Archive for the 'Financial Accounting' Category

Is true competition coming to consulting?

Published on July 12, 2011 in Financial Accounting and Management Accounting. 0 Comments

It’s often difficult, as a small independent consulting business, to get a look-in at some of the work that bigger businesses could offer us – why?

Well, in a nutshell, many medium to large businesses go straight to their auditors when they need some financial or business consulting or interim work doing – why?

It’s easy.

But easy isn’t always best, and it certainly isn’t best value.

Although they may assume that their auditor knows their business, so that they can hit the ground running, my experience tells me that this is often not the case. And many of the ‘big four’ charge a small fortune for relatively inexperienced resource.

The good news (for independent consultants) is that Michel Barnier, the EU Internal Market Commissioner, is contemplating banning audit firms from offering consultancy services to companies whose books they also check. The statement (as part of a speech to a Federation of European Accountants conference in Brussels) is part of an ongoing review of auditor independence which has been questioned since the run-up to the financial crisis.

Barnier is planning to publish draft law by November to include curbs and perhaps even a ban on auditors offering consultancy services to the same companies they audit.

The draft law will be of great interest to the big audit firms, and consultants alike.

Consult.Autus, as a small financial and business consultant and ICAEW member firm, is looking forwards to the longer term improvement in competition…

Are you ready for the ‘new’ lease accounting rules?

Published on March 8, 2011 in Financial Accounting. 0 Comments

Further to my missive of last June (Possible Changes to Lease Accounting), the International Accounting Standards Board (IASB) have been moving forwards relatively quickly, and it looks like the bulk of the proposals at that stage – which were issued in draft last August and could be finalised as early as June 2011 – will be coming into force all too soon.

A Deloitte’s survey (albeit US-based, but likely to be equally applicable locally) suggests that, despite some quite significant changes in the way companies will account for many leasing transactions, only a small proportion of them are ready for the proposed changes.

As usual for this sort of change, major alterations to data collection, back-office systems and statutory reporting are likely to be required. Over 80% of respondents expect a significant burden to be placed on financial reporting for lessors as well as lessees; perhaps more importantly, over 40% believe it may affect their ability to obtain financing. Practically, the requirements may actually affect lease terms, and many companies may have to invest heavily in new or improved systems. Obviously, the larger a company’s lease portfolio, the larger the potential impact.

The proposed standards, as previously stated, require all leases to be capitalised on the company’s balance sheet – operating leases may be no more!

So, perhaps there is an impending lesson for UK organisations (both private and public sector) with significant numbers of leases (whether lessor or lessee) – start planning for the changes well in advance, as it’s unlikely to be an easy ride…I would have to ask – do you need some help with that?

Mervyn King in defence of Accounting?

Published on November 22, 2010 in Financial Accounting. 0 Comments

There seems to have been a working assumption in the past that any problem involving ‘numbers’ was automatically the fault of the accountants. [I have to say, in my experience, this isn’t too far from the truth at an organisational as well as a macroeconomic level!].

However, maybe those (partially blinkered?) days are numbered following Bank of England governor Mervyn King’s statements last week speaking during a Parliamentary Inquiry Lords committee which has already directed some of the blame at accounting. The Committee is investigating the contribution to the crisis of both accounting standards and the audit profession.

King told a Lords committee that it is ‘misguided’ to blame accounting rules [for banks’ behaviour]; instead, he highlighted the problem of poor management.

The accounting rules in question were various complex IFRS standards adopted by the UK from 2005 which may have inadvertently encouraged banks to load their balance sheets with overpriced assets. The standards effectively obliged banks and other companies to value their assets at market price – clearly this inflated balance sheets in the run up to the crisis; of course, as soon as liquidity issues started to strike, then the same methods sent valuations crashing. The complexity of the rules may have led to banks ‘forgetting’ that judgements of prudency may override any accounting rule.

In support, Tim Bush, a member of the Accounting Standards Board’s (ASB) Urgent Issues Task Force (UITF), pointed to other accounting rules on impairment, contingent liabilities and securitisation as others that may have contributed to the problem. He said that “I believe that these deficiencies were a major factor in the banks that failed in the UK and Ireland”.

Mervyn King stated that “no management should ever use accounts as an excuse for imprudent behaviour”.

Whilst the inquiry continues, perhaps people might start to see accountants as one partner in the overall business management process rather than keepers of ‘anything with a number in it’.

Of course, any finance professional worth their salt will always work as business advisor to the management, and not blindly follow the rules!

The Future of UK Financial Reporting

Published on August 3, 2010 in Financial Accounting. 0 Comments

There is, apparently, a ‘flurry of activity’ at the ASB as it develops a new accounting framework for UK entities…

The proposals, tentative at this stage following consultation, are intended to apply to all non-public sector entities. The framework proposes that ‘tiers’ are adopted, based on levels of public accountability:

  • Tier 1, for entities with public accountability (application guidance on the definition will be provided), will report under EU-adopted IFRS.
  • Tier 2, for entities with no public accountability, will report under IFRS for SMEs, replacing existing FRS and UITF Abstracts with the IFRS for SMEs with certain amendments.
  • Tier 3, for small entities, will report under FRSSE.

As well as the above, the ASB proposed to reduce disclosure requirements for subsidiaries in tiers 1 or 2 (without public accountability) and whose parent produces publicly available financial statements.

The ASB’s will be developing a FRED for consultation. To this end, it has issued a request for responses to aid an impact assessment, to be received by 20 August.

No doubt once the final edicts are issued by the ASB, the incorporation of IFRS into UK Reporting will be clearer. We will see what the next steps are…

Possible changes to lease accounting

Published on June 29, 2010 in Financial Accounting. Closed

Long-awaited developments in lease accounting may need work doing now…

The complications of lease accounting, and differing treatments of similar contracts, continues to cause problems for both preparers and users of accounts. The FASB and IASB are working to release an exposure draft (ED) later this year which may effectively remove the distinction between finance and operating leases and therefore their accounting treatments.

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