Sometimes you need Good Advice

I have always been in favour of people researching and making their own decisions regarding the financial issues in their business. This has been gravely tested as the case of the actor Wesley Snipes (he of “White Men Can’t Jump” and “Blade” fame) has unfolded over the last few months. Mr Snipes has been up in court for tax evasion. What is interesting about the case is not that he tried to hide income or under-declare what he earns, rather he was of the view that the Federal Income Tax in the US is illegitimate, and therefore he did not make tax returns between 1999 and 2001.

Choose your Advisors Carefully

In the US, there is a special type of tax advisor who questions the legitimacy of the whole tax system and whether there is a legal requirement to pay Federal Taxes in the US. While there has not been much success in the arguments, a very large scalp has recently been taken by the Inland Revenue Service in the US, with the sentencing of Wesley Snipes to three years in prison for failing to file and pay taxes.

Indeed, based on the advice of a “tax activist” Eddie Ray Kahn and “tax preparer” Douglas P. Rosile Snipes amended tax returns, including the one for 1997 that originally showed a tax liability of more than $7m, restated his liability as $0 and requested a refund. This kicked off a series of events which have resulted in a situation where Snipes now finds himself on bail while he appeals the aforementioned three year sentence. So the advice may have been a bit off.

Wesley Snipes – May have to get used to this pose

Make sure your Advisor Really Knows what they are Talking About

So what is the conclusion here – make sure that you are getting good advice on stuff that can cause you to end up in jail. There are times where the only thing that is acceptable is to actually talk to people who have the training and experience to do the job.

No excuses, no way out.

Small Business Financial Reporting

The Accounting Standards Board recently published a slightly updated version of the Financial Reporting Standard for Smaller Entities, usually know by it initials FRSSE. The aim of this standard is to bring together the reporting requirements for smaller entities into a single document. The text of FRSSE can be found here on the ASB website. What I find particularly interesting is the lack of use of this standard in Ireland. Of course I should clarify that when I say that I am talking about in my own experience.

The standard lays out its own objective as follows:

The objective of the FRSSE is to ensure that reporting entities falling within its scope provide in their financial statements information about the financial position, performance and financial adaptability of the entity that is useful to users in assessing the stewardship of management and for making economic decisions, recognising that the balance between users’ needs in respect of stewardship and economic decision-making for smaller entities is different from that for other reporting entities.

The document is not short (it goes to around 190 pages), but this is still a significantly smaller amount of information than the rest of the accounting standards – and it is all in one place.

Is this GAAP?

The short answer to this question is yes. The FRSSE has taken its lead from Accounting Standards – in essence it has taken the requirements from the rest of the Accounting Standards and then amended and simplified them, where appropriate, into a single document for Smaller Entities. So simply put the FRSSE can be used as a substitute for the application of the full suite of Accounting Standards when creating a set of accounts for a qualifying company (i.e. a company that falls under the definition of “small” in Irish Company Law).

Why is it not used more?

I wish I could answer that question. I could speculate on that but that is all it would be, speculation. What is clear is that it receives relatively little attention on the accounting syllabus. It is also the case that a significant number of those who work in accounting, especially those in charge of accounting practices, would have qualified before the introduction of the standard. In addition even if it was well covered on an accounting syllabus it still may not be the approach used in the practice that the part-qualified or newly qualified accountant moves in to. So even where there are people who have an understanding of the application of the FRSSE in a practice, they may not be in a position to influence its use.

So what can be done?

As I see it (and it is just my opinion) there are two parts to this; first is at the education and training stage, and the second is at the CPD and practice management stage.

Education and Training: The FRSSE should be used as the basis for early training on the mechanics of accounting and as an introduction to Company Accounting. This would ensure that the Standard is worked with for a protracted period, rather than appearing as one of many standards in existence. This would also help to ensure that the standard is not seen as a “poor relation” to be kept to one side.

CPD and Practice Management: The other track of the approach involves providing information and guidance to practice members through CPD courses and recommendations on practice management. Earlier on in the year I tried to organise a speaker to come and talk at a CPD event on FRSSE, but I found it impossible to find anybody in Ireland who could talk on the subject. Now in fairness I am sure that if I had scoured the country I could have probably have found somebody, but certainly our usual trainers were not willing to talk on it.

I feel that there is a scope for an alternative approach that would be of benefit to accountants, students and customers. It may be something I return to in the future via this blog, the Institutes Magazine, or an on-line CPD.

I would love to get some comments – you can add comments by clicking on the title of this post or by clicking on “no comments” below.