There are a few companies even in the sensex which come with good results quite regularly. In fact the market likes such companies and gives it a high price earning ratio.

So far this has been considered good behaviour and well rewarded. However the breaking of the Madoff scandal makes one feel uncomfortable about such good, boring and constant growth companies.

So I checked out on 2 companies – it helps to know people in all parts of the world, so will not mention the names of the accountants. Employee and auditing accountants said some shocking things. To put it mildly if my super boss Mr. H K Bilpodiwala of Sharp & Tannan was the auditor of these companies, the audit report would not have been signed! Crimes have changed spots so many times that what is a crime and what is not is easily forgotten.

Typically an accountant looks for the following ‘shenanigans’ – over stating income, overstating expenses, treating revenue income (expenditure) as capital, treating directors’ personal expenses as companies’ expenses, etc. Broadly there are 2 types of ‘fraud’ that auditors do not bother too much (unless the auditors are of a high pedigree) is pre-stating income or pre-stating expenditure. For example if I bill a client Rs. 50,000 as an ‘advance’ against an audit fee (eeks this sucks but is not unheard of!) this would become income for an earlier quarter than what it should be….I hope u get it.

So this company in order to show more income collects ‘fees’ in advance for the ‘sales’ to be conducted in the next quarter. In case there is not enough sales in the next quarter, they will adjust in the next quarter…..thus a huge balloon is getting built up!

No I still do not want to name the companies in question….