The financial standing of an enterprise is evidently visible from its

balance sheet

The balance sheet refers to the complete breakup of a company’s financial

expenditure at the end of the financial year. It can be drawn from any date of the
financial year to ascertain and evaluate the financial position of a company,
partnership, sole proprietorship, or any other financial organization. It is akin to a
barometer to gauge the financial strength of the financial organization or company.
It will further project the holding of the assets and creditworthiness as well as its
liabilities and thereby it is the reflection of the creditworthiness of a company,
partnership, sole proprietorship, or any other financial organization. It thoroughly
analyses and elucidates the company’s profits, losses, new investments by the
company as well as investments in the company, the value of the company’s shares
in the share market and standing and strength of the same on the stock exchange. It
is an integral part of every enterprise or business, irrespective of whether it is a
sole proprietorship, partnership, joint-stock company or cooperative society,
everywhere in the world.

If we assess the balance sheet of any business organization or enterprise, we will

come to know about its financial position in the market, the resources at its
command, its competitiveness, its ability to acquire other companies its ability to
remain strong in the face of financial adversities and its ability to be a dominant
player in the market.

The task of preparing the balance sheet of an enterprise is not given to a particular
person. It is delegated to a group of the company’s best-chartered accountants,
economists, financial practitioners and the legal counsels of the company in order
to ensure that the balance sheet is accurate and that the Government authorities
concerned with the security of the investors in the company, market authorities, the
people of the stock exchange are not able to find any fault with it and that the
company does not have to face any legal investigation by the authorities.

The Income Tax Department has the first right to examine the balance sheet of the
company and devise new ways to tax the company based on its annual revenues
and net assets. To avoid paying additional taxes to the Government authorities
companies indulge in tax evasion and a huge portion of their income is not
reported to the tax authorities and they are given the impression that the company
did not make enough revenues that year, something that not only saves the
company from the burden of being additionally taxed but also suitable measures
are taken to ensure that the company does not have to file for bankruptcy under the
new Insolvency and Bankruptcy Code. This also ensures that banks and Non-
Banking Financial Corporations (NBFCs) and other financial institutions may lend
money and credit to the company whenever required and in case of any financial
difficulty on the part of the company, either write off the loans or infuse more
capital in the company.

We have seen how companies overestimated their assets and reduced their
liabilities to a great extent and this was reflected in the balance sheet of the
companies. This was a strategy adopted by Byrraju Ramalinga Raju, who is the
former chairman and CEO of Satyam Computer Services. What he did was
falsifying revenues, embezzlement and including more than 50 billion rupees none
existing cash and bank balances in the balance sheet of Satyam Computer Services.
He was arrested, convicted and later removed from his position. After the Nirav
Modi and Mehul Choksi scam involving giving LoRs to Punjab National Bank,
receiving more than 2 million rupees as a loan from the bank and not returning the
money on the due date as promised by him. To ensure that these frauds do not
recur the Government has decided to examine the balance sheet of every company
several times by all the authorities involved — The Income Tax Department, The
Comptroller and Auditor General of India, The Ministry of Corporate Affairs
under the Government of India, etc. The Government is appointing the members of
the Indian Corporate Law Service, Chartered Accountants under the Government
to ensure that the balance sheet of a company is not deceptive, but that they are full
proof.

The companies must understand that by distorting the balance sheet, they are doing
a great disservice to the nation and in fact, by doing so, they are not paying their
taxes to the government and not allowing the nation to progress. A company must
ensure that the Balance Sheet accurately reflects all assets and losses on part of the
company and that no revenue earned by the company is excluded.

Without the balance sheet, the account-keeping of any company, partnership, sole
proprietorship, or any other financial organization or financial institution is
meaningless. Without the balance sheet, no financial organization or financial
institution can have any locus standing in the financial world that is in the share
market as well as in the stock exchange the value of the same before the Reserve
Bank of India (RBI) and the government administration as well as the tax and
financial authorities. If the preparation of the balance sheet of any organization is
perfect and faultless, its reputation is exhibited, widened and establishment in the
financial gallery is made firm and dependable. The value of its shares gets
escalated and the investors will swarm to grab the shares as early as possible. Not
only the individuals but also their financial bodies like banks, insurance
companies, and other investing corporations will lose no time to maximize their
holdings of those shares of the financial institutions whose balance sheet is cleanly
and assiduously framed. Chartered accountants and other auditing bodies may
certify the genuine financial credibility which may be accepted by the people
desiring to invest in the shares and debentures of that perfectly organized financial
organization.

It evidently stands that the financial strength of any enterprise is above doubt to
enable it to occupy an important position in the world’s financial environment and
it may extend its fame in the National and International market from the quality of
its balance sheet. It will positively usher in foreign capital in the National monetary
system.

Regards

Hrithik Saxena