accounting !!

Introduction 1

ACCOUNTING !!“You have to understand accounting and you have to understand the nuances of accounting. It is the language of business and it’s an imperfect language, but unless you are willing to put in the effort to learn accounting, how to read and interpret financial statements – you really should not be investing yourself” Warren Buffet

“High quality financial information is the lifeblood of market based economies. If the blood is of poor quality then the body shuts down and the patient dies. It is the same with financial reporting. If investors cannot trust the numbers, then financial markets stop working. For market-based economies, that is really bad news. It is essential public good for market based economies” Hans Hoogervoorst, LSE, November 2012

Introduction 2

BRIEF HISTORY of GAAPTHE DAIMLER-BENZ STORY 1993 German GAAP: DM 615m profit US GAAP: DM 1 800m loss

INTERNATIONAL HARMONISATION• Int. Org. of Securities Com.(IOSCO)• Int. Accounting Standard Setting Board (IASB)• Securities & Exchange Com. (SEC)• S.A. Institute of Chartered Accountants (SAICA)• USA (US GAAP) and IFRS

Introduction 3

International Financial Reporting Standards

IASB Vision: A single set of high quality global accounting standards

• More than a 100 companies use IFRS, including 2/3rds of the G20 and half of Fortune Global 500

• EU (2005) 8 000 companies switched to IFRS• Includes: South America, Mexico, Canada,

Caribbean, Australia, much of Asia and Africa, Europe, Russia and Turkey.

• China, Korea and Brazil are supportive• United States yet to adopt!

Introduction 4

IFRS in South Africa• S.A. listed companies since 2005• SA GAAP =

– IFRS – IFRS for SME’s – micro-GAAP ?

Introduction 5

BIG PICTURE• Income = Movement in net assets• Mixed measurement model• Move to fair value (credit crunch issues)• Involves more estimates• More complex accounting• More sensible numbers!!!!• More disclosure• Continual change

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Introduction 7

SAB 1998

Introduction 8

SAB 2000

Introduction 9

THE INTEGRATED REPORT

KING III•Required for all companies listed on the JSE •For financial years starting on /after I March 2010 •Integrates a company’s strategy, risk, performance and sustainability•Should be the primary report •KING III provides broad principles but no guidance on form and structure

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THE INTEGRATED REPORT

GUIDANCE•Framework for Integrated Reporting and the Integrated Report (Integrated Reporting Committee of South Africa) – January 2011 (www.sustainabilitysa.org)

•Towards Integrated Reporting – Communicating Value in the 21st Century (International Integrated Reporting Committee) – September 2011 (www.theiirc.org)

11Introduction

THE INTEGRATED REPORT(IIRC, 2011:7)

12Introduction

THE INTEGRATED REPORT

• “Bring together material information about an organisation’s strategy, performance, governance and prospects in a way that reflects the commercial, social and environmental context within which it operates” (page 2 of IIRC’s Discussion Paper).

• “…..in a clear, concise, connected and comparable format” (page 2) with “only the most material information being presented in the Integrated Report” (page 4).

• Five guiding principles: strategic focus, connectivity of information, future orientation, responsiveness and stakeholder inclusiveness, and conciseness, reliability and materiality (page 13)

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