Archive for August 2011
International Financial Reporting Standards (IFRS) is a unified reporting standard adopted by most countries today. In the past, every country had their own set of accounting and reporting standards based on factors such as individual legal systems, political systems, capital markets, etc. and this led to differences in how transactions get reported from one country to the next.
Back in 1973, accountancy bodies in 10 countries together formed The International Accounting Standards Committee. The committee proposed development of one set of international reporting standards. By 2000, over 100 countries were in agreement and 41 international accounting standards were in place. However, many countries continued to use their own reporting standards.
Since 2000, this is quickly changing. The International Accounting Standards Board replaced the IASC and continues issuing international accounting standards. Today, over 100 countries have adopted the use of IFRS. Japan and the United States are the last two large countries to officially adopt the now globally accepted IFRS standard. However, both will adopt the use of IFRS in the next several years.
The world is so much smaller thanks to the use of technology. Global business is now the norm rather than the exception. Investments are now aimed at the global marketplace, and to succeed companies need to understand the financial reporting standards of the companies they will work with. IFRS helps streamline accounting procedures internationally.
IFRS offers several advantages that will create a unique opportunity for privately held companies struggling with the issue of growth, increasing production costs, and a shrinking marketplace.. It has been well-documented that China and India will have a strong sustainable economic growth that will provide an opportunity for privately-held companies to access additional customers.
Changes and developments are evolving around IFRS constantly. Kothari Auditors & Accountants are committed to develop the expertise to assist our current and future clients in this area.
By adopting IFRS, privately-held companies will be received well in the global marketplace and perceived as an international player. This will afford them an opportunity for growth that, for the most part, has only been afforded to U.S. publically-held companies with an abundance of financial resources to gain access to international customers, suppliers and world capital markets, reducing some of the risks and barriers of setting up international joint venture supply arrangements and importing/exporting.
The aim of this article is to keep you informed of recent developments with IFRS. We would very much appreciate hearing comments or questions you may have on how we can enhance it or questions or concerns on IFRS.
Financial systems are a vital component in the delivery of an organizations programs and services. When managed effectively, financial systems improve service quality, enhance productivity and reduce costs.
A financial system is a system used to exercise financial management, control and accountability of an organizations funds or assets. Included are systems used to record, verify, report, generate and/or execute financial transactions, and those used for the management and control of assets, liabilities and assets.
Systems must be put in place to determine methodology to be used in the development of financial systems. The methodology used must be consistent with the company’s information technology.
Organizations must ensure that financial systems have comprehensive controls to prevent and reduce the risk of loss, error, misuse or fraud to an acceptable level. A risk and controls review must be performed and documented for a new financial system, and whenever there are significant modifications to an existing financial system. Qualified, independent and objective parties must carry out the review.
The scope of a risk and controls review depends on the nature and complexity of the financial system. A comprehensive review includes project management, systems development, general controls and application-based controls. Companies that require a financial system to interface with other systems must establish proper and integrated processes to secure financial information.
Financial systems in the corporate world represent the business study department of a company. Large organizations use financial systems to review financial performance. Sometimes, corporate financial system is a conduit to accounting and management. Financial systems goes a step beyond preparing financial information it measures performance and projects forecasts. Various financial activities come under the corporate financial system. Capital structure, profitability measurements, budgets, sales forecasts, cash flow management and financing decisions are just some of them.
The essential purpose of financial systems is to measure the profit generating capability of the company and recommend best finance options for further growth and profitability.
The current recession has business on edge due to the length of the recession period. Since 1854, the average length of a U.S. recession has been 17 months from peak to its low, according to the National Bureau of Economic Research. For the purpose of perspective, the great depression lasted 43 months. Our current recession started in December 2007 and the end is not yet in sight. And when it recovers, economists say it will be gradual. To compound the problem, the liquidity crisis continues making it difficult for markets to pick up again and overturn the crisis.
The trends we anticipate in the near future are:
All businesses as well as accounting firms will boost the use of cloud computing, SaaS, portals and hosted solutions. This rapid changeover will fuel the need for higher levels of data security, and online filing demands.
Microsoft 7 and Office 2010 will fuel replacement of dated computer equipment. Many firms will replace dated computer equipment this year. Trends are towards dual monitors, laptops and smart phones and away from traditional desktop computing.
Business development and new business acquisition are back in vogue. Most companies are now focusing on business development and new business acquisition. This is a shift away from staffing and recruitment of a couple years ago.
Evolution towards paperless offices will continue. Much like the evolution towards online filing, true paperless is seldom attained and is an evolutionary process. Those that embarked on paperless years ago will move further down this path. Many on the fence will test the waters this year but will incorporate paperless practices selectively.
Current trends in accounting will continue such as:
Web and intranet / internet applications, web based accounting, CRM, payroll and HR systems, e-commerce, e-procurement systems, cloud services / SaaS, asp, hosted web based systems.
Multiple ways to access web based systems e.g.: pc, laptop, PDA’s, handhelds, mobile phones, shared service centers providing accounting, payroll and human resource services, real-time processing, to provide immediate information to users, increased automation and seamless access with open web-based systems and systems supporting global business expansion
Much innovation is anticipated in the immediate future, some of the business best practices include:
Improved business efficiency from changes in business processes and reduction of manual data handling, reduced transaction costs and paper usage, faster access to information, rapid growth of data volumes, due to additional systems, numbers of PC’s, growth in email and archiving requirements. Increased data storage requirements combined with attempts to control data growth e.g.: by rationalizing the number of servers, email limits, freeing up of management time, enabling analysis and direction with more relevant information to manage business and increased information sharing within the organization and the use of cross departmental teams.
Increased co-operation between organizations leading to:
Reduced day-to-day operational costs for Finance, Payroll and HR functions and the HR department taking on a more strategic role
The intranet / internet enabled accounting software and systems will continue to grow in the direction of:
- Web based accounting software with a browser ‘front end’
- Automating routine accounts administration
- Web services
- e-procurement, e-commerce, online payment and internet expenses systems integrated within accounting software
- Web interfaces eg from e-commerce systems
- Workflow functionality integrated within accounting software
- Accounting employee portals containing all work tasks in one location
- Manager Self Service (MSS) tools in accounting software eg for monthly performance monitoring and reporting, budgets, expenses and travel authorizations
- Electronic payments
- Improving reporting, analytics, performance management and business intelligence eg slice and dice financial information, identify cost savings
We will also see continued growth in non-web based accounting software such as:
Financial and accounting regulations e.g.: IFRS, Sarbanes-Oxley, e-filing
System functionality and tools will either be purpose built or added to existing systems to assist with regulatory compliance e.g.: automated reconciliation tools, records management and documentation applications, security monitoring and control, repository and storage products.
Costs for financial and accounting regulation will be rationalized, Integration with other associated accounting software modules e.g.: CRM. Efficiency in scalability will greatly improve – accounting software such as ERP that was available for larger organizations will be redesigned for SME businesses and accounting software designed for SME businesses will increase functionalities and extend capability to be suit larger businesses.
Planning corporate finance is vital for the health of every organization. Targeted goals, timelines and ways to achieve those goals and importantly, budgeting for the program with the help of all the data in hand is corporate financial planning.
Financial Planning is a complex. The financial services industry has numerous products and solutions for every need. The key is getting the right solution.
The economic climate constantly change, whether it is the economy of the business itself, the economy of the local community, city, state, or nation. Each progressive level sends down ripple effects to all of the others, so it is crucial for the business leaders who are involved in corporate financial planning to determine exactly what the economic status of each level is and how each will specifically affect business. Once all of this is determined only then a final plan for investments and actions put in place in the best interest of the business and ways to meet predetermined goals.
Business leaders responsible for corporate financial planning must set long term goals. Long term goals look forward into the far future, seeking to establish guidelines that will direct the business over many years. A small business may have a long term goal of becoming a franchise. A larger business may have a long term goal of going international and planting new business centers in other countries. These long term goals can be harder to stick to as the economic statuses at each level gradually shift and flow in response to events, whether local or global.
As such, it is easier and more productive in corporate financial planning to focus on short term goals. These are easier to meet because it is easier to predict how the economic situations will play out over the short term. It is also easier to make adjustments to short term goals in order to keep them viable and useful. People can adjust these goals as needed to follow market trends or compensate for unexpected losses.
Just as individuals need a solid idea of their finances and goals for their financial futures, businesses must keep track of their money flow and have a plan ahead of time of what they want to see in their financial futures. So it is important for businesses, regardless of their size, to engage in corporate financial planning.
Various types of accounting systems are in existence and they help maintain business records. Primarily the goal of a business is to maximize profitability and minimize expenses. Towards this end, every business organization expand will the business and increase its sales while reducing operating expenses. Accurately tracking the progress of this exercise and maintaining meticulous records is served through accounting systems.
Initially, the purpose of accounting was to simply track business activity and maintain up-to-date profit & loss details periodically or on a given day. Today, accounting systems also involves requirements of tax authorities, investors, government regulations and the management. In this complex scenario selecting the right accounting system is crucial.
The double entry system has gone through much refinement over the years. Double entry system is the only method that fulfils all the essential objectives of a systematic accounting process. It takes care of the two fold aspect of each business transaction.
The single entry system ignores the two-fold aspect of transactions as compared to the double entry system. In the single entry system, the personal aspects of transactions, in other words the personal accounts, alone are recorded. The method simply ignores the impersonal aspects of a transaction excluding the cash. It does not have any safeguards regarding the accuracy of posting and is not at all safe from fraudulent practices because it lacks safety measures necessary in recording cash transactions and therefore, considered imperfect.
The age old question of terming accounting as an art or science rises even today. Accounting documents, in no way, establish a cause and effect relationship. The fact is, it only provides a procedure when strictly followed help accomplish the objectives of accounting. In which case, accounting is art, and not science. And, the art of bookkeeping is as old as the art of trading and commerce itself.