Mafia Buzz Issue 3



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Finweek


Data at the Bond Exchange of SA shows that foreigners bought R7,2bn worth of bonds in July, matching their net purchases for the entire six months to June 2006, indicating that local interest rates were expected to rise. [Rise? Why would someone buy bonds if interest rates are expected to rise? If this happens, bonds will fall (bonds usually have fixed interest rate coupons). Am I being doff again? Help!] (3rd page 10)

The Financial Advisory and Intermediaries Services (FAIS) Act ombudsman will rule, in the next few months, on whether the brokers who sold the Leaderguard product to investors will be required to refund the investors with their losses (about R350m). Like most dodgy investment schemes, this product was characterised by high-pressure marketing with high commissions being paid to brokers. [I have said it before and I will say it until I die: Do not hand your hard earned cash over to some stranger to invest: DIY!] (20th, page 12)

Noah Greenhill (JSE GM) says that the problem with the retail investor is that they tend to be last in and last out. Richard Sneddon, head of Online Share Trading at Standard Bank, says that investors are starting to become aware of the costs associated with investment products and are turning to DIY investing. (20th, page 28)

Charles Chapman of PSG Online says that the way for brokers to increase their client base is to educate the man in the street and not to poach other brokers’ clients. (20th, page 30)

“The greatest threat will therefore be to the companies that have already signed lease agreements with the clear understanding that they’ll not be in compliance with IFRS guidelines. It could be a problem if you’re dealing with an auditing firm that has an excessively cautious approach.” [Don’t you love it? What auditing firm does not have “an excessively cautious approach” with three years jail and/or R1m fine hanging over their head?] (27th, page 92)

IRBA News


“We remain committed to serving the financial interests of the public, but as the same time provide the necessary support to registered auditors to equip them with the required competences to deliver high quality audits.”

A new ED on group audits has been issued for comment.

A guide has been issued on reportable irregularities for registered auditors – better get hold of it and study it.

A circular has been issued on giving second accounting opinions. [I wonder why this was considered necessary?]

The Corporate Laws Amendment Bill was exposed for comment. It provides for, among other things, the formation of a financial reporting standards council that will establish financial reporting standards for public interest companies as well as for SMEs. [So will they abandon the APC or is this another loop for accounting standards to jump through before becoming implemented?]

The guidance that SAICA gave in Circular 3/2006 on how to report on financial statements that do not fully comply with GAAP/IFRS has been withdrawn.

The format of the public practice examination has been changed from a morning examination to a full day one (9h00 to 17h00). [And we used to write a four hour examination!]

The period 1 January 2006 to 31 March 2006 saw 15 cases related to practice review being dealt with. It looks like the fines are increasing – R30 000 now seems to be the norm. Who wants to be an auditor? An auditor told me recently that he had done the audit of a corporate body of a sectional title set-up. There were, say, 15 units and the levy for each unit was, say, R1 000 p.m. His audit procedure was to verify revenue by comparing the actual levies received with the budget and to follow up those who had not paid by the end of the year. One of the reasons he failed practice review was that he did not do “cut-off” tests on revenue!


Time


Sherron Watkins: “Enron was fast-paced, inventive, exciting; we epitomized the New Economy, able to innovate virtually overnight. Unfortunately, in life our strengths can become our weaknesses. Just as the dark side of charisma is narcissism, the dark side of innovation is fraud. Enron fell victim to both. Our finances, accounting and legal departments pushed the use of off-balance sheet vehicles over the line that separates creative transactions from fraudulent ones. Our corporate culture became narcissistic; we were focused on our image, not our customers or our products. The most alarming revelation is how easy it was to co-opt the outside world into joining us as we sang our praises: auditors, lawyers, bankers, the media. We want honest leaders who are divisive, creative, optimistic and even courageous, but we so easily settle for talk that marks those traits instead of action. We often don’t even look for one of the most critical traits of a leader: humility. A humble leader listens to others. He or she values input from employees and is ready to hear the truth, even if it is bad news. Humility is marked by an ability to admit mistakes. Is our society cultivating humility? Do we exhibit that trait individually and collectively as a nation? Will we stop and learn from the Enron lesson in leadership failures, or will we just shrug our shoulders and thank God we’re not Ken Lay?” [Wow! This is powerful stuff from a powerful woman!]

Fortune


The top 10 companies in the world by revenue in 2005 were:

05

04

Name

$ billion

1

3

Exxon Mobile

340

2

1

Wal-Mart Stores

316

3

4

Royal Dutch Shell

307

4

2

BP

268

5

5

General Motors

193

6

11

Chevron

190

7

6

Daimlerchrysler

186

8

7

Toyota Motor

185

9

8

Ford Motor

177

10

12

Conocophyllips

167

General Electric dropped from 9th to 11th place and Total dropped from 10th to 12th place.


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