Thursday, 6 November 2014

SAICA’s members use IFRS as an excuse to hide inefficiencies

“South African Institute of Chartered Accountants (Saica) executive president, Ignatius Sehoole has 
expressed concern about the number of companies criticising financial reporting standards in SA.
Several companies have said that International Financial Reporting standards as applied in SA did 
not give a true reflection of financial performance. ‘It is perplexing to see that companies do this 
every year. Not only is it a way of explaining why their results have not met expectations, but it is 
also a fine decoy for focusing attention away from more sensitive corporate issues,’ Sehoole said 

How do you feel about this comment? The president of SAICA says that his members are deceitful. Hey, Mr President, who pays your salary? Are CEOs of listed companies supposed to submit to the stupidities of IFRS without a fight? I am surprised that more has not been written about this in the past. No, I am not surprised! SAICA will not tolerate any criticisms of IFRS. My articles were rejected by them because of my outspoken objection to some of the issues in the standards. When I tried to get the weekly financial journals to publish some of the issues I was told: “These issues are of no interest to our readers.”

Accounting standards are supposed to be written with the objective of enabling management of 
companies to report fairly on the performance of the companies under their stewardship. Because 
of stupidities in IFRS and because auditors in SA have an attitude that regardless of how stupid 
IFRS is, you must comply at all costs, we have the situation in SA today that companies are reporting nonsense figures. How can any logical accountant justify the following accounting treatments:

1. Charging the cost of buying back one’s shares to profit.

2. Writing off investments held on behalf of creditors to the company’s own equity.

3. Charging future year’s rental expenses to the current year or crediting future year’s rental income in the current year.

4. Creating liabilities for future operating rental payments or assets for future operating rental 

5. Charging the capital cost of creating a BEE scorecard to headline earnings.

6. Charging the cash cost of rewarding staff directly to equity.

7. Raising liabilities that have absolutely no chance of ever materialising.

8. Capitalising intangible assets bought but not being allowed to capitalise identical assets 

9. Providing for deferred tax at the full income tax rate on assets that are valued after tax.

10. Depreciating buildings that appreciate.

11. Taking profits before selling the goods.

12. Revaluing fixed asset directly to income.

13. Including in headline earnings capital gains on equity investments but not capital gains on 
investment properties.

14. Capitalising assets of suppliers, which the entity does not own.

15. Recognising gains and losses on foreign exchange when the company is fully hedged.

And we won’t even talk about the all-time ludicrous effect that expensing embedded derivates has on the profits of some entities. I have listed over 150 adjustments analysts have to make to financial statements to arrive at economic reality!

Mr Sehoole has no idea how the above stupidities wreck havoc on relationships between auditors and clients. I know, because often I am called in to assist. However, SAICA and the IASB will not listen to or tolerate any criticism of IFRS. They want the world to believe that they have created a thing of beauty and perfection. If anyone questions the validity of some standard, they retaliate. 

What I want to know is: How are they going to handle the situation when they are eventually forced to change a standard that has been causing chaos it the past? For example, after ten years the IASB has realised that its standard on deferred tax is wrong (they would not listen to us at the time). 

Practice Review has been penalising members for not apply this wrong standard and SAICA has been threatening disciplinary action against practitioners who have not complied. Will there be an apology for all the chaos caused?

The standard setters will save much embarrassment to themselves if they listen to their constituents instead of retaliating with accusations of deceit.

January 2008 

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