Mr Charlie Munger, Warren Buffett’s long-time partner, has some advice for those going out into the big wide world:
To those who much is given, much is expected.
Always live below your financial means so you will have money to invest.
To get smart ask “why, why, why” and relate the answers to a structure of deep theory.
To ensure a miserable life ingest chemicals in an effort to alter mood or perception allowing one to indulge in envy and to wallow in resentment, all of which will guarantee an unhappy existence.
To guarantee failure learn everything from your own experience rather than learning from others, give up trying after your first, second, or third failure and give in to fuzzy thinking. (From Michel Pireu’s column in Business Day – always an interesting read.)
Kerry Sutherland of Alexander Forbes Financial Services set out in Business Times the definitions one needs to know to understand financial statements. She defined a liability as “something you owe, which must be repaid.” It really would be nice if this definition were followed by the IASB. Pick ‘n Pay, for example has recognised a liability of R500m on its balance sheet that is never going to be paid but is going to be recycled back to income. I have got scores of other examples of liabilities being recognised on balance sheets that will never be repaid. We need people like Kerry to join the IASB and infuse it with some simple common sense. We will not, at this stage go into her common sense definition of an asset (a thing you own that has more than sentimental value). IFRIC 4, for example, is forcing users of Eskom’s power to recognise Eskom’s power stations on their balance sheets!
September 2006 (15 Minutes)
Increases in the audit threshold in the UK have resulted in the reduction in the number of small auditing firms from 7 000 to 5 000. Expect the same situation in SA. (Page 1)
A small audit firm partner in the UK feels that there is a need for an assurance report between an audit report and a compilation report. However, there has been little enthusiasm for such a service among business people. (Page 12)
Emile Woolf finds it astonishing that the auditors of Apple and 60 other companies under scrutiny by SEC failed to see that the issue dates of options given to management had been left blank. These dates were completed retrospectively after the share price rose. The SEC investigation is likely to result in major restatements of financials already issued and audited. (Page 24)
Emile goes on to request an interpretation of the following declaration required by directors in the UK: “So far as each director is aware, there is no relevant audit information of which the company’s auditors are unaware; and he has taken all steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information.” He says that the second guessing by directors, particularly non-executives, of what blissfully unaware auditors might wish to be aware of is the stuff of fantasy. (Page 24)
When you see someone dropping litter, kill them. (Page 26)
Fraud costs the UK an estimated £20bn p.a. (Page 40)
Budgeting is supposed to be a roadmap for the future, a process that turns strategy into action, but very few involved in the process see it that way. It remains largely a time and resource-consuming activity that delivers little value. However, technology can add value to the process. (Page 79)
Philippe Danjou, director of the accounting division of the French stock market regulator, says that the standard setters should be careful not to use words that are subject to interpretation. [Like “benefits” in IAS17, Philippe?] (Page 86)
Almost two-thirds of fund managers said that they were confident that the current standard settling process would produce high quality enforceable global standards whereas the majority of finance directors said that they were not confident. [When I asked a top analyst why there was such a discrepancy, his comment was “ignorance”!] (Page 91)
Nearly twice as many finance directors oppose the greater use of fair values than support it whereas 59% of fund managers support the trend towards fair value accounting. [Is this another case of ignorance?] (Page 91)
A forum in the UK has been established to investigate what the purpose of an audit is! [This is how accountants think: first do something and then say: “What are we trying to achieve?” I used to teach my students to think before you plan and plan before you act.] (Page 94)
Three former partners of PwC in Japan pleaded guilty to conspiring to falsify cosmetics group Kanebo’s earnings for 2001 and 2002 to cover up a £730m deficit. All three got off with suspended sentences. (Page 176)
Note: I do not summarise these articles because you should read them yourself.
The IFAC’s international accounting education standards board has issued a new standard outlining the skills, training, professional values and attitudes necessary for auditors to perform competently. [Does this mean we all have to start over again? Re-write CA (SA)?] (Page 3)