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, it’s competitiveness, it’s ability to acquire other companies it’s ability to remain strong in the face of financial adversities and it’s 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, it’s 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.