ACCA gets to grips with new accounting and auditing standards
ACCA (the Association of Chartered Certified Accountants) recently hosted a series of Continuous Professional Development (CPD) breakfast seminars on the International Finance Reporting Standards (IFRS) and the New International Standards on Auditing (ISAs). The seminars were presented by Bruce Mackenzie and Dean Davey from the WOW Group. Addressing ACCA members and Fasset (the Seta for Finance, Accounting, Management Consulting and Other Financial Services) stakeholders, Mackenzie said one could not be a spectator in the Accounting profession as things are changing all the time. “South Africa and developing countries are caught up in the change. One has to keep up to date,” Mackenzie cautioned.
The intention behind IFRS was to create a set of accounting standards applicable worldwide, which allowed for comparison. The emphasis was on “telling it as it is” and on “fair value”. Implementation was however, proving problematic in a number of areas, including, property, plant and equipment. Componentising was problematic, particularly since there was no definition of “significant part”. “The standard requires the depreciation charge to be determined separately for each significant part of an asset. No guidance is available. One has to use judgement,” Mackenzie observed.
The standard requires companies to revise the residual value and useful life of an asset at the end of each financial year. A “once off adjustment” is no longer possible. Since this is an annual requirement, he advised clients to find sources of residual value. He said it was important too to recognise that one could no longer have an asset in use with a zero value.
Because property, plant and equipment are areas which require judgements to be made, these areas could no longer be looked at by “junior people”. Senior management has a critical role to play. Share-based payments were also proving challenging. “Cash settled share based payments are liabilities which have to be registered until the liability had been extinguished fully,” he cautioned. While (IFRS) applies to both listed and unlisted companies, Mackenzie said the standard was more difficult to apply in unlisted companies. “These companies will need to call upon specialists to determine fair values,” he explained.
Turning to party disclosure, he said it was important to recognise that far more individuals are now included than in the past: “People who plan, direct and control activities directly, including executive and non executive directors, are now included”.
Davey said audit fees had increased by 20-40% on average over the last 6-8 months and many clients were still in the dark as to why audit fees had increased. He attributed these increases to additional costs associated with implementing the new auditing standards. “Changes in auditing standards require far more direction, supervision and review on the part of auditing partners,” he informed. He said auditors have a lot more responsibility on their shoulders. “Revenue is now regarded as a significant risk and a lot more time is spent on auditing revenue. Journal entries are also being scrutinised now and auditors are spending much more time looking at the client’s assumptions. Unusual transactions, including staff loans are also being scrutinised far more carefully than in the past,” Davey revealed.
Following the Enron debacle, he said many auditors were now doing background checks on companies and directors, and some had even decided to “let their high risk clients go”. The breakfast seminars provided ACCA SA with an excellent opportunity to launch its Diploma in International Financial Reporting. “The qualification focuses on the practical implementation of IFRS in the real reporting world. Any accounting practitioner or auditor with national accounting standards is eligible to register for the qualification. However, individuals with three years relevant practical experience are also eligible for registration. Participants can claim up to 30 verifiable unit of CPD for studying for the diploma and a further 12 hours of verifiable units on completion of assessment. “In order to sit the December exam session, participants need to register by 15 October. Face to face tuition is available to support participants to successfully prepare for the Diploma.” Head of ACCA South Africa, Nirri Nair explained.
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Additional information can be obtained from ACCA South Africa. Nirri Nair can be contacted on 011 459 1900.