The word is the US might have to adopt IFRS. By mid 2011, the SEC will take the decision. Then 5 years to implement the shift.
There was love at first sight when I saw that some of the US GAAP rules are implemented by statistically looking at their use in the markets.
IFRS allows for immediate recognition of the gain or loss in a sale-leaseback operating lease transaction. They are two transactions; therefore, they "must" be independent. You can recognize a gain because the sale of the asset is completely independent from the lease back even though you never lost the asset.
On the other hand, the musical complexity :) of FASB did statistical analysis in the field and found that the great majority of the companies recorded both transactions at the same time (the sale and the leaseback of the asset). Given that every company has both transactions at the same time, it makes it one. The sale looses its immediate overall economical substance because it is tied to future payments. Therefore, FASB simplifies the world by recognizing it is not a sale and a leaseback of an asset. It is financing. You get a chunk of money, you keep the asset, and you make payment as if it was any other debt. The gain on the sale has to be amortized along the "debt" payments.
It is not just a a matter of implementing someone else's rules. It seems there is a major difference in the approach. The agility will be lost.
I believe in Principles. Some things are wrong. If they are not spoken and written that way, after a few years, people start to get comfortable with the proximity to the limit. But at the same time, principles are also the random punishment machine of the state. Without very clearly specified rules, Principles become the reality show of who is cool at the moment, and the uncool is left without specific rules to know you are safe.
Five or Six years is also the hibernating time for a trip to the land of Pandora. Is it a coincidence, or we are just being prepared for the journey to La La Land?
Tuesday, December 28, 2010
Monday, December 20, 2010
More numbers
Brown - previous UK Prime Minister (while promoting his book, but still):
"In 10 years, Asia's consumer market will be twice the US's consumer market."
Only 10 years. It is just too fast. This is at the same time that we are expecting the US and Europe to contract, reduce spending and hope for the best. At this rate Asia will be the center and the edge. US and Europe would be tourist attactions. Can those societies handle the wealth and the influence? They have so far.
"In 10 years, Asia's consumer market will be twice the US's consumer market."
Only 10 years. It is just too fast. This is at the same time that we are expecting the US and Europe to contract, reduce spending and hope for the best. At this rate Asia will be the center and the edge. US and Europe would be tourist attactions. Can those societies handle the wealth and the influence? They have so far.
Sunday, December 19, 2010
The Enlightment of Independence
New research seems to highlight the fact that financial companies with independent boards and directors tend to undermine corporate governance and stock performance even though independence has been seen as the fix for these issues. This happens at the same time of pushing for procedures in the name of the goals.
This always reminds me that the best example of independence is a homeless person. Having no stake in the outcome, an independent board can have their own metrics to follow even when convinced that their goals and the company's objectives are the same. The same fact of their independence makes them unregulated about the results. Independence by itself gives you exactly that, independent results.
In worse cases, independent directors are the magic bullet as independent reporting tools. But relying on a person specifically for his/her decision making is increasing the risk. Corporate governance is a process to be tuned up along the way not directed.
In Spanish we have a saying: The watchful eye of the owner feeds the horse. The agency problem is not fixed by an independent body with no stake that replaces the owner's responsability. It is fixed by a body that is responsible for independently overseeing the already in place corporate governance.
This always reminds me that the best example of independence is a homeless person. Having no stake in the outcome, an independent board can have their own metrics to follow even when convinced that their goals and the company's objectives are the same. The same fact of their independence makes them unregulated about the results. Independence by itself gives you exactly that, independent results.
In worse cases, independent directors are the magic bullet as independent reporting tools. But relying on a person specifically for his/her decision making is increasing the risk. Corporate governance is a process to be tuned up along the way not directed.
In Spanish we have a saying: The watchful eye of the owner feeds the horse. The agency problem is not fixed by an independent body with no stake that replaces the owner's responsability. It is fixed by a body that is responsible for independently overseeing the already in place corporate governance.
Friday, December 10, 2010
The possible and the impossible one
China's future risks lie in the empowering of the population of these cities. If we see them like a swarm of people buying and selling, and investing capital, the consequences are extraordinary while everyone keeps watching for the macro risks.
However, empowering at this lower level cities is uncertain because implementation of rights occur in societies through courts, contract law, and law enforcement to protect the decision of the legislation and the rights of the individuals all the way to the bottom. People talk about China as an experiment. Nobody has been able to do democracy with a billion people. Even the US had to have the notion of state independence from the Federal government. It was probably the factor that allowed the Union to survive all the ups and down suffering the threat of separation.
Russia always had a more promising future than China. It was the second power in the world. It always had the highest level of engineers, scientists, and resources. Tetris was invented by a Russian for God's Sake! What would we have done without it?
And every time Russia enters the world stage, the local politics override all rights of the population and their "free agents". Sales of Vodka are some of the most profitable for small businesses. Then all the sudden in smaller communities vodka is prohibited to be sold until further notice. Local businesses and stores in shambles in a couple weeks. The details and the consequences of the arrest of oil moguls are just a serious warning to everyone else. What is interesting is that Russia might be after all more isolated and unique culturally plus more economically self-sufficient than China. China does have a party and factions and depends on Europe and the US for technology, education, and China is part of Asia. Russia still has the personification of political power in one person, it has all the brain power it can, and it is part of...itself.
Free societies become commercial powerhouse because nobody knows for sure who is the right person or who has the right idea. The whole idea of a capitalist system is the fact that the market chooses, not political representatives, not judges, not your competitors, and not even your peers. This is why a capitalist society can only flourish with empowerment and without discrimination.
In order for these three hundred cities to spawn indefinite economical growth, there has to be freedom of choosing or as until now, western business that hold more rights to create and lobby than Chinese individuals.
As a note of hope, China has been introducing non-communist party members to the Central Committee. But it seems it is always so easy to revert back. The whole world watches China every elections, every crisis to see who will win in the inside and what actions will be taken. It would be nice to know the point of no return, and these three hundred cities will be for sure the future.
However, empowering at this lower level cities is uncertain because implementation of rights occur in societies through courts, contract law, and law enforcement to protect the decision of the legislation and the rights of the individuals all the way to the bottom. People talk about China as an experiment. Nobody has been able to do democracy with a billion people. Even the US had to have the notion of state independence from the Federal government. It was probably the factor that allowed the Union to survive all the ups and down suffering the threat of separation.
Russia always had a more promising future than China. It was the second power in the world. It always had the highest level of engineers, scientists, and resources. Tetris was invented by a Russian for God's Sake! What would we have done without it?
And every time Russia enters the world stage, the local politics override all rights of the population and their "free agents". Sales of Vodka are some of the most profitable for small businesses. Then all the sudden in smaller communities vodka is prohibited to be sold until further notice. Local businesses and stores in shambles in a couple weeks. The details and the consequences of the arrest of oil moguls are just a serious warning to everyone else. What is interesting is that Russia might be after all more isolated and unique culturally plus more economically self-sufficient than China. China does have a party and factions and depends on Europe and the US for technology, education, and China is part of Asia. Russia still has the personification of political power in one person, it has all the brain power it can, and it is part of...itself.
Free societies become commercial powerhouse because nobody knows for sure who is the right person or who has the right idea. The whole idea of a capitalist system is the fact that the market chooses, not political representatives, not judges, not your competitors, and not even your peers. This is why a capitalist society can only flourish with empowerment and without discrimination.
In order for these three hundred cities to spawn indefinite economical growth, there has to be freedom of choosing or as until now, western business that hold more rights to create and lobby than Chinese individuals.
As a note of hope, China has been introducing non-communist party members to the Central Committee. But it seems it is always so easy to revert back. The whole world watches China every elections, every crisis to see who will win in the inside and what actions will be taken. It would be nice to know the point of no return, and these three hundred cities will be for sure the future.
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