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UK.AB ACCOUNTING AND BUSINESS 07/2012

AB

ACCOUNTING AND BUSINESS UK 07/2012

COOL CAMPER ON SITE WITH CAMPING AND CARAVANNING CLUB FD

SIR RICHARD BRANSON

WHY DOING GOOD IS GOOD FOR BUSINESS TAX DIRECTORS TOMORROW’S CHALLENGES CPD TECHNICAL IFRS AMENDMENTS OLYMPICS PARTNER-IN-CHARGE

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Editor’s choice

As summer gets going, we join the growing hordes of British campers, pitching our tent with Camping and Caravanning Club finance director Sabina Voysey FCCA. She tells us about the club’s half a million members, rain, shine and the impact of the Olympics. See page 14.

GOING FOR GOLD As I write this, those involved in organising the 2012 Olympic and Paralympic Games in London are moving into the final lap of a demanding but exciting journey. They include Heather Hancock, lead London 2012 partner at Deloitte, official professional services provider to the Games. In her personal account of the firm’s involvement on page 20, she describes the London Organising Committee of the Olympic and Paralympic Games (LOCOG) as a ‘pop-up FTSE 100 company which has to be built and then dismantled in eight years’ – a description which brings home the scale of the work involved and the speed at which it has had to be carried out given the immovable deadline. Deloitte is expected to have committed over 750,000 hours by the time of the opening ceremony on a huge variety of projects ranging from managing the setup of a beach volleyball court in London’s Horse Guards Parade to sourcing 55 horses of equivalent high-performance standard for the modern pentathlon to developing a new website for disability sport. This is all in addition to the advisory and finance work you would normally expect from an accountancy firm. There is a great deal to admire about London’s preparations for the Games, but there have been understandable concerns about the huge costs in building the venues and putting on the world’s biggest sporting event. In an article on page 18, former BBC sports editor Mihir Bose reflects on the main riposte to such arguments – the business benefits that will accrue to the UK and beyond. Bose, who was consulted by government ministers in the run-up to London’s bid for the Games, cautions that to benefit, a country must organise the event well. As we go to press, London 2012 seems to be a case of so far, so good – hopefully this will continue. And with good planning and entrepreneurial spirit, we should be enjoying the economic and business benefits long after the final athlete has crossed the finishing line.

Chris Quick, chris.quick@accaglobal.com

TAXING TIMES Life is going to get even tougher for tax directors, with more risk, more complexity and a brandnew challenge: winning the PR campaign. Page 40

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PSYCHO PLC It seems that those ‘you don’t have to be mad to work here but it helps’ posters have more truth in them than you might feel comfortable with. Page 72

ACCOUNTING FOR THE FUTURE Join ACCA for a one-week live and on-demand event from 8 to 12 October. Topics will include sustainability, investors, corporate reporting and risk management. www.accaglobal.com/accountingforthefuture

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

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AB UK EDITION CONTENTS JULY/AUGUST 2012 VOLUME 15 ISSUE 7 Editor-in-chief Chris Quick chris.quick@accaglobal.com +44 (0)20 7059 5966 Asia editor Colette Steckel colette.steckel@accaglobal.com +44 (0)20 7059 5896 International editor Lesley Bolton lesley.bolton@accaglobal.com +44 (0)20 7059 5965 Sub-editors Dean Gurden, Peter Kernan, Eva Peaty, Vivienne Riddoch Design manager Jackie Dollar jackie.dollar@accaglobal.com +44 (0)20 7059 5620 Designers Robert Mills Production manager Anthony Kay anthony.kay@accaglobal.com Advertising Richard McEvoy rmcevoy@educate-direct.com +44 (0)20 7902 1221 Head of publishing Adam Williams adam.williams@accaglobal.com +44 (0)20 7059 5601 Printing Wyndeham Group Pictures Corbis ACCA President Dean Westcott FCCA Deputy president Barry Cooper FCCA Vice president Martin Turner FCCA Chief executive Helen Brand OBE

Features

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

Accounting and Business is published by Certified Accountant (Publications) Ltd, a subsidiary of the Association of Chartered Certified Accountants. ISSN No: 1460-406X 29 Lincoln’s Inn Fields London, WC2A 3EE, UK +44 (0) 20 7059 5000 www.accaglobal.com

18 Long-distance event International sports fixtures can be lucrative for host nations 20 London 2012 Deloitte, official professional services provider, has played a crucial role 22 Sir Richard Branson As Virgin Money takes over Northern Rock, Branson describes his approach to businesss 26 Audit insight Sajjad Karim MEP looks at EU plans for audit market reform

Audit period July 2009 to June 2010 138,255

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14 Perfect pitch As FD of the Camping and Caravanning Club, Sabina Voysey FCCA has one eye on the weather

28 Lending lowdown Rebecca McNeil, head of business at Barclays, offers advice on making successful lending applications

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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

Your sector

BRIEFING

35 PRACTICE

06 News in pictures A different view of recent headlines

35 The view from Tony Down FCCA of Venture Consultancy Network, plus news in brief

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

36 British Accountancy Awards Why you should consider entering

10 News round-up A digest of all the latest news and developments 12 Politics Seismic and unexpected changes shake the European political landscape

39 CORPORATE 39 The view from Rachael Williams ACCA of IBM, plus news in brief

TECHNICAL

VIEWPOINT

59 Update The latest on financial reporting, auditing, tax and law

30 Robert Bruce Board diversity is still a long way off

64 CPD: IFRS amendments A guide to keeping on top of the changes

32 Peter Williams Crowdfunding must shed its emotional ties

67 Accounting solutions PwC experts answer questions on changes in tax rates in interim disclosures and on segment reporting

33 Jane Fuller Compromise can bring its own problems 34 Dean Westcott Africa’s economy is staring to roar, says the ACCA president

68 CPD: strategy How the finance function can achieve a more strategic and influential role

CAREERS 72 Psychopath in the office Is one tearing your workplace apart? 75 Making the cut Tips on how to apply for a master’s degree course

40 Taxing times A roundtable hosted by Accounting and Business and Thomson Reuters looks to the future 45 Reporting for duty Our new series looks at how companies can improve their corporate reporting 46 Remote control Many CFOs are not making the most of what shared services and outsourcing have to offer 48 Outsourcing USA The US is leading in shared services and outsourcing 50 Scotland the green Companies seek a reduced carbon footprint

52 PUBLIC SECTOR 52 The view from Neil Reddin FCCA of the Borough of Bromley, plus news in brief 53 Sustainability auditing It can be contentious but can no longer be ignored

55 FINANCIAL SERVICES 55 The view from Sharon Critchlow FCCA of Citimark Partnership, plus news in brief

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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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56 Mark Field MP Speaking up for London’s financial heartland

ACCA NEWS 80 Diary What’s on in the coming months 81 CPD Becoming a workplace mentor is beneficial for both you and the mentee 82 News Student numbers increase considerably; vice president Martin Turner addresses Sustainable Stock Exchanges event in Rio, ahead of the Earth Summit

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News in pictures

01

Some 1,000 boats took part in the Thames pageant to mark the Queen’s Diamond Jubilee. Spectators included AB designer, Australian Jane C Reid, who dressed up as a ‘Coronation chicken’

02

A £400m bid by two Malaysian companies beat off challenges from 14 other bidders for the rights to Battersea Power Station

03

The new Pay Up! campaign’s first target was Sainsbury’s. The group claims that the supermarket still pays thousands of workers below a living wage

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04

England players celebrate Manchester City defender Joleon Lescott’s goal against France during the Euro 2012 football tournament

05

The Great Barrier Reef, which includes Heart Reef, is set to be part of the world’s largest network of marine parks. Australia made the announcement that it would create the parks ahead of the Rio+20 summit

06

Sir Martin Sorrell, chief executive of the WPP advertising group, faces a pay cut after one of the biggest shareholder revolts so far. Sixty per cent of investors voted against his near £13m-ayear pay package at the company’s AGM

07

A Sylvanian Families scene on display at the International Tokyo Toy Show. The Japanese toy market grew 3.4% in 2011, with sales of 692.1 billion yen

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News in graphics

8

WHAT MAKES A GOOD LEADER?

A Deloitte survey of analysts in the US, the UK, China, India, Japan and Brazil has helped define CEO characteristics that will drive a company’s share price. The Leadership Premium identifies three core components: a clear vision for the organisation, proven ability to meet objectives, and a commitment to innovation.

EFFECTIVE LEADER

INEFFECTIVE LEADER

NO MORE TAX!

26% 17% 13% 9% 4%

A clear strategy Innovation Financial results Knowledge of markets/products Market postioning

Percentages refer to respondents citing a characteristic as a top factor

SUPER-RICH PLAYGROUND EXPANSION SLOWS

The growth in global private financial wealth was pegged back to just 1.7% last year, due to economic uncertainty and struggling equity markets in major developed economies. However, the super-rich did better than most: households with more than $100m in wealth saw a 3.6% rise in their assets, according to Boston Consulting Group’s (BCG) Global Wealth 2012: The Battle to Regain Strength report. The US had by far the largest number of ultra-high net worth (UHNW) households at 2,928, although Switzerland was top relative to population size. The number of UNHW households rose markedly in Russia, China, Turkey and India (from 607, 538, 318 and 241 respectively), but fell back in the US and France (from 2,989 and 480 respectively), and remained static in the UK and Germany. The graphic shows the 10 countries with proportionally the most UHNW households, and 10 of the 12 countries with the most UHNW households (not listed are Turkey and Italy, with 344 and 333 respectively).

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Lack of strategic clarity 26% Dishonesty 14% Ineffective decision making 14% Failure to adapt to change 11% Lack of knowledge 9% Lack of direction 8% Poor results 7% Short-term thinking 6%

This year’s Tax Freedom Day – the day a country has earned enough in theory to pay its annual tax burden – falls on 29 May in the UK, two days later than last year, according to the Adam Smith Institute. In Australia it falls on 4 April this year and in the US on 14 April, although the French have to wait until July. The graphic shows the UK dates of Tax Freedom Days in the last five years.

BROADER GEOGRAPHY OF ULTRA-HIGH NET WORTH

375

Taiwan

5

11

1,125

Switz

erlan

366

UK

d

4

301

Austria

279

Netherlands

4

TOTAL HOUSEHOLDS 2,928 807 686 648 470

US GERMANY RUSSIA CHINA FRANCE

8

NUMBER PER 100,000 HOUSEHOLDS 10 7 7 6 6

SINGAPORE NORWAY HONG KONG KUWAIT QATAR

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9 FISHING FOR TALENT

As the graphic shows, a substantial proportion of employers around the globe identify a lack of available 81% skilled talent as a continuing drag Japan on business performance. The global average is 34%. According to ManpowerGroup’s 2012 talent shortage survey, shortages are most acute in Asia Pacific, particularly 11% in Japan, where an ageing workforce Unite Kingd d exacerbates the problem. Surprisingly, om despite the ongoing acute level of talent shortages, employers express notably less concern than they did last 37a% year about the impact that shortages pore Sing have on key stakeholders such as customers and investors – perhaps representing a new normal. Accounting and finance staff ranked sixth in the 2% top 10 jobs that employers are finding Ireland difficulty in filling.

25%

Canada

Hungary

China

14e% ch

Cz lic b Repu

50%

Australia

51%

35%

Bulgaria

49%

45%

3 SWITZERLAND (5) 4 SINGAPORE (3) 5 SWEDEN (4) 6 CANADA (7) 7 TAIWAN (6) 8 NORWAY (13) 9 GERMANY (10) 10 QATAR (8) 11 NETHERLANDS (14) 12 LUXEMBOURG (11) 13 DENMARK (12) 14 MALAYSIA (16) 15 AUSTRALIA (9) 16 UAE (28) 17 FINLAND (15) 18 UK (20)

IMD’s world competitiveness rankings for 2012 show the continuing power of the US, and success for the fiscally disciplined European economies of Switzerland, Sweden and Germany. Also clear is the inability of emerging economies to escape the turmoil elsewhere: mainland China, India and Brazil all fell back (to 23rd, 35th and 46th respectively), while Russia moved up just one place to 48th.

Almost half of financial institutions surveyed by consulting firm Protiviti say that extraterritorial compliance (such as FATCA, Dodd-Frank, SarbanesOxley and Solvency II) now accounts for between 10% and 25% of their compliance budget.

Month in figures

2 US (1)

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Hong Kong

United States

1 HONG KONG (1)

WHO’S KING OF THE COMPETITIVE HEAP?

34%

23%

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News round-up

IIRC FRAMEWORK ON TRACK

The world’s first Integrated Reporting Framework is on track for publication by the end of 2013, the International Integrated Reporting Council (IIRC) has confirmed. Responses to last September’s consultation paper show ‘overwhelming support’ for framework development, it said. This will include specific workstreams on several topics including materiality, business models and the concept of value. The Integrated Reporting Framework aims to underpin and accelerate the global evolution of corporate reporting, enabling organisations to communicate the full range of factors that contribute to the creation of value and ensure that they are embedded within an organisation’s strategy.

GOING CONCERN INQUIRY

Going concern judgments should take into account both the solvency and liquidity of a business, the final report of Lord Sharman’s panel of inquiry has concluded. Judgments should be based over the cycle and reflect ‘an appropriately prudent view of future prospects’. The report suggested that the primary purpose of the assessment and reporting should be to reinforce responsible behaviour in the management of going concern risks.

The Financial Reporting Council (FRC) – which commissioned the inquiry – should work with international bodies to harmonise going concern definitions, amend guidance to directors and effective company stewardship proposals and expand auditors’ reports to cover assessment of directors’ going concern narrative disclosures.

EXPECTED LOSS MODEL ‘ON WAY’

There needs to be a faster movement towards the use of expected losses rather than incurred losses, says the International Accounting Standards Board (IASB). ‘After the outbreak of the crisis, our current impairment model, which was based on incurred losses, was criticised for being too little, too late,’ IASB chairman Hans Hoogervorst said. ‘We think that this criticism was partially justified. The fact that the market capitalisation of many banks is far below their book value is an indication that market participants do not believe that their current level of provisions reflect economic reality.’ The IASB and Financial Accounting Standards Board ‘are well on our way to completing an expected loss model,’ said Hoogervorst.

CONSULTATION ON PROPERTY TAX The government is consulting on the implementation of a new annual charge

SCOTS CREATE TAX AGENCY

Revenue Scotland will be established this year as an independent tax collecting agency, the Scottish government has announced. Initially, the agency will be responsible for collection of the new land and buildings transaction tax and a levy on landfill disposals; it is intended that over time it will take over the administration of other taxes set by Scottish ministers. Swinney said his government aspires to ‘full fiscal responsibility’ but that even after the creation of Revenue Scotland only 15% of taxes paid in Scotland will be the responsibility of its parliament. Scottish ministers are also seeking devolved power over corporation tax, air passenger duty and the aggregates levy.

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on residential properties owned by corporate bodies and valued at over £2m. The capital gains tax regime would be extended to cover the disposal by non-resident corporate bodies of UK residential property valued at over £2m. The Treasury said that the move will tackle the avoidance of stamp duty land tax through the wrapping up of residential property transactions within corporate packages.

NO EXTENSION TO XBRL

HMRC has announced that there will be no extension to the required level of XBRL tagging of company tax returns when the initial implementation period is completed in March next year. The overwhelming response from a consultation process requested no extension to existing requirements for the time being. HMRC said that 1.6 million returns were filed with XBRL tagging in the first year.

EY APPOINTS OWENS

Dr Jeffrey Owens has been appointed by Ernst & Young as the senior policy adviser to its global vice chair of tax, Dave Holtze. Owens was previously director of the Centre for Tax Policy and Administration at the Organisation for Economic Cooperation and Development, where he led its work on taxation for over 20 years. While there, he helped to set global standards on tax treaties and transfer pricing.

WRIGHT VIGAR BUYS MCGREGORS Lincolnshire-based firm Wright Vigar has purchased the Lincoln office of McGregors Corporate. The acquisition adds 400 clients to Wright Vigar and represents a 20% increase in the firm’s turnover. Wright Vigar was established in 1979 and has grown through a series of acquisitions. It has offices in London as well as Gainsborough, Newark, Retford and Sleaford.

KPMG TAKES NEW LEADERS Land and buildings: new agency to collect tax

KPMG has made a series of changes to its UK leadership team, with more women holding senior positions in the firm. Richard Fleming has been

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11

Analysis DIVERSITY DELAY

Having more equal representation of women on boards, making a real difference in decision-making, is a no-brainer. But the reality of a strategy still seems a long way off.

appointed UK head of advisory, having been UK head of transactions and restructuring. Karen Briggs becomes head of risk consulting, while Adam Bates moves to head of innovation. The appointments were announced by Simon Collins, ahead of his becoming UK chairman in October. KPMG also appointed Charlie Patrick as its new head of anti-bribery and corruption (see page 55).

P30

£2bn in six months, according to the latest research published by Bacs Payment Schemes. Average unpaid accounts stood at £45,000 at the end of 2011, compared with £39,000 half a year earlier. However, the number of SMEs suffering late-payment problems reduced from 861,000 to 785,000 firms over the period. On average,

Incentive packages have become so complex and volatile that they have ceased to be effective motivational tools, according to research from PwC and the London School of Economics. In many cases, remuneration arrangements include elements that are of less value to the executives than is the cost to the companies providing them. Executives would often be happier to receive less pay if arrangements were less complex and volatile. Tom Gosling, head of PwC’s reward practice, said: ‘These findings place a major question mark over the effectiveness of deferred bonuses.’

HMRC missed the opportunity to collect an extra £1.1bn in tax by cutting staff numbers by more than 3,300, concludes a report by the House of Commons Public Accounts Committee. An additional £4.3bn in outstanding tax was collected through the HMRC’s Compliance and Enforcement Programme, at a cost of only £387m, says the PAC. The programme improved collection through better use of data to assess the risks and patterns of evasion, while delivering substantial productivity improvements by processing cases more quickly and efficiently. But job losses restricted HMRC’s capacity to exploit fully the opportunities for even higher rates of tax collection. The MPs questioned whether further job cuts will deliver value for money.

SMES SUFFER PAYMENT DELAYS Small and medium-sized enterprises (SMEs) are owed £35.3bn, a rise of

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There remain substantial uncertainties about the interpretation of key elements of IAS 19, Employee Benefits, says pension advisory firm Mercer. Early adopters should work with auditors to select the solution that best suits their needs, suggests Mercer. Revisions to IAS 19 aim to make the balance-

‘STANDARDS CAN’T STOP CRISES’

THE INCENTIVES DON’T WORK

JOB CUTS ‘COST HMRC £1BN’

IAS 19 ‘CATCHING COMPANIES OUT’

Hans Hoogervorst

small firms now wait 29.6 days beyond payment terms, an increase of 1.6 days in six months.

LEASE APPROACH AGREED

A joint approach to lease accounting has been agreed by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board. This is intended to lead to a joint exposure draft being released before the end of the year. The underlying principle agreed by the board remains that leases should be recorded on entities’ balance sheets, but the boards have now agreed that some lease contracts will be accounted for using an approach similar to that proposed in the 2010 leases exposure draft, while others would be accounted for as a straightline lease expense (see page 33).

Improvements to accounting standards that improve financial reporting are not enough to prevent a future financial crisis, says International Accounting Standards Board chairman Hans Hoogervorst. ‘Stability should be a consequence of greater transparency, but stability cannot be a primary goal of accounting standard setters,’ he said. ‘It is not our remit and we simply lack the tools for fostering stability. For example, we cannot set capital requirements for the banking industry.’ But, he added, transparency is necessary and its absence was a factor in the current crisis. ‘Huge risks were allowed to build up both on and off balance sheets without being noticed,’ said Hoogervorst. ‘Without proper transparency about risks, stability is bound to collapse in the end.’

sheet treatment of pensions risk more transparent by requiring immediate recognition of any under-funded liabilities. Companies with large pension scheme liabilities and high exposure to high-risk assets may have financial statement footnotes scrutinised more carefully, warns the report.

CHANCELLOR U-TURNS

Measures announced in the Budget on charitable donations and new taxes on hot pasties and static caravans have been abandoned by chancellor George Osborne, following widespread criticism of the proposals. Plans to limit tax relief on charitable donations have now been scrapped. Charities had argued that the move would have led to a dramatic reduction in gift income. Compiled by Paul Gosling, journalist

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12

Politics

MILBURN ATTACKS PROFESSIONS

PETROS FASSOULAS THE GLORIOUS GAME PLAYED OUT – ON AND OFF THE PITCH

What a month June has been. It started with a Spanish bailout, continued with Greek elections and finished with a European Union (EU) Summit. And all that while the Euro 2012 football championship took place in Poland and Ukraine. There was plenty of drama both in the political arena and the football field. The eurozone and EU are changing and Britain is bound to be affected. There is already talk of a referendum on Britain’s EU membership and all political parties are playing political football with the idea. Whatever one’s views on EU membership, Britain’s proximity to the continent and its close trade ties with its EU partners mean that the EU’s wellbeing affects the UK economy profoundly. The government knows that and tries to remain involved in the reform process but its non-membership compromises its ability to influence decisions. Watch this space; there is plenty of political and economic excitement coming up. Petros Fassoulas is head of policy, Europe and Americas, at ACCA

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The professions have failed to deliver a social mobility dividend, according to the latest interim Fair Access to Professional Careers report produced for the government by former Cabinet minister Alan Milburn. ‘Overall, there was little evidence that the professions are getting to grips with the need to provide much more flexible progression routes,’ although there is some good practice, said Milburn. The report was welcomed by ACCA. Andrew Leck, head of ACCA UK, said: ‘The accountancy profession does get a commendation in Milburn’s review for having “consciously constructed ladders of opportunity that allow nongraduates to enter and progress in a professional career”.’

QUOTAS NOT THE ANSWER

Full self-regulation has been unsuccessful in increasing the proportion of women on company boards, argues ACCA in its response to European Commissioner Viviane Reding’s public consultation addressing chronically low female representation on corporate boards in the European Union (EU). But ACCA says it does not support the idea of EU-wide quotas, and that the aim of any new policy initiative must be for boards of directors to become more effective as units. John Davies, ACCA head of technical, says that while companies need ‘authoritative encouragement’, the EU should avoid imposing rigid requirements which would undermine boards’ ability to assemble a group with complementary skills and experience. ‘The issue of women directors should be addressed in a wider context of enhancing board diversity more generally,’ he added. (See page 30.)

EC PROPOSES BANKING UNION The European Commission has proposed the creation of a ‘banking union’ as a long-term solution to the

eurozone crisis. Under the plans put forward by commission president José Manuel Barroso, the union would increase the integration of the banking sector, including through the creation of a single regulator. There would also be a single system of depositor protection, common rules on capital adequacy and clarified common rules on the rescue of failed banks. The German government has indicated its opposition to the proposals as presented, while the UK government has stated that it would oppose their implementation for EU non-euro countries.

WINNING WORK ‘NOT LIKE GOLF’ Sir David Tweedie – former International Accounting Standards Board chairman and now president of the Institute of Chartered Accountants of Scotland – has told audit firms to demonstrate that they win contracts fairly and openly. Auditors must not, he told the BBC, give the impression that obtaining audit work ‘is like playing golf’ with clients. Tweedie also suggested that European Commission proposals to encourage joint audit reports were an impractical ‘nightmare’.

BANKS DENY LOSS CLAIMS

UK banks are holding £40bn of losses they have failed to write down, claims pension advisory group PIRC. Almost half of these – £18.2bn – are held by the majority taxpayer-owned RBS, alleges PIRC. It suggests HSBC is holding over £16bn of loans that need to be written down. PIRC argues that writing off the bad debts to realistic levels is essential for recovery. The calculations were dismissed. An RBS spokeswoman said: ‘We don’t recognise the numbers PIRC refer to. Our reporting complies with International Financial Reporting Standards.’ HSBC’s spokesman said: ‘We fundamentally do not accept PIRC’s analysis.’

19/06/2012 14:37


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07/06/2012 17:51 20/06/2012 15:05


14

FD interview

COOL CAMPER

The weather and the price of petrol could make or break the Camping and Caravanning Club’s year, but FD Sabina Voysey FCCA is determined to keep business booming

I

t’s the first sunny weekend of the year – blazing hot, in fact – and every pitch at the campsite at Kingsbury Water Park in the West Midlands is taken. Barbeques are firing up, deckchairs are out and dozens of children are embarking on an enthusiastic water fight. Sabina Voysey FCCA, finance director of the Camping and Caravanning Club, looks around with satisfaction – and, if she’s honest, a touch of relief. ‘It’s been a difficult start to the year. The weather has a huge impact on our business,’ she says. The Diamond Jubilee and Olympics make it a big year for UK tourism but in the camping and caravanning business, it’s not all

exclusive members’ services such as insurance and breakdown recovery. The club, which is over 100 years old, has grown hugely over the past decade, adding 60,000 new members in the year to February 2011 alone. And it has steadily expanded its business model over the years, adding an international travel service (known as Carefree) for caravanners and campers and entering into a partnership with the Forestry Commission, Forest Holidays LLP, to manage a camping and cabin operation. All this helped the club report turnover of £65.5m in the latest financial year. It’s a strong business with the potential to grow further as the popularity of camping increases,

‘THE FACT THAT WE ARE A NOT-FOR-PROFIT IS IRRELEVANT AS FAR AS I’M CONCERNED. THE CLUB NEEDS TO BE RUN AS A BUSINESS’ that matters. ‘It’s hard to tell what effect the Olympics will have on our business but what we do know is that if the sun shines our members, and the public in general, will want to go camping. Without good weather it might be more appealing to enjoy the Olympics from the comfort of your own living room.’ Over half a million people in the UK are members of the club, a notfor-profit organisation which owns, leases or operates under management agreement 111 sites in the UK and provides member-only access to over 1,500 more certified sites. For £40 a year, members get a comprehensive booking service, technical and legal advice, publications and access to

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but that’s not to say that it is expecting an easy ride. The business is inevitably a seasonal one, and an empty pitch means a missed opportunity to generate revenue. ‘We had really good years in 2009–10 and 2010–11, both record years for us financially, and that made us think that we were recession-proof,’ says Voysey (the club’s year-end is in February). ‘But then while 2011–12 started well, our results for the financial year were slightly down, partly because of the poor weather at the end of the season.’ Operating profit for the club fell from £3.2m in 2010–11 to £1.9m in 2011–12. Bad weather inevitably hits the club, as it means that members cut back

on spontaneous trips and sometimes cancel prebooked holidays. But in the most recent financial year it became apparent that macroeconomic factors were not persuading more people to holiday in the UK (which would have benefited the club) but were affecting holiday plans on a broader scale.

Short-haul preferred ‘Fuel prices have had an impact on our business,’ says Voysey. ‘We found that the more central sites, which are closer to urban areas where people don’t have to travel as far, did a lot better than the sites in more faraway locations.’ Forward bookings for 2012–13 are lower than hoped for so far, both in the UK and through the international travel service. ‘Normally the two compensate for each other somewhat, but both are down this year,’ says Voysey. The UK sites currently account for about 40% of the club’s turnover and are a significant contributor to the bottom line. The Carefree international travel service contributes about 20% of the club’s turnover, but does not have as much of an impact on the bottom line (although the worldwide travel service, offering escorted or independent mobile home tours of New Zealand, Canada, South America and elsewhere, is popular with members and enjoys a higher margin). Since Voysey joined the club as finance manager in 2002, she has seen it grow in terms of staff (it now employs around 250 at its headquarters in Coventry, including Voysey’s finance team of 18), turnover and membership. ‘In the late 1990s the club didn’t have enough pitches for its members

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so it had to look at ways of expanding,’ she says. ‘We had to grow in order to keep the membership happy.’ Around half of its sites are owned by the club and a third are leased, but the club also has franchised sites and manages sites owned by other companies (such as the theme parks at Drayton Manor in Staffordshire and Gulliver’s in Milton Keynes). Franchising, Voysey admits, has proved quite a challenge. The 15 sites operated under the franchise agreement – the franchisee runs a site under licence, using the club’s name and branding – generated £0.5m of turnover in 2010–11, a fall of 10% on the previous year. ‘Franchising was a solution to the capacity problem and it served its purpose at the time,’ she says. ‘But I think the club needs to consider very carefully whether franchising is the right future growth strategy.’ The club’s future strategy is a question very near Voysey’s heart, as she freely admits it is something that has been neglected in the past: ‘Strategy is something that has developed organically in the past, because everyone broadly agrees in terms of where the club should be going. But it meant that strategic planning has been missing, and strategy has never been documented. It’s something I found frustrating when I was finance manager.’ Since being promoted to finance director two years ago, though, she is now heavily involved in developing a one-year and three-year plan. One characteristic of the club – or complication, depending on your view – is its status as a not-for-profit run by and for the benefit of its members. In place of a board the club has a committee of 35 ‘national councillors’, all seasoned club members who have the ultimate say on decisions. Monthly meetings take place between the employed directors and the club’s

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The tips *

‘The biggest challenge in moving to a finance director position was stepping back from the day-to-day stuff. But I took the decision to sit downstairs with my team rather than move up to the directors’ floor. It was important to me; I like to feel in touch with things; I don’t want to be isolated from what they do every day.’

*

‘The fact that we are a not-forprofit organisation is irrelevant as far as I’m concerned. The club needs to be run as a business. It’s just that we make money for the members rather than for shareholders.’

*

‘I’m about to complete an MBA. It’s been tough but a lot of the modules were in tune with what I needed to get a grip on as finance director, particularly in terms of leadership. It’s really helped me settle into the role, and the online learning format suited me and the way I like to learn very well.’

management committee, which consists of 11 national councillors. A series of smaller committees oversee marketing and administrative decisions, and the international side of the business. ‘They are guided by the directors, but the final decision is theirs,’ says Voysey. The setup means, though, that decisions are not always straightforward. ‘Sometimes we end up doing things that we probably wouldn’t if we were a traditional, truly commercial business. We always take into account what is important to the members and national councillors.’ For Voysey, joining the club was a natural step for a self-professed ‘outdoorsy’ type. She grew up on the Upton House estate near Banbury,

‘IT WAS SMALL ENOUGH THAT I COULD SEE THE WHOLE PICTURE, RATHER THAN BEING PIGEONHOLED IN A LARGER ORGANISATION’ where her father was estate manager. After leaving school she attended agricultural college, completing a BTech National Diploma in business and finance with an agriculture option. She worked initially as a bookkeeper for a farm management company and then a publishing company before joining a farming co-operative, Midland Shires Farmers, as a financial accountant and embarking on ACCA training in her spare time. She qualified shortly after Midland Shires merged with West Midland Farmers in 1999 to form Countrywide Farmers, now a major supplier of products and services to the rural community. Voysey joined the Camping and Caravanning Club in 2002 as finance manager, running the department and reporting directly to the finance director. ‘I hadn’t heard of the club, although my husband and I did quite a lot of touring in the UK,’ she says. ‘But I liked the fact that it was small enough that I could see the whole picture, rather than being pigeonholed in a larger organisation. I think qualifying

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The basics

as an ACCA gave me the confidence to apply for a bigger role.’ Two years ago the club’s FD moved on and she had to decide whether to apply for the position. ‘I was in quite a good position where I was because I had a young daughter and was working flexible hours and really enjoyed my job, but I felt that I had to go for it. I’ve never had a plan for where I’d end up; as long as I’m happy and challenged, I’m OK, and I’m happy here.’

Out and about Her days are spent mainly at head office, although she does like to get out and visit the club’s sites. ‘I’m just completing an MBA and as part of that I wrote my dissertation on our franchise business. It was great to visit the sites and meet the franchisees on a one-toone basis, on their home ground.’ The plan for the next year includes addressing the marketing for the various businesses, which tend to attract very different members, and finding ways of making sure that the club stays at the top of its game. Its major competitor is the Caravan Club. ‘The Caravan Club has more members and more sites, but a lot of people are members of both and we work with them from time to time. There is rivalry, but it’s healthy competition.’ The club also sees the growing number of quality private campsites as rivals for its business. ‘They do well because they only have to maintain

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CAMPING AND CARAVANNING CLUB

The first meeting of what is now known as the Camping and Caravanning Club was in 1901 in an orchard on the outskirts of Wantage, Oxfordshire. It had six members.

The CV

£65.5M

Group turnover in 2011.

£3.4M

2010

Profit before tax in 2011.

2002

Membership at the end of the latest financial year.

2001

one site, and can do that very well indeed. We have to maintain 111, and that takes a lot of money. We have to think about things like finding cleverer ways to price, as we’re aware that our site prices are close to their upper limit at the moment. But we have to be cautious not to upset our members. They’re not keen on change. If we do make changes, we need to be sure that we do things right.’

Appointed finance director of the Camping and Caravanning Club.

512,410

Joined the Camping and Caravanning Club as finance manager.

Qualified as an ACCA member.

1997

Midland Shire Farmers, financial accountant.

1995

Images Publishing, bookkeeper.

1989

Pennywell, bookkeeper.

Liz Fisher, journalist

19/06/2012 15:34


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PLAYING THE GAME Hosting a large sporting event like the Olympics is a coup for any country, but what are the real benefits for business, asks sports journalist Mihir Bose

I

n 1851, when Prince Albert wanted to advertise the power of his wife’s empire, he decided to hold the Great Exhibition, advertising it as displaying the works of industry of all nations. Culture featured as well, with Charlotte Brontë, Lewis Carroll, and George Eliot taking part, but there was no sport. Today, a monarch’s spouse harbouring similar thoughts would almost definitely urge the government to bid for an Olympics or a World Cup. Indeed, as Queen Victoria’s great, great granddaughter celebrates her 60th year on the throne, it is debatable whether the events to mark that occasion will match those on display during the London 2012 Olympic and Paralympic Games. Modern sporting events are seen by politicians as validating a nation, even one such as Britain. Former prime minister Tony Blair was only persuaded to back London’s 2012 bid when Tessa Jowell, culture secretary, told him that it would be a shame that Britain, with the then fourth largest economy in the world, could not bid for

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the Games. Nelson Mandela felt South Africa had arrived when it became the first African country to stage the World Cup, and in Copenhagen in 2009, Brazilian president, Luiz Inácio Lula da Silva, shed tears after Rio won the right to stage the 2016 Olympics. As

in the UK and the fifth largest in the world. Lord Bell says: ‘Expos are old fashioned. Modern sporting events like the Olympics and World Cups do develop business. You only have to see what happened in Sydney or Beijing. Sports brings people together. Governments

LONDON 2012 IS EXPECTED TO BRING £21BN OF BUSINESS TO BRITAIN. BUT TO BENEFIT, A COUNTRY MUST ORGANISE THIS EVENT WELL he put it, ‘Everybody talks of Brazil as the country of tomorrow. Here in Copenhagen tomorrow has arrived.’ But while such sporting events may have taken over from expos, do they actually promote a nation’s trade? British politicians argue they do, and Britain is estimated to have won £2bn of business at the Beijing Olympics. Five years ago, Lord Tim Bell, Margaret Thatcher’s PR guru and chairman of Chime Communications, bought Fast Track, the sports firm set up by former Olympian, Alan Pascoe. Chime Sports Marketing is now the biggest sports business

invest in infrastructure, roads, transport links and all this contributes to a development of the business.’ Lord Bell’s words are echoed by those who run the British firm PKL, which provides temporary kitchens. Its growth is a fascinating story of how Olympics in one country can develop business in another. For PKL, it all started in 1998. The organisers of the 2000 Sydney Games had come to London searching for firms to construct temporary kitchens. PKL was introduced to them by UK Trade and Investment and constructed a

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Global spectacle: the Olympic Stadium will be the focal point during London 2012. Major sporting events have taken over from trade expos in enabling governments to offer a showcase to the world

temporary kitchen at Sydney. Four years later in Athens, this went up to 30, followed by 26 for Beijing, although the number dropped to two for the 2010 Vancouver Winter Games, and one each for the Commonwealth Games in Delhi and the Youth Olympic Games in Singapore. But for London 2012, the firm is putting in 90 temporary kitchens. Peter Schad, commercial director of PKL, says: ‘Major, modern, sporting events are the equivalent of the Victorian Crystal Palace exhibition, providing wonderful business opportunities.’ Many countries which have won the right to stage a major event have used it to publicise its expertise. Australia did that very well from the Sydney Games, but there is no evidence South Africa has received similar benefit from the 2010 World Cup.

Model country Britain has arguably done the best following London’s success in winning 2012, particularly in the fields of public relations and marketing. Brazil, Qatar and South Korea used British know-how to construct their winning bids for the Olympics and World Cup. One man who can speak with authority is Mike Lee, chairman of

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*ABOUT MIHIR BOSE

Mihir Bose is an award-winning journalist, author and former BBC sports editor. He writes a weekly sports interview for the London Evening Standard and also writes and broadcasts on social and historical issues. His latest book is The Spirit of the Game: How Sport Made the Modern World. Bose, also a professional accountant, was consulted by ministers in the run-up to London’s bid for the 2012 Olympic Games. Follow him on Twitter @mihirbose

Vero Communications. He set up Vero following London’s 2012 bid, for which he was head of communications. An adviser to three winning bids – Rio 2016, Qatar 2022 and Pyeongchang 2018 – he says: ‘All of them are economically strong and see major sporting events as part of growth. But each of these countries has its own perspective. Qatar, having used its oil wealth to develop, sees the 2022 World Cup as part of economic diversification and to influence the worldwide community. South Korea wants to develop winter sports in the Pyeongchang region where there has also been much regional investment. Brazil, which is an emerging country and the sixth largest in the world, is expected to be the fourth largest by the time Rio hosts the 2016 Olympics. It sees the Olympics, and the World

Cup in 2014, as significant boosts to inward investment, growth of leisure and tourism and announcing to the world that the country has arrived at the top table.’ Brazilian estimates of the business these two major events might attract range from US$47bn to US$100bn. London 2012 is expected to bring £21bn of business to Britain. But to benefit, a country must organise the event well, which the Indians failed to do with the Commonwealth Games in 2010. Alan Pascoe, chairman of Chime Sports Marketing, says: ‘Had Scotland pulled out, there might have been a domino effect. In contrast, the Kuala Lumpur Games saw the Malaysian gross domestic product increase, and it provides a benchmark for what such events can do for a country.’

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DELOITTE’S OLYMPIC JOURNEY Heather Hancock, lead London 2012 partner at Deloitte, explains the firm’s key role in helping to organise the Games – the thrills, the skills and some very unusual requirements

F

riday 27 July 2012 is a big day for Britain. The Olympic torch will complete the final stage of its journey into the Olympic Stadium in front of an 80,000-strong crowd, 10,500 athletes will be preparing to compete and billions more will tune in across the globe. It is also a big day for Deloitte. We backed London’s bid to host the London 2012 Olympic and Paralympic Games from the beginning, believing in the power of sport to inspire people’s lives and that the Olympics could act as a catalyst for the regeneration of London’s East End. Not long after the government announced its intention to back a London bid in May 2003, one of our partners, Neil Wood, was seconded to the bid committee as chief financial officer. When London was selected to host 2012, Deloitte committed a senior partner team to support the delivery plan, both in the physical development of the Olympic Park and its legacy uses, and directly with the London Organising Committee of the Olympic and Paralympic Games (LOCOG). In 2007, we were chosen to be the first ever official professional services provider to an Olympic and Paralympic Games. Deloitte has committed nearly 700,000 hours to LOCOG and the myriad of other Games bodies, a figure we expect to rise to 750,000 once the competitions begin. Over 130 Deloitte

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people have been on secondment to LOCOG and around 60 will have operational roles at Games time. Over 600 Deloitte people now have London 2012 on their CV, and nearly 50 partners have provided their expertise.

A pop-up blue chip One of our earliest advisory projects was to support the organisational design of LOCOG. In 2005, LOCOG consisted of a handful of people, headed by Seb Coe. To deliver the biggest sporting event on the planet, it will soar to 200,000 people, including volunteers and contractors. This figure will drop by around a third after the Olympic Games and then again, quickly, after the Paralympic Games. It is a hugely accelerated life cycle, like a pop-up FTSE 100 company which has to be built and then dismantled in eight years, whereas most companies develop organically over decades. LOCOG has evolved continuously over its lifetime. It had to go from a small team bidding to win the Games to a larger organisation in planning mode, then become an operational organisation delivering test events, before morphing into its final form, with the exclusive focus of putting on a great Games, followed by an orderly windup. Deloitte’s head of strategy, Sabri Challah, describes the task as ‘a bit like designing a car that could travel on flat roads, rough mountainous terrain and water, all on the same journey.’

Perhaps our most visible project is the programme management by Drivers Jonas Deloitte of three temporary Olympics venues, including the beach volleyball venue at London’s Horse Guards Parade. Transforming the very heart of Whitehall into a showpiece for one of the most glamorous events of the Games is no easy feat, especially when construction access to the site had to be held back to avoid disruption to the Diamond Jubilee celebrations. The team will have just 36 days to build a 15,000-seat arena at Horse Guards Parade. Ordinarily a venue of this size would take 15 months to construct, but the team has a six-week window in which to construct a main centre court, two warm-up courts and six training courts, along with seating for 15,000 spectators, broadcast facilities, catering and toilets. It’s an Olympian challenge in itself. We have played a role across the Olympic family, working with the Olympic Delivery Authority, the Olympic Park Legacy Company, the British Olympic Association and the British Paralympic Association (BPA). Our work with the BPA has been some of our most satisfying. Back in 2007, we started working with disabled athletes and identified that disability sport was an undersupported area. We met with the BPA to tackle the challenge of building a great Paralympic team by creating a pipeline

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Game on: a beach volleyball competition was held in Horse Guards Parade, London, last year to help prepare for the real thing this year

Heather Hancock

of people entering disability sport at grassroots level. The result was Deloitte Parasport, a website which has become the key search engine for disability sport. Visitors are asked to enter details about their impairment and are then provided with a list of sports that might be suitable. Users can choose a sport and find local clubs that have been quality-assured as providing a high standard of accessibility and support for disabled people. Since the site launched in 2007, over 2,000 clubs across the UK have registered with it, and it has received 22 million hits. On average, the site receives 40,000 visits a month, but in May the figure jumped to 60,000 as interest in disability sports increases. Over the next few weeks, the 60 or so secondees still working at LOCOG will shift to operational roles. Many of our people will be working on site, calling the Aquatics Centre, the Velodrome

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IT’S THE ULTIMATE IMMOVABLE DEADLINE AND GIVES US THE OPPORTUNITY TO DEMONSTRATE OUR EXPERTISE THROUGH A HUGE EVENT or Wimbledon their office. This might involve working on the operational management of venues, poised to send in the people who will fix rogue leaks or power problems, or cover for an ill siteteam member. It’s a hugely exciting time for our firm. An inspiring summer of sport lies ahead and hundreds of our people will see their years of hard work come to life.

Quirky challenges With the Games now in sight, I’ve been reflecting on my own experiences over the last eight years. There are so many highlights, but I will allow myself just two. The first is the thrill of delivering the whole of Deloitte’s services in some very quirky ways: like the procurement experts who found themselves working out how to acquire 55 horses of an equivalent high-performance standard for the modern pentathlon. My second highlight is the profound difference we have made to disability

sport in the UK. When you meet an athlete like Sam Scowen, who got into sport through Deloitte Parasport, used a Deloitte bursary to accelerate her competitive edge in rowing, and is now in the GB squad benefiting from the hundreds of thousands of pounds we’ve raised through Deloitte Ride Across Britain, then you know you really are making a difference to people’s lives, and helping change attitudes to disability. The Olympics is one of the world’s most complex business challenges. It’s the ultimate immovable deadline and has provided us with the opportunity to demonstrate our expertise through a huge event with universal appeal. Our work is not yet over; some of our people will be working on the dissolution of LOCOG until next spring, but we can reflect on an extraordinary time as the country counts down the final days to the start of London 2012. Go Team GB!

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CHANGE FOR THE BETTER

This is an edited excerpt from Sir Richard Branson’s book, Screw Business as Usual, published in November 2011. One-hundred per cent of the royalties are going to the Virgin Unite not-forprofit foundation. www.virginunite.com/ screwbusinessasusual

Doing good is good for your business, says Sir Richard Branson. The new owner of Northern Rock recalls how Virgin Money banked on the philosophy

I

’ve always looked on my businesses not just as moneymaking machines, but as adventures that can, I hope, make people better off. The older I get the more I’m inspired to make business investments that can also change the world. There is a real opportunity for businesses and foundations to look at how we can use our investment portfolios as vehicles for change in their own right. There are tremendous opportunities in this area. At the moment, the buzz word – the new phrase – in the world for this type of investment is ‘impact investing’. During one of our leadership gatherings on Necker Island, Alex Friedman, who had recently left his job as CFO at the Gates Foundation, gave an inspiring presentation about the work he was doing to shift philanthropic dollars into investments that would deliver social and environmental impact. Alex wrote in a recent article in the Financial Times, ‘These days, it has become something of a trend to demonise capitalists and praise philanthropists. But if we are to make true progress in tackling our most pressing social

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problems and live up to our moral obligation to help those in extreme poverty, these two seemingly polarised groups need to come together in fundamentally new ways.’ At a broad level, he wrote, four steps are needed. First, foundations could carefully lend against a small portion of their assets not given away each year. Second, financial institutions have a unique opportunity to work with foundations to

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syndicate grant-making opportunities. Third, banks could develop a wider range of social sector finance products. Finally, governments could provide tax incentives for high quality social impact investments both nationally and internationally. Inspired by Alex, we’ve been working with Virgin Unite, some large family foundations, financial institutions and the governments in the UK and the US to look at how we can help encourage financing to flow into investments that will be good for the world. We have the chance to encourage a whole new philosophy around this type of investment, one that gets people excited about meeting a need and delivering a solution – and making money at the same time. Everyone wins. One of the reasons I wanted to get into the banking industry is because I saw the money markets and finance as a way to build bridges between the social sector, big government and business. It’s the natural way in which Capitalism 24902 (see box below) should evolve for a fairer distribution of wealth. I’ve known Jayne-Anne Gadhia since she helped Virgin enter the financial services sector back in the mid 1990s. The business prospered and grew and in 1997 we launched the Virgin One account with RBS. RBS bought us out in 2001 and Jayne-Anne and her team stayed with the bank. I was sorry to lose them, and I said to Jayne-Anne, ‘If at any time you find you don’t like corporate life, give me a call.’ Six years later, she did just that. The timing couldn’t have been better for us. Virgin Money had by then developed three successful product lines: insurance, a credit card and a savings and investment division. But there was no real connection between them, either in the way they were organised or

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in the way they were marketed. So Jayne-Anne’s first and most important job was to come up with a holistic marketing message for those products. She said, ‘I initially started with a marketing thought – what is the thing that binds all these products together? And as we started to think about that, we realised we were looking for our “glue” in the wrong place. The products were the products; what bound them together was the people. Looking at Virgin Money as a community, rather than a profit-making vehicle, made the job of creating a distinctive brand that much easier. It freed us up to

you say to people developing a new product, “You need to tell us how this makes everyone better off”, it actually sets them thinking along lines that are good for the stability and sustainability of the business. We can’t charge one group of customers more than another or less than another. We can’t find a way to tack on a hidden charge. We can’t give duff or ill-considered advice. Why? Because none of those things make everyone better off.’ At a time of huge turmoil and a deepening lack of faith in banking and bankers, Jayne-Anne and I discussed the way banking should go.

‘NO ONE LEAPS OUT OF BED JUST TO READ AN EMAIL OR ANSWER THE PHONE. THEY GET OUT OF BED TO MAKE A DIFFERENCE’ think about what we wanted the bank to feel like. Because no one – no one, not even bankers! – leaps out of bed in the morning just to open an envelope or read an email or answer the phone. They get out of bed to make a difference. We wanted to make a difference we could be proud of and over a few weeks of discussions we hit upon a one-liner that summed up our aspirations. What we actually want to do is make everyone better off. We want to find ways of doing business that benefit both parties. We want to establish win/win business relationships. ‘Making this happen throughout the company had an extraordinary effect. In saying to the whole business, “We’re here to make everybody better off”, people were able to make their own decisions within a clear context that’s normally quite hard to pin down. If

Virgin Money’s clear brand goals have been like spectacles, bringing the whole operation into focus. Now they’ve begun to notice ways of using their existing business to drive quite unexpected change. Take, for example, the curve ball I threw at them in 2006. The London Marathon was looking for a new sponsor and one of my closest personal friends, Andy Swaine, mentioned this to me. I thought this was a great idea, as did Alex Tai from Virgin’s Special Projects Team – if only we could tie it in some useful way to a Virgin brand. Sponsoring a world class race and the world’s biggest annual fundraising event is not something you take on lightly, and certainly not something I would just drop into someone’s lap! Also, every Virgin company is very different. Some have long-standing philanthropic commitments elsewhere;

*CAPITALISM 24902

Virgin founder Sir Richard Branson has encapsulated his new approach to business in the name Capitalism 24902, which is the number in miles of the earth’s circumference. He says: ‘The name had to capture the new level of responsibility that each of us had for others in the global village and how this needed to be a movement that went beyond a handful of businesses or one country.’

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Virgin Money Giving is the official sponsorship engine for the London Marathon and gets up to 25,000 hits a day others are start-ups that are devoting every spare hour to their survival; some lack the resources to take on a task of this scale. All I could do was ask, ‘Jayne-Anne, the London Marathon sponsorship is available. Would you be interested in taking it on?’ Her silence spoke volumes. I have to admit my first reaction had also been ‘What has the London Marathon to do with a financial services business?’ Yes, the marathon is the single biggest annual money-raising event on the planet. It raises over £50m per year. But that in itself was a problem. Virgin Money is typical of the Group in that it punches well above its weight. It has three million customers, but only 450 staff (even fewer when I phoned JayneAnne that day in 2007). The London Marathon was a major investment. Unless the fit between Virgin Money and the London Marathon was watertight, Jayne-Anne could be staring at the loss of a lot of money. There was another problem which made the idea even more tricky. Small though it was, Virgin Money was still employing too many people. So how could Jayne-Anne consider asking people to go and at the same time take on a major philanthropic cause? Money is always tight, especially in relatively small companies. How could we actually make that very significant investment

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work for us and help our brand? Pondering it, Jayne-Anne suddenly had a light-bulb moment. Virgin Money wasn’t a health business or a clothing company. They did handle money, though, and they knew how to handle deposits and withdrawals. How did the runners who took part in the marathon handle money? How were all those thousands of individual sponsorship efforts processed? Jayne-Anne discovered that many of those transactions take place through an online charitable donation site called JustGiving. If you’re going to climb a mountain, or run a marathon, or bathe in beans, you can ask your mates to sponsor you through JustGiving. Your sponsor can make their financial donation through JustGiving’s online engine. It’s a nice idea, but there’s a problem. JustGiving is a commercial enterprise. For Jayne-Anne it was a heaven-sent opportunity. She realised that Virgin Money could operate a much better online donation engine. We had the hardware, the know-how, and we had the people – people who, only the day before, we had been thinking of making redundant. It was a brilliant solution – if she could get it to work. I love it when our Virgin machine moves smoothly into action to solve problems and make things work. In

record time, we set up Virgin Money Giving with a wonderful woman, Jo Barnett, at the helm. So, rather than put a lot of friends out of a job, we set them this great task of developing a not-for-profit online charitable donation system, and we made that engine, Virgin Money Giving, the sponsorship engine of the London Marathon. This provided a service for the runners and their charities, and made the Virgin Money brand really visible in a meaningful way. It justified and explained our involvement in the marathon. It gave us the natural, watertight fit we needed between the event and the brand. Virgin Money Giving has already grown to be the online donation platform for over 4,000 UK charities across many thousands of organised events and personal challenges. The 2010 London Marathon collected more sponsorship money than it had in any previous year. It even got me running. In the first year Virgin Money Giving collected £25m in donations. The Virgin Money Giving website gets up to 25,000 hits a day. And thousands of pounds have gone to charity. All of our people are enormously proud that we’ve done it. It’s been a real demonstration of what we mean by making money while doing good. At a time when banks were perceived as just being in it for as much money as they could screw out of the customer, Virgin Money was showing that profit wasn’t our only motive. They gave back and they had fun. Truly a win-win that once again illustrates how doing good things can also do good things for a business and the morale of its most important asset, its people.

Across its companies, Virgin’s global branded revenues were around £13bn ($21bn) in 2011. Virgin Unite, its non-profit foundation, implements programmes and campaigns around issues such as health, economic empowerment, conservation and climate change.

20/06/2012 17:22


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THE AUDIT BRIEF The European Parliament’s legal affairs committee spokesman Sajjad Karim MEP gives us an inside view on European Union moves to reform the audit market

T

he task of achieving agreement on legislation to reform the European audit market might make many a politician quiver. But Sajjad Karim, a Conservative MEP representing North West England, is taking a cool, calm approach. Karim is the European Parliament’s legal affairs (JURI) committee spokesman and the parliament’s lead negotiator on the draft legislative package proposed by the European Commission in November. The audit brief falls under the co-decision process, meaning that any legislation can be adopted only if both the European Parliament and Council of the EU reach agreement. He is aware of the enormity of the task facing him. ‘If there was one word I would use it would be “challenging”,’ he says. ‘It’s intellectually stimulating. Politically there are a broad range of views, and the context is all very real.’ Though the current economic turmoil across Europe is not a direct result of audit market failure, he notes, it is symptomatic of a general lack of confidence in the status quo: ‘There is a concentration of a small number of players and that brings with it risk factors which have to be addressed.’ Conscious of the many strong views held on audit reform, Karim is keen to ‘operate slightly removed from cuttingedge politics’. He says: ‘There is too much at stake to allow emotions to be setting the agenda. I take it on myself to be open to hearing representations from virtually everybody, whether it’s the

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profession, industry, the banking sector, Big Four players and smaller firms, or other politicians from all political persuasions – so that everybody can have input. That includes reaching out to the commission to have a proper negotiation exercise and debate, and to narrow down the areas where we can reach agreement. Where we can’t reach agreement, then of course we will allow democracy to take its course.’ Karim has already had a discussion with financial services and internal markets commissioner Michel Barnier. ‘I got the impression he is quite willing to sit down and go through a rigorous exercise, so we ultimately move forward with a system that is a substantial improvement on where we are.’ As negotiations progress, Karim expects most debate to centre around mandatory rotation, dual audits and non-audit service provision. There is likely to be much discussion in general about how to achieve greater competition in the audit market. ‘I am a free-trading liberal,’ he says. ‘I am firmly signed up to the idea that increased competition is always

better in these circumstances. But I don’t believe it is our role to use this particular framework to carry out an exercise in manipulating markets.’ He is hoping for meaningful input from the European Parliament’s new impact assessment unit, which will review the commission’s case for its proposals, including whether they might lead to greater competition. Karim will not be drawn into speculation on what final audit reforms could emerge. ‘I have no doubt there will be substantial amendments moved to whatever piece of work I come up with,’ he says. ‘That is part of the democratic exercise.’ He is also wary of committing to any timetable. Nevertheless, towards the autumn his team could develop a draft report, on which the JURI committee might vote in December. The timetable will try to take account of relevant work taking place elsewhere, including that of the UK Competition Commission. ‘I believe we should allow space for work that will prove beneficial to us to be completed,’ Karim says. ‘Alongside that, I have firmly in mind that any undue delays are not going to help in terms of providing the clarity that both the profession and the business world want on this. So striking a balance is important.’ Sajjad Karim was interviewed at an ACCA roundtable event in June that discussed the EC audit proposals. The resulting paper can be found at www.accaglobal. com/audit Sarah Perrin, journalist

19/06/2012 12:12


A good MBA plugs you into the latest business thinking “Right from the start I recognised completing an MBA would require a significant commitment in terms of time, but the flexibility of the Oxford Brookes University global MBA which allowed me to decide where and when I could study really appealed to me. The course includes access to a virtual library of business articles and up-to-date reports 24 hours a day – which were key to successfully completing each module and broadening my understanding of business as a whole.” 

Caroline Tucker MBA FCCA senior finance officer, Virgin Media


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Business finance

Inside track: a banker’s view [

In the second of a series of articles on access to finance, Rebecca McNeil, head of business lending at Barclays Business, looks at how to make successful funding applications

First, be clear about what you can expect of your bank before, during and after making a finance application. It’s not just about understanding what the bank expects of you. Many entrepreneurs applying for bank finance already have a relationship with that bank, so their local business manager won’t be a stranger. But whether approaching a business bank for the first time or not, having a face-to-face conversation is a good option. Banks like Barclays will have business managers across the UK who should be ready, willing and able to offer advice from day one of your business – or even from the moment you begin developing a business idea. That said, you should generally expect your business bank to be able to engage with you in the way you prefer, which may not always be in person. You should be able to receive online and telephone support and services if you wish. You may even be able to organise bank finance this way too. For example, at Barclays, existing customers may

Q:

My business is developing well and I now need bank funding to help it grow. How can I maximise the chances that my funding application will succeed?

loan against a property*. Your business manager should be able to explain what you can expect to pay and when. If you are still at the information gathering stage, look out for any free seminars run in your area by banks or other small business service providers. These can give useful information on a wide range of business and finance topics, from business idea generation to marketing, accounting and managing your finances. These kinds of seminars can also provide good opportunities to network and to tap into the ideas of other entrepreneurs. Barclays runs a range of free seminars – go to www.barclays.co.uk/seminars

IN THE SAME WAY YOU’D EXPECT CERTAIN SERVICE QUALITIES AND STANDARDS FROM YOUR BANK, THE BANK TYPICALLY HAS EXPECTATIONS OF YOU be able to arrange smaller, unsecured loans and overdrafts up to £25,000 by talking to a lending specialist over the phone, with no face-to-face meeting required, or applying online. However you make contact, any reputable bank you approach should be able to give you clear and transparent information on lending rates and all fees and charges associated with different finance products. Not all of these will be charged by the bank, but could include solicitors’ or valuers’ fees, for example, if you are securing a

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Bank expectations In the same way that you’d expect certain service qualities and standards from your business bank, the bank typically has expectations of you. Meeting them can help to give your application the best possible chance of success, particularly for larger lending. First, the business manager will be looking for you to demonstrate a clear vision of what you want to do with your business and, as that vision develops, to capture it in a clear business plan. (See our previous article in the April

issue of Accounting and Business for more advice on what makes for a clear plan.) In essence, the business plan needs to cover all the practical aspects of running your business, including resources needed, target markets and marketing strategies, and financial projections. It is always worth having your plan reviewed by someone independent of the business to make sure it stacks up. A professional adviser such as an accountant, or your mentor if you have one, can provide a useful sounding board. Second, your business manager will prefer to talk to you earlier rather than later. An open dialogue can help establish business goals and growth plans, which will inform the finance structure your business will require as it develops. Note that when you talk to your business manager you don’t already need to know what kind of finance your business requires. The business manager is there to help you with this, identifying suitable options and talking you through the details. There is no harm, of course, in doing some preparatory independent research. As highlighted in the first article in this series, there are lots of sources of information – and finance – available. It is also worth spending a little time clarifying your requirements: exactly what you want to achieve with the borrowed funds, what you have to offer as security*, how much you are willing to put in yourself, and what interest and repayment levels are affordable each month.

Smooth applications The more prepared you can be, the smoother the funding application process is likely to be. Banks have a duty to ensure they are lending responsibly, so at your finance application meeting your business

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manager will typically want to talk through your business plan in some detail. Assuming your business concept is sound, he or she will be keen to help your funding application succeed. Business managers will work with you in a constructive way to ensure that your business plan is appropriate and, if necessary, to help you address any gaps. As well as talking through your business plan, the business manager should clearly explain all the details of your preferred finance solution. It is important you fully understand the pricing structure, terms and conditions and all other small print – essentially the commitment you are making – before the application goes ahead. Make sure you tell the business manager about any key timelines for the business and the funding it needs. For example, if there is a key date by which you need funds in place, make sure the business manager knows this and they can give guidance on whether this is achievable. Once you are comfortable with the details of your preferred finance solution, your business manager could submit your application there and then. Therefore, make sure you take any requested documentation with you

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to the meeting, such as your passport or other form of proof of identity. The bank should tell you exactly what you will need. Having to drop documents off later unnecessarily slows the application process down. If you are going to need the services of a solicitor or any other professionals, it’s worth lining them up in advance too. Once your application has been made, look out for further information requests from the business manager. If any queries arise in relation to your

application, your business manager will typically help you address them. If for any reason you haven’t heard from the business manager about the progress of your application when you think you should have done, don’t be nervous about getting in touch. The bank’s business manager is there to provide a service to you, so don’t hesitate to make full use of it. * Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage.

*ONLINE ADVICE ON BUSINESS FINANCE

This article is just part of a new partnership between ACCA and Barclays, which is helping SMEs to grow The initiative extends to a jointly branded area of ACCA’s website providing advice to accountants in practice and SMEs on obtaining business finance. Written by experts from both Barclays and ACCA, the site: looks at the different types of finance available explores what to consider when choosing which one is the right option for their business explains how different types of loans are structured provides guidance on making that all-important loan application.

* * * *

There are also examples on the site of business plans and cashflows to help put together an effective loan application.

THE ACCA/BARCLAYS WEBSITE IS AT: www.accaglobal.com/en/business-finance.html

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Comment

Collecting the gender dividend [

The argument for having women on the board has been won, but implementing gender-balanced teams of directors is going to take a lot more effort before the job really is done, says Robert Bruce

The task of empowering women in business should not be too difficult. On the surface, ensuring that women have an equal chance to make their mark in business is a no-brainer. In the words of President Obama, all that’s required is that our daughters have the same opportunities as our sons. But the reality is different. On nearly all measures women continually lag behind men, whether by numbers in the boardroom or as non-executive directors, by numbers gaining promotion, or by school-leavers moving into a business environment. This matters. It is not just a simple mark of equality. It is about making business work better and about business and management being more effective. Diversity makes a real difference at the decision-making level. And more women in the management structure produces a ‘gender dividend’. There can be very little doubt that, after the great financial crash, more

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diversity is urgently needed. As CBI president Roger Carr, chairman of Centrica, pointed out earlier this year: ‘I remain utterly convinced that better decision-making does result from greater board diversity.’ And in its 2009 report Corporate Governance and the Financial Crisis, the OECD made the point that board failures were due to ‘clubby boards’ of like-minded people indulging in disastrous groupthink. So in many ways the arguments have been won. What is required now is a way of implementing all the different measures to bring it about. A good source of all this is provided by a report from the Business and Industry Advisory Committee to the OECD

(BIAC) and the American Chamber of Commerce in France. Called Putting ALL of our Minds to Work: Harnessing the Gender Dividend, the report is based on an OECD workshop held earlier in the year. It pulls together the evidence, looks at the different efforts being made around the world, provides the detail of how the accelerating trend towards women’s economic empowerment is bringing about change, and offers a toolkit of corporate best practices.

Participation paradox The report also highlights what the US ambassador to the OECD, Karen Kornbluh, calls ‘the gender participation paradox’. At the report launch, she said: ‘We know more girls than ever are getting an education and entering the workforce, so many people assume: “job done”. Yet we still see too little change in top management or in the ownership of assets.’ As the report shows, many different efforts are working. Some countries impose a quota for the number of women on company boards. Others, like the UK, follow a voluntary route with targets. Many countries support schemes which provide assistance, mentorship and other measures to increase and strengthen the number of women in senior management and on boards. In Italy, female members of the Italian parliament, taking their chance in the midst of a bout of constitutional chaos, put aside party boundaries and got a quota system passed quietly into law. In the UK, as an example, the 30% Club, made up of UK chairmen committed to bringing more women onto boards, has a very active investor group. Emma Howard-Boyd, governance director with Jupiter Asset Management, says: ‘We are keen for

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progress to be businessled and measurable in terms of output and as the months go on we are seeing a greater number of appointments in the FTSE 100.’ But the progress of women through management hierarchies is a problem. Known as ‘the leaky pipeline’, it presents the real challenge to embedding true diversity in business, particularly in the upper echelons. Howard-Boyd agrees: ‘The biggest barrier is the executive pipeline.’ Yet the seismic change in this landscape is helping. ‘As investors we are looking for progress in our conversations with chairmen and other non-execs,’ she says. ‘Typically it is not an issue we are having to raise with larger companies; chairmen have it clearly on their agenda.’ This means that the number of women non-executive directors is rising satisfactorily. The difficulty is bringing enough women through at the executive level. ‘The larger companies are on track for non-execs,’ says Howard-Boyd. ‘But for executive directors it will be more long term.’

The groupthink trap One change which will steadily nudge companies in this direction will be an amendment to the UK corporate governance code, which comes into force in the autumn, on disclosure of a company’s policies and progress in this field. The Financial Reporting Council underlines its importance: ‘A lack of gender diversity around the board table may weaken the board by encouraging “groupthink”. Low percentages of women on boards may demonstrate a failure to make full use of the talent pool and boards with no, or

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Viviane Reding, European justice commissioner, flanked by Italian MPs Alessia Mosca and Lella Golfo, who combined to push through a gender quota system very limited, female membership may be weak in terms of connectivity with, or understanding of, customers and workforce and offer little encouragement to aspiration among female employees.’ All this underlines the recommendations of the BIAC report. Diversity makes the difference. The report quotes Deloitte: ‘Organisations that gain the dividend of gender diversity are seeing better bottom line results because they fish from a bigger pool of talent, thereby accessing a deeper level of knowledge and

leveraging those resources throughout the business value chain for better business outcomes.’ Or we can simply go back to what Steve Jobs, architect of the Apple business, said about diversity: the more diverse your decision-makers the more dots you have to connect. The Putting ALL of our Minds to Work report is available at http://tiny.cc/ nc94fw Robert Bruce is a commentator and journalist

*DISCLOSURE ON DIVERSITY

The UK Financial Reporting Council (FRC) has introduced changes to the corporate governance code which will ensure that companies report on diversity for financial years beginning on or after 1 October 2012. However, it stressed: ‘In view of the importance of diversity to the effective functioning of boards, the FRC would strongly encourage all companies voluntarily to apply and report on the intended additions to the code with immediate effect.’ The proposals mean that: ‘A separate section of the annual report should describe the work of the nomination committee, including the process it has used in relation to board appointments. This section should include a description of the board’s policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives. Evaluation of the board should consider the balance of skills, experience, independence and knowledge of the company on the board, its diversity, including gender, how the board works together as a unit, and other factors relevant to its effectiveness. The chairman should act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the board and, where appropriate, proposing new members be appointed to the board or seeking the resignation of directors.’

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Comment

Lift-off or rip-off? [

By the end of the year, crowdfunding will be a very modern way for business startups in the US to tap unused capital pools, but not everyone is convinced of its benefits. Peter Williams explains

Earlier this year, independent film maker Chris Riley asked enthusiasts to crowdfund his latest project, a multilanguage DVD and Blu-Ray version of his internet movie, First Orbit. He raised US$6,000, short of his initial goal but enough to produce the discs to tell the story of Yuri Gagarin’s historic space flight around the Earth in 1961 in 30 languages. At its simplest crowdfunding is a way of turning anyone with an internet connection into a potential client, lender, donor or supporter. Crowdfunding derives from another neologism, crowdsourcing – or using the wisdom of crowds to solve problems. Open-source software and Wikipedia are the best examples of crowdsourcing. Crowdfunding is the same idea applied to finance. You could argue that insurance or mutual friendly and building societies are examples of crowdfunding, but

its proponents say there is something new about the process, which goes beyond giving cash to a cause or the neighbourhood restaurant. So far crowdfunding is as much about fans as about credit. It performs particularly strongly where there is a sense of involvement, an emotional attachment to a product or idea. One of the UK’s most ambitious crowdfunding initiatives is one of the earliest. Started in 2008, Myfootballclub runs Conference League side Ebbsfleet United; legally an industrial and provident society, it describes itself as ‘the world’s first web-community-owned club’.

But if crowdfunding is to be really transformative, it needs to move beyond the emotional – a heart investment – where returns are measured in warm feelings rather than hard cash. It needs to prove it can add value in purely commercial terms. For this to happen consultant Rachel Botsman suggests we may need to shift our thinking. Her thesis (she wrote a book, What’s Mine is Yours: The Rise of Collaborative Consumption) is that reputation, community and shared access are going to matter as much as credit, advertising and individual ownership. She says that for this to work, we must have the ability to connect trustworthy strangers together. Her argument is that technology is taking us back to old ways of trading, bartering, sharing and… yes, lending. This happens because the technologies – social, mobile and location – are coming together to underpin efficiency and trust. It’s no longer just a theory. A key part of president Obama’s Jumpstart our Business Startups Act (JOBS) is to allow emerging growth companies to raise up to US$1m a year through crowdfunding. That will happen as soon as the US regulator has worked out safeguards for the practice. JOBS has crystallised two schools of thought on crowdfunding in the US: some see it as a way to release entrepreneurial spirit by bypassing traditional and failing credit systems, while others see it as a green light for fraudsters to fleece naive investors. So it seems we will soon be able to verify whether digital strangers are to be trusted. If they are, then crowdfunding could come of age and a financial revolution could be upon us. Peter Williams is an accountant and journalist

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19/06/2012 12:25


Comment

33

The perils of pragmatism [

The International Accounting Standards Board and its US counterpart have settled their differences over an accounting approach for leases, but compromise has created its own problems, says Jane Fuller

It is 20 months since I attended a conference where Leaseurope, an umbrella body for leasing company associations, judged the proposed International Financial Reporting Standard (IFRS) ‘probably unworkable’. Since then the most controversial details have been pruned and, on 13 June, the International Accounting Standards Board (IASB) and its US counterpart, the Financial Accounting Standards Board (FASB), agreed on a lease accounting approach. A revised exposure draft will be issued in the fourth quarter of this year, but an important milestone has been reached: the one that affects those precious profit numbers. The development of this standard has been a test of the IASB’s pragmatism and willingness to listen to its ‘constituents’ – users of accounts, preparers and so on. It has also been a test of convergence between IFRS and US GAAP, which appeared to have stalled. However, the standard is not out of the woods. The outcome tacks back to a distinction between different types of lease, as exists now between operating and finance leases under IAS 17: Leases. So an opportunity to have one accounting principle for a ‘right of use’ asset has been lost. A hybrid model is proposed for treatment in the income statement. Property leases will be amortised in a straight line. This is because the lessee typically consumes little of the underlying asset, so the payments look very like rent – or an operating lease. For other leases, the right-of-use asset is amortised in a straight line and the financing element is split out. This gives a higher effective interest cost upfront, which reduces in line with the carrying value – much like a finance, or capital, lease.

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This not only reverts to different treatments but muddies the view of the asset: is it an intangible right of use with discrete cashflows and obligations, or part of something physical that remains owned by someone else? It is easy for the debate on the nature of ownership to become philosophical. In practice, the latest proposals are a concession to the retail sector. They also acknowledge limits to the amount of change both users and preparers

can stomach. Retail analysts were as likely to want to keep the straight-line, operating model as preparers, who realised that the portfolio effect would smooth out the ‘upfront’ interest issue. A more subtle divide between analysts saw some argue that you should look through to the underlying asset on all occasions. This means differentiating between compensating the asset owner for a) consuming part of it, and b) the capital used. Pursued to its logical conclusion, there would be different patterns of consumption versus financing costs for different types of asset. The boards are trying simply to apply this approach to assets like property, where the lessee consumes an insignificant portion of the value of the underlying asset. There is nothing simple about this. Nice as it is to compromise, the accommodations create their own problems. These include opportunities for structuring around the line that divides one type of accounting from the other. Similar transactions will be accounted for differently by different companies and earnings before interest, taxes, depreciation and amortisation (EBITDA) will be manipulated. To counter this, there will have to be extensive disclosures to show how the judgment was arrived at. Cue complaints from the industry that those requirements are too onerous. In the end the prize for this standard is to bring lease assets and liabilities on to the balance sheet. Hooray for that. Haggling over what goes in the income statement ought to be a secondary issue. But we all know how precious those profit numbers are. Jane Fuller is former financial editor of the Financial Times and codirector of the Centre for the Study of Financial Innovation think-tank

19/06/2012 12:10


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Comment

Roar power

[

The emergence of Africa’s ‘lion markets’ sets another big cat loose in the global economy, says ACCA president Dean Westcott

For many years there was a favourite business saying that the African economy was a sleeping lion and the world would know when it finally woke up. It may now be time for the rest of the world to wake up. The phenomenal growth in the continent over the past decade has outstripped that of East Asia, with the World Bank reporting that sub-Saharan African economies have been growing at rates that match or surpass the rest of the world. As a result many countries in Africa have earned the nickname of ‘lion markets’, putting them alongside the ‘Asian tigers’ and ‘Latin pumas’ as fast-growth economies. The growth has led to many international agencies investing more in emerging African economies, which have defied the global economic recession and are providing some of the highest rates of return on investment in the developing world. Through its long association with Africa – many of our African country offices were set up more than 50 years ago – ACCA has had a front row seat when it comes to the development of economies and the accounting profession on the continent. ACCA has 10,500 members and nearly 83,000 students in sub-Saharan Africa. This is why we felt it was important this year to hold ACCA’s annual Council meeting in Nairobi, Kenya, due to take place as Accounting and Business goes to press. It will give Council members a better understanding of developments in Africa and how these impact accountants, and let them see what ACCA can do to support them. Council will not only meet with ACCA members in Kenya, but see – through visits to Tanzania, Uganda and Ethiopia – how members in East Africa are contributing to the economy and profession in their respective countries. It will help Council to connect with ACCA’s partners, the profession and policymakers in the region, and to show how ACCA’s work is bringing value to employment markets. Many stakeholders have told us that for Africa’s economic potential to be fully realised, strong national professions are essential. ACCA aims to continue to contribute to the development of national professions, working through its members to ensure that the lion markets continue to roar. Dean Westcott is interim CFO, West Essex Clinical Commissioning Group, UK

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19/06/2012 13:35


Practice

SMES ‘UNPREPARED FOR LAW’

Almost a third of UK small and medium-sized businesses (SMEs) are unprepared for major pension law reform that will be in place from October, according to a survey by RSM Tenon. This will create a legal requirement for every employer to automatically enrol the vast majority of their workforce into a suitable pension scheme and make contributions on their behalf. Employers will have the option of using an existing or new pension scheme, or adopting the government’s National Employment Savings Trust. Auto-enrolment will be phased in between 2012 and 2016. A mere 12% of SMEs have fully forecast the costs of auto-enrolment into their planning, found RSM Tenon. John White, RSM Tenon’s head of financial management, said: ‘This research clearly shows that many businesses aren’t prepared, and employees should be concerned.’

The view from: South Wales: Tony Down FCCA, owner, Venture Consultancy Network and chair, ACCA Practitioners’ Network Panel Q Why did you choose a career in accountancy? A When I was 16 I had no plans to become an accountant and was due to start work in a local factory after leaving school. My father was an accountant and ran his own practice. When it came to the summer holidays he told me that I would be useful in his office. So, off I went for what I thought was a job just for the summer. Q What challenges have you had to overcome? A When I left school I had no real formal qualifications. Over the years I achieved O-Levels and a BTEC Ordinary National Certificate in business studies. This enabled me to enrol as an ACCA student. There were times when [the study] was tough, and I had to be determined. Q What has been your biggest achievement? A There are big moments that I am so thankful for. Meeting my wife, being at the birth of our three children and still being part of their lives has been a huge achievement – although I’m still learning… and making mistakes! Professionally, making the decision over 10 years ago to start my own business has been my biggest achievement. The journey hasn’t always been smooth, but it has been exciting and well worth making.

ADVISERS FEAR REPRIMAND

Regulatory initiatives designed to protect consumers may encourage advisers to provide excessively safe advice and promote only low-risk products, warns KPMG. Tom Brown, its European head of investment management, said: ‘Our research found that many financial advisers fear being punished by the regulator for mis-selling riskier products. As a result they may be over-cautious. An appropriate and well-managed level of risk is essential to all long-term investment strategies, as the typical investor wants the chance of a better rate of return.’

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Q What are your career ambitions? A To build leaders within my own business. Giving younger leaders the opportunity to bring in new ideas is vital to ensure that the business remains relevant. I mentor leaders within my own business, and also those who have gained experience from working with me, and have started their own businesses or moved on to other organisations.

35 Practice The view from Tony Down of Venture Consultancy Network; British Accountancy Awards 39 Corporate The view from Rachael Williams of IBM; tax roundtable; improving corporate reporting; making the most of remote delivery; the US’s outsourcing lead; Scottish companies and their carbon footprints 52 Public sector The view from Neil Reddin of the London Borough of Bromley; solutions to environmental audit 55 Financial services The view from Sharon Critchlow of Citimark Partnership; City MP Mark Field’s mission for London

FAST FACTS

Location: Abercynon Interests: Watching my son play rugby for the Cardiff Blues, going to the gym and reading

20/06/2012 15:45


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Practice

Do you deserve an award? The deadline for this year’s prestigious British Accountancy Awards is looming. We take a look at the very real business benefits enjoyed by previous winners Accountancy firms have had to work harder, smarter and faster than ever to keep their clients on an even keel, while maintaining their focus on good practice management. As can be expected in such tough business conditions, some firms have fared better than others. Those with a clear vision of service delivery, and teams pulling in the same direction, will have found clients clamouring for their help through faltering markets. And this help is vital where businesses lean so heavily on the accounting profession to advise and steer. It is those firms, achieving great things in difficult conditions, which ACCA and Accountancy Age intend to recognise and celebrate with at this year’s British Accountancy Awards. The British Accountancy Awards are the only national awards dedicated to accountants in practice, from small niche firms to larger regional, national and global players. The British Accountancy Awards replaced the longstanding Accountancy Age Awards last year, and proved

incredibly successful, culminating in a glittering evening at Old Billingsgate in central London. The ceremony highlighted a plethora of winners from a range of firms. Last year’s winners included Lamont Pridmore, Hart Parry, Coalesco, Carter Backer Winter, KPMG, Greenstones, and Elman Wall. Andrew Leck, head of ACCA UK, says: ‘ACCA is delighted to partner Accountancy Age on these awards, and to support our members and firms. There are real benefits to entering and winning. As part of last year’s judging process I was greatly encouraged to see firms of all sizes, from all parts of the UK, taking part and I expect this year’s nominees to be equally diverse.’

Top judging panel Judging the entries is a serious, but rewarding task. Last year’s judges for the British Accountancy Awards included some of the UK’s most senior professionals from across business, practice and regulation. Participants included London Zoo FD Mike Russell, Hiscox FD Stuart Bridges, R3 president Frances Coulson and FSA internal audit director Rosemary Hilary.

*AWARDS CATEGORIES * Practice excellence awards

firm *Global National firm *Mid-tier firm *Independent firm, North *East England firm, North *Independent West England firm, Scotland *Independent Independent firm, Wales *Independent firm, Northern *Ireland *Independent firm, Midlands

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Independent firm, South West England Independent firm, South East England Independent firm, Greater London Independent firm, Eastern England Independent firm of the year Training provider Community

* * * * * *

Employer award

*

Best employer

Already confirmed for this year are former IASB chairman Sir David Tweedie, last year’s Outstanding Contribution Award winner Jeremy Newman, practice liability expert Jane Howard, and ACCA’s Leck. Kevin Reed, editor of Accountancy Age, says: ‘It would be great to follow on from last year’s awards with another competitive shortlist of strongperforming practices. I really look forward to hearing the success stories. We’re delighted to work closely again with ACCA to celebrate firms’ great achievements.’ Individuals do not have to be ACCA

Individual excellence awards

accountant *New Accounting technician *Training manager *Outstanding contribution *

Project excellence award

*Software package

Audit and tax excellence awards

global firm *Tax, Tax, national, mid-tier, *

independent firm Audit, global firm Audit project, national, mid-tier, independent firm

* *

For full information about the British Accountancy Awards, including details of all the categories, advice on how to enter, entry criteria and details of how to book your table, go to www. britishaccountancyawards. co.uk

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*HOW TO ENTER

The awards are open to all accountancy firms in the country including non-ACCA firms. To enter, log onto www.britishaccountancyawards.co.uk for full details of the criteria for each award, register online and select your categories. Fill in the entry statement and upload any supporting documentation. The deadline for entries is Friday 20 July. Judging will take place in September and the shortlist announcement will follow shortly after.

members to enter. The British Accountancy Awards are for the entire industry, celebrating success from across institutes and from all around the country. A host of awards categories recognise the broad range of expertise, geographic reach and unique propositions offered by the UK’s accountancy firms. Each category has robust and demanding new criteria – from innovation and growth through to professionalism and measurable success. Full details are available at www.britishaccountancyawards.co.uk Last year’s winners benefited enormously from the increased recognition the accolade gave them: from increased marketability to clients, to boosting their profile with prospective new staff.

UK_YPRAC_awards.indd 37

*WHERE AND WHEN

The British Accountancy Awards ceremony, on Wednesday 21 November at Old Billingsgate Market in London, promises to be a spectacular industry event. You don’t have to be a finalist, or even to have entered an award to attend. For full information about the awards including details of all the categories, advice on how to enter and details of how to book your table, go to www.britishaccountancyawards.co.uk. Good luck!

Linda Frier from Midlands firm of the year Coalesco says: ‘The local PR we received was really nice. It’s been well viewed in the local community, raising profile at a time of high competition.’ Success in the awards has become part of Coalesco’s promotional campaign in 2012. The firm uses the British Accountancy Awards logo across all its promotional material, including letterheads and its website. Frier says: ‘It’s been highly motivational for our staff as it was an entry submitted by everyone here. It has assisted in our recruitment process as well. We’d had high growth in a highly competitive marketplace, and that’s been retained as a result of our award. The judges’ comments are shown to potential clients.’ Simon Chaplin, managing director of

Greenstones, picked up the South East Firm of the Year Award and the Employer’s Excellence Award. ‘Thirdparty recognition has boosted team morale,’ he says. ‘It has motivated staff, as they attended the event.’ As a member of the AVN association of firms, Greenstones found further promotional opportunities arose. Chaplin says: ‘AVN flagged up the wins in its newsletter, and lots of people at AVN events have been interested in our wins. It has helped grow our credibility.’ Publicity has not been restricted to the profession. A press release mailshot by Greenstones was picked up by regional press. Chaplin says: ‘It’s helped with awareness raising. It’s up on our website and has been on our email footers.’

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DATA PAGE Bank Base Rates

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

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

Retail Prices Index

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

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

Source: Barclays

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

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

July 2012

Figures compiled on 13 June 2012

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

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

Existing Borrowers - Source: Halifax

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

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

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

13th January 1987 = 100

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

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

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

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

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

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

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

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

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

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

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

2012 3.9% 3.7% 3.6% 3.5%

Source: ONS

HM Revenue & Customs Rates “OFFICIAL RATE”*

Effective Date 6.3.99 6.1.02 6.4.07 1.3.09 6.4.10

Rate 6.25% 5.00% 6.25% 4.75% 4.00%

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

INTEREST ON UNPAID / OVERPAID INHERITANCE TAX

Effective Date 27.1.09 24.3.09 29.9.09

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

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

Effective Date 6.12.08 6.1.09 27.1.09 24.3.09 29.9.09

Rate 5.50% 4.50% 3.50% 2.50% 3.00%

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

Effective Date 6.11.08 6.12.08 6.1.09 27.1.09 29.9.09

Rate 2.25% 1.50% 0.75% 0.00% 0.50%

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

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

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

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

Late Payment of Commercial Debts From 1.7.10 1.1.11

To 31.12.10 30.6.11

Rate 8.50% 8.50%

From 1.7.11 1.1.12

To 31.12.11 30.6.12

Rate 8.50% 8.50%

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

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

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

2010 2011 0.62% 0.77% 0.64% 0.80% 0.65% 0.82% 0.68% 0.82% 0.71% 0.83% 0.73% 0.83% 0.75% 0.83% 0.73% 0.89% 0.74% 0.95% 0.74% 0.99% 0.74% 1.04% 0.76% 1.08%

2012 1.08% 1.06% 1.03% 1.01% 0.99%

3 MONTH INTERBANK - closing rate on last day of month

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

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

Courts ENGLISH COURTS

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

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

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

Whole GB economy unadjusted *Provisional

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

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

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

2012 238.0 239.9 240.8 242.5

Source: ONS

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

2011 4.3% 1.0% 2.1% 2.5% 2.4% 3.3% 3.0% 2.1% 1.8% 2.1% 2.1% 2.0%

2012 0.1% 0.7% 0.1%*

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

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

2012 514.2 514.3 528.9 521.7 523.6

Figures include bonuses and arrears Source: ONS

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

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

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

All Houses (January 1983 = 100)

Exchange Rates

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

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

% Change Average Weekly Earnings

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

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

2006 2007 2008 2009 2010 2011 2012

YEN 205 233 198 142 142 133 132

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

Source: Halifax on last working day

€ 1.43 1.47 1.25 1.08 1.12 1.13 1.20

2006 2007 2008 2009 2010 2011

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

€ 1.48 1.36 1.04 1.13 1.17 1.20

Income Support Mortgage Rate Effective Date Rate

Effective Date Rate

Effective Date Rate

17.12.06 18.2.07 17.6.07

12.8.07 13.1.08 16.3.08

18.5.08 16.11.08 1.10.10

6.58% 6.83% 7.08%

7.33% 7.08% 6.83%

6.58% 6.08% 3.63%

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

SCOTTISH COURTS

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

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

Data specially compiled for

by

the adviser’s portal

www.moneyfactsgroup.co.uk

The UK’s largest provider of savings and mortgage data

Tel: 01603 476 476

Datapage-July12.indd 1

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Corporate

ASSUMPTIONS CHALLENGED

The Financial Reporting Council (FRC) and Financial Services Authority (FSA) have published a joint consultation paper proposing changes to the actuarial assumptions made in projecting pension scheme financial returns. The FSA is proposing to reduce the intermediate projection rate for tax advantaged retail investment products, such as personal pensions, from 7% to 5%. The FRC is seeking views on whether the maximum projection rate used in statutory money purchase illustrations (SMPIs) should also be reduced from 7% to 5%, or whether the maximum rate should be removed. Commenting on the consultation, Jim Sutcliffe, chairman of the FRC’s Board for Actuarial Standards, said: ‘SMPIs contain important information about how much people might receive at retirement. The assumptions used for future returns need to be justifiable and reasonable.’

COMPANIES FAIL TO PREPARE

Half of UK companies have made no contingency plans for a break-up of the euro and three-quarters have failed to consider the full implications of an escalated eurozone crisis, according to research conducted by KPMG. Roger Bayly, head of turnaround and a restructuring partner at KPMG, said: ‘Companies with material exposures should understand their risks and have contingency plans in place. We talked with one company which was confident its customer base was solid because 80% of sales were with five large European corporates – three of which were on our internal failure watch list.’

UK_YCorp_Intro.indd 39

39

The view from: Technology: Rachael Williams ACCA, UKI IGF CuF accounting manager, IBM Q What is your role at IBM? A I am IBM’s Global Financing (IGF) customer financing accounting manager responsible for the UK and Ireland (UKI), managing a team of five professionals. The team I manage provides all accountancy advice and support on IGF contracts and deals, as well as adhering to the Sarbanes-Oxley Act guidelines, reconciliations and other projects like system implementations and also multi-currency portfolio management. Q What is the most rewarding aspect of your work? A There are two particularly rewarding areas of my work. One is feeling that the team and I have made a difference to the business when a large deal we have helped work on is concluded, but second, seeing the development and progression of the people in the team I manage, as they work to achieve their full potential, is very rewarding. Q You are also an ACCA rep. What does that involve? A The main task is to ensure that IBM UK continues to be an Approved Employer (gold status), so I review and submit the assessment whenever it is required, but I also build the relationship between IBM UK and ACCA for IBM’s ACCA students and members. This involves organising events with ACCA at IBM for networking, education and potential new students. Q What opportunities has working for a global company like IBM given you? A In my eight years at IBM I have had seven roles, which have all helped me to develop my skills, broaden my network and sample some other cultures. The work I have been involved in has given me the opportunity to travel, meeting people from across Europe, while also giving me the chance to experience the variety of finance roles across the entire business.

39 Corporate The view from Rachael Williams of IBM; tax roundtable; improving corporate reporting; making the most of remote delivery; the US’s outsourcing lead; Scottish companies and their carbon footprints 35 Practice The view from Tony Down of Venture Consultancy Network; British Accountancy Awards 52 Public sector The view from Neil Reddin of the London Borough of Bromley; solutions to environmental audit 55 Financial services The view from Sharon Critchlow of Citimark Partnership; City MP Mark Field’s mission for London

FAST FACTS

Location: Portsmouth Interests: Running, reading, cycling and gardening

20/06/2012 15:48


40

Corporate

The tax director of tomorrow A daunting cocktail of complexity, challenge and risk is putting corporate tax departments under more pressure than ever, according to experts at a recent roundtable hosted by Accounting and Business and Thomson Reuters Tax is top of the political agenda. Revenue-starved governments around the world are struggling to grab their ‘fair share’ of the total tax pot in an increasingly globalised and connected world, in which technology plays an ever greater role. Politicians, tax authorities and the media are all focusing on this hugely complex subject, driving change that is fast and sometimes unpredictable. The lines between planning, avoidance and evasion are consequently becoming more blurred. Caught in the crossfire is the tax director, who has to balance the competing demands of managing a company’s effective tax rate while ensuring compliance and managing tax risk – and with an eye fixed ever more firmly on PR. Accounting and Business (AB), in association with Thomson Reuters, brought together a group of tax experts to pull together these developments and predict how these will affect the tax director of the future.

AB

It feels as if governments have declared war on companies over their tax affairs. With attitudes of governments around the world to tax avoidance hardening, what impact will this have on tax directors?

CRC

People and businesses are trying to navigate their way through very difficult systems. But at the same time governments are saying: ‘Well, actually you should pay more.’ However, the reality is that the public and business are paying quite a lot more than governments think they do.

TWO

I think that’s a good point. I’m not sure government attitudes to tax avoidance have shifted, in that most governments have always said people should pay their fair share.

UK_INT_YCorp_Roundtable.indd 40

‘THE REALITY IS THAT THE PUBLIC AND BUSINESS ARE PAYING QUITE A LOT MORE THAN GOVERNMENTS THINK THEY DO’ I think that what has changed is the line. Things that historically might have been considered as tax planning are now considered as avoidance.

TWA

Governments increasingly view tax planning as tax avoidance. More importantly, the public is increasingly taking the same view. Even though companies may have a perfectly legal and defensible position under their right to minimise tax as much as possible, they are taking a public relations hit over it.

TD

Companies are seeking to minimise their tax position because they are competing in a global economy against other companies. But public outcry following the financial crisis gives permission to governments to increase regulation, including retrospective legislation. We have seen this recently with the banks and there was hardly any outcry.

GH

The most interesting point about navigating this path is whether the CFO’s view of the tax department will change. Most CFOs measure the tax department’s effectiveness through the lens of the effective tax rate (ETR) and in many respects by reducing it. This may well change to one of maintaining an acceptable ETR or to shift the focus to other measures altogether and perhaps looking at the management of taxes more widely.

SG

I also think that the job spec of the tax director will change. You assume that the tax director is competent in assessing tax risk, but this has now moved on to reputational risk.

AL

Tax directors are used to looking at technical risk. In addition to reputational risk I think there is an operational risk. In order to manage reputational and operational risk, tax

19/06/2012 13:30


41

Chris Quick, chairman

directors need to be more commercial. There is competition among governments to get their fair share of revenue and this is why transfer pricing (TP), for example, is increasing in prominence. This is a very challenging thing to tackle operationally. TP is embedded throughout the business units, so how do tax directors control that? They have to talk to the business units. They have to be ahead of transactions, which is not something the tax director has traditionally needed to look at.

TWA

Tax positions used to be operated in a silo, but you are now having to share data through transfer pricing, and you are now having to reconcile tax positions of multiple different regions in your operations. You have got to be able to have some visibility to be able to say you have the legitimate tax positions. I think that technology has to play a massive part in that. You need to dig down deeper into the data levels so that you have the visibility to make further reconciliations.

AB

What will be the impact on tax directors as tax authorities begin to reach beyond their borders, such as with FATCA (Foreign Account Tax Compliance Act) from the US, as governments struggle at a national level to deal with a globalised world?

CRC

We have already seen global audits and one of the things

UK_INT_YCorp_Roundtable.indd 41

*THE PARTICIPANTS TOM DUFFY (TD)

Member of ACCA’s Global Forum for Taxation and a consultant at management consultancy Affecton. He spent 28 years with Shell, including a spell as head of UK tax from 1999 to 2005.

SIMON GODLEY (SG)

Director at specialist tax recruitment consultancy Talentpool Selection. He trained with Arthur Andersen, and specialised in tax before moving into recruitment in 1996.

GARY HARLEY (GH)

Head of indirect tax at KPMG, he set up the firm’s process and technology team five years ago. He had been with HMRC and Ernst & Young before he joined KPMG in 1999.

ALBERT LEE (AL)

Leader of Ernst & Young’s EMEIA Tax Performance Advisory business. He has over 20 years of international tax experience spanning industry and the profession.

CHAS ROY-CHOWDHURY (CRC)

ACCA’s head of taxation. He worked in public practice before joining ACCA’s technical department.

KINGSLEY SANSOM (KS)

Head of operations for AIMS Accountants for Business. He has worked with the AIMS franchise network since it was launched in 1992.

TOM WALSH (TWA)

Managing director and senior vice president of Tax & Accounting EMEA, Thomson Reuters, where he leads a team of 200 tax and accounting specialists throughout EMEA.

TIM WOODTHORPE (TWO)

UK tax counsel at GlaxoSmithKline. He qualified as a solicitor at Slaughter and May before joining GSK as the global tax team’s in-house lawyer.

CHAIRMAN: CHRIS QUICK (AB)

Editor-in-chief of Accounting and Business. He trained as an accountant at Arthur Andersen before entering journalism in the late 1990s.

19/06/2012 13:31


42

Corporate

Chas Roy-Chowdhury, ACCA

TWA

The technology ramification is that it needs to be on similar data elements, on similar taxonomies, similar technology. This means tax directors need to change their reporting systems and processes because they are going to be sharing data with other countries.

Albert Lee, Ernst & Young

TWO

At GSK we found a lot of people in the business were ‘doing tax’, so we now have a global tax team that brings individuals into the tax reporting line rather than a local reporting line. We now have much more visibility locally and this allows us to standardise our approach much more.

with transfer pricing, which we have always known, is that you never say one thing in one jurisdiction and something else in another. The two things must tie up. Sooner or later, one part of the world will catch up with another. You will need to be careful about how you provide information to any one tax authority because this could be shared globally. This will be much more the case going forward.

We’ve seen information exchange around the EU for a while – for example, European Commission sales lists – but what about other jurisdictions?

TWO

GH

Multinational groups are interconnected and global. Tax authorities are increasingly dealing at that level as well, and not just those in the historically more developed countries. I think that developing countries are getting more sophisticated in understanding a lot of the more global issues.

AL

I think there’s a desire but no mechanism at the moment, although it’s not that far away. But it’s

a one-sided equation at the moment – tax authorities are going after avoidance and treating avoidance as evasion, but there is not much simplification for business. I feel quite sorry for tax directors at the moment. They are under siege and have to fight their corner while the organisations that could help more are not helping.

AB AL

Does this mean tax functions are becoming more expensive?

That’s a good question. One of the skills some tax directors have to learn is how to do more with less and build business cases. They know they need a more systematic and standardised approach, but feel helpless in trying to get a budget for this.

CRC

Tax departments may be getting bigger, but I’m not sure they’re getting more expensive – they could be outsourcing. There might be an expansion in the function but that does not necessarily go hand in hand with more cost. But sooner or later that increase in cost will come through as developing countries catch up and start becoming expensive.

AB

A lot of debate focuses on large multinationals, but what about SMEs? What pressures are they feeling in terms of aggression from tax authorities and the changing challenges of managing their tax?

TD

A global company that operates on a global and local basis keys into these authorities and their emerging views. Multinationals may have tax departments around the world, but they may not put a lot of effort into lobbying locally. Once they are part of a global tax department, if the centre says this is important they should allocate resources towards it.

UK_INT_YCorp_Roundtable.indd 42

Tom Duffy, Affecton

19/06/2012 13:31


43

Tim Woodthorpe, GlaxoSmithKline

consider implementing better tax compliance systems, especially in big multinationals, systems for data collection, and streamlining the whole tax compliance process. Tom Walsh, Thomson Reuters

KS

Essentially, these are people who are just trying to make a living. If they know the rules, they will pay their tax. But certainty has disappeared. My clients will sit there and see all the things that the multinationals are doing and ask why they are being hounded for a £5,000 VAT bill while an international company has paid hardly any tax in the UK.

GH

Yes, but what surprises me is that you have global businesses with global tax directors who are accountable for the tax worldwide yet have little or no visibility in the centre of what is happening on the ground across the taxes. I’ve seen some organisations go for the technology with all the bells and whistles yet as a starting point just basic visibility is the key to them really reaching out to the organisation to manage taxes effectively.

GH

TWA

CRC

CRC

Companies big and small face some of the same issues, it’s just a matter of scale. It’s about understanding the rules. There’s a real challenge around keeping current with the rules and rates, not just in the UK but around the world.

This is also a technology issue. For instance, in the UK there is real-time information (RTI) coming in, which will also happen in other countries, and I just wonder if SMEs are willing or prepared or have started investing in RTI systems.

AB

Which brings us neatly to the next subject. How will the tax director of the future be impacted by technology, including XBRL, and does this add to the potential offered by outsourcing and shared services?

SG

If you’d suggested a career move into tax software 10 years ago to a tax person, they would have asked: ‘Why would I do that?’ It seemed a very narrow niche area, but that has quickly changed. Tax directors now realise they have to seriously

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Another slant on this is that a lot of organisations have focused on ‘good enough’ tactics for technology for a long time. I just don’t think that cuts it any more, there’s too much change. It’s about getting the right technology.

I think there are dangers in tax being hived off to shared service centres. It is a cost saving, but perhaps businesses need to recognise it is a dis-saving because you could end up with additional internal issues which may not be addressed. You might not have people within your business who can tell you exactly where you stand from a compliance point of view, articulating why you have got certain tax numbers, working out businessspecific issues that affect your tax position. The finance director of the future needs to be careful and retain a significant part of the tax function within the business.

AB

As well as being technology experts, do tax directors have to be PR experts too? What happens when you have protests outside your offices or your shops?

Gary Harley, KPMG

CRC

In some ways I think it would be good where you’ve got an organisation such as UK Uncut protesting about an issue for the tax director to stand up and defuse the situation. But I’m not sure that there are many tax directors willing to do that. However, I think that is going to be forced on them in the future because they need to be able to get the information out to wider audiences. It could make the job more interesting.

GH

There are caption some sectors style such as oil and mining that I think are very good at articulating their total tax contribution in their annual reports. I think that the tax director has got to be on the front foot with the board in terms of getting their message out to the public.

TWO

We’ve also seen a trend of public relations being done collectively, such as through the CBI. The challenge in making the proactive case is that a lot of tax issues are difficult to understand and convey. When the press is seeking to deliver a particular message, it is difficult to get across the detail. It is a challenge for the tax director to articulate and make the point while it’s a lot easier to attack something.

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Corporate

GH Simon Godley, Talentpool Selection

AB

How will the development of different kinds of taxes – for instance, the greater focus on transfer pricing and environmental taxes – impact the work of tax directors?

GH

I think from my perspective the head of tax faces the challenge of working out who really owns tax. In a lot of the work that we do, one of the problems that we see is that it is a grey area; it is owned by tax in the home country and it is owned by the business outside the home country. But when you go to that business, they say it is owned by the tax department at the centre. Who has ownership of all taxes (and how responsibility cascades through the business) together with how the CFO measures the effectiveness of the tax department are two really big questions. Historic focus has been on the effective tax rate and not on cash tax measurements, which are becoming significantly more important than they have been over the last three years and will be increasingly important in years to come.

TWO

The tax director needs to have a much wider focus, but not everyone can be a specialist in all areas, so it is important that the tax director who is a specialist has an appreciation of other areas – enough to be able to identify crossovers so that they can identify the appropriate specialist within the organisation or go outside to advisers.

AB

We have in-house tax directors along with external advisers around this table; how have relationships changed in recent years? Is it a more tense relationship now?

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There can be tensions in the relationship from time to time. But provided you are clear and honest with your client, and they see you are doing your very best to work with them as a business partner then, in my experience, there hasn’t been a material change in the nature of the relationship and both sides appreciate we are operating in difficult economic times.

CRC

With specific tax expertise more prevalent in large organisations, there is a much better, more understanding relationship where they challenge each other when there is a real point to discuss, rather than just scoring points.

GH

I think that where there is a really good relationship between the client and the advisers, where there is respect and trust in the relationship, the question is often: ‘What would you do?’ Often there is no right answer and it is about managing risk and applying judgment. At another level, clients want an adviser’s international capabilities because the in-house teams need capability outside their home country – they are looking for the same level of service in other jurisdictions. This means that the advisers have really had to up their game because of the capabilities of their in-house clients. The final point is that sometimes the client needs bodies to get things done. But at many levels the relationship is less parent/child and more peer-to-peer.

AB

Finally, let’s talk about talent management. The tax director of the future will head a team – how should they manage their talent?

TWA

What got us here will not get us there. The big question is who is going to teach the new skills and leadership they will need. How do we pass on the benefits of our experience without the baggage?

Kingsley Sansom, AIMS

KS

Small businesses will call in the accountant to deal with the direct tax issues and then deal with all the indirect tax in-house. The bookkeeper can do the VAT, but if there is an error, the external adviser can point out how much this is costing. Mistakes can be significant.

TWO

It’s important that the tax department has the capacity and individuals to do some of the work first – and knowledge to be able to know what it is they actually need, and then get that advice. This hopefully results in better quality of instruction to advisers.

AL

Some tax departments now rival accounting firms in terms of organisation, numbers and structure. Some clients are coming to us to ask how they should organise and manage teams of such a size. If they had been in a firm before, they might have only been directly managing 10 or 12 people as a partner, but now they could be managing as many as 60 people.

SG

You really need to split this into two. It’s one challenge to attract talented tax specialists into the team, but there is the challenge of retaining them too. Tax directors need to build a very good team around themselves, but also to talk about a good career track to hold on to people. Philip Smith, journalist

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* FIRST OF A NEW SERIES Reporting matters How can companies improve their corporate reporting to better communicate with the capital markets? PwC’s Alison Thomas discusses the investors’ perspective There are many stakeholders with an active interest in corporate reporting. Companies, governments, banks, credit-rating agencies, academics and the media, to name a few, all rely in part upon an effective reporting model for their decision making. However, from all these stakeholders, the investment community stands out. These are the individuals who most closely scrutinise corporate reports. They are the hungriest for information and, in many respects, the most demanding. Over this series, I will reflect on some of the key issues in corporate reporting today, focusing on the investors’ perspective.

Why is the investors’ perspective important? Fundamentally, if an investor or analyst can’t get the financial information they need, they can’t make effective decisions. These decisions drive the capital markets and have a real impact on companies and economies. In today’s difficult economic times, it is more important than ever for companies to communicate effectively with investors, to take the guesswork out of their analysis and to give themselves the best chance to access ever-scarcer capital. Yet time and again, investors tell us they are frustrated with elements of current corporate reporting practice. Throughout my career as an investment professional, academic and latterly corporate reporting specialist at PwC talking to the investment community, I have pulled together a picture of the simple things companies could do to improve their communications with the capital markets – both in how they communicate financial performance and how that performance is set in the

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context of the business and its operating environment.

It’s not always more, more, more Companies frequently complain that the investment community always wants more: more disclosure, more detail and more insight. But this isn’t necessarily so. Investors are often in favour of cutting clutter and showing only pertinent information. Volume, they tell us, is no substitute for quality. I will touch on some of the areas most frequently identified by investors as prime candidates for streamlining in later articles.

guarantee that good disclosure would get you a higher share price, but I can guarantee that bad disclosure will get you a lower one.’ The message from investors is loud and clear: good financial reporting and high-quality contextual data is critical to market confidence and lowers the cost of capital for companies that provide it. Alison Thomas is a corporate reporting specialist at PwC. For more information on the financial reporting areas of most interest to investors and how to improve those disclosures, visit www.pwc.com/corporatereporting

We need to speak the same language We all know that there is some jargon inherent in financial reporting, but we should remember that investors are rarely technical accountants. If management can get ‘back to basics’ and explain the underlying economic substance of the accounting in the financial statements, it would significantly help investors in trying to analyse the entity’s performance. We’ve been consulting with investors for some time to understand where improvements could be made. Some of these ‘quick wins’ are summarised in our ‘Investor view’ series (see link below) and provide some great insight into the concerns and focus of the investment community. An investor recently told us: ‘I can’t

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Corporate

Sourcing success CFOs have high and rising expectations of shared services and outsourcing, but new research shows many are not making the most of remote delivery, says ACCA’s Jamie Lyon Today’s CFO operates in a challenging and complex environment. With continuing uncertainty on the horizon of the global economy, more than ever the CFO is in the spotlight to transform the finance function so it can support the business more effectively. But how successful are current transformation activities, and are shared services and outsourcing really living up to the promise? A recent study from ACCA, Finance leaders on sourcing success, suggests that many opportunities remain untapped. Uniquely, the survey focused on how CFOs themselves viewed the success or otherwise of shared service and outsourcing (SSO) strategies, outlining the drivers behind SSO adoption and gauging how the business outcomes that were initially sought have shifted. Almost 500 CFOs and other finance leaders across the world participated in the study, which was complemented by in-depth interviews with leading brands such as Microsoft, GE and AOL. The outcomes make compelling reading First it is important to note that not everyone has adopted SSO, even for transactional finance activities. Twenty-eight per cent of respondents

to the survey said they had not yet taken the plunge with remote delivery of some finance operations. For those CFOs that have, the survey suggests that shared services and hybrid models are the significant preference.

Partial penetration In many senses SSO has been an overwhelming success, particularly around transactional finance activities. Leading brands around the world have tapped into a compelling labour arbitrage and used SSO to drive process standardisation. But the survey also sounds a note of caution and suggests there is much more to do. Many CFOs are still not using remote delivery for transactional finance activities, and the promise of shifting the ‘higher value’ finance activity out remains just that, a promise, even with the largest businesses. Around 60% of respondents still keep higher value activities in-house. The good news is that these findings don’t appear to detract from the attraction of SSO for CFOs. In fact, quite the opposite. The survey suggests most finance leaders have very high aspirations for the business outcomes that SSO can deliver, and – guess what? – these aspirations are getting higher.

CFOs cite the usual trifecta of business outcomes – cost reduction, efficiency and finance capability – as reasons for undertaking the journey in the first place but as they progress through the journey new priorities come onstream. Quality, scalability, transformation and talent quickly rise up the agenda as sought-after outcomes too. No pressure then? As aspirations rise, the key question is whether CFOs believe SSO can deliver the outcomes desired. Here is the stumbling block – this survey suggests not quite. So this is a story of growing expectations not quite being matched. It’s a challenging picture with a consensus that effectiveness needs to improve. Not surprisingly, however, this survey suggests that it is those businesses with more longevity in their SSO relationships that typically see greater effectiveness.

The shape of success Of course, one of the critical questions in the adoption of SSO is what success actually looks like. There is much talk about going beyond cost reduction as the barometer of success, yet this survey suggests that measures of success remain in their infancy. Overwhelmingly businesses remain focused on measuring success through

**WHAT DOES THE FUTURE HOLD? More CFOs aspire to implement SSO models

* Outsourcing of higher value finance activities is still untapped * Efficiency, cost and capability are the initial drivers for adoption * Model maturity drives effectiveness * Cost won’t always be the highest priority for CFOs * Focus of SSO is on quality, scalability, transformation and talent UK_YCORP_Lyon.indd 50

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TO READ THE ACCA REPORT GO TO www.accaglobal.com/transformation

two methods – cost reduction and the achievement of service level agreement. Fewer than one in six businesses adopt broader measures of success such as return on investment targets, profit contribution targets and net promoter scores. Just 5% of businesses attempt to link their SSO investment to shareholder value. Perhaps this is part of the problem.

Poorly monitored Unsurprisingly, these findings also correlate with the use of monitoring tools, which remain in their infancy. According to the survey, only 31% of businesses use finance dashboards to monitor the programmes, and even fewer use internal/external benchmarking or tools such as six sigma and lean processes. These findings are consistent with ACCA’s previous study on SSO at the start of the year, which was reported in the February and March issues of Accounting and Business. That study concluded much more could be done to embrace remote delivery and capitalise on the benefits promised; change management and service experience in particular were cited as key challenges. So where next? Well, it’s not all bad news. CFO aspirations remain positive

and this is reflected in the desire for future investment in SSO, according to the survey. Put simply, those CFOs who have already invested in SSO expect to continue to add significantly to their investment. In contrast, those who haven’t adopted remote delivery as part of the finance solution are seen to be less bullish about investing in their current finance delivery model. These findings should be seen as a wake-up call to those people involved in SSO delivery on a daily basis. The reality is that SSO won’t always be at

the forefont of the CFO’s mind, and won’t always be given the focus and priority it perhaps deserves. There is no doubt that SSO has delivered significant cost reduction, improved finance processes and helped drive control transparency. Leaders in the SSO space need to continually restate and remind businesses and finance chiefs, and not just themselves, of the significant benefits already achieved. This is particularly true when making the business case for transitioning higher value finance activities and unlocking the value that SSO can deliver. Our survey suggests that some CFOs may need a little bit more convincing. Jamie Lyon, head of corporate sector, ACCA If you are a CFO or FD interested in this area and want to contribute to ACCA’s programme, please email jamie.lyon@accaglobal.com

HOW ARE CFOs *USING SSO MODELS?

28%

Have not yet implemented SSO

40%

Have had their current finance delivery model in place for more than five years

3/5

CFOs use shared services or a hybrid of SSO models

50%

Still keep their transactional finance activities in-house

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Corporate

Getting into outsourcing top gear In accounting for 70% of the global market, the US shows no signs of taking its foot off the pedal when it comes to leading the shift to financial outsourcing and shared services America prides itself on being the birthplace of the best ideas in business efficiency. Outsourcing and shared services – which both aim to lower the cost of routine functions – are no exceptions. Businesses in the US were the first to embrace the ideas back in the 1990s, according to Everest, a Texasbased consultancy. However, even after several decades, experts believe the trend is still far from over. Last year alone US companies spent $4bn farming out routine finance and accounting functions, an increasingly popular form of outsourcing. That was a 10% increase on the previous year, HfS Research calculates, suggesting that finance outsourcing is growing about five times faster than the US economy as a whole. Everest believes this market has roughly doubled in size over the past five years. Shared services, in which companies consolidate their own routine functions like book-keeping in a single location, is harder to monitor since it is an internal business decision. Still, observers believe the practice is increasing even more rapidly. The US still accounts for 70% of the global market in finance and accounting outsourcing, says Saurabh Gupta, vice-president at Everest Group. ‘Firms in the US have been especially eager to reduce costs for very basic rule-based finance functions,’ he says. ‘These are activities where no real judgment is involved, so obviously the financial planning and analysis would remain in-house.’ The areas in which companies see most room to trim costs is in the core functions of collecting money, paying suppliers and bookkeeping. More adventurous firms, Gupta explains, can get outside help in managing taxes, ensuring that the correct information is sent to regulators

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and even managing fixed assets, such as equipment and buildings. The initial motivation has been cost saving. ‘Economies from getting a specialist firm to perform these basic functions can be huge, especially if they do the work from overseas,’ says Gupta. ‘A clerk in the US might be paid $60,000 a year, while an equally competent Indian would do the job for a third of that.’ For this reason, much of America’s outsourcing work is done overseas. HfS estimates that about 60% is done in India, with 15% from Eastern Europe and 5% in Latin America. Only about 15% would be done within America. Despite this, companies founded in the US remain the dominant providers of finance outsourcing. The three

show that even after years of growth only one in six businesses with annual revenues over $3bn is outsourcing traditional accounting activities. Meanwhile, about 13% of firms are planning to do so over the coming year. ‘The pace of outsourcing is picking up again after the recent recession,’ Havens says. ‘We saw a “deer in the headlights” effect after 2008, with firms reluctant to try something new at such a critical moment. Now this kind of timidity is dying away and firms are more willing to experiment.’ A recent HfS survey conducted with ACCA sought to explain the motivation behind firms for selecting a third-party provider. ‘Until quite recently the main reason people were doing this was simple labour arbitrage, moving to

‘FIRMS WANT TO ENSURE THAT INVOICES ARE PAID MORE ACCURATELY AND INCOMING PAYMENTS ARE PROCESSED AS QUICKLY AS POSSIBLE’ biggest outsourcing firms – Accenture, Genpact and IBM – command an imposing 50% market share. Each has US roots. Genpact, for example, which now has its headquarters in India and employs about 55,000, was formerly part of US industrial titan General Electric. Meanwhile, Accenture, now based in Ireland, was once a wing of Arthur Andersen, the now defunct Chicago-based accounting firm. Both companies still list their stock on the New York Stock Exchange. The third outsourcing giant, IBM, is even more clearly American, with a headquarters in New York state. Still, rival service providers are doing more than nipping at the heels of these market leaders. Infosys and TCS, both Indian in origin, have been growing fast. While it seems impressive that the top-three firms control half of the market for finance and accounting outsourcing, their share is down from 64% in 2005 and 80% in 2000, according to Everest Group. The likes of IBM may be facing intense competition, but they can at least take comfort from a growing market, says Rand Havens, research director at HfS Research. Their studies

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cheaper wage locations,’ says Havens. In the survey of 436 senior finance executives in 2012, the top motive for outsourcing was ‘to deliver finance process efficiency’, along with a desire to improve finance service quality and boost overall business performance. Surprisingly, cost-cutting ranked only fifth in the list of priorities. ‘Quality is becoming as important as cost,’ says Havens. ‘Firms want to ensure that invoices are paid more accurately and incoming payments processed as quickly as possible.’

Freeing up talent Managing reporting to regulators in many different countries also appears to be spurring outsourcing for some multinational firms. Meanwhile, other firms want to free up talent for higher value-added tasks in the business. The second major shift in US outsourcing in recent years is the growing interest of smaller businesses. ‘Until recently the big outsourcing firms were only interested in taking on chunky contracts, since small deals weren’t worth the trouble,’ says Gupta. ‘But as the outsourcing providers

become increasingly efficient and their scale increases, they are more able to take on more modest contracts.’ The most vigorous growth in demand is now coming from middle-sized firms, with turnovers between $1bn and $3bn. Everest research shows that contract sizes are still falling as service providers become more efficient.

In the loop Finally, finance and accounting outsiders are increasingly being brought into the loop on strategic decisions, says Havens. ‘Normally the outsourcing service providers were kept at arm’s length,’ says Havens. ‘Now, for example, they may be told in advance when a new product is being launched, especially if this is likely to lead to an increase in volumes.’ Added to this, outsourcing firms are offering more value-added analysis of the transactions they process – socalled ‘analytics’. ‘Outsourcing providers are going beyond merely telling their clients how quickly transactions are being processed,’ says Havens. ‘They are offering data on the types of vendors you are paying, the terms of the invoices and when the client is paying them. These tools have been around for a while, but they have become increasingly commoditised and cheap to offer.’ With outsourcing of finance and accounting functions increasingly offering more than simply cost savings, more firms are likely to be attracted to such services. In addition, Everest believes that market penetration is still relatively shallow. ‘Even for big companies that adopted outsourcing early, they may still have only 5% to 10% of their accounting staff outsourced,’ says Gupta. ‘This could go much further.’ HfS expects that all these changes to the industry will help ensure growth of around 12% in finance outsourcing over the coming three years. ‘There are now plenty of forces pushing outsourcing forward,’ says Havens. The US will continue to be in the vanguard of this shift. Christopher Alkan, journalist based in New York

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We’ll take the green road… We hear from Scottish companies unlocking the economic benefits from investments to reduce their carbon footprint – and it hasn’t done their social credentials any harm either In tough economic times, few businesses see reducing their carbon footprint as a top priority. Yet those that do report a ‘triple bottom line’ payback. This means they benefit from improved environmental and social credentials, as well as the economic gain from reduced energy costs and additional income from the low-carbon electricity they generate. Edinburgh-based event management company Maximillion is an enthusiastic campaigner for green good practice after investing more than £100,000 in energy-efficient systems. These include a wood pellet boiler that powers its office and warehouse, solar panels, rainwater harvesting and energyefficient lighting and central heating systems. Not every measure needs to cost the Earth though. The company has installed a shower to encourage people to cycle to work and trains its staff in energy-efficient behaviour, such as turning radiator thermostats down before opening windows and only switching on the lights above them. ‘That £100,000 investment sounds like a disproportionately large amount of money for the size of business that we are (eight staff), but we’re saving about £11,000 a year and 114 tons of carbon,’ explains Maximillion managing director John Strachan. ‘It’ll take us about 10 years to pay back our investment, so it’s quite a slow burn in terms of return. But it’s not just about pounds and pence.’ Spin-off environmental and social benefits include gold award accreditation in the Green Tourism Business Scheme (the UK’s national sustainable tourism certification scheme) and staff loyalty. ‘They enjoy working for us because of our green credentials,’ Strachan says. Economic benefits include low to no energy bills, very small landfill taxes

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and free PR because of the company’s reputation. ‘But, most importantly, we get green sales,’ Strachan adds. ‘Sales from organisations that are looking to partner and engage with a supplier that has a reputation for sustainability – that’s where the payback is.’ Environmental consultancy Sustainable Opportunity Solutions (SOS) helps companies improve their financial and environmental performance and recently advised a metal fabrication business that installs gates for blue-chip clients, including Royal Bank of Scotland.

These additional benefits help to justify the up-front investment, which here was financed by an Energy Saving Scotland small business loan. This is an unsecured loan of up to £100,000 over eight years at 5% interest. These repayments will be mostly covered by the annual income from the solar system installed by the company. For Scottish Leather Group – the UK’s largest leather manufacturer – investing £6m in the industry’s first and only thermal energy plant in 2010 has unlocked huge savings and new opportunities with world-class luxury

‘SERIOUS CARBON ACCOUNTING AND ENVIRONMENTAL ACCOUNTING CAN MAKE A BIG DIFFERENCE TO A COMPANY’S BOTTOM LINE’ SOS managing director Paul Adderley, an accountant who began his career at PwC, says: ‘The business has 15 employees and installed a 50kW solar photovoltaic system (which generates electricity) of about 200 panels on their factory roof. In just two months, and despite the wet April, the system has generated nearly 9,000kW hours of virtually carbon-free electricity – enough to supply three average-sized UK homes for a year.’

Cash benefits The resulting lower-energy bills and income from the government’s feed-in tariffs (pre-March 2012) – paid by electricity suppliers for the low-carbon electricity companies generate – is predicted to add around £11,000 a year to the company’s bottom line. There are also reputational and staff engagement benefits. For example, seeing the solar kilowatts add up seems to have a positive impact on staff’s views of low-carbon practices.

brands. The company – which comprises four leather manufacturing subsidiaries and a technology company based in the west of Scotland – now produces much of its own power and energy from waste, and is winning significant new business from its ‘low carbon leather’ offering. ‘To us, it was a simple matter of “do or die”,’ explains Gordon Ross, managing director of SLG Technology. ‘Leather manufacture is a very waste-intensive business, and we were acutely aware that as our business continued to grow, there must be a better way to deal with all this waste. We’ve had to lead the way in this business in order to continue working with some of the world’s best-known brands, from Aston Martin cars, Emirates airlines and Vertu mobile telephone handsets to luxury cruise ships, hotels, restaurants and many more. All very exacting customers with an increasing focus on sustainability.’ Alex Smith, an assurance senior

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manager at PwC, advises a range of companies across the energy and utilities sector and urges clients to think creatively about how they can add value in the renewables space. ‘One of my clients is a coal-mining company who are sitting on quite a large landbank,’ she explains. ‘They realise coal is dirty and isn’t going to last forever, so part of their strategy is to capitalise on their landbank. This includes some quite high land created by their coal bungs and restoration landscaping. Infinis (one of the UK’s leading generators of renewable power) were looking for sites for wind turbines and have rented land from them. It’s about spotting that opportunity and looking further down the line at where you can benefit.’

Low-carbon credentials The Edinburgh Centre for Carbon Innovation is a collaboration between the University of Edinburgh, Edinburgh Napier University and Heriot-Watt University to promote the development of low-carbon skills, products and services. Director Dr Andrew Kerr says the demands of customers are driving more and more businesses to improve their low-carbon credentials. ‘The carbon metric is useful for demonstrating an efficient company,’ he suggests. ‘If a company has very low carbon it’s generally a very efficient company, so if you’re looking to drive down costs in the supply chain, look for a carbon-efficient company.’ Kerr urges organisations to get away from the idea that sustainability is incidental. ‘If you’re a good business making sensible commercial decisions and thinking things through, carbon and renewables are part of that, and there are lots of tools out there to support you,’ he says.

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This is echoed by Craig Vickery, head of ACCA Scotland, who points out that auditing a company’s carbon footprint – so-called ‘carbon accounting’ – is increasingly becoming part the annual financial audit. ‘Serious carbon and environmental accounting can make a big difference to a company’s bottom line – for example, by helping them find efficiencies and enhance their planning for risk,’ he says. ‘Sustainability policies need to be embedded into everything a business does. Reporting needs to mirror this and that’s why ACCA believes that corporate reports should provide investors, businesses and the public with the big picture of an organisation.’ The contributors to this feature took part in Reducing Your Carbon Footprint – The Renewable Energy Way, a joint ACCA, CIMA and ICAEW event on the cost benefits of low-carbon strategies. Victoria Masterson, journalist

A solar thermal panel on a roof in Ayrshire, Scotland – the return on investment may be slow to realise, but many companies are still choosing to ‘go green’

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Public sector

The view from: The audit committee: Neil Reddin FCCA, chairman, audit subcommittee, London Borough of Bromley Q What does the audit subcommittee do? A The subcommittee oversees the work of the internal auditors, liaises with external auditors and is the first scrutiny by elected members of investigations into fraud or irregularity. It is important that the audit committee consists of elected members, who are answerable directly to residents. In a sense, we have responsibility for the council’s entire near£600m budget. 52 Public sector The view from Neil Reddin of the London Borough of Bromley; solutions to environmental audit 35 Practice The view from Tony Down of Venture Consultancy Network; British Accountancy Awards 39 Corporate The view from Rachael Williams of IBM; tax roundtable; improving corporate reporting; making the most of remote delivery; the US’s outsourcing lead; Scottish companies and their carbon footprints 55 Financial services The view from Sharon Critchlow of Citimark Partnership; City MP Mark Field’s mission for London Apologies to Paul Maskey MLA who appeared on this page last month, whose name we erroneously changed to Michael Maskey due to an editing error.

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Q How does being an FCCA assist you? A It gives me that insight into the nature and purpose of financial control – as opposed to just budgetary control – a focus that can easily be lost. As a trainee, I worked in a specialist forensic accountancy firm – clearly relevant to our antifraud work.

CIVIL SERVANTS ‘AVOID TAX’

Over 2,400 people working for central government have been paid off payroll, according to a review conducted for the Treasury. About 40% of these have been paid this way for more than two years and 1% for over a decade. In 85% of cases, people are paid through employment agencies or other intermediaries, 10% through personal service companies, with a small minority self-employed. About 40% of those affected are IT contractors. New rules have now been adopted by the government, specifying that the most senior staff must nearly always be on the payroll. The House of Commons’ Public Accounts Committee criticised HM Revenue & Customs, saying: ‘We are shocked that the department appears to have advised senior public sector employees that it was appropriate for them to avoid tax by using a managed service company.’ HM Treasury

Q What is your relationship with the council’s internal auditors? A A good relationship between councillors and council officers requires mutual respect, no surprises and a recognition of boundaries. Q Can you give examples of the committee’s work? A Bromley handles over £120m in housing and council tax benefits paid to over 24,000 claimants every year. Our pioneering partnership with Greenwich council led to nearly 300 successful prosecutions for benefit fraud in the last 10 years. Q How does the committee fit within the council? A We are at the heart of the council. The focus elsewhere is on setting budgets and sticking to them: our work underpins that by ensuring the information on which those decisions are based is sound. Without proper controls, budget-setting would be like sticking a wet finger in the breeze.

FAST FACTS

Population of Bromley: 312,000 Gross budget for 2012–13: £576m Staffing: 3,720 full-time equivalents

COUNCILS SEEK AUDIT BODY

Parish and town councils have proposed the creation of an intermediary body to procure audits on their behalf. The proposal was submitted to local government minister Grant Shapps by the National Association of Local Councils and Society of Local Council Clerks. At present, auditors for the smallest local authorities are appointed by the Audit Commission, which is being abolished. The two bodies support a limited assurance audit regime that enables ‘armchair auditors’ and electors to challenge items in councils’ accounts.

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On the radar The difficulties of environmental audit have been so severe as to make it a no-go area until recently, but auditors are now building tools to capture costs, benefits and values After nearly a decade in gestation, and one or two hiccups along the way, the UK government last year published its first ever whole of government accounts, an attempt to consolidate on a single balance sheet the entirety of the state’s assets and liabilities. But not quite. Amyas Morse, comptroller and auditor general, noted that the figure HM Treasury had put in to cover the public sector’s costs in decommissioning nuclear reactors, storing waste and disposing of contaminated materials (£56.7bn at 2010 prices) was hedged around with ‘significant uncertainty’. The UK government came under political fire for hedging its bets on the extent of the ‘ultimate liability’ for civil nuclear power (accounting for defence assets and nuclear weaponry is another story). But the fact that there is now a figure on the table testifies to a remarkable, if unsung, extension of audit capacity to cover the environment, sustainability and even (and this really is cutting-edge auditing) measures of well-being and happiness. Formerly, forests, seas, pollution – and radioactive waste – tended to slip beneath accountants’ radar, or were put into the too difficult box. One reason was the international character of many environmental issues, which added political and diplomatic complexity to the difficulties of costing intangibles and discount rates. Winds and tides are no

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respecters of official boundaries between countries, which explains why the Kola nuclear site in northern Russia, 55km from the border with Norway, has during the past three years witnessed joint Norwegian and Russian audit teams examining inspection systems. The Norwegians, Russia’s neighbours and potential casualties of any mishap, financed work on plant dismantling and decontamination, and joined in certifying it had all been done.

Minimising uncertainty It’s an illustration of how, all over the world, practical accountancy expertise is being mobilised to minimise uncertainty in auditing environmental assets and events. The effort does not appear to have been sidetracked either by recession or by signs of diminishing public concern over climate change. In the US and UK, polls show environmental anxiety has receded, but in northern Europe green parties have achieved political breakthrough, while in China and Brazil environmentalism is a fraught and frontline issue. Governments and public opinion remain intensely concerned with sustainability, and auditors have been empowered to push their own professional boundaries to build new tools to capture costs, benefits and values. Through the International Organisation of Supreme Audit

Institutions (INTOSAI) – a nongovernment body with a consultative status recognised by the United Nations – environmental audit has become a partner in the attempt to build cross-national commitments to targets on carbon reduction and environmental protection. Barriers between audit and science have come down. In Brazil government auditors have been called on to judge the quality of scientific evidence underpinning fisheries policy – a power the European Court of Auditors might envy as it contemplates competing claims over North Sea fish stocks and the ‘large-scale evasion of the rules’ by some member states. In jurisdictions bordering the western Pacific auditors have been examining fishing techniques, as they assess the dangers of overfishing tuna. Malaysian and Indonesia auditors have jointly been considering the management of mangrove swamps in the Straits of Malacca and their importance in providing protection from storms in the wake of the 2004 Indian Ocean tsunami. And this, Dato’ Mustafa Bin Haj Saman, deputy auditor general of Malaysia, told the INTOSAI working group on environmental auditing last year, required a new New border order: the nuclear waste dump on the Kola Peninsula in northern Russia was cleaned up thanks to a collaborative Norwegian-Russian effort

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apparatus including remote sensing and the use of geographical information systems. Gillian Fawcett, head of public sector at ACCA, adds that auditors need a new conceptual flexibility to deal with ideas around well-being and happiness, which some are pushing as an alternative basis for national accounting. ‘Audit is moving to connect sustainability reporting with the formulation of budgets and performance management,’ she says. ‘As a result the enterprise of audit is becoming more collaborative, amid conversation with specialists and experts from a wide field. ‘Sometimes it is said environment trades off against efficiency. Instead, we need to add the E of environment to the three Es of efficiency, effectiveness and economy. Procurement practices

and government purchases of goods and services could also influence the environmental agenda.’ Sustainability is taking auditors into contentious territory. France’s Cour des Comptes noted in a report last year on household waste disposal that it could be seen as a business financed by charges or a public service paid for by taxes; either way, ‘significant progress’ needed to be made in recycling and controlling burgeoning costs.

Into the minefield When, in 2009, the auditor general for Canada assessed environmental threats to lands owned by First Nations – the country’s indigenous inhabitants – he had to steer a tortuous course between claim and counter-claim by province, federal government, agencies and owners of native reserve land.

The international effort has enriched the intellectual base. INTOSAI has written guidance for audit bodies for example on forests, which begins with a ringing endorsement of how vital tree cover is, supporting human livelihoods and enriching lives through the ‘cultural, recreational and aesthetic value’ of trees. So are environmental auditors expressing as well as assessing values? ‘Auditing itself cannot be our goal,’ says Tönis Saar, director of the National Audit Office of Estonia and chair of the INTOSAI working group on environmental auditing. ‘We have to try to unleash positive changes.’ Auditors could and should lead, even in judging governments: if policies are not sustainable they must say so. David Walker, journalist

In partnership with:

Wednesday 21 November 2012 Old Billingsgate Market, London

INSPIRING EXCELLENCE IN THE ACCOUNTANCY PROFESSION

Entries for the British Accountancy Awards 2012 are open! AccountancyAge are delighted to announce that the British Accountancy Awards are back for 2012 and will be taking place on the 21st November at Old Billingsgate in Central London.

networking. This year the awards continue to recognise excellence in the Accountancy Practice community, with categories covering all sizes of firms and the individuals and teams within them.

Last year saw an impressive number of practices entering the awards and over 500 guests gathering at Old Billingsgate Market in the heart of London for a fabulous night of celebration and

Entries are Free, submit online at: www.britishaccountancyawards.co.uk

Entries close 20th July 2012

FSAATBAAW12–AD180X130.indd 1

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To secure your table contact:

For sponsorship opportunities contact:

Besmir Selmani T: 020 7004 7531 E: besmir.selmani@incisivemedia.com

Kevin Sinclair T: 020 7316 9591 E: kevin.sinclair@incisivemedia.com

18/06/2012 17:51

19/06/2012 14:38


Financial services

GRIFFITHS-JONES TO CHAIR FCA John Griffiths-Jones, KPMG’s UK chairman, has been appointed inaugural non-executive chair of the Financial Conduct Authority (FCA), which takes over some of the responsibilities of the Financial Services Authority early next year. The FCA will regulate the conduct of retail and wholesale financial firms and be the UK listings authority. The other successor body is the Prudential Regulation Authority, which will ensure that firms meet minimum capital and liquidity requirements. Griffiths-Jones will join the FSA board from September, until the FCA is operational, and support the CEO designate, Martin Wheatley, in the formation of the new authority. John GriffithsJones

ACCOUNT TAKEOVER FRAUD UP

Cifas, the UK’s fraud prevention service, reports an 82% increase in the last year in account takeover fraud – where a criminal takes control of a bank account. Account takeover fraud has become one of the most common types of frauds for both individuals and organisations, reports Cifas. The extent of credit card account takeover rose by nearly half in the beginning of last year. The internet remains the most common means of committing account takeover fraud and was responsible for 71% of these offences. Cifas advises businesses and consumers to be vigilant with data control, to use strong passwords for account access and to change passwords regularly.

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The view from: Compliance: Sharon Critchlow FCCA, operations and compliance director, Citimark Partnership and president, ACCA Members’ Network Panel, Bristol Q How many people are there in your team and what areas do they cover? A We have 19 people at Citimark and as a small business my responsibilities cover functions such as IT, compliance with Financial Services Authority regulations, financial reporting, human resources and training. Some aspects of each of these functions are outsourced, but we have an in-house accountant and two compliance specialists. Q How long have you been with Citimark and what roles have you held? A I qualified as an accountant three years before I joined Citimark 13 years ago. I started as a paraplanner (a technical assistant and researcher to a financial adviser). Eventually I became an adviser myself and then a director. The business has grown from seven in the last three years and my role has grown to cover the requirements of a larger organisation. Q How has the members’ network helped you? A Being involved with the network has given me the opportunity to try things which are outside my comfort zone, such as public speaking and running meetings and assisting with arranging events. All in all, the experience has made me a better and bolder business woman. Q You previously worked in public practice. What encouraged you to make a change? A I wanted to use my skills to help businesses and individuals. I left public practice in the late 1990s when selling wider advisory skills was not as popular as it is now. Citimark applies business principles to personal financial planning, creating personal balance sheets and income and expenditure accounts, so ACCA gave me a head start.

55 Financial services The view from Sharon Critchlow of Citimark Partnership; City MP Mark Field’s mission for London 35 Practice The view from Tony Down of Venture Consultancy Network; British Accountancy Awards 39 Corporate The view from Rachael Williams of IBM; tax roundtable; improving corporate reporting; making the most of remote delivery; the US’s outsourcing lead; Scottish companies and their carbon footprints 52 Public sector The view from Neil Reddin of the London Borough of Bromley; solutions to environmental audit

FAST FACTS

Location: Bristol Interests: Wide open spaces and sandy beaches

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Field of competitive dreams A committed believer in the free market, Mark Field, MP for the City of London, is fighting to keep the UK financial sector from being saddled with a series of millstones It is unfashionable these days for politicians to attack stricter regulation of the banking sector, lament allencompassing anti-tax avoidance measures, or defend large payments to the head of a state-owned bank. But Mark Field, who as MP for Cities of London and Westminster has made a name as an articulate defender of the financial services industry, is prepared to do all three. With the polished but quick-fire delivery of a man used to defending the same controversial point against all comers, he expresses grave reservations about forcing banks to separate their retail and investment arms and increase their capital buffers. ‘We run the risk, by going down the ring-fencing route and gold-plating the capital requirements on our banks, of detrimentally affecting the competitiveness of London as a financial capital,’ says Field.

*TRANSPORTS OF DELIGHT FOR THE CITY

What is the single most important thing the government can do to preserve the City’s future as a premier financial centre? Mark Field’s answer might come as a surprise, because it has nothing to do with financial services: ‘There needs to be a serious investment in infrastructure.’ He singles out for special mention London’s access to air transport. ‘The whole matter is of grave concern. We decided on a whim in 1946 to have our civilian airport at Heathrow. We now need something beyond that.’ He supports the much-discussed solution of a brand-new airport in the Thames estuary – which would, say supporters, circumvent the problems of forced evictions and noise pollution generated by building a third runway at Heathrow airport. Asked about London’s notoriously unreliable Underground, Field says: ‘To be fair we’ve established a long-running programme that hopefully will make a tube system that is fit for the 21st century.’ Transport for London, which is ultimately controlled by London mayor Boris Johnson, is upgrading lines to improve capacity and reliability. On the plus side: ‘London’s a great place to live, a very open, cosmopolitan city.’ Nevertheless, he adds: ‘It would be wrong to be overly complacent. I would not be hysterical about threats to London, but it is quite possible that in 30 years’ time it will have a diminished slice of what I hope will be a much bigger global financial services cake.’

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A ‘free-market Conservative’, he uses the same competition argument to lambast HMRC’s planned general anti-abuse rule. From next year this will give the government sweeping powers to crack down on tax avoidance schemes, practised in the City and elsewhere. Field says: ‘If you’re going to have an anti-avoidance provision which retrospectively decides that the structure which you assumed was going to be OK is in fact void, and therefore the government is going to get the tax back, that is quite a dangerous precedent which undermines London’s dominance as a financial centre.’ Field also courts controversy by defending Stephen Hester, chief executive of loss-making RBS, the 82%-state-owned bank, who in January responded reluctantly to political pressure by turning down a bonus of almost £1m. ‘If we want RBS to remain a player in the globally competitive financial services world and hopefully get back our investment in time, then we need people of genuine entrepreneurial talent, and to do that it means paying what seems like fantastically large sums of money,’ says Field in his characteristically relaxed but confident tone. He does, however, acknowledge the sensitivity of the situation: ‘With hindsight it would probably have been better to structure a reward for Hester and other senior people in RBS that would have given them their large performance-related bonuses only when the bank was no longer in the public domain.’ His stand on all three issues is based on a single, unshakeable belief: that the City is good for Britain, and should be protected from any measure that will reduce its competitiveness – unless there is a very good reason for it.

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But Field, a backbencher, detects an atmosphere in the government that he deems distinctly less supportive than his own – as shown by its acceptance of the Vickers recommendations on banking, for example. ‘When I speak to continental bankers here in London, they are bemused that there is somehow almost a policy from government that is ambivalent towards financial services. They say, “If we had what you have – the benefit of a global financial services centre here in London – we would be using that all we could to leverage off and develop new markets, in Asia in particular.”’ As a free-market advocate, Field has no time for the argument that the government must rebalance the British economy away from financial services. Following its heady expansion since the deregulation of the 1980s, the sector now accounts for 9% of the economy, compared with 2% in the 1950s. His criticism of rebalancing rests to a degree on a conviction that there is little alternative: ‘Part of the political rhetoric about rebalancing the economy seems to be putting the boot into financial services without thinking through to the point that there aren’t

*AUDIT’S PRAGMATIST

obviously other sectors that are going to be taking its place any time soon.’ But the 47-year-old MP, who was at City law firm Freshfields and then ran his own business before winning the Cities of London and Westminster seat

‘I REPRESENT THE CITY AND I’M THERE TO TRY AND GIVE SOME PERSPECTIVE, BUT NOT AS A SLAVISH CHEERLEADER FOR FINANCIAL SERVICES’ in 2001, is also very much a champion of financial services. ‘Financial services is going to be an important growth industry globally in the decades to come,’ he says. ‘The rise of India, China, Malaysia, Vietnam and South Korea means there are people joining the ranks of the global middle class who have a high propensity to save and are therefore going to be using financial services products.’ Although Field sees most City issues through the prism of free-market Thatcherism, he makes clear that his fears about the City’s future go beyond an academic debate about isms: he sees a real risk of the City being ruined by excessive regulation. ‘There’s a

Mark Field takes a dim view of the European Commission’s proposal to split the audit and consulting businesses of the Big Four professional services firms. This proposal is based on the assumption that auditors not angling for lucrative consulting work will be less likely to shrink from raising red flags about dangers lurking on companies’ balance sheets. Field warns that auditing on its own could prove a low-margin business; as a result, ‘many of the Big Four will only want to audit a small number of highly lucrative clients. They won’t want to audit anything else – and so in trying to encourage competition you might produce the opposite effect.’ While the Big Four will be able to count on the support of powerful political allies, in their battle against this proposal, Field himself is wary of acting as a latter-day Don Quixote of the accountancy profession, tilting at windmills which he cannot defeat. He has ‘a lot of sympathy’ with the old system of UK generally accepted accounting principles (GAAP), which some argue relies more heavily on the professional judgment of auditors. Some accounting experts want UK GAAP restored to what they regard as its rightful place on the UK’s accounting throne, consigning International Financial Reporting Standards to the dustbin. Field, however, demurs: ‘I’m afraid the spirit of the age is now much more towards having a rules-based system. In politics you have to fight battles you can win, and I don’t think this is one you can win. I don’t think you’d get public sentiment on your side, or even the sentiment of many in the markets.’

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danger of regulatory arbitrage,’ he says, referring to companies shifting business to jurisdictions with less onerous rules. He cites the example of eurobonds – the lucrative Londonbased market in bonds issued by

companies in foreign currencies which took root after the US imposed a tax on financial transactions in 1963. On the Vickers recommendations, he warns: ‘The risk is that if we decide to go it alone with ring-fencing and capital rules, we will lose business.’ But Field’s firm defence of the City does not blind him to the need for any change: ‘I represent the City and I’m there to try and give some perspective, but not as a slavish cheerleader for financial services.’ He supports the Basel III international banking regulations, which will be implemented in the UK and its rivals from 2013, because by their very nature international rules are less prone to saddle a single country with a competitive disadvantage. He also advocates a crackdown on high City pay. ‘The recent high-profile cases at Aviva, Barclays and elsewhere will provide the catalyst for remuneration committees and boards to reduce rewards,’ he says, referring to the shareholder revolts against high pay for senior executives. ‘I think that’s probably quite a good thing.’ He adds that he has qualms about some of the high earnings, not just of executives who have done poor jobs, but also of those who have discharged their duties adequately. ‘Some of the rewards in financial services seem, even to the Tory-voting, middle-class, university-educated professional outside the gilded world of the City, to be totally out of kilter.’ On that, it seems, virtually all politicians, from the hard left to the free-market right, are in agreement. David Turner, journalist

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A monthly round-up of the latest developments in financial reporting, audit, tax and law FINANCIAL REPORTING IMPROVEMENTS PROCESS The annual improvements process of the International Accounting Standards Board (IASB) is designed to make amendments to International Financial Reporting Standards (IFRS) which, while necessary, are not considered urgent. The 2009–11 cycle was completed recently and five amendments to IFRS were issued as follows: IFRS 1, First-time Adoption of International Financial Reporting Standards IFRS 1 may be applied in circumstances where the most recent previous financial statements did not contain an explicit and unreserved statement of compliance with IFRS, even if IFRS 1 has been applied in the past. Borrowing costs capitalised before the date of transition may be carried forward unadjusted. IAS 1, Presentation of Financial Statements Clarification of requirements in respect of comparative information beyond the minimum required by IAS 1. In circumstances where, because of a restatement of comparative information, a statement of financial position as at the beginning of the preceding period is required, other than for specified items, the related notes need not be presented.

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IAS 16, Property, Plant and Equipment Spare parts, stand-by equipment and servicing equipment should be classified as property, plant and equipment when they meet the definition in IAS 16 and otherwise they should be classified as inventory. IAS 32, Financial Instruments: Presentation Income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction should be accounted for in accordance with IAS 12, Income Taxes. IAS 34, Interim Financial Reporting The total assets and total liabilities for a reportable segment should be disclosed separately only when the amounts are regularly reported to the chief operating decision-maker. All of the amendments apply for periods beginning on or after 1 January 2013 and are retrospective.

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EXPOSURE DRAFT Shortly before the above amendments were published, the IASB also issued for comment an exposure draft of what will be the next round of amendments. Consultation is being sought on the following 11 accounting issues. IFRS 2, Share-based Payments Splitting the definition of vesting conditions between service conditions and performance conditions.

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IFRS 3, Business Combinations Clarification of the accounting treatment of contingent consideration in a business combination. IFRS 8, Operating Segments Aggregation of operating segments; and reconciliation of the total of the reportable segments’ assets to the entity’s assets. IFRS 13, Fair Value Measurement Short-term receivables and payables. IAS 1, Presentation of Financial Statements Clarification of the definition of non-current liabilities. IAS 7, Statement of Cash Flows Treatment of interest paid that is capitalised. IAS 12, Income Taxes Recognition of deferred tax assets for unrealised losses. IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets Proportionate restatement of accumulated depreciation when the revaluation method is applied. IAS 24, Related Party Disclosures Definition of key management personnel amended.

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IAS 36, Impairment of Assets Harmonisation of disclosures for value in use and fair value less costs of disposal.

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Yvonne Lang, director, Smith & Williamson, www. smithwilliamson.co.uk

AUDIT GREENHOUSE GASES The International Auditing and Assurance Standards Board (IAASB) has released the new International Standard on Assurance Engagements (ISAE) 3410, Assurance Engagements on Greenhouse Gas (GHG) Statements. The new standard addresses global assurance services in support of reliable emissions reporting, whether for regulatory compliance purposes or undertaken on a voluntary basis to inform investors, consumers, and others. It addresses practitioners’ responsibilities in identifying, assessing, and responding to risks of material misstatement when engaged to report on GHG statements. It sets out requirements and guidance on the work effort and reporting responsibilities of practitioners for both

*BUSINESS FINANCE

Finance is at the heart of a business’s ability to survive, grow and flourish. A four-part journey is available on the ACCA website which explains all you need to know about business lending. The journey is backed up by free resources to take away. It can be found at www. accaglobal.com/en/business-finance.html

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wording expanded and some text moved from the standard terms and conditions to the covering letter. Limitation of third party rights – wording expanded. Practitioners are encouraged to review their existing engagement letters annually and update as appropriate. Where practitioners use the engagement letter and schedules developed by the joint bodies, they should tailor them to suit their practice. The factsheet can be found at www2.accaglobal.com/ members/publications/ technical_factsheets

* ‘A Scottish taxpayer must be UK resident for tax purposes’

reasonable and limited assurance engagements. The ISAE is applicable to a broad range of situations, from emissions from electricity used at a single office, to emissions from complex physical or chemical processes at several facilities across a supply chain. INTERNAL AUDIT The Auditing Practices Board (APB) has issued a consultation paper on proposed revisions to International Standards on Auditing (ISAs) (UK and Ireland), addressing the use of internal audit to adopt changes to the corresponding ISAs issued by the IAASB. The proposed changes are designed to enhance auditors’ risk-assessment procedures for entities with an internal audit function, and provide a more robust framework for evaluating and using the work of an internal audit function including in appropriate, limited, circumstances obtaining direct assistance from internal audit staff under the supervision and control of the external auditor.

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TAX ENGAGEMENT LETTERS Technical Factsheet 173, Engagement Letters for Tax Practitioners, is the updated joint guidance issued by the main tax and accountancy bodies. Amendments have been made to the foreword, guidance notes to the appendices and Appendix C – standard terms and conditions of business only. An additional Appendix D has also been inserted covering disengagement letters. All other appendices remain unchanged. New subjects covered in this edition are: The Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008. Consumer Protection (Distance Selling) Regulations 2000. Services directive. iXBRL tagging. Disengagement letters. The topics for which the guidance or recommended text has been changed include: Acting as a guarantor – wording expanded. Limitation of liability –

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REAL TIME INFORMATION The changes relating to Real Time Information are fast approaching, so check with your software provider if you need to make any changes to your processes. From October 2013, all employers and pension providers will need to be registered and reporting to HM Revenue & Customs (HMRC). This will result in most employers and pension providers making changes by April 2013. HMRC’s guidance (www. hmrc.gov.uk/rti) focuses on the following areas; correct payroll data, updated payroll software, correct Bacs references and where to find further support. DISPUTE SERVICE HMRC’s Alternative Dispute Resolution (ADR) service seems to be one

of its best-kept secrets. While there were doubts among members about the independence of the service when it was first set up, the few practitioners who have used the service have reported that it works well. If you have dismissed it, it may be worthwhile having another look. You can see HMRC’s examples of suitable cases for the ADR pilot at www.hmrc.gov.uk/adr/ appendix-a.pdf Please let us know if you have used the service and how you found the process. Email advisory@ uk.accaglobal.com TAXPAYERS IN SCOTLAND HMRC has issued an income tax technical note that looks at the following areas: Definition of a Scottish taxpayer. General issues. Charitable giving. Pensions tax relief. Trustee and personal representation. Other income tax issues. It highlights the steps taken to define who is considered a Scottish taxpayer in the Scotland Act 2012. The technical note states: ‘Firstly, in order for an individual to be a Scottish taxpayer, they must be UK resident for tax purposes – an individual who is not UK tax resident cannot be a Scottish taxpayer. ‘The remaining parts of the definition are based on the location of an individual’s sole or main place of residence. If they have one place of residence

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*IR 35 – BUSINESS ENTITY TESTS

The guidance from HM Revenue & Customs (HMRC) on IR35 resulted in a number of comments from members. The guidance, Intermediaries Legislation (IR35): Business Entity Tests, Example Scenarios, sets out HMRC’s view on how it will apply the existing legislation and how it will assess risk of non-compliance. The guidance introduces a scorecard system which companies are expected to use to determine their risk of falling within IR35. Once the business has carried out its IR35 assessment, it or specific contracts will fall in to one of the following categories: Low risk (less than 20 points). Medium risk (between 10 and 20 points). High risk (less than 10 points). If HMRC feels that a business may fall within IR35, it will write to the business and ask whether it has ‘thought about IR35’ and seek to establish which risk category the business has assessed itself as falling within. It is unclear at this stage how many IR35 query letters may be sent out but, given HMRC’s broad new powers under schedule 36 of the Finance Act 2008, if the business responds that it does not consider itself to fall within IR35, HMRC is likely to ask for the business’s scorecard, together with supporting evidence.

The scoring system does reflect the importance of a substitution clause but, following the Autoclenz case, there is a much greater weighting for actually invoking the substitution clause. The weighting of the scoring means that if the contract has a substitution clause and actually uses a substitute, this will automatically take the worker into the low-risk category. If a business finds that it is unable to meet the business premises test, the efficiency test, actual substitution test and the assistance test, then a business cannot fall within the low-risk category.

Points to consider

The guidance sets out the types of evidence that businesses should keep in order to substantiate their scorecard. It is important that clients are made aware of the record-keeping requirements.

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There are several points worth noting. The tests do not reflect all of the factors that the tribunals usually consider when deciding an IR35 case. Some are included, but others, such as the following, are not: Extent and degree of control exercised by the client over the worker. Mutuality of obligations between the worker and the client. Provision of equipment. The existence of employee rights. Whether the worker was part and parcel of the client’s organisation. Whether the worker is free to undertake other work. Mutuality of intentions. Curiously, some of these factors are alluded to in some of the example scenarios contained within the guidance, but do not form part of the risk-assessment scoring. Some of the ‘big score’ tests – for example the business premises test – clearly do not apply for many businesses and start-ups in particular. Also, with advances in technology, it is perfectly feasible that many businesses operate from the home of the proprietor. The assistance test is also difficult for many new businesses which often rely on the specialist skills of the proprietor.

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What the bands mean The fact that a business falls within the medium or high-risk categories does not automatically mean that IR35 will apply. They are intended to identify those cases that IR35 is most likely to apply to, and the lower the score, the greater the likelihood that a case will be selected for an IR35 review. It is at the review stage that the additional factors listed above, such as mutuality of obligations etc, would be considered. The actual application of IR35 will always come down to employment status factors that must be tested against case law going back to the Ready Mixed Concrete decision.

Evidence

Summary The new guidance has caused controversy and many genuine trading companies could; just by referring to the scoring system, find themselves in the medium or high-risk categories. They should make sure they also consider the scenarios and existing case law. It is clear that there will be more IR35 investigations in the coming years. It is also clear that HMRC will have expected a business to have referred to its guidance and so expect a business to furnish evidence based on it. However, there has been no change in law and so if a case is taken to tribunal, it will need to be considered in line with established case law. It is vital that when considering contracts and self-employment, evidence is collected and collated at the time the contract is discussed and drawn up. For links to the HMRC guidance, case law, tools and information, go to www2.accaglobal.com/uk/members/ technical/advice_support/tax

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and this is in Scotland, they are a Scottish taxpayer. ‘Individuals who have more than one place of residence in the UK need to determine which of these has been their main place of residence for the longest period in a tax year – if this is in Scotland, they are a Scottish taxpayer. ‘Individuals who cannot identify a main place of residence will need to count the days they spend in Scotland and elsewhere in the UK – if they spend more days in Scotland, they will be a Scottish taxpayer.’ You can find business guides covering this area

at www2.accaglobal.com/ uk/members/publications/ guides. The technical note can be found at www.hmrc. gov.uk/news/technote-scottaxrate.pdf CONSULTATIONS There a number of consultations closing. The consultation on a disincorporation relief is open for comment until 30 August. It focuses on the transition between legal forms and whether there is an overall demand among small businesses to disincorporate that might be supported by a disincorporation relief.

*CHALLENGING SHARKEY V WERNHER

Chapter 3 summarises differences between legal forms, how a business can disincorporate, and considers the barriers to disincorporation. Chapter 4 explores whether disincorporation relief or administrative measures to address barriers to disincorporation will be of interest. In addition, the consultation document, Securing Compliance with Real Time Information – Late Filing and Late Payment Penalties, closes on 6 September. You can find the above consultations plus other current consultations at http://tinyurl.com/hsa4x You can send your comments on any of the above to advisory@ uk.accaglobal.com CAMPAIGNS Payments and full disclosure will need to be made for the e-markets campaign and the Electricians’ Tax Safe Plan

Keith M Gordon, a barrister at Atlas Chambers, has explored in an article the House of Lords’ 50-year-old Sharkey v Wernher decision and its current relevance. The article is available at www2.accaglobal.com/uk/members/technical/advice_support/tax It provides an overview of the case and explores why the basic principle that goods being taken by a trader should be at market value still leaves room for interpretation. It discusses why challenging HM Revenue & Customs (HMRC) on market value interpretation can be beneficial and highlights his offer to consider any pre-March 2008 cases. The article also highlights a pre-March 2008 case that involved a property development business in which one house was then occupied as the taxpayer’s main residence. It states: ‘HMRC considered the individual’s decision to move into the property to amount to an appropriation and, in accordance with Sharkey v Wernher, sought to tax him on the difference between the then market value and the cost – a notional profit of about £300,000 on an asset that he had not even realised. ‘We told HMRC that we were proposing to challenge the validity of the Sharkey v Wernher decision and, within two weeks, HMRC decided to drop the case.

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by 14 September and 14 August, respectively. To see the latest updates on HMRC’s campaigns visit www.hmrc.gov.uk/ campaigns/news.htm OTHER UPDATES You can see updates and summaries, new notices, changes to Gift Aid claims, details of the advance assurance application for the Enterprise Investment Scheme and Seed Enterprise Investment Scheme and tax cases at www2.accaglobal.com/uk/ members/technical/advice_ support/tax

LAW ENGAGEMENT LETTERS Technical factsheet 174, Enforceability of Engagement Letters, highlights the circumstances where the conditions in an engagement letter could be unenforceable by a practitioner but where clauses could be enforceable by a client. The factsheet states that: ‘Failure to comply with the regulations therefore may mean that, not only will the practitioner be unable to enforce payment of outstanding fees, but also that any limitation of liability included within the engagement letter would not be effective.’ It is therefore important that practitioners are aware of the relevant regulations and take steps to comply with them. The regulations are: 1 The Cancellation of Contracts made in a Consumer’s Home or Place of Work etc

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Regulations 2008. 2 The Consumer Protection (Distance Selling) Regulations 2000. The factsheet provides an overview of the regulations and simple flowcharts to help practitioners assess any risk and consider if any new procedures are required. The factsheet can be found at www2.accaglobal.com/ members/publications/ technical_factsheets Links to the regulations are available at www2. accaglobal.com/uk/ members/technical/advice_ support/law_regulation FRAUD AND CHARITIES The Charity Commission has updated its guidance on trustee duties to protect charities from fraud and financial abuse. It also highlights its role and the enforcement measures it takes, before going on to advise where further guidance for trustees can be obtained. It highlights the following pieces of guidance: Compliance Toolkit: Protecting Charities from Harm, Chapter 3 – Fraud and Financial Crime. Internal Financial Controls for Charities (CC8). Charities and Fundraising (CC20). Charities and Risk Management: A guide for trustees (CC26). Reporting Serious Incidents – guidance for trustees. Alerts and warnings – the commission raises awareness of particular risks facing charities as they come to its attention

* * * * * *

UK_T_update.indd 63

by publishing alerts on its website. Giving Safely and Charity Fraud: a guide for trustees and managers of charities, guidance produced by the Fraud Advisory Panel and the Charity Finance Group, as part of the commission’s work with the sector, aiming to safeguard charitable donations and encourage giving. Those responsible for maintaining guidance for trustees should ensure their procedures are updated to reflect the guidance. Links to the above can be found at http://tinyurl.com/br3269w

*

ILLEGAL WORKING The UK Border Agency has updated its guidance for

employers on preventing illegal working. The guidance highlights the right-to-work checks it expects employers to have in place and reminds them of the fines that could be levied of up to £10,000 for each illegal worker or the possibility of two years in prison.The guidance provides information on which documents are acceptable when proving a right to work and help in understanding what is expected of them in making the checks. It includes the following updates from previously issued guidance: More information relating to biometric residence permits, specifically with regards to those that show a holder has indefinite leave to stay in

*

the UK. Information on the various work restrictions placed on students from outside the EEA. The impact of civil penalties when applying for a sponsor licence or on licensed sponsors. Best practice recommendations when carrying out document checks. The full guidance includes a useful right-to-work checklist. Section 11, Employer Support, is also a useful starting point for many employers. The link to the guidance can be found at http:// tinyurl.com/ck3sydy

* * *

Glenn Collins, head of technical advisory, ACCA UK

*FRC UPDATE FOR DIRECTORS

The Financial Reporting Council has provided a useful update on heightened country and currency risk for the interim financial reporting season. The guidance is aimed at directors of listed companies, but would be useful for all financial directors. The aim of the update is ‘to draw together a number of the more significant issues directors may consider in preparing interim reports in the context of heightened country and currency risk’. The update highlights the following: The company’s exposure to country risk, direct or to the extent practical indirect, through financial instruments but also in terms of exposure to trading counterparties (customers and suppliers). The impact of austerity measures being adopted in a number of countries on the company’s forecasts, impairment testing, going concern considerations, etc. Possible consequences of currency events that are not factored into forecasts but may impact reported exposures and sensitivity testing of impairment or going concern considerations. A post balance sheet date event requiring enhanced disclosures to adequately inform investors and other users. In the appendix the guidance lists some of the key requirements for interim reports. These include consideration of going concern and principal risks and uncertainties, potential impairment of non-financial assets and potential impairment of financial assets. In the potential impairment of non-financial assets section the guidance reminds financial directors of the specific requirements and conditions in IAS 36 to test for impairment. You can see the guidance at www2.accaglobal.com/uk/members/technical/ advice_support/financial_reporting

* * * *

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Technical GET VERIFIABLE CPD UNITS

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Preparing for change Don’t let recent International Financial Reporting Standards amendments both current and future slip beneath your corporate radar, warns Graham Holt The International Accounting Standards Board (IASB) is developing a group of projects that are likely to affect financial statements ending in 2015. However, in the meantime, there have been some amendments to International Financial Reporting Standards (IFRS) which affect year ends in 2012 and others that come into effect from 1 January 2013. Although these amendments have been in existence for a while, entities should ensure that the amendments do not slip under their corporate reporting radar. There are amendments which relate to December 2012 year ends. For example, an amendment to IFRS 1, First-time Adoption of International Financial Reporting Standards, eliminates the need for companies adopting IFRS for the first time to restate derecognition transactions that occurred before the date of transition to IFRS and provides guidance on how an entity should resume presenting financial statements in accordance with IFRS after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. An amendment to IFRS 7, Financial Instruments: Disclosures, introduces some additional disclosures that apply on the transfer of financial assets. The amendments allow users of financial statements to improve their understanding of transfer transactions of financial assets, for example, securitisations, including understanding the possible effects of any risks that may remain with the

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entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. IAS 12, Income Taxes, requires an entity to measure the deferred tax

translation) and those elements that will not (for example, fair value through OCI items under IFRS 9, Financial Instruments). The revisions made to IAS 19, Employee Benefits, are significant, and will impact most entities. They come into effect from 1 January 2013. The

ENTITIES SHOULD ENSURE THAT THE AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS DO NOT SLIP UNDER THEIR RADAR relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be subjective when assessing whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, Investment Property. The amendment provides a solution to the problem by introducing a presumption that recovery of the carrying amount will normally be through sale. In addition, there is an amendment to IAS 1, Presentation of Financial Statements, which applies from 1 July 2012. The amendments to IAS 1 retain the ‘one or two statement’ approach at the option of the entity and only revise the way other comprehensive income (OCI) is presented, requiring separate subtotals for those elements which may be ‘recycled’ (for example, cashflow hedging and foreign currency

revisions change the recognition and measurement of defined benefit pensions expense and termination benefits and the disclosures required. In particular, actuarial gains and losses can no longer be deferred using the corridor approach. New and revised standards on group accounting were published in 2011. IFRS 10, Consolidated Financial Statements, replaces IAS 27, Consolidated and Separate Financial Statements and SIC-12, Consolidation — Special Purpose Entities and sets out a single consolidation model that identifies control as the basis for consolidation for all types of entities. IFRS 11, Joint Arrangements, establishes principles for the financial reporting by parties to a joint arrangement, and replaces IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities, Non-monetary Contributions by Venturers. IFRS 11 reduces the types of

19/06/2012 11:36


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

joint arrangement to joint operations and joint ventures, and prohibits the use of proportional consolidation. IFRS 12, Disclosure of Interests in Other Entities, combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. In addition, IAS 27, Separate Financial Statements, now has the objective of setting standards to be applied in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulation, to present separate (non-consolidated) financial statements. Financial statements in which the equity method is applied are not separate financial statements. IAS 28, Investments in Associates and Joint Ventures, covers equity accounting for joint ventures as well as associates. IAS 28’s objective is to prescribe the accounting for investments in associates and set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. All of the new group accounting standards have to be implemented together and apply from 1 January 2013. They can be adopted with immediate effect (subject to EU endorsement for European entities), but only if they are all applied at the same time. The European Financial Reporting Advisory Group (EFRAG) supports the adoption of the standards and

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recommends their endorsement. However, it does not support the mandatory effective date of 1 January 2013; the field-tests it has conducted provided evidence that some financial institutions would need more time to implement IFRS 10, IFRS 11 and IFRS 12 in a manner that brings reliable financial reporting to capital markets. EFRAG recommends the mandatory effective date of the standards to be 1 January 2014. A number of current IFRSs require entities to measure or disclose the fair value of assets, liabilities or their own equity instruments. The fair value measurement requirements and the disclosures about fair value in those standards do not always give a clear measurement or disclosure objective. IFRS 13, Fair Value Measurement, published in May 2011, deals with this issue. The new requirements apply from 1 January 2013, but can be adopted with immediate effect, again subject to EU endorsement for European entities. In addition to the changes which will have an immediate impact, there is potential for significant change in practice because of current exposure drafts. The comment period for the updated exposure draft, Revenue From Contracts With Customers, closed recently. Most respondents agreed with many of the proposals, but some expressed concerns over the lack of clarity on how to identify separate performance obligations, the performing of the onerous assessment

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Technical

at the performance obligation level, and the volume of disclosures. The IASB and US Financial Accounting Standards Board (FASB) are beginning revisions and have indicated the effective date will be no earlier than 2015. The FASB and IASB are proposing to fundamentally change the accounting for leases and are attempting to issue a second exposure draft by the end of 2012. The boards are proposing a ‘right-of-use model’ for lessees in which all leases are recognised on the statement of financial position at the commencement of the lease. A lessee would recognise an asset for the right to use the underlying asset and a liability to make lease payments. The two key factors in initially measuring the right-of-use asset and lease liability are the lease term and lease payments. The lease term is to be the non-cancellable lease period, plus any renewal periods for which there is a significant economic incentive for the lessee to exercise the renewal option. Similarly, a lessor accounting model is proposed. Under this method, a lessor would derecognise the underlying asset leased and recognise a lease receivable measured as the present value of the future lease payments and residual asset measured on an allocated-cost basis. A lessor’s lease of investment property would utilise existing operating lease accounting but this is still in discussion by the Boards. IFRS 9, Financial Instruments, is being developed in three phases: classification

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and measurement, impairment and hedging. The IASB agreed in late 2011 to look at limited modifications to IFRS 9 for classification and measurement. This arose because of application issues with IFRS 9 – the need to consider the interaction between IFRS 9 and the decisions being made on the insurance project, and consistency with the FASB’s model on the classification and measurement of financial instruments. In December 2011 the IASB issued Mandatory Effective Date of IFRS 9 and Transition Disclosures, which amends IFRS 9 to require application for annual periods beginning on or after 1 January 2015, rather than 1 January 2013. Early application of IFRS 9 is still permitted. IFRS 9 is also amended so that it does not require the restatement of comparative period financial statements for the initial application of the classification and measurement requirements of IFRS 9, but instead requires modified disclosures on transition to IFRS 9.

Amortised cost To date, the Boards have decided that an entity should assess the cashflow characteristics of financial assets and its business model to determine which financial assets should be classified and measured at amortised cost. If the business model’s objective is to hold the assets in order to collect contractual cashflows, then amortised cost is used. All financial instruments are initially measured at fair value plus or minus, in

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the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs. A measurement category other than fair value through profit or loss can be used if the contractual terms of the financial asset result in cashflows that are solely payments of principal and interest on the principal amounts outstanding. The existing requirement under IFRS 9 that prevents the splitting of embedded derivatives from financial assets is to be retained. The IASB intends to expand IFRS 9 to add new requirements for impairment of financial assets measured at amortised cost, and hedge accounting. The Boards are continuing their discussions on development of the three-bucket expected credit loss impairment model. The IASB expects to publish an exposure draft in the second half of 2012. It can be seen that when reviewing and preparing financial statements, difficulties arise in ensuring compliance with all of the various amendments being issued, deciding whether to adopt a standard early and determining whether the jurisdiction has actually approved the standard for use. 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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67

Accounting solutions In this month’s column, PwC authors answer technical questions on changes in tax rates in interim disclosures, and on segment reporting in current economic conditions

Q

ABC plc in the UK is preparing interim financial statements under IAS 34, Interim Financial Reporting, for the six-month period ended 31 March 20x1. The government has announced that it plans to change the main rate of corporation tax applicable to ABC plc from 30% to 25%. This change is expected to be substantively enacted and come into effect in the second half of ABC plc’s current financial year. Should ABC plc take into account this change when preparing its six-month results? A company’s tax charge cannot be properly determined until the end of the financial or tax year, when all allowances and taxable items are known. IAS 34 therefore requires, in interim periods, an effective tax rate to be calculated based on an estimate of the tax charge for the full year and applied to the results of the interim period. Consistent with IAS 12, Income Taxes, this estimate should use the tax rates (and tax laws) that have been substantively enacted by the end of the interim reporting period. It should not take into account changes in tax rates that have not been substantively enacted. So ABC plc should use the tax rate of 30% in its estimate of the tax charge (making the required adjustments for tax allowances, nondeductible items, etc) at the end of the interim period. If the impact of the announced change in tax rates is material to ABC plc, it should be disclosed in the notes to the interim financial statements.

A

Q A

Most multinational companies have recently changed their internal reporting to highlight increased country risks in Europe. What is the impact of the change on the financial reporting? ABC is a global manufacturing group with operations in three main territories, the US, China and Europe. The group’s executive committee is the chief operating decision-maker (CODM) as defined by IFRS 8, Operating Segments. The CODM monitors revenue and operating profit measures on a territory-by-territory basis and so has three operating segments. In recent years, the group’s operation in China has accounted for around half of the total revenues and operating profits consistently, followed by the US with some 20% share of each measure. The

A PRACTICAL GUIDE TO NEW IFRSs FOR 2012

This is a guide to the new standards and interpretations that come into effect in 2012, outlining key requirements and implications for management. To order copies, visit www.ifrspublicationsonline.com

UK_INT_T_AccSolutions.indd 67

remaining 30% is shared by the group’s European operations mainly in the eurozone. The group therefore reported these three territories as reporting segments in their financial statements. Given the ongoing turmoil in the eurozone, the CODM requested changes to the internal management reporting to show each European country’s performance separately. The determination of operating segments under IFRS 8 is based on how the CODM reviews performance and allocates resources. As a result of the alteration to the internal management reporting, the group’s operating segments have now changed. Management assessed which countries meet the definition of reporting segments. It concluded that China and the US would exceed the quantitative thresholds as described in IFRS 8, para 13 and therefore required separate disclosure. In respect of the European operating segments, although the requirement for segments to have similar economic characteristics might be difficult to overcome when combining individual countries, management was comfortable with the aggregation of operations in Germany and the Netherlands on the basis that these countries have similar economic conditions, exchange control regulations and underlying currency. On the other hand, they concluded that it would not be appropriate to aggregate the operations of Greece, Spain and Hungary because of their differing economic situations. Management has also restated the comparative information. This month’s solutions were compiled by Imre Guba, Richard Tattershall and Iain Selfridge of PwC’s Accounting Consulting Services

20/06/2012 14:47


68

Technical GET VERIFIABLE CPD UNITS

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Making strategic options fly In the last article of this series, Dr Tony Grundy examines how the finance function – and the accountant within it – can play a much more strategic and influential role

So far this series has highlighted that the competitive environment has a very profound impact on financial returns. For an example of the effect, let’s take a brief look at the case of Marks & Spencer. In the very late 1990s M&S was Britain’s most profitable retailer. It was making profits of more than £1bn on sales of just £8bn. In economic terms, given the general competitive state of the retail industry, the company was making abnormally high returns. This was partly a reflection of its previous competitive advantage – brand, reputation, products and so on – but also in part because it was milking its position, underinvesting (lower depreciation), and skimping on customer service. Newer, nimbler and more aggressive competitors from niche retailers right up to Tesco and Asda were poised to attack its clothing business. And Waitrose, Tesco Finest and Sainsbury were attacking its premium foods business. Using various strategy matrices at that time and through the early 2000s I monitored M&S’s strategic position as shown in the table on this page. M&S’s clothing business was undermined by complacency, and by the early 2000s was really suffering against the competition. During this period, margins and profits at the company collapsed as a result of this weakening competitive position and the rise in rivalry. Its food business didn’t show much innovation throughout the very late 1990s and into the early 2000s. Although that improved greatly post-2005 under Stuart Rose, competition sharpened as its rivals improved their offerings.

UK_T_strategy5.indd 68

Marks & Spencer: strategic position Late 1990s

Very early 2000s

After 2005

After 2010

Market attractiveness

Medium

Low/med

Medium

Low/med

Competitive strength

Medium

Very low

Medium

Medium

Market attractiveness

High

High/med

Medium

Medium

Competitive strength

High

Medium

Medium

Medium

Clothing/non-food

Food

Value tree for new supermarket trolleys New trolleys

Customer value (by segment)

Company value

Operating cost saved Ease of use

Contributed to capturing new customers?

Irritation avoided

Contribution to brand image

Investment cost saved

Switching to competitor avoided?

In short, M&S’s profits collapse and its faltering recovery record very much mirrors, with some lags, the changing strategic position of its individual business streams. The company’s

profits look unlikely to return to the levels of the last century for the foreseeable future because those elevated returns have returned to a ‘normal’ level. What was cunning and

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69

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

unique in those halcyon days of bumper profits is no longer so. So profits and financial returns are closely correlated with external changes, with shifts in relative competitive position and with the extent to which the organisation is cunning or complacent. So when accountants look

much more effective in * be influencing key players in the organisation spend less time on more pure number crunching and backwardlooking work. Returning to the issue of shareholder value, there are said to be seven key

*

IF ALL THIS IS A FOREIGN LANGUAGE TO YOU, THEN AS AN ACCOUNTANT THERE IS SOMETHING THAT YOU AREN’T DOING BUT WHICH YOU SHOULD BE

the value to the business of new strategic options and decisions. The first two of the seven value drivers are called ‘business value drivers’; they are generally the most important in determining the share price and business value. If we look first at the more generic business value drivers, we can trace the links as shown below between competitive strategy (boldfaced) and the value drivers a strategically astute accountant should be looking for.

Sales growth rate to the profit and loss (P&L) account as the key performance indicator of the business they are often looking at symptoms rather than causes; the P&L figures don’t uncover the real drivers of corporate performance. By becoming strategically astute, accountants and the finance department as a whole can begin to fulfil their true role as the guardians of shareholder value, rather than being primarily the score-keepers who look after accounting profit. To turn this role into a reality, financial professionals need to: become much more involved in the planning process, by co-ordinating and project-managing it apply the strategic option grid (as described in the third article of this series) to help operational managers carry through the ‘challenge-andbuild’ process of refining and testing their options champion the role of shareholder value in the business (as described below), not just in business cases but more generally

* *

*

UK_T_strategy5.indd 69

value drivers that propel the net present value of future cash streams of the business: sales growth rate, operating profit margin, three drivers concerned with fixed and working capital, the tax rate, and the cost of capital. These seven drivers all have an impact on the share price. This impact can be modelled on a relatively simple spreadsheet which discounts forecast cashflows and the ‘terminal value’ at the end of the planning period to a present value. If all this is a foreign language to you, then as an accountant there is something that you aren’t doing but which you should be: keeping a close track on the value of your business, seeing whether this value is going up year on year (the ‘economic profit’), and understanding what is really behind that. This is a quite different way of looking at finance. It is forward-looking and not confined to just a year at a time. It is also based on a more honest metric: cashflow. It all helps you, in your role as an accountant, to assess

(political, economic, social * PEST and technical) factors: lower

* *

economic growth reduces the sales growth rate Life-cycle effects: maturity dampens price increases, may cause price deflation and lower sales volumes Relative competitive advantage: impacts on relative market share and supports premium prices.

Operating profit margin

five forces: squeezes prices, * Porter’s pushes up costs and reduces margins competitive advantage: * Relative protects against discounting, and

*

lowers costs of acquiring new customers and reducing the cost of replacement Variables: economies of scale and lower costs.

These are merely high level, but it is precisely this kind of analysis that accountants with a strategic role should be undertaking. The two business value drivers of sales growth rate and operating profit margin are a very good

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Technical

CPD units on the web

LAST MONTH HOW TO MANAGE STRATEGY AS A LIVING PROCESS

start but very generic. An accountant can make them far more specific. So first, a business value driver is defined as anything that generates – directly or indirectly – the cash inflows of a business, now or in the future. A cost driver can be defined in a very similar way as anything which generates – directly or indirectly – the cash outflows of a business, now or in the future. In the earlier article on the option grid, at ‘strategic attractiveness’ we were implicitly asking about cashflows, so we should look too at value and cost drivers, but now specifically. To operationalise these, it is best to try to sketch out a tree of value (and cost) drivers which underpin a particular strategic option. An example is in the value tree graphic shown on the first page of this article. This examines the value drivers for a new form of supermarket trolley which goes in a guaranteed straight line. The graphic shows an example of value segmentation – that is, economic value which accrues either to different people or in different ways/activities. This process allows indirect and less tangible sources of value to be captured – and ultimately for some ‘what if?’ approximate valuation to be done. This allows the accountant to capture softer value in business cases. In strategic planning softer value is very common. Such value trees not only help to cast the net of quantification wider but also, as we drill down to the bottom of that page, in more detail and depth. This methodology has helped me to put an economic value on culture change at BP and on learning and development at a police force, demonstrating the high ratios of value over cost resulting.

UK_T_strategy5.indd 70

The cost driver tree I created had the investment and running costs broken down into losses and damage (big) and trolley retrieval costs (enormous). Drilling down here has begun the process of convincing UK supermarkets to reconsider coin locks. Using these kinds of pictures can enable accountants to perform a combined strategic and financial analysis of strategic options, project cost breakthroughs and generate far better business cases generally. Let’s now look at how a finance department might develop a strategy for itself.

Current position What businesses are we in? Transactional Technical Reporting Budgeting and financial planning Strategic, advisory, influencing Process development Special projects (for example, cost management) What is the current value added and what are the costs? Internal customer analysis/costs.

* * * * * * * * *

Value outsourcing Options/breakthroughs: Shift resources from traditional activities to strategic. Adapt structure and adopt more fluid roles. Mindset more commercial, forwardlooking, advisory.

* * *

Vision

be regarded as more of a * To business unit than a functional overhead, a voice championing shareholder value.

Not rocket science Creating a strategy for a finance department isn’t rocket science. It is a very similar process to developing one for any other business or function. In the future it would be wise to capitalise on your learning. Sadly the provision of short courses on strategy has dried up. In terms of further reading, Wikipedia is excellent and cuts through the terminology, although it is still rather conceptual. MBA courses can help broaden you conceptually and give you far more confidence. They put a lot of emphasis on strategic thinking – contact me via my website if you have serious interest. Strategic projects are another excellent way to develop further – for example, major change programmes, secondments, acquisition work and so on. Do trial techniques such as the option grid on these projects. Let me finish with a story. A group of turkeys were having a day out in Hyde Park. While they were having their lunch (chicken sandwiches), a man came up to them and said, ‘Would you like to fly? I can show you how.’ They agreed and he took them on a flight around the park, over Buckingham Palace and Big Ben. When they landed, they thanked him and said what a great time they had had, then walked home happily. What is the one big thing that the turkeys forgot to do? Dr Tony Grundy is an independent consultant and trainer and lectures at Henley Business School in the UK www.tonygrundy.com

In the next issue we begin a new series of articles by Dr Grundy, this time on economic value.

19/06/2012 11:27


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19/06/2012 15:47


72

Careers

Is your boss a psychopath? [

With psychopaths believed to account for 4% of senior managers, there may well be one wreaking havoc in your own office. And, say some experts, their recklessness may even have caused the global financial crisis

There are somewhere between 300,000 and one million psychopaths working in the UK – many of them in senior management. This is according to research by Robert Hare, emeritus professor of psychology at the University of British Columbia and author of Without Conscience: The Disturbing World of the Psychopaths Around Us. He believes that 1% of the general population, and 4% of senior management staff, display psychopathic behaviours. So if you work in a business of 100 staff, it is likely that there are between one and four psychopaths among them. Unlike characters such as Silence of the Lambs’ Hannibal Lecter or the

UK_CAR_psychopath.indd 72

eponymous character in television series Dexter, corporate psychopaths are not knife-wielding killers but they can have a murderous impact on businesses. ‘Serial killer psychopaths ruin families,’ Hare says. ‘Corporate, political and religious psychopaths ruin economies. They ruin societies.’ In 2011 the Journal of Business Ethics published a paper by UK psychologist

Clive Boddy entitled The Corporate Psychopaths Theory of the Global Financial Crisis. He argued that psychopaths in corporations – in particular, financial ones – had a large hand in the crisis. ‘Corporate collapses have gathered pace in recent years, especially in the Western world, and have culminated in the global financial crisis that we are now in,’ Boddy says. ‘In watching these

‘PSYCHOPATHS PRESENT THEMSELVES AS GLIBLY UNBOTHERED BY THE CHAOS AROUND THEM, UNCONCERNED ABOUT THOSE WHO HAVE LOST THEIR JOBS, SAVINGS AND INVESTMENTS’

19/06/2012 12:11


73 WANT A NEW JOB? Visit www.accacareers.com/uk events unfold it often appears that the senior directors involved walk away with a clean conscience and huge amounts of money. Further, they seem to be unaffected by the corporate collapses they have created.’ This is one of the key characteristics of the psychopath: a lack of empathy or remorse.

No regrets ‘They present themselves as glibly unbothered by the chaos around them, unconcerned about those who have lost their jobs, savings and investments, and as lacking any regrets about what they have done,’ Boddy says. ‘They are happy to walk away from the economic disaster that they have managed to bring about, with huge payoffs and with new roles advising governments how to prevent such economic disasters. ‘Many of these people display several of the characteristics of psychopaths and some of them are undoubtedly true psychopaths.’ Dr Mike Drayton, a business and clinical psychologist in Birmingham, consults with businesses and government bodies on psychological issues in the workplace and says that the corporate psychopath is a lost cause. ‘Corporate psychopaths are only interested in themselves,’ he says. ‘Their overwhelming goal is to maximise their own power and wealth, and this takes precedence over the success of the organisation. Corporate psychopaths can sometimes produce short-term results but in the long term their behaviour will be destructive.’ In addition, says Drayton, the corporate psychopath can charm and manipulate, and displays a supreme confidence easily confused with charismatic leadership. However, he adds, such people are unable to build long-term creative relationships and often can’t really do the job – surviving by blagging it, risk-taking or getting someone else to do the work and claiming credit themselves.’ Drayton believes that the corporate psychopath cannot be helped. This may sound harsh, but he explains that these people cannot be coached to

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*HOW TO SPOT A CORPORATE PSYCHOPATH

Psychologist Mike Drayton explains that the traits of a psychopath can often be seen in the BBC One television show, The Apprentice, where candidates ruthlessly manipulate their competition to get ahead. These individuals can quickly climb the corporate ladder as their selfconfidence, ruthlessness and manipulative behaviours are often mistaken for ambition. In fact, these traits are often willingly embraced in senior corporate roles. The corporate psychopath: a glib, superficial charm and the ability to make a good first impression * has has an inflated view of their capacities and feels superior to ‘ordinary people’ * is a skilled liar * is highly manipulative * has no conscience and never feels guilty * can be impulsive to the point of recklessness. * ‘These are not characteristics you want in an employee, and certainly not characteristics you want in a manager or leader,’ Drayton says. However, there are ways, according to Drayton, to handle a corporate psychopath in your office: Concentrate on developing your leadership and management skills * Often the corporate psychopath will harm you by attacking your reputation, so make sure you don’t provide any ammunition for this.

*

Build good relationships with your staff Psychopaths often cause trouble by splitting relationships and setting people against each other. When there are good relationships in the team and good opportunities to communicate, then this is harder to do. Don’t label the person as a corporate psychopath * Describe the actual behaviours that give rise to your concern – for example, bullying, disruptive, poor performance and dishonesty. Keep good records * This is important because the psychopath is adept at lying and distorting past events. Keep records of an employee’s good and poor performance. Stick to policies and procedures * It’s important to maintain clear and firm boundaries with all employees but absolutely vital to do so with the corporate psychopath. Seek advice * Because corporate psychopaths cause trouble, human resource professionals encounter examples of their behaviour far more frequently than do individual managers. They are in a good position to offer support and advice.

change their behaviours. ‘Psychopathy is a complete package of largely dysfunctional attitudes and behaviours that make up a personality,’ he says. ‘It is difficult to coach some behaviours that you approve of, while ignoring destructive behaviours. Anyone who has had to work with, or for, a

psychopath will be painfully aware of their destructiveness. A psychopath, especially one in a position of influence, can do untold harm to morale, productivity and the reputation of a business.’ Kate Jenkinson, ACCA journalist

19/06/2012 12:11


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Careers

75

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Securing your place [

Once you’ve decided to take the plunge and do a master’s degree, you need to give plenty of thought to your CV, your personal brand and your approach if you want to get past the admissions committee

Last month we looked at the burgeoning popularity of online master’s degrees, with a time-poor workforce eager to do whatever it can for an edge in the fight to get and keep the best jobs. However, you can’t simply walk into a master’s course – you have to be accepted. And acceptance is based on more than just financial viability. Applying for a master’s can be a lengthy and complex process and there are many steps to the application process, so start early and leave yourself plenty of time. The first thing to do is visit the websites of schools with MBA and MSc programmes to which you would like to apply and make sure that you actually qualify. Most schools will have a minimum requirement. As a qualified ACCA you may have some exemptions or access to an accelerated route. After you have made sure that you meet the minimum requirements to apply for the MBA programme, the next step is to take a look at the application procedures outlined on the business school’s website. They may all vary from school to school but there are some boxes that all course providers will expect you to tick. You will need references. Choose them wisely; pick people with whom you have worked closely, either academically or professionally, and who can thoroughly endorse your ability to excel at a master’s. People who can give specific examples of your work habits and accomplishments are the best providers of references. In this day and age most people keep their CVs reasonably up to date, but it’s important that you give it a complete overhaul if necessary. There are an eye-watering number of ‘helpful’ websites and companies that will happily tell you how to create the

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*CASE STUDY

ANDREW DONNELLY FCCA, STRATEGIC MANAGEMENT INFORMATION LEADER AT SUN FINANCIAL LIFE OF CANADA

‘I was looking for a way to develop to the next stage, and decided that the MBA was a great way of doing this,’ says Andrew Donnelly. ‘I researched courses and routes, but the Oxford Brookes global MBA for ACCA members offered the greatest breadth of experience.’ As a member, he was able to take the accelerated route, which was another key deciding factor. Being dyslexic, he had not gained any great academic qualifications. ‘Later in life I qualified as an accountant, but my real fear was being able to deliver the quality of work required. I overcame this by having confidence in myself and ensuring I asked the very obliging tutors questions whenever I wasn’t sure about a topic.’ Donnelly has a hectic job and home life which he says makes it difficult to create a fixed study schedule. However, he adds: ‘Studying online has been great for me as it allows me to fit the study in when I can. Being able to log on wherever you are is such a great benefit – and in fact I did the first part of the MBA on a cruise ship while on holiday! However, you do need to be disciplined to meet the deadlines, because if you are not logging on regularly and checking the progress of seminars, you can fall behind.’ His advice to those considering an MBA is to research it thoroughly first. ‘You should also review the syllabus and match it against your aspirations and interests. Enjoying the topic makes reading and studying so much easier.’

19/06/2012 17:28


Careers

convert your ACCA Membership into an MSc ‘perfect CV’ and it’s easy to get overwhelmed. Pick up tips from LinkedIn contacts with an impressive CV – it’s free to do so and just as good as any online templates.

Create your own brand Most MBA programmes require applicants to write an essay or personal statement. This is your chance to say why you are applying for an MBA and how you want to use your education in the future. It’s also a chance to show the admissions department a bit of your personality. Something Stacy Blackman, CEO of Stacy Blackman Consulting and MBA blogger, advocates is articulating a

a young applicant, consider your maturity, your career focus and the perspective and experience you can contribute to classroom discussion,’ advises Blackman. ‘Leadership, vision and confidence are just some of the qualities that will be required and scrutinised by the admissions committee. If you begin drafting essays or reflecting on your experiences and come up empty, an extra year or two may serve you well.’ Likewise, if you are a more mature candidate, your application will be examined in different ways. ‘If you graduated 10 or more years ago, you need to show concrete career progression and real leadership,’

‘STUDYING ONLINE HAS BEEN GREAT FOR ME AS IT ALLOWS ME TO FIT THE STUDY IN WHEN I CAN. BEING ABLE TO LOG ON WHEREVER YOU ARE IS SUCH A GREAT BENEFIT’

October 2012

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UK_CAR_MBA.indd 76

unique and compelling brand image. ‘Coming up with your personal brand is not always easy,’ she admits. ‘We try to simplify the process by boiling it down to a few steps, as follows. ‘Write down a ton of information about yourself – personal stories, interests, talents, hobbies, activities, and traditions. Do it quickly and don’t worry too much about the content; we call this the “brag sheet”. ‘Evaluate your list and come up with recurring themes, such as ethics, teamwork, environmental concerns, and international travel. The possibilities are endless. ‘Once you have three to five themes, you have your unique brand. Convey it to the admissions committee through concrete stories from your background.’

A bespoke application Where you are in your career will also make a difference to how you should apply to do a master’s. ‘If you are

Blackman continues. ‘Admissions committees will want to see a track record of success, and clearly understand your motivation for returning to school at this later stage.’

Digital clean-up Finally, after applying to whichever schools you think suit you best, turn your attention to information they can find out about you which may not be on the application form. As more employers and educational establishments use online professional networks to research individuals who approach them, make sure your online presence reflects the professional image you need to present. If you allow complete access to your Facebook profile, now may be the time to delete those drunken pictures from that holiday in Spain or at the very least change your settings to restrict access. Beth Holmes, journalist

19/06/2012 17:39


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80

ACCA diary

[

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

REGIONAL MEMBERS’ NETWORKS AND DISTRICT SOCIETIES

18 July, Wednesday Accounting Mistakes and Common Problems, London

Most events take place in the evening, but check websites listed for times and details.

18 July, Wednesday Service Charge, London

ENGLAND 19 July, Thursday Accountants as E-Professionals, Sheffield 28 September, Friday Business Lunch and Presentation, Newcastle To book, visit http:// uk.accaglobal.com/uk/ members/networks/regional

SCOTLAND 13 September, Thursday Aspirational Jobs, Inspirational Locations!, Glasgow 25 September, Tuesday Carbon Accounting, Edinburgh To book, visit www.accaglobal. com/scotland/events

PROFESSIONAL COURSES 16 July, Monday UK and EU VAT Update, London 16 July, Monday Capital Allowances and Planning, London 17 July, Tuesday Inheritance Tax Planning, London 17 July, Tuesday Capital Tax Update, London

UK_A_diary.indd 80

19 July, Thursday IFRS Adoption – How Prepared Are You? (Part One), London 20 July, Friday IFRS Adoption – How Prepared Are You? (Part Two), London 12 September, Wednesday Trusts, Wills and Inheritance Tax, Isle of Man 13 September, Thursday Guide To Practical Audit Compliance For Partners And Managers (Part One), London 14 September, Friday Guide To Practical Audit Compliance For Partners And Managers (Part Two), London 18 September, Friday Health Sector Finance Conference, London

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

MIDLANDS REBALANCES

Around 100 business professionals from across the Midlands joined a recent ACCA debate on the future of the Midlands economy. Leading the debate were Ken Gregor, CFO at Jaguar Land Rover, Peter Rees-Steer, chief executive of Birmingham Forward, and David Smith, economics editor at The Sunday Times. The audience heard how the regional economy had rebalanced since the financial crisis and was rebuilding its traditional manufacturing base, led in part by major employers.

LESSONS FROM F1

Members of the south west business community gathered to hear how the skills perfected by Formula 1 teams can be applied to business life. Guest speaker was Steve Nevey, who has spent more than 20 years working in the sport, most recently as business development manager for the Red Bull racing team. At the event, Bristol members’ network president Sharon Critchlow FCCA was presented with her Member Network Contribution Award.

ACCOUNTANTS KEY TO SME FINANCE SUCCESS

Small businesses applying for new funding are more likely to be successful if they have financially trained staff in charge of their finances, the latest edition of SME Finance Monitor, has revealed. Manos Schizas, senior SME policy adviser at ACCA, welcomed the findings. ‘It’s great to finally have the most robust evidence possible that developing a professional finance function makes it easier for SMEs to access the finance they need,’ he said. Produced as a quarterly by independent researcher BDRC Continental, SME Finance Monitor provides a definitive account of UK SMEs’ access to finance, having undertaken more than 20,000 interviews with decision-makers in UK SMEs.

*OBE FOR PAST PRESIDENT

Gill Ball FCCA, a former ACCA president, has been awarded an OBE in the Queen’s birthday honours list. Ball, who is FD at the University of Birmingham, has been given the award for services to higher education. She has spent six years on the executive group of the British Universities Finance Directors Group and has worked closely with the Leadership Foundation supporting the training of future leaders of the sector.

20/06/2012 14:34


ACCA

81

Motivate, guide, support Is it time for you to give something back to the profession by supporting an ACCA trainee as a workplace mentor? It’s easier than ever and can contribute to your own CPD Do you remember the days when you were an ACCA student or affiliate, looking for support to help you gain the practical experience requirement (PER) of the ACCA Qualification and sign off your achievements? Now ACCA trainees are asked to find a workplace mentor – an individual who can verify their experience but also act as a guide to help them plan how they will achieve competences and to generally motivate and offer support. At ACCA, we believe that members are our greatest asset and that mentoring is the best mechanism to ensure that the quality of our membership base in the future remains as high as it is today. We therefore put a lot of resource into making sure that members who act as workplace mentors are supported by ACCA.

What’s involved?

Why become a mentor?

If you’re already a mentor, signing off your trainees’ experience is now easier and simpler than before: the look and feel of the tool will be slightly different for you, but the process you follow in signing off PER will remain exactly the same access to My Experience is through myACCA just like before; and any information you and your trainee may have already entered has been transferred to the enhanced tool. We will remind trainees regularly to update My Experience. Please help us reinforce this message by explaining to your ACCA trainee(s) that they should use My Experience to log regular updates. For

Becoming a workplace mentor can have many benefits for you: coaching and mentoring can count towards your annual CPD requirement if you are learning relevant new skills that you can apply in the workplace you will reap the benefits of working with junior colleagues, who will become more able, enthusiastic and develop a better rapport with you you’ll develop the characteristics and behaviours required of today’s rounded business professionals and develop a wide range of transferable skills to use in your career from preparing for coaching or mentoring, through the session itself to your post-session review, you’ll improve both self-awareness and the ability to identify your own areas for development the achievements of your trainees will reflect well on your own leadership ability and potential.

* * * *

*

UK_A_CPD.indd 81

The workplace mentor supports the trainee’s development in the workplace and reviews their progress and achievements at work. As the workplace mentor, you should: help trainees identify which performance objectives to target advise trainees about performance targets to achieve and the date by which they should achieve them evaluate trainee progress on a regular basis review the answers given to challenge questions sign off experience and the performance objective if you agree that the standard required has been met.

* *

example, they can use the tool to log some months of relevant experience with an employer, even if they have not yet achieved any Performance Objectives. For more information please visit www.accaglobal.com/wpm

* * *

Already a workplace mentor?

* *

MEMBERS ARE OUR GREATEST ASSET AND MENTORING IS THE BEST MECHANISM TO ENSURE THAT MEMBERSHIP QUALITY REMAINS HIGH

14/06/2012 15:11


82

ACCA news WANT JOBS BY EMAIL? Visit www.accacareers.com/uk

ACCA reviews performance More students, more members and more online customer satisfaction

Inside ACCA 81 CPD Become a workplace mentor 80 Diary and News What’s on in the coming months. OBE for former ACCA president

ACCA has announced a significant rise in both its new student numbers and online service customer satisfaction at the end of the 2011–12 operating year. Total increase in membership in 2011–12 has been 7,000 (up 4.8%) and over 70,000 new students have started studying for the ACCA Qualification. ACCA now has 154,000 members and 432,000 students in 170 countries. Sustained investment in customer service over the past 12 months has seen customer service targets hit and an improvement in the online customer experience. In addition, ACCA has seen a significant rise in satisfaction with the public value created through its global policy positions and activities. Helen Brand, ACCA’s chief executive, says: ‘ACCA’s results show that we continue to deliver towards our goal to be the leading global professional accountancy body in reputation, influence and size. We’ve seen strong demand for the ACCA Qualification, with significant growth in established markets – such as China, Singapore, Malaysia, the Caribbean and the UK – and in new markets too. ‘Members and students are now starting to see the benefits of investments made in recent years to improve our processes, IT infrastructure and customer service levels. This has included our customer contact centre, ACCA Connect, now open 24/7, 365 days a year.’ Key indicators include: 75% of students and 70% of members now say ACCA is easy to do business with online 85% of exam entries are now made through the ACCA website 90% of online student registrations are now completed within seven days. Brand adds: ‘This is a good outcome. We know we need to go further to improve satisfaction ratings even more and have plans to increase our performance around service delivery, including the website. ‘I am particularly pleased to see that we are enhancing our global reputation through our policy and technical work. Council is clear that we must demonstrate public value in all that we do. We have outperformed our target in relation to employers believing that our global policy output brings public value.’

* * *

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Helen Brand

ACCA MAKES RIO CALL

Speaking at the Sustainable Stock Exchanges 2012 event in Rio, just before the Earth Summit, Martin Turner, ACCA’s vice president, has called for the Rio+20 ‘zero draft’ to integrate material sustainability information into the corporate reports of listed and large private companies. ‘The distinct and credible reporting of environmental, social and governance [ESG] disclosures have an important part to play in encouraging a positive approach to sustainable development by business and the adoption of long-term and socially responsible investment strategies by investors,’ said Turner. He added that sustainability reporting needed global buy-in: ‘We must aim to achieve a reporting framework which provides meaningful information to users everywhere and is also flexible enough to accommodate substantial differences in cultural and legal practices that may exist in different countries. A framework needs to be put into place to make this happen, which will help businesses to flourish wherever they are based.’ An ACCA paper that considers possible changes to the zero draft is at www.accaglobal.com/accountability

COUNCIL NAIROBI-BOUND

Economic growth and opportunities and challenges in Africa and globally will be the main theme of ACCA’s Council meeting, to be held in Nairobi as we go to press. There will also be visits to Ethiopia, Tanzania and Uganda. See Roar Power, page 34.

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THE MAGAZINE FOR BUSINESS AND FINANCE PROFESSIONALS

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UK.AB ACCOUNTING AND BUSINESS 07/2012

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AB UK-July/August 2012 edition  

Accounting and Business - UK edition -July/August 2012

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