By a staff reporter
TALAL Abu-Ghazaleh, a noted expert in the Arab accounting world, has urged countries in the region to focus more on credit control and debt management as a form of ‘preventive financial medicine’ for the problem of bad debt rather than the problem of debt collection.
The issue is critical more so because the region will face economic difficulties in the next few years for a number of reasons, said Abu-Ghazaleh, chairman of Talal Abu-Ghazaleh International (TAGI), president of the Arab Society of Certified Accountants and former member of International Accounting Standards Committee (IASC).
There should be measures in place to help countries and companies detect economic ‘ailments’ much in advance of their occurrence. This state of’ preparedness is more important than tackling problems when they occur, said Abu-Ghazaleh referring to the adage ‘prevention is better than the cure.’
“Debt problems are related to the general economic health of countries. This region’s economies wilt be affected by the global economic situation which is currently experiencing a lull. There is concern about worldwide recession and we are always victims of the world economic buoyancy,” he noted.
While oil prices and budget constraints are affecting the economies, the most severe impact will come when the Gatt accord comes into force. “The Gulf region and many other developing countries will face severe difficulties in the short term due to the economic transition resulting from Gatt,” said Abu-Ghazaleh.
Increasing debts and bankruptcies are all signs of ailing economies, he cautioned. “‘Debt illness can result in fatalities and many organisations have gone down because ‘preventive financial medicine’ was not availed of, he noted. He cited bankruptcy of the Dutch aircraft manufacturer NV Fokker as a typical example.
Predicting failures should be an important goal in the financial strategy and this should be the focus of those who prepare and analyse financial data, he said.
One of the well-established techniques which investors, creditors, vendors and others can use is the Altman Z-Score, which can help predict insolvency up to two years in advance with a great degree of accuracy, he said.
It is being used by many financial managers globally and there are adaptations of the model enabling its use in any free market economy in the world.
To help generate a greater awareness of these measures, TAGI is organising the first course of its kind in the region on ‘Credit Control and Debt Management’, next month in association with IBC Gulf Conferences. Control over debt collection will also be highlighted.
The two-day course on May 20 and 21 in Dubai will be followed by a one-day interactive workshop. While the keynote address will be delivered by Abu-Ghazaleh, the panel discussion will be led by Dr. Kamal Gupta, technical director of Institute of Chartered Accountants of India.
Eminent experts will make comprehensive presentations of the subject. They will cover key issues affecting credit control policies in the Middle East, tools and techniques of assessing creditworthiness, how to recognise early warning signals of bad debt, latest technological developments for monitoring and managing bad debt, how local law can set a framework for pre-emptive action, how to manage problem accounts and implement innovative collection tactics and benefits of a multi-functional debt management policy.
The workshop, on practical techniques for assessing, monitoring and managing credit risk and debt will be conducted Abbas Ali Mlrza, director, professional development, TAGI, and Barry Jay Epstein, partner of Checkers, Simon and Rosner.
For participants of this course TAGI is offering free attendance to another two-day course on International Accounting Standards (IAS) being organised with IBC on May 18 and 19.
The keynote speech will be delivered by Roll Rundfelt, board member, IASC and professor, KPMG Bohlins AB, Sweden. Abu-Ghazaleh will make a special address. Course leaders are Dr. Epstein, Mirza and Dr. Gupta. The seminar will focus on technical updating to amendments to some of the IAS. Therefore, it is of importance to practising accountants, he said.
Globalisation of business needs globalisation of accounting as an inherent part of the process, observed Abu-Ghazaleh. “Lack of uniform standards leads to differences in financial reporting.
“For example Daimler Benz is reported to have trade a loss of DM900,000 according to German standards but under the US standards the loss turns into a profit that too by a great margin of DM1.6 billion. That is why it is important to have the IAS.” he said.
“IAS is not a theoretical issue. It is a basic ingredient of economic relationship between our countries and the rest of the world. The historic agreement between tire IASC and the International Organisation of Securities Commission (IOSCO) has set the stage for applying Global Accounting Standards by 1999,” he said.
Recently, the European Union came out in support of the IAS. Most of the stock exchanges around the world will soon recognise the IAS as the norm.
While many developed countries have adopted the IAS, many developing countries are also using it for their financial reporting, he said.
While the AGCC has not taken an official unified stand on the IAS, several Gulf states have regulated or used the IAS as a guidance, he noted.
While most countries in the Middle East who do not have their own national accounting standards follow either those of the UK, US or internationally accepted accounting principles, some like Saudi Arabia are developing their own national standards, he said.
Abu-Ghazaleh, however, is not in favour of “re-inventing the wheel. Instead the adoption of IAS, which are high quality standards developed after a truly international ‘due process’, seems to be a step in the right direction as it will help the process of uniformity in international financial reporting.”
The significance of global accounting standards can be measured against a backdrop of mega-mergers such as the recent Sandoz and Ciba merger dubbed as the biggest in history as well as the merger of Bank of Tokyo with Mitsubishi Bank to form the biggest bank in the world with assets topping $700 billion, he said.
‘This dictates applying uniform standards wherever these global organisations operate.” he noted.