Will SME enjoy the great support now?

Every one knows that not all SME will make the way to be big enterprise. But, many big enterprises had been SME in the early day.

We may like to read books written by those founders about their struggle to build big enterprises from small companies. Certainly, we cannot follow their ways because the situation is different now.

I believe that there is no magic formula to achieve any of our dreams. Of course, for those who have not prepared to go up, there will not be any chance at all.

The accounting standards have been applied to SME. So SME may not feel good about it.

Now, IFAC has prepared a good guide, "Business Planning Guide: Practical Application for SMEs". It is free for registered visitors. That is the only way to get it because it is not for sale now.

This guide covers everything from business strategy to marketing and from analysis to financial ratios. I personally believe that this is a good guide for a lot of SME because most of them may not use such type of tools to analyze their business.

Perhaps it is good to say that anyone in SME must know about such type of financial analyzing tools. Otherwise they may not have a chance to develop their companies or themselves.

Standard financial reports and financial ratios are not suitable for big corporations only.

Could accountants refuse to cook the book?

Recently I have found an article in the cpanet.com and quite interesting to find that it was originally published in 1996.

The article is "Cooking the Books and Other Ethical Dilemmas" and it is good to read it.

Cooking book is nothing new. Yet I believe that accountants were forced to do so. Certainly, there were a few cases that the accountants did that for his/her own benefit. I shall discuss that in another day.

As we all aware of, the ethics for professional accountants and auditors are hot topic today. I do not say that such works are unnecessary as there are many cases related to the top international audit firms. But after checking with historic cases, it is easy to confirm that the accountants had to choose between losing the jobs or to cook the books as ordered.

To be a good accountant is never easy. I should mention now that I have worked as accountant for twenty years, the longest career of my life till now. I had risked my job several times because I interfered with my GM's decisions. It is certain that I was lucky because all GMs were good guys even though they had different concept about management.

In other words, if you have a bad boss, you can never be a good accountant. You may be forced to do unethical work either for the personal benefit of the boss or to avoid paying tax. Both cases may have you in prison.

There was a case in HK about a financial controller in a bank. The manager ordered him to transfer a big amount to the manager's account. Later, the manager was charged with stealing money from the bank. The judge insisted that the financial controller was guilty and gave him a prison term of a number of years. From outsiders' viewpoint, that financial controller must had a part of the stolen money. In fact, we know that he might not have anything. In business, there are cases that the boss had to deal in personal operation to avoid many restrictions. Therefore, transferring money to your boss without proper documents may be usual practice for some corporations.

We must not forget the reality that accountants have to obey the order from superior or boss. If we hope that the ethics of accounting can be applied, then the ethics of executives would make or break it.

For the time being, I would like to remind new accountants. If there is any bad thing happened and you have all the reasons to fight against your boss, you are still guilty, not by the law. No boss will hire you because they may have the same attitude. There are no lessons to teach about what to do and how to avoid going to such situation. That is needed now, I would say.

Certainly, not all bosses are bad. Everyone should agree that there are very few bad accountants too. A few cases already put the accounting in a hard time. Why there was nothing about executives' ethics with certain cases including the recent one, Fannie Mae. Is it because the lack of professional bodies to govern executives?

The problem of accounting - tax shelter

We have seen some cases accusing the accounting for false financial reports etc.

Since we do not have all details, it may not be easy to determine whether the concerned accountants had done anything wrong.

Although I do not accept the general concept that most Chinese firms had several sets of accounts, yet it is certain that some of them would be so.

Of course, anyone, Chinese or American, general merchants or millionaires are always trying to avoid paying tax. Just read the tax shelter cases by KPMG, it is easy to know that even Americans are not exception.

Why people want to avoid tax? Let's not spend time talking about patriotism, that is something in wartime only. Anyone may not be happy to pay part of the earning, especially when the total tax reached a big amount.

Tens of years ago, I met a female manager from USA. She told me that many people who had similar level like her were not aggressive anymore because they would get very little with any increase of earning due to the high percentage of tax above their level.

The next person to mention was a photographic student of my photo course years ago. He had a company and was recruiting an accountant. He said that during his interview for accountant, the applicant had refused to prepare false accounts to avoid tax first. After a few months, the applicant came back and accepted his terms.

Tax shelter is a nice term that looked legal. Of course, we know that it is not so even that had been a tool for the top auditor firm and a lot of big corporations might have joined too.

There are many ways; some are specific for certain conditions that create a lot of gray zones. We may blame those lawmakers. Yet we must know that the business world has evolve much faster than anyone can master. Many governments have to attract foreign investment or to support various development and therefore offering certain policies that would not be harmonic with the existing taxation regulations.

I do believe that governments are confident with their taxation departments and anyone trying to get away would be caught sometimes later.

Anyone who has enjoyed tax shelter or any similar way to avoid tax might believe that the taxation department would be fooled easily. Remember that all taxation departments have millions of company reports and their leaders have the same qualification if not higher than any accountant or auditor. Perhaps some accountants and owners never have the chance of looking at such huge volume of data and never be aware that statistic is a great tool to investigate or locate any suspects.

If you have cheated your taxation and not yet caught by the government, it is not that you are cleverer, it may be the maximum penalty for your case is not listed on top yet. See, it is costing again that determine who would be selected for trial.

There is no game theory to offer any guide. But with gambling experience, it is just not worthwhile to bet for a little gain against possible huge loss.

Will accounting be renamed?

There are many changes for accounting, viz. financial reports, code of ethics etc.

It is not completed yet. Changes are coming; who knows what we have to face in the future.

If an accountant has not followed closely, he/she may suddenly fail to read any accounting report in the future. Not only the "Profit & Loss Statement" has been changed to "Income Statement", even the "Balance Sheet" may be changed to something else.

Alongside with the Standards, the IFAC has done a lot of work for education. This is important for future accountants to know the new standards. Of course, no one should say that accountants must learn also. It is certain that if we are not going to retire soon, we must upgrade to meet the accounting standards.

When I work for the Hong Kong version, the SME-FRS by HKICPA is the first of its kind. It is said the IFAC will come up with the SME standards later this year. Will the HKICPA's SME-FRS remain unchanged? I believe that minor changes could not be avoided. As everyone knows, an international body would always have their own way even regional one has done everything right. The change may be 1-3-2 instead of 1-2-3, or just a few new terms to replace.