This month, there are major changes in tax laws across the UAE and Saudi Arabia. Here’s what you need to know and what actions you should take.

UAE: E-Invoicing Is Coming – What It Means for Your Business

What’s happening?
The UAE Ministry of Finance (MoF) is introducing E-Invoicing in July 2026. A recent consultation paper aims to collect feedback from businesses to fine-tune the system before launch.

What does this mean for you?

• Manual invoices will become a thing of the past. Businesses must switch to electronic invoicing.
• Standardised invoicing rules. The government will establish a clear, uniform format for digital invoices.
• Less fraud, better compliance. The new system aims to reduce tax fraud and improve efficiency in tax reporting.

What should you do now?

• Start planning. If you’re still using paper invoices or spreadsheets, look into cloud-based accounting software.
• Consult an expert. Make sure your systems will meet the new requirements before the deadline.

UAE: Extended Deadlines for Tax Appeals – But Only in Certain Cases

What’s happening?
The UAE Federal Tax Authority (FTA) now allows deadline extensions for submitting Tax Assessment Reviews (TAR) or reconsiderations.

However, not all businesses qualify for an extension.

When can you apply for an extension?

• Medical emergencies – If the company’s authorised signatory had a serious illness or accident.
• Unexpected business disruptions – If a disaster or system failure impacted tax records.
• System issues – If the FTA’s online system malfunctions.
• Force majeure events – Any unforeseeable event, determined at the FTA’s discretion.

When will the FTA reject your request?

•  If you forgot or were unaware of your tax obligations.
• If you missed deadlines due to your tax agent’s negligence.
• If you were too busy running your business and didn’t submit on time.

What should you do now?

• Be proactive. Keep track of deadlines to avoid needing an extension.
• Document everything. If you think you may qualify for an extension, keep detailed records.

UAE: New Rules for Tax Clarifications & Directives

What’s happening?
The FTA has introduced new rules for tax clarifications and directives to provide clearer guidance on tax matters.

What does this mean for your business?

Clarifications – You can request a formal ruling from the FTA if you’re unsure how tax laws apply to your business.

Directives – The FTA will issue industry-wide guidelines to ensure businesses follow tax laws correctly.

What should you do now?

•  If you’re unsure about tax laws, request a clarification. This ensures you’re compliant and reduces risk.
• Stay informed. Keep an eye on FTA directives that apply to your industry.

Saudi Arabia: New Transfer Pricing Guidelines

What’s happening?
Saudi Arabia’s Zakat, Tax, and Customs Authority (ZATCA) has released a new Advance Pricing Agreement (APA) Guide for Transfer Pricing.

Why does this matter?

• If your business has related-party transactions (e.g., a UAE company working with a Saudi subsidiary), you need to ensure your pricing complies with international standards.
• APAs help prevent tax disputes by ensuring transactions are priced fairly and in line with the Arm’s Length Principle.

What should you do now?

• If you do business across borders, review your transfer pricing policies.

• Consult a tax expert to ensure compliance with Saudi tax laws.

Stay Ahead of Compliance Changes

Tax rules are constantly evolving. Falling behind can mean hefty fines, compliance risks, and unnecessary stress.

What’s the best way to stay compliant?

• Stay informed – Follow tax updates and new regulations.
• Get expert advice – Work with a tax professional to ensure compliance
• Start planning early – Don’t wait until the last minute to adopt new tax systems.

At Nishe, we simplify tax and compliance so you can focus on running your business.

Need help understanding how these changes affect you? Fix a call with one of the team now!

This is a question that I get every so often, and it’s absolutely a fair question. 

We don’t take our all-women approach lightly. We understand that such decisions are not black and white. We understand that it has consequences both internal and external. We reflect and debate on our decisions internally from time to time. 

In balance, our decision is to continue to be all-women for now. In fact, I firmly believe there should be more all-women workplaces. Why? You may ask. Here is my take.

Breaking the Mold

Women make up half of society but hold far less than half the power. Despite working longer hours and balancing greater responsibilities, barriers persist. Men often enjoy career tailwinds, while women battle headwinds—pushing harder but progressing slower. I’ve lived this reality, and it’s why I founded Nishe as an all-women enterprise.

An Experiment with Purpose

Nishe was more than a business venture—it was a question. Growing up in a conservative society, I witnessed how gender expectations stifled ambition and ability. I wanted to explore: what happens when women create a workplace on their own terms? What if corporate culture was built by women, not around them?

Challenging the Status Quo

Our all-women model is more than a statement—it’s a study in what’s possible:

• It sparks dialogue and breaks assumptions, igniting conversations about equity.
• It demonstrates how women-led businesses prioritize impact—education, sustainability, and community—alongside profit.
• It offers a glimpse into what corporate culture can be when shaped by women—empathetic, inclusive, and collaborative.

Reimagining Corporate Culture

Corporate culture was built by men, for men. Women have long struggled to integrate and adapt. What if corporate culture was built by women? How would it be different?  That’s a question I am curious about. And that’s a question that I think the world should be curious about too given how we women make up half the globe.

At Nishe, we’re building a culture that merges empathy with innovation—a space where both personal and professional growth thrive.  But are we the rule or are we an exception? We can only know if we have a lot more workplaces like ours. Workplaces like ours create a blueprint for a future where corporate culture reflects the strengths of both men and women. 

The Bigger Picture: Why More Women-Led and Women-only Spaces Like Ours Matter

• Representation Shapes Results: Women bring diverse perspectives that lead to more inclusive policies and better business outcomes.
• Visibility Creates Possibility: You can’t be what you can’t see. More women-led spaces mean more role models for future leaders. More women-only spaces show what an alternative corporate culture could be like.
• We’re Not Done Yet: Until the gender gap closes, women-led spaces remain vital drivers of equity. Women-only spaces like ours drive dialogues and fresh thinking which are so crucial to social change. 

Women-only spaces aren’t about exclusion; they’re about equity. They provide a bridge to a future where opportunities are truly equal—and they’ll remain an invaluable tool until that future arrives.

This is my take. What is your take on this? I would love to hear your thoughts.  

UAE-resident Taxable Persons, in general, are taxed on all their profits irrespective of where they are derived from, subject to certain conditional exemptions and credits. Non-resident entities, in general, are taxed on their profits from activities conducted in the UAE. Business activities by Natural Persons (including sole establishments) are taxable, however, such Natural Persons are only required to register for CT provided they have an annual turnover of AED 1 million or more.

The headline tax rate is 9%. Taxable profits up to AED 375,000 is taxed at 0%. A top-up tax will apply for multinationals with a global turnover of AED 3.15 billion or more to align with the BEPS Pillar 2 rules from a date that will be announced in the future. The CT rules provide for withholding tax on certain categories of income derived by non-residents; the rate is however currently set at 0%.

The financial year of the taxpayer will be its tax year, with the first tax year being the first financial year commencing on or after 1 June 2023. The tax return filing and tax payment are due within 9 months from the end of the tax year. There is no advance payment of tax envisaged under the UAE CT rules.

There are exemptions from CT-applicability for certain types of entities such as government, charities etc. Free zone businesses have exemptions provided they meet certain criteria. Reliefs are also provided for small businesses. The CT-rules envisage potential provision of additional reliefs. Certain incomes are tax-exempt. Notably, any real estate income earned by juridical persons are taxable, but those earned by natural persons are not.

The CT follows the transfer pricing rules established by the Organisation of Economic Cooperation and Development (“OECD”) and mandates application of arms’ length pricing for transactions with domestic as well as international related parties. A Master File and a Local File must be maintained if the Taxable Person’s revenue exceeds AED 200 million or the revenue of the multi-national group of which it is a part of exceeds AED 3.15 billion.

The accepted accounting standards are IFRS. IFRS for Small and Medium enterprises (“IFRS for SMEs”) are allowed for entities with a turnover up to AED 50 million.

Certain adjustments may or must be made to the accounting profit to arrive at the taxable profit. The mandatory adjustments include restrictions on deductibility around certain expenses including entertainment expenses, interest etc., while the elective ones include certain adjustments for unrealized profits or losses. There are also certain transitional adjustments – some mandatory, while others optional.

The CT rules conditionally allow Tax Grouping and unlimited carry forward of tax losses.

The CT Law has General Anti-Abuse Rules which are applicable from 10 October 2022. Hence, any changes made by businesses without economic substance and which may be deemed to be with the intention of abusing the CT Law subsequent to this date may be disregarded by the FTA.

This summary is not intended to be a comprehensive list of all the CT rules. It only covers some key areas of common interest and are heavily simplified for the purpose of brevity. Hence, the readers should not use this summary solely as a basis for assessment of the UAE CT applicability for any business.

It is an established corporate ritual for public companies to announce their financial results on a periodic basis. Almost all public companies also publish their annual reports and other periodic performance reports online, a key component of which is the set of financial statements.

Despite the fact that these financial statements run into tens, and even hundreds, of pages, most people do not bother looking beyond the reported key figures such as revenue, net profit and net equity when evaluating performance of companies. A few curious ones may take the pains to glance through the income statements and balance sheets, but very few venture further.

Mixed attribute model

The reality is that, even though numbers portray a sense of absoluteness, accounting is not an exact science. The accounting figures are often arrived at using several judgements and estimations. Further, the use of multiple valuation bases – referred to in accounting parlance as the ’mixed attribute’ model – is a common feature of an accounting balance sheet. The mixed attribute model basically means that some assets and liabilities on a balance sheet are valued on a historical cost basis, while others are valued using various market-based valuation models.

VALUATION OF ASSETS AND LIABILITIES ON BALANCE SHEET

Though historical cost is a definitive number in itself, assets are seldom valued using pure historical cost – their values often have to be adjusted using relatively simpler estimates such as depreciation to account for usage and more complex estimates such as impairment to account for perceived diminutions in value. In the case of market-based valuation models, there are multiple variants depending on the nature of the assets –  some mandatory under accounting standards, others optional. Some investments, for example, have to be measured at ‘fair value’. Inventory, on the other hand, has to measured at ‘net realisable value’ only if it drops below the cost. In the case of fixed assets, an entity can measure them using ‘revaluation’ model instead of a cost-based model if it so chooses.

All of these values have to be derived from or with reference to the market. Such market-based values could be easily obtainable in some cases (such as investments in listed securities). But in other cases (such as investments in unlisted securities or fixed assets), measurement is unlikely to be straightforward and quite often is barely better than guesstimates. In general, the more the accounting judgements and estimations involved, the higher the inter-period volatility as well as the variability across companies for the reported figures. Further, the likelihood of bias and error in those figures increases.

OFF-BALANCE SHEET ITEMS

Thus far, we discussed about the items which are on the balance sheet. Now let us focus a bit on those resources and obligations which can have significant economic implications for an entity, but do not find their way into the balance sheet simply because they do not meet the accounting definitions of assets and liabilities. For example, a company’s own brand name and human resources may be the core factors driving its success, but these are not included on a typical balance sheet. Over the last couple of decades, accounting standard setters have brought many off-balance sheet obligations on to the balance sheet as liabilities – the latest addition being operating lease arrangements (from 2019 onwards), but there are still some commitments and guarantees which are allowed to be kept off-balance sheet for various reasons.

WHAT DOES ALL OF IT MEAN THEN?

Considering all of the above, it is an interesting exercise trying to step back and make sense of what the value of each asset on the balance sheet truly represents. Is it the amount that the business will generate if that asset is sold? Or is it the value that the business could generate if it continues to hold and/or use those assets? Similarly, if reported assets and liabilities in the balance sheet are incomplete, are based on different valuation models and are littered with accounting judgements and estimates, then what does the net equity figure practically represent? All of these are questions which quite often have no clear or easy answer. In other words, the numbers presented in a set of financial statements and their connotations are not necessarily absolute in any sense of the word.

IMPACT ON PROFIT

Last but not the least, let us not forget that many (though not all) movements in the values of assets and liabilities are routed through the income statement. This means the valuation methodologies used for the assets and liabilities also impact the reported profit (or loss). The evaluation of a company’s performance based on the reported profit/loss should therefore be done with caution as those numbers could be highly impacted by ‘guesstimates’ and ‘unearned’ incomes and losses arising purely out of market movements upon which management has little control.

DOES IT MEAN ACCOUNTING NUMBERS ARE USELESS?

While the use of accounting judgements and estimates in preparing financial statements is unavoidable to some extent, one may rightly start pondering about the logic of using multiple valuation bases and whether market-based valuation model or historical cost-based model is better. That requires an extensive analysis in itself which I will not endeavor to do at this time. But for now, let us consider a more practical question – do all of these mean that the reported accounting numbers are useless, meaningless and unreliable? Not really. With all its limitations, the accounting results still remain the most relevant and useful –and most oft-used – basis to evaluate an entity’s and its management’s performance.

The bottom line is, however, if you intend to act on the basis of those reported numbers, just don’t forget that pinch of salt.

And better still, carry a spade too. To dig deeper if needed.

My blogs are also published on my Linkedin page. 

For our accounting and tax related services, please visit here. 

I live in a leased townhouse and run my business from a leased office. This is likely to be the story of many people and businesses in this region. Hence a genuine question arises for such businesses that have offices, warehouses, staff accommodation and/or other properties on lease about the implications of IFRS 16 for leases applicable from January 1, 2019 in their accounting.

“One of my great ambitions before I die is to fly in an aircraft that is on an airline’s balance sheet,” Sir David Tweedie, former Chairman of the IASB (International Accounting Standards Board), said famously in 2008.

“The natural and proper timidity and delicacy which belongs to the female sex evidently unfits it for many of the occupations of civil life,” ruled Justice Bradley in 1872 in Bradwell v. State of Illinois.

Not very different views though 150 years apart – right?

Women are timid, you say? Women can’t handle challenges, you say? Have you ever considered that the challenges that you put in front of girls – through your attitudes, through social, cultural and religious restrictions, through every little and big thing that you say and do from the time she is born – are infinitely more than what you put in front of your boys?

I urge Mr. Al Baker (yes, I know he apologized) and the others who hold similar views (I know there are quite a few, both men and sadly women too) to spend some time reflecting how you, and the society, treat your sons and your daughters, and how it shapes their lives.

I am the only girl among four children and made my family proud with my academic achievements in school. Despite this, I was married off when I was nineteen. Unsure about who I should ask money for my continuing education (whether it ought to be my father or my husband), I chose to self-study for the rest of my education. That is how I completed my undergrad (with first rank in the University, I must add) and ACCA (and becoming a world-wide topper in couple of papers).

And then I joined PwC and went on to become an Assurance director.

And then, a couple of years ago, I left PwC to set up my own accounting practice.

All the while struggling to balance my work and my life.

All the while trying to suppress the inner guilt that continuously gnawed within me about not spending enough time with my little girl (still quite little) and my little boy (who has now grown up to be an 18-year old feminist I am truly proud of! He helped me write this piece, by the way.)

All the while trying hard to learn to stop condemning my audacity to be ambitious; trying hard to unlearn, in its stead, a lot of other things – ideas and notions conditioned into my subconscious from infancy on, as Justice Bradley very eloquently put it, “the natural and proper timidity and delicacy which belongs to the female sex”.

All the while addressing the disapproving external voices (coming from both men and women) about how a woman’s place is in the kitchen and home, constantly making me question the propriety of my choice to work. And listening to compliments about my husband’s greatness and openness of mind for not standing in my way (I mean, I am tremendously proud of him for it, but shouldn’t it be the norm?).

Have you ever considered that the women who actually are able to make it typically have to work much harder than men have to?

At one of the PwC annual trainings in Abu Dhabi a few years ago, I had to put my baby daughter in the hotel room with her nanny while I spent the days in training sessions – so I could check on her from time to time. At the same annual training a couple of years later, one of my colleagues from Saudi Arabia confessed to me that her sister was in the hotel room taking care of her little baby while my colleague was attending the training sessions.

How many men have to go through things like this? (And let’s not forget the sacrifices of the nanny and the sister who have had to sit in the hotel room the entire day so that my colleague and I could attend training).

Things have improved a lot for women in the recent years – from the time of Justice Bradley, from my younger days – but not enough.

My son, my nephew and my two nieces are completing high school this year and are in that critical stage of their lives when they are considering higher studies.

My son is already finalizing the paperwork to join a prestigious university for higher studies in the subject of his choice – political science.

My nephew has been training from the time he grew out of his diapers to become a doctor.

My nieces – just as capable and ambitious as the boys I just mentioned, if not more – are, at a point where they should be well into the university applications, still stuck in limbo in regards to even the most basic details of the next few years of their lives.

Because, while their male counterparts – the traditional breadwinners – are readily encouraged and supported in pursuing their ambitions, my nieces have to balance their ambitions with the patriarchal, paternalistic and patronizing confines that encircle them, like the many generations of women before them.

Women can’t handle challenges – really? It has to be a man – really?

How about trying to level the playing field, perhaps?

Note: My blogs are also published on my Linkedin Page.

Nishe is an accounting and consulting firm focussed on hiring and nurturing female professionals. For more details about us and our purpose, visit here.

You cannot – because you are a woman, and that means you are physically, mentally, intellectually and emotionally weaker than men;

You need not – because you are a woman, and men will take care of you;

and

You should not – because you are a woman. Your purpose in life is to be a good mother and a good wife. Aspiring for anything else is unwomanlike.

A lot of women (even in these more enlightened days) grow up with these myths drilled into them; reinforced by custom, culture, religion, society, law, fake science, books, media – virtually every source and resource.

And these myths become so ingrained in our psyche that they become very difficult to shake off. Even when we begin to realize deep in our minds that they don’t really make much sense.

For many women, a myth that gets broken quite unexpectedly is the one that says “you needn’t” – when they realize that the men who were supposed to take care of them cannot or will not do it, or are not around to do it. Or they simply cannot do it well enough.

Some conventional wisdoms say that women should then learn to adjust to their circumstances. Not to covet for something that their men cannot provide them.

Spare a thought for all the women in the Gulf region working as house maids. They all have a story to tell – stories of neglect, stories of cruel abuse, stories of extreme poverty, debt. Tell these poor women that they should learn not to “covet” for something their menfolk cannot provide and see how they respond.

The saddest part is that these women are so ill-prepared for facing life – forcing them to do whatever they can to survive.

The conventional wisdom also says women cannot. They simply don’t have the ability to be, to do. They are weak, weaker. Whatever differences that naturally exist between men and women, nurture skews them and amplifies them a thousand times. Such as by parents when they tell their daughters things such as, “your brother needs to be strong, so he needs to eat better than you.” Or “your brother needs to study, but you don’t need to”.

It does make me laugh at the irony when the same conventions which say that women are weak also impose the harshest punishment on women. Think of the honour-killing in some ultra-conservative Islamic societies. Isn’t it logical that those who are considered “weak” should be dealt with more compassion when they do something wrong, I wonder.

And ah, of course, women shouldn’t either. Even if they can.

Because their purpose in life is to take care of their husbands and children and the rest of the family. They shouldn’t desire for more. The word that typically goes with wife is “obedient” and the word that goes with motherhood is “sacrifice”. Obedience in wife and sacrifice in mothers are seen as virtues. Anything converse are seen as arrogance, unwomanlike.

History and mythology are replete with examples of women who sacrificed their life for their menfolk. Take Mahabharata, the great Indian epic in which King Dhrutharashtra’s wife Gandhari decided to blindfold herself for the rest of her life when she learned that her would-be husband was blind. She didn’t want to experience the joy of seeing when her husband couldn’t. The result? Both she and her husband failed to see what their children were up to.

What if instead she had realized that with a blind husband, she now has the responsibility to see for both of them? That seeing is not just a joy, but also a responsibility? Imagine how that would have changed the narrative.

And when I speak about these myths around women, I cannot ignore those around men which happen to be the opposite – men can, men need to and men should.

This heavy and uneven responsibility thrust upon them to be the sole breadwinners brings excruciating suffering to a lot of men. I am reminded of the countless South Asian men in the Gulf region who sacrifice their youth and life for the sake of their families back home.

But, in general, it is the women who suffer a lot more in this unfair equation due to the extreme power imbalance it creates.

As this International women’s day comes to a close, I say out loud, with full conviction:

“Both women and men can, they need to and they should.”

So that there is a better distribution of power, responsibility, wealth, health, happiness, effort, knowledge, freedom etc. etc. etc.

On this International Women’s day, I am happy that life is, and is getting, much better and fairer for a lot of women.

I just hope that, during my lifetime, I will be able to see that day when gender discrimination will be a thing of the past globally, so much so that we won’t need to have a Women’s day any more. We can perhaps then rename the day “Human’s day” – a day to remind ourselves, and celebrate, the humanity in all of us, no matter what the gender.

Nishe is an accounting and consulting firm based in Dubai focussed on hiring and nurturing women. To know more about us and our purpose, visit here. 

My blogs are also published in my LInkedin page. 

Not quite convinced? How about this:

Wow! Good ol’ double-entry bookkeeping!

I say ‘good’ because there is nothing but good in double entry bookkeeping. And I say ‘old’ because it was invented all the way back in the 15th century. Yes, it has been around for more than half a millennium – unchanged and unchallenged!

(Note: I am going to repeat the word double entry bookkeeping so much today, so just to make it a bit less sickening, I will shorten it to ‘DEB’ in the rest of this article).

In my earlier column, I promised I would write next about the art and science of accounting. Let’s start with the science – DEB is nothing but pure science. But before I venture on any further, if you are are wondering what the difference between ‘bookkeeping’ and ‘accounting’ is, let me give you a simple formula which should be easy to remember:

Accounting = bookkeeping + some more

(to answer your yet unformed question, yes, the next few articles will focus on the “some more.”)

So what exactly is DEB? Bookkeeping simply means maintaining the financial records of the business. Double-entry means you record both aspects of a transaction – by debiting one aspect and crediting the other.

What do I mean by two aspects of a transaction?

Say, you bought a car and paid fully in cash. This transaction has two sides:

1. You got a car

2. You paid money

In DEB, you would record both these aspects like this:

Debit Car, Credit Cash

Now, let’s say you bought the car on credit instead. Then the two sides are:

1. You got a car

2. You incurred a liability to be settled in the future.

Here, DEB would record both the car and the liability like this:

Debit Car, Credit Liability

You get the general idea.

There have been other methods of bookkeeping (the equally uncreatively named ‘single-entry’), but these are not much used in practice and do not provide the comprehensive information that DEB does. Whether you use the 19th century journals or you account on the cloud, whether you use Oracle or SAP or Sage or Quickbooks or Xero or Tally or any other countless accounting software out there, each and every one of these is based on DEB. DEB can, thusly, be said to be the foundation of virtually every piece of financial information out there.

Okay, so why do I call it a science? It is because there is a precise logic to DEB in terms of what to debit and what to credit, and you have to follow it correctly, otherwise you end up with pure nonsense. Think of how two molecules of hydrogen and one molecule of oxygen make water. It has to be that way; if it is any other way, you don’t get water, you get something else. DEB is kind of like that. You have to debit what you have to debit and you have to credit what you have to credit. If you do it the other way round or you debit/credit something else, you get a very different result.

In my long career as an auditor, I have seen many things – not least how some bookkeepers muddled their bookkeeping and got some horribly botched results. Like that time when one poor chap had debited “expense” instead of “advance” for an amount paid as advance to supplier. The transaction was incorrectly recorded as an expense meant there was a real risk that the company management might forget about the existence of this advance – potentially resulting in a real loss of real money. (Too many “reals”? That was deliberate, just to bring home how really important all this is).

I close this article with an expansion of Charles Munger’s quote,

"Double-entry bookkeeping was a hell of an invention. And it's not 
that hard to understand...."

Well, he can say that, but I know for a fact that many people think otherwise. I suspect the general perception that accounting is boring has something to do with this, but hey, all that’s good is generally boring!! If you are one of those who struggle (or don’t care) to understand bookkeeping, know that you are not alone. Such apathy and ignorance are common enough and that’s why firms like ours are in business. Whether you are a small or large company and whether you are a start-up or well established, we are just a phone call or email away if you need any guidance, support or assistance with any aspects of accounting or bookkeeping. In fact, call us even if you are not sure what it is exactly that is bothering you. We are experts in diagnosis, detection, prevention and treatment of all your accounting and bookkeeping issues. We promise not to act elitist when we speak to you. We will step down to your level, and won’t show our innate arrogance and “know-it-all” attitude one bit! In fact, our modesty will blow your minds away – just give us a try.

Till the next one,

Cheers!

Nish

This article is part of a series – for the previous article, go to Do you really understand the language of business?

For Part 3, please go to Creativity and Art in Accounting. 

My blogs are also published on my LinkedIn page. 

Nishe is an accounting and consulting firm based in Dubai. Please visit here for a list of our services. 

In case you are unsure as to what I meant, that is how we – the accounting elite – refer to all of you ordinary human beings, who don’t understand the complex art and science of accounting. Yes, accounting is both art and science. And yes, it is complex. And if you don’t understand it and are unable to discern that thin grey line where the science stops and the art begins, it follows that you won’t understand the most important language of business. If it seems like I’m exaggerating, listen to the great business guru Warren Buffet:

“Accounting is the language of business, and you have to learn it like a language… To be successful at business, you have to understand the underlying financial values of the business.”

Though there are people out there who are “in the know” propagating the idea that accounting is deliberately made overly complex by us avaricious accountants so that we can amass large amounts of money; don’t buy into that slander one bit. Accounting is complex because the underlying business that it is trying to capture is complex, period!

So that the true complexity of ‘accounting language’ can be better appreciated, allow me to establish here some ‘advanced’ basics of accounting.

Have you heard of GAAP and ever wondered what that means? GAAP stands for generally accepted accounting principles. In simple terms, GAAP provides guidance on the 5W1H* questions for accounting of just about anything under the sun. For instance, say you were to ship 10 widgets to a customer (note: I honestly don’t know why we accountants speak in context of widgets when we give examples, but that appears to be the convention followed, so I will adhere to it). In this example, the question arises as to when it is appropriate to record the sales – is it when: – The order is received, – The order is confirmed, – The goods are shipped, – The goods are delivered, or – The money is received?

Vexing question, isn’t it? Accounting standard on revenue will give you guidance on what needs to be done. Mind you, this is a very simple example. Accounting standards on revenue will also tell you how the revenue should be measured, how it should be presented in your company’s financial statements, what details should be disclosed about it and so on. A typical GAAP will have accounting standards on a plethora of areas such as inventory, share options, derivatives, agriculture, intangible assets, government grants, leases and so on and so forth. I’ve deliberately mentioned a mix of topics here to give you an idea of what comes under the umbrella of accounting standards.

Not so long ago, in a non-globalized world, many countries developed their own individual GAAPs. Like everything else homegrown, they all had their own distinct quirks, tastes and flavors. These worked reasonably well until globalization introduced the need for a common business language so we could all better understand each other. Unlike cultures or cuisines where the regional differences made the world a richer and more interesting place to live, the differences in accounting proved rather limiting for global trade and investments. How do you compare the profits of two similar companies based in two different countries when you know that they have not been calculated in the same manner? How does one make decisions based on such inconsistent information? This inconsistency necessitated some lengthy and painful reconciliation exercises to be done when, say for example, a company based in Europe wanted to list its shares in the US.

Enter the International Accounting Standards Board (IASB). IASB (and its predecessor body) brought in a set of accounting standards for global application (known as International Financial Reporting Standards or IFRS) and is still developing more and more of them. A large number of countries have now either adopted IFRS or converged their own national GAAP with IFRS. This process is still an ongoing one.

And all these GAAPs are by the way, just relating to external financial reporting (i.e. reporting to parties outside the company such as shareholders, banks, etc.). The information that management requires to run their businesses may be different from what the external parties need and invariably much more detailed – and that brings other concepts such as management reporting, cost accounting etc. into play.

And underlying all this is the bookkeeping function – the function that ensures that all transactions in a company are recorded accurately, completely and to the required level of detail. Those records then form the basis of further synthesis and analysis and reporting. Suffice it to say that a flawed bookkeeping function cannot deliver reliable outcomes and reports. Garbage in, garbage out – as we accountants are fond of repeating every now and then.

So where is the art and where is the science in all of these? That’s what my next column is going to be about.

And of course, if you’re struggling with any aspects of capturing, understanding and making sense of this important language of your business, know that you are not alone. It is a common enough affliction and that’s why firms like ours are in business. Regardless of whether you’re a small, mid-sized or large company, or whether you’re a start-up or well-established, we’re just a phone call or email away if you need any guidance, support or assistance with any aspects of accounting. In fact, call us even if you are not sure what it is exactly that is bothering you. We’re experts in diagnosis, detection, prevention and treatment of all your accounting issues. We promise not to act elitist when we speak to you. We will step down to your level, and won’t show our innate arrogance and “know-it- all” attitude one bit! In fact, our modesty will blow your minds away – just give us a try.

Till the next one,

Cheers!

Nish

This is the first part of a series. For Part 2, please go to The Science of Bookkeeping. 

For Part 3, please go to Creativity and Art in Accounting. 

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