Monday, November 16, 2009

Is It Time to Invest in Estonia?

The International Federation of Accountants is in town for a Global Seminar on standards and the financial crisis. I stopped by the National Press Club for an early morning briefing.

IFAC is the global organization for the accountancy profession. It consists of 157 members and associates in 123 countries and jurisdictions.

Doing the briefing were IFAC CEO Ian Ball, IFAC President Robert Bunting and IFAC Deputy President Goran Tildstrom.

In listening to their presentation, it is clear that a lot needs to be done in emerging countries to bring the quality of accounting up to U.S. standards. Global accounting struck me as a major growth opportunity. I asked Bob Bunting if there was any way for an investor to play the growth potential given that most accounting firms are private. He pointed out that H & R Block owns RSM McGladrey which is a leading provider of accounting, tax and business consulting to mid-sized companies and also operates RSM International, an affiliation of separate and independent accounting and consulting firms.

Bunting also mentioned that, in the U.K., the accounting firm Tenon is publicly traded.

Ian Ball said it is only in the talking stages but that some major governments were concerned about the accounting for major corporations being done by just a few firms and that down the road some changes in ownership of those partnerships may occur.

From the briefing, it appeared that a lot of accounting in emerging markets is far from reliable. I asked Bunting if there were any countries where it appeared that there was an attempt to bring accounting standards to reliable levels. Without hesitation, he said Estonia. He said Estonia was trying to be a very business friendly country and that they were moving in the direction of improving the quality of their accounting. He said they knew they had a way to go, but were open about their deficiencies and knew what still needed to be done.

A business friendly country that is moving in the right direction and that might actually have somewhere near reliable financial statements, sounds to me like a country where you can lay down a little risk capital.

Ball pointed out that he had just returned from China and that China was doing a lot to improve their financial reporting.

Privately, I spoke to Ball about the fact that U.S. gold holdings showed up on Federal Reserve accounts and Treasury accounts at the same time and that the Treasury listing showed a footnote suggesting potential gold swap encumbrances but that the Fed listing showed no encumbrances. I got the sense that he thought the footnote/non-footnote situation was odd, but that the same gold is showing up on Treasury and Fed statements was also odd.

During the briefing it was pointed out that the World Bank has a site, ROSC, that provides data on the quality of accounting in various countries and Acting Deputy Director Sylvia Barrett pointed out that IFAC provides a link to its members throughout the world and that some of those links provide valuable information on the quality of accounting in various countries.

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