Monday, 10 October 2016 13:25

Transparent Accounts Render Debts & Liabilities as Assets

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More on the weasel word

Dear Sir,

The term transparent is as your correspondent correctly observed is dangerous in that it conveys the impression of underpinning specialist knowledge. It is as if a person whose medical knowledge was confined to what they had gleaned from popular magazines and television shows went around cocktail parties telling people that they were in the best of health.

In fact even professional auditors sign off their reports with the qualification that their audit report is based only on the data supplied. 

Your correspondent correctly blames the word transparent on the false confidence prior to the collapse of New Zealand’s secondary banking industry.

In the event, neither were professional auditors in a position to divine the true circumstances of the submitted balance sheets. This was because of the accounting convention in which liabilities can be safely posted on the assets side of the ledger.

In the run up to the finance sector crash this took the form of unpaid interest which should have been written off appearing on the asset side of the ledger as an unpaid debt and thus as an asset.

The same goes for the original capital sum, by now clearly a bad debt, appearing as an asset.

 

Yours

James Springhall