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uk.ab accounting and businesS 11/2012

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accounting and business UK 11/2012

BRAND MASTER INTERVIEW: UNILEVER CFO jean-marc huët

SAVING THE WORLD

THE RISE AND ROLE OF NON-FINANCIAL REPORTING

RTI BIG BANG NEARS HIGHLAND SPRING FD VIEW TECHNICAL HEDGE ACCOUNTING

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16/10/2012 13:16

A reminder that starting from October 2012, all employers must enrol eligible workers into a qualifying workplace pension scheme. The date you have to do this by depends on the size of your company, but to give yourself time to prepare, visit The Pensions Regulator at www.tpr.gov.uk/actnow where you’ll find out all you need to know.

Workplace pensions. We’re all in.

3

Editor’s choice

In our cover interview this month, Unilever CFO Jean-Marc Huët tells us what it’s like to run a 5,500-strong finance function for a global giant with more than 400 brands, and how the company is embracing sustainability to drive turnover and profit growth. See page 14

FIGHTING FOR THE FUTURE The concept of sustainability provokes contrasting reactions among finance professionals. For some it injects meaning into their work. In our cover interview Unilever CFO Jean-Marc Huët says that sustainability is inspiring professionals working in the consumer giant’s finance function. And in our feature on the enthusiastic momentum behind non-financial and integrated reporting (page 34), we get a flavour of the galvanising force exerted by the idea that it can help create a better future by bringing about changes in the relationship between business, the environment and society. Yet in the same article we also hear from a US investor furiously deriding corporate social responsibility (CSR) reports as ‘corporate socialist reports’. Even among the many who agree with the general direction of sustainability reporting, some find it aggravatingly woolly on objectives, measurement and intended audience. It’s true that sustainability is neither a static nor a precise concept. The financial crisis has sparked a widening in its scope from an environmental focus to a broader view of a business’s impact on society, including the stability and longevity of the business model itself. It may be a chicken-and-egg question – is sustainability reporting driving more sustainable behaviour by businesses, or vice versa? – but there is no doubting the direction of travel. At PwC’s annual Building Public Trust Awards last month, a prestige event for top clients and contacts, integrated reporting featured prominently. Finance professionals have a leading role to play in reporting in this area but it’s not our only role. As Huët points out, the finance function is involved with every corner of a business and so uniquely placed to be the bearer of the sustainability message. The same argument could be made about finance professionals in practice and the public sector. In more ways than one, accountants have an important role to play in making a better world.

Chris Quick, chris.quick@accaglobal.com

YOU GOT MALE Despite the fine words and worthy aspirations for diversity in business, women account for just one in 10 board appointments. What’s going on? Page 24

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BUBBLING UP FD Murray Falconer explains the success of Highland Spring against the largely foreign names in the UK’s bottled water market. Page 30

TECHNICALLY BRILLIANT? There are over a hundred technical articles with multiple-choice questions on the ACCA website – demonstrate your understanding and get verifiable CPD www.accaglobal.com/cpd

BIG AMBITIONS?

For your next move, check out www.accacareers. com/uk

16/10/2012 13:18

AB UK EDITION CONTENTS NOVEMBER/DECEMBER 2012 VOLUME 15 ISSUE 10 Editor-in-chief Chris Quick chris.quick@accaglobal.com +44 (0)20 7059 5966 Asia editor Colette Steckel colette.steckel@accaglobal.com +44 (0)20 7059 5896 International editor Lesley Bolton lesley.bolton@accaglobal.com +44 (0)20 7059 5965 Sub-editors Dean Gurden, Peter Kernan, Eva Peaty, Vivienne Riddoch Design manager Jackie Dollar jackie.dollar@accaglobal.com +44 (0)20 7059 5620 Designers Robert Mills, Zack Starkey Production manager Anthony Kay anthony.kay@accaglobal.com Advertising Richard McEvoy rmcevoy@educate-direct.com +44 (0)20 7902 1221 Head of publishing Adam Williams adam.williams@accaglobal.com +44 (0)20 7059 5601 Printing Wyndeham Group Pictures Corbis ACCA President Barry Cooper FCCA Deputy president Martin Turner FCCA Vice president Anthony Harbinson FCCA Chief executive Helen Brand OBE

Features

ACCA Connect Tel +44 (0)141 582 2000 Fax +44 (0)141 582 2222 members@accaglobal.com students@accaglobal.com info@accaglobal.com Accounting and Business is published by ACCA 10 times per year. All views expressed within the title are those of the contributors. The Council of ACCA and the publishers do not guarantee the accuracy of statements by contributors or advertisers, or accept responsibility for any statement that they may express in this publication. The publication of an advertisement does not imply endorsement by ACCA of a product or service. Copyright ACCA 2012 Accounting and Business. No part of this publication may be reproduced, stored or distributed without the express written permission of ACCA.

Accounting and Business is published by Certified Accountant (Publications) Ltd, a subsidiary of the Association of Chartered Certified Accountants.

14 Unilever CFO interview Jean-Marc Huët explains why sustainability is central for the giant of household brands 18 Changing face of payroll The introduction of Real Time Information has far-reaching implications for businesses 20 Audit shake up A roundtable at the European Parliament examined the future of audit

ISSN No: 1460-406X

24 Equal measures Ensuring diversity at board level is about more than numbers

29 Lincoln’s Inn Fields London, WC2A 3EE, UK +44 (0) 20 7059 5000 www.accaglobal.com

27 Fuelling fleet efficiency A look at the options for managing company cars

Audit period July 2011 to June 2012 148,106

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30 Highland Spring FD interview Murray Falconer FCCA on the bottled water brand’s success

17/10/2012 12:04

Worldwide

There are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab

Regulars

Your sector

BRIEFING

41 PRACTICE

06 News in pictures A different view of recent headlines

41 The view from Simon Ashworth of Grant Thornton, plus news in brief

08 News in graphics We show a story as well as tell it using innovative graphs

42 Inside BDO The mid-tier firm has much to offer accountants at any stage in their careers

10 News round-up A digest of all the latest news and developments

45 Supporting role Michael Fallon MP describes how accountants can help SMEs

12 Politics Debate around UK’s membership of the European Union intensifies

VIEWPOINT 34 Robert Bruce Accountants could be the superheroes that the world is waiting for 36 Barry Cooper Accounting for the Future was a valuable event for members, says the ACCA president 38 Peter Williams How good are accountants at modelling risk? 40 Jane Fuller The IASB and FASB have locked horns over loan loss models

CPD

Accounting and Business is a rich source of CPD. If you read it to keep yourself up to date, it will contribute to your non-verifiable CPD. If you read an article, learn something new and apply that learning in some way, it will contribute to your verifiable CPD. Each month, we also publish an article or two with related questions to answer. If they are relevant to your development needs, they can also contribute to your verifiable CPD. One hour of learning equates to one unit of CPD. For more, go to www.accaglobal.com/members/cpd

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TECHNICAL 58 Update The latest on financial reporting, auditing, tax and law 62 CPD: charity trustee duties The role involves both legal requirements and ethical considerations 66 A guide for the perplexed Our concluding article examines best corporate reporting practice and looks to the future 68 CPD: hedge accounting A look at the rationale for hedging and its impact on financial statements 71 Accounting solutions PwC experts answer questions on share purchase agreements and accounting for insurance policies

CAREERS 73 Location, location, location The pros and cons of postgraduate studies at home and abroad

46 Commission crackdown The FSA’s review of the financial advice industry could have major implications for accountants

49 CORPORATE 49 The view from Ria Mohammed of BG Group, plus news in brief 50 World view The export market beyond the EU should be approached with caution 52 Capital communication Tips to help your annual report speak to capital markets

53 PUBLIC SECTOR 53 The view from Michael Schofield of NHS Sussex, plus news in brief 54 Are you sitting comfortably? The government’s proposed ‘armchair auditors’ were discussed at a recent ACCA debate 56 Role in reform Accountants are key to managing change in the health sector

ACCA NEWS 78 Diary What’s on in the coming months 80 CPD Annual CPD declarations are now due for submission 81 Council ACCA holds its 107th AGM in London 82 News Barry Cooper formally elected as ACCA president; call for public sector leadership input

18/10/2012 11:29

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News in pictures

01

Children draw circles in the night sky with sparklers ahead of Bonfire Night celebrations

02

An inflatable model of Brazil’s mascot for the 2014 World Cup was punctured by vandals during demonstrations in the southern city of Porto Alegre

03

Rangers FC announced its plan to float its shares on the AIM market. Club chairman Malcolm Murray had earlier denied claims that Rangers could go back into administration

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04

Virgin will run the West Coast Main Line franchise until further notice, following a flawed government bidding process

05

Barack Obama and presidential candidate Mitt Romney gear up for the US election on 6 November

06

Sports Direct bought 20 stores from collapsed rival JJB Sports

07

Formula One team McLaren successfully argued that a ÂŁ49m fine it had to pay for cheating should be tax deductible

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16/10/2012 17:27

News in graphics

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BIG FOUR ALUMNI RISE TO THE TOP

As part of the Competition Commission’s research into competition in the UK audit market, IFF Research undertook a study of the UK’s large listed public and private companies. It found that most of the FDs, CFOs and Audit Committee chairmen surveyed had previously worked for one of the Big Four firms.

INTERNAL PROMOTIONS BEAR RIPER FRUIT

CFOs appointed from within a company have longer tenures and achieve a higher return on assets than CFOs hired from outside, according to research from executive search firm the Curzon Partnership. The study of FTSE 100 CFOs shows internal appointments had an average tenure of six years (4.6 for external hires) and over five years generated an average of 9.5% return on assets (7.1% for external hires).

BIG FOUR EXPERIENCE: CFOs/FDs

28%

PwC

20%

Deloitte

15%

11%

KPMG

EY

… AND AUDIT COMMITTEE CHAIRMEN

EY

16%

15%

KPMG

Deloitte

7.1%

9.5%

KEY

EBT before goodwill impairment

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EBT

2009

€763,688M

€777,340M

€485,082M

European goodwill impairments in 2011 were at their highest levels since 2007, according to Houlihan Lokey’s annual European goodwill impairment study. Earnings before taxes and goodwill impairment charges at the Stoxx Europe 600 Index companies remained robust, indicating they may be taking advantage of higher profitability to perform goodwill impairments.

€515,895M

GOODWILL DEDUCTIONS SOAR

2010

€759,401M

PwC

18%

€835,844M

20%

2011

16/10/2012 17:38

9 SUSTAINABILITY ATTITUDES IN TRANSITION

CFOs are investing more in videoconferencing equipment, datacentre efficiency kit and electric vehicles, according to Deloitte’s 2012 Sustainability and the CFO Study. Some 250 CFOs took part, from companies with more than US$1bn in revenue each.

4

42%

56% Videoconfere

ncing

38%

52%

21% Datacentre efficien cy kit Elect

35%

ric ve hicl

5

2011 2012

1

3

KEY

es

12

2

5

8

12

UK LAGS IN ECONOMIC FREEDOM

KEY 1 Hong Kong 2 Singapore 3 New Zealand 4 Switzerland 5 Australia 5 Canada 8 Mauritius 12 Ireland 12 UK

The UK has been overtaken in the latest economic freedom table published by Canadian thinktank the Fraser Institute. The key ingredients of economic freedom are: personal choice; voluntary exchange coordinated by markets; freedom to enter and compete in markets; and protection of persons and their property from aggression by others.

India

Canada

China

Mexico

Russia

UK

Netherlands

US

EMERGING MARKETS OFFER TASTY TAX INCENTIVES

Emerging markets offer some of the lowest tax costs as well as growth potential, according to KPMG’s Competitive Alternatives 2012: Focus on Tax. Companies in India pay about 50% less in tax costs than their peers in the US.

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12/10/2012 17:09

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News round-up

GRANT THORNTON REVENUE UP

PAC SLAMS TAX AVOIDANCE

DELOITTE OUTPERFORMS

HMRC HIT BY DEPARTURES

Grant Thornton UK’s revenues increased 10.6% to £417m for the financial year ended 30 June 2012, although distributable profit per partner was 2% lower at £335,000. Overall revenues for the advisory practice increased by 22% to £205.2m, while taxation services grew by 3% to £91.9m. Scott Barnes, CEO of Grant Thornton UK, said: ‘The partnership has delivered a strong result for the year, which is ahead of expectations and testament to our core strategy and the hard work and vision of the people within the business.’

Deloitte grew its global revenues by 8.6% in the year ending 31 May 2012 to US$31.3bn, representing its highest growth in four years. Strongest growth was recorded in Asia Pacific and the Americas. The firm is also on target to increase its workforce by over 25% to 250,000 by 2015. ‘Deloitte has always been highly effective at attracting and retaining the world’s best talent,’ said Roger Dassen, global managing director for clients, services and talent. The firm’s financial advisory practices grew revenues by 15%, consulting grew by 13.5%, audit by 6% and tax by 4%.

The use of tax avoidance schemes by public sector staff with the complicity of public bodies has been attacked by the House of Commons Public Accounts Committee. ‘Avoiding tax and national insurance when paying public sector staff is almost always staggeringly inappropriate.’ More than 2,400 senior civil servants have been paid off-payroll, while the BBC has 25,000 off-payroll contracts, including 13,000 for star presenters. But the committee said it remained unaware how common these arrangements are in the NHS and local government.

HM Revenue & Customs (HMRC) has been hit by a series of senior managerial resignations, according to analysis from UHY Hacker Young. The firm calculates that there were 42 resignations at grade 6 and above in the 2011/12 year, a rise of 45% from the 29 who resigned in the same period the year before, suggesting an organisation that is demoralised. Roy Maugham, a UHY Hacker Young tax partner, said: ‘With big cuts to staffing numbers and a sharp increase in resignations, there are a lot of skills walking out of the door at HMRC.’

TWEEDIE TO LEAD IVSC

Sir David Tweedie is the new chairman of the International Valuation Standards Council’s Board of Trustees (IVSC), the standard setter of asset valuations used in financial reports. ‘The global financial crisis has highlighted the crucial role of valuation and its impact on financial markets,’ said Tweedie. ‘Standardised valuation practice, across all business sectors, is now vital in order to provide a consistent approach to portfolio and asset valuation and to improve the confidence of both investors and users of valuation services.’ Tweedie was chairman of the IASB until June last year and replaces Michel Prada who stepped down at the end of last year to become chairman of the IFRS Trustees.

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FRC UPDATES CODE ON AUDIT

The Financial Reporting Council has amended the Corporate Governance Code and Guidance to strengthen communications between auditors and audit committees. Auditors must ensure that committees have the information required to understand the professional judgments made in the audit. Auditors must report if the annual report statement that it is fair, balanced and understandable is inconsistent with any knowledge obtained by the auditor, or if matters reported by the auditor to the audit committee are not appropriately addressed. To find out more, turn to page 57.

G4S INQUIRY SPARKS DEPARTURES A PwC review of G4S has concluded that the company was capable of meeting its contractual obligations to provide security for the London 2012 Olympic and Paralympic Games but failed to do so because of the way it handled the contract. Existing management and delivery structures were not sufficient to meet requirements, says the report. Both the chief operating officer and the managing director of G4S Global Events resigned in response to the report, and additional non-executive directors are being recruited. Former Deloitte global chairman John Connolly, who became G4S chairman in June, said the company accepted responsibility for its failure to deliver the contract.

JUMP IN USE OF TAX PLANNING

Sir David Tweedie, new IVSC chairman

xxxxx

The use of tax planning schemes by UK corporates jumped by a third in the last year, while the number blocked as abusive dramatically dropped, tax advisory law firm Pinsent Masons reported. UK corporates declared 1,862 corporation tax avoidance schemes to HMRC in 2011/12 – 36% more than in 2010/11. The number of declared schemes blocked by HMRC fell from 173 in 2006/7 to just nine in 2010/11. Ray McCann, director at Pinsent Masons, said: ‘There has been a decline in abusive avoidance schemes as corporates know HMRC is ready and waiting to challenge them, with the full support of the courts.’

16/10/2012 15:41

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Analysis TIME TO GET REAL

As companies prepare to make their first Real Time Information submissions to HMRC, the wider implications for payroll and recruitment processes must not be underestimated

P18

IASB TO RE-EXPOSE STANDARD

The International Accounting Standards Board will re-expose proposals for the reform of insurance accounting following substantial changes made since the original exposure draft was published. Feedback will be sought on a limited range of questions on the proposals, with the prompt finalisation of the standard regarded as a priority. Reform may substantially affect insurers, particularly mutual insurers.

and Third Swedish National Pension Fund – in a letter to the Financial Times. Auditors should be required to report ‘significant areas of debate’ with clients; there should be a maximum audit tenure of 15 years; and auditors should be banned from earning non-audit fees of more than half their audit fees. E rnst and Young’s European headquarter offices at More London

LATE PAYMENT HITS SMES

Increasing numbers of small and medium-sized enterprises (SMEs) risk being forced out of business by late payments, according to Bacs. More than a million UK SMEs have a total collective debt of almost £36.4bn, says the body that processes electronic payments. The average amount owed in overdue payments per small firm in the south of England is £53,000, yet half of SMEs surveyed said that late payment debts of less than £50,000 would force them to close.

TALENT MANAGEMENT LACKING

Finance function talent management needs to improve in outsourced shared service providers and in the retained finance function, according to an ACCA report. Talent management in a shared services world found that 72% of 1,200 organisations surveyed do not implement talent management programmes across the entire function, or are not aware of programmes. Only a third of those with talent management programmes regard them as effective. A webinar on this topic is available at www.accaglobal.com/virtual

INVESTORS BACK AUDIT REFORMS Auditor disclosures should go further and European Commission attempts to reform audit should be strengthened, according to a group of large investors. The collapse of banks with clean audit reports demonstrates the need for audit reform, wrote the investors – the Universities Superannuation Scheme, Legal & General Investment Management

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AUDIT OPINIONS INFLUENTIAL Investment decisions are strongly influenced by audit opinions, according to a PwC survey of investment professionals. However, investors want the audit function to evolve to ensure it remains reliable, relevant and valued. Investors stressed that it is the quality of disclosures that is important to them and they seek assurance on industry-specific metrics and other key figures that are not disclosed in financial reports. Some 46% of investors surveyed agreed that auditors are sufficiently independent of management, while 25% disagreed.

FRC WELCOMES RISK REPORTING The reporting of principal risks and uncertainties in company

accounts appears to have improved, according to the Financial Reporting Council’s Financial Reporting Review Panel’s review of 2011/12 reports and accounts. While 130 companies were asked for further information or explanations of the 326 sets of accounts reviewed, overall quality of reporting was good, there was evidence

EY REPORTS STRONG GROWTH

Ernst & Young reported its strongest results for six years, with UK revenues growing 11% to £1.6bn in the year ending 30 June 2012. The tax practice grew by 16% last year, advisory by 12%, transaction advisory by 10% and assurance by 8%. Global revenues grew by 7.6%. The firm said the UK revenue growth reflected the success of its globalisation strategy, investment in top talent and its gain of new clients. Steve Varley, UK chairman and managing partner, said: ‘We have posted our highest revenue growth since 2006, which in large part was driven by bold ambitions to go beyond the UK to look for growth opportunities.’ EY’s forward strategy includes investment in additional fast-growth markets, including Korea, Nigeria and South Africa.

of improvement in risk reporting, and the reporting of risk mitigating actions had been done well. The panel welcomed signs that boards were improving presentations of financial information to focus on key messages.

BUILDING PUBLIC TRUST

The 10th annual Building Public Trust Awards were hosted by PwC to reward excellence in corporate reporting. A special 10th anniversary international award, ‘Towards Integrated Reporting’, was won by the PotashCorp. Other awards were won by Fresnillo (reporting in the FTSE100) Shanks (FTSE250) and the Defence Science & Technology Laboratory (public sector). For an update on reporting, turn to page 66. Compiled by Paul Gosling, journalist

16/10/2012 15:42

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Politics

UK ‘MOST IMPROVED’ NATION

PETROS FASSOULAS DEBATE AROUND UK’S EU MEMBERSHIP INTENSIFIES

The coalition government is stuck between the realisation that the UK’s economic wellbeing depends on the country’s membership of the EU and demands from the right wing of the Conservative party to remove itself as much as possible from its relationship with its European partners. Discussion of ‘repatriating powers’, negotiations on the EU’s budget and arguments around the future direction of the eurozone (and how it affects the rest of the EU) are taking place, with threats from senior Conservative ministers to leave the EU in the background. Such calls can prove destabilising for the British economy, which depends on foreign direct investment and its ability to access the EU single market tariff-free. International investors are concerned by the isolationist tendencies emerging. ACCA maintains a close relationship with the EU institutions, in an effort to make informed, balanced and reliable input to EU single-market rules that affect the profession and our members. Petros Fassoulas is head of policy, Europe and Americas, at ACCA

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The UK is the second most tax competitive nation, according to a study from KPMG, after improving the most among major economies in the last two years. Canada is the only G7 nation ranked higher, though India, China, Mexico and Russia are also listed above the UK. The analysis uses a Total Tax Index, which considers a range of different tax burdens. Chris Morgan, head of tax policy at KPMG in the UK, said: ‘The significant change for the better is partly due to reductions in the corporate income tax rate here in the UK – which has reduced by 2% since 2010 – as part of the government’s stated objective of having the lowest corporation tax rate in the G20. It is also due to lower industrial property values in 2012 which have resulted in a reduced burden for other corporate taxes.’ For more, see page 9.

LIIKANEN ADVISES ON REFORM

EU banks would be forced to separate their proprietary trading and other high-risk trading activities under proposals to the European Commission from its high-level expert group of banking reform. The group was chaired by Erkki Liikanen, governor of the Bank of Finland and a former European Commissioner. The report also recommends strengthening bank governance arrangements and reviewing capital requirements related to trading assets and real estatebased lending. It also calls for further consideration to the use of bail-in instruments – non-equity capital that can be written-off or converted to equity when a bank hits problems.

CABLE MOVES ON £10BN BANK

A £10bn ‘business bank’ to free up capital for small and mediumsized business development is to be launched by the government, business secretary Vince Cable has announced.

‘This will apply leverage through guarantees to support up to £10bn of finance to small and mid-sized business – a significant portion of all the lending currently available,’ he said. Manos Schizas, senior economic analyst at ACCA, responded: ‘Politicians can only make the landscape for small business finance work better by agreeing on a long-term industrial policy that will survive the politics of the coming years and outlive future parliamentary terms.’

ALEXANDER PLEDGES TAX ACTION Treasury secretary Danny Alexander has pledged that the government will prevent companies avoiding UK tax liabilities from winning public service outsource contracts. In a speech to the Liberal Democrats conference, he said: ‘I have discovered that there is nothing that prevents the very small minority of firms that don’t play by the rules from winning government contracts…. Taxpayers’ money should not be funding tax dodgers. So I have tasked HMRC and the Cabinet Office to come up with a workable solution to this problem and we will set out more details later this year.’

ACCA RAISES DOUBT ON GAAR

The objective behind the government’s proposed General Anti-Abuse Rule (GAAR) is sound, but the consultation timetable and structure of its advisory panel are matters for concern, says ACCA. Chas Roy-Chowdhury, head of tax at ACCA, explained: ‘Dealing with complexity should lie at the heart of reforming the UK’s tax system. In India, facing the same issues, the prime ministerial panel has advised that the implementation of a GAAR rule should be deferred for three years, and we agree that neither should the UK rush headfirst into change.’ He called for a more measured approach to drafting the GAAR and an advisory panel of experienced and impartial experts.

16/10/2012 13:19

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14

CFO interview

BRAND MASTER

Unilever CFO Jean-Marc Huët explains how the products giant – whose 400 brands include Marmite and PG Tips – is using sustainability to drive up turnover and profits

W

hatever time of day you’re reading this, chances are you’ll have already used some Unilever products. Persil, Sure, Dove, Timotei, Knorr, Domestos, Marmite, Magnum and Flora are just some of the 400 or so household-name brands owned by the €46.5bn-turnover consumer goods giant. If you have a cup in your hand you might even be drinking one now. The world’s biggest seller of packet tea, Unilever’s brands also include PG Tips, Lipton and Brooke Bond. The list of familiar products, of which it sells 170 billion every year in over 190 countries, goes on and on. Listed on the London, New York and Amsterdam stock exchanges, the company – which started life in the 1890s as Sunlight Soap manufacturer Lever Bros, from where it developed something of a philanthropic flavour to its business – is ranked as the 57th largest in world in the 2012 FT Global 500 league table. Its CFO is Jean-Marc Huët, a 43-yearold Dutchman, born in England and raised in Switzerland. A senior member of the management team and sparring partner to the chief executive, he heads up a 5,500-strong finance function and holds an MBA from INSEAD.

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In 2010 he moved to Unilever from biopharmaceutical giant BristolMyers Squibb, where he had been CFO – before that he was CFO at Dutch babyfood company Royal Numico. Since taking up his current role he has made significant changes to the finance team and played a leading role in driving Unilever towards what he describes as ‘the sweet spot of consistent growth, profitable growth and competitive growth’. So where to start with such a huge role? The standard journalistic opening gambit of ‘what’s in your in-tray?’ is met with a grin as he points to an empty tray on his super-tidy desk, followed by a quick flash of the inbox on his smartphone, empty apart from those emails – a dauntingly large number – that have arrived since the beginning of the interview. ‘I have so much I need to filter through, that my aim at the end of the day is to have an empty in-tray, which is a way of working on dealing with the masses of information I accumulate each and every day.’ This also helps him feel in control. Huët says it’s important to spend time thinking through his diary. ‘In an uncertain world, what is at the top of my in-tray changes and I’m constantly reassessing how I spend time. How I

do this is crucial. I could spend my time – the whole day – with third-party consultants, bankers and the like, but I wouldn’t get anywhere.’

Ready to move Agility is also something he sees as vital on a corporate level. ‘We’re in a very volatile, complex world, so it is much more difficult to forecast today than ever before. So it’s more important than ever to be flexible, to be agile and to have reliable systems.’ He doesn’t see the economic climate stabilising. ‘The last five years have been incredibly volatile. The next five will continue to be so. That’s our planning assumption.’ So can you plan at all? ‘It’s very difficult,’ says Huët. ‘You need to make

16/10/2012 17:32

15

‘WE’RE IN A VERY VOLATILE, COMPLEX WORLD, SO IT’S MORE IMPORTANT THAN EVER TO BE FLEXIBLE, TO BE AGILE AND TO HAVE RELIABLE SYSTEMS’ sure that you’re much closer to the organisation, so that you know which levers to pull, when and how.’ For a company like Unilever, says Huët, this requires a CFO who is close to the operations and understands the nuts and bolts, which necessitates a lot of travel. More than 40% of Unilever’s turnover comes from Africa and Asia, a third from the Americas and around a quarter from Western Europe. He is away from Unilever’s iconic Thamesside London headquarters for about a third of his time.

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However, Unilever also has a firm long-term strategy. In 2010 it set out its Sustainable Living Plan, which sets out a 10-year journey towards sustainable growth. It focuses not just on environmental issues, but also on social issues like nutrition, health, hygiene and waste. Targets include sourcing 100% of raw materials sustainably and helping one billion people improve their health and wellbeing. Another includes halving the environmental footprint of its products, linking to the stated,

and very ambitious, aim of Unilever to double its size without increasing its environmental impact. A more detailed business strategy, ‘the Compass’, launched in 2009, focuses on bringing its strategy to life through branding, people policies, market development, innovation and research and development. ‘The next 12 months are very much about being in years three and four of the journey we’re on at Unilever. It will be about implementing the initiatives we’ve already kick-started, making sure they have the impact they should do.’ Discipline, rigour, robust systems, and real-time information are all vital, he says. ‘It requires strategic thinking and alignment with an organisation as complex and global as us.’

16/10/2012 17:32

16

The CV 2010

Joined Unilever as CFO.

2008

Senior vice president and CFO, Bristol-Myers Squibb.

2003

CFO, Royal Numico, a babyfood manufacturer.

1999

Executive director, Investment Banking Services, Goldman Sachs International.

1993

Analyst, becoming associate, Investment Banking Division, Goldman Sachs International.

1991

Commercial manager, Clement Trading, Italy.

Sustainability, says Huët, is central to this, and should not be dismissed as a ‘side concept’. ‘Sustainability drives profitable growth.’ Brandishing an analyst presentation entitled ‘Sustainability and savings leverage’, he starts to explain with conviction what he describes as the ‘virtuous circle of growth’. He starts with sustainability-led growth, pointing to consumer-facing innovations such as its Pureit water filter, which provides safe drinking water in areas where supplies are poor, without the need for electricity or gas. Sustainability also opens up new markets and joint initiatives with customers, such as a campaign with Tesco called ‘A better future starts at home’. Retailers rather than consumers, he points out, are the

UK_F_Unilever.indd 16

‘IT IS FOR FINANCE TO DRIVE OUR VIRTUOUS CIRCLE OF GROWTH BECAUSE WE ARE THE ONES WHO CAN BEAR THE MESSAGE OF WHAT WE ARE TRYING TO DO’ company’s direct customers. Tesco, Walmart and others, he says, believe that sustainability is important, so Unilever is working with them. He then points to cost savings, such as reduced packaging, sustainabilitydriven factory design and the efficiency of transport and other logistics. ‘These are tangible ways in which sustainability can actually drive your cost base down.’ The final point is risk management. ‘This is in terms of our reputation, our ability to secure supplies, avoid stranded assets and the like.’ So where does the finance team fit in? ‘I spend a lot of time just on people. It could be hiring new people. It could be succession planning. It could be agility and effectiveness. But people and capabilities are critical.’ Not an accountant himself, Huët sees professional qualifications as very important, although they have to be supplemented by wide experience and confidence. ‘If you don’t have the qualification, at least have the selfconfidence to understand what may be a blind spot and do something about it,’ he adds.

He says he’s spent an ‘inordinate amount of time’ improving the Unilever finance function since he joined, changing the jobs of around 70 of his top 100 people ‘to get the right people into the right function’.

Connecting the dots His team is headed by a group of five – FINEX, short for finance executive – through which he runs things and drives change. ‘One represents what we could call the outside world – the head of IR and M&A. Another represents the balance sheet – the treasurer. Another the countries, and another the categories. Then there is internal audit, because risk management is so important.’ Under that is a group of around 20, who form the wider team. ‘Finance connects all the dots, be it from a category perspective, the geographies, the functions, the outsourcing. I don’t really want to use the word “powerful”, but it’s a very integrated function, which really drives change throughout the organisation.’ Outsourcing and shared services, he says, are used where appropriate. ‘We don’t blindly outsource everything. We

16/10/2012 17:34

17

The tips

The basics

‘Always remain healthily unsatisfied.’

UNILEVER

‘Take risks: risk is opportunity. Be happy feeling a little uncomfortable sometimes, because that’s when you’re learning.’

Number of Unilever staff, spread across around 100 countries.

*

Increase in turnover – to €25.4bn – enjoyed by Unilever for the first half of 2012. Operating profit was €3.4bn.

* * drive global scale to get leverage and efficiency, but at the same time we need local intimacy.’ He sees a central role for finance in Unilever’s sustainability strategy. ‘I believe it is for finance to drive our virtuous circle of growth because we are the ones who can bear the communication, the message and context of what we are trying to do.’ Finance people, he says, are able to make the trade-offs in budgeting and forecasting that are needed. ‘There are going to be certain initiatives which may be more expensive, but are more sustainable.’ They also manage the KPIs. ‘Finance plays a huge role in the collecting of the data, its integrity and making sure that we can really monitor the KPIs, which is a massive piece of work.’ Sustainability, he says, inspires people because they really want to work in it and think about sustainability and finance together. Getting finance people involved is not a problem. Unilever currently produces separate annual and sustainability reports, but is considering whether it should produce a combined report in the future. A quarter of its sustainability KPIs are already audited, which Huët says has been very time-intensive. But more assurance is planned. Integrated reporting, he says, is a good development. ‘But we’re also very

UK_F_Unilever.indd 17

‘Don’t think too much about your career in the future. I sometimes see young people spending too much time thinking about life being a game of chess. Hopefully you’re just in a context where the more you put in, the more you take out. People need to know you, then you’re given opportunities.’

*

‘Celebrate when you’ve slipped on a banana! When you’ve made a mistake, demonstrate to yourself, more than anybody else, how you’ve learnt from it. To build scars is critical. I have lots of scars.’

realistic. This is not something that can happen overnight and we need to understand who our audience is.’

Pressure points So what of his own role? ‘I think the job of CFO today is more challenging than ever before, internally and externally. You need to operate both on a level of operational detail and strategically higher up. There are pressure points from everywhere.’ Weekend tennis games, he says, are not just for fun, but to help him withstand the stress and pressure. He will not be drawn on the length of this working week, other than to say he has a ‘patient wife’. But he makes sure he is present for important events in the life of his family – he has three children under the age of eight.

179,000 11.5% 35M

Number of cups of PG Tips drunk every day, enough to fill six Olympicsize swimming pools.

53%

Percentage of business from emerging markets.

12

Number of Unilever brands that generate more than €1bn a year.

Does Huët have any advice for his fellow finance professionals? ‘As the world is more connected, the ability for people to work well in different cultural environments is hugely important, as is having the required sensibilities around diversity and inclusion, and being able to be comfortable in grey areas in an uncertain world.’ Governments, he says, need to understand ways in which they can collaborate, because objectives over the long term must be aligned. ‘Their focus seems to be more on re-election than long-term strategy. But I say that with all humility because at the end of the day I try to sell Marmite and Colman’s Mustard.’ Chris Quick, editor

16/10/2012 17:36

18

BIG BANG NEARS

The right software and accurate data will be crucial to meeting the increased demands of payroll submissions. We look at the practical implications of Real Time Information

I

n April 2013, when employers run their first payroll of the new tax year, most will also be pressing the button to submit their first Real Time Information (RTI) submission to HM Revenue & Customs (HMRC). How smoothly that submission process goes depends hugely on how well employers prepare now, and how effectively HMRC addresses outstanding questions. Under RTI, instead of telling HMRC at the end of the year what PAYE and national insurance deductions have been withheld from employees’ pay, employers will submit that information every time they run a payroll. This has obvious implications for payroll software, hence HMRC’s close working with software providers to clarify data needs and support the development of RTI-compliant payroll software in time. Results from HMRC’s ongoing RTI pilot are encouraging. ‘Once

our customers have done their first and second submissions, they find it quickly becomes second nature,’ says Neilson Watts, associate product manager at Sage. ‘The way we have integrated RTI into our software, the payroll process does not change. There’s just an extra click of the button to make the submission.’ But RTI is more than a software issue. For starters, employers need to make sure they hold accurate payroll data. Mismatches between HMRC’s data and that held by employers could cause RTI submissions to be rejected. Employers need to audit their data in advance of their initial RTI submission, asking employees to confirm information such as their surname, forename, gender, address, date of birth and national insurance number. ‘It’s really important to get these records right,’ says Karen Thomson, associate director of policy, research

** HOW TO PREPARE FOR RTI* * *

Understand what RTI involves – read any HMRC communications, review its online information, sign up for software providers’ webinars or seminars, or access informative websites such as PayeRti.org Contact your payroll software provider to check the product you use will be RTI-compliant. If you do not currently use any payroll software, consider whether to use HMRC’s free Basic PAYE Tools, buy an RTI-compliant software product or appoint a payroll bureau.

UK_F_RTI.indd 18

* * *

If you use BACS to make payments to HMRC, check your BACS software will be hashtag-enabled (required to enable HMRC to link payments with submissions). If you use a payroll bureau or accountant, ask what they are doing to prepare for RTI. Data cleanse payroll information and make sure you can access all necessary employee details, including normal hours worked. If you have questions or comments about RTI, contact ACCA at advisory@uk.accaglobal.com

and strategic visibility at the Chartered Institute of Payroll Professionals (CIPP). ‘Our payroll manager contacted all CIPP employees and asked them to confirm the key information. She then compared it to the details on our payroll system. We were about 95% accurate.’ Most of the mismatches involved use of a nickname rather than a full name, but even such minor details need to be corrected. RTI also has wider implications for payroll and recruitment processes. ‘People shouldn’t underestimate RTI,’ says Glenn Collins, head of technical advisory at ACCA UK. ‘It requires them to think about how it will impact their business. For example, if you want to bring in employees who are not UK nationals, there’s a range of issues around what will or won’t be acceptable in terms of their identification. There are many practical issues, and information is taking a while to come out from HMRC.’ While employers involved in HMRC’s pilot may be gaining RTI understanding, there are concerns about low levels of awareness elsewhere and the numbers of employers needing to take action. Phill Robinson, CEO of the IRIS software group, notes that 23% of the UK’s 1.2 million small and medium-sized enterprises (SMEs) are believed to have no payroll software. ‘Between now and April, they need to take decisions about how they will meet the RTI requirements,’ he says. A survey of payroll software providers by Sage also found ‘a substantial number were either not ready or didn’t know what RTI was – that’s a concern’.

16/10/2012 10:43

19

Software providers are helping to increase RTI understanding, however. ‘We offer free webinars to customers,’ says Robinson. ‘We are also doing 50 training courses up and down the UK covering the RTI preparatory work.’ In October, HMRC itself began a major RTI awareness-raising campaign. One challenge with stimulating employer action is that RTI is being introduced to enable the introduction of the Universal Credit. There doesn’t seem much in it for employers themselves, though HMRC is arguing differently. ‘Reporting PAYE in real time will reduce administrative burdens on employers by £300m net per year by integrating the reporting of PAYE information with normal business practices,’ says Jane Brothwood, HMRC’s head of RTI communications. ‘It will make PAYE simpler and more efficient, removing the end-ofyear process for all employers and streamlining the starter and leaver process. Employers in our pilot have confirmed that reporting PAYE in real time reduces burdens and feedback

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‘THOSE IN THE PILOT ARE ALL WILLING EMPLOYERS AND THEY HAVE BEEN HANDHELD. THE BIG BANG FOR RTI WILL BE WHEN ALL THE SMES JOIN IN’ is that they find reporting in real time easy to operate.’ However, as CIPP’s Thomson notes: ‘Those in the pilot are all willing employers and they have been handheld. The big bang for RTI will be when all the SMEs join in.’ Unless they prepare carefully, they may not find the process so straightforward. One final warning for employers: manipulating PAYE payments to HMRC in order to manage cashflow will be

spotted. ‘Under RTI, HMRC will know how much tax and national insurance employers have withheld from their employees – and therefore how much they expect to receive at the end of every month,’ says Alex Rowson, director of QTAC Payroll Products and chair of the HR and payroll special interest group of software developers’ association BASDA. Sarah Perrin, journalist

16/10/2012 10:56

20

SHAKING UP AUDIT IN EUROPE

As negotiations to reform audit in the European Union enter a critical stage, we report on discussions over key issues at a recent ACCA event at the European Parliament

T

here is a general consensus that any reform of audit needs to improve transparency and quality. It must help resolve the gap that exists between what auditors are asked to do and what stakeholders and citizens believe the audit process should involve. There are, however, diverging perspectives on the appropriate tools for making audit more effective and relevant in the 21st century, especially in the area of auditor independence and market structure. These were discussed at a joint ACCA-ecoDa (European Confederation of Directors’ Associations) roundtable recently at the European Parliament in Brussels. The European Commission believes that promoting independence and healthy competition, and enforcing compliance in the audit sector, are key to restoring trust. Audit plays a pivotal role in business by promoting the causes of transparency, accountability and sound financial management. The EU executive believes that the confidence of stakeholders in the audits of financial statements is an essential ingredient for business growth and competitiveness. With this in mind, and to clarify and reinforce the role of audit, the EU executive published a legislative package in November 2011. It incorporated a new regulation with specific requirements for the audit of public interest entities (PIEs) and an updated statutory audit directive. The European Parliament and Council are

UK_F_Euraudit.indd 20

currently preparing their positions on the package. It was against this background that Sajjad Karim MEP, rapporteur on the audit package for the Legal Affairs Committee of the European Parliament, hosted the roundtable. The event was entitled The Future of Audit: towards more transparency, quality and independence. The panel of experts included representatives from the investor, shareholder, business and director communities, as well as from the

more competition in the market. ‘By combining greater information and availability of insight into the audit market with a reinforced opportunity to engage, I also expect to see a much stronger attitude of involvement from shareholders and investors when it comes to a company’s auditor engagement, as they find themselves much better placed to critically assess and comment on what they want to see from their auditors.’ Nathalie Berger, head of the audit unit at the European Commission,

‘QUALITY, TRANSPARENCY AND INDEPENDENCE SHOULD BE THE FOREMOST CONSIDERATIONS WHEN DESIGNING AN AUDIT REGULATORY REGIME’ European Parliament, the European Commission, the International Auditing and Assurance Standards Board (IAASB) and the European Securities and Markets Authority (ESMA). Audit professionals were also among over 200 participants at the event.

The three principles of reform Addressing the roundtable, Karim said: ‘My report follows a clear philosophy: audit quality, transparency and independence should be foremost when designing an audit regulatory regime. After the 2008 financial crisis the finance sector needs to win back the confidence of investors, who are looking for higher-quality auditing, improved value of statutory audits, and

said: ‘The European Commission very much appreciates MEP Karim’s efforts to bring the audit reform forward. He rightly highlighted that the status quo is not an option. From today’s debate, we all seem to agree on the objectives of clarifying the role of auditors and strengthening auditors’ independence. Auditors play a societal role. Improved audit quality will enhance the single market; it will be key to strengthen auditors’ confidence in order to ultimately enhance financial stability.’ Investors and shareholders deplored a lack of transparency and said they felt excluded from the audit process and findings. Most of the panellists agreed with the rapporteur proposals to improve auditor communication

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**

EU AUDIT: THE TIMETABLE 15 October 2012 Presentation of the draft report of the opinion rapporteur on audit for the Economic and Monetary Affairs Committee (ECON). 7 November 2012 Deadline for MEPs to send amendments to the report of audit rapporteur Sajjad Karim. 18 December 2012 Vote expected on MEP Karim’s report (which will include amendments proposed by ECON) and the start of negotiations with the Council under the EU’s co-decision procedure. Political agreement is expected for the first quarter of 2013, under the Irish presidency of the EU.

* *

UK_F_Euraudit.indd 21

*

EU AUDIT: THE PROPOSALS

These are the initial proposals, which will be subject to change by the European Parliament and Council. Mandatory rotation of audit firms, with a maximum engagement period of six years (with some exceptions) for the same client; joint audits permitted for nine years. PIEs must have transparent and open tender procedures when selecting a new auditor, with the audit committee closely involved. Audit firms prohibited from providing nonaudit services to their audit clients. European supervision of the audit sector. Small and medium-sized businesses allowed to apply standards proportionately.

*

* * * *

The proposals would be introduced by a new regulation and the amendment of the current statutory audit directive. The regulation – containing specific requirements for the audit of public interest entities – would be binding immediately and across the whole of Europe if made law. Changes to the directive would affect smaller firms and would be implemented by member states individually, and therefore allow for more flexibility.

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Sue Almond, ACCA

and auditor reporting. They welcomed the IAASB Auditor Reporting Project, robust supervision and a strengthening of the audit committee’s role. However, ecoDa’s Per Levkall warned: ‘Expanding the role of the audit committee should be consistent with the diverse functioning of corporate governance in the various member states – notably in Nordic countries – and should not create an unjustifiable disruption of existing corporate governance practices.’ The audience was also reminded that it is essential that professional bodies continue to be involved in the activities of the profession under the supervision and oversight of member states’ competent authorities, which are best placed and sufficiently competent to judge about the level of delegation to professional bodies. The debate was particularly animated on market structure and independence issues. Karim proposed keeping the principle of mandatory rotation, seen as a cornerstone of the EU executive’s audit proposals. Rotation is intended to discourage overfamiliarity between auditor and audited company, but the rapporteur suggested an engagement limit of 25 years instead of the six proposed by the commission, in order to avoid disruption and high costs.

Shareholder involvement For Karim, mandatory rotation is merely a backstop, and shareholders should become much more involved in the audit process through the work of each company’s audit committee in the form of an annual review and the appointment of the statutory auditor by shareholders. Many participants at the event supported the MEP’s view that robust international standards and

UK_F_Euraudit.indd 22

‘THERE IS CONSENSUS OVER THE CRITICAL ROLE OF THE AUDIT COMMITTEE IN AUDITOR APPOINTMENT AND INDEPENDENCE’ international convergence make sense as many companies classified as PIEs operate beyond EU borders. On controversial non-audit services, a majority agreed that, looking beyond the ‘blacklist’ of services, the involvement of the audit committee in the approval of all other non-audit services was essential. Karim shares shadow rapporteur Sebastian Bodu’s willingness to open up competition in non-audit services to allow smaller firms to gain a foothold in the upper tiers of the market. The issue of joint audit, deleted in Karim’s draft report, was also addressed, with representatives of mid-tier firms arguing in favour of the commission’s proposal to incentivise the system. Businesses indicated that they were not opposed to voluntary joint audit, but did not want a mandatory system; they warned against increasing costs in areas of little significance to audit users, as it would draw resources away from the key focus points. They stressed that the huge variety of domestic companies throughout the EU and the markets they operate

in made a one-size-fits-all solution a ‘bad fit for all’. Some participants said they would prefer an approach based on corporate governance codes and comply or explain rather than a legally binding mandatory instrument. The Legal Affairs Committee will now consider input from other committees and MEPs’ amendments. The deadline for these has been deferred until 7 November. The Legal Affairs vote is expected in December so that negotiations can start with the council, probably under the Irish presidency.

With immediate effect The regulation would affect audits conducted for banks, financial undertakings and listed companies generally (the so-called public interest entities). If made law, it would come into effect immediately and across the whole of Europe. Changes to the directive would affect smaller firms and would be implemented by member states individually, and therefore allow for more flexibility. Sue Almond, technical director at ACCA, concluded: ‘We were delighted with the quality of speakers, delegates and debate at such a critical stage of the audit reform process. Although there remain, understandably, areas of difference, it was interesting to see a number of areas of consensus – for example, in the critical role of the audit committee in auditor appointment and independence, and in the need for more informative and transparent auditor reporting. We look forward to working with MEP Karim and the broad range of stakeholders as the debate enters the key negotiating stage with a view to achieving change that will genuinely contribute to audit quality and enhance public confidence in audit.’ Cecile Bonino, ACCA

17/10/2012 12:12

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10/1/12 5:06 PM

24

ROOM AT THE TOP

More women are being appointed to the boards of FTSE companies, but is real change happening fast enough or are companies just paying lip service to diversity?

‘W

omen hold up half the sky,’ goes the Chinese proverb. They also make up half the UK population and half the number of entrants to the accountancy profession globally. But, sadly, they don’t make up half the number of FTSE 100 board directors, or even a quarter. In fact, as the prime minister revealed in September, they hold just 17.3% of FTSE 100 board positions, mostly in a non-executive capacity. In February 2011, a report by former business minister Lord Davies warned that a lack of gender diversity at the most senior level was detrimental to UK companies. At the time, women made up just 12.5% of directors on FTSE 100 boards with 18 FTSE 100 companies and, perhaps even more worryingly, nearly 50% of FTSE 250 companies, having no female directors at all. He recommended that FTSE 100 companies should aim for a minimum of 25% female board representation by 2015. And although he didn’t advise quotas, he said that the government must ‘reserve the right to introduce more prescriptive alternatives’ should the business-led approach not result in significant change. Since the publication of the report, UK companies appear to have rallied to the diversity flag. Research by Deloitte in May found that nearly 30% of FTSE 350 non-executive board appointments in the preceding 12 months were women. But this shouldn’t disguise its more sobering finding, which was that women filled just one in 10 executive board appointments. Given that executives, and not non-executives, are

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ACCA’s Helen Brand: call for consistent diversity reporting

HSBC’s Russell Picot: ‘unconscious bias’ warning

Edith Yembra, president of ACCA’s London women’s network

ultimately responsible for the day-today running of companies and the fact that it is possible for one individual to hold both an executive position and several non-executive positions at different companies, it is hard to escape the fact that in reality only very limited progress has been made so far. But, on a more positive note, Deloitte’s research also found that over three-quarters of companies were actively trying to increase the diversity of their board. There are clear business benefits to diversity, argues ACCA chief executive Helen Brand, who spoke on the topic of diversity in senior management at a joint ACCA and HSBC event held in London in September, hosted by Sallie Pilot of Black Sun Consulting. ‘You want to employ the best people and the best people are not defined by a set of homogeneous criteria.’ She pointed out that greater diversity at board level is associated with better decisionmaking, better adherence to corporate governance, greater innovation and less group thinking. Meanwhile, globalisation is driving diversity up the agenda. ‘Cultural intelligence is an important attribute for leaders today and in the future,’ said Brand. She believes that as companies keep moving into new markets, and as regulation around the world continues to increase, the finance function needs as much diversity as any other function, if not more.

Unconscious bias ‘If you are going to be successful, you had better understand and respect local customs and traditions,’

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25

concurred Russell Picot, group chief accounting officer of HSBC, who also addressed the event. He warned that one of the greatest enemies to diversity is ‘unconscious bias’.‘If your organisation does not embrace diversity, you may struggle to relate to both your employees and your customers,’ he said. This view is shared by Fiona Hotston Moore, one of the most senior women in the accountancy profession and a corporate partner at Reeves. She believes that unconscious bias in boards and executive search agencies is the biggest obstacle to women getting board executive positions. ‘This bias is passed down from existing male boards to the next generation,’ she observed. ‘I’ve met many capable young women and, increasingly, young men, who choose not to pursue senior leadership roles. I have also met a great number of capable women who are keen to take board positions, but who are clearly being overlooked.’ Of course, one obvious way to make change happen would be to introduce quotas that force companies to meet a target for female board representation. The European Commission has proposed legislation that would compel listed companies across Europe to ensure that women occupy 40% of non-executive board seats by 2020. The proposals are currently being opposed by a number of countries including the UK, the Netherlands and Hungary and quotas are, without doubt, a controversial topic. ‘Whatever your background, you do not want to be put in a position of responsibility and have your fellow managers think the only reason you are there is because of a quota,’ argued Picot. ‘I would rather see consistent reporting on diversity across the board,’ said Brand. ‘That drives the behaviour that creates boardroom diversity. Having a mandated quota is probably the sledgehammer that might crack the nut.’ Hotston Moore disagreed. ‘Until now,

UK_F_diversity.indd 25

Delegates at the ACCA/HSBC event

*FIVE WAYS TO MAKE DIVERSITY HAPPEN

sure your organisation is attractive to new recruits from all * Make backgrounds and that your marketing material reflects your commitment to

* * * *

diversity. Monitor the backgrounds your applicants come from and ensure that recruitment shortlists reflect all the talent that is available. Put a good people policy in place so that diversity is supported at all levels within the organisation. Look closely at promotion shortlists to check that they don’t reflect unconscious bias. Don’t make assumptions about anyone based on their sex, race, nationality, age or anything else. Encourage team members to express diverse views openly. At the same time, you can’t assume that you will be promoted just because you are good at your job. Market yourself and make sure people know what you’re working on. Promote work-life balance. This concept, which has come under strain since the global financial crisis kicked in, has a part to play in promoting diversity. Finally, nurture diversity where it doesn’t already exist. If possible, managers from developed markets should be given experience in emerging markets and vice versa. Reward behaviours that recognise diversity.

I have not supported quotas, but as progress has been so slow and as many boards appear to only be paying lip service to the objectives of the Davies report, I think quotas are needed on a temporary basis.’ She added: ‘I am confident a pool of strong female candidates exists and, if given the opportunity to sit on the top table, they would quickly convince boards of the commercial advantages of diversity.’ For real progress to be made, women must support one other. Edith Yembra FCCA, president of ACCA’s

London women’s network, believes that networking can help women to achieve their long-term career potential. She said of her own involvement with the network: ‘It has brought me great personal and professional fulfilment. I have made long-term friends and professional contacts.’ If UK companies want to compete successfully in the future, they have no choice but to embrace diversity and they certainly can’t afford to ignore the people who hold up half the sky. Sally Percy, journalist

17/10/2012 15:02

26 YOUR ANNUAL SUBSCRIPTION NOTICE AND CPD DECLARATION HAVE BEEN POSTED TO YOU... But you don’t have to wait to receive them. The quickest and simplest way to pay fees and submit a CPD declaration is through your online account at myACCA. Remember annual subscription fees and CPD declarations must be received by ACCA on or before 1 January 2013.

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11/10/2012 15:33

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F

leets tend to evolve rather than be created, but whether you have a handful of cars or a fleet of hundreds, it is essential – and possible – to manage them with an eye to greatest efficiencies. Before any company can decide how best to approach this task, it needs to define its fleet. ‘You need to know what you don’t know,’ says Roddy Graham, commercial director for Leasedrive. ‘Be prepared to recognise that there are many more indirect costs than direct costs. Do a detailed analysis of the vehicles you have and look around the business to see who manages the cost.’ During the initial stages, Albert Vissers, CFO of Alphabet (GB), recommends approaching the British Vehicle Rental and Leasing Association (BVRLA), the Association of Car Fleet Operators (ACFO) or the Institute of Car Fleet Management (ICFM). ‘They will put you in touch with experienced people who can help you get started,’ he says. First, establish why you need the vehicles and what you need them to do. Then, to decide how to fund a fleet, carry out analysis of whole-life costs, ie not just account finance and maintenance rentals, but running costs, residual values and tax liability. A good vehicle leasing company will help with this. In addition, a company will need know its VAT recovery, weighted average cost of capital (WACC) and corporation tax relief rates. ‘For many companies, several funding methods may be the optimum

FOOT ON THE PEDAL

Choosing how to manage a fleet efficiently can be like negotiating spaghetti junction. In the first of a three-part series on fleet management, we take a look at the options

UK_F_fleet.indd 27

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approach,’ says Ian Hughes, commercial director at Zenith. The most common among these are outright purchase, contract hire, contract purchase, employee car ownership (ECO) and salary sacrifice (see box below). Outright purchase will probably not suit most organisations, although it does give the owner total control and flexibility. ‘The market is generally moving away from that, cutting out capital expenditure and concentrating on core business activity,’ says Chris Chandler, consultant at Lex Autolease. It is also labour intensive: a company that owns its fleet has to negotiate with dealers or manufacturers, decide when to get vehicles serviced and repaired, when to sell as well as getting tax discs, insurance and working out how to fund fuel purchase. In addition, the vehicles end up on the company balance sheet. This is also true of contract purchase, whereas the other funded options are off balance sheet. However, prospective changes to International Financial Reporting Standards may change this status for contract hire for plcs. For the moment, however, Chandler says it is the single largest means of funding. ‘There is a fixed monthly rental rate and the leasing supplier provides additional services so it is the leasthassle way of having an expert manage

a fleet. It removes residual value uncertainty and maintenance is fixed, regardless of what needs to be spent on vehicles,’ he says.

Horses for courses Fleets tend to answer a combination of business objectives. There are aspirational cars used to motivate a sales force, workhorse estate cars or vans for carrying around equipment,

THERE HAS BEEN A SHIFT TOWARDS GERMAN BRANDS TO FULFIL THE MOTIVATIONAL BRIEF – BECAUSE THEY HAVE EFFICIENT ENGINES and perks that come with seniority or status, or as part of an employee benefits package. There has been a shift towards German brands to fulfil the motivational brief – Audi, BMW, VW – not just because they are aspirational but because they have efficient engines and therefore attract lower benefits in kind (BIK). These brands used to be out of the reach of many fleet drivers but with the introduction of smaller models, they can be made available across the choice list. In some industries, pharmaceutical and financial services in particular, competition plays a part – a good package attracts and retains the best people. ‘We get involved

*FLEET FUNDING OPTIONS

The following vehicle funding options are the most commonly used and are defined by Zenith. Contract hire delivers VAT benefits. For cars, up to 50% of the VAT can be recovered on finance rental and 100% on maintenance. Contract purchase provides the option to purchase the vehicle at the end with a ‘final balloon’ payment. VAT is charged only on the maintenance element of the rentals. Employee car ownership (ECO) is a mechanism whereby the employee owns the car and it is funded via a combination of tax-efficient business mileage reimbursement and a taxable cash allowance. No benefit-in-kind tax is payable as HM Revenue & Customs recognises the car as privately owned. Salary sacrifice enables a wider range of employees to drive a company car and is significantly cheaper than a retail arrangement because salary is exchanged for the benefit before it is taxed, giving national insurance and income tax savings. An all-inclusive package means insurance, maintenance and price inflation are also catered for and the employee receives enhanced manufacturer discounts thanks to the employer’s buying power.

* * * *

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in a lot of benchmarking exercises so that companies can ensure their benefits proposition is in line with the sector,’ says Matthew Walters, head of consultancy services for LeasePlan. Perk cars are becoming increasingly common because they are no longer overtaxed, with BIK being based on the list price and CO2 emissions, according to Leasedrive’s Graham. As a result, people are choosing cars on the basis

of emissions, rather than emotions. ‘The company car park no longer looks like a beauty parade,’ he says. This is also age-related: the generation of 20 and 30-somethings has been brought up with the environment as a focal point, whereas the rest of us have learned to worry about ozone layers. Companies can also restrict choice lists according to emissions to ensure greatest efficiencies in capital allowances. Alphabet advises capping at 130g/km CO2.

Relationship building A close working relationship with a fleet management company makes the task much easier, allowing companies to outsource all or part of the responsibility. ‘The fleet management supplier should provide a dedicated account manager (or team, depending on the size of the fleet), who liaises with drivers to provide advice and support, as well as acting as an interface between the other operational teams such as maintenance and accident management,’ says Zenith’s Hughes. In addition, Mike Curtis, corporate sales director of Arval, says: ‘Communication is key in understanding what your provider can deliver for you and in conveying your expectations of them. This will ensure that you get the best from them and deliver the best results for the business.’ Catherine Chetwynd, journalist

17/10/2012 15:04

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UK_F_FDint.indd 30

FD interview

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HEAD ABOVE WATER The downturn has left bottled water sales flat, but Highland Spring is the number two bottled water brand in the UK. Its FD, Murray Falconer, explains the secret of its sparkle

M

urray Falconer FCCA is a man who likes targets, and as group finance director of Highland Spring Group he is certainly stretched. Based in the tiny village of Blackford in Perthshire, the company is the UK’s largest supplier and producer of naturally sourced bottler water, and Highland Spring is the number two bottled water brand in the UK. But to continue growing, the group must chip away at the global might of French giant Danone – the world’s biggest yoghurt maker and owner of number-one UK brand Evian – and Nestlé – the world’s biggest food company and owner of 60 bottled water brands including Perrier, Vittel and Buxton. ‘I don’t think Danone is going to stand aside and let us grow our brand,’ Falconer quips. ‘They spend more during the Wimbledon fortnight than we spend in a year on our entertainment and marketing budget. Nestlé has just invested in a major new bottling facility. We don’t have the financial clout of these companies, but we do punch above our weight and have remarkable brand recognition.’ Being Scottish gives Highland Spring an inherent advantage because consumers see Scottish water as the freshest and purest, Falconer says. Highland Spring is drawn from protected land in the Ochil Hills, Perthshire, where no farming, agricultural spraying, building or habitation is permitted. ‘People value that provenance and I think we’re trusted because we’re not a big company,’ he adds. ‘The retailers probably also like dealing with us because we’re just in one aisle of the supermarket, whereas someone like

UK_F_FDint.indd 31

Nestlé will be doing deals across the sector – for example you can take their water but you might also have to take Kit Kats and cereals.’ Being pitched against huge multinationals like these in a commodity sector means it’s a constant challenge to grow volumes and profits. The company is not doing too badly so far. When Falconer joined Highland Spring in 2007, the board was putting together a five-year plan to be a 500 million-litre water company with £100m turnover by 2013.

Full to overflowing A series of acquisitions followed, most notably the transformational £17.5m purchase in 2010 of the bottled water division of Dublin-based Greencore Group. This included major bottling plants at Campsie Spring in Lennoxtown north of Glasgow and the Brecon Beacons at Blaen Twyni in Wales. This made Highland Spring Britain’s biggest bottled water company with some 400 employees, five bottling plants and 12 production lines with a capacity of 700 million litres a year. The company also bought the Speyside Glenlivet bottled water plant in Moray, and now sells this brand to hotels including The Dorchester in London and The Ritz in Paris. This year the group expects volumes of 430 million litres and turnover of £90m, up from 240 million litres and £50m sales when the first five-year plan was written. This is a strong performance given the way the credit crunch has knocked the sparkle out of bottled water sales. ‘From the start of bottled water in the UK in the late 70s the sector grew like topsy every year,’ Falconer explains. ‘2007 and 2008 were the first years that it dropped, so all of a

The tips *

Give yourself new experiences. For me that meant moving companies a lot or moving roles, because after a while you find there is a lot you can take from job to job.

*

Get involved in non-finance projects. That works two ways, because the projects can be turned into pounds for the business.

*

Sit down with your business and model it. If you can model it you can understand the real profit drivers and cost inhibiters.

sudden there were challenging times and that was the beginning of the recession.’ Although single-figure growth has returned, cash-strapped consumers continue to switch to cheaper own-label products. Highland Spring is protected from this to some extent as it also produces own-label products for big customers including Tesco. However

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The CV 2007

Joined Highland Spring as interim FD.

2003

Worked on turnaround projects of underperforming businesses, including two Scottish Premier League football clubs.

1997

Joined CCI Engineering as FD.

1986

Qualified with ACCA at Lloyds Bowmaker, joined BP as financial accountant.

1981

BSc in Business from Bath University.

Falconer sees no sign of consumer habits changing in the short term. ‘Downturns in the past have been short and people have gone back to brands,’ he says. ‘But I feel this downturn has been so long and drawn out that it will lead to a permanent change in people’s behaviour. Discount supermarkets will be here to stay and even when the upturn comes, you’ll find we have a shift in behaviour and it’ll be harder to get people to pay for brands.’ Highland Spring’s next five-year strategy – which the board is now preparing – will respond to this new climate by focusing on building low-cost production and extending the brand ‘beyond bottled water’. A key target is to grow value in the business for the group’s owners and shareholders, the Al Tajir family of Dubai. ‘The vision is to grow the profit 50% in five years and we believe in order to do that we will have to do something different,’ Falconer explains. ‘We will

UK_F_FDint.indd 32

have to be innovative, and that could be product variants of water or it could be beyond bottled water – in this case some sort of halo effect for the Highland Spring brand.’ The son of a Navy commander and a nurse, Falconer enjoyed sport at school (where he held running records for the 100 metres and 200 metres) but had no burning professional ambition. He did a BSc in business at Bath University because it was a general subject and Bath was one of the top business schools in Britain. After a ‘pretty awful’ three-month stint in sales he started at the Accounts Commission (which ensures that public money is spent properly) auditing what was then Lothian Regional Council. ‘It was so huge it was a permanent audit so we did it all year round.’

Dispelling Monty Python It was here that he started his ACCA training. ‘The good thing about it is the breadth of training,’ Falconer says. ‘I probably had a view of accounting – driven by Monty Python sketches – that it was very dull and all about bookkeeping. I didn’t do it at school and didn’t really major in it a university, but when I did the ACCA course it made me realise the breadth of subjects within the syllabus. I realised then that being an accountant you’re at the heart of business and you get involved in all sorts of areas, so doing things like IT and law and HR was just great for me.’ After a year in internal auditing with finance house Lloyds Bowmaker, Falconer qualified and joined BP in Grangemouth as a financial accountant in 1986. It made my career and I stayed there nine or 10 years,’ Falconer says.

‘BP is just a fantastic company to work for because they give you opportunities to get involved in all aspects of the business and I pounced on them.’ He held various traditional accounting roles and was put through a range of culture change, HR, facilitation and interpersonal skills programmes. Major projects included spending two years on the implementation of a new Enterprise Resource Planning system across Europe and working on a strategic procurement review examining how the group spent money. After such a massive organisation, Falconer fulfilled his ambition of becoming a small company FD at Midlothian-based aviation and oil specialist Precision Machine Engineering, before joining CCI Engineering, an Ayrshire-based aerospace business which was about to go through a management buyout. ‘I came in for about six months to understand the business enough to do the due diligence to enable the buyout to happen and I was there for five years,’ Falconer explains. ‘It had been a very profitable company but almost as soon as the buyout happened it proved very difficult times, and the next five years were about honing my skills in the underperforming sector.’ Falconer said he got to know the banks very well and became an expert at cashflow mangement. ‘The company was refinanced twice during my period there and that in itself was an intense and stressful process.’ Working closely with Deloitte’s recovery team on refinancing and modelling was what got him interested in this side of finance. He spent the next three to four years working on fairly short-term contracts

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with underperforming businesses, including the recovery of a Scottish Premier League football club. ‘The supporters wouldn’t say it was a success but I’d say it was because it was still in business after 18 months,’ Falconer recalls. ‘We cut all the salaries and shut down unprofitable parts of the business. It’s about creating a sustainable business model for the entity to go on. The club was in severe danger of going out of business and it didn’t.’ His approach is always the same whether the business is distressed or successful. ‘It’s about identifying the key drivers of profit for the company and identifying the areas of the business that are not adding value. If you can model it on a spreadsheet and identify the areas that drive the profit and the costs, you can then focus on the actions you need to take.’ It was during a gap in assignments that a three-month interim FD role at

UK_F_FDint.indd 33

Highland Spring came up. ‘I just decided that I liked the company and where they were going and never left,’ he says. In his spare time Falconer, who is married with two grown-up boys, still enjoys running and did a marathon for his 50th birthday. ‘I enjoy running but slowly, I’m not competitive,’ he insists. He has 12 people in his finance team and spends roughly 50% of his time looking at this year’s and next year’s performance. The other 50% is focused on developing strategy with chief executive Les Montgomery and other members of the management team. ‘Apart from growing the profits, I would like to see us getting more value out of the Highland Spring brand,’ Falconer says. ‘Would I like to see us be the number-one brand in the UK? That would be nice as well.’

The basics HIGHLAND SPRING

Highland Spring Group’s brands are Speyside Glenlivet, Hydr8 and Gleneagles.

2.2 BILLION LITRES

The company’s available water sources.

£1.5BN

The value of the UK bottled water market.

Victoria Masterson, journalist

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Comment

Saving the world [

Accountants might not be stereotypical superheroes but if they can channel their enthusiasm for nonfinancial reporting into one roadmap, they could help rescue the planet. Robert Bruce reports

It is said that it is hard to get accountants up on their feet at a conference, let alone exhibiting exuberance. At the September conference of the International Integrated Reporting Council (IIRC), all this changed. Peter Bakker, president of the World Business Council for Sustainable Development, and now deputy chair of the IIRC, called for all accountants present to stand up. They did. Bakker swept a hand around the room. ‘Ladies and gentlemen’, he said. ‘These are the people who are going to save the world.’ It was a bold gesture and a galvanising one. But as the conference heard from one after another of the companies working in the IIRC pilot programme, which captures the experience of implementing integrated reporting, the more it made sense. The finance function is becoming the engine room for a form of reporting which, in the words of the IIRC, ‘aims to communicate the “integrated thinking”

UK_COM_Bruce.indd 34

through which management applies a collective understanding of the full complexity of value creation to investors and other stakeholders’. And the more investors and stakeholders understand the part that things other than the narrow financials play in driving strategy, the more influence the non-financials will have. A week later the bandwagon arrived in London at the first Non-Financial Reporting conference, hosted by Deloitte and in association with ACCA and the Global Reporting Initiative (GRI). Referring to the Amsterdam conference, Jenny Harrison, UK lead for carbon and integrated reporting at Deloitte, described it as ‘invigorating’. ‘You felt these people would go back

to their organisations and show the markets that this style of reporting can be concise, relevant and about integrating the thinking throughout their organisation,’ she said. But it is also clear there is a wide range of views, inputs and attitudes from all the interested parties involved in making this process work. And there is the political difficulty in deciding upon a preferred system for putting all this together. Both the work of the GRI and the IIRC came in for criticism for, in case of the GRI, being too complex and resistant to change and, in the case of the IIRC, being perceived as a bit of a closed shop. Much of this is the inevitable squabbling that happens when more than one model exists.

Step forward ‘Some scepticism about the value of lengthy and complex GRI-style reports was expressed,’ says Roger Adams, director, special assignments at ACCA, ‘but the lack of obvious widespread support for integrated reports seemed to indicate that preparers and users alike need more time with, and exposure to, integrated reports in order to see whether or not the emerging integrated reporting model represents a real step forward in terms of improved corporate reporting.’ The answer is probably to keep the objectives simple while combating any encroaching complexity. ‘There are risks that the integrated reporting movement could become overtheoretical,’ says Harrison. ‘It needs to be about people having a go at better performance management in practice.’ Or as Sallie Pilot, director of corporate reporting at consultants Black Sun, put it at the conference: ‘It is all about good business sense.’ But people can so easily get lost in the detail of reporting systems. It is much harder to

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Rio rage: during the UN conference, demonstrators highlighted the plight of the hungry around the world

look out towards the horizon and keep the audience in mind. ‘Whichever reporting model is used, it is the issue of what to report and to whom that remains crucial,’ says Adams. ‘Reporters can construct complex risk matrices internally, but it is still of utmost importance to engage with the key stakeholder groups in order to understand how their concerns can be turned into meaningful reporting and enhanced accountability.’ At the Amsterdam conference, Paul Druckman, chief executive of the IIRC, made this a central point. He described the IIRC community as ‘a growing global community of businesses and investors who recognise that corporate reporting is as much about effective communication as it is about compliance with rigid rules’. And this is why integrated reporting has a transformative quality. ‘Corporate reporting,’ he said, ‘is more than a good communications tool. It influences behaviour, within organisations and by investors, and it underpins the efficiency and productivity of our capital markets. So when governments, regulators and policy-makers talk about creating the conditions for a more responsible and responsive capitalism, rooted in activity that creates and sustains value, that is the business we are in.’ This in turn reflects ‘Paragraph 47’, part of the outcomes of the UN Conference on Sustainable Development (see below). Ernst

UK_COM_Bruce.indd 35

Ligteringen, GRI’s chief executive, stressed this at the Non-Financial Reporting conference. It was, he said: ‘A vision of how sustainability reporting can be integrated and serve the public interest and work with other governments around the world.’ There might be limits to its universal appeal in certain parts of the world, however. One sustainable investment expert told the conference of an experience he had at a presentation in the US when one investor had descended into outrage and fury at the concept of ‘one of those corporate socialist reports’. In the end, the Non-Financial Reporting conference, with all its many

disparate contributions, suggested that corralling the different strands into a recognisable business-led movement was probably the answer. ‘We need to gather all this enthusiasm into one roadmap,’ says Harrison. ‘Regulation is not the answer to improving corporate reporting. What are needed are examples of how this allows you to manage your business better. It needs to be more widespread. The IIRC is doing a great job, but it is the companies taking part in the pilot programme, and indeed those beyond, that will make the difference.’ Robert Bruce is a commentator and journalist

*RIO ROLLS: THE FRIENDS OF PARAGRAPH 47

In June, the UN Conference on Sustainable Development in Rio de Janeiro produced a paragraph among its outcomes, now referred to universally as Paragraph 47, which has caught peoples’ imaginations, although it did not go as far as some hoped in terms of compulsion. It provides a stimulus to action and now has a series of governments (South Africa, Denmark, Brazil and France) signed up as ‘The Friends of Paragraph 47’ to advance the cause of corporate sustainability reporting. This is what the paragraph says in full: ‘We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building.’

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Comment

Stepping towards sustainability

[

ACCA president Barry Cooper reflects on the Accounting for the Future event and why accountants are key to a strong economy

As someone whose day job is to help prepare future generations of finance professionals, a constant challenge for me is to frequently scan the economic horizon. What will accountants need to know in 10 and 20 years’ time – what will the profession look like? How do we prepare students? Alongside that is the obligation to ensure that today’s professionals help not only the accountants of the future, but everyone in generations to come, have the opportunities to enjoy career and life opportunities in an ever-changing environment. This is why I was delighted to see that more than 10,000 ACCA members have participated in the Accounting for the Future online event. The event, comprising live and pre-recorded webcasts, presentations and workshops, which went live in early October and which is available on demand until the end of this year, explores the role that finance professionals will play in building a stronger and sustainable global economy. The subjects covered included: the emerging issues related to risk management; the issue of valuation and how trends and developments in social and environmental accounting may lead to changes in the methods used by accountants to evaluate assets and liabilities; global trends and developments in corporate disclosure; the importance of investor engagement; the influence which investors can have on corporations and organisations; and lastly the green economy. Thus this online event covered some contentious and challenging issues. Having such a large number of participants from around the world not only demonstrates our global strength, but enabled delegates to share experiences and highlight the issues they are facing in meeting the sustainability challenge. Importantly, those views will help ACCA develop member initiatives well into the future. I want to thank everyone who took part in what I am sure will prove to be an extremely influential milestone in our thinking on sustainability issues. Visit the event at www.accaglobal.com/ accountingforthefuture Professor Barry J Cooper is head of the School of Accounting, Economics and Finance at Deakin University, Australia

UK_INT_COM_pres.indd 36

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38

Comment

On the right track? [

As well as highlighting the DfT’s poor record on bidding processes, the West Coast Main Line franchise debacle poses deep questions about the accounting profession’s ability to model risk, says Peter Williams

In May 2011, the Department for Transport (DfT) published a mercifully short document, A Guide to the Railway Franchise Procurement Process, which I read, prompted by the debacle over the West Coast franchise. When all hell broke over the flaws in the model, a team of consultants from PwC – previously let go to save money – found the errors in the spreadsheet within half an hour. The DfT admitted that significant flaws had been discovered in the way the bidding process had been conducted. The risk assessment was messed up as a result of mistakes in the way inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result. The track record on these processes is not good. The Transport Select Committee heard from Virgin boss, Richard Branson, at the beginning

of September, weeks before the DfT ditched the franchise process. According to Branson’s evidence, on four recent occasions companies which won bids subsequently admitted to severe financial difficulties or went bust. You may think that the department may be scarred by those experiences by now. We all need to be sceptical of forecasts that predict huge growth right at the end of the period. And to be fair to the civil servants, that May 2011 guide is clear that the biggest money bid won’t win unless everything else appears in order. The department promises that it will assess the cost and revenues set out in bids. If this

assessment indicates a significant risk that costs of revenues will not be delivered or identifies other reasons why the franchise is likely to be financially unstable, the department can rule out those bids from the competition on the grounds that they are financially high risk. Aside from all the clever technical and academic input to investment appraisal, it boils down to one nontechnical question: would I rather receive some money from that person now or much more in five years’ time? If you cannot see from a commonsense perspective where those big numbers are coming from, then perhaps it is time to say thanks, but no thanks. The West Coast example should raise some awkward questions for how good accountants are at creating and understanding these models. They are in a good position to do the number crunching, but in building the models, what are their drivers? What pressures do they face in stressful commercial situations? They need to take a more independent, strategic position on the risk and reward that governments should ask for and private companies should be prepared to shoulder. Maybe competent and honest professional accountants have become too wedded to the all-pervading efficacy of spreadsheets. As well as quantifiable risk which can be modelled, the accountancy profession needs to start looking at the impact of human psychology and behaviour in difficult and complex accounting and business contexts. We need to ask ourselves questions which we have barely started to think about: if we want to achieve a certain commercial result, how does that impact on the way we behave? Peter Williams is an accountant and journalist

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Comment

Impaired vision [

The IASB and FASB differ over how best to switch from an incurred loss model for loans to an expected loss one. While the IASB has the ‘least bad’ option, it will be a case of seeing which works best, says Jane Fuller

Goodbye convergence, hello competition. Now that the US has backed away from adopting International Financial Reporting Standards (IFRS), the latest transatlantic duel is over how to switch from an incurred loss model for loans to an expected loss one. As the chair of a committee responding to the plan from the International Accounting Standards Board (IASB), we felt a definite steer towards its ‘deterioration approach’. So it was hard to give the ‘lifetime loss approach’ proposed by its US peer, the Financial Accounting Standards Board (FASB), a fair hearing. This is a pity because the FASB version appears simpler. Its ‘current expected credit loss model’ offers a single measurement objective of assessing expected losses (EL) over the life of the loan. So on day one there is no impediment to recognising any losses, whereas the IASB model entails booking ‘a portion’, effectively a 12-month horizon. As the loan progresses, expectations are reassessed and adjustments made to the loan loss allowance. A bank that expands its lending by making more loans and/or extending its maturity will have bigger upfront losses. Objections to this include that a day one loss is a nonsense. What management in its right mind – and let’s assume that chastened bankers are now closer to that – would lend at an immediate loss? Is it right that a growing bank has to book bigger upfront losses? Is there a perverse incentive to keep loans to a short maturity? The IASB suggests there is no reason to make a growing lender look less profitable than one in a steady state. The obvious counter is that the growing bank is more risky – and that should be reflected in the accounting.

UK_COM_Fuller.indd 40

It should be remembered that the IASB made itself vulnerable to US divergence by proposing a confusing ‘three-bucket’ approach to impairment. The deterioration model still has a trigger that switches loans from one bucket, where only a portion of EL are provided for, to another that allows for full life-time losses. But the trigger sounds rather fuzzy – ‘a sufficient deterioration in credit quality’. Forecasting full life-time losses at the

outset of a loan is also fuzzy, so you have to pick which of the approaches offers better information about credit quality and is less easily gamed. The principle should be that the accounting reflects economic reality, indeed that’s what the incurred loss model did. Banks are cyclical. They make a profit on a loan until it goes sour: the cliff edge is there. This can be anticipated with the help of experience – the EL idea – and postponed through forbearance, but it is not a smooth business. Since the incurred loss model was used as an excuse for foot-dragging on loss recognition, the move to EL has broad support. But it should not provide an opportunity for a return to ‘general provisions’ that can later be fed back in to flatter profits. The FASB promises that investors will receive plenty of information about changes in credit quality through the lender’s regular reassessments of loss expectations. But this still means the analysis of profits will be done through the prism of movements in and out of the provision pool, at a remove from the actual performance of the loans. There is a suspicion, denied by the FASB, that prudential regulators have applied pressure for more upfront provisioning. Accounting should remain neutral in this. It is bank boards, prompted by much tighter prudential requirements, that need to ensure enough profits are retained to absorb expected – and unexpected – losses. So the IASB’s hybrid looks the least bad option. We are back in a world of competing standards, so let’s see which works best. Jane Fuller is former financial editor of the Financial Times and codirector of the Centre for the Study of Financial Innovation thinktank

16/10/2012 17:42

Practice

RSM TENON DISPOSES OF UNITS

Troubled listed accountancy firm RSM Tenon has disposed of business units to Grant Thornton and Saffery Champness. In a statement to the London Stock Exchange, RSM Tenon announced that it is selling the IVA business arm of RSM Tenon Recovery to Grant Thornton for an expected price of £7m. The business unit employs about 60 members of staff and has annual revenues of £5m. Other parts of RSM Tenon Recovery are not affected. Meanwhile, Saffery Champness announced that it has acquired RSM Tenon’s specialist film and TV unit, comprising 17 people. Jonathan Fox, managing partner of Saffery Champness commented: ‘Saffery Champness is fast becoming the market leading accountancy practice in the sports and entertainment sector.’

RSM’s film unit provided advisory services for Casino Royale

HMRC STORES IN THE CLOUD

HMRC is the first government department to move to cloud computing data storage, after signing a contract for the delivery of G-Cloud Services over the Public Services Network. The department has signed a contract with Skyscape Cloud Services for centralised data storage in the G-Cloud. HMRC said that moving to cloud storage will provide cheaper, more secure and less energyconsuming data storage. It will also enable the department to move forward with its deployment of the Government End User Device Strategy, designed to increase the efficiency of the public sector and improve frontline services. The contract was awarded via the UK Government G-Cloud framework.

UK_YPRAC_intro.indd 41

41

The view from: Simon Ashworth, audit associate, Grant Thornton UK Q What made you decide to pursue a career in accountancy? A I enjoyed working with numbers throughout my studies and developed a keen interest in business. Naturally this attracted me to accountancy and a career with Grant Thornton, which offered an opportunity to work on a diverse client base and within teams of varying experience and specialities. Furthermore, it is a career path which encourages progression and gives strong future prospects. Q What advice would you give to someone starting out as a trainee accountant? A I would advise future trainees to consider the focus that employers place on training and development. If you are going to reach your full potential then it is important that you join a firm that recognises the importance of fulfilling your training and development needs. Q Do you think the accountancy profession needs improving? If so, in which areas? A In terms of auditing I would like to see large companies being encouraged to use audit firms outside of the Big Four, which can improve competition in the industry. I believe this would improve quality and also reduce the risks relating to any future failure of a large audit firm. Q If you had not chosen to pursue an career in accountancy what other career route do you think you might have taken? A I enjoyed studying economics so would have looked at pursuing another profession that would have enabled me to utilise the skills that I developed during this time.

41 Practice The view from Simon Ashworth of Grant Thornton UK; what it’s like working at BDO; Michael Fallon MP highlights the government help available to small businesses; no more commission payments under the Retail Distribution Review 49 Corporate The view from Ria Mohammed of BG Group; boosting UK exports to emerging markets; tips from PwC on making the annual report more effective 53 Public sector The view from Michael Schofield of NHS Sussex; will the concept of the armchair auditor work?; how accountants will be key to managing health sector reform

Q Where do you see yourself in 10 years’ time? A In the next few years I will qualify while gaining a diverse mix of experiences from working within audit at Grant Thornton. I will consider secondment opportunities to further develop my experience and ultimately will aim towards an audit manager position.

16/10/2012 17:23

42

Practice

Inside BDO In the first of a new series looking at life for ACCA members in accountancy firms, we talk to two BDO accountants at different stages in their careers but with a lot in common Anna Jarrold FCCA and Phil Tregurtha are sitting side by side as they explain why they joined BDO, the fifth largest accountancy firm in the world. Jarrold, based in London, became a partner with the firm just under six years ago, a year after she joined from Ernst & Young, where she gained her CTA qualification. Tregurtha, a part-qualified ACCA trainee, has two years under his belt with the firm, first working in its business restructuring practice, and then more recently in audit, both positions based in Reading, Berkshire. Their specialisms are also very different – Jarrold works in the London private client tax group, focusing on professional services and partnerships, and within this deals with companies and individuals also. Tregurtha, who joined the firm straight after graduating from Aston University, Birmingham with a BSc in psychology and business studies and an MSc in finance and financial regulation, works on a number of entrepreneurial clients, including an AIM-listed private jet charter company. Their paths to the firm were very different, and they are certainly at different stages of their career. But they share a strongly held appreciation for the flexibility, friendship and entrepreneurial environment offered by the firm. ‘When I got the phone call from BDO, I realised that what was on offer was an exciting opportunity, which would give me a chance to develop others as well as my own career,’ explains Jarrold as she recalls the approach she had from BDO while working in EY’s Londonbased entrepreneurial services team. Having previously worked in finance and accounting with a pre-privatised British Rail, where she gained her ACCA Qualification, Jarrold had few issues

UK_YPRAC_BDO.indd 42

about moving from a large firm such as EY to the mid-tier BDO. ‘There may have been a difference in size, but the support network made it very easy,’ she says. Jarrold is now part of a 40-strong team that covers both tax and audit for professional services clients. ‘Tax has become busier over the last few years,’ she says. ‘When once you needed a rucksack to carry the legislation, you now need a suitcase,’ she jokes. ‘It certainly helps if you enjoy it. If you can enjoy it then you can bring it to life for others.’

that, when I turned up for my interview, BDO was different,’ Tregurtha recalls. ‘The people felt down to earth. You haven’t got a lot to go on other than your contact during the interview.’ Tregurtha was impressed when he asked for an interview date to be changed as it clashed with university work. ‘They were very happy to rearrange,’ he says. The firm also demonstrated its flexibility when, after working in BDO’s business restructuring practice for a year, Tregurtha took a six-month

‘THERE IS A HIGH RATIO OF PARTNERS TO PEOPLE AND CLIENTS, SO YOU HAVE OPPORTUNITIES TO LOOK AT PROJECTS OUTSIDE CLIENT WORK’ One of the keys to enjoying her work lies in the breadth of experience that comes with working for BDO. ‘There is a high ratio of partners to people and clients, so you have opportunities to develop people and look at projects outside client work,’ she says. ‘The entrepreneurial environment at BDO gives you permission to take on these challenges, but also gives you support and help if you need it.’

Strong support system This support system has also helped Tregurtha take on more responsibility with his clients as well. ‘We work within small teams at the clients’ offices and therefore deal with senior people,’ he says. ‘My managers and partners have the confidence in me to be exposed to such people as the finance director. I can handle the situation but I know the support is there as well.’ Tregurtha’s first impression of the firm was an important aspect in his decision to join two years ago. ‘I had been looking at different firms, but felt

secondment to its audit practice. ‘Business restructuring was very interesting; I liked helping struggling businesses, making a difference and helping to save jobs,’ he says, ‘and after the six-month secondment into audit I was keen to do both. I sat down with my audit and restructuring partners and they were both happy to support me taking on a hybrid role.’ Jarrold agrees. ‘People don’t all want to do the same things,’ she says, adding that the firm appreciates how this flexibility can create more value for the firm. ‘It’s interesting to watch how people can really take off in the right role,’ she adds. Both acknowledge the importance of the international network as a path to career development – with offices in over 135 countries there certainly is no shortage of destinations. ‘I know I could always go to somewhere like the US,’ says Tregurtha. ‘The opportunities are always there.’ Jarrold also, as a partner, appreciates the importance of being

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able to help others develop their careers and skillsets. ‘You always need to be aware of the needs of others,’ she says, ‘and that can be through counselling, performance reviews, on-the-job training.’ There are a number of training schemes at BDO that cater for personal development, which can be either online or classroom-based learning. ‘You just need to choose what is right for you,’ she says. Both Jarrold and Tregurtha are aware of the need to maintain a continuous professional development programme, but, as Tregurtha points out, ‘you are developing all the time.’ This commitment to supporting individuals during their time at the firm is embedded in BDO’s four key values: honesty and integrity, mutual support, personal responsibility and strong personal and client relationships. Ultimately, these values are aimed at helping staff and partners deliver an exceptional service to their clients, which is paramount.

UK_YPRAC_BDO.indd 43

*VIEW FROM THE TOP

Phil Tregurtha and Anna Jarrold share an appreciation for the flexibility offered by BDO

SIMON MICHAELS IS BDO’S MANAGING PARTNER

‘Working in accountancy provides one of the best groundings to business life. Whether analysing financial accounts, advising on a company sale or helping a distressed business turn around, there’s no better place to lift the bonnet and see the engine of the business world. Long gone are the days of bean-counters in dull grey suits. At BDO, we seek out and develop talented people with the imagination and initiative to make a difference. We pride ourselves on being big enough to matter, yet small enough to value our clients as people rather than numbers on a timesheet. That’s why 97% of our partners and people tell us they take pride in the work they do at BDO. Joining us, you’ll hit the ground running. But we’ll be running by your side all the way. As you study, senior colleagues and dedicated counsellors will be there to guide you. We have high pass rates and our training is exceptional. We offer a breadth and quality of work, responsibility and hands-on experience unmatched by larger accountancy firms. You’ll face stimulating challenges that expose you to many different sectors. We recognise and reward high performance and give you the challenge and support you need to realise your career aspirations. New starters across our 13 UK offices are always warmly welcomed in an environment of mutual support and teamwork. And we’re much bigger than you might think globally; our international network is a US$4bn business over 135 countries, which offers opportunities for international secondments. Our commitment to delivering exceptional client service combines with our ambition to be the number one international network serving the mid-market. I hope you’ll be part of that future.’

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44

Practice

The basics HISTORY

BDO can trace its history back to 1903, when AF Stoy founded Stoy & Co. In 1919 he was joined by RJ Hayward. After the second world war, the firm developed a client base drawn from a number of emerging industries, most notably retail and property. Relocating to London’s West End to be among its new client base, Stoy Hayward & Co established itself as the accountant of choice for emerging and aspirational businesses. The firm became known as Stoy Hayward in 1988 and in July 1992 it merged with another medium-sized firm of chartered accountants, Finnie & Co. In 1994, the firm extended its national network through a union with 13 BDO Binder Hamlyn offices, changed its name to BDO Stoy Hayward and applied successfully to become the UK member firm of BDO International. From 1 October 2009, BDO Stoy Hayward became known, simply, as BDO.

FINANCES

For the year ended 1 July 2011, the firm reported that operating profit was up 1.4% on national turnover of £284.7m (down 3.4% from £294.6m on a like-for-like basis). Profit available for discretionary division among partners stood at £57.2m. The firm had 196 partners, which meant that average profit per partner was £292,000.

Fee income and staff numbers by operation

Audit Business restructuring Corporate finance Forensic services Tax

Fee income

Staff

£88.5m £36.9m £33.4m £35.8m £78.0m

692 267 205 293 509

BDO has 13 offices in the UK, excluding Northern Ireland. The international network is the fifth largest in the world, providing advisory services in over 135 countries, with more than 49,000 people working out of 1,100-plus offices. Its combined annual fee income currently stands at US$5.7bn (£3.5bn).

NOT JUST ABOUT MONEY:

BDO’s One Firm Challenge 2012 was launched with a 900-plus mile bike ride from John O’Groats to Land’s End in July. The firm aims to raise £250,000 for charity this year through a wide range of fundraising activities. Selected charities include Kids Company, Cancer Research and Leeds Children’s Hospital.

UK_YPRAC_BDO.indd 44

‘We are all trying to achieve something that is better, I want to know that I have done something to help my clients,’ says Jarrold, ‘but achieving this as a team is key!’ Jarrold lives with her husband and two young children in Hertfordshire and, when she’s not feeding the ducks with the children, she enjoys running and pilates. Based in Reading, Tregurtha spends his time, when not studying as exams loom, at the gym, running and catching up with friends. He’s also just taken up fencing. Both Jarrold and Tregurtha stress the importance of enjoyment at work. ‘I was lucky,’ says Jarrold. ‘I knew exactly what I wanted to do. Everyone’s experience is different – I qualified when I was 22, and have thought about my career at every step. But you need to make sure you are enjoying it, as well as moving forward.’ They also speak with one voice when talking about the ACCA Qualification, saying that it provided them with a strong platform to launch their careers, giving them a breadth of expertise that has enabled them to deal with a multitude of different clients. For those considering a move into a similar firm, Tregurtha advises people not to think about the process as a one-way conversation. ‘You need to ask yourself, “Do I like these people?”’ And in this respect, the answer was clearly ‘yes’. Philip Smith, journalist

17/10/2012 15:08

45

Practice Seeds for growth Michael Fallon MP, minister for business and enterprise, calls on accountants to help raise awareness of initiatives designed to help businesses One of the things I learned during my time in business was the importance of getting the right advice. And getting the right accountancy advice is particularly important; guidance on issues like tax, debt, cashflow and funding can really make or break a business, particularly those just starting out. Accountants have a real opportunity to help nurture and grow our small businesses and I encourage the profession to see their role in such a light. The interaction you have with businesses also makes you perfectly placed to inform them about the range of schemes that the government has made available to support growth. Schemes such as the Seed Enterprise Investment Scheme (SEIS), GrowthAccelerator and business mentoring are all designed to help businesses develop and grow and we need you to help raise awareness. The government and private sector have launched the Business in You campaign to help current and potential entrepreneurs find the support they need to get their businesses started or growing. Business in You highlights the best advice, resources and tools available from across government and the world of business, making it easy for small and medium-sized enterprises (SMEs) to find what they need. This includes advice on mentoring, employment, exporting and, perhaps most importantly, access to finance. Many small businesses get started with little or no background in finance. This is where a accountant’s help is vital. They understand that what causes most businesses to fail is poor financial management, and have the knowledge to help clients avoid the usual pitfalls. With so many options for businesses looking for funding, SMEs

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are faced with the difficult task of sorting through what is available and what makes sense for their particular needs. Advice from a trusted professional who knows their business can mean everything. As a result of Tim Breedon’s review into non-bank lending, some of the key accountancy groups have agreed to work together to launch a ‘kitemarking’ system, to help businesses identify accountancy firms offering the best independent financial advice. We hope to see this launch in the new year. Access to finance is the most common problem faced by SMEs, which is why we are improving the range of bank and non-bank lending channels available. Through the Business in You campaign you will be able to help your clients identify what is available and how to understand what types of finance is most suited to their needs.

*SUPPORT FOR SME

S

SEIS

The Seed Enterprise Investment Scheme (SEIS) is a potential boon for your clients who are business owners as well as those who are investors. SEIS was developed to help small businesses get equity finance by offering tax incentives to investors who purchase company shares. It complements the existing Enterprise Investment Scheme but offers a higher rate of tax relief to investors.

GrowthAccelerator With a network of more than 800 business experts, GrowthAccelerator offers support in innovation, business development, access to finance and leadership skills. GrowthAccelerator aims to help highpotential small business overcome the barriers to growth by providing the expertise, insight and networks to achieve sustainable growth.

Mentoring Many small businesses prefer to get advice and support from other businesses but don’t necessarily know where to go for impartial guidance. Through Mentorsme, businesses have access to 22,000 trained mentors, many offering services at no charge, in all sectors and in all parts of the country. www. businessinyou. bis.gov.uk

16/10/2012 10:45

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Practice

Commission countdown From 1 January financial advisers will have to charge fees rather than commission. Some accountancy firms see the new regime as a perfect opportunity to grow their business Financial advisers and wealth planners are bracing themselves for a major upheaval in the way they work. From 1 January 2013, new rules will govern the way they earn their money, and there will be a fundamental shift in power away from the financial product providers towards, at least in theory, their customers. This shift could have a direct and significant effect for accountancy firms. Many accountancy firms have been providing financial planning advice and services to their clients for years. Sometimes this is through appropriately qualified individuals, sometimes through a wealth management company that is part of the overall firm. The changes, as set out by the Financial Services Authority in its Retail Distribution Review (RDR), could open up more opportunities for these firms and their wealth advisers.

Professional standing ‘The aim is to instil more confidence and trust in the industry and establish independent financial advisers (IFAs) on a fully professional standing along with lawyers and accountants,’ says Julia Parsons, financial services partner of Reeves Financial Planning (RFP), part of accountancy firm Reeves. ‘This will be a good opportunity for firms such

UK_YPRAC_commissions.indd 46

as Reeves, which has both IFAs and accountants within the group.’ The RDR effectively scraps commission payments for certain financial products. It brings in higher minimum qualifications and redefines the nature of ‘independent’ advice. The changes are part of an ambitious programme to simplify the market and make the financial planning process more easily understood by end clients. Commissions, which at present are usually paid to advisers by investment product providers, will be replaced with a system of fees, agreed upfront, for advisers’ work and advice. This will help customers understand exactly how much they are paying for a product – and how much for the advice. Transparency is also guiding changes to the type of relationship the financial adviser has with product providers. The current multi-tiered system – singleproduct provider, multi-tied agents, whole-of-market advisers, independent advisers – will be far simpler. Under the new rules, advisory firms will now be classed as ‘independent’ or ‘restricted’. To be classed as independent, a firm must be able to show that its advice is based on a comprehensive and fair analysis of the relevant market, and unbiased and unrestricted.

If its advice does not meet this standard, it will be classed as restricted. While the financial advice industry may be facing these changes with a certain trepidation, some accountancy firms are confident it is business as usual for them and anticipate benefiting from any industry shake-out.

There for the taking… Ian Pickford, director of Mazars Financial Planning, says: ‘We have been operating with an RDR model for the last seven years, so this will not affect our business. But it presents a fantastic opportunity; it is there for the taking.’ He believes the shake-up should provide good opportunities for accountancy firms. ‘This is an area of advisory work that sits very well with clients, but firms need to understand how to manage an advisory business, which is very different from running a compliance business.’ Pickford explains that it can be quite a shift from doing a set of accounts for someone, to talking about their personal life and finances. Other advisers such as Stephen Jones, chief executive of Cooper Parry Wealth Strategies, part of accountancy firm Cooper Parry, say there is an obvious fit between, for example, tax

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The FSA’s Retail Distribution Review has opened a door of opportunity to accountancy firms that offer wealth advisory

advice and wealth planning. Jones says: ‘You stay ahead of the game by listening to what your clients want, such as closer integration of tax and financial planning.’ The key RDR change of fees rather than commission is, after all, how accountancy firms already work. Jones says his firm was RDR-ready long before RDR even existed. Parsons agrees. ‘We have known about the RDR for six years and have been preparing for it so our clients should not see much difference,’ she says. ‘We have been agreeing adviser fees in advance for some time, together with service levels, and pride ourselves on providing clients with a clear explanation of the services we offer and the charges for those services.’ Parsons expects potential clients to shop around, as they will be able to compare charges and services easily. ‘Our overall group offering encompasses professional advice and specialisms across a wide range of clients’ financial needs, so we feel in a very strong position to attract new clients,’ she says. ‘This type of integrated service will be good for all parts of the business.’ Part of the new regime requires a higher minimum level of qualification to advise clients. In some cases, individuals can be qualified by a ‘statement of professional standing’, which can be awarded by a number of designated accredited bodies. Parsons

UK_YPRAC_commissions.indd 47

says that RFP advisers are all at or above the new minimum Level 4 qualification, with the majority having achieved chartered status. ‘We have all been awarded our statement of professional standing and have a CPD programme in place to ensure that we maintain high standards,’ she says.

Sales or advice? Pickford predicts that some financial advisory firms could struggle, particularly with cashflow, if they have not got their business model right. But again this will be an opportunity for accountancy firms to grow their services. ‘One of the challenges for firms will be to ask if they are knowledgeable sales people or professional advisers,’ says Pickford. ‘There is a difference. You need to value your knowledge and not give that advice away for free.’ One area where accountancy firms need to be careful is if they don’t have their own wealth management services and refer clients to external advisers. If the adviser is classified under the new regime as independent, that’s fine, but if the adviser is classified as restricted, firms will need to be sure that the adviser is suitable for a client referral.

Philip Smith, journalist More detailed information can be found at www.fsa.gov.uk/rdr

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Page 1

DATA PAGE Bank Base Rates

Date 7.8.97 6.11.97 4.6.98 8.10.98 5.11.98 10.12.98 7.1.99 4.2.99 8.4.99 10.6.99 8.9.99 4.11.99 13.1.00 10.2.00 8.2.01 5.4.01 10.5.01 2.8.01 18.9.01 4.10.01 8.11.01 6.2.03

Rate 7.00% 7.25% 7.50% 7.25% 6.75% 6.25% 6.00% 5.50% 5.25% 5.00% 5.25% 5.50% 5.75% 6.00% 5.75% 5.50% 5.25% 5.00% 4.75% 4.50% 4.00% 3.75%

Rate 7.00% 6.75% 6.50% 6.25% 5.75% 5.65% 5.50% 5.75% 6.00% 6.25% 6.50% 6.75% 6.50% 6.75%

Figures compiled on 10 October 2012

Retail Prices Index

Date 10.7.03 6.11.03 5.2.04 6.5.04 10.6.04 5.8.04 4.8.05 3.8.06 9.11.06 11.1.07 10.5.07 5.7.07 6.12.07 7.2.08 10.4.08 8.10.08 6.11.08 4.12.08 8.1.09 5.2.09 5.3.09

Rate 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 5.50% 5.25% 5.00% 4.50% 3.00% 2.00% 1.50% 1.00% 0.50%

Source: Barclays

Mortgage Rates Date 1.6.01 1.9.01 1.10.01 1.11.01 1.12.01 1.3.03 1.8.03 1.12.03 1.3.04 1.6.04 1.7.04 1.9.04 1.9.05 1.9.06

November 2012

Date 1.12.06 1.2.07 1.6.07 1.8.07 1.1.08 1.3.08 1.5.08 1.11.08 1.12.08 1.1.09 1.2.09 1.3.09 1.4.09 4.1.11

Rate 7.00% 7.25% 7.50% 7.75% 7.50% 7.25% 7.00% 6.50% 5.00% 4.75% 4.50% 4.00% 3.50% 3.99%

Existing Borrowers - Source: Halifax

January February March April May June July August September October November December

1997 154.4 155.0 155.4 156.3 156.9 157.5 157.5 158.5 159.3 159.5 159.6 160.0

1998 159.5 160.3 160.8 162.6 163.5 163.4 163.0 163.7 164.4 164.5 164.4 164.4

13th January 1987 = 100

1999 163.4 163.7 164.1 165.2 165.6 165.6 165.1 165.5 166.2 166.5 166.7 167.3

2000 166.6 167.5 168.4 170.1 170.7 171.1 170.5 170.5 171.7 171.6 172.1 172.2

2001 171.1 172.0 172.2 173.1 174.2 174.4 173.3 174.0 174.6 174.3 173.6 173.4

2002 173.3 173.8 174.5 175.7 176.2 176.2 175.9 176.4 177.6 177.9 178.2 178.5

2003 178.4 179.3 179.9 181.2 181.5 181.3 181.3 181.6 182.5 182.6 182.7 183.5

2004 183.1 183.8 184.6 185.7 186.5 186.8 186.8 187.4 188.1 188.6 189.0 189.9

2007 4.2% 4.6% 4.8% 4.5% 4.3% 4.4% 3.8% 4.1% 3.9% 4.2% 4.3% 4.0%

2008 4.1% 4.1% 3.8% 4.2% 4.3% 4.6% 5.0% 4.8% 5.0% 4.2% 3.0% 0.9%

2009 0.1% 0.0% -0.4% -1.2% -1.1% -1.6% -1.4% -1.3% -1.4% -0.8% 0.3% 2.4%

2010 3.7% 3.7% 4.4% 5.3% 5.1% 5.0% 4.8% 4.7% 4.6% 4.5% 4.7% 4.8%

2011 5.1% 5.5% 5.3% 5.2% 5.2% 5.0% 5.0% 5.2% 5.6% 5.4% 5.2% 4.8%

2012 3.9% 3.7% 3.6% 3.5% 3.1% 2.8% 3.2% 2.9%

Source: ONS

HM Revenue & Customs Rates “OFFICIAL RATE”*

Effective Date 6.3.99 6.1.02 6.4.07 1.3.09 6.4.10

Rate 6.25% 5.00% 6.25% 4.75% 4.00%

*Benefits in Kind: Loans to employees earning £8,500+ - official rate of interest. Official rate for loans in foreign currencies: Yen: 3.9% w.e.f. 6.6.94; Swiss F: 5.5% w.e.f. 6.7.94 (previously 5.7% w.e.f. 6.6.94).

INTEREST ON UNPAID / OVERPAID INHERITANCE TAX

Effective Date 27.1.09 24.3.09 29.9.09

Rate 1.00%/1.00% 0.00%/0.00% 3.00%/0.50%

INTEREST ON LATE PAID INCOME TAX, CGT, STAMP DUTY AND STAMP DUTY RESERVE

Effective Date 6.12.08 6.1.09 27.1.09 24.3.09 29.9.09

Rate 5.50% 4.50% 3.50% 2.50% 3.00%

INTEREST ON OVERPAID INCOME TAX, CGT, STAMP DUTY AND STAMP DUTY RESERVE

Effective Date 6.11.08 6.12.08 6.1.09 27.1.09 29.9.09

Rate 2.25% 1.50% 0.75% 0.00% 0.50%

w.e.f. 6.3.09 0.00% (0.00%) 0.00% (0.00%) 0.75% (0.00%) 0.75% (0.00%) 0.75% (0.00%) 0.75% (0.00%)

w.e.f. 6.2.09 0.00% (0.00%) 0.00% (0.00%) 1.00% (0.50%) 1.00% (0.50%) 1.00% (0.50%) 0.75% (0.25%)

w.e.f. 9.1.09 0.00% (0.00%) 0.00% (0.00%) 1.50% (0.75%) 1.25% (0.50%) 1.25% (0.50%) 1.25% (0.50%)

Encashment rates shown in brackets. Above rates are paid gross but are liable to tax.

Late Payment of Commercial Debts From 1.1.11 1.7.11

To 30.6.11 31.12.11

Rate 8.50% 8.50%

From 1.1.12 1.7.12

To 30.6.12 31.12.12

Rate 8.50% 8.50%

The Late Payment of Commercial Debts (Interest) Act 1998 For contracts from 1.11.98 to 6.8.02 the rate applying is the Bank of England Base Rate that was in place on the day the debt came overdue plus 8%. The Late Payment of Commercial Debts (Interest) Regulations 2002 For contracts from 7.8.02 the rate is set for a six month period by taking the Bank of England Base Rate on 30 June and 31 December and adding 8%.

LIBOR January February March April May June July August September October November December

2009 2.17% 2.05% 1.65% 1.45% 1.28% 1.19% 0.89% 0.69% 0.54% 0.59% 0.61% 0.61%

2010 0.62% 0.64% 0.65% 0.68% 0.71% 0.73% 0.75% 0.73% 0.74% 0.74% 0.74% 0.76%

2011 0.77% 0.80% 0.82% 0.82% 0.83% 0.83% 0.83% 0.89% 0.95% 0.99% 1.04% 1.08%

2012 1.08% 1.06% 1.03% 1.01% 0.99% 0.90% 0.74% 0.68% 0.60%

3 MONTH INTERBANK - closing rate on last day of month

2007 201.6 203.1 204.4 205.4 206.2 207.3 206.1 207.3 208.0 208.9 209.7 210.9

2008 209.8 211.4 212.1 214.0 215.1 216.8 216.5 217.2 218.4 217.7 216.0 212.9

Courts ENGLISH COURTS

2008 3.6% 4.6% 4.8% 4.8% 4.2% 3.4% 3.2% 3.2% 2.8% 3.6% 2.3% 2.5%

January February March April May June July August September October November December

2009 210.1 211.4 211.3 211.5 212.8 213.4 213.4 214.4 215.3 216.0 216.6 218.0

Whole GB economy unadjusted *Provisional

2009 -1.7% -5.7% -1.1% 1.7% 0.9% 1.1% 0.3% 0.3% 0.9% 0.7% 0.8% 0.7%

2010 217.9 219.2 220.7 222.8 223.6 224.1 223.6 224.5 225.3 225.8 226.8 228.4

2011 229.0 231.3 232.5 234.4 235.2 235.2 234.7 236.1 237.9 238.0 238.5 239.4

2012 238.0 239.9 240.8 242.5 242.4 241.8 242.1 243.0

Source: ONS

2010 0.6% 5.2% 6.6% 0.4% 1.1% 2.1% 1.8% 2.1% 2.3% 2.1% 2.1% 1.3%

2011 4.3% 1.0% 2.4% 2.5% 2.4% 3.4% 3.1% 2.1% 1.8% 2.1% 2.1% 2.0%

2012 0.1% 0.7% 0.9% 2.4% 1.8% 1.4% 1.4%*

2010 535.7 537.2 543.1 552.7 547.6 538.5 544.8 546.6 529.6 534.9 528.4 522.7

2011 522.6 523.3 524.8 525.3 525.4 529.6 533.1 524.6 525.5 531.8 520.4 510.7

2012 514.2 514.3 528.9 521.7 523.6 528.3 526.3 518.5 519.3

Figures include bonuses and arrears Source: ONS

House Price Index 2008 619.1 626.1 616.9 618.0 603.5 588.3 577.5 567.7 561.0 544.2 527.1 512.8

January February March April May June July August September October November December

2009 517.2 515.3 508.3 508.6 520.7 514.0 520.1 524.1 533.5 535.4 536.0 541.3

All Houses (January 1983 = 100)

Exchange Rates

Certificates of Tax Deposit up to £100K £100K+ 0-1 mth £100K+ 1-3 mth £100K+ 3-6 mth £100K+ 6-9 mth £100K+ 9-12 mth

2006 193.4 194.2 195.0 196.5 197.7 198.5 198.5 199.2 200.1 200.4 201.1 202.7

% Change Average Weekly Earnings

% Annual Inflation January February March April May June July August September October November December

2005 188.9 189.6 190.5 191.6 192.0 192.2 192.2 192.6 193.1 193.3 193.6 194.1

2006 2007 2008 2009 2010 2011 2012

YEN 205 233 198 142 142 133 132

MARCH US$ SFr 1.74 2.27 1.97 2.39 1.99 1.97 1.43 1.63 1.52 1.60 1.60 1.47 1.60 1.44

Source: Halifax on last working day

€ 1.43 1.47 1.25 1.08 1.12 1.13 1.20

2006 2007 2008 2009 2010 2011

DECEMBER YEN US$ SFr 233 1.96 2.39 222 1.99 2.25 130 1.44 1.53 150 1.61 1.67 127 1.57 1.46 120 1.55 1.45

€ 1.48 1.36 1.04 1.13 1.17 1.20

Income Support Mortgage Rate Effective Date Rate

Effective Date Rate

Effective Date Rate

17.12.06 18.2.07 17.6.07

12.8.07 13.1.08 16.3.08

18.5.08 16.11.08 1.10.10

6.58% 6.83% 7.08%

7.33% 7.08% 6.83%

6.58% 6.08% 3.63%

From 1.10.10 the standard interest rate will be the BoE published monthly avge mortgage interest rate. Can claim mortgage interest on, up to £200,000 of the motgage. Waiting period 13 weeks.

SCOTTISH COURTS

Judgment Debts: High Court (& w.e.f. 1.7.91 County Courts) 8% w.e.f. Decrees: Court of Session & Sheriff Courts 8% w.e.f. 1.4.93 (previously 15% w.e.f. 16.8.85). 1.4.93 (previously 15% w.e.f. 16.4.85). Funds in Court: Special Rate (persons under disability) 0.5% w.e.f. NORTHERN IRISH COURTS 1.7.09 (previously 1.5% w.e.f. 1.6.09). Basic Rate (payment into court) Judgment Debts: High Court: 8% w.e.f. 19.4.93 (previously 15% w.e.f. 0.3% w.e.f. 1.7.09 (previously 1% w.e.f. 1.6.09). 2.9.85). County Court 8% w.e.f. 19.4.93 (previously 15% w.e.f. 19.5.85). Interest in Personal Injury cases: Future Earnings - none. Pain & Interest on amounts awarded in Magistrate Courts 7% w.e.f. 3.9.84. Suffering - 2%. Special Damages: same as “Special Rate” - see Funds ADMINISTRATION OF ESTATES in Court above (½ Special Rate payable from date of accident to date of judgment). England & Wales: Interest on General Legacies: 0.3% w.e.f. 1.7.09 Interest Rate on Confiscation Orders in Crown & Magistrates Courts: (previously 1% 1.6.09). Interest on Statutory Legacies: 6% w.e.f. 1.10.83 (previously 7% w.e.f. 15.9.77). same rate as applies to High Court Judgment Debts.

All rates and terms are subject to change without notice and should be checked before finalising any arrangement. No liability can be accepted for any direct or consequential loss arising from the use of, or reliance upon, this information. Readers who are not financial professionals should seek expert advice.

Data specially compiled for

by

the adviser’s portal

www.moneyfactsgroup.co.uk

The UK’s largest provider of savings and mortgage data

Tel: 01603 476 476

Corporate

CAUTIOUS APPROACH TO PAY

Remuneration in FTSE 100 companies has moderated this year, according to a report by Deloitte. Salary increases have reduced, while bonus payouts have fallen. But nearly half of chief executives and a quarter of all executive directors hold company shares valued at least five times’ their salaries. Stephen Cahill, partner in the remuneration team at Deloitte, commented: ‘Remuneration committees have continued to take a cautious approach to executive pay with overall packages remaining broadly flat compared to the previous year. We are encouraged by lower salary increases and bonus payouts. This suggests that remuneration committees are taking steps to ensure that the compensation paid to executives is fair and reasonable and linked to the long-term strategy and success of the business.’

LISTING RULES GET TOUGHER

UK listing rules are to be strengthened, the Financial Services Authority has announced. These will make it harder for private companies to obtain a listing by conducting a reverse takeover of a plc. The proposed new rules will also impose new requirements on companies with a dominant shareholder, with minority independent shareholders better able to influence the governance of companies in which they have investments. The new rules will recognise the concept of a ‘controlling shareholder’ and require an agreement to regulate the relationship between controlling shareholders and the listed company.

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49

The view from: Ria Mohammed FCCA, manager – Analytical Information, BG Group Q Why did you choose a career in accountancy and what advice would you give to school leavers? A My first preference was a career in law, but after achieving a prize at college for my accountancy diploma work, I decided to change path. Practice work never interested me; I’m more interested in industry. For anyone thinking about a career in accountancy: it has given me the chance to work in a diverse range of companies. Decide what you want out of life and then make steps to achieve it. Q How has the ACCA Qualification and membership benefitted you? A The breadth of the ACCA programme means that it encompassed business strategy and management accounting – far more than just taxation and the core skills of accounting. It has made me able to adapt myself to work in almost any area of business as an accountant, including a range of challenging roles at BG. Q What was the most rewarding element of mentoring ACCA affiliate Iwona Golab? A I was in the same situation as Iwona: I studied part time in my home country of Trinidad while taking night and weekend intensive classes. Most UK ACCA students are able to study full-time and do not have the pressure of work – this was a massive challenge for me as I was studying unfamiliar material like UK tax law while living and working in another country. It was incredibly rewarding to see Iwona succeed. Q How do you juggle work and motherhood? A When I started my career, my work/life balance was skewed very much towards work. Since moving to the UK with BG and becoming a mum, I find the balance has shifted. In order to continue my career with almost no pause, I had to hire a nanny for my son – something I’m sure every female professional can relate to in one way or another.

49 Corporate The view from Ria Mohammed of BG Group; boosting UK exports to emerging markets; tips from PwC on making the annual report more effective 41 Practice The view from Simon Ashworth of Grant Thornton UK; what it’s like working at BDO; Michael Fallon MP highlights the government help available to small businesses; no more commission payments under the Retail Distribution Review 53 Public sector The view from Michael Schofield of NHS Sussex; will the concept of the armchair auditor work?; how accountants will be key to managing health sector reform

FAST FACTS

Hobbies: Reading, going to the cinema and travelling

16/10/2012 17:30

50

Corporate

Export targets With the coalition keen for UK exporters to explore partners outside an ailing eurozone, experts counsel caution and argue that traditional markets still have a great deal to offer In April this year, prime minister David Cameron toured Asia as part of an ongoing mission to boost UK exports to emerging markets. The UK government wants to rebalance the domestic economic climate, placing less reliance on the troubled financial services sector and pointing exporters towards options outside the recession-hit eurozone. The government’s target to double UK exports to £1 trillion by 2020, announced in the chancellor’s March Budget, is an ambitious one. However, there have been signs that the message about broadening target markets is beginning to gain traction. Figures from the Centre for Economic and Business Research released earlier this year revealed that the UK exported more goods to non-European Union (EU) countries over the second quarter of 2012 than to the eurozone for the first time since the early 1970s. There was a 13% increase in year-on-year sales to non-EU countries for the period, according to the forecasting company. Further evidence of the shift comes from data from the National Statistics Office, which reports that while month to month the value of goods exported to non-EU countries oscillates between around £11bn and £13.5bn, the overall trend over the past two years has been an increase. In July this year, exports to countries outside the eurozone reached a peak of £13.5bn, nearly a third of our worldwide export figure of £41.4bn. And, significantly for the UK economy, services also do well outside the EU. However, experts argue that traditional trading partners such as the EU countries and North America still represent significant opportunities for UK small and medium-sized enterprises (SMEs). Trade with emerging growth economies, such as

UK_YCORP_Export.indd 50

the BRIC (Brazil, Russia, India and China) economies, carries greater risk and the cultural hurdles can be more significant, they argue. Speaking at an ACCA roundtable debate on export, Jon Coleman, chairman of the British Exporters Association, said the current focus on BRIC countries was helpful for export activity overall, but warned against advising smaller businesses to focus on those regions to the exclusion of the UK’s traditional trading partners. ‘There is a danger we will lose focus on our core markets like Germany and the US. There’s a balance to be struck. For an SME looking at its first export deal, the prospect of dealing with a more familiar country closer to home is

exporters. These traditional markets have long established trade infrastructures, making them accessible trading partners. Most importantly, businesses have a high degree of certainty of payment from these markets. Quite often it is a case of resisting the temptation of spreading resources too thinly by addressing more challenging markets when maximising market share in more established markets would be a prudent building block to future success.’ New ventures into Asia mean grappling with some very specific risks – the cultural and language barriers for starters. What’s more, China attracts a legion of cautionary tales on counterfeit goods and the difficulties of

‘IT IS IMPORTANT THAT MORE EXOTIC MARKETS ARE PROPERLY RESEARCHED BEFORE SENDING GOODS OUT ON A 30-DAY BOAT JOURNEY!’ going to be far less daunting than exporting to far-flung markets with very different business cultures and market conditions,’ he said. Eurozone economies are not expected to return to growth in the short term, but they still represent opportunities for UK businesses. Speaking at the roundtable, Eric Balish, director for trade finance for Scotland and Ireland for Barclays, said: ‘It is of vital importance that Scottish businesses explore new and emerging markets, but you can go too far too fast. It is of utmost importance that more exotic markets and potential customers are properly researched before sending goods out on a 30-day boat journey! Europe and the USA still have the opportunity to take market share, especially in areas of niche expertise. This is especially so for less experienced

protecting intellectual property (IP). Electronic goods are the most prone to illegal copying, but prescription drugs, food, clothing, toys and alcohol are also significant earners for the copycats, says the International Chamber of Commerce. What’s more, counterfeiters are increasingly setting up imitation websites to channel goods. While it has become a huge issue for large brands, IP risk can be a dealbreaker for small businesses. Tony Ralph, finance director at Biofilm, a Scottish life sciences company that manufactures thin dissolvable film for medical and cosmetic uses, says: ‘China is particularly high risk from the IP perspective. You’re simply not protected from copying and if you’re a small company you’re especially vulnerable to the damage it can bring. But with markets like Europe not

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Above: Prime minister David Cameron shakes hands with Malaysian cabinet ministers in April 2012 during a tour of Malaysia intended to boost UK exports in emerging markets

growing and North America not exactly on fire, you have to look elsewhere for sustainable growth.’ Faced with the necessity to widen their horizons, would-be exporters need to formulate clear plans, assessing the risks particular to their target markets and spending time preparing their business propositions. Unfortunately, this considered approach is something of a rarity. Shantee Luximan, international and trade channel manager at Barclays, says that very often small businesses become exporters on the back of a surprise order from overseas. ‘We always say the moment you are looking to do something different with a business, go and get advice and information. A lot of advice available is free, but small businesses just don’t seem to have the time to access it.’

UK_YCORP_Export.indd 51

Once an order is accepted or contract won, there is no shortage of financial issues to grapple with. Lesley Batchelor, director general of the Institute of Export, says trading in an unfamiliar currency presents challenges, both from pricing goods or services for sale to finding foreign exchange facilities. It is an area where SMEs could use more support from banks or government, she says. ‘For a contract under £15,000, which would be sizeable for many small businesses – they would struggle to find an exchange product,’ she says. ‘With small foreign exchange deals people make mistakes, lose money on the sale and decide that exporting is not for them.’ Banks say they are trying to do more to support smaller export companies. Barclays, for instance, is trying to

address the shortfall in provision of foreign exchange facilities for smaller value trades. And according to the Asset Based Finance Association, invoice finance for export activity is up 5% for the year to date compared to 2011. In the meantime, use of government-backed export guarantees and insurance has fallen. UK Export Finance reported in June that demand for the 12 months to April 2012 fell by £600m, a 20% fall in demand for the year. Enthusiasm for export, as well as practical help, appears to be down. As with other areas of export, help is available, but businesses still don’t know where to turn to gain access to expertise. A more concerted approach to plugging the education gap looks to have become an urgent issue. Liz Loxton, journalist

16/10/2012 10:46

52

Corporate

Top tips for this reporting season As reporting season fast approaches, PwC director Alison Thomas gives us her top tips for making your annual report more effective in communicating with the capital markets How can you improve your communications with the capital markets through your corporate reporting? Our 12 practical reporting tips – based on what investors tell us they would like to see in reporting – are a great place to start.

Have a backbone Use your objectives and strategy to underpin your reporting and provide the context for your activities and performance. Strategic statements set in isolation from the rest of your reporting can appear hollow.

Back to basics Explain your key capabilities and the key resources and relationships you depend on to create and sustain value. Consider both your key inputs/outputs as well as your own activities, and demonstrate how your business model interacts with other reporting elements.

The big picture Put your results in the context of market trends. Provide management’s perspective on the competitive landscape and macro environment to allow the reader to evaluate your strategic choices and actions.

Tell the whole tax story Provide clear information for stakeholders on the sustainability of current tax rates and how tax impacts your business, looking more broadly at tax strategy, risk management and the wider impact of tax as well as detailed tax performance in the tax note. .

Cash is still king

Explain how you make money, generate cash and are funded. Competition for capital is fiercer than ever before, so consider including detailed disclosure about your operating cashflow strategy and performance and consolidating

UK_INT_YCORP_PwC.indd 52

your debt disclosure. Provide details of your debt maturity schedule and reconciliation of free cashflow to movements in net debt.

Survival of the fittest Demonstrate an understanding of the material sustainability risks and opportunities relevant to you and your key stakeholders and how they’re integrated into your core corporate strategy. Consider the impact of your business across your entire value chain when considering materiality.

Bottom up! Challenge whether the segment analysis is not just compliant but also makes visible the dynamics inherent within the business. Consider including a few additional line items such as working capital, operating cashflow and capital employed for each segment.

Flash in the pan? Explain what is driving financial performance – is growth sustainable? Consider using bridge charts to help investors understand what is driving revenue profit and growth. Ensure non-GAAP measures to support your messaging are clearly identifiable, consistently defined and reconciled to your GAAP numbers.

What gets measured gets done Identify key financial and operational KPIs used to assess progress against strategic priorities. Explain clearly how management are incentivised, highlighting the link between strategy, KPIs and the remuneration package.

Crack the code Go beyond compliance and bring governance reporting to life by demonstrating the activities of the board, the skills and experiences each board member brings to the table and how they interact.

Join the dots Avoid silos and present a clear, coherent and integrated picture of how your strategy, governance, performance and prospects lead to long-term value creation. Alison Thomas is a corporate reporting specialist at PwC. For further details on the tips, go to www. pwc.co.uk/corporatereporting

Not the kitchen sink Highlight principal risks, not all risks. How might they derail your strategy? How are they managed? How has the risk profile changed during the year and what is the sensitivity of underlying performance to changes in these risks?

16/10/2012 13:29

Public sector

DOUBTS OVER NHS SAVINGS

NHS finance directors are sceptical that the cost saving target of £20bn by 2015 is achievable, according to The King’s Fund’s latest NHS performance monitoring report. The survey of 45 finance directors found that they are confident of meeting this year’s less ambitious target of less than 5% cost savings. But 40% expect productivity improvement targets in following years to impact care quality. Professor John Appleby, chief economist at the fund, said: ‘The NHS continues to perform well in the second year of the productivity challenge. But there are signs that future years will be harder. The end of the public sector pay freeze next April may add to financial pressures and increase the strain on services. The difficulty for local providers will be finding ways to absorb these costs without compromising the quality of care for patients.’

John Davies

ACCA WELCOMES BILL SCRUTINY ACCA has welcomed the appointment by the House of Commons of an ad hoc committee to scrutinise the draft Local Audit Bill. This shows the extent of the unease about the proposals to abolish the Audit Commission, said ACCA, as well as concerns about the effectiveness of new arrangements to audit public spending. It pointed out that the government has failed to prove its claimed £50m of savings to be achieved from the abolition. John Davies, head of technical at ACCA, said that the commission has ‘already lost a large number of excellent staff’ and that the abolition proposals need to be reviewed as quickly as possible.

UK_YPUB_intro.indd 53

53

The view from: NHS commissioning: Michael Schofield FCCA, director of finance, NHS Sussex Q What is your role in the reform of NHS Commissioning in Sussex? A I am right in the thick of it. I have secured a job starting fully in April 2013 when the current commissioning bodies, primary care trusts (PCTs), are replaced by clinical commissioning groups (CCGs), led by GPs. As of now I am doing two jobs! Q What differences will patients see when the reform is completed? A GPs or clinicians needed to be more involved in determining where the money was spent. The reforms do that – but it will have been a heck of a journey. Patients will have their care pathway clinically led from start to finish, while management enabled. Patients should see a difference and a focus on outcomes of care.

53 Public sector The view from Michael Schofield of NHS Sussex; will the concept of the armchair auditor work?; how accountants will be key to managing health sector reform

Q Will the projected efficiency savings required across Sussex be realised? A Achieving savings of £400m in Sussex will be a real challenge: services must be reconfigured. The public may perceive that as service rationing and cuts. We all need to view the NHS in a different way – it needs to keep pace with modern demands and modern means of care delivery. Delivering the savings would have been easier without the organisational changes.

41 Practice The view from Simon Ashworth of Grant Thornton UK; what it’s like working at BDO; Michael Fallon MP highlights the government help available to small businesses; no more commission payments under the Retail Distribution Review

Q What are the downsides of the reforms? A The demise of PCTs and the radical nature of the reforms. Much of the architecture supporting the reforms has been left to evolve. Currently it feels as if we are changing the side of road we drive on in a period of months.

49 Corporate The view from Ria Mohammed of BG Group; boosting UK exports to emerging markets; tips from PwC on making the annual report more effective

Q How do you escape from this stressful process? A I do not take work home. I spend time with my wife and family. I listen to a lot of music.

FAST FACTS

In April 2013, Schofield becomes CFO for Brighton and Hove CCG and High Weald and Lewes-Havens CCGs.

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Public sector

Couched in new terms With ‘armchair auditors’ and a focus on localism becoming reality, a recent ACCA debate looked at the changes surrounding the accountability of public money

When communities and local government secretary Eric Pickles announced that the Audit Commission was to be scrapped, his vision of what would replace it was striking – an ‘army of armchair auditors’ would hold their local public services to account for the way their taxes were being spent. Two years on, those forces are being mobilised. Local authorities will have more flexibility about their spending and the way they are audited and reported. In return, they will need to be more open with their residents – those armchair auditors – about the decisions they make. So is local government ready for all this? It’s a tough ask. In these challenging economic times local authorities are being expected to put value for money and accountability centre stage – but at a time when they are faced with major structural reform. As local government expert Professor Tony Travers put it at a recent ACCA debate on accountability for public money, the ‘big battalions of the state’ are being dismantled in favour of smaller autonomous units. The challenge in all of this is that most of

UK_YPUB_accountability.indd 54

us want more decentralisation, but at the same time more accountability. Already potential problems are emerging. The government has already changed its grant funding rules, with most cash from central government now given to councils with no terms and conditions attached and no monitoring of how it is spent. This allows local authorities to reflect their local priorities, but it also makes it difficult for central government to know what outcomes have been achieved and to evaluate performance. It has to be assumed that local authorities are well governed and therefore value for money is achieved. Frances Carter FCCA, audit business manager at the Department for Education’s internal audit unit and a member of ACCA’s Public Sector Network Panel, said: ‘While we know that’s true for most, it isn’t the case for every authority. Now that the Audit Commission is going, although local authorities still have to be audited, there is no longer a comparable service being provided. What a local authority gets in the way of audit is what the governing body is prepared to pay for.’ In the absence of the Audit

Commission, it will be more difficult to build up a good national picture of how central government money is being spent locally, and areas delivering poorer services might not be so easy to identify – raising the spectre of residents moving in search of better services as they now do for schools. The National Audit Office (NAO) is extending its work looking at value for money at the local level. But it will not hold local authorities to account in the same way it does central government. Stephen Fitzgerald FCCA, director of value for money studies for local government at the NAO and ACCA Public Sector Network Panel member, said: ‘A time of immense change is facing us over the next five to 10 years, in terms of the management of public money and the future of accountability and public sector audit. The NAO is prepared to rise to the challenges going forward on delivering on the future of public sector audit.’ One of the keys to making the new regime work well, Fitzgerald stressed, was better communication of financial detail to the public. ‘This means taking financial data, which can be complicated in the details, and

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communicating it in a way that a member of the public can understand.’ Travers, director of LSE London, a research centre at the London School of Economics, floated some radical ideas for improving accountability. He suggested that annual account for households showing how much they have paid in different taxes and how much was spent on the public services they use could help the public be better informed about the use of public money. He also believes politicians at both central and local government level need to be better skilled at monitoring spending. ‘A lot of people are afraid of numbers,’ he said. ‘We do need to have skilled politicians. Not to do the work – that has to be done by officers – but to ask the right questions.’ Resourcing the development of these skills will be crucial, especially in local government where sector-led improvement is in the vanguard, according to Tim Gilling, acting executive director of the Centre for Public Scrutiny. ‘If you are going to manage your own performance in the new world, you need to take a much better view of risk and councillors need to be much more switched on to early

UK_YPUB_accountability.indd 55

signs of failure,’ he said. ‘If you can invest in capacity for people to be able to handle discussions about these kinds of things, the signs are good. If you don’t invest and don’t give people the capacity to spot when things are going wrong, that’s probably not going to be good for citizens.’ For Gilling, the new landscape will mean bringing financial issues off the balance sheet and into the public domain, with politicians, professionals and the public working together. He is confident the public sector can rise to the challenge.

Left (from left): Tim Gilling, Stephen Fitzgerald (also pictured above), Frances Carter and Ian Knowles

In summary, the army of armchair auditors may be mobilised, but as yet there is little evidence they are active in numbers. Perhaps we have set our expectations too high on the power of the armchair auditor to realistically hold local authorities to account for the money they spend. Kate Murray, journalist

*THE NEW REGIME

The prize for getting it right on accounting for the way public money is spent is a big one. According to ministers, the move to a locally focused audit regime will save the public purse £1bn over 10 years, with £650m of that coming in the first five years. But it’s not just about the money, the government insists. The reforms are also designed to signal an era of greater trust and openness. The Local Audit Bill setting out the changes says the new system will be built around four principles: localism and decentralisation, transparency, lower audit fees, and high standards of auditing. The National Audit Office will be looking at how specific funding streams – for example, the New Homes Bonus or community budgets – are working. But it insists it will resist ‘mission creep’. ‘What we are trying to do in this new space is work very closely with the sector in the development of our value-for-money work,’ said the NAO’s Stephen Fitzgerald.

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Public sector

Role in reform Recent gatherings of finance professionals working in the health sector highlighted how accountants will be key to managing major change

NHS finance professionals will be critical to the success of the government’s health reforms and central to securing the service’s future in the face of the continued economic downturn, the ACCA UK Health Sector Finance conference heard. ACCA’s immediate past president Dean Westcott, CFO (designate) at West Essex Clinical Commissioning Group, said the conference theme – Joining up the Dots in a Clinically led NHS – was particularly appropriate. NHS accountants would have a key role in implementing the government’s reforms, particularly in the commissioning of care, where GP-led groups will replace primary care trusts. Westcott said GPs will decide where NHS funds are spent, but they will turn to finance colleagues for support. ‘Increasingly, finance professionals will be at the forefront of advising GPs on making the best decisions with the finance available to them,’ he told delegates at the September event. Virtual or physical integration of providers of care, such as community and acute hospitals, is seen as one way of improving the quality of care and making it more efficient.

*VIEW FROM SCOTLAND

Healthcare Financial Management Association president Sue Jacques, also chief executive of County Durham and Darlington NHS Foundation Trust, spoke about the benefits. Her trust, which serves around 600,000 people, became one of the largest integrated providers of hospital and community services in the country when it merged with local community services in 2011. She said integration had improved care and saved money. For example, the Durham trust had forged greater ties with local authority social services and community hospitals to improve its performance against the four-hour waiting time target in A&E. Patient flows in the hospital were reorganised to ensure patients were discharged when clinically appropriate, while partnership working ensured vulnerable patients were cared for by the appropriate agency. NHS trusts must develop their organisational capabilities in order to take on the new responsibilities and roles they will receive as foundation trusts, NHS Trust Development Authority (NTDA) finance director Bob Alexander told the conference. The NTDA is a new body supporting trusts striving to gain foundation status.

NHS accountants must use their technical expertise to facilitate improved financial performance through higher-quality patient care, John Matheson told the NHS Scotland finance conference, of which ACCA was a partner. Matheson, director of finance, eHealth and pharmaceuticals in the Scottish Government Health and Social Care Directorate, strongly emphasised the need to deliver financially driven performance by improving the quality of healthcare provision through NHS Scotland’s Patient Safety Programme. While accountants were already good at understanding healthcare, they had to get even better. This would give them ‘ward credibility’, Matheson told the October conference.

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Immediate past ACCA president Dean Westcott

‘Some of this support will take the form of intervention, some will take the form of helping an organisation find a partner so it can become part of a successful foundation trust, for example. And some of it will be about working across the trust and the health sector locally to identify efficiency improvements to help these organisations deliver clinically and financially sustainable services,’ said Alexander Health commentator Roy Lilley ended the conference with a note of caution. ‘You have seen nothing yet as to how difficult it’s going to be after 2015,’ he said. The current economic downturn would not improve in the medium term and savings plans had to move on to a bigger scale – charging hospital patients for some meals or asking staff to buy their own uniforms was the sort of thinking that would be required after 2015, he said. However, there were reasons to be optimistic – telecare, for example, could allow more patients to be looked after in their homes, avoiding expensive hospital stays. Seamus Ward, journalist

*VIEW FROM WALES

Meanwhile, the ACCA Wales and HFMA Wales Finance Event heard that NHS Wales needs an effective Planning and Compliance Framework that sets out the service objectives to be achieved, how these are to be improved on over time and how organisations better integrate their quality, workforce, finance and service delivery plans.

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Technical update

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Glenn Collins, ACCA UK’s head of technical advisory, provides a monthly round-up of the latest developments in financial reporting, audit, tax and law

AUDIT ISA AMENDMENTS Revised International Standard on Auditing (ISA) 260, Communication With Those Charged With Governance, ISA 700, The Auditor’s Report on Financial Statements (Revised), ISA 705, Modifications to the Opinion in the Independent Auditor’s Report, ISA 706, Emphasis of Matter Paragraphs, Other Matter Paragraphs in the Independent Auditor’s Report, and ISA 720A, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements, have been updated to reflect the corporate governance changes highlighted in the box overleaf. The ISAs are effective for audits of financial statements for periods commencing on or after 1 October 2012. The changes in the standards are mainly directed at: Enhancing communications by requiring the auditor to communicate to the audit committee information on significant professional judgments made in the audit. A requirement for the auditor to report, by exception, ‘if the board’s statement that the annual report is fair, balanced

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and understandable is inconsistent with the knowledge acquired by the auditor in the course of performing the audit, or if the matters disclosed in the report from the audit committee do not appropriately address matters communicated by the auditor to the committee.’ The guidance in ISA 720 section A, material misstatement of fact, is helpful and states: A10-1 – A material misstatement of fact in other information would potentially include an inconsistency between information obtained by the auditor during the audit (such as information obtained as part of the planning process or analytical procedures, or as written representations) and information which is included in the other information. A10-2 – The auditor has regard to the nature of the inconsistency or misstatement that in the auditor’s opinion exists. A distinction may be drawn between a matter of fact and one of judgment. It is generally more difficult for the auditor to take issue with a matter of judgment (such as the view of those charged with governance of the likely out-turn for the following year) than a factual error. Although an auditor does not substitute the auditor’s judgment for that of management and those charged with governance

in such matters, there may be circumstances in which the auditor is aware that the expressed view of management and those charged with governance is significantly at variance with the entity’s internal assessment or is so unreasonable as not to be credible to someone with the auditor’s knowledge. The Financial Reporting Council has stated that the revisions to the auditor reporting standards have also been made to enable those standards to be used by auditors in the Republic of Ireland and also to more fully align the requirements of ISAs (UK and Ireland) 705 and 706 with those of ISA (UK and Ireland) 700. A new Bulletin 2012/1, providing a compendium of illustrative auditor’s reports on Irish financial statements, will be issued in the near future. ISAS ON SMALLER AUDITS The International Auditing and Assurance Standards Board (IAASB) is finalising its survey on ISAs and how they have been applied to smaller audits and it is collating feedback. Its current work indicates that there are some benefits in terms of audit quality and the cost impact has been relatively small. Views differ as to whether changes need to be made to the standards to make them more suitable for smaller audits. The IAASB will be aggregating the UK results with those of other countries in the next few months. The

findings from the survey will be combined with the input that is expected to be received on ISA implementation from firms, regulators, standard-setters and others and will be discussed by the IAASB in June 2013. IAASB: REVIEW ENGAGEMENTS International Standard on Review Engagements (ISRE) 2400 (Revised): Engagements to Review Historical Financial Statements, has been revised. The revised standard applies for periods ending on or after 31 December 2013. The standard deals with the practitioner’s responsibilities when engaged to perform a review of historical financial statements, when the practitioner is not the auditor of the entity’s financial statements, and the form and content of the practitioner’s report on the financial statements. The standard contains useful illustrative information within the appendices – Appendix 1: Illustrative Engagement Letter for an Engagement to Review Historical Financial Statements and Appendix 2: Illustrative Practitioners’ Review Reports. When considering the use of the standard practitioners will need to consider International Standard on Quality Control (ISQC) 1. The standard states: Relationship with ISQC 1: Quality control systems, policies and procedures are the responsibility of

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Technical update The child benefit charge comes into effect from January

*AUDIT: CORPORATE GOVERNANCE

The UK Corporate Governance Code, UK Stewardship Code and Guidance to Audit Committees have been published by the Financial Reporting Council (FRC). The updated codes apply from 1 October 2012. The changes made to the corporate governance code and stewardship code build on, rather than alter, the aims of the codes. The codes continue to provide guidance on the key components of good practice and retain the ‘comply or explain’ option for companies. The changes to the corporate governance code include requirements that:

* * *

FTSE 350 companies put their audit out to tender every 10 years as a minimum shareholders be provided information from audit committees on how committees have met their responsibilities and how effective they have been companies report on their progress with regard to boardroom diversity.

There is also the requirement that: ‘Boards are to confirm that the annual report and accounts taken as a whole are fair, balanced and understandable, to ensure that the narrative sections of the report are consistent with the financial statements and accurately reflect the company’s performance.’ The Stewardship Code sets out good practice for institutional investors on monitoring and engaging with investee companies and reporting to clients and beneficiaries. Changes to the stewardship code have regard to responsibilities of asset managers and owners. There are also requirements to provide clear explanation of any conflict of interest and independent verification of the stewardship activities. Principle 7 now states that: ‘Asset managers that sign up to this code should obtain an independent opinion on their engagement and voting processes having regard to an international standard or a UK framework such as AAF 01/06. The existence of such assurance reporting should be publicly disclosed. If requested, clients should be provided access to such assurance reports.’ Links to the codes and guidance can be found at www2.accaglobal.com/uk/members/technical The FRC has also updated its guidance note and questions for use by audit committees using auditor firms from more than one network.

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the firm. ISQC 1 applies to firms of professional accountants in respect of a firm’s engagements to review financial statements. The provisions of this ISRE regarding quality control at the level of individual review engagements are premised on the basis that the firm is subject to ISQC 1 or requirements that are at least as demanding. The standard can be found at http://tinyurl. com/8tqf7xg A UK version of the standard is expected next year.

FINANCIAL REPORTING FUTURE OF UK GAAP See the latest position and what you should be doing now regarding the following: FRED 46, Application of Financial Reporting Requirements, (draft FRS 100). FRED 47, Reduced Disclosure Framework, (draft FRS 101). FRED 48, The Financial Reporting Standard applicable in the UK and Republic of Ireland, (draft FRS 102).

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Reporting * Financial Standard for Smaller Entities (FRSSE). Visit www2.accaglobal. com/uk/members/technical MODEL ACCOUNTS You can now obtain a new suite of model FRSSE accounts at www2. accaglobal.com/uk/ members/technical IASB: IFRS FOR SMES International changes and updates on the IFRS for SMEs, including guidance for different-sized entities, information on country adoption and small and medium-sized enterprise resources are available at www.ifrs.org/IFRS-for-SMEs/ Pages/Update.aspx IFRS 9 CHANGES Changes to IFRS 9, Financial Instruments, have been published by the IASB. The amendments and accompanying guidance relate to changes to general hedge accounting. The draft and guidance is available until early December when the IASB will finalise the draft and then issue the revised standard. The

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guidance contains useful examples, questions and answers on implementation and details of amendments to other IFRSs. They can be found at http://tinyurl. com/8gwklt7 LINKS TO STANDARDS You can find direct links to financial reporting standards at www2.accaglobal.com/ uk/members/technical

ETHICS IESBA CONSULTATION The International Ethics Standards Board for Accountants (IESBA) has issued an exposure draft, Responding to a Suspected Illegal Act. It is open for comment until 15 December and the IESBA intends to revise the ethical standards code in light of comments received in the second half of 2013. The proposed changes highlighted in the draft relate to where professional accountants in practice or business override, or have a right to override, the fundamental principle of confidentiality and to disclose a suspected illegal act to an external authority. Go to http:// tinyurl com/9b4r2s4

TAX CHILD BENEFIT The child benefit charge on high-income families comes into effect from 7 January 2013. A taxpayer is liable to the charge if either they or their partner has adjusted income in excess of £50,000 and either is

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*IMPORTANT RTI DATES

Real Time Information (RTI) deadlines are approaching, with employers and pension providers being required to provide information under RTI commencing in the period April to October 2013. The majority of employers will be submitting PAYE information in real time by April 2013. Please do not underestimate the time required. Even those who have received face-to-face support in the pilot have reported difficulties. Also, please remember that the guidance and information issued by HM Revenue & Customs (HMRC) is not static. As businesses highlight their concerns, guidance is revised. You can find a business checklist and links to guidance at www2.accaglobal.com/uk/members/technical The information below has been extracted from the HMRC employer bulletin (http:// tinyurl.com/8vrgzna) and sets out HMRC’s communications plan to October 2013.

October – November 2012 We [HMRC] plan to write to all employers not in our pilot in October 2012. This letter will be sent to the business address we hold for you. It will tell you what you need to do to get ready to make your first real time submission in April 2013. Then, during November, we will be closing employer schemes that we believe have stopped operating PAYE. We will write to the employers of the schemes that we close to tell them what we have done. If you get one of these letters and you think that we have closed down your scheme in error, you will need to get in touch with us and the letter will explain what you need to do. Any scheme that has closed will not have to send PAYE information in real time from April 2013. Also in November we will start the next stage of our pilot, which will expand to include a larger number of PAYE schemes and payroll software products.

February 2013 In February next year we plan to send all employers a follow-up letter confirming when they are expected to start making real-time submissions.

April 2013 You will start to report PAYE information in real time in April 2013 unless we have agreed a different date with you.

June – September 2013 If you have schemes with 5,000 or more individuals and are not already reporting in real time before April 2013, we will work with you to agree the date from which you will start. The expectation is that this will be sometime between June and September.

October 2013 Supported by information about income made available in real-time from HMRC’s systems, Universal Credit will be introduced by the Department for Work and Pensions.

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Technical update

*

TIME LIMITS FOR TAX RELIEF CLAIMS

Make sure you don’t miss any of the key reliefs available to individuals and businesses. The following is a table of business losses, relief provisions and time limits. Income Tax Act (ITA) 2007 section 64

Set off against income and gains of the same year or previous tax year

one year * Within Following the tax year in * which the loss is made

ITA 2007 section 72

Set off new losses against income for the previous three years, taking the earlier years first

one year * Within Following the tax year in * which the loss is made

ITA 2007 section 83

Carry forward against future profits of the same trade

four years from * Within the end of the tax year in which the loss occurs

ITA 2007 sections 89, 90

Carry back of terminal loss

four years from * Within the end of the tax year in which the business ceases

ITA 2009 section 23

Losses carried back to previous three years

one year * Within Following the tax year in * which the loss is made

You can find information on other time limits at www2.accaglobal.com/uk/ members/technical

entitled to child benefit. The charge is the ‘appropriate percentage’ of the total child benefit received in the fiscal year. Where the adjusted income is £60,000, the appropriate percentage is 100%. Where a partner’s income is in excess of £60,000, it may be preferable to disclaim the benefit in order to avoid the charge. If the claimant decides to elect not to receive the benefit because the expected income is over £60,000 and subsequently finds that this is not the case, the claimant can revoke the election.

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You can find a technical factsheet 178 and a business/personal guide for you to take and use at www2.accaglobal.com/uk/ members/technical COMPLIANCE CHECKS HM Revenue & Customs (HMRC) has published a suite of compliance check factsheets. They range from information notices and unannounced visits through to 12 factsheets on penalties. Bookmark them as each carry a unique reference and HMRC will send them to businesses when they undertake a

check. www.hmrc.gov.uk/ compliance/factsheets.htm SMALL DONATIONS The Gift Aid Small Donations Scheme is due to be introduced from 6 April 2013. This impacts on charities and community amateur sports clubs and removes the requirement to keep detailed donor records for small donations. CONSULTATIONS Implementing the UK-US FATCA Agreement. This consultation is open until 23 November and sets out how the government intends

to legislate to deliver the commitments made in the Foreign Account Tax Compliance Act Agreement. It also seeks views from financial institutions and others on the proposed approach and requests information on the expected costs of complying with the agreement. The consultation also sets out the provisions of the agreement using the three sections – the articles, due diligence obligations and non-reporting UK financial institutions and products. For example, table 3.1 sets out the reporting requirement changes for 2013, 2015 and 2016. The consultation can be found at http://tinyurl.com/93hsn6f There are a number of consultations closing in November and December including: VAT: Consideration of the case to extend the education exemption to for-profit providers of higher education. Consultation on vulnerable beneficiary trusts (see the October edition of Accounting and Business). You can find the above consultation plus other current consultations at http://tinyurl.com/hsa4x You can send your comments on any of the above to advisory@ uk.accaglobal.com

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LAW PAROCHIAL CHURCH COUNCILS The Charity Commission has highlighted important information and guidance

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issued by The Church Commissioners. The guidance should be reviewed by all members of parochial church councils (PCCs) and it also provides useful information for reporting accountants and honorary treasurers. The guidance relates to chancel repair liability and states who is liable for a share of the repairs. It is highlighted that PCCs will need to check if there is liability within the parish and consider whether to register the chancel repair liability with the Land Registry by 12 October 2013. This registration will allow the enforcement of the liability against future owners of the land concerned. The Legal Advisory Commission of the General Synod considers ‘whether there are any circumstances in which a PCC can properly decide not to investigate whether it is entitled to the benefit of chancel repair liability; or having established that it is entitled to the benefit of such liability, decide not to register or enforce such liability’. A link to the information can be found at http:// tinyurl.com/9y23w33 AUTO-ENROLMENT BEGINS The first group of the largest employers have autoenrolled with the pensions regulator. This will carry on over the next few months and will be followed by the auto-enrolment of mediumsized employers over the next couple of years, with

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small and micro employers affected last. The change needs to be considered early as it might impact on your business plans and your financial arrangements and covenants. ACCA has a number of articles from the Pensions Regulator and National Employment Savings Trust (NEST) as well as a podcast on auto-enrolment. You can read guidance about what you need to do and see the workplace pension options at www2.accaglobal.com/ uk/members/technical DISPUTES RESOLUTION The government has issued a consultation that aims to encourage the use of compromise arrangements for the quick resolution of disputes. The consultation asks a number of questions about how agreements should be set up, provides templates, discusses whether the government should provide guidance on the amounts that should be offered, questions whether pay caps should be introduced and reviews other compromise/settlement considerations. The consultation is open until 23 November. This and other consultations can be found at www.bis.gov.uk/ Consultations AGE DISCRIMINATION In addition to existing forms of discrimination, it is now unlawful to discriminate on grounds of age unless the discrimination is either within one of certain

PCCs will need to check if there is chancel repair liability within the parish

specified exceptions, or can be ‘objectively justified’. This is where you can show it is a proportionate means of achieving a legitimate aim. Guidance issued by the Home Office Equality Act 2010: Banning Age Discrimination In Services: An Overview for Service Providers and Customers, highlights the exceptions. It also includes a list of current ‘myths’ and has a simple flowchart to assist businesses to ensure they comply. It can be found at http:// tinyurl.com/9yqfb92 DATA PROTECTION The Information Commissioner’s Office guidance, Deleting Personal Data: Data Protection Act, sets out the circumstances in which, instead of deleting information, data holders can put the information ‘beyond use’. The guidance sets out a number of conditions where this exception to the delete rule can apply. http://tinyurl. com/9mq29a7

FINANCE ADVICE SCHEME The key aim of the Business Finance Advice Service is to help educate businesses so that they are equipped to ask the right questions when it comes to accessing appropriate finance. To join this free scheme, all ACCA members in practice are required to complete an opt-in form. The opt-in form lists four specialisations. Business plans. Business start-ups. Small scale equity issues. Bank loans and overdrafts. Find out about the scheme and how you can use the new accreditation at www2.accaglobal.com/uk/ members/technical

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FINANCE AND INVESTMENT Pro forma business plans and guidance on the Seed Enterprise Investment Scheme (SEIS) and other enterprise initiatives can be found at www2.accaglobal. com/uk/members/technical

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Technical GET VERIFIABLE CPD UNITS

Answer questions about this article online Studying this article and answering the questions can count towards your verifiable CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

Charities: trustee duties Glenn Collins highlights the main obligations of charity trustees and the need to consider legal requirements and best practice along with moral and ethical responsibilities

Hundreds of thousands of individuals from across the UK support charities as trustees. In its publication, CC3 – The Essential Trustee: What You Need to Know, the Charity Commission puts the total number of trustees in England and Wales at 900,000. There are probably a further 90,000 in Scotland and in Northern Ireland. In addition, there are trustees in England and Wales of charities that have income under £5,000 and which therefore are not registered. Sam Younger, CEO of the Charity Commission, said in last month’s Accounting and Business that ‘the talents of professionally trained trustees, and accountants in particular,

thinking about trusteeship, we would like to explore the duties of trustees and some of the risk areas that trustees should consider. Examples will be given that refer to acts of parliament in England and Wales, Northern Ireland and Scotland. While the list might appear daunting, there are many sources of free advice and support as well as many sector umbrella bodies able and willing to assist, though some may require you to join as a member to access their services. While not covering all the duties and obligations of trustees, this article highlights the key ones. No one trustee will have all these skills, let alone the time and energy, to

WHILE A PASSION FOR THE CAUSE IS KEY, YOUR LIFE EXPERIENCE, EMPLOYMENT OR BACKGROUND COULD GREATLY BENEFIT THE CHARITY have become even more valuable to charities over the past four years’. It is clear that in the UK we have committed trustees but we need more. We also need to make sure that they know what is expected from them and that they are given support and education to help in their role. One of the areas commentators suggest is neglected is the induction and support offered to new trustees. Whether you are a new trustee, an existing trustee recapping on areas that might need brushing up, or

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cover all the aspects of running a charity. It is important that duties are shared and the trustee body has the range of skills needed. While sharing a passion for the cause is key, your life experience, employment or background could bring essential management, finance, administrative and other skills that will greatly benefit the charity.

Duties of trustees The primary responsibilities of trustees are to: Act in the interests of the charity.

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in a manner consistent with * Operate the charity’s purpose. with due care and diligence. * Act Ensure that the charity complies * with relevant legislation. approaching the duties and * While responsibilities requires a common sense approach, trustees do need to consider the statutory responsibilities that come with the role. Trustee duties are set out in more detail in the Charities Act 2011 and Charity Trustee Act 1993, and Charities and Trustee Investment Act 2005 (Scotland) and Charities Act 2008 (Northern Ireland). The principles are similar in that they impose a duty on the trustee to direct the affairs of the charity, ensure that it is solvent, adheres to the charity law, and acts within the aims and objectives set out within its governing document. At all times, the trustees must make sure that they are running the charity for the public benefit. Trustees also need to look beyond legal requirements and sanctions: they need to consider best practice together with moral and ethical responsibilities. This is where wider governance obligations play a significant role. To help trustees fulfil their roles, both the Charity Commission and Office of the Scottish Charity Regulator (OSCR) produce helpful guidance and their websites should be referred to. This guidance covers the general duties of trustees and specific activities or areas of risk. The National Council for

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TO GET THE QUESTIONS GO TO www.accaglobal.com/cpd/corporategovernance

Voluntary Organisations’ Good Governance Code is also a valuable resource for trustee boards. CC3 – The Essential Trustee sets out duties and responsibilities under the headings of compliance, responsibilities, prudence, duty of care and ‘if things go wrong’.

Risks to be considered

Going concern: given the squeeze on funding, charities need to ensure that they have sufficient funds to meet continuing obligations and complete the projects or work that they have undertaken. As with any entity, the continued ability to pay its debts as and when they fall due is a main concern. Solvency is an area where both the Charity Commission and OSCR have issued detailed guidance. In the case of a charitable company, the legal obligation arises from the Insolvency Act 1986 and can impose a personal liability where wrongful trading or fraudulent trading has occurred. Wrongful trading, in section 214 of the act, is where a trustee can be personally liable where they knew, or ought to have known, that there was no reasonable prospect of avoiding insolvent liquidation; and they did not take steps with a view to minimising the potential loss to creditors. Fundraising: the recent and continued debate concerning charitable fundraising activities, especially the use of professional fundraisers, has resulted in charities looking carefully at

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their legal and ethical position. Legally in England and Wales trustees need to consider the relationship between their charity and fundraisers with regard to home and street collections, as set out in the Charities Act and local authority rules. The promotion of a charity, fundraising and making sure interested parties know about the activities of the charity is an important part of the work trustees undertake. Reputation: is an asset of the charity and like all resources of the charity should not be wantonly devalued. It’s important that trustees have regard to this and the impact on reputation when they consider the financial position of the charity, its commitments and from who it accepts or raises funds. Safeguarding data: one of the difficult and problematic areas for a number of charities is data protection. Some not-for-profit organisations do not need to register, but the conditions are narrow, so the registration requirements need to be regularly reviewed and assessed. This area is one where trustees need to make sure that internal controls are in place, that the risk of non-compliance has been considered and that suitable procedures are in place. The Information Commisioner’s Office has useful guidance. It covers the general requirement for only collecting information that you need for a specific purpose. It specifies that the data needs to be relevant and up to date,

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that it is securely held, that it is only held for a purpose and that access is allowed on request. It has also produced a guidance note called Data Protection Good Practice Note: Charities and Marketing. This provides a useful overview of some of the dos and don’ts when marketing. It also highlights that both the Data Protection Act 1998 and the Privacy and Electronic Communications (EC Directive) Regulations 2003 apply to charities. Safeguarding vulnerable beneficiaries: charities working with children or vulnerable adults will also need to carry out checks on trustees with the Criminal Records Bureau. The latest requirements are set out in the Protection of Freedoms Act 2012. Investing charitable funds: care and duty of care is encompassed within the Trustee Act 2000. Here there is a duty of care and skill that is reasonable in all circumstances including investment, delegation to agents and others, and acquisition of land and property. The expectation in section 1 of the act is that the level of care and skill will be assessed having regard to: any special knowledge or expertise that the trustee has or holds him or herself out as having; and where the trustee acts in the course of a business or profession, any special knowledge or expertise that it is reasonable to expect of a person acting in the course of that kind of business or profession. So, while trustees share decisions

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Technical

and responsibilities and generally, unless the constitution stipulates otherwise, take decisions by majority, this sharing doesn’t reduce the duty of care owed by each trustee to the charity. Ultimately, trustees may attract personal liability if they fail in their duties. Delegation: while charity trustees are ultimately responsible for the charity, they are not expected to run the charity on a day-to-day basis and have the power to delegate. Having appropriate policies and ensuring that these are followed enables trustees to delegate the running of the charity. Most charities would have a set of key policies that would cover health and safety, children and vulnerable adults, internal financial procedures, fraud, data protection, fundraising, brand and reputational guidance, use of the charity’s assets (including email, computer and internet policies), complaints and whistleblowing for employees and volunteers, investment, grant-making, risk management, bribery and corruption, conflict of interest, volunteers, recruitment and HR, equal opportunities and the ability to enter into contract. Risk management processes: it is here that charities need to ensure they have appropriate trustee training programmes in place to help the trustees ensure that the charity has appropriate policies, procedures and due regard to risk.

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Managing conflicts of interest: trustees have certain restrictions placed on them, primarily to prevent any conflict of interest arising between their duties as a trustee and their personal interests. These are generally covered by the conditions that they can’t benefit personally from the charity, although out-of-pocket

CPD units on the web

principles: that there must be identifiable benefit or benefits and the benefit must be to the public or a section of the public. Effective governance: the responsibility for the running of the charity rests with the trustees. The trustees must ensure that the charity’s resources are used to further the aims

THIS SHARING DOESN’T REDUCE THE DUTY OF CARE OWED BY EACH TRUSTEE TO THE CHARITY. TRUSTEES MAY ATTRACT PERSONAL LIABILITY expenses can be reimbursed and they can’t be employed by the charity. The Charities Act 2006 introduced a power that allowed charities to pay trustees for providing services to a charity. The power doesn’t allow a trustee to be paid for their duties as a trustee but recognises there might be situations where their knowledge or expertise is required. However, the charity’s governing document would need to be reviewed as many, especially before the 2006 Act, include a prohibition on payments to trustees. Normal rules would also apply to avoid contractual difficulties, ie non-participation in the making of the contract. Public benefit: under the Charities Act 2006, trustees are obliged to have regard to the charity’s public benefit requirement. Guidance can be found in the Charity Commission guidance on this area, which highlights two key

and objectives of the charity. All trustees should be instructed in the charity’s objects as set out in its governing document. This avoids any confusion and helps trustees ensure that, as far as they can reasonably believe, the charity’s resources have been, and will continue to be used to, further advance the objects. Before you agree to be a trustee, do your own due diligence, read the annual report and any other information such as the governing document, find out what is being said about the charity, meet trustees and go along to an event the charity is running. Finally, being a trustee can be rewarding and, while there is a lot involved, there is a wealth of free resources to draw on. Glenn Collins is ACCA UK’s head of technical advisory

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More help for the perplexed In the second of two articles, ACCA’s Roger Adams looks at identifying best corporate reporting practice and gives a glimpse of the accounting model of the future

The first of these two articles looked at how corporate reporting has expanded both its scope (or content) and its audience. In this article we look at how best practice might be identified and what the future of reporting might look like.

How to identify best practice The range of reporting activity mandated for the modern annual report and accounts package has grown significantly, even before voluntary non-financial disclosures are added to the equation. With such a profusion of requirements – some in the Corporate Governance Code, some in company law and some in International Financial Reporting Standards, how does a preparer (or a user for that matter) get a sense of what good practice is? Every year PwC runs its Building Public Trust Awards. Winners this year were Fresnillo, Shanks, Defence Science & Technology Laboratory and PotashCorp (www.bptawards.com/ winners.html). For those struggling to understand best practice in some of these emerging new reporting strands, a visit to some of these winners’ websites could be a useful way of benchmarking how near or how far your own organisation is from best practice.

Why integrate? Adding new reporting blocks seems to make sense but why do we need to integrate them? Put simply, it is the recent concern over the clash between

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Integrated reporting – focusing on the top slice The IR framework provides the toplevel structure for the whole information pyramid

KEY: Integrated reporting (IR) framework Management commentary/MD&A Governance and remuneration Environmental and social Financial Source: IIRC

two related, but contradictory, issues: 1 The medium to long-term likelihood of the financial consequences of severe climate change. 2 The recent tendency for stock markets (and employers) to prioritise a short-term view of corporate performance. Many people believe that global warming will increase the probability of severe climate change-related events. These events will have significant financial consequences for many organisations. So will the rapid depletion of non-renewable resources. At the same time the financial markets are often suspected of taking a

short-termist view and rewarding actions which might be prejudicial to long-term sustainable value creation. Whether or not it is possible to meaningfully integrate all the various messages contained in the mass of data now available, either through the annual reports and accounts package or in the separate corporate responsibility/ sustainability report, is the next big challenge for report preparers, the accountancy profession and the investment/shareholder community. In the UK, the Financial Reporting Council (FRC) has already found it necessary to look at how best to eliminate clutter and complexity from

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the annual report and accounts package. Integrated reporting (IR) seeks to shift the investor focus of attention away from short-term gains and towards long-term sustainable value creation. According to the recent International Integrated Reporting Council (IIRC) discussion paper, Towards Integrated Reporting: Communicating Value in the 21st Century, the aim of IR is to ‘demonstrate the linkages between an organisation’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, IR can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organisation is really performing’. There are several steps involved in achieving this: 1 ‘Politicise’ major investors (eg pension funds) to take a lead in seeking performance data which supports long-term, rather than short-term, investment decisions. 2 Demonstrate how companies can successfully embrace key sustainability drivers at the stage that their business model and business strategy are being formulated. 3 Communicate via an integrated report how the embedding of long-term sustainability drivers has, or will add, to long-term value creation – through reduced cost/risk or through enhanced

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competitiveness and hence revenue. Many companies claim to draw value from corporate responsibility. The simplest way to look at IR is to assume that it somehow sits at the top of an information pyramid, see left. Based on the IIRC’s principles of inter-connectedness and materiality, the preparer will determine which information from which source best demonstrates the interconnectedness of the thinking that underpins the business model and the corporate strategy, and links both to key sustainability drivers. The IIRC’s discussion paper sets out the rationale for IR and also sketches a possible framework via which such reporting could be conducted – it can found at www.discussionpaper2011. theiirc.org The IIRC’s website, at www.theiirc. org, also gives explanations for why IR is different from – and by implication why it is better than – conventional financial reporting.

Looking to the future From what we have seen above, corporate reporting might become

more integrated and more fragmented at the same time. Viewed through the integrationist lens, an integrated report sits above, but does not necessarily replace, a series of other separate reports, each having its own purpose and set of stakeholders. Viewed through the lens of increased fragmentation, reporters and users alike will use technologies such as XBRL and real-time reporting to access bespoke data sets via the internet. In the second scenario an integrated report serves to provide a stable core to an endlessly shifting universe of data. It’s probably too late to return corporate reporting to the relative simplicity of the mid-20th century. But a combination of IR and new technologies might provide companies, stakeholders and our political masters with a new accounting model in which long-term value is prized more than short-term gains and where all stakeholders, not just investors, feel a part of the enterprise and the value creation process. Roger Adams is ACCA’s director of special assignments

LAST MONTH FIND THE FIRST PART OF ROGER ADAMS’ ARTICLE ON PAGE 70

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Technical GET VERIFIABLE CPD UNITS

Answer questions about this article online Studying this article and answering the questions can count towards your verifiable CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

Hedge accounting: draft alert The IASB wants better links between an entity’s risk management activities, the rationale for hedging and the impact of hedging on the financial statements, says Graham Holt

IAS 39, Financial Instruments: Recognition and Measurement, sets out the requirements for recognising and measuring financial assets, and financial liabilities. Many users of financial statements felt that the requirements in IAS 39 were difficult to understand, apply and interpret. Thus, the International Accounting Standards Board (IASB) is developing a new standard for the financial reporting of financial instruments that is principle-based and less complex. The three main phases of the IASB’s project to replace IAS 39 are: A Phase 1: Classification and measurement of financial assets and financial liabilities. In November 2009, the IASB issued the chapters of IFRS 9, Financial Instruments, relating to the classification and measurement of financial assets followed by the requirements related to the classification and measurement of financial liabilities in October 2010. B Phase 2: Impairment methodology. The IASB is redeliberating the proposals issued in an exposure draft and the supplement to that draft to address the comments received from respondents. C Phase 3: Hedge accounting. On 7 September 2012, the IASB issued a draft of the general hedge accounting requirements that will be added to IFRS 9. In addition to the three phases above, in June 2010 the IASB decided to retain

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the existing requirements in IAS 39 for the derecognition of financial assets and financial liabilities but to finalise improved disclosure requirements, which were issued in October 2010 as an amendment to IFRS 7, Disclosures. The current rules on hedge accounting in IAS 39 have frustrated many preparers, as the requirements are not really linked to common risk management practices. The detailed rules have at times made achieving hedge accounting impossible or very costly, even when the hedge was an economically rational risk management strategy. The IASB wishes to provide better links between an entity’s risk management activities, the rationale for hedging and the impact of hedging on the financial statements.

Principle-based approach The requirements also establish a more principle-based approach to hedge accounting and address inconsistencies and weaknesses in the hedge accounting model in IAS 39. However, the IASB has made some significant changes to certain aspects of the proposals contained in the draft that was issued in December 2010. The proposals do not fundamentally change the current types of hedging relationships, or the current requirement to measure and recognise ineffectiveness; however, the proposals mean that more hedging strategies used for risk management would qualify for hedge accounting.

The draft relaxes the requirements for hedge effectiveness assessment and consequently the eligibility for hedge accounting. Under IAS 39, a hedge must be expected to be highly effective both at inception and on an ongoing basis. Subsequently, the entity must demonstrate that the hedge has been highly effective. ‘Highly effective’ is defined as a quantitative test of 80% to 125% under IAS 39. Under the draft, more judgment is needed to assess the effectiveness of the hedging relationship. A hedging relationship would need to be effective at inception and on an ongoing basis, and would be subject to a qualitative or quantitative, forward-looking effectiveness assessment. The following requirements need to be met: 1 an economic relationship must exist between the hedging instrument and the hedged item 2 the effect of credit risk must not dominate the value changes that result from that economic relationship 3 a hedge ratio must reflect the relationship between the quantities of the hedged item and hedging instrument used by the entity for its risk management purposes 4 an entity cannot intentionally weight the hedging instrument or hedged item to achieve an accounting outcome inconsistent with the purpose of hedge accounting. The first requirement means that the

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TO GET THE QUESTIONS GO TO www.accaglobal.com/ cpd/financialreporting

hedging instrument and the hedged item must be expected to move in opposite directions because of a change in the hedged risk such that there is causality and not just correlation between the items. Perfect correlation between the hedged item and the hedging instrument is not required and is not sufficient, as there must be an economic relationship. For example, there are different prices quoted for oil. These include the prices of West Texas Intermediate (WTI) crude oil and Brent crude. The former reflects the price at Cushing, Oklahoma, and nexus for the delivery of American and Canadian crudes and the latter reflects the price of North Sea oil. Therefore, it would be possible to hedge a Brent crude exposure with a WTI derivative. The second requirement means that the impact of changes in credit risk should not be of a magnitude such that it dominates the value changes, even if there is an economic relationship between the hedged item and hedging derivative, and the third requirement indicates that the actual hedge ratio used for accounting should be the same as that used for risk management purposes, unless the ratio is inconsistent with the purpose of hedge accounting. The IASB appears to be specifically concerned with deliberate under-hedging, which either minimises the recognition of ineffectiveness in cashflow hedges or creates additional fair value

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adjustments to the hedged item in fair value hedges. The draft includes a number of changes to the definition of a hedged item. Risk components of non-financial items can be designated as a hedged item provided the risk component is separately identifiable and reliably measurable. The draft retains the principle for financial and non-financial risk components to be separately identifiable and reliably measurable and this must be assessed within the context of the particular ‘market structure’. However, ‘market structure’ is not defined. It does not follow that, if there is a derivative instrument on aluminium and aluminium components are used in manufacturing cars, that aluminium is an eligible risk component in a hedge of car component purchases. There is probably a need to see how aluminium car components are priced in the market and how this relates to the price of aluminium. The draft now includes a rebuttable presumption that non-contractually specified inflation risk will not usually be an eligible component of a financial instrument. Two scenarios are set out in the draft, one of which indicates that an inflation risk component is eligible for hedge accounting and another in which it is not. Entities can hedge non-financial items for a price risk, for example, a commodity price risk that is only a

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component of the overall price risk of the item. This is currently prohibited under IAS 39. The draft also makes the hedging of certain groups of items more flexible. A group of items, including a group of items that constitute a net position, may be a hedged item under the proposals if: 1 it consists of items that are eligible hedged items 2 the items in the group are managed

An entity is not allowed to voluntarily terminate a hedging relationship that continues to meet its risk management objective and all other qualifying criteria. However, the draft has retained the requirement for rebalancing to be undertaken if the risk management objective remains the same, but the hedge effectiveness requirements are no longer met. Normally, accounting rebalancing will only be undertaken when adjustments

THE DRAFT HAS RETAINED THE REQUIREMENT FOR REBALANCING TO BE UNDERTAKEN IF THE RISK MANAGEMENT OBJECTIVE REMAINS THE SAME together on a group basis for risk management purposes. The draft makes the hedging of groups of items more flexible, although it does not cover macro hedging which will be the subject of a separate document. Entities commonly group similar risk exposures and hedge only the net position, which could be the net of forecast purchases and sales of foreign currency. Under IAS 39, a net position cannot be designated as the hedged item. The draft permits such hedging strategies if the entity hedges on a net basis for risk management purposes. However, if the hedged net position consists of forecasted transactions in a cashflow hedge, hedge accounting on a net basis is only available for foreign currency hedges.

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are made to the actual quantities used for risk management purposes unless deliberate and inappropriate action is undertaken to achieve an accounting result that is inconsistent with the purpose of hedge accounting. The proposals on discontinuation have not changed but further guidance is given on how to distinguish between an entity’s risk management strategy and its risk management objective. Risk management strategy is established at the highest level and could include some flexibility to react to changes in circumstances without requiring a new strategy. The risk management objective is applied at the particular hedge relationship level. The draft retains the current IAS 39 requirements for fair value hedge

CPD units on the web

accounting. However, the fair value option in IFRS 9 is extended to contracts that can be settled net in cash and meet the exception whereby applying fair value accounting eliminates or significantly reduces an accounting mismatch. Additionally, the draft would permit certain credit exposures to be designated at fair value through profit or loss if a credit derivative that is measured at fair value through profit or loss is used to manage the credit risk of all, or a part of, the exposure on a fair value basis. Some industries, such as banking and insurance, may see the proposals as of less importance than the IASB’s forthcoming macro-hedging paper, but sectors with substantial commodityrelated risk such as airlines and manufacturers will welcome the opportunities provided. The new proposals are likely to benefit nonfinancial services entities which can hedge clearly defined individual risk items. However, the guidance remains complex in some areas and to comply companies may need to apply a greater degree of judgment. A principle-based approach requires additional disclosures to users of how a company is managing risk. Graham Holt is an examiner for ACCA, and associate dean and head of the accounting, finance and economics department at Manchester Metropolitan University Business School

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Solutions

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Accounting solutions In this month’s column, PwC authors answer technical questions on share purchase agreements, and on accounting for insurance policies

Q

Entity A purchased 80% of entity B in 20x0. Under the share purchase agreement, entity A also has an option to acquire the residual 20% shareholding in 20x2 at fair value of entity B. How should entity A account for the option in 20x0 and the subsequent acquisition of the non-controlling interest? Entity A has a call option over the remaining 20% at the date of acquisition; it should therefore assess whether the risks and rewards in relation to this non-controlling interest in entity B have, in substance, also transferred to the group. If that is the case, entity A should account for the entire 100% as an acquisition. Options priced at fair value usually result in transfer of risks and rewards to the holder at the point of exercise only. There are no other relevant circumstances to consider in this case. As a result, the risks and rewards associated with the non-controlling shareholding are not deemed to be transferred to the group on acquisition of entity B, and entity A should account for the 20% as a noncontrolling interest in its consolidated financial statements. The call option does not meet the definition of a financial liability under IAS 32, Financial Instruments: Presentation, as it is within the control of the entity A. Although there is minimal initial investment and the contract will be settled at a future date, the value of the option does not change in response to an underlying financial variable; it does not therefore qualify as a derivative under IAS 39, Financial Instruments: Recognition and Measurement, para 9. In 20x2, if the option exercised, any difference between the consideration – that is, the fair value of the shares paid – and the carrying amount of the non-

A

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of the insurance policy is greater than the present value of the defined benefit obligation it will reimburse. The policy does not meet the definition of a qualifying insurance policy and therefore cannot be treated as a plan asset. However, the criteria for recognising the reimbursement right as an asset have been satisfied. How should the cost of the insurance policy and the difference in value from the related obligation be accounted for? As a reimbursement right, the insurance policy is recognised as a separate asset, rather than being deducted from the pension obligation to which it relates. In all other respects, this asset and any related income should be accounted for in the same way as plan assets (in accordance with IAS 19, Employee Benefits, para 104C and D). However, because the right to reimbursement exactly matches payments of a portion of the defined benefit obligation, the fair value of the reimbursement right is deemed to be the present value of that portion of the defined benefit obligation. Any difference between the cost of the insurance policy and the present value of the defined benefit obligation it is designed to reimburse should therefore be treated as an actuarial loss. This is independent of whether the insurance policy is purchased by the pension fund or by XYZ Ltd itself, because the policy meets the definition of a reimbursement right.

A

controlling interest is adjusted to entity A’s equity under IAS 27, Consolidated and Separate Financial Statements, para 31. The resulting cash outflow should be classified as a financing activity, as it represents a transaction with equity owners under IAS 7, Statement of Cashflows, para 42B.

Q

XYZ Ltd buys an insurance policy to reimburse payments of a portion of its defined benefit pension obligation. Reimbursement under the insurance policy will exactly match the amount and timing of the benefits payable under the plan. The cost to the company

This month’s solutions were compiled by Imre Guba, Michelle Millar and Iain Selfridge of PwC’s Accounting Consulting Services

*IFRS AND US GAAP

IFRS and US GAAP: Similarities and differences includes insight on recent and proposed guidance; detailed analysis of differences including an assessment of the impact; and a report on the US GAAP codification project. Visit www.pwc.com/usifrs

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Careers

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Location, location, location [

Taking a postgraduate qualification can definitely give you the leading edge in the jobs market and help boost your earning power, but where should you choose to study – home or away?

The reasons for having an MBA or MSc on top of your other professional qualifications are just as pertinent today as they have ever been. With many countries suffering from doubledip recessions and global economies facing strict fiscal cutbacks, businesses everywhere need to make sure they are recruiting and paying the most talented individuals available. A postgraduate qualification may just put you ahead of the field. ‘Organisations looking to hire employees for positions of increasing responsibility consider postgraduate qualifications as a critical professional development tool,’ says Erin O’Brien, associate dean, TRIUM and Global Programs, NYU Stern School of Business. ‘The results are more capable employees who, in the short term, can immediately apply what they are learning to the day-to-day job and, in the longer term, are equipped with the understanding, skillset and contacts necessary to navigate today’s global economy.’ Christophe Coutat, CEO of the Advent Group and founder of AccessMBA.com, agrees: ‘Young professionals who commit to doing a master’s in

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business or an MBA invest in their development and thus considerably increase their potential for career growth and business success.’ But with more than 3,000 MBA and 7,000 master’s programmes in existence worldwide and many different types of programmes tailored to meet a diverse range of student needs, as well as pricing and quality considerations, potential students can sometimes uncomfortably straddle the line between being spoilt for choice or having too much of it.

Difficult choice One decision they have to make is about location and, with prestigious programmes offered in every corner of the globe, this is no easy task. ‘Studying abroad is a major investment in time and money, and for many students it’s the biggest educational expense they will make in their lives,’ says Coutat. The potential benefits of going further afield, though, are clear. ‘Business and management in today’s global world are more and more about understanding and accepting cultural differences and diversity,’ says

Coutat, ‘Doing an MBA abroad helps managers encounter different cultures and their organisational aspects.’ With over 100,000 alumni in over 100 countries, NYU Stern offers one of the largest, most successful alumni bodies of any business school in the world, with 500 CEOs. ‘Our powerful alumni network opens doors for you in virtually any industry, almost anywhere in the world,’ says O’Brien. ‘Their varied backgrounds, perspectives and expertise make the educational experience one of the richest and most rewarding.’ So how should you go about choosing the right course and location for you? ‘Candidates should evaluate a programme by three different criteria: the quality of its academic specialisation, its educational environment, and its career placement programme,’ advises Coutat. He adds: ‘A school’s alumni network is another important factor, not only because it gives an idea of the level of the programme, but it is also a vital source of contacts for future employment. Another reliable method is to look at school accreditations; Equis, AMBA and AACSB have the best reputation internationally.’ ‘It is important for potential students to identify their drivers for seeking out a programme and think about what they anticipate their return on investment will be on completing the programme,’ adds O’Brien. ‘The community and culture of the programme is also an important consideration, especially as it relates to executive-level students who are often seeking a lifelong network and thrive on the varied backgrounds, perspectives and areas of

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expertise that will add to their educational experience.’ Cost, of course, may be a deciding factor, especially if you are thinking of studying abroad. At NYU Stern, financial aid is available for the programmes, but to qualify for them you must be a US citizen or US permanent resident. Scholarships are available for the TRIUM Global Executive MBA programme, usually intended for people working in emerging markets or economies or the public sector where the pay scales are not equivalent to the role they provide for their organisation. Of course, you can get an MBA from

an international business school without ever setting foot in the country it comes from. ‘Online programmes have a number of advantages in terms of time management, saving on travel and living expenses in another country,’ says Coutat. ‘However, some candidates may well prefer the traditional classroom contact programmes because of the different style of interaction with faculty and other MBA students.’ Ensuring that the course is respected is absolutely crucial if you go down the distance learning route. One doesn’t have to look too far to find high-profile examples of well-known individuals

purporting to hold professional qualifications before being exposed as having bought them over the internet from an educational establishment of questionable credibility. ‘Candidates should look for proof, such as an accreditation, and that certain quality standards are met,’ says Coutat. Once you are completely sure of the credibility of the business school and the course, the return on your financial and time investment will soon become clear because, as Coutat concludes, ‘an MBA has become key to business success, ambition and leadership’. Beth Holmes, journalist

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IT’S TIME TO INCREASE YOUR RISK EXPOSURE MASTER OF SCIENCE IN RISK MANAGEMENT FOR EXECUTIVES

A good MBA cares for your career ‘The various management practices on the MBA programme strengthened my effectiveness as a leader and improved my confidence. I now communicate with stronger impact with colleagues. The skills and knowledge are taught in a very relevant and practical way, so you understand how to apply them at work to improve your performance.’

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ACCA diary

[

ACCA UK runs an exciting programme of events across the country. You can find more information on any event by visiting uk.accaglobal.com/uk/members/events

EMPLOYMENT-BASED MEMBERS’ NETWORKS INTERNAL AUDIT 10 December, Monday The Risks of Social Networking to Your Organisation, London

ENGLAND 1 November, Thursday Companies House Update, Newcastle-upon-Tyne 3 November, Saturday Lancs & Cumbria site visit: Lakeland, Kendal

HEALTH AND PUBLIC SECTORS

7 November, Wednesday Franchising, Wakefield

14 November, Wednesday Social Impact Bonds, London

14 November, Wednesday When Does a Trade Start?, Hull

3 December, Monday Public Sector Pensions, London

15 November, Thursday Company Pension Schemes: Automatic Enrolment, Sheffield

FINANCIAL SERVICES AND CORPORATE 15 November, Thursday Audits for SMEs – business lecture, London 28 November, Wednesday Financial Services – Socially Responsible Investing, London

15 November, Thursday IFRS, Leeds 21 November, Wednesday Measuring Performance: Structuring our Jobs for Effective Results, Newcastle-upon-Tyne 28 November, Wednesday Mental Toughness, Leeds

6 December, Thursday NLP, London

WALES

10 December, Monday IA – The Risks of Social Networking to your Organisation, London

8 November, Thursday ACCA Cymru Wales National Conference and Gala Dinner, Cardiff

REGIONAL MEMBERS’ NETWORKS AND DISTRICT SOCIETIES

23 November, Friday Harnessing the Power of Social Media, Swansea

Please note the majority of events take place in the evening but check the websites listed below for times and full details.

29 November, Thursday Harnessing the Power of Social Media for Small Businesses, St Asaph To book visit www.accaglobal. com/wales/events

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PROFESSIONAL COURSES

20 November, Tuesday Restructuring, London

15 November, Thursday Employment Law Update, Manchester

21 November, Wednesday Corporate International Tax Planning, London

15 November, Thursday Topical Tax Tips for Accountants in Practice, Stoke on Trent

21 November, Wednesday Dealing with Difficult Situations, London

15 November, Thursday Impairment Testing – Making the Balance Sheet Add Up, London 15 November, Thursday UK and IOM Tax Update, Isle of Man 16 November, Friday Business Cases, London 17 November, Saturday Saturday CPD Conference Three, Aberdeen 19 November, Monday Accounting in the US, London 19 November, Monday The Outstanding Delegator, London 19 November, Monday VAT – An Introduction to Land and Property, London 20 November, Tuesday Building High-Performance Teams, London

21 November, Wednesday Managing Change and Uncertainty, London 21 November, Wednesday Practical Aspects of ISAs, London 21 November, Wednesday Tax Update for the Busy Accountant, Norwich 22 November, Thursday Business and Corporate Taxes Update, London 22 November, Thursday Employment and Personal Taxes Update, London 22 November, Thursday Performance Improvement Strategies, London 23 November, Friday Financial Reporting – Update and Refresher, Part One, London 23 November, Friday Financial Reporting – Update and Refresher, Part Two, London

20 November, Tuesday Business Ethics in Action – The Bribery Act 2010, London

23 November, Friday Zero-based Budgeting, London

20 November, Tuesday Exceptional Performance Management, London

23–24 November Residential Conference for Practitioners, Leicester

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79 GOT ROLES TO FILL? Visit www.accacareers.com/uk

24 November, Saturday Saturday CPD Conference Three, Sheffield

30 November, Friday Benefits and Risks of Social Media Networking, London

26 November, Monday Introduction to Islamic Finance, London

30 November, Friday Buying, Selling or Merging an Accountancy Practice, London

26 November, Monday Meeting the Revenue – Interviews and Tribunal Appeals, London 27 November, Tuesday Accounting and Auditing for Charities, London 27 November, Tuesday Business Law Update, London 27 November, Tuesday Converting to IFRS from US GAAP or UK GAAP, London 27 November, Tuesday Investment and Project Appraisal, London 28–29 November Advanced Financial Modelling, London

30 November, Friday Everything You Ever Wanted to Know About VAT – Part Two, London 30 November, Friday Financial Reporting – Update and Refresher, Part One, Manchester 3 December, Monday Capital Allowances – Refresher and Planning, London 3 December, Monday Practical Process Costing and Efficiency Using ABC, London 4 December, Tuesday Integrating Financial and Non-Financial Performance Measurement, London

28–30 November Modular Training Programme One, Manchester

4 December, Tuesday Understanding Debt Finance and Bonds, London

29 November, Thursday Business and Corporate Taxes Update, Manchester

5 December, Wednesday Accounting Standards Update, Leeds

29 November, Thursday Employment and Personal Taxes Update, Manchester

5 December, Wednesday Advanced Analysis of Financial Statements, London

29 November, Thursday Everything You Ever Wanted to Know about VAT – Part One, London

5 December, Wednesday VAT in the Education Sector, London 5–6 December Financial Modelling, London

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6 December, Thursday Anti-Money Laundering and Counter-Terrorist Financing – An Essential Update, London

10 December, Monday Effective Governance – A Business Imperative, London

6 December, Thursday Business and Corporate Taxes Update, Edinburgh

10 December, Monday Effective Narrative Reporting: Getting Your Story Right, London

6 December, Thursday Employment and Personal Taxes Update, Edinburgh

10 December, Monday Group Accounting under IFRS, London

6 December, Thursday Guide to Practical Audit Compliance for Partners and Managers (Part One), London

11 December, Tuesday IFRS in the NHS, London

6 December, Thursday Joint Ventures and Strategic Alliances – Are you Getting the Accounting and Tax Right?, London 7 December, Friday Beyond Budgeting, London 7 December, Friday Financial Reporting – Update and Refresher, Part One, Edinburgh 7 December, Friday Financial Reporting – Update and Refresher, Part Two, Edinburgh

11 December, Tuesday Practical Guide to ISQC 1 for Partners and Managers, Manchester 11 December, Tuesday Risk, Control and Assurance, London 11 December, Tuesday Topical Tax Tips for Accountants in Practice, London 12 December, Wednesday Accounting Standards Update, Birmingham 12 December, Wednesday IFRS Adoption – How Prepared Are You? (Part One), London

7 December, Friday Guide to Practical Audit Compliance for Partners and Managers (Part Two), London

13 December, Thursday IFRS in Central Government, London

7 December, Friday Lean Finance – Taking a Deeper Dive, London

For more information or to book your place, visit http:// events.accaglobal.com or email professionalcourses@ uk.accaglobal.com.

8 December, Saturday Saturday CPD Conference Three, London

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ACCA LOOKING FOR A NEW JOB? www.accacareers.com/uk

Submit your CPD declaration By submitting your CPD declaration as part of your membership, you are demonstrating your commitment to professional development to your peers and employers Your annual CPD declaration for 2012 is due for submission to ACCA by 1 January 2013. Submit it online now or at any point until the end of the year by logging into myACCA. As a professional body, our members define who we are – you represent ACCA to the world. We’re proud to have you among us and that you carry the ACCA designatory letters. It is these letters that distinguish you and show your commitment to professional development and ethics to your peers and employers.

podcasts, online seminars, research and qualifications from our partners.

More CPD than you think You might think you haven’t completed enough CPD for the year, but each year we find that members are doing

Do I need to prove it? You do not need to send in supporting evidence with your annual CPD declaration – this process is just to confirm that you have maintained your professional development. However, you should keep your CPD evidence for three years in case you are selected for a CPD review.

Calling all members To maintain this high value of ACCA membership, each year we ask all members to declare their commitment to professional development, regardless of their particular development route. The declaration process is very simple and takes no more than five minutes to complete.

What if I haven’t done any learning? The annual CPD declaration has two options: select Option A to show that you have completed your CPD or Option B if you have not. CPD is a membership requirement, so if you indicate that you have not met the requirements we will contact you with further advice on how to do so.

How to declare? The easiest way to declare is online by logging into myACCA via the ACCA website at www.accaglobal. com – 77% of members are already using this method.

For further information

Last-minute learning? There are still plenty of learning opportunities available if you need to complete your CPD requirement for 2012. My Development is a dedicated CPD area of the ACCA website where you can source relevant learning for your CPD. My Development provides a one-stop shop for articles, e-learning,

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learned is relevant to your career and you can explain how you have applied the learning, you can claim it as verifiable CPD. For further information and to check the requirements of each route go to: www.accaglobal.com/cpd

more CPD than they realise. Think about what you have learned this year that is relevant to your role – did you undergo training on a new software or research a topic area specifically for a new client? There are many ways to learn and as long as what you’ve

We have published detailed instructions on our CPD policy at www.accaglobal.com/cpd If you are facing difficulties with CPD please contact ACCA as soon as possible, as you may have completed the requirement – or be eligible for a different route or a waiver – without realising it.

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107th AGM: 20 September 2012 The AGM was held at 29 Lincoln’s Inn Fields, London, W2, and 48 members were present 1 NOTICE AND AUDITOR’S REPORT The notice of meeting and the auditor’s report on the accounts for the period 1 April 2011 to 31 March 2012 were taken as read. 2 THE MINUTES The minutes of the AGM held on 15 September 2011 and published in the November 2011 issue of Accounting and Business were taken as read, and signed as correct. 3 RESOLUTION 1 Adoption of the report of the Council and the accounts for the period 1 April 2011 to 31 March 2012. Chairman Dean Westcott (ACCA president) gave his presidential address and asked chief executive Helen Brand to give a presentation. He then invited questions and comments on the Report and Accounts. He drew members’ attention to the statement which had been circulated and which showed that valid proxy votes had been cast in respect of Resolution 1 as follows: for 3,411, against 44. The president then put the resolution to the meeting and,

on a show of hands, declared it carried, the votes being cast as follows: for 36, against 0. 4 RESULT OF THE BALLOT FOR THE ELECTION OF MEMBERS TO COUNCIL The scrutineer’s report and the number of votes received by each candidate in the ballot for the election of members of Council were reported, as follows: Orla Collins 3,394; Dean Westcott 3,280; Brian McEnery 3,045; Julie Holderness 2,893; Robert Stenhouse 2,875; Jenny Gu 2,678; Leo Lee 2,592; James Lee 2,525; Gustaw Duda 2,423; Belinda Young 2,377; Raphael Joseph 2,375; Andi Lonnen 2,145; Ronan Carrig 1,763; Frankie Ho 1,368; Azza Raslan 1,168; Shamreen Ashraf 1,084; Kwame Antwi-Boasiako 1,042; Aamer Allauddin 975; Billy Kang 924; Mubashir Dagia 891; Saad Maniar 815; Faisal Siddiqui 813; Jacques Fakhoury 786; Sham Mathura 725. The president, therefore, declared the

following members elected or reelected to Council: Orla Collins, Gustaw Duda, Jenny Gu, Julie Holderness, Raphael Joseph, James Lee, Leo Lee, Brian McEnery, Robert Stenhouse, Dean Westcott and Belinda Young. 5 RESOLUTION 3 Appointment of auditor The president reported that Council recommended that BDO LLP, chartered accountant and registered auditor, be reappointed as the association’s auditor. He then invited questions on Resolution 3. He drew members’ attention to the statement which had been circulated and which showed that valid proxy votes had been cast in respect of Resolution 3 as follows: for 3,281, against 175. He then put the resolution to the meeting and, on a show of hands, declared it carried, the votes being cast as follows: for 33, against 1. The president thanked members for their attendance and declared the meeting closed at 2.15pm.

COUNCIL HIGHLIGHTS

Pakistan and Sri Lanka. Council agreed to appoint Frances Walker and Rosalind Wright as lay members of the ACCA Regulatory Board with effect from September 2012 and to appoint David Thomas as a lay member in September 2013. The Regulatory Board comprises a majority of lay members and is chaired by a qualified lawyer. Council then held its Annual Meeting on the afternoon of Thursday 20 September, following ACCA’s 107th AGM. Members voting at the AGM gave overwhelming support to the various resolutions before the meeting. The minutes are shown above. At the Annual Council Meeting, Council chose ACCA’s officers for the coming year. ACCA’s new president is Barry Cooper and he will be supported by Martin Turner (deputy president) and Anthony Harbinson (vice president).

Council also welcomed one new member whose election was declared at the AGM – Orla Collins, who is based in Ireland. There are 16 different nationalities represented on ACCA’s 36-member Council, over one-third of whom are female, thus continuing to reflect the increasing diversity of the organisation as a whole. Council took a number of other decisions at its Annual Meeting: It approved Council standing orders for 2012–13, in accordance with the bye-laws. It chose three Council members to serve on Nominating Committee in 2012–13, along with the officers. It agreed a Council work plan and a set of objectives for the Council year 2012–13. The next meeting of Council is on 24 November, immediately after the 2012 meeting of the International Assembly.

Council held a meeting on the morning of 20 September at which it considered some important issues. It received the regular report from the chief executive on ACCA strategic developments, organisational performance, key market developments and research and insights and technical developments. It considered a paper providing feedback on the Council meeting in Nairobi and noted that the event was successful in reinforcing ACCA’s position as a key supporter of the profession in Kenya and in Africa as a whole. Council agreed to reaffirm its policy of holding an international Council meeting every two years. It also agreed in principle that the international meeting in 2014 should be held in Dubai with associated regional visits to Bangladesh, Oman,

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ACCA news

ACCA HOSTS NEW YORK EVENT

From left: Martin Turner, Barry Cooper and Anthony Harbinson

New president Barry Cooper takes the helm as ACCA president for 2012/13

Inside ACCA 81 AGM ACCA holds its 107th meeting in London 80 CPD Annual CPD declarations are now due for submission 78 Diary What’s on in the coming months

Leading accountancy academic Professor Barry J Cooper from Australia was formally elected ACCA president in September. Professor Cooper is head of the School of Accounting, Economics and Finance at Deakin University in Melbourne. Previously, he was head of accounting schools at the Hong Kong Polytechnic and RMIT University, Melbourne, and played a key role in establishing the ACCA Qualification in China. In his spare time he is an organic olive oil grower and processor. ACCA’s Council also elected management consultant Martin Turner as deputy president; he has been chief executive of Hywel Dda Health Board and chief executive of the Central Northern Adelaide Health Service, and a Council member since 2004. Vice president for 2012/13 is Anthony Harbinson, who is director of justice delivery at the Department of Justice in Northern Ireland.

FOCUS ON SCHOOL-LEAVER TALENT

ACCA has seen an increasing number of employers reaching out to the brightest and best school leavers, alongside the creation of thousands of apprenticeships. In September ACCA hosted a summit in London, Harnessing school leaver talent, focusing on how finance as a career choice can be a stimulus for growth. Andrew Leck, head of ACCA UK, hosted a Q&A with employers, careers’ guidance professionals, learning providers and charities, who also heard presentations from Newham Education Business Partnership, Young Enterprise and the National Apprenticeship Service.

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Arnold Schilder (pictured), International Auditing and Assurance Standards Board (IAASB) chairman, was among leading figures in auditing who attended a New York reception hosted by ACCA USA. Guests included IAASB representatives, staff of the International Federation of Accountants (IFAC) and ACCA New York members. ACCA was also represented by technical director Sue Almond and ACCA USA head Warner Johnston.

MURTAGH JOINS TASK FORCE

Brendan Murtagh, ACCA past president and International Auditing and Assurance Standards Board (IAASB) board member, has been appointed to the taskforce responsible for the redrafting of ISA 700, the auditor reporting standard. He has also been appointed to IAASB’s ISA Implementation Monitoring taskforce on the impact of the Clarity ISAs. Feedback is welcome; please email Sue Almond (sue.almond@accaglobal.com).

PUBLIC SECTOR LEADERSHIP ACCA has commissioned Nottingham Business School to research the roles, features and personal attributes which public sector financial managers should aim to display, highlighting good practices. To find out more or contribute contact Professor Malcolm Prowle at Malcolm. prowle@ntu.ac.uk.

VIDEO EXPLORES PUBLIC VALUE Delivering value to business and society is a critical role for ACCA. A short video has been produced exploring what is meant by public value in the context of accountancy, and how ACCA as a professional body delivers that. Visit http:// youtu.be/2U97GUWXE0k

17/10/2012 12:14

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the magazine for business and finance professionals

get verifiable cpd units by reading technical articles

all aboard? DIVERSITY: more than just a numbers game

NEW PRESIDENT

LEADING ACADEMIC TAKES REINS AT ACCA

FLEET MANAGEMENT EXPORT TARGETS INSIDE BDO

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CPD


AB UK (UK only edition) – November/December 2012