Art of Managing Balance Sheet

Art of Managing Balance Sheet


Art of Managing Balance Sheet
IFRS is considered as one of the greatest innovation in modern accounting, developed by the accountant themselves and also promoted and ranked as best themselves. I am just giving few insights into how companies are using IFRS to show how good they are. How healthy and beautiful they are.

• Associate Company
  

This is very important class of assets, it is 20% and above companies are called associate companies, but if company can prove through board presentation or with any other evidence to their auditors even lower stake can be considered as associate companies.
o These associate companies are carried out on balance sheet on book value or acquisition cost/ it is at management’s discretion to decide which method to follow.
§ (Companies are using this gimmick to keep the companies at acquisition cost even though their present value/ market value is lower than acquisition cost.) – This is the area where much due diligence is required while analyzing the balance sheet of the company.

• · Mark to Market – AFS – Risk discloser

This is second important grey area for playing. When there is nothing to mark against then and even if there is something companies need to convince their auditors there nothing and no risk involved and it can be kept at acquired value/ book value. How nice it is, the bond, the treasury and junk all in one basket nothing to mark.
o The value of non traded securities of all kind is kept at acquisition cost conveniently even if they are junk. Equity, bond’s treasuries and everything are valued at convenience of holder and not at price market is willing to pay.
o What about derivatives swaps and covers companies has bought. They are not mentioned or even if they are mentioned in risk it is non quantified in small letters.
o Few Examples who lost millions in such transactions.
§ Harvard University
§ Gulf Bank
§ Wokhardt Pharmaceutical India
§ Italian Municipality
§ Australian Rail Road
§ (Still today these transactions are not quantified and not mentioned, no one in this world really knows how much each sovereign state has on its books which can take them to bankruptcy, and Greece is only tip of iceberg.)

• · Work in Progress

Work in another interesting area, when assets are constructed or developed or physically acquired they are work in progress till completed. The stalled projects, completed but yet not sold out and also those which has no hopes of completion are all work in progress carried at a value which best suits the company. Companies are using this term to hide their losses and also putting expenditure as capital expenditure so there is no trace of what really going on in the company.
o Few examples of managing work in progress
§ A project which is stalled for last three years, not completed and there is little or no hope of completion in near future is valued every year upside. The hardware and software which are three years old by this time outdated are still at acquired cost as part of capital work in progress. And also equipment which arrived but cannot be used is all at their acquired price.
§ There are many more such examples, commercial complex ready for possession two years ago not yet occupied is work in progress and the company is not even able to pay interest taken to the project, is capitalizing the interest and work in progress is increasing. Even though the fair value of the project is substantial down.
· Intangible assets, goodwill ,brand value and IP’s ( Intellectual Property )
When companies has problems defining and valuing what can be seen and felt, what do you think they will do with intangible which cannot be seen and felt. There is transaction for the same and cannot be explained, can only be believed. These all class of the assets are always for the benefit of the company; in real life it will never create losses on balance sheet of company. They may have been gone long time ago but legacy of it will not go from the balance sheet.
o Few examples from few balance sheets
§ A company which acquired and agency along with product line, but most of these product are no more sold and legacy cannot be sold any more, the overall sale is in decline still the good will paid is there in the balance sheet.
§ When company is acquired along with customer and product, the acquirer has paid separately for the customer and I never been able to understand, what it is really mean and even though company is no more making profit the paid cost for customer is there as intangible assets.

• Receivables

Here I am not talking of receivables of banks or the investment companies, here my only discussion is operating companies who sales services and products. The companies in the year end to achieve results dump the product in the market and show the sales and create receivables against it. This is one common practice, but the real problem is when these receivables become old and non collectible and still remains in the balance sheet. There must be provisioning for the old receivables and write off for non collectibles. These policies must be clearly mentioned in the documents and policies.
o Few examples of receivables management
§ When I look at performance of one of big travel company which is ranked among first few, sales is increasing every year at least 20% and so is profit. Management and everyone are very happy to see it. General Manager has got bonuses for this fantastic performance. When I started digging little bit, the loan has increased at least 40% every year. Liquidity is real problem, when I asked for ageing report for the company, I am surprised to see there are receivables which are more than 3 years old, nothing has been collected and there are many clients who never paid for their bills. This all was big enough to wipe out all equity and still company owes banks more than enough. When I wrote this report, no one was happy and I have been divested of the portfolio of the company.
§ In one instance one company is showing substantial receivables from one shop which has been closed long time ago and this receivable no more collectible. This company has many such clients, in real term they are in mess but management do not want to accept they created a mess.

• Inventory

Inventory should be carried out at lower of acquisition cost, or realizable price at which it can be sold. This is basic principle of inventory. But this is one of the area where lot of input is required, last month a product is selling at 220 KD, the company ordered 1000 pieces and got it. In the mean time the prices are gone down to 185 KD a piece. The company must book a price which it can realized while selling the product. This is wired world. Commodities and products are traded day and night and prices are moving under this circumstances valuation of inventory become very critical. It become more critical when it comes to Food and Pharmaceutical products or any such product which has expiry.
o Few examples of inventory management
§ A pharmaceutical distributor is showing substantial inventory in its books, when we went for due diligence 30% of that is expired and almost 30% is due to expire in next 3 month, and another 20% within six months. This means he has inventory 20% only what he is showing. When we ask him due you have contract for replacement of these expired goods but there is nothing like that. Company says they gets replacement for this, but there is no proof which can show this will be replaced by manufacturer. This shows whole inventory is wrong.

Good Manners

Good Manner

A Believer worships Allah by being well mannered and dealing pleasantly with all, so that Allah may love him and make him beloved to his creation. Whoever considers exercising good manners as worship will deal courteously with everyone, be the rich or poor, a manager or a tea boy.
If one day a poor cleaner on the street stretches out his hand for you to shake it, and another day a director of some company stretches his hand out in the same way, will you treat them equally?
Will you welcome them both and smile at them equally?
The Prophet (PBUH) will certainly treat them both equally in terms of welcoming them and showing them sincere conduct and compassion.
Who knows, perhaps the one you may belittle and look down upon might actually be better in Allah’s sight than he who you look up and show honor and respect.

Quran (68:4) “and you(Prophet- PBUH) are certainly on the most exalted standard of moral excellence.”
Here, this sentence gives two meanings: (1) "That you stand exalted to a high and noble character; that is why you are enduring all these hardships in your mission of guiding the people to the Right Way, otherwise a man of weak character could not have done so;" and (2) "that besides the Qur'an, your high and noble character also is a clear proof that the accusation of madness that the disbelievers bring against you is absolutely false, for high morals and madness cannot co-exist in one and the same person. " A madman is he whose balance of mind is upset, who has lost his temperamental equilibrium. Contrary to this, the high morals of a person testify that he is a right-minded and sound-natured person, who possesses perfect temperamental equilibrium. The people of Makkah were not unaware of the morals and character possessed by the Holy Messenger of AIIah. Therefore, it was enough just to make a reference to them so that every reasonable man of Makkah was made to think how shameless were those people who were calling a man of such sublime morals and character a madman. Their absurd conduct was not at all harmful for the Holy Prophet (upon whom be peace) but for themselves, for maddened in their craze for opposition they were saying such a thing about him which could not be regarded as credible by any man of understanding. The same also is the case with those men of knowledge and scholarship, who in the modern time are accusing the Holy prophet (upon whom be peace) of having fits of madness and epilepsy. The Qur'an is available everywhere in the world and the Holy Prophet's life also exists in the written form in entire detail. Every person can see it for himself what a foolish and meaningless thing is being uttered in their blind enmity by those who regard the man who brought this unique and matchless Book and who possessed such sublime morals and character as a mentally deranged person. The best description of the Holy Prophet's character has been given by Hadrat 'A'ishah in her statement: Kana khuluqu-hul-Qur an: the Qur'an was his character." Imam Ahmad, Muslim, Abu Da'ud. Nasa'i, Ibn Majah, Darimi and Ibn Jarir have cited, with a little variation in wording, this saying with several chains of transmitters. This means that the Holy Prophet had not merely presented the teaching of the Qur'an before the world but also given its practical demonstration by his personal example. Whatever was enjoined in the Qur'an was acted upon practically by himself in the first instance; whatever was forbidden in it was shunned and avoided by himself most of all. His own self was characterized most of all by the moral qualities which were declared as sublime by it, and his own self was most free from those qualities which were declared as abhorrent and reprehensible by it. In another tradition Hadrat 'A'ishah has stated: "The Holy Prophet (upon whom be peace) never hit a servant, never raised his hand on a woman never used his hand to kill a person outside the battlefield, never avenged himself on anyone for an injury caused unless someone violated a sanctity enjoined by AIlah and he avenged it for the sake of Allah. His practice was that whenever he had to choose between two things, he would choose the easier one unless it was a sin; and if it was a sin he would keep away from it most of all" (Musnad Ahmad). Hadrat Anas says: "I served the Holy Prophet (upon whom be peace) for ten years. He never did so much as express even a slight disgust over what I did or said: he never asked why I had done what I had done, and never inquired why I had not done what I had not done." (Bukhari, Muslim).

Quran (3:159) It was thanks to Allah's mercy that you were gentle to them. Had you been rough, hard-hearted, they would surely have scattered away from you. So pardon them, and pray for their forgiveness, and take counsel from them in matters of importance. And when you are resolved on a course of action places your trust in Allah; surely Allah loves those who put their trust (in Him).
(21:107) (O Muhammad!) We have sent you to be a real blessing for the people of the world.
This verse (107) can also be translated as: "We have sent you only as a blessing for the people of the world". In both cases it will mean that the appointment of the Holy Prophet is indeed a blessing and mercy of Allah to the whole world. This is because he aroused the neglectful world froth its heedlessness and gave it the knowledge of the criterion between truth and falsehood, and warned it very clearly of both the ways of salvation and. ruin. This fact has been stated here 'to tell the disbelievers of Makkah that they were quite wrong in their estimate of the Holy Prophet that he was an affliction and distress for them because they said, "This man has sown seeds of discard among our clans and separated near relatives from each other." They have been told here, "O foolish people, you are wrong to presume that he is an affliction for you; but he is in reality a blessing and mercy of Allah for you."

"Shall I not tell you who among you is the most beloved to me and will be closest to me on the Day of Resurrection?" He repeated it two or three times, and they said, 'Yes, O Messenger of Allah (p.b.u.h.).’ He said: "Those of you who are the best in attitude and character." (Reported by Ahmad and its Isnad is Jayyid) Some reports add: "Those who are down to earth and humble, who get along with others and with whom others feel comfortable."
One of the attributes of the believer is that he gets along with others and others feel comfortable with him. He likes people and they like him. If he is not like this, then he will not be able to convey the message or achieve anything of significance. Whoever is like that has no goodness in him, as in the Hadith:
"The believer gets along with people and they feel comfortable with him. There is no goodness in the one who does not get along with people and with whom they do not feel comfortable.” (Reported by Ahmad and al-Bazar; the men of Ahmad's Isnad are Rijal as-Sahih)
The Prophet (p.b.u.h.) set the highest example of good behaviour towards people. He was skilful in softening their hearts and called them to follow him in word and deed. He demonstrated how to reach people's hearts and win their love and admiration.
He was always cheerful and easy-going, never harsh. When he came to any gathering, he would sit wherever there was a free space, and he told others to do likewise. He treated everyone equally, so that no one who was present in a gathering would feel that anyone else was receiving preferential treatment. If anyone came to him and asked for something, he would give it to them, or at least respond with kind words. His good attitude extended to everyone and he was like a father to them. The people gathered around him were truly equal, distinguished only by their level of taqwa. They were humble, respecting their elders, showing compassion to young ones, giving priority to those in need and taking care of strangers.
Hadith - Bukhari's Book of Manners #271, Abu Dawud, Tirmidhi, Ahmad, and Ibn Hibban.
...Abu Darda' reported that the Prophet of Allah, upon him be peace, said, "Nothing is weightier on the Scale of Deeds than one's good manners."
Hadith - Bukhari's Book of Manners #286 and Ahmad
Abu Huraira, r.a., said, "I heard Abu al Qasim (the Prophet saaws), say, 'The best among you in Islam are those with the best manners, so long as they develop a sense of understanding.' "
Hadith - At-Tabaraanee collected it, and Albani authenticated it in Silsilatul-AHaadeethis-Saheehah (#432).
The Prophet (saaws) said: "The most beloved of Allah's servants to Allah are those with the best manners."
Hadith - Bukhari's Book of Manners # 285, Hakim, and Abu Dawud
... Abu Huraira, r.a., said that the Prophet of Allah, saaws, said, "If one has good manners, one may attain the same level of merit as those who spend their nights in prayer."
Hadith - Bukhari's Book of Manners # 290, Tirmidhi, Ibn Majah, and Ahmad
... Abu Hurairah reported that the Prophet of Allah (saaws) said, "And what is most likely to send people to Paradise? Being conscious of Allah and good manners."

Be Patient and Paradise will be Yours

Be Patient and Paradise will be yours



‘Sabr’ is an Arabic world derived from same root meaning, ‘ to detain’, ‘refrain’, and ‘stop’.

In the Shariah , patience means stop ourselves from what has been asked to stop in religion and doing what is expected of us. This is broadly said as “Steadfast” in Islam, its tenets and orders.



It has been narrated from Ata bin Abi Rabah ( RA) said: Ibn Abbas ( RA) said to me, “ Shall I show you a women of the people of paradise?” I said, “Yes”. He said, “This black lady came to the Prophet(PBUH) and said, ‘I get attacks of epilepsy and my body become uncovered ; please invoke Allah for me.’ The Prophet (PBUH) said to (he her):

‘If you wish, be patient and Paradise will be yours; and if you wish, I will invoke Allah to cure you.’





She said, ‘ I will remain patient ,” and added, ‘but I became uncovered, so please invoke Allah for me that I may not become uncovered.’ So he invoked Allah for her.” Al Bukharee



“ And be patient; verily , Allah loses not the rward of the good-doers.”

Surah Al Hud(11): 115



“But for him who feared standing before his lord, and restrained himself from impure evil desires and lust. Verily Paradise will be his abode.” { An Naziaat (79) 40-41}





Quran Surah Yusuf (12:23) Now the woman in whose house he was began to tempt him, and one day she closed the doors and said, "Come here." Joseph replied, "May Allah protect me from this! My Lord has given me a good abode: (and should I, then, misbehave like this?) Such workers of iniquity never fare well. "



Quran Surah Yusuf (12:33) Joseph said, "My Lord! I prefer imprisonment to that to which they invite me. If Thou dost not ward off their cunning devices from me, I may be caught in their snare, and become one of the ignorant. "



Today the greatest challenge is keeping patience, when evil desire and lust approaches. In today’s society, in the name of liberalism and advancement and …….when basic decency of dress is gone. Evil is available easily and promoted through media in the name of progress and development and advancement. …….. This road goes only to the fire ….. fire of Hell.



In this difficult time Patience of Prophet Yusuf is required, (Sabran Jameel) the Patience from keeping oneself away from lust and evil desires.

This is challenge of this time and very difficult challenge.



1513. Sahl bin Sa`d (May Allah be pleased with him) reported: The Messenger of Allah (PBUH) said, "Whosoever gives me a guarantee to safeguard what is between his jaws and what is between his legs, I shall guarantee him Jannah.''[Al-Bukhari].



Commentary: What is between the jaws and what is between the legs refers to the tongue and the sexual organs, respectively. The Prophet (PBUH) has given the assurance of Jannah to every Muslim who protects these two parts of the body. Protection here means their use permitted by the Islamic Shari`ah. They should be guarded against every act that is prohibited by the Shari`ah.

Corporate Social Responsibility

Corporate Social Responsibility

Education - India's Development Challenge

The Azim Premji Foundation Initiative in developing education and developing a economy based on knowledge will go long way in India's Development.
The Corporate Initiative is the way forward in developing this world and making it better place.

Azim Premji pledges Rs10,000 cr for schools project

Other big companies should also show their commitments in developing the country.

Women in Islam

Prophet ( Peace be upon Him) and Importance of Family

Prophet (PBUH) said " The best of you is the one who is best to his family. And I am the best of you to my family." ( al- Tarmidhi and Ibn Majah, Sahih)

How Prophet ( PBUH) would deal with his family: Al Aswad bin Yazid said, " I asked ' Aishah- may Allah be pleased with her - how Allah's Messenger ( PBUH) would behave in his house. She Said, ' He would be serving his family, and when the time for prayer would come he would perform ablution and leave to pray."

Prophet ( PBUH) would advise people to treat their womenfalk with kindness and have regard for their emotions so that they may live with them in happyness. He advised fathers to be kind to their daughters. " Whoever looks after two girls until they have grown up, he and I will be on the day of Resurrection like this," said the Prophet ( PBUH) as he joined his fingurs together.
He also advised sons to look after their mothers. He wasasked "Who should I honour most? After Allah and Prophet"
The Prophet ( PBUH) replied, " Your mother, then your mother, then your mother, and then your father."
Prophet (PBUH) said on His last Hajj in front of hundred thousand pilgrims," You must treat your womenfalk well! You must traet your womenfolkwell!!" ( Muslim and al-Tirmidhi)

A women can be patient with her husband's poverty, unattractiveness, and busy schedule, but she can not be patient with his rude behaviour.

In Islam Mother's are honoured, daughteres are honoured and wives are honoured. Islams gives best to the women, the respect and honour she deserves.