09-17-2003, 09:52 AM
Hi Raza!
I am surprised that the agreement is silent on the issue. You will agree with me that it is sloppy work by law department of the bank. They should have envisaged this possibility and binded the borrower more firmly.
Anyway, if you consider management's viewpoint a bit more closely, you will see that they are trapping themselves. By asserting that they will get a "waiver" they are implicitly accepting the right of the bank to raise additional mark up. The question arises how can any body waive a right that it does not have? Example if i owe you Rs 100 and fail to pay it back, you can only waive your right to receive RS 100 right. You cann't forgive what you are not owed.
Waiving is setting aside of a right. Therefore, the management is actually acknowledging an actual liability.
Now there are procedures that you can use to verify the above situation. Ask the client to provide all communications that they have with the bank (i am sure you have already done that). Any letters,minutes of meeting, telephone conversations etc. Although, i have not seen any of this stuff, i can assure you that there are only two stands that the compnay can take under these conditions
(A) Deny the right of bank to accrue any mark up. Telling the bank to take a hike. Let the bank go to court to prove its entitlement to additional mark up.
(B) Admitting the right of the bank for additional mark up and requesting a waiver on hardship ground.
Go through the communications and let me know if they have a third take on the situation.
In case A, we can describe the liability as contingnet (disputed and depending upon the court decision). But in case B, it is open and shut case of actual liability.
Now i am sure your client will not like to hear this. We as accountants are paid not for bringing the problems, but for solving them.
So here is my solution that will, hopefully, help you to retain the client as well as meeting the requirements of GAAPs.
We can convince the client to make the accrual for additional mark up
(put some fear of GOD and SECP into their hearts) and give them a note for CONTINGENT GAINS RATHER THAN CONTINGENT LIABILITY. As you know, we cann't accrue contingent gains and can only provide a note.
After determing the likehood of success of waiver, you can state in the note that the co is very likely to obtain the reduction in additional mark up. You have to estimate the amount as well. This way, the reader will know the existence of liability as well the likehood of its waiver. I hope this is the win-win situation for you and the client.
And don't worry about my bill, i may ask you to do some assignments for me in Pakistan (an accountant's poor attemp to be funny!!!)
Take care
Edited by - Pervez on Sep 17 2003 050331 AM
Edited by - Pervez on Sep 17 2003 052236 AM
I am surprised that the agreement is silent on the issue. You will agree with me that it is sloppy work by law department of the bank. They should have envisaged this possibility and binded the borrower more firmly.
Anyway, if you consider management's viewpoint a bit more closely, you will see that they are trapping themselves. By asserting that they will get a "waiver" they are implicitly accepting the right of the bank to raise additional mark up. The question arises how can any body waive a right that it does not have? Example if i owe you Rs 100 and fail to pay it back, you can only waive your right to receive RS 100 right. You cann't forgive what you are not owed.
Waiving is setting aside of a right. Therefore, the management is actually acknowledging an actual liability.
Now there are procedures that you can use to verify the above situation. Ask the client to provide all communications that they have with the bank (i am sure you have already done that). Any letters,minutes of meeting, telephone conversations etc. Although, i have not seen any of this stuff, i can assure you that there are only two stands that the compnay can take under these conditions
(A) Deny the right of bank to accrue any mark up. Telling the bank to take a hike. Let the bank go to court to prove its entitlement to additional mark up.
(B) Admitting the right of the bank for additional mark up and requesting a waiver on hardship ground.
Go through the communications and let me know if they have a third take on the situation.
In case A, we can describe the liability as contingnet (disputed and depending upon the court decision). But in case B, it is open and shut case of actual liability.
Now i am sure your client will not like to hear this. We as accountants are paid not for bringing the problems, but for solving them.
So here is my solution that will, hopefully, help you to retain the client as well as meeting the requirements of GAAPs.
We can convince the client to make the accrual for additional mark up
(put some fear of GOD and SECP into their hearts) and give them a note for CONTINGENT GAINS RATHER THAN CONTINGENT LIABILITY. As you know, we cann't accrue contingent gains and can only provide a note.
After determing the likehood of success of waiver, you can state in the note that the co is very likely to obtain the reduction in additional mark up. You have to estimate the amount as well. This way, the reader will know the existence of liability as well the likehood of its waiver. I hope this is the win-win situation for you and the client.
And don't worry about my bill, i may ask you to do some assignments for me in Pakistan (an accountant's poor attemp to be funny!!!)
Take care
Edited by - Pervez on Sep 17 2003 050331 AM
Edited by - Pervez on Sep 17 2003 052236 AM
