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THE MAGAZINE FOR BUSINESS AND FINANCE PROFESSIONALS

get verifiable cpd points by reading technical articles

NO FRONTIERS

AN ACCA MEMBER AT THE FOREFRONT OF HUMANITARIAN AID

QUALITY CHECKED

IE AB IE.AB ACCOUNTING AND BUSINESS 04/2012

CPD

ACCOUNTING AND BUSINESS IRELAND 04/2012

ENSURING A POSITIVE EXPERIENCE

PLANNING FOR CREDIT INSIGHT AND TIMELY ADVICE CREDIT DUE TAX RELIEF THROUGH R&D LEASES OPERATING OR FINANCE?

DIVERSITY IN ADVERSITY BENEFITING THE BOTTOM LINE

ENABLING GROWTH SHARED SERVICES AND IRELAND

DUTIES OF CARE RESPONSIBILITIES TO A LIQUIDATOR INVESTMENT ENTITIES A PROGRESS UPDATE ART ATTACK ON BOARD WITH CULTURE

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Editor’s choice

In this issue of AB Ireland Jane-Ann McKenna ACCA explains how her accounting qualification formed the basis of a career in humanitarian aid, while the opportunity that shared services represent as an exciting career option is also explored

GLOBAL AND LOCAL We so often hear Ireland described as a ‘small, open economy’ that the facts backing this up can easily get glossed over. A 2011 survey (see page 9) that puts Ireland second in the world in a list of globalised economies, relative to their GDP, serves to remind us that this statement is much more than marketing rhetoric. Behind only Hong Kong, and ahead of heavyweights such as Singapore, Belgium and Sweden, Ireland’s position has been earned on criteria that include openness to trade, exchange of technology and ideas, and cultural integration. Nowhere are such criteria more important than in the shared services sector. Our report on the recent ACCA Ireland conference ‘The Irish Shared Services Centre (SSC) as an enabler of growth’ (page 19) paints an extremely positive picture of this global industry and its relationship with Ireland. The fact that Ireland is third in the world in terms of the actual number of SSCs operating in a single country is hugely impressive, but even more so is the fact that SSCs here have been to the fore in evolving the sector internationally, positioning shared services at the very heart of business operations, rather than as a backroom function. Ireland’s historic record in embracing diversity may be somewhat less illustrious but there can be no doubt the country has made exceptional strides, socially and culturally, over the last two decades. The value of diversity to business, in terms of harnessing perspectives and encouraging collaboration, innovation and creativity is addressed in this months’ cover feature ‘Diversity in adversity’. As we rebuild our image internationally, there can be little doubt that our openness as an economy, our flexibility as a workforce and our track record of engaging with new ideas and leading change are huge positives that will continue to pay dividends so long as we nuture and support them. Donal Nugent, donal.nugent@accaglobal.com

NO FRONTIERS Jane-Ann McKenna on how her ACCA Qualification has taken her to the forefront of humanitarian aid Page 12

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DIVERSITY Businesses increasingly view diversity positively, but what does that mean for the finance function? Page 16

SHARED VIEW The future opportunity for accountants was the core message of recent ACCA Ireland conference held in Dublin Page 19

CHECK UP Alice Rae on why ACCA Quality Checked can be a very positive experience for participating practices Page 28

DUTY OF CARE Brendan Howard on the responsibilities a practitioner has to a liquidator appointed to their audit client Page 40

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AB IRELAND EDITION CONTENTS APRIL 2012 VOLUME 3 ISSUE 4 Ireland editor Donal Nugent donal.nugent@accaglobal.com +353 (0)1 289 3305 Editor-in-chief Chris Quick chris.quick@accaglobal.com +44 (0) 20 7059 5966 Design manager Jackie Dollar jackie.dollar@accaglobal.com +44 (0) 20 7059 5620 Designers Robert Mills, Barry Sheehan Production manager Ciaran Brougham ciaran.brougham@accaglobal.com +353 (0) 1 289 3305 Advertising John Sheehan john.sheehan@accaglobal.com +353 (0) 1 289 3305 Bryan Beasley bryan.beasley@accaglobal.com +353 (0) 1 289 3305 London advertising James Fraser jfraser@educate-direct.com +44(0)20 7902 1224 Head of publishing Adam Williams adam.williams@accaglobal.com +44 (0) 20 7059 5601 Printing RV International Pictures Corbis ACCA President Dean Westcott FCCA Deputy president Barry Cooper FCCA Vice-president Martin Turner FCCA Chief executive Helen Brand OBE ACCA Ireland President Ronnie Patton FCCA Deputy president Tom Murray FCCA Vice-president Diarmuid O’Donovan FCCA Head - ACCA Ireland Liz Hughes Tel +353 (0)1 498 8900 Fax +353 (0)1 496 3615 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 Ireland is published by IFP Media, 31 Deansgrange Road, Blackrock, Co Dublin, Ireland +353 (0)1 289 3305 www.ifpmedia.com

Features 12 No frontiers An ACCA member at the forefront of humanitarian aid in Ireland 16 Diversity in adversity What diversity means for the finance function

ACCA Ireland 9 Leeson Park Dublin 6 tel: +353 (0)1 498 8900 www.accaglobal.com/ireland

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Audit period July 2009 to June 2010 138,255

19 An enabler of growth The future opportunities for accountants was the focus of a recent ACCA event

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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 BRIEFING 06 News in pictures A different view of recent headlines 08 News in graphics We show a story as well as tell it using innovative graphs

TECHNICAL

YOUR CAREER

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

34 Technically speaking Aidan Clifford rounds up the changes accountants need to be aware of

57 ACCA Careers portal The opportunity for Irish job seekers

VIEWPOINT

36 NI notes Changes and updates of relevance to Northern Ireland practitioners

25 More than a PR exercise Dean Westcott addresses the diversity issue

37 Tax diary Deadlines and dates of interest to Irish accountants

26 PPP – a good deal? Why we need to read the small print when it comes to public private partnerships

38 Tax changes 2012 A round-up from the Irish Taxation Institute 40 Duties of care Responsibilities to a liquidator 42 Investment entities project An update from Alan Farrell

58 On board with the arts Becoming a board member of a cultural organisation 60 Psychometric testing Ten tips for success 61 Quality, low-cost CPD 62 Diary

Your sector

44 R&D tax credits Advice following the changes in Finance Bill 2012

27 PRACTICE

48 CPD Leases: operating or finance?

27 The view from Michael Shelley FCCA

51 CPD Strategy: unpeel your competitive onion 54 Accounting solutions Advice from the experts 55 Improved planning key to credit Insight from the Credit Review Office

28 ACCA Quality Checked Ensuring a very positive experience

31 CORPORATE 31 The view from Ray Cantwell FCCA 32 Land of opportunity Outsourcing as an exciting career opportunity

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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ACCA NEWS 63 Approved employer Q&A 65 News

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News in pictures

01

Titanic Belfast visitor centre opens to acclaim days ahead of the centenary of the sinking of the Titanic

02

Rory McIlroy becomes the world’s number one golfer, aged 22, the second-youngest ever

03

Farmers in Dursey Island, off west Cork, protest new regulations that ban the transport of live animals by cable car

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04

Chinese vicepresident Xi Jinping visits the Lynch family farm in Co. Clare on his three-day visit to Ireland

05

Monuments around the world turn green in celebration of St Patrick’s Day

06

Jedward are confirmed as Ireland’s representatives in the 2012 Eurovision for the second year in a row

07

Dublin’s annual St Patrick’s Festival parade brings colour to the street of the capital

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News in graphics

8

INCOME IN IRELAND

Recent data from the CSO confirms major divides on income in Ireland, with location and gender proving decisive factors

GENDER INFLUENCES ROLES Gender continues to be significant in working roles and salary expectations Men

Women

Ireland: Income, 2009

Under £5,000 £5,000-£9,000 £10,000-£19,999 £20,000-£29,999 £30,000-£39,999 £40,000-£49,999 £50,000 & over

Principal economic status by sex, 2011

Total

Home duties 0%

25%

Student

25%

50%

75%

100%

Retired

At work

0%

50%

Unemployed

75%

100%

0%

25%

50%

75%

100%

AVERAGE INCOME DOWN IN ALL REGIONS At state level, average disposable income per person fell from €23,239 in 2008 to €21,356 in 2009, representing a decline of 8.1% Dublin retains the highest average disposable income per person. Disposable income per person - percentage deviation from State average 2009 0% South West South East

4.0%

8.0%

2008 12.0%

The contrast in disposable income between the borders, midlands and west (BMW) and the south and east (S&E) remained virtually unchanged over the last decade BMW

Mid West Mid East

S&E

100.0 95.0 90.0

100.0 95.0 90.0

85.0

85.0

Dublin

80.0

West

80.0

Midland Border -12.0%

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-8.0%

-4.0%

2000 2003 2006 2009

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51%

INDONESIA

43%

INDIA

21% UK

21%

SOUTH AFRICA

19%

CHINA

15%

POLAND

8%

RUSSIA

7%

SOUTH KOREA

HAPPY DAYS The world is a happier place today than it was four years ago and Indonesians, Indians and Mexicans appear to be the most contented people, while Brazil and Turkey rounded out the top five happiest nations, according to Ipsos Global. Hungary, South Korea, Russia, Spain and Italy had the fewest number of happy people. …AND THIS YEAR’S CROSS-BORDER CHAMPIONS ARE 1 HONG KONG 2 IRELAND 3 SINGAPORE 4 BELGIUM 5 SWEDEN 6 DENMARK 7 NETHERLANDS 8 SWITZERLAND 9 FINLAND 10 HUNGARY 12 TAIWAN 13 UK 23 US 24 AUSTRALIA 28 MALAYSIA

THE WORLD’S MOST GLOBAL…

Hong Kong tops Ernst & Young’s Globalisation Index 2011, which measures the world’s 60 largest economies according to their degree of globalisation relative to their GDP. The index’s five criteria are openness to trade, capital movements, exchange of technology and ideas, labour movements, and cultural integration. It does not measure a country’s impact on the global economy or trade. The index covers the period 1995 to 2014, and is released in cooperation with the Economist Intelligence Unit.

LIFE BEYOND THE OFFICE

FRANCE 21%

BLIC EPU HR ZEC

C 8% RG EMBOU 8% LUX 6% NETHERLANDS 6%

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CHI LE 3 2 UK 2 % 9% DUBAI 28% AUSTRALIA 23%

BRAZIL 4% SW I T ZER LAN D

Britain leads the way in Europe in how staff view work/life priorities, according to a survey from Robert Half recruitment consultancy. Pay and work/life balance were cited as primary reasons why UK staff look for new jobs. It also shows that staff in Switzerland are less concerned about this balance, with just 4% seeing work/life balance as a priority.

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News round-up

HOUSING OVERTAKES FOOD

A recent CSO survey of household expenditure has found that the average cost of housing has risen to €147.73 per week, as compared to €94.57 a week when the survey was last undertaken in 2004/05. Meanwhile, over the same time period, spending on food has fallen from €142 a week to €131.28. Since the five-year survey was first undertaken, in 1980, the share of weekly spend allocated to food has fallen from 27.7% to 16.2%.

STOCKBROKER CONCERNS

Bloxham Stockbrokers has revised its GDP growth forecast for 2012 from 1.1% to 0.5%. Pointing to an improving economic picture in the US as promising for Ireland, it also warns that overall economic recovery will still be slow due to ongoing uncertainty in the world economy, and the eurozone in particular. This is likely to weigh negatively on the country’s growth prospects this year. The report says there is little reason for optimism regarding Irish consumer spending in the year ahead.

OIL PROFITS SOAR

Irish energy company Tullow Oil reported pretax profits of more than $1bn (€760m) in 2011, as compared

IFAC: IMPROVE ESG DISCLOSURE

Accountants must respond to increasing demands from investors for environmental, social and governance (ESG) disclosures, urges the International Federation of Accountants (IFAC). In a new report, Investor Demand for Environmental, Social and Governance Disclosures: Implications for Professional Accountants in Business, IFAC says that accountants need to be aware of the essential related metrics. According to Roger Tabor, chair of IFAC’s professional accountants in business committee, accountants ‘are well placed to apply accounting discipline and rigour to the collection, analysis and reporting of ESG data’.

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with $179m in 2011. The growth was on the back of reported oil and gas production rising by 35% to some 78,200 barrels of oil equivalent per day. Looking ahead, chief executive Aidan Heavey said key developments for the company will include investments in development projects in Ghana and Uganda in 2012/13.

2011, to €5.8m, in spite of a revenue fall of 10% over the same period. With revenues declining from €77.4m to €69.5m between 2011 and 2012, the company’s operating profit declined marginally, from €4.5m to €4.4m. Power City stores are concentrated in Dublin, with additional stores in Bray, Naas and Drogheda.

BEST START-UP BASE

PROPERTY FLATLINE

Ireland remains one of the best environments in Europe for startup industries, a pioneer of internet technologies and web-based development in Ireland has claimed. Speaking at the Techovate 2012 conference in March at Wexford Opera House, Dr Mícheál Ó Foghlú, chief technical officer with cloud-based mobile application platform solutions company, FeedHenry, said it has never been more important for Irish start-ups to cluster, engage with one another and network. ‘It’s important that Irish enterprises work together, learn from global experiences, see different perspectives, network and shake the hands of others with whom they can clinch deals,’ he said.

POWER UP

Irish electrical retailer Power City increased its pretax profits by 4% in

Irish property prices have hit the bottom and any potential rebound is years away. That’s the assessment of Goodbody Stockbrokers, who say the average prices of houses and apartments is now as low as €100,000. With prices having fallen 68% off the 2007 peak, it now takes less than three times the income of a single person to buy a property. Lack of lending means it is likely to stay this way for a number of years. The Goodbody survey is based on prices reached on the Allsop Space distressed property auctions, in contrast to CSO figures, which do not take account of cash purchases and which have recorded a 48% fall in the property price index since 2007.

CENTRAL BANK REVIEW

Central Bank rules regarding contact between banks and homeowners with distressed mortgages, introduced in 2012, may be changed following an internal review by the bank of their efficacy, according to newspaper reports. The current rules forbid banks from calling to borrowers’ homes without being given ‘informed consent’ and ban them from making unsolicited contact with borrowers more than three times in one month. However, banks claim that these limitations are exacerbating the situation by allowing distressed mortgage holders to ‘bury their heads in the sand’.

MAJORITY TO RESTRUCTURE

The most recent PwC business barometer survey has found that 70% of businesses in Ireland are planning significant changes in the year ahead, with process streamlining the major goal. However, job cuts were highlighted by 48% of respondents as one of their

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main objectives. With 87% of those surveyed describing their businesses as more viable since they restructured, PwC restructuring partner Brian Bergin said the key challenge to be confronted in future restructuring was achieving buy-in among all stakeholders. ‘There is no doubt that excellent people engagement is critical for successful restructuring and for the benefits to be sustainable,’ he said.

FATCA PROPOSALS PUBLISHED

The US Treasury Department and Internal Revenue Service have published proposals for the sharing of tax information with foreign governments and tax authorities, in the next phase of implementation of the Foreign Account Tax Compliance Act (FATCA). The aim is to identify accounts held by US nationals in other jurisdictions which evade US tax. ‘FATCA strengthens US efforts to combat offshore noncompliance,’ said IRS commissioner Doug Shulman, conceding that ‘it creates a significant undertaking’. Ali Kazimi, Deloitte Middle East’s regional managing director for international tax services, called it ‘one of the most critical commercial issues currently faced by banks and financial institutions’, and warned that institutions must act fast to comply with the implementation date of 1 January next year.

SME LOAN TROUBLE

A recent Central Bank report on loan arrears has painted a picture of serious difficulties across Irish business. Key findings include the fact that 30% of all loans to SMEs are now regarded as being in trouble, with larger loans those most likely to be impaired. While loans in sectors seen to be ‘thriving’, notably agriculture and food, are more likely to be repaid, all sectors contain high levels of loan repayment issues.

TALENT CALL

Nominations closed on 31 March for the RSM Farrell Grant Sparks-supported European Business Awards 2012/13, with the entries deadline on 1 May. The awards, designed to highlight outstanding results across a variety of disciplines, are now in their sixth year. The Irish winners will be announced in October 2012 and the EBA Awards ceremony will take place in April 2013. The awards are noted for their elite judging panels, which have previously included Christine Lagarde, IMF; Yves Leterme, Belgian prime minister; and Karel De Gucht, European trade commissioner.

DELOITTE PREDICTS SPINOFFS

Corporate spinoff activity could nearly double this year, according to a report from Deloitte and specialist corporate break up investment adviser The Spinoff Report. The global value of corporate spinoffs is set to increase to €300bn in 2012, an increase of 92% from €156bn in 2011, says their joint study. Corporate spinoffs within Europe with a value of €158bn are already in the pipeline, they add. Ryan Mendy, chief operating officer at The Spinoff Report,

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said: ‘Investor appetite for spinoffs is growing, often because major austerity measures have an adverse effect on companies’ plans for growth.’

FOUNDATION REVIEWS COMPLETE

Reviews of the IFRS Foundation’s governance and strategy have been completed by its monitoring board and trustees. The constitution of the bodies will now be amended in line with the reports’ conclusions. Masamichi Kono, acting chair of the IFRS Foundation monitoring board, said: ‘We hope that increased accountability will be reflected through stakeholders’ confidence in the standard-setter and hence IFRSs.’

AGENCIES FACE REFORM

Credit ratings agencies are to be substantially reformed, under proposals published by the European Commission. Financial institutions would be obliged to make their own assessments of investment risks and not over-rely on ratings provided by agencies. The agencies would need to provide detailed explanations for

making assessments and would be required to update their ratings of EU member states at least twice a year, instead of the current annual requirement. European legislation will make ratings agencies subject to civil liability claims from investors, where an agency intentionally or negligently breaks EU rules.

CFO CONFIDENCE PLUMMETS CFO confidence in the Middle East has plummeted, according to a study by Deloitte. The firm connects the fall in confidence to the ‘continued social upheaval and conflict which the Middle East has witnessed since 2011, coupled with uncertainty and risk aversion in business dealings’. Only 47% of CFOs in the Middle East expect operating cashflows to increase, down from 82% a year earlier. James Babb, CFO programme leader at Deloitte in the Middle East, argued that the economic fundamentals remain strong. ‘It is the prospect of unexpected events or ‘black swans’ which weigh heavily on the minds of CFOs at the moment,’ he added.

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Interview

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NO FRONTIERS

Jane-Ann McKenna tells Donal Nugent how her ACCA qualification has taken her to the forefront of humanitarian aid in Ireland

F

ounded in France, in 1971, by a small group of doctors and journalists, Médecins Sans Frontières (MSF) – better known in the English-speaking world as Doctors Without Borders – is unique among humanitarian organisations for its absolute focus on providing emergency medical care. Today, an international organisation with offices in 19 countries and programmes in 64 countries, MSF is distinguished by its determination to go where others cannot or choose not to go. While it may enjoy a high profile for its work, and its stance, in difficult geographical or political contexts such as the Sudan and Libya, MSF is also involved in programmes and countries that steadfastly refuse to catch the public eye, but which are no less matters of life and death. MSF was awarded the Nobel Peace Prize in 1999 ‘in recognition of the organisation’s pioneering humanitarian work on several continents’. Although independent and neutral, a fundamental tenet of MSF is to ‘bear witness’, meaning that it is not enough to simply treat patients, it is also important to raise awareness of their suffering and to speak out on their behalf. A clear example of this commitment came earlier this year, when MSF reported evidence of torture in some 115 patients it was treating in post-Gaddafi Libya. With no concrete action taken by the authorities in

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response, the organisation felt it had no option but to withdraw its services.

Independence As the largest medical humanitarian organisation in the world, the core of MSF is volunteerism. Volunteers get a stipend of approx €10,000 a year to meet their incidental expenses and, while field projects, naturally, centre on medical expertise, important nonmedical administrative roles include head of mission or country director, head of logistics, financial coordinator and, in the tier below that, project coordinators, administrators and logisticians. MSF opened its Irish office in 2006 and, through fundraising activities and the recruitment of professionals, has made its mark in a number of ways. To date, Irish volunteers have departed on more than 100 missions overseas in the last five years and are currently working at the frontlines of conflicts and humanitarian crises in Afghanistan, Iraq, Sudan and the Democratic Republic of Congo, to name a few. Appointed head of office of MSF Ireland in 2011, Jane-Ann McKenna ACCA explains that the organisation’s independence is pivotal to its identity and something it is fiercely protective of. ‘In all, more than 90% of MSF’s funding comes from the generosity of private individuals and other donors. Our internal policy is that we will never

accept more than 15% of institutional funding for our work. We are able to go where needs are greatest because we are independently financed.’ Reflecting on the recent Libyan situation, McKenna says that MSF’s position has always been that it is ‘best to advocate at local level before taking an international stance. In this case, we had advocated strongly and said we were seeing victims with torture wounds. We felt something needed to be done but nothing was. Withdrawal is quite a strong stance for us to take, but we felt we were being compromised and made complicit in the regime there’.

Response Taking up the position last year, McKenna acknowledges that the organisation got up and running in Ireland just at a time when the economic climate started to deteriorate. However, she does not see MSF in direct competition with other well-established foreign aid charities. ‘We have been fortunate in enjoying steady growth as the only medicalemergency organisation in Ireland. We have a natural appeal to those who work in the medical professions and to those aware of humanitarian aid, but we also find we have an appeal with the general public. People will always contribute during an emergency and Irish people are hugely generous in that respect. Where there is probably an

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The CV 2011

Appointed head of office, MSF Ireland.

2008

Takes on first MSF assignment in Darfur.

2007

Becomes a member of ACCA.

2004

Joins AIB as relationship officer.

2003

Completes B. Comm at University College Dublin.

issue is in attracting regular donors – people who will contribute on a regular, month-to-month basis – but, in an emergency, you will always get a good response.’ Yet, while this emergency aspect is important, MSF ‘never wants to jump on the bandwagon of getting involved in fundraising because of media attention,’ McKenna adds. ‘It’s really about our own judgment on whether support is needed or not.’ That said, when it comes to addressing important but low-profile issues such as malaria in the Central African Republic or TB in Myanmar, ‘we are still working out how we can make these issues more relevant for potential donors,’ McKenna admits.

Route McKenna’s interest in humanitarianism developed early but so too did a recognition that she would achieve her goals through the business and

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administrative route. ‘I was always interested in the field and did some volunteering with an orphanage in Romania after my first year in college, which gave me a very clear sense that this was the area I wanted to be involved in. That said, I knew I was never going to be working as a doctor or a nurse. I felt I had something to contribute but it was going to be at the higher-end strategy level.’ After completing a B. Comm in UCD, a thesis on NGOs in her business masters created an ideal opportunity to research the area further. ‘With the thesis, I was trying to apply internationalisation theory to NGOs. What was interesting was that, when I approached a couple of organisations, their response was ‘what does business have to do with the work we do?’ That surprised me, because, even at that stage, I saw business strategy as relevant to NGOs.’ Recognising that she needed solid professional experience if she was going to have something to offer the sector, McKenna took a three-year detour through corporate banking and, in the position of relationship officer with AIB, worked with a portfolio of clients, mostly subsidiaries of international corporations present in Ireland.

It was here that she decided to study ACCA. ‘I wanted to upskill and I knew I wasn’t going to stay in banking forever,’ she recalls. ‘One of the attractions of ACCA was that it was international, making it particularly useful in the NGO context.’ Now with the experience and necessary skills, McKenna began to look for opportunities and, in 2007, attended an information evening on MSF for the first time. Though she knew little about the organisation at the time, ‘one of the things that appealed to me was that, as financial controller/HR coordinator in a MSF operation, I would not just be responsible for the budgeting and cash management but also be a member of the country management team, meaning that I would play a deciding role in the overall programme for that country. That really appealed to me.’

Deep end McKenna’s first placement was for a six-month period in Darfur. After flying over desert in 50 degree heat from Khartoum to Nyala, she recalls ‘a quick handover, after which you find you have a team of 10 Sudanese men who only speak Arablic to manage. You try to adjust as quickly as possible.’ As financial controller, cash

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The basics: MSF

1971

MSF founded by French doctors in the wake of the Biafran conflict in Nigeria.

1975

First large-scale intervention by MSF in a refugee crisis as Cambodians flee Khmer Rouge.

management was a major issue. ‘You have 500 national staff who all need to be paid and you are going to and from the bank with a suitcase of cash, so security risks come with it and you really have to think outside the box.’ Work in Nyala came to an abrupt halt in March 2009 when the section was expelled from the Sudan by a government unhappy that information from an MSF report had been referred to in the indictment of the Sudanese president, Omar al-Bashir, for war crimes by the International Criminal Court. McKenna recalls disappointment and a great sense of loss as they were forced to close up. ‘We left behind a huge vacuum that needed to be filled,’ she says. While MSF still functions in Darfur, its role has been greatly narrowed and restricted since then. Leaving behind such an intense working environment, McKenna wasn’t yet sure she wanted a career within MSF but did know she wanted to remain in the sector. Her next assignment was in the post-conflict environment of Sri Lanka, where she moved into a project coordinator role for the first time, managing and organising the start-up of an orthopaedic surgical programme,

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including overseeing the construction of a new operating theatre and a spinal-cord rehabilitation programme for patients. Two further assignments, prior to taking up the role as head of MSF Ireland, would prove equally diverse. In Jalal-Abad, in the former Soviet republic of Kyrgyzstan she was field coordinator for MSF’s mental health programme while, in Boguila, in the Central African Republic, she was project coordinator for a large general hospital programme, centring on primary and secondary healthcare in HIV, TB, surgical, maternity, mental health and outreach services.

Roles With her focus now on developing the profile of MSF in Ireland, McKenna says that one of the things that drew her to this position was that ‘having seen the work MSF does on the ground, I wanted to translate that into something meaningful to an Irish audience. Our objective, at the moment, is not necessarily to expand but to try to put more of an Irish identity on MSF, to show the work we do, often where there are no other humanitarian organisations present.’ McKenna’s message to accountants interested in volunteering is that the

1988

MSF is first medical organisation to bear witness to the use of chemical weapons on Kurdish town of Halabja.

1999

MSF awarded Nobel Peace Prize.

2006

MSF establishes an office in Ireland.

organisation is always looking for people who have a genuine desire to contribute. ‘In terms of requirements, we are looking for people who have done some overseas work before. It doesn’t have to be to great lengths but enough to show that they have been exposed to certain contexts.’ Speaking French is a huge advantage by virtue of the fact that MSF is present, more and more, in French-speaking countries. While she hasn’t ruled out a return to the field – ‘once you’ve engaged, it’s very difficult to pull out completely’ – McKenna says the opportunity to build the image of MSF in Ireland is one she relishes. ‘We have a base and foundation here and we are now beginning to push our communications and fundraising. It is a really exciting time for the organisation.’

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DIVERSITY IN A Businesses increasingly see harnessing diversity as a way of dealing with globalisation and economic challenges, but what does that mean for the finance function?

I

n today’s unpredictable economic climate, diversity has become more than a recruitment requirement. Once represented by a tick-box survey completed with every job application, diversity today is increasingly seen as critical to success in global business. More than just a consideration of gender, ethnic background and sexual orientation, diversity now encompasses not only visible differences, but the things that make people unique: life and work experiences, views and beliefs. Diversity in this wider sense is about harnessing different perspectives and inputs, encouraging productive collaboration, innovation and creativity. Companies grappling with the challenges of a changing global economy are increasingly seeing it as something they need to embrace. In a new ACCA report, Building a Better Business through Finance Diversity, 12 international diversity, HR and finance experts give their views on the importance of diversity in finance. And, they say, the bottom line is that the global business environment not only demands that diversity be taken into account, but also that success depends on it. In a scary time for business, the finance function has a pivotal role in steering companies away from

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turbulent waters. More than ever before, the onus is on CFOs to make sure the ship stays afloat. Companies are re-evaluating their investment strategies and many of the assumptions on which they once based their business – it’s an exercise where dexterity and diversity of thinking will pay dividends. Companies need creative finance professionals who can devise new solutions to new problems. This changes the way finance professionals are recruited, but also the

job of the CFO. ‘The role of CFO is becoming more of a trusted adviser, providing insight into the business, driving a lot of the strategy and with a very important seat at the table,’ says Carlos Passi, assistant controller of business transformation at IBM. ‘And with that change, the skills required are also different.’ The logistics of extending business into a global market are forcing CFOs to adapt. Professor Mansour Javidan of Thunderbird School of Global Management explains: ‘Move the company into one extra market and the CFO has the same role to perform but now has to ensure there is capital market access beyond the domestic market. The CFO’s job now is not just to follow domestic rules and regulations but also rules and regulations in the second country.’ An impressive finance background is no longer enough for tomorrow’s CFO. ‘When we look for finance leaders, we try to play down their functional

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N ADVERSITY strengths once they reach a certain level and get them more rounded in term of business experience,’ says Datin Badrunnisa Mohd Yasin Khan, group chief talent officer at Axiata. ‘Of course, we’re looking for people who have grown up with the finance discipline but that alone is not enough.’

The juggler Professor Javidan agrees – CFOs require a more varied CV than ever before. ‘As a company globalises and the CFO gets more globally exposed, hard technical skills are still necessary but no longer sufficient,’ he says. ‘You have to become an expert in balancing the contradictory forces coming at you – and particularly in positions like finance and accounting.’ Finance leaders must develop broad experience in developed and emerging markets and while CFOs are expected to adapt to disruptive innovations and new business models, their teams also need to keep pace. This is where diversity of thought and experience can be a vital tool for staying ahead of the competition. Recruiters should be looking to bring individuals with fresh ideas into the finance function. Roberto Mello, CFO of GE Healthcare China, welcomes the challenge. ‘The opportunity to tap into talent from different cultures and backgrounds is a powerful tool because it gives us the chance to have different points of view,’ he says. ‘There is incredible opportunity and strength for the business to be found in the differences between people.’ Of course, harnessing these differences can be challenging. ‘If you don’t understand the depth of the differences you may violate people’s

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strongly held views without realising it,’ warns Peter Reilly, director of HR research and consultancy at the UK’s Institute for Empowerment Studies. Each new market has its own customs, culture, regulatory, environment and governance strategies to consider. These must be understood and incorporated into the existing corporate model. ‘Once you have respect for and an appreciation of differences, not necessarily thinking of one as better than the other, then you can really start working on getting the best out of people,’ Mello adds. A potential pitfall of diversity,

warns Kathryn Komsa, chief diversity officer at Marsh & McLennan, is the patience and time required to consider numerous opinions during decisionmaking. ‘When people with diverse backgrounds, experiences and ways of interpreting things come together, it may take longer to get a solution,’ she says. ‘But you will inevitably get to a better solution.’ Komsa’s colleague, CFO Vanessa Wittman, says debate in decisionmaking may shake the traditional hierarchy of the finance team, but can deliver immeasurable benefits. ‘The understanding that debate leads to

**FINANCE DIVERSITY: WHY AND HOW * * * * * * * * *

External changes are demanding greater diversity in the finance function. Changing the roles and responsibilities of the finance function requires CFOs to think more broadly about the skills and background of their team. The demands on the finance function are growing as companies expand further overseas. In a global economy, the ability to understand differences in cultures and perspectives is a prerequisite for the finance function. Diversity of thinking encourages innovation. In order to derive benefits from diversity, business leaders must be comfortable with being challenged. There can be a tension between diversity and the need to develop standard processes across geographies. A broader perspective on recruitment can play a valuable role in creating a more diverse finance function. Finance executives should be encouraged to develop experience outside the finance function. Finance leaders must develop broad geographical experience in both developed and emerging markets.

ACCA DIVERSITY REPORT: FOR THE MAIN FINDINGS OF BUILDING A BETTER BUSINESS THROUGH FINANCE DIVERSITY, GO TO www.accaglobal.com/en/ri

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better answers aligns with the ultimate finance goal of challenging the business,’ she says. ‘Any CFO who is searching for views that only echo their own shouldn’t be a CFO.’ As many companies consolidate their finance teams into regional hubs or outsource processes to cut costs, diversity may seem a pipe dream. Globalisation swells the financial information companies need to manage, forcing them to shrink in-country finance teams and migrate commoditised activities to shared service centres. This boosts productivity and saves costs by standardising processes for routine transactions. At the same time, companies must comply with local financial and governance regulations in the jurisdictions where they operate. This encourages a shift to a process-driven approach that assures compliance and improves accountability. ‘More than any other function, finance demands sticking to the rules and doing the same thing in a very standardised business model,’ says Reilly. ‘There’s an argument that the greater the standardisation applied, the harder it is to benefit from diversity.’ But not everyone agrees. Stevan Rolls, head of HR at Deloitte in the UK, believes that standardisation and diversity can work together. ‘Some activities in the finance function need to be robust and repeatable and so are good candidates for standardisation regardless of where you are,’ he says. ‘Others require local treatment or are more complex and so require on-theground expertise. Finance is a function in which there are places where you want innovation and places you don’t want innovation. The key is deciding which is which.’ Even if it overcomes these potential pitfalls, a company can end up with diversity without the benefits. Businesses can benefit only if the workforce is empowered to express its diversity – otherwise, companies end up with teams who look different, but think the same. ‘It’s diversity of thought that brings the real business advantage,’ Rolls explains. So simply hiring a team of people

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from different backgrounds with varied experience is not enough. Employees need to feel free to express their creativity and difference in thought and opinion – and their seniors must allow themselves to be challenged. The shift from the consensus-driven management style to one that embraces differences is critical.

Harnessing the power Finance leaders and HR professionals need to tap the potential of diversity, strive to foster diverse thinking across the organisation and encourage the open discussion of views and ideas. Companies need to be open to recruiting staff from different sectors,

regions or professional backgrounds. Finance executives must be encouraged to develop greater experience through secondment or job rotation and leaders should resist the urge to retain good staff members in one position for too long. ‘It’s never easy, because if you have a great person in the team you don’t necessarily want them going off to do something else,’ says Rolls. ‘But in the long term, they’ll come back with different skills and a wider view on their role. Ultimately, you get a lot more out of them by letting them go.’

Kate Jenkinson, ACCA journalist

*EXPERT VIEW HIGHLIGHTS

‘Equal opportunity is important to ensure that talent gets the opportunity to fulfil its potential regardless of background. But you can still have a workforce with representatives from a wide range of backgrounds and not have diversity. It’s diversity of thought that brings the real business advantage.’ Stevan Rolls, head of human resources at Deloitte ‘The finance leaders of the future must develop a wide range of different experiences to improve their understanding of the business and broaden their perspectives.’ Liz Hughes, head of ACCA Ireland

‘As a company globalises and the CFO gets more globally exposed, hard technical skills are still necessary but no longer sufficient. You have to become an expert in balancing the contradictory forces coming at you.’ Mansour Javidan, professor at Thunderbird School of Global Management ‘Once you have respect for and an appreciation of differences, not necessarily thinking of one as better than the other, then you can really start working on getting the best out of people and situations wherever you are based.’ Roberto Mello, CFO at GE Healthcare China ‘When we look for finance leaders, we try to play down their functional strengths once they reach a certain level and get them more rounded in term of business experience. Of course, we’re looking for people who have grown up with the finance discipline but that alone is not enough. We really want someone with a more developed business sense.’ Datin Badrunnisa Mohd Yasin Khan, group chief talent officer at Axiata ‘The understanding that debate leads to better answers aligns with the ultimate finance goal of challenging the business. Any CFO who is searching for views that only echo their own shouldn’t be a CFO.’ Vanessa Wittman, CFO at Marsh & McLennan

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Open book: Julie Spillane (right) shares advice on developing your career in shared services, pictured with Liz Hughes, head of ACCA Ireland

AN ENABLER OF GROWTH

The future opportunity for accountants was the core message of a recent ACCA conference focused on Ireland’s growing shared services sector

‘T

he Irish SSC as an Enabler of Growth’ was the theme of ACCA Ireland’s recent shared services conference, which took place on 21 February at the Crown Plaza Hotel, Northwood, Dublin. With a host of speakers that included Prabhakar Kalavacherla of the International Accounting Standards Board (IASB); Dónal Travers, manager, Professional Business Services Portfolio, IDA Ireland; Julie Spillane, EMEA director and controllership capability director, Accenture; Peter Cosgrove, director, CPL; and Tony Osude, ACCA head of global relationships and services, the event stressed the multi-dimensional aspect of shared services centres (SSCs) and their evolution in the Irish context.

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Position of strength Ireland’s positioning in the field of shared services is impressive, with the country ranked third in the world in terms of the number of SSCs operating in a single country. In total, over 140 centres operate in Ireland, employing over 35,000 people in foreign-owned companies and a further 4,000 in indigenous companies. Conference attendees included leading finance professionals from multinational SSCs, among them Accenture, Baxter, CITI, Coca Cola, Hertz, IBM Ireland, Nuance and Yahoo.

Strategic importance ‘ACCA Ireland has long recognised the strategic importance of shared services to Ireland’s high-value servicesdriven economy and the opportunity

they present for job creation among finance professionals,’ Liz Hughes, head of ACCA Ireland said, opening the conference. She explained how the event had followed directly from the 2011 ACCA Shared Services Forum, which brought together high-level ACCA members operating within the field for the first time and which formed the centrepiece of a report on the sector in the July 2011 issue of AB Ireland. ‘From our first roundtable, it became immediately apparent that there is no recession in shared services – we have talent, ability and the willingness to exploit our competitive advantage in this field,’ she said.

Risk and opportunity The first speaker of the afternoon was Tony Osude, ACCA head of

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Jillian O’Sullivan and Oliver O’Connor from Grant Thornton

global relationships and services. In his presentation ‘ACCA and shared services & outsourcing’, he provided an insightful account of how the industry is set to evolve over the coming five years. Pointing out that, globally, there is ‘no turning back’ from the shared services and outsourcing model, he said that cost reduction would remain the foundation of its appeal but that differences in provider capability and the challenge of change management would be significant as services are aligned with opportunity. While clear about the increasing level of opportunity for accountants, Osude took the view that, as demands for cost reduction and increased levels of quality increase, there is a risk of creating an expectation gap among clients. ‘CFOs are looking for greater efficiency, but they are also looking for a greater degree of insight,’ he said, adding that ‘despite the fact that they are looking to reduce costs, they will be looking for a certain level of quality too.’ Osude stressed the need for a strong employee value proposition within SSCs and envisaged a scenario where they could rival the Big Four accountancy firms as accountancy training and career grounds. For this to happen, ‘there is a need to ensure the work is challenging, rewarding, well recognised and provides people with the right breadth and depth of experience,’ he said.

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Shared service professionals from Baxter attending the event

Revenue recognition Prabhakar Kalavacherla (‘PK’) is a member of the International Accounting Standards Board (IASB) and his presentation ‘Revenue from Contracts with Customers’ reflected some of the technical issues that accountants confront within the SSC context. ‘Shared services are definitely here to stay,’ PK said. ‘The ultimate recognition of the value of shared services is when companies are willing to get the revenue recognition out of their SCCs.’ In an interactive presentation around the IASB’s revenue recognition project, PK highlighted some of the issues emerging as the IASB seeks to develop a single, principle-based revenue standard for US GAAP and IFRSs. ‘The revenue standard aims to improve accounting for contracts with customers by providing a more robust framework for addressing revenue issues as they arise; increasing comparability across industries and capital markets; and requiring better disclosure,’ he explained. The core principle of the revised proposals will be that revenue recognition ‘depicts the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services’. With the proposals issued for comment in November 2011, he encouraged interested parties to get involved in the debate. A final standard

is expected in the second half of 2012, with an effective date no earlier than 2015.

Investment growth The timing of the conference coincided with the announcement by online payment services company PayPal that it would be establishing a 1,000-person SSC in Dundalk. Commenting on the news, Donal Travers, IDA Ireland, said ‘bodies like ACCA really help to make ‘team Ireland’ a global player’ and said the collective determination to evolve shared services ‘really does make for a very strong proposition when we talk about locating SSCs in Ireland.’ Taking attendees through what was a very strong year for IDA Ireland, he said IDA-backed companies had supported over 13,000 new jobs in 2011, and witnessed the lowest number of job losses in the last 10 years. ‘Ireland’s proposition has transformed over the past 20 years and IDA Ireland is working to ensure that Ireland distinguishes itself from other countries and remains the destination of choice for foreign direct investment.’ Identifying the five key sectors in which IDA Ireland supports investment – ICT, life sciences, professional/ international services, digital media and financial services – he explained that it was in these areas that the shared services opportunity emerges most strongly. Some 17 new international

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22

Attendees from Accenture at the conference SSCs set up in Ireland in 2011, among them Twitter, Zynga, Quest Software, Engine Yard and Gilt Groupe.

Career path The personal journey of a shared services’ professional was the theme of a presentation by Accenture’s Julie Spillane FCCA. Accenture was one of the early adopters of shared services, setting up its first operation in 1997 in Chicago, with the Dublin centre following in 1999. ‘Today, we deliver shared services across 10 locations, on a global basis, and employ 5,000 people in this area,’ she explained. Reflecting on her own career progress, Spillane said a number of pointers stood out in terms of general advice. ‘Firstly, you need to take ownership of your career and continually check in with yourself on what you want to achieve. Direction is also important and you can meander a little, and take on things you didn’t plan for, as long as you’re going in the right general direction.’ Remembering that you are ‘only as

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good as your track record’ and that attitude, particularly when asked to take on roles you may not wish to, are hugely important in determining how you are perceived, she added that planning your skills base with an eye on the next threeto-five years was also hugely important. Spillane stressed the value of active networking and having a mentor. Recalling the advice of an early mentor who told her that, to succeed in a large organisation ‘you have to figure out how to be famous for something’ she stressed the overriding value of ‘stretch’ – taking on an opportunity that brings you out of your comfort zone. ‘If you don’t take it on, someone else will, and that’s the door closed.’

Networking ‘Most people don’t go to a networking event with any kind of objective,’ Peter Cosgrove told attendees. ‘If you don’t know what you are looking for, then don’t be surprised if you don’t find it.’ In a presentation designed to overcome personal fears around networking, Cosgrove said the biggest problem with networking in Ireland was that ‘people

do not know how to work the room and are often in the wrong room’. Offering some simple advice to get more out of networking, he said it was important to choose an objective for attending; plan your route (i.e., when to arrive, who to sit with); research the group and dress code; catch up on the top five news stories of the day in advance; and, of course, bring business cards. ‘By building a list of who you want to meet, knowing what you are looking for, having something to say and helping others, you will build your network and knowledge,’ he concluded. Closing the event, Liz Hughes reiterated the factors that contribute to the global reputation Irish SSCs enjoy: ‘Ireland offers a culture of innovation; the availability of graduates with internationally-recognised qualifications, such as ACCA; a flexible workforce; attractiveness as a place to locate; and a critical mass of SSCs already in the country, supported by a pool of expertise of international calibre.’ Donal Nugent, editor, AB Ireland

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IRELAND AS A CENTRE OF EXCELLENCE IN SSCS SINEAD DONOVAN REPORTS FROM A RECENT GRANT THORNTON CONFERENCE IN NEW YORK Without doubt, Ireland is emerging from an unprecedented period of economic turmoil. There is a risk that this has affected our international reputation, which could be damaging, if we do not actively promote the success stories of the country. Our shared service offering is undoubtedly one of those success stories. In order to remain a location of choice for shared service centres (SSCs), Ireland must continue to attract large multinationals and ensure that the negative perception arising from the economic pressures of the past few years and the contagion of negativity around the eurozone does not impact us. It is vital that government and state bodies work with key business leaders to ensure that the message continues to be reinforced that Ireland is a prime location for global business and that we have the experience and expertise to service all organisations. In an effort to promote our global reputation, Grant Thornton Ireland recently hosted a seminar in New York entitled ‘Ireland as a location for global business and as a gateway to Europe’. The focus was primarily on the centre of excellence model for SSCs and three high-profile speakers commented on why they felt Ireland was the ideal location of choice. They included: • Dan McCarthy, VP finance, controller APAC & EMEA, Yahoo!; • Helen Burke, VP IDA, New York; and, • Peter Vale, tax partner, Grant Thornton Ireland. The message at the event was simple – Ireland has been very successful, to date, in attracting global organisations and we need to educate new organisations to the merits of the country. This success is particularly evident in the influx of online companies locating in Ireland that were led by Yahoo! and who were subsequently joined by Google, LinkedIn, Facebook, Twitter and a host of other online global entities. Ireland is now the leading location in the world for software and ICT companies. Some of the key points noted from the seminar, which allows us promote our country with confidence, include:

Talent • • • • •

Highly-skilled labour force; Young, culturally diverse population; English-speaking population; Highly-skilled technically excellent pool of employees; Combination of experienced professional advisers and a pro-active economic environment, making Ireland an easy place to do business; • Multi-lingual society; • Access to a European working pool of 300m people; and • Highest rate of completion of third level education in Europe.

• A 25% research and development tax credit; • An effective rate of 2.5% for transfer of intellectual property in certain circumstances; • Attractive holding company regime; • Harmonised VAT regime; • Limited transfer pricing; inclusion on US government’s white list; and, • Acceptance of Irish tax system from international jurisdictions.

Track record ‘Fish where the fish are’ Ireland has become the location of choice for: • Eight of the top 10 companies in ICT; • Nine of the top 10 in pharmaceuticals; • Seventeen of the top 25 in medical devices; • Three of the top five games companies; and, • 50% of the world’s leading financial services firms.

Technology/infrastructure • Developed network of motorways between all major cities; • New terminal in Dublin airport; and, • Ideal climate for data centres for high-tech servers.

Highly-competitive environment Business costs have fallen significantly since 2008, including: • Unit labour costs -12 % (2008 to 2011, European Commission report); • Prime office rents -52% (2007 to 2011); • Business services -8% (2008 to 2010); • Reduced utility prices; and, • Overall competitiveness position back to 2003 levels. The message also needs to get out that that the SSC model is one that can be effectively used in any sector and while we should concentrate on key sectors, such as life sciences; ICT; financial services; content industry (including online and social media); engineering; and cleantech, we must ensure that the concept is promoted broadly and across all industries.

Taxation

From attendance at the seminar and comments arising after it, it is clear that, in the US, Ireland is still viewed very positively as a leading business force and one which is very much stabilising itself after a period of turbulence. Once the eurozone situation stabilises, Ireland is well placed to capitalise on the solid foundations that is our SSC offering. As a country, however, we must strive to remain competitive and ensure that we keep our focus on innovation and R&D. This strategy must be supported by an appropriate, effective but not over-burdensome regulatory environment.

‘The Irish tax rate is to Ireland as the oil is to Saudi’ • 12.5% corporation tax rate with commitment to retain; • Tax-free incentives for senior management relocating to Ireland;

Sinead Donovan is a partner with Grant Thornton. Email sinead.donovan@ie.gt.com

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16/02/2012 10:28:50 13/02/2012 22:40

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Comment

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More than a PR exercise

[

Diversity isn’t about buffing up the corporate image, says ACCA president Dean Westcott, it’s about building a better business

ACCA is an organisation that has long campaigned on the importance of diversity in the workplace, so I was delighted to see our new report on the issue. Its key finding is that adopting an effective diversity policy doesn’t just make a company look good, it actually improves its performance. For too long too many organisations have treated diversity as a PR exercise. Finding the number of women in senior positions or the breakdown of ethnic backgrounds in the workforce is a reasonable starting point in the drive for greater diversity, but it isn’t enough. The term ‘diversity’ is overused and its real purpose underconsidered. All too often a business’s chief consideration is how diversity or corporate social responsibility can help to make it look good. Diversity should not purely be a presentational device. Our report, Building a Better Business through Finance Diversity, shows that leading companies such as IBM, GE China and Shell see diversity as less about how they look and much more about how they think, how their processes work and how they manage their most precious asset – their human capital. And that’s the key: diversity is about a company ensuring it does not miss out on the talent it has. The report recommends that finance leaders work to understand cultural differences for each market in which they operate and how to integrate working practices into a corporate model, and encourage teams around the world to express differing views. They should also look outside the finance function when recruiting and be open to candidates from non-traditional backgrounds. By bringing in individuals from different sectors, regions or professional backgrounds, finance teams will be better able to execute their expanding and increasingly complex roles and responsibilities. In the same way, job rotation should be used to help develop the finance leaders of the future. Managers need the opportunity to spend time in different markets or departments, where possible. Given the increasingly globalised nature of finance professionals’ work, embedding diversity into everything we do is much more than good PR – it’s about being truly effective. Dean Westcott is finance lead at West Essex Clinical Commissioning Group

2012 10:28:50 3/02/2012 22:40

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Comment

PPPs: a good deal? [

Aidan Clifford on why public private partnerships require careful consideration before jumping in

Most people realise that spreading the cost of a household purchase and paying over, say, two years rather than up front, will be more expensive in the long run. The supplier adds on the cost of credit, cash collection and administration, and some additional amount to cover potential bad debts. Public private partnerships (PPPs) and consumer goods bought on the ‘never never’ have a lot in common. PPPs are a simple and apparently sound idea: get a private company to build infrastructure in your economy and either lease the property back, with annual payments over 20-30 years, to the state or offer the builders concessions to collect tolls or other revenue from consumers of the product. Everything from schools to prisons have been built through PPPs and, in the context of the current downturn, it’s easy to see how they can be sold as a miraculous way for the state to get infrastructure that helps develop and stimulate the economy without exceeding any imposed borrowing limits.

Real costs However, the empirical evidence does not support the perception that private developers can build infrastructure more cheaply and run facilities more efficiently than the state. Firstly, it is difficult to measure costs, value for money and benefits over a, perhaps,

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30-year life span. There is also the reality that a ‘cost plus’ contract, where the builder is paid back the cost of construction plus a set percentage margin, provides the perfect incentive to overrun on costs or to overbuild. Michael O’Leary of Ryanair expressed this view quite succinctly in respect of the new Terminal 2 in Dublin Airport: the bigger and more expensive the terminal is, the more profit the airport company can earn, as they are allowed a fixed percentage of the cost of the building. The flying public gets a wow factor, certainly, but one they will be paying for over the next 20 years.

Risks There is, of course, the argument that the state does not have to borrow upfront to pay for PPPs. The answer is the state does have to borrow, and will have to borrow more and, ultimately, at a more expensive rate. However, the borrowing is ‘off balance sheet’ as the ‘never never’ is more technically known. The EU is positive towards PPPs when they reduce or remove risk to the state. However, in Ireland, the experience has been that risk routinely resides with the state rather than the builder or operator and, even with downside risk removed, we have rarely seen cases where the state get a share of the reward if revenue exceeds expectations.

Skills That said, as much as 40-50% of the total cost of a PPP can be recouped immediately by the state, in terms of PAYE on construction wages, VAT on materials, corporation tax on company profits, etc., so the true cost can, of course, be a lot lower than the headline cost. For our cash-poor government, PPPs are an appealing option if an important piece of state infrastructure is needed in the short term. To be successful, they require very good project management skills, negotiation skills, some lending experience and a good working knowledge of risk – qualities we will need to see in far greater evidence by the state if the taxpayer is to get genuine value for money from the PPP process. ACCA recently conducted international research into the area of PPPs and, among findings highly relevant to the Irish context, was the fact that the accounting treatment prescribed for PPPs is a key determining factor in their use. Read the full report at www2.accaglobal.com/ppp

Aidan Clifford FCCA, advisory services manager, aidan.clifford@accaglobal.com

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Practice

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The view from:

Dublin: Michael Shelley FCCA, audit, advisory and assurance partner, RSM Farrell Grant Sparks Q What lessons have you learned about business? A To thrive, in good times or bad, every business must continuously focus on their clients. While that may sound obvious, it is not always embedded in the day-to-day behaviors of many businesses. You should always – and always want to – invest time with your clients and get to know them, their business and their objectives and challenges in depth. This investment, combined with a genuine willingness on your part to help them, builds a trust and loyalty, which will help you and your business to grow irrespective of what business you’re in. Q What tips would you pass on to others? A You are only as good as your last piece of work, so you’ve got to deliver to a very high standard every time. The difference between success and failure is the passion you bring to your job. That means understanding the client’s objective and working with them to assist them in achieving it. It is a given that the advice needs to be technically accurate. It also needs be presented in a manner that is clear, concise and actionable and with commercially sensible and viable recommendations.

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Q What has been the hardest part in terms of growing the business? A The most difficult part of growing the business is attracting the very best talent available in the market place. All firms have a unique story to tell in promoting themselves to future talent. Competition is always high but, I am delighted to say, we continue to be successful in attracting and retaining the very best people within RSM Farrell Grant Sparks. The RSM international affiliation has certainly helped.

28 ACCA Quality Checked: A very positive experience 31 The view from Ray Cantwell and outsourcing:why it isn’t just about benefits for business

Q Tell us about RSM Farrell Grant Sparks? A RSM International is the sixth largest network of independent accounting firms in the world, with over 700 offices in 90 countries. We are Ireland’s seventh largest audit tax and advisory firm. In Ireland, we have a network of offices across the country with 26 partners and over 230 professional staff. We have a very strong and loyal client base, including many blue-chip multinational companies as well as leading Irish businesses and the entrepreneurs behind them.

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Practice

ACCA Quality Checked: a very positive experience Alice Rae on the benefits of ACCA Quality Checked Many firms are surprised about the consultative nature of an ACCA Quality Checked visit and by the fact that the approach is very much about trying to find ways to enhance a firm’s existing systems rather than suggesting wholesale changes. ACCA Quality Checked is based on five principles designed to enhance the delivery of a firm’s services to its clients. To be awarded ACCA Quality Checked, a firm needs to show it has developed procedures to: • Clearly identify its clients’ needs; • Maintain efficient paper-based or electronic systems; • Provide training and development to keep both partners and staff technically up to date; • Communicate effectively with statutory bodies, the ACCA and other regulators and to keep clients informed of opportunities or obligations of which they may have been unaware; and, • Adhere to statutory and regulatory compliance and ACCA’s Code of Ethics and Conduct.

workload, causing staff to work under unnecessary time pressure, which may lead to ‘fire fighting’ in order to meet deadlines. This may also result in an increased risk of errors occurring and have an adverse effect on client service levels. To avoid this situation, firms need to plan their workflow in advance by using a client list, spreadsheet or practice management software, to help them plan and review the spread of their work to match the availability of resources within their firm.

Common weaknesses

Engagement procedures

The review covers a variety of practice management issues and quality control procedures in all client service areas. Some of most common systems weaknesses identified in practice management, engagement procedures and taxation procedures are the following.

Practice management

* Forward planning Firms do not always carry out effective forward planning or scheduling of their

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* Information and clearance It is very important that firms have procedures in place to obtain all the necessary information required from a prospective new client before accepting the appointment. This includes: confirming the identity of the new client; obtaining professional clearance; and issuing the new client with an engagement letter. Often, all that is required is to devise a simple new client checklist to provide effective control of the sequence of the engagement

process so that all necessary steps are followed. In particular, firms should not accept appointments or issue the engagement letter to the client before obtaining the professional clearance response from the client’s previous advisers and carrying out its new-client due diligence procedures. * Engagement letters Engagement letters reviewed on visits are often out of date and do not cover all relevant services provided by the firm. It is important that firms implement a procedure to regularly review engagement letters and to update them to include all current services provided. Otherwise, disputes may arise with clients over the scope of the appointment. In addition, firms need to monitor and control the return of signed engagement letters to ensure that the client has agreed to the firm’s terms and conditions before work commences.

Accounts preparation

* Obtaining client approval Firms sometimes rely on their clients’ signing their tax returns as approval for the figures included in their unincorporated business accounts and do not obtain separate approval of the

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accounts. As the accounts are prepared on the basis of information and explanations provided by clients, it is important that clients acknowledge their responsibility for the information they have provided the firm and confirm that it is complete by formally approving their year-end accounts. Therefore, approval of all client accounts should be sought from the client and a copy of the signed accounts retained on the client’s file. * Checking disclosures It is best practice to use a disclosure checklist on limited company accounts and to assess whether audit exemption can be claimed by the client. Without strong procedures in this area, accounts may include disclosure errors or inappropriate accounts may be filed with CRO. Although firms often rely on the use of accounting software to ensure the accuracy of the disclosures in limited company accounts, the software will not automatically pick up disclosures that are not generated by the figures in the trial balance. Also, if data is not coded to the account code specified by the software providers, it will not generate the relevant note. * Audit exemption criteria For audit clients, a checklist should be used every year. However, for small incorporated clients that have taken advantage of the audit exemptions

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available, a less rigorous procedure can be used alongside good up-to-date accounting software. For example, a control procedure could be put in place to ensure a disclosure checklist is used in the first year a firm prepares accounts for a newly incorporated company or a new client, and then used routinely every three-to-four years thereafter, unless there are any major changes in legislation or the size, structure or operation of the company. In addition, firms could use a short checklist to confirm that the limited company client meets the eligibility criteria to claim audit exemption and ensure the correct accounts are filed.

Taxation procedures

* Advising clients of their tax liabilities In many cases, firms may explain tax liabilities to clients face to face at a meeting or over the phone without later confirming this in writing with the client. It is best practice to confirm the amounts of tax due and the date of payment in writing to provide the client with a point of reference of their tax liability and the due date of payment. This is particularly relevant if clients incur penalties due to late payment and complain that they were not adequately advised. * Client approval for online filing With the advent of electronic filing of tax returns, some firms do not obtain their client’s signed approval of tax returns submitted online or advise their clients of online filing. It is best

practice to always obtain signed approval of all tax returns before submission to the Revenue, and to advise the client that their return will be filed online. In particular, for VAT and construction industry returns, where the Revenue’s online filing system does not facilitate an approval copy of the return, firms may need to devise a template with a declaration, which the client can sign and approve prior to the electronic filing of the return.

Management accounts

* Including disclaimers and restrictions of use There are various documents prepared by firms, such as projections, management accounts and income references, which may be relied upon by third parties for decision-making purposes. In many cases, firms do not include disclaimers or a restriction of use in such documents. It is best practice to always include a suitable disclaimer to minimise the firm’s exposure to the risk of third parties relying too heavily on this information without knowing the basis of preparation or doing their own financial assessment, and to restrict the use of such documents for management use only or for the use of a specific third party.

Find out more If you would like your firm to benefit from participating in an ACCA Quality Checked review or would like to find out more about the scheme, visit our website at www.accaglobal.com/ members/professionalstandards/ qualitychecked/ or contact us through the e-mail below. Alice Rae is senior practice reviewer, ACCA. Email qualitychecked@ accaglobal.com

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Advertisement

Paul Hogan, AIB Corporate Cash Management, assesses the impact of recent developments in SEPA “SEPA is the single largest change in our payments systems since the introduction of the Euro” states Paul Hogan, Senior Manager in AIB’s Corporate Cash Management team, describing the impact of SEPA on corporate customers. Paul has been helping customers over the last twelve months deal with the changes brought about by SEPA. “A growing number of customers have migration plans in place and are fully aware of what needs to be done. For others this is something they are only starting to consider now. This is perfectly understandable, but companies with large payment volumes in particular need to start considering the impact of SEPA soon.” WHAT IS SEPA? The Single Euro Payments Area (SEPA) is an initiative of the European Banking industry supported by EU governments, the European Commission and the European Central Bank (ECB). Its core objective is to create a cohesive internal market for all electronic euro payments within the EU to promote greater transparency, uniform standards, lower costs and faster payments. WHEN WILL THE CHANGE OCCUR? In February of this year, the EU Parliament adopted a regulation mandating the closure of national euro payment schemes across the EU, in favour of schemes based on SEPA standards. The end date for completion of this part of the Regulation is 1st February, 2014. Paul notes that a binding end date for completion of this initiative is accelerating the need for companies to carry out a SEPA impact analysis across their organisation. This will help to determine the tasks that will be required to maximise the benets of SEPA and minimise disruption.

In Ireland, the traditional 6 digit National Sort Code and 8 digit Account Number, will be replaced by the BIC (SWIFT Bank Identier Code) and IBAN (International Bank Account Number) for electronic payments.

With less than two years to go, the planning and implementation of a SEPA Migration Plan is a reality for all businesses. The duration, scale and complexity of this change will vary from company to company depending on an organisation’s payment and collections structure. HOW CAN AIB HELP YOU? “AIB wants to be your SEPA partner bank and we believe that early engagement on this project will provide signicant benets to your organisation”. “We have dedicated SEPA experts within our Corporate Cash Management Team working on this project in collaboration with our customers. In particular, we are assisting companies who submit electronic payments (e.g. salary payments, creditor payments) or direct debit les, as format changes will be required to meet SEPA standards.”

CONTACT US To assist you in understanding the changes ahead, and to provide you with some practical steps that you can take to ensure a smooth transition, we have developed a ‘Navigating SEPA’ Guide. If you would like to receive a copy of the guide or would like to discuss any aspect of SEPA migration with us, please contact Paul Hogan or Niall McCarthy by e-mail to sepa@aib.ie or by phone at 00353 1 6417790.

AIB Customer Treasury Services is a registered business name of Allied Irish Banks, p.l.c. Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland. Allied Irish Banks, p.l.c. Registered Oƥce: Bankcentre, Ballsbridge,Dublin 4, Ireland. Registered in Ireland, No. 24173.

AIB 192x260.indd 1 AB_Apr_2012.indd 30

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Corporate

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The view from:

Galway: Ray Cantwell FCCA, director of finance, Medtronic Q What lessons have you learned about business? A Be strategic in your outlook. Get a thorough understanding of your business and actively participate in the management of it. Do not be afraid to take on projects that are outside your comfort zone, embrace change. This experience will help you to develop both as a professional and as a person. Do not lose sight of the people in your organisation. Surround yourself with the best and learn together. Q What tips would you pass on to others? A We are all challenged in doing more work with less resources. Use lean and Six Sigma techniques to limit the amount of manual intervention required in your accounting processes. These tools will help you to deliver standardised work practices, eliminate wasteful activities and free up critical resources to do the work that is really important and add value to your business. Q What do you see as your key challenge for the year ahead? A I am responsible for the Galway plant but also plants in Italy, Switzerland, the US and Mexico. This obviously brings a lot of complexity to my role. As a result, my

biggest challenge and focus is ensuring that the combined financial results of these plants meet the targets set by my key business stakeholders. The net impact of the targets is to reduce cost and improve efficiency so as to increase our competitiveness in the current economic climate.

27 The view from Michael Shelley and ACCA Quality Checked 32 Land of Opportunity – why diversity isn’t just about benefits for business

Q Tell us about Medtronic? A Medtronic is the global leader in medical technology. Medtronic develops and manufactures a wide range of products and therapies with emphasis on providing a complete continuum of care to diagnose, prevent and monitor chronic conditions. Each year, Medtronic therapies help more than 7m people. The company was founded in 1949 in Minnesota by Earl E. Bakken and Palmer J. Hermundslie and, today, employs over 40,000 people worldwide with revenues in excess of $16bn. Medtronic’s Galway site currently employs over 2,000 people and is a centre of excellence for the development and manufacture of a number of the company’s key medical technologies for the treatment and management of cardiovascular and cardiac rhythm diseases. Over 100 employees are dedicated to research and development.

11:35:24 AB_Apr_2012.indd 31

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Corporate

Land of opportunity Outsourcing isn’t just about benefits for business. For career-driven professionals, the fastdeveloping sector can offer a big break, says Outsource magazine editor Jamie Liddell That the global business environment is in a state of transition, and that outsourcing is a major contributing factor to that transition, should not be a surprise to anyone. What may be less obvious is that outsourcing itself is undergoing enormous change. A perfect storm is brewing for organisations and professionals in every corner of a sector which is swiftly expanding and changing, due to the confluence of accelerating trends. Those trends encompass the proliferation of new technologies, the evolution of disaggregated organisations and the emergence of new sourcing destinations. They also include the development of unexpected capabilities in verticals and processes, better understanding among practitioners, greater sophistication on the part of providers, the rapid rise of new and potentially disruptive pricing models, and a snowballing quantity of data and quality of analysis.

Blistering progress The rate at which outsourcing’s complexity and sophistication is advancing is phenomenal, as is the pace with which outsourcing is breaking new ground in terms of functions. The drivers are numerous but at the fore stand increased technological capability and suppliers’ need for differentiation, competitive advantage and continued growth in an evermore crowded market. Having proved itself in the fields of IT and finance and accounting (F&A), a mature and sophisticated outsourcing model is now being applied to almost every aspect of business. Key to this expansion is a growing understanding of what outsourcing is, and the benefits it can bring. Outsourcing has established itself as a viable model and been embraced by

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some of the world’s largest and most successful companies. It now has a seat at the table at the great organisational feast, and those in charge of organisational strategy can consider implementing it in almost every corner of their fiefdoms, from customer service and legal, through facilities and fleet, to recruitment, procurement and marketing. Whether or not they do so, of course, depends on a welter of factors including each organisation’s core business – its ‘what we do’ – but the

comparatively short space of time. An understanding has developed that it needs to be populated and driven as such by professionals dedicated to their tasks rather than dilettantes, however capable. This requirement for specific knowledge and skills has given rise to the evolution of outsourcing provision as a genuine profession. The extremely valuable career opportunities now on offer in the sector have been one of the most noteworthy developments in the space over the last few years. There

THE OUTSOURCING INDUSTRY IS EATING INTO THE TALENT POOLS AVAILABLE TO A HOST OF OTHER ACTIVITIES AND INDUSTRIES opportunity is undoubtedly there. It may be a case of horses for courses, but organisations considering the outsourcing route can at least be reassured that the horses in question are tried and tested – and in many cases thoroughbred champions. Ensuring that the right jockeys are in the saddle is clearly crucial. The increasing complexity of the outsourcing model, the rapid change visible across the space, means that the role of the dedicated outsourcing professional has ever greater prominence. The basics of outsourcing may be simple, but the intricacies of, for example, carrying out a transformation, understanding the challenges involved, appreciating the relative strengths of the different solutions (and providers) available are unlikely to be grasped immediately by the layperson – or indeed by a seasoned professional with years of experience in their function of choice. Outsourcing has grown into a multibillion-dollar industry in a

has also been a proliferation of roles on the periphery of outsourcing, or dealing with specific aspects of it, which require significant expertise and may be considered to sit within the category of outsourcing professional. A further development has been the emergence of a vast cohort of sourcing advisory organisations – from oneperson-bands to some of the world’s largest consultancies – providing guidance on all aspects of the outsourcing process.

Greedy for talent These developments have contributed to one of outsourcing’s biggest impacts on the business world at large (and the finance community in particular, given that finance has been at the forefront of the outsourcing revolution): an intensification of the war for talent, as the various participants struggle to recruit key enabling professionals. As a result of my relatively privileged perspective I interview figures from right across the outsourcing space.

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Despite the ostensible and often very marked differences in their roles, what many of my interviewees – from group chief procurement officers to heads of shared services to IT directors – have in common, is that they consider the battle for talent one of their primary challenges now and going forward. The compensation, incentives and career progression on offer within the industry are increasingly attractive, and the effort going into attracting the best people is becoming more intense. The outsourcing industry is eating into the talent pools available to a host of other activities and industries – and so ramping up the ongoing talent wars in those industries too. Potential hires can see a dynamic, rapidly expanding space and the potential for rapid advancement which simply might not exist in more traditional areas of business. This is particularly the case for areas more recently coming into the outsourcing field of play, such as the legal industry, where long-standing career progression paths are being seriously disrupted (frequently to the great benefit of more proactive legal professionals) by the rise of legal process outsourcing. And, of course, thanks to the maelstrom of disruptive forces

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highlighted at the beginning of this article, once within the outsourcing space, the opportunities for rapid advancement (and entrepreneurial success outside the confines of organisations in the space) abound more than ever.

Personal advancement What this all means is that the evolution and proliferation of the outsourcing model isn’t just exciting for organisations – it’s a potentially thrilling development for individuals too. Professionals with the right skills and the appropriate mindset now have

a whole new arena in which they can ply their trade and flourish. For finance professionals in particular, the huge array of F&Afocused outsourcing suppliers and advisers provide career opportunities aplenty, in fields which simply didn’t exist just a few years ago. It might require taking a step into the comparative unknown, especially when set against what can often be viewed as relatively conservative professions and organisations, but the outsourcing space can now genuinely be a land of opportunity for those professionals willing to take that step.

*OUTSOURCE MAGAZINE AND ACCA

This is the first of a quarterly series of articles from Outsource magazine, a leading channel for strategy and thought leadership. ACCA has formed a relationship with the publication with the aim of promoting its outsourcing, shared services and finance transformation research. Editorial content will be shared and marketing support provided. ‘I’m delighted to be able to bring ACCA’s insights and research findings to the Outsource audience,’ says editor Jamie Liddell. www.outsourcemagazine.co.uk www.accaglobal.com/transformation

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Technical

Technically speaking [

ACCA’s Aidan Clifford rounds up some of the changes Irish accountants should be aware of

IN THIS ARTICLE: • • •

• • • • •

01 Signing of audit reports – confirmation of the wording to use. 02 Anti-money laundering core guidance issued by Central Bank. 03 ACCA representing members on reducing the administrative burden for business. 04 New publication for retail intermediaries. 05 Consultation paper issued on UCITS exchange-traded funds. 06 Changes needed for engagement letters for ‘White Collar Crime’ Act. 07 Financial services ombudsman publishes bi-annual report. 08 Ethical case-study resource available to members.

01 AUDITOR REPORTS

Statutory Instrument No 220 of 2010 – the European Communities (Statutory Audits) (Directive 2006/43/ EC) Regulations, 2010 (‘SI 220’) – introduced requirements for the signing of statutory audit reports (Regulation 57) as follows: Joe Bloggs (being the name of the responsible individual) For and on behalf of: Joe Bloggs & Co. (being the name of the audit firm) This required format for signing the statutory audit report applies to audit reports on financial years beginning on or after 20 May 2010. Some questions have been raised as to the appropriate format for signing other reports required from the auditor

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by company law, for example, the auditor’s report on abridged accounts in accordance with Section 18 of the Companies (Amendment) Act 1986. It should be noted that Regulation 57 of SI 220 applies only to the signing of the statutory audit report required by Section 193 of the Companies Act 1990. Its requirements are not extended to the ‘other auditor reports’ required of auditors. The legislation, with regard to these ‘other auditor reports’, is silent on signing requirements. Practice, until the coming into effect of SI 220, has been to use the same signature (i.e., of the firm) for these reports as was used for statutory audit reports. Companies Registration Office (CRO) has confirmed that they will accept either: • A signature which is consistent with the requirements of Regulation 57 of SI 220; or, • The signature of the audit firm, in keeping with past practice.

02 ANTI-MONEY LAUNDERING

The financial services industry has published guidelines on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. The guidelines are structured in two parts. Part one contains core guidance, which provides generic guidance that is applicable to all financial services designated persons. It is intended that part two will set down additional supplemental guidelines for specific sectors. Any sector guidelines are incomplete on their own and must be read in conjunction with the core guidelines. See www.centralbank.ie

Aidan Clifford FCCA, advisory services manager, aidan.clifford@accaglobal.com

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03 REPRESENTING MEMBERS

ACCA made a presentation to the high level group on business regulation (HLGBR), a committee chaired by the minister for small business John Perry. The presentation was on suggestions for reducing the administrative burden for business. ACCA concentrated on three points of central interest to accountants and auditors: audit exemption limits; making tax easier to pay (and not just easier to collect); and comparisons with what is done in Northern Ireland. The minister expressed his willingness to bring forward to government the suggestions made and, in relation to audit exemption, there was general support for the removal of the bar on companies with a later annual return, membership of a group and dormant subsidiaries being allowed claim audit exemption.

04 INTERMEDIARY TIMES

The Central Bank plans to publish a newsletter three times a year aimed at retail intermediaries and designed to highlight topics of interest, new items on the Central Bank website and regulatory issues that retail intermediary firms need to be aware of. It is hoped that the newsletter will improve communications with the industry and assist firms in improving their standards of compliance. The first newsletter included details of a regional road show for intermediaries, details on the annual return, insurance requirements and the new consumer

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protection code. See www.centralbank.ie for further details.

05 UCITS PAPER

On 30 January 2012, the European Securities and Markets Authority (ESMA) published a consultation paper setting out future guidelines on UCITS exchange-traded funds (UCITS ETFs) and other UCITS-related issues. The proposals cover both synthetic and physical UCITS ETFs and detail the obligations to come for UCITS ETFs, index-tracking UCITS, efficient portfolio management techniques, total return swaps and strategy indices for UCITS. Further details and comments on the consultation paper are at www.esma.europa.eu

06 REPORTING DUTIES

Section 19 of Criminal Justice Act 2011 imposes another reporting requirement for accountants and any ‘person’ to contend with and Section 20 provides for protection for employees from penalisation for disclosing information. The Act also has a number of other provisions in relation to the conduct of Garda investigations and other related matters. In respect of the reporting requirements under Section 19, the list of matters that fall to be reported is extensive and includes: offences relating to banking; investment of funds and other financial activities; company law offences; money-laundering and terrorist offences; theft and fraud

offences; bribery and corruption offences; and consumer-protection offences. A detailed guidance document will be issued by CCABI shortly. Members, who have not yet done so, should add in an additional reporting obligation paragraph to their engagement letters on all client as follows: ‘Under the Criminal Justice Act, 2011, we also have a duty to report certain offences set out in the schedules to the Act to an Garda Siochana.’

07 OMBUDSMAN REVIEW

The financial services ombudsman published his office’s bi-annual review (July to December 2011) on 16 February, (see www. financialombudsman.ie). The review shows that almost 7,300 complaints against financial institutions were received in 2011, with 3,500 new complaints received in the last six months of 2011. Interestingly, 75% of all complaints referred to the ombudsman’s office are not upheld, with 14% partially upheld and the balance fully upheld, the majority of which refer to the banking sector.

08 CASE STUDIES RESOURCE

CCAB has released ethical case studies for professional accountants working in public practice, as non-executive directors, and in the not-for-profit sector: www.ccab-i.ie/News.html While written by CCAB in the UK (of which ACCA is a constituent member) the case studies are relevant to Ireland as well.

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Technical

Northern Ireland notes Engagement letters You can find an update and details of the revised ACCA engagement letters at www2.accaglobal.com/technical_ accapracticetools, including how to obtain them. The letters cover client management, terms and conditions, audit, non-audit, taxation and other services, for example, management accounts preparation, forecasts and payroll services. They also include proforma policies.

Employers and agents HM Revenue & Customs’s Employer and Agent Strategy team provides informal highlights as a result of listening to employer feedback and working in partnership with stakeholders. Two recent updates are the requirements where no annual return is due and the new working from home rate. Employers who did not have to complete a P11 deductions working sheet, or equivalent, during the 2011–12 tax year do not need to file an employer annual return. But employers must inform HMRC if they have no return to make sure that HMRC records are updated and any unnecessary reminders and penalty notices are not issued. HMRC prefers employers to inform it by email (www.hmrc.gov.uk/paye/payroll/ year-end/annual-return.htm) but states that last year it could not process a significant number of forms because it could not link the reference number on the form with the correct employer record. The update on new working from home rates highlights that employers can reimburse employees who work regularly from home for the additional household expenses they incur, without incurring an extra tax or national insurance contribution charge. The additional expenses that employers may reimburse are those connected with the day-to-day running of the employee’s

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home. This might include additional costs of heating and lighting the work area, or additional insurance costs. HMRC states: ‘Because it might be difficult for employers to calculate the exact additional costs, we have previously published a guideline rate that can be paid without having to justify the amount paid or the employee having to keep any records to demonstrate the additional expenditure. The guideline rate is not a maximum amount and greater amounts can be paid where there is evidence to justify them.’ From 6 April 2012 the guideline rate employers can pay employees who work regularly from home increases from £3 to £4 per week.

Smartphones HMRC has updated its view on the interpretation of section 319 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which defines a mobile phone for benefits in kind purposes. Section 319 provides exemption from income tax where an employee or company director is provided with a mobile phone, without transfer of ownership, by their employer. Smartphones were previously excluded from the definition of mobile phones as HMRC viewed them as mini-computers, rather than mobile phones. HMRC has now changed its view and smartphones are now included within the definition of a mobile phone. HMRC’s revised view opens the door for: * Employers to submit revised forms P11D/P11D(b) for 2007/08 onwards. * Employees/directors to submit revised self-assessment tax returns and/or claim a repayment of tax for 2007–08 onwards. This is a welcome announcement from HMRC, not only in terms of content but also in terms of its timing, ie just prior to the start of ‘P11D season’.

Seed investment The Seed Enterprise Investment Scheme (SEIS) has been described as a specialist tool aimed at helping a small group of investors and entrepreneurs develop businesses that might otherwise never gain funding. It can be used by companies seeking to raise finance which have fewer than 25 full-time employees, excluding directors, at the time when the relevant shares are issued. The scheme is not permanent, but relates to shares issued from 6 April 2012 until 5 April 2017. It is only available to individual investors in very small companies, and is not available to investors in partnerships or limited liability partnerships. The investment limit for a qualifying individual in a fiscal year is £100,000. However, they cannot claim tax relief until the company has spent at least 70% of the money invested. The individual must not be an employee of the company from the date of incorporation of the company until at least three years following the issue of the shares. A director is not an employee for this purpose. For more about the scheme and a short guide, go to www2.accaglobal.com/tax_cgt

Interest on PPI HMRC has stated that interest paid as part of a payment protection insurance compensation payment will be taxable. It has commented that banks and building societies are not obliged to deduct tax because the interest is not interest on a deposit. All other companies (including non-bank members of banking groups) have an obligation to deduct tax from interest when it is paid. The interest payments will need to be declared. Glenn Collins, head of technical advisory, ACCA UK

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Tax diary APRIL 2012 General 6 Mandatory reporting Where applicable, quarterly return of client lists for period to 31 March 2012. 14 PAYE P30 monthly return and payment for March 2012. (ROS extension to 23 April 2012). 14 PAYE P30 return and payment for calendar quarter ended 31 March 2012. (ROS extension to 23 April 2012). 14 PSWT F30 monthly return and payment for March 2012. (ROS extension to 23 April 2012). Companies 14 Dividend Withholding Tax Return and payment of DWT for distributions in March 2012. 21 Corporation Tax Return and final payment for accounting periods ended 31 July 2011. (ROS extension to 23 April).

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21 Corporation Tax Preliminary tax for accounting periods ending 31 May 2012. (ROS extension to 23 April). 21 Corporation Tax First instalment of preliminary tax for ‘large’ companies for accounting periods ending 31 October 2012. (ROS extension to 23 April). 30 Form 46G – Return of Third Party Information Form 46G for accounting periods ended 31 July 2011.

MAY 2012 General 1 Carbon taxes Effective date for Budget 2012 increases in carbon tax on home heating oil. 1 VAT Due date for extension of VAT reverse charge mechanism to supplies of construction services between connected persons. 14 PAYE P30 monthly return and payment for April 2012. (ROS extension to 23 May 2012).

14 PSWT F30 monthly return and payment for April 2012. (ROS extension to 23 May 2012).

21 Corporation Tax Preliminary tax for accounting periods ending 30 June 2012. (ROS extension to 23 May).

19 VAT Bi-monthly VAT3 return and payment for the period March/ April 2012 (ROS extension to 23 May 2012).

21 Corporation Tax First instalment of preliminary tax for ‘large’ companies for accounting periods ending 30 November 2012. (ROS extension to 23 May).

19 VAT Four-monthly VAT3 return and payment for the period January-April 2012 (ROS extension to 23 May 2012). 31 NPPR charge Payment of €200 NPPR charge (Irish residential properties that are not principal private residences) for 2012. According to www. nppr.ie the additional one month period of grace is available in 2012. Companies 14 Dividend Withholding Tax Return and payment of DWT for distributions in April 2012. 21 Corporation Tax Return and final payment for accounting periods ended 31 August 2011. (ROS extension to 23 May).

31 Form 46G – Return of Third Party Information Form 46G for accounting periods ended 31 August 2011.

Information supplied by the Irish Tax Institute. Disclaimer: This is a calendar of the main tax compliance deadlines but is not intended to be an exhaustive list. While every effort has been made to ensure the accuracy of this information, the Irish Tax Institute does not accept any responsibility for loss or damage occasioned by any person acting, or refraining from acting, as a result of this material.

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Technical

Tax changes 2012 – a round-up In this article: 01 Committee-stage amendments made to Finance Bill 2012. 02 Expert group considers proposals for a property tax. 03 Changes proposed to tax relief on charitable donations.

than limiting the scope to countries with which Ireland has a double-taxation agreement. The committee-stage proposals also provide that the ‘old’ SARP will not be terminated immediately but relief for those qualifying under the previous regime will be extended as follows:

01 Finance Bill 2012 updates

Finance Bill 2012 continued its passage through the houses of the Oireachtas throughout February and March and, at time of writing, a number of amendments had been made by the select sub-committee on finance, with the Bill expected to be signed into law by the president in early April. The main changes are summarised here: (a) SARP The new Special Assignee Relief Programme (SARP) incentive, intended to encourage employers to relocate key staff to their Irish operations, had included a 30-day limit on incidental work performed outside of Ireland. The committee-stage amendments have lifted this 30-day restriction, with the effect that work performed outside Ireland, as long as it is incidental to the duties performed in Ireland, will not affect the employee’s entitlement to relief under the SARP. An amendment has also been proposed to the definition of ‘relevant employer’ for the purposes of the relief, to include companies resident in countries with which Ireland has a tax information exchange agreement, rather

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• •

Qualifying for first time in 2009 – extension to 2012 and 2013. Qualifying for first time in 2010 – extension to 2012, 2013 and 2014. Qualifying for first time in 2011 – extension to 2012, 2013, 2014 and 2015.

(b) FED Businesses that are in the process of expanding or consolidating their overseas markets will be pleased to note a proposed change to the foreign earnings deduction (FED) incentive for assignments to the BRICS countries. The 10-day minimum requirement, originally proposed in the Bill for qualifying trips abroad, is being reduced to four days. This means that a day abroad will count towards satisfying the 60-day annual minimum requirement if it is one of at least four consecutive days spent abroad on performing the duties of the employment. (c) CGT retirement relief The capital gains tax (CGT) retirement relief provisions in the Bill have been amended to clarify that individuals aged 66 or over have until 31 December 2013 to avail of retirement relief under the

pre-Finance Bill 2012 regime. Disposals or transfers after that date will be subject to the new caps – €3m for intra-family transfers and €500,000 for transfers outside the family. (d) CGT incentive The minister for finance proposed a number of amendments to the new CGT incentive, and those amendments have made their way through the committee stage. The changes are as follows: • It has been clarified that the relief applies to property located in Ireland; • Properties acquired from a nonrelative must be acquired at market value; • Properties acquired from a relative must be acquired for a consideration of not less than 75% of market value; and, • Any income, profits or gains derived from the property during the seven-year holding period are subject to either income tax or corporation tax in Ireland. (e) R&D tax credit The Finance Bill introduced an option for companies to surrender a portion of their R&D tax credit to employees involved in the R&D process (‘key employees’). It is proposed to amend this surrender option to ensure that, where an employee is a key employee in the year of the R&D tax credit claim by the company, but is no longer a key employee (but remains an employee) in the subsequent year, the surrender

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option will still be available for that subsequent year. It is also proposed to limit any clawback for unsuccessful R&D tax credit claims to the amount that ultimately proves unsuccessful, rather than the full amount of the claim. (See pages 44-46 for more on the R&D tax credit). (f) Anti-avoidance – Section 811 Ireland’s general anti-avoidance rule is contained in Section 811 TCA 1997. The committee-stage amendments to the Finance Bill insert a new sub-section into section 811, to provide that, where the opinion of Revenue that a transaction is a tax avoidance transaction becomes final and conclusive, then any time limits on the making or amending of assessments or on the liability of a person to pay the tax shall not apply. The amendment is proposed to apply to assessments made on or after 28 February 2012.

03 Charitable donations The minister for finance has proposed a number of changes to the system of tax relief for charitable donations. A public consultation has been launched on the proposed changes, which are scheduled to take effect from 1 January 2013. The minister’s proposals are as follows: 1. Where donations are made by individuals, the tax relief in all cases would be repaid to the charity. Self-assessed taxpayers would no longer be able to claim a tax deduction for donations. 2. A blended rate of relief (around 30%)

would apply to all taxpayers regardless of their marginal tax rate. 3. The charitable donations scheme would be removed from the scope of the high-earners’ restriction. 4. An annual donation limit of €1m per individual would be introduced. The closing date for receipt of submissions as part of the consultation process is 11 May 2012. Cora O’Brien is director of technical services, Irish Taxation Institute. Email cobrien@taxinstitute.ie

02 Property tax At the end of January, an interdepartmental expert group was established to consider various proposals for an equitable property tax. The property tax will replace the €100 household charge in 2013/2014 and the expert group was set up to consider the design, scope and implementation of the tax. The group is due to report to the minister for the environment, community and local government by the end of April, and proposals will be brought to government thereafter.

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Duties of care Brendan Howard on the responsibilities a practitioner has to a liquidator appointed to their audit client N.B. An auditor ceases to hold the position of auditor on the appointment of a liquidator, but, for simplicity, is referred to as the auditor in this article. The liquidator is entitled to original information that is in the possession of the auditor, that was created by the client or that was created by the auditor to assist the client in preparing the financial statements or to comply with S202 of the Companies Act 1990. The liquidator is not entitled to copies of information where the client has the original. The liquidator is also not entitled to copies of audit tests nor can the liquidator demand any analysis or further information or explanation beyond what the auditor has prepared for his or her audit. An auditor in possession of any books and records of the company in liquidation must return all of these to the liquidator. The definition of books and records is per S202 of the Companies Act 1990

and is quite broad. The existence of unpaid fees is not relevant and no lien can be exercised over books and records of a company.

Books and records The definition of books and records includes anything that ‘will enable the annual accounts of the company to be readily and properly audited’, so it is likely to include lead schedules and control accounts. Where originals of all documents were returned to the client and all additional material prepared by the auditor was presented to the client with just copies retained by the auditor, then the auditor will not be required to provide additional copies but may volunteer to do so to assist their former

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client in proving that they acted honestly and responsibly. An auditor would be entitled to charge a copying cost for any additional copies of the books and records. An auditor is not obliged to provide information and explanations in respect of any documents provided, although, again, they may volunteer to do so to assist their former client in proving that they acted honestly and responsibly, and may charge for the service. An auditor is not obliged to ‘further analyse’ or break down a figure, or justify the accounting treatment of any figure. This is particularly an issue when a liquidator is looking for information on, for example, a director’s loan account. In the case of a director’s loan, the auditor must provide a copy of the nominal ledger to the liquidator, showing the breakdown of the account but, if this information is already in the possession of the

client and only copies exist on the audit file, then the liquidator is not entitled to the information from the auditor. Sections 245 and 282 of the 1963 Act does give the power to the liquidator to summon to the High Court any person ‘ capable of giving information’ a power unlikely to be used against an auditor who is cooperating with the liquidator. At no time is the auditor obliged to prepare fresh documentation or analysis for the liquidator.

Record trail Books and records must be kept for six years, although, without the permission of the client, a practitioner may not destroy any records and, even with permission, may not destroy anything for at least six years. A liquidator may

demand all six years’ worth of records. However, as set out more fully in SIP S2B A Liquidator’s Investigation into the Affairs of an Insolvent Company, the liquidator’s responsibility usually extends to investigating the last two years trading and the identification of any fraudulent preference, etc. during this period. Any investigation beyond this, which is not in the best interests of creditors, generally may be unnecessary and may simply be burning creditors’ money – it may be appropriate in a financial institution where there are long-term products sold but, generally, it may not be appropriate in a general trading company. An auditor who is asked for excessive amounts of information outside the scope of the liquidators dutie’s would be entitled to raise the matter at a creditors’ meeting and make a complaint to the liquidator’s professional body, if they are a member

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of one. However, if the auditor has books and records in their possession they must return them to the liquidator, although they would be allowed to charge for retrieval of anything older than six years. Any papers younger than six years are strictly the property of the liquidator and may not be charged for, although liquidators will often cover a reasonable cost for retrieval and photocopying.

Fraud and errors Fraud or errors are often discovered in the liquidation process. The auditor is advised not to comment on any matters brought to their attention, as admitting to any error could invalidate the auditor’s insurance. The auditor is also

not obliged to perform the investigation work that the liquidator is statutorily obliged to perform themselves. The liquidator may engage the auditor to assist them and, often, the auditors will open their audit file to the liquidator on signing of a ‘hold harmless’ letter by the liquidator and will charge a modest fee to provide information and explanations. A liquidator would not be entitled to copies of any indictable offence reports by an auditor or even confirmation of a report being made. An auditor should not voluntarily share information regarding indictable offence reporting with the liquidator without the permission of the directors. A liquidator would also not be entitled to any detail of anti-money laundering reports made by the director: it would be an offence to discuss any of these matters with the liquidator without the direction of the court or Garda.

Audit performance Liquidators have no direct supervisory role over the work of an auditor. The liquidator must comply with the requirements in the Criminal Justice

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(Money Laundering & Terrorist Financing) Act 2010 and the Criminal Justice Act 2011 and, possibly, the Criminal Justice (Theft and Fraud Offences) Act 2001 and may also voluntarily report a discovered company law breaches by the auditor to ODCE or include matters in respect of the auditor in their Section 56 Report. If the liquidator is unhappy with the performance of the audit, they should make a complaint to the auditor’s professional body and, if

unsatisfied with the outcome of this complaint, may refer the complaint to IAASA. Liquidators would need to be mindful that an audit is for a specific purpose and would not provide the type of assurance a liquidator would need. If the liquidator discovers that an auditor committed an indictable offence (the only one that comes to mind is the non-reporting by the auditor of an indictable offence committed by the directors) then the liquidator may report this matter to the ODCE. However, liquidators would be advised to investigate the matter carefully, as there may be no legal protection for liquidators making voluntary indictable offence reports to ODCE. Directors’ loans, in particular, have a number of exemptions and very specific criteria attaching, which liquidators may not be familiar with and which render the loan not reportable. For example, the mere existence of a loan in excess of 10% does not make it reportable, and the 10% calculation is based on the financial statements of the preceding year, not the current year, and the ‘knowing and having reasonable cause to believe’ criteria must be met, in certain circumstances, but there are other criteria as well.

Liquidator queries The auditor has no duty to assist the liquidator with any other matters. Liquidators have, on occasion, asked for information ranging from directors’ home addresses to copies of

abridged accounts: others have asked for details of the location of movable assets or confirmation of who has title to certain business assets, or if the auditor inspected certain assets during their audit or confirmed certain liabilities. None of these meet the definition of books and records – the auditor may assist the liquidator if they so decide but they are not under compulsion to do so unless directed by a judge to do so. The duty here is for the directors to assist the liquidator, not the auditor. The auditor would need to also keep the requirements of the data protection legislation in mind: they may be barred from sharing certain information. Queries on financial statement disclosures or disclosure omissions are also not for the auditor to answer: the financial statements are the responsibility of the directors irrespective of whether the auditor has opined on the financial statements. Liquidators are often keen to see copies of an auditor’s report under ISA 260 or 265, commonly referred to as ‘management letters’ or ‘letters of weakness’. These reports do not form part of the books and records and, without the permission of the directors or the direction of the courts, the auditor would not be obliged to share this information with the liquidator. Brendan Howard FCCA is director of Mercia Ireland. Email brendan.howard@merciaireland.com

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Technical The investment entities project – an update Alan Farrell reports on a joint effort between the IASB and the FASB to converge financial reporting by investment entities

In August 2011, the IASB published the exposure draft Investment Entities, which proposes an exception to the consolidation principle in IFRS 10 Consolidated Financial Statements for a particular class of entities – investment entities. IASB/FASB have held a number of public roundtable meetings to elicit stakeholder feedback on the proposals, including, most recently, one held on 29 February 2012 in London.

What’s the issue? For investment entities, one of the key differences between US GAAP and IFRS is in the area of consolidations. Under IFRS, consolidation is determined by the concept of control. So, in a masterfeeder structure, a feeder fund might be obligated to consolidate the master. And, with a fund-of-funds, the investor fund might be obligated to consolidate the investee fund. Under US GAAP, consolidation is rare. A master-feeder presentation or a fund-of-funds presentation is used.

specific rules and guidelines for investment funds, IFRS, of course, does not. The investment entities project is viewed by many as an important step by the IASB in developing industry-specific rules for investment funds.

What are the key proposals in the exposure draft? •

The proposals would require an investment entity: • To measure its investments in controlled entities at fair value through profit or loss in accordance with IFRS 9 Financial Instruments; and, • To provide additional disclosures to enable users of its financial statements to evaluate the nature and financial effects of its investment activities. Note that fair value measurement here is a requirement, not an option. Four issues were considered at the round-table event. The most commented-upon concerned the criteria to be an investment entity.

Is it a big deal?

What constitutes an ‘investment entity’?

By the very nature of investment funds, users of their financial statements typically want to see investments measured at fair value. Consolidation in a master-feeder or a fund-of-funds structure is considered by many to be a lot more work and expense in order to produce less meaningful information for the end user. Furthermore, while US GAAP and associated guidance deliver industry-

An investment entity is an entity that meets all of the following criteria: • The entity’s only substantive activities are investing in multiple investments for capital appreciation, investment income or both; • The entity makes an explicit commitment to its investors to this effect; • Ownership in the entity is represented by units of

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investments, such as shares or partnership interests, to which proportionate shares of net assets are attributed; The funds of the entity’s investors are pooled so that the investors can benefit from professional investment management. The entity has investors that are unrelated to the parent (if any), and, in aggregate, hold a significant ownership interest in the entity; Substantially all of the investments of the entity are managed, and their performance is evaluated, on a fair value basis; and, The entity provides financial information about its investment activities to its investors.

Contentious issues The roundtable considered the possible abuse of the exemption: an investment entity could be inserted into a larger corporate structure in order to achieve off-balance sheet accounting for some assets, while the parent could own almost all of the investment entity. The exposure draft, therefore, proposes to require an investment entity to have unrelated investors who collectively hold significant ownership interests in the entity. However, this would preclude some true investment funds from measuring investees at fair value. A funds industry representative made the point that, perhaps, the investment entity need not necessarily have multiple investors but must only be available to multiple investors.

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Any other business? A number of delegates raised the issue of leveraged portfolios. It was believed, by some, that funds using leverage (to an as-yet unspecified extent) should be required to consolidate controlled investee holdings. In other words, an exception to the exception.

Qualification While the situation regarding qualification as an investment entity (or not) might be relatively clear-cut for many hedge funds and mutual funds, matters become somewhat more challenging when assessing some private equity funds. Regarding real estate funds, it appears, albeit at this early stage, that many will not qualify as an investment entity. Delegates expressed the view that the illustrative examples accompanying the exposure draft, which were supposed to assist in determining if a fund is an investment entity, were simplistic and unhelpful: there is a danger that they will be misread and applied inappropriately.

Effective date The IASB hopes to finalise the standard by the end of 2012 and for it to be effective from the same date as IFRS 10, that is, applicable to annual reporting periods beginning on or after 1 January 2013. The jury is out.

Alan Farrell is MD of Quickstep Consulting. Email alan@quickstep.ie

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Technical

R&D tax credits – developing the opportunity Michael Sheehan and Adrian Walker highlight some welcome developments in Finance Bill 2012 Ireland’s research and development (R&D) tax credit system is considered one of the more attractive schemes available to reward science and technology development. In a world where multinationals are becoming more mobile with R&D projects, how Ireland compares with other jurisdictions in supports provided has become increasingly important. The Department of Finance has a track record of continuously developing legislation around the area to keep Ireland in the game and Finance Bill 2012 is no exception, and all the more impressive given the fiscal constraints that exist today. Although international mobility is an important consideration in the legislation, its changes have been predominantly targeted at SMEs.

The benefit to Ireland The R&D tax credit scheme has been an aspect of corporation tax that has consistently been modified and improved with almost every Budget in recent years. The scheme is recognised as being a vital tool for helping Ireland create and retain a highly-skilled workforce not only for the engineers, software developers and scientists undertaking the development, but for those manufacturing the products and providing the services of the future. The scheme appeals to multinationals choosing the next location for a project or research centre, to indigenous start-ups with innovative technology ideas and to well-established companies maintaining their competitive edge.

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Tax definition of R&D

The benefit to the company

The scheme has financial requirements, often referred to as ‘the accountancy test’ and technical criteria, ‘the science test’, for companies to meet. The science test is often broader than many people’s initial expectations as to what constitutes R&D and is not restricted to ground-breaking research. The development process must be systematic, investigative or experimental in nature and R&D credits can be claimed for projects in various stages of technology development, from basic research at a theoretical level with no particular application or product in mind, through to applied research where there is an intended purpose or practical application, to experimental developments that build on and improve existing products, devices, processes, materials or systems. Ultimately, the company must be attempting to make an improvement or ‘advancement’ that would be recognised as such within their industry and has to be overcoming technological or scientific challenges or ‘uncertainties’ in order to do so. Companies are required to have contemporaneous documentation in support of the claim.

Once a project is assessed as meeting the ‘science test’, qualifying expenditure attracts a 25% credit on top of the usual deduction and capital allowances. Unfortunately, only expenditure which is incremental to the R&D expenditure incurred in 2003 can be claimed and any grant income for the projects must also be deducted. It is worth noting that, currently, a wide range of expenditure associated with an R&D project can be claimed, including salaries, materials and consumables used in the R&D process, sub-contracted R&D (subject to some limits) to unconnected third parties and some company overheads, such as rent, where appropriate.

Case study 1 A company making precision cutting tools achieved a significant reduction in cutting noise and vibration of an existing product. Typically vibration, and hence noise, would be reduced or controlled by adding mass in the moving parts giving greater stiffness. However, in this case, the challenge was to substantially increase the overall stiffness of the cutting blade while actually using a thinner blade due to the package constraints. The costs of design, prototyping and in-house testing were successfully included in the claim. This example demonstrates that what many companies might consider as commonplace development projects can often have very challenging aspects that cannot be solved with existing knowledge and understanding. These can qualify for R&D tax credits.

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Case study 2 Another company claimed credits in respect of a number of IT projects developing new software interfaces, database management routines and file-control software. In 2003, the company spent €245,000 on qualifying R&D. The R&D tax credit claim is outlined in the table below:

How R&D tax credits are utilised Credits can be used in a number of ways. Primarily, they are used to reduce a company’s current year corporation tax and, soon, there will be an ability to transfer credits to key R&D employees, who can reduce their personal tax liabilities, within certain boundaries. If excess credits remain, they can be used in the order of: • Reclaiming prior-year tax paid; • The credit can be carried forward; or, • Revenue will repay the credits in three instalments over three years. It should be noted that the final option of a cash repayment is subject to an upper limit that relates to payroll liabilities or corporation tax paid in the previous 10 years. These options are probably the most flexible use of credits available in any of the main stream countries offering R&D tax incentives.

Finance Bill 2012 Finance Bill 2012 has brought some welcome enhancements to the scheme. Although all sizes of company could

*CASE STUDY 2 TABLE

Another company claimed credits in respect of a number of IT projects developing new software interfaces, database management routines and file-control software. In 2003 the company spent €245,000 on qualifying R&D. The R&D tax credit claim consisted of: Salary-related expenditure (including company pension contributions, company PRSI and bonuses)

Apportionment of general overheads (including rent, rates, electricity and telephone)

€600,000 €75,000 ___________

Total internal expenditure

€675,000

Outsourced R&D

€50,000 ___________

(subject to an upper limit of 10% of €675,000)

Total expenditure Less base year expenditure

€725,000 €245,000

Total qualifying expenditure

€480,000

Tax credit @ 25%

€120,000

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Technical

benefit, the focus has been to assist SMEs, whose claims can be significantly assisted by the relaxation of the 2003 base year and enabling a larger level of R&D subcontracted expenditure to be claimed. Once the Finance Bill has been approved, the first €100,000 of expenditure will not be linked to expenditure incurred in 2003. Sub-contracted R&D is where a company pays a third party to resolve scientific or technological challenges on its behalf. The limits on the amount of sub-contracted R&D that can be claimed are being increased to the greater of €100,000 or 10% of total internal expenditure for third parties and 5% for third level institute research.

Base year The changes are welcome in themselves but also provide flexibility for the

government to further extend the assistance for smaller companies in the future by increasing the €100,000 figures in both measures. In addition, might this be a method to gradually remove the base year as it becomes increasingly difficult for companies making their first claims to identify and evidence expenditure incurred nearly a decade ago? Through this approach, the impact of removing the base year could be gradually assessed without running the risk of a drastic change in Ireland’s tax revenue almost overnight. Case study 3 provides an illustration of how the changes could benefit a company. The added generosity in the limits for subcontracted R&D for smaller claims does come with some potential restrictions. The time spent by employees managing subcontracted R&D will no longer be claimable but may not materially affect many claims.

Conclusion

*

CASE STUDY 3 TABLE

Pre-Finance Bill 2012 2003 base year expenditure 2011 R&D expenditure Tax credit In 2012, the company with the same level of current year R&D expenditure

€150,000 €250,000 €25,000

i.e. 25% x (€250,000 €150,000)

In 2012, the company with the same level of current year R&D expenditure Tax credit

€50,000

i.e. 25% x (€100,000 + (€250,000 €150,000)

Let’s also say that the company in case study 3 had €100,000 of R&D it funds by subcontracting work to suppliers, in addition to the €250,000 of internal expenditure. In 2010, its claim would include: Sub-contracted R&D to third parties University R&D

€25,000

Total

€37,500

€12,500

(10% of €250,000) (5% of €250,000)

Under the new rules, the company will be able to claim the greater of up to €100,000 or the 10% + 5% of internal expenditure, i.e., €100,000.

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However, some of the clarity contained in the Bill around third party expenditure may do so. Companies may find that what they consider as being a legitimate R&D expense paid to third parties no longer falls within the legislation. Lastly, the Bill introduces the ability of a company to transfer credits to a key employee so that they can reduce their personal income tax liability. There are a number of conditions to be met by both employee and company but, where the circumstances allow, an Irish employee can reduce their overall income tax liability to a minimum of 23% of household income. The surrendered credit can be carried forward indefinitely if it cannot all be used in the first year. In the spirit of the R&D tax regime, this is an innovative approach to incentives for recognising employee contributions to R&D and to attract talent to Ireland.

The R&D tax regime is a great opportunity for companies with technical staff developing new ideas, new knowledge, new levels of product, process or equipment performance and who are overcoming existing technical limitations to do so. We can look forward to further improvements that will keep Ireland amongst the global front runners for R&D tax relief. In doing so, the scheme will, hopefully, become even more aligned with Industry needs for increased reliability in the claim process, improved efficiency for preparing claims and clear rules that encapsulate the development costs incurred.

Michael Sheehan is head of Deloitte’s R&D tax practice and Adrian Walker is a senior manager based in Dublin. Email micsheehan@deloitte.ie and adrwalker@deloitte.ie

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Wednesday 25 April at 6pm Shelbourne Hotel, Dublin Guest speakers Marc Coleman, journalist John Fitzgerald FCCA, An Post Patricia King, SIPTU Tickets â‚Ź20 per person

BOOKING Contact Niamh Sheehan on +353 1 498 8902 or niamh.sheehan@accaglobal.com

www.accaglobal.com/ireland

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Technical GET VERIFIABLE CPD UNITS

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Leases: operating or finance? Complex lease terms mean that it is often difficult to determine how they should be classified. Graham Holt examines IAS 17 and sheds some light on the matter Leases are classified currently under IAS 17, Leases, as finance or operating leases at inception, depending on whether substantially all the risks and rewards of ownership transfer to the lessee. Under a finance lease, the lessee has substantially all of the risks and reward of ownership. Situations that would normally lead to a lease being classified as a finance one include the following: A the lease transfers ownership of the asset to the lessee by the end of the lease term B the lease term is for the major part of the economic life of the asset, even if the title is not transferred C at the inception of the lease, the present value of the minimum payments amounts to at least substantially all of the fair value of the leased asset D the leased assets are of a specialised nature such that only the lessee can use them without major modifications being made E if the lessee is entitled to cancel the lease, the lessor’s losses associated with the cancellation are borne by the lessee F gains or losses from fluctuations in the fair value of the residual fall to the lessee G the lessee has the ability to continue to lease for a secondary period at a

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rent that is substantially lower than market rent. All other leases are operating leases. The lease classification is made at the inception of the lease but a lessee and lessor may agree to change the provisions. However, changes in estimates – for example, in the residual value of a leased property or in circumstances such as default by the lessee – do not give rise to a new classification. If the changes would have resulted in a different classification had they been applied originally, then the revised agreement is treated as a new lease over the remaining term. The original accounting entries are not retrospectively amended. Often, lease indicators may not always point in the same direction causing classification to be difficult. Leases of specialised assets will usually be structured as finance leases. If an asset is specialised, then this implies that no other entity has a use for it. Consequently, the lessor will only achieve its return on investment through the lease payments and it will structure the lease as a finance lease accordingly. If a lessor can sell or lease nonspecialised assets to other parties at the end of the lease and is willing to accept the financial risk on this then this could be an indicator of an operating lease.

Assets of a non-specialised nature may become specialised. For example, leased plant and equipment may be permanently installed in a building and its removal at the end of the lease may be impractical or too expensive for the lessor. Often, specialised assets may have a significant remaining life at the end of the lease; sometimes this may be the major part of the economic life of the asset and therefore this will point to it being an operating lease. However, it may be appropriate to disregard this indicator. Normally, for there to be an operating lease with a significant part of the asset’s life remaining, there needs to be some realisation of funds through sale or further rentals. In the case of a specialised asset, however, this will not normally occur because it is of value only to the lessee. In these cases, the asset will normally transfer to the lessee at the end of the lease for a nil or nominal payment and be treated as a finance lease. Where an asset has been leased several times during its economic life, and the lease is the last one to take the asset to the end of its life, then many of the indicators may point towards a finance lease. For example, the present value of the minimum lease payments may approximate to the fair value of the asset at the inception of the final

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lease, and there is unlikely to be an option to purchase the asset at fair value or to extend the lease at a market rent because the asset has reached the end of its life. However, the asset will obviously be non-specialised and the final lease will not be for the major part of the economic life of the asset. The lease

substantially all of the fair value of the asset. In this case, the lease is probably a finance one. Where rents are very low and no premium has been paid, the lease does not have a commercial basis and it would appear that the lessor is indifferent to the risks and rewards of ownership. In this case, classification is better judged by looking at the

OFTEN, LEASE INDICATORS MAY NOT ALWAYS POINT IN THE SAME DIRECTION, CAUSING LEASE CLASSIFICATION TO BE DIFFICULT will be for the entire remaining useful life of the asset but IAS 17 focuses on economic life as an indicator of a finance lease. The lessor is recovering the investment through a number of leases and the substance of each of those will normally be an operating lease. Thus, if the final lease were to be classified as a finance lease simply because of its position in the chain, this would normally be unacceptable. Where an asset is leased and rents are nominal, the agreement is still a lease under IAS 17. The total value of the rents will fall short of the fair value of the asset, thus indicating an operating lease. Often, the rents are low because a premium will have been paid upfront which may be equivalent to

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substance of the arrangement and the intentions of the lessor in granting a lease on such terms. The presence of an option to extend the lease at substantially less than a market rent implies that the lessor expects to achieve its return on investment solely through the lease payments and therefore is content to continue the lease for a secondary period at a nominal rental. This is an indicator of a finance lease. It is reasonable to assume that the lessee will extend the lease in these circumstances. However, an option to extend it at a market rental may indicate that the lessor has not achieved its return on investment through the lease rentals

49

and is therefore relying on a subsequent lease or sale to do so. This is an indicator of an operating lease as there will be no compelling commercial reason why the lessee should extend the agreement. The absence of any option to extend does not provide evidence either way as to an operating or a finance lease, and other factors will need to be considered to determine the classification. In some cases, fluctuations in the fair value of the residual interest in the leased asset are passed back to the lessee. This indicates that the lessee is bearing the residual value risk, and the lessor’s return on investment is effectively fixed. These indicators provide evidence of a finance lease. If the lease also requires the lessee to make good to the lessor any shortfall between the sale proceeds and a fixed ‘residual’ amount, then again this is evidence of the lessor’s return being fixed. Where the lessor retains the proceeds of the eventual sale of the asset, the lessor is bearing the residual value risk and where the sale proceeds are significant, then this could be evidence of an operating lease. Issues sometimes arise in lease contracts where an asset is held on a finance lease and then it is all or partially sub-let to another party on

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Technical

identical terms and conditions. This can occur where several entities intend to share leased accommodation and arrange for one entity to lease the whole asset and sub-let the relevant parts to the others. The issue that arises here is whether the lead entity

the inception of the lease; rather, the amount to be paid is dependent on some future event. However, it is not an interest payment as it is not connected with the passage of time, therefore time value of money is not an issue. Contingent rent is commonly

ISSUES SOMETIMES ARISE WHERE AN ASSET IS HELD ON A FINANCE LEASE AND IT IS SUB-LET ON IDENTICAL TERMS AND CONDITIONS should recognise the finance leases on a gross basis in its accounts or whether it should net off the transactions. In this case the entity should look at the derecognition requirements of IAS 39, Financial Instruments: Recognition and Measurement. The treatment will depend on the terms of the individual transaction. If the two transactions are separate to the extent that the lead entity is liable to pay its rentals under the head-lease regardless of whether it actually receives its sub-lease rentals, then the derecognition requirements will not be met and it will need to account for the two leases on a gross basis. A contingent rent is such amount that is paid as part of lease payments but is not fixed or agreed in advance at

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connected with an increase or decrease in future sales by the lessee, increase or decrease in the use of the asset, or inflation or deflation. Under IAS 17, contingent rents are excluded from minimum lease payments and are accounted as expense/income in the period in which they are incurred/earned. If a lease contains a clean break clause, where the lessee is free to walk away from the agreement after a certain time without penalty, then the lease term for accounting purposes will normally be the period between the commencement of the lease and the earliest point at which the break option is exercisable by the lessee. If a lease contains an early termination clause that requires the lessee to make a termination payment to compensate

CPD units on on the the web web units

the lessor such that the recovery of the lessor’s remaining investment in the lease was assured, then the termination clause would normally be disregarded in determining the lease term. Similarly, the same principle applies if the lease agreement states that the lease can only be terminated in remote circumstances, with the permission of the lessor or on entering a new lease agreement for the same or equivalent asset. The International Accounting Standards Board is preparing a standard that may clarify and change some of the above aspects of lease accounting. The current models lead to a lack of comparability and undue complexity because of the distinction between finance and operating leases. As a result, many users of financial statements adjust the amounts presented in the statement of financial position to reflect the assets and liabilities arising from operating leases, which makes the deliberations of companies regarding classification of leases a somewhat futile exercise! 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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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

51

Unpeel your competitive onion In the second article in his series on strategy for accountants, Dr Tony Grundy unpacks the tools, identifies customer value and ends up in a hot yoga pose

This article focuses on the need to explore the nature of the business you are in. It also considers the uses and abuses of positioning tools such as SWOT and gap analysis, and PEST and Porter environmental analysis. Customer value, competitor positioning and intent, competitive advantage and the ‘competitive onion’ are all explored. And the article ends with an explanation of how it all links to financial returns, using the Bikram yoga system to illustrate the concepts. In strategy, you need a clear notion of what business it is that you are in. Pursuing an answer may uncover that you aren’t just in one business, but in many. The curse of this is that separate

Strategy tools are typically matrixes, boxes or other models rendered as pictures to give a better and shared understanding of the complexity of strategy. They are essential, but without sufficient empirical evidence, reflective thought and challenge they can also be highly dangerous. The risks will be highlighted here.

Positioning tools Now take the businesses you are in, one at a time, and look at positioning using SWOT and gap analysis. SWOT analysis typically divides a box into four quarters to separate out a business’s strengths, weaknesses, opportunities and threats.

SWOT ANALYSIS IS OFTEN SUPERFICIAL, CAN BE DANGEROUSLY BIASED, DOES NOT PRIORITISE, AND FAILS TO EXTRACT THE ‘SO WHATS?’ strategies/cunning plans will be required for each one. The best way of identifying the businesses you are in is to look at different types of customers, needs and ways of meeting those needs. These elements can be mapped out on charts – for example, customer types against types of need – as a matrix. Doing this can lead to the discovery of new possible businesses. You may also find that your organisation has many businesses, that some are marginal, and that some might be divested.

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The advantages of SWOT analysis are that it is easy to use, familiar to most managers, puts issues into categories, is evaluative (strengths and opportunities are positive, weaknesses and threats are negative), and offers a powerful visualisation. However, SWOT is often superficial (especially when used in isolation), can be dangerously incomplete and biased, may lack sufficient evidence, does not prioritise, fails to extract the ‘so whats?’, and is seldom explicitly used to develop options.

To get more out of SWOT, it should incorporate priorities – eg by asterisking the most important elements. Also, the implications (the ‘so whats?’) of SWOT need addressing: What patterns are there in the SWOT/broad themes? For example, has the company lost its way competitively? Is it too slow and unresponsive? Is it unbalanced in some way, or is there a fault line in its leadership, culture and mindset? Are some of the threats areas of major weakness, increasing the company’s vulnerability? Are there specific opportunities where it is particularly strong and which might be candidates for offensive strategies? Gap analysis is the difference between where you want to be and where you are likely to be given the business’s current strategies. It is an essential way of framing the degree of stretch the organisation wishes to set itself, before conducting any strategic option evaluation. It is typically framed in terms of performance metrics – typically, sales or profit, although the metric can be market share, unit costs or gaps with competitors. Gap analysis is a way of assessing either the difference between where you are and where you want to be (snapshot), or the difference between where you are likely to be on current plans and where you want to be (future gap) based on the business’s projected future performance.

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Gap analysis is probably more important than SWOT analysis, as you need to keep constant track of the value of your strategic options and their contribution to the assumed shifts in strategic performance if you are to meet strategic goals. Obviously, it is important that the strategic objectives set are not competitively unrealistic. But top managers frequently set an artificial stretch on these objectives for the managerial tiers below without giving them the support and coaching to come up with strategies that will actually bridge the gap. The result is that the business always delivers less than expected. This increases top-down pressure to deliver, reinforcing the negative cycle of behaviours. In short, if gap analysis is used in this way by the business it can be counterproductive.

PEST analysis In strategy the external environment is very significant. What business hasn’t been hit by the recession and now the euro crisis/government debt? Here, PEST analysis is helpful in picturing macro changes. The P stands for political (and regulatory) changes, E for economic, S for social (and demographic) and T for technological. As with SWOT, PEST analysis is often represented in a quartered box. PEST factors may be very big (the credit crunch is an obvious one) or slow-burners revealed through

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trends that are weak but which can still gather momentum – such trends need to be monitored and reflected on. It’s time now to home in on the more immediate industry/market you are in. Here, Porter’s five competitive forces (namely, buyer power, entry barriers, competitive barriers, substitutes, supplier power) have a huge influence on profitability. The accountant needs to know and differentiate them for each and every market the business is in, especially when planning and supporting key strategic decisions.

Five forces and a funeral Consider, for example, the funerals market in the light of Porter’s five competitive forces: customers haven’t got the time to shop around, the purchase is very emotional (low buyer power), there are psychological barriers to entry, there are no real substitutes, and rivalry is gentlemanly. The result? Superior returns! And if a funerals business had real competitive advantage, it would be an accountant’s dream. The definition of competitive advantage is: delivering better value to customers than your competitors can, or equivalent value at a lower cost. This definition is economic as well as financial. Strategy is also about customer value, cost and competitors. Understanding and focusing on latent customer value – which you satisfy but your competitors don’t or can’t – can also help spark ideas for ‘cunning

plans’ and strategic options. By understanding your positioning relative to your rivals in terms of customer value added and cost, you can generate some exciting new strategies. For example, in the late 1990s Tesco looked at some simple future-looking strategies for convenience formats (Express and Metro), home shopping and non-food (CDs, books, clothes, etc). By imagining it was travelling to the future (see last month’s article), Tesco saw the potential of these strategies and rolled them all out. Successful strategies are often simple but incorporate cunning – here it lay in the combination of these strategies and in Tesco’s drive and agility. Now Tesco is a target for others and it should be thinking about their intent. Sainsbury, for example, positions itself as delivering superior service, while Tesco seems to have focused on range/ price and relentless productivity gains. Is Tesco vulnerable on service if the squeeze on incomes in the UK eases up? Markets change, and strategies may have to adapt with them. The strategy onion diagram on the next page brings all these models together with PEST factors and life-cycle effects. These all affect market growth, which in turn impacts the competitive forces toward the middle. Within the business itself consideration should also be given to the sustainability and renewal of competitive advantage: these have a huge impact on economic returns,

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TO GET THE QUESTIONS GO TO www.accaglobal.com/ab_tech

including the way you continue to deliver superior customer value, and stay way ahead of competitors. Finally competitive advantage and change can be illustrated with a case study on ‘hot yoga’. Years ago Bikram Choudhury, an Indian yogi, formulated a series of yoga postures that take place in rooms heated to 105ºF. I became addicted to Bikram yoga in 2002 when there were four studios in London and few more in the UK; now there are over 20 in the capital and more than 500 worldwide in a franchised global brand. Bikram yoga is psychologically and physically challenging. It is also an attention-grabber, appealing to young, inner city professionals seeking a wonder body. Classes are packed out. Last Saturday there were 70 in mine, with water and towels generating perhaps £1,000 in a 90-minute session. It’s a competitively attractive market where Bikram has real advantage. But recently several hot yoga studios have opened up in London, which threaten Bikram yoga’s future growth, margins and returns. The Bikram formula has not changed substantially in 10 years: is now a good time for the business to seize the strategic initiative again with a strategy review? Dr Tony Grundy is an independent consultant and trainer and lectures at Henley Business School in the UK www.tonygrundy.com

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The strategy onion Political factors

Economic factors Growth

Competitive

Industry

Customers

Life Cycle

Company and Competitors

Pressure

Drivers

Technological factors

Social factors

LAST MONTH THE ROAD FROM HERE TO THERE, THE SPICE GIRLS AND THE CUNNING PLAN

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Accounting solutions In their new regular column, PwC authors answer technical questions, this month on put and call over minority interest, and impairment testing for a listed associate

Q

ABC plc acquired a controlling 75% holding in DEF Ltd. At the acquisition date, ABC and the non-controlling interest (NCI) shareholder (‘the NCI shareholder’) entered into an agreement whereby the NCI shareholder could require ABC to purchase and ABC could require the NCI shareholder to sell – a put and call option – the NCI. Both options are exercisable three years after the acquisition date, with the price, payable in cash, being the NCI’s fair value at exercise date. How should ABC account for the put and call option? The put and call options here are symmetrical, so the contract is in substance a forward contract – that is, ABC will be required to purchase the NCI shareholder’s 25% interest at the determined date. In accordance with paragraph 23 of IAS 32, Financial Instruments: Presentation, an entity that enters into a contract that contains an obligation for the entity to deliver cash for its own equity shares is a financial liability. The 25% of DEF held by the NCI shareholder is classified as equity in ABC’s consolidated financial statements, and it is ‘own equity’. The put option meets the definition of a financial liability, as ABC does not have an unconditional right to avoid delivering cash. This is the case even though the payment is conditional on the option actually being exercised by the holder. A financial liability is recorded on the balance sheet at the date of the acquisition and is recognised at the

Q A

A

present value of the amount payable. The discount is subsequently unwound as a finance charge through ABC’s income statement over the contract period, up to the final amount payable. Any adjustment to the liability for the changes in estimated cashflows for the amount payable (that is, changes in the eventual exercise price), in accordance with IAS 39, Financial Instruments: Recognition and Measurement, paragraph AG8, is recognised in the income statement. ABC also needs to consider the treatment of the NCI, including its recognition and allocation of profits and dividends.

This month’s solutions were compiled by Michelle Amjad, Harivadan Patel and Peter Holgate of PwC’s Accounting Consulting Services. Keep up to date on International Financial Reporting Standards (IFRS) developments with PwC’s twice-monthly email update, with a summary of the latest issues and links to further guidance. Email corporatereporting@uk.pwc.com requesting ‘subscription to IFRS mailshot’ or visit pwc.com/ifrs to sign up to the RSS feed.

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ABC has an investment in a listed associate whose market value has significantly declined in the economic downturn. Management is performing its annual impairment review: how should it test the associate for impairment? ABC should apply IAS 39 to identify potential impairment indicators in its associate accounted for under IAS 28, Investments in Associates. If any indicators exist, the investment is subject to an impairment test under IAS 36, comparing the asset’s carrying amount to its recoverable amount. These requirements are applied to the investor’s equity interest in the associate and other long-term interests that form part of the investor’s net investment in the associate, all of which are financial interests in the associate. The carrying amount is not automatically written down to the current share price. The price decline is an indicator and establishes the fair value less costs to sell (FVLCTS) of the associate. However, IAS 36 requires the recoverable amount to be established; this is the higher of value in use (VIU) or the FVLCTS. VIU is estimated with assumptions of cashflows, taking into account the economic environment. The associate might be unwilling to provide a cashflow forecast to a single investor or might be prohibited from doing so by legislation. ABC may therefore need to create its own estimated cashflows using publicly available data or possibly analysts’ forecasts. The future expected dividend streams from the investment in the associate could also be used in measuring the associate’s VIU. Both cashflow sources should in principle produce a similar result.

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Improved planning key to credit There is a renewed role for accountants as banks undertake credit decision reviews with SMEs, according to John Trethowan

The Credit Review Office was established to provide SMEs (and farmers) with an independent opinion on refused credit applications from banks, or where existing facilities have been withdrawn. To date, in cases adjudicated on by the Credit Review Office, the decision of banks has been reversed in 54% of cases. This is a good overturn rate, bearing in mind that all applications are reviewed at a senior level in the banks before the Credit Review Office becomes involved. When an economic recovery starts to gain momentum, and businesses seek to trade-up from current levels of activity, demand for working capital and investment capital will increase. The Credit Review Office will have a role to play in ensuring that businesses with existing or future potential can get access to credit.

Support role There is also an important role for accountancy and the trade bodies in assisting borrowers to understand the information that banks now require in their credit decision processes. In this vein, work is now underway, led by the

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Irish Banking Federation, with support at senior level from the three main banks, to engage with the accountancy bodies to agree a number of further steps to assist SMEs through the credit application process. In support of this, the Credit Review Office will oversee the introduction of ‘plug and play’ tools to assist in forecasting and cashflow modelling, along with self-help tutorials with relevant information. Since the last report of the Credit Review Office, four major banks have now adopted a common format application for bank credit for SMEs and farms, namely AIB, Bank of Ireland, KBC and Ulster Bank – an important first step in bringing clarity to the banks’ new lending application processes.

Business planning Fundamental to better outcomes is an agreed definition of ‘viability’, which is the cornerstone of the credit decisionmaking process. In addition to a history of successful trading and good credit history over the previous three-to-five years, viable businesses require a realistic business plan and financial/cashflow forecasts that

outline a clear action plan. One of the issues facing many accountants/business advisers at the present time is being paid for their services. A standardised system for business planning could more easily be costed, and a maximum agreed price assigned for the service. A system could then be considered, by the banks, whereby the cost of preparing a business plan would be included (capitalised) in the bank facility requested. This would also require that accountants/business advisers follow through on all plans and support the SME in their credit negotiations with the bank. Such an arrangement would provide much-needed affordable business planning support for micro and small businesses, remunerated work for accountants and business advisers, and improved quality business proposals against which banks can take financing decisions. John Trethowan is credit reviewer with the Credit Review Office. Email info@creditreview.ie

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INVOICE FINANCE: AN IDEAL FIT FOR RECRUITMENT AGENCIES GRAHAM BYRNE, MANAGING DIRECTOR, EXPLAINS WHY WHEN IT COMES TO PROVIDING EFFECTIVE CASHFLOW SOLUTIONS, BIBBY FINANCIAL SERVICES TICKS ALL THE BOXES In the current depressed economic environment, recruiters face the challenge of trying to place more candidates in fewer positions. The fragility of the economy suggests that this pressure is unlikely to ease, with many employers hesitant about taking on new full-time staff. While the number of contract and part-time positions is rising, recruitment agencies have to manage longer gaps between paying staff and candidates’ wages and receiving payment from their clients. Healthy cashflow is the key to survival of any business. Recruitment agencies need to ensure that they have a steady flow of funds, but with banks battening down the hatches, where can they turn to for financing? One obvious solution is invoice financing. Graham Byrne, managing director of Bibby Financial Service, explains: ‘Invoice finance is an ideal fit for the majority of recruitment agencies and specifically those with a lot of temping business. The funding provided fills the cash vacuum that’s created by the time lapse between the agency paying the temp and receiving payment from the client. Moreover, outsourcing back office functions, such as credit control, as well as ensuring a regular and smooth flow of cash into the agency, also saves recruiters valuable management time, allowing them to concentrate on driving their business through the difficult months ahead.’

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What is invoice finance? Invoice finance provides funding against the sales ledger of a business, providing both an immediate and ongoing supply of working capital. By providing a percentage of the value of invoices upfront, invoice finance can ease the cashflow worries of a business by bridging the gap between raising an invoice and getting paid. How does invoice finance benefit businesses? • It provides an immediate and ongoing supply of cash. • It improves cashflow by releasing cash from existing business assets (i.e. invoices). • It ensures outstanding invoices are chased and collected. • It frees up valuable management time and effort. How does it work with businesses day to day? Our invoice finance experts: • Understand each business, allowing them to make informed and confident funding decisions. • Work as an extension of business teams. • Deliver a fast response to funding needs. • Support businesses to reach their full potential. • Provide a first class service to businesses and their customers. Why choose Bibby Financial Services? We’re a trusted choice for companies of all sizes and sectors and here’s why: • We are part of a global entity that funds over 6,000 businesses. • We handle a global annual client turnover of €7bn. • We provide access to on-the-ground decision makers. • We are backed by the Bibby Line Group, who have over 200 years of trading experience. For more information on invoice finance, contact Bibby Financial Services on 01 297 4911 or visit www.bibbyfinancialservices.ie

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Careers

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ACCA Careers portal Liz Hughes on the value of the new ACCA Careers portal for Irish job seekers Q Tell us about ACCA Careers? A ACCA Careers is ACCA’s official career portal. It allows members and students free access to browse and apply for finance jobs, both in Ireland and abroad, all specifically seeking ACCA members and students. The website hosts over 6,500 vacancies, with over 250 companies on the one platform. In addition, ACCA Careers offers employers the opportunity to reach a pool of part- and fully-qualified accountants and finance professionals across a breadth of disciplines, skills, experience, industries and sectors in their target location. Q Who is it aimed at? A ACCA Careers is aimed at students and members as well as potential graduates and trainees interested in ACCA qualifications. While nonregistered users can search vacancies according to sector, location and qualifications, ACCA members and students can register with ACCA Careers to take full advantage of the website’s features and benefits. Registered users can upload and save their CV, search vacancies according to sector, location and qualifications, receive relevant email alerts and allow

their CV to be seen by world-class employers who are looking to recruit. They will also have the opportunity to view articles and videos designed to help develop non-technical skills, as well as insight into the latest trends in accounting across the world. Q What should users look out for as they navigate the site? A Highlights include the ‘career development’ section, with articles and videos designed to help you develop your non-technical skills, as well as insight into the latest trends in your profession across the world. There is also the ‘working internationally’ section, where you can view our country profiles, find details of the business culture and the jobs market for finance professionals in your chosen destination; and ‘careers clinic’, which offers advice to help you make your next move, wherever you are in your career and whatever your level of experience. Q How can ACCA members make the most of the website? A Simply register with ACCA Careers and you’ll be able to take full advantage of the websites’ features and benefits.

GO TO THE CAREER PORTAL www.accacareers.com

Liz Hughes is head of ACCA Ireland. Email: liz.hughes@accaglobal.com

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On board with the arts Becoming a board member of a cultural organisation can open up new horizons and opportunities for young accountants Arts & Business NI professional development programmes, such as Board Bank and Young Professionals on Arts Boards, offer an exciting way to enhance the personal development of both young and senior directors, with practical, real-life strategic leadership opportunities for local businesses and their employees. Involvement with these programmes includes an interview and consultation session, governance training, a matching service, networking events and on-going support from a dedicated manager at Arts & Business NI.

Valuable experience Both Board Bank and Young Professionals on Arts Boards match business executives with cultural boards, and also work closely with the business person to enhance their knowledge of best practice in effective governance. Joining the ranks of an arts board can also play an important part in personal advancement and career development. Gaining experience as a non-executive director or trustee develops key skills including: strategic management, leadership, problem solving, confidence building, creative thinking and building networks and relationships, all important skills

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for any developing young director or business professional.

Theatre company Brian Hegarty is a manager with Ross Boyd and Company, an independent advisory practice based in Northern Ireland and serving clients across the UK and Ireland. Hegarty shares his comments on his involvement with Arts & Business NI and Prime Cut Productions, a theatre company which produces, promotes and tours work by international playwrights, which he says has been a positive experience both professionally and personally. ‘I wanted to get involved in something which was different from the usual day job, which involved working with people from other backgrounds and skill sets, and which would be a challenge. Arts & Business NI’s Young Professionals on Arts Boards programme offered that, with mentoring support and CPD that provided a useful nudge and, also, a source of support if required. I wanted to get board experience as part of my wider professional development and the programme offered a great opportunity to do just that.’ Hegerty explains that, having ‘dipped my toe on consulting projects, I also wanted to get involved in the charitable sector. I felt I could add something to

an organisation in need of finance expertise and also learn a lot from more experienced members of the board. Prime Cut offered an excellent opportunity to engage with a wellestablished arts charity that was looking to bring new blood onto the board and develop’. Involvement has, he says, allowed him to gain a great deal of experience on governance issues, particularly in the charity sector. In addition to increasing his presence at theatre productions ‘I’ve also learned a lot about the varied matters that boards need to consider, and the changing funding and regulatory landscape for charities.’

Connecting people Arts & Business NI is designed to spark new partnerships between commerce and culture by connecting companies and individuals with cultural organisations and providing the expertise and insight for them to prosper together. To find out more about a fascinating way to develop your skills, boost your CV, and contribute to a vibrant society contact the Arts & Business NI team. Email info@artsandbusiness.org.uk

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Now it’s even easier to do business with us Contact us by phone or email 24 hours a day 7 days a week 365 days of the year

ACCA – The global body for professional accountants +44 (0)141 582 2000 members@accaglobal.com www.accaglobal.com

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Careers

Get the most from psychometric testing Caroline Matthews offers 10 tips for first timers Psychometric tests are designed to measure aspects of your mental ability or your personality and are increasingly used as part of the recruitment or selection process. There are two main types of psychometric tests: ability tests and personality questionnaires. Psychometric tests aren’t about luck and prior preparation will improve your scores and make it easier to focus on what is being sought in the testing process. 1. Understand the purpose. Knowing why companies and organisations use psychometric testing can ease some of your possible concerns that the tests are out to typecast or dismiss you. 2. Know what to expect. Read the attendance instructions carefully and if you don’t know where to go, be sure to work it out well in advance rather than turning up late. Also, read any instructions about the test itself with great care. 3. Have the right attitude. Endeavour to give the tests your absolute best shot by taking the right mental approach and being determined to work hard.

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4. Practice in advance. As soon as you’re told to attend for the tests, start practicing on sample tests. This can greatly improve your chances of succeeding. 5. Practice working against the clock. As most of the aptitude parts of psychometric tests are timed, it pays to practice under pressure. Use a timer and allow yourself about 20 seconds per question before moving on the next one. 6. Broaden your test material. Engage with any sort of IQ test, visual puzzles and general knowledge tests – the name of the game is to buff up your mental mathematics, reading and comprehension skills.

you can’t get that right now, will you actually listen on the job?). 9. Get the best answer down and move on. Trust yourself. You get a better chance to find questions you can answer if you move on rather than spend two minutes grinding away on a single problem. Remember that everyone will get something wrong and it is better to push through to answers in which you excel than to remain stuck in the ones that won’t click.

7. Refresh your math skills. If your accounting role has slipped away from percentages, fractions, decimals, proportions, ratios and numerical relationships – it’s time to return to those kinds of questions and get them accurate.

10. Seek feedback. Whether or not you’re successful in getting through to the next stage of the job hunt, ask for feedback on the psychometric tests. This can give you important insights into how your personality and aptitude have been perceived and which areas it might be worth concentrating on more.

8. Take the test. Once it is test time, be prepared. Read or listen to the instructions with great care (after all, if

Caroline Matthews is career coach with Career Source. Email caroline@careersource.ie

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Quality, low-cost CPD We look at how reasonably priced CPD can help to give you the edge in your current role – and beyond We’re all familiar with training and development budgets being trimmed down so this month we’ll show you how to gain the most from professional development at little or no cost. Here, we look at how continuing professional development (CPD) can help you keep your edge in your present role, and it can help you to move on.

ACCA’s CPD requirements ACCA’s leading-edge CPD programme offers a policy that is flexible, allowing you to develop through a variety of means such as structured courses, qualifications, e-learning, reading, research, coaching and mentoring and learning from undertaking new tasks in the workplace. The CPD requirement has been designed to: help you plan and identify relevant professional development help demonstrate to your employer that you keep yourself up to date and employ an ethical approach offer a measurable and transparent approach to CPD; and provide you with an accessible range of services.

* * * *

What counts? It’s a common misconception that CPD can only be obtained through structured courses and seminars. But there are many ways to obtain CPD, often where you least expect – for example, through your everyday work. There are three very simple questions to ask yourself when undertaking any CPD activity: 1) Is the learning relevant to your role? 2) Are you able to apply the learning? 3) Can you provide evidence of that learning? If you can answer yes to all three, then the learning is verifiable CPD.

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Sourcing cost-effective CPD Cost-effective CPD can come in different forms; we’ve highlighted a small number of them below. These are examples to get you started: don’t feel limited to this list.

Planning is key A little advance planning is one way to ensure that your CPD is focused, tailored and cost-effective. Following a plan will make certain you derive the maximum benefit for your time and money, while developing those areas that are likely to have the biggest impact. In these demanding times more is expected of finance professionals. In order to keep up with those demands it’s vital to keep up to date and continue to build on the capabilities that make you attractive and highly valuable to employers. And, as you will have seen above, this needn’t be expensive.

Resource

Activity

Technological

Explore discussion boards and forums at work and on the web. Download podcasts

E-learning

Visit ACCA’s e-learning gateway for technical updates. www.accaglobal.com/elearning

Coaching and mentoring

Run staff inductions, introduce knowledge sharing or be an ACCA Workplace Mentor

Research and reading

Experience new learning through team projects – or present on a topic that is new to you

Networking

Join work committees or steering groups; or attend ACCA networking events

Seminars and courses

Put yourself forward for free courses and seminars

In-house training

In-house training can be worthwhile not just for the delegates but also for the trainer

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ACCA diary

ATHLONE

CORK

Taxation Update 17 April 18.00 – 20.00 Leinster Members’ Network Julie Herlihy, Baker Tilly Ryan Glennon Radisson Blu Two CPD units

Practitioners’ Conference 2 21 April 09.30 – 16.30 Practitioners’ Network Radisson Blu, Little Island Various Speakers Seven CPD units

BELFAST

US GAAP 17 April 09.30 – 16.30 Corporate Sector Chris Nobes, University of London Gibson Hotel, Point Village Seven CPD units

NAMA Update 18 April 18.00 – 20.00 Ulster Members’ Network Brian McEnery, Horwath Bastow Charleton Radisson Blu Two CPD units

DUBLIN

Converting Ideas into Business Plans 18 April 18.15 - 20.15 Leinster Members’ Network Geraldine Lavin, DCU Ryan Academy Radisson Blu Royal, Golden Lane Two CPD units Audit Workshop 19 April 09.15 – 16.15 Clarion Hotel, Liffey Valley Brendan Howard, Mercia Ireland Seven CPD units ACCA Ireland President’s Debate 25 April 18.30 – 20.30 Various Speakers Shelbourne Hotel Two CPD units Technical Update 1 May 18.15 – 20.15 Leinster Members’ Network Aidan Clifford, ACCA Ireland Radisson Blu Royal, Golden Lane Two CPD units Rating Agency Briefing 2 May 18.00 – 20.00 Financial Services Network Clarion Hotel, IFSC Representative from Standard & Poors Two CPD units NAMA – In Detail 3 May 09.30 – 16.30 Corporate Sector Brian McEnery, Horwath Bastow Charleton Venue TBC Seven CPD units

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DUNDALK

Audit Workshop 3 April 09.15 – 16.15 Crowne Plaza Brendan Howard, Mercia Ireland Seven CPD units Personal Bankruptcy Strategies 26 April 18.00 – 20.00 Tom Murray, Friel Stafford Corporate Recovery Leinster Members’ Network Crowne Plaza Two CPD units

ENNISCORTHY

Taxation Update 24 April 18.00 – 20.00 Leinster Members’ Network Brendan Twohig, MK Brazil Riverside Park Hotel Two CPD units

GALWAY

Personal Bankruptcy Strategies 9 May 18.00 – 20.00 Munster/Connaught Members’ Network Tom Murray, Friel Stafford Corporate Recovery Menlo Park Hotel Two CPD units

LIMERICK

Business Breakfast 20 April 07.30 – 09.00 Business Leaders’ Forum Michael Noonan TD, Minister for Finance Savoy Hotel Two CPD units

26/03/2012 15:02


ACCA Approved Employer

63

The view from:

Orla Graham, head of human resources, Deloitte Ireland Q Tell us about your role in your organisation? A I have been in this role with Deloitte for nine years and, over that time, the number of people working here has trebled. My role is to ensure we attract, retain and develop the best people in the marketplace. We place huge emphasis on training and development, and aim to be at the cutting edge in all of our learning programmes. A key priority, over the years, has been to create a positive working environment where people learn and do their best work. We are proud to be on the list of great places to work for 10 years in a row. We are only one of two companies in Ireland to get this accolade. Q What’s your biggest work challenge right now? A One of the biggest challenges for Deloitte is to continue to grow the business and ensure we have the right skillsets and talent across all our service lines. We are growing fast in areas such as consulting and advisory and, despite the recession, we find there are not enough people in Ireland with the right skillsets and experience. Our challenge is to ensure we recruit people who have a mix of analytical skills and interpersonal skills and who are able to confidently and professionally deal with our diverse range of clients.

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Q How do you plan to overcome this? A As a global firm, we place a lot of emphasis on recruiting the right people. We recruit based on ability and play to people’s strengths. We are aware that ‘one size does not fit all’ and that we need to tailor our programmes and initiatives. Over the course of the last number of years, a number of programmes have been implemented that focus on the career development and progression of people. In particular, we have enhanced our talent development programmes across all levels, with a particular focus on building advisory skills at an earlier stage in people’s careers. Our HR policies are also designed to facilitate a work-life balance and ensure the wellbeing of our people. Q How does the ACCA Approved Employer Programme help you achieve your goals? A Professional development and continuous learning are at the heart of working in Deloitte. Our culture is all about education, advancement and expanding the mind. We are totally dedicated to career development and enhancing skills from an early stage. In that way, our learning framework is totally aligned to ACCA’s professional development framework.

26/03/2012 15:02


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26/03/2012 15:02


ACCA news 65

At the presentation of ACCA Employer approval certification for Bord Gáis Éireann for professional development are (left to right) Elaine Casey, risk manager; Úna McShane FCCA, head of employer relationships, ACCA Ireland; Paul Doherty L&D manager; Michael G. O’Sullivan FCCA, CFO; and Bernadette Budden L&D specialist. The professional development stream of ACCA Approval recognises employers who provide learning opportunities for ACCA members to support their continuing professional development

ACCOUNTING UPDATES RSM Farrell Grant Sparks recently hosted its inaugural CPD training event ‘Essential technical update for finance professionals’. At the event were: Michael Shelley, audit partner and keynote speaker (centre); Deirdre Kiely, audit partner, both RSM Farrell Grant Sparks; and Aidan Clifford, ACCA Ireland

WOMEN’S DAY BREAKFAST The ACCA Ireland International Women’s Day Breakfast was held in Dublin on 8 March. Ann Horan FCCA, chief executive of the DCU Ryan Academy for Entrepreneurship (right), gave an inspirational talk to over 100 guests on her experiences in business. The event was kindly sponsored by RSM Farrell Grant Sparks.

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ACCOUNTANT OF THE YEAR Belfast-based Anthony Harbinson FCCA, director for the Department of Justice Northern Ireland has been named ACCA Ireland Accountant of the Year 2012. The award, made at ACCA Ireland’s President’s Dinner, was in recognition of Harbinson’s professionalism, commitment and continued support of the global accountancy body over the past 24 years. A former president of ACCA Ireland and chairman of the UK Public Sector Network, Harbinson has also been part of ACCA’s governing council for the past five years. In accepting the award, Harbinson said: ‘During these times of economic uncertainty, the accountant’s role is more important than ever in helping to reshape the Northern Ireland economy and in providing the right dynamics to enable key growth areas of the economy to prosper.’

26/03/2012 16:17


66

ACCA news

THINKING SMALL

Clare Minchington

Inside ACCA 63 Approved Employer Q&A 65 Accountant of the year

Results from the ACCA examinations in December 2011 show there continues to be strong demand for a professional accountancy qualification in times of economic uncertainty. More than 190,000 students sat papers, with over 6,000 taking a major step towards membership. Candidates around the world took more than 363,000 papers, with 6,313 students successfully completing their final ACCA exams. At the Fundamental level, pass rates were particularly good. The pass rate for paper F7, Financial Reporting, at 56%, was significantly higher than in recent times. All other pass rates at the Fundamental level remained close to their historic averages. At the Professional level, the results for the Essential papers remained strong while results for the Options papers were not as positive. The result for paper P5, Advanced Performance Management, was very disappointing at 29%. In response to a number of sessions of poor performance in the Options papers, ACCA has carried out work to offer a range of support for students taking these papers to help improve the pass rates. This will be available shortly.

Accounting and Business has published a special edition looking at the challenges and opportunities for small and medium-sized enterprises (SMEs) around the world. Written by SME specialists at ACCA and other experts, the 20-page publication tackles regulation, access to finance and the future for small accountancy practices. It also looks at microfinance, innovation and the development of finance functions in SMEs. Find the publication at www.accaglobal.com/ab For ACCA’s small business research, go to www.accaglobal.com/ smallbusiness

ACCA Ireland global prizewinners In the recent December exam sitting, ACCA Ireland students achieved first place in the world as well as first place in Ireland following modules for FIA, ACCA and Dip FM qualifications: FFM (FIA) First in Ireland and first in the world (out of 2,594 students): Jitka Pechancova P1 (ACCA) First in Ireland and first in the world (out of 23,316 students): Cian McComb DA1 (Dip FM) First in Ireland and first in the world (out of 183 students): Feargal O’Sullivan

Pictured at the recent social media workshop jointly organised by IFP Media and AIB, and held in AIB headquarters, were (left to right) Antonia Ni Dhuinn, Progress Communications, (speaker); Liz Hughes, head of ACCA Ireland; John Irwin, head of strategy and propositions, AIB; David Markey, chief executive, IFP Media; Maeve Guthrie, acting chief executive, National Dairy Council; and Krishna De (speaker)

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26/03/2012 16:17


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27/03/2012 08:13


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ACCOUNTING AND BUSINESS IRELAND 04/2012

ENSURING A POSITIVE EXPERIENCE

PLANNING FOR CREDIT INSIGHT AND TIMELY ADVICE CREDIT DUE TAX RELIEF THROUGH R&D LEASES OPERATING OR FINANCE?

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27/03/2012 08:13

AB IE (Irish edition) – April 2012  

AB IE (Irish edition) – Accounting and Business – April 2012

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