incoming administration evoke in India are going to be negative.  At least for me, it looks as though America keeps funding its enemies and spends more to fight them again subsequently.

Finance & Economics

• AS15 in focus again
• What is AS15?  Accounting Standard 15.  The standard is revised by ICAI and is in effect since April 1, 2006.
• What does it say?  This mandates that any actuarial gains or losses in the estimated cost of providing for employees’ retirement benefits “should be recognised immediately in the statement of profit and loss as income or expense.” 
• What are actuarial gains or losses?  Companies typically have to provide for terminal benefits to employees -- be it pension, gratuity, or leave encashment.  Because these are future liabilities, they will have to provide for them right now by way of quantifying the future liability.  Such calculations are typically very complex and are called actuarial valuations.  This is a specialized area of finance and there are very few actuarial valuers in India.  
• So, AS 15 says about the accounting for of actuarial gains or losses made.  The funds provided for currently, may either see an enhancement or decrease in their present values, depending on the discount rates used.
• What are 'present value' and 'discount rate'?
• Look at what happens to Rs 100 put in a fixed deposit that offers 10% a year, after 20 years: it would grow to Rs 672.75. This means that the present value of Rs 672.75 available 20 years from now is Rs 100, using a discount rate of 10%. 
  
• So, if the present value becomes more, because of a fall in the discount rates, the company will have to set aside more money to meet its future liability.  As the interest rates on government securities are falling and have tested below 5% levels now, companies are worried that they will have to set aside more from their operating profits to meet this future liability.
• I am sure, for some of you, this may be too complex to comprehend.  But spend a few minutes, you will understand it.  It is well worth understanding it.  Welcome discussions on the subject in our shoutbox.
• A look at India-ASEAN trade
• India’s trade with the Asean, its fourth-largest trading partner after the EU, US and China, has been growing at a compounded annual growth rate of 27%. Bilateral trade stood at $38.37 billion in 2007-08 and is projected to reach $48 billion in 2008-09. 
  
• Talks are currently on at New Delhi to finalise the contents of a free-trade agreement (FTA) on services and investment between India and the Association of South-East Asian Nations (Asean). 
  
• China is world's third largest economy
• China’s GDP grew by 13% in 2007 to $3.4 trillion — nearly three times of Indian economy. According to official figures released by the National Bureau of Statistics of China, the communist country’s GDP grew to 25.73 trillion yuan or $3.4 trillion in 2007, pushing it ahead of Germany and only next to the US and Japan in world GDP rankings. 
  
• Some noteworthy thoughts on oil price decontrol
• We all know that oil price decontrol is easier to contemplate or talk about when the prices are down.  But when the international prices increase again, oil prices become hot potato again.  So, if you are charged with the task of making oil prices more palatable, what could you suggest?
• Are your suggestions as good as what was suggested in today's ET editorial?  I am talking of the oil pool account and the tax rates on petroleum products.
• Take a look at it here.

Sport

• Want to know about valuations going places?
• Can you imagine what could be the cost of a football player?
• Reportedly Kaka is being bought by Manchester City from AC Milan for £175 mn!!
• Look at other such super deals
• 1 £45.62M (2001): Zinedine Zidane (France), Juventus to Real Madrid 
  2 £37M (2000): Luis Figo (Portugal), Barcelona to Real Madrid 
  3 £35.5M (2000): Hernan Crespo (Argentina), Parma to Lazio 
  4 £32.6M (2001): Gianluigi Buffon (Italy), Parma to Juventus 
  5 £32.5M (2008): Robinho (Brazil), Real Madrid to Manchester City