Mafia Buzz Issue 3

Accountancy SA

Douglas Warden and Jennifer Roeleveld believe that it is time for SARS (the tax people, not the virus) to give allowances for goodwill and intangible assets. These assets are now subjected to capital gains tax so why not bring them into the normal tax fold? (One chance!) (Page 6)

Glen Mouton says that you can protect yourself to a certain extent against fraud by ensuring that opportunities do not arise, that fraudsters believe that they will be caught and that they are made aware that the consequences of their actions will be severe. He then goes on to give some procedures that should be in place, e.g. checking references, access controls, reconciliations, dual signatures, segregation, management review, etc. – the stuff of text books. But it is good to be reminded of these things now and again. (Page 11)

Paul Sulcus says that one needs to be prepared for a conversion to a new IT installation. He says that in practice project deadlines are not met, there are cost overruns, anticipated benefits are not achieved, systems don’t work as expected and staff become demoralised. He sets out a checklist for success and gives case studies on how IT can be successfully implemented. (Page 12)

Malcolm Dunn says that CFOs are playing a larger role in the development of strategy for companies because of their analytical skills. (I hope that CFOs are able to live up to the high status given them in this article – a good sales job for CFOs!) (Page 15)

Lance Williams and Rudolf Dreyer discuss the proposals for accounting for share based payments. They say that if Investec had done this, their earnings would have reduced by 4,2%. (From my feedback, it appears as if 5% is the average impact.) Some of the points made are:

1. 
   For employee share based payments, value is determined at grant date and expensed over the period of the services given.
   
2. 
   For non-employee share based payments, value is determined at the earliest of grant date or delivery date and expensed or capitalised on delivery of the goods or services.
   
3. 
   Re-measurement on the reporting date of the financial instrument issued is not made if it is a share based payment.
   
4. 
   Using a trust does not enable one to escape the accounting standards as the ED has catered for this aspect. (Page 16)
   

Mario Pienaar writes about differential reporting. (I believe that the time has arrived for action and not more surveys and articles. Let’s stop talking the talk and start walking the walk!) (Page 27)

SAICA issued circular 1/2000 on MC CPE, which was based on IFAC’s IEG2. However, IFAC is presently replacing IEG2 with a new CPD programme. The responsibility for CPD has been taken away from SAICA’s CPE department and transferred to the ADU. SAICA’s new CPD committee has been constituted to look into compliance with IFAC’s requirements. (I sincerely hope that the new committee will stop talking in alphabets.) (Page 29)

My article was designed to debunk the PE ratio method of valuing equity investments. (Page 31)

Penelope Webb warns tax cheats to keep their mouths shut. (I heard a lovely story the other day: a tax assessor was on his journey to the coast for a well-deserved break when an expensive car came up behind him. The driver flashed the car’s lights and pulled a finger at him. He took down the car’s number and on returning from holiday investigated the driver. He found that the salary being declared could not justify the car being driven. The driver is now in jail, not for reckless driving but for tax fraud! Don’t you love it! Another idea for Penelope.) (Page 33)

Citizen

Bryan Hirsch asks why investors keep buying high and selling low. His advice is to keep a cool head, don’t allow emotions to rule decision making. Assess the fundamentals. (5^th, page 24)

Rudi Giuliani’s book “Leadership” sets out the principles he followed when mayor of New York. They are:

1. 
   Surround yourself with great people
   
2. 
   Formulate and communicate beliefs
   
3. 
   See things for yourself
   
4. 
   Set the tone – set an example
   
5. 
   Everyone is accountable all the time
   
6. 
   Under promise and over deliver
   
7. 
   Prepare relentlessly
   
8. 
   Loyalty is a vital virtue
   
9. 
   Don’t assume anything
   
10. 
    Stand up to bullies
    
11. 
    Weddings are discretionary, funerals mandatory (17^th)
    

Financial Mail

In the past 10 years the number of companies listed on the JSE has fallen from 670 to 470. Last year alone saw a loss of 80 companies, mainly small ones. About 36% of the shares on the main board trade at less than 100 cents per share. The top 20 shares on the board account for two-thirds of the total market cap. (7^th, page 34)

A Japanese hedge fund wiped out $300 million in just seven days of last month after a series of deals that makes Nick Leeson look like an amateur! (14^th, page 90)

Trevor Manuel has appointed a panel of 17 people to advise him on matters of auditor independence, corporate governance and the regulation of auditors. The panel is due to report to him by 31 July. (21^st, page 30)

Nigel Payne’s report on the Cytech affair states that he was happy that the process followed to arrive at the valuation was acceptable. (But did it meet basic ethical standards required from directors?) (21^st, after page 48)

The Woodmead office of SARS handles 8 000 tip-offs per month from anonymous callers or reports made to their offices. Disgruntled businessmen have labelled the 113 qualified forensic investigators “shock troops” but SARS’s attitude is “if the taxpayer does not keep his or her house in order and plays games with us, we have no option but to get aggressive”. (28^th, page 19)

Financial Times

Investors are greedy, make stupid decisions and should share part of the blame for their losses. People only see the virtues of diversification once something has fallen. They went haring into technology stocks three years ago and now they want to leave them and go buy larger houses at the top of the property market. (Simon Davies of Threadneedle Investments) (4^th)