Mafia Buzz Issue 3



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Accountancy SA


Note: I do not summarise these articles because you should read them yourself.

Page 2: See some examples of trainee accountants being disciplined for unethical behaviour.

Page 3: Kariem Hoosain heralds the new Auditing Profession Act and sets out the focus of the IRBA in implementing it.

Page 5: Changes to IAS 21, IFRIC 7, IFRIC 8, AC 503 and circular 1/2006 are introduced. It really would be nice if there was a synopsis of each of these. This page was a waste of reading effort as nothing was gained from it.

Page 9: SAICA received a query asking what IFRS stands for! They should institute disciplinary action against people that ask questions like this.

Page 10: Sean de la Rosa outlines the topic called Enterprise Risk Management.

Page 15: Lee-Anne Bac states that 8% of business owners in SA consider HIV/AIDS to be a constraint to business. This is up from 77% in 2005. I would say that there is a “slight” editorial problem here! Could it be 88%?

Page 16: Kerry de Hart explains the new medical aid tax cap.

Page 19: Jenny Greyling says that managers within an organisation are responsible for helping retain talented employees.

Page 20: Sanelda Beets discusses the deductibility of software costs for tax purposes.

Page 24: Can anyone enlighten me as to what value this article adds?

Page 26: My article was on the critical question to ask when performing a valuation, i.e. “exactly what am I valuing?”

Page 28: Beric Croome sets out the procedures to be followed by SARS in its dealings with taxpayers.

Page 32: Penelope Webb gives us a short history on tax.

Page 35: The pass rate for the Financial Management Q.E. of November 2005 was 55% compared to 67% of the previous year.

Economist


Investigators have found that Fannie Mae, the massive American mortgage underwriter, indulged in fraudulent accounting and will have to pay a fine of $400m to settle the case. Executives may still face prosecution for misrepresenting profits to fatten their bonuses. [I find it so sad that people have feed their greed.] (27th, page 7)

FinWeek


The International Auditing Council decided to rewrite the international auditing standards because of the difficult English in which they are written. SA’s Independent Regulatory Board for Auditors has been approached to assist with the rewriting in simpler English. [Accountants write simple English? They also need to do something about the communication in the IASB standards!] (11th, page 8)

Mr Laurie Dippenaar, gives us some of his precious wisdom regarding investments:



  1. Think long term, not short term

  2. Buy and hold – churning undermines wealth

  3. Do not hold poor assets for the sake of diversification (did you hear that you SATRIX fans?)

  4. Invest in what you understand – a solid Warren Buffett principle

  5. The market does not talk, it is there to serve us, not to instruct us

  6. Avoid investing in companies if you do not trust the management – watch for creative accounting tricks

  7. Invest in companies that are owner managed where the management is passionate about the business

  8. Value the shares as you would value a business – my valuation models are based on this philosophy

  9. Buy on fundamentals, not on technical movements – act rationally

  10. Avoid investments that don’t pay dividends

  11. Focus on a few good ideas, do not spread yourself too thinly

  12. Ridicule fads

Noseweek


The editorial of this month’s journal sets out a shocking exposé of how investments belonging to pensioners can be plundered by those who have been entrusted with control over these investments. The figure mentioned is R200bn. There is little substance in the article but “where there is smoke . . . ?”

Sanlam Private Investments Newsletter


This letter sets out some typical mistakes investors make:

  1. Not having a clearly defined flexible investment strategy to guide their decisions.

  2. Not diversifying their portfolio thereby leaving them vulnerable to fluctuations in specific sectors or shares.

  3. Having unrealistic expectations about their investments. Markets do go up and down. It is the time in the market that produces returns and not the ability to time the market.

  4. Being too conservative. To improve returns one has to expose oneself to some risk.

  5. Buying high and selling low. The reason for this is investors wait to buy after shares have increased in value and then, when they fall, get depressed and sell.

  6. Jumping in and out of shares. This results in high transaction costs and attracts the attention of SARS.

  7. Buying on rumour. Investments should only be made after proper research into the share/company in which one is investing.

  8. Letting tax drive investment decisions. When assessing the fundamentals one should calculate the after tax returns in taking the decision.

  9. Neglecting your investment portfolio. It is essential to monitor and measure performance, take views and ensure that your portfolio is properly positioned to take advantage of future expectations.

  10. Not understanding and evaluating your tolerance for risk. Hope for the best but expect the worst.

  11. Leaving it too late. Because of the marvels of time value of money, the earlier you start investing, the better off you will be at the end of your time horizon.

In this same newsletter they predict that the prime overdraft rate will be 10,5%, the long term bond rate will be 7,0% and the rate of exchange to the dollar will be R6,50 by the end of 2006. Amazing how they are not prepared to stick their necks out! We are already at 11%, 8% and R7 and we are only half way through the year.

Michel Pireu points out the errors that we, as investors make:



  1. We overrate our skills, e.g. seeing order in information where none really exits and making predictions based on skimpy evidence.

  2. We use bias to support an investment we favour.

  3. When our predictions do not materialise, we are not prepared to accept that we made a mistake. We hang onto investments too long.

  4. We avoid taking risk when there is a good chance of gain but become risk takers in the face of certain loss.

  5. We tend to sell a good investment too quickly.

  6. We feel a loss to a greater extent than we enjoy a gain.

  7. We focus too much on the short term.

  8. We tend to be influenced by the herd.

  9. We become obsessed with prices and trends ignoring solid information. (Business Day)


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