Academic journal article Journal of Financial Management & Analysis

Foreword

Academic journal article Journal of Financial Management & Analysis

Foreword

Article excerpt

The successful and healthy development of an economy consists of taking into account not only one side of business life consisting of abnormal cycles (corresponding to a person who suffers from prolonged illness like tuberculosis) but also the other side of business fluctuations referring to normal lags between demand and supply and between savings and investment (corresponding to a person who suffers from usual strain and sickness due to cold, fever and back-ache). Ineffective management and control of abnormal business cycles and business fluctuations would derail the 'organic development' path and would land the countries in deep recession and structural maladjustment. In this context, the following statement is highly pertinent to recall:

in countries with deficient financial management systems the publicly available evidence is often sketchy, consisting of quite trivial lapses: small breaches of financial regulations, misappropriations, improper use of government assets, missing vouchers, and so on. A closer acquaintance in some cases would reveal additional serious deficiencies such as large-scale diversion of funds, reconciled and irreconciliable accounting figures over long periods of time, inflated pay rolls, extensive failure to collect revenue and debts, budgets which have no contact with reality, and important financial decisions taken with little regard for the consequences.

Dean, P., Appropriate strategies for developing countries in government management: paper prepared for World Bank Staff Seminar on Implementing Economic Reform (April 1988)

These abuses have occurred due to major deficiencies in accounting and Management Information Systems especially in developing countries such as scarcity of qualified accounting and management personnel, inadequate-cum-unreliable and untimely databases, ineffective systems of internal control, and inadequate technology and data processing systems. Again, as very aptly pointed out by the erstwhile Chief Executive Officer of Union Carbide, Warren Anderson:

If you say something before you really know the facts, you are speculating; if it is subsequently wrong, you are a liar; if you don't say anything, you are a stone-waller.

Business Horizons (July-August 1994)

It is not enough merely to show a narrow, private, profit and loss statement for a company; it is necessary to know what the costs are to society, if that company proposes to pollute its water supply, and the air above it: J or if it proposes to pay below normal wages for many years to come. It is not enough to assess a government'o/ performance on the basis of its ability to win votes at every election; financial economists must be willing and able to check its performance against more objective criteria, to keep the long-range targets of the nation before every citizen. It is the responsibility of the financial economist to analyze the objectives of the institutioh and to assess whether it is accomplishing them as economically as possible. If it is failing to do its job, he should be in a position to design new institutions which will perform more efficiently, and should be capable of charting the period of transition between the two, so individuals may adjust their lives to the new situation. Unless he can do these things and show clearly how the society will benefit, he has little right to be taken seriously by those who must bear long-run responsibility major societal decisions.

Writing on the revolutionary and new approach to financial statement analysis is a difficult assignment as aptly pointed out by renowned applied financial (accounting) statisticians cum-corporate finance, experts, Lusk, et. al. (of the Wharton School: The University of Pennsylvarua, U.S.A.) in their seminal paper relating to 'Idiosyncratic Risk' :

although most often social reaction to moral, dilemma is to increase regulation, monitoring and sanctions, we wish to offer the creative alternative offered by Professor M. …

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