The Media Verdict

(Published on soc.culture.sg on 20 September 2004, I include the aftermath wriiten in April 2005 at the end)

The writing was on the wall. And now the time it comes. MediaWorks is to "merge" into a new company called MediaCorp TV holdings Pte Ltd. The verdict is much more politically motivated than a commercial reason by looking at the deal.

Wrong use of word- merger
By merger, we means equal partners, there is no dominance of one party to another. Because of the profuse merger and acquisition in the eighties, many companies took advantage of acquisition in the form merger to boost revenues and prevent writing off goodwill in the profit and loss account. The Standard setting authorities since have tightened merger to very restrictive use.

Clearly for the case of SPH and MediaCorp, IT IS NOT EQUAL.MediaCorp is holding 80% of share and is assigned to the management of the new company. In other words, it is dominant and should be accounted for as acquisition.

The implications of the verdict
It was said that the deal is win-win. I doubt so.
The winner-MediaCorp
It has been openly lashing out want to pin down its rival MediaWorks. And now it gets all what it wants:

1 Putting Channel U under its control, MediaCorp as management of the company can marshal all the resources, it has the ability to stultify or debilitate Channel U further development headlong.

2. Getting free cash resources 10 m from SPH while maintaining control. SPH owns 20% of the share; it was said SPH holds two, and MediaCorp holds three seats in the board.MediaCorp has the controlling interest in decision making.

3. Pulling SPH to invest in loss making business-Today.SPH is to pay 19.26m. SMRT has just gotten its foot out of the loss-making business-Today. MediaCorp has quickly roped in SPH to fill the vacancy, clearly MediaCorp is the winner.

The "betrayer"-SPH

It seems I use scathing word "betrayer" to describe SPH’s behavior towards MediaWorks.
Recently, I read a book, titled "The dark side of organization behavior" It says, "(In an organization) the psychological contract and its violation, unlike expectations, centers around ongoing exchange in a relationship..." "Within this relational context is the notion of trust..." "It is because breach and violation inherently take place in the context of a trusting relationship that its occurrence can be so damaging…"It says the first source of breach is reneging whereby purposeful breach occurs because the breaching party is aware of his or her obligation but is either unwilling or unable to fulfill some terms of the contract."

In the same vein, MediaWork’s management and artistes were inspired to form a new station to pursue their goals which are different from MediaCorp. That made a serious dent in MediaCorp talent pool and subsequently affected their viewer rate in some of the programmes; the tussle of competition between the two stations is keen.

Some of the artistes are mortified that rationalization exercise can be political and vindictive.SPH attracted them when was in need. And eager to divest the lost making unit to stop bleeding, SPH throws back the ball to their ex-employer, MediaCorp; leaves their fate to their ex-boss, is a breach of psychological contract around ongoing exchange in a relation, a breach of trust.

SPH has legitimate reason to say four years of investment with no return, enough is enough. They have to put a full stop somewhere. It raise another question that where and how to attract investors who have deeper pocket and farther vision to struggle for success in the long haul in this industry may be a concern for searching new operator.

It is very clear that the major advantage is to get rid of MediaWorks, the loss-making unit.
It is not clear whether the purchasing of 20% interest for 10m is advancing shareholder value. First, from strategic perspective, it is hardly we can see any synergy advantages for purchasing the stake or strategy advancing SPH current core business. Second, I do not have financial details I can’t judge it is worth 10m.(The public available data for MediaCorp is up to 2002,from Thomson Investment and also MediaWorks financial data is lacking)

I am confounded by its investment in Today. Today is allowed to run independently. It pays 19m for 40% stake in Today to compete with its core business with no controlling interest. First, Today is running free sheets; Second, SPH is in cut throat competition with Today on advertising dollars. There are many business opportunities out there to pursue; it is unfathomable why pointing the gun shoot at its own foot? The 19m certainly can help SPH break through growth stagnant and expand regionally.

And since both sides decide not to compete, why not let the talents of Today absorb into SPH?

The loser-MediaWork

There are two critical aspects brought down MediaWorks.

First, It was born in the wrong time when the economy was in the down cycle.That greatly affected their only life blood-advertising revenues. During economic downturn, few companies are willing to make investment in advertisement.
And now the economy recovers, will it make a difference if MediaWorks rebirth? Possible! But it is tough. This industry carries very high fixed costs.

Advertising revenues depend on several factors: first, the economic factor determines the consumers’ pocket, The propensity is to achieve marketing effectiveness to save marketing dollars in bad times; Second, putting up advertisement also depends on the advertisers’ margin, the type of product and sales volume; Third, A stable advertising revenue depends on strong advertisers and their consistent support. And there is a population size constraint.

Second, Weak business model-Advertising income also appears cyclical, fluctuate from month to month. Of course there are peripheral incomes, such as publishing magazine, programme selling, and big screen operation etc.The revenues are either small or unpredictable. To extricate from fluctuating revenue generation dilemma, we need a different business model.
What is the implication to general public? Will the future program becoming homogeneous and prosaic? I doubt so.

Channel U has set their mark and in no small feat. Eventually is the viewer who decide which station to watch and there is quid pro quo-the cable TV compete for viewership.
The new management will want to prove themselves under the watchful eyes that they can do better for channel U than under the umbrella of SPH, converge into the style of MediaCorp production will not draw more viewership.Viewers are attracted by the style and content of the production, not the other way round.

What is the implication to Media artistes? Will they get short shrift or nit-picked? I doubt so.

Singapore has a small pool of TV artistes and production crews. Especially those who have already made their marks and proved themselves in the field are very much sought after avidly.
Vicariously, everyone is in the business and behaves businesslike and there is no personal grudge. It is only how you prove your value to the new company that matters. As I mentioned, the success of the new company only make the management shine, there is no reason to take personal revenge to impede business success.

There are watchful eyes around, the rationalization exercise under the lead of independent director (Some question the effectiveness of so-called independent director, they are usually not the expert in the field, that restricts their function to question the CEO), probably weeds up only weak candidates. The question is how you define weak candidates, there will be political tussles.
Those who relish the kind of cosy, familylike working environment and culture in MediaWorks may be replaced by big organization bureaucratic culture. That may temper the MediaWorks’ staff passion.

The future of the industry

Time to cough golden eggs now and it is free, is free.
I think a more workable business model is to adopt "Pay as you watch" system, in the mean time scrap license fee and replace with leasing arrangements with operators.

I think the authority must have been recouped its infrastructure costs by now. The authority calculates a price range to cap on the maximum price charge. The formula will take into account of current license fee, the maximum hours viewer watching, maintenance and repair charges of infrastructure and put a cap for maximum price, and review the price as required. The operator can charge viewer within the price range.

The biggest advantage of this model is to stabilize the income risk of the incumbents, making the survival more viable, because there is a large pool of subscribers paying a fixed fee to buttress the operators’ income, coupled with other revenues will be able to tide over any economic conditions. Competing for the pie also increase competition of the operators, eventually benefiting the viewers; but this is also a double-edge sword.

The authority will lease out their infrastructure to the operators, and charge leasing fee to cover maintenance, repair and replacements.

Consolidation should improve competition and improve viewing quality rather than whittle it. The verdict has a sobering effect need to elucidate: Profitability is one of the important consideration, but also other criteria such as how to nurture quality and promising new incumbent to ensure their survival to make the scene in this industry vibrant, and flourishing.

The Aftermath (Written on 7 April 2005)

Half a year has passed, from hindsight; many of my views elaborate in The Media Verdict proved to be withstanding the change of times. This article is not to inscribe something of an epic. Rather, I am writing of some new thinking I hope you will share.

MediaCorp:

MediaCorp is an organization inherited the government working culture. Rather through market competition. It moves ahead with finesse to make way to achieve its goals. After the acquisition, it was said in order to clear channel U old stocks.

During the period from 1 Jan 2005 to 1 April 2005, existing programs for channel U were asked to stop and there were no new programs on show, effectively, like going through austerity program in economics term. And many of the U channel artistes moved to channel 8 playing subordinate roles or sidelined. Forcing audience switched to watch channel 8. An article in Straits Times described channel U as MediaCorp "Stepchild". There are many discriminating practices are rooted on their competitive culture and certainly is not healthy for organization growth.

An April 2005 Harvard Business review article best describes this management practice. The article categorizes this practice as "opportunist". The author says, "It is characterized by mistrust, egocentrism, and manipulative. It focuses on personal wins and sees the world and other people as opportunities to be exploited. Their approach to the outside world is largely determined by their perception of control--in other words, how they will react to an event depends primarily on whether or not they think they can direct the outcome. They treat other people as objects or as competitors who are also out for themselves. Opportunists tend to regard their bad behavior as legitimate in the cut and trust of an eye-for-an eye world. They reject feedback. Externalize blame, and retaliate harshly. "

I said the media consolidation was politically motivated, rather than a commercial transaction.

1. The government wants the TV media strictly under their control. One interesting economics article describes this choice as "traditional economics arguments"; It says government involvement is basically for two reasons: political and social.

Regulation was designed to ensure that a sufficient range and balance of programs was provided on each television channel, alongside programs that catered for minority as well as for mass audiences. The one argument "government involvement primarily will be social policy", such as MediaCorp recent promoting marriage couples, procreation programs. "There is a question about whether an unregulated market will provide the same socially correct level of programming quality and innovation."

2. The main theme of this economics article said the broadcast landscape has been altered radically by the advent of satellite and cable broadcasters and digital programming. There has been a steady drift in general attitudes away from government intervention to free market provision

The economic arguments ("traditional economics arguments") for government intervention are the existence of market failures- -They are resulting from a freely-functioning market in broadcasting will not produce the socially desirable outcome. There are three main types of market failures according to the article:

Broadcasting is a public good (It means non-excludable, no one can exclude others from consuming. And consuming of the good by one person does not decrease the amount of the good left for everyone else. Basically, we are paying license fee to watch this public good, the regulator instead of using this pool of money to sponsor the operator to shoot programs that support the government policy).

It is not enough just to use the catch-phrase that public service broadcasting must "inform, educate and entertain". The author argues: why the free market, if left unregulated, will not inform, educate and entertain? As to "inform, educate and entertain", many will share with me that the trends of increasing government’s propaganda. After a stressful day work thinking of to unwind yourself, you may want to protest but to no avail to watch this government’s propaganda. Whether it is to put the cart before the horse?

Digitization means that television signals can be encrypted; pay channel like starhub makes TV no longer non-excludable though still non-rivalries.

The broadcasting market is inherently concentrated, leading to market power. The making and broadcasting of television programs has exceptionally high fixed costs (Once these expenses are paid, there are economic of scale) and very low marginal costs. Having a small number of firms in the market is efficient, in the sense that it avoids duplication of the large fixed costs required for broadcasting and uses the scarce spectrum without interference. The down-side is that a small number of firms can allow each firm to enjoy and exercise market power.

Market power leads to deadweight loss- -It means unexploited gains from trade that reduce the social surplus from producing a good. Just like MediaCorp is concerning making profit at the expense of viewer interests, such as repeat broadcasting old stuff many times. There is little the consumer can do because of the monopolistic nature unless increase competition or subscribe for pay channel. According to the article, there is considerable anecdotal evidence that competitive market structures are more innovative than are monopolies, although economicetric evidence on the general linkage between concentration and innovative is inconclusive.

Digitization allows channel to be limitless but fixed costs of program and broad casting under digitization are still enormous.

Consumption of broadcasting is subject to externalities. Externalities mean the spill-over effects that occur when the social costs and benefits derived from some activities are different from the costs and benefits derived by the producers and consumers of that activity. For example, program with a violent content has a negative effect of more violent in society. Another argument for subject to externality is individuals are imperfectly informed about the benefits from consuming the good, there is a danger that consumers will under-invest in the development of their own taste, experience and capacity to comprehend because it is only in retrospect that the benefits of such investment become apparent.

MediaCorp is keen to expand regionally. However, they are not ready for such an effort. Their immediate task is to continuing restructuring. The process includes assessing market segments-- local and overseas and followed by critically self-evaluating its core competency to ascertain the gap between market needs and current competency. For oversea programs there are more hurdles, such as cultural and political reception etc and of course program quality. Country has stronger culture, political and economic influence usually has the upper hand in terms of receptivity, such as Korean, Japan, and American.

Another aspect is to develop talent pool, as this industry basically depends heavily on people to perform. This requires a conducive environment that promotes creativity and technical excellence. To achieve this, a change of organization culture is imminent. A mix of technical and administrative experts is elected to the top echelon to balance technical and management excellence.

It can keep project management on top of every executive daily task. Other best practices to achieve operation excellence include:
Continue to source talent locally and overseas. Develop talents with star potential.
Consider instituting training programs to support continuous improvement initiatives.
Liaise with local university to set up courses, lifting the status of the profession and offering the artistes a career.
Institute performance measurement to align with the organization goals and improvement targets.
Promote team spirit, as many operations are project-based.
Use Activity-based management to control program budgets.

SPH:
As to SPH, it eventually lopped off loss-making MediaWorks. However, their share performance is still lackluster. Analyst is not convinced of the company’s advertising revenue potentials. The characteristics of SPH are
It is a large cash hoard with no investment opportunities.

It is monopolistic housing many papers publication under one roof. On the one hand, it achieves economic of scale by sharing the fixed assets and updating the latest technology. It also promotes certain extent of internal competition among the evening papers. Basically are the Chinese papers Sin Ming daily competes with Lian He Wan Pao. As to Lian He Zhao Pao, the Chinese morning paper and Straits Times face little competition. Until lately the new comer "Today" a free sheet which gives close fight to Straits Times in term of advertising revenue. Sitting on the cash hoard, the company faces little motivation to improve operation efficiency to improve shareholder value.

There are restrictions facing the company to expand regionally. Basically, The Company publishes Chinese, English, Malay, and Indian language papers. It is difficult if not impossible for them to put their foothold in the region because media is under local government control. If you can’t liberalize your paper at your own home, it is hard to convince the host country to accept your investments. I should say this practice is universal. The difference is internal competition.

What SPH can do is to:

Redefine it business boundary. They are not in the paper business. They are in publishing business, looking for adjacent business opportunities. This will give more business scope.

Restructure existing business, spin-off unprofitable businesses through buy out, implement share services charge out system rather than cross subsidies to promote operation efficiencies.

Gallery 4(Thailand & Cambodia)

Thailand

I attached a map of Thailand and Cambodia.You can double click on the picture for better view. If you have problem viewing the picture, please double clich on it.



I spent a week backpacked following the route starting from Phuket by air, and spent few hours taking tuktuk (a motor transport) around the island, and in the evening, I changed to coach bus taking about 12 hours passing Hua Hin heading north to Bangkok. At Bangkok, I spent a day visiting Wat Sai floating market of river Chao Phraya and the city.

The next day, I took a train going north to the historical site Ayutthaya. After visiting several temples, I got a bus to visit the Temple of Buddha's footprint. After the visit, I changed to train going North again to Sukhothai province, Lop Buri, I could remember vividly that it was Chinese New Year, because I could hear fire crackers sound waking me up early in the morning. I spent a day visiting historical temples and took a coach going North to Chiangmai.

Chiangmai's weather was coolly. The famous spots are Wat Phra Singh , Doi Suthep and the market place. After Chiangmai. I headed North again, I took a bus to Fang, changed to a mini-bus to Tha Thon pier for raft to Chiang Rai, and traveling down hundred km by boat of Kok river. This gives me a chance to soak up a rich diversity of typical northern landscape which I never get on the speeding bus.

Chiang Rai is a place adjacent to Laos and Myanmar. A famous spot to visit is Doi Tung. I reached there was evening time. The weather changed to icy. On the same day. I took a night coach back to Bangkok.

This time I headed West by train to Kanchanaburi province. The notorious spots are River Kwai, the film "the bridge over River Kwai" made river Kwai a famous spot but really looks quite ordinary. The material for the bridge were brought from Java by the imperial Japanese army. The Death Railway to Myanmar is also site of wartime reminder. It is estimated that 16,000 POWs died while building the Death Railway to Myanmar of which the bridge is only a small part. The strategic objective of the railway was to secure an alternative supply route for the Japanese conquest of Myanmar and other Asian countries to the west. The Japanese army forced the POW to complete the 415km railway suppose to build in five years to only 16 months. The labors, POW , many from Thailand, Myanmar, Malaysia and Indonesia estimated around 90,000 to 100,000 laborers died in the area. Other war reminders are The war cemetery and The Jeath war Museum. Erawan National park is another main sight notorious for its seven-tier waterfall. It was a day at Kanchanaburi and then back to Bangkok and headed home.

Puket

Phuket is Thailand largest island, and remains the wealthiest province in Thailand. Basically, its main business activities is
Tourism. It offers a huge range of water sports and magnificent diving facilities to make the most of the clear and sparkling seas. The famous spots are Ao Patong which is 15km from Phuket town, , the most developed and expensive, with a nightlife verging on the seedy. The picture shows three tourist spots Ao Karon beach, is slightly nicer, and adjacent Kata Yai (big kata Bay) beach and Kata Noi beach (small kata bay) the kata is the smallest and least spoilt of the trio. If you are really looking for peace and quiet you should turn instead to some of the beaches on the far northwest coast, such as Hat Nai Thon or Hat Nai Yang. Besides beach going, Laem Phrom thep is a popular place to view sunset. You can also go up Khoo Rang Phuket hill to have a bird-eye view of the City.

Ayutthaya

Ayutthaya, 80km north from Bangkok was founded by U Thong in1351, and rose rapidly by expanding trade route with China and India. It stepped into the political vacuum left by the decline of the Khmer empire at Angkor (In Cambodia) and the first Kingdom at Sukhothai. Ayutthaya by the mid-fifteenth century controlled an empire covering most of the area of modern-day Thailand. In 1767, this 400 years long prosperous dynasty was captured by the Burmese, and many wats (temples) were in ruin. And now it resembles a graveyard for temples, grand, brooding red-brick ruins rise out of the fields, satisfyingly evoking the city's bygone grandeur.
This picture is Wat Yai Chai Mongkol. The reclining Buddha represents the Buddha's dying moment when he attained Parlnibbana or ultimate nirvana. The Wat was established by King Ramathibodi in 1357 as a meditation site for monks returning from study in Sri Lanka. You can also visit Wat Phanan Cheong (the oldest temple in town) and Wat Phra Si Sanphet (the largest in its time).

This picture is Wat Phra Mahathat . The name "Mahathat" indicates that the temple was built to house remain of the Buddha himself (according to royal chronicles). King Ramesuan(1388-95) was looking out of his palace one morning when ashes of the Buddha materialized out of thin air here. A gold casket containing the ashes was duly enshrined in a grand 38m high prang. You can climb what remains of the prang to get a good view of the broad grassy complex, with dozens of bricks spires tilting at impossible angles and headless Buddha scattered around like spare parts in a scrapyard



This picture is Wat Phra Phutthabat (Temple of Buddha's footprint) (You can refer the footprint from the picture), is the most important pilgrimage site in Central Thailand. I was attracted by the interesting story. The place is at 17 miles Southeast of Lop Buri along Western site of the highway.

The legend dates back to the beginning of 17 century when King Song Tham of Ayutthaya sent some monks to Sri Lanka to worship the famous Buddha's footprint of Sumunkut. To the monk's surprise, the Sri Lankans asked them why they had bothered to travel all the way going there when according to the ancient pali scriptures, the Buddha has passed through Thailand and had left his footprint in their own backyard. As soon as King Song Tham heard this he instigated a search for the footprint which was finally discovered in 1623 by a hunter name Pram Bun when a wounded deer disappeared into a hollow and emerged miraculously healed. The hunter pushed aside the bushes to discover a foot-shaded trench filled with water which immediately cured him of his terrible skin decease. A temple was built on the spot but was destroyed by the Burmese in 1765. The present buildings date from the Bangkok era. Ah! Not forget to tell you, the footprint is five feet long. Imagine how large is the Buddha body!

Sukhothai Province

Prior to 13 century, the land now known as Thailand was divided into a collection of petty principalities. Most of which owed their allegiance to the Khmer empire and its administrative centre at Angkor in Cambodia. With the Khmer's power on the wane. Two Thai generals joined forces in1238 to oust the Khmers from the northern plains, founding the kingdom of Sukhothai( It means dawn of happiness in Pali) under the regency of one of the generals Intradit. Intradit's youngest son Ramkhamhaeng laid the foundations of a unique Thai identity by establishing Theravada (Hinayana) Buddhism as the common faith and introducing the forerunner of the modern Thai Alphabet; of several inscriptions attributed to him. Ramkhamhaeng turned Sukhothai into a vibrant spiritual and commercial centre. The border pushed as far south as to peninsula Malaya. By second half of 14 century, Sukhothai became a vassal state of the newly emerged kingdom of Ayutthaya in1438, and finally was forced to relinquish all vestiges of its independent identity. Traditionally, the Sukhothai era has always been viewed as the golden age of Thai history.
This picture is Wat Mahathat at Lopburi. The Wat Mahathat compound, packed with the remains of scores of monuments and surrounded , like a city within a city, by a moat. This was the spiritual focus of the city, the king's temple and symbol of his power, successive regents, eager to add their own stamp, restored and expanded it so that by the time it was abandoned in the sixteenth century it numbered ten viharns and the bot dominate the present scene, their soldierly ranks of pillars which formally supported wooded roof directing the eye to the Buddha images seated at the far western end.

The principal chedi complex which houses the Buddha relic built on an east-west axis in an almost continuous line with two viharns. Its elegant centre piece follows a design termed lotus-bud chedi and is classic late Sukhothai in style. Lotus bud represent the purity of Buddha thoughts battling through the clammy swamp and bursting into flower. The chedi stands are surrounded by eight smaller towers on a square platform decorated with a procession of walking Buddha-like monks. Others famous temples are Wat Si Sawai, Wat Trapang Ngoen and Wat Sra Sri, Ramkhamhaeng monument.

Chiangmai

Chiang Mai manages to preserve some of the atmosphere of an ancient settlement alongside its urban sophistication. The people here are more easy going, and speak more slowly than their cousins in the capital. Burmese influence is still strong-not just art and architecture, but also in the rich curries and soups serve here. There are two major temples worth visiting in Chiangmai. One is Wat Phra Singh. The Buddha came from Sri Lanka. The temple was built in 1345.

This picture is part of the temple called Doi Suthep. the mountain which rises steeply at the City's 16km western edge of Chiangmai which dominate the hillside gives a towering view over the town. Doi Suthep was established in 1383. A naga (Dragon headed serpent) staircase of 300 steps lead to the Wat at the end of the winding up the mountain. This is the North hottest shrine which takes its pre-eminence from a magic relic enshrine in its chedi and the miraculous legend of its founding.

The interesting story about this temple is the original chedi here was built by King Ku Na at the end of 14 century after the growing relic of Wat Suan Dork had self-multiplied just before being enshrined. A place had to be found for the clone, so King Ku Na put it in a traveling shrine on the back of a white elephant and waited to see where the sacred animal (the elephant) would lead. It eventually climbed Doi Suthep, trumpeted three times , turned around three times, knelt down and died, thereby indicating that this was the spot for the temple.

You can have magnificent view of whole Chiangmai at the temple's lower terrace .For going to upper terrace you have to remove your shoes.

Chiang Rai
The northernmost tip of Thailand, stretching from the Kok River and Chiang Rai to the border. On the west it is adjacent to Myanmar, on the east to Laos. What you can see is a sanitized presentation of the golden Triangle's opium fields and colorfully dressed hill people performing artificial folkloric rituals.

Doi Tung, is about halfway between Mae Chan and Mae Sai. At Doi Tung , you can look down over Thailand, Laos, Myanmar and China. Doi Tung means "Flag peak" from the northern Thai words. King Achutaraj of Ngon Yang ordered a giant flag to be flown from the peak to mark the spot where two chedis were constructed in 911AD. The Chedis are still there. The road up the hill is winding steep and narrow. Along the way are Shan, Akha and Musoe (Lahu) diverse ethnics' villages. Myanmar is a short trek from the peak and many travelers have cross over the border to view the large poppy fields guards by hill tribes people and KMT soldiers. At the peak 1800 m above sea level is Wat Phra That Doi Tung. Pilgrims to the Wat earn them good fortune by clanging the rows of dissonant bells around the temple compound.

This picture is The Royal Villa and Mae Fa Luang Garden,12 km up the summit then left up a side road, it was the home of the princess mother in her later years. It is an attractive site with many beautiful flowers in the garden. You can appreciate from the picture the colorful flowers blossoming in the chilling weather.

Kanchanaburi
Thism picture is Erawan National park. It is 65 km northwest of Kanchanaburi. The seven-tier waterfall, topped by a triple cascade is etched into the national imagination not just for its beauty, but also for its alleged resemblance to a three headed elephant. This elephant (Erawan in Thai) is the formal national symbol. The park covers 550 square kilometers. There are seven levels for the waterfall. Each level comprises a waterfall feeding a pool of invitingly clear water partly shaded by bamboos, rattans, lianas and other clotted vegetation. It is fairly easy to climb up to the fifth stage, but the route to the sixth and seventh level get steep and slippery. The best pool for swimming is at level two.

Cambodia

I had opportunities to visit Cambodia due to job requirement. Basically, in Phnom Penh, you can visit the Royal Palace, Wat Phra Keo,Toul Sleng Holocaust museum displays pictures and tools of how Khmer route tortured their own people during their reining in Cambodia. Once a neighborhood school, the building was seized in1975 by Pol Pot's Khmer Route and turned into a prison; during its four years of operation as an interrogation center, some 20,000 Cambodians were tortured here. Fewer than 10 prisoners survived. The bodies of those that died under torture were tossed into the school's garden and playing fields; those that survived the torture went to the extermination camp outside of town called Choeung Ek, now known as the Killing Fields. The killing field, 14km Southwest of Phnom Penh, you see urn that contains many skulls and skeletons and mass graves. I will not show you these tragic pictures of the harrowing experience of the Cambodia people. I choose Angkor Wat instead at Siem Reap to represent Cambodia.

The Cambodian (Khmer) most glamorous times was the Khmer empire between 9th to the 13th Century, Cambodia developed a complex society based first on Hinduism and then on Buddhism. After the decline of the Khmers and the ascendancy of the Siamese, Cambodia was colonized by the French in the 19th century. That is why the French still has the affection towards the Khmers. During the tenure of my job in Cambodia, The French President Chirac ever had a short stay in our Hotel. And many of our Hotel staff have great respect to the French managers. Shortly after the end of World War II, during which the Japanese had occupied Cambodia, independence became the rallying cry for all of Indochina. Cambodia became a sovereign power with a monarchy and an elected government.

In the early 70s , the destabilizing consequences of the Vietnam War led Cambodia's political factions to take up arms. A very bloody civil war ensued. Khmer Rouge, under the French-educated Pol Pot, emerging as victors. A regime of terror followed. Under a program of Mao Tse Tsung-inspired re-education centered around forced agricultural collectives, hundreds of thousands of Cambodian died through torture and execution or from malnutrition and exhaustion in the camp. You will get a better picture of these tragic times by visiting Toul Sleng Holocaust museum museum I mentioned above.

Vietnam, unified under the Hanoi government , eventually intervened, partially defeated the Khmer Rouge, and brought back Prince Sihanouk as head of the state (Now Sihanouk has abdicated from the helm, and passed to his youngest son). The United Nations was brought in as a peace-keeping force, I was working in a hotel during those period, and in1996 a government was formed through democratic elections. In 1997, Hun Sen toppled the elected government, but political pressure forced new election-monitored by the international communities-in late summer 1998. Hun Sen won a plurality amid charges of election rigging and, resort to finesse and sordid politics,through coercive tactics, formed a government. After the death of Pot Pol in mid-1998, the Khmer Rouge presence and its threat to the country's stability diminished. It remains to be seen whether foreign investment and the development of tourism will follow, whether domestic problems will be solved. As far as what I follow up after I quit the job, the living of the Cambodian people is stultifying, has hardly any ameliorating. Life still in a shamble, poverty, corruption, crime, money laundering, prostituting....I am very sympathizing the Cambodian people still limping ahead for a blissful life>.(At this time , Cambodia is experiencing booming in their economy. It successfully attracted 8 billion (US$) of foreign direct investments in 2007. The largest investor is from South Korea, followed by China. GDP growth is 9.6% in 2007 and has foreign exchange reserves of 16 billion (US$) The 42 levels of twin towers of Golden plaza at central of Phnom Penh city epitomises new era of Cambodia that rising as fast growing emerging country. Phnom Penh, Siem Reap and Sihanouk harbours are three hotspots in property development, the land and house price are soaring. Main drivers of source of income are from tourism, oilfield,natural gas, textile and agriculture. Update at May 1 2008)

Angkor Wat



If Angkor had been discovered before the late 19th century, it certainly would have been classified as one of the seven wonders of the world. The Khmer empire reached the zenith of its power, influence, and creativity from the 9th to 13th centuries, and Angkor, the seat of the Khmer kings, was one of the largest capitals in Southeast Asia. In all there are some 300 monuments scattered in all directions through the surrounding jungle. Besides Angkor Wat, there are Angkor Thom, Ta Prohm, Banteay Srei. I am giving details of Angkor Wat.

In the typical architectural art of the Khmers, the plan of Angkor Wat is simple and audacious. The five towers are the central element of the complex, forming a lotus bud ( the emblem of the Cambodia flag). Angkor Wat was founded at the beginning of the 12th century and is the best preserved of the Khmer temples. It was erected by King SuryavarmanII (reigned 1112-52) and dedicated to the Hindu god Vishnu. Like all the major monuments at Angkor, the buildings form a complex representing the Hindu (and Buddhist) Universe. The central shrines symbolize Mt. Meru, while the gates and cloisters depict the successive outer reaches of cosmic reality. Moats represent the seven oceans that surround Mt. Meru.

Angkor Wat is reached by an impressive causeway, an avenue lined with balustrades in the form of serpents. The complex itself rises in three concentric enclosures and you must wander around the terraces marveling at the Hindu deities and Buddha images, many of which lost their heads to looters. The other amazing collections of the images is sculpted on the 1 km long open colonnaded gallery. This collection tells the Hindu epics and Suryavarman's earthly deeds, both of which are celebrated by dancing apsaras.

Architecture and the fine relief symbolize the richness, power, and prosperity of the Khmer empire during this period, but such was the tremendous outlay required to build Angkor Wat that it nearly bankrupted the empire. It took 30 years to recover, and it was King Jayavarman VII who had the energy to revitalized the kingdom. Veering away the established Hindu god, he adopted Buddhism.

Galery 3 (UK & Paris)

I had a chance to visit UK was due to study a professional course in London. I spend most of the time in the tube (MRT) when I was traveling. Usually, I was only on simple trip--home and colledge due to zone restrictions. Sometime I went to Leicester square by tube to visit China Town to taste some Chinese food. I spent my very short vacation going round London, Oxford, Cambridge and Scotland. Before coming for good, I intended to tour Europe. I managed only go to Paris because of financial constraints. I am still regretting for not visiting other parts of England outside London and inside London and also Europe before coming back.

For this Gallery, I will not introduce The West End, Westminster and Whitehall, Oxford Street, Soho and Marble arch ,Downing Street, China Town, Kew Garden or Hyde Park in London (Of course I have many pictures of those). I choose some interesting landmarks I hope you will like.

London

Tower Bridge

Can still remember a Children's song "London Bridge is falling down" Of course the actual London bridge is at London Bridge city pier. It is situated in between Tower Bridge and Southwark Bridge. London Bridge has general implication of the bridges in London. There are twenty bridges crossing River Thames started from Hampton Court Pier to Barrier Garden pier. Tower Bridge is the last bridge of all bridges across Thames River. Perhaps Tower Bridge is the most striking of all. It was built between 1886 and 1894, and is currently the last downstream before the sea. When London was still a thriving port, tall ships visited London, the central section of the bridge was raised to allow safe passage. The walkway is open to visitors and offers spectacular views of London. A museum explains the working of the bridge.

Waterloo Barrack

Facing the White Tower to the North is the the Waterloo Barracks, which now contains the crown Jewels: orbs scepters and the centerpiece, the imperial State Crown, set with diamonds(2868 of them to be exact) sapphires,emeralds,rubies and pearls. This is part of the display in waterloo Barrack, taking picture is prohibited, you can see the value of this picture. The sword is sword of spiritual Justice. Those hanging are Sovereign's Scepter with Dove, also called the rod of Equity and mercy.


Madame Tussaud's

Madame Tussaud's (1761-1850) was employed at the court of Louis XVI to make wax figure. She was imprisoned during the Revolution and took models from the heads of guillotine victims (The original moulds are now in the chamber of horrors-which is part of the display in Madame Tussand's). She fled to London in 1802, and later exhibited her collection here. Much of Madame Tussand's is made up of the Garden Party exhibition where you can have your picture taken along side star-of-the -moment The museum is now exhibits historical tableaux, great figures of the day, "Heroes" etc. and lure in some 2.7 million visitors a year to see its wax works. The Museum is located at Baker Street.

This picture is the Royal family. The Grand Hall is where you will find models of world leaders past and present and the Royal family.

ST James Park

St James Park extends from the Horse Guards parade on the East to Buckingham palace on the west and is bounded on the North by the mall on the south by birdcage walk. Charmingly laid out in an aristocratic surrounding of palaces and government offices, and commanding a famous view in the direction of Westminster. This park is one of the most attractions in London. The lakes in the centre (5 acre) is frequented by ornamental waterfowl, for which Duck Island at the East end is reserved as a bleeding place. The flower bed is beautifully maintained, and the tree some dating from restoration add an oriental flavor to the over the lake.

Henry VIII laid out the land between his palaces at Whitehall and St James in1532 at the first royal park in London. Under the early Stuarts it was the resort of the court and other privileged persons. After the restoration, Le Notre was made great and very noble alterations. And the scattered ponds were united to form a canal. It was then open to the public.

Old Royal Observatory, Greenwich

The picture is Old Royal observatory. It is original home of Greenwich Mean Time where you can stand astride the Greenwich Meridian, the white line. In 1675 Charles II had the Royal Observatory built on a hill in the middle of Greenwich Park, intending that astronomy be used to establish longitude at sea. The preserved rooms are intriguing and you can see the actual time-pieces described in Dava Sobel's Longitude. You can place one foot either side of the meridian line and straddle the two hemispheres.






Shooterhill

I was told by an English woman who showed me the Greenwich Meridian Courtyard , insisted to introduce the highest ground in London-Shooter hill to me. If you climb up the tower , probably you can have a bird-eye view of London.




Backyard of an Oxford University

Oxford is 1.5 hours journey on the west of London. I had a misconception before I reached Oxford. I asked a lady outside Bodleian Library where Oxford university was? She enlightened me that Oxford university encompassed all the thirty-six colleges in Oxford. There are Christ Church College, Merton College, Queen's College, Magdalen College, New College, Queen college are the most notorious.

Its name originated from the "ford for Oxen" over the Thames at Hinksey. No one know which college was the first university in Oxford. Some said University college was the first. Oxford's importance as an academic centre grew out of a 12th-century political quarrel between the Anglo-Normans from studying at the then centre of European scholastic life, the Sorbonne in Paris. Students came to study at the Augustinian abbey in Oxford, which soon became known for theological debate among different religious orders. When such debates were conducted in an academic setting all was well, but discussions among students occasionally spilled over into violence. Eventually universities at Oxford and Cambridge were given royal approval, so that future student rebellions would take place far from London. To help the authorities keep an eye on student activity, the university was broken up into colleges, each of which developed its own tradition.

The notorious Alumni included Ex-US president Bill Clinton, Poets have Percy Bysshe Shelly, T.S.Eliot, Robert Hardy. Authors have Lewis Carroll, Jonathan Swift, Economist have Adam Smith, Sir Christopher Wren.

Oxford university is now facing government budget cut problem, and they lose many outstanding students and scholars to the US universities. The critic focus on the one to one coaching system. each year the government's budget spends about 58 million US dollars You can also visit Sheldonian cinema, Ashmolean Museum, and Bodleian Library.

This picture was probably taken at the backyard of Trinity, Balliol and St, John Colleges( They are linked)

Backyard of Cambridge University

The term Oxbridge was coined to define the very special breed both universities produce(Oxford and Cambridge). Oxbridge graduate is popularly characterized as white,male,private-school educated, intelligent and upper class., but the value judgment attached to it depends on who is using it. To some, it denotes the highest levels of academic excellence, but to others it denotes the spoilt and snobby children of a privileged elite that unfairly dominate the upper strata of English life.

Whatever way you look at it , the truth is that Cambridge is an exceptional university. So far, the universities has produced 78 Nobel Prize winners(29 from Trinity College alone),13 British prime ministers, nine archbishops of Canterbury, an immense number of scientists, a healthy host of poets and other scribblers.

Today, the university remains at the top of the research league in British universities; it owns a prestigious publishing firm and a world-renowned examination syndicate; it is the leading centre for astronomy in Britain; its Fitzwilliam Museum contains an outstanding art collection; and its library is used by scholars from around the world.

The colleges and universities buildings comprise the centre of the city-like Oxford, Cambridge has no campus. The central area, lying in a wide bend of the river Cam is the back which combines lush river scenery with superb views of six colleges, including King college chapel. The other 25 colleges are scattered throughout the city. The colleges you worth visiting including King college chapel, Trinity college, Trinity Hall College, Christ College, Jesus College, Round College, Magdalene College. Queens' College, Emmanuel College.

This picture could be the backyard of Emmanuel University

Scotland

Scotland is divided into three areas, the southern Uplands, Central Lowlands or Midland Valley and the Highlands. The notorious spots are Craigievar Castle, culross, The village, Edinburgh ( The Edinburgh international festival, Charlotte square) Glasgow (Cathedral,the Burrell collection, Glasgow University), Inverewe Garden, Mellerstain, The Trossachs, Wester Ross.

Edinburgh-The palace of Holyroodhouse
At the east of the Royal Mile stands the Palace of Holyroodhouse, the Queen's official residence in Scotland, adjoined by the ruined nave of the Abbey. The decoration of the state Apartments remains lavish as designed by Sir William Bruce in true restoration style. Highly intricate decorative plasterwork ceiling, lavishly carved woodwork. In the king Chamber there is a magnificent red bed. The Gallery wall are lined with many imaginary and a few real portraits of Scottish Kings.

These pipers are traditional Scottish. They are teachers and students in Scot school. They played music to entertain the public.









France, Paris

I took a ferry crossing the English channel. At that time the channel tunnel was in the process of completion. Going around Paris you can use Metro. Paris is 12 km across. The City lies in a basin, surrounded by hill. The City is divided into Monumental, Moneyed and Mythical, and Militant three broad areas. Monumental describes the central Right Bank areas, The right Bank (of River Seine) still connotes business and Commerce. Money and Mythical is the Left Bank art and letters and wealthy West,West means Bourgeois, smart and reserved, Militant is the third the traditional working-class, immigrant and a little Scruffy districts of the North and east.

Places of interests included Carte Musěes et Monuments, The Palais du Louvre, The Champs- Ĕlysěes, The Arc de Triomphe, The Grand Boulevards passages, Beaubourg (MusěeNational d'Art Moderne), the Marais and the Bastille, Eiffel Tower

River Seine

The backdrop of this picture is Institute de France, seat of Academic Francoise, an august body of writers and scholars whose mission is to safeguard the purity of the French language. This is the grandiose of the riverfront.






Mona Risa
The picture is Leonardo's painting Mona Risa in The Palais Du Louvre.

Standard Setting process-Principles based? Rules based?

Author’s note: I sent this article to Harvard Business Review. Lately, there was a change by the SEC urging FASB to adopt principle-based approach with conceptual Framework in the formulation process in mind.

Principles based or rules based? For a start, I want to relate an indelible experience to you.
About sixteen years ago, I worked as underling in an international accounting firm. The firm conducted weekend in-house training. I was grouped into advanced level training group due to my good professional exam results in accounting theory. Certainly, I also became a target to denigrate due to internal competition among different audit groups.

In a class training for Accounting for leases, an Australia trained manageress of another audit group picked me to answer the question of what serve the purpose for accounting for leases. I uttered tenaciously, "Substance over form". She derided me like I am ignoramus. It fermented the whole class break into laughter as if I was a moron giving such blather. I squirmed and suffer ostracism. Only two of my colleagues taking the same examination conceded my answer to me after class. The kernel of truth is: for finance lease, the lessee has to take asset into account if the lessee enjoys substantial risks and rewards of the asset. You cannot throw away the substance that the lessee is the owner of the asset albeit the form, a lease is not an outright purchase.

This experience coupled with my own observation debunk the fact that many standard users are enamoured with "tell me what to do than tell me what to think", many see the conundrum is on the usage, such as how to apply present value to minimum lease payments, rather than a methodical framework towards linking accounting principle with the application; Even though literally many leases are finance lease in nature

Many UK accounting professionals pride themselves on the UK GAAPs are principles based and therefore are superior. They perceive the lethal blow for rules-based accounting is it cannot cover every possibility, and easily give opportunities for perpetrator to game the system. It is evidenced fifteen years ago; my Advanced Financial Accounting lecturer is an ardent critic of rule-based accounting. I was then a novice in accounting, only familiar with UK GAAPs and IAS. I did not have the faintest idea about US GAAP. I guessed he might be intransigent. I remained oblivious and promiscuously refer to US published accounting textbook for details on fundamental accounting principles and conceptual framework of accounting when I sat for professional exam paper- Regulatory framework of accounting, and surprisingly I scored well. It showed that using US textbook; I did not appear as heretical, at least not incriminated in the eye of UK examiner.

I perennially held this neutral stance after qualification; I was more malleable as I had more opportunities in contact with US GAAPs. I wanted to know what the quintessence of US GAAPs was. I read an US accounting periodical "Accounting Horizons"; there was an article on the concept of assets in accounting theory. The article referred the definition of asset to the conceptual framework of FASB. It shows that any standard setting process cannot do without referring to conceptual framework whether it is UK or US GAAPs. So, what makes a standard efficacious? In an UK accounting journal, an article compared US accounting standards with IFRS accounting standards; quoted US GAAPs are rule-based standards with more specific application guidance. And IFRS are principle-based standards with limited application guidance. An US accounting magazine said, Concept based standards are considered to be superior to rule-based standards, Accounting result from applying a concept is usually more understandable and apparent than the result of applying a rule. Rules generally are more interpretation than concept.

It was said litigation abounds in the US, small wonder that the American prefers explicit rules than broad and nebulous principles. According to a well-written book- "Profits you can trust", the authors recount the history of US standard setting, "Until the 1970s, in fact, the accounting standards setting process in the United States was largely principles based. But almost imperceptibly, the operating philosophy of financial reporting began to change, as capital and commercial market transactions evolved in ways not anticipated in the GAAP established in earlier, simpler times." "The business environment in the United States became increasingly litigious. Not only were companies looking for accounting solutions to increasingly complex transactions, they also wanted cover in case they had to defend themselves against shareholder lawsuits. What they wanted, quite simply, was detailed guidance on how to implement GAAP-something that would go beyond basic principles and provide concrete, practical rules for accounting for complex transactions, reliance on which would allow them to prevail in court. Hence the birth of rules-based accounting."

The authors see this produced two consequences, "the complexity of US GAAP increased immensely, mainly because of the exponential increase in the amount of interpretation by the FASB, the chief guardian and promulgator of GAAP, and other professional bodies such as AICPA, second, much of the guidance that poured forth from the FASB and elsewhere came at the express request of corporations. When companies intervene in the rulemaking process, it’s usually because they want something from it, and what they want may not be in the best interest of investors and the public. Not only are corporation looking for guidance they can point to in the event of litigation, they also seek solutions that promote their own financial objectives." "The result: GAAP is riddled with scores of exceptions to the rules. Exceptions often arise as compromises between the demands of investors and the practical implementation concerns of public accountants and corporate manager."

Rules-based supporter contended," IAS cannot prevent misleading comparisons any more than it can stop corporate managers bend on fraud. The system’s broad principles are subject to a wide range of interpretation, not only from one country to another and one firm to another, but even within different offices of the same firm. With so much room for interpretation among practitioners, compatibility across companies is routinely compromised. One Big Four accounting firm, concluding that existing interpretations of IAS were too broad and vague, developed a handbook spelling out the firm’s official interpretation of the standards. At another Big Four firm, the merger of two client companies sparked a row between the firm’s London and Paris offices, with clashed over interpretation of several IAS principles relating to mergers."
An article in Accounting Horizon gave accolade to principles based, saying "Standards that are concept-based are not as susceptible to manipulation and abuse than rules based. Although conceptual guidance requires judgment in defining the concept that, in turn, provides the potential for misapplication, the economic rationale embraced by the concept serves to limit the extent to which it can be misapplied. Rules preclude the use of judgment, and thereby reduce the possibility for misapplication. However, they have the potential to be abused through careful structure of transactions to take advantage of the rule.

So which side to espouse without predilection, more specific application or limited application? As the business world increasingly more complex, it behoves the accounting standard setter to keep standards more detail or simple? Will moving to principles-based accounting stultify perpetrators’ efforts and make them less scope to manoeuvre? What accounting frameworks we should adopt to resolve business complexity? How about the political culture aspect in the standard setting process? Should country standard setters preserve their peculiarity or move towards harmony? It is a challenge facing principles-based IAS setters. For standard setter, how to achieve greater results with financial constraints? These are problems in the standards setting process. This article is to provide a new perspective on standard setting process than join in the fray on whether standards should be principles or rules based.

We first define what are standards? The dictionary defines standard as something considered by an authority or by general consent as a basis of comparison, a rule or principle that is used as a basis for judgment. According to this definition, in a broader sense, rule, principle and standard can be used interchangeably.

In the US, AU411 gives definition to GAAP as a term encompasses the conventions; rules and procedures necessary to define accepted accounting practice at a particular time. It includes not only broad guidelines of general application, but also detailed practices and procedures. Those conventions, rules and procedures provide a standard by which to measure financial presentation. As to conceptual framework, FASB defines conceptual framework as a constitution, a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribe the nature, function and limits of financial accounting and statements. In the US, the FASB had issued 6 concepts statements and 150 standards; concepts are intended to guide the development of accounting standards. In the UK, a similar conceptual framework Statement of principles was issued in1999, the content of which is largely similar to SFAC1 (Standard of financial accounting concept) to SFAC6 (Concept 3 becomes part of concept 6).

In the US, FASB (under which is emerging issues task force)(EITF) and AICPA are the major standard setting bodies Accounting principle application is dependent on the hierarchy of GAAP by an authoritative body and other relevant sources. Category A is officially established accounting principle consists of FASB statement of Financial Accounting Standards and Interpretations, Accounting principle Board opinions, and AICPA accounting Research Bulletins. Compliance is mandatory for Category A. Category B Consists of FASB Technical Bulletins and, if cleared by the FASB, AICPA Industry audit and Accounting Guides and AICPA statement of position. There are also Category C & D issued by AICPA and cleared by FASB.The general rule is to use treatment specifies by the source in the highest category. If an accounting treatment is not specified by category A, an accounting pronouncement in category B, C, D is relevant to the circumstances, an auditor must follow that pronouncement or be able to justify the conclusion that another treatment is generally accepted.

In the UK, Accounting Standard committee (ASC) is charged to review standards of financial accounting and reporting, publish consultative documents with the object of maintaining and advancing accounting standards, to propose to the councils of the governing bodies statements of standard accounting practice and to consult as appropriate with representatives of finance, commerce, industries and government and other persons concerned with financial reporting. In 1987, Dearing Report resulted a new standard setting organisation; i.e. Financial Reporting council (FRC) in charge of Accounting Standard board (ASB) (ASB also in charge of Urgent issues task force) and Financial Reporting Review panel.

The biggest difference between UK and US is the enforcement of the standard, in US the enforcement of the standards is by SEC, the accounting rules it publishes in SEC SX have the force of law, and SEC relies on rules issued by FASB. Whereas in the UK, the compliance with SSAPs depends on individual professional bodies internal disciplinary procedures. In UK stance, it is towards self-regulation. The Company Act 1989 introduced a new form of legal backing for accounting standards.

To avoid badgering in the fray of UK principles-based and US rules-based, we ask ourselves what constitute a quality accounting standard setting process? It is palpable that the choice will be conceptual framework. Conceptual framework is often adopted in a standard to serve as a basis for depicting transaction under the scope of the proposal. It is also used to decrease the confusion that may result from allowing the accounting to be based on a selection of any of the competing economic views.. The exact contents in SFACs (US) and Statement of principles (UK) are almost the same and are not enigmatic, such as materiality, understandability that people have little impugn of their general importance. The quintessence in the conceptual framework I use as yardsticks for measurement is the quality of accounting.

After scouring through important key quality characteristics, they are culled, and the eventual key criteria are almost the same with quality of accounting apart from I give slightly different meanings. I proffer the reasons for using particular measures. In the following, I enumerate key critical criteria: relevancy (serving the need of the users as a whole, reflecting the current economic reality.), consistency (to give confident to the users that the same principle applies across the board), objectivity (not to please a group of people at the expense of another.), reliability (the trust element and transparency and veracity), economy (the resources usage towards its outcome), comparability (to aid user making meaningful decision despite geographical dispersion, cultural diversity or different businesses.), accuracy (mainly on how to deal with uncertainty, concerning judgment and estimation) A comparison of my construction with the official definition is made in the note at the end of the article; you can totally disagree with my selection but make sure your selection is congruous.

In the US, quality of accounting also includes conservativism, neutrality and verifiability. Conservativism is good virtue. Many CPAs learn this basic accounting convention in the principle standard. Majority of the accountants are conservative. Conservativism has major pitfall, which is being manipulated to create hidden reserves as what many accounting critics view many German companies are doing in their accounts. Keeping hidden reserves do not depict the economic reality of the organisation activities (contradict to relevant, and undermine the trust element, reliability). Therefore, conservatism is a double-edge sword. We have conservative proclivity we need to trade-off by looking into relevancy and other preset criteria. Verifiability, historical accounts are generally verifiable. However, owing to rapid change in the business environment, the increasingly use of personal judgments and estimations, in many instance, we encounter many incidents that items are not easily verifiable. I incorporate this in accuracy in the evaluation criteria above, and will deal with in detail below. Neutrality has some element of objectivity.

. "It is better to be approximately right than precisely wrong."
It is matter-of-fact that Financial Statements are hard to achieve absolute accuracy, because there are many line items require professional judgment. We have to recognise there is more judgment and less precision in accounting especially in the knowledge-based economy. In no small measure, judgment always goes hand in hand with materiality. Materiality is part of the conceptual framework, is relative in a sense; therefore accuracy is also relative.
"If the accuracy of the answer is itself inherently uncertain, what does a very long and seemingly precise number mean?"

It is prevalent in this turbulent business world, we have to deal with uncertainty in decision-making, in the Financial Statements or Annual Report, and we are forced to make judgment. The perennial problems are management made wrong judgment about the uncertain future; auditor relied on wrong management forecast and prediction. No one can make uncannily accurate prediction of the future presciently; neither can we shirk our responsibities projecting future ahead. Standard setter can do very little besides issuing guidance. Generally, there are three approaches to deal with uncertainty. First, judgment can be based on historical experience; it is intrinsically human nature to predict future based on past experience. This assumption is flaw. In the fast changing world, the future may not exactly mimic the past.

Second, is the use of heuristic (other similar terms like gut feeling or hunch) approach, sometimes it does work. Some users may see it visceral and therefore preposterous, as if a punter. These users question, "Do you always strike it right all the times?" The third approach is golf pole approach. We break the long uncertain future into shorter time frame to make incremental measurement. In the golf field, no one cannot see all golf poles in the field in a glance, and we focus on those visible. Auditor can document management judgment unequivocally according to visible golf pole and gradually gain confidence and assurance.

Of course, we can capture many others quality characteristics to consummate the criteria; such as matching, a commonly used principle in accounting convention; issue like share options, the cogent reason is to match the compensation incurred with the incentive to motivate employee to enhance share value by generating more revenue or reducing costs in the period. Another commonly used criterion is materiality, one of the elements of qualitative characteristics. It is without saying that all standards are dealing with material issues. SAB no 99 provide guidance for registrants and auditors on evaluating the materiality of misstatements in financial reporting and audit processes by summarising certain GAAP and federal securities laws as they relate to materiality. Here we only focus some practically useful key criteria. Research shows relevancy is the most important among all. Even within these criteria, we can rank different degree of importance for evaluation. The standard setter should rank their priority to facilitate trade-off in the evaluation of standards. In other word, standard setting authority should set level of importance for these criteria according to the balance between user preference and responsibility as standard setter. For example, in the US, the standard setter yielded to the lobbyists’ political pressures, making exceptions to the promulgated standards. That literally undermines consistency (defeating user confidence of the authority of the standards). The crux of threading the fine line between flexibility and authority and to balance user preference and standard setter own responsibility is to evaluate the countervailing factor based on preset criteria, because preset criteria align with the purpose of the standard.

Having set the qualitative criteria, we proceed to take a closer look of the process of standards setting. Those like to know the US and UK standards setting process can refer to note at the end of the article. My ideal structure and process are to streamline the standard setting process, breaking ossification and arcane old rules, and adroit handling of project management. The structure should facilitate division of duties, also collaboration The objectives are to make flow of information and coordination simpler, avoid remiss, elude responsibility and mutual recrimination; The upper tier is the board; middle tier is working on the gestation of accounting principles and application. The lowest tier is quality-checker by liasing with users and "standard hackers".

We begin the process by defining the problem. First, we look through the lens of accounting from the business context (I exclude non-profit making, as they can mimic business model for solution.). Accounting is to reflect the business context, for example, Accounting for Intangible assets is to address the value creation in the knowledge-based economy. Increasing financial risk due to global trade and investments was reflecting in the changes of exchange rate and hedging activities. Intense competition leading to corporate restructuring, merger & acquisition, lop off non-core assets resulting business combination and disposal. If we used to see the standards as piecemeal, we cannot link accounting to the bigger business picture, we may fail to reflect accurately the economic reality and we are behind the fast changing business world, and always. The outcome also contravenes to our first quality rule-relevance.

The first tier Board level should ideally be full time technical pundit. Rather than be rubber stamp, the board need to change the reactive attitude and working style to proactive by continually assessing current accounting standards and the needs of business environment to find the gap. Of course, the board will continue to elicit feedback from outsiders on potential issues. After deciding on issues to pursue, the board’s meeting will prioritise the project to work on under the resources constraint. First and foremost, a detailed analysis of project at hand must be deliberated to ensure choosing the right project, and not wasting unnecessary resources.

The first step is to verify the business context to make sure the accounting issue is accurately reflecting business context, and the result is to yield an in depth understanding of the issue. What the users look for? How a new standard will resolve their problem? Get to know the practical aspects of application of the standard. There are some caveat for getting external feedback, it is time consuming and the response depends on topic discussed; usually it is hard to get enough responses or the responses may not dovetail the board wants. The board has to deliberately draft critical issues to be resolved, so that critical information is not left out in the survey, and the findings will be directional. On the other hand, ideas are also mooted from volitional choice or diatribes to balance the focus. This step the board collaborates with third tier quality checker. The checker is to execute the job, evaluate the results and submit the findings to the board. They should carefully choose whom to approach to get a reasonable user representation and maintaining contact with them for further assessment of exposure draft.
Under the present system, there are interminable rounds of public comments, hearings and advisory group meeting. It therefore calls for the structure to facilitate coordination and collaboration and the board to have good communication and project management skills. Ultimately, it is to achieve one of our criteria-economy, on the back of efficiency and effectiveness.

The second tier is to execute the project; it requires a team of technical competent staff to work together. At least a board member is leading the team on a project. It begins with building conceptual framework for the accounting issue. I am puzzled there is no special section in the standard for accounting principles. I think ignoring its significance is at the peril of the users whether in dispute or litigation. The leader briefs the team on the project chosen, the purpose, the business context underlying the project and the findings from the business context survey.
Ideally, the standard setting team should have a share database storing or indexing research articles, publications, pundits’ view on the relevant topic, and field search results after talking to auditors, CFOs, and academia and the address book of all the targeted contacts. The team will then link up every piece collected to form an initial understanding of the project.

The team then meet or net chat with no scruple to brainstorm reams and reams of concepts relevant to the current accounting issue. The team sifts through all the concepts, grouping the concepts into core, adjacent concepts, and irrelevant concepts. We can split core concept into general core and specific core. This step of drawing up concept map is important; the subsequent application must be able to prove the link to any of the core or adjacent concepts.

I illustrate this step by using accounting issue revenue recognition as an example. I discover that UK amendment to FRS5 has included basic principles that reflect the statement of principles, i.e. the conceptual framework. I wish to see the same topic from a different perspective. Hope my focus on key criteria will provide sharper teeth to bite while in dispute and litigation. Supposing the team begins to brainstorm by raising several of the concepts, such as matching (matching the revenue with the period it generated, matching revenue against the cost incurred), risks and rewards transferred (Goods has been delivered to the recipient in good condition), Performance (Goods are delivered or service is done to the satisfaction of the recipient), prudent (no ambiguity of collection, no recognition of revenue until collection is certain), legal title has been or is being transferred, ownership, fair value of revenue collection, and prevailing interest rate as cost of capital, contractual agreement.

After the team propounded all the concepts they think relevant to the accounting issue. The team is to draw distinctions among the concepts. Core is the centre, the most important part of the principle. General core are affecting all, not specialised or limited to a range of use. Certainly, Matching, prudent are general core concepts. Specific core is tailored to the topic at hand. Risks and rewards transferred, ownership, and legal title passed are the same thing in different terms. They are specific core, performance is done, collection must be certain, are all specific core. Adjacent concept is not core but relevant to topic discussed. Contractual agreement and fair value of collection at prevailing interest rate are adjacent concept. The team then concludes a concepts map specifies general core, specific core and adjacent concepts in the map. That forms the structure of accounting principles.

The team then continues with the real life applications to challenge the concept and also draw up specific guidance. No matter how the business environment changes, the conceptual framework (the accounting principles) must be able to withstand the changes. How detail should the application guidance be? Guidance is guidance. You cannot go into very specific and eventually casting more doubts when there are slight differences with the guidance. How broad should the guidance cover? The answer is as broad as possible. There is an unsung quality of standard setting process that is fairness. When the standard is ambiguous, there are grounds for contentions. Especially, the contentions fall in the grey area. The standard setter has to be specific. The guidance should be indexed for easily reference. Whether they are indexed for the purpose of consignment, software revenue recognition, long-term construction contract, or Telecommunication industry. The crux is how the application is linked to the conceptual framework? The application for revenue recognition can be indexed industry-based. Adjacent industry can be grouped to use same application.

The team proceeds to challenge the application formulated. I draw some of the examples from "Profits you can trust" to see how solid the conceptual framework is?
Sunbeam case –the authors named the accounting game as "channel stuffing" whereby "a company stuffs its distribution channels with merchandise, which it then claims to have sold". Goods under consignment or subject to return are under this category. If we examine accounting principles, ownership concept is relevant; the risk and rewards have not been transferred from the sellers to the buyers.

Software companies-the authors used "grossing up" to describe "a software company treat a ten-year agreement to provide e-business support to a client that is burning through million of dollars a quarter and has no product on the market, many software companies treated such agreements as sure things and booked the revenue as if ten years’ contract payments had already been collected" Clearly, matching, prudent and performance are relevant here, Contract agreement is only adjacent concept whereas matching (Match periodic payments received with the cost incurred) prudent (collection is uncertain) and performance( service has not done) are core.

Dell case-It is interesting due to supply chain complications. Especially many companies outsource their non-core processes. That is why I stress in the beginning of this article that to stay relevant, we need to look closely to business context. The authors posed this interesting case, "Supposing Dell corporation sells, as a component of one of its PC, a computer monitor it purchased from an independent manufacturer. Does it recognise as revenue only its gross profit margin-the difference between what it pays for the monitor and what it charges its customer? Or does it recognise the complete PC as revenue, treating the cost of the monitor as an expense" The authors offered this answer, "In such a case, Dell recognises the full price of the monitor, and rightly so" The underlying principle is Dell takeover the risks and rewards of the monitors from its suppliers and sells the monitor to its customer. It is completely different from commission-earned case whereby the commission earner is not exposed to the risk of carrying goods. The ownership concept is relevant here. The authors then add some complexity into the case by saying that "But what if Dell were to arrange –as it often does –for the monitor to be shipped directly from the manufacturer to the customer? Should Dell include the monitor’s selling price in its revenue, or only Dell’s cut? In other words, should Dell’s sales figures suffer just because of an efficient logistics arrangement?"
The answer is the same, because Dell is responsible any damage in the delivery process till customer’s acceptance. The ownership has not changed until it is transferred.

4. Xerox case-"Xerox leases business machine such as copiers and printers to customers for extended periods, it treats the lease as a sale. It books the value of the lease all at once as revenue, even though payments on the machine may extend several years into the future." "The revenue booked is equal to the present value of future lease payments." Now the trick here is what discount rate you use to derive present value. Xerox Mexican subsidiary used a rate much lower than the prevailing interest rate just to inflate present value of its revenue. Assuming that the lease treated as sales is correct permitted in US accounting rules. The adjacent concept of fair value was manipulated by using lower discount rate to inflate revenue.

5.Global Crossing-Global Crossing involved in swapping capacity with competitors they all not wanted just to book revenue and capitalised capacity purchased from competitors to inflate revenue. SEC ruled fiber-optic swaps invalid in 2002.There are no controversy of what accounting principles should apply here, just outrageous earning manipulation.
The team has gone through the challenges for principles and application to ensure that at least the principles are complete and ready for exposure draft. The exposure draft is measured according to the preset quality criteria-relevancy, consistency, reliability, objectivity, and comparability. If they are satisfied, they will handover the draft to tier three for quality-check.
Tier three is to keep close contact with external users and forms a group of professional standard hackers as devil's advocate to find the loopholes in the draft. The board will decide uncompromising quality standard by adopting six-sigma to run the gamut of the project or adopting a decimated statistical control approach on exposure draft. The former uses DMAIC (define measure, analyse, improve, control) to maintain project quality, improve speed, and keeping a lean structure.

Not any Tom, Dick and Harry can be a professional standard hacker. If they can hit the core, they are ace hacker. Will be given a token reward and their findings will be published in leading accounting journal. If the ace hackers consecutively hit the core three times, he should be invited to the board. They play the role of counteraction. It is easy to find omission in application but not easy to finds any omission in principle searching as the technical team has gone through rigorous searches and tests.

The third tier will survey business context, and report on the findings to the board at the initial stage. They will keep close touch with the second tier in the setting process for special issues required further survey at the second stage, and at final stage, they issue survey form co-drafted by the team and the board to elicit feedback on exposure draft, evaluate the results to determine the quality of the exposure draft and conclude their findings for the board further actions. The board will base on the quality report to decide to go ahead or make amendments to the draft. There will be no further enquiry and go straight to the final stage promulgation. Third tier will be doing the legwork on final promulgation of standard. After promulgation, third tier checkers have to follow up the field practice on new standard for six months to sense the real test of the standards and document the feedback in record for future amendment.

In the close, I have answered many of the questions raised in this article. As to will moving to principles-based accounting make perpetrator less scope to manoeuvre? No accounting Standards will stop the perpetrator, but the perpetrator will find it hard at their will to link the accounting principles to their application. Should country standard setters preserve their endemic peculiarity or move towards harmony? How about the political culture aspect consideration in the standard setting process? It all depends on who the users are and their purpose of using the Financial Statements. A good standard setter appears to be neutral to political culture. If the users are geographically diverse, comparability may be ranking high on the card.

Notes:

Note1: Statement of conceptual framework includes the followings:
Relevancy- Concept statement uses predictive value and confirmatory value or feedback value and timeliness
Consistency- concept statement groups consistency under comparability.
Objectivity- Concept statement groups under reliability
Reliability- Concept statement groups verifiability, neutrality, representational for US concept statement and free from error, faithful representation, neutral, complete and prudence for UK statement of principles.
Comparability- Concept statement groups consistency and UK Statement of principles include also disclosure under comparability
Besides, concept statement includes materiality, understandability, and US includes decision usefulness.
The US accounting principle categorises quantitative information as recognition principle and is verifiable. Disclosure principle is to deal with qualitative information, contingency and uncertainty.

Note 2: US and UK Standard setting process
In the US case, the current standard setting process commences the standard setters receive request for new standards from all parts of its diverse constituency, including auditors, industry group, the emerging issues task force and SEC. Requests for action include both suggestions for new topics and suggestions for reconsideration of existing pronouncements. The FASB appoints 15 outside experts as advisory task force to determine the scope of the project and the nature of any additional research that may be needed. If it is a complex issue, FASB will publish discussion document detailing the definition of the problem, the scope of the project. Discussing document also discuss research findings and the arguments and implications relative to each. FASB then invite written comments and present a public hearing. After which, the due process begins. FASB deliberates at meeting, the staffs present a written analysis and recommendations of the issues to be discussed, and presents orally a summary of the written materials and the board discusses each issue presented. After tentative conclusion has been reached, the staff prepare for exposure draft. The exposure draft set forth the board’s conclusions about the proposed standards of financial accounting and reporting, the proposed effective date and method of transition, background information, and an explanation of the basis for the board’s conclusions. The board then review or revise the exposure draft. A vote is then to decide whether to publish the exposure draft for public comments or public hearing. All comment letters and oral presentations are analysed by the staff, and the board members read the letters and the staff analysis. Then, the board is ready to deliberate the issues, with the goal of issuing final standards. When the board is satisfied that all reasonable alternatives have been considered, the staffs draft a final pronouncement.

For UK case, the process is quite similar. The Financial Reporting Council oversees the process of accounting standard setting. The Accounting standards board took over the role of the former Accounting standard Committee (ASC) in formulating accounting standards, the planning sub-committee takes into accounts suggestions from various sources, ASB identifies topic for the possible issue of an FRS. Planning sub-committee then advises on the setting–up of working parties to prepare consultative documents. A research studies then involve review of the literature, consideration of potential problems. Consultative paper can be a discussion paper, a statement of intent or an exposure draft. The working party gives feedback to the ASB on its thinking to exchange view. A consultation plan then drawn up, identify groups with a special interest, considering any legal problems, planning full press exposure, and provides for public hearings. Working party then prepares technical drafting concurrent with widespread private consultations on the issues. At the same time each of the CCAB bodies would also be consulted. The ASB then issues Financial Reporting exposure drafts, and it takes about six months to collect comments, possibly with public hearings. Following the exposure draft, if no major changes of FRED, a standard is prepared.

References:
1. Profits you can trust by H David Sherman, S.David Young and Harris Collingwood
2. Wiley GAAP 2003
3Accounting Standards by John Brake (Pitman)
4. Accounting Horizons (American Accounting Association)
5. Accountancy (ICAEW)