"I Simply Want It � The Will To Win"
Mafia Buzz 2010 Mafia Buzz 2010 J M Keynes was once asked why he had changed his Introduction mind about something. He said: “When the facts Mafia Buzz deals with information of general interest to change, I change my mind.” Economists in the UK preparers, auditors and users of financial statements. seem to be responding: “We question the facts.” Topics specific to IFRS are covered in IFRS Buzzes, Economists have been criticised for having failed to those specific to valuations are covered in Valuations predict the worst financial crisis in a century and it now Buzzes and those specific to portfolio management and appears that they are getting the economy wrong as financial analysis are covered in SowB Buzzes. The well. (Page 30) workshop material for each subject contains back copies The president of the ICAEW says that it appears that the of the relevant Buzzes. work that has been done over the past 30 years in trying I really do apologise for the late publication of Mafia to narrow the expectation gap has not worked. [In my Buzz but 2010 was hectic. The information contained opinion, the reason for this is that they are spending too in this Buzz is still relevant. much time on semantics and not enough time on I thought that I would commence 2010 (really 2011!) understanding what the core objective of an audit is.] with a little poem I came across: (Page 91) You will get it The following are the wise words of China’s vice If you want a thing bad enough minister of finance: To go out and fight for it, “We have to recognise that [the profit motive] can only Work day and night for it, operate effectively on the basis of trust between parties. Give up your time, play and sleep for it, Over a thousand years ago, Song Dynasty politician Sima Guang wrote that honesty is the way of nature. If constantly desire it, Thinking about honesty is the way of being. So a stable Making you quite mad enough, modern market environment has to combine ethical Never ever to tire of it, behaviour, social responsibility and sustainable If life seems all empty and useless without it, development in the pursuit of profit. Irrespective of And all you dream, scheme and plan is for it, social and economic systems, these must be common concerns for every country.” (Page 93) If you will happily sweat for it, Michael Izza says that the reality is that despite all the Give up your fears in order to get it, forecasts and predictions, nobody really knows how If you’ll simply go after that thing that you things will play out. (Page 97) want, A student accountant who is training to take part in the With all of your might and all of your heart, next Olympics in the UK says: Setting a goal, focusing If no sickness or pain on that objective and mapping a path to achieve it works In your body or brain well for work, athletics and study. [What a wise young man!] (Page 128) Can stop you from getting that thing that you want, February 2010 If you focus your soul in order to reach it Accountancy It’s quite simple The UK tax authorities have decided to launch a tax YOU WILL GET IT! amnesty for medical professionals and the accounting profession is worried that they may be the next group January 2010 targeted. A partner at one of the smaller auditing firms Accountancy said: “It’s hard to imagine how they would ever try and run such an amnesty for accountants because clearly Tenon, a listed consolidator auditing firm, acquired they should be doing everything properly anyway.” RSM Bentley Jennison for £76,3m. The fee income of [Famous last words??] (Page 5) the firm acquired was £71m and profit (they don’t say before or after tax – presumably before tax) was £7m. Thousands of non-domiciled entrepreneurs are poised to Why do I tell you this? Well you now have some idea abandon the UK due to a £30 000 annual levy imposed of how they value auditing firms in the UK. [Pre-tax PE on those who have been resident in the UK for more ratio 10,9 and Fee Price Ratio 0,9.] (Page 12) that seven years. About 1 000 have already left and about 4 000 are set to go. [Nice message to send to Emile Woolf says that there is an urgent need for banks productive people who add to the wealth of a country.] to return to their core purpose, i.e. lending money. (Page 6) [There is also a move in Europe to get auditing firms to return to their core purpose.] (Page 18) Every month this journal lists accountants who were caught with their hands in the cookie jar. It really The fee income of the big four in the UK are PwC makes for depressing reading but I thought I would list £2,2bn, Deloitte £2,0bn, KPMG £1,6bn and E&Y this month’s examples so that you can get depressed £1,4bn. Number five comes in at £0,4bn – Grant (only fair – you once a year and me 12 times a year). Thornton – miles behind. (Page 23) 1 Mafia Buzz 2010 1. A former president of the ACCA cheated his family setting a global tax?] (Page 6) out of £20 000. Revenue and Customs in the UK are gearing up for 2. A senior employee of KPMG cheated the firm out iXBRL for company tax returns and accounts online of £43 000 iro travelling expenses he never filing, which commences in the 2011 filing season. It incurred. has requested that SME IFRS be postponed for a year to 3. A 26-year-old accountant stole £476 000 from her allow companies to focus in the iXBRL process. [Is this employer to fund her lavish lifestyle. on the way in SA?] (Page 8) 4. A 58-year-old accountant stole £3,6m from Prof D R Myddelton looks back to the days when the ToysRUs to give to a prostitute with whom he total accounting standards in the UK comprised a mere became infatuated. [An embarrassing example to 145 pages. He says that we were better off then when us males!] (Page 11) accounting was a practical art, not a pseudo-science. He believes that accounting has taken a wrong fork in the The Financial Reporting Review Panel in the UK is not road in that we have too many standards in far too much happy with how companies are reporting their segments detail based on a mistaken premise. [As a user of under the new standard. [Good – I think that it is a financial statements I think that I would prefer a disaster! This is what happens when you have wishy- scientist preparing the information than some hippy arty washy principles instead of rules.] (Page 12) type!] (Page 22) Emile Woolf, commenting on the ability of banks to Liz Loxton says that the fallout from Lehman Brothers book unrealised revaluation gains and account for illustrated that sometimes one has to consider whether impairment using the incurred (rather than the expected) or not a company is too big to fail. [From commentary I method, says that the accounting rules serve to have read I get the impression that had the US stepped legitimise dividends and bonuses from unrealised profits in to save Lehman Brothers, the crisis would not have thereby eroding a capital base that was already in large got out of hand like it did.] The question she poses is: part fiction. [Isn’t he exquisite?] (Page 16) “Are the big four auditing firms too big to fail?” She Research has indicated that venting (smashing things) believes that it is important that auditing firms create does not help dissipate anger – in fact it can actually some transparency about how they are managed to extend the feeling. Dr. Rob Yeung says that the best protect against this possibility. [I have read elsewhere solution is to consciously calm down, take time out, if that some of the auditing firms are setting up proper necessary, and get the maddening thoughts and images board of director structures to facilitate this.] (Page 33) out of your head. (Page 45) David Cairns, IFRS expert extraordinaire, used this David Cairns says that regulators are looking into the month’s column to discuss Lord Turner’s attack on application by companies of IFRS 8. The French IFRS, i.e. fair value accounting and the incurred loss regulator has stated that it will investigate companies method of impairment of receivables. that disclose major changes to its segmental reporting On the fair value issue, he points out that few assets from previous periods. [This topic is essential to (10%) are carried at fair value on company balance analysts. I am not terribly happy with what I am seeing sheets. He also points out that any company who wants in SA so far. I think that our local regulators (where are to realise any unrealised profit (or loss) can merely sell they??) should be proactive in this regard.] (Page 63) the asset. His point is that it is more logical to recognise Solly Benaim of BDO says that FDs should be changing a profit when it is incurred than when it is realised as their mindset by asking what users want to see or need using the latter approach could open the door to to know to understand the business rather than what is manipulation. [In my opinion the real issue here is the the minimum we need to disclose to avoid our auditors subjectivity that goes with revaluations. If the asset issuing a qualified opinion on the financial statements. could be sold and the profit realised, I do not have too (Page 67) much of an issue. However, the revaluations that take March 2010 place on assets for which there is no active market can be a joke.] Accountancy On the second issue he makes the comment that we may The previous head of the Financial Reporting Council in return to the world of profit-smoothing. [I cannot see the UK, Paul Boyle, said that accountants have done this. As an analyst, if I see receivables on a balance faithfully what has been asked of them (during the sheet I would expert the amount to represent the financial crisis) but with so much going wrong, they proceeds to be realised. I really had a problem with the have to ask themselves whether we need accounting and incurred model the day it was published.] (Page 67) audit to do more in future. The new head, Stephen Two articles deal with IFRS 9 (pages 68 and 70). These Haddrill is implying that, just maybe, audit has not had articles will be dealt with in a future IFRS Buzz. such a good crisis and that the big accounting firms are In the UK, a company may only pay dividends out of worried about the threat of litigation from investors “distributable profits”. There are all sorts of rules (194 trying to recover losses from company failures. (Page 5) pages) on how to convert accounting profits to There is a move afoot to raise a “Robin Hood” tax of distributable profits. For example, if a company lends 0,05% on all high risk bank transactions such as money to a subsidiary to pay a dividend, the dividend currency speculation, futures trading and derivatives. received by H is not considered to be distributable. Australia, France, Germany, UK and the US seem to be [This is how it should be.] (Page 73) in favour of this. [I wonder what authority is capable of 2 Mafia Buzz 2010 At a recent conference, Lord Turner, chairman of the Brian Singleton-Green considers whether it is fair to Financial Services Authority, stated that the blame for blame IFRS for the financial crisis. The main focus of the banking crisis lay at the door of accounting the criticisms is: standards. He quoted an article in the Financial Times 1. Fair value accounting in bank’s financial which said that the system was brought down because statements. bankers couldn’t count and because there was no 2. The incurred loss model for impairing financial measurement of cash flow to tell them that they were loans. idiots. He said that after the big boom there were signs that there would be future loan losses but accounting Both these standards result in profits being overstated standards are designed to reflect today’s already in good times and profits being depressed in bad times. observable facts. He controversially recommended that [Clearly the IASB made a big mistake by changing banks should be treated differently to other companies, from the expected loss model to the incurred loss which did not go down well with commentators. (Page model – I said so at the time. It looks as if they are 90) now going to go back to the expected loss model but not to lose face, they are changing the way it will be April 2010 done.] (Page 64) Accountancy May 2010 A damning report was published by Anton Valukas, the person appointed to investigate the collapse of Lehman Accountancy Brothers. It found that sufficient evidence exists to Letter from David James (shortened): support a claim for malpractice against Ernst and Young The IASB has lost sight of the purpose of accounting in as a result of the firm’s failure to tell the audit the real world and the basic principle of prudence in the committee about allegations made by a senior pursuit of theoretical purity. whistleblower at the bank concerning the infamous When I was auditing I would ask management what Repo 105 and Repo 108 transactions (see below) they thought they would actually collect when assessing entered into to reduce the leverage on its balance sheet. impairment. Now banks only book losses after they (Page 1) have been incurred. RSM Tenon was fined £700 000 for poor advice and The same reality applies when preparers have to devise sales processes relating to Lehman-backed structured theoretical models to arrive at “fair values” for assets products. The Financial Services Authority said that the from which there is no market and about which they firm had poor systems and controls to prevent know very little. If an asset cannot be turned into ready unsuitable advice in its structured product and pension cash, I cannot see how one can recognise an unrealised switching business. [Audit firms should focus on their gain out of which bonuses are paid. [Well said sir.] core business.] (Page 9) (Page 14) Ian Sanderson believes that the standard setters should On 1 April 2011 all UK companies have to submit their bear part of the blame for Lehman Brothers’ scam to financial information to the Revenue Authorities in derecognise $50bn of its liabilities from its balance iXBRL format. [Expect our local tax authorities to pick sheet by the use of sales of Repo 105s and 108s. The up on this in the next few years.] (Page 22) bank sold assets for 100 with an agreement to buy them back for 105 or 108, hence the name. [The article did It looks as if the convergence between FASB and IFRS not explain this but putting one and one together, I came accounting standards will not take place for at least another five years – they are now talking about 2016. up with this explanation.] GAAP only permits assets to The FASB keeps on finding reasons to postpone be derecognised if the transferor loses control of the adoption of IFRS for US companies. (Page 63) asset. No US law firm would give such an opinion. However, a law firm in the UK (Linklaters) gave an The European Parliament voted to permit member states opinion that these repos were, in law, sales. to exempt “micro entities” from having to prepare financial statements. This could motivate the UK to The US Court of Appeals stated that GAAP itself reform small company reporting. A micro entity is recognises that technical compliance with GAAP rules defined as one with fewer than 10 employees, total may lead to misleading financial statements, and it assets of about R5m and annual turnover of about R9m. imposes an overall requirement that the statements as a whole should accurately reflect the financial status of A problem with using SME IFRS for subsidiaries of the company. GAAP’s ultimate goals of fairness and companies using IFRS is the conversion every year to accuracy in reporting require more than mere technical IFRS. Suggestions have been made to have another compliance. GAAP has no loopholes as its purpose is version of IFRS for subsidiaries where the recognition to increase investor confidence by ensuring and measurement standards are retained but disclosure transparency and accuracy in financial reporting. standards are reduced. (Page 64) Technical compliance with specific accounting rules June 2010 does not automatically lead to fairly presented financial statements. [Wow! This is powerful stuff!! Hopefully Accountancy standard setters will take note and highlight this an The former prime minister of the UK, Gordon Brown overriding principle of IFRS. It is there at present but canned the idea of the Operating Financial Review in well hidden.] (Page 28) November 2005 in an effort to cut red tape. The new 3 Mafia Buzz 2010 government has now proposed that it will reinstate the present is derecognition. The two opposing views are Operation and Financial Review Statement to ensure whether to focus on control or on risk exposures. The that directors’ social and environmental duties have to Repo 105 fiasco is probably uppermost in the minds of be covered in company reporting and it intends to the standard setters at present. (Page 72) investigate further ways of improving corporate The fact that the audit process failed to highlight the governance. [This may motivate the IASB to place this developing problems in the banking sector has caused topic back on its agenda.] (Page 5) people to question the value of the audit model. The PwC has been accused of missing the related party UK chairman of KPMG sees auditing like a policing relationships between senior executives and other job. He says that people tend not to speed if they know companies that propped up the Icelandic bank Glitnir’s that police frequently hover in a lay-by round the corner funds. PwC has stated that the audit opinion was based even if the police are not always there and don’t always on information and data they had access to at the time. catch everybody. He says that nobody questions the [The world is looking for ways of improving audits. function of policing. Surely one of the things that should be improved is that Recent research has shown that there is stakeholder auditors don’t just rely on information placed in front of appetite for auditor insights on the business model, on them: they go looking for further information. What is risk management and on the soundness of internal the point of an audit otherwise?] (Page 11) controls. (Page 97) The IASB is improving its programme to encourage McNair Scott says that if you have a competent firm of investor participation in the development of auditors, you should be able to ask them for advice on International Financial Reporting Standards. [The anything. But he now is forced to talk to other firms impression I get is that preparers and auditors are the about other issues. He says that this may be politically drivers of these standards. Surely the needs of investors correct but that it is completely bonkers. He says that should be the starting point in the development of the auditors have the ability to add value, but they may only standards?] (Page 12) do it with non-audit clients. [I agree entirely with his Dr Rob Yeung uses the mnemonic RISE as a trigger view on this. I fail to see how giving advice to a client when crafting a presentation: can contaminate the independence of an ethical auditor.] R: What is Relevant to the audience? (Page 102) I: What key Insights do you wish to impart? Auditors are frustrated that people do not understand S: What Stories will illustrate your point? what goes on behind closed doors, but that is the nature E: How will you Engage with the audience? of the relationship. A misconception about an audit is [Not a bad start to the process.] (Page 53) that it is about ticking boxes and compliance. There is some of this and it has increased, but the valuable part is July 2010 the subjective conversations where the auditor brings his experience to bear. [I would have thought the Accountancy valuable part of an audit is delving beneath the figures, Small accounting firms in the UK are facing succession doing analytical reviews, testing that the internal problems with partners not able to retire because they controls are working and performing substantive testing, cannot find suitable candidates to take over their but it seems as if these basic auditing activities have practices. (Page 6) taken a back seat.] (Page 104) Despite its successful appeal against a finding that it had Business Day acted with a lack of objectivity and independence during the audit of Equitable Life, Ernst and Young emerged The winners of the E&Y best company award for 2010 from the Joint Disciplinary Tribunal process with a were Anglo American, Sasol, Nedbank, Massmart, reprimand, a £500 000 fine and £2,4m costs awarded AngloGold, Truworths, Standard Bank, Absa, Clicks against it. And now they have to defend their audit of and Amplats. One complaint was that the length of the Lehman Brothers International Europe. [Who wants to annual reports has doubled in the past 13 years. (23 rd) be an auditor?] (Page 11) The judges of the above competition were impressed Ian Coke says that a lesson to be learnt from the with Anglo American as it identified and explained its banking crisis is that more needs to be done to explain key strategies clearly, its progress in achieving them and the value of audits to those outside the audit process. the projected future effect of those strategies. It also This should increase market confidence regarding the summarises its key performance indicators and its value of an audit. (Page 14) targets and explains how it intends to achieve them. (23rd) The International Valuation Standards Council has published an ED on proposed new international Sasol impressed by identifying its major risks and profit valuation standards and for the first time they have drivers, their impact, cash flow implications and included financial instruments. The ED is available at financial strategies and targets. (23rd) www.ivsc.org. (Page 71) August 2010 (10 Minutes) The IASB and FASB have acknowledge that they are overburdening commentators with the volume of new Accountancy exposure drafts this year and have promised to prioritise The editor says that Mr Paul Boyle may have to eat his to ensure the production of quality standards. (Page 73) words: “So far, at least, auditing has had a good crisis”. One of the major issues facing the standard setters at She gives as an example a finding of the Financial 4 Mafia Buzz 2010 Reporting Council and the Financial Services Authority auditor and signed off 19 audit reports and was fined that some audit firms had signed off their audit reports £3 000. Another firm did obtain registered auditor before they had even finished their audit work. (Page 1) status and signed off one audit report but did not do Another comment made by the Oversight Board was enough audit work and was fined £3 000. He suggests that auditors should exercise greater professional that auditors should deregister and do the work anyway! scepticism, when reviewing management’s judgements (Page 18) relating to fair values, the impairment of goodwill and One chairman of a US bank said, during the build-up to other intangibles and future cash flows relevant to the the financial crisis: “You would have to be an insolvent consideration of going concern. (Page 5) arsonist not to get a loan from a bank.” Emile Woolf John McFall, a politician in the UK said that he had wants to know why auditors did not comment on these been told by various people that the Northern Rock moronic banking business models. [Dear Emile, I do business model was wonky. At a meeting with not believe that auditors are in a position to do so – and accountants he wanted to know why this was never it is not part of their duties to do so.] reported. He also wanted to know why auditors Emile Woolf gives an example of a property company exhibited a worrying lack of scepticism. (Page 24) whose assets, as valued by the bank, exceeded its There is an excellent article on IFRS 9 (the EU has indebtedness by 25%, the properties were fully occupied chosen to defer its decision on whether to endorse it and rental income comfortably covered the company’s until all the proposed rules are finalised) and revenue. I overheads and interest payments. On applying to a bank will cover these in future IFRS Buzzes. (Pages 66 to 69) to refinance is borrowings it was told that it had to pay an upfront fee of £215 000 and a fee of £600 000 on September 2010 exiting the arrangement or at the end of year 5. The bank also imposed conditions on the loan e.g. that no Accountancy properties could be developed or sold without the The Auditing Practices Board has issued for comment a bank’s prior permission. And he says that this bank is discussion paper on audit scepticism. It emphasises the effectively owned by the Government! [Gearing is importance of scepticism to audit quality and draws on great in that it magnifies your returns but in a financial recent research to stimulate debate about what actions crisis, this is how you can be held to ransom.] (Page 20) may need to ensure scepticism. (Page 12) Canada is to adopt IFRS on 1 January 2011. However, Emile Woolf says that it is important to keep accounting auditors will be allowed to affirm that financial and tax simple if we expect management to take the statements comply with both IFRS and with Canadian economic decisions that are right for the business. The GAAP as this latter framework is enshrined in many problem is that tax and accounting drive business laws and is referred to in many contracts entered into by decisions (the tail wagging the dog). He says that banks companies. Australia and New Zealand followed the are fuming about the proposal to force them to same route. [South Africa should have followed this anticipate losses over the life of a loan and recognise route when we first changed over to IAS. Because we them upfront. [This idea is even more stupid than did not have the good sense to do it, we still are straight lining of leases!!] They are uniformly burdened with SA Statements of GAAP!] (Page 26) complaining that the rule would be impractical, costly David Cairns discusses the ED on lease accounting. I and misguided. [So what are they doing about it? Are will summarise this in a future IFRS Buzz. But to whet they going to lie down and accept, comply and pay your appetite, if the lessor retains the significant risks enormous fees to install new systems only to find that and rewards relating to the property, it will not when a new regime at the IASB with superior common derecognise any part of the asset but will raise an asset sense comes on the scene, they change the standard and a liability for the rental received. This will result in again? Remember that a few years ago IFRS supported double counting, which is irrefutable evidence that the the expected loss method of impairment.] (Page 16) IASB is losing its collective mind. (Page 69) October 2010 Citizen Accountancy I could not resist passing on this wisdom from Thandi More than 25% of accountants drink too much and more Moya: “Road accidents occur as a result of human and that 15% have misused drugs in the last year, according vehicle factors.” (12th) to research conducted in the UK. The suicide rate for Noseweek female accountants is three times the average figure for I seldom quote from this mag but I thought that you that of other occupations. 82% of accountants say they should be aware of a story that appeared on page 6 of suffer from stress and 77% say that long working hours this month’s offering. On a busy morning in Santon is an issue with 71% believing that their work-life Drive a motorist was pulled over by a traffic officer and balance is poor. (Page 6) asked to produce his red triangle hazard sign. He did Bob Neill, the “Communities Secretary” [whatever this not know that it was necessary to have one so could not is] said: “We question why the government runs the produce it. He was told that the offence would cost him fifth-largest audit firm. The audit function can be a fine of R500 and five points deducted from his carried out perfectly sensibly by being moved to the driver’s licence. He was offered an alternative spot fine private sector.” [Auditor General?] (Page 16) . . . you know the rest of the story. He contacted the AA P J Harris points out that one firm did not register as an to find out what the position was and was informed that 5 Mafia Buzz 2010 all motor vehicles registered after 1 July 2006 had to does this stop? If she employs a financial director on a carry such a triangle. What the article does not say is five year contract will she have to raise an asset being that you are also required to have a fire extinguisher in the right to his services and a liability for the future your car. My granddaughter’s step sister was caught obligation? I fear for the future of accounting.] (11th) without these two items and was fined R500. She Citizen declined to pay “spot fine”. To avoid any grief, pop along to your closest motor dealer (Mica has them) and Many, many people have been devastated by the Krion get two triangles and the extinguisher – you are looking pyramid scheme (Marietjie Prinsloo and her family). at about R150 in total – worth avoiding the hassle of They were found guilty of over 122 000 charges of being abused at a road block. And just by the way, if racketeering, money laundering and fraud involving you car is on the old side, you will have to prove that R320m. People re-financed their cars and took out you did not acquire it as a second-hand vehicle! So get second mortgages to “invest” in the scheme. these items anyway. Depression increased by 35% in the Vaal Triangle and many people considered suicide. Alcohol abuse, drug November 2010 abuse, and the divorce rate in the area have increased. Car sales in the area have halved. The economy of the Accountancy Vaal Triangle has taken a dive. [We need to have a Europe’s politicians have unveiled plans to explore programme at schools to make young people understand downsizing and restructuring the large auditing firms. that there is no such thing as a free lunch and that they In addition they are considering audit rotation, not just should not give their money to others to invest unless audit partner rotation. Also on the list of suggestions is they deal with a reputable bank, insurance company, requiring a third party to appoint auditors, prohibiting etc. – and even then they will be at risk!] non-audit services, capping fees from one client and simplifying the rules for small and medium sized December 2010 enterprises. (Page 5) Accountancy The chairman of the IASB, who will succeed Sir David Stephen Kingsley said that auditors find it very difficult Tweedie, is Hans Hoogervorst, a non-accountant who to maintain what is almost a schizophrenic position, in was previously a finance minister for the Dutch that on the one side they are responsible to the users of government. [Maybe us Afrikaners will now be able to the accounts but on the other side the people they relate understand IFRS better!] (Page 6) to is management. He said that there was a need for Deloitte has overtaken PwC as the largest of the big four absolute clarity about the role of the auditor, arguing auditing firms internationally (just). (Page 10) that users of accounts do not know who to blame when The International Standards Organisation has published something goes wrong. [Surely management takes ISO 10668: Requirements for Monetary Brand prime responsibility for accounts and the auditors can Valuation. (Page 12) only be blamed if they were negligent in not picking up The FASB and the IASB have parted ways on the problem? Maybe this principle needs to be brought classification and measurement of financial instruments. to the attention of investors.] (Page 5) The IASB has opted for the mixed measurement model Sir David Tweedie is running out of patience with US whereas the FASB has opted to disclose both amortised reluctance to commit to a global accounting system. cost and fair values on the balance sheet. The ICAEW [The US probably believes that their system is superior agrees with the IASB’s approach and believes that the to IFRS and has the standing to be global?] (Page 10) IASB should not compromise over high-quality A study by Deloitte found that 90% of internal audit financial reporting and cost/benefit considerations. It managers accepted that the detection of fraud was their believes that convergence should play second fiddle in responsibility but that few had discussions at board level the standard setting process. This will be a set-back for on this issue, few had documented fraud policy and few this process. (Page 85) had the skill-sets to investigate fraud evidence and Business Day analyse data. (Page 11) Garth Coppin says that the proposed standard on leasing The UK Standards Board has proposed a three tier will see an end to off-balance sheet treatment for leases framework for accounting: and make financial reporting more complicated in the Tier 1: Include all publicly accountable companies, process for companies and analysts. [In my opinion this which will use IFRS will be the death knell of a principle I have lived by all Tier 2: All non-publicly accountable entities, which my life: “Tell it like it is.” A woman’s business plan is will report under the UK’s version of SME IFRS to not own the offices in which she operates but to pay (FRSME) rental to the owner of the property. To tell it like it is Tier 3: All small entities, which will continue to report would be to show rent paid in the income statement as under the UK’s Financial Reporting Standard for an expense. Now she will have to raise a liability for Smaller Entities (FRSSE) this future expense and place an asset on the balance sheet being the right to use the building. In my opinion [Why has it taken our profession so long to realise that a liability should only be recognised for a service when one size does not fit all???] (Page 14) the service has been rendered. She has no obligation to The market is worried about one of the big four auditing pay for rent until she has received the service. Where firms collapsing in the light of the recent Kanebo 6 Mafia Buzz 2010 scandal in Japan where the cosmetic company’s 1. The income approach (six variants) earnings were illegally boosted by £1,6bn between 2000 2. The market approach and 2004, resulting in the local “branch” of PwC being 3. The cost approach forced to halt all its audit services. More than 2 000 [Can you just imagine the industry that this will create audit clients had to find new auditors at short notice. with brand valuation experts oozing confidence and (Page 27) charging a fortune for their calculations and their A CEO replaced his CFO as he was fed up with the opinions?] (Page 67) finance function giving him analyses and case studies with spelling mistakes littered throughout documents. What you always wanted to know but His reasoning was that if there were mistakes in the were too afraid to ask words, there were probably mistakes in the numbers. [I The eXtensible Business Reporting Language is a agree 100% with this attitude. There are spell checks on standard for the electronic distribution and exchange of most programs today so there is no excuse. Spelling business and financial information which is described errors in a document is a reflection of laziness. I am using “tags” (which work like bar codes) and defined paranoid about perfection but, being human, I fail on the using a number of dictionaries called “taxonomies”. odd embarrassing occasion.] (Page 53) XBRL tags were designed to be read by computer A Plc lost its finance director. It needed a temp until programs, not by people, so the Revenue authorities in they could find someone suitable. The CEO knew of the UK came up with a variant that can be read by someone who had been out of the market for sometime computers and people called Inline XBRL, or iXBRL. because umpteen years earlier he had been the FD of a Tagged files can be automatically read by a computer, company that had run into some issues outside his opened with a browser and read by people as well. control so left the company. Umpteen years is longer (Page 58) than many prison sentences and the CEO felt that the ex FD had served his time and should be rehabilitated. He put the idea to the shareholders. Every single shareholder turned the proposal down. Unlike murder and armed robbery, losing your reputation as a CFO is life imprisonment. [Whatever you do, keep your integrity intact at whatever the cost.] (Page 53) Dr Trisha Greenhalgh says that some people are big boned, well covered or chunky but a lot of people are so fat that they are endangering their health. The Body mass index (MBI) is the most widely used measure of body size. The index is calculated by dividing one’s weight in kilograms by the square of one’s height in meters. If the result is between 18 and 25 you are fine. [My weight is 69 kilograms and my height is 1,73 metres. So my MBI is 23,1, nearly in the middle of perfect! Surely there should be an age modifier?] (Page 55) The ISO (International Organization for Standardization) has developed a standard for valuing brands, number 10668. It is ten pages long and written in plain English. It defines a brand as a marketing related intangible asset such as a name, term, symbol, logo or design or a combination of these which identifies goods, services or entities and creates distinctive images and associates in the minds of stakeholders and generates economic benefits. The standard says that to value a brand one should consider its key behavioural aspects. Its core value lies in its ability to communicate with its stakeholders. The emotional engagement should be measured within each stakeholder group by looking at measures of brand strength such as awareness, relevance, perceptual attributes, knowledge, attitude and loyalty. The strength of a brand will have an impact on consumer buying behaviour and consequently impact demand within different stakeholder groups, markets and territories so its strength needs to be analysed to produce a robust valuation. Three approaches to valuation are given: 7