- Please read the article below as a foundation for your discussion. Write a one-page essay that focuses on the following issues: What could be the advantages of using IFRS in the U.S. for a small private U.S. firm? What are some possible problems? You are required to also discuss material we covered in class. In other words, your discussion cannot be based purely on the article provided.
- Please only write one page. You have to write full sentences (no bullet-points). Your essay should have a good flow, discuss pros and cons and finish with a recommendation on whether the US should/ should not adopt IFRS for all firms – not just big multinationals. (Remember in week 2 we discussed: SEC nods to Multinationals”.
Africa Makes Strides in Corporate Accounting, Governance
The Wall Street Journal Online, 17 November 2014, By Kimberly S. Johnson, (English)
Oscar Onyema is battling the perception of corruption and poor transparency in Nigeria one public company at a time. Two weeks ago, the chief executive of the Nigerian Stock Exchange launched a corporate-governance rating system that puts the exchange’s 190 major companies—including Unilever Nigeria PLC, Total Nigeria PLC and Oando PLC—through a rigorous assessment.
The ratings system requires listed companies to answer questions about their business ethics, internal and external audit and control, transparency and disclosure. Each board member must take a test to measure his awareness of a director’s fiduciary duty. Regulators, investors, suppliers and employees also are interviewed.
“Nigeria has made a big statement that we want to be in the forefront of good corporate-governance practices,” Mr. Onyema said. Sub-Saharan Africa has long lagged behind the developed world in corporate-governance practices, but political and economic stability in countries like Ghana, Kenya and Rwanda have had a halo effect on the region.
Over the past five years, more Africa’s companies have adopted International Financial Reporting Standards to help draw global investors. Investment returns across the broader continent averaged 13% in 2012, according to consulting firm McKinsey & Co. And the International Monetary Fund expects economic growth in sub-Saharan Africa alone to reach 5.5% this year, up from last year’s 4.9%.
“Many people paint Africa with one brush, but it’s 54 different countries,” said James Newlands, a partner at Ernst & Young LLP’s Africa practice. The risks, however, continue to make headlines. The Ebola outbreak in Liberia, Guinea and Sierra Leone and a recent military takeover in Burkina Faso may make some potential investors skittish. And, despite a growing acceptance of anticorruption measures and international reporting standards, companies sometimes lack the accounting resources to meet stricter financial guidelines.
Stephen Hayes, president and CEO of the Corporate Council on Africa, a Washington-based group that promotes U.S.-Africa business and investment ties, said information on some companies in the region is “fairly sketchy” and “the governance issue slows things down.” That’s partly why the U.S. accounted for less than 10% of the $545 billion of foreign direct investment in the continent between 2003 and 2012.
While Africa’s governments continue to battle extreme poverty, consumer spending is expected to hit $1.4 trillion by 2020, up from nearly $1.2 trillion in 2012. Three-quarters of the region’s one billion people now have a mobile phone, according to a McKinsey report.
For investors, a major challenge is that the majority of the region’s companies are small or midsize, closely held and family-run. Most have never had an outside investor or applied for a bank loan. Expenses are sometimes paid from a personal bank account or in cash. Board meetings are often held at the kitchen table over a Sunday night family meal, said BarakatBalmelli, managing director of Sana Elias Group, a Swiss financial advisory firm focused on sub-Saharan Africa.
When working with an agriculture company in northern Nigeria, Ms. Balmelli found commingled accounts and no records for equipment and other assets purchased with cash. She said she had to create Excel spreadsheets and hire an entry-level accountant to record daily activity and try to recreate older financial records on a cash-accounting basis. “Just because they don’t have the best accounting records doesn’t mean they don’t have a good business,” she added.
Forming partnerships with dealers and distributors can help alleviate some of the risk of entering a new market in the region, said Andy Beck, chief financial officer of AGCO Corp., which makes farm machinery. The company, based in Duluth, Ga., sells its wares in Zambia, has a parts facility in South Africa and is manufacturing equipment in Algeria. The company trains its salespeople not to run afoul of the U.S.’s Foreign Corrupt Practices Act, Mr. Beck said. Doing good due diligence at the outset of selecting a local distributor is often a challenge, as there’s no centralized place for information, so data is often “inconsistent,” he said.
Overall, companies and investors interested in funding or acquiring small or midsize firms need to prepare for accounting and disclosure practices that are inadequate by Western standards, said Jacob Kholi, a Ghana-based partner at the Abraaj Group, a private-equity firm focused on growth markets.
One of the goals of a private-equity investor is to better position a company for growth and itself for a positive exit five to seven years down the road. Often, the infusion of funds comes with a dose of accounting and auditing expertise. “We’re able to identify some of these gaps and apply them to the investment plan. That’s not an imposition for us,” Mr. Kholi said. The quality of financial reporting has improved in recent years and companies are “positioned better than ever before, so we encourage them,” he said.