DOUBLE ENTRIES, 4.35, 27 OCTOBER 1998 IN THIS ISSUE

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 FROM THE EDITOR

INTERNATIONAL

[1] MORE ON WORLD BANK AND BIG FIVE

[2] ACCOUNTING STANDARDS - IFAC ‘IGNORED CONCERNS’

[2] FIVE BANKS TO SHARE MILLENNIUM BUG PLANS ON INTERNET

[3] PWC - NO SEPARATION - SCHIRO’S VIEWS

[4] IASC EXPLAINS CONCLUSIONS ON INTANGIBLES AND BUSINESS COMBINATIONS

[5] FORTHCOMING IASC BOARD MEETING - ZURICH NOVEMBER 9-13

AUSTRALIA

[6] FINANCIAL REPORTING LACKS VISION JAPAN

[7] AUDIT - FUJI CONSIDERS E&Y FOR JAPANESE WORK

SOUTH AFRICA

[8] IAS HARMONISATION PROGRAM

UK

[9] DERIVATIVES - UK LAGGING ON HEDGE RULES

[10] PUBLIC SECTOR - AUDIT FORUM LAUNCHED

[11] FRS 12 ‘FORCES RESTATEMENT’

USA

[12] FASB TAKES STOCK OF EMPLOYEE "LEASING"

[13] NEW NASBA CHAIR BACKS MODEL ACCOUNTANCY LAW

[14] OLIVIA KIRTLEY ELECTED CHAIR OF AICPA

[15] A GUIDE TO IMPLEMENTATION OF STATEMENT NO. 125

[16] DISCLOSURES ABOUT YEAR 2000 ISSUES GASB TECHNICAL BULLETIN NO. 98-1

[17] UPCOMING GASB MEETING NOVEMBER 9, 1998 - AGENDA

[18] SEC BRINGS YEAR 2000 ENFORCEMENT ACTIONS FOR FIRST TIME

FROM THE LITERATURE

[19] ACCOUNTING, ORGANIZATIONS AND SOCIETY

[20] ABOUT DOUBLE ENTRIES AND THE INTERNATIONAL ACCOUNTING NETWORK

FROM THE EDITOR

Roger Debreceny (currently in Maui, Hawaii).

INTERNATIONAL

[1] MORE ON WORLD BANK AND BIG FIVE The Financial Times reports:

The World Bank has told the Big Five global audit firms to stop putting their names to accounts published in the Asian economies unless these are drawn up using high-quality international financial reporting standards.

Leaders of the Big Five firms have been called to two meetings at the Washington-based bank and urged to press clients to conform to international standards or refuse to sign the accounts using their audit names.

The bank’s action is likely to accelerate the introduction of a global financial reporting code based on International Accounting Standards and tougher auditing rules set down by the International Federation of Accountants. It will also put pressure on local regulators, particularly in banking.

The bank is worried that the firms, which are attempting to build global brands and are expanding rapidly, are signing off accounts based on local standards which can obscure liabilities and inspire false investor confidence.

[snip]

Several of them have sacked member firms in developing countries where the imposition of stricter ethical rules and tougher technical standards has been resisted. But the World Bank wants them to limit the use of their brand names and, if in doubt, to allow only their local member firm’s name to appear on the accounts.

The bank’s concerns reflect market worries about the transparency of accounts audited in several countries - although it declined to name any.

In Malaysia, international standards are required but there is concern at the decision of the government to accept a caveat that allows exchange losses to be deferred instead of hitting profits, softening the impact of volatile currency movements.

The Big Five have poured hundreds of millions of dollars into global advertising to establish their brands. They are seeking to convince multinational clients that they can provide a seamless global service and have been racing to meet demand for lucrative management consultancy services.

It is unclear whether the firms are prepared to lose clients to impose better standards. They also face practical problems in overcoming local laws and banking regulations.

"We want them to go beyond the call of duty. The core question is: are they one name globally or one quality of assurance?" said one international regulator.

Source: Financial Times, October 19, 1998

[2] ACCOUNTING STANDARDS - IFAC ‘IGNORED CONCERNS’ The International Federation of Accountants was accused this week of ignoring criticism of the five controversial edicts it has outlined to enhance accountability and financial management of governments worldwide.

The English ICA refused to comment until December, but other experts said IFAC appeared to have turned a deaf ear to representations.

Issued as exposure drafts for consultation, the pronouncements form the first international public-sector accounting standards, and set out to establish common reporting requirements for the four accounting bases adopted by governments - cash, modified cash, modified accrual and accrual. These were outlined in the committee’s proposal ‘Guideline for Governmental Financial Reporting’.

Topics detailed in the drafts include: the presentation of financial statements; cash-flow statements; net surplus or deficit for the period, fundamental errors and changes in accounting policies; the effects of changes in foreign exchange rates; and borrowing costs.

UK accountants told IFAC to take another look at the guideline earlier this year. The institute’s financial reporting committee questioned IFAC’s presentation of the four accounting models and said cash and accruals were the two main alternatives, with a spread of different hybrid approaches.

An institute spokesman said it would be ‘premature’ to comment until it had looked at the drafts in more detail.

But Andy Simmonds, a principal at Deloitte & Touche, said: ‘The fact that IFAC has gone ahead and issued five drafts would suggest it has not really gone through the feedback it had from the Guideline for Governmental Financial Reporting in July.’

Contributed by Andrew Priest, Edith Cowan University,

[2] FIVE BANKS TO SHARE MILLENNIUM BUG PLANS ON INTERNET Five financial institutions have agreed to make public their plans for fixing the millennium computer bug. According to Reuters, the Global 2000 Coordinating Group said in a statement that JP Morgan, Citibank and Merrill Lynch of the United States, DBS Bank of Singapore and UBS of Switzerland will display detailed assessments of the progress they are making on the Internet.

Further information can be found at the Global 2000 web site,

Source: Reuters and AccountingNet October 20, 1998

Contributed by Andrew Priest, Edith Cowan University,

[3] PWC - NO SEPARATION - SCHIRO’S VIEWS

The PricewaterhouseCoopers world chief executive, James Schiro, rejects the notion of a separate entity for the firm’s consulting group, and says the Andersen firm’s dual-structure problems are a warning against division. He says clients want the whole weight of a firm’s skills to be applied to their complex problems. The internal issue of partner compensation requires balance and a good reward system. "Our merger prospectus assured that we would be an integrated firm driving the business through a matrix of service and geographic lines."

Schiro also rejects external disclosure of the firm’s accounts and profit per partner: "They are disclosed to our 9000 partners; I don’t know what benefit anyone outside would gain."

He is baffled by KPMG’s proposal to float or sell 30% of its consulting group for several billion US dollars. He says the US investment banking community does not have many details, as some banks have approached him for information and clearance over any conflict.

[Snip ...]

Other points made by Schiro:

By partner vote, the Singapore firms have completed an effective merger into PricewaterhouseCoopers, but in Israel the Price Waterhouse firm opted out. In Asia, work would continue on the restoration of confidence in reporting and banking structures prior to the resumption of private foreign credit. The profession has failed to speak out strongly enough for internationally standardised accounting, audit and governance policies, including accounting for intellectual capital.

Contributed by Andrew Priest, Edith Cowan University,

[4] IASC EXPLAINS CONCLUSIONS ON INTANGIBLES AND BUSINESS COMBINATIONS The International Accounting Standards Committee (IASC) has published a document explaining the basis for the conclusions reached by the Board of IASC in finalising International Accounting Standards IAS 38, Intangible Assets, and IAS 22 (revised 1998), Business Combinations, both published in October 1998. The document also explains the changes made to the previous version of IAS 22, published in 1993, and to Exposure Draft E60, Intangible Assets.

[Snip ...]

Contributed by Andrew Priest, Edith Cowan University,

[5] FORTHCOMING IASC BOARD MEETING - ZURICH NOVEMBER 9-13 The IASC Board will meet in Zurich, Switzerland, 9-13 November 1998. The Board will be asked to:

• Consider a policy of opening Board meetings to public attendance;
• Approve nominations for Steering Committees on Developing

Countries/Economies in Transition, Investment Properties, Insurance, Leases;

• Adopt a project on Business Combinations;
• Approve an Exposure Draft on Events After the Balance Sheet;
• Approve an Exposure Draft on Investment Properties; Discuss issues arising from Exposure Draft E62, Financial Instruments: Recognition and Measurement;
• Approve a Point Outline on Insurance;
• Approve five Interpretations based on SEC D12-D16.

Contributed by Andrew Priest, Edith Cowan University,

AUSTRALIA

[6] FINANCIAL REPORTING LACKS VISION

Financial reporting is locked in an industrial era time warp and must move into the information age if it is to be relevant to business and investment decision-making according to David Boymal, National President Australian Society of CPAs.

"The release of the financial report four months after the end of the financial year is hardly timely," said Mr Boymal, who has been a partner with Ernst & Young for 28 years.

"The Internet now makes it possible to have financial information available more rapidly and in formats other than just the raw numbers. People can also search for specific information, manipulate information and make international corporate comparisons using the Internet. Financial reporting must catch up with the real world."

Boymal questions whether financial reports could survive in their present form in the face of other sources of information.

Contributed by Andrew Priest, Edith Cowan University,

JAPAN

[7] AUDIT - FUJI CONSIDERS E&Y FOR JAPANESE WORK Ernst & Young is being considered for audit work by Japan-based Fuji Bank in an attempt to boost the bank’s credibility with Western investors, writes Ben Griffiths.

The bank said it wanted to use Western accountants, rather than Japanese groups, to audit part of its domestic operations - the first time such a move has taken place. The audit contract is likely to be won by E&Y, according to sources, although the bank has yet to make a final decision.

[Snip ...]

Contributed by Andrew Priest, Edith Cowan University,

[8]SOUTH AFRICA - IAS HARMONISATION PROGRAM The South African Institute of Chartered Accountants (SAICA) is well advanced with its program of harmonisation to International Accounting Standards. The Accounting Practices Board has taken the following actions:

August

AC101 which is based on IAS 1(revised) (Statements)

AC104 which is based on IAS 33 (EPS)

ED 127 which is primarily based on IAS 19 (Employee Benefits)

ED 128 which is primarily based on IAS 17 (Leases)

September

ED 122 is the same as IAS 14 (Revised) (Segmental Reporting)

ED 119 is the same as IAS 34 (Interim Reporting)

Source: South African Institute of Chartered Accountants at

http:\\www.saica.co.za

UK

[9] DERIVATIVES - UK LAGGING ON HEDGE RULES

UK accounting standards on derivatives and hedging investments risk falling behind international consensus, unless the Accounting Standards Board can overcome its indecision, an investment banker has warned.

‘Hedge accounting has been a bete noir for the ASB, and there seems to be a fair amount of indecision,’ Leon Cane, executive director of CIBC Wood Gundy Oppenheimer, told the English ICA Financial Reporting Conference.

After examining differing definitions and approaches of the ASB, the International Accounting Standards Committee and the US Federal Accounting Standards Board of the US, Cane said: ‘FRS 13: ‘Derivatives and other Financial Instruments: Disclosures’ does not establish the concept of hedging in the same way as the IASC and FASB. The Americans say, "Do it if you think you can, but the burden of proof is on you." I’m not so convinced that the ASB is right to be so concerned for people.’

ASB member Ken Wild, technical partner for Deloitte & Touche, accepted Cane was justified in highlighting the board’s indecision, but said it was based on important anomalies, for example on whether to report gains and losses from fixed-rate borrowings that have hedging investments against them.

[Snip ...]

Contributed by Andrew Priest, Edith Cowan University,

[10] PUBLIC SECTOR - AUDIT FORUM LAUNCHED

A body comprising the four national audit agencies was launched yesterday to set common standards of auditing, in an effort to improve public services and audit co-ordination.

The Public Audit Forum has brought together the National Audit Office, Audit Commission, Accounts Commission for Scotland and the Northern Ireland Audit Office.

The forum outlined the role public audit plays in maintaining confidence in the effective use of public funds, detailed in three key principles.

The principles concern: the independence of public-sector auditors; the wide scope of public audit, regularity, value for money, and the ability of public auditors to make their findings publicly available.

Contributed by Andrew Priest, Edith Cowan University,

[11] FRS 12 ‘FORCES RESTATEMENT’

AA senior technical partner says new provisions standard is ‘an absolute pain’ that will force companies to restate accounts.

Arthur Andersen technical partner Isobel Sharp this week warned that the new financial reporting standard on provisions would force many companies to change procedures and restate their accounts.

[snip ...]

Provisions for repairs and maintenance will not be permitted under the new standard. Instead, they must be treated as ‘accelerated depreciation’, which is creating serious problems for company accounting records, she said.

Under FRS 12 ‘Provisions, Contingent Liabilities and Contingent Assets’, published by the Accounting Standards Board last month, a ship that required regular refits would have to be broken down into constituent parts - for example the hull and superstructure and items such as interior fittings that would be renewed more regularly. The different elements would need to be depreciated separately, explained Sharp.

Implementing FRS 12 will have a ‘double-dip’ impact on many companies’ accounts, she added. The standard applies retrospectively, so that non-qualifying provisions from last year’s accounts will have to be written off against this year’s earnings.

[Snip ...]

Contributed by Andrew Priest, Edith Cowan University,

USA

[12] FASB TAKES STOCK OF EMPLOYEE "LEASING"

The Financial Accounting Standards Board made a decision on how to account for stock options when employees from one company are "leased" to another.

The Board looked at whether it is possible for two unaffiliated companies to be considered the employer of one worker, and they decided it was not.

The decision is part of FASB’s project to develop an interpretation of APB Opinion No. 25, Accounting for Stock Issued to Employees. At the start of the project, the staff identified 13 issues for discussion that were based on a survey of constituents.

The decision was not so much meant to clarify cases in which temporary agencies send their workers to other companies, said a FASB staffer. "It’s more along the lines of when one company outsources its human resources to another company."

Source: American Banker and AccountingNet October 20, 1998

Contributed by Andrew Priest, Edith Cowan University,

[13] NEW NASBA CHAIR BACKS MODEL ACCOUNTANCY LAW Milton Brown, the new chairman of the National Association of State Boards of Accountancy, told delegates in his inaugural speech, here, that critics are misreading the new accountancy law proposal.

"The misconceptions are many," Brown said of the Uniform Accountant Act being promoted by NASBA and the American Institute of CPAs.

"There are professionals who believe that passage of the UAA will curtail an individual’s tax practice," he said. "There are those who believe that the UAA will remove their right to call themselves ‘enrolled agents,’ or that the UAA’s safe harbor language must be used by non-licensees. Some believe that any service provided to clients that even remotely utilizes accounting skills is prohibited to the unlicensed."

[snip]

Brown said that NASBA will undertake several initiatives this year, including studies on regulating new assurance services and on ethical standards.

Contributed by Andrew Priest, Edith Cowan University,

[14] OLIVIA KIRTLEY ELECTED CHAIR OF AICPA

Olivia Kirtley today assumed the Chair of the Board of Directors of the American Institute of Certified Public Accountants (AICPA), succeeding Stuart Kessler.

[snip ...]

Ms. Kirtley brings to the, AICPA more than 25 years of experience in both industry and public practice. She is currently Vice President - Finance and Chief Financial Officer, Vermont American Corporation, the world’s largest manufacturer and marketer of power tool accessories. The company is head quartered in Louisville, KY.

Contributed by Andrew Priest, Edith Cowan University,

[15] A GUIDE TO IMPLEMENTATION OF STATEMENT NO. 125

A Guide to Implementation of Statement No. 125 on Accounting for Transfers

and Servicing of Financial Assets and Extinguishments of Liabilities (Second

Edition) (Preliminary Draft) is available online at

Contributed by Andrew Priest, Edith Cowan University,

[16] DISCLOSURES ABOUT YEAR 2000 ISSUES GASB TECHNICAL BULLETIN NO. 98-1 The GASB has published the complete text of the GASB Technical Bulletin No.

98-1, Disclosures about Year 2000 Issues. The Bulletin can be found on

Contributed by Andrew Priest, Edith Cowan University,

[17] UPCOMING GASB MEETING NOVEMBER 9, 1998 - AGENDA

Place: GASB Offices 401 Merritt 7, 5^th Floor Norwalk, CT (203) 847-0700 Starting Time: 9:30 a.m.-3:00 p.m.

Agenda:

• Approval of the Minutes of the July 20, 1998 Meeting
• Report on the Meetings and Activity of the Financial Accounting Foundation
• Report of the Chairman of the Governmental Accounting Standards Board
• Report of the Director of Research of the Governmental Accounting

Standards Board

• Comments from Members of the Governmental Accounting Standards Board
• Status Report on the Model, including Decisions Made to Date
• Report on GASB Efforts to Expand User Outreach Status Report on

Infrastructure

• Presentation on International Accounting Standards Committee Reports
• other Business

Contributed by Andrew Priest, Edith Cowan University,

[18] SEC BRINGS YEAR 2000 ENFORCEMENT ACTIONS FOR FIRST TIME The Securities and Exchange Commission today charged 37 brokerage firms for failing to report on their Year 2000 preparedness as required by Commission rules. These enforcement actions were brought in conjunction with the National Association of Securities Dealers Regulation Inc. (NASDR) to ensure that firms comply with their Year 2000 disclosure obligations. As part of these joint efforts, the NASDR also announced today that it has brought actions against 59 of its member firms for late filing of the necessary information.

Contributed by Andrew Priest, Edith Cowan University,

FROM THE LITERATURE

[20] ABOUT DOUBLE ENTRIES AND THE INTERNATIONAL ACCOUNTING NETWORK Double Entries is what you have just read. It is produced weekly by a group of volunteers including Andy Lymer (UK), Francois Brouard (Canada), Andrew Priest, David Hardidge, Michael Nugent (Australia), Dave Garbutt (South Africa) and Roger Debreceny and Chan Kit Whye (Singapore).

Correspondents come from the profession and academia. It is designed to provide brief news of accounting and auditing around the world and is available both by email and on the World Wide Web.

Double Entries is edited by Roger Debreceny at the Nanyang Business

School, Nanyang Technological University, Singapore. Roger maintains

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