Friday, November 21, 2014

Metal recycling business - valuation of metal scrap

We came accross an instance where we met up with business personnel, who are in metal recycling business. This business collect metal scrap from all other businesses - metal scrap collector collect, segregate and sort the metal scrap into different grade and dislose them to steel mill.

The collector usually has piles of metal scrap in the collection centre. It is almost impossible to weight the piles of metal scrap efficiently.

Based on our research, we understand that there are professional valuers who will measure the weight of the piles of metal scrap scientifically. It is understppd that the professional valuer measure the weight based on the principle of computing a cone- i.e. width x height x density.

We believe that management need to engage professional valuer to estinate the tonnage of the metal scrap. As auditor, we should carry out the work on test of management expert and observe the stock take.

Sunday, November 9, 2014

Revenue recognition - is IAS 18 comprehensive enough for all industries?

As we gained different exposure to different industries - your client portfolio starts to move away from trading / manufacturing into construction, utilities, or other unique industry. The financial reporting standards states the principle. Dealing with more complicated accounting issues, FRS might not have comprehensive guidance in-place to prescribe the accounting treatment.

This is especially so for revenue recognition - IAS 18 - it is almost impossible for this legendary accounting standard to deal with the revenue recognition of almost all industries - corporate world is diversified and the world is changing rapidly - new type of service might be invented by creative entrepreneur - how does accountant account for it and how does auditor audit the accounting treatment proposed by client?

There is an increasing volume from our clientele to call in to seek for auditor's advise on the appropriateness of revenue recognition policy on new revenue stream. Are the accounting standard moves fast enough to cope with the business development or economy development?

Apart from the new business / service developed, certain financial statement users have sought for changes to existing revenue recognition accounting standard -e.g. accounting for bundle contract, which has been in the pipeline for a number of years.

End result - accounting standard getting more and more comprehensive and complicated and prescriptive - are non-accountant financial statement user able to analyze or understand the future financial statement easily ? Fundamental of relevance?