Management Accountant Blog

Hedging foreign exchange risk

2010-05-23T17:26:00.000+01:00

What Does Foreign-Exchange Risk Mean?

1. The risk of an investment's value changing due to changes in currency exchange rates.
2. The risk that an investor will have to close out a long or short position in a foreign currency at a loss due to an adverse movement in exchange rates. Also known as "currency risk" or "exchange-rate risk"

Hedging transaction risk - the internal techniques

Invoice in home currency
Leading and Lagging: It refers to the adjustment of the times of payments that are made in foreign currencies. Leading is the payment of an obligation before due date while lagging is delaying the payment of an obligation past due date. The purpose of these techniques is for the company to take advantage of expected devaluation or revaluation of the appropriate currencies. Lead and lag payments are particularly useful when forward contracts are not possible.
Matching: When a company has receipts and payments in the same foreign currency due at the same time, it can simply match them against each other
Decide to do nothing.

Other techniques

Forward Contracts

A forward exchange contract (or forward contract) is a binding obligation to buy or sell a certain amount of foreign currency at a pre-agreed rate of exchange, on a certain future date. To take out a forward contract you need to advise us of the amount, the two currencies involved, the expiry date and whether you would like to buy or sell the currency. It can be possible to build in some flexibility to allow the purchase or sale of the currency between two pre-defined dates rather than a single maturity date.

Money Market Hedges

The idea is to avoid future exchange rate uncertainty by marking the exchange at today's spot rate instead.
This is achieved by borrowing / depositing the foreign currency until the actual commercial transaction cash flow occur.
In effect a foreign currency asset is set up to match against a future liability or vice versa

Future contracts

Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Currency swaps

A currency swap is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency.

Currency swaps have two main uses:

To secure cheaper debt (by borrowing at the best available rate regardless of currency and then swapping for debt in desired currency using a back-to-back-loan).
To hedge against (reduce exposure to) exchange rate fluctuations

Currency option

A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. Currency options are one of the best ways for corporations or individuals to hedge against adverse movements in exchange rates.

Sources:

Further Reading

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Triple Bottomline Reporting

2010-03-18T14:51:00.000Z

The triple bottom line (abbreviated as "TBL" or "3BL", and also known as "people, planet, profit" or "the three pillars" captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, ecological and social. With the ratification of the United Nations and ICLEI TBL standard for urban and community accounting in early 2007, this became the dominant approach to public sector full cost accounting. Similar UN standards apply to natural capital and human capital measurement to assist in measurements required by TBL, e.g. the ecoBudget standard for reporting ecological footprint.

Triple bottom line reporting makes companies accountable for economic, social and environmental effects of doing business. This is a popular form of accounting for nonprofit companies and government organizations to show a commitment to corporate social responsibilities. For these companies, social and ecological performance is just as important as financial performance.

Let's break down the three terms and how they apply:

People

This is also known as Human Capital. It really just means treating your employees right, but furthermore also the community where your business operates. In this part of the Triple Bottom Line model, business not only ensures a fair day's work for a fair day's pay; but also reinvesting back some of its gains into the surrounding community through sponsorships, donation or projects that go towards the common good. This reinvestment can usually be written off come tax time as part of business operating expenses.

Planet

This is Natural Capital. A business will strive to minimize its ecological impact in all areas - from sourcing raw materials, to production processes, to shipping and administration. It's a "cradle to grave" approach and in some cases "cradle to cradle" i.e. taking some responsibility for goods after they've been sold - for example, offering a recycling or take-back program. A 3BL business will also refrain from the production of toxic items.

Profit

This is more about making a honest profit than raking a profit at any cost - it must be made in harmony with the other two principles of People and Planet.

While many major corporations used to sneer at the idea of a Triple Bottom Line reporting system; some have taken the bull by the horns; with a positive flow on effect to their suppliers. Because supply chains are also accountable to the overall impact of a company, they also come under scrutiny in the triple bottom line audits. A good example of this is some big box stores "greening" up their act and in doing so, demanding that their suppliers use less packaging, offering concentrated products or banning certain ingredients from products

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Dries Buytaert- Founder and lead of the Drupal CMS

2010-01-28T20:03:00.006Z

Drupal (pronounced /ˈdruːpəl/) is a free and open source Content Management System (CMS) written in PHP and distributed under the GNU General Public License. It is used as a back-end system for many different types of websites, ranging from small personal blogs to Enterprise 2.0 collaboration and knowledge management uses to large corporate and political sites.

Dries Buytaert is an open-source software programmer and the founder and lead of the Drupal CMS.

Exerts from one his interview on how it started.

CC: Did you ever expect Drupal to get to the level of popularity it is at today?

DB: Not at all, I started all this as a hobby and quickly got out of hand. After I moved it to the public internet, I continued to build on it for over a year and added a lot of features. But, it continued to be an experimental platform to learn from and apply new web technologies such as RSS feeds and content and user rating.

I increased my experiments and development and drew the attention of an audience that was also interested in the future of the internet. This audience provided suggestions and was also active with state of the art web technologies and they increasingly began providing me with feedback. At a certain time the feedback took on such a level that I thought I should provide the engine to them so they could start there own experimenting and applying there own suggestions to it. This is how it got moved to Open Source, and also how the community started.

I must say though that I felt good making it available to the Open Source community. I had looked at other similar systems such as phpnuke but with my background in computer science I could really say that the architecture and design were much better. People were asking for modifications but I thought it was really well and worth of being seen, especially compared to other state of the art Content Management Systems written in PHP. So made available without too much expectations but it got the reputation after all. I of course continued to work hard on it.

Video interview of Dries Buytaert

I am very much impressed by their team efforts and determination to make a product available for free to everyone on the planet. I would ask you view Drier Buytaert's personal blog where he updates the companies that are adopting Drupal.

I am also experimenting my other website http://iwaant.com which is on Drupal platform.Probably one day, it would feature on his blog.

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Enterprise governance - Restoring boardroom leadership

2010-01-22T12:14:00.001Z

CIMA, UK published a discussion paper on "Enterprise governance - Restoring boardroom leadership" in Jan 2010 which focusses on Corporate Leadership. This paper sets out how boards can be more effective and challenge management confidently.

The key conclusions in the report

Boards need an integrated approach to effective leadership.
Directors must incorporate behavioural and structural factors.
More attention must be paid to psychological factors contributing to board performance: creating a challenge culture, succession planning and effective risk governance.
There must be rigorous, regular and systematic board evaluation.The model proposed by this report could provide a useful input to the board evaluation process.
The board’s relationship with external stakeholders, particularly shareholders, is crucial. By focusing on its own effectiveness and contributions to the long-term sustainability of the organisation, a board will serve those stakeholders.

Read the full paper. Click here

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The Audit Firm Governance Code UK

2010-01-20T10:58:00.002Z

The Audit Firm Governance Code applies to eight audit firms that together audit about 95% of the companies listed on the Main Market of the London Stock Exchange.

The Audit Firm Governance Code, published in January 2010, applies to eight audit firms that together audit about 95% of the companies listed on the Main Market of the London Stock Exchange. For these firms, the code sets a benchmark for good governance which other audit firms may wish to voluntarily adopt in full or in part.

The reputations that the audit firms have built upon their licence to audit are of vital public interest. One way in which they can maintain public trust in their brands is by being seen as exemplars of best practice governance.In this context, it is however important to recognise that the governance challenges faced by audit firms are different from those faced by listed companies.

In drawing on aspects of the UK Corporate Governance Code such as the comply or explain approach, the Audit Firm Governance Code establishes the principle that audit firms should appoint independent non-executives within their governance structure.

It also codifies much existing good practice and links to matters that audit firms must comply with as regulated professional partnerships.

Full details on ICAEW, UK website.

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Canada’s CAs offer guidance to communicate impact of IFRS changeover

2010-01-19T11:51:00.000Z

Canada’s Chartered Accountants are providing guidance to help public companies summarize for investors the effects of the changeover to International Financial Reporting Standards (IFRSs).

Most Canadian public companies will commence reporting in accordance with IFRS in 2011. At that time, the changeover will potentially result in numerous changes to an entity’s financial statements.

A new publication by the Canadian Institute of Chartered Accountants (CICA) titled “Transition to IFRSs – Communicating the Impact of the Changeover” focuses on using Management Discussion and Analysis (MD and A) to explain the effects of the move to international standards.

The MD and A is a filing required by securities regulators that accompanies quarterly and annual financial statements. A well-presented MD and A provides the context investors need to better understand the company’s performance and prospects as well as its financial statements.

“The publication provides examples of how to provide a succinct MD and A discussion of the impacts associated with the changeover,” said Chris Hicks, Principal, Knowledge Development, CICA. “Investors want to compare an entity’s performance from one period to the next. On the changeover to international standards, this comparison will become distorted because of the application of a new set of accounting rules.”

The publication, developed by the CICA’s Canadian Performance Reporting Board (CPRB), is available electronically (www.cica.ca/cpr). The Board focuses on guidance about the measurement and reporting of organizational performance outside of financial statements.

The document also is one of several resources available on a special CICA website dedicated to Canada’s transition to international standards (www.cica.ca/IFRS).

“Investors need to understand the extent to which prior reported performance has varied because of the changeover and the extent to which that change can be expected to affect future reporting,” noted Hicks. “The CICA publication is a resource public companies can turn to for assistance in effectively summarizing the financial reporting impacts of the changeover to investors.”

Source: CICA Website

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ICAEW appointed to assist Dubai regulator in monitoring audit firms

2009-12-31T09:41:00.000Z

The Institute of Chartered Accountants in England and Wales (ICAEW), a world leader of the accountancy and finance professions, has been contracted by the Dubai Financial Services Authority (DFSA) to assist in the monitoring of DFSA-registered audit firms.

The DFSA is the independent regulator of one of the fastest growing capital markets in the world, and delivers world-class regulation in the Dubai International Financial Centre (DIFC). It is responsible for the oversight of auditors of firms authorised by the DFSA to conduct financial services in the DIFC. This oversight role involves monitoring auditors and their work as well as independent inspection.

Vernon Soare, ICAEW Executive Director, Professional Standards, said:

“Being appointed by the Dubai Financial Services Authority to offer technical assistance in the monitoring of Dubai’s audit firms is a great testament to our technical expertise. The fact that we were awarded this contract at the same time as we are also opening an office in the Middle East, gives us a great platform on which to offer our expertise and experience to other key stakeholders in the region.

“Audit is one of the corner stones of a transparent financial reporting system and critical for investor confidence. Dubai already has a robust system for monitoring of the firms providing audit services, something which offers further assurance to investors. We look forward to working closely with the DFSA over the next few years.”

The ICAEW has extensive experience in providing the same audit monitoring service in the UK, where it monitors the work of more than 4,500 audit firms, including non-public interest audit work of the Big 4 accountancy firms (Deloitte, Ernst Young, KPMG and PricewaterhouseCoopers). It also has experience in providing this type of service for several other countries across Europe, Asia and Africa, and a longstanding knowledge of the development and adoption of international audit standards.

Source: ICAEW Website

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New Year Resolutions for 2010 Management Accountant

2009-12-30T12:06:00.003Z

I am looking back at Year 2009 resolution that I had posted on the Management Accountant Blog. The focus had been on social and professional networking with professionals in the industry and keeping up-to-date with the latest happenings.

This year as before has marred with financial scandals, banker's bonuses and recession. So there are new challenges, upgrading of skills and an approach that is solution driven to help the businesses get past the difficult times. A Management Accountant has to be customer focussed to be a most sought out professional in the business.

Few pointers

Listen to your customer: I often call up the customer support when I have trouble with my mobile phone and the call is connected to a support centre abroad. Sometime when I try to explain my problem but they give me all the bullet points that they can read from the list. At that point, I have tell the support analyst, did you listen to my problem. I am not looking for what you know, but a solution that will fix my problem. As Management Accountant are you listening to your customer before recommending a solution ?

You aim to be a good accountant and you are doomed: I would consider good accountant is one who knows the formats, accounting standards, management theories by heart. He can prepare financial statements from the trial balance by plotting the amounts correctly, talk about management theories and updates himself by reading lots of books. And above all he will be saying IFRS is coming. But when the business asks him for advise on strategies and interpretation of the financial statements, then he is not sure what his role is. Have you trained yourself to be a business advisor who can provide alternative solutions ?

Satyam Scandal: The tremors in accountancy profession and corporate governance has not been that great in India before Satyam (people generally don't remember). Accounting bodies / business associations and bodies have been talking about an Public Independent Oversight body to oversee all the accountants in practise in India. Will the approach help ? The question is whether it is the time to reform and redesign the accountancy profession in India based on what the stakeholders need ?

Communication : I have been participating in various forums and interacting with lots of people. People share articles and post new topics and expect the discussion and interaction be wholesome. A general observation is people who become popular on the various forums are the ones who substantiate their views with references and facts rather than their perception. This provide the members in the discussion to come up with a better solution. Many people prefer to communicate with them directly. Do you feel you as a accounting professional bring in an added-value to the interaction or whom you are associated with ?

My New Year Resolution for year 2010 would be to improve myself on above aspects but also help you in doing so. The role as described by CMA Kedia - The management accounting professional should have attributes of a learning professional, a change agent and be hands on latest technology.

Keep reading Management Accountant Blog and stay tuned. Happy New Year to all of you.

Best Wishes,

Santosh Puthran

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Tier based Accountancy Practice in India - Will it help

2009-12-23T19:31:00.000Z

Background: Accounting bodies in India are based on UK accounting concept and their governance is more of less similar to the UK bodies.

The public accounting practise in India are mostly driven by compliance audits i.e. certification by accountants in submission of returns / documentation to government / public authorities. Unlike in the UK where the public accountants are more in advisory / outsourcing services rather than audit.

In professions like medicine you will find doctors based on their skills and expertise e.g. General Physician, Heart surgern or optician, ophthalmologist where the patient consult the doctors with right skills and expertise. However similar categorisation does not exist in public practise of accountancy in India.

Public accountants in India like Chartered Accountants / Cost Accountants or Company Secretary can undertake accountancy / audit work for any client irrespective of size of the client ie. small company or large company or partnership or level of expertise of the work audit, compliance audit like tax audit / excise audit, corporate finance, corporate recovery, forensic, tax, people services, transaction services, and risk advisory.

Majority of Accounting firms in India are small in size and they are plenty in number. The public practise is primarily driven by the government notification and compliance services. So they would not like to come out of the comfort zone and their accounting bodies lobby with the government to get such.Moreover there is little incentive for them to go for advisory or consulting assignments since that would involve skills and expertise and continue to do what they are doing.

The advisory / consulting practise assignments are done by Big 4 accountancy firms (who call themselves as network of firms) or large accounting firms and their skills / expertise are continually enhanced as they work at multinational level.

The pointers to my thoughts are whether the regulating bodies in India are addressing the current issues faced by various stakeholders ?

India has an extremely low ratio of one CA for every 9,000 persons - Mr Rahul Roy. How it can be addressed ?
Indian businesses are increasingly being organised. Look around you will find Shopping Malls, freight companies, courier companies etc which 20 years earlier was run by government or sole proprietors.
The government is issuing notifications every other day for certification of documents to be submitted to government authorities. Is it the time to have an accountants with lesser expertise who can perform certifications.
Certified Accounting Technician courses by ICAI/ICWAI. ICAI has attempted to convert the Inter CAs to CAT. What is the benefit of CAT qualification to the holder of the qualification. Can he practise ?
Will the users of accounting services benefit when there is a tier in practitioners of accounting services. (A parallel example, you can go to an optician for checking whether you have number in your eye, but you go to ophthalmologist better guidance due to his expertise in the area).
Is there a classification of accountants in practise based on expertise, so that you as a member of public know who to go for a service ?
Are you happy with how the accounting profession is regulated in India ? Do you feel there are unregulated firms that provide accounting services can be brought under regulatory umbrella
Is there a need to have another accounting body who members would specialise in compliance based audits for government authorities
Will practising accountants oppose such changes ? What does Code of Ethics say ?

Is tier based accounting qualification / practise required for India benefit the public. Will it help to regulate the profession better.(Unregulated accountants offer book keeping services )

Example:

Tier 1 - Accounting Technician

They should be to provide book keeping services, filing minor returns to small companies

Tier 2 - Inter passed of CA/ICWAI - (For namesake let me call them Certified Accountants)

They would able provide accounting services for small/medium companies and can do compliance based audit prescribed by government authorities(selected audit assignments). They cannot offer advisory / consulting services. The skill/expertise required for compliance audit is less since it is question of applying the rules correctly.

To give an example: If you are asked to compute current ratio, then it is matter of applying formula. However whether current ratio 2.0 is appropriate for your company and industry then it would require expertise to comment since it will based on various factors.

Tier 3 - Fully qualified accountants like ICWA/CA/CS

They would provide services to medium / large companies offering full range of services work audit, compliance audit, corporate finance, corporate recovery, forensic, tax, people services, transaction services, and risk advisory. The focus of the practising firms should be able to go towards advisory services and would be able to compete with Big 4. (Just like Indian IT firms are competiting with MNCs).

A tier based structure for accounting qualification and practise in India would encourage more people to pursue accountancy. Each level of qualification would require passing of exams / practical training and membership. The practitioners should be regulated and monitored by an independent Public Oversight body.

And it will help to regulate the Accounting profession in India better. Moreover it would encourage the fully qualified accountants to raise the standards of public practice. With MRAs in place, it would help the Indian Accounting firms to open practises abroad.

I would invite your views on this subject keeping in mind the current issues / practises India is facing and solutions that would help to solve the problem (without referring to accounting bodies in UK/Australia/US where the business environment is capitalist).

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SAP FICO Year End Procedures

2009-11-06T16:11:00.000Z

We are approaching the year end. And those of you who are new to SAP year end procedure for FICO, I am listing the transactions or procedures you need to follow. This is an indicative list and you can tailor the year end procedures as per the requirements of your company or client.

This is also one of the interview questions for SAP FICO Consultants.

1. Pre-Year End/House Keeping - Actioned before Year End

1.a Confirm that balance carried forward account exists - Txn OB53
1.b Review Customer/ Vendor number ranges: Txn XDN1 for AR and XKN1 for AP
1.c Review Document number ranges for AP/AR/GL: Txn FBN1
1.d Review Document number ranges for Assets: Txn AS08
1.e Review Document number ranges for EC-PCA: Txn GB02
1.f Review Document number ranges for CCA: Txn KANK
1.g Review All program variants and variant variables: Txn SE16 and review table VARIT for Z* programs and other scheduled jobs
1.h Factory Calendar: Txn SCAL
1.i Open Periods Txn OB52
1.j Create Fiscal Year Variants 5 years ahead - GL Txn OB29
1.k Create Fiscal Year Variants 5 years ahead - Txn OA85
1.m Create Next Plan Year in CO - Txn OKEV
1.n Create Next Plan Year in PCA - Txn OKEQ
1.o Add new Activitiy Rates that will be required for the new period / year : Txn KP26 / KP97
1.p Add new Statistical key figures that will be required for new period / year Txn KP46 / KP97
1.q Check last closed fiscal year in FI and FI-AA Txn TBP
1.r Check customising using report RACHECKO
1.s Check Incomplete Assets using Report RAUNVA00
1.t Open MM period on the first day of the year MMPV

2. Period End Processing : Regular Month End Procedures

3. Mandatory Year End Processing: For Fiscal Year Change

3.a General Ledger Txn F.16
3.b Accounts Receivable Txn F.07
3.c Accounts Payable Txn F.07
3.d Fixed Assets

- Process depreciation in usual way
- Reconcile Asset Ledger with GL - Start Report RAABST02 to note the differences. Check the missing items using program RAABST01
- Execute Fiscal Year change Txn AJRW
- Execute Year End Closing program - Txn AJAB

3.e CO - Budget Carry Forward -

Copy Plan to Plan - Txn KP97
Copy Actual to Plan - Txn KP98
Copy Resource Prices - Txn KP9R

4. Financial Month End Reports

4.a General Ledger Reports - Txn FS10n
4.b General Ledger Line Items Display Txn FBL3n
4.c General Ledger Account Balances Report Txn S_ALR_87012277
4.d Structured GL Account Balances Txn S_ALR_87012279
4.e Trial Balance
4.f Financial Statements

Menu Path Accounting - Financial Accounting - General Ledger - Information System - General Ledger Reports - Balance Sheet Profit and Loss Statement - General

4.g Document Journal Txn S_ALR_87012287
4.h Compact Document Journal Txn S_ALR_87012289
4.i Document Listing - Txn SE38 Program RFBUEB00
4.j Extract for the Accumalated Historical Balance Audit Trail Txn S_ALR_87012314
4.k Report from the Accumalated Historial Balance Audit Trail Txn S_ALR_87012315
4.l Identification of Postings by Amount Txn S_ALR_87012282

5. Auditing Reports

5.a Financial Accounting Comparative Analysis F.03
5.b Gaps in Document Number Range Assignment Txn S_ALR_87012342
5.c Invoice Number Ranges Allocated Twice Txn S_ALR_87012341
5.d Changes to GL Accounts Txn S_ALR_87012308
5.e Changes to Customer Accounts Txn S_ALR_87012182
5.f Changes to Customer Credit Data Txn S_ALR_87012215

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Operating and Financial Review - OFR

2009-11-04T07:49:00.000Z

Non financial information in the form of additional reporting provides alongside the financial information in the annual report, provides a good insight to the stakeholders on the company.

In January 2008 the ASB issued a press notice reminding UK quoted companies of the need to follow the enhanced business review reporting requirements in the Companies Act 2006. The ASB believes its Reporting Statement on the OFR includes all of the new Companies Act 2006 requirements and that this statement continues to provide applicable best practice guidance for UK companies.

The Reporting Statement involves:

The specification of a number of principles for directors to apply when preparing an OFR; and the provision of recommended key elements of a disclosure framework to apply in an OFR.
The principles in particular make clear that the OFR should reflect the directors' view of the business. The objective is to assist members of the company (the current shareholders) to assess the strategies adopted by the entity and the potential for those strategies to succeed. While the OFR should focus on matters that are relevant to members, the information in the review will also be useful to other users.
The Reporting Statement sets out a framework of the main elements that should be disclosed in an OFR, leaving it to directors to consider how best to structure their review, in the light of the particular circumstances of the entity. It contains recommendations on the disclosures that should be made in respect of any Key Performance Indicators (KPIs) included in an OFR, but it does not specify any particular KPIs that entities should disclose, nor how many, on the grounds that this is a matter for directors to decide.

Case Study: This Business Review analyses the performance of the Tesco Group in the financial year ended 28 February 2009. It also explains other aspects of the Group’s markets, results and operations, including strategy and risk management.

Long Term Strategy: The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong, sustainable long-term growth by following the customer into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia, and more recently in the United States.
International: "How do you run successful business in so many countries ?" We’ve long understood that retailing is local. Each team on the ground is able to adjust our offer to each market because customers in China, for example, aren’t the same as those in Poland or South Korea,
Core UK: "Is every little helps still important ? " Making many small improvements in everything we do is what ‘Every Little Helps’ is about, because when we all work together on the little things, it amounts to a great deal. It’s more important today than it’s ever been – it keeps us focused on what matters most to customers.
Non Food: It’s been a challenging year for non-food as consumers around the globe have been hit by the economic downturn and are cutting back on non-essential purchases – but by keeping our prices low, improving our offer in key categories like electricals and clothing and giving customers more choice about how they shop, such as through Tesco Direct – we have outperformed the market.
Community and Environment: All communities have their own individual concerns and priorities and so each of our countries has its own Community Plan. Whilst the goals and targets are tailored specifically to each country, each plan is underpinned by five core promises: actively supporting local communities; buying and selling our products responsibly; caring for the environment; giving customers healthy choices; and creating good jobs and careers.
People and Customers: As a Group, we’re still investing hard and growing through the downturn, with sales growing by 15% last year. To handle that growth well, we need to bring skilled, experienced people through all the time to fill the thousands of jobs it creates. Take Fresh and Easy where our team has grown from 65 to over 2,500 in less than two years. Hundreds more will join us this year, so we can’t rely on bringing people in from other parts of the business. We need to develop our own talent locally and equip our people with the skills they need to be able to do the job and lead others. That’s why we’re absolutely committed to putting the best training plans in place making sure that all of our people have the opportunity to get on in the business.
Key Performance Indicators: We operate a balanced scorecard approach to managing the business that is known internally within the Group as our ‘Steering Wheel’. This unites the Group’s resources and in particular focuses the efforts of our staff around our customers, people, operations, finance and the community. Its prime focus is as a management tool for the company so that there is appropriate balance in the trade-offs that need to be made all the time between the main levers of management – such as operations measures, financial measures or delivery of customer metrics.
Risk and Uncertainties: To ensure the Group continues to pursue the right strategy, the Board discusses strategic issues at every Board meeting, and dedicates two full days a year to reviewing the Group’s strategy. The Executive Committee also holds specific sessions to discuss strategy on a regular basis. We have structured programmes for engaging with all our stakeholders including customers, employees, investors, suppliers, government, media and non-governmental organisations.

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World Best Companies 2009 - Your feedback

2009-10-29T08:10:00.004Z

World's 10 best companies to work for. This list was published in Fortune magazine in Feb 2009 as Top Employers. I have picked up the first 5 to know why they are at the top.

Company: NetApp : Rank: 1

Why: The essence of what fuels the quality of the workplace at NetApp is the high trust culture. Leaders reach out to employees, sharing information, support and time in a variety of ways. This generosity of spirit is reciprocated many times over, creating within NetApp its own version of a fail-safe networked organisation.

Company: Edward Jones Rank: 2

Why: 'Employees receive a whopping 149 hours of training on average a year, more than three times the 100 best average of 45. But Edward Jones doesn't just train people for the job they're doing. The management's philosophy is that employees who are passionate about their jobs will make the company a better place, so managers encourage people to develop skills even when they know the new skills will lead to a different job.'

Company: Boston Consulting Group Rank: 3

Why: BCG prides itself on its employee focused culture. 'Training opportunities abound, even for senior partners. All employees are encouraged to continuously learn, accept responsibility and take on challenges. BCG is viewed as an apprenticeship and most training actually takes place within the project team. Associates who commit to returning to the company after receiving an MBA are fully reimbursed for tuition, given a promotion and a raise. Administrative staff may be reimbursed upto two job-related courses per semester.'

Company: Google Rank: 4

Why: The company slogan is 'Don't be evil.' Google is famed for going all out to keep their employees happy. Professional development opportunities include classes on individual and team presentation skills, content development, business writing, executive speaking, delivering feedback and management/leadership.

Company: Wegmans Food Market Rank: 5

Why: Wegmans believe that good people, working toward a common goal, can accomplish anything they set out to do. They also believe that they can achieve our goal only if they fulfill the needs of our own people.

Find out what makes companies the best

I can assess from what companies look for in your to hire you or promote you. My Top 10 choice of words you should use during the interview and demonstrate in your job and career progression.

Passionate about their jobs
New skills
Learn
Accept responsibility
Take on challenges
Committed
Individual and team presentation skills
Can accomplish
Achieve our goal
Focused

Find out ...How to tackle tough interview questions

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BOGOF and Revenue recognition

2009-10-28T08:38:00.002Z

According to Linkshare on consumer research, adverts placed on the more mainstream social networking sites are unlikely to be effective as direct marketing tools.

The research, which surveyed 2,000 consumers, found just 5% of respondents considered adverts on professional social networks, such as LinkedIn and just 9% of adverts on personal social networking sites, such Facebook helpful in assisting their purchasing decisions on the web.

Vouchers, promotions and special offers were shown to be most effective way to encourage consumers to click on content displayed in banner ads and were also considered the least invasive form of online marketing at 11%. A resounding 59% said they thought that the promotions and offers available online were useful and only 19% of people had never responded to a voucher advert online.

So there has been a race by supermarkets like Tesco and Sainsburys or chains like Argos and Homebase to build their presence online. The marketing is more focussed on providing offers and discounts to the customer both online and in store.

The accounting standards have to be up-to-speed with the changes occurring in the business environment. An unclear standard may have an material affect on the financial statements.

TESCO published their Annual Financial Statements and accounting policies for revenue recognition are:

Revenue consists of sales through retail outlets.

Revenue is recorded net of returns, relevant vouchers/offers and valueadded taxes, when the significant risks and rewards of ownership have been transferred to the buyer. Relevant vouchers/offers include: money-off coupons, conditional spend vouchers and offers such as buy one get one free (BOGOF) and 3 for 2.
Commission income is recorded based on the terms of the contracts and is recognised when the service is provided.

Clubcard and loyalty initiatives

The cost of Clubcard is treated as a cost of sale, with an accrual equal to the estimated fair value of the points issued recognised when the original transaction occurs. On redemption, the cost of redemption is offset against the accrual.
The fair value of the points awarded is determined with reference to the cost of redemption and considers factors such as redemption via Clubcard deals versus money-off in-store and redemption rate.
Computers for Schools and Sport for Schools and Clubs vouchers are issued by Tesco for redemption by participating schools/clubs and are part of our overall Community Plan. The cost of the redemption (i.e. meeting the obligation attached to the vouchers) is treated as a cost rather than as a deduction from sales.

As a management accountant, you should be aware of the ever changing business environment and the accounting standards. I would also request you read the Annual Review of TESCO group as a case study.

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What is Unbundling

2009-10-23T11:30:00.002+01:00

Unbundling: The process of taking over a large company with several different lines of business, and then, while retaining the core business, selling off the subsidiaries to help fund the takeover.

Product bundling is a marketing strategy that involves offering several products for sale as one combined product. This strategy is very common in the software business (for example: bundle a word processor, a spreadsheet, and a database into a single office suite), in the cable television industry (for example, basic cable in the United States generally offers many channels at one price), and in the fast food industry in which multiple items are combined into a complete meal. A bundle of products is sometimes referred to as a package deal or a compilation or an anthology.

Recent Example:

NITEL faces unbundling - Oct 22, 2009 If proposals to unbundle Nigeria Telecommunications (Nitel) yield results, at least five new telecommunications companies will come into being in this densely populated African country.
These plans follow suggestions by the Nigeria Communications Commission (NCC) submitted to the National Council of Privatisation (NCP) for consideration.

The ball is now in NCP’s court, and the telecommunications industry believes that a green light would be crucial to enhancing employment creation, service delivery and competition.

If approved, Nitel would be split into five telecommunications companies, comprising Long Distance Licence, International Licence, Infrastructure (MTel) and DML Licence.

Unbundling may occur when a company purchases another for its most valuable divisions (its crown jewels) with little desire for the other aspects of the business.

References:

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Fair value accounting reform - IASB

2009-10-20T14:56:00.001+01:00

The International Accounting Standards Board (IASB) published a draft change to narrow the scope of its fair value or mark-to-market standard in July. It seeks to classify assets for valuation either at cost or at the going rate.

The measure was in response to calls from the Group of 20 group of leading economies to simplify fair value accounting rules in time for 2009 annual statements.

Policy makers blamed the rule for unnecessarily forcing banks to value some assets at depressed going rates amid extreme market turmoil, triggering huge writedowns and the need to recapitalise in a frozen credit market.

A key change will be much greater emphasis on the bank's business model so that many big banks in Europe with portfolios of low risk corporate or government bonds can value them at cost, rather than at fair value as they must do at present.

A ban on reclassifying of financial instruments has also been removed from the draft so that when business models change and become more focused on the longer term or are less risky, some assets can be valued at cost rather than fair value.

Sources:Reuters , IASB

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Did you google yourself - Tip to make your linkedin profile known

2009-10-18T08:44:00.002+01:00

Did you google yourself ? This is question which a professional person ask. The first thing the head hunters do when they hear your name or someone recommends your name, they search it on google. I was quite surprised when one of my colleague with whom I was working10 years ago called me up and told me you are everywhere on google.

Google places a high level of importance for people search to those who are registered on Linkedin and Facebook. You can search your name on google and you should see your Linkedin account on the search results.

A couple of days ago, I had written a step by step approach on how to book your domain name yourself. I feel every accounting or IT professional should have a domain name. Then they can redirect the domain name to their Linkedin or Facebook profiles.

Three simple steps:

Book your domain as your name. I prefer www.GoDaddy.com . You are free to choose your domain service provider.
Domain Forward: Domain forwarding lets you automatically direct your domain's visitors to a different Web site. See how . Also see www.santoshputhran.com . Forward the domain address to your linkedin or facebook profile.
Configure MX records on Google Apps: You can enable email delivery by modifying MX (Mail Exchange) records; you'll just need to point your MX records to Google. Click here for instructions on how to configure for Godaddy.

How will you benefit professionally:

You will have a personalised email id name@domain.com on Google Apps. Email looks professional ie no more name.surname@gmail.com but you will enjoy all the features of gmail.
Your domain name is visible in every email and so will be Linkedin or Facebook. Read Mashable advice on how to maintain the profile on Linkedin and Facebook for professional networking. You will come out of obscurity.
Participate in professional networking forum like CMA India Portal and give professional opinions and views on events. This will make you visible among professionals.
You should always spend money on yourself to professionally upgrade yourself rather than thinking too much on how much you can put in your pension fund.

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Adding value to business in a challenging global environment

2009-10-16T13:56:00.001+01:00

New ACCA report reveals best practice planning for finance professionals

'The report looks at how accountants add value to business in what remains a very dynamic and challenging environment,' said Tony Osude, ACCA acting director of professional development and one of the report's authors.

'We see finance professionals adding value in five areas that we call the five domains of finance - strategy, analysis, operations, custodial and regulation. We have used the finance function as a case study to demonstrate the role that professional accountants play and to identify the differences between the good and the great.

'The skills of finance professionals are examined, revealing that organisations and accountants have an opportunity to enhance the value they provide by understanding more clearly how and where value can be added in the business, and developing an operating model for finance that clearly aligns skill capabilities to this value provision. The report provides a framework for organisations assessing and reviewing the effectiveness of their finance function, and suggests how an optimal model can be derived.'

Source: ACCA Global

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How do I start my own website - 2

2009-10-13T11:12:00.006+01:00

In my last post, I had given the procedure how to book the domain name on www.GoDaddy.com . The next step is to build a website and configure email ids for your company. You have two choices

First Option

You can have a look at hosting plans at GoDaddy.com. I would suggest the Economy plans would be a good option for a small business, since it provides 1GB of space and 100 email. If you have more email accounts, then you need configure Outlook to download the emails on your local computer. GoDaddy also offers WordPress plans for blogging. So you have decide on your budget and then select the hosting plans that is suited to your needs.

Just to let you know I have hosted my blog http://iwaant.com on WordPress Hosting on Godaddy.

Second Option

This is the free option on Google Apps.

Why Google Apps ? Google Apps Standard Edition makes it easy for your business or group to communicate and collaborate online - and it's free. Tools include:

Gmail : Get custom email like hikingfan@your-group.com.
Google Calendar Organize your schedule and share events with your employees.
Google Sites Create websites and group wikis
Google Docs: Share online documents, presentations, and spreadsheets.

Simple steps to configure:

After you have booked your domain name on Godaddy, start here on Google Apps. Select the option "Administrator: I own or control this domain" and enter your domain name and continue with all the steps. This should register your domain name with Google Apps.

Google Apps will ask you to do two things:

Domain verification - CNAME Records: This will help google to verify that you are the owner of the domain. So you have do settings at Godaddy account as per the instruction in Google Apps. Then Google will fetch the information from Godaddy and verify the ownership. Click here for instructions
Configure Email Accounts - MX Records : You can enable email delivery by modifying MX (Mail Exchange) records; you'll just need to point your MX records to Google. Click here for instructions on how to configure for Godaddy.

After you done the above settings, it would take 24 to 48 hours for the changes to take effect. Till such time, you will notice on your Google Apps Dashboard, the status of various services as "Updating". Once google apps has established connection with your Godaddy account, it will show status as "Active". Now you are free to use the features of Google Apps for your email, website and documents.

You will notice, the default setting for Google Apps services will be set like this. Eg. Site will be

http://sites.google.com/a/domainname.com. Use the function Change url and select http://www.domainname.com. Do this for all the services. Now you have fully configured your Google Apps. For more help, on how to use various services on Google Apps, click here.

So if you are a small business or practising firm who does not want to invest on website and email ids, but at the same time want to have professional website I feel the second option would be a better one. But everything is your choice including the domain service provider.

Please discuss if you need any help.

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How do I start my own website - 1

2009-10-12T08:08:00.010+01:00

Starting your own business, it requires determination to go ahead with what you think you do the best. Then position your niche to make money. To position and advertise yourself in the market you need a website. There is a general impression that creating a website is expensive and maintaining email ids would require expertise. Here are simple steps to how you can do it yourself.

Simple steps to create your own website. - Part 1

1. Book your domain on www.GoDaddy.com . There are other domain registrars like 123-reg or Network Solutions , Yahoo but I prefer www.GoDaddy.com

2. After you visit GoDaddy, change the country and region of your choice (top right hand corner). It is very easy. See screenshots below

3. Start Domain Search. Enter the website name you want to register. You should enter the name with a www. or .com. www.GoDaddy.com will suggest you various domain names available. In this instance, I am searching for availability of domain cmamanmohan either .com or .net

So I enter the domain name in the box provided and hit Go.

There are many suggestions available for me to decide. If the domain name is already booked, then start your search again with a new name.

4. After you select your domain name, click on "Add and Proceed to Checkout". GoDaddy will prompt you to book for related domain name with .net or .org. So you have the option to buy them at this instance.

At this instance, I am clicking on "No Thanks" and proceeding further. This will take me to the checkout page, where I make the payment and register my domain name.

This is the first step of booking your own domain name.

In the next post, I will cover on configuration of website and email id registration

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Defence against hostile takeovers

2009-08-29T09:19:00.001+01:00

Every group is potentially subject to takeover. There will be a price at which the shareholders may be induced to sell their shares. If the bid is received, then the directors may consider and recommend accepting the offer to the shareholders. A problem arises when a publicly quoted company receives an unwelcome bid with a clear objective of buying the group at a price below the value that the management put on it.

How to defend against hostile takeover - Strategies

Pac-Man defence

A defensive tactic used by a targeted firm in a hostile takeover situation. In a Pac-Man defence, the target firm turns around and tries to acquire the other company that has made the hostile takeover attempt. This term has been accredited to Bruce Wasserstein, chairman of Wasserstein & Co.

Poison Pill

The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills:

1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.

2. The "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.

Crown jewel defence

The crown jewel defence is a strategy in which the target company sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity. Consequently, the unfriendly bidder is less attracted to the company assets. Other effects include dilution of holdings of the acquirer, making the takeover uneconomical to third parties, and adverse influence of current share prices.

Scorched-earth defence

When a target firm implements this provision, it will make an effort to make it unattractive to the hostile bidder. For example, a company may agree to liquidate or destroy all valuable assets, also called "crown jewels", or schedule debt repayment to be due immediately following a hostile takeover. In some cases, a scorched-earth defence may develop into an extreme anti-takeover defence called a "poison pill".

Golden parachute

A golden parachute is an agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is unspecified. These benefits may include severance pay, cash bonuses, stock options, or other benefits.

Fatman

The targeted company acquires a large and/or under performing company in order to decrease it attractiveness to the raider.

Other defences are also used against hostile takeover.

Sources: Wikipedia , Investopedia

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An Agenda for MCA - Accounting bodies India

2009-08-01T09:39:00.001+01:00

Dear Mr. Rahul Roy,
director, Ernst & Young India Pvt. Ltd.

I refer to your article "An agenda for MCA" on Business Standard and agree with your views on Independent regulator with oversight over the profession, Quality Review Board, amendment to Acts on ICAI, ICWAI and ICSI and Indian accounting body being represented in the global regulatory body.

I have a different view on merging the accounting bodies in India for administrative reasons and cutting costs. Having a single accounting body may its own advantages, but the question is it in public interest?

The questions that comes to mind are

Should we have

One University in India that provides all courses ?
One car company that can provide cars on economies of scale ?
One telecom company for the country
Single party for democracy and governance.
Should the accounting and internal audit department be merged to save costs.

During pre-liberalisation era, when things were highly controlled, the quality suffered since the public had no choice.

Accounting in India today.

The ICAI/ICWAI Acts: The scope of respective Acts are for regulating the members in the respective profession. Both the Acts under Section 2 outlines the scope of practise. However some of the practice areas are determined by other laws which may not be in harmony with section 2 of ICWAI/ICAI Act (recent amendment in Central Excise Act). The legalisation were passed in 1950s and 1960 to control and regulate the profession of accountancy by government.

Today, there is no independent body for setting Accounting Standards or Audit Standards or an independent regulator in true sense in India. And the government leans on ICAI to take up the roles wherever there is a gap. According to press note of MCA dated 13th May 2008

"The work of formulating down accounting standards for the companies operating in India was initiated when the Institute of Chartered Accountants of India (ICAI), a statutory body regulating the accounting profession in the country, first took up this task in 1977".

However, the accounting standards prepared and issued by the ICAI were mandatory only for its members, who, while discharging their audit function, were required to examine whether the said standards of accounting were complied with. With the amendment of the Companies Act, 1956 through the Companies (Amendment) Act, 1999, accounting standards as well as the manner in which they were to be prescribed, were provided a statutory backing."

Who can practice accountancy in India?

An individual can practice accountancy in India when he is a member of ICAI. Similarly public can only avail accounting services from a member of ICAI. The reason ICAI - it has statutory backing for almost 99% of accountancy practice in India. Is it not unfair that public has very little choice? Public have choices for choosing a professionals like lawyers, doctors, architect or an engineer who have qualified from any university in India. These professions are also regulated profession by Medical Council of India, Bar council etc. However there is little choice in case of accountancy profession.

You had mentioned

"As against developed economies which have an average of one chartered accountant (CA) for every 800 people in its population, India has an extremely low ratio of one CA for every 9,000 persons."

Countries like UK/USA/Australia/Canada have multiple accounting bodies. Further they have independent regulators to set standards and the accounting bodies have to ensure their members provide services, uphold ethics as per the standards and in public interest. As there are multiple accounting bodies, the public have the choice to avail services from member of any accounting body and they do have choice to become the member of any recognised accounting body to practise accountancy. You may also observe that logical choice for E&Y, India is to hire and train members of ICAI rather than members of any other accounting body. This may not be the case in E&Y in UK where they hire and train members of ICAEW, ACCA, CIMA, ICAI etc.

The foundation of democracy is the public institutions act as a check and balance so that no single institution dominates or acts against public interest. I feel, India should adopt a similar approach.

Recent Legislations

Indian economy has been developing at a fast pace, so she has to keep up the pace of reforms and legislations.

E.g. Competition Act 2002. The objective

An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.

(c) "cartel" includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services;

This makes it necessary for ICAI / ICWAI Act being amended and scope redefined so that rules are in harmony. The accounting bodies in India advise their members on minimum fees to be charged for the services provided to their customers / clients. The design of the ICAI / ICWAI Acts is regulate their own members, (and not a regulatory body in true sense) they may fall under the definition of cartel as association of service providers. As a responsible public accounting bodies in India, ICAI/ICWAI should have advised the GOI on making amendment in light of new laws !!!

India had been adopting and customising legalisations from the developed countries. However there is a gap between the old laws and the current laws adopted since the old laws are not updated fast for the framework to be effective.

I feel, India needs a radical changes in Regulatory Framework in Accounting wherein there are independent bodies to set accounting / auditing standards performing and accounting bodies to train their members to perform those roles. There should be one more body in India like ACCA, UK or CPA, Australia where the training route is through working with the business. The accounting bodies may retain their specialisation. The practice areas should be equally available to all accounting bodies. But they have to demonstrate they have resources, procedures, technical standards in education and CEP / CPD programmes so that their members are able to perform accountancy services under various Acts. This will ensure a level play in a regulated environment.

The regulatory body reviews the standards on an ongoing basis which should compel the accounting bodies and their members to raise standards in public practice. In democratic India, Public accountancy bodies should play an active role and advice their stakeholders like government, members, business on the ever changing business environment. And they should keep keep each other bodies in check and balance and in public interest.

With Regards,

Santosh Puthran

Sources:

Press Note from MCA http://www.mca.gov.in/MinistryWebsite/dca/press/press/Accounting_Standards-Press_Note_16may2008.pdf
Section 2.2 of ICWAI Act http://www.icwai.org/icwai/docs/cwa-act-2006.pdf
Section 2.2 of ICAI Act http://www.mca.gov.in/MinistryWebsite/dca/actsbills/pdf/The_Chartered_Accountants_Act_2006.pdf
Sec 25 (1) of ICWAI Act Sec 24A of ICAI Act http://cmaindia.informe.com/forum/accountancy-profession-in-india-f124/sec-25-1-of-icwai-act-sec-24a-of-icai-act-t1597.html
Word "Chartered" hot debate in India http://www.managementaccountant.in/2006/12/word-chartered-hot-debate-in-india_05.html
Members to be known as CharteredAccountants by virtue of Section 7 http://www.mca.gov.in/MinistryWebsite/dca/actsbills/pdf/The_Chartered_Accountants_Act_2006.pdf

IASB Framework - Financial Statements

2009-07-24T14:30:00.004+01:00

This is a guest post by CMA Devarajan Swaminathan. He has over 10 years post qualification experience in Accounting, Auditing, Finance as well as Management Accounting. He is the proprietor of Devarajan Swaminathan & Co - Cost Accountants.

View CMA.Devarajan Swaminathan's profile

The International Accounting Standards Committee Foundation (IASC Foundation) Constitution mentions about the IASB Framework twice, once in paragraph 29 and another in paragraph 43.

Paragraph 29 of the IASC Foundation Constitution reads like this:

Each full time and part time member of the IASB shall agree contractually to act in public interest and to have regard to the IASB Framework (as amended from time to time) in deciding on and revising standards.

Paragraph 43(a) of the IASC Foundation Constitution reads like this:

The International Financial Reporting Interpretation Committee (IFRIC) shall interpret the application of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and provide timely guidance on financial reporting issues not specifically addressed in the IAS’s and the IFRS’s with the context of the IASB Framework and undertake other tasks at the request of the IASB.

The International Accounting Standards Board Framework or the IASB Framework or the Conceptual Framework is the framework for the preparation and presentation of Financial Statements.

The IASB Framework was approved by the IASC Board in April 1989 and adopted by the IASB in April 2001.

The purpose of the IASB Framework is to assist and guide the IASB to develop new or revised standards and to assist the preparers of financial statements in applying the standards and dealing with issues that are not specifically addressed by the Standards.

The Framework does not have the force of a Standard. Therefore, in case of a conflict between the Standard and the Framework, the Standard will prevail over the Framework.

The Framework deals with:

1. The objective of financial statements

2. The assumptions on the basis of which the financial statements are prepared.

3. The qualitative characteristics that determine the usefulness of information in financial statements.

4. The definition, recognition and measurement of the elements from which the financial statements are constructed and

5. Concepts of capital and capital maintenance.

Objective of Financial Statements are:

The objective of financial statements is to provide information about

Financial Position:

The balance sheet presents this information. The financial position of an enterprise is affected by the economic resources it controls, its financial structure, its liquidity and solvency, and its capacity to adapt to changes in the environment in which it operates.

Performance:

Performance is the ability of an enterprise to earn a profit on the resources that have been invested in it. Information about the amounts and variability of profits helps in forecasting future cash flows from the enterprise's existing resources and in forecasting potential additional cash flows from additional resources that might be invested in the enterprise. The Framework states that information about performance is primarily provided in an income statement.

Changes in the financial position of an entity.

Users of financial statements seek information about the investing, financing and operating activities that an enterprise has undertaken during the reporting period. This information helps in assessing how well the enterprise is able to generate cash and cash equivalents and how it uses those cash flows. The cash flow statement provides this kind of information

The Assumptions on which the financial statements are prepared include:

Accrual basis of accounting: The effects of transactions and other events are recognized when they occur, rather than when cash or its equivalent is received or paid, and they are reported in the financial statements of the periods to which they relate

Going Concern: The financial statements presume that an enterprise will continue in operation indefinitely or, if that presumption is not valid, disclosure and a different basis of reporting are required.

The qualitative characteristics that determine the usefulness of information in financial statements are:

Understandability

Information should be presented in a way that is readily understandable by users who have a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently.

Relevance

Information in financial statements is relevant when it influences the economic decisions of users. It can do that both by

(a) Helping them evaluate past, present, or future events relating to an enterprise and by

(b) Confirming or correcting past evaluations they have made.

Materiality is a component of relevance. Information is material if its omission or misstatement could influence the economic decisions of users. Timeliness is another component of relevance. To be useful, information must be provided to users within the time period in which it is most likely to bear on their decisions.

Reliability

Information in financial statements is reliable if it is free from material error and bias and can be depended upon by users to represent events and transactions faithfully. Information is not reliable when it is purposely designed to influence users' decisions in a particular direction. There is sometimes a tradeoff between relevance and reliability - and judgement is required to provide the appropriate balance. Reliability is affected by the use of estimates and by uncertainties associated with items recognized and measured in financial statements. These uncertainties are dealt with, in part, by disclosure and, in part, by exercising prudence in preparing financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgement needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, prudence can only be exercised within the context of the other qualitative characteristics in the Framework, particularly relevance and the faithful representation of transactions in financial statements. Prudence does not justify deliberate overstatement of liabilities or expenses or deliberate understatement of assets or income, because the financial statements would not be neutral and, therefore, not have the quality of reliability.

Comparability

Users must be able to compare the financial statements of an enterprise over time so that they can identify trends in its financial position and performance. Users must also be able to compare the financial statements of different enterprises. Disclosure of accounting policies is essential for comparability.

Elements of Financial Statements

Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics.

Recognition of the Elements of Financial Statements

An item is recognized when it is included in the financial statements. It is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition:

• It is probable that any future economic benefit associated with the item will flow to or from the enterprise; and

• The item's cost or value can be measured with reliability.

Matching principle is a useful concept where it considers whether an asset arises when liability is recognized and vice versa. It is the principle of matching expenses with income.

The following elements are directly related to financial position (balance sheet) are:

Assets

Definition: An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.

Recognition: An Asset is recognized in the balance sheet when it is probable that the future economic benefits will flow to the enterprise and the asset has a cost or value that can be measured reliably.

Liability:

Definition: A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Recognition: A liability is recognized in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably.

Equity:

Definition: Equity is the residual interest in the assets of the enterprise after deducting all its liabilities.

The following elements relates to performance:

Income.

Definition: Income is the increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities of an enterprise. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence, they are not regarded as constituting a separate element in the IASC Framework.

Recognition:

Income is recognized in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities (for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising from the waiver of a debt payable).

Expense.

Definition: Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the enterprise. Expenses that arise in the course of the ordinary activities of the enterprise include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment. Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the enterprise. Losses represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence, they are not regarded as a separate element in this

Framework.

Recognition:

Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment).

Measurement of the Elements of Financial Statements

It is probable that any future economic benefit associated with the item will flow to or from the enterprise; and the item's cost or value can be measured with reliability. Based on these general criteria:

Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognized and reported.

The Framework acknowledges that a variety of measurement bases are used today to different degrees and in varying combinations in financial statements, including:

Historical cost

Current cost
Net realizable (settlement) value
Present value (discounted)

Historical cost is the measurement basis most commonly used today, but it is usually combined with other measurement bases. The Framework does not include concepts or principles for selecting which measurement basis should be used for particular elements of financial statements or in particular circumstances. However, the qualitative characteristics do provide some guidance.

Concept of Capital and Capital Maintenance:

The framework distinguishes between a financial capital and a physical concept of capital.

Under Financial Capital maintenance, profit is earned if the financial amount of the net assets at the end of the period exceeds the financial amount at the beginning of that period, after excluding distributions to and contributions from the owners during the period.

Under physical capital maintenance concept, a profit is earned if the physical productive capacity (or operating capabilities) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the productive capacity at the beginning of that period after excluding any distributions to and contributions from the owners during that period.

Conclusion: The above framework is subject to amendment. The IASB along with FASB is working on a Conceptual Framework which is expected to be ready by 2010.

References have been heavily drawn from:

1. www.iasb.org

2. http://www.iasplus.com/agenda/framework.htm

3. IFRS Practical implementation, guide and workbook by Abbas Ali Mirza, Magus Orell, Graham.J.Holt, Second Edition, a John Wiley Publication.

Accounting Bodies or Cartels - Competiton Act India

2009-07-13T11:26:00.008+01:00

I was reading the provisions and objectives of the Competition Act 2002 and then relating it with how accountancy is regulated in India by Acts of Parliament like ICAI Act, ICWAI Act and ICSI Act.

An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.

(c) "cartel" includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services;

(f) "consumer" means any person who—

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first-mentioned person whether such hiring or availing of services is for any commercial purpose or for personal use;

(m) "practice" includes any practice relating to the carrying on of any trade by a person or an enterprise;

u) "service" means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate,transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising;

Will ICAI, ICWAI and ICSI Act, fall under the definition of cartel ?

ICAI Act: The institute of Chartered Accountants of India is a statutory body established under Chartered Accountants, 1949 for regulation of profession of Chartered Accountants in India. ( ICAI Website).

ICWAI Act: An Act to make provision for the regulation of the profession of cost and works accountants. BE it enacted by Parliament in the Tenth Year of the Republic of India. See ICWAI website.

The scope of the accountants under the respective act is defined in Clause 2 of Section 2 of their respective Acts. Moreover the council of the institutes issue notification to their members for recommended minimum fees to be charged.

1. As per provision of clause 2 of Section 2 of the Chartered Accountants Act 1949, reproduced below--
“A member of the Institute shall be deemed “to be in practice”, when individually or in partnership with chartered accountants [in practice], he, in consideration of remuneration received or to be received—
(i) engages himself in the practice of accountancy; or
(ii) offers to perform or performs services involving the auditing or verification of financial transactions, books, accounts or records, or the preparation, verification or certification of financial accounting and related statements or holds himself out to the public as an accountant; or
(iii) renders professional services or assistance in or about matters of principle or detail relating to accounting procedure or the recording, presentation or certification of financial facts or data; or]
(iv) renders such other services as, in the opinion of the Council, are or may be rendered by a chartered accountant [in practice]; and the words “to be in practice” with their grammatical variations and cognate expressions shall be construed accordingly.”

And

As per provision of Section 2 of the Cost and Works accountants Act 1959, reproduced below—
“Save as otherwise provided in this Act, a member of the Institute shall be deemed “to be in practice” when, individually or in partnership with one or more members of the Institute in practice, he, in consideration of remuneration received or to be received
(i) engages himself in the practice of cost and works accountancy; or
(ii) offers to perform or performs services involving the costing or pricing of goods or service or the preparation, verification or certification of cost accounting and related statements or holds himself out to the public as a cost accountant in practice; or
(iii) renders professional services or assistance in or about matter of principle or details relating to cost accounting procedure or the recording, presentation or certification of costing facts or date; and interpretation thereof or,
(iv) renders such other services as, in the opinion of the Council, are or may be rendered by a cost accountant in practice;
and the words “to be in practice”, with their grammatical variations and cognate expressions, shall be construed accordingly.”

Members of the respective institutes have defined areas of practice vide the provisions of the respective Acts under the administration of the Ministry of Corporate Affairs

Recommended Fees

See ICAI website for Revision of Recommended scale of fee chargeable for the work done by the members of the Institute. Other guidelines on ICAI website.

In a competitive environment, you can fix Maximum Retail Price and producers are free to charge price less than MRP. However it is not the case with Accounting bodies in India where they have published the minimum fees to be charged and members are bound by the notification from their respective body.

The other objective of the Competition Act is "to ensure freedom of trade carried on by other participants in markets, in India".

Accountancy is regulated in almost all the developed countries and India is no exception. Most of the rules in India are derived from the UK or best the practices across the world. UK also a Competition Commission

The Accounting Framework is more developed in the UK so that no single body has an influence on the Accountancy profession. The public/consumers have a choice of availing services from any 6 accounting bodies. Moreover they can practise accountancy by being member of any of the accounting body. In India, there are only two accounting bodies and their role are mutually exclusive (more or less).

The Accounting Standards are set by an independent board, ASB, in the UK. In India, the accounting standards are recommended by ICAI and then approved by NACAS. So ICAI calls the shots in all the aspects of Accounting. Moreover Press notification No. 1/5/2001-CL.V dt 13th May, 2008 from Ministry of Corporate Affairssubscribes to the view that not enough have done for checks and balance of regulation of accountancy profession in India. ICAI took the task of framing accounting standards and the Companies Act was amended in 1999 to provide a statutory backing. and Indian Competition Act has been drawn in similar lines as the UK.

2. The work of formulating down accounting standards for the companies operating in India was initiated when the Institute of Chartered Accountants of India (ICAI), a statutory body regulating the accounting profession in the country, first took up this task in 1977. However, the accounting standards prepared and issued by the ICAI were mandatory only for its members, who, while discharging their audit function, were required to examine whether the said standards of accounting were complied with. With the amendment of the Companies Act, 1956 through the Companies (Amendment) Act, 1999, accounting standards as well as the manner in which they were to be prescribed, were provided a statutory backing.

Competition Act 2007 is a recent addition of rules to protect the interest of consumers and public in India. In the UK, the accounting profession is regulated and no single accounting body can influence the profession. However with the advent of Competition Act in India, the acts enacted earlier needs to be relooked or else they would fall under "Cartel" by definition under Competition Act. Having two accounting bodies with mutual exclusive objectives is not in public interest in India as there is little or no competition within the meaning of the Competition Act.

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ICWAI recognised by CPA Australia

2009-07-12T07:22:00.002+01:00

From 1 June 2009 if you held, or hold, full membership of a professional body recognised by CPA Australia you can apply for Associate membership.

An assessment of your professional qualifications will be conducted to determine your eligibility. The examinations you completed as part of your membership will be considered in regards to our core knowledge requirements, and the result of your eligibility for Associate membership will be advised accordingly.

Recognised professional bodies

* The Association of Chartered Certified Accountants (ACCA)

* The American Institute of Certified Public Accountants (AICPA)

* Chartered Institute of Management Accountants (CIMA)

* The Chartered Institute of Public Finance and Accountancy (CIPFA)

* Certified General Accountants Association of Canada (CGA-Canada)

* The Society of Management Accountants of Canada (CMA Canada)

* The Hong Kong Institute of Certified Public Accountants (HKICPA)

* The Institute of Certified Public Accountants of Kenya (ICPAK)

* Institute of Certified Public Accountants of Singapore* (ICPAS)

* The Institute of Chartered Accountants in England and Wales (ICAEW)

* The Institute of Chartered Accountants of India (ICAI)

* The Institute of Chartered Accountants in Ireland (ICAI)

* The Institute of Chartered Accountants of Pakistan (ICAP)

* The Institute of Chartered Accountants of Scotland (ICAS)

* The Institute of Chartered Accountants of Sri Lanka (ICASL)

* The Institute of Cost and Management Accountants of Pakistan (ICMAP)

* The Institute of Cost and Works Accountants of India (ICWAI)

* Malaysian Institute of Accountants* (MIA)

* Southern Africa Institute of Chartered Secretaries and Administrators (SAICSA)

* The South African Institute of Chartered Accountants (SAICA)

*CPA Australia will require to see your degree qualification(s). You will be required to supply a certified true copy of your degree and transcripts with your application form.

For CPA Australia to determine your eligibility you will be required to provide:

an Associate application form
a certified true copy of a membership certificate or letter of good standing explaining you held / hold full membership (the letter or certificate does not need to be current)
a certified true copy of your examinations and results for your professional qualifications
100 points of identification
the membership fee

Source: CPA Australia

17-April-10: I noticed a change in recognition as CPA no longer recognises accounting bodies from the above list. See international affiliates.

The Institute of Chartered Accountants in Australia is yet to recognise ICWAI qualification for the purpose of skilled migration assessment.

Members of ICWAI who wish to migrate to Australia should apply with CPA Australia for a successful outcome.

This is a great news of members of ICWAI and ICWAI for recognition of qualifications abroad.

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The Organization Structure of the IASC Foundation

2009-06-13T08:07:00.006+01:00

View CMA.Devarajan Swaminathan's profile

IFRS or The International Financial Reporting Standards are the accounting standard norms that Companies globally have started to adopt. India is committed to prepare its financial statement based on IFRS from 2011 onwards. An attempt is made here to understand the DNA of the Organization, namely the International Accounting Standards Committee Foundation or the IASC Foundation, which has taken on the responsibility to frame International Financial Reporting Standards and how India is represented in this structure (at least till now).

In writing this article references have been heavily drawn from the IASB website www.iasb.org , IASC Foundation Constitution and the book IFRS Practical Implementation Guide and Workbook – 2nd Edition by Abbas Ali Mirza, Magnus Orrell, Graham .J. Holt, a John Wiley Publication.

The International Accounting Standards Committee Foundation or the IASC Foundation is the parent body or the Organization.

A little back in History:

From 1973 untill 2001 the body in charge was the International Accounting Standards Committee (IASC). IASC was created in 1973 between the professional accountancy bodies in 9 countries and from the year 1982 its membership comprised of all the accountancy bodies who were members of the International Federation of Accountants (IFAC). The principle significance of the IASC was to encourage national accounting standard setters around the world to improve and harmonize national accounting standards.

The members of the IASC who were Professional Accountancy Bodies of the world delegated the responsibility to the IASC Board. The IASC Board was responsible for all activities including standard setting activity. The Standards adopted by the IASC Board were known as the International Accounting Standards (IAS).

ORGANIZATION STRUCTURE

The IASC Foundation:

The constitution of the International Accounting Standards Committee Foundation (IASC Foundation) was approved in its original form by the erstwhile International Accounting Standards Committee (IASC) in the year 2000 and by the members of the IASC at a meeting on 24th May 2000.

The erstwhile IASC Board had appointed a nominating committee to appoint the first Trustees. In execution of its duties the first trustees formed the International Accounting Standards Committee Foundation on 6th February 2001.

There is a key difference between the erstwhile IASC and the present IASC Foundation. The members of the IASC were the accounting bodies of the world who were also the members of the IFAC. The IASC Foundation does not have such a relationship with these global accounting bodies.

The IASC Foundation is an independent not for profit private sector organization. Its Governance rests with its 22 Trustees.

It receives funding in the form of donations from Organizations, Accounting firms, Central Banks and Capital Market Regulators amongst others. The funding of the IASC Foundation is based on four principles.

In its Annual Report of 2007, the Foundation received funds of approximately 11.28 Million Sterling Pounds. 26 Countries contributed. Of these, 174,358 Sterling Pounds was India’s contribution. Contributors from India include the RBI, ICICI, Infosys, Grasim Industries, Bharti Airtel, Tata Sons, Satyam Computers, L&T and RIL.

It is interesting to note that International Accounting Firms contributed 3.24 Million Sterling Pounds approximately 28% of the Total Funding received by the Foundation. Firms included PWC, Deloitte, E&Y, KPMG, Grant Thornton, BDO and Mazars.

The governance structure within IASC Foundation comprises its key parts namely:

1.The Monitoring Board

2.The Trustees

3.The International Accounting Standards Board (IASB)

4.The International Financial Reporting Interpretation Committee (IFRIC)

5.The Standards Advisory Council (SAC)

The Monitoring Board:

Although the governance of the IASC Foundations rests with the Trustees, the Monitoring Board plays a pivotal role as the crucial link between the Trustees and the Public Authorities that have generally overseen accounting standard setters. This link between the Trustees and the Monitoring Board is established by way of a Memorandum of Understanding (MoU). Such a MoU will be made available to the public. A draft of the MoU is available on www.iasb.org. The process of getting the MoU signed between the Trustees and the Monitoring Board is already in process.

The monitoring board has the authority to participate in the process and the appointment of Trustees. It has the authority to overlook whether the trustees are discharging their duties in accordance with the constitution. The Trustees make an annual written report to the Monitoring Board.

Initially the Board comprise of

1.A responsible member of the European Commission.

2.The Chair of the IOSCO Emerging Market Committee.

3.The Chair of the IOSCO Technical Committee

4.The Commissioner of Japan Financial Services Agency

5.The Chairman of the United States Securities Exchange Commission and

6.As an observer, the Chairman of the Basel Committee on Banking Supervision

India as is apparent is not represented on the Monitoring Board.

The Trustees:

The Trustees of the IASC Foundation are responsible for its Governance including funding. The Trustees are publically accountable to the Monitoring Board of the capital market authorities.

According to the present trustee distribution, the Trustees comprise of 22 individuals. 6 Trustees have been appointed from the Asia Oceanic region, 6 Trustees have been appointed from North America, 8 Trustees have been appointed from Europe (although the constitution has provided only for 6 from Europe), 1 Trustee from Brazil and 1 Trustee from South Africa (although the constitution provides for 4 from other regions).

India is represented by Mr. Mohandas Pai of Infosys.

The Trustees are initially appointed for a period of three years.

The trustees are, in addition to the governance of the foundation, responsible for the appointment of the members of the International Accounting Standards Board (IASB), the International Financial Reporting Interpretation Committee (IFRIC) and the Standards Advisory Council (SAC). They also have the power to terminate non performing members of the above board, committee and council.

The International Accounting Standards Board (IASB):

The IASB is responsible for all standard setting activities, including the development and adoption of IFRS. The IASB comprises of 14 members that is to be increased to 16 members. The members of the Board are a mix of practical experience in standards setting process, or as a user, or accounting, academia or from the preparer community. The Trustees appoint the members of the Board.

The present distribution of the Board is 6 members from Europe (although the constitution provides for 4), 4 Members from Asia Oceanic (the constitution provides for 4 members from Asia Oceanic), 3 members from North America (although the constitution provides for 4), 1 from South Africa (the constitution provides for 1 member from Africa) and 1 from Brazil (the constitution provides for 1 member from Latin America). That takes the tally to 15 members.

The constitution also makes it amply clear that the work of the IASB will not be invalidated by its failure at any time not to have representation in accordance with the geographical allocation laid down in the constitution. Members of the IASB are appointed for a term of up to 5 years, renewable once.

Mr. Prabhakar Kalavarcherla is a member of the ICAI so can be said to represent India.

At the time the IASC Foundation was constituted first, the IASB adopted all IAS issued by the erstwhile IASC. The existing IAS continues to be operative till the extent it has not been amended or withdrawn by the IASB. New standards issued by the IASB are called the IFRS. Collectively IFRS includes both IAS and IFRS.

The International Financial Reporting Interpretation Committee (IFRIC):

The interpretative body of the IASC Foundation is IFRIC. It is responsible for developing guidance on the interpretations of the application of both the IAS and IFRS. Such guidance on interpretation would be on financial reporting issues not specifically dealt with in the IAS and IFRS. It would also be on those issues where there are conflicting or divergent interpretations in the absence of an authoritative guidance.

IFRIC comprises of 14 members appointed by the Trustees for a renewable period of three years. No specific geographical allocations have been spelt out in the constitution.

Going by the profile of the existing members that comprise the IFRIC it is apparent that the committee does not have representations from India.

The constitution provides that the Trustees, as they deem necessary, appoint non voting observers representatives of the regulatory authorities who shall have the right to attend and speak at the meeting. Accordingly, IOSCO (International Organization of Securities Commission) and European Commission are presently the Observers.

Standards Advisory Council (SAC):

The members of the SAC are appointed by the Trustees. The objective of the SAC is to advice the IASB on agenda decisions and priorities. The constitution provides that the council may comprise of 30 or more members. No geographical allocations have been specified. Members appointed on the council would represent a wide group of organizations and individuals who are affected by or with an interest in international financial reporting.

Conclusion:

With so many organizations, institutions, individuals, countries that are participating in this exercise of creating an Organization that will eventually issue Reporting Standards that will be adopted globally, it remains to be seen how the various committees, councils, trustees steer away from the political pushes / compulsions to have a high quality standards drafted and issued. The IASC Foundation has a Conflict of Interest Policy in place but the same was not available on their website for download and for me to include it here. India has to increase its participation in the entire process to ensure that its interest is addressed appropriately.

Book Name     :     UNDERSTANDING IFRSS
Author Name   :     T P GHOSH
Price                :     INR 1500 | USD 112.5
Edition             :     2009

ISBN No. :     978-81-7194-528-3
http://www.taxmann.net/bookshop/productdetail.aspx?pid=1494

The book is available in Mumbai at Sertling Book Depot in Fort.

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