Jhunjhunwala not pleased with India Inc's financial reporting
December, 09th 2011
Billionaire investor Rakesh Jhunjhunwala on Thursday said there was a scope for improvement in Indian companies financial reporting.
In response to a Business Standard query asking for his assessment of companies reporting standards, as an investor and a user of these reports, JhunJhunwala said, The manner in which accounts are prepared is not conducive to investor needs. Schedule VI needs to be amended suitably to make reporting more investor-friendly. Schedule VI of the Companies Act provides a format for the balance sheets filed by limited companies.
Jhunjhunwala said while it was good to know that some companies were better than others and set high standards, he would not use the exceptional adjective for any. When asked to specify the areas that needed improvement, the much-followed investor said the way companies reported expenditure under various heads needed to change. I would like them to divide expenses into fixed and variable, rather than (put them under) individual heads like wages, etc. At present, there is no way I can find this from the balance sheet. Giving a split, according to him, would give a better sense of the margins made by companies.
At present, many companies do not give the split of their costs. Accountants admit lack of this disclosure is a concern for investors. Say, a telecommunications company is making a certain margin on the given sales numbers. Tomorrow, if the government comes up with a cap on call charges, the top line goes for a toss. As an investor, I need to know how much of the companies costs are fixed to assess the impact on profitability. That is what worries investors like him, said Shriniwas Y Joshi, chairman, western India regional council, Institute of Chartered Accountants of India (ICAI).
When asked if there was a need to de-jargonise financial statements to make these easily understandable to lay investors, Jhunjhunwala said some could not be avoided, given the nature of information. I am more worried about the content than the form, he said.
A chartered accountant by qualification, he was on the jury of the ICAI awards for excellence in financial reporting. The jury met here on Thursday to select the best presented accounts from 222 participants. The winners will be announced in January. ICAI president G Ramaswamy said around 1,000 more companies were expected to participate in next years awards.