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EVEN if you do not understand corporate audit or governance, you can compliment the Naresh Chandra Committee report for its emphasis on "plain English".

"Many small shareholders do not know how to read the minutiae of balance sheets, P&L accounts, cash flow statements and notes on accounts," observes the report. "When this is juxtaposed with the language of auditors, cost accountants and company secretaries — replete with long and dense sentences — the result is often one of profound non-comprehension." A profound truth, indeed.

To overcome the problem, the Committee recommends that management should provide a clear description in plain English of each material liability, and its risks.

And the auditor too has to provide "clearly worded comments on the management's view".

While "qualifications" are serious business because they can be a "serious indictment" of the financial affairs and management of a company, "far too few shareholders really understand what a qualification means." Worse, "companies are hardly ever questioned by regulators such as the SEBI and the DCA regarding such qualifications."

"This must change" and the panacea lies in "mandating greater disclosures" in plain English. Recommendation 2.6, therefore, says that qualifications should be "distinct, and adequately highlighted" and these must be "listed in full in plain English".

For those interested in knowing how plain English can make a difference to reports submitted to regulators, www.sec.gov/pdf/handbook.pdf may be useful. In the preface for the SEC book, Warren E. Buffett writes: "For more than forty years, I've studied the documents that public companies file. Too often, I've been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said." All because "a well-intentioned and informed writer simply fails to get the message across to an intelligent, interested reader". And the usual villains are stilted jargon and complex constructions.

The hero could be Naresh Chandra. On a sceptical note, however, plain English is one thing, and plain truth, another.

(hindubusinessline@hotmail.com)

D.Murali

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