The regulators are, quite rightly, looking into two practices used by asset managers to generate income for themselves. They are scrip lending and softing. The former is where shares owned by the investors are lent to third parties. A commission is earned on the value of the shares lent. The latter is the practice of passing part of the brokerage charged on transactions back to the asset managers in a form other than cash. The practice of softing encourages asset managers to churn portfolios under management which has the effect of reducing returns on the investments. The practice of bulking has already been addressed in a previous Mafia Buzz. (28th, page 10)
George Soros is unhappy with the IASB’s decision not to disclose payments made by companies to individual governments in segment reports. (Page 10)
The SEC has dropped charges against the chairman and finance director of Shell for overstating its reserves. (Page 11)
David Cairns is of the opinion that IAS 12 should be scrapped as it requires provision to be made for future liabilities. [One day the standard setters will listen to me: measure all assets and liabilities on an after tax basis and then there will be no necessity to provide for this stupid “liability”.] (Page 14)
Emile Woolf says that independent directors should be indulged when they ask basic questions as it is often such questions that lead to the uncovering of problems. He says that the days of the rampant buccaneering dominant chief executive are rightly over. (Page 18)
Mike Brooks is convinced that the argument that share options align management’s interests to those of the shareholders is fundamentally flawed. He is of the opinion that they act against the interests of the shareholders for the following reasons:
They are a one-way bet – the shareholders live with a two-way bet.
An option is geared whereas shareholders usually pay for their investments in full.
Options are short term investments whereas equities are long term interests.
He says that he has evidence that companies leak bad news just before option granting time to depress the exercise price! (Page 20)
Nick Land, outgoing senior partner of E&Y, says that innocent people making really immaterial mistakes around compliance are terrified by the aggressive legal environment. [You must see what I have seen over the past few years in SA my friend!] (Page 24)
Age discrimination in the workplace is now unlawful in the UK. [Gee, can I go there to get a job?] (Page 31)
A global study on IFRS conducted by E&Y has found that the value of data being produced because of IFRS is obscuring key information in financial statements. (Page 77)
The IASB’s exposure draft D20, Customer Loyalty Programmes, states that one should allocate the sales proceeds between the original sale and the value of the future service. [I fought with SAA many years ago on this issue. They only provided for the variable cost of the customer loyalty service.] (Page 78)
Some of the issues being debated around the new conceptual framework are:
The objective of the framework excludes stewardship. Many feel that stewardship is necessary. I believe that one should focus on trying to achieve one thing at a time, so I like the IASB’s idea.
The IASB wants to scrap the concept of “reliability” [thereby opening the door to fair value accounting?]
The IASB wants to broaden the framework to include not only the financial statements of the entity but the financial reporting of the entity. They are not too sure at this stage what “reporting” will include.
The IASB wants to target not only present investors and creditors but also future ones.
There is a fear that the framework will come out strongly in favour of fair value accounting. (Page 80)
Authorities are becoming concerned about the risk that one of the big four auditing firms could leave the market and the impact this could have on the availability and quality of audits. (Four is already a monopoly!) (Page 83)
Note: I do not summarise these articles because you should read them yourself.
Participants of the IFAC’s first global forum focusing on small and medium entities concluded that SMEs need financial reporting standards that are appropriate for the users’ needs and reduce the associated cost of compliance and ways should be found to support the growth and accountability of SMEs. [You need a forum to conclude this?] (Page 3)
News from the IASB is that they are going to go easy on us until 2009. They are working on a new and improved conceptual framework, a new IFRIC 10 has been published and they are working on leases and related party disclosures. (Page 5)
IFAC has published guidance on ethics in networking firms. (Page 6)
Alex Watson summarises the local standards in so far as they are applicable to BEE transactions – some heavy stuff here! If you are involved, study the article. (Page 10)
Anoosh Rooplal gives insight into how securitisation schemes work and some of the IFRS requirements for accounting for them. (Page 16)
Estienne de Beer describes a micro manager, how he or she becomes one, how to deal with this character and how he or she could become a true leader. (Page 19)
Elmar Venter and Rieka von Well discuss circular 1/2006, which deals with deferred tax disclosures. They have totally missed the point – see IFRS Buzz 11. (Page 20)
Kim Bromfield and Tracey Ruddy clarify the provisions of the proposed amendments to the definition of a liability. (Page 30)
Veli Ntombela considers whether the granting of the Sullivan Code expenditure as a tax deduction by the Supreme Court of Appeal could have similar consequences for BEE compliance expenditure. (Page 33)
Tonia Jackson sets out the scope of the National Credit Act and looks at the possible role of the auditor. (Page 34)