American Accountants can use International Financial Reporting Standards

Accountingweb.com is reporting that the American Institute of Certified Public Accountants has voted to allow the use of International Financial Reporting Standards as an accepted part of American GAAP. The vote has the long-term potential to facilitate IFRS becoming a de-facto worldwide standard.

Not a Full Move to IFRS

In their press release on the matter, the AICPA point out that they are adding International Financial Reporting Standards to existing American Accounting Standards as an acceptable form of GAAP in which Companies can report. In practice this means that American Companies can continue to choose to report using American Standards, or choose to move to IFRS. In practice only time will tell whether there whether there will actually be a move to IFRS. While there may be advantages to a company that trades or is quoted on multiple stock markets in standardising on IFRS, there may not be a compelling reason for smaller companies in the US to do the same.

Why Could this be Good News?

A very strange thing happened in 1993. Daimler-Benz AG, the first German joint stock company to be listed on the New York Stock Exchange, issued financial statements under both U.S. and German GAAP. In the accounts produced under German GAAP the company reported a profit of 168 million Deutschmarks while under US GAAP they reported a loss of almost 1 billion Deutschmarks. So the obvious question is “which one is right”?

The answer could be “it doesn’t really matter” – the real issue is the confusion that such a conflict causes among investors, analysts, reporters, and anybody else who is trying to work out how the company is doing. Financial reports such as the Daimler do a great disservice to everybody involved. The key to the usefulness of accounts is their consistency so that they can be used for comparison purposes. So anything that helps clarity has to be good.

This is potentially great news – lets just watch how this plays out?

Setting an Appropriate Level of Regulation

As an industry, audit practice is subject to at least two levels of scrutiny and regulation by parties external to the audit firm itself. In addition there will also be an internal quality assurance mechanism in anything but the smallest practices. This scrutiny and attention to compliance is justified to a large extent by the many scandals that have seen some form of audit failure, however there must always be a balance between the level (and therefore cost) of regulation and the level of risk that is mitigated that is achieved by what appear to be ever increasing levels of scrutiny and regulation.

But if some Regulation is Good isn’t More Regulation Even Better?

The logic in a statement such as this is quite seductive – especially where the effects of the of the regulation have yet to be fully worked out, and where the wider community is in the grip of a news frenzy following the discovery of another scandal. And this is very understandable, the losses to many people in, for example, the collapse of Enron were very real. Peoples pension funds were destroyed, investors lost plenty, and confidence in the capital markets was severely undermined.

For years we in the auditing profession have countered this with an argument that there is a danger of over-regulation, and that over-regulation could result in a range of consequences from large increases in compliance costs to flight from markets that are considered over-regulated to less regulated, but this was largely speculation. There is evidence coming through however that this is now coming to pass in some jurisdictions.

Sarbanes Oxley

Following the collapse of Enron, the Houses of Congress in the United States implemented the Sarbanes Oxley Act (sometimes known as “SOX”). Understandably the act sought to prevent such a collapse in the future by implementing a significant regulation and compliance regimen on all companies quoted on the Stock Markets of the US. Many companies have found the implementation of SOX an arduous task. This has led to a number of unintended consequences, including US Companies moving off-shore, Companies which trade on both US and International markets withdrawing their US listing, companies choosing not to list on US exchanges, and as recently reported by the Wall Street Journal, increases in the requirement for Financial Controllers and Compliance Officers, as well as the Chief Financial Officer having to take on more responsibility than ever before.

Better Regulation not More Regulation

My own view is that regulation and oversight needs to be balanced against th risks the regulation is designed to counter. Not all companies are potential Enrons and should not treated as such. Over regulation will stifle innovation and take management time away from the activities which create value for their company. A soft-touch approach is not necessarly a bad thing.

Two More Free Software Programs for the Practicing Accountant

In a previous post I mentioned a couple of free and open source programs that can be used in any accounting practice. Today I will look at two further software packages that may help in the operation of a practice. The first is another accounting package, and the second is mindmapping software.

TurboCash

TurboCash is the first free accounting package that I used. It is a windows only program, but will work on systems running anything from Windows 98 on, and will run on older hardware as well. The package is very flexible and can be adapted to most commercial situations.

It can handle debtors, creditors, comprehensive stock control, VAT management, batch-entry system, multi-lingual interface, year-end financial statements, comprehensive reporting and analysis,
and bank reconciliations.

There is also a significant community and commercial support system available. The forum is a good source of information (but it appears to be down at the moment), and unlike many open source products, you can purchase support services.

Having use it I can say that it is quite intuitive, but I do find GnuCash easier to use.

Freemind

I really like using mindmaps as a way to think about projects, record meetings, study and a wide range of other applications. Freemind is a simple package that works on all of the major operating systems out there. If I’m honest (and I always am) it is not as polished as some of the commercial products out there, but that said you get used to its little quirks, and I love using it. Freemind needs Java to run so you need to make sure that you have it.

The great thing is that you can easily change colours, use clouds to group thoughts together, insert images, and use hyperlinks. This means that in addition to writing your ideas down, you can link out to useful websites or documents.