Science solution for accounting

Nov 8, 2010

Fee Techonlogy Inc, has created a patented software , Profit Solver®, that will revolutionize the accounting world. The software creates a direct relationship between the prices charged and the cost structure of the business. It is a mathematical approach to the accounting circle.

Each business, based on costs, will know the exact profit or loss in each fee charged or product sold.  It allows every business to set competitive prices and to see how one fee offsets the other to create and form their profit.  Based on costs, it will show if you can make the wages you want, how much time you can take off and how productive you need to be.  It can show you how to project a fee at any profit level and conversely, it can show the exact profit level in any fee you charge. Before you start a business, you will know if the prices you want to charge will cover costs.  Businesses will know a breakeven on each service performed or item sold, at any sales level.

A unique mathematical approach to solving the crux of business, what would the profit be for the products/services being sold.

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The convergence project

Nov 8, 2010

October 2002 was a significant year in the history of accounting. The Norwalk Agreement , a memorandum of understanding was announced by Financial Accounting Standards Board and the International Accounting Standards Board (IASB). This was a significant step towards the formalization of  the commitment of the two organizations to converge the US and International accounting standards.

The FASB has has undertaken the following six key initiatives to further the goal of convergence of U.S. GAAP with International Financial Reporting Standards (IFRS):

  1. Joint projects being conducted with the IASB – Key projects under this are Revenue Recognition and Business Combinations
  2. The short-term convergence project. – These are projects where the convergence around high quality solutions to resolve differences between US GAAP and IFRS appear achievable in the short term .Solution could be selecting between existing existing U.S. GAAP and IFRS.
  3. Liaison IASB member on site at the FASB offices. – Having full time IASB member , James J. Leisenring, in residenece at the FASB office is a significant feature.
  4. FASB monitoring of IASB projects. IASB projects are monitored by the FASB based upon the FASB’s level of interest in the topic being addressed.
  5. The convergence research project. The FASB staff is currently working on a research project related to convergence. The project identifies and catalogs the substantive differences between U.S. GAAP and IFRS.
  6. Explicit consideration of convergence potential in all Board agenda decisions. Within the framework of the Board’s agenda criteria, all topics formally considered for addition to the FASB’s agenda need to be assessed for the possibilities for cooperation with the IASB (or another standard setter).

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FASB planning to expand fair -value accounting

Nov 3, 2010

In an effort to align US GAAP to IFRS, FASB is considering expanding the fair- value accounting to land and buildings held for investment. The biggest impact of the change will be on real estate companies and real estate investment trusts. At present such assets are recorded at historical cost, but with the new standard fair value or in other terms the market value of the asset will be the basis of recording the asset in the financial statements.

What would the impact on companies’ financial statement be. Well that depends on the age of the properties. If the property is old and has been depreciated significantly, then the value of those assets would be significantly higher; but on the other side assets that were bought at the peak of the market in 2006-2007-2008, possibly would have significant decline in the value of the property that will be recorded on the balance sheet.

FASB’s rule is expected to be similar to International Accounting Standard 40, which allows a fair-value option.

The proposal is expected to be sometime next year and there is no time set for implementation yet. But the good news is that we are moving towards the global standards.

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Another drop out for IFRS

Nov 2, 2010

A couple of weeks ago, the Indian government announced dropping the new rule from International Financial Reporting Standards  that allows property developers to book sales only when the project is complete. Another announcement came out this week of dropping the government’s plans to introduce a new accounting norm for agriculture as part of the move to converge its accounting standards with globally adopted International Financial Reporting Standards (IFRS).

India will keep their present rules to guide the agricultural industry in maintaining their financial statements. Apart from agriculture the Indian government will depart or “carve out” compared to IFRS in real estate, property, plant and purchase and mergers to name a few key areas. 

The guideline based standards of IFRS have been met with general acceptance over the world, except some specific areas that the countries consider sensitive like banking where countries want to keep their own standards which usually are rule based.

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Korea requests delay in consolidation

Nov 1, 2010

Korea, the host of the 2010 G20 Summit, requested the G20 to delay the consolidation process of the global accounting standards. Korea has defined its role at the G20 mainly as an arbiter and a consensus builder among the world’s largest economies.

The G20 initiative for new, consolidated rule, Korea believes will be an issue for the Korean firms. Considering that many large firms have already spent a lot of money in setting up accounting and IT systems based on the IFRS method over the past few years.

Accounting firms say that the move towards convergence could cost Korean firms tens of billions of won, after they have just spent a huge amount of money in shifting from the GAAP-based standard to the IFRS-oriented one. The government is forcing them to use the IFRS for every listed company from next year.

Only time will tell whether Korea will be able to get a consensus among the G20 members to move the consolidation process to a later date and save the Korean firms from spending even more on meeting the new requirement.

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Here comes Accounting Makeover

Oct 25, 2010

Move over “Homemakeover” here comes the “Great 2010 Accounting Makeover”. BookKeeping Express , a professional bookeeping service provider for small businesses has announced a makeover contests where the winner gets a 12 month service package from the company.

What the companies have to do is submit a video, photo or a few sentences about the accounting problems they are facing and these will be posted on Facebook. The company that gets the most votes, wins the Makeover contest and will then get a complete overhauling of their book keeping.

Some key dates for those who are considering submitting – All entries must be mailed by noon ET on December 17, 2010 and the winner will be announced on Monday, December 20, 2010. All entries must be e-mailed by noon ET on December 17, 2010. But if you want to increase your chances of winning, you should submit early. The sooner you submit the more the chances of you getting more votes. Pick up the phone and ask your friends, family and business associates to vote for you!

I thought this was a cool way to promote the company, but what I found most interesting was that accounting folks are using the internet and new internet fads (in this case Facebook) to market their services. That is definitely the right way to go!

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Technical difficulties with new Revenue Recognition rules

Oct 23, 2010

The recent draft rules proposed by the Financial Accounting Standard Board concerning the revenue recognition rules would not just change the way accounting folks would recognize and record the revenue, but it would also require the companies to change or revamp their accounting systems.

One such situation will be in implementing the draft rule of assigning fair value to bundled products. Under the draft rule companies will have to use the relative selling price method, which allocates revenue for bundled products on a percentage to assign fair value rather than the popular residual allocation method, which assigns a straight dollar amount of revenue to each element of a bundled product.

Generally Enterprise Resource Planning (ERP) systems built for software revenue recognition are configured to handle the percentage method, while most ERP systems are programmed to handle the residual allocation method. So most non software companies will have to revamp their ERP system to comply with the rule if and when it becomes a rule. Will it be a small tweak in the system or a work around situation or will it be an opportunity for small or even large vendors to come up with stand alone products catering to this niche market, only time will tell.

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Convergence of Revenue Recognition

Oct 23, 2010

One accounting principle that is omnipresent in the accounting of all companies, be it public or private, domestic or private, billion dollar company or a startup, is the “Revenue recognition principle”.  Presently, US Generally Accepted Accounting Principles (GAAP) offers more than 100 pronouncements regarding when and how to book revenue, including industry specific rules for 25 different sectors.  The variations of the rules definitely leads to comparability issues among different companies, but due to the type of work different organizations do it is almost required to have variations in the rule. A construction company that uses the percentage of completion method to recognize revenue, will show a warped picture if it were to recognize the revenue only when the final sale of the property was done. If it takes 5 years to construct and sell, the company would be a loss making company for the five years as there will be costs associated with the construction but no revenue to show!

With the GAAP and IFRS convergence on full swing, the goal is to have a converged revenue recognition principle by the second quarter of next year. But consider this, under IFRS there are just two broad revenue rules augmented by four interpretations. A hundred pronouncements vs two broad rules; how do you come to a middle ground. This will be a major challenge for the standard setters and more so for all the companies that have to comply with the converged standards. Would it be more effective and show a clearer picture is something only time will tell.

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Mexican airport operator – an early adopter of IFRS

Oct 23, 2010

In January of 2009,the National Banking and Securities Commission made mandatory the presentation of financial statements prepared in accordance with IFRS starting  with the year ending December 31, 2012, but allowing for early adoption for the years 2008-2011, subject to prior notification to the CNBV and Mexican Stock Exchange (BMV). One of the early adopters of the requirement is the Mexican airport operator Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., known as OMA. The  operator announced that it will make early adoption of International Financial Reporting Standards (IFRS) (beginning a year ahead of the mandate with their first IFRS financial statements being year ending December 31, 2011, they will be considering the year 2010 as a transition year) and provided information on the estimated effects of the change.

It seems like the accounting standards world is coming closer to convergence and becoming totally global.


												
				

				
				

					

	
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Accounting error that travelled through years!

				
Oct 22, 2010

				
						
										
											
								
				
Tui Travel a tour operator, a company formed in 2007 from the merger of German group Tui AG’s travel division and First Choice, disclosed that the company had overlooked £117 million of small cash discounts given to British holidaymakers. The finance director of the organization is stepping down due to the disclosure of the accounting issues.


These discounts comprised of reductions offered by Thomson travel agents, such as waiving of booking charge fees and discounts for e-tickets, as well as some cancellations, were not picked up when UK cash sales data was transmitted from high street shops to Tui Travel’s accounts department. In August the company announced that it had found £29 million , which was called  “small receivable balance” that was built up over a few years, and the management believed that these are unrecoverable. But low and behold, in October they announced that the small receivable balance of £29 million was not the only unrecoverable balance, they had found another £88m of unrecoverable balance. And this time it was not called a “small receivable balance”. The company will be restating their financials, taking a hit of £42m wiping out almost 10% of its operating profits for the year to 30 September 2009.  The impact on the year to 30 September 2010 has been limited to £5m.


The company clarified that the error was due to a “chaotic reporting process” , and not shortcomings among suppliers. Well that definitely builds confidence in the investor community about the company and its accounting. One might wonder if there are any more surprises creeping up from the chaotic reporting process! Lets wait and watch!













												
				

				
				

					

	
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