On August 15, 2016, the Mexican Financial Reporting Standards Board (CINIF, by its initials in Spanish) issued a new financial reporting standard, NIF B-17, “Fair Value Measurement,” and accepted comments on it up until November 15 of the same year. This new standard is part of the process of standardization undertaken by the CINIF since its founding in 2004, when the Mexican Public Accountancy Institute (IMCP) turned over responsibility for issuing accounting standards in Mexico.

This standard is important because of the historic connections between accounting and economics. In other words, as the economic climate continues to evolve, accounting will have the opportunity to change and adapt to these changes as well, and to play a role in its modifications and innovations. This creates an opportunity for accounting to transform itself by incorporating postulates from other disciplines (economics and mathematics). According to Carmona (1995), “the progress of accounting will not be achieved through introspection and the exhaustive use of its own methods, but rather by the application of methodologies from other disciplines to the accounting process.”
Other authors, such as Barlev and Haddad (2003) recognize the need for accounting to evolve from a historic value-based system to one based on fair value, since fair value accounting contributes greater value and relevance to the figures reported in financial statements than historic value, which conceals the true value of a company’s financial position and profits.

Barlev and Haddad (2003) measure relevance in terms of the closer correlation between fair-value-based accounting and the market, reduced agency costs, an increased commitment by company management to operating efficiency, and better information supplied to shareholders for decision-making. Similarly, fair-value-based accounting provides more complete and detailed rules for presentation, which help make the information more comparable and transparent.

Bleck and Liu (2007) show that market valuation can supply investors with a more timely alert mechanism than historic-cost-based valuation. These researchers prepared a model that explains various empirical discoveries, demonstrating the increased transparency that the use of fair value brings to accounting figures.

SFAS 157: Fair value measurements

The first predecessor of the new Mexican standard on incorporation of fair value into accounting comes from the U.S. Financial Accounting Standards Board (FASB).

In 1938, American banking regulators agreed to adopt historic cost as the primary method for reflecting the financial position of investors and lenders, because investments were long-term and interest rates were controlled and stable. The historic cost method worked very well in faithfully reflecting banks’ financial position.

But the world changed dramatically in the 1980s, when interest rates were deregulated and the economic climate became more volatile. Almost on a daily basis, when closing out their operations, banks had to seek alternatives for controlling and covering their exposure to interest rate fluctuations.

During the 1990s, the historic notion that investments were held until maturity was eliminated. The figures presented were no longer relevant when showing historic cost, because they did not faithfully reflect the banks’ financial position. So while historic cost was used to avoid artificial distortions in the reported figures, their use in the 1990s, in fact, distorted and obscured the true volatility. This meant that historic cost was no longer a realistic measurement for financial institutions. It became increasingly evident that market figures were more appropriate and readily available for making investment decisions.

The SEC supported the FASB’s 1986 draft of a standard on financial instruments, which would introduce market-value-based accounting. In drafting the standard, the FASB insisted on the relationship between accounting, economic theory and market forces.

In 2006, the FASB issued SFAS 157, “Fair value measurements,” because there were different definitions of fair value and few guidelines to clarify the concept. The guidelines were scattered throughout various standards, giving rise to confusion and, in some cases, inconsistencies.

The purpose of the standard was to improve the consistency and comparability of various fair value measurements, and to expand the disclosures reporting companies had to make in their financial information regarding these measurements.

NIF B-17: Fair Value Measurement

1. Definition

The draft of the standard issued by the CINIF for review and commentary this past year, in paragraph 30.1, defines fair value as “the price which, on the valuation date, would be received for selling an asset or would be paid to transfer or settle a liability in an orderly transaction between market participants; in other words, between independent, interested, willing and informed parties, in a free-market transaction.”

To better understand this definition, we must break down its elements. In the following paragraphs we will examine some of the characteristics and situations that should be taken into account to determine fair value.

a) Assets and liabilities

Companies must measure the fair value of each specific asset or liability. Therefore, the measurement must take into account attributes specific to the asset or liability. For example, the condition or location of the asset or liability, and any restrictions that might exist on the sale or use of the asset on the measurement date. The asset or liability could be an independent asset or liability (for example, a financial instrument or operating asset), or a group of assets or liabilities (for example, a set of assets, a reporting unit or a business). The unity of the asset or liability is determined by whether it is independent or part of a group of assets or liabilities. The accounting unit determines what is being measured by reference to the level on which the asset or liability is consolidated (or broken out) for the purposes of applying other accounting pronouncements.

b) Orderly transaction between market participants

The definition of fair value assumes that the asset or liability is exchanged in an orderly transaction between market participants to sell an asset or transfer the liability on the measurement date. An orderly transaction is one that assumes exposure to the market or a period prior to the measurement date so that market activities are normal and usual for transactions involving those assets and liabilities. In other words, that it is not performed under duress (for example, a forced liquidation or foreclosure). The transaction to sell an asset or transfer a liability is a hypothetical transaction on the measurement date, considered from the perspective of the market participant that owns the asset or owes the liability. Therefore, the objective of fair value is to determine the price that would be received for selling the asset, or which would be paid for transferring the liability, on the measurement date–in other words, an exit price.

Similarly, measurement at fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or, in the absence of a principal market, the most advantageous market for the asset or liability.

The principal market is the market on which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability.

The most advantageous market is the market in which the reporting entity would sell the asset or transfer the liability with the price that maximizes the amount that would be received for the asset or minimizes the amount that would be paid to transfer the liability, considering transaction costs in the respective market(s). In either of these two cases, the principal (or most advantageous) market is considered from the perspective of the reporting entity, which means different values may be reported by entities engaged in different activities.

If there is a principal market for the asset or liability, the measurement at fair value would represent the price from that market (whether the price is directly observable or otherwise determined by a valuation technique), even if the price on a different market were potentially more advantageous as of the measurement date.

The fair value of the asset or liability would be determined based on the assumptions the market participants would use to set the price of the asset or liability. In developing those assumptions, the reporting identity does not need to identify the specific market participants. Instead, the reporting entity must identify the characteristics that distinguish the market participants, generally considering factors specific to: a) the asset or liability, b) the main (or most advantageous) market for the asset or liability, and c) the market participants with which the reporting entity would trade in that market.

2. Valuation techniques

To measure fair value, the valuation techniques applied must comprise either the market approach, the income approach, or the cost approach. The main aspects of each one of these are as follow:

Market approach. The market approach uses prices and other material information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques comprising the market approach often use market multiples derived from a set of comparable metrics. Multiples may be presented in ranges, with a different multiple for each comparable. It may be that judgment must be applied in choosing where, within that range, the appropriate multiple falls, considering factors specific to the measurement (both quantitative and qualitative). Valuation techniques comprising the market approach include matrix pricing. Matrix pricing is a mathematical technique used primarily to determine the value of debt instruments without depending only on prices quoted for the specific securities, but rather relying on the securities’ relationship to other benchmark quoted securities.

Income approach. The income approach uses valuation techniques to convert future amounts (for example, cash flows or profits) into single present amounts (discounted). The measurement is carried out based on the value indicated by current market expectations regarding those future amounts. These valuation techniques include present value techniques; option pricing techniques like the Black-Scholes-Merton formula and the binomial model, which incorporate present value techniques, as well as the multi-period excess earnings method, which is used to measure the fair value of certain intangible assets.

Cost approach. The cost approach is based on the amount that would normally be needed to replace the service capacity of an asset (also called current replacement cost). From the point of view of a market participant (seller), the price that would be received for the asset is determined based on the cost for a market participant (buyer) to buy or build a replacement asset of comparable profit, adjusted for obsolescence. Obsolescence incorporates physical deterioration, functional (technological) obsolescence and economic (external) obsolescence. It is broader than depreciation, for financial information purposes (an assignment of historic cost) or for tax purposes (based on a specified useful service life).

To measure fair value, the valuation technique selected must be the one most appropriate under the circumstances and the one for which there is sufficient information. In some cases, only one valuation technique will be appropriate; in others, multiple valuation techniques are preferred. If technical valuation multiples are used to measure fair value, the results should be evaluated and weighted, as appropriate, considering the fairness of the range indicated for those results.

Valuation techniques used to measure fair value must be applied consistently. However, if it is appropriate to change a valuation technique, or if its application results in a measurement that is equal to or more representative of fair value, a change in valuation technique is acceptable. This may be the case if, for example, new markets arise, new information becomes available, the information used formerly is no longer available, or valuation techniques improve.

a) Input data for valuation techniques

Input data refer generally to the assumptions that market participants will use to set the price of an asset or liability, including assumptions about risk; for example, the inherent risk in a specific valuation technique used to measure fair value (like a price setting model) or the inherent risk in the input data for valuation techniques.
Input data may be observable or non observable:

Observable input data reflect the assumptions that market participants would use to set the price of the asset or liability, developed on the basis of market information obtained from sources independent of the reporting entity.
Non observable input data reflect the assumptions of the reporting entity itself regarding the assumptions market participants would use to set the price of the asset or liability, developed on the basis of the best information available under the circumstances.

Valuation techniques used to measure fair value must maximize the use of observable input data and minimize the use of non observable input data.

3. Fair value hierarchy

To improve the consistency and comparability of fair value measurements, the fair value hierarchy prioritizes input data for valuation techniques used to measure fair value, on three broad levels. The fair value hierarchy assigns highest priority to quoted (unadjusted) prices on active markets for identical assets and liabilities (Level 1), and the lowest to non observable input data (Level 3).

The availability of relevant input data for the asset or liability, and the relative reliability of the input data, may affect the selection of appropriate valuation techniques. However, the fair value hierarchy prioritizes input data for the valuation techniques, not the valuation techniques themselves. For example, a fair value measurement that uses the present value technique may fall under Level 2 or Level 3, depending on the input data that are important to the measurement as a whole and the level on the reasonable value hierarchy those input data fall under.

a) Level 1 input data

Level 1 input data are quoted (unadjusted) prices in an active (liquid) market for assets or liabilities identical to those the reporting entity is capable of accessing on the measurement date. An active or liquid market for the asset or liability is a market in which the frequency and volume of trading in that asset or liability are sufficient to supply price setting information on a continuous basis. A quoted price in an active or liquid market supplies the most reliable information on fair value, and should be used to measure fair value whenever it is available.
In some situations, a quoted price on an active or liquid market may not represent the fair value on the measurement date. This may be the case if, for example, there are material events (principal-to-principal transactions or IPO announcements) after the close of a market and before the measurement date. The reporting entity must establish and apply a uniform policy for identifying the events that may affect fair value measurements. However, if the listed price is adjusted for new information, the adjustment drops to a lower level in the fair value measurement hierarchy.

b) Level 2 input data

Level 2 information is data other than quoted prices included in Level 1, which are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specific contractual term, a Level 2 input data must be observable for substantially all of the term of the asset or liability. Level 2 input data include:
Listed prices for assets or liabilities in active or liquid markets.

Listed prices for identical or similar assets or liabilities on non-active markets; in other markets, markets where trading in that asset or liability is lighter, in which prices are not current, or price quotations vary substantially, or those for which little public information is released.

Adjustments to Level 2 input data may vary depending on factors specific to the asset or liability. These factors are the condition or location of the asset or liability, the degree to which the input data relate to concepts comparable to the asset or liability, and the volume and frequency of activity in the markets where the input data are observed. A substantial adjustment to the fair value measurement as a whole could cause the measurement to fall to Level 3, depending on the fair value hierarchy level under which the input data used to determine the adjustment fall.

c) Level 3 input data

Level 3 input data are non observable data for the asset or liability. Non observable input data may be used for measuring fair value to the extent that observable input data are not available. Therefore, at this level situations are permitted in which there is little or no market activity in the asset or liability on the measurement date. The purpose of fair value measurement remains the same, however; in other words, an exit price from the point of view of a market participant who owns the asset or owes the liability. Consequently, non observable input data should reflect the assumptions used by the reporting entity itself regarding the assumptions that market participants would use for setting the price of the asset or liability (including risk assumptions). Non observable input data must be obtained based on the best information available under the circumstances, which may include data from the reporting entity itself. The reporting entity must not, however, ignore information on the assumptions of market participants that is readily available without undue cost or effort.

4. Conclusions

Given the history and the background of the accounting discipline, the combination and mutual dependence of economics, mathematics and accounting information is inevitable, so fair value measurement may be a response to this combination, or rather the response that regulators have adopted to solve this problem and provide more accurate accounting information.

The evidence compiled in recent academic research by various authors shows that the fair value of assets and liabilities obtained through an observable market (Level 1) relate closely to the relevance and reliability that financial statement information. But for the fair values obtained by other means or markets (Level 2), the results are mixed and indicate that the reliability of the estimates is limited to certain assets and liabilities.

As was proven by Benston (2006) in his paper on Enron, a Level 3 fair value measurement is neither as reliable nor as representative of a company’s situation. Enron had been valuing its energy contracts using Level 3 techniques, and all of those figures had been backed up by the accounting firm Andersen Consulting. The problem was that the financial information was unable to quickly absorb the volatility of those markets, which eventually resulted in a series of explosive ethical and valuation scandals that erupted at the start of this century.

Other difficulties in fair value measurement relate to the following aspects:

• Inefficient markets, or no markets at all.
• When there is no active market, fair value is not representative of prices, so many assumptions must be made to determine it.
• When a market is inefficient, the value of the assets or liabilities may be over- or under-estimated.
• Lack of data.
• Market volatility.
• The implicit shortcomings of valuation techniques.

Finally, there is still no general or widely accepted agreement in the global accounting community regarding the proposal that all financial information be presented at fair value, even though international regulators like the International Accounting Standards Board (IASB), the Financial Accounting Standards Board (FASB) and now the Mexican Financial Reporting Standards Institute CINIF) have made considerable progress in line with this trend.

References:

• Barlev and Haddad. “Fair value accounting and the management of the firm.” 2003. Elsevier Sciences. Journal of Critical Perspectives on Accounting 14.
• Benston, George. “Fair value accounting: a cautionary tale from Enron.” 2006. Journal of Accounting and Public Policy. No. 25.
• Bleck y Liu. “Market transparency and the accounting regime.” 2007. Journal of Accounting Research, Vol. 45, No. 2.
• Carmona, S. 1995. Por los límites de la contabilidad, cited in Tua, J., Evolución y situación actual del pensamiento contable, p. 120.
• CINIF. 2016. NIF B-17: Determinación del Valor Razonable, in <http://www.cinif.org.mx/uploads/NIF_B-17.pdf>.Viewed November 5, 2016.
• FASB. 2016. ASC Topic 820: Fair Value Measurement, in <https://asc.fasb.org/>. Viewed November 5, 2016.
• IASB. 2016. IFRS 13: Fair Value Measurement, in <http://eifrs.ifrs.org/eifrs/bnstandards/en/2016/ifrs13.pdf>. Viewed November 5, 2016.

Introduction

In many countries, leasing has been one of the most important financing options that companies frequently use. The explanation is that in this way companies have a factory and equipment without incurring cash flows that might affect them; they do not have to carry out bureaucratic procedures for authorizing purchases that delay the acquisition of assets; and they can renovate assets that are subject to rapid technological changes and obsolescence more quickly and efficiently, in order to have state-of-the-art technology. In addition to these operational incentives, the current International Accounting Standard (IAS) 17 “Leases” model has meant that in many cases lease contracts are not reflected in the assets and liabilities on the lessee’s statement of financial position, i.e., they are “off balance.” This has a positive effect on key financial ratios to assess the risk of the company, such as debt, leverage and performance on total assets, which can be very important when the company has a contractual commitment to maintain certain financial ratios.

With this background and for greater clarity and transparency, the International Accounting Standards Board (IASB)¹ issued on January 13, 2016, the new IFRS 16 “Leases,” which will replace, beginning 2019, the IAS 17 standard used for almost 40 years.

This article briefly discusses the antecedents of the change from the current IAS 17 to the new IFRS 16. It explains what the new model of the IFRS 16 consists of and indicates the main changes and effects for lessees and lessors.

Antecedents

Although the need for reform in lease accounting has been discussed for some time, the detonator to launch it occurred in 2005, when the Securities and Exchange Commission (SEC)² reported that public companies in the United States would have approximately 1.25 billion dollars in payment commitments for off-balance sheet leases, which were not reflected in the assets and liabilities of these companies (IASB, 2016 (b)).

These off-balance sheet leases are accounted for in a manner similar to an income expense, so that investors and analysts cannot compare the financial information of companies that borrowed to buy assets with that of companies that lease them, and to make them comparable they have to make adjustments and estimates (according to common practices of investors).

Because of this lack of transparency, the IASB and the Financial Accounting Standards Board (FASB)³ launched a joint project to improve lease accounting and concluded that, despite the fact that with the signing of a lease, an asset (right to use of the good) and a liability (for the obligation of future payments) are generated automatically in the majority of the contracts, this asset and this liability were not reflected in the statement of the financial position, even though they were disclosed in the notes. This conclusion was the guide for developing the new accounting model for leases, under which the lessees must handle the accounting in the same way as almost all their lease contracts, with the goal that the leases that fall off balance are the exception (Morales, 2016).

The IASB report found that according to the annual reports of 2014, out of a sample of 30,000 public companies that used IFRS or US GAAP, more than 14,000 revealed 2.9 billion dollars in payment commitments for leases that were not reflected in the statements of financial position (IASB, 2016 (c)). This figure shows the growth of the off-balance sheet leases with respect to the figures published by the SEC in 2005.

Although the new IFRS 16 emerged from a collaborative project between the IASB and the FASB, the FASB standard has its differences with the IFRS 16 (which fall outside the scope of this article).

The new IFRS 16 “Leases” will be effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted only if the company also applies in advance the IFRS 15 “Income from Contracts with Clients.”

New Model of IFRS 16

With IFRS 16, the “right of use” model emerges, which replaces the “risks and rewards” model of IAS 17 (PWC, 2016).

With IAS 17, leases should be classified into one of two categories: finance or operating leases. Finance leases are those in which the lessor has transferred substantially all the risks and rewards of ownership (of the asset) to the lessee, which in essence is assimilated to a financed purchase. All other leases are classified as operating leases and the lessor remains the economic owner of the property. Only those classified as finance leases are accounted for and are reflected in the assets and liabilities of the statement of financial position. In contrast, in the new IFRS 16 there are no finance or operating lease classifications and all (with some exceptions, such as short-term leases or “low value” property)⁴ must appear in the statement of financial position, and not only those with IAS 17 are considered finance leases.

A key point of IFRS 16 is the identification of a lease in order to register it accountable as such. For a contract to be considered as a lease it is now based on a right of use model. The standard defines a lease as a contract, or part of a contract, which gives the client the right to control the use of an identifiable⁵ asset during the period of use, which is the total time that an asset is used to fulfill a contract with the client, including any non-consecutive period. It is understood that the client controls the use of an identified asset, if throughout the period of use he/she has the right to the following: 1) obtain substantially all of the economic benefits from the use of the identified asset, and 2) direct the use of the identified asset (how and for what purposes it is used). All contracts that meet this definition are considered leases and shall be registered in accordance with the new IFRS 16. Although in the majority of cases it is easy to establish whether a contract contains a lease or not, there are complex situations in which it is necessary to exercise value judgments; for example when both the client and the supplier (the entity that provides goods or services covered by a contract) make decisions with regard to the use of an identified asset or when the supplier has the substantive right to replace the asset during the period of use.⁶

Lessees must initially register a right of use of the asset and a liability for lease, based on the present value of the future payments of the lease and the term of the lease estimated in accordance with the new standard. IFRS 16 defines the term “lease” as “the non-cancellable period for which the lessee has the right to use the asset in question, including optional periods, when the entity is reasonably certain to exercise the option to extend (or not terminate) the lease.” To do this, “the lessor must consider all relevant information and circumstances that may create economic incentives to exercise the option” (PWC, 2016).

IFRS 16 does not apply to contracts for services, so there is no need to settle them in the statement of financial position. If a contract includes leasing and services, they must be separated; but if it is decided to leave them together for practical reasons, everything is capitalized, i.e., it is recorded in its entirety as a lease contract.

Main Changes and Effects for Lessees and Lessors

Lessee

• They must recognize, in all leases, a new leased asset (which represents the right of use of it during the term of the lease) and a lease liability (representing the obligation for future payments), recorded in a similar way to the financial leasing of IAS 17.
• Changes are expected in the financial statements of the lessee as follows:
  • Statement of financial position: The main effect is to increase the assets and liabilities of the lessee. No significant changes to the equity of most companies are expected.
  • Income Statement: It changes the nature of the expenses associated with leasing, replacing the operating expenses by straight line rent , for operating expenses by depreciation and financial expenses, expecting that the latter are increasingly less over the life of the contract. Although it is expected that the total effect on the profits or losses of many companies may not be significant, a higher EBITDA⁷ and increased income from operations can be anticipated. The magnitude of the increase in the income from operations and financing costs will depend on the importance of leases for the company, the length of leases and the discount rate applied (PWC, 2016).
  • Cash Flow Statement: Although there is not expected to be any impact on the total amount of cash flows transferred in the lease (IASB, 2016 (b)), there will be changes in the presentation of the lease payments (principal and interest), to be reported with IFRS 16 within the section of finance activities, instead of the operating activities section. This must be considered in the analysis and interpretation of the net flows from operation and financing.

• Performance metrics and key financial ratios of the lessee are expected to change, including: leverage (increases), asset turnover (decreases), current ratio (decreases), EBITDA, interest coverage (depends), net profit or net loss (depends), earnings per share(depends), return on equity (depends) and net cash flow from operation (increases) (IASB, 2016 (b)).

• In general, it is expected that the companies most affected will be those that lease high-value assets, such as houses, apartments, machinery, aircraft, trains, ships and technology. For companies that lease assets of low value, such as telephones, office furniture, personal computers, etc., the impact is expected to be less, because as we saw, in accordance with IAS 16 (as an exception), they need not be recognized in the assets and liabilities of the statement of financial position.

• Although the new standard will affect virtually all companies that lease assets, it is expected that the impact will vary significantly by industry, by region and even among companies. The industries that are expected to be the most affected are the airlines, shops, travel and leisure, and transportation. The regions with more companies identified with off-balance sheet information and where the greatest impact is expected are in North America and Europe, followed by Asia Pacific, Latin America, and Africa and the Middle East (IASB, 2016 (b)).

• Another impact for the lessee is the cost of implementation and maintenance that will be incurred for having an information system of their leases that will enable compliance with the new standard. Among the costs of implementation are the following: 1) the establishment of systems and processes; 2) the determination of discount rates applied in the valuation of the lease obligation; and 3) communication and education (all market participants must understand the reasons for the change and its effects). The implementation costs for the company will depend on the size of its lease portfolio, the terms and conditions of its leases, and the accounting systems they have for the leases (IASB, 2016 (b)).

Lessors

• Their accounts will remain unchanged for the most part. Their leases will continue to be classified as finance and operating, based on the transfer of substantially all the risks and rewards of ownership of the underlying asset, and they will be recorded in much the same way as they done now with IAS 17.
• Some additional disclosures will be imposed, including the separate statement of assets subject to operating leases and how to manage the exposure to risk of residual value.
• It is expected that adjustments will be made for the changes in the needs and behavior of their clients, as the new standard will have an effect on their business model and on the leased products (PWC, 2016).
• It is very likely that existing and future leases will have to be renegotiated or restructured, and their legal structures and support reassessed to see whether they remain effective (PWC, 2016).

Conclusion

The statement by IASB president Hans Hoogervorst, that “the new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligations” (IASB, 2016 (a)), expresses the essence of the change.

Although the new IFRS 16 will not be effective until January 1, 2019, the sooner the investors and managers understand and assimilate the impact that this standard will have on their company and its business model, the more prepared they will be to deal with the change and lower the cost of implementation.

It is expected that the fact that now the lessees will have to present virtually all leases in the statement of financial position translates into benefits for creditors and investors by having greater clarity and disclosure of the lease commitments of the organization and a better assessment of the risk. However, the implementation of the new standard will not be easy, and the entire business community must be educated and become aware of the reasons for the change and its main effects.

FOOTNOTES
¹ Issuing body of the International Financial Reporting Standards (IFRS)
² Regulatory body for the securities markets in the United States
³ Issuing body of financial regulations in the United States
⁴ Short term means 12 months or less. Assets are set as “low value” assets with a máximum value of $5,000 dollars or less when new (IASB, 2016 (b)). The concept of low value does not depend on the volume of assets; for example, tablets, personal computers, small pieces of furniture, office equipment, telephones and others.
⁵ An identifiable asset can be a specific part of a larger asset; for example, a floor or a comercial establishment of a building.
⁶ As a general rule, in accordance with the IFRS 16, if the client cannot easily determine whether the supplier has a replacement of substantive rights, it must be assumed that he/she does not have it. (IASB, 2016 (b)).
⁷Earnings before interest, taxes and depreciation.

REFERENCES

EY, 2016, “IFRS Developments Issue 117 (January 2016) IASB issues new leases standard,” consulted on June 15, 2016 at .

IASB, 2016 (a), “IASB shines light on leases by bringing them onto the balance sheet,” consulted on June 15, 2016, at .

IASB, 2016 (b), “IFRS 16 Leases. Effects analysis,” consulted on June 15, 2016, at .

IASB, 2016 (c). “IFRS 16 Leases. Project summary and feedback statement,” consulted on June 15, 2016, at .

Morales Díaz, José (2016). “La nueva revolución en la contabilidad de los arrendamientos. Efectos contables y económicos,” consulted on June 10, 2016, at .

PwC, 2016, “IFRS 16: The leases standard is changing. Are you ready?” consulted on June 10, 2016, at .

On May 12, 2015, the guidelines for those who want to be certified in the prevention of operations with resources of illicit origin and financing of terrorism were published in the Federal Official Gazette. The aim of this new certification is to demonstrate that in the country there are those who have the appropriate expertise in the area of “Prevention of Money Laundering and Financing of Terrorism.”

This seeks to contribute to a better and greater compliance in the preventive regime of money laundering and terrorist financing, in addition to generating greater confidence in professional skills.

Who can be certified? According to the publication, public accountants who work in the area of auditing as well as other professionals who are dedicated to the field can be certified. Their services can be provided to entities and persons subject to the supervision of the National Banking and Securities Commission (CNBV for its acronym in Spanish) to verify compliance in the aforementioned area.

The formal requirements, which in the judgment of the competent authorities who will distinguish those who will be the future experts in the field and differentiate them from other professionals are, to the letter, the following:

Have at least a level of studies equivalent to a BA degree;

Have at least one year of experience in the field of prevention, detection and reporting of acts. If participants do not have a degree or professional credentials, they must demonstrate that they have at least four years of experience in the field;

Not having been convicted of property offenses, or disabled to perform a job, position or commission in the public service, the Mexican financial system or in any other country, and

Not having a history of suspension, cancelation or revocation of a registry to serve as an independent external auditor, or having a certification previously revoked by the Commission.

The objective of the requirements is to establish a control mechanism to provide confidence and that will contribute to promoting the stability of the financial system. In addition, to comply with the foregoing, a committee of experts determined the knowledge that participants must have in the field of Prevention of Money Laundering and Financing of Terrorism to receive certification. Therefore, the CNBV entrusted the National Evaluation Center for Higher Education (CENEVAL, for its acronym in Spanish)1 to prepare an exam of valid and reliable knowledge, and with the characteristics of an equitable and ethical evaluation.

The characteristics that the authorities requested for the certification exam are the following:

The exam lasts four hours with 118 multiple-choice questions. Each question has four response options with one correct answer. To pass the exam, one must pass the three areas in which the exam is divided:

The first area refers to basic knowledge of Prevention of Money Laundering and Financing of Terrorism. This section assesses the knowledge of the concepts of money laundering, types and applicable penalties in accordance with the Mexican framework; knowledge of the integration, purpose and functions of the main forums and international and inter-governmental agencies in the field; knowledge of the content of the international conventions as well as the functions of the principal Mexican authorities.

The second area comprises the technical expertise of Prevention of Money Laundering and Financing of Terrorism in accordance with the Mexican legal regime. One must be aware of the laws relating to the Mexican financial system, the general provisions applicable to obligated parties, and the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin.

The last section includes knowledge of the methodology to conduct the audit, reports and the methodology for monitoring the CNBV, knowledge of the Basel Committee, the risk management model of the Wolfsberg Group, and the risk-based approach for the banking sector according to the International Financial Action Task Force on Money Laundering (FATF).

Once the exam is passed, the certification is valid for five years. When it expires, it can be renewed. To renew it, the certified professional must have completed at least 50 hours of training to demonstrate compliance with continuing professional education. If the applicant does not pass the certification exam, he/she will have up to two opportunities in the same calendar year to pass the exam.

A year after the publication of the call for certification of Prevention of Money Laundering and Financing of Terrorism, only three certification exams have been conducted. In these three exams, 1,961 application sites were opened, according to data from the calls for certification in the field of Prevention of Money Laundering and Financing of Terrorism  published in the Federal Official Gazette. For the fourth exam, which will take place in July 2016, there are 1,710 places.

According to a report in El Financiero, only 170 of the 503 who took the exam passed in the first evaluation. This represents a passing rate of 34%, which is an unsatisfactory result. Iván Alemán Loza, former vice president of Supervision of Preventive Processes of the CNBV, said that if someone fails the exam twice, “the financial institution will be notified of that fact and, therefore, the person may not be a valid interlocutor of the CNBV, and it will be the decision of the institution what it will do with that person.” 2

As can be seen in the list published by the CNBV, only 195 persons obtained the certification in the field of Prevention of Money Laundering and Financing of Terrorism in the first stage (June 1 to September 23 of 2015) and have given their consent for their personal data to be published. Of this figure, the area of compliance represents 37%, auditors 33%, lawyers 6%, inspectors of the CNBV 8% and the rest consists of consultants or advisors and others, according to the information provided by the certificates.

The certification is designed to ensure that people have the expertise in the prevention of operations with resources of illicit origin and financing of terrorism, in accordance with the highest international standards in the area, which will undoubtedly generate confidence in the future. The issue has acquired great importance, so it is an opportunity that public accountants must not miss.

1 It is a non-profit civil association that since 1994 designs and implements assessment of knowledge, skills and competencies of different levels of formal and informal education, and analyzes and disseminates the results of the exams.

2 http://capitalmexico.com.mx/index.php/principal-detalle/90992-esconde-cnbv-a-reprobados-en-certificacion-antilavado

Electronic references:

Diario Oficial de la Federación (Federal Official Gazette)  1. Agreement which disclosed the schedule to start the certification process of independent external auditors, compliance officers and other professionals in the prevention of operations with illicit proceeds and terrorist financing. [Online]  <http://www.dof.gob.mx/nota_detalle.php?codigo=5385412&fecha=13/03/2015> [Consulted: April 18, 2016].

Diario Oficial de la Federación (Federal Official Gazette) 2. General provisions for certification of independent external auditors, compliance offers and other professionals in the prevention of operations with illicit proceeds and terrorist financing. [Online] <http://www.dof.gob.mx/nota_detalle.php?codigo=5362353&fecha=02/10/2014> [Consulted: April 18, 2016].

Diario Oficial de la Federación (Federal Official Gazette) 3. Call for certification in prevention of operations with illicit proceeds and terrorist financing. [Online] <http://www.dof.gob.mx/nota_detalle.php?codigo=5392673&fecha=19/05/2015> <http://www.dof.gob.mx/nota_detalle.php?codigo=5404206&fecha=18/08/2015> <http://www.dof.gob.mx/nota_detalle.php?codigo=5435551&fecha=01/04/2016> [Consulted: April 18, 2016].

Comisión Nacional Bancaria de Valores (National Banking and Securities Commission), “Certificación en materia de prevención de lavado de dinero y financiamiento al terrorismo”.  [Online] <http://www.cnbv.gob.mx/PrevencionDeLavadoDeDinero/Documents/CertPLDFT-ListaCertificados.pdf> [Consulted:  April 18, 2016].

Comisión Nacional Bancaria de Valores (National Banking and Securities Commission), Centro Nacional de Evaluación para la Educación Superior (National Center for the Evaluation of Higher Education, “Guía para el participante: Proceso de certificación de auditores externos independientes, oficiales de cumplimiento y demás profesionales en materia de prevención de operaciones con recursos de procedencia ilícita y financiamiento al terrorismo”. [Online] <http://www.cnbv.gob.mx/PrevencionDeLavadoDeDinero/Documents/Guia-CENEVAL-20150612.pdf> [Consulted: April 18, 2016].

Leyva, Jeanette, “Instituciones financieras reprueban examen para prevenir lavado de dinero” [Online] <http://www.elfinanciero.com.mx/economia/instituciones-financieras-reprueban-examen-para-prevenir-lavado-de-dinero.html> [Consulted: April 18, 2016].

Mendoza P., Israel, “Esconde CNBV a reprobados en certificación antilavado” [Online] <http://capitalmexico.com.mx/index.php/principal-detalle/90992-esconde-cnbv-a-reprobados-en-certificacion-antilavado> [Consulted: April 18, 2016].

Secretaría de Hacienda y Crédito Público (Secretariat of Finance and Public Credit), Portal of Prevention of Money Laundering, [Online]  <https://sppld.sat.gob.mx/pld/index.html> [Consulted: April 18, 2016].

To hear the term “biological assets” we automatically imagine a living being, like cells, microorganisms, insects, animals or plants. In the field of accounting, we will focus on the management of agricultural activities.

Do we know what biological assets are in accounting terms (Table 1)? Are they presented under the heading of inventories? At what point in the life of a plant or animal should I keep an accounting record?

As agricultural activity represents an important productive sector in Mexico, it is worth pausing to review its financial regulations. The Consejo Mexicano de Normas de Información Financiera, A.C. (Mexican Board of Financial Reporting Standards) (CINIF), an independent body that began operations in 2003 and collaborates with public and private sector agencies, aims to issue accounting standards in Mexico, which are transparent, objective and reliable and, as far as possible, in alignment with the International Financial Reporting Standards (IFRS).

Financial reporting standards are mandatory and help organize the accounting processes, as they give us the basis for assessing, presenting and disclosing financial information that is useful for decision making. In general terms, “to appraise” is to assign or give a value to the concepts of the financial statements, “to present” refers to the way to correctly display the items in the financial statements, and “to disclose” is to expand or break down the content of theses concepts in the notes to the financial statements.

The International Accounting Standard 41 must be applied for the recognition of biological assets. Its equivalent in Mexico is the Norma Mexicana de Información Financiera (Mexican Financial Reporting Standards) E-1 (NIF E-1).

According to NIF E-1: “A biological asset is a living animal or plant. A group of biological assets is a grouping of similar living animals or plants.” Specifically, the standard applies to biological assets that because of qualitative or quantitative changes are capable of undergoing a biological transformation, that is, they go through a process of: a) growth, those that have not completed the process of biological development; b) degeneration, a decrease in quantity or deterioration in the quality of an animal or plant; c) production and procreation, those that have completed their development process and are able to bear fruit; and d) completion, specifically those that have completed their biological development process and are in condition to be sold, transformed into agricultural products or used in other productive processes.

To understand the steps of recognition, registration and valuation of biological assets, let us consider the example of livestock, for which it will first be necessary to explain certain terms and provide some definitions contained in the NIF E-1.

The evolutionary periods of livestock are as follows:

1. Birth: From birth to 8 days
2. Growth: From 8 days to 6 months
3. Development: From 6 months to 14 months
4. (Operation) Exploitation: From 2 years
5. Discard: After 4 or 5 births

In addition, the biological cycles of livestock are defined in the following five stages

1. Breast feeding calf: From 1 day to 2 months
2. Weaned calf: From 2 to 6 months
3. Developing heifer: From 6 months to 12 months
4. Gestating herd *: From 14 to 17 months
5. Herd in production: From the first birth

* Herd: A number of animals of the same species or the same characteristics.

• Agricultural activity. It will be so regarded when living plants and animals are able to have biological transformations, when the same management facilitates and promotes the conditions to carry out the biological transformation and when these qualitative and quantitative changes are measurable and verifiable.
• Harvest.  Separation or detachment of a product or a biological asset, or the cessation of the life process of a biological asset. The process of the asset after the harvest is not subject to regulations by the NIF E-1, but must be guided with the NIF C-4 Inventories standard..
• Agricultural product.  A product harvested from a biological asset, property of an entity. Fruits obtained from biological assets or the completion of the biological process. They will be taken into account until their disposal or until they are used as input for another production process.
• Fair value. The price that market participants would be willing to receive when selling an asset or paying to transfer a liability between interested and informed parties in a free market transaction.
• An active market. . Markets in which items that are traded are homogenous and in which buyers and sellers can be found at any time with the prices available to the public.

Accounting Policies

It should be clear that for a biological asset or an agricultural product to be recognized as accountable as such, it must meet three requirements established by the standards: 1) the entity controls the asset as the result of past events; 2) it is probable that the future economic benefits associated with the asset will flow to the entity; and 3) the fair value or the cost of an asset can be determined in a trusted, verifiable and objective way. This fair value should decrease in the estimated costs up to the point of sale. If it is not possible to determine the fair value because it is not reliable or in the absence of an active market, then it will be registered at the cost of production less depreciation or accumulated wear and any loss due to deterioration of the same asset.

In the case of livestock, biological assets originate from purchase, birth in the deliveries of the heifer or livestock in production. They should be appraised each time that a statement of financial position is submitted at fair value, or in the specific case of initial recognition, if it is not possible to obtain the market prices or they are not reliable, then they will be appraised at the production cost less the accumulated depreciation and if there is any loss due to deterioration. It must be clear that this would be only in the initial recognition. After, when the fair value of the asset is determined, it will always be at that value less the estimated costs of the point of sale, as a biological asset will be appraised.

The accounting recognition must be carried out during the period in which the biological transformation is performed; for example, for the birth of a bovine, the recognition will be made at the fair value of a bovine eight days after birth. The fair value of the bovine must be determined on the basis of the market price of livestock of the same age, species and genetic characteristics.

The initial accounting record by birth will be as follows:
Debit: Biological assets in growth and development
Credit: Income

If the initial recognition is by purchase of the livestock, the registration will be as follows:
a) Livestock purchased newborn:
Debit: Biological assets in growth and development
Credit: Banks/Suppliers
b) Livestock bought for production or exploitation:
Debit: Biological assets in production
Credit: Banks/Suppliers

After this initial recognition, costs (such as food, vaccines, medicine and others) must be accumulated during growth and development, and earnings or losses are recognized when presenting the financial statement, depending on whether the value is greater in the books or the fair value of the asset. The same thing occurs if one has livestock in production; then, one must compare the value in the books with the fair value and determine the gain or loss.

In Mexico, in general those who are dedicated to the breeding and development of biological assets are family businesses, ranches that are inherited, which although they have accumulated knowledge, they do not rely on the best practices for the purposes of accounting recognition. In addition, in most cases, they do not know the operating expenses, the real value of their assets, how to assess them and present them in a financial statement and even how to declare them, so they lack information in order to make good decisions and they do not understand the risks they face.

In this situation, family businesses are unaware of their real gains or losses. If we are able to train the owners or managers of these family businesses even on a small scale, we would contribute so that this sector would see their business from another perspective, so that with the financial information that is issued, it will know how to determine profit or loss and know the amount of the flows generated by their operation to make better decisions.

Table 1. Examples of biological assets, agricultural produce and products that are the result of a process after the harvest.

References

CINIF-IMCP, “Boletín E-1 Agricultura”, Normas de Información Financiera (NIF), 11a. ed., México, IMCP, 2016.

CINIF Consejo Mexicano de Normas de Información Financiera. http://www.cinif.org.mx/2014_nor_emitidasvigentes.php Consulted on January 17, 2016

KPMG Accounting Advisory Services NIC 41 Activos biológicos y prácticas europeas de aplicación, December of 2008 KPMG in Chile https://www.kpmg.com/CL/es/IssuesAndInsights/ArticlesPublications/Documents/2008-12-kpmg-advisory-activo-biologico.pdf Consulted on January 17, 2016

Bolsa Mexicana de Valores. Industrias Bachoco S.A.B. DE C.V.
http://www.bmv.com.mx/docs-pub/infoanua/infoanua_590798_2014_1.pdf Consulted on January 17, 2016

Manual para el manejo de bovinos de doble propósito
http://sgpwe.izt.uam.mx/files/users/uami/mvzjmvr/Manejo_Bovino_Doble_Prop_sito.pdf Consulted on January 18, 2016.

The figure of the public accountant has always been indispensable. However, globalization has resulted in greater operational complexity and an undeniable need to meet international standards.

The accounting profession has had to adapt and evolve with the environment. The figure of the traditional public accountant is no longer sufficient, rather it must be prepared to meet all these needs.

The accounting profession is facing great challenges, but it also has many opportunities. Every day companies require a higher level of competitiveness in their employees, and universities must prepare their students to meet the demands of the labor market and confront this globalized and competitive world.

Traditional education is being left behind. Universities are modifying their curricula so that students acquire skills, abilities, attitudes and values in their academic formation in order to thrive in the labor market. Among the various teaching models, competency-based training is currently considered as contributing best to this new learning.

There are general and specific skills. General skills are based on the development of personal, interpersonal and social environments, while specific skills are those with which graduates begin their professional life. With regard to the specific competencies of the public accounting degree, the current study plan should promote a teaching-learning process in the comprehensive formation of the accountant.

These ongoing changes in the environment that have so much influence on the professional development needs of the accountants are, among others, the following:

• An increase in the depth and complexity of the operations.
• A growing range of specialties in accounting, with different learning needs.
• An increase in the demand for accountants able to work in different sectors and countries.
• The creation of new ways of presenting information, such as integrated reports.
• The constant updating of information technologies (IT), such as databases.
• The increasing adoption or standardization of the International Financial Reporting Standards.
• The need to acquire vocational skills with critical judgment.

Companies are going to recruit graduates who, in addition to their technical expertise, possess attitudes and skills to cope with the changing world of business, because the future environment will be different. The market requires public accountants who know how to negotiate, handle conflicts and communicate, as well as work in multidisciplinary and multicultural teams.

The impact of technology and the global economy, new sources of competition and accountability, among other factors, have led to a change in the nature of the accounting profession, which announced the emergence of a new generation of accountants.

Accounting students join a work force that is transformed daily by technology. Technology is an engine of change that responds to the new information needs. It is increasingly necessary for accountants to have an analytical mind with a great capacity to manage and analyze databases.

The academic programs, in addition to providing a comprehensive education and training for work in a globalized environment, as we said above, should include subjects of other disciplines to cultivate analytical thinking, leadership qualities and the skills to solve problems in business caused by demographic, economic, climate and technological changes, among others. They should also include and reinforce training in ethics and social responsibility, as the accountant has to generate confidence in society, the company and the users.

Accounting programs should be comprehensive and focus more on processes and less on content, because there is an increasing need to learn more in less time.

Demographic changes have implications for public policies, health, taxation, consumer habits and conflicts between generations. The new order of emerging economies makes companies diversify and expand opportunities for growth for their employees. Climate change and the scarcity of resources require understanding of the impact of organizations on the environment.

In accordance with the Brundtland Commission report, “sustainable development is not a fixed state of harmony, but a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development and institutional change are made compatible with future as well as current needs.”

Each day, sustainability and social responsibility are gaining more importance, and accountants must be familiar with these areas to contribute to the strategy and decision- making process in the organization, in order to generate value.

Finally, in addition to the above, the curriculum should consider ways to provide students with opportunities to get closer to the real working world through internships and study with professors who have extensive experience in business to help reduce the gap between theory and practice. Teachers themselves should be aware of the need to convey the latest knowledge in their field, and to do this they must be continuously up to date.

Public accounting is a complete profession that requires a comprehensive approach and a strategic business vision, without losing its tendency toward specialization in different areas, especially on international issues.

References

Gibson et al. (2013), “Using Classroom Competitions to Prepare Students for the Competitive Business World”, The Journal of Effective Teaching, Vol. 13, No. 1, pp. 64-77.

International Accounting Education Standards Board (2015), Meeting Future expectations of professional Competence: A Consultation on the IAESB’s Future Strategy and Priorities. Consultation Paper.

PWC (2015). Data driven. What students need to succeed in a rapidly changing business world.

Dextre, J. (2013), “Formación profesional: Los retos de la formación por competencias del contador público”, Contabilidad y Negocios (8) 16, pp. 35-47.

Since the beginning of the 21st century, globalization has had a major impact on financial information regulations worldwide. There were profound changes in the issuing bodies, from their name to their form of organization and their processes for issuing standards to develop objective, reliable and transparent financial reporting.

The codes of ethics have also changed, both in the international area, issued by the International Federation of Accountants (IFAC), as in that applicable to Mexico, issued by the Instituto Mexicano de Contadores Públicos, IMCP (Mexican Institute of Public Accountants).

The issuing body of the International Accounting Standards – the International Accounting Standards Committee (IASC) – was transformed into what is now the International Accounting Standards Board (IASB), and the regulations that it issued, the International Accounting Standards (IAS), became part of the International Financial Reporting Standards (IFRS).

In Mexico, the previous issuer of standards, the Instituto Mexicano de Contadores Públicos, IMCP (Mexican Institute of Public Accountants), is currently part of the Consejo Mexicano de Normas de Información Financiera, CINIF (Mexican Board of Financial Reporting Standards), along with other founding organizations that belong to the regulatory sector, such as the Comisión Nacional Bancaria y de Valores, CNBV (National Banking and Securities Commission), the education sector, such as the Asociación Nacional de Facultades y Escuelas de Contaduría y Administración, ANFECA (National Association of Colleges and Schools of Accounting and Administration), and other sectors, such as the Asociación de Bancos de México (Association of Banks of Mexico), among others. The CINIF is responsible for carrying out the convergence of local standards with international standards and issues what is now called the Mexican Financial Reporting Standards (Normas de Información Financiera, NIF), in which reports prepared by the IMCP that remain valid are included. The Mexican Financial Reporting Standards have been in force since January 1, 2006. The following diagrams illustrate the transformations of the issuing bodies of standards internationally and in Mexico, as well as the standards that they issue.

In addition, the International Standards on Auditing issued by the International Auditing and Assurance Standards Board, which is also part of the IFAC, were adopted for all audit work beginning on or after January 1, 2012.

In a few years, one of the most significant changes in the accounting profession has been carried out. However, the changes cannot be stopped, and regulations adapt to the ever-changing economic environment. The CINIF continues its task of convergence to reduce more and more the differences between the NIF and the IFRS.

Mexico has taken another convergence process: the transformation of the code of ethics, which in its ninth edition aligns its content to the international code of ethics issued by the IFAC. This ninth edition has been in force since October 1, 2012. As in the issuance of the Normas de Información Financiera (NIF) (Mexican Financial Reporting Standards), adapted in accordance with the business environment of our country, the non-applicable or uncommon provisions in the accounting profession were eliminated and some of the provisions of the eighth edition that were not in the international code of ethics were added.

With the accounting profession acting in the public interest, it must have a strong code of ethics, which all members of the accounting profession should know and apply, regardless of the sector in which their activities are performed. To promote awareness of the code, since 2015 and in accordance with the newly transformed Norma de Desarrollo Profesional Continuo (Standard of Continuing Professional Development), all active partners of the federated associations to IMCP must complete five or more hours of ethics and professional responsibilities to receive annual updating and maintain professional knowledge certification, in order to ensure the quality of service to society and to obtain the endorsement of the certification. One of the options for complying with these required points is to take courses on the code of professional ethics.

The new code of ethics is divided into five parts:

Part A: General application of the code

Part B: Public accountants in independent practice

Part C: Public accountants in public and private sectors

Part D: Public accountants in teaching

Part E: Sanctions

Part A provides a conceptual framework that establishes and describes the characteristics of the five fundamental principles: integrity, objectivity, diligence and professional competence, confidentiality and professional behavior. It indicates that in the face of the threats to compliance with these fundamental principles, safeguards can be applied that eliminate or reduce them. These can be of personal interest, self-review, intercession by the client, familiarity and intimidation. Safeguards are divided into two main categories: those created by the profession, legislation or regulation, and those of the working environment. The first are, for example, corporate governance rules and professional standards; safeguards of the working environment depend on whether the activity is developed in independent practice or in the public and private sectors, which will be discussed in greater depth in Parts B and C, which also clarifies that it is impossible to describe all the circumstances and relationships that may create threats to compliance with the fundamental principles. Thus, it is recommended that those who perform their activities in independent practice and in the public and private sectors be alert to the circumstances and relationships.

Part B, “Public accountants in independent practice,” occupies 143 of the 195 pages of the code, more than 73% of the total. This part addresses the themes of professional designation, conflicts of interest, second opinions, fees and other types of remuneration, marketing of professional services, gifts and invitations, custody and management of customer assets, objectivity of all services and independence in the audit work and revision and in assurance engagements.

It is noteworthy that in the section of marketing professional services in Part B, it was previously forbidden to advertise and only client recommendations were accepted. Now, this code allows marketing if the independent public accountant issues announcements or other forms of marketing that do not bring discredit to the profession, that do not make exaggerated claims about the services offered or about the qualifications or experience of the professional, and that does not make disparaging references or unsubstantiated comparisons with the work of others. Furthermore, the final section of the code defines the word “advertisement” in the following way: “Communication of information to the public on the services provided by Public Accountants and their capabilities in independent practice, in order to obtain professional business.”

Part C, “Public accountants in the public and private sectors,” establishes guidelines concerning potential conflicts, preparation and reporting information, performance with sufficient expertise, financial interests and incentives. It states that accountants, who are responsible for the preparation and reporting of information that can be trusted both by the entities for which they work and the third parties involved, must promote a culture based on ethics.

Part D describes in a single page the obligations of public accountants in teaching: to guide students to act in accordance with the standards of professional ethics, to keep up to date in the areas of their practice, to treat their students in a decent and respectful manner, encouraging them to better themselves; to refrain from exposing real cases with information that identifies individuals, companies or institutions, unless the information is in the public domain; to refrain from making comments that harm the reputation of persons or the profession and, in general, to respect the prescribed discipline.

Part E indicates, also in a single page, the sanctions. It specifies that penalties will be imposed by the affiliated association to which the accountant belongs or by the Mexican Institute of Public Accountants. Depending on the severity of the act committed for the prestige and stability of the profession, the penalty may be: private reprimand, public reprimand, temporary suspension of the rights as a partner, expulsion, or complaint to the authorities.

A section with definitions of terms used immediately follows at the end.

Conclusion
The provisions of the code of ethics will be subject to constant review and, as with the Mexican Financial Reporting Standards, adaptations may be needed in accordance with changes in the environment. It will also be required that those who perform the various activities covered by the profession are kept constantly updated, that they know the changes that arise over time and that they transmit high ethical values that serve as an example to those who are starting out in the field.

References

IMCP (2012). Código de ética profesional, 9a. ed., México, IMCP.