By a staff reporter
THE UAE and other emerging economies are at an advantage over the developed economies as they do not have to ‘unlearn’ accounting standards, and can directly adopt the new norms prescribed by the International Accounting Standards Committee
(IASC).
Barry Jay Epstein, Chicago-based partner of Checkers, Simon & Rosner, told this paper yesterday that Dubai — which was planning to establish a securities exchange — had the advantage of starting it with the new accounting standards in force.
The Economic Department, Dubai, had last year asked all companies in the emirate to follow the new norms, he noted. Epstein is in Dubai for a conference on ‘Credit control and debt management’, organised by IBC Gulf Conferences.
He pointed out that the IASC had signed an agreement with the International Organisation of Securities Commissions (IOSC) that a core set of standards would be implemented by it, and would be compulsory for companies as listing requirements.
Earlier, the deadline for implementing the core standards was 1999, but it has been advanced to mid-1998. Companies that follow these core standards would stand a better chance of getting listed in stock exchanges, he said.
American companies, however, were reluctant to follow these new standards, as they found it difficult to ‘unlearn’ what they had been practising all these years, said Epstein.
Countries like the UAE — which did not have any such standards in the first place — would not face any difficulties, as the corporate sector could easily adopt the new standards, he added. This would also facilitate listing at the proposed securities exchange in Dubai.
Epstein, who will be addressing meetings in Abu Dhabi today, noted that initially there was resistance even from European countries, but the EU has now finally accepted the IASC’s new standards.
Abbas Ali Mirza, director, professional, development, Talal Abu-Ghazaleh Inernational (Tagi), who also spoke at the conference, focused on ‘Evolutionary trends in financial analysis and debt management’.
He pointed out that one of the latest buzz words in corporate jargon is ‘MVA’ — market value added. The concept, developed by a New York financial consultancy, reflects “the measure of the wealth a company has created for investors..shows the difference between what investors put in and what they can take out.”
According to Mirza, investors were used to evaluating corporate performance by yardsticks such as ‘return on investments (ROI)’ or ‘earnings per share (EPS)’. But MVA was the latest tool to measure it.
Fortune magazine, for instance, listed 200 large US corporations, ranking them by MVA. The list was topped by Coca-Cola, while General Motors — which ranked fifth in the Fortune 500 list — was at number l,000, said Mirza.
MVA is arrived at by adding together the shareholders’ equity (total of share capital and retained earnings) and borrowed funds, which is then adjusted for amortisation of items like expenditure on research and development (investments for the future).
The resultant figure is then subtracted from the total market value of the company’s share capital and debt.
“If this results in a positive MVA figure it means the company has created wealth for the shareholders, and by contrast a negative MVA is interpreted to mean that corporate shareholders’ wealth has been eroded.” he added.
Varouj Nerguizian, general manager, Bank of Sharjah, chaired yesterday’s session of the conference, which focused ondebt. He told this paper that the conference had thrown interesting suggestions.
Referring to the lending situation in the banking industry in the UAE, Nerguizian said some banks had adopted an aggressive lending policy. This was because of the “boom situation” in the economy, with many projects being put up, even by foreign investors.
In 1995 for instance, there was a 27 per cent upsurge in Dubai banks’ portfolio, reflecting the healthy economy, he said.
Asked about the bad debts problem, he said it was manageable. Most commercial banks did not lend to the real estate business, but were involved with trade and industrial financing, he added.