Account Fudging...........

Thursday, January 22, 2009

Why Account fudging is difficult in a Manufacturing & Trading set up?.
Based on the 'Satyam episode', its make one to think why it was much easier to fudge accounts in an IT industry.

i) In Manufacturing set up you have basic raw material, Work in Progress, finished good(stocks) and sold goods. These are all verifiable / Physical goods.
ii) At the sales stage, you are also bound to have have physical document/entries related to Sales tax,Central exercise, pick slip, pack slips or Bill of lading etc.
In an IT services industry both the above are missing and human minds are the biggest element in cost of sales, one can easily manipulate the sales number as its not possible to relate it to number of person working or the space to the sales or the raw material consumed for building.
I also personally feel, a few 'bogus' IT company registered as STPI can easily bring in "black money" parked in the foreign banks against IT services invoices and make this money accountable for any new investment and on top of it there is an 10 year STPI tax holiday(expected to end by 2009, which has been extended by our former FM) for IT services firm.
Eventually, by reporting higher sales/margins the 'Share prices' are goes Sky high and promoters turn 'CASH' rich.

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