Monday

Administration & Management

It's Art of Governance & Not Commerce Alone

Category Archives: Finance

An Introduction to Indian Stock Market Index(s) —- SENSEX & NIFTY

Comments Off on An Introduction to Indian Stock Market Index(s) —- SENSEX & NIFTYPosted by on May 29, 2012

The time I invested since my student days, to Private Corporate Sector, and presently working with a public sector autonomous body, I got opportunity to interact with good number of individuals who either were aspiring to get into a B-School so that they can land up smoothly and get absorbed in the vacant Human Resource Positions/ existing Manpower Requirements of Corporate (Private or Public) Sector.

I met one more category of individuals [relevant to this write up], who were pursuing their Post Graduate Program at some institution or Master’s Degree Program at some University to earn their PG Diploma in Business Management or Master of Business Administration Degree.

Since at this level they happen to be very new, it is not expected of them to be expert enough to understand the complexity of Industrial and Corporate Sector. Often, I noticed that at this stage, they thought that Business Administration as probably something very near to (if, not synonymous to) knowledge domains called as Economics or Commerce.

The other component that they look as business is Stock Market Index [Sensex or NIFTY], as they often see numerous articles discussing the business scenario or economic scenario and relating these to Stock Market Index in or the other context. Specially, since 2008 onwards there has been so much volatility and lack of stability in markets that now they often make headlines in Political News Papers too.

I found them, often very curious, to learn what Stock Market Index is, how it is created, why it is there, how is it a reflection of economic scenario and many more questions of the similar kind.

The problem is that majority of such individuals, even after having earned their degree or diploma sometimes, are not aware of it. There is no use deliberating on issue that why it is so, as that is not the subject of this deliberation. So coming directly to the topic, and that is to explain the heads mentioned below:

1. History of BSE                             

2. Calculation Methodology                     

3. Scrip Selection Criteria                              

4. Free Float Methodology     

5. Definition of Free Float                           

6. Major Advantages of Free Float

7. History of NIFTY                    

8. Calculation Methodology                      

9. Scrip Selection Criteria

The same follows here onwards:

HISTORY OF BSE SENSEX

SENSEX, first compiled in 1986, was calculated on a ‘Market Capitalization-Weighted’ methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology. The ‘free-float market capitalization-weighted’ methodology is a widely followed index construction methodology on which majority of global equity indices are based; all major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float methodology.

The growth of the equity market in India has been phenomenal in the present decade. Right from early nineties, the stock market witnessed heightened activity in terms of various bull and bear runs. In the late nineties, the Indian market witnessed a huge frenzy in the ‘TMT’ sectors. More recently, real estate caught the fancy of the investors. SENSEX has captured all these happenings in the most judicious manner. One can identify the booms and busts of the Indian equity market through SENSEX. As the oldest index in the country, it provides the time series data over a fairly long period of time (from 1979 onwards). Small wonder, the SENSEX has become one of the most prominent brands in the country.

 

CALCULATION METHODOLOGY

SENSEX is calculated using the ‘Free-float Market Capitalization’ methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX on a continuous basis.

 

SCRIP SELECTION CRITERIA

The general guidelines for selection of constituents in SENSEX are as follows:

  • Equities of companies listed on Bombay Stock Exchange Ltd. (excluding companies classified in Z group, listed mutual funds, scrip suspended on the last day of the month prior to review date, scrips objected by the Surveillance department of the Exchange and those that are traded under permitted category) shall be considered eligible.
  • Listing History: The scrip should have a listing history of at least three months at BSE. An exception may be granted to one month, if the average free-float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In the event that a company is listed on account of a merger / demerger / amalgamation, a minimum listing history is not required.
  • The scrip should have been traded on each and every trading day in the last three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc.
  • Companies that have reported revenue in the latest four quarters from its core activity are considered eligible.
  • From the list of constituents selected through Steps 1-4, the top 75 companies based on free-float market capitalisation (avg. 3 months) are selected as well as any additional companies that are in the top 75 based on full market capitalization (avg. 3 months).
  • The filtered list of constituents selected through Step 5 (which can be greater than 75 companies) is then ranked on absolute turnover (avg. 3 months).
  • Any company in the filtered, sorted list created in Step 6 that has Cumulative Turnover of >98%, are excluded, so long as the remaining list has more than 30 scrips.
  • The filtered list calculated in Step 7 is then sorted by free float market capitalization. Any company having a weight within this filtered constituent list of <0.50% shall be excluded.
  • All remaining companies will be sorted on sector and sub-sorted in the descending order of rank on free-float market capitalization.
  • Industry/Sector Representation: Scrip selection will generally attempt to maintain index sectoral weights that are broadly in-line with the overall market.
  • Track Record: In the opinion of the BSE Index Committee, all companies included within the SENSEX should have an acceptable track record.

 

UNDERSTANDING FREE FLOAT METHODOLOGY

Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market.

Subsequently all BSE indices with the exception of BSE-PSU index have adopted the free-float methodology.

 

DEFINITION OF FREE FLOAT

Shareholding of investors that would not, in the normal course come into the open market for trading are treated as ‘Controlling/ Strategic Holdings’ and hence not included in free-float. Specifically, the following categories of holding are generally excluded from the definition of Free-float:

  • Shares held by founders/directors/ acquirers which has control element
  • Shares held by persons/ bodies with ‘Controlling Interest’
  • Shares held by Government as promoter/acquirer
  • Holdings through the FDI Route
  • Strategic stakes by private corporate bodies/ individuals
  • Equity held by associate/group companies (cross-holdings)
  • Equity held by Employee Welfare Trusts
  • Locked-in shares and shares which would not be sold in the open market in normal course.

 

MAJOR ADVANTAGES OF FREE FLOAT METHODOLOGY

  • A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market.
  • Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index.
  • A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis-a -vis an investible index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.
  • Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely-held companies in the index while at the same time preventing their undue influence on the index movement.
  • Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) – QQQ is based on the Free-float Methodology.

 

HISTORY OF NIFTY

S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India’s first specialised company focused upon the index as a core product. IISL has a Marketing and Licensing Agreement with Standard & Poor’s (S&P), who are world leaders in index services.

  1. Traded value for the last six months of all Nifty stocks is approximately 44.89% of the traded value of all stocks on the NSE
  2. Nifty stocks represent about 58.64% of the total market capitalization as on March 31, 2008.
  3. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.15%
  4.  S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

CALCULATION METHODOLOGY

S&P CNX Nifty is computed using market capitalization weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.

SCRIP SELECTION CRITERIA

The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is based on the following criteria:

Liquidity (Impact Cost)

For inclusion in the index, the security should have traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations for a basket size of Rs. 2 Crores.

Impact cost is cost of executing a transaction in a security in proportion to the weightage of its market capitalisation as against the index market capitalisation at any point of time. This is the percentage mark up suffered while buying / selling the desired quantity of a security compared to its ideal price (best buy + best sell) / 2

Floating Stock

Companies eligible for inclusion in S&P CNX Nifty should have at least 10% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

Others
a) A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligibility criteria for the index like impact cost, market capitalisation and floating stock, for a 3 month period instead of a 6 month period.

b) Replacement of Stock from the Index:

A stock may be replaced from an index for the following reasons:

i. Compulsory changes like corporate actions, delisting etc. In such a scenario, the stock having largest market capitalization and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion.

ii. When a better candidate is available in the replacement pool, which can replace the index stock i.e. the stock with the highest market capitalization in the replacement pool has at least twice the market capitalization of the index stock with the lowest market capitalization.

With respect to (2) above, a maximum of 10% of the index size (number of stocks in the index) may be changed in a calendar year. Changes carried out for (2) above are irrespective of changes, if any, carried out for (1) above.

Always Yours — AS Usual — Saurabh Singh

 Source: Money Control Portal

aavesh, Academic World, Administrative Sciences, Agribusiness Management, Business Administration, Business Education, Essential, Finance, india, Social Sciences, , , , , , , , , , , , , , , , , , , , ,

……..and Markets Came Tumbling Down ……..an attempt to explore the Cause..

Comments Off on ……..and Markets Came Tumbling Down ……..an attempt to explore the Cause..Posted by on May 8, 2012

……..and  Markets Came Tumbling After

Perhaps, both Dr. Manmohan Singh as Leader of Ruling Party in Power and Mr. Pranab Mukherjee, as Finance Minister went up there, this budget session, to specially put the Indian GDP in higher growth trajectory. Probably all went in vein. All accepted; but then what could be the reason at the route of it? Is anyone interested and involved in finding out the route cause or all are merely trying to make the smart, logical and rational guesses.

Many experts have been found blaming it on the variety of issues, and the sum of these issues is much larger number than all the experts giving their opinion put together. It signals an impression that now a doctoral thesis should be presented on ways of identifying that the individual, who is well dressed and has somehow made it to a position of power and claiming to be expert of domain, is really an expert or a garbage vomiting biological machine.

Market Crash of Two Different Centuries     1930 — &–2008

The reasons forwarded by expert for any wanted or unwanted oscillation in the national economy has as much probability of being found in few phrases mentioned below, as much is for any oscillation happening in mood of markets, in next day trading session.

An Attempt:

1. Probably this is an outcome of policy paralysis at the level of Government…

2. It is due to fear being felt by FIIs due to the possible provisions of GAAR on P- Notes…..

3. This is being reflected as the Rupee is getting weaker……

4. It is due stubbornness being shown by RBI Governor by not easing interest rate…

5. It is an outcome of inflationary pressure…..

6. Because European markets opened on lower side…

7. Euro zone crisis is having its impact felt… as all the economies are networked these days….

8. Prices of Crude Oil are moving northwards due to possible stance of USA on Iran’s nuclear issue..

9. The monsoon has cracked a joke on us….

10. The quarter -1 , 2, 3, 4 data for industrial output were not promising….

11. There is a growth being noticed in unemployment rate in USA….

12. Forecast of Chinese economy has taken the fizz out of the market….

13. All this is due to the nation’s money lying in the tax heavens abroad….

14. The growing fiscal deficit is responsible for it….

15. It is the burden of subsidy that is killing the government…..

16. Investors’ are fearful of risky assets and they going for Cash or preferring cash..

17. The Greece crisis has taken its toll….

18. The Spaniards are going uncontrolled……

19. It is due to the Vodafone issue..Where FM wants to put a tax with Retrospective effect..

20. Rupee falters on rupee outflow fear…..

21. Now markets are waiting for first signal of Mr. Hollande, the new President of France.….

…..

 

 

,,,,

 

                                                                                                                   

////

 

 

…..

N. The grocery seller was saying that Fed is in for an interest rate hike…..

N+1. I heard my taxi driver telling to someone that it is being stage managed by the government…

N+2. There is a foul smell of some foreign hands behind it…….

This is not the end of the list, and therefore just an illustrative one has been put up. Please feel free to add your suggestions. The names will be sent to Nobel Committee which supposed to announce the Current Years’ Nobel Prize Winner in Economics by conducting a free and fair lucky draw from it…..

                                                                                                                     Always Yours— As Usual —– Saurabh Singh

aavesh, Academic World, Administrative Sciences, Asian Economies, Asian Markets, Asian Nations, BRIC Nations, Business Administration, Business Education, Euro Zone, Finance, Governance Issues, Polity & Intl. Relations, Polity, Economy Asia India China, saurabh, Thought, , , , , , , , , , , , , , ,

A FICTION: NOT FAR AWAY FROM RECENT FUTURE REALITY

Comments Off on A FICTION: NOT FAR AWAY FROM RECENT FUTURE REALITYPosted by on September 4, 2011

A FICTION: NOT FAR AWAY FROM RECENT FUTURE REALITY

In late evening, when I had just pressed the shut down button of my workstation, a colleague of mine entered the office chamber (Officially allotted to me to work).Hello, was the first word uttered out by her and before I could ask the purpose, she herself expressed that she planned to have my company while walking back to home, at least the part of distance that was common to we both. I welcomed the idea and also thanked her for the same. Thus the journey homewards started. While on walk the momentary silence was done away by my colleague, when she requested the permission to ask question that was coming to her mind. I agreed to help her to the limited capacity of mine.

 Probably it was the prices of yellow metal that were troubling her and my colleague wanted to know, where the prices are expected to move in future and why. This I am inferring from the talks that continued.

She started the conversation by posing her curiosity as ahead: “Where do you see the price of gold going in the days to come?”

Since, at that moment, I was not exactly focusing on ‘investment advisory’, so I responded by saying that “on a broad level, the price are supposed to continue their northward journey.”

It seems that my response confused her a bit, as she soon came up with another question that “what I mean, when I say a broad level.”

I got the point and then explained to her that “the prices of any commodity do not move in a straight line. When I say on a broad level, it means that the prices will keep moving northwards, but in between they may drop as well, but they will pick up again, and thus will continue to scale up.”

It seems, that she was not ready to buy anything that I said, therefore, she questioned that what lay behind my confidence, which she visualized while I was answering her first curiosity.

Suddenly I realized that majority of investors; rarely scan the external and vital economic variables that are often of political nature. This made me aware that now I need to go bit detailed and also in a manner that she could easily comprehend.

“Well, I was just reading through some material and I realized that there is another solid reason for gold prices to go up,” I told her.

“Is it something other than all the money printing that is happening and is likely to happen in the days to come, all around the world?” she asked.

“Yes”, I answered.

“So what is this new reason?” she was now more curious.

Now I started by posing a question as ahead “Ever heard of Hugo Chavez?” Pat came the reply, “nope” with a supplementary question that now who’s he?

“He is the President of Venezuela, a country in South America.”                                

Probably she got a bit more confused and said that she knew that, but expressed her surprise on the issue that what “Venezuela” has got to do with the price of gold.

This made me aware that now my job was to explain history, international polity, and international trade, cost of transaction and accounting to her, and all this in very limited time of few minutes. I knew that I may be bombarded with whorls of questions.

 I started with letting her know that Venezuela has the 15th largest gold reserves in the world amounting to 401.1 tonnes. A lot of this gold is lying abroad in banks in New York, London and Zurich.

“But why will a country keep its gold overseas?” she interrupted.

 I started to introduce her with history. I said that “a part of the reason comes from history. Till August 15, 1971, the world was on a gold standard. Paper currencies were ultimately convertible into gold. This meant that countries had to settle their deficits in gold.” I followed this by giving an instance from international trade. I asked her to assume that England and Germany are exporting and importing goods from each other. At the end if France exports more to England than England to France, there is a deficit.” This means that England had to pay France. This payment was to be made in gold. A look at her face made me feel that she has now started picking up what I was attempting to explain. I carried on by adding that “now this meant that gold had to be physically moved from England to France, which of course was a pain. Movement meant cost of insurance as well as security.”

She was prompt in asking that “what was the way out?”

 I added for these reasons “a lot of this gold is simply stored overseas at the Federal Reserve Bank of New York (a part of the Federal Reserve of the United States, the Central Bank of the US).”

“How do you think this is going to help?”

It’s simple; I added and just narrated what Peter Bernstein writes in his book “The Power of Gold”. For example, if England lost gold to France, a guard at the Federal Reserve had merely to bring a dolly to England’s closet, trundle the gold to the French closet, and note the change in the bookkeeping records.’

She got the point, and allowed my request to take her back to Hugo Chavez.

The deliberations continued further, certainly with some statistical inferences. Estimates suggest that nearly 211 tonnes of the 400-odd tonnes of gold that Venezuela has are with banks abroad. Chavez has asked this gold to repatriated back to Venezuela.”

Now this brings a twist in the story, and the discussion to follow will also attempt to answer possible reason for Hugo Chavez’s such an act.

 “Chavez has had an anti-US stance for years and may feel that because of that Venezuela runs the risk of its gold being seized.”

“Gold Seized? Why would such happen and does the possibility of such an act exist?” was the latest in series of questions.

“It sure is. I explained the same by making her aware of the ongoing Libyan foreign exchange reserves crisis, which happens to be an outcome of its foreign reserves being seized by allied nations with declaration of war earlier this year.”

 “But what has all this got to do with the price of gold? To me it’s as simple as me wanting to have gold in my own locker rather than the bank locker.”

I agreed to her statement, while continuing to explain by adding that all is not that straightforward as concluded by her, though to some extent she was correct. The straight forward part of transaction would be limited to 99 tonnes of total 211 tonnes lying abroad, as this 99 tonnes are deposited with the Bank of England in London. Repatriating that back to Venezuela would be a straightforward process.”

 Now comes the not so straight forward part, which happens to be of the tune of 112 tonnes of the gold and same is lying abroad with what are known as bullion banks. J P Morgan is one of them. Estimates suggest that Venezuelan gold worth $807 million (or around 450,000 ounces of gold) is lying with it.”

 She was instant, and argued that this should also be as straight forward as it is in the case of Bank of England, London, while simultaneously her facial expressions conveyed me that she wanted to know, if I dare to differ from her opinion. Certainly, I had to differ, and added that things are not always as simple as they seem to be. The statistics again came handy in quoting that “estimates suggest that the total amount of physical gold with J P Morgan currently stands at around 338,303 ounces (1 troy ounce equals 31.1 grams).”

Now, it seemed that she was out of reasons, as she expressed her ignorance about having to come across any news in media regarding, such a huge bank robbery in which approximately 1,11,697 ounce or 3473.8 kilo grams worth gold was looted.  I had to instantly chip in by saying that, this is not a case of bank lifting, but a way of functioning of financial system in general and banking sector in particular. Let me add an example to illustrate it? I sought her permission. The phenomenon goes as explained ahead [the attempt was to explain the process by making it as easy as possible, so that even a novice can understand].

“Central banks around the world had a huge amount of gold lying in their vaults, not earning any return. The end of 2007 witnessed the stock of gold with central banks around the world rising to 32,000 tonnes of gold.”

 I requested her to be more attentive to whatever I was going to add now. Out of the 32,000 tonnes gold held, the Central Bank lent approximately 14,000 tonnes to Bullion Banks like J P Morgan. James Turk and John Rubino in their coauthored book The Collapse of the Dollar, have argued that “lending, for instance, involves the central bank transferring gold to a major private bank, known as bullion bank, which pays the central bank a small-but-positive interest rate, then sells the gold in the open market.”

In this manner “central banks convert the gold into cash and then deploy this cash, somewhere to earn some positive rate of return. This based on a very fundamental assumption that idle assets provide no return, and there is fair possibility that such assets may ultimately add up some cost to the holder.” These costs may range from cost of storage to cost of security. As per meaning conveyed by the operative word “lending”, since the gold has been lent, therefore, the central banks have all the rights to, and can demand it back, whenever they want.

She chipped in by adding that probably “this is what Venezuela is doing right now”; and thus conveyed me a feeling that she was sincerely following the every single word uttered by me. 

 I nodded in agreement and continued further by adding that, since, the bullion banks have promised to return the borrowed gold to the central banks so they will have to return the same. In prevailing situations these bullion banks are not having the volume of gold that was lent to them by Central Bank. In financial and monetary world, this position is conveyed by the term ‘short’, and this means that these bullion banks are ‘short’ gold.

Now comes a significant turn in events, that may work as catalyst to force the prices of gold to break the roof. As the situation deliberated above suggests that, in case, sometime in future, these bullion banks are asked to deposit the volume of  gold lent to them by central bank, they will be left with no choice and would be obligated to buy gold in order to repay the central banks’.”

“So, as I can get, it goes like, that in such a scenario the bullion banks like J P Morgan will now have to buy back gold from the market in order to repay the Venezuelan government, given the situation that Venezuela has around 450,000 ounces of gold deposited with J P Morgan, whereas J P Morgan at present has only 338,303 ounces of gold in its accounts/ record books,” she added.

Exactly, I said in agreement, and carried the deliberations forward by adding, that this buying will lead to the price of gold rising further. I knew that now she has got answer to her question, but then too, I continued it by saying that this is only one part of the story.

Much like a child, who is curious to know about everything, she was now eager to learn that what the remaining part of story was now. She requested me to unfold the other part of the story.

I continued by giving her a reference of a report titled “Thing That Make You Go Hmmm” , and told that this report points out, ‘Chavez’s move could set in motion a chain of events whereby Central banks who store the bulk of their gold overseas in ‘safe’ locations scramble to repossess their country’s true ‘wealth’. If that happens, the most high-stakes game of musical chairs the world has ever seen will have begun’,” I said.

“This sounds very scary”, she added.

“Yes, you are very much correct while mentioning that the report further states that ‘any delay in repatriating Venezuela’s gold could potentially start a frantic scramble by central banks to claim their physical. God save the scenario, but if it actually happens, rest assured that gold price will be on fire. A scenario will take place, which has neither been seen in past, nor even imagined.

It will give birth to an economic tsunami of magnitude, which will turn the great economic recession witnessed by world or even the jasmine revolution and contribution of social media to same to seem dwarf.

Don’t be surprised if I that there is enough in media to believe U S Govt. Manufactured Fake Gold

Perhaps, there are only few who can imagine the magnitude of risk, specifically if they are not linked to foreign trade. Let me illustrate it. It’s one thing to counterfeit a twenty or hundred dollar bill. The amount of financial damage is usually limited to a specific region and only affects dozens of people and thousands of dollars. Secret Service agents quickly notify the banks on how to recognize these phony bills and retail outlets usually have procedures in place (such as special pens to test the paper) to stop their proliferation.

This is the most sacred of all commodities because it is thought to be the most trusted reliable and valuable means of saving wealth.

A recent discovery — in October of 2009 — has been suppressed by the main stream media but has been circulating among the “big money” brokers and financial kingpins and is just now being revealed to the public. It involves the gold in Fort Knox — the US Treasury gold — that is the equity of our national wealth. In short, millions (with an “m”) of gold bars are fake!.Who did this? None, but the United States Government, as claimed by Chinese Authorities.

Background
In October of 2009 the Chinese received a shipment of gold bars. Gold is regularly exchanges between countries to pay debts and to settle the so-called balance of trade. Most gold is exchanged and stored in vaults under the supervision of a special organization based in London, the London Bullion Market Association (or LBMA). When the shipment was received, the Chinese government asked that special tests be performed to guarantee the purity and weight of the gold bars. In this test, four small holed are drilled into the gold bars and the metal is then analyzed.

Officials were shocked to learn that the bars were fake. They contained cores of tungsten with only a outer coating of real gold. What’s more, these gold bars, containing serial numbers for tracking, originated in the US and had been stored in Fort Knox for years. There were reportedly between, 5600 to 5700 bars, weighing 400 oz. each, in the shipment!

At first many gold experts assumed the fake gold originated in China, the world’s best knock-off producers. The Chinese were quick to investigate and issued a statement that implicated the US in the scheme.

 

What the Chinese Uncovered

Roughly 15 years ago — during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] — between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day.

According to the Chinese investigation, the balance of this 1.3 million to 1.5 million 400 oz tungsten cache was also gold plated and then allegedly “sold” into the international market. Apparently, the global market is literally “stuffed full of 400 oz salted bars”. Perhaps, its worth is as much as, 600-billion U S dollars.

Always Yours — As Usual — Saurabh Singh

 RELATED LINKS FOR READERS WHO WANT TO GO IN MORE DETAILS TO BEFORE COMMENTING ON STORY
  1. http://etfdailynews.com/2011/08/17/venezuelan-president-hugo-chavez-sends-precious-metal-etfs-a-wakeup-call-gld-iau-slv-gdx-agq/
  2. http://philosophers-stone.co.uk/wordpress/2011/08/hugo-chavez-gold-runs-bank-runs-and-bank-holidays/
  3. http://profit.ndtv.com/news/show/chavez-officially-nationalizes-venezuela-s-gold-industry-174207
  4. http://notime4bull.com/aggregator/sources/13
  5. http://mikepiro.com/blog/as-chavez-pulls-venezuelas-gold-from-jp-morgan-is-the-great-scramble-for-physical-starting/
  6. http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/traders-brace-for-venezuela-gold-transfer/article2134031/print/
  7. http://www.bighaber.com/haber/chavez-to-nationalize-venezuelan-gold-industry-1072000.html
  8. http://www.advisorperspectives.com/commentaries/global_082611.php
  9. http://americasfinancialmeltdown.blogspot.com/2010/11/below-is-antiwar_4391.html
  10. http://mikepiro.com/blog/ron-paul-audit-federal-reserve-gold-stores/
  11. http://www.freedomsphoenix.com/News/061976-2009-11-26-us-govt-manufactured-fake-gold.htm
  12. http://www.the-boondocks.org/forum/index.php?t=msg&&goto=157202#msg_157202s
Administrative Sciences, Asian Economies, Asian Markets, Asian Nations, BRIC Nations, Business Administration, Business Education, Case Study, China, Finance, Governance Issues, Polity & Intl. Relations, Polity, Economy Asia India China, Thought, USA Economy, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

TIHAR SURRENDERED

Comments Off on TIHAR SURRENDEREDPosted by on August 17, 2011

ANNA REFUSES TO COME OUT OF TIHAR

Veteran social activist Anna Hazare refused to come out of Tihar jail on Tuesday evening saying he wants an unconditional release and unconditional permission to go ahead with his indefinite fast at Jai Prakash Narayan Park in New Delhi.

Earlier, Delhi Police Commissioner B K Gupta issued a release warrant of Anna and his associates after police decided to withdraw its case against them.

Delhi Police sources said that warrants of release have been sent to Tihar Jail authorities for freeing Hazare and his seven associates who were held this morning ahead of their plans to launch an indefinite strike for a strong Lokpal.

The sources said the decision to release was taken after government is understood to have come to the conclusion that keeping him in jail would create unnecessary law and order situation.

Tihar jail sources said that all the eight had been kept in separate lock ups and would be freed soon. Hazare and his associates had refused to take food during their detention under judicial remand.

Earlier, Anna Hazare was on Tuesday sent to seven days’ judicial custody at Tihar jail after he refused to sign a personal bond and come out on bail following his arrest.

The veteran anti-corruption crusader was sent to jail no. four at Tihar where former Commonwealth Games Organising committee head Suresh Kalmadi has also been lodged.

Hazare, who was arrested in the morning on grounds of apprehension of breach of peace following his intention to defy prohibitory orders to go on indefinite hunger strike, was produced before a special executive magistrate.

‘Hazare refused to give undertaking not to defy Section 144’

Gupta said the police was prepared for his being released on a personal bond if the Gandhian would have given an undertaking that he will not defy Section 144 of the CrPC that prohibits gathering of five or more people and also ask his supporters not to do so.

Sources said since Hazare refused to give an undertaking, the magistrate remanded him to a seven-day judicial custody.

He will be taken to Tihar jail where he will spend time in judicial custody. Three other leading activists of the team Hazare — Kiran Bedi, Arvind Kejriwal and Manoj Sisodia — were also sent to judicial custody on similar grounds.

Nearly 1400 activists were detained in various parts of the city when they came out in support of Hazare, who had planned to launch the fast at J P park near Ferozeshah Kotla and Delhi Police Commissioner B K Gupta said they would be released after “some time”.

Protest march from India Gate to Parliament planned

Meanwhile, hours after the detention of Anna Hazare, his aides on Tuesday vowed to take out a protest march to Parliament House from India Gate on Wednesday in defiance of prohibitory orders clamped in the high-security area as part of a country-wide agitation against the police action.

“A protest march will also take place tomorrow from India Gate to Parliament House,” lawyer Prashant Bhushan, a key member of Hazare’s anti-graft campaign, told mediapersons in New Delhi.

He said protests have been planned across the country to vent their anger “peacefully and in a non-violent” manner against the detention of Hazare and his supporters.

‘There is no freedom for Delhi police’

Alleging that the action against Hazare was taken at the behest of the central government, Bhushan said, “The decision to detain Hazare or to deny permission for his protest were taken by Cabinet ministers. It is not the Delhi police which is taking these decisions. There is no freedom for Delhi police. It has become a puppet, an ornament in the hands of Central government.”

He said students of Delhi University will protest outside Chhatrasal Stadium, which has been turned into a special jail, and court arrest while another protest will be organised at Pragati Maidan from where the activists will take a march to Jai Prakash Narain Park.

Prohibitory orders have already been imposed in the localities mentioned by Bhushan.

Anna shares jail with Kalmadi, Kejriwal with Raja

In a related development, Anna Hazare will share space with A Raja and Suresh Kalmadi both accused in the high-profile scams in Tihar jail.

“Anna Hazare has been lodged in jail number four where Suresh Kalmadi and Kalaignar TV Managing Director Sharad Kumar are lodged,” Deputy Inspector General (Tihar) R N Sharma told PTI in New Delhi.

Anna will be with his associates Rajesh, Suresh Pathare and Manish Sisodia in a cell of the prison which houses 2,231 inmates.

Former Indian Revenue Services officer Arvind Kejriwal has been lodged in jail number one with former Telecom Minister A Raja and MD of D B Realty Shahid Balwa are lodged.

Navin, Dada Thakare and Pathare were accompanying Kejriwal in the cells of this jail which has 1,543 prisoners.

All the eight were brought at 4.15 pm and were quietly sent to their cells.

Always Yors —- As Usual— Saurabh Singh

Source: Rediff

 

 

 

Academic World, Agribusiness Management, Asian Economies, Asian Markets, Business Administration, Concurrent Issues, Finance, Governance Issues, Information technology, Marketing, , , , ,

WILL The Buck Stop — May be This One Works

Comments Off on WILL The Buck Stop — May be This One WorksPosted by on August 1, 2011

Olympic Gold Medalist of Corruption in recent olympics Mr. Suresh Kalmadi-led CWG fiasco became India’s shame; A Raja will have made the CWG affair look petty if it turns out that he has indeed caused national loss and brought global shame for India in the 2G scam as charged. Now B S Yeddyurappa and Janardhan Reddy are BJP’s A Raja, standing accused of being the shameful faces of mafia-like corruption. Now is the time to ensure that buck must stop.

The good news is that citizens are finally refusing to accept corruption as routine anymore and are demanding immediate accountability from those who they elect. Today, for the first time in independent India’s history five corporate CEOs, one IAS officer and several senior politicians find their new address as Tihar Jail No. 1. This could well be dubbed as India’s second  independence struggle, but this time it’s not against foreign rule, but for for freedom from corruption by our own rulers, and has begun in right earnest in 2010.

There are four immediate steps, which can be taken to control corruption.

First, the government must notify the rules for the confiscation of assets of corrupt officers in the Benami Transactions (Prohibition) Act, 1988. This will allow the state to confiscate properties into an escrowed account where no claimant shows up, and if he does, then the tax laws can be invoked to inquire into the source of income for purchase of the property.

 Second, India must enact strong anti-perjury laws to stop frivolous, false complaints under oath; this would be a necessary step to prevent witnesses and complainants from frequent retractions which one currently observes in court.

Third, reversing the onus of proof. The accused must demonstrate why illegal cash
or real estate suspected to belong to them is not theirs or face confiscation. Today, the standard of evidence followed is cumbersome. Taking cues from the US system, one must trace the money trail rather than paper trails of files of decision-making.

Lastly, posting the right man for the right job. When one outstanding officer, Bishwajit Mishra, was posted in Bellary, he disciplined Reddy’s minions and recovered dues of Rs 20 crore in 10 days flat before he was transferred out.

Justice Santosh Hegde, U V Singh, Vipin Singh and their team have done yeoman service. They have painstakingly sifted through voluminous bank records of over 40 lakh entries, reconciling millions of transactions from one benami account to the other, one benami company to the other, till it reached the eventual beneficiary, as is shown in the report.

It recounts how Reddy started the ‘zero-risk system’ whereby he would use government officers to procure permits for other mining companies, ensuring safe transport of illegally mined ore to a destination of their choice. For a payment of 40% of the prevailing global market price of iron ore or sharing an equal amount in volume, he had created a different kind of single-window system – for bribes!

Companies that initially refused were later forced to sign zero-risk contracts with Reddy. Rs 40,92,88,860 was the amount paid as ‘risk amount’, Rs 62,92,36,810 was paid for illegal iron ore trading and about Rs 2,46,62,377 was paid to 617 officials in just five years.

This apart, the report says Rs 4,79,03,917 was paid to “G J Reddy Sir” by cheque (and many times more by cash). Now, the time has come to use the fullest extent of various penal provisions of the law to recover the money. Thus, perhaps for the first time, actual value has been imputed to the extent of bribery in just one sector of the economy, that too in one state.

It also appears from the report that Yeddyurappa brought enormous transparency into bribe-taking by having his sons take the bribe by cheque into a family trust, turning a blind eye to the rape of the treasury by his colleague and his own family.

He was clearly told in writing on file by his outstanding team of officers including the chief secretary and others that denotifying land after a Section 16(2) stage of Land Acquisition Act is violative of Supreme Court judgments. Yet, he brazenly went ahead, denotified it, sold it back to the same mining company and received a ‘donation’ by cheque! Despite L K Advani’s repeated sane counsel and warnings, the misdemeanour continued for he thought the buck would never stop. But it did.

 It remains to be seen that India’s second war for independence would spread further or soon the principal culprits will be forgotten, witnesses will be purchased or will ‘voluntarily’ withdraw their statements, bail would be granted by friendly judges, back-door deals for mutual protection will be struck across party lines, some elections will be won, and the same people will be back in power. And show  must keep going on and on.

These view reflect the agreement with views presented are vies of the author.

Always Yours — As Usual — Saurabh Singh

 

Administrative Sciences, Asian Economies, Asian Markets, Asian Nations, Case Study, Concurrent Issues, Finance, Governance Issues, Polity, Economy Asia India China, Social Sciences, Thought, , , , , , , , , , , ,

US Prez Barack Obama as well as The rest of the world, too, is having nightmares about a possible US debt default

1 CommentPosted by on August 1, 2011

Last Seven Sleepless Night of United States President Mr. Barack Obama

The Reason Behind the Phenomenon has been detailed below in Issue and It’s possible reason Format.

What is the crisis about?

Since 1917, the US Congress has stipulated that there has to be a statutory limit on US public debt (debt of US federal govt). This limit has been periodically raised and now stands at $14.3 trillion (95% of the US GDP). The US will hit this limit on Tuesday, Aug 2, unless Congress approves a fresh hike. But the Republican-controlled House of Representatives and Democrat-controlled Senate haven’t been able to work out a consensus

Why are they fighting?

The Republicans want any debt limit hike linked to deep cuts in govt spending. They want the increase to be effective for a year, with fresh discussions after that. The objective is obviously to make it an issue ahead of the 2012 presidential elections. Democrats favour tax increases and a one-shot raising of the ceiling. They are also opposed to any cuts that could jeopardize the economic stimulus and welfare payments

What happens if debt ceiling is not raised?

US govt can’t pay     employees, social security benefits, defence contractors, medical insurance bills and interest to lenders. Credit rating will plunge from top ‘AAA’ to bottom D’
What will be the global impact?

Govts, investors and businesses across the world will stop investing in US bonds. There will be panic in financial markets globally, with investors exiting equities for safe havens like liquid cash and gold

Does it affect India?

Indirectly, though much less than countries/blocs with big trade and debt dealings with US, like EU and China. Still, a worldwide downturn could hit Indian exports and FDI flows

When did this debt accumulate?

 Barack Obama (fighting recession, wars in Afghanistan and Iraq) $2.4tn

George W Bush (wars and tax cuts) $6.1tn

Bill Clinton $1.4tn

George Bush $1.5tn

Ronald Reagan $1.9tn

Earlier $1tn

Whose money has the US taken?

Foreign countries (including China $1.2 tn) $4tn

US public and cos $3.6tn

US federal system $6.2tn

 

Always Your — As Usual Saurabh Singh

Academic World, Administrative Sciences, Concurrent Issues, Euro Zone, Finance, Polity & Intl. Relations, Social Sciences, USA Economy, Wall Street, , , , , , , , , , ,

OIL POLITICS, SPECULATION, CHAIN REACTION AND MANAGEMENT

Comments Off on OIL POLITICS, SPECULATION, CHAIN REACTION AND MANAGEMENTPosted by on July 23, 2011

It requires quantum of intelligence, to infer from what is happening in the markets, or politico-socio-economic across the globe, to why it is happening. Things are never as simple as they seem to be. This would become comprehendible and evident as soon as one reads, relates and analyses the instances mentioned hereunder:

“Crude oil prices peaked to US $ 100 – 115 a barrel in April and May 2011 and moved downwards after that to touch a rate of US $ 90 – 92 per barrel in June 2011. In such a scenario, price increase by the Union Government should have been announced in April – May 2011, but the same did not occur. The Government found June 2011 to be the auspicious time for announcing price hike when the prices had nearly normalized. What could have been the motive for doing so? Simple answer is that April – May 2011 was the time when five states were going to elect the assembly members. The states being, West Bengal, Tamil Nadu, Assam, Kerala and Puducherry. ”

“If one goes by what the campaign managers of Congress had to say on the Rahul Gandhi’s much publicized kisan padyatra-(which as claimed was undertaken to champion the cause of the farmers of the region) –  was conceived to detract the public attention from the issue of hike in petroleum products and their possible spiraling effect on inflation. This yatra detracted the lot of electronic media attention from the campaign that opposition forces such as BJP and Left were seeking to build up on the oil price hike related issues. ”

“Since the Oil shock of 1973, USA strategically took measures to control the oil market by keeping continued focus on West Asian Region. In 1980, Jimmy Carter, the then President of USA declared Persian Gulf an exclusive zone of American influence and created a rapid deployment of forces, which latter turned into what is known as US Central Command or CENTCOM.  ”

“As is being believed by majority that skirmish in Libya is behind recent spurt in prices, should correct their facts. Libya produces less than 3 per cent of global petroleum output. Where as Saudi Arabia has already made up for the current shortfall and its excess stocks are more than that of Libya and Algeria put together. In fact in present situation too oil production at many of Libyan facilities continues even in civil war there. ”

“The argument being forwarded by few is that rising demand from China and India has forced an upward trend in oil prices is also unjustified. Though these two countries do account for growing share of global demand, but then same is counterbalanced by slower demand from USA and Europe.”

“There is still a wide spread perception that cartel of Oil Exporting Countries can manipulate and influence the prices by changing the level of their supplies. Reality today is much different. The OPEC has turned from being a cartel to being a minor player today. Non OPEC countries now account for increasingly significant proportion of global supply. Russia has already snatched the title of being largest supplier of crude oil from Saudi Arabia since 2009.  ”

Many more such instances may be quoted. It’s not being quoted in anticipation that the variety of above instances is good enough to comprehend that nearly none of the factors assumed or arguments forwarded are capable of forcing any kind of hike in prices of the crude oil.

 

Then what is it, which is responsible for hike in crude oil price?

 

…….any guesses, if not, then storm your grey matter and keep visiting this place in hope of getting answer to this simple question.

 

Always Yours — As Usual —- Saurabh Singh

 

 

Academic World, Administrative Sciences, Agribusiness Management, Asian Economies, Asian Markets, Asian Nations, BRIC Nations, Business Administration, Case Study, China, Concurrent Issues, European Union, Finance, Governance Issues, Polity & Intl. Relations, , , , , , , , , , , , , , , , ,

FY 2012 – 13 AND FCCB – IS IT GOING TO BE A SPEED BREAKER FOR INDIA’S GROWTH STORY

Comments Off on FY 2012 – 13 AND FCCB – IS IT GOING TO BE A SPEED BREAKER FOR INDIA’S GROWTH STORYPosted by on June 29, 2011

Global hedge funds and offshore investors are closely tracking the response of Corporate India, the judiciary and financial market regulators as 16,000 crore of convertible bonds sold by local top 500 companies come up for repayment by March 2012. With some Indian firms trying to wriggle out of their commitments, overseas bondholders are beginning to question the creditworthiness of India Inc. They are also anxious to figure out whether Indian courts will uphold creditors’ rights. The Reserve Bank of India had raised concerns about high overseas borrowings in its recent Financial Stability Report. Shares of many companies are trading at a fraction of the price at which Foreign Currency Convertible Bonds (FCCBs) are to be converted into shares. If prices recover, investors can convert the bonds into equity shares. That looks unlikely. If prices don’t recover, the companies can redeem the bonds by paying off investors. That appears impossible given the stretched balance sheets of many companies. Then, companies will have to issue fresh bonds in lieu of the old ones, negotiating a new set of conditions — revised conversion price, extended tenure and reset interest rates. Most companies worth their salt will try to work out some solution either by raising fresh money to redeem the FCCBs along with redemption premium or by restructuring the bonds. This is because they know a default or legal tussle would blacklist them in the foreign market. It will also downgrade their credit rating. That’s why the companies, whose stocks are trading at a discount to the conversion price, are already in talks with investors, says Ashutosh Maheshwari, head of investment banking at Motilal Oswal. Assam Company and Suzlon are two such examples. “We are looking at restructuring our outstanding FCCBs,” says Sanjay Sharma, finance head of Assam Company, whose FCCBs worth $32 million will mature in November. Offshore Investors Watching Closely .

Image on Economy

The stock of the Kolkata-based tea company has been hovering at around15, a good 48% discount to the conversion price of 28.75 that the company had fixed when it issued bonds in 2006. The Suzlon spokesperson says the company does not foresee any problems with FCCBs. Suzlon’s $300 million worth FCCBs will mature in June and October next year. The Suzlon stock is quoting at 50% discount to the conversion price. Reliance Communications has the largest chunk of outstanding FCCBs worth $925 million (about 4,150 crore). These bonds are unlikely to be converted into equity shares when they mature in March, as the stock is trading at 86% discount to the conversion price of . 661. RCOM will try to raise bank loans to repay bondholders, says a person close to the company. That will add to the company’s ballooning debt burden of 35,000 crore. RCOM did not comment on the issue. “Offshore investors are watching how India Inc behaves. If pragmatism prevails over greed, then invariably restructuring will work,” says H Jayesh, founder-partner of law firm Juris Corp. At the same time, there is a lingering fear that this could easily turn into a minefield of disputes. “We fear some Indian promoters will neither agree to convert at a lower price — as it will dilute their stake, nor repay the money,” says a bondholder, who had subscribed to FCCBs of a handful of companies in 2007. Akil Hirani, managing partner of legal firm Majmudar & Company, expects some bondholders to have disagreements with the promoters on revision of the conversion price, leaving them with no option but to take legal recourse against the companies. If the companies want investors to give heavy discounts, the matter is likely to go to courts, according to Huzefa Nasikwala, managing partner, Nasikwala Law Office. “Agree to a conversion at a realistic price and most investors will effectively extend the maturity period by a few years, if not more,” is what Juris Corp’s Jayesh advises companies. A month ago, a Singapore-based hedge fund, 3 Degrees Asset Management, moved the RBI against Karur KCP Packagings, a Tamil Nadubased cement bag maker. Karur KCP had raised $10 million in April 2006 through FCCBs bearing a 2% interest rate and conversion price at 75. The bonds were due to expire on April 27, 2011. Backed by majority of the bondholders, the tenure of the security was extended by another 10 years and coupon was cut to zero. The hedge fund has alleged fraud and manipulations in the company’s exemption scheme. The foreign fund is planning to initiate legal proceedings against the issuer. Two years ago, US-based hedge funds DE Shaw and Citadel Investment Group had filed a winding-up petition against Chandigarh-based Venus Remedies after the company defaulted on an FCCB issue. However, the matter was resolved last year. Beginning 2006, FCCBs captured the imagination of promoters of Indian companies who exploited it as the cheapest source of finance. It was a simple bet: the stock market will continue to rise and issuers will not be driven to a point where they will have to pay back the money; once the stock of the issuing company touches a pre-agreed price (conversion rate), the bonds will be converted into shares. The bet backfired as the stock market dipped — the bellwether Sensex has fallen 15% this year — and the stocks are struggling at a fraction of the conversion price. Some small and mid-caps are now trying different ploys to hold back payment. A few have entered into messy court feuds, one of the firms has allegedly falsified accounts to overstate losses and moved the BIFR while another has taken refuge in complaints by local investors. Bonds worth 31,500 crore are due for redemption by March 2013, according to a Crisil Research study of S&P CNX 500 and BSE 500 companies. Of this, Rs 16,000 crore of bonds will mature by March 2012. Market participants say the numbers could double if all mid and small-cap companies are taken into consideration. Among the top 500 companies, it looks like 70% of outstanding bonds may not be converted, says Crisil’s Koparkar. Of this, the “real worry” is bonds worth 2,000 crore, he adds. But the figure is at least 5,000 crore if all small and mid-cap stocks are taken into account, says a bondholder, not wanting to be named. Three years ago, some companies defaulted in paying FCCB investors. The bondholders, in turn, took them to courts. The list included Wockhardt. Its bondholders had filed a winding up petition against the company.

Always Yours — As Usual — Saurabh Singh

http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM/2011/06/27&PageLabel=1&EntityId=Ar00100&ViewMode=HTML

Academic World, Administrative Sciences, Asian Economies, Asian Markets, Asian Nations, BRIC Nations, Business Administration, Concurrent Issues, Finance

IFRS ——- What is IFRS ?

Comments Off on IFRS ——- What is IFRS ?Posted by on June 7, 2011

IFRS for SMEs  — What is IFRSs and IFRSs for SME

Scope of IFRS All International Accounting Standards (IASs) and Interpretations issued by the former IASC (International Accounting Standard Committee) and SIC (Standard Interpretation Committee) continue to be applicable unless and until they are amended or withdrawn. IFRS sets out recognition, measurement, presentation and disclosure requirements of transaction and events in general purpose financial statements. IFRSs apply to the general-purpose financial statements and other financial reporting by profit-oriented entities i.e. those engaged in commercial, industrial, financial, and similar activities, regardless of their legal form. Entities other than profit-oriented business entities may also use IFRSs with certain changes in terminologies. General purpose financial statements are intended to meet the common needs of shareholders, creditors, employees, suppliers, government and the public at large for information about an entity’s financial position, performance, and cash flows. IFRS apply to consolidated as well as separate financial statements. If an IFRS allows both a ‘benchmark’ and an ‘allowed alternative’ treatment none of them is preferred treatment. However, in developing Standards, IASB intends not to permit choices in accounting treatment. Further, IASB intends to reconsider the choices in existing IASs. IFRS presents fundamental principles in bold face type and other guidance in non-bold type (the ‘black-letter’/’grey-letter’ distinction). Paragraphs of both types have equal authority. IFRS does not prescribe as who should apply IFRS. It left upon the national standard setters to decide which entities would be bound to comply with IFRS. The focus of international standard setting is on profit-oriented reporting entities, including non-corporate entities such as mutual funds. Despite concentrating on profit-type entities, the IASB envisages that non-profit entities in the private and public sectors may nevertheless find its Standards an appropriate basis for financial reporting. The specific needs of the public sector have been acknowledged by the International Federation of Accountants (IFAC), whose Public Sector Committee has on its agenda the preparation of standards based on IFRS, for use by public sector entities. However, a non-profit entity that states compliance with IFRS should comply with IFRS in full. A profit-oriented reporting entity is one that reports to users, who rely on the financial statements as a major source of financial information about the entity. Financial Statements are directed to the information needs of users such as investors and potential investors, employees, lenders, suppliers, creditors, customers, governments and the public at large. The term financial statements refer to statements that display different aspects of the entity’s financial performance and position. Financial position is reflected in the statement of financial position and a statement of changes in shareholders’ equity (excluding transactions with shareholders). Financial performance is reported in the income statement and liquidity position in the cash flow statement. These statements are supplemented by a series of detailed notes. Some Standards permit different treatments for certain types of transactions or events. One treatment is designated as the benchmark treatment, and the other the allowed alternative. Neither is designated as the IASB’s preferred approach. The Board intends to develop future Standards that require similar transactions and events to be accounted for in the same way. The IASB intends to reconsider the choices given in current IFRS with a view to reducing and potentially eliminating them. Structure of IASB The IASB is organised under an independent Foundation named the International Accounting Standards Committee Foundation (IASCF). That Foundation is a not-for-profit corporation created under the laws of the State of Delaware, United States of America, on 8 March 2001.

Components of the new structure of IASB are as follows:

1. International Accounting Standards Board (IASB) – has sole responsibility for establishing International Financial Reporting Standards (IFRSs). 2. IASC Foundation – oversees the work of the IASB, the structure, and strategy, and has fundraising responsibility. 3. International Financial Reporting Interpretations Committee (IFRIC) – develops interpretations for approval by the IASB. 4. Standards Advisory Council (SAC) – advises the IASB and the IASCF. 5. Working Groups – expert task forces for individual agenda projects. 6. Monitoring Board of Public Authorities- effective 01.02.2009 Accounting Standards in India are issued by Accounting Standard Board (ASB) of Institute of Chartered Accountants of India and are largely based on IFRS. However, India has not been able to keep pace with the amendment and additions made in IFRS from time to time. This is largely because of its sensitivity to local conditions including the conflicting legal and economic environment. However, with the opening of Indian economy in near past, the convergence to IFRS has become unavoidable. Keeping this in view, ASB decided to form an IFRS task force in August 2006. Based on the recommendation of this task force, the Council of ICAI, in its 269th meeting decided to fully converge with IFRS from the accounting periods commencing on or after 1st April 2011. At initial stage, this convergence will be mandatory for listed and other public interest entities like banks, insurance companies, NBFCs, and large sized organizations with high turnover or annual income.

Why this convergence?

Converging with IFRS will have multiple benefits for Indian entities especially those who aspire to go global. Some of the benefits of convergence with IFRS are explained below:

a) Accessibility to foreign capital markets

The force of globalization has enabled the concept of ‘open economy’ and increasing numbers of countries has opened doors for foreign investment and foreign capital. Many Indian entities expanding and making their presence felt in international arena. Huge amount of capital commitment are required in this process for which entities have to list their shares in various stock exchanges around the world. Majority of stock exchanged either require or permit IFRS complaint accounts. Adaptation of IFRS will enable Indian entities to have access to international capital markets.

b) Reduced Cost

At present when Indian entities list their securities abroad they have to make another set of accounts which are acceptable in that country. Convergence with IFRS will eliminate this need for preparation of dual financial statements and thereby reduce the cost of raising capital from foreign markets.

c) Enhance Comparability

If the Financial statements of Indian entities are made in lines of IFRS, they will have greater comparability and will enable foreign companies to have broader and deeper understanding of the entities relative standing. This will also facilitate mergers, amalgamation and acquisition decisions.

d) Boon for multinational group entities

Entities in India may have a holding, subsidiary or associate company in some other nation. Compliance with IFRS for all group entities will enable the company management to have all the financial statements of the group in one reporting platform and hence will facilitate the consolidation process.

e) New Opportunities for the professionals

Migration to IFRS will not only be beneficial for Indian corporate, it will also be a boon to Indian accounting and other associated fields. India is a country with immense human resource. With knowledge of IFRS Indian professional can immerge as leading accounting service provider around the globe. This convergence will also open the flood gate of opportunities for valuers and actuaries as IFRS is fair value based accounting standard.

What is IFRSs?

 International Financial Reporting Standards comprise: – IFRSs – standards issued after 2001 – IASs- standards issued before 2001 – Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) – issued after 2001 – Interpretations of Standing Interpretations Committee (SIC) – issued before 2001

Effective IFRSs as on date

• No of standards issued – effective 29 (total 41) IASs , 8 IFRSs • No of interpretations – effective 15 (total 18) IFRIC Interpretations, effective 11(total 33)SIC Interpretations • No of Financial Reporting Standards in force as on date – 63

 Grouping of IFRSs into eleven parts:

 1. Preface and framework

 Preface a. Objectives of the IASB b. Scope and authority of IFRSs c. Due process d. Timing of application of IFRSs e. Language

Framework a. Introduction b. Qualitative characteristics of financial statements c. The elements of financial statements d. Recognition of the elements of financial statements e. Measurement of the elements of financial statements f. Concepts of capital and capital maintenance

2. Other literature

 a. IASC Foundation Constitution b. Due process Handbook of IASB c. Due process Handbook of IFRIC d. Glossary

3. Presentation of Financial Statements

 Standard Number Standard Name IAS 1 Presentation of Financial Statements IAS 7 Statement of Cash Flows IAS 33 Earnings Per Share IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events after the Reporting period IAS 21 The effects of changes in foreign exchange rates IAS 29 Financial Reporting in Hyperinflationary economies SIC 7 Introduction of the EURO IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in Hyper inflationary Economies

4. IFRSs on Interim Financial Statements

IAS 34 – Interim Financial Reporting

 5. IFRSs on Group Reporting Standard

 Number Standard Name IFRS 3 Business Combinations IAS 27 Consolidated and separate financial statements IAS 28 Investment in Associates IAS 31 Interest in joint ventures

 6. IFRSs on Assets

 Standard Number Standard Name IAS 2 Inventories IAS 16 Property, Plant & Equipment IAS 40 Investment Property IAS 38 Intangible Assets IAS 32, IAS 39, IFRS 7 Financial Assets / Financial Instruments IAS 41 Biological assets IFRS 5 Non-Current Assets held for sale & Discontinued operations IAS 17 Leases IFRS 6 Exploration and Evaluation of Mineral Assets

 7. IFRSs on Expenses and Liabilities

 i. IAS 19 – Employee Benefits ii. IFRIC 14- IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction iii. IAS 37 – Provisions, Contingent Liabilities and Contingent Assets iv. IFRIC 1 -Changes in Existing Decommissioning, Restoration and Similar Liabilities v. IFRIC 5- Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds vi. IFRIC 6- Liabilities Arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment vii. IAS 12- Income Taxes viii. SIC 21 – Income Taxes – Recovery of Revalued Non-Depreciable Assets ix. SIC 25- Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders x. IFRS 2- Share-based Payment xi. Financial liabilities / Financial Instruments a. IAS 32 Financial Instruments: Presentation b. IAS 39 Financial Instruments: Recognition and Measurement c. IFRS 7 Financial Instruments: Disclosure

 8. IFRSs on Income

 i. Construction contracts (IAS 11) ii. Revenue (IAS 18) iii. Agriculture income (IAS 41) iv. Service concession arrangements – IFRIC 12 & SIC 29 v. Customer loyalty programmes – Customer reward credit or points IFRIC 13

 9. IFRs on Disclosure

 A.  IAS 24 Related Party Disclosures B. IFRS 8 Operating Segments

 10. IFRSs on Industry

 i. IFRS 4 Insurance Contracts ii. IAS 26 Accounting and Reporting by Retirement Benefit Plans

 11. IFRSs on First time adoption – IFRS 1

 IFRSs for SME

 History

 In Sept 2003: World Standard Setters survey n June 2004: Discussion Paper (117 comments) n April 2005: Questionnaire on recognition and measurement (94 responses) n Oct 2005: Roundtables on recognition and measurement (43 groups) n Feb 2007: Exposure Draft (162 comments) n Nov 2007: Field tests (116 real SMEs) n Mar – Apr 2008: Board education sessions n May 2008 – Apr 2009: Redeliberations n May 2009: Near-final draft posted on IASB website n 1 June 2009: Ballot draft sent to the Board n 9 July 2009: Final IFRS for SMEs issued

Why IFRSs for SME

A. Topics not relevant to SMEs are omitted. B. Where full IFRSs allow accounting policy choices, the IFRS for SMEs allows only the easier option. C. Many of the principles for recognizing and measuring assets, liabilities, income and expenses in full IFRSs are simplified. D Significantly fewer disclosures are required. E the standard has been written in clear, easily translatable language.

 What is SME as per IFRSs

 SME Small and medium-sized entities are entities that:  Do not have public accountability, and o Publish general purpose financial statements for external users. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies. General purpose financial statements are those that present fairly financial position, operating results, and cash flows for external capital providers and others. An entity has public accountability if: o Its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or o It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks.

 Contents of IFRSs for SME – divided into 35 sections

 1. Small and Medium-sized Entities 2. Concepts and Pervasive Principles 3. Financial Statement Presentation 4. Statement of Financial Position 5. Statement of Comprehensive Income and Income Statement 6. Statement of Changes in Equity and Statement of Comprehensive Income and Retained Earnings 7. Statement of Cash Flows 8. Notes to the Financial Statements 9. Consolidated and Separate Financial Statements 10. Accounting Policies, Estimates and Errors 11. Basic Financial Instruments 12. Additional Financial Instruments Issues 13. Inventories 14. Investments in Associates 15. Investments in Joint Ventures 16. Investment Property 17. Property, Plant and Equipment 18. Intangible Assets other than Goodwill 19. Business Combinations and Goodwill 20. Leases 21. Provisions and Contingencies 22. Liabilities and Equity 23. Revenue 24. Government Grants 25. Borrowing Costs 26. Share-based Payment 27. Impairment of Assets 28. Employee Benefits 29. Income Tax 30. Foreign Currency Translation 31. Hyperinflation 32. Events after the End of the Reporting Period 33. Related Party Disclosures 34. Specialised Activities 35. Transition to the IFRS for SMEs Glossary Derivation Table Basis for Conclusions – published in a separate booklet Illustrative Financial Statements and Presentation and Disclosure Checklist – published in a separate booklet

 Omitted topics in IFRSs for SME The IFRS for SMEs does not address the following topics that are covered in full IFRSs: n Earnings per share n Interim financial reporting n Segment reporting n Special accounting for assets held for sale

 Examples of options in full IFRSs NOT included in the IFRS for SMEs n Financial instrument options, including available-for-sale, held-to-maturity and fair value options n The revaluation model for property, plant and equipment, and for intangible assets n Proportionate consolidation for investments in jointly-controlled entities n For investment property, measurement is driven by circumstances rather than allowing an accounting policy choice between the cost and fair value models n Various options for government grants.

 Conclusion

 To conclude IASB put lot of efforts in coming out IFRSs for SME. IASB has received 162 comments on Exposure Draft for IFRSs for SME. IASB follows transparent approach for formulation of standards.

Always Yours —- As Usual — Saurabh Singh

Academic World, Administrative Sciences, Business Administration, Business Education, Case Study, Concurrent Issues, Finance, Polity, Economy Asia India China, SSRN Rank, Status Paper, Thought, , , , ,

Gödel’s Incompleteness: The #1 Mathematical Breakthrough of the 20th Century

2 CommentsPosted by on May 23, 2011

In 1931, the young mathematician Kurt Gödel made a landmark discovery, as powerful as anything Albert Einstein developed.

In one salvo, he completely demolished an entire class of scientific theories.

Gödel’s discovery not only applies to mathematics but literally all branches of science, logic and human knowledge. It has earth-shattering implications.

Oddly, few people know anything about it.

Allow me to tell you the story.

Mathematicians love proofs. They were hot and bothered for centuries, because they were unable to PROVE some of the things they knew were true.

So for example if you studied high school Geometry, you’ve done the exercises where you prove all kinds of things about triangles based on a set of theorems.

That high school geometry book is built on Euclid’s five postulates. Everyone knows the postulates are true, but in 2500 years nobody’s figured out a way to prove them.

Yes, it does seem perfectly “obvious” that a line can be extended infinitely in both directions, but no one has been able to PROVE that. We can only demonstrate that Euclid’s postulates are a reasonable, and in fact necessary, set of 5 assumptions.

Towering mathematical geniuses were frustrated for 2000+ years because they couldn’t prove all their theorems. There were so many things that were “obviously true,” but nobody could find a way to prove them.

In the early 1900′s, however, a tremendous wave of optimism swept through mathematical circles. The most brilliant mathematicians in the world (like Bertrand Russell, David Hilbert and Ludwig Wittgenstein) became convinced that they were rapidly closing in on a final synthesis.

A unifying “Theory of Everything” that would finally nail down all the loose ends. Mathematics would be complete, bulletproof, airtight, triumphant.

In 1931 this young Austrian mathematician, Kurt Gödel, published a paper that once and for all PROVED that a single Theory Of Everything is actually impossible. He proved they would never prove everything. (Yes it sounds a little odd, but is exactly what Kurt Gödel did)

Gödel’s discovery was called “The Incompleteness Theorem.”

If you’ll give me just a few minutes, I’ll explain what it says, how Gödel proved it, and what it means – in plain, simple English that anyone can understand.

Gödel’s Incompleteness Theorem says:

“Anything you can draw a circle around cannot explain itself without referring to something outside the circle – something you have to assume but cannot prove.”

You can draw a circle around all of the concepts in your high school geometry book. But they’re all built on Euclid’s 5 postulates which we know are true but cannot be proven. Those 5 postulates are outside the book, outside the circle.

Stated in Formal Language:Gödel’s theorem says: “Any effectively generated theory capable of expressing elementary arithmetic cannot be both consistent and complete. In particular, for any consistent, effectively generated formal theory that proves certain basic arithmetic truths, there is an arithmetical statement that is true, but not provable in the theory.”The Church-Turing thesis says that a physical system can express elementary arithmetic just as a human can, and that the arithmetic of a Turing Machine (computer) is not provable within the system and is likewise subject to incompleteness.Any physical system subjected to measurement is capable of expressing elementary arithmetic. (In other words, children can do math by counting their fingers, water flowing into a bucket does integration, and physical systems always give the right answer.)Therefore the universe is capable of expressing elementary arithmetic and like both mathematics itself and a Turing machine, is incomplete.

Syllogism:

1. All non-trivial computational systems are incomplete

2. The universe is a non-trivial computational system

3. Therefore the universe is incomplete



You can draw a circle around a bicycle. But the existence of that bicycle relies on a factory that is outside that circle. The bicycle cannot explain itself.


You can draw the circle around a bicycle factory. But that factory likewise relies on other things outside the factory.


Gödel proved that there are ALWAYS more things that are true than you can prove. Any system of logic or numbers that mathematicians ever came up with will always rest on at least a few unprovable assumptions.


Gödel’s Incompleteness Theorem applies not just to math, but to everything that is subject to the laws of logic. Everything that you can count or calculate. Incompleteness is true in math; it’s equally true in science or language and philosophy.


Gödel created his proof by starting with “The Liar’s Paradox” — which is the statement

“I am lying.”

“I am lying” is self-contradictory, since if it’s true, I’m not a liar, and it’s false; and if it’s false, I am a liar, so it’s true.

Gödel, in one of the most ingenious moves in the history of math, converted this Liar’s Paradox into a mathematical formula. He proved that no statement can prove its own truth.

You always need an outside reference point.

The Incompleteness Theorem was a devastating blow to the “positivists” of the time. They insisted that literally anything you could not measure or prove was nonsense. He showed that their positivism was nonsense.

Gödel proved his theorem in black and white and nobody could argue with his logic. Yet some of his fellow mathematicians went to their graves in denial, believing that somehow or another Gödel must surely be wrong.

He wasn’t wrong. It was really true. There are more things that are true than you can prove.

A “theory of everything” – whether in math, or physics, or philosophy – will never be found.  Because it is mathematically impossible.

OK, so what does this really mean? Why is this super-important, and not just an interesting geek factoid?

Here’s what it means:

  • Faith and Reason are not enemies. In fact, the exact opposite is true! One is absolutely necessary for the other to exist. All reasoning ultimately traces back to faith in something that you cannot prove.
  • All closed systems depend on something outside the system.
  • You can always draw a bigger circle but there will still be something outside the circle.

Reasoning inward from a larger circle to a smaller circle (from “all things” to “some things”) is deductive reasoning.

Example of a deductive reasoning:

1.    All men are mortal
2.    Socrates is a man
3.    Therefore Socrates is mortal

Reasoning outward from a smaller circle to a larger circle (from “some things” to “all things”) is inductive reasoning.

Examples of inductive reasoning:

1. All the men I know are mortal
2. Therefore all men are mortal

1. When I let go of objects, they fall
2. Therefore there is a law of gravity that governs all falling objects

Notice than when you move from the smaller circle to the larger circle, you have to make assumptions that you cannot 100% prove.

For example you cannot PROVE gravity will always be consistent at all times. You can only observe that it’s consistently true every time.

Nearly all scientific laws are based on inductive reasoning. All of science rests on an assumption that the universe is orderly, logical and mathematical based on fixed discoverable laws.

You cannot PROVE this. (You can’t prove that the sun will come up tomorrow morning either.) You literally have to take it on faith. In fact most people don’t know that outside the science circle is a philosophy circle. Science is based on philosophical assumptions that you cannot scientifically prove. Actually, the scientific method cannot prove, it can only infer.

(Science originally came from the idea that God made an orderly universe which obeys fixed, discoverable laws – and because of those laws, He would not have to constantly tinker with it in order for it to operate.)

Now please consider what happens when we draw the biggest circle possibly can – around the whole universe. (If there are multiple universes, we’re drawing a circle around all of them too):

  • There has to be something outside that circle. Something which we have to assume but cannot prove
  • The universe as we know it is finite – finite matter, finite energy, finite space and 13.8 billion years time
  • The universe (all matter, energy, space and time) cannot explain itself
  • Whatever is outside the biggest circle is boundless. So by definition it is not possible to draw a circle around it.
  • If we draw a circle around all matter, energy, space and time and apply Gödel’s theorem, then we know what is outside that circle is not matter, is not energy, is not space and is not time. Because all the matter and energy are inside the circle. It’s immaterial.
  • Whatever is outside the biggest circle is not a system – i.e. is not an assemblage of parts. Otherwise we could draw a circle around them. The thing outside the biggest circle is indivisible.
  • Whatever is outside the biggest circle is an uncaused cause, because you can always draw a circle around an effect.

We can apply the same inductive reasoning to the origin of information:

  • In the history of the universe we also see the introduction of information, some 3.8 billion years ago. It came in the form of the Genetic code, which is symbolic and immaterial.
  • The information had to come from the outside, since information is not known to be an inherent property of matter, energy, space or time.
  • All codes we know the origin of are designed by conscious beings.
  • Therefore whatever is outside the largest circle is a conscious being.

When we add information to the equation, we conclude that not only is the thing outside the biggest circle infinite and immaterial, it is also self-aware.

Isn’t it interesting how all these conclusions sound suspiciously similar to how theologians have described God for thousands of years?

Maybe that’s why it’s hardly surprising that 80-90% of the people in the world believe in some concept of God. Yes, it’s intuitive to most folks. But Gödel’s theorem indicates it’s also supremely logical. In fact it’s the only position one can take and stay in the realm of reason and logic.

The person who proudly proclaims, “You’re a man of faith, but I’m a man of science” doesn’t understand the roots of science or the nature of knowledge!

Interesting aside…

If you visit the world’s largest atheist website, Infidels, on the home page you will find the following statement:

“Naturalism is the hypothesis that the natural world is a closed system, which means that nothing that is not part of the natural world affects it.”

If you know Gödel’s theorem, you know all systems rely on something outside the system. So according to Gödel’s Incompleteness theorem, the folks at Infidels cannot be correct. Because the universe is a system, it has to have an outside cause.

Therefore Atheism violates the laws mathematics.

The Incompleteness of the universe isn’t proof that God exists. But… it IS proof that in order to construct a consistent model of the universe, belief in God is not just 100% logical… it’s necessary.

Euclid’s 5 postulates aren’t formally provable and God is not formally provable either. But… just as you cannot build a coherent system of geometry without Euclid’s 5 postulates, neither can you build a coherent description of the universe without a First Cause and a Source of order.

Thus faith and science are not enemies, but allies. They are two sides of the same coin. It had been true for hundreds of years, but in 1931 this skinny young Austrian mathematician named Kurt Gödel proved it.

No time in the history of mankind has faith in God been more reasonable, more logical, or more thoroughly supported by rational thought, science and mathematics.

“Math is the language God wrote the universe in.” –Galileo Galile, 1623

Always Yours — As Usual — Saurabh Singh

Source: http://www.cosmicfingerprints.com/incompleteness/

Academic World, Finance, Governance Issues, Thought, , , , , , , , ,

← Older posts