accounting

Will Financial Reporting Standards for SMEs be successfully established?

2008-05-31T19:18:00.000-07:00

It has been almost half a year after the end of comments for the standards of FRS for SMEs. There is no announcement from IFAC so far.

The other alternative, XBRL, is moving forward and may become the only required standards.

Is it so difficult to establish the global standards for financial reporting of SMEs? It may be so if they consider in details for all the different requirements among all countries. It is not so hard in my opinion. The top level standards should be in principle. It is not possible to deal with difference among a huge number of regions. That is not possible to do.

This situation is putting a burden to my project. That is why I have to dig deeper and be sure that my clients can meet any final turnout.

Certainly, there is no technical difficulty for me. The only concern is that how many SMEs intend to have true accounting reports.

The answer may be simple, but will it be applied?

2008-01-29T02:48:00.000-08:00

A good question is asked and the answer looks familiar, "What can be done to avoid accounting fraud scandal?".

Will there be any other answer? That is what I have the interest to know.

Most of us understand what is internal control and we may wonder why case like Société Générale could happen. If such financial body would fail, most others should be even worse. The only difference is just luck, not management at all.

Perhaps we need to have an accounting report of how many big ones had failed in front of the world for these years. We know how much a CEO had earned. We cannot know they were worth the amount at all. Good outcome might not be for their work. If one fails to protect the corporation from any scandal, he/she should not be a CEO. If one can sell, he/she is just a sales, not a CEO. If one can create, he/she is just a developer and not a CEO.

May be a CEO would better be a jack of all trades. At least, he/she should know more about accounting unless he/she is the bad sheep.

The next move: Internal Control Standards

2007-12-14T01:39:00.000-08:00

We are talking about accounting reports standards, the GAAP, SME-FRS etc. All these may not be the remedy at all if there is no internal control. "Executives say poor internal controls contribute most to fraud" is a proof that we should know.

Some may realize that big corporations should be better. But, remember the biggest frauds are related to big corporations. If a corporation has internal control on paper, it is just window dressing only.

Due to my project, I always have the same questions to explain. Why my accounting module does not have invoicing function? Yes, there are lots of accounting programs with invoicing functions. The reason is simple. I understand internal control and the accountants should not handle invoicing. That is the basic management unless it is a one-man company. Some may say that SMEs cannot afford to have two employees to handle accounts and invoicing. I shall not complain anything because these SMEs will not have the insight to manager, not to say developing at all.

When topic like management is mentioned, HK people always supposed that the SMEs in mainland China would be lack of any system. But there is a rule in mainland China that cashier and accountant must be handled by different employee. Why? Money and accounts with the same employee is the top cause of fraud.

I can neglect this problem and follow the others. It is a simple task as I have been working with custom programming for years. But I cannot accept that my products would lead to frauds. Same as before, I have to be responsible to the clients as a company. If I do not care about this, I should be rich years ago. The only drawback for me is the 'know'. Ignorant may be the better way for business. Get the money and do not care whether the product will lead to damage fro others.

Of course, I shall work on the Invoicing as a separate module. Simple invoicing program or traditional stock control is not suitable for today. That is why I need further investigation to come up with a better design for invoicing etc.

It has been mentioned already internal control will be another part of understanding the healthiness of a corporation. I believe that this will be other standards for SMEs.

Something right and something wrong

2007-12-13T01:21:00.000-08:00

Reading "PCAOB fines Deloitte $1 million", I think that this is a right decision. At least someone has to be punished for not performing the duty. Not only we need such organization everywhere, these reports should be widely published. In fact, governments must support this type of accusations.

Reading "Accounting Errors Cause Plunge in VeriFone Share", I feel that there is something wrong in our time. When the result was manipulated to meet or even better than expectation, the shares surged, lots of people gained and happy. When the manipulation was discovered and the result adjusted, the shares plunged, lots of people lost and unhappy. So it seems that the discovery was the bad one because of loss. By accounting, the gain is balanced by the loss and the value might remain unchanged. The only problem is someone gained and someone loss. In fact, that is the way of stock market. If one is the unlucky one, he/she will blame the timing of discovery, not until he/she sold the stocks. That means if there was no error, it is not attractive any more. Of course, the endless estimation of profit to push up the market is the tool today. This would force some CEOs to risk their career because there is no way out if performance was below the market's estimation. It is interest to know how many CEOs get away without discovered. May be we can never know. The GAAP, FRS etc. should be a good thing, otherwise bad practice will never go away.

Everything is accounted for Accounting

2007-12-05T00:25:00.000-08:00

Perhaps it is the problem with English. Whenever any counting is accounted for, it is already the accounting's problem. Accounting is done by accountant, right? Therefore accountants are responsible for every bad thing. Good things are most likely be enjoyed by CEO, Chairman or boss.

To count the votes of a beauty Pageant does not need an accountant. A grandma or a Japanese chimp would be fine. When counting is wrong, see "Accounting error changes results of beauty pageant", it is the accountant who has counting error. Why not ask an accountant to count the sperms when we make love? Why not ask an accountant to count the lies our leaders had said?
It is ridiculous for an accountant to involve with such entertainment event. May be the paid is high, I do not know. But one thing is certain, we never have an accountant to count the presidential election. Does this mean accountant is not capable to do serious cases?

If an accountant fails to count votes, who will trust such accountant? That is why Financial Reports are hard to trust because accountants cannot count simple things properly.

Shame! Shame! Shame!

Limited liability for limited trust

2007-11-11T03:08:00.000-08:00

We might blame the auditors for their errors leading to huge loss either through stock or investment. So some cases lead to class action against auditors for compensation. That is based on the opinion of the share holders or investors.

By reading "Accountants consider limiting their liability", it seems that the fact may be true that their fee would not be justified for the chance of unlimited liabilities.

Now, it is again the problem of the whole system. As I have pointed out earlier, the meaning of audited reports should be adjusted. 'Audited' is not fraud proof; it just means someone outside the corporation has read the reports and without guarantee that there was no error or fraud.

Perhaps we need to have something added to the audited report, declaring the auditor's fee as well as how much will be liable if there is any problem. Our judgment will be based on this information. Certainly this would lead to some new approach or knowledge. Great, every new prospect would create a lot of jobs or fortune from researching, training etc.

I do not mean that the suggestion to have limited liabilities is wrong. It is a fact because they have to face legal challenge and possible huge financial bearing.

The recent case "PwC defends audits faulted by PCAOB" makes us wonder if auditors did not work seriously or did not perform auditing, how can we know? Yes, we have to trust usually. Now this case talks about quality of audit. Like someone says we need auditing for auditors. That is a sad thing when we have to worry about someone whom we trust. By adding another layer of audit may not be perfect since fraud would happen again with higher level.

So what should we do? Well, if you want to invest, remember that it is like gambling. If you want to buy anything, there is no evidence but guess work.

Remember the source of fraud, not the auditors, not you or me, it is the leadership and the corporate governance. We have tons of theories, tons of empty talks. Nothing seems to be true. The only truth is our luck. May be we are lucky not to invest in the wrong share. May be we are out of luck when bad thins happened. That's it.

Who will be responsible for invisble value in account?

2007-09-09T03:09:00.000-07:00

One thing that is not clear. Whenever there is accounting problem, the accountant is the first suspect and in most cases there is no way out for the accountant even if he/she has to do so by order.

This may be the first report, "When Balance Sheets Collide With the New Economy", talking about something that may not be initiated by accountants.

When the Economy is involved, when the future of the enterprise is involved, when the top management demand so and so to meet the new environment, no accountant can refuse by putting unrealistic value to the book, in other words, cooking the book.

If it is said that new accountants have been trained about related valuation methods, then accountants will face another risk if they have to do so by them. Can they refuse to put higher valuation when their superior asked? Can they prove that they had not mistake when bad things happened?

Of course, no one will be blamed if fortune or gain is obtained. Of course, someone will be blamed if there would be loss. Who? Certainly, it is the accountant.

As the world now looks for money and money by hook or by crook, there is no way to avoid frauds, a new type after one another, hopefully not bigger and bigger. But one thing is sure; it will not be good days ahead for accountants. Perhaps, accountant will become the riskiest job in the present time.

Cooking book becomes a must for listed companies?

2007-08-17T18:34:00.000-07:00

Perhaps book cooking technique will become part of CEO's talent.

This news, "Dell to Restate Earns, Misled Auditors", may represent many similar cases. Of course, this reminds us about other frauds like Enron.

If this becomes a common practice for listed companies, all investors will lose confidence and the financial markets would be hard to survive.

Audited financial reports are the only way for all to know the situation of these corporations. If management can cook anyway they needed, say to meet market expectation or to hide anything, then investment would be worse than gambling.

For my accounting experience, it is fortunate for me to work in a branch of international company that my CEOs did not have the authority to order me to cook anything. My work was based on the accounting principles and documentation controls set by the head office.

As I have mentioned before, accountants have no way to oppose when their CEOs asked them to cook the books. The only way is to resign, but that means the end of one's career. It is very hard to choose. In other words, accounting career is not a good choice anymore today.

Is there any solution to the present situations? Unless there is some laws to enforce, I do afraid that such frauds will be a common things for the future. Any CEOs would try their best to cook the book to keep their position and hope that a better future might save them.

The real problem SOX faces, the auditor

2007-07-05T03:00:00.000-07:00

We may believe that any accounting violation would be the corporation's misbehavior.

With SOX, GAAP and FRS, it seems that we have the solution.

The first outcome is earning for auditing firms jumped, but not the quality of audited report.

Just check PCAOB inspection report on CPA firm Grant Thornton and I believe that PCAOB would not point out without evidence, e.g.

"In some cases, the conclusion that the Firm failed to perform a procedure may be
based on the absence of documentation and the absence of persuasive other evidence,
even if the Firm claims to have performed the procedure. PCAOB Auditing Standard
No. 3, Audit Documentation ("AS No. 3") provides that, in various circumstances
including PCAOB inspections, a firm that has not adequately documented that it
performed a procedure, obtained evidence, or reached an appropriate conclusion must
demonstrate with persuasive other evidence that it did so, and that oral assertions and
explanations alone do not constitute persuasive other evidence...."

Audit report? Just a copy only!

2007-06-25T03:07:00.000-07:00

With more cases coming out, it seems that either our concept about audit report is wrong or it should have a new name.

"PwC withdraws reports for bankrupt oil firm Yukos"

"BDO Seidman snags guilty verdict"

If you read these reports, you may agree with me that audit may have a new meaning, "an uncertain dressing inappropriately true".

Of course, there is nothing wrong with the accusation about missing information and fictitious invoices. Basing on such saying by top audit firms, then it is the audit reports readers' problem.

May be we do not need auditing at all because there is no way to safeguard against frauds. Or we may need another level of auditing, the audit of audited reports.

Ever since the Enron case, there is too much bad news about accounting. So what is the ethics that required now? Oh, just for examination only.

A new site for UFASS

2007-06-09T06:23:00.000-07:00

In order to promote the UFASS and support clients, I have a new site, www.ufass.com.hk. Besides information about UFASS, there will be other supporting development later for SMEs in HK and Macau. Orders will be accepted as from July 1, 2007.

My other site, accounting.uscforesight.com, will change to information about accounting, IFAC's international standards etc.

Now IFAC has a global survey about Financial Reports, IFAC Launches Survey on the Financial Reporting Supply Chain. All SMEs should try their best to join this survey. That will help IFAC to work for better and suitable standards.

I do believe that regional standards will be applied for some more years. Of course, it depends on how the international standards to meet regional specifications.

As mentioned in the new website, it is not only the standards, all SMEs, especially their CEOs, will need to manage the finance better. A sound management establishment needs suitable tool, my UFASS will be one of their choices.

Finally, UFASS will be available

2007-06-01T05:37:00.000-07:00

It has been postponed one month, two months and I did not know when I would finish the project.

Some told me that it was normal for IT project. I admit that there is no other way because I needed time to figure what to do with some difficult topic.

The basic goal of the UFASS project is to meet the Financial Reporting Standards, regionally for HK and Macau.

That is not hard for me because I have accounting and programming experience almost simultaneously. Reason for me to take up programming is because at that time I needed to prepare reports and I found that the available programs failed to give any support for me. So I asked my boss to buy a PC for me and a tool to get the data from the IBM 36, then I started to write programs to meet my needs.

So what are the problems?

First, it is a certainty that one day all financial reporting would be required to meet international standards. It is on the way as IFAC expected to have the final version at the end of 2007. Therefore, I need to be sure that UFASS users can face such change without additional works.

Second, since big accounting frauds got the attention of everyone, CEOs have to take the responsibilities whenever such frauds happened. Of course, there are many cases that accountants were forced to do bad things due to bad CEOs or CFOs. That is not my concern because bad CEOs, even the corporations belong to SME group, will not be my clients. The best tool for them is Excel etc. that they can change anything they like. For my future clients, I have to prepare a way so that CEOs can access to the accounting easily.

By further investigation, I read the reports from ACFE, viz. 2006, 2004 and 2002. I admit that I have astonished from the reports that accountants had been on top of white-collar crime. If you are owner or CEO of SME and have not yet read these reports, you must read it because you may not aware of some dangerous concept we have.

In fact, I do not mean to work against accountants. Definitely now, I had been one of them for over twenty years and I got the experience of how hard for accountant to work when every other one in the office just failed to meet any documentation requirements.

My UFASS will offer an efficient tool for accountants to meet the new requirement and a management tool for CEOs to safeguard against frauds. It is the system that we need to guarantee everyone is doing the right thing. Good guy may turn bad if there is the chance and some unexpected urgent need.

When I first read management books years ago, I did admire the American way of management. It is based on system control and not human relationship, performance instead of years of services etc. Unfortunately there are many top ones in American tried to override the good system for personal gains and we have lots of examples.

Well, I have decided that I need a date for me to offer UFASS to clients. Now, I have a new website for promotion, UFASS.COM.HK, starting today (Jun. 1, 2007) and orders will be accepted from Jul. 1, 2007.

The worst is not yet over

2007-05-07T01:18:00.000-07:00

It has been some years from the Enron case. We may suppose that most accountants are suffered from the consequential burden, SOX, GAAP and FRS.

The saddest thing is to review and refresh the ethics of accountants. For years, accountants should be the most reliable employee of any corporations. Of course, it depends on how much we know. Just by reading the White-collar crime reports, we can find that accountants were listed on top, unfortunately.

With the latest news:

PCAOB: Ernst & Young Signed Without Evidence from CPAnet.com

Fannie Mae Accused Of Deceiving KPMG, Its Former Auditor from washingtonpost.com

We are astonished to learn that even famous auditing firm was found to be so irresponsible. We are also astonished to find that auditoring firm accusing client with the obvious reason to avoid responding from something wrong or the failure to audit.

Should we trust auditing anymore? Should employers trust accountants anymore?

Certainly, it is a complex world now and all those controlling systems and management that developed long ago may be relaxed now. Yes, I say 'relax'. The systems may be outdated, but the principles should remain effective. For a long time, I do envy the corporations in America who run the entity with systematic control avoiding personal wrong-doing. Now, it is obvious that someone on top had over-taken the system and went back to the ancient time of governing.
Recently, someone told me that some accounting programs had invoicing function. It is horrible to have such kind of program. Accountants should not be allowed to prepare invoices. This is a very basic management concept. I really wonder why after so many years of managing experience, we still have some employers failed to understand the basic management requirement. That is to say if an accountant would steal money from the corporation, his/her employer should be blamed for instead.

With internet, it is a simple search to learn about white-collar crime. Anyone can spend less than an hour to learn that billions every year were lost due to the misconduct of accountants and executives because of bad management.

Too big to manage or leadership problem?

2007-03-16T02:34:00.000-07:00

It may not be astonishing to find that big brother like GM would have such "mistake".

If you have read "G.M. Says It Has Found Serious Flaws in Accounting", you may agree that even the one that famous for management and most of us try to learn from their leadership has the same problem.

Of course, the excuse means that leadership failed to manage, especially facing the sensitive period of Financial Reporting. Or perhaps, leadership was always relied on luck. If there is nothing wrong, then the top ones enjoyed the fame of great leadership.

Perhaps one of my fallacies can be proved again. One must have wisdom to get to the top. Afterward, it is the huge remuneration that makes one busy, not for work, but for counting the money. Therefore, one would not have the same performance any more.

The difference might be without the proper way to investigate before that we did not have cases like that. Now with the GAAP and SOX, we may never short of such news now or in the future.

Finally, I can say when UFASS will be ready

2007-02-23T05:41:00.000-08:00

With repeated delay, I have to keep silent about when my UFASS would be available.

Although many told me that delay is common for IT projects, yet it is not good to have such kind of happening.

The principle problem is not with the Financial Reporting Standard (SME-FRS) that I have solved long ago. Major reason is the intention to have everything acceptable to me as an user. With numerous trials for each part, I have to change a lot for each until satisfaction.

Of course, as experience told me, satisfaction has a time stamp. Perhaps the same thing will have another improvement next week. Therefore, the test must be done again and again.

Everyone may accept that there is nothing perfect forever. Yes, that is the truth.

However, any product must be usable for some periods, say, a number of years. That is what I would accept and that is what my customers would be too.

The UFASS (Universal Foresight Accounting Standard Systems) will be available for order on/about March 2007. There will be Hong Kong and Macau versions.

Account within account

2007-02-14T07:05:00.000-08:00

From "Merck in $2.3 billion tax settlement with IRS", it seems that this huge fine may have a provision, according to the news, from 1993 to 2001. I do have the interest to know whether there is any profit from such act, but it may not be possible to have any details.

To avoid tax is nothing new, perhaps from the very first day of taxation. Of course, it depends on the size of corporation for different result. With taxation, it is usually handled in a flexible manner so long as tax would be paid.

The technique matters most and it is a game for the big ones. Most SMEs will have hardship to face the tax for a number of years because there is no provision or an account within the account.

For some, by following such practice without the required technique or conditions, all gains from years may be lost. In the worse case, there will be penalty if not imprisonment too.

Be protected from not protecting the others

2007-01-25T23:37:00.000-08:00

We all learnt that many suffered from cases like Enron. We may feel sad for Andersen and we may feel that the consequence thereafter has been too much, too much for all accounting.

That is the fact of protecting investors. They trusted the auditors and their reports. Perhaps we can say that the auditors' charge had included the risks alongside with the responsibilities.

Now, according to "SEC accountant wants to limit liability", it is now the time to protect the auditors especially the remaining big four. Certainly, for big auditing firm, a mistake in a case should be counted for the whole organization. There should be many good auditors without such mistakes. I had said that there were many accountants in Andersen suffered greatly, especially those who had worked for couple of years. Without any mistakes, yet difficult to find another job for their age, the years of hard work to get the qualification and to build status in a big firm had been in vain. Time will not be recovered for them.

But, can we say that auditors should not be blamed for corporate fraud? If so, then can we trust the audited reports? Or, can it be a percentage of truth only because of limited liabilities?

We may have to consider what the meaning of audit. If we have to accept an auditor would not be responsible completely, then it is better not to have auditing at all. The difference in percentage will not help investors since either high or low percentage the risk is real.

This needs a better solution and much solid reasons to validate such claim as my title, "Be protected from not protecting the others".

What is audited reports?

2006-12-18T01:54:00.000-08:00

SOX, FRS, ethics etc. bother all of us.

We may blame ENRON etc. because of their wrong doing.

But, there are cases like this one, Fannie Sues KPMG Blaming Former Auditor For Huge Restatement, that give us something to consider.

What is audited reports? Does audited mean something bad. Can we trust audited report again?

Be honest, any mistake that summed up to billion would never be any typing or careless mistake. We do not need specialists to tell us about this.

Someone said, in face of huge money, everyone would be a prostitute. But there is a great difference, we never trust prostitute so we never be cheated.

That means, someone with status might not be compared to a prostitute in term of morality.

One truth we can learn nowadays. Ethic is only for those who had done nothing wrong and have to share the burden.

Is the accountant innocent or sacrifice?

2006-11-18T02:31:00.000-08:00

Have your read, "Enron's top accountant gets 5 years"?

Let's assume what had happened. The CEO or director wanted the accountant to cook the account book. If the accountant refused, what would be the outcome? He/she would be fired by any reason, of course.

If it was a fraud that CEO or director wanted to steal money from the corporation, it is simple to know that the beginning would not be so written, something like transferring money for some confidential deals. Could the accountant refuse to follow the order?

So, it was told that such transfer would not be recovered and if case was discovered, everyone involved including the accountant could not stay away from prosecution. Up to such situation, the only way for all, including the innocent accountant had to take more money for any purpose either just to enjoy as much as time allowed or to hide away before being caught.

If you were the accountant of Enron at that time, what other choice you had? Resignation might be the best way out. But remember that before the fraud was discovered, that CEO would not give any good reference to you. Instead, he might put you in hell and no one would hire you. In other words, you were unlucky and sentenced to professional death.

That is the tragedy that we are facing. That is why I have mentioned that accountants are lack of any training to foresee such situation. Worst of all, no one would care for someone who spent years studying hard for a profession and ended without any wrong doing.

A reason for White-collar crime -- The Executive's mistake

2006-11-15T06:56:00.000-08:00

My UFAS system has almost completed. Certainly, it has been delayed for a few months from my original planning.

Recently, I have discussed with several professionals and businessmen in Hong Kong. There is one problematic practice that many executives may still have.

They still ask the accountant to prepare invoice. Some of them still have the accountant taking care of the stock.

This reflects a poor management or no management at all. That is the sole reason for some bad accountants to steal money from the companies. Some may argue that their accountants were good and could be trusted. Perhaps they failed to read the recent news that an accountant who had great reference and full trust from his boss. However, he had been good, yet after he started to have a bad habit, hiring female as housekeeper without cloth with huge fee. After spending all his money, he began to take the company's money until nothing left.

That happened because his boss left him alone to take care of everything and without any time looking after what had happened in the company until the very last moment.

It is not something about trusteeship. Instead, it is about management. Anyone who had been good would turn bad with a lot of reasons and enticed to do so with poor governance.

Business is nothing personal. Without a good management, any company will have the risk of white-collar crime.

A simple guide - accountant takes care of accounts only

2006-10-31T02:05:00.000-08:00

Not everyone will know the weak point of a company is to have the same one taking care of the accounting, cash and inventory.

In discussing about my UFAS system, I always have to explain that this system is for accounting only. The other software that included inventory (or stock control) would not be developed by someone who knows accounting and management.

Even in Mainland China, there is a rule saying that the same person must not handle cashier and accountant jobs. It is simple to know that if one takes care of the accounting and cash, it is a chance for white-collar crime.

Of course, for one-man company, it is not a problem. For SMEs with more than one staff, there is a need to avoid the chance of relying on a single person to take care of these duties.

For custom software, I have developed accounting and inventory control systems for some clients. But they had different staff to take care of each system. Even an experienced clerk without accounting knowledge understood that if the accountant would take care of accounting and inventory; he/she could manipulate the outcome.

That is the reason that I shall never put both duties in a system. Any company with such bad arrangement may face white-collar crime in the future. As I understand this problem too well and it will be a shame to provide such problematic product to let my customers to face unforeseeable danger.

International FRS for SME draft

2006-09-12T18:27:00.000-07:00

The IASB has published the draft for International FRS for SME. You can get it from "Latest draft of ED on SME Project now available". It is a pdf format.

As I have said, the International FRS for SME would have some additional items and a different arrangement from the SME-FRS of HKICPA.

This information is great since I need not wait until Nov 2006 to get what they would do. My accounting system project is now at the final stage. With this draft, it is easy for me to prepare what my clients would face in the coming future.

Every accountant knows that the Financial Reports are the final part of fiscal year accounting. If one cannot handle the journal from the beginning, then it will take a great effort, if not painful, to adjust according to the requirements.

If we take the solution for such change as a partnership job, then software developer must prepare the suitable tool and accountant must base on the professional skill to master the journal entries basing on the new requirements.

That is my point for the coming accounting system and I have the confidence that my clients would find it easy to face the new FRS now and in the future.

Shall we have international financial reporting standard?

2006-08-19T20:10:00.000-07:00

It has been said that there would be an international standard for financial report in the future. The expected time may be 2009, 2010 etc.

With globalization for investment, it seems that we are going to have the ideal standard some day. Yet, I do believe that this would be applied to listed corporations only.

The situation for SMEs is different among all countries. Since SMEs have no public buying and selling of stocks, it is without any need to make them universally alike.

Of course, it is a best choice to have standardized financial reporting especially for those SMEs that may look for IPO in the future. With such reporting requirement, the management will be forced to develop. Certainly, there are many SMEs preferring to remain unchanged for everything including accounting. Remember that many SMEs are not employing any IT applications besides email etc.

There are more SMEs than listed corporations. May be we can apply the 80-20 ratio as average for most countries. With over 80% SMEs, we cannot hope that all of them would be able to develop for their business and accounting. That means they would rely on their auditors to prepare the reporting accordingly. This is not the best outcome and the standardization would become a routine description.

In fact, there are amendment for smaller listed corporations going on and we can see that it will take some years to have the final version of reporting standard.

Although I do not expect to have any international financial reporting standard in years for SMEs the world over, yet taking such as guidelines for regional standards is a certain result.

Cooking book and tax shelter, which is the worse?

2006-08-03T07:20:00.000-07:00

In working for my account project, I discussed the FRS with two accountants.

By chance, we talked about the accounting frauds. I suddenly compare the Enron case and the tax shelter.

After the meeting, I spent some minutes thinking about this and found that there is something new for me.

Usually we suppose that cheating your government is a deadly sin and cheating individuals may be considered guilty but in a lesser degree. For example, if you owe tax to your government, you would never be free. But it you owe some individuals, you might be free because either they could not find you or they just gave up.

The Enron case is about cooking the book to hide loss. In other words, the corporation had paid unnecessary tax to the government. Of course, all shareholders suffered huge loss while the government was not in the short term.

Tax shelter is another matter. Check: "Tax Cheats Called Out of Control". This type of fraud might cost the country lots of money. Cheating your country is like cheating every one in the country. Anyone can see the difference between this whole number and the shareholders of a single corporation.

Yet, Enron case lead to complete closing down and the top-level executives had to face long prison term. The auditor, Arthur Andersen disappeared forever.

The latest tax shelter case may finalize with fine and charging the previous leaders and the involved accounting firm remains intact.

What we can learn from these cases? Nothing, just try anything bad and hope that luck is on our side. That is it. Remember not to teach youngsters about not to be bad.

The fact tells us we are wrong. The law shows us we are wrong.

IT + Accounting, challenging or boring?

2006-07-29T02:44:00.000-07:00

According to "Government figures show IT is more boring than accountancy", IT is the fifth and Accounting is the twelve most boring profession in the UK.

It is interesting to find that my project is something like adding IT with Accounting. Have I been boring about the work? In a few moments when I had trouble with the new standards, I did.

This is entirely different working as accountant when the solution is based on information and company accounting policy. To provide a platform to meet different situations and decisions would be much more difficult. I have read and read the new financial reporting standards many times to find what were required actually and guessed how accountants would do.

I think that my work is more challenging than boring. With working experience for both professions, I would say accounting should be more boring than IT should be.

Certainly, the IT work may have many types. When it is just to write codes for single function according to order, that would be boring. When it is to design functions for a whole system, then the work is challenging.

IFAC's first global forum

2006-07-27T03:51:00.000-07:00

It takes almost three weeks to have something about this forum for SMEs and SMPs. Check "IFAC Hosts Global Forum on Challenges and Opportunities Facing Small and Medium Entities ".

I believe that there is no finalized statement yet and we have to wait until the Financial Reporting Standard for SMEs comes out at the end of this year.

Our work on the new accounting system for HK is now at the final stage. I must say that the work is much more difficult than previously expected.

Accounting will never be a remedy for fault

2006-07-07T06:35:00.000-07:00

The Enron case might be referred to accounting problem.

Accounting is a tool to show the result of business, good or bad. In fact, even if it is bad, it only serves as a signal to the management and the reaction should be greater effort to put things right.

If one tried to use accounting to hide the bad result, it would not go far, far enough to let one out of trouble. It is a record and it will not be disappeared. Perhaps Kenneth L. Lay had been out of mind because of his deep trouble. Otherwise he would not risk in this way. The price he paid is too high. His sudden death might be a release because it would be hard for him to face the penalty.

No one can be sure that whether some cases like that would have success. Certainly no one would come out and say his/her cases had been succeeded. Similar to criminal cases, there should be some that had not been discovered.

For anyone who had reached the high status of CEO etc. of a big corporation, it might be human nature not to accept any failure and tried all possible ways to avoid. It is accounting that became the only choice because by manipulating the results, no one was able to find any problem at that moment.

If things turned out to be better, perhaps what had been done would be covered by the good turnout. There would not have this case at all. This will depend on luck instead of wisdom.

I do believe that if one cannot be a true leader, it would be good not to achieve that kind of job and would be a happy guy with a lower ranking that he/she could easily managed.

From what I have read, this case started with the wrong decision to run ebusiness. Then it was the wrong decision to manipulate accounting and the act to protect personal wealth. Finally, that means they had never taken the duties of being top leaders of a corporation.

SME's Financial Reporting Standards

2006-06-23T18:41:00.000-07:00

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.

Will SME enjoy the great support now?

2006-05-30T07:55:00.000-07:00

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?

2006-05-25T07:01:00.000-07:00

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

2006-05-21T04:22:00.000-07:00

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?

2006-05-05T07:02:00.000-07:00

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.

accounting for Hong Kong SMEs

2006-04-27T20:32:00.000-07:00

In view of the new financial reporting standards for SMEs in Hong Kong, I have worked for months to build the suitable accounting systems.

The work is hard, if not painful. Major concern is the costing. Therefore, I develop it in product style and providing custom selections. This way will have a lower custom production price.

First, I have to check the guidelines suggested by the IFAC (International Federation of Accountants). Then I have to check the requirements according to the SME-FRS by HKICPA (HK Institute of Certified Public Accountants). Finally, I have to find ways to have a high efficient way of accounting operations.

Now, the project is almost completed and scheduled to supply in May 2006. For promoting this project, I have built a new web site, accounting.uscforesight.com, to support coming clients.

By checking a lot of accounting related sites and blogs, I have found that it would be good to have a clean and simple website about accounting.

The new website will be developed with these two principles.