The Fuss Over LPRC Financials—How
Greaves is Correct?
By: Mary K. Fofanan
Unfortunately, I believe that all our big shot Liberian accountants have got it wrong. But that has not stopped them from dictating to LPRC what it should have reported or disclose.
Since I was a corporate lawyer in England for more
than 10 years, I know a thing or two about accounting
practices and financial reporting standards in that
part of the world. I am not too familiar with those
in America. So I called my cousin in America to discuss
the issue with him.
As usual he was on point. He told me all of them are wrong and that these people were engaged in mere intellectual exchange. I asked him how so.
He said how can people talk about what should have been reported or not reported without first talking about what kind of accounting principle LPRC is using to prepare its financial statement. Is it accrual accounting, cash basis accounting, or modified accounting? Now I was lost in the discussion. But he managed to convince me that it was most important to first determine the type of accounting principle used, before jumping into conclusion.
For instance, is multiple-step or single step income statement allowed in Liberia? Single Step does not show gross income. So Mr. Zazay could have been very well wrong in accusing LPRC for showing gross income, where in revenues are minus from cost of sales. In multiple-step, gross income is required, wherein cost of sales is subtracted from revenues. So then what is the whole fuss whether LPRC showed cost of sales or not?
For all cousin knows, without an established generally
accepted accounting principle and public reporting standard
in Liberia, LPRC could have chosen to group all its
expenses under one big headline called, expenses. Is
LPRC wrong for doing so under accounting as practiced
in Liberia? I beg to differ.
He also said that in America, some companies can include depreciation expense as a separate line, while others grouped it under Selling, General and Administrative expenses (S, G &A). American GAAP is silent on where depreciation is reported. In America, he cited APB 30, reporting the results of operations, where only the following item are required to be reportedly separately:
a) Pretax income from continuing operations
b) The provision for income taxes on income from operations
c) Income from continuing operations
d) Discontinued Operations
e) Income before extraordinary income
f) Extraordinary items
g) Cumulative Effect of change in accounting principle
h) Net Income
i) EPS Data
This is the American standard, he stated. Where is the Liberian reporting standard? Where is the Liberian accounting principle? Again, is it accrual, modified accrual or cash basis? For instance, he said the treatment of depreciation and losses can differ under each basis of accounting principle.
Knowing this, I think James Harris’ analysis was more beneficial, since it just focus on asking simple questions about the rationale behind spending on some line items in LPRC financials, since he does not know either the accounting rule or public reporting standard, as practiced by LPRC. But our esteem pronounced accountants in Liberia and the Diaspora seem to know it all. “If Greaves were to listen to all of accountants criticizing LPRC financials, he would be more confused, since all of them seemed to have established different reporting standard for LPRC.”
Interestingly, from reading the Web pages and Internet
postings in various chartrooms, we have about 24 pronounced
Liberians and financial gurus setting different reporting
standards for LPRC. Greaves is in trouble. Liberia is
Another point that my cousin made was that how in the world can one talk about disclosures and notes, when there are no such standards in Liberia. What is disclosed also depends on the accounting principle in used. Accrual (GAAP as practiced in America), modified (GASB 34 as practiced in America), and Cash Basis Accounting (IRS rules as practiced in America) all present different disclosure requirements, he indicated. Disclosures also depend on the target users of the financial information.
He indicated that publicly traded companies filing financial statements with the US Security and Exchange Commission have different disclosure requirements than publicly owned corporations reporting to the people via the government. Some financial reports are also designed for Banks and other financial institutions, so have their own set of disclosure requirements.
Additionally, he stated that disclosure requirements
for interim financial statements can also differ depending
on the end user. Again what is the fuss, then?
He also stated in America, the following are required for public financial reporting:
a) Balance Sheets for the past two most recent fiscal years
b) Statement of Income for three most recent fiscal years
c) Statement of Cash Flows three most recent fiscal years
d) Statement of Changes in Shareholder’s Equity three most recent fiscal years
e) Notes and Disclosures contained in each statement
In the government sector, he said there are six basic financial statements, as practiced at the federal level, including Statement of Net Cost. Federal Government also uses accrual (GAAP) accounting, or modified GAAP in some limited instances.
At the state level, in some instances, Cash Flow Statement is not required. The two major reports at the State and Local levels as confined in GASB 34 are Government-wide financial statements (statement of net assets and statement of activities), and Fund Based Financial Statements (various funds). Government-wide statements are prepared using the accrual (US GAAP) method, while Fund Based are prepared using cash basis, non-GAAP accounting.
Now you see how I was confused, with all these financial
lingoes, flying over my head. But I managed to stick
with the issue because I wanted to understand what he
was telling me…sometime he seemed to repeat himself
more than once ensuring that I get the point. What point?
I was silently telling myself. But he kept saying do
you understand? Do you understand, like a school teacher
wanting to impact knowledge.
But boy, by the time he was done walking me through the accounting minefield, I was confused. But the central issue was not visiting the New York Times or Washington Post, nor was it discussing which expense lines should have been reported (cost of sales, depreciation, etc). He wanted to get two points. First, it is not of benefit to anyone to discuss what was included in the financial reports and what was not. Nor has anyone getting anything out of this academic exercise, except what James Harris put out.
Harris’ questioned the raw expense accounts,
such as the donations that LPRC was making to everybody
and anybody. He did not pretend to be Mr. Accountant.
He was just a simple man asking simple questions why
a given expense was incurred…something that was
an eye opening experience for all the little non-accounting
people. But then the pronounced accounting professionals
messed it all up.
After all, we have not standards accounting principle or public reporting standards to measure LPRC financials against. So why hold Greaves to standards that do not exist?
Some would say Liberians practiced American standard since it is American textbook taught in Liberia. How sure that we are practicing American GAAP or its public reporting standard, my cousin quizzed me yet again. Or that we have adopted all or provisions of international accounting principles, he went to press for an answer that I did not have. “For some of us, it is not sufficient grounds to say we have American standards in Liberia because we read American textbooks,” adding “textbooks are not standards.”
So, again, what is the fuss with Harry Greaves, when there are no standards? At least Greaves has tried to put out something out for us all to chew on. Thanks to James Harris for presenting the wasteful spending argument. Again, for the little people, how LPRC is spending our money is important to us now since it does not have any standard of reporting to go by. When we have standards, then you accountants and financial gurus can hold Greaves’ LPRC to account. So far, my brain is hurting with all this meaningless discussions about nothing. I disagree with Greaves, however that we should not go back to our textbooks, because it is all outdated anyway. We are living in the real world, so we act like it.
Here is the simple logic. The real world requires standards for accounting, standards for reporting, standards for auditing and standards for most important things. In Liberia, we have no standards for public financial reporting. Harry Greaves is correct to give us what he deemed best.
Greaves could have given us one line, 3 lines, 6 lines, 12 lines or 120 lines on his income statement or balance sheet. He could have chosen also just to give us a balance sheet. He could have given us six set of financials as done at the federal level in America, 4 sets at the publicly traded companies level, or two sets of financials at the State and local government levels. Whoever said he has to give us Cash Flow Statement?
Again, show me the standard and then I will keep my mouth shut…or else we thanked Harry Greaves for given us a financial statement that we can argue over. He is alone in the government on that count.