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Updated IFRS and IAS Summaries (2009)
International Accounting Standards Board
Framework : Technical Summary
The IASB Framework was approved by the IASC Board in April 1989 for publication in July 1989, and adopted by the IASB in April 2001.
IFRS : International Financial Reporting Standards
Framework : Technical Summary
The IASB Framework was approved by the IASC Board in April 1989 for publication in July 1989, and adopted by the IASB in April 2001.
IFRS : International Financial Reporting Standards
- IFRS 1 First-time Adoption of International Financial Reporting Standards
- IFRS 2 Share-based Payment
- IFRS 3 Business Combinations
- IFRS 4 Insurance Contracts
- IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
- IFRS 6 Exploration for and evaluation of Mineral Resources
- IFRS 7 Financial Instruments: Disclosures
- IFRS 8 Operating Segments
- IAS 1 | Presentation of Financial Statements
- IAS 2 | Inventories
- IAS 7 | Statement of Cash Flows
- IAS 8 | Accounting Policies, Changes in Accounting Estimates and Errors
- IAS 10 | Events After the Balance Sheet Date
- IAS 11 | Construction Contracts
- IAS 12 | Income Taxes
- IAS 16 | Property, Plant and Equipment
- IAS 17 | Leases
- IAS 18 | Revenue
- IAS 19 | Employee Benefits
- IAS 20 | Accounting for Government Grants and Disclosure of Government Assistance
- IAS 21 | The Effects of Changes in Foreign Exchange Rates
- IAS 23 | Borrowing Costs
- IAS 24 | Related Party Disclosures
- IAS 26 | Accounting and Reporting by Retirement Benefit Plans
- IAS 27 | Consolidated and Separate Financial Statements
- IAS 28 | Investments in Associates
- IAS 29 | Financial Reporting in Hyperinflationary Economies
- IAS 31 | Interests in Joint Ventures
- IAS 32 | Financial Instruments: Presentation
- IAS 33 | Earnings per Share
- IAS 34 | Interim Financial Reporting
- IAS 36 | Impairment of Assets
- IAS 37 | Provisions, Contingent Liabilities and Contingent Assets
- IAS 38 | Intangible Assets
- IAS 39 | Financial Instruments: Recognition and Measurement
- IAS 40 | Investment Property
- IAS 41 | Agriculture
SEC to refocus on IFRS Roadmap
by Emily Chasan, New York, Reuters.com
"Turning back to the roadmap will be an important priority for us this fall," Jim Kroeker, the SEC's new chief accountant said in remarks to a New York State Society of CPAs conference in New York.
Last November, in one of the last major projects of the SEC under former Chairman Christopher Cox, the SEC staff released a proposed roadmap that would have U.S. companies filing financial results under International Financial Reporting Standards, or IFRS, by 2014, with the option for some companies to adopt the rules earlier.
Kroeker, who took up his post last month, said on Thursday that in the more than 200 comment letters the SEC has received on the proposal, it was "resoundingly clear" that people agree there should be a single set of global high-quality accounting standards, but there were striking differences in how different groups wanted to accomplish that goal.
Kroeker said the SEC staff, as "an important next step," would work on how to put into place various pillars and milestones to reach that goal.
IFRS is written by the London-based International Accounting Standards Board (IASB), while the traditional U.S. accounting rules - known as U.S. Generally Accepted Accounting Principles (GAAP) - are written by the Norwalk, Connecticut-based Financial Accounting Standards Board.
Kroeker noted two accounting rule-makers have been working to align both sets of rules over the past few years and recently accelerated certain projects to promote convergence.
But he urged those working to try to align U.S. and international accounting standards to avoid "a race to the bottom," where in a rush to converge the rules, accounting standard setters are urged to adopt the least controversial version of the rules, rather than the one that would best represent economic reality.
"A race to the bottom is an absolute concern I have," Kroeker said. "If we engage in a race to the bottom ultimately there will be no winner in that race."
Editing by Maureen Bavdek
Lessons Learned from the Financial Crisis
Journal of Accountancy
Personal financial planning specialists discuss the altered investment landscape.
Since the onset of the economic crisis last fall, many CPAs who are personal financial planning specialists have been working overtime to reassure clients overwhelmed with fear about the future and safety of their investments and to reassess and reorient investment portfolios when necessary.
Members of the AICPA’s Personal Financial Planning (PFP) Section recently reflected on their experiences from the past year and their outlook for the future. Lyle Benson, a member of the AICPA’s PFP Section for 20 years, moderated the discussion on behalf of the JofA.
Here are some excerpts from that gathering:
COMMUNICATE WITH CLIENTS
Journal of Accountancy:
When the economy took a downturn, what was the reaction of your clients? What steps did you take to work with them through the turbulent market?
Jerry Love: I strongly emphasized the overstatement of the state of the economy by the mainstream news media and my firm belief in the existence of underlying economic principles that would prevent the country from going into another Great Depression. When I reminded my clients in West Texas of what we experienced during the late ’80s—an oil and gas industry crash, along with a major collapse of commercial real estate and the almost complete disappearance of the savings and loan industry causing many community banks to fail and resulting in double-digit unemployment and a major contraction of the available lending options, most would say, “You’re right. It can be very bad and still recover.”
Michael Goodman: We spent a lot of time reaching out to clients during this period, taking the focus off what was happening “today” in their portfolios and putting it back on their original goals and the time frame for when they actually need money and where the markets will be when they likely need their funds, whether it’s seven, 10, 20 or 30 years out
Beth Gamel: People were really worried that they were going to run out of money and not have enough to provide for themselves. Because people were so agitated, it was important to have more frequent meetings, phone calls, and e-mail exchanges with clients because they needed a lot of handholding and to know that you were available to them and that you were listening.
Scott Sprinkle: We wanted to reach out to our clients in as many ways as possible to make sure they understood their investment policy statement and overall investment plan. While the market pullback was severe and the degree of the pullback unexpected, the risk had been planned for in advance. We “stress tested” the client’s portfolio, looked at asset allocations, and made sure that clients understood the construction of their portfolio. Specifically, for retired individuals, our plans recommend three to five years of living expenses allocated between cash, short-term bonds and other high-quality, low-risk assets.
We reminded clients of the amount of work completed to establish their investment plan and that the plan accounted for market volatility. This provided some comfort and allowed clients to stay prudently allocated until the market rebounded. The last thing we wanted any client to do was panic and sell out at the bottom.
That’s where CPAs in general do a better job than most advisers: focusing on the front end and the development of a comprehensive plan versus just buying assets. This allows clients to focus on what is important in tough times and allows them to stay disciplined in their investment approach.
RE-EDUCATE, RE-ASSESS
AND REVISE WHEN NECESSARY
Did anyone else follow this approach of stepping back and re-educating clients on their portfolios in light of market changes or in terms of their overall goals and planning? What did you do to help reorient investment portfolios in light of these times?
Gamel: In my practice, I only do financial planning and investment advisory work. In order for a client to become an investment advisory client, we have to go through an initial financial plan, which involves retirement projections and asset allocation development. Even if you’d done that within the last couple of years, many clients no longer had confidence in those numbers. One of the most important first steps was to sit down and reassess people’s risk tolerances. In many cases that meant starting with what their asset base is today and redoing those projections to see if they might be at risk of running out of money or if some tweaking of their asset allocation or their spending could give them the confidence to believe that they could manage with their current assets.
Goodman: We had our clients go through an independent score-based risk tolerance test. We sat down and discussed the reconciliation between what their risk tolerance is saying their portfolios could be and their required rate of return. For example, if their risk tolerance says they need a portfolio that’s only 40% stocks but we know that their need from a rate of return standpoint is 60% or 70% stocks, the difference has to be reconciled.
Susan Tillery: When the downturn hit, our clients did not get anxious due to our firm’s philosophy. When we initially sit down with our clients, we discuss a conservative approach: seeking the lowest rate of return with the least amount of risk (standard deviation) to be able to achieve their goals. Because this is a long-term approach, no changes were necessary in their asset allocation or portfolios. Our clients understand the purpose of their investment portfolio is not to get rich quick, or accumulate money for money’s sake. We also use software to determine a client’s risk tolerance/indifference curves.
DEVELOP A DEFENSIVE STRATEGY
GOING FORWARD
If a client’s risk tolerance has changed as a result of stock market volatility, how are you advising them?
Goodman: It’s become standard in some portfolios to put aside a certain amount of a year’s cash flow for clients that are taking income aside. Such that the client could say, “For the next five years, I can see where my cash flow is coming from. So I’m not so worried about this other money I have invested for the present because I don’t need it at a minimum until year 6.” We were doing this in the past but are being more diligent about it now.
Also, within the portfolio asset allocation there’s always been stocks, bonds, and “other,” which is a bucket of things like commodities and real estate that are less correlated to the movement of stocks and bonds. Now we are looking harder at trying to mix different things like structured notes into the “other” bucket in order to give clients some diversification from traditional stocks and bonds.
Sprinkle: During volatile times, diversification and understanding what you are investing in becomes even more important. We reduced client municipal bond allocations in the last quarter of 2008 due to quality concerns and looked for additional diversification and more secure asset classes. Part of the allocation was moved to well- diversified investment-grade corporate bonds, and the rewards were immense. Additionally, we analyzed cash returns. While during the meltdown, cash was the place to be, real returns were still zero, particularly after tax and inflation. We completed significant due diligence on high-quality, ultra-short funds.
By increasing the duration of the investment paper from 30-day instruments to 90-day instruments, we were able to pick up 300 to 400 basis points of return. We are continuing to communicate with clients on their risk tolerance while looking for investment alternatives that further diversify their portfolio and take advantage of pricing discrepancies in the market. There are significant opportunities in many misunderstood sectors. Currently, long-term investors have an opportunity to achieve significant returns with reduced levels of risk in several market sectors and asset classes.
Some of you don’t get directly involved in managing the clients’ assets. What role do you play in the planning process?
Tillery: As part of our financial planning process, we sit down with the client and write their investment policy statement. We then meet with their investment professional to discuss the client’s asset allocation. The investment professional then brings back suggestions for each asset class with an explanation of why they’re making the suggestion. We always make sure that the portfolio has some negatively correlated assets within each asset class.
Love: Our strategy is not to manage investments, so we pair the client with a broker to help ensure that the products and the overall mix make sense for the client. I’ve seen an increase in people who have been trading and picking their own investments who are now more willing to go to an active manager. They have begun to see the value of having the funds actively managed by someone who’s got a good track record who knows how to figure out the market.
PURSUE TAX-PLANNING OPPORTUNITIES
What tax and estate planning strategies/ opportunities do CPAs need to act on with clients?
Gamel: This is where CPAs who don’t have all of the credentials or whose practice doesn’t incorporate investment planning can provide a lot of services to clients. Probably the only positive thing about last year’s market meltdown was it gave people the opportunity to make some changes or reposition their portfolio or simply take capital losses, which offset gains earned earlier in the year or provided capital loss carryforwards. The other thing is talking to clients about the gifting and valuation opportunities, where you would then use less of your unified credit or your GST (generation-skipping tax) because you’re transferring assets that have a depressed value.
And while the section 7520 rate has gone up a little bit, it was really, really low, and so there were opportunities to create charitable lead trusts and GRATs (grantor retained annuity trusts) and consider other sorts of estate planning and gifting strategies. Lastly, we’re all poised to be talking to clients about Roth conversions in 2010 because of the ability to do that regardless of what your AGI is and the two years to pay the tax on the conversion.
But there’s a good reason to be talking to clients who might have the ability to keep their AGI below $100,000 even this year to do a conversion with the depressed value of their portfolios.
Love: The depressed economic environment is giving an opportunity for conversion from C corporation to sub S. Just like the stock market, most businesses would have a lesser value right now for a number of factors than they might have earlier, so if you do your valuation on a C corporation and convert to a sub S, you’ve got a great window for that.
Sprinkle: When clients are panicking, it is a hard time to convince them to take advantage of historically low interest rates and estate planning techniques that should be a slam dunk to implement. Congress is currently reviewing several tried-and- true estate planning techniques that have been used successfully for years.
Examples include GRATs, GRUTs (grantor retained unitrusts), SCINs (self-canceling installment notes), charitable trusts and family limited partnerships. Clients who hesitate may lose the opportunity to implement some of these techniques. It is a beneficial time for several of these techniques, and CPAs should be reviewing alternatives with clients while opportunities still exist.
SEIZE OPPORTUNITIES FOR GROWTH
These last 12 months have had a significant impact on the things CPAs are doing with their clients. Has it caused you to rethink your business models? For example, the assets under management (AUM) business model has a huge impact on revenue streams, which may have been affected by the uncertainty in the market. Is this causing you to reassess your business models going forward?
Goodman: If your firm operates under the assets under management revenue model, compensation and revenue have most likely been down. It’s been a tough period, but I have no intention of changing my model. With any business there are risks to revenue streams. While the markets are down, it is also a good opportunity to get out into the marketplace and bring in new revenue through people who are looking to potentially change advisers. One might even argue that this downturn has been a significant opportunity to grow the business, and when the markets do get back, we’ll all potentially be way ahead of where we would have been anyway.
When you’re taking a new client, there’s a lot more work done upfront especially in terms of financial planning. How does this type of work relate to your compensation model (retainer- based, AUM-based, or hourly)?
Gamel: Our firm has a variety of ways to get compensated. We have pure AUM, and those fees clearly have gone down. Fortunately, the performance of our accounts is better than the typical market, so our fees are not down as much as 30%, for example. We also have fixed fees, retainers and a few hourly clients, so our income stream hasn’t gone down nearly as much as if we were in a pure AUM environment.
The bigger struggle is that we do a lot of financial planning along with investment advisory work, and yet many of our fees are strictly AUM. So there is a disconnect, where you’re doing more work than ever on the financial planning side, but your fees keep going down. The current environment presents a struggle between the amount of work you’re doing and the fees you’re getting.
Sprinkle: As a family office that provides several client services, it is very important for us to have our fee model unbundled and to separate investment management from the other projects. That is not to say that we don’t offer some free planning advice to investment clients. However, when we get involved in significant financial, estate or tax planning projects, we bill separately. Some of these projects may require hundreds of hours, and including them under an AUM model would be cost-prohibitive. All of our services are billed on a fee-only basis (AUM, hourly or a fixed fee).
Additionally, we spend a significant amount of upfront time communicating and disclosing to clients how they will be billed for services. Managing client expectations and providing value for services rendered will be the key to your success. There are several fee models available for CPA firms, and it is important to analyze which model fits your firm’s practice.
What’s the outlook for the future?
Love: Because of the downturn in the economy and what’s happening in the market, people are cutting back greatly on their spending. The second quarter savings rate was 5.2% in the U.S., compared with 4.0% in the first quarter. A USA Today article indicated about 27% to 32% of people are spending less now and intending to continue saving. I think the AICPA’s financial literacy program is starting to make sense to a lot of people because they’ve had a life lesson here to make it make sense.
Tillery: There is an incredible opportunity, especially for small to medium CPA firms, to viably grow their practices through financial planning. It is time for CPAs, as the client’s trusted adviser, to merge financial planning into the process. CPAs who want to offer financial planning should become certified through the PFS credential.
The Panelists:
Lyle K. Benson Jr. CPA/PFS, CFP, is president and founder of L.K. Benson & Co., a CPA financial planning firm based in Baltimore. He works with high-net-worth families and individuals in the areas of personal financial planning, investment advisory and tax services. He has been an active member of the AICPA PFP Section for more than 20 years and currently serves on the AICPA Advanced Personal Financial Planning Conference planning committee.
Beth C. Gamel CPA/PFS, is co-founder and executive vice president of Pillar Financial Advisors in Waltham, Mass. She has been a financial planner for 25 years, helping wealthy individuals evaluate, coordinate and implement sophisticated investment, estate, income tax and charitable giving strategies. For seven consecutive years Worth Magazine has named her one of the “best financial advisers” in the country. From 1996 to 2001 she wrote “Money Makeovers” for The Boston Globe, which described her as one of “New England’s leading financial planners.”
Michael E. Goodman CPA/PFS, CFP, is president of Wealthstream Advisors Inc., a wealth management firm in New York. He is also a member of the AICPA PFP Executive Committee and chair of the Advanced Personal Financial Planning Conference.
Jerry Love CPA/ABV/PFS/CFF, CVA, CFP, is the president and CEO of Davis Kinard & Co. PC, which is the largest CPA firm in Abilene, Texas. In 2006–07, he was chairman of the Texas Society of CPAs (TSCPA). He received the TSCPA “Distinguished Public Service Award” in 2000. CPA Magazine named him one of the Top 100 Most Influential Practitioners in the country for 2006, and in May 2009 the magazine named him one of the Top 40 CPAs to Know During a Recession.
Scott Sprinkle CPA/PFS, CFP, is a co-founder and managing member of Sprinkle & Associates LLC and Sprinkle Financial Consultants LLC. He has more than 20 years of experience serving high-net-worth individuals and family offices. He is a member of the AICPA’s Personal Financial Planning Executive Committee and the AICPA Investment Resource Panel. He is also a trustee and board member of the Colorado Society of CPAs and an editorial adviser to the JofA.
Susan Tillery CPA/PFS, CFP, is a fee-only comprehensive financial planner. She and her firm do not manage assets or sell products. She is president and CEO of Paraklete Financial Inc.
Personal financial planning specialists discuss the altered investment landscape.
Since the onset of the economic crisis last fall, many CPAs who are personal financial planning specialists have been working overtime to reassure clients overwhelmed with fear about the future and safety of their investments and to reassess and reorient investment portfolios when necessary.
Members of the AICPA’s Personal Financial Planning (PFP) Section recently reflected on their experiences from the past year and their outlook for the future. Lyle Benson, a member of the AICPA’s PFP Section for 20 years, moderated the discussion on behalf of the JofA.
Here are some excerpts from that gathering:
COMMUNICATE WITH CLIENTS
Journal of Accountancy:
When the economy took a downturn, what was the reaction of your clients? What steps did you take to work with them through the turbulent market?
Jerry Love: I strongly emphasized the overstatement of the state of the economy by the mainstream news media and my firm belief in the existence of underlying economic principles that would prevent the country from going into another Great Depression. When I reminded my clients in West Texas of what we experienced during the late ’80s—an oil and gas industry crash, along with a major collapse of commercial real estate and the almost complete disappearance of the savings and loan industry causing many community banks to fail and resulting in double-digit unemployment and a major contraction of the available lending options, most would say, “You’re right. It can be very bad and still recover.”
Michael Goodman: We spent a lot of time reaching out to clients during this period, taking the focus off what was happening “today” in their portfolios and putting it back on their original goals and the time frame for when they actually need money and where the markets will be when they likely need their funds, whether it’s seven, 10, 20 or 30 years out
Beth Gamel: People were really worried that they were going to run out of money and not have enough to provide for themselves. Because people were so agitated, it was important to have more frequent meetings, phone calls, and e-mail exchanges with clients because they needed a lot of handholding and to know that you were available to them and that you were listening.
Scott Sprinkle: We wanted to reach out to our clients in as many ways as possible to make sure they understood their investment policy statement and overall investment plan. While the market pullback was severe and the degree of the pullback unexpected, the risk had been planned for in advance. We “stress tested” the client’s portfolio, looked at asset allocations, and made sure that clients understood the construction of their portfolio. Specifically, for retired individuals, our plans recommend three to five years of living expenses allocated between cash, short-term bonds and other high-quality, low-risk assets.
We reminded clients of the amount of work completed to establish their investment plan and that the plan accounted for market volatility. This provided some comfort and allowed clients to stay prudently allocated until the market rebounded. The last thing we wanted any client to do was panic and sell out at the bottom.
That’s where CPAs in general do a better job than most advisers: focusing on the front end and the development of a comprehensive plan versus just buying assets. This allows clients to focus on what is important in tough times and allows them to stay disciplined in their investment approach.
RE-EDUCATE, RE-ASSESS
AND REVISE WHEN NECESSARY
Did anyone else follow this approach of stepping back and re-educating clients on their portfolios in light of market changes or in terms of their overall goals and planning? What did you do to help reorient investment portfolios in light of these times?
Gamel: In my practice, I only do financial planning and investment advisory work. In order for a client to become an investment advisory client, we have to go through an initial financial plan, which involves retirement projections and asset allocation development. Even if you’d done that within the last couple of years, many clients no longer had confidence in those numbers. One of the most important first steps was to sit down and reassess people’s risk tolerances. In many cases that meant starting with what their asset base is today and redoing those projections to see if they might be at risk of running out of money or if some tweaking of their asset allocation or their spending could give them the confidence to believe that they could manage with their current assets.
Goodman: We had our clients go through an independent score-based risk tolerance test. We sat down and discussed the reconciliation between what their risk tolerance is saying their portfolios could be and their required rate of return. For example, if their risk tolerance says they need a portfolio that’s only 40% stocks but we know that their need from a rate of return standpoint is 60% or 70% stocks, the difference has to be reconciled.
Susan Tillery: When the downturn hit, our clients did not get anxious due to our firm’s philosophy. When we initially sit down with our clients, we discuss a conservative approach: seeking the lowest rate of return with the least amount of risk (standard deviation) to be able to achieve their goals. Because this is a long-term approach, no changes were necessary in their asset allocation or portfolios. Our clients understand the purpose of their investment portfolio is not to get rich quick, or accumulate money for money’s sake. We also use software to determine a client’s risk tolerance/indifference curves.
DEVELOP A DEFENSIVE STRATEGY
GOING FORWARD
If a client’s risk tolerance has changed as a result of stock market volatility, how are you advising them?
Goodman: It’s become standard in some portfolios to put aside a certain amount of a year’s cash flow for clients that are taking income aside. Such that the client could say, “For the next five years, I can see where my cash flow is coming from. So I’m not so worried about this other money I have invested for the present because I don’t need it at a minimum until year 6.” We were doing this in the past but are being more diligent about it now.
Also, within the portfolio asset allocation there’s always been stocks, bonds, and “other,” which is a bucket of things like commodities and real estate that are less correlated to the movement of stocks and bonds. Now we are looking harder at trying to mix different things like structured notes into the “other” bucket in order to give clients some diversification from traditional stocks and bonds.
Sprinkle: During volatile times, diversification and understanding what you are investing in becomes even more important. We reduced client municipal bond allocations in the last quarter of 2008 due to quality concerns and looked for additional diversification and more secure asset classes. Part of the allocation was moved to well- diversified investment-grade corporate bonds, and the rewards were immense. Additionally, we analyzed cash returns. While during the meltdown, cash was the place to be, real returns were still zero, particularly after tax and inflation. We completed significant due diligence on high-quality, ultra-short funds.
By increasing the duration of the investment paper from 30-day instruments to 90-day instruments, we were able to pick up 300 to 400 basis points of return. We are continuing to communicate with clients on their risk tolerance while looking for investment alternatives that further diversify their portfolio and take advantage of pricing discrepancies in the market. There are significant opportunities in many misunderstood sectors. Currently, long-term investors have an opportunity to achieve significant returns with reduced levels of risk in several market sectors and asset classes.
Some of you don’t get directly involved in managing the clients’ assets. What role do you play in the planning process?
Tillery: As part of our financial planning process, we sit down with the client and write their investment policy statement. We then meet with their investment professional to discuss the client’s asset allocation. The investment professional then brings back suggestions for each asset class with an explanation of why they’re making the suggestion. We always make sure that the portfolio has some negatively correlated assets within each asset class.
Love: Our strategy is not to manage investments, so we pair the client with a broker to help ensure that the products and the overall mix make sense for the client. I’ve seen an increase in people who have been trading and picking their own investments who are now more willing to go to an active manager. They have begun to see the value of having the funds actively managed by someone who’s got a good track record who knows how to figure out the market.
PURSUE TAX-PLANNING OPPORTUNITIES
What tax and estate planning strategies/ opportunities do CPAs need to act on with clients?
Gamel: This is where CPAs who don’t have all of the credentials or whose practice doesn’t incorporate investment planning can provide a lot of services to clients. Probably the only positive thing about last year’s market meltdown was it gave people the opportunity to make some changes or reposition their portfolio or simply take capital losses, which offset gains earned earlier in the year or provided capital loss carryforwards. The other thing is talking to clients about the gifting and valuation opportunities, where you would then use less of your unified credit or your GST (generation-skipping tax) because you’re transferring assets that have a depressed value.
And while the section 7520 rate has gone up a little bit, it was really, really low, and so there were opportunities to create charitable lead trusts and GRATs (grantor retained annuity trusts) and consider other sorts of estate planning and gifting strategies. Lastly, we’re all poised to be talking to clients about Roth conversions in 2010 because of the ability to do that regardless of what your AGI is and the two years to pay the tax on the conversion.
But there’s a good reason to be talking to clients who might have the ability to keep their AGI below $100,000 even this year to do a conversion with the depressed value of their portfolios.
Love: The depressed economic environment is giving an opportunity for conversion from C corporation to sub S. Just like the stock market, most businesses would have a lesser value right now for a number of factors than they might have earlier, so if you do your valuation on a C corporation and convert to a sub S, you’ve got a great window for that.
Sprinkle: When clients are panicking, it is a hard time to convince them to take advantage of historically low interest rates and estate planning techniques that should be a slam dunk to implement. Congress is currently reviewing several tried-and- true estate planning techniques that have been used successfully for years.
Examples include GRATs, GRUTs (grantor retained unitrusts), SCINs (self-canceling installment notes), charitable trusts and family limited partnerships. Clients who hesitate may lose the opportunity to implement some of these techniques. It is a beneficial time for several of these techniques, and CPAs should be reviewing alternatives with clients while opportunities still exist.
SEIZE OPPORTUNITIES FOR GROWTH
These last 12 months have had a significant impact on the things CPAs are doing with their clients. Has it caused you to rethink your business models? For example, the assets under management (AUM) business model has a huge impact on revenue streams, which may have been affected by the uncertainty in the market. Is this causing you to reassess your business models going forward?
Goodman: If your firm operates under the assets under management revenue model, compensation and revenue have most likely been down. It’s been a tough period, but I have no intention of changing my model. With any business there are risks to revenue streams. While the markets are down, it is also a good opportunity to get out into the marketplace and bring in new revenue through people who are looking to potentially change advisers. One might even argue that this downturn has been a significant opportunity to grow the business, and when the markets do get back, we’ll all potentially be way ahead of where we would have been anyway.
When you’re taking a new client, there’s a lot more work done upfront especially in terms of financial planning. How does this type of work relate to your compensation model (retainer- based, AUM-based, or hourly)?
Gamel: Our firm has a variety of ways to get compensated. We have pure AUM, and those fees clearly have gone down. Fortunately, the performance of our accounts is better than the typical market, so our fees are not down as much as 30%, for example. We also have fixed fees, retainers and a few hourly clients, so our income stream hasn’t gone down nearly as much as if we were in a pure AUM environment.
The bigger struggle is that we do a lot of financial planning along with investment advisory work, and yet many of our fees are strictly AUM. So there is a disconnect, where you’re doing more work than ever on the financial planning side, but your fees keep going down. The current environment presents a struggle between the amount of work you’re doing and the fees you’re getting.
Sprinkle: As a family office that provides several client services, it is very important for us to have our fee model unbundled and to separate investment management from the other projects. That is not to say that we don’t offer some free planning advice to investment clients. However, when we get involved in significant financial, estate or tax planning projects, we bill separately. Some of these projects may require hundreds of hours, and including them under an AUM model would be cost-prohibitive. All of our services are billed on a fee-only basis (AUM, hourly or a fixed fee).
Additionally, we spend a significant amount of upfront time communicating and disclosing to clients how they will be billed for services. Managing client expectations and providing value for services rendered will be the key to your success. There are several fee models available for CPA firms, and it is important to analyze which model fits your firm’s practice.
What’s the outlook for the future?
Love: Because of the downturn in the economy and what’s happening in the market, people are cutting back greatly on their spending. The second quarter savings rate was 5.2% in the U.S., compared with 4.0% in the first quarter. A USA Today article indicated about 27% to 32% of people are spending less now and intending to continue saving. I think the AICPA’s financial literacy program is starting to make sense to a lot of people because they’ve had a life lesson here to make it make sense.
Tillery: There is an incredible opportunity, especially for small to medium CPA firms, to viably grow their practices through financial planning. It is time for CPAs, as the client’s trusted adviser, to merge financial planning into the process. CPAs who want to offer financial planning should become certified through the PFS credential.
The Panelists:
Lyle K. Benson Jr. CPA/PFS, CFP, is president and founder of L.K. Benson & Co., a CPA financial planning firm based in Baltimore. He works with high-net-worth families and individuals in the areas of personal financial planning, investment advisory and tax services. He has been an active member of the AICPA PFP Section for more than 20 years and currently serves on the AICPA Advanced Personal Financial Planning Conference planning committee.
Beth C. Gamel CPA/PFS, is co-founder and executive vice president of Pillar Financial Advisors in Waltham, Mass. She has been a financial planner for 25 years, helping wealthy individuals evaluate, coordinate and implement sophisticated investment, estate, income tax and charitable giving strategies. For seven consecutive years Worth Magazine has named her one of the “best financial advisers” in the country. From 1996 to 2001 she wrote “Money Makeovers” for The Boston Globe, which described her as one of “New England’s leading financial planners.”
Michael E. Goodman CPA/PFS, CFP, is president of Wealthstream Advisors Inc., a wealth management firm in New York. He is also a member of the AICPA PFP Executive Committee and chair of the Advanced Personal Financial Planning Conference.
Jerry Love CPA/ABV/PFS/CFF, CVA, CFP, is the president and CEO of Davis Kinard & Co. PC, which is the largest CPA firm in Abilene, Texas. In 2006–07, he was chairman of the Texas Society of CPAs (TSCPA). He received the TSCPA “Distinguished Public Service Award” in 2000. CPA Magazine named him one of the Top 100 Most Influential Practitioners in the country for 2006, and in May 2009 the magazine named him one of the Top 40 CPAs to Know During a Recession.
Scott Sprinkle CPA/PFS, CFP, is a co-founder and managing member of Sprinkle & Associates LLC and Sprinkle Financial Consultants LLC. He has more than 20 years of experience serving high-net-worth individuals and family offices. He is a member of the AICPA’s Personal Financial Planning Executive Committee and the AICPA Investment Resource Panel. He is also a trustee and board member of the Colorado Society of CPAs and an editorial adviser to the JofA.
Susan Tillery CPA/PFS, CFP, is a fee-only comprehensive financial planner. She and her firm do not manage assets or sell products. She is president and CEO of Paraklete Financial Inc.
Accounting Leaders Recommend Changes to IASB's Constitution
by Alexandra Defelice and Matthew G. Lamoreaux
Journal of Accountancy
To be most effective, international financial reporting standards should be field-tested prior to adoption, and the international standard setter needs to more clearly communicate its processes while gathering stakeholders’ opinions, a group of global accounting leaders including AICPA President and CEO Barry Melancon told the representatives of the International Accounting Standards Board during a roundtable discussion in New York City on Tuesday.
The roundtable was one of several taking place around the globe as the second part of a two-part review and public comment period of the constitution of the International Accounting Standards Committee Foundation (IASCF), the oversight body of the IASB that is required to review its constitution every five years.
Based in London, the IASB sets International Financial Reporting Standards (IFRS), which are recognized in 113 countries. The SEC is considering whether to require U.S. publicly traded corporations to use IFRS for financial reports in U.S. markets as soon as 2014, according to its proposed road map.
The first part of the IASCF constitutional review process was completed Jan. 29 and included creation of a monitoring board made up of securities regulators as well as a provision that will increase the IASB from 14 to 16 members by 2012, with criteria added to ensure geographical diversity.
The second part includes proposed changes such as allowing greater flexibility in liaisons with other stakeholder organizations, changes to the length of IASB member terms, inclusion of trustees from Africa and South America, establishing a procedure for the possibility of an accelerated due process, and changing the name of the IASC Foundation and the IASB to the IFRS Foundation and IFRS Board, respectively, to better reflect its mission.
Field testing has been discussed in the past, but attendees at Tuesday’s roundtable stressed the importance of doing so when setting financial reporting standards. Philip Bancroft, CFO of ACE, a member of Group of North American Insurance Enterprises, went as far as to suggest it should be mandated.
“ Moving forward without it doesn’t make sense because we don’t understand the implications,” Bancroft said. “It ought to be embodied in the constitution to say that should be a part of due process to have comprehensive field testing to understand the effects of a far-reaching standard. It should be mandated.”
Though he offered no comment as to whether he believed inclusion in the constitution is necessary, Dave Kaplan, a partner in PricewaterhouseCoopers LLP and leader of the firm’s International Accounting and SEC Services Group, agreed with the importance and benefits.
“Field testing is one of the best ways to apply (standards) to procedures various companies have. It’s very effective in understanding where some of those operational challenges are and how those standard setters need to monitor the processes,” Kaplan said. “Deep field testing hasn’t been as comprehensive as it may have been in the past. It’s something the board may want to think about.”
Melancon agreed:
“ The complexity of a worldwide standard makes this concept even more important to understand if it’s implementable in different cultures with different standards." "... When it comes to transparency, Bancroft believes almost nothing should be kept behind closed doors. “Everything should be made public except very narrow personnel matters,” he said.
IASCF trustees explained that they have improved their feedback process to be more comprehensive and to deal with all the key substantial points made by commentators, but said they remain open to stakeholder feedback on how they can improve the process.
Kaplan said he would like to see even more done.
“Providing underlying logic and reasoning for decisions that get made would be very helpful to constituents for understanding the perspective of the board and future considerations to be made.”
Antonio Vegezzi, former president and director of Capital International (Switzerland) and an IASCF trustee for five years, acknowledged that the trustees previously did not focus as much on communication but that they have hired a director of communication and are focusing on making sure trustees listen to stakeholders, reply to their questions and connect with them.
“In selection of candidates to IASB positions, we as trustees look at people with outstanding technical skills but also who have this willingness to reach out and communicate,” he said.
A much-debated proposal during the roundtable was allowing for a public consultation process of less than 30 days in “exceptional circumstances… when major unforeseen developments arise.”
Such circumstances should be “rare,” Bancroft said, adding that making decisions quickly rather than with a comprehensive process won’t produce better results.
Kaplan went further, saying that 30 days should be a minimum because larger global organizations cannot adequately assess and comment in less time than that.
A separate area of particular importance to the AICPA is the need for a permanent independent funding source for the IASB.
The IASB’s 14 members come from nine countries, including the United States. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, and other international and professional organizations throughout the world.
During the roundtable, Melancon reiterated the AICPA’s point of view, stating, “a permanent funding solution would ensure that the IASB has appropriate resources to carry out its mission and would lead to worldwide confidence in the IASB’s role as an independent accounting standard setter.”
In an (April 9) comment letter to the SEC, Melancon encouraged the commission to use part of the current levy on U.S. public companies for accounting standard-setting activities as a permanent funding source for the IASB.
Asked whether trustees would have the ability to determine the budget if granted this funding, Melancon said yes, to a degree. "If (the board has) an automatic funding mechanism, I don't think a checks and balances process is unreasonable," he told them. "Trustees would have to be able to defend their budget. I don't think anyone would give you carte blanche."
The consultation document Constitution Review - Proposals for enhanced public accountability can be viewed on the Open for Comment section on the IASC Foundation Website. The closing date for comments is Nov. 30, 2009. www.iasb.org
Journal of Accountancy
To be most effective, international financial reporting standards should be field-tested prior to adoption, and the international standard setter needs to more clearly communicate its processes while gathering stakeholders’ opinions, a group of global accounting leaders including AICPA President and CEO Barry Melancon told the representatives of the International Accounting Standards Board during a roundtable discussion in New York City on Tuesday.
The roundtable was one of several taking place around the globe as the second part of a two-part review and public comment period of the constitution of the International Accounting Standards Committee Foundation (IASCF), the oversight body of the IASB that is required to review its constitution every five years.
Based in London, the IASB sets International Financial Reporting Standards (IFRS), which are recognized in 113 countries. The SEC is considering whether to require U.S. publicly traded corporations to use IFRS for financial reports in U.S. markets as soon as 2014, according to its proposed road map.
The first part of the IASCF constitutional review process was completed Jan. 29 and included creation of a monitoring board made up of securities regulators as well as a provision that will increase the IASB from 14 to 16 members by 2012, with criteria added to ensure geographical diversity.
The second part includes proposed changes such as allowing greater flexibility in liaisons with other stakeholder organizations, changes to the length of IASB member terms, inclusion of trustees from Africa and South America, establishing a procedure for the possibility of an accelerated due process, and changing the name of the IASC Foundation and the IASB to the IFRS Foundation and IFRS Board, respectively, to better reflect its mission.
Field testing has been discussed in the past, but attendees at Tuesday’s roundtable stressed the importance of doing so when setting financial reporting standards. Philip Bancroft, CFO of ACE, a member of Group of North American Insurance Enterprises, went as far as to suggest it should be mandated.
“ Moving forward without it doesn’t make sense because we don’t understand the implications,” Bancroft said. “It ought to be embodied in the constitution to say that should be a part of due process to have comprehensive field testing to understand the effects of a far-reaching standard. It should be mandated.”
Though he offered no comment as to whether he believed inclusion in the constitution is necessary, Dave Kaplan, a partner in PricewaterhouseCoopers LLP and leader of the firm’s International Accounting and SEC Services Group, agreed with the importance and benefits.
“Field testing is one of the best ways to apply (standards) to procedures various companies have. It’s very effective in understanding where some of those operational challenges are and how those standard setters need to monitor the processes,” Kaplan said. “Deep field testing hasn’t been as comprehensive as it may have been in the past. It’s something the board may want to think about.”
Melancon agreed:
“ The complexity of a worldwide standard makes this concept even more important to understand if it’s implementable in different cultures with different standards." "... When it comes to transparency, Bancroft believes almost nothing should be kept behind closed doors. “Everything should be made public except very narrow personnel matters,” he said.
IASCF trustees explained that they have improved their feedback process to be more comprehensive and to deal with all the key substantial points made by commentators, but said they remain open to stakeholder feedback on how they can improve the process.
Kaplan said he would like to see even more done.
“Providing underlying logic and reasoning for decisions that get made would be very helpful to constituents for understanding the perspective of the board and future considerations to be made.”
Antonio Vegezzi, former president and director of Capital International (Switzerland) and an IASCF trustee for five years, acknowledged that the trustees previously did not focus as much on communication but that they have hired a director of communication and are focusing on making sure trustees listen to stakeholders, reply to their questions and connect with them.
“In selection of candidates to IASB positions, we as trustees look at people with outstanding technical skills but also who have this willingness to reach out and communicate,” he said.
A much-debated proposal during the roundtable was allowing for a public consultation process of less than 30 days in “exceptional circumstances… when major unforeseen developments arise.”
Such circumstances should be “rare,” Bancroft said, adding that making decisions quickly rather than with a comprehensive process won’t produce better results.
Kaplan went further, saying that 30 days should be a minimum because larger global organizations cannot adequately assess and comment in less time than that.
A separate area of particular importance to the AICPA is the need for a permanent independent funding source for the IASB.
The IASB’s 14 members come from nine countries, including the United States. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, and other international and professional organizations throughout the world.
During the roundtable, Melancon reiterated the AICPA’s point of view, stating, “a permanent funding solution would ensure that the IASB has appropriate resources to carry out its mission and would lead to worldwide confidence in the IASB’s role as an independent accounting standard setter.”
In an (April 9) comment letter to the SEC, Melancon encouraged the commission to use part of the current levy on U.S. public companies for accounting standard-setting activities as a permanent funding source for the IASB.
Asked whether trustees would have the ability to determine the budget if granted this funding, Melancon said yes, to a degree. "If (the board has) an automatic funding mechanism, I don't think a checks and balances process is unreasonable," he told them. "Trustees would have to be able to defend their budget. I don't think anyone would give you carte blanche."
The consultation document Constitution Review - Proposals for enhanced public accountability can be viewed on the Open for Comment section on the IASC Foundation Website. The closing date for comments is Nov. 30, 2009. www.iasb.org
IASC: New Editions: "Guide through IFRS" & "IFRS Taxonomy Guide Illustrated"
www.iasb.org
The IASC Foundation will soon publish the "Guide through IFRS" and the "IFRS Taxonomy Illustrated".
The printed publications will be soon available to the public. In order to receive notification, or to pre-order and receive a pro-forma invoice, please click on the images.
"A Guide through IFRS" Price: £90
Available in hard copy soon and online in Q4 2009, A Guide through International Financial Reporting Standards (IFRSs), includes the full consolidated text of the Standards and Interpretations and accompanying documents-illustrative examples, implementation guidance, bases for conclusions and dissenting opinion-issued by the IASB as at 1 July 2009, with extensive cross-references and other annotations. The book, A Guide through IFRS July 2009 - (ISBN 978-1-907026-20-1), approximately 3,008 pages, is priced £90 each (plus shipping).
Discounts are available for multiple copies, students/academics and residents of middle and low income countries. IASB Comprehensive Subscribers will automatically receive a copy of the new "Guide through IFRS July 2009" when it becomes available.
" IFRS Taxonomy Illustrated " Price: £15
Physically, the IFRS Taxonomy consists of a set of electronic XBRL files and, therefore, it can be difficult for those not familiar with XBRL to understand the structure of the Taxonomy without the use of software. The "IFRS Taxonomy Illustrated" presents a simplified view of the IFRS Taxonomy in an easy to read, visual format that does not require knowledge of XBRL. It has been specially prepared for accountants, auditors and those wanting a comprehensive overview of the structure and content of the IFRS Taxonomy, in order to promote understanding of the Taxonomy and assist with preparing IFRS financial reports in XBRL format.
The "IFRS Taxonomy Illustrated" sets out the hierarchy of the Taxonomy and the elements within it (which represent IFRS disclosure requirements), the required format of these elements (such as text, monetary values, etc), and the IFRSs and IASs that these elements relate to. To meet the needs of preparers, the "IFRS Taxonomy Illustrated" has been released in two versions - the Taxonomy organised according to financial statements, and the Taxonomy organised by IFRSs (i.e. in the same order as the Bound Volume of IFRSs).
Registered IFRS website subscribers can also access HTML versions in Arabic, English (organised by financial statements or IFRSs) and Spanish, with translations into other key languages are to be made available over the coming months.
The IASC Foundation will soon publish the "Guide through IFRS" and the "IFRS Taxonomy Illustrated".
The printed publications will be soon available to the public. In order to receive notification, or to pre-order and receive a pro-forma invoice, please click on the images.
"A Guide through IFRS" Price: £90
Available in hard copy soon and online in Q4 2009, A Guide through International Financial Reporting Standards (IFRSs), includes the full consolidated text of the Standards and Interpretations and accompanying documents-illustrative examples, implementation guidance, bases for conclusions and dissenting opinion-issued by the IASB as at 1 July 2009, with extensive cross-references and other annotations. The book, A Guide through IFRS July 2009 - (ISBN 978-1-907026-20-1), approximately 3,008 pages, is priced £90 each (plus shipping).
Discounts are available for multiple copies, students/academics and residents of middle and low income countries. IASB Comprehensive Subscribers will automatically receive a copy of the new "Guide through IFRS July 2009" when it becomes available.
" IFRS Taxonomy Illustrated " Price: £15
Physically, the IFRS Taxonomy consists of a set of electronic XBRL files and, therefore, it can be difficult for those not familiar with XBRL to understand the structure of the Taxonomy without the use of software. The "IFRS Taxonomy Illustrated" presents a simplified view of the IFRS Taxonomy in an easy to read, visual format that does not require knowledge of XBRL. It has been specially prepared for accountants, auditors and those wanting a comprehensive overview of the structure and content of the IFRS Taxonomy, in order to promote understanding of the Taxonomy and assist with preparing IFRS financial reports in XBRL format.
The "IFRS Taxonomy Illustrated" sets out the hierarchy of the Taxonomy and the elements within it (which represent IFRS disclosure requirements), the required format of these elements (such as text, monetary values, etc), and the IFRSs and IASs that these elements relate to. To meet the needs of preparers, the "IFRS Taxonomy Illustrated" has been released in two versions - the Taxonomy organised according to financial statements, and the Taxonomy organised by IFRSs (i.e. in the same order as the Bound Volume of IFRSs).
Registered IFRS website subscribers can also access HTML versions in Arabic, English (organised by financial statements or IFRSs) and Spanish, with translations into other key languages are to be made available over the coming months.
FASB : XBRL Functionality Added to Codification
Accounting Standards Codification
FASB announced that it has added new XBRL functionality to its Accounting Standards Codification Web site. http://asc.fasb.org
“ The new XBRL functionality provided by the Codification Web site will help entities as they prepare or plan to prepare XBRL financial statements using the U.S. Financial Reporting Taxonomy” .
“... Users will be able to very easily identify the XBRL elements associated with specific Codification paragraphs”, said FASB Chairman Robert Herz.
The FASB Codification, which is effective for interim and annual periods ending after Sept. 15, 2009, provides a list of all XBRL elements that contain an electronic link to a Codification paragraph. It provides the complete XBRL element names together with all Codification paragraphs referenced by a particular XBRL element.
To ensure that the taxonomy references the authoritative literature in the Codification rather than the superseded legacy literature, XBRL-US announced in August that it had published a taxonomy extension including the Codification references. The Codification references include both the text-based Codification reference (in the form of topic, subtopic, section, paragraph, and subparagraph) and an electronic link to the related codification paragraphs.
FASB’s Notice to Constituents (requires login to FASB Codification) provides additional background regarding Codification references and electronic links embedded in the U.S. Financial Reporting Taxonomy.
The current changes to the FASB Codification follow the SEC’s rule effective April 13, 2009, that requires all public companies to begin providing XBRL versions of their SEC filings over a three-year phase-in period. Approximately 500 of the largest public companies, each with a worldwide public float greater than $5 billion, began filing for interim financial statements with periods ending on or after June 15, 2009.
All other large accelerated filers (with public floats below $5 billion that file under U.S. GAAP) are expected to start filing in XBRL in June 2010. In 2011, all remaining companies using U.S. GAAP and all foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the International Accounting Standards Board will be subject to the same requirements.
The XBRL data, which the SEC calls “interactive data,” is required to supplement—but not replace—a company’s traditional electronic filing formats (ASCII or HTML) for annual and quarterly reports, transition reports for a change in fiscal year, and reports that contain updated or revised versions of financial statements. Companies also are required to post the XBRL version on their corporate Web site, if they maintain one.
The U.S. GAAP Taxonomy for XBRL was developed by XBRL US—the nonprofit consortium for XML business reporting standards—under contract with the SEC as a digital dictionary containing a comprehensive set of reporting elements that include U.S. GAAP requirements and common reporting practices.
FASB announced that it has added new XBRL functionality to its Accounting Standards Codification Web site. http://asc.fasb.org
“ The new XBRL functionality provided by the Codification Web site will help entities as they prepare or plan to prepare XBRL financial statements using the U.S. Financial Reporting Taxonomy” .
“... Users will be able to very easily identify the XBRL elements associated with specific Codification paragraphs”, said FASB Chairman Robert Herz.
The FASB Codification, which is effective for interim and annual periods ending after Sept. 15, 2009, provides a list of all XBRL elements that contain an electronic link to a Codification paragraph. It provides the complete XBRL element names together with all Codification paragraphs referenced by a particular XBRL element.
To ensure that the taxonomy references the authoritative literature in the Codification rather than the superseded legacy literature, XBRL-US announced in August that it had published a taxonomy extension including the Codification references. The Codification references include both the text-based Codification reference (in the form of topic, subtopic, section, paragraph, and subparagraph) and an electronic link to the related codification paragraphs.
FASB’s Notice to Constituents (requires login to FASB Codification) provides additional background regarding Codification references and electronic links embedded in the U.S. Financial Reporting Taxonomy.
The current changes to the FASB Codification follow the SEC’s rule effective April 13, 2009, that requires all public companies to begin providing XBRL versions of their SEC filings over a three-year phase-in period. Approximately 500 of the largest public companies, each with a worldwide public float greater than $5 billion, began filing for interim financial statements with periods ending on or after June 15, 2009.
All other large accelerated filers (with public floats below $5 billion that file under U.S. GAAP) are expected to start filing in XBRL in June 2010. In 2011, all remaining companies using U.S. GAAP and all foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the International Accounting Standards Board will be subject to the same requirements.
The XBRL data, which the SEC calls “interactive data,” is required to supplement—but not replace—a company’s traditional electronic filing formats (ASCII or HTML) for annual and quarterly reports, transition reports for a change in fiscal year, and reports that contain updated or revised versions of financial statements. Companies also are required to post the XBRL version on their corporate Web site, if they maintain one.
The U.S. GAAP Taxonomy for XBRL was developed by XBRL US—the nonprofit consortium for XML business reporting standards—under contract with the SEC as a digital dictionary containing a comprehensive set of reporting elements that include U.S. GAAP requirements and common reporting practices.
IASB : Chairman's Statement to the European Economic and Monetary Affairs Committee
www.iasb.org
Statement of IASB Chairman Sir David Tweedie, 28.09.2009, European Parliament, Brussels
Madam Chairwoman, Members of the Economic and Monetary Affairs (ECON) Committee, I welcome this opportunity to appear before you today to present how we at the International Accounting Standards Board (IASB) are responding to issues arising from the financial crisis. I will focus my formal remarks on our response on the financial crisis and, in particular, our response to issues raised by EU institutions. However, I should be happy to discuss any other issues that members of the Committee wish to raise.
I am particularly pleased that you have made time to allow me to provide an update on the IASB’s work at this critical juncture for financial markets. I and my colleagues on the IASB look forward to working with the Committee in the coming years, and we remain committed to seeking your input on important aspects of our work at an early stage in the decision-making process. I also know that the Trustees of the IASC Foundation, the IASB’s oversight body, have already expressed their willingness to meet the Committee later this year.
This session is particularly timely. The G20 leaders met last week and have repeatedly affirmed the importance of achieving a single set of high quality global accounting standards. This is something that the European Union and your predecessors on this Committee recognised well in advance of the current crisis. The European Union’s strategy to adopt an international standard, rather than a particularly European one, has been vindicated.
As a direct result of your leadership in this area, over 100 countries now require or permit the use of the International Financial Reporting Standards (IFRSs) issued by the IASB. It is crucial for the achievement of global standards and the effective functioning and prosperity of the European economy, and indeed the global economy, that the EU remains committed to global standards.
An active and measured response to the financial crisis
Today, in the limited time that we have for this session, I should like to explain what we have already done and what we are currently doing in response to the financial crisis. It is a priority of the IASB to keep EU institutions – and other relevant stakeholders - informed of our activities. I would certainly welcome your views today.
Earlier in the year, I had the opportunity to meet with EU Finance Ministers in June and I have been invited to their October meeting to provide a further update. We are also in regular contact with the European Commission. I am also including, as part of my written statement, a copy of a letter that Gerrit Zalm, the Chairman of the IASC Foundation Trustees, sent to the G20 on 15 September that describes our actions in greater detail.
Today, I want to give members of this Committee confidence that the IASB has responded appropriately to the crisis and to the specific issues raised in Europe. Last week, the Monitoring Board, in which the European Commission currently participates, set out important principles to guide our response to the financial crisis.
The Monitoring Board emphasised, ’the primary objective of financial reporting as being to provide information on an entity’s financial performance in a way that is useful for decision-making for present and potential investors. To be considered decision-useful, information provided through the application of the accounting standards must, at a minimum, be relevant, reliable, understandable and comparable.’ These are principles that we have applied and will continue to apply in response to the financial crisis.
In developing an effective response to the crisis, the IASB has sought the advice of experts from a wide range of backgrounds. Jointly with the US Financial Accounting Standards Board (FASB), we asked the Financial Crisis Advisory Group (FCAG), a group of leaders with broad experience in international financial markets to advise the two boards on their joint response to the crisis.
Prominent European members of this group include:
Hans Hoogervorst
Chairman of the AFM (the Netherlands Authority for the Financial Markets)
Stephen Haddrill
Director General of the Association of British Insurers (ABI) and shortly to become Chief Executive of the UK Financial Reporting Council (FRC)
Michel Prada
former Chairman of the Autorité des Marchés Financiers (AMF)
Tommaso Padoa-Schioppa
former Finance Minister of Italy
Klaus-Peter Müller
Chairman of the Supervisory Board of Commerzbank
Lucas Papademos
Vice-President of the European Central Bank
The FCAG reported at the end of July, and the IASB is working to implement the relevant recommendations.
Actions taken to respond to global concerns
From the outset of the crisis, the IASB has worked on a defined programme with time lines to address issues arising from the financial crisis. Our initial focus was on the three areas identified by the Financial Stability Forum: 1) the application of fair value in illiquid markets; 2) accounting for off balance sheet items; and 3) disclosures related to risk. On all three points, we have acted urgently.
On fair value in illiquid markets, we produced a report in October 2008 that the European Commission praised. We have consistently stated that IFRS and US guidance are consistent in this important area. I know that there was concern that the recent FASB Staff Position on fair value measurement might have created a new unlevel playing field. It is for this reason that immediately after the FASB’s publication, we posted a press release reiterating that our approach was consistent with the FASB’s. As an extra precaution to ensure that global consistency is maintained, on 28 May 2009 the IASB published an exposure draft on fair value measurement that directly incorporates the relevant FASB guidance.
On off balance sheet items, the G20, the Financial Stability Forum, and this Council have all emphasised the need for more transparency in the accounting for these items. There is some evidence that IFRSs have held up relatively well on this issue, but we have now proposed tightening our rules further.
On risk disclosures, in March 2009 the IASB published improvements to the disclosure requirements for fair value measurements and reinforced existing principles for disclosures about the liquidity risk associated with financial instruments.
Read the full statement at: http://bit.ly/wd70n
Statement of IASB Chairman Sir David Tweedie, 28.09.2009, European Parliament, Brussels
Madam Chairwoman, Members of the Economic and Monetary Affairs (ECON) Committee, I welcome this opportunity to appear before you today to present how we at the International Accounting Standards Board (IASB) are responding to issues arising from the financial crisis. I will focus my formal remarks on our response on the financial crisis and, in particular, our response to issues raised by EU institutions. However, I should be happy to discuss any other issues that members of the Committee wish to raise.
I am particularly pleased that you have made time to allow me to provide an update on the IASB’s work at this critical juncture for financial markets. I and my colleagues on the IASB look forward to working with the Committee in the coming years, and we remain committed to seeking your input on important aspects of our work at an early stage in the decision-making process. I also know that the Trustees of the IASC Foundation, the IASB’s oversight body, have already expressed their willingness to meet the Committee later this year.
This session is particularly timely. The G20 leaders met last week and have repeatedly affirmed the importance of achieving a single set of high quality global accounting standards. This is something that the European Union and your predecessors on this Committee recognised well in advance of the current crisis. The European Union’s strategy to adopt an international standard, rather than a particularly European one, has been vindicated.
As a direct result of your leadership in this area, over 100 countries now require or permit the use of the International Financial Reporting Standards (IFRSs) issued by the IASB. It is crucial for the achievement of global standards and the effective functioning and prosperity of the European economy, and indeed the global economy, that the EU remains committed to global standards.
An active and measured response to the financial crisis
Today, in the limited time that we have for this session, I should like to explain what we have already done and what we are currently doing in response to the financial crisis. It is a priority of the IASB to keep EU institutions – and other relevant stakeholders - informed of our activities. I would certainly welcome your views today.
Earlier in the year, I had the opportunity to meet with EU Finance Ministers in June and I have been invited to their October meeting to provide a further update. We are also in regular contact with the European Commission. I am also including, as part of my written statement, a copy of a letter that Gerrit Zalm, the Chairman of the IASC Foundation Trustees, sent to the G20 on 15 September that describes our actions in greater detail.
Today, I want to give members of this Committee confidence that the IASB has responded appropriately to the crisis and to the specific issues raised in Europe. Last week, the Monitoring Board, in which the European Commission currently participates, set out important principles to guide our response to the financial crisis.
The Monitoring Board emphasised, ’the primary objective of financial reporting as being to provide information on an entity’s financial performance in a way that is useful for decision-making for present and potential investors. To be considered decision-useful, information provided through the application of the accounting standards must, at a minimum, be relevant, reliable, understandable and comparable.’ These are principles that we have applied and will continue to apply in response to the financial crisis.
In developing an effective response to the crisis, the IASB has sought the advice of experts from a wide range of backgrounds. Jointly with the US Financial Accounting Standards Board (FASB), we asked the Financial Crisis Advisory Group (FCAG), a group of leaders with broad experience in international financial markets to advise the two boards on their joint response to the crisis.
Prominent European members of this group include:
Hans Hoogervorst
Chairman of the AFM (the Netherlands Authority for the Financial Markets)
Stephen Haddrill
Director General of the Association of British Insurers (ABI) and shortly to become Chief Executive of the UK Financial Reporting Council (FRC)
Michel Prada
former Chairman of the Autorité des Marchés Financiers (AMF)
Tommaso Padoa-Schioppa
former Finance Minister of Italy
Klaus-Peter Müller
Chairman of the Supervisory Board of Commerzbank
Lucas Papademos
Vice-President of the European Central Bank
The FCAG reported at the end of July, and the IASB is working to implement the relevant recommendations.
Actions taken to respond to global concerns
From the outset of the crisis, the IASB has worked on a defined programme with time lines to address issues arising from the financial crisis. Our initial focus was on the three areas identified by the Financial Stability Forum: 1) the application of fair value in illiquid markets; 2) accounting for off balance sheet items; and 3) disclosures related to risk. On all three points, we have acted urgently.
On fair value in illiquid markets, we produced a report in October 2008 that the European Commission praised. We have consistently stated that IFRS and US guidance are consistent in this important area. I know that there was concern that the recent FASB Staff Position on fair value measurement might have created a new unlevel playing field. It is for this reason that immediately after the FASB’s publication, we posted a press release reiterating that our approach was consistent with the FASB’s. As an extra precaution to ensure that global consistency is maintained, on 28 May 2009 the IASB published an exposure draft on fair value measurement that directly incorporates the relevant FASB guidance.
On off balance sheet items, the G20, the Financial Stability Forum, and this Council have all emphasised the need for more transparency in the accounting for these items. There is some evidence that IFRSs have held up relatively well on this issue, but we have now proposed tightening our rules further.
On risk disclosures, in March 2009 the IASB published improvements to the disclosure requirements for fair value measurements and reinforced existing principles for disclosures about the liquidity risk associated with financial instruments.
Read the full statement at: http://bit.ly/wd70n
FCM : 8th Annual Conference in Bucharest, 02.10.2009, Romania
The Mediterranean Accountancy Profession in a Turbulent Economy: A Solid Accounting Infrastructure to Strengthen Transparency and Accountability in the Region
FCM is organising its 8th Annual Conference, which will take place in Bucharest on the 2nd of October, 2009. The Conference will mark the 10th anniversary of FCM. It will be held in the Hotel Radisson SAS in Bucharest and hosted by CECCAR (Corpul Expertilor Contabili si Contabililor Autorizati din Romania), which represents the accountancy profession in Romania. The conference will be addressed by Mr. George Samothrakis, Executive President of the FCM Board and Vice President of the Greek Institute of Certified Public Accountants (SOEL).
In light of the ongoing financial and economic crisis and with the prospective of also discussing the vital role that the Accounting and Auditing profession can play, FCM has organised this Conference to provide a deeper understanding of the issues in question, particularly in the light of their impact on the Mediterranean region. Specific emphasis will also be given to the issues affecting Small and Medium Practices and Small and Medium Enterprises. Among others, it will have the participation of representatives from the EU Commission, the World Bank, the FEE, the IFAC and the Economist.
Conference Registration Form:http://www.fcmweb.org/documenti/fcm%20conference%20ext%20%20registration%20form%20(with%20visa).doc
FCM : The Federation of Mediterranean Certified Accountants / Fédération des Experts Comptables Mediterranéens, represents the accountancy profession in the Mediterranean area. FCM is a non-profit association created at the end of 1999 on the initiative of a number of leaders of national accounting institutes in the Mediterranean area. Its membership consists of 21 professional institutes of accountants from 16 Mediterranean countries (Albania, Bulgaria, Cyprus, Egypt, France, Greece, Israel, Italy, Kosovo, Malta, Morocco, Romania, Serbia, Spain, Tunisia, Turkey), plus two associate members, ACCA and FIDEF. FCM member bodies are present in 8 member states of the European Union, and represent more than 320.000 professionals. 19 FCM Member Bodies are IFAC members.
Συνεργασία ΣΟΕΛ και ACCA : Νέες Προοπτικές στην Πιστοποιημένη Εκπαίδευση
Διαβάστε online το άρθρο του Στέλιου Ντότσια,
Executive Director της Globaltraining,
στη "Λογιστική Εκπαίδευση": http://bit.ly/17V3og
Executive Director της Globaltraining,
στη "Λογιστική Εκπαίδευση": http://bit.ly/17V3og
IAS 39 : IASB Update : Classification and Measurement
Financial instruments: Replacement of IAS 39
The International Accounting Standards Board met in London on 22 September 2009 for an additional Board meeting, to continue work on the project to replace existing requirements for financial instruments. The Board continued its discussions on responses received to its previous exposure draft, published in July.
IAS 39 Financial Instruments: Recognition and Measurement has an exception that requires an entity to measure at cost investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably determined (as well as derivatives that are linked to such equity instruments and which must be settled by delivery of them). The exposure draft proposed to remove that exception and require that such investments be measured at fair value.
The Board tentatively decided to provide guidance for when entities can use a simplified current measurement for equity instruments if determining fair value is impracticable. In addition, the Board tentatively decided to amend IAS 34 Interim Financial Reporting to allow an entity to carry forward that measure if there is no evidence of a significant change in that measure since the last reporting date.
Impairment of financial instruments
The Board also continued its discussions on impairment of financial instruments. Regarding the drafting of an exposure draft (ED) on impairment the Board tentatively decided:
- that the ED should provide principle-based guidance regarding cash flow estimates on a collective (portfolio) and an individual basis (including the interplay between those bases) that focuses on two aspects:
- using the approach that provides the best estimate; and
- ensuring that if entities switch between approaches that does not result in double counting.
- that the ED includes concise application guidance for forecasting cash flows and the treatment of trade receivables.
- to use the Expert Advisory Panel (EAP) as a forum to explore further some other issues (determination of the initial expected spread, practical aspects of applying the effective interest method and interaction with Basel II requirements).
- that the ED clarifies aspects in relation to the measurement objective (point-in-time versus through-the-cycle-estimates, expected value versus most probable value and the use of entity specific versus market data).
Regarding transition proposals the Board tentatively decided not to propose either full retrospective or full prospective application. The Board asked the staff to explore further an alternative transition approach for financial instruments that were recognised before the date of transition. This approach would involve determining on transition a new effective interest rate on the basis of the expected cash flows over the remaining life of the financial instrument that would be subject to a floor (the risk free interest rate) and a ceiling (the contractual interest rate).
IASB Conceptual Framework Project:
Objectives and qualitative characteristics
http://bit.ly/b0XLH
Grant Thornton: Νέα Έρευνα για τις Επιπτώσεις των IFRS στις Εισηγμένες Εταιρίες
Έρευνα για τις επιπτώσεις εφαρμογής των ΔΠΧΑ στις εισηγμένες επιχειρήσεις.
"Ευελπιστούμε ότι τα αποτελέσματα της έρευνας θα βοηθήσουν στην εξαγωγή χρήσιμων συμπερασμάτων και θα συμβάλλουν στην ανάπτυξη προβληματισμού και συζήτησης αναφορικά με την εφαρμογή των ΔΠΧΑ στη χώρα μας". Grant Thornton
Κατεβάστε την πλήρη έρευνα σε PDF:
http://www.grant-thornton.gr/gr_upload/htmlarea/ifrs_august2009_final.pdf
Κατεβάστε την πλήρη έρευνα σε PDF:
http://www.grant-thornton.gr/gr_upload/htmlarea/ifrs_august2009_final.pdf
Simplified Reporting: Forgotten in the Crisis?
It's been a year since an SEC advisory committee made suggestions for improving the standard-setting and preparation that goes into financial statements.
by Sarah Johnson, CFO.comAugust 2008 was a hopeful time for advocates of principles-based accounting. The United States had a new plan to adopt global accounting standards, which are considered to allow for more judgment than U.S. generally accepted accounting principles. And an advisory group to the Securities and Exchange Commission unveiled a 170-page report recommending ways financial reporting could be simplified, including the belief that bright lines should not exist.
A year later, there has been no movement toward adopting International Financial Reporting Standards in the United States since then–SEC chairman Christopher Cox introduced a roadmap for the conversion last August. And while some recommendations of the Committee on Improvements to Financial Reporting were taken up by standard-setters and regulators during the year the CIFR convened, the SEC has procrastinated on addressing the meatier, more-controversial suggestions that could substantially reduce reporting complexity.
Those suggestions included having the SEC develop a policy statement on the reasonableness of judgment, in order to reduce second-guessing among companies, regulators, and auditors. The CIFR also recommended that the commission issue additional guidance on how companies should view materiality when considering a financial restatement. And, the committee offered, the SEC could require companies to write executive summaries of their 10-Ks, briefly explaining their business, financial condition, and operations.
To be sure, the SEC has been wrapped up in repairing its reputation following the Madoff scandal and the collapse of investment banks. The announcements coming out of the commission this year have focused largely on short-selling rules; executive compensation; proxy access; and enforcement actions against or settlements with financial institutions, a corporate behemoth (General Electric), and several Ponzi schemes.
Indeed, nearly seven months into her job as SEC chairman, Mary Schapiro has for the most part — at least publicly — stayed away from talking about corporate finance and accounting policies. In fact, Schapiro has yet to name a permanent chief accountant since Conrad Hewitt left in January.
"We have focused our efforts on matters directly related to the economic crisis, financial regulatory reform, and improvements to the agency's processes and programs, and we expect to continue to do so in the coming months," Schapiro wrote last month in a letter to CIFR chairman Robert Pozen, who also chairs MFS Investment Management.
In 2007 Pozen's group was tasked with the lofty goal of spending a year coming up with tips for how regulators and standard-setters could simplify financial reporting. The members — current and former CFOs, professors, securities lawyers, investor advocates, and audit-firm executives — avoided recommending any changes that would require legislation and did not weigh in on the debate over whether the United States should adopt IFRS.
Some of the committee's advice regarded changes that were already in process and are now completed or nearly done. For example, the SEC has clarified how companies can use their Websites to disseminate financial information. Also, the Financial Accounting Standards Board has been working on getting investor representatives more involved (for example, Vanguard chairman John Brennan now chairs FASB's board of trustees).
FASB has also completed its codification project, creating a one-stop, authoritative location for all GAAP literature in a bid to clear up confusion resulting from quasi-GAAP issued by regulators and accounting organizations that has piled up over the years.
"Given the context of where we've been in the last year in terms of the financial crisis, I'm quite pleased by the amount of work that has been done," says Pozen, who estimates that about two-thirds of his committee's recommendations have been addressed. Still, he tells CFO.com, he felt the need to recently "prod" the SEC and FASB on the status of committee recommendations that haven't received recent attention.
One tricky recommendation that SEC staffers may continue to ignore involves materiality. The CIFR wanted the commission to tell companies to consider both qualitative and quantitative factors when determining an error's materiality, and make their decision based on "the perspective of a reasonable investor." In addition, the committee wanted more guidance on how companies should address an old error. But while the SEC has not issued any new guidance on materiality since the CIFR report came out, Pozen says companies are gradually reevaluating what is considered material on their own.
Another CIFR suggestion may be dead for now. Many accounting observers believe a more principles-based approach to financial reporting, putting more trust in professional judgment, would clear up the muddy water created by decades of rules proliferation. In that spirit, the CIFR asked that standard-setters eliminate percentage tests, strict thresholds, and numerical parameters in rules.
However, FASB believes that pleas for more detailed guidance won't abate.
"Although the Board is committed to eliminating or reducing the use of bright lines and exceptions, we do not perceive any significant change in the demand for such guidance," FASB wrote in a 17-page response to Pozen.
The board took a defensive tone, noting that "the SEC, the FASB, and others have been understandably devoting significant time and attention to addressing the issues brought to light by the current economic crisis."As for the CIFR's suggestion to address the reasonableness of judgment calls, the regulators are mum. The CIFR had wanted input from both the SEC and the Public Company Accounting Oversight Board; however, while the issue is on the board's radar screen, it's waiting for guidance from the SEC on how to proceed, says PCAOB communications director Mary Sjoquist.
Pozen says the two agencies should coordinate their efforts, and suggests that "if the SEC is so overwhelmed with other things, it may be the case that the PCAOB should take the lead."
In her letter to Pozen, Schapiro said the SEC will "hopefully" take up more of the CIFR's recommendations later this year. "As the regulatory agenda continues to unfold, I am confident that we will consider further specific action related to the many thoughtful recommendations that CIFR developed," she wrote.
In the meantime, Pozen believes financial reporting will get easier over time, and actually has somewhat over the past year. But because improvements will be so gradual, preparers may not even take notice.
"A CFO is not going to wake up one day and say, 'Today is the day when things change,'" he says.
Read the full CIFR Report:
http://www.sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf
PCFRC Eyes Global Standards for Small Business
By Michael Cohn, WebCPA
The Private Company Financial Reporting Committee took a close look at the International Accounting Standards Board’s new “IFRS for SMEs” standards at its meeting last week.
The committee, a joint effort of the Financial Accounting Standards Board and the American Institute of CPAs, spent the bulk of the two-day meeting examining the IASB’s stripped-down set of International Financial Reporting Standards for Small and Midsized Entities (see International Accounting Standards Issued for SMBs)Various members of the committee were assigned different sections of the standards, and will discuss what might work for U.S. companies and what might not, but the committee did not reach any conclusions on adopting the standards.
“As a committee, we did not come up with any specific recommendations on that, other than that we believe the issue of private company accounting should be on FASB’s agenda at some point,” said PCFRC chair Judy O’Dell. Most of the committee believes there should be differences in accounting between public and private entities, she noted.
One issue that needs to be addressed in the “IFRS for SMEs” standards is that last-in-first-out accounting is not permitted for inventory. “That’s a real sticking point in the United States,” said O’Dell. On the other hand, the committee liked some of the simplifications in the standards, especially one that allows accountants to simply amortize goodwill, rather than do costly impairment evaluations. O’Dell recommended that accountants should visit a section of the AICPA’s IFRS.com site that provides a set of questions and answers on the “IFRS for SMEs” standards.
The committee also discussed the state of several other projects, such as revenue recognition and financial statement presentation, but O’Dell noted there has not been a great deal of movement on those. However, a document on FIN 48-d, “Application Guidance for Pass-through Entities and Tax-Exempt Not-for-Profit Entities and Disclosure Modifications for Nonpublic Entities,” should be issued fairly soon.
The PCFRC is also likely to write letters commenting on the applicability of proposed loan-loss disclosure standards to private companies, and the flexibility of EITF 08-01, which covers revenue arrangements with multiple deliverables.
XBRL Update: IFRS for SMEs Taxonomy
IASC Foundation XBRL Team | xbrl@iasb.org
Recently, the IASB issued an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs), which are estimated to represent more than 95 per cent of all companies. The standard is a result of a five-year development process with extensive consultation of SMEs worldwide.
The IFRS for SMEs is a self-contained standard of about 230 pages tailored for the needs and capabilities of smaller businesses. Many of the principles in full IFRSs for recognising and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced.
To further reduce the reporting burden for SMEs, revisions to the IFRS will be limited to once every three years after an initial implementation review, when two years of financial statements using the IFRS have been published by a broad range of entities.
The IFRS for SMEs Taxonomy is currently being developed by the IASC Foundation XBRL Team. The exposure draft will be released in September, and the final version is scheduled for release by December 2009. Just as the IFRS for SMEs is based upon the full set of IFRSs, the IFRS for SMEs Taxonomy is built on the foundation of the IFRS Taxonomy 2009.
Release of translated IFRS Taxonomy 2009 labels
The IASC Foundation has released translations of the complete label linkbases for the IFRS Taxonomy 2009 in six key languages - Arabic, Chinese, Dutch, French, Italian and Spanish. Translations into other key languages such as German and Japanese are to be made available shortly.
In order to provide further support to international users of the IFRS Taxonomy, the following support materials and tools have also been released for viewing and use in Arabic, Dutch, French, Italian and Spanish:
The IFRS Taxonomy Modules Manager
An online tool that guides users through the process of navigating and customising the IFRS modules that make up the IFRS Taxonomy.
The IFRS Taxonomy Illustrated
A simplified view of the IFRS Taxonomy in an easy-to-read, visual format that does not require knowledge of XBRL, with links to the electronic IFRSs (eIFRS). It has been specially prepared for accountants, auditors and those wanting a comprehensive overview of the structure and content of the IFRS Taxonomy, in order to promote understanding of the Taxonomy and to assist with preparing IFRS financial reports in XBRL format.
Video: Viewpoints on Adoption of IFRS
Journal of Accountancy
Global accounting leaders, including FASB Chairman Robert Herz, Standards Advisory Council Chairman Paul Cherry and Standard & Poor's Chief Accountant Neri Bukspan, discuss the convergence of IFRS and U.S. GAAP.
http://www.journalofaccountancy.com/Multimedia/GAARoundtable.htm
Global accounting leaders, including FASB Chairman Robert Herz, Standards Advisory Council Chairman Paul Cherry and Standard & Poor's Chief Accountant Neri Bukspan, discuss the convergence of IFRS and U.S. GAAP.
http://www.journalofaccountancy.com/Multimedia/GAARoundtable.htm
ACCA: Small business and the financial crisis
Clive Booth, Veena Hudson, http://blogs.accaglobal.com
Small and medium sized enterprises (SMEs) are an important part of developed and developing economies as they play a key role in creating jobs, innovation, supporting stability, macroeconomic growth and act as a growth engine. In OECD countries, SMEs represent 95% of all enterprises, accounting for two-thirds of employment and being the main source of new job creation (1). As such, SMEs in many countries around the world are the major source of economic recovery and assist the return to sustainable growth.
Small and medium sized enterprises (SMEs) are an important part of developed and developing economies as they play a key role in creating jobs, innovation, supporting stability, macroeconomic growth and act as a growth engine. In OECD countries, SMEs represent 95% of all enterprises, accounting for two-thirds of employment and being the main source of new job creation (1). As such, SMEs in many countries around the world are the major source of economic recovery and assist the return to sustainable growth.
SMEs are particularly badly affected in times of financial crisis, due to the reduced demand for products and services, sudden rises in the prices of raw materials, energy and food, liquidity and credit related problems, variations in exchange rates, inflation, and still are subject to a relatively high cost of capital. Access to finance continues to be one of the most significant challenges for the creation, survival and growth of SMEs, especially those that are innovative. Start-ups in particular are most vulnerable, often lacking the resources to survive the downturn.
In addition, the uneven application of regulatory and legal frameworks that have primarily been designed for large-listed companies leads to market failure and requires governments to intervene to support these important contributors to the economic well-being of countries. SMEs will require effective short-term measures to address these financial and other aspects that are a part of their business environment. It is critical in these circumstances that regulators think small first.
SMEs need more urgency on measures to help restore confidence, on issues such as late payments, access to finance and employment support measures. These will need, however, to be linked to structural improvements in the SME financial environment over the longer term in order to be successful and to restore growth.
The current economic context is a unique opportunity for governments around the world to find more far-reaching ways to collaborate and partner with business, civil society as well as between governments, to pool efforts to build infrastructure, build social capital and encourage institutional changes and help improve the operating environment for business.
Governments need to ensure that the SME interests are adequately represented within government. Separate agencies, with strong influence and links within government, that deal with small business policy and manage government intervention relating to business support may be needed in order to ensure adequately focused policy and a clear point of contact. Ensuring that small businesses have a strong voice within government is crucial to ensuring a small business-friendly environment. Regulation, for example, is a key area for creating the right environment both for entrepreneurship and for business to prosper. World Bank research has found that countries with burdensome regulation have larger informal sectors, higher unemployment, and slower economic growth (2).
Working collaboratively, governments can do more to support host governments in developing and emerging markets with the development of enabling frameworks that encourage responsible private sector investment. For example, by supporting efforts to put in place effective regulatory and voluntary standards; legal frameworks; funding and investment vehicles; policy consultation mechanisms; accountability structures; and civil society networks.
Governments can also support the creation and strengthening of local business associations, chambers of commerce – which are often weak or non-existent – as well as essential ‘institutional infrastructure’ (linkage programmes, skills/training programmes) for SME development.
Although, much of the emphasis is on governments to act 'locally' to the problems confronted by SMEs during this crisis, there are important issues that have a global dimension and need to be addressed to ensure the sustainability and growth of the SME community. For example, the level of SME cross-border activity is increasing year on year through the development of technology and communication.
It is important that SMEs are protected against external events that are out of their control such as fluctuations in exchange rates. SMEs around the world need special attention and support in the current financial crisis.
Follow ACCA on Twitter: http://twitter.com/ACCANews
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