SME's Financial Reporting Standards

Percentage of SMEs should be the highest in most countries. Although the concern for the societies would not be the same as public corporations, yet IFAC are working on the standards for SME and expected to come out before the end of 2006.

HKICPA (Hong Kong Institute of Certified Public Accountants) is the first professional body to work out standards in 2005 for SME, SME-FRS of HKICPA. I have mentioned that it is the major reference to my accounting systems.

Of course, I do believe that the standards for SME by IFAC would not be the same, possibly with a few additional requirements.

So it is worth to note the outcome of the coming forum, IFAC SMP Forum, that will take place in Hong Kong on Jul. 3, 2006. Unfortunately, I cannot be accepted because the participation is limited to members.

There are two topics, viz. off balance sheet items and CEO's responsibilities for the account reports.

Off balance sheet items may not be applied to SME this time, as guidelines for public corporations has not been confirmed yet.

CEO's responsibilities for account reports should be considered in my view.

Everyone knows that any wrong doing in accounting might be due to the bad accountants or the CEOs. If it were supposed that accountants have to take responsibilities of any accounting problem, then it would be the riskiest job instead.

Accountants of public corporations can argue with the CEOs because there are rules and regulations governing. Accountants of SMEs have no such reference in hand and they have two choices only; either works as told usually without written order or to quit. The sad truth is that anyone refusing his/her boss' order is a lifetime and universal vice that would cost him/her the career for the rest of his/her life. This is confirmed by the fate of the whistle blower of ENRON case. For me, it seems that our society failed to protect whistle blower while expecting such heroic act to safeguard our investment. That is another topic that I shall discuss later.

Without stating that CEOs of SMEs should be responsible for the account reports, it is the accountants to be blamed for any wrongdoing that might not be his/her own. That is not a fair guidance at all.

We may say that guidance and standards from IFCA or HKICPA are not laws. That is different from the accounting standards in China. But we must know that governments will always rely on these bodies to enforce laws and such reference will be taken by courts too.

Disqualifying is a career dead sentence for professional accountants.

Whether the coming IFAC's accounting standards for SMEs will include such statement remains uncertain. We have to wait until it comes out later this year.