Yen Hoon says ...

Hi,

I thought that I didn't do well for paper 1.1 as I did last minute revision. I was expecting to retake the paper or at most get only 60 marks.

Instead, I got 87. Really happy about the result.

I'm now doing regular studies for my papers 1.3 and 2.1.

Thank you, Edgar, for being a wonderful and dedicated teacher.

Yen Hoon

P/S - Congrats to Yen Hoon. Edgar

Annie says ...

Dear Edgar,

The December 2006 Exams results are out today and I want to thank you for your patience and self-less devotion in lecturing us.

You are an outstanding lecturer who delivers lessons in a unique way. Thank you for your many times of 'nagging' (repeated) so that the concepts are driven to my head without much effort.

You are already a successful lecturer and I know you will enjoy more successes in future.

P/S Annie secured 85 marks for P1.1.

Tan K.T says ...

Hi Edgar and Mr Goh,

Thanks for all your guidance in my paper 1.1.

I am quite delighted with the result i have achieved for your paper 1.1
I have obtain a score of 78 marks for this paper 1.1. Although it is still a bit below my target score (80 marks), at least i pass the paper.

Finally can relax now and can enjoy my Chinese New Year before going all out for the other papers (especially Paper 2.3 under Mr Goh) Hahaha. =)

And by the way, Mr Goh, please forgive me of all those broken english (or maybe not even english language) i have use in this email. Just treat like what you always mention in the sunday class, listening to the uncle's conversation at the coffeeshop.

By the way, i like to wish you a happy Chinese New Year and have a prosperous new year ahead.

Gong Xi Fa Cai.

Once again thanks for all the effort you have made in order for me to pass this paper.

Regards,

Tan K. T.

Making Accounting Cool

Need to up the profile of accountants.

Why? General increase in demand for accountancy services due to:-

• increasing regulation
• hot economy
• record levels of M&A
• adoption of international accounting standards

In Australia, there is only one accountant for every 4 job openings.

How to raise the x-factor in accountancy for the supply?
Besides the standards thrills and frills of bigger pay packages, signing on bonuses, etc etc etc,

• Hong Kong Institute of Certified Public Accountants (HKICPA), through its office in Beijing, will help to train 1,500 mainland accountants over 10 years.
• The most interesting idea of all - Institute of Chartered Accountancy of India (ICAI) want to add the prefix "CA" (ie. Chartered Accountant) to the names of all licensed CPAs ie. as per "Dr" for doctors.

So signing off now at 1.45am, CA Edgar Wong :)

Reference - Feb 2007, "Making Accounting Cool", CFO Asia.

Denise Ang and her Gaelic victim

The festive spirit is among us.

Remember the case of Gaelic Inns of Muddy Murphy's Irish Pub and Penny Black vs Patrick Lee Public Accounting Corp for $1mio of negligence.

Judge Belinda Ang had found the auditors guilty of negligence for not alerting management earlier of possible discrepancy in the cash balances of up to $672,253. $775,000 was awarded.

In yesterday's ST, Judge Ang explained her judgement. She said directors cannot "siam" or abdicate their duties by engaging experts and reasonably competent employees.

Duties such as asking for and analysing bank reconciliation statements. The managment has to take some level of responsibilities for contributing to the negligence.

Patrick Lee PAC is appealing.

A definition of Accountant

Hi friends - Share with you the sentiment of this reader who wrote to me.

====================================

Hi Edgar,

Share my thoughts with you. A practical accountant in a harsh business climate is very different from a academic accountant. I am very shocked to learn what is meant by a real life accountant from my own exposure. This is also confirmed by your article on the Auston's case.

Their life is definitely not easy. I am beginning to re-define an accountant's job. Now, I know that running a business and being an accountant is no difference. Think about this point and you will know that their stress level is no joke.

RP

Ford Motor Co - Can this pre-historic company survive?

This 103 years old company recorded a whopping USD$12.7bio loss for 2006.

Why?

- slumping sales and huge restructuring costs

What is Alan Mulally, the president and CEO, and its management team trying to do?

Apparently they are executing a plan that will put the 103 years old company through a complete makeover costing USD$23.4bio. The makeover has started in 2006 and is expected to end in 2009. To pay for the bill all the way to year 2009, it has mortgaged its assets and borrowed the money.

• To shrink its massive production capacities to match shrinking demand.


• To change their product lines of trucks and petrol-guzzling SUVs to producing smaller, more fuel efficient vehicles.


• To clear up its pension commitment to 38,000 employees.


• To remove 14,000 white-collar managers.

Can they pull it off?

If not, another pre-historic dinosaur will disappear.

FRS 39 - etched in an apprentice's memory forever

Hi friends,

I am reproducing, with permission, an email (albeit edited) from a friend.

=========================================

Hi Edgar,

Share with you my day in the office today. I had been working on this assignment on FRS 39 - revaluation of fair value of term loans for a week already.

I submitted my completed audit schedule to the Accountant. With one glance and she said this to me, "The figures don't make any sense. How can the bank be making huge losses and the company be logging huge gains by lending the money to the company?".

She picked up a high-lighter and high-lighted almost every item in the schedule. I started laughing uncontrollably. Of course I am laughing at my stupidity.

Of course, I understand perfectly the remarks, "The figures don't make sense." because in auditing, somehow we are trained to have feelings for numbers.

FYI - The Accountant had been explaining FRS 39 to me for ONE WEEK already.

As she stared straight into my eyes, I felt her asking me telepathically, "Can or can you not handle it?".

My subconcious mind responded, "And what makes you think I can handle it?" But for my pride and dignity, I kept silence. Yet I was very apologetic that I was not able to perform and deliver on my work.

FRS 39 should be included in paper 1.1, so that I don't have to look stupid. But I did learn a thing or two from this assignment. FRS 39 is actually a schedule to calculate the IRR in order to get the effective interest rate and compare against the book value as per the general ledger.

Am I right, Edgar?

============== The End ==================

P/S Jane Doe :), thanks again for letting me share a page from your auditing life with your fellow students.

The financial statements are not telling us enough?

Our students are often asked, "What are the various financial statements?"

The five statements are:-

• Balance Sheet
• Income Statement
• Notes to the Account
• Cash Flow Statement
• Statement of Changes in Equity

In a study by the Economic Intelligence Unit (EIU) and Deloitte last year, it suggested that financial statements - in their present format - do not provide a complete picture of the soundness of a company.

The study calls for financial statements to reflect both financial and non-financial indicators of a company's health.

The Americans set the pace with the Sarbanes-Oxley Act in response to the collapses of Worldcom and Enron. The Act is a set of rules that are targetted more towards severe corporate misbehaviour, eg. fraud and the falsification of accounts.

The EIU-Deloitte study showed that 'traditional' financial measures fail to reflect the state in the more mundane but critical non-financial areas.

Some examples of these non-financial areas cited:-

• What are company's relationships with important parties, such as customers, employees and suppliers?
• Are the products of company of certain quality?
• Are your employees committed to the company?
• What is the key source of future revenue and profit in a firm?
• What is the state of product innovation?
• What is the level of brand loyalty and strength?
• What is the level effectiveness of the board and top management?

Most of the white-collared executives surveyed in Europe said they would prefer to see more incisive information on their companies' key non-financial drivers of success.

How to make such information on key non-financial drivers a reality?

• Set industry standards to measure these crucial drivers. Without such standards, reliability of such information would be a big concern.


• Coerce a mindset change in companies that non-financial measures do affect profitability. I believe the companies will get the message when the market reacts to such information compared across companies and industries.


• It is also important to have board members and executives who are knowledgeable about non-financial measures. In similar vein, the scope of auditing would expand too and will thus require the necessary expertise beyond accounting and/or auditing.

These non-financial measures would help us to see the company's future prospect better.

Reference - "Inadequacies of Financial Statements", Business Times, Michelle Quah, February 4, 2005.

Auston and classification of expenses

Auston International Group's former chief financial officer, Chua Peck Wee, 32, was sentenced yesterday to seven months in jail - for playing a part in the falsification of the company's accounts four years ago. The charge carries a penalty of a fine and/or a maximum seven-year jail term.

Auston is a listed company in the education business.

What was the accounting falsification done?
The former CFO admitted to instructing its accounts staff to record a payment of $268,525 as 'academic cooperation fees' to the Upper Iowa University for FY2003.

This amount was actually a payment made by Auston to the University of Wollongong for university fees for FY2002.

What is the impact?
By falsely recording the amount as academic cooperation fees instead of university fees, Auston could capitalise it as a development cost and subsequently amortise the amount over three to five years from FY2003.

Essentially, Auston had avoided recognising $268,525 as expenses for FY2002. It increased the net profit for Auston's IPO prospectus in 2003.

The ex-CEO said the ex-CFO had came up with the wonderful idea of smoothening out the expense. The ex-CFO said he was too weak to stand up against the ex-CEO's demands.

Whatever the circumstances preceding the crime, you Mr ex-CFO had helped to pass the necessary entries. So you got to pay for it!

Reference - Jan 12, 2007, "Ex-Auston CFO gets seven months' jail", Business Times, Michelle Quah.

Xpress Holdings - 2 responses in the press

Subsequent to Ms Michelle Quah's article on Xpress and its auditors, Mr Christopher Chong, Chairman, Audit Committee, Xpress Holdings Limited and Mr Mak Yuen Teen, director of Corporate Governance and Financial Reporting Centre NUS Business School presented their respective views on the Jan 9/10, 2007 respectively.

Mr Chong covered the following areas in his letter:-

• He said the statement that " 'problems' began in Nov 2006 with the dismissal of Deloitte & Touche ('Deloitte')" is incorrect. He said the issue with Deloitte started in Sep 2006 and the committee reacted with increase allocation of resources to address those concerns raised. So Mr Chong, are you making an issue on the 2 month's difference?
• The statement by Ms Quah that Deloitte 'refused to pass the company's accounts' is wrong as per Mr Chong. From his response, I couldn't see what is wrong with the statement. Yes I can read from Mr Chong's letter that Xpress has taken steps to address the concerns of Deloitte. But I am also sure the brains in Deloitte must have taken all these into consideration before deciding not to complete the audit exercise.
• To be fair to Xpress, I note that it has secured help and endorsement from other experts such as RSM Nelson Wheeler in Hong Kong, KPMG Corporate Finance Pte Ltd and Foo Kon Tan Grant Thornton at an estimated cost of $500,000, in its effort to work with Deloitte.
• Mr Chong said he couldn't understand why ACRA is not agreeable to the extension request. While I may understand that ACRA or any other governmental/business entities may take the position that it is not obliged to give you a reason for rejecting your application, we should however ask whether such position is good for the maturity of Singapore's corporate scene.

Mr Mak, a recognised authority, in the field of corporate governance, came forward with the following views:-

• On the Xpress' issue with its auditors, the shareholders should direct questions at the audit committee, who has the primary responsibility on audit matters. The committee should state its views on the matters raised by the auditors, and share any plans to do to address the concerns.
• On a more a macro level, he suggests that "shareholders carefully study the independence, expertise and activities of the audit committee of companies they invest in and ask more questions about it at AGMs. Companies should consider following higher standards on matters such as the independence, expertise and frequency of meetings of the audit committee..."

Well Jan 15, 2007 is the AGM for Xpress. Perhaps we will have more daylight on the issue after "the day after tomorrow".

Till then, cheers.

Reference
- Jan 9, 2007, "Why Xpress changed auditors", Business Times, Letter to the Editor.
- Jan 10, 2007, "Ask the Xpress audit committee", Business Times, Letter to the Editor.

Xpress Holdings has sacked its auditors?

Deloitte & Touche, Xpress Holdings' auditors, has refused to sign off on its FY2006 accounts. The company subsequently decided to sack the auditors.

The latest development is that ACRA has refused to grant it an extension of time - to get its accounts audited and hold its annual general meeting.

Why the refusal to sign off the accounts? Two main issues.
1. Precise Media Group (PMG)
Deloitte had doubts about certain revenue items recorded in the statements of PMG, and the cost of Xpress's investment in PMG and the goodwill from the purchase, recorded in Xpress's books. (Xpress had raised its stake in PMG in June, from 60 per cent to 100 per cent, in a $27.5 million deal.)

2. PMG's internal control


What is Xpress' position?
Xpress said they have tried to address Deloitte's concerns.

Xpress then hired Foo Kon Tan Grant Thornton for a 2nd opinion on its financial results. Foo Kon concluded that 'Deloitte's observations are mostly correct' but added that alternative evidence could be obtained to address those concerns. It was obtained.

Foo Kon 'indicated its willingness to act as Xpress's auditors'. Xpress proceeded to ask Deloitte to resign and moved to hire Foo Kon.

The AGM is slated for Jan 15, 2007.

As shareholders of Xpress, would you not be interested in asking Deloitte what have caused the "divorce"? Shareholders should also ask the new "bride to be", why she would be willing to marry Xpress?

P/S - Edgar has got no shares in Xpress.

True and Fair - Accounting or Legal Concept?

Can you find a specific definition of "True and Fair view"? As of my last attempt, there is no authoritative ie. "black and white" version available for all parties to adopt.

The ambiguity then gives rise to confusion.

The public accountants are required by the Companies Act to express an opinion on whether the financial statements are true and fair. The auditors conduct control test and substantive test based on varying degree of sampling to reach a conclusion.

Clients may enter into a lengthy discussion to change their auditors' opinion to qualify their accounts.

ACRA said the criterion of a "true and fair view" is NOT an accounting criterion. It is open to legal test in Court. ACRA is saying that public accountants thus do not have the final say.

Mr Joseph Alfred, Technical Director of ACCA Singapore, in his article in Focus Qtr 4- 2006, presented his arguments against accounting profession being "absorbed and subsumed under the legal profession".

Given the current direction from ACRA, he said you should not be surprised if you were to be directed by your auditors to the lawyers to obtain opinions on contentious accounting interpretations.

My view
Why should the accounting profession be exempted from a legal review when other professions like medical are included?

Grig says...

Dear Edgar,

Thanks for your kind support during last year. I feel my MBA at least 30% yours because according to my classmates accounting was the most difficult module.

Grig
25 Dec 2006

Merry Christmas!

If someone will grant me a wish for or maybe if there is enough of us to pray for peace, happiness and a stop to the degradation of the environment, the world would be a better place for all.

My friends, take care.

Serene, I thank you too :)

Hi Edgar,

I was your student in your main & revision classes this year (ie. 2006) from Jan to May, I took my CBE exam for paper 1.1 last week and am pleased to tell you I've passed!!!

To me, this exam was a difficult one, though I only managed to score 76 marks but I believe I had done my best and am glad I've cleared the paper!

I would like to take this opportunity to thank you for being an inspiring lecturer, though I was confused sometimes but over all I thoroughly enjoyed and am enriched from your lectures. Keep up the good work and may you enjoy more success in the coming Jul term!

Best wishes and God Bless You!!

Regards,

Serene
28 June 2006

Auditors to pay $775,000 damages

Who sue who and for what?

Gaelic Inns (of Muddy Murphy's Irish Pub and Penny Black of Boat Quay) sued Patrick Lee Public Accounting Corporation for $1 million losses suffered by Gaelic Inns.

How was the monies stolen?

The then Group Finance Manager, Ms Denise Ang did not banked in the daily bar takings between March 2003 and May 2004.

What is the Hon Judge Belinda Ang's decision and basis?

The Judge ruled in favour of Gaelic Inns and awarded $775,000 plus interest.

Judge said "while an auditor is not expected to be a detective, the duty to audit carries with it an incidental duty to warn... managementt or the directors of fraud or irregularities uncovered".

Was it uncovered by the auditor?

The audit was in progress in March 2004 while the crime was still in progress.

Mr Lawrence Phong, the audit manager in charge then, was reviewing the bank reconciliation statements. There was a discrepancy of about $680,000 noted between cash balance as per accounts and actual cash in bank!

Mr Phong was faulted for not doing an indepth investigation immediately upon its discovery, tardy in follow-ups and lastly for not highlighting the matter to the management.

Conclusion

Does this decision further increase audit risk to the auditors? Lawyer Philip Fong, representing Gaelic Inns, seems to think so. The decision highlighted the need to review process and audit procedures of cash, particularly in F&B or retail businesses.

However, such annual audits are still not expected to discover frauds unless specially commissioned to do so. In this case, the auditor had laid his hands on the most glaring documents highlighting the crime ie. bank recon statements. And thus the decision.

Good night.

P/S - Pic of December's rain clouds

Can you give some pointers to the new students?

Dear students, past and present,

Need your help to contribute some advice to the new students coming in in next academic term.

Advice on the following:-
How to manage time between work, studies, family and bfs/gfs?
How many subjects should I take?
How should I study? Read textbook or not?
How to deal with lecturers to get them to help?

Given that you guys and gals have now got the experience of going through at least one exam, let me have your views.

No right or wrong view. It is your view. - So just type :)

Stock Grant vs Stock Option

What is stock grant?
Company buys shares from open market and gives them to its staff according to an incentive programme.

What is stock option?
A company issues papers to its employees giving them the right to subscribe to shares of the company at a pre-determined price (usually below current market price) after a certain vesting period.

Similarities
Both forms of incentive plan enable the company to motivate employees to achieve superior performance as well as to align the interests of employees and shareholders'.
Both costs of incentive plan have to be expensed off against profit.

Differences
Expenses incurred to do stock grant is tax deductible as per cash compensation to employees. Stock option expenses are NOT tax deductible.
Determination of cost for stock grant is more definitive. There has been constant debate over the valuation of stock options.

Conclusion
SIA, SembCorp Industries, SMRT and StarHub, are recent adopters that have awarded employees with stock grants for the first time this year.

More expected to follow forth.

AirAsia may have to restate earnings?

Issue
In early Nov 2006, AirAsia, the Malaysian budget airline, have indicated that it may have to restate its earnings for its fiscal year ended June 2006. This is a result of difference in interpretation of a certain accounting policy. The dispute would translate to RM40mio swing in profit.

What is the accounting policy under dispute?

The focus is on FRS 112 under the Malaysian standard.

AirAsia has maintained their position that the International Financial Reporting Standard (IFRS) allows it to recognise unused investment tax allowances as deductible temporary differences.

It argued that its accounts for year ended 30 Jun 2006 will not present a true and fair view of the company's financial performance if it were to comply strictly with FRS 112 under the Malaysian standard.

Malaysia's Securities Commission (SC) had asked AirAsia to restate its accounts.

The Malaysian Accounting Standards Board (MASB) confirmed recently that FRS 112 was not a new standard, and that it is also consistent with the international standard.

Bottomline
AirAsia's accounts could be qualified. The profit definition difference would have no impact on its financial position as the accounting treatment is non-cash in nature.

Anybody got any update on this case?