R-E-S-P-E-C-T - IFRS for Nonprofits

What might make some private companies or non-profit organizations in the United States adopt IFRS?
The eventual adoption of IFRS by small businesses and not-for-profit organizations is likely to be market driven. The IASB is developing a version of IFRS for small and medium-size entities that would minimize complexity and reduce the cost of financial statement preparation, yet allow users of those entities’ financial statements to assess financial position, cash flows, and performance.

That's the AICPA's position on the adoption by non-profit organizations of IFRS (International Financial Reporting Standards). We have the same issue here in Canada. The CICA (Canadian Institute of Chartered Accountants) is asking for input from charities. A number of church accountants convened recently in Toronto to consider the matter. We were unanimous: we like the current fund and deferral methods of accounting.

As it was explained to us, comparability is the goal of IFRS: every organization's financial statements need to be prepared on the same basis as every other organization. There is no provision for non-profits. There is no recognition that a non-profit is a fundamentally different kind of organization.

Fundamentally Different

When you buy a widget from ABC Company, you don't care what they do with the money you gave them. They could put it towards research, pay it out as a commission, dividend it to the owners, whatever. You don't care.

But when someone gives a dollar to a charity, they care where it is spent. They want to know which program it goes to, how much is used in administration and whether part of it has been saved as endowment capital. That's how fund accounting developed. A fund is like that jar in your kitchen you put a little of your pay into every week to save for a vacation. Funds are intuitive and simple. They keep the money sorted by the purpose it was intended for.

Another example: assets and liabilities are currently required to be valued at market value. Interest free loans are very common in charities. Discounting them using some arbitrary rate doesn't make sense in the non-profit world. The lender isn't looking for a monetary return on the loan. They want to support the cause. Charities end up having to set up complicated transactions in order for the "right" accounting result to be achieved under new rules. The donor's / lender's wishes have no effect.

The IFRS people really needed to get to know us before they threw us out with the bathwater! The overriding principles of non-profit accounting are stewardship and integrity: how well the non-profit looked after the resources put at its disposal and how well it fulfilled the funders' instructions. As the professional accountant was ending his IFRS explanation an image flashed into my mind. It was of a married couple sitting down with the financial statements of the Anglican (Episcopal) and United Churches and using financial analysis to decide which one to attend. I couldn't help but laugh.

All we want is a little R-E-S-P-E-C-T!

Accounting Idol

Ladies and gentlemen, welcome to the last show of Accounting Idol. We started with 50 eager bean counters and now it's down to the final three. Tonight one, two or all three of you will be eliminated. Who will it be?

You thought that the final test was going to be easy, didn't you? All you had to do was represent the auditors at the annual general meeting of the shareholders. What you didn't know was that the company, your client, would be Enwrong, the most greedy, dishonest, uncaring corporation in North America.

Brad, please step forward. Brad, we have watched you struggle to become a person of the people. You changed your clothes, your hair, the music you listen to. You took communications courses. You studied popular psychology. You read self-help books. You did everything you could to be sympathetic, to be liked. Was that a tear we saw as you reported to the shareholders? But. And it's a big but. The people in that meeting didn't want a friend. They wanted blood. You didn't win them over, Brad, not even close. They mistook your offer of friendship for weakness. You lost your balance, Brad and now it's time for you to leave.

Wanda, please step forward. Wanda, you have the image. You are every inch the corporate accountant, from your conservative heels to your power suit to the steely look in your eyes. You have statistics at your finger tips. All the power brokers are in your Blackberry speed dial list. You can justify every decision. You have avoided any and all responsibility. But you forgot something. You can't find the truth by reading corporate press releases. You are the accountant, not the apologist. Just because the corporation pays your bill doesn't mean that you have to parrot the party line. Take your golden parachute and go.

Bob, you look like you slept in your suit. Your style is bland. You are gaining weight and losing hair. To be blunt, Bob, you don't have a commanding presence. But when you speak, Bob, you tell it like it is. You don't embellish, editorialize or emote. Everyone is entitled to their own opinion, but there is only one set of facts. Your language is plain and simple. You faced the music, Bob. You didn't duck and dodge the questions. You gave them what they needed to hear, the truth. That's what the people want from their accountants. Congratulations, you are this year's Accounting Idol!

[Wild applause. Zoom out. Roll credits. Fade to black. Go to commercial.]

New Newsletter for Charities

Deloitte has just started a new newsletter called "A State of Change" for Canadian charities and not for profit organizations. Its goal:

With the rapid change in accounting standards, rules and regulations over the past few years and the anticipated changes in the upcoming years, this newsletter is being issued to provide information to assist you in understanding the impact that these changes will have on your organization.

The first issue is filled with changes to accounting and Canada Revenue Agency rules, which is a good thing. I applaud any effort to disseminate these changes in a readable and logical way. Ignorance of the law is never an excuse, but with the constantly changing rules and the nature of volunteer run organizations, it often is the reality.

Thank you, Deloitte!

Why Aren't You Using My Software?

The picture on the screen was your average warehouse, but it wasn't your typical Microsoft corporate shot, i.e. it wasn't a perfect company with gleaming boxes on pristine shelves, where you'd swear you could eat off the floor. This one looked real. It was even a little -- dare I say it? -- messy. The Navision (Microsoft Dynamics NAV) developer from Copenhagen explained that this was a company they had used for research. The company had about $10 million dollars worth of inventory and already used Navision, but they weren't using the inventory features. That was why the developers were there. They wanted to see for themselves. They wanted to talk to real people in a real company and find out how they could make the software easier to use.

Sometimes it isn't enough to ask people what they want. They can tell you what they don't like, but they often have trouble telling you how to fix it. Then you have to be sure that the fix for one person doesn't cause problems for someone else. In this case, the reason the company wasn't using Inventory was that they found it too complicated and cumbersome. There were too many features they would never use. Theirs was just a simple business.

That's how the role tailored client was born in NAV2009. Every person has their own role to play. Each person needs access to different features. Jumping around between menus just wastes time and makes the system look complicated. The lay out of the options should tell their order. People should be able to tell at a glance how many transactions they have waiting for them so they can decide what to do next. If something isn't being used, it should be taken off the window. Even if you are filling in for someone else, it should be clear what needs to be done.

Sometimes important steps are taken without any technological wizardry. Sometimes all it takes is a watchful eye and a curious mind.

How to Connect at a Convention

At 7,000 attendees, Microsoft Convergence was the biggest convention I have ever gone to. With that many people, connecting to the ones who are important to you becomes a challenge. The people going to Convergence are from different parts of the country, different industries and use different versions of Microsoft Dynamics. Just finding someone to have lunch with is a planning exercise. This picture is what I saw coming in for breakfast on the first day. Note that the tables are numbered. That helps you call someone on their cell phone to say where you are.

Microsoft works hard to help people connect. From the moment you register, you can set up a personal profile in the Convergence Connect web site. The web site also allows you to set up meetings at the conference in an area set aside for that purpose. For example, someone invited all CFO's using Dynamics NAV to a meeting. Even though we were in industries ranging from a zinc parts manufacturer to a church, we found we had a lot in common and decided to meet again after the conference.

Microsoft also plans for chance encounters. Here is a picture of my conference badge. You can tell which software I use (Microsoft Dynamics NAV), which industry I'm in (Non-Profit) and which user group I belong to (NAVUG) because there were bins where I could pick up the buttons. On the last day of the conference, someone with another faith based organization saw my Non-Profit button and said she had been looking all over for someone to talk to about the software choice they were about to make. We talked for about half an hour about NAV and also agreed to contact each other after the convention.

Other features: on the back of the badge is a pouch with a miniature schedule, which helps you know where to be when. People also used it to store their business cards. It wouldn't be Microsoft if it weren't computerized. The plastic name badge contained a chip with my information in it. All a trade show vendor or the people at the doors of the sessions had to do was point a reader at the card to record my information. I didn't even have to remove the card from the pouch.

Getting conference feedback is difficult. Microsoft computerized the session evaluations, made them short, offered a $5,000 travel voucher as a prize and said they would donate money to a the local Boys and Girls club for every evaluation completed. Still the number of evals completed was a fraction of the total number of sessions attended.

Finally, with that many people, it can be hard to make them all feel welcome. At Convergence, they had information booths as well as a small army of people in red shirts available to answer questions or tell you how to find the room you're searching for.

Is Your A/P Clerk a Knowledge Worker?

Knowledge workers. The hype is everywhere, from Microsoft commercials to Gartner reports. This is the age of the knowledge worker. Just what does that mean? How has the job of the typical Accounts Payable clerk been transformed?

Let's take a little trip back in time to a retail operation I audited early in my career. Their accounts payable department took up one half of a floor in a small office building. The women (yes, they were all women and one of them actually tried to match me up with that nice young single credit manager) had large manual calculators called comptometers on their desks. Every day they would take the invoices received from the retail outlets for products received and check the calculations and the tax. They would then create batches of fifty invoices, attach an adding machine tape and send the stack off to the data entry department to be entered into the computer by another group.

Fast forward twenty years to that same department. There are far fewer accounts payable clerks and the data entry department is long gone. The clerks enter the invoices directly into the computer which does all the calculations so they can just check that the total on the invoice is correct. The system also compares the pricing back to the company's purchase order, another step that used to be handled manually. Have we reached the knowledge worker stage yet? Not quite.

Fast forward to now. There is about the same number of people in accounts payable, but they are handling a lot more transactions because the company has grown. There is no data entry because supplier invoices come into the system automatically via electronic data interchange (EDI). When accounts payable staff sit down at their workstations they see an icon to tell them how many documents are waiting for approval. As they open each document, information about the supplier pops up in a fact window. They can see statistics about the volume of transactions as well as being able to examine past transactions. If they see a large number of returns or problems with documentation, they are in a position to recommend that the supplier relationship be reviewed.

When I asked a Microsoft employee about their view of the typical accounting system user, his response was immediate, "Everyone sees the KPI's" (key performance indicators - i.e. the statistical analysis which measures progress). In this world everyone is a decision maker. Everyone is responsible for their goals. It isn't enough to just show up and put in your eight hours. Everyone is a manager of something.

Is that how you view your accounting staff? The more I think about it, the more I think that is the way to go. Things happen too quickly for all the decision making to climb up the chain of command. Besides, who has the time anyway? You just have to make sure that the internal processes and systems stay in synch. It's pointless to make all kinds of information available to someone who is not in a position to make any decisions. It just clutters the screen. Conversely, it's pointless to make people responsible for outcomes without giving them the information they need.

Does your company employ accounting clerks or knowledge workers? Please leave me a comment.

The Passionate Consultant

Tucked away in the middle of the Latin Quarter of New Orleans is a hole in the wall dedicated to music. Not just any music, but jazz as it was played way back when. "Nawlins" is full of songs and this band knows them all. The Preservation Hall Jazz Band loves what it does. The plaster is barely hanging onto the walls. There is no sound system. Most of the people squeezed into the small space have to stand, but nobody cares. It's all about the music. Listening to it, I was struck by how happy it sounded, even when they were playing the blues.

After the show was over, we moved to a bar down the street. Also dedicated to jazz, this bar had polished tables, a stage for the band and a full sound system. But somehow the band just didn't seem to have that same passion for the music. They were all great musicians. The quality was good, but it looked to me like they were just doing their job.

Consulting is like that. At the end of the day, you don't hire a firm, you hire a person or a team. If they have passion for what they do, then they will put in the extra effort to find the best fit between you and your accounting system.

So how can you tell the difference?

Most firms will claim to be passionate about what they do. Usually, it's true. One or more people working there will truly have that extra drive. The question is, will they be on your project?

Here are some tips:

1. Before you agree to hire the consultants, meet the people who will be on your team. If the team is changed, you need the right to approve the new people.
2. Ask about experience with your industry / size of firm / geographic location. Make sure it's not just the consulting firm who has that experience, but it's also the team members.
3. Follow up on customer references. Ask the other customer about how well the team worked as well as the accounting system. Ask them what they would do differently the next time.
4. Passion is an emotion. Ask the proposed consulting team to describe other jobs they have worked on. Look for clues in their words, voice and body language. Are they enthusiastic? Do they embrace challenges? Is their language clear and direct? Can they talk intelligently about other, similar projects?

One thing: you have a major responsibility too. If you are not passionate about what you do, how can you expect an external consultant to be passionate? If you delay the project, how can you expect the consulting firm to hold the consultants until you are ready? If you are not clear about what you need, how can you expect a successful result?

If We Could Do It Over

Two manufacturing customers were comparing notes as I sat down at the lunch table at Convergence, the Microsoft customer convention. Customer A was considering Microsoft software and Customer B was close to "going live" (i.e. stopping their old system and using the new one exclusively). In the course of the conversation, Customer B made four major points:

1. If we had to do it over, we would have more training of our development staff at the start of the project.
2. The project was a lot more complex than the VAR (the consulting firm that sold them the software) realized.
3. The VAR refused to admit that they had done anything wrong. They just kept charging time and materials regardless of how many resources they threw at the project.
4. We stopped letting the VAR run the project.

These are good lessons to consider if you're about to launch into a project, particularly when it involves processes that are as complex and company specific as manufacturing.

More Training

Training is tricky. If you do it all at once, there is a tendency to forget the material or get overloaded. If you do it too late, the customer may already be frustrated by working with a system they don't understand. It's a good idea to leave space between sessions to allow the people time to absorb and hopefully apply the lessons, but training needs should be raised at the regular status meetings to be sure nobody is spinning their wheels. You do have regular status meetings, don't you?

Complex Projects

The concept is simple. You design a product, build it and sell it, right? The deeper you get into a project though, the more complex it becomes. Sometimes, even the customer's managers don't appreciate the complexities. It isn't until someone who actually processes the transactions sees the system that some issues emerge. If the discussion gets to finger pointing, you've lost. People will stop talking and start blaming. This problem has to be stopped before it starts. From the beginning, both sides have to take the position that this is a joint discovery process. The key is constantly checking the assumptions and progress. That's another good use of regular status meetings.

Billing and Milestones

Customer B brought up a nice idea: set up the project as being time and materials, but once the milestones are set, get a firm quote for each one. That spreads the risk between both the customer and the consulting firm. I don't have any experience with that scenario. If you do, please leave a comment.

Whose Project Is It?

Project Management theory is clear on this point. The project is always the customer's responsibility. The customer leads the project. It cannot be effectively delegated to an outside vendor or subcontractor. If you don't have a qualified person on staff, engage an independent project manager. The consulting firm can and should have someone to manage THEIR responsibilities, but that person should not be put in charge of the whole project. They have neither the authority to delegate work to the customer's staff, nor do they understand the full scope of the project.

Resolution

To resolve their issues, Customer B took control of the project and went directly to Microsoft and the developers of the add-on package that handled manufacturing. The project ended up exceeding budget, but they are close to going live and are confident that the software will work for them. Their experience will help them in future projects, particularly if they document it as part of a Lessons Learned session.

Can You Teach Innovation?

Can someone learn how to be innovative? Tom Kelley, the General Manager of IDEO, definitely thinks so. He freely admits that he was skeptical when his firm departed from its history of hiring only engineers and started looking for "soft" skills, like anthropology. Yesterday I attended his session, "Ten Faces of Innovation" as part of the Microsoft Convergence accounting customer conference. I too was skeptical. Too often, sessions like this are full of management metaphor, animal allegory and fluff. This one made me think.

Tom used the examples of Sony and Samsung to demonstrate what it looks like when a hungry competitor starts taking a little slice of your pie. But he quickly moved on to his main point: there is no substitute to directly obsesrving how your customers use your product. Focus groups and surveys, he says, are fine for small innovations, but the big innovations require more work.

Applying the Lesson

What I love about a conference is that you can hear a key note speech on a general topic like innovation and then move to a detailed presentation where you can apply what you just learned. This morning I attended a session on getting the most from your distribution software. Part way through the software demonstration, Philippe Jacobsen, a Program Manager with Microsoft in Copenhagen showed some pictures of an actual warehouse. The pictures were not the type of sanitized, you-could-eat-off-the-floor kind of warehouse you usually see in Microsoft promotional material. In fact the place looked a little cluttered (i.e. like a real warehouse). Philippe paused to say that he had visited this company as part of his research. The company had used the Dynamics NAV system for years, but had never implemented the Distribution features, despite having inventory valued at over $10 million. His question was why. The answer was simple: the distribution features were too complex. They just wanted a simple system.

Keeping It Simple

Designing simplicity into a system is tough. It requires a lot of observation and analysis about how people use your product. Tom used the example of a defibrillator IDEO designed. Here's the picture. In an emergency situation, do you think it would be easy to use?

Microsoft's approach to making replenishment easy to use is to have the documents and screens follow the "simple" route. If you want to use the advanced features, you can drill down at key points in the process and open a window.

The challenge is and always will be to design general purpose software that fits diverse situations. Warehousing and distribution are areas where there is a wide variety of best (and not so good, but firmly entrenched) practices.

What has been your experience?

Downturn for Accountants?

This evening I had dinner with an analyst from IDC who follows accounting technology, specifically Enterprise Applications. He doesn't see a slowing down for sales in this area, as companies are using technology to save money.

This view was borne out by a representative from WennSoft, a developer of job costing software for Microsoft Dynamics. He hasn't seen any slow down in business over the last few weeks.

My suspicion is that companies are completing their current accounting software projects, some of which can take years, but I'm not convinced that there are a lot of people looking to start new projects at this time.

Networking for Geeks

How do you network if you're in a crowd of strangers and you're not particularly good at it anyway? I'm sure that's a question that the organizers of the Microsoft Convergence conference for their accounting system customers thought long and hard about.

I have to hand it to them for being innovative. Not only did they hold the conference in New Orleans, which is still recovering from the effects of hurricane Katrina, but they also asked attendees to volunteer on a Habitat for Humanity project creating houses for people who couldn't otherwise afford one. What better way to get to know someone than to be swinging a hammer right next to them?

The volunteers wheeled sand into place to improve the drainage, as well as framing a new house in a project dedicated to New Orleans musicians.


Microsoft also throws an awesome party. There were Mardi Gras revelers throwing beads, clowns on stilts, dueling pianos, a rock band and all the cajun food you could possibly want. For the more serious minded, a tour of the aquarium was included. Watching the divers feed broccoli to the sting rays was fascinating as well as being a very good use of broccoli!

A software tool developed for the event allows all attendees to create their own profile and arrange meetings with other attendees. Using it, I discovered that one of our customers also uses Dynamics NAV and is interested in talking to other users of the inventory system. I don't think I would have found out that information any other way.

Reaching out to other Dynamics users has been rewarding for me. Comparing notes with someone who has faced the same issues can save a lot of time, not to mention consulting dollars. Microsoft actively supports the user groups AXUG, GPUG, CRMUG and NAVUG.

Turning the Queen Mary

How do you get the attention of the people who developed your accounting system? How do you let them know the new features you would like to see or what you find really frustrating? If you had five minutes alone with the chief programmer, what would you say?

That isn't as impossible as it might seem. It really isn't like turning the Queen Mary. Would it surprise you to know that the development teams are hungry for input from the people who use their system? I'm at the annual Microsoft customer conference for accounting systems, "Convergence". Yesterday I attended the Dynamics NAV (formerly Navision) user group NAVUG meeting. Bill Clough, the Research Manager for Microsoft Dynamics gave a presentation where he announced that Microsoft is starting a research council. They are looking for interested volunteer users and resellers ("Partners") to participate in surveys, roundtable discussions, focus groups and conferences calls.

For me that's the key, by participating in the developer's events, we customers are raising our hands and saying we want to be involved.

Before coming, I asked our users and IT department for any questions. At Convergence, I dropped into the Navision Experts area. There were about 8 people there ready to answer any question about the product, so I sat down with Tom Loyal and went through my list. At the end of our conversation, he encouraged me to go to the feedback booth where I can record my feedback about Navision and/or Microsoft. He said they take that kind of input very seriously. After all, users are spending a lot of time and money to be here.

Every major software vendor has some kind of customer event if they are still in business. If you would like a say in the future of your software, get involved!

AccountingWeb is now on Twitter

Which new technology should you invest your time in? Which of these self-titled experts and gurus should you follow? My simple approach to these questions has been to try before I buy. Even with free internet tools, it takes a lot of time to get set up and going.

Blogging

My first blog was an experiment for a volunteer group. It did not touch my work or my career, so I was free to experiment. The result was that within a month I felt confident enough to create this blog. With every experiment, the key is to have some way to measure success. In my case, it was Google Analytics. I watched the number of unique visits to my experimental blog go up and up, while the number of visits to my "serious" blog stayed at a disappointing 8 per day (which I figured was just the internet search bots).

Being able to compare the two blogs gave me some hints. The experimental blog showed me that I can write well enough to attract readers. I read the advice blogs from others who had gone before, and I thought that I was covering all the bases. Still, the lack of readers forced me to question my assumptions. After several months I came to the conclusion that my approach was fundamentally wrong. I thought that if I could just build it, they (i.e. readers) would come. The reality is that just having good content is not enough. You really have to promote it.

I searched the web for the words "blog" and "accounting". That's how I found AccountingWeb.com. When I approached them about adding my blog to their web site, they were very enthusiastic. Since then they have been supportive, suggesting topics, promoting my blog and checking in with me if I haven't posted for a while. Rob Nance and his team are good to work with.

Twitter

Meanwhile, a friend told me about Twitter.com. Like blogging, I first set up a personal account and tried it out. I followed a few people and saw how viral it can be. You see someone make an interesting response to a third person, so you follow the link to that third person and perhaps decide to follow them directly. As your network grows, others see you following them. so they in turn follow you.

When I saw articles coming to Twitter via Tweetfeed.com, I realized that I could alert people to my blog entries. Once that was working, I started talking to AccountingWeb about using Twitter for their news items and blog entries. The result is history: you can find AccountingWeb at http://twitter.com/AccountingWeb.