The Case for Transparency – Inventories and Banks

(ehudlaniado.com) - Exactly three years ago, De Beers was in the midst of reviewing applications for the next Sightholder contact period. One item in particular that it required from applicants was compliance with International Financial Reporting Standards (IFRS). IFRS is a common accounting format that includes, among others, a standard stating how particular types of transactions and other events should be reported in financial statements, including the value of inventories. From the standpoint of the diamond industry, this means diamonds – rough and polished. Compliance with IFRS would determine how the value of diamond stocks is reported. Most diamond firms report their financials according to other accounting standards. Those whose reports do not comply with these other standards (and I must stress here that they are all legal, relevant reporting standards that were selected by the relevant country authorities and qualified company accountants) include an auditors’ comment, stating that they cannot attest to the value of the diamond stocks and are relying on company statements and expertise. Again, these are perfectly normal accounting systems that mean that companies have some leeway in terms of the value of their inventory – be it shoes, art, or any one of many other products. Under IFRS, such a comment cannot be made. If the accountants cannot determine the value of an inventory, instead of asking the company to valuate it, an independent third party will be required to do this. The banks demanded that the industry move to IFRS, and in my opinion, justly so.