Changes to accounting practices

[duncan drennan]

It looks like we are headed for some changes to our familiar income statement and balance sheet.

Having been invented in 1494 by Lucia Pacoli in Venice, the balance sheet becomes history and is now known as a “statement of financial position”.

And instead of the income statement, we’ll now have to read a “statement of comprehensive income”.

Sue Ludolph, Project Director of Accounting at The South African Institute of Chartered Accountants (SAICA) says the new standard is aimed at improving users’ ability to understand, analyse and compare financial statements.

She said a statement of comprehensive income has two sections.

“The first section will include the income statement as we know it today, ending with profit for the year. The second section, directly underneath, contains other comprehensive income. The final total on this statement is total comprehensive income for the year.”

Other comprehensive income comprises items of income and expenses that are not recognised in profit or loss as required or permitted by International Financial Reporting Standards (IFRS).

“The revised standard enables accountants to present items of income and expense, and components of other comprehensive income in two ways. Either in a single statement of comprehensive income with subtotals, or in two separate statements - a separate income statement, followed by a statement of comprehensive income,” said Ludolph.

Full article on MoneyWeb

Anyone know much about this, or any other changes that are being tabled?

[RKS Computer Solutions]

Asking whether anyone knows about this, brings another question to mind? How many accountants will actually point this out to their clients, or leave it until the yearly reports gets sent off and the client phones in a huff to find out why his reports don't look the same as last year....

I for one, won't be happy with the simplification, purely because I have some financial knowledge and can read my statements and know exactly what is going on, without the need of my accountant having to explain every single line to me...

I doubt however, that a big percentage of people who run their own businesses, have the financial knowledge and/or background to be so confident in reading their statements and figuring out what all the numbers mean, apart from the total in their bank account at the current stage...

A business contact once said to me, you need to know how to be an accountant and work with your money the same way an accountant would, before you should consider starting your own business.

Maybe the simplification will help get more people off the ground more easily and help them improve cash flow and such to such an extend that the failure rates for businesses in their first years tumble...

[duncan drennan]

Without knowledge of the exact changes and thoughts behind them, these are my thoughts...

I don't think it is about making it simpler per se, but more about including items which typically would not show on current forms of financial statements.

[Dave A]

They show alright. It's just that the seperation normally is seen in the notes. But it might well be more transparent which is a concern nowadays. We'll see.

Renaming, recategorising, but it's based on the same principles.

[Marq]

I have not heard anything from my institute (SAIPA) or the international accounting community, on these changes.

It sound like some technical type people are out there trying to justify their jobs by shuffling numbers around. Why change something that has worked for all these years around the world?

[Graeme]

Moneyweb

Duncan, as a result of reading your post I now know about moneyweb.co.za.
My grateful thanks to you.

[duncan drennan]

Duncan, as a result of reading your post I now know about moneyweb.co.za.
My grateful thanks to you.

Glad I could be of assistance Graeme

[ProValue]

Asking whether anyone knows about this, brings another question to mind? How many accountants will actually point this out to their clients, or leave it until the yearly reports gets sent off and the client phones in a huff to find out why his reports don't look the same as last year....

I for one, won't be happy with the simplification, purely because I have some financial knowledge and can read my statements and know exactly what is going on, without the need of my accountant having to explain every single line to me...

I doubt however, that a big percentage of people who run their own businesses, have the financial knowledge and/or background to be so confident in reading their statements and figuring out what all the numbers mean, apart from the total in their bank account at the current stage...

A business contact once said to me, you need to know how to be an accountant and work with your money the same way an accountant would, before you should consider starting your own business.

Maybe the simplification will help get more people off the ground more easily and help them improve cash flow and such to such an extend that the failure rates for businesses in their first years tumble...

The South African Institute of Accountants recently announced that IFRS for SME's could be used as an alternative for GAAP reporting.

Hopefully the "new"standard will be more useful to non-accountants.

E-mail me at swanee@mweb.co.za and I will forward you a copy of an illustrated example of the financial statements.

Thank you.

ProValue

[Dave A]

Thanks not only for the offer, but the quick response when I made a request for a copy.

Very much appreciated.

It's a pity the copyright precludes it from being made available as a file here

[duncan drennan]

The drafts can be found on the IASB's website, in particular the examples that ProValue is referring to can be downloaded here.

I think the items the MoneyWeb article was referring are slightly different and more info can be found on the project page. If you look at the draft from pg 87 there are examples of the Statement of Financial Position, and Statement of Recognised Income and Expense.

[duncan drennan]

More on the SME side from MoneyWeb

SMALL and medium businesses can look forward to simpler accounting processes, when SA becomes the first country in the world to adopt a new global standard for SMEs.

But auditors are already warning that the simpler accounting rules will not save affected companies much in the way of auditing fees.

They are hoping that any time and effort saved on the slimmed-down audit will probably be offset by the provision of more general business and tax advice.

The new Statement of Generally Accepted Accounting Practices for SMEs reduces the number of disclosure requirements under International Financial Reporting Standards from 3 000 to 400.

Full article on MoneyWeb