The Hindu Business Line : Capture truth with its two limbs, validity and authenticity

IN THE spider-web of facts, many a truth is strangled. With this quote of Paul Eldridge begins the discussion on `the need for accountability' in Zina O'Leary's The Essential Guide to Doing Research, from Vistaar Publications (www.indiasage.com). Researching is a process that should be both open and accountable, says the author, because only then others will be able to assess whether the methods and approaches used by researchers logically lead to the conclusions drawn. That applies to auditing too.

Auditability is important for all research — "regardless of paradigm, approach, or methods." The explication of the research process can be part of the learning for readers, explains O'Leary, and I'm tempted to think of audit reports written like mini stories, letting readers into the world of the accountant. "The development of a sound methodological protocol for investigating a particular topic can be a contribution to knowledge in its own right," emphasises the author.

Another indicator of good research is `capturing truth', as O'Leary captures in her book under two heads, viz. validity and authenticity.

"Validity is premised on the assumption that what is being studied can be measured or captured, and seeks to confirm the truth and accuracy of this measured and captured data, as well as the truth and accuracy of any findings or conclusions drawn from the data." Validity indicates that the conclusions you have drawn are trustworthy, says the author.

"There is a clear relationship between the reality that is studied and reality that is reported, with cohesion between the conceptual frameworks, questions asked, and findings evident." From audit situations, you can draw examples such as vetting transactions (reality) against disclosure (report) and standards (conceptual framework). Authenticity, on the other hand, deals with cases where there are multiple truths, where all the possible realities are valid.

Useful read for auditors.

Are hedge funds still the `black-box'?

DURING the last 17.25 years, the S&P 500 Index has had 17 negative quarters, totalling a negative return of 113.01 per cent, informs www.thehfa.org, the site of Hedge Fund Association. It adds that during those negative quarters, the average US equity mutual fund had a total negative return of 115.7 per cent while the average hedge fund had a total negative return of only 10.3 per cent, "displaying the ability of hedge funds to preserve capital in falling equity markets".

To know more, I grab The Euromoney's Hedge Funds Handbook 2005 distributed by Bharat Book Bureau (www.bharatbook.com). Michael G. Tannenbaum writes in his foreword that the $800 billion industry is still growing, but "many successful managers are closing their doors to new money, having reached capacity."

John Godden notes that 2003 saw the advent of the investable hedge fund index and asks if such indices can be representative. "Creating a global index for hedge funds can appear difficult on first sight due to the broad spread of different strategies that make up the universe from long/short large-cap equity through to fixed income arbitrage via credit and currency plays," Godden writes, and adds that the construction of `strategy pure clusters' can help such an exercise.

"These clusters consist of funds that are considered to be `pure' representatives of their underlying strategies and provide monthly performance measures for each strategy.

Eric Raiten does a survey of hedge fund derivative products under three broad heads, viz. option-based products, principal-protected notes, and swap-based products. Deloitte & Touche's paper is about `tax developments in challenging times'. Don't miss the chapters on `asset-liability modelling' by Robert Howie, and `risk management' by Sara Statman and John Gray. Narayan Y. Naik asks, "Are hedge funds still the `black-box' of the alternative investments industry?"

Naik reports findings from a research conducted at the London Business School. Such as: Money-flows chase returns and the relation between performance-flow is convex; money flows are significantly higher for consistent winners; and investors do not prefer impediments to capital withdrawals.

The book has country analyses of Germany, Ireland, Luxembourg and Switzerland. No point sitting on the fence when the world of hedge can be so inviting!

Bribe at Rs 40 per square foot

AN UNUSUAL work dedicated to `the citizens of Mumbai who believe in good governance' is Municipal Corporation of Greater Mumbai and Ward Administration, by David Anthony Pinto and Marina Rita Pinto, from Konark Publishers (konarkpublishers@hotmail.com). "The Mumbai Municipal Corporation is the largest in the country with a huge budget and an ambitious agenda of work, making it virtually a state within a state," states the preface. Summarised financial statements from 1995-96 to 2002-03 show under sources of income `tax on dogs' and `wheel tax', and analyses revenue expenditure by service heads.

"Till the 17th century, the Bombay islands were so insignificant even to their Portuguese owners that there was no general agreement among Portuguese travellers, writers and naval captains on the name of the islands," is a historical fact you gather from the first chapter.

Do you know that Bombay came as part of the royal dowry in 1661 to King Charles II of England on his marriage to the Portuguese princess, Infanta Catherine de Braganza? Or that Bombay was transferred from the English Crown to the East India Company by a Charter in 1669 according to which the islands were to be held by the Company on payment of an annual rent of 10 pounds in gold?

Fast-forward to the present and you find Mumbai bursting at the seams, with a population density of 27,250 persons per sq km. Average number of houses is 48/ sq km in Maharashtra, but 3362/ sq km in Mumbai. The city ranks 163rd out of 218 cities worldwide on the Forbes quality of life survey, laments the last chapter of the Pintos.

"The Building Proposals Department (BPD) is one of the most corrupt departments in the MCGM," opines the book, and cites a media report that bribe was Rs 40 per square foot! There are interesting chapters devoted to property tax administration and octroi too.

A recommended addition to your bookshelf because of the growing role of CAs in Government and local body accounting.

BooksOfAccount@TheHindu.co.in

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