Jan Labuschagne, CEO of Sappi Southern Africa and SAICA’s newly-elected chairman, knows precisely where his priorities lie.
He wants to see accounting standards conform more closely with the needs of the business world; he seeks a strategy designed to offer SAICA’s members in business greater value for money; and he is fully aware of how crucial it is to the nation that the shortfall of 22 000-plus accountants be reined in, with specific emphasis on transformation of the profession.
As CEO of Sappi SA, Labuschagne is more exposed than most to the complexities of fair value accounting.
“Because we are listed in New York, we are obliged to report quarterly. Thanks to IAS 41, we have to mark our forestry operations to market every quarter. We have 39 million tons of trees, of which we only use 10% a year. Every three months we have to revalue all 39 million tons to market. A mere R10 swing in the timber price can have a R390 million per quarter impact on the bottom line. And the entire operating profit is generally less than that!
“How, then, can you expect stakeholders to understand your accounts? We must return to basics such that stakeholders can get to grips with a set of accounts without needing a dozen accountants to explain the intricacies to them.”
Labuschagne is critical of “hybrid balance sheets”, with some assets at depreciated cost and others at market value.
“One-third of Sappi SA’s balance sheet consists of plantations. Imagine how this can skew stakeholders’ perceptions of the value of their company. Even the income statement is distorted – by operational issues mixed up with fair value accounting, where your recorded operating income is not a true reflection of your operating activities. Yes, this is disclosed separately in the notes, but which are almost invariably ignored.”
Compounding the mark-to-market confusion is the varying definitions of ‘earnings’.
“Some call it underlying profit, some call it operating income before special items and others call it operating income before non-recurring items, though fair value is, in reality, a recurring item. In effect, they are creating their own standards, because the standards have not evolved to accord with economic reality.”
In the wake of the global financial meltdown, Labuschagne asks: “So what did we miss, and why are we missing it?”
He suggests that we were missing the broader economic picture.
More questions: “Where does the pure interpretation of the standards stop and where does economic reality kick in? And where can we marry the two? We need safeguards to ensure that a Lehman Bros-type disaster does not recur. The G20 is busy investigating the underlying root cause. There’s a growing belief that the banks lacked a proper risk-pricing model. If the risk-pricing model was fair from day one, the disaster could have been averted.”
Labuschagne is determined that SAICA provides members in business with a value-for-money service offering.
“All that members in business have been getting is the right to use the designation CA(SA), a monthly magazine and the standard accounting and tax updates. We must do more to develop CAs(SA) to become the real leaders of business; captains of industry, who are not only accountants, but also have the wider, softer, negotiating and communication skills.
“Members in business are isolated from their fellow CAs(SA), unless they are in the same industry or circle of friends. Cross-industry fertilisation in terms of new ideas and new approaches is not fostered because of SAICA’s prime focus on accounting and auditing.”
Labuschagne maintains that one cannot add value as an accountant without a sound business footing.
“You have to be a business partner. This applies not so much to CAs(SA) in the big corporations but to medium-sized to smaller businesses. The latter do not get the broad exposure enjoyed by their big business counterparts but are still expected to have those skills.”
Problem is, medium-sized to small companies do not have the resources to send their CEOs and CFOs on courses or to pay firms to provide the requisite input.
“They have every right to expect their member body to assist by way of affordable service offerings. This is where SAICA can add considerable value. We have taught them to be good accountants; we now need to teach them to be good businesspeople.”
On SAICA’s new executive president: “Matsobane has taken over a well functioning organisation. Innovation is one of his prime areas of focus. It dovetails with my thoughts on accounting standards and where they should go. Our views are congruous on this. Matsobane is a strong and insightful leader”.