Thursday, May 29, 2014

Unaudited or Audited. Accounts can be written the way the promoter wants- ICAI zindabad

The audit of MCX by PWC ( ) shows the routes for funneling out money through related party transactions. To me, these should have been spotted by anyone with a wee bit of common sense. Did not even require a qualified CA to find out that it was wrong.
It clearly demonstrates that audit firms can be 'managed'. The statutory auditors cannot escape blame. If indeed they did, ICAI should strip them of their certificate to do business as Chartered Accountants. Clearly, hand in glove with the key  management / promoter personnel.
It also demonstrates the extent to which we can rely on audited accounts!!

Wednesday, May 28, 2014

Of Domestic Airlines and their bleeding cash flows

Over the last one year or more, domestic airfares have been incredibly high. There are some low fare tickets, but those are typically less than three percent of seats on offer. In fact the fares in India are higher than the corresponding domestic fares in US or other countries.
Given that the revenue side is the same, are costs higher for Indian companies? Fuel is at global prices or slightly higher, but not so high as to warrant a deep dent in the revenues. Most other costs including salaries would be lower for Indian companies.
Global airlines have been reporting profits. Indian companies are reporting record losses!!

What could be the reasons?
i) My assumptions are wrong and domestic airlines are headed to the graveyard, taking with them their lenders and shareholders;
ii) Their revenues are diverted elsewhere either as booking commissions or by selling tickets in bulk to privately owned entities, which then hawk them at far higher prices;
iii) Lot of costs are overstated and moneys siphoned off:
iv) Lot of functions are outsourced at fancy costs to promoter owned  entities .

Something is fishy.

Sunday, May 18, 2014

Financial Education - From Parents- making kids aware

Financial Parenting - Moneylife
It is the responsibility of every parent to make the children wise about money
“T his generation is an ‘I want’ generation. They have been educated to entitlement and programmed for discontent” (from an essay titled “Parenting in a Commercial Culture” by Center for a New American Dream, Circa 1999). As one generation of the middle class moves to a higher income bracket, thanks to education and opportunities, parents want to make sure that their children do not go through the hardships they underwent. Everything they do is for the betterment of the children. Nothing but the best will do for them.
.    This is, indeed, the cornerstone of any capitalist society. We want to better ourselves continually. We saw our parents working hard, living a tough life to give us a better one.
We had watched them struggle and we did retain some of that approach—we are still frugal, to some extent. However, our children do not see the same things and the same environment we saw. I may have grown up without being near a telephone until I got my first job. (There was the office telephone and one got friendly with the receptionist to be able to make some personal calls). Today, children are armed with mobile phones, from pre-school days. What does this imply?
  From the time they wake up, to their bedtime, our children are pampered and protected. At some stage, we wonder: “Will my children ever be able to accept failures in life?” We have rarely said a firm ‘no’ to them. Due to the complexities of work and travel, parents have less time to spend with them. Guiltily, we shower them with material things, to make up. Perhaps if one of the parents spends more time with the children, things would be different. If both parents are working, then things are quite tricky. We use money, and things money can buy, to make up for the deficit in time we give our children.
  I am sure, many parents do inculcate a ‘value system’ in their children. I believe that this can be done only with examples in real life rather than by mere preaching. We have to set standards; and inculcate in them a sense of values, character and integrity. Our children will imbibe what we do rather than what we merely preach.    These are just some of the worries of parenting. At some stage, parents may realise that with access to all the comforts, children may simply lack the motivation to achieve. In that context, financial parenting assumes great significance.
  Financial Parenting
In our education system, children are not taught money and finance. Perhaps, some day, the curriculum will change. Until then, it is the responsibility of every parent to make the children wise about money. Instead of giving an impression to them that parents are like an ATM, with an unlimited supply of money, we have to take efforts to teach them about the sources and uses of money. Teach them to respect money and also to be the master of money rather than being a slave to it. Frugality is a good thing to teach. Teaching frugality does not mean forcing them to lead the life of an ascetic. If we can impart lessons on prioritising their wants, half the battle is won.   
The concept of money is elusive and abstract to many children. Actual hands-on experience with money is important for their financial growth. Making them handle currency, credit/debit cards and recording the household spending are a great way to educate children about money.
  When I was in school, my father used to give me a monthly sum, to manage the entire household with it. This was an eye-opener. Over a few months, one learnt to prioritise. The simple and inexpensive ice-cream, or the one-rupee movie, became a luxury. Until I started managing the money, hearing a ‘no’ to a demand for one rupee for a movie was considered as parental cruelty to children. Over some months, I came to realise that income is finite. In my father’s case, it was fluctuating too. This added more complexity. If there was a surplus in one month, I could not simply spend it on something lower down the list without thinking. I did pass on this exercise to my children. Telling them to write down what we spend on is the first step. After that, it is up to each parent to decide on an approach and attitude to money. One of the things that a child may notice is that the total expenditure on ‘Lays’ and ‘Coke’ might actually exceed the total monthly spend on dry provisions!
  Another important thing can be tried is to get our children to start ‘working’ at an early age, during their holidays. This can happen when the child is 15-16. The other important thing to teach children is about giving. Not all kids may be as fortunate as ours. So, helping someone to get a leg up in life is also an important part of financial parenting.
  Making children financially responsible is important, because not knowing  how to be responsible inflicts a big cost on the children. I have seen that many parents do not bother about the paycheques of their children. I think it is wrong. If you let them blow it all away, you are making them vulnerable. Teach them to save and invest and keep their lifestyle under control. And, except for a housing loan or an educational loan, never encourage them to borrow. Even if you can afford the education bill, it may be a good thing to take a loan and make them responsible for the repayment.
  If possible, get them to learn about ‘compounding’ early in life. Use simple tools like the ‘Rule of 72’ to etch it into their thinking. Of course, some rich people have problems. There is enough wealth for a few generations and money still keeps pouring in. In such a situation, giving helps. Such families will also have the problem of their children getting unfairly compared with their parents. This will dent the self-esteem of the children. Therefore, it is important, to inculcate value systems and a sense of philanthropy at an early stage.
  Money is a wonderful thing. Teach children to respect it and put it to work. Financial parenting is an important part of parenting. Simply buying them everything, giving them the most expensive toys and education is not parenting. And think before you buy your high school child the latest iPhone or designer shoes. Do not spend so much time, energy and time in making money that you do not have time to make your children lead a balanced life.  
Teach your child what you can; and as early as she/he can understand. Let her/him not suffer in life for want of poor financial parenting. I can see that emotion (to pamper them) and discipline (about how money is spent) are difficult to reconcile, when it comes to one’s own child. But do try.