Question

At what point do international banks ask questions containing continuous large amounts of bonds that may bring to light fraudulent business activity?

Answer 1

Bond is a financial debt instrument issued by company for raising of capital. Issuance of bind is the cheapest source of capital available among all the sources of capital available in the financial markets. Company issuing bond requires to pay interest to bond holder at certain interval and payment of interest create tax shield for the company because interest expense is a charge against profit which is debited to statement of profit and loss.

Bond is generally issued for long term period and and it is to be shown as Amortised cost or fair value depending upon the treatment made by company in the books of accounts.If the Bond is shown as non current liability in the balance sheet of company and it is shown as historical cost i.e. there is no change in the value of bond shown in the books bring to light fraudulent business activity. If marketable bond are not shown as fair value at year end then it bring light to fraudulent business activity.

Non repayment of principal amount of bonds and Non payment of interest also create doubt with regard to issuance of bonds and bring to light fraudulent business activity.