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Editor’s choice With hard-nosed investors joining in with ever-louder calls for businesses to properly address sustainability issues to ensure their long-term survival and prosperity, we look ahead to the Earth Summit in Rio de Janeiro, Brazil, later this month. See page 14

FUNNY SIDE UP Humour can be a vote-winner in politics. The appeal of Boris Johnson’s wit and buffoonery, for example, may well have tempted enough Londoners to put their party prejudices aside to give him his whisker-thin victory in London’s mayoral elections last month. Maybe we should see David Cameron’s reference to our profession in The Telegraph last month in the same humorous vein. ‘People want to know,’ he said, ‘that we’re not just a bunch of accountants trying to turn around the British economy as if it were a failing company, but that we are resolutely on their side as we do this work.’ The image of the accountancy profession has moved on a lot in recent years, consigning the famous 1970s Monty Python lion tamer sketch to history. The wave of corporate scandals kicked off by Enron put the profession in the spotlight, which, although uncomfortable, underlined its importance. The same can be said of the banking crisis. At the same time, the business world has become more mainstream. Stories that once would have languished in the City sections of newspapers have leapt forward to the front page, and millions tune into TV shows like Dragon’s Den and The Apprentice. All this has helped drive the increasing appeal of accountancy training to those wanting a route to the heart of business, as has the increasing stature and influence of the CFO. Accountants, in practice, business and the public sector, play critical roles in sound financial management, budgeting, planning, making sure organisations act honestly and ethically, setting strategies and assessing their success. And yes, they also try and turn around failing companies, which can be brutal and difficult, but is something that is valuable and useful to society as a whole. All of these would seem to be useful attributes for running the country – some might say critical. Maybe the prime minister should take another look at the accountancy profession. He might be missing a trick. Read ACCA’s blog at

Chris Quick,

GORE VALUES Al Gore and David Blood look at integrated reporting and the default practice of issuing quarterly earnings guidance. Page 28

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TRUE TO YOU For better for worse, for richer for poorer? Entering a business process outsourcing contract is like entering a marriage. Page 48

EXPERT INSIGHTS Join ACCA, IBM and the IIRC for a free, one-hour webinar as we explore how integrated reporting can enhance and consolidate your existing reporting practices.

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

16/05/2012 12:05

AB UK EDITION CONTENTS JUNE 2012 VOLUME 15 ISSUE 6 Editor-in-chief Chris Quick +44 (0)20 7059 5966 Asia editor Colette Steckel +44 (0)20 7059 5896 International editor Lesley Bolton +44 (0)20 7059 5965 Sub-editors Dean Gurden, Eva Peaty, Vivienne Riddoch Design manager Jackie Dollar +44 (0)20 7059 5620 Designers Robert Mills Production manager Anthony Kay Advertising Richard McEvoy +44 (0)20 7902 1221 Head of publishing Adam Williams +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 ACCA Connect Tel +44 (0)141 582 2000 Fax +44 (0)141 582 2222


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

18 2020 vision Former US vice president Al Gore and David Blood on sustainable capitalism 22 The beautiful gameplan Never mind the football teams, how will the hosts of this summer’s Euro 2012 get on? 26 People power Nurture the talent of your people, says Standard Life CFO Jackie Hunt

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

28 Calm before the storm Beware – the European crisis isn’t over until it’s over, warn commentators Audit period July 2009 to June 2010 138,255

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14 Beating the drum The Earth Summit in Rio highlights the growing importance of sustainability to the business community

31 In the hotseat HMRC’s Jane Brothwood looks at the effect the new RTI initiative will have on PAYE

16/05/2012 16:51


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


Your sector



06 News in pictures A different view of recent headlines

37 The view from Julie Campbell of Profit Counts, plus news in brief

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

38 Virtual accountants We look at the growing popularity of online accountants 42 The SME battleground Big and small accountancy firms are scrambling to get SMEs on their side

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

VIEWPOINT 32 Robert Bruce Those at the top must take responsibility for governance 34 Peter Williams What can British manufacturing bring to the party happening way out East?

45 CORPORATE 45 The view from Darren Gillespie of Ford Motor Company, plus news in brief

TECHNICAL 58 GAAP changes The ASB’s proposals for Financial Reporting Standards 100 to 102 60 CPD: financial reporting Graham Holt on the latest plans to reshape financial reporting in the UK and Ireland 63 Accounting solutions The problem solvers at PwC answer questions on business combinations and goodwill

35 Jane Fuller Single-figure pay declarations for directors will allow the right questions to be asked

64 CPD: strategy How strategy needs to be managed as a living process and how to deal with implementation

36 Dean Westcott On the benefits of the integrated reporting agenda at the Rio+20 summit

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


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

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46 On the couch Organisations are turning to business psychologists to solve intractable people problems 48 Keeping the love The business process outsourcing contract is much like a marriage contract 50 Capital competition How companies can improve their chances of securing the right funding

52 PUBLIC SECTOR 52 The view from Michael Maskey of Stormont’s PAC, plus news in brief 53 Going private Do PPPs really offer greater value for money?



73 Long-distance relationship Distance-learning MBAs may provide a flexible solution for timepressed professionals. But do they really measure up?

55 The view from Ade Olabode of Credit Suisse, plus news in brief 56 The long arm of the tax collector The US Foreign Account Tax Compliance Act has far-reaching powers

ACCA NEWS 78 CPD: planning Get the low-down on ACCA Compass and the Professional Development Matrix 79 Interview Norman Lamont shares his views on the recent Budget 80 Diary What’s on in the coming months 82 News Vice president Martin Turner addresses UNCTAD

16/05/2012 12:14


News in pictures


A giant montage of the Queen, made from more than 200,000 children’s selfportraits, is projected on to Buckingham Palace to mark the Diamond Jubilee


Samsung overtook Nokia to become the world’s largest maker of mobile phones, leaving Apple in third place


While financial turmoil rocked modern Greece, ancient Greece was the location for the lighting of the Olympic Flame, ahead of its handover to London 2012 organisers

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The wettest April since records began put a dampener on retailers’ fortunes, according to the BRCKPMG Retail Sales Monitor. UK sales fell 3.3% on a like-for-like basis from April 2011


Nissan reported record-breaking sales of 4.8 million units for the 2011 financial year. Its success was in part down to its Sunderland plant, which produces the popular Qashqai model


Shareholders hit back at William Hill’s annual meeting. A third either opposed last year’s pay awards to directors or withheld their votes. Twelve per cent also failed to back the reappointment of its auditor, Deloitte


Space Shuttle Enterprise got a piggyback from a 747 on the way to its new home, the Intrepid Sea, Air and Space Museum in New York City. Nasa is rehoming craft after its shuttle programme came to an end last year

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15/05/2012 17:43

News in graphics



Chief information officers (CIOs) are more confident of securing technology budget increases than at any time in the last five years, shows a survey by recruiter Harvey Nash. Out of 2,400 technology leaders surveyed across 21 countries, 44% registered a budget increase this year








of global CIOs surveyed said their priority is now to generate money rather than save it


of the CIOs said a skills shortage is preventing them from keeping up with the pace of change


of global CIOs said they were actively promoting the development of solutions for smartphones and tablets


of the CIOs in the survey were male, which is virtually unchanged from a similar survey in 2005

LABOUR PARTY! A survey of the labour market by the Chartered Institute of Personnel and Development measured the proportion of employers who expect to increase staff levels with those set to decrease, and showed a projected increase to +6 from -8 in the second quarter of 2012 -10








SUMMER AUTUMN WINTER 2009 2009 2009-10


= Decreased staff levels



SUMMER AUTUMN WINTER 2010 2010 2010-11





+6 -8

SUMMER AUTUMN WINTER 2011 2011 2011-12


= Increased staff levels


The Real Time Information pilot, in which employers and pension providers agree to inform HMRC about PAYE payments at the time they are made and not at the year end, is well on track, according HMRC. The projected timeline is to have most employers on board by April 2013. See page 31

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2012 APRIL




00 250L,O0YERS





2013 APRIL

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ALL CHANGE New research by KPMG and the Overseas Development Institute – the 2012 Change Readiness Index – has identified which developing and emerging countries are best prepared to respond to change. The impact of recent food, fuel and financial crises on countries around the world highlights the importance of adaptability.


1 €480AM DRID



2 €451M









3 €367M




8 €211M






9 €203M


10 €202M


As the Euro 2012 football tournament kicks off this month in Ukraine and Poland, Deloitte has identified who’s winning in the money stakes in Fan Power: Football Money League. The latest edition found that the top 20 clubs had combined revenues of over €4.4bn in 2010–11. Loyal supporters, strong broadcast audiences and corporate attractiveness have helped the top clubs to stay relatively resistant during tough economic times.


Singapore, Beijing, Hong Kong and Tokyo are among the top 20 cities where international retailers have the largest presence. This is according to property consultant CBRE’s latest How Global is the Business of Retail? report. Almost half (47%) of the retailers in the survey are now present in the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific. US retailers are by far the most global, with 73% being present in all three regions.

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09/05/2012 17:18


News round-up


Most FTSE 100 CEOs have come up through financial disciplines, according to research conducted by Robert Half. Some 51 of today’s FTSE 100 CEOs have a financial background, compared with just 31 four years ago – a 67% increase. The rise reflects not only the need for tighter financial management because of the recession but also the change in composition of the FTSE 100. Three asset management companies have joined in that time, while six travel companies left.


Measures to tackle tax evasion agreed at the London G20 conference in 2009 have been unsuccessful and tax havens are ‘thriving’, according to a report by the Task Force on Financial Integrity and Economic Development. ‘Information exchange agreements – the main policy tool that G20 countries use to curb tax evasion – have proven to be largely ineffective,’ concludes the report, noting that tax havens tend to provide information on request only. However, requests have to be based on wellfounded suspicions – almost impossible to formulate without the information held by tax havens. Funds held in tax havens have actually increased since 2009, says the report.


RSM Tenon chairman Adrian Martin is leaving his position, the company has announced. Non-executive director Michael Findlay and Mark Lucas, the director and national head of audit, tax and advisory and chairman of its corporate finance board, are also leaving. Former CEO Andy Raynor left the company at the beginning of the year. ‘The process to appoint new board members is well under way,’ said Chris Merry, RSM Tenon’s new CEO.


Former Financial Services Authority chairman Sir Callum McCarthy has been appointed as an IFRS Foundation trustee. He chaired the FSA from 2003 to 2008 and is currently a nonexecutive director of HM Treasury, the Industrial and Commercial Bank of China and IntercontinentalExchange. Sir Callum was an official at the Department of Trade and Industry for 13 years. He was CEO of Barclays Japan from 1993 to 1996 and of Barclays USA from 1996 to 1998.


Women accountants’ average pay is only 81% that of male colleagues – but this is a rise from 77% only two years ago. Half of female accountants


Andrew Moss resigned as Aviva CEO after most investors opposed his proposed £3.4m remuneration award – the company lost 40% of its share value in his five years as CEO. The Aviva shareholder rebellion is only the fourth occasion that a FTSE 100 company lost a vote on pay policy, but there is now wide investor discontent. Sly Bailey left Trinity Mirror and David Brennan resigned from Astra Zeneca. William Hill won its remuneration vote by a mere 0.1%, while Barclays and Citi were challenged by shareholders on executive pay. The so-called ‘shareholder spring’ has been led by major institutional names, including Standard Life, Royal London and, ironically, Aviva. See pages 32 and 35.

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regard their gender as a barrier to career success, according to research by accountancy recruitment specialists Marks Sattin. It reports that less than 14% of UK board members in the Big Four firms are women. The research also found that average pay for accountants rose 10% in the last year – seven times the national average. Average accountancy remuneration, including bonuses, is now £70,300.


Grant Thornton UK has reappointed Scott Barnes as CEO for a second term. The firm also announced a new branding strapline of ‘An instinct for growth’ as part of a drive to rise revenues to £500m per year. Barnes said: ‘Dynamic organisations are Grant Thornton’s core focus and the richest seam is in the large private and smaller listed market, where we are already strong.’ The firm aims to achieve its growth objectives through organic expansion.


Corporate governance and improved transparency have become core priorities for fund managers, according to a survey conducted by EDHECRisk. Some 91% of respondents said that regulators must ensure information is genuinely fair, clear and not misleading. Other major high-risk factors are the growing sophistication of operations, the reduced capacity of some intermediaries to guarantee deposits, poor quality of regulation and management companies’ failure to provide restitution.


Andrew Moss

SMEs are overpaying VAT by £1.2bn a year because they fail to properly account for their business expenses, according to analysis conducted by systems provider ExpenseMagic. The company accuses small firms of ‘sloppy management of expenses’, leading to a quarter of purchases that could be used to reduce VAT payments being overlooked. ‘It’s an area that’s become a corporate ‘black

16/05/2012 11:51



As Euro 2012 kicks off, we analyse the finances of previous championships and the projected revenues to be generated by this year’s co-hosts, Poland and the Ukraine

hole’, where billions of pounds of money that should be in company bank accounts is instead disappearing to the government,’ said Adam O’Kane, co-founder of ExpenseMagic.


Begbies Traynor’s executive chairman, Ric Traynor, has bought the controlling interest in the firm’s Red Flag Alert division, with the group retaining a minority stake. The division was previously placed on the market, but feedback from possible buyers suggested the business was not yet sufficiently established to be given serious consideration as a standalone business acquisition. Traynor is to inject £1m of capital in Red Flag Alert, with Begbies Traynor seeking an eventual return of up to £1.5m of previous investment, plus a future share of trading profits.


PwC has advised the Financial Services Authority (FSA) that projected investment returns of 7% may be unrealistic when calculating expected rates of returns on financial products, such as personal pensions. PwC suggests that projections instead be between 5.25% and 6.5%. The FSA is consulting on whether this change would be appropriate.


Retail sector administrations rocketed by a massive 70% in the first quarter of this year. But all business insolvencies in England and Wales rose by a mere 0.2% in the same period, while increasing by 4.3% over the last year – though remaining below their 2009 peak. They rose by 35% in Scotland and 18% in Northern Ireland. KPMG’s Richard Fleming said: ‘There was a wave of high-profile retail administration appointments in the first days of 2012 – not least Peacocks, La Senza and Blacks – and the statistics from the Insolvency Service show that the new year pain extended beyond a small number of well-known brands.’

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PwC was named one of the UK’s Top 50 Employers for Women at the Opportunity Now Awards, where it also won the Inclusive Culture Award for its work in creating equality at an organisational and cultural level. PwC was given the award for its ‘Open Mind’ programme, which delivered awareness training to 15,872 employees on unconscious personal

business environment in both countries. Similar initiatives have been established in Germany, France and Japan.


The International Accounting Standards Board (IASB) is proposing amendments to 11 International Financial Reporting Standards, (IFRSs), under its annual improvements project. The proposals are in line with issues


HMRC is trialling Real Time Information (RTI), enabling employers and pension providers to advise HMRC of PAYE payments as they are made. Exchequer secretary David Gauke said: ‘RTI will remove administrative burdens of £300m a year, mainly from the abolition of the end-of-year PAYE returns process – the biggest single contribution that any tax change could make.’ All employers will adopt RTI by October 2013. But two thirds of companies believe the deadlines are impractical and want it delayed, according to a survey. Bill Thompson, principal business consultant at NorthgateArinso, which conducted the survey, said: ‘Employers will no longer have time to correct any wrong inputs.’ More, pages 8 and 31. bias and how this can influence decision-making and working.

RUSSIA-UK INITIATIVE LAUNCHED Ernst & Young has launched the Russia-UK Business Initiative, aimed at promoting trade between the two countries. The initiative is led by Stuart Lawson, chairman of the Investment and Finance Committee of the Association of European Businesses. A UK Business Centre will be established in Russia, which will support British companies seeking to trade in the country, as well as Russian companies researching trade opportunities in the UK. The initiative hopes to influence government officials, including trade representatives, to improve the

discussed by the IASB in its project cycle that began in 2010. Standards being amended include IFRS 2, Sharebased Payment; IFRS 13, Fair Value Measurement; and IAS 36, Impairment of Assets.


UBC Media has appointed Chris Dent as its finance director. Dent joins from Deloitte, where he worked for 10 years in audit and corporate finance with media and technology clients. The UBC Media Group is quoted on the AIM market and is an independent radio producer for the BBC and commercial stations. It also has a software division, Unique Interactive, supplying digital radio text and data services.

16/05/2012 16:54





May was another action-packed month for the European Union. First and foremost the Greeks delivered a damning verdict against the centre-right and centre-left parties that have governed the country since the collapse of the Junta in the 1970s. Anti-austerity leftist parties attracted most of the protest vote, with a radical communist party coming second in the polls. In France, the presidential elections produced the first socialist president in 18 years, who ran on a mandate of investment and growth. In Britain, the Conservative and Liberal Democrat coalition partners suffered heavy losses in the local elections, in a clear sign that the electorate is getting tired of the government spending cuts. Even in Germany, the popular chancellor, Angela Merkel, saw her party take a beating at local elections, while opinions polls show that one in two Germans want to see fiscal consolidation combined with growth-creating measures. Petros Fassoulas is head of policy, Europe and Americas, at ACCA

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FTSE 350 companies will have to put external audit contracts out to tender at least once a decade under changes proposed to the UK Corporate Governance Code by the Financial Reporting Council. Boards would also have to explain why they believe their annual reports are fair and balanced. Other proposals include encouraging audit committees to engage in more meaningful reporting and providing greater guidance on explanations when a company chooses not to follow the code. Guidance for audit committees would be amended to require the auditor to communicate to the audit committee any information that the auditor believes the committee requires for it to understand significant professional judgments made in the audit. Auditors would need to report where they hold information inconsistent with a board’s statement that the annual report is fair and balanced, or if the audit committee does not appropriately address matters raised by the auditor.


Dutch companies will have to rotate auditors at least once every eight years under new legislation being considered by the country’s parliament. The proposal has the backing of right and left-wing political parties and has been approved by MPs. It will need to be ratified by the Dutch Senate to become law, but this seems likely. The legislation also proposes tighter restrictions on auditors undertaking non-audit work for clients. The European Commission is finalising its own proposals for audit rotation.


‘The current model of PFI is unsustainable,’ according to Public Accounts Committee chair, Margaret Hodge. The latest critical report from a House of Commons committee has

concluded that public bodies must be able to prove that PFI delivers the best value for money, rather than simply taking liabilities off balance sheet – only 20% of PFI contracts were reported in entities’ accounts. ‘The Treasury has now embarked on a rethink and that must be radical, producing a qualitatively different policy,’ said Hodge. ‘It needs to address the intrinsic flaws in the current model by improving flexibility in the way that private finance is used, establishing quicker and more efficient procurement procedures and achieving a better balance between investors’ risks and their rewards.’


The main regulatory mistake prior to the financial crisis was failing to impose adequate capital and liquidity levels, said Hector Sants, chief executive of the Financial Services Authority. While these mistakes are now being addressed, much more progress is required to ensure adequate corporate governance – an issue that has to be addressed urgently, he added. ‘The crisis exposed significant shortcomings in the governance and risk management of firms and the culture and ethics which underpin them,’ said Sants. ‘This is not principally a structural issue. It is a failure in behaviour, attitude and in some cases, competence.’


The Financial Reporting Council may investigate KPMG’s audit of the former HBOS bank, following a complaint to the FRC submitted by HBOS’s former head of risk, Paul Moore. ‘I am going to the FRC with a formal complaint because I have crossed the Rubicon with KPMG,’ Moore, a former KPMG partner, told The Sunday Telegraph. A KPMG spokesman said: ‘KPMG stands by the quality of its work.’ The FRC did not respond to a request for comment.

15/05/2012 14:57

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09/05/2012 17:24


BEATING THE DRUM With commercially minded investors joining in with ever louder calls for organisations to address sustainability issues, the Earth Summit in Rio this month highlights the subject’s growing importance to the business agenda


he June 2012 Earth Summit in Rio de Janeiro will be even more of a focus for the world’s attention than the first UN Conference on Sustainable Development held in the same city 20 years ago. For one thing, there are about 1.6 billion more people in the world today. For another, the environmental agenda has moved even further towards the centre-stage of politics, society and the corporate world. Moreover, the environmental argument being put forward by mainstream stakeholders now is less about forcing big business to comply with rules, regulations and targets. It is much more to do with making the case that taking a responsible approach to sustainability is, in fact, in the long-term interests of companies and their shareholders. A group known as the Corporate Sustainability Reporting Coalition (CSRC) has called on countries attending the so-called Rio+20 event to develop a UN convention. This would require the signatories to compel company boards to think about the sustainability issues that affect them and to report on them in their annual report and accounts. Institutional fund management group Aviva Investors, the global asset management business of Aviva plc, led the formation of the CSRC, whose membership includes ACCA. Steve

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Waygood, chief responsible investment officer at Aviva Investors, says: ‘What we want is the board’s thinking. What we don’t want is the boards to simply delegate to their compliance teams that they need to report information that might be absolutely meaningless to their business.’ Made up of more than 40 financial institutions, non-governmental organisations, professional bodies and investors, CSRC is looking for an integrated report that brings together the financial and material non-financial information that investors need to get a more holistic picture of a company’s performance. One of the draft’s clauses in Rio+20 final agreement reads: ‘We recognise the need for a global commitment on corporate sustainability reporting which promotes and encourages large private and public companies to take sustainability issues into account… and to integrate sustainability information within their reporting cycles.’ Waygood says that, although a step forward, this wording does not give a strong enough commitment to be truly effective. But overall, what effect does all this have on how corporates treat sustainability reporting? Rob Lake is director of strategic developments at the UN-backed Principles for Responsible Investment

(PRI), a body led predominantly by pension funds and their fund managers. He says: ‘Significantly better information from companies about their sustainability performance and sustainability risk exposure is absolutely crucial to what PRI investors are trying to do.’ PRI’s role, Lake explains, is ‘to find new and more effective ways to bring together and support groups of investors who want to take energetic action to exercise influence over companies’.

Different criteria The Johannesburg Stock Exchange (JSE) launched a Socially Responsible Investment (SRI) index in 2004. The criteria encompass a range of environmental, social, economic and governance indicators. While recognising that banks are different from mining companies or retailers, the criteria are not themselves specific tonnage targets, for example. Rather, they demand reporting on issues such as commitment to use targets, identification

16/05/2012 11:11


Rio calling: countries that do not heed the message risk falling out of step with the latest thinking on integrated reporting.

of significant impacts, and outlines of processes, responsibilities and action plans. Corli le Roux, head of the SRI and sustainability at the JSE, notes that take-up from the investor community has to date been slow. ‘There was little understanding of how sustainability could be incorporated into investment decision-making,’ she says. She adds that PRI has helped. However, le Roux points out: ‘The index has been mostly driven from the issuers’ perspective.’ Between 85% and 90% by market capitalisation of the top 100 JSElisted companies meet the criteria. While the criteria are continuing to evolve, this figure suggests that companies still have some way to go – and research suggests that JSE companies, for the most part, have yet to take real action by reducing their greenhouse gas emissions, for example. While sustainability has long-term implications, not every investor plays the long game. Savvas Savouri, chief

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economist at London and Dubai-based hedge fund Toscafund, says: ‘You can have those indices until they’re coming out your ears. They will always underperform because you’re putting a constraint on things. If you restrict your [investment] choice set, it will be inferior to a more general choice set.’ Lake says it’s not about pulling out of investments that don’t at present comply, but ‘trying to stimulate a much more productive dialogue between companies and long-term investors so companies understand that they have long-term allies in long-term investors’. In fact, the evidence is that companies that do well from a sustainability perspective also do well financially. Generation Investment Management, co-founded by former US vice president Al Gore, recently published a paper, Sustainable Capitalism (see next article), which suggests that environmentally conscientious companies can reduce cost of debt and face lower capital constraints.

In the private equity sphere, a recent paper by Doughty Hanson & Co and conservation group WWF points to other research that suggests businesses that are committed to environmental, social and governance issues earn higher market valuations. The paper, Private Equity and Responsible Investment: An Opportunity for Value Creation, addresses the chicken-and-the-egg syndrome: ‘Companies lament that investors do not value their sustainability efforts, while investors complain that companies do not report sustainability initiatives in terms that they can value.’ There is still a long way to go. But now, thanks to the CSRC, governments are being called on to do something about the issue. At Rio+20, it wouldn’t be surprising if there were a carnival atmosphere. It would be entirely appropriate: for the louder you beat the drum, the more difficult it is to be out of step. Andrew Sawers, journalist

16/05/2012 11:12


Brazil, host of the Earth Summit, has a tradition of anti-pollution protests, as seen here during a 2003 demonstration against the pollution of the Jordao River.

STEVE WAYGOOD CHIEF RESPONSIBLE INVESTMENT OFFICER, AVIVA INVESTORS ‘We want boards to think about which parts of the available guidance matter to their firm and could affect future cashflows and the sustainability of their institution. It includes issues like the raw materials on which their company depends and the wastes that are created in the way that their product or service is distributed. Where companies are excessively short term in managing

these issues, then that can harm company value and, therefore, the value of the pension portfolios we run. This is why we consider it’s important for companies to have support to think long term from investors and regulators. One appropriate way of doing that is for regulators and investors to ask companies to disclose their long-term strategy, or explain why they have not.’

CORLI LE ROUX HEAD OF THE SRI AND SUSTAINABILITY, JOHANNESBURG STOCK EXCHANGE ‘We launched the Socially Responsible Investment index to crystallise the debate around sustainability and sustainable development, to recognise what companies were doing in this space, and to enable engagement and responsible investment by investors. Over the years that has crystallised into wanting to positively influence issuers and investors in the way that they do

business. We have had a significant amount of influence over the issuers and how extensively they take account of sustainability considerations in their operations. We are also seeing that influence being brought to bear on investors, as more of them start thinking about how to incorporate the imperatives of sustainability into their investment decision-making.’

RACHEL JACKSON HEAD OF SUSTAINABILITY, ACCA ‘The investor and finance community should be key actors in the future of corporate reporting. Both investors and the world’s stock exchanges need to engage in, and embrace, the changes ahead in corporate transparency in order to utilise new and material information, in both investment decisions and listing requirements. Investors have an opportunity to shape the development

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and frequency of integrated reporting, improve general corporate accountability and progress analysis methods to account for deeper ESG [environmental, social, governance] issues. They need to start changing the time horizons on which their decisions and analyses are taken, and both request and use additional material ESG company data.’

16/05/2012 11:12

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Compulsory integrated reporting and an end to quarterly earnings guidance will help achieve sustainable capitalism by 2020, say Al Gore and David Blood Generation Investment Management recently published Sustainable Capitalism, a white paper that highlights the need for a paradigm shift to a more sustainable capitalism. It makes the economic case for mainstreaming sustainable capitalism by highlighting the fact that sustainability does not represent a trade-off with profit maximisation, but actually fosters superior long-term value creation. In this article, which is based on excerpts from the paper, the firm’s founders, Al Gore and David Blood, look at integrated reporting and the default practice of issuing quarterly earnings guidance. These themes embody two of the five key actions that the paper presents to accelerate the transition towards sustainable capitalism by 2020. Other key actions include the alignment of pay structures with long-term sustainable performance, the encouragement of long-term investing with loyalty-driven schemes, and the identification/incorporation of risks from stranded assets. The paper defines sustainable capitalism as a framework that seeks to maximise long-term value creation by reforming markets to address real needs, while considering all costs and stakeholders in a world facing such challenges as climate change, water scarcity, poverty, disease, growing income inequality and urbanisation. You can read Sustainable Capitalism, which includes footnotes not shown in this article, at

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ignificant progress has been made towards improving the reporting of sustainability metrics, such as the Carbon Disclosure Project and the Global Reporting Initiative. However, most disclosure is still not conducive to mainstream use by investors, since it typically lacks clear links with the company’s financial performance and long-term prospects. Moreover, some companies that can measure non-financial data (many already do so for internal purposes) hesitate to publish any information that goes beyond regulatory requirements for fear it may help their rivals or increase their exposure to lawsuits. This is one of many reasons that new regulation must be enacted to level the playing field. Few fund managers have analysts with the skills needed to perform

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Former US vice president Al Gore (left) is co-founder and chairman of Generation Investment Management, a partnership focused on a new approach to sustainable investing. He is also chairman of the Climate Reality Project and author of Earth in the Balance, An Inconvenient Truth, The Assault on Reason, and Our Choice: A Plan to Solve the Climate Crisis. He is co-recipient of the 2007 Nobel Peace Prize for ‘informing the world of the dangers posed by climate change’. David Blood is co-founder and senior partner of Generation Investment Management. Previously, he spent 18 years at Goldman Sachs, and served as co-CEO and CEO of Goldman Sachs Asset Management from 1999–2003. He is on the boards of Harvest Power, New Forests, SHINE, Social Finance UK, Social Finance US and the Nature Conservancy.

bottom-up analyses of non-financial metrics. Understandably, most therefore look to third-party rating agencies to analyse company sustainability disclosures and provide ratings for them to interpret. With more than 100 rating agencies providing such advice, there is significant variation in the quality and value of rating systems. We applaud the commitment that some mainstream data companies, such as Bloomberg and Thomson Reuters,

to the integration of sustainability and financial metrics in their annual reports, explicitly showing the link between the two and, in the process, reinforcing the business case for sustainable capitalism. Given that privately held companies have a greater degree of flexibility in reporting, they are in a position to provide leadership in developing integrated reports. Many leading global private equity funds, such as KKR and Doughty Hanson, have already

SIGNIFICANT, WIDESPREAD CHANGE WILL COME ABOUT ONLY WHEN INTEGRATED REPORTING IS MANDATED have made toward sustainability and support their efforts to increase standardisation and improve quality. However, we believe that the bestrun companies are those that are not only already making the links between sustainability and financial performance internally, but are also sharing those links in their investor communications. Integrated reporting provides the framework to ensure that a company has a sustainable strategy and can improve internal decision-making by exposing itself to the discipline of the market. A handful of companies have already begun to make the switch

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taken steps to invest in improving the sustainability of their portfolio companies and are reporting on sustainability metrics. Funds could go further and persuade those companies comfortable with reporting the financial benefits of these activities to do so prior to going public. We support efforts by Professor Bob Eccles at the Harvard Business School, the International Integrated Reporting Council, and Aviva Investors, who collectively are pioneering the field of integrated reporting. Yet while these actors are playing a critical role in shaping this nascent idea and encouraging voluntary action by

companies, it is clear that significant, widespread change will come about only when integrated reporting is mandated. Although this policy intervention will vary country by country, securities regulators and stock exchanges are well suited to oversee the requirement for integrated reporting. In South Africa, the Johannesburg Stock Exchange set an exemplary precedent in its 2011 decision to require all listed companies either to produce an integrated report or explain why they were not doing so. Even so, the mandating of integrated reporting is just the first step, as reporting standards around ESG (environmental, social and governance) information and its link to financial metrics will need to be refined continuously. What is critical is that the information provided is material to investors and relevant to the specific sector and company. ‘Cookie-cutter’ forms that do not take into account variations in what is most relevant from one sector to another are not adequate. Accountants must also work to provide assurance on non-financial information that is comparable to what they provide on financial metrics, and provide integrated assurance on both. We propose that integrated reporting should be mandated for publicly listed companies by the appropriate regulatory agencies and we encourage these companies to take voluntary

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action in the short term to provide integrated reports until such regulation appears. We also encourage investors, including private equity investors, to ask for integrated reports from their portfolio companies and incorporate this in their investment decisions. We also support the growing commitment by privately held companies to produce integrated reports.

Quarterly earnings guidance Another key action that will accelerate the development of sustainable capitalism by 2020 is ending the default practice of issuing quarterly earnings guidance. In the modern world, we often appear virtually hypnotised by the short term in our politics, our culture, business and well beyond. In business specifically, the vast majority of managers are now clearly choosing short-term profits over sustainable long-term growth. We have long known that an important part of the reason for this distortion is that executives are encouraged – by investor behaviour, incentives and business cultures – to focus on the business’s short-term earnings. Investors have become increasingly impatient with the CEOs of publicly listed companies who focus on longerterm value creation, and are too quick to penalise stocks for shortterm underperformance even if that occurs in the context of a long-term investment plan.

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In many cases, a company’s ability to meet quarterly earnings guidance trumps the long-term performance incentives for CEOs and makes it much harder for them to focus investors on the long-term strategy. An empirical investigation conducted by Murad Antia, Christos Pantzalis and Jung Chul Park reveals that shorter CEO decision horizons are in fact ‘associated with more agency costs, lower firm valuation, and higher levels of information risk’. Research by John Graham, Campbell Harvey and Shiva Rajgopal shows that 78% of managers will reject a project with a positive NPV (net present value) if it lowers quarterly earnings below consensus expectations. And an astonishing 80% would focus on this recurring, short-term metric – at the expense of building long-term shareholder value – by making cuts in discretionary spending, including R&D and advertising. This kind of practice is managing for the short term, not managing sustainably. Work by John Asker, Joan FarreMensa and Alexander Ljungqvist reveals that this value-destroying habit is clearly manifested in data showing publicly held companies invest at half the rate of privately held companies when the gains from such investments will not be realised on a quarterly basis. They also show that this applies when an individual company switches between public and private ownership. And they make the obvious point that

‘Earth Hour’: on 31 March, Hanoi in Vietnam (pictured at start of article) and Asuncion in Paraguay (pictured above) were among the places that turned off the illumination of public buildings for an hour as part of a global campaign to draw attention to the need to save energy to reduce global warming gases. it leaves public companies less able to exploit new business opportunities. Not providing quarterly earnings guidance would help some companies alleviate the pressure on managers to meet financial expectations on a quarterly basis, and allow them to focus on building the business for longterm profitability. However, because most public companies provide quarterly earnings guidance, there is a ‘collective action’ problem for CEOs and boards that wish to end the practice. We applaud the few CEOs who, despite criticism, have decided to end earnings guidance and have talked openly about what investors should expect from the management time horizon. For other companies, quarterly guidance may be appropriate, but the decision to offer it ought to be part of a well-justified strategy and not simply an unthinking response to the prevailing habits of the market. We propose bringing together a significant group of CEOs who have already stopped providing quarterly earnings guidance with others who pledge to stop doing so as a catalyst for change around this practice.

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A good MBA writes the script for career progression “I felt I had reached a point in my career  where I needed a further challenge – one  that would broaden my horizons and be beneficial regardless of which route my career took. The Oxford Brookes global MBA has  given me a better understanding of, not only  the organisation in which I work, but of the world of business in general.” 

Chris O’Brien

head of IT, Royal Shakespeare Company


THE BEAUTIFUL As Euro 2012 kicks off, we analyse the finances of previous championships and the projected revenues to be generated by this year’s co-hosts, Poland and the Ukraine


any of the world’s top football players – Cristiano Ronaldo, Zlatan Ibrahimovic and Wayne Rooney to name a few – will be taking to the pitch in the Euro 2012 tournament this month. But it is not just the winning countries that will ultimately be revealed, but also whether Poland and the Ukraine themselves will be viewed as winners in having co-hosted a financially successful tournament without major logistical problems. There those within UEFA that believe that simply staging the third biggest sporting tournament in Central and Eastern Europe for the first time represents a massive achievement – only the Olympics and the World Cup are bigger sporting events. David Taylor, CEO of UEFA’s commercial arm, UEFA Events SA, is among them. He believes ‘a very important decision was made to go to Eastern Europe for the first time in our history’. Ultimately, delivering a successful tournament is vital to the selfconfidence of the region to boost its profile and to potentially become a contender to host other major sporting events in the future. However, there is no escaping that finance is key. Estimated turnover of €1.4bn for the 2012 Euro tournament can be broken down into four main sources: media rights (62%), commercial rights – income from sponsoring and

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A lot of red faces have been avoided after it was confirmed that all the tournament’s new-build stadiums are ready in time – but it was a close call for a while. The construction of the spectacular 58,000-capacity National Stadium in Warsaw – scheduled to host the opening match between Poland and Greece on 8 June – has not been a smooth process. Delays put construction behind schedule, causing tensions between those involved and the Polish government. The 50,000-seat venue was finally opened in January 2012 with a ceremony, fireworks display and free music festival. But as recently as February, problems continued to dog the stadium. It was due to host a Poland Super Cup match, but it was scrapped when police said they were unable to guarantee security because of communication problems inside the stadium – senior officials were forced to resign. Mayor Hanna Gronkiewicz-Waltz said afterwards that all of these problems had been addressed and the police subsequently gave their approval for the stadium to be used. It will officially be handed over to UEFA on 9 May. Meanwhile, in the Ukraine problems have also been evident, including fears over the launch of high-speed railways between host-cities and the finalisation of construction and renovation of a number of main roads. Even UEFA president Michel Platini raised doubts over construction deadlines for the country’s four stadia to be used in the 31-game tournament, as they slipped behind schedule. Several alternative host nations were even mooted as fall-back options in the event the Ukrainian FA was unable to deliver on its targets to UEFA. Germany, Scotland and England were among the possibilities. What should not be overlooked is the investment involved. A new international airport terminal has been built in Ukrainian capital Kiev, while Poland has spent €21.6bn on infrastructure, with Euro 2012 as the catalyst.

merchandising (22%), hospitality (9%) and ticketing (7%). Official UEFA figures for Euro 2008 – the previous tournament in Switzerland and Austria – showed income totalled €1.3bn – a 50% rise over the previous tournament

in Portugal in 2004. Looking even further back, the 2000 tournament in Belgium and the Netherlands generated €230m, while Euro ‘96 tournament in England produced approximately €147m.

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The new National Stadium, Warsaw, Poland, sporting the country’s red and white national colours

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The rapid rate of revenue increase has been truly impressive, with the single biggest contributing factor being the massive increases in media rights revenues, which generated €801m in 2008 (up from €560m in 2004) and produced an operating profit of over €700m.

HatTrick score These sizeable profits have been used to fund a multitude of worthwhile development projects, such as education and training centres across the 53 UEFA member associations through UEFA’s assistance programme called HatTrick. Once these costs are taken into account, net profit for 2008 came in around €300m, which was then ploughed back into the game and used to finance all the youth and women’s competitions from 2008–12, refereeing and coaching programmes, and various administration costs. Forward-wind to this summer’s tournament and UEFA originally stated in early 2010 that it expected revenues to be in the region of €1.3bn, again with the lion’s share coming from the sale of media rights. A spokesman for UEFA told Accounting and Business that despite

the general economic conditions: ‘There has not been any decrease in the overall figures since the initial projections were made a little more than two years ago’. However, ticketing is estimated to yield €125m (down €24m on 2008), while corporate hospitality is predicted to fall a massive €55m to €100m. This represents a sizeable drop and is perhaps the biggest single financial indicator that the event will be affected by the economic downturn. Football finance expert Simon Chadwick, professor at Coventry

Poland and the Ukraine will be hoping footballing stars such as Cristiano Ronaldo prove enough of a draw

*EURO 2012 AND 2008 FINANCES (€M) Budget income Media rights Commercial rights Corporate hospitality Ticketing Overall turnover Costs Event costs Solidarity payments to UEFA associations Overall costs Net profit

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2012 (est)


840 290 100 125 1,355

801 294 155 101 1,351


-600 -450





University, says: ‘The European Championship is becoming a phenomenon in its own right. It really is one of the premium sporting events in the world. The way it is packaging its sponsorship deals is similar to that used by the International Olympic Commission (IOC) and proving very successful. The marketing expertise is coming in from big international brands with extensive experience and commercial logic – and it is showing.’

Sharing the spoils For the four years following this summer’s tournament (to 2016), estimates suggest almost €500m will be made available to the HatTrick programme and that each national association will receive up to €9.4m. If the forecast targets are met, it will also mean European Championship yield will have increased by more than 30 times over the last 20 years. But while revenue growth has been impressive, there are dark clouds on the horizon that continue to threaten the 2012 forecasts. The ongoing economic crisis is having an impact. Sports industry advertisers have slashed budgets, while sponsors and investors have reined in. There is also the real prospect that corporate hospitality packages for the competition may not sell out. ‘The downturn has meant that boards of directors are looking closer at the link between corporate activity and the bottom line. Senior staff are, therefore, having to argue a much stronger case and demonstrate tangible business links before corporate hospitality is signed off’, says Chadwick. ‘UEFA are finding it no different to anybody else, but the fact that the Ukraine and Poland are not considered to have the caché of a Paris or Madrid and not considered

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Officially licensed merchandise, such as logo-embossed footballs, is an integral income stream of any Euro competition

SIZEABLE PROFITS HAVE BEEN USED TO FUND A MULTITUDE OF WORTHWHILE DEVELOPMENT PROJECTS, SUCH AS EDUCATION AND TRAINING CENTRES ACROSS 53 UEFA MEMBER ASSOCIATIONS important growth markets hasn’t helped’, he adds. There is also serious competition for Poland and the Ukraine from the Olympic Games in London. UEFA’s quadrennial showpiece begins just six weeks before the opening of London 2012, whereas four years ago the Olympics were hosted by Beijing, making it ‘rather more difficult to access from Europe’, Taylor adds. ‘These things inevitably have an effect.’

Big one Tony Barnard, marketing director at Prestige Ticketing, the London Games’ official on-site hospitality seller, says

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clients are prioritising the Olympics. ‘A lot of clients are saying they’re going to do the “big one” this year, as opposed to some of the more perennial events they normally do.’ Meanwhile, at the time of writing, general attendance tickets remain on sale, although only around 5%. Reports of extortionate hotel charges and airfares have certainly not helped. There are also very real concerns that many key roads in Poland simply won’t be finished in time. Ukraine’s jailed opposition leader Yulia Tymoshenko’s ongoing incarceration hasn’t helped the country’s international image. And there


Germany, Spain, England, France, Republic of Ireland, Sweden, Poland, Ukraine, Portugal, the Netherlands, Greece, Russia, Czech Republic, Denmark, Italy and Croatia.

has been a perceived failure by the host nations to whip up sufficient local buzz and tackle the overseas images and clichés of post-communist countries. Taylor has already expressed his belief the 2012 tournament is not going to be the most financially successful tournament of all time – from a revenue or profit perspective. Playing down the importance of these issues, he says: ‘We could have gone elsewhere if that was our objective.’ Nonetheless, all eyes will be as focused on the performances off the pitch as much as the players on it. Alex Miller, journalist

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PEOPLE POWER Standard Life CFO Jackie Hunt explains why talent development has such a big role to play in the financial services giant’s transformation to meet future challenges


he level of change within the financial services industry over the last four years has been profound and farreaching. Areas such as strategic planning and risk management have become more and more challenging as the regulatory landscape changes, and growth prospects must be carefully assessed. Standard Life is transforming itself to meet these challenges and continue to thrive as a long-term business. Our strategy includes investment in technology, infrastructure and, most importantly, people. Developing talent is hugely important at Standard Life. I believe the practical and cultural aspects of talent development in any organisation need to be firmly embedded across all areas of the business. For this to be successful, it has to be supported and reinforced at all levels. It requires positive energy, a singular focus and unswerving commitment. Perhaps the biggest demand for these qualities comes about at executive and senior management level. I’m not necessarily advocating a top-down approach. It’s more that belief and support have to be amplified at the senior level, through energy, focus and commitment. I have two reasons for focusing on a strong culture of talent development. The first is the commercial benefit: it makes a difference to the bottom line. The second is that when it comes to financial services, I believe people are an incredibly valuable asset. The finance industry has encountered myriad problems in the last five years and the future landscape promises to be just as challenging and ripe with opportunity.

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People are the key, not just to meet these challenges, but to thrive on them and seek out the opportunities that they bring. An investment in people is an investment in the future. But it involves a lot more than just identifying where the talent is. My role in developing talent is concerned with four key elements: setting the tone, defining the capabilities we need, getting the right people in place and creating an environment that supports, and at times pushes, people on to success. Naturally, my major focus is on my group finance team and the talent community we have across the group. But as a member of the board, I need to demonstrate those amplified qualities I mentioned before throughout the entire business.

Frame of mind Setting the tone is about creating the right picture, the right frame of mind. At Standard Life, we help to create that feeling of championing talent in everything we say and do. We foster and encourage ambition, but temper this with realistic expectations. The nature of our business – financial services – is often complex. It touches every part of the organisation, from customer service and sales to IT and marketing. We need to grow the leaders and experts who will shape our businesses’ future. But at the same time we must develop sound commercial skills and financial literacy right across the business. It’s critical to ensure these skills are there if we are to compete in our chosen markets. As well as being a complex business, financial services is incredibly diverse. There is no universal formula for a ‘financial services professional’ in today’s marketplace, but a solid

understanding of the nature of the business and a level of commercial skill are essential. And beyond that foundation there is a broad palette of capabilities that we need to run our business. A good example in my team would be the contrasting capabilities of someone specialising in capital management and someone whose strengths lie in investor relations. Both roles require an advanced knowledge of financial concepts, but the former has to have strong capabilities in understanding liquidity and credit risk, analysing markets and trends, and building (or pulling apart) complex financial models. The latter needs the capabilities to turn all that analysis and complexity into understandable, compelling stories that explain what’s at the heart of our business, the thinking behind our propositions or group strategy. Capabilities differ by role, but they also differ across levels of seniority. Leaders are often made, not born; similarly, talent when it’s spotted needs to be developed and not left in a raw state. This ‘gifted amateur’ approach to talent, as I call it, makes a huge assumption that when someone shows a particular talent for something, they can apply it to any situation. Sometimes people do make big career changes without any support. But we believe that spotting talent is the start of a development process, not the end of it. In my mind, the most critical element in talent development is the people themselves. Certain skills and experience are a must in our line of business. But for talent development, the vital third ingredient is attitude. Why? In my team of around 1,300 people we have a diverse range of skills and a need for a broad range

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A South African accountant, Hunt became CFO of Standard Life in 2010. The Edinburgh-based savings and investment business has a market capitalisation of £5.3bn (April 2012), 9,000 staff, and operations in the UK, Canada and Europe as well as joint ventures in China and India. She joined the company in 2009 from Norwich Union Insurance, where she was also CFO, and was previously employed in a range of senior finance roles at Royal & SunAlliance and PwC. In 2011, she was appointed chairman of the Association of British Insurers’ financial regulation and taxation committee.

of capabilities. My team includes accountants, actuaries, treasurers, quants, risk managers, capital management experts and investor relations specialists. That’s a formidable range of qualifications, but I am convinced that attitude outweighs skill and experience, and makes my team what it is. Indeed, attitude is the key ingredient for success across many high-performing teams at Standard Life. And finally, the fourth essential element is the environment that we create to encourage and develop talent in our business. We can create the environment for talent and leaders to grow, but it’s the combination of skills, experience and the vital ingredient of attitude that makes it come to life. As you’d probably expect from a financial services company, the model we use is based on numbers. We use a 70/20/10 model for talent development: 70% of a person’s development comes through experience on the job, 20% through coaching or mentoring, and 10% from a formal programme like training. This is a realistic and grounded model. I say realistic because it

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places the emphasis on learning through experience, and grounded because it places responsibility for personal development squarely on the individual’s shoulders. Throughout our company, we actively encourage individual development plans, but especially so at senior levels of management. I feel these types of plan work better because they focus on longterm development – that is, ‘what do I need to do to be where I want to be in two to three years’ time?’ as opposed to ‘how do I get better at the job I’m doing now?’ A good development plan will include a mix of experience, coaching from the individual’s manager and training in the proportions I mentioned. It’s also important to focus on the person, not the role. One of the interesting things I saw when we started using individual development plans at Standard Life was how role-focused some people were. I’ve always believed that this way of thinking leads you to a dead end at some point. But focusing on the individual – their skills, experience and attitude – frees you from that inflexible path.

One excellent aspect of working for a company like Standard Life is that the environment for talent to grow is truly international. We have businesses in Canada, Europe and Asia, as well as joint ventures in the rapidly growing markets of India and China. For my team this creates an environment in which their talents can be developed, not just outside of finance, but across different types of markets. I speak from personal experience, having worked in the US, Switzerland and New Zealand as well as my birthplace of South Africa. Gaining exposure to different businesses, cultures and work practices is vital in helping to grow future leaders in a globalised business world. People are an incredibly valuable asset where investment is required to identify talent, spot future leaders and, through creating the right environment, help them to grow and realise their full potential. Talent development is a two-way street at Standard Life, with commitment needed from the individual and the business. It’s part of my role to bring the energy, focus and commitment required to encourage our talented people to develop themselves, to show us their skills, experience and, most importantly, their attitude. So where is the commercial benefit to all this? Financial services is an industry that needs to be sustainable, and Standard Life has been serving its customers for 187 years. In order to make good on our customer promise, to look after our customers’ money for the long term, we need to have the right plans and the right assets in place to be sustainable. Because people are a vital part of that sustainability, investment in talent is an investment in the future success of our organisation.

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EUROPE: CALM BEFORE THE STORM? If you thought the worst of the European economic crisis was behind us and that the British economy will escape unscathed, then think again, warn UK experts


o matter what assurances are given by politicians, the dark clouds gathering over the eurozone refuse to clear. Last year it was all about Greece. By autumn 2011, the country was teetering on the verge of bankruptcy. It had a 165% government debt-to-GDP ratio, was losing, according to the Tax Justice Network, 27.5% of its annual GDP to tax evaders, and was uncertain as to whether it could continue to pay its pensioners and civil servants. Wary of the economic and political repercussions of a disorderly Greek default, Greece’s European partners and the International Monetary Fund agreed in October to bail it out to the tune of €130bn (on top of a previous bailout of €110bn in 2010). The country underwent the biggest government debt restructuring in history with bondholders notching up losses of up to 74% as their existing bonds were converted into new, less valuable loans that paid lower interest rates. Passed off as a ‘credit event’, it was a default in all but name. Nevertheless, the markets rallied in the run up to the bailout, in the hope that the worst of the crisis had passed. But, unfortunately, the crisis hasn’t passed and uncertainty has increased in the wake of the recent general election in Greece. The eurozone, like the UK, is in recession and the economic forecast for many European nations remains bleak. Overall debt in

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the eurozone countries is 87.2% of GDP, according to the European Union Statistics Office (the highest level since the euro was created in 1999) and much attention is focused on the socalled PIIGS – Portugal, Italy, Ireland, Greece and Spain. Italy’s debt is 120% of GDP, while both Ireland and Portugal have government debts of 108% of GDP. But it is Spain, the world’s 12th largest economy, which has emerged as the new danger nation. While its

For all the speculation about the long-term prospects of the eurozone, the reality is that member states are unlikely to relinquish a single European currency willingly. ‘The euro is the banner policy of the EU,’ says Miles Saltiel, a senior fellow with UK policy thinktank The Adam Smith Institute, and a speaker at a recent ACCA UK event on the effect of the eurozone crisis on the UK. ‘There is a tremendous amount of political and

DESPITE SPECULATION ABOUT THE EUROZONE, MEMBER STATES ARE UNLIKELY TO RELINQUISH A SINGLE EUROPEAN CURRENCY WILLINGLY government debt is a relatively modest 68.5% of GDP, its private non-financial debt is a terrifying 220% of GDP and its banking system is on the brink of collapse after financing a real estate bubble that has since burst. House prices have fallen by over 20% since 2007, the country has slipped back into recession and its unemployment rate is nearly 25%.

Sustainability issue Meanwhile, the sustainability of European monetary union and the future of the euro have inevitably been called into question. Countries with no control over exchange rate policy or monetary policy cannot devalue their currencies to stay competitive.

economic momentum behind it.’ Monetary union was always intended to be an irreversible commitment; hence, there is no provision in the 1992 Treaty of European Union (also known as the Maastricht Treaty) for a state to exit of its own accord or to be expelled by other members. Charles Proctor, a partner with law firm Edwards Wildman Palmer and another speaker at the ACCA UK event, says that the most likely exit scenario for a country would be to ‘walk away from union with the support of other countries. It would be political and not legal’. So if Greece, for example, were to leave, it would have to temporarily close its banks and create a new currency and a new conversion rate. Its new currency

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Portentous clouds over Norway: countries on the edge of the eurozone are watching developments with concern

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would then swiftly depreciate against the euro. That would make its economy more competitive, but it would be a disadvantage in terms of paying back its debts as these would remain eurodenominated. In other words, Greece might end up in a worse predicament if it left the euro than if it stayed in it. Simon Hayes, managing director of Barclays Global Research Division, believes that the short-term costs of a eurozone break-up are so enormous that it won’t happen. The two main consequences for a country exiting the eurozone would be currency devaluation and ‘no access to the capital markets for many years’. Greek voters don’t want to leave the euro, he says, adding that the European Central Bank, which has already dished out €1 trillion in cheap loans to prop up the European banking system and enable the banks to buy government bonds, still has enough firepower to buy government bonds itself if necessary. Saltiel disagrees: ‘I don’t think there’s enough money in the European banking system to sort out the euro’s problems. And at the moment, there is no incentive for Asian economies to involve themselves in Europe.’ As nearly half of UK exports go to the eurozone, the recession there has put the brakes on our own economy. Tom Rogers, a senior macroeconomic adviser with Oxford Economics and a member of the Ernst & Young ITEM club, says the chaos in the financial markets in the second part of 2011 dented the UK’s export prospects. The export-led recovery that was expected in 2012 has not materialised and we face fierce competition from other European nations when exporting to emerging markets. ‘By 2016, exports will be over £30bn a year lower than we thought they were going to be last year,’ says Rogers. ‘That’s a permanent loss in output for the UK economy.’ He describes 2012 as a ‘lost year for growth’ and warns

that unemployment in the UK will continue to rise as companies cut back on investment due to the decline in exports. ‘It will be at least another year or two before firms put their hands in their pockets and start investing,’ he warns. He adds that although the UK government is benefiting from lower borrowing costs as a result of the crisis (because it is outside the eurozone and is seen as a safer bet than many European countries), low growth means that the country will be in budget deficit for longer. ‘It’s going to take us an extra year to get back to balance.’

Backlash blues If you think the situation looks bad now, it could get even worse. As governments turn to ‘austerity measures’ to get state finances back on track and meet debt-to-GDP targets laid down by the EU, civilians grow discontented and fearful for the future. There have already been riots in Greece, Spain, Portugal and Italy and, in April, 77-year-old Greek pensioner Dimitris Christoulas killed himself near the Greek parliament in protest at the government slashing his pension. There was even turmoil in the triple-A rated Netherlands at the end of April when the Dutch government resigned after it failed to get parliamentary agreement on a plan to bring its deficit in line with EU rules. As a result, it seems unlikely that the future of the euro will be decided around a conference table in Brussels – the people themselves will almost certainly have the last word. So are current events in Europe the calm before the storm or a storm in a teacup? Will the euro be gone tomorrow or here for centuries to come? Even the experts admit that they really don’t know. When it comes to predicting how long the dark clouds will stick around, your guess is as good as theirs. Sally Percy, journalist

From top: Miles Saltiel, Adam Smith Institute; Charles Proctor, Edwards Wildman Palmer; Simon Hayes, Barclays Global Research Division; Tom Rogers, Ernst & Young, ITEM Club

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16/05/2012 11:16



As the HMRC launches its Real Time Information (RTI) pilots, HMRC’s Jane Brothwood looks at what it will mean for pay as you earn (PAYE)


TI is a new way of reporting PAYE information. It will enable employers and pension providers to tell HM Revenue & Customs (HMRC) about payments to employees/pensioners as they are made, rather than at the end of the tax year. Over time, this will allow HMRC to collect the right amount of tax and NICs from more individuals inyear. RTI will also support Universal Credits.

Q What is changing? A Employers and pension providers will no longer have to: send an End of Year Return (P35, P14s and P38As) to HMRC; send a form P45 to HMRC when an employee leaves, or a pensioner dies/leaves the pension scheme; send a form P46 to HMRC when an employee/pensioner joins.

data. This involves making sure that surname, forename, gender, address, date of birth and national insurance number (NINO) are correct and in the right format for RTI purposes. Employers should also make sure that they add staff to their payrolls who will now need to be included with their RTI submissions; for example, those under the lower earnings limit (LEL).

Q When will RTI be introduced? A Most employers and pension providers will join RTI from April 2013, with all employers and pension providers reporting RTI by October 2013.

Q What is staying the same? A The following remain the same: the way tax and NICs are calculated; the need to give employees/ pensioners P60s; the dates of payments to HMRC of PAYE income tax and NICs; if required, the need to report expenses and benefits on a form P11D and pay class 1A NICs using form P11D(b); the need to provide leavers with a P45; and the need to obtain starter information.

* * * *

Q How can agents help their clients to prepare for RTI? A Tax professionals can assist their clients by: talking to their clients about what RTI will mean for them; making sure the client’s payroll staff know about RTI and what this means for their business; reviewing their HR, finance, reward and payroll processes, including information flow and their business resources, to ensure they will be able to make their RTI submissions on time, whether weekly or monthly; ensuring where clients operate their own payroll that they talk to their payroll software provider and, if they pay by Bacs, either their Bacsapproved solution supplier (BASS provider) or their Bacs-approved bureau.

Q How will RTI work in practice? A RTI reporting will be embedded into normal payroll activity. A wide range of payroll software is available, including some free products. HMRC’s free software, Basic PAYE Tools, is also available for employers with nine or fewer employees. For more information about the range of payroll software available go to: efiling/paye/paye_software_forms.htm or speak to your payroll provider. Q How will RTI be introduced? A RTI will be introduced progressively to allow time for testing the new processes. We began piloting RTI in April with 10 volunteer employers. A further 300 employers/pension providers will join the pilot in May and June and up to 1300 employers/ pension providers will be reporting RTI by the end of September. What’s more, by March 2013 we aim to have brought that figure up to 250,000.

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* * *

* *

Q How will RTI benefit employers and pension providers? A RTI will remove administrative burdens of £300m a year from employers/pension providers, mainly by removing the end-of-year return process. Embedded processes will also mean better data quality, resulting in more accurate tax and NICs payments and fewer queries from employees or pensioners. Q Improving data quality: what needs to be done and when? A Data quality is key to the successful introduction of RTI. Employers and pension providers should check the accuracy of their employee/pensioner

* * *


Q Any final comments? A HMRC is committed to a smooth and timely transition to RTI. We’ll continue to work closely with all involved in the operation of PAYE to achieve this. For further information about RTI go to: Jane Brothwood is HMRC’s head of RTI Communications

16/05/2012 11:35



Fat cats and scapegoats [

It’s still too easy for those at the top to blame others for corporate governance failures, rather than accepting collective responsibility in controversial areas such as directors’ paypackets, says Robert Bruce

Admiral Byng should have been a banker. It was the dereliction of his naval duty and subsequent execution in the 18th century which led Voltaire to point out that in England they do such things ‘to encourage the others’. And certainly this year has seen an open season on anyone involved in financial services, particularly if they were part of the system of creating levels of remuneration, or taking piles of the stuff home. We seem to have reached the point, as one survivor and analyst of the great 1930s crash once put it: ‘While “hundreds of thousands are being plunged into poverty” only the thoughtful ask: “What is happening to us?” The popular cry is, “Who is doing this to us?” and its satisfying sequel – “Just let me get my hands on him!” The public goes raging about like an infuriated mob with a rope.’ Analysis takes a back seat. Being seen publicly to mete out punishment comes to the fore. It was no surprise

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to discover that the announcement of the Treasury Select Committee’s intention to investigate ‘corporate governance in systemically important financial institutions’ was deliberately timed to coincide with Barclays Bank’s annual general meeting, where fury over remuneration was likely to hit the headlines. And it was no surprise to find the committee’s chairman, Andrew Tyrie MP, announcing that it would seek out ‘why it was that so many experienced and technically competent non-executives – the cream of British corporate life – appeared to be asleep in some of the boardrooms of our major financial firms’. There is a debate to be had, and urgently, on corporate governance, but

it needs to be rather more rational and directed at the areas that can bring about change rather than simply producing rabble-rousing headlines. ‘The debate has become so emotive and political,’ says Kathryn Cearns, consultant accountant at lawyers Herbert Smith, ‘that it is difficult to see what is being achieved in improving corporate governance.’ Paul Moxey, ACCA head of corporate governance and risk management, says: ‘Personally I think they have lost the map. They are losing sight of what corporate governance is. The debate has got too focused on procedure and detail and not on the substance.’

The blame game The current furore over remuneration committees is a case in point. It is an easy target. The popular Telegraph ‘Alex’ cartoon strip struck home with one recent offering. A gloomy banker is saying: ‘It makes my position very insecure. After all, I was brought in to do a job and I may be fired or forced to resign if I fail to deliver value.’ To which Alex remarks: ‘What – to the CEO by regularly bumping up his salary?’ ‘Well, that’s the only reason he appointed me to the remuneration committee,’ replies the other. ‘Remuneration,’ says Jonathan Hayward, partner with consultants Independent Audit, ‘is seen as the scapegoat by investors.’ But they may not always be right. ‘The committee chairman is a very good scapegoat but he is not always responsible. It is quite possible in some cases that the board could have overturned the decision.’ All this focus on one part of the corporate governance jigsaw does start to skew the debate. And it does set it off down the route to the fracturing of the unitary board model. The Financial Reporting Council is currently

16/05/2012 11:15


Crowd control: protesters demonstrate about executive pay outside Barclays Bank’s AGM

*WHAT THE TREASURY COMMITTEE WILL BE LOOKING AT The Treasury Committee will examine areas of board structure and competition – ie, what outcomes corporate governance in the financial services sector should achieve. It will look at the nature of corporate culture, and the impact of previous and

upcoming regulatory developments, plus whether non-executive directors should face greater liabilities and the effectiveness of shareholders. It will also look at the issue of remuneration: the role of consultants, investors and employees; the case for

further transparency; and more reform of arrangements for both senior executives and those below executive level. It will investigate whether risk is better managed since the financial crisis and whether board diversity is related to company performance.

insisting that we should rely on audit committees to report to the world that the annual report is ‘balanced, fair, and comprehensive’. That is fine. But, like the focus on remuneration committees, it is turning the spotlight away from the people who are really responsible – the board of directors – to those who can become convenient scapegoats if necessary, like the audit committee. ‘The audit committee does a lot of leg work,’ says Cearns, ‘but the board cannot delegate that decision to them.’ This can lead to a split which can then be exploited when times get tough and will lead, says Hayward, to ‘differences between the scapegoat and the collective responsibility of the board’. It becomes terribly easy for boards to offload their responsibilities onto other parts of the corporate governance structure, whether audit committees, remuneration committees or auditors. ‘You get an awful lot of “the auditors should do this, the auditors should do that,” when often it is the responsibility of directors,’ says Cearns. The more the headlines blame everyone else, the less directors and

boards are seen as the key to the whole corporate governance structure.

believe that they are worth a hundred times more pay than a headmaster.’ In his view investment banking is ‘the one place where Marxism has triumphed. The only people who make money out of investment banking are the employees.’ He adds: ‘It is not clear you can put the genie back in the bottle.’ Instead of the likely grandstanding which we may get through the hearings of the Treasury Committee this summer we need a more balanced debate. ‘We need to explain the business model and risk appetite in the financial reporting and how it impacts on the strategy of the business,’ says Cearns. ‘Disclose them well and it will be understood more widely.’ But at present so many people want to stuff their finger into the corporate governance pie that rational and effective, rather than divisive and scapegoat, measures will probably remain remote.

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Balancing act Moxey’s personal view is that the landscape has changed, particularly on remuneration where investors used to rely on market forces but now challenge it publicly. But he feels that this is another example of corporate governance, and investors, focusing on one detail. ‘They need to challenge what the whole of the business is doing – the whole business model,’ he says. ‘We need a more balance debate,’ adds Cearns, ‘on why executives are remunerated the way they are.’ But the Treasury Committee focus on large financial services organisations will mean that many of the wider issues become marginalised. Investment banking is different to all other businesses, suggests Hayward. ‘Every time the cash swirls around the system it sticks to the people involved. People are able to pay themselves more and more and a sense of entitlement grows, and they come to

Robert Bruce is a commentator and journalist

16/05/2012 11:15



Can we make it? Well, perhaps [

This summer’s government campaign celebrating British manufacturing seeks to renew the country in the eyes of the world. But, reminds Peter Williams, the powerhouses of tomorrow lie much further east

The sofa shop that I pass on my walk to work is asking the question: ‘Ready, steady…sit. Is your stadium ready?’ Humour is as good a sales weapon as any to tempt people to buy a new settee – no doubt a purchase that has been deferred while household incomes have been squeezed. But as the sofa shop wants us to believe, one that is surely a necessity when the BBC is promising to broadcast the London 2012 Olympic and Paralympic Games from 6am until midnight every day on its flagship channel. It is not only the BBC and sofa emporiums that are maxing out on the opportunity presented by the games taking place in this country. The Olympics are being used as a chance for the British to renew themselves, in their own eyes and in the eyes of the world. The Department for Business, Innovation and Skills has just launched its Make it in Great Britain campaign

which aims to transform outdated opinions of modern manufacturing and dispel the myth that Britain doesn’t make anything any more. This is another PR stunt in the government agenda of rebalancing the economy. The 2012 campaign has unintentional echoes of a brief patriotic campaign, I’m Backing Britain, which flourished in the late 1960s when five Surbiton secretaries volunteered to work an extra half an hour each day without pay to boost productivity, and urged others to do the same. The unions were suspicious but the Labour prime minister, Harold Wilson, endorsed the idea.

For a short time the Union flag was much in evidence on Britain’s high street and Bruce Forysth sang a song about it. Sadly, the Surbiton Five failed to turn the British economy around and the death knell was sounded when it emerged that the campaign’s own T-shirts were manufactured in Portugal. Surely no similar problems will befall Make it in Great Britain. However, perhaps we do need to put this latest effort into some sort of perspective. If we struggled in the 1960s, then the challenges confronting the British economy half a century on seem immeasurably greater. The economic truth that we as a nation – indeed, as a continent – have to accept is that in terms of growth the next few decades belong to Asia. China and India are rapidly becoming powerhouses at a pace that is difficult for us to grasp. Economists bicker gently among themselves over when China will take the top slot from the US in terms of gross domestic product: 2020 is seen as a conservative guesstimate. This is not just a prediction of doom; knowledge, creativity, innovation are all attributes which western Europe can use to survive and even prosper. But we must see where the trade winds are blowing and work out what we bring to an economic party that is happening on the other side of the world. And we have to do this against a backdrop of an aging population, low growth and a strong sense of entitlement to the standard of living we think we are owed. By the way, the sofas are manufactured in Nottingham. So you can do your bit to ensure that Britain keeps competing for economic gold. Peter Williams is an accountant and journalist

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15/05/2012 12:33



The blunt-stick approach to pay [

Publishing a single figure for individual director’s total pay will not solve all the discontent on remuneration, but it will provide a focus and prompt the right questions to be asked, says Jane Fuller

Complexity is just one of the many complaints about the current system of paying senior executives at large quoted companies on both sides of the Atlantic. The UK government plans to simplify the issue by proposing that companies publish a single figure for the total pay of each director. Formal and informal consultation on this has been going on throughout the spring annual meeting season. Several protest votes on pay have delivered three main messages: If shareholders have suffered poor returns, executive salary increases and bonuses should be strictly curbed There is unease about the absolute amounts top executives are paid against a background of low pay rises, and often job losses, for others In complex remuneration reports it is too difficult to see how much top people are paid – and why. These messages are not new. The financial crisis has reactivated concerns that were addressed as long ago as 1993 in the US, when the tax deductibility of pay was limited to US$1m. In 1995 in the UK, the Greenbury Report said that the important points were to link rewards to performance and to align the interests of directors and shareholders. The latest bout of reform is not new either. The Financial Services Authority and the European Union more broadly last year implemented changes to pay codes for banks, which insist that at least 50% of bonuses are paid in shares and that 40% to 60% is deferred for up to three years; and some of that is subject to clawback, or ‘malus’, if performance is poor. This means that someone with a £1m bonus would ‘only’ receive £200,000 in cash upfront. Oh yes, and even in the US shareholders now have a ‘say on pay’.

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These increasingly sophisticated measures are not regarded as enough, however. An intriguing point is the importance being attached to the ‘single figure’. Such a simplistic focus is usually regarded as a bad thing. Earnings per share numbers have a notorious history of being manipulated. Banks’ obsession with return on equity led to a dangerous slimming down of lossabsorbing capital.

Why is a single figure for pay different? The question is especially pertinent because the numbers for individuals – a few million here or there at institutions whose profits can run into billions – are immaterial. The answer lies partly in the usefulness of blunt sticks to achieve goals, and partly in the genuine interests of investors and the capitalist system. The bluntstick approach is easy to understand; the political message is that the absolute amounts being paid are too high and it is time for them to be cut, even if this means riding roughshod over contractual understandings. The interests of capitalist investors are more subtle. A single immaterial number is not important in itself but, along with more clarity on the components, it does prompt the right questions. For instance, senior executives’ pay has risen much faster than other staff pay over many years. This risks demotivating employees and triggering industrial action. It must also have exerted an upward pull on the pay of managers and others below board level. A complete pay pyramid would actually provide better information on this. As for capitalism, it sells itself as a meritocracy, which means pay for performance and none for failure. But its permission to impose failure also relies on a sense of fairness between top and bottom. That sometimes requires a self-denying ordinance among those at the top. If publishing a single figure paves the way for a correction, urged on by investor concern – and the stick of a binding vote – then it will have served a purpose. Jane Fuller is former financial editor of the Financial Times and codirector of the Centre for the Study of Financial Innovation think-tank

15/05/2012 12:33



Integral benefits


Focusing on integrated reporting at the Rio+20 summit will benefit both companies and investors, says ACCA president Dean Westcott

Twenty years after the United Nations (UN) Conference on Environment and Development, Rio de Janeiro is again hosting a major conference – this time on sustainable development. This gathering at the end of June – better known as Rio+20 – has two key themes: a green economy, sustainable development and poverty eradication; and the institutional framework for sustainable development. ACCA is focusing on one area of the policy which is to be debated at Rio+20 – one which is of particular interest to the accountancy profession – this is the integration of organisational sustainability reporting requirements into corporate reports. The aim of integrated reporting is to help corporate reports provide a bigger picture of an organisation, providing value to investors, businesses and the public. There is already a great deal of support for reform in the accountancy sector and wider business world, with organisations such as the International Integrated Reporting Council bringing investors and report preparers together, but support from the highest level at Rio+20 would be invaluable in moving integrated reporting forward and ensuring its worldwide spread. We want Rio+20 to lead to a commitment by UN member states to develop frameworks for sustainability reporting at a national level. While a global framework may be more ideal, an international commitment to nation-by-nation reporting might be more realistic. It would allow countries to propose frameworks suitable to their own needs and it would establish, at the very least, an international acceptable level of reporting. Making sustainability an integral part of the information presented to investors and the public would provide companies with an incentive to improve their own performance. By integrating their reporting, we believe companies will also have the opportunity to see themselves in a whole new light: one that allows them to identify areas of efficiency or inefficiency like never before. Integrated reporting can, ACCA believes, also help companies to develop more integrated strategies which can only help improve business performance in the long term. Dean Westcott, ACCA president and interim CFO, West Essex Clinical Commissioning Group, UK

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15/05/2012 16:57



Wilkins Kennedy has converted to an LLP to assist with the recruitment of partners and staff. Managing partner David Fenn explained: ‘An LLP is a more modern and transparent structure that is attractive to those new partners and teams that we take on to help our clients deal with the issues that their organisations face.’ Fenn said that the firm had ‘grown strongly’ in recent years, through organic growth and attracting merger partners. ‘We want to continue that process of bringing in the most talented individuals to ensure that our clients are getting the very best support that they can,’ he said. The LLP structure will assist with that by enabling interested parties to see its stability from its accounts. Wilkins Kennedy is one of the UK’s top 21 firms and is based in the South of England. It was established in 1882 and has a turnover of £28m, with 56 partners and nearly 400 staff.

David Fenn


Carter Backer Winter – CBW – has formed a financial outsourcing services division, CBW Dynamic Accounting. The division is the result of a merger with Direct Control, whose director Nyall Jacobs becomes head of the service line and a partner in CBW. Jacobs joined Direct Control in 1999, having qualified with Touche Ross. Direct Control was formed in 1989 as a book-keeping service, but now offers a range of financial services up to interim finance director level. CBW was awarded the title of UK Mid-Tier Accounting Firm of the Year at the British Accountancy Awards last year.

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The view from: Scotland: Julie Campbell FCCA, practice manager, Profit Counts Q What are the main issues facing practitioners in Scotland? A The swathe of changes to legislation means that practices such as ours are diversifying and focusing on the services that are most valuable to our clients. This means offering a comprehensive, all-round business advisory role as well as compliance services. Increasingly, firms are opting out of providing audit services due to the costs and risks it entails. I can see a day when there are fewer general practices and more accountancy firms providing niche services. Q What are the biggest challenges facing clients? A Cashflow is still a critical factor. We’re finding that organisations most in need of cash are turning to us to help them source non-traditional routes to raise funds. Most institutions are reviewing valuations on balance-sheet assets such as property, which in most cases is resulting in a downward value of these assets. This can necessitate a restructuring of debt, which in turn affects cashflow. We’re working more closely with financial advisers and business angels to source funding and a return on investment that suits all.

37 Practice Julie Campbell FCCA of Profit Counts; the virtual accountant; fighting for SME clients

Q What advice would give to someone starting out in public practice? A Work and party hard! It’s important to balance your study, career and home life, which is not always an easy task. The variety in practice means that no two days are ever the same, so it’s hugely rewarding. You meet some fantastic people and develop friendships that will stay with you.

52 Public sector The view from Michael Maskey of Stormont’s PAC; public private partnerships

45 Corporate Darren Gillespie of Ford Motor Company; on the couch; an outsourcing romance; the need for capital disclosure

55 Financial services The view from Ade Olabode of Credit Suisse; the long arm of the US tax collector

Q What are your interests outside of work? A My weekends during the summer are usually taken up by heading off on my Lambretta scooter. It’s a great way to relax, catch up with old friends, switch off from the hustle and bustle of work and see some fabulous places.


Location: Paisley, Scotland Staff: Six staff and two consultants


16/05/2012 11:39



Being a virtual accountant Never meeting your clients face to face and telling them to do their own bookkeeping? We look at the growing popularity of online accountants Starting any new business in the current economy, let alone an accountancy firm, is a challenge. But three years ago, having sold his digital marketing agency Pure360, this is just what Darren Fell did – although Crunch is not typical. A team of 50 physically located in Brighton, Crunch describes itself as ‘the whole accountancy solution online’ that has ‘shaken up the dusty old world’ of traditional accounting. It has amassed 2,200 clients – freelancers, contractors, small web and PR agencies, locum doctors and other micro-businesses – since its launch in April 2009. For a monthly fee of £59.50 plus VAT, they get unlimited access to bespoke software and, via email, telephone or Skype, to an administrator and an account manager – the kind of human support Fell says you do not get from a regular accounting software provider. They also get access to an accountant who oversees completion and filing of their company tax returns, accounts and annual returns. What they do not get is face-to-face contact but, according to Fell, this is the whole point. ‘Crunch replaces the pain of dealing with traditional accountants,’ says Fell. ‘Gone are the days of the dreadfully costly meetings.’ How does it work in practice? The idea is that they can create invoices, manage their expenses and calculate a real-time view of their business,

including what and how they pay themselves, from anywhere connected to the internet. ‘I can log in wherever I am and fire off an invoice,’ says Tim Spilman, director of TRS Technical and a Crunch client, who works in the events and entertainment industry and is ‘on the road’ two-thirds of the year. And what happens when clients have accountancy questions? ‘They ring up their account manager who books them in for a Skype, video- or telemeeting with one of the accountants,’ says Fell.

Growing interest Spilman is among the new breed of entrepreneurs. A YouGov survey found last year that over a third of small businesses were ‘in the cloud’, using at least one internet-based application (excluding email), and a new survey from Sage has found that 42% of accountants say there is growing interest from clients in online collaboration. ‘For the generation of entrepreneurs brought up with Google, Apple, Amazon and Facebook, sharing information online with their accountant is as natural as online banking, and there is a significant opportunity for accountants here,’ says Jim Scott, managing director of Sage’s Accountants’ Division. There is no doubt about it – the low-cost, volume-driven online accountancy marketplace is becoming big business and everyone wants a


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15/05/2012 16:47


piece of the action. According to the research from Sage, nearly threequarters of accountants predict that online services will represent the biggest shift in their working practices over the next three years and 41% say online will be a new offering for the next 12 months, with bookkeeping, final accounts and monthly management accounting as the top three services offered online. London-based firm Goodman Jones seized the online opportunity five years ago, when it started to offer online bookkeeping as a ‘supplement’ to its advisory and tax planning services. ‘The tools have been around for a while, but it’s the growing awareness of cloud computing that makes it easier to introduce online accounting to our clients,’ says partner Philip Woodgate. ‘Five years ago we were having conversations just explaining what it was.’ The amount and type of online a practice can offer depends on its market positioning. ‘To supplement’ as opposed to ‘everything online’ is therefore what Goodman Jones does. ‘Our clients are large, so their needs are different and our approach is people rather than factory-based,’ says Woodgate. ‘Occasionally, you do need to sit down in a meeting and discuss risks and implications.’ So, if you service micro-businesses solely online, do you, in a perverse sort of way, almost wish your clients did not prosper? Perhaps, because otherwise, ‘As your clients and their needs grow and become more complex [think tax planning], what are you going to do?’ asks Woodgate.

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There are tax-planning and tax-saving opportunities with small businesses, too, but this is not something online accountants, on the whole, cater for. ‘It’s important that clients understand what they’re getting as part of the deal,’ says Woodgate. Could the personal touch be missing when clients are serviced solely online? Fell disagrees. ‘It is the traditional accountant who is often not very good at customer service,’ he says. ‘They’re doing the technical work, the meetings, trying to win new business – they’re doing too much and are not very fast at getting back to clients. Our model separates these functions and makes the best use of everyone’s time.’

pay as little tax as possible.’ And does it even work that well? ‘Say, you’re sitting on a train on your way home and want to do your bookkeeping. You get halfway through, then go through a tunnel and you lose everything because there’s no Wi-Fi or the 3G is down. Or their site is down,’ says Dolan. ‘Because everything’s online, people have naturally assumed that it’d be great to get bookkeeping online too, but it’s just the next spin.’ The biggest worry, however, is the security and integrity of the client

Human touch Besides, not all online accountants are the same. ‘It’s not enough to buy a piece of software and give it to your customers,’ says Fell. ‘You also need that human factor and the customer service that comes with it – it’s the “humans and software” business model of bringing people and software together that allows us to deliver good service at a fixed price.’ SJD Accountancy is in a similar market but unlike Crunch, it operates firmly on the high street. But why should someone pay £110 a month (SJD price) when they can get the same service for £60? ‘It’s not the same because we do not operate from a call centre environment and you get to meet your accountant,’ says SJD managing director Simon Dolan. ‘People don’t go to accountants to use a bit of internet software and be told to do their own bookkeeping – they go for advice and to

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data. ‘Online accountants tell you they can’t possibly get hacked. But if governments can get hacked, small private companies can too,’ says Dolan. ‘Bearing in mind the information they keep online – dates of birth, national insurance numbers, company names, home addresses, copies of bank statements – the hackers get everything they need to clone you with.’ What about anti-money laundering checks? ‘If you accept businesses that contact you by email, and if there’s no physical human contact and all you say is “pay us X and here’s the access code to our software”, then clearly there’s a risk,’ says Perry Burton, assurance partner at Grant Thornton. Fell disagrees: ‘Using every conceivable database, in about 25 minutes we collect 30 to 50 different pieces of information and compare it back to the potential client’s address – a far more detailed approach and way beyond what traditional accountants do.’

Global e-ccountants While it is clear that online as the whole accountancy solution is currently limited to servicing small businesses and has bookkeeping at its core, bigger firms nevertheless also reap the rewards online can bring to their service offering. ‘We utilise the internet in the area of global compliance service,’ says Burton. ‘Multinational clients provide us with, and draw from us, information over the web.’ In effect, the central server works as an information exchange and documents repository – there is no software processing involved, he adds. ‘The clients use the server to electronically deposit information with us – as PDFs or spreadsheets – instead of sending it by email. And they can see online, in real time, where we are with the work.’ The real-time visibility is also key for KPMG, which introduced a web-enabled collaboration space to their clients nine years ago. ‘The number of users has doubled every year since 2006 and we now have over 12,000 in 140 countries,’ says Rob Baldwin, director of Global Compliance Management

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Percentage of accountants who say use of online services will represent the biggest shift in their working practices over the next three years.


Percentage of accountants identifying online accountancy services as a new offering for the next 12 months. Source: Sage survey Clockwise from left: Rob Baldwin, KPMG; Darren Fell, Crunch; and Simon Dolan, SJD Services at KPMG. ‘What we do is far more complex than what Crunch does, but the principles are similar – we use the internet technology to get information from clients and to support the delivery of services.’ There has been a big shift in the recent years, especially in global tax compliance. ‘Heads of tax are not now just interested in fancy tax planning schemes – they’re more interested in what might come out of left field to upset the overall tax position of the group. They want and need the information at their fingertips to be able to plan ahead,’ says Baldwin.

The future Where are we heading to with online? ‘Smaller firms need to think how they can best use the tools to help their clients,’ says Woodgate. ‘The tools can be about much more than just data crunching and bread-and-butter work – they can be the basis for data analysis, for sharing information with clients, and this applies to working with larger businesses too.’

There is a growing emphasis on good compliance and non-financial reporting too – social responsibility or ethical reporting, especially in extraction industries like mining. ‘The press and the government cast some multinationals as evil organisations that aim to pay the least amount of tax, but most multinationals are actually keen to get it right and to be seen to be getting it right,’ says Baldwin. ‘So there will be more emphasis on systems, processes, adequate controls and transparency, and on being able to demonstrate that businesses are doing the right thing – online technologies can help with this.’ And what about Crunch? ‘By the end of the year we’ll have hired another 60 people and have 4,500 to 5,000 customers,’ says Fell. ‘In five year’s time, we want to be number one in the UK’s micro-business market with 12,000 to 15,000 customers, and will have gone into at least two other English-speaking countries.’ Iwona Tokc-Wilde, journalist

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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%

June 2012

Figures compiled on 10 May 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%

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).


Effective Date 27.1.09 24.3.09 29.9.09

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


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%


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

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

2012 1.08% 1.06% 1.03% 1.01%

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


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 2012 229.0 238.0 231.3 239.9 232.5 240.8 234.4 235.2 235.2 234.7 236.1 237.9 238.0 238.5 239.4

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% 0.6%*

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

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.


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


the adviser’s portal

The UK’s largest provider of savings and mortgage data

Tel: 01603 476 476

Datapage-Jun12.indd 1

11/05/2012 15:05



The SME battleground As big and small firms fight over SME clients, who will come out on top? With the UK economy still in the doldrums, the focus in 2012 is increasingly on the SME sector, whether it be how to get scarce finance into them or even more elusive growth out. At the same time, moves towards simplifying the tax and auditing requirements on SMEs are removing the compulsion to seek professional advice from a growing number of companies, while at the bottom of the scale what used to be a face-to-face professional service can be automated and moved to the cloud. So the role and value of accountancy firms in relation to SMEs is also under scrutiny: should SMEs simply purchase services they are compelled to have by law as cheaply as possible, or should they be looking to get more advice and added value from their accountants? And if so, should they be looking for the comfort of a big name and sitting alongside FTSE 100 clients, or ‘pick on someone their own size’ as an adviser? The Big Four may make headlines for their unique ability to service an elite of global companies, but SME business is still very much their bread and butter. As KPMG’s head of UK national markets, Malcolm Edge points out, the mid-market (which would include things like high-net worth individuals and universities) makes up over 40% of the business.

Value-add For Edge the interest of a client is not so much the size as where the business is going. ‘If we are going to show our value it has to be doing something,’ he says. ‘If a business is just doing much the same as it has done and not growing or acquiring, then it could still be of interest to us if we can

UK_YPRAC_SMEs.indd 42

show value from the audit and tax stuff, but it is much easier to show that if it is expanding.’ For the most exciting firms in the mid-tier, the competitive battle is very much between the biggest firms and a

very large number of smaller rivals. It’s a fight in which, according to Mike Tovey, managing partner of Chantry Vellacott, the Big Four’s investment in marketing and branding gains them little advantage:

Approach path ‘Brand is only relevant to a very small number of clients,’ he says. ‘The average owner of even a significant SME business will not have much idea of the accountancy market, anymore than they will know about Slaughter and May in the legal world.’ For Tovey the issue is one of approach: ‘Dealing with an SME is quite a different thing from dealing with a larger business,’ he says. ‘We think that we are experts in dealing with SMEs where you have to take a much more holistic approach to the support and compliance services you offer. Our policy is that we deal principal to principal, so our partners are related directly to the businesses they serve.’ In this context, the added value of audit and compliance work drops away. ‘Anyone who thinks compliance work adds value is deranged,’ says Tovey. ‘We rarely extol the quality of our audits. For our clients an audit is an audit is an audit. They want work they know they can rely on and at a price they can afford, and they know that they can buy that service from pretty much 30 firms. Where the difference comes in is what that firm can

16/05/2012 11:34

offer on the back of audit, in building up a great knowledge of that company.’ Whether smaller clients see that opportunity is a different question: ‘If the law says you have to have something, the temptation is to go for the cheapest,’ says BDO partner James Roberts, head of the firm’s Gatwick office. ‘If you look at it as an overhead, it’s very difficult to know what you should be asking for. Someone came to me recently and said we may be getting value for money from our accountants, but we only have a meeting once a year, we aren’t getting challenged, and we aren’t getting ideas.’ For Roberts, the accountant naturally assumes that ‘avuncular’ role: ‘You can be a sounding board – being a relatively small business can be quite lonely, when everyone else is a follower rather than a leader,’ he says. ‘If I’m not giving that advice, someone else is giving it.’

Judgment call How that advice is charged for – or not – is a matter of judgment: ‘I have invested some time in a start-up business – it’s not going to make any money; I’m doing it because I believe in the people’ says Roberts. ‘But if I do that every second week and none of them comes off my fellow partners are going to ask questions – it’s about common sense. You bill people for an audit, but they are buying a relationship. But there does come a point where you have to say “hang on,

this is turning into a project”.’ Roberts believes that with issues such as audit exemption ‘only going one way’, accountancy firms need to be looking at developing new assurances products for shareholders and banks, or remote owners. ‘We should be re-examining what we are for as a profession from top to bottom and questioning what sort of services we should be offering,’ he says.

Position planning Some firms are already repositioning themselves. Mark Gold FCCA, senior partner at Silver Levene and chair of ACCA’s Global Forum for SME’s, says that if his firm never did another audit there ‘wouldn’t be a huge effect’. ‘We’ll always be needed,’ he says. ‘You can do a beautiful set of accounts on your own nowadays, but what people want from their accountants is a personal relationship; you want the advice that you need, and not just a yes-person; someone who can advise the business how to grow, even if they don’t have an FD in there. At the smaller end of a small-to-medium practice (SMP) is a quasi-CFO or FD.’ For Gold an SMP practice should be a one-stop shop, even if that takes it beyond the realm of accountancy. ‘You might even help with health and safety or HR advice,’ he says. ‘We recognised that what one of our clients wanted was HR advice, and now we have separate HR services. In accountancy it’s most important that you see it as a business like any other: if you just see


UK_YPRAC_SMEs.indd 43

16/05/2012 11:34



‘MOST FIRMS OF ACCOUNTANTS ARE OWNER-MANAGED BUSINESSES IN THEIR OWN RIGHT, SO THERE SHOULD BE SOME AFFINITY THERE – BUSINESS SHOULDN’T BE MAGICAL’ it as a professional service you are going nowhere.’ This has also meant taking a more active role to which clients and sectors you focus on. ‘We go for niche markets such as film and TV and barristers,’ he says. ‘In niche markets you can bat much higher, and the process work can be streamlined or taken offshore to India or Mauritius these days; it’s safe.’ Even when a client gets ‘too large’ that need not be the end of the relationship. ‘We love our clients to do well and even if a client goes on to a full listing, that’s not our expertise, but we can introduce them to other firms and maybe retain the directors, and stay involved with them if they still need us,’ says Gold.

Natural transition This move into becoming a trusted adviser should be natural, yet many small practices struggle with it, as Phil Shohet of accountancy consultancy Kato points out. ‘Most firms of accountants are owner-managed businesses in their own right, so there should be some affinity there – business shouldn’t be magical,’

UK_YPRAC_SMEs.indd 44

he says. But he adds that many accountants lose out on higher-value specialist work, relying instead for their fees on churning out the basics. This marginalisation may not only affect smaller firms. ‘The top 20 went through a huge period of low-balling, where they were after the special work,’ he says. ‘But often the big firm doesn’t get it: the client says “here I am getting my audit for half-price from a huge brand, but I’ll be the chooser of who does my special work”.’ Mick James, journalist


While SMEs represent fertile ground for value-added services, the cost of compliance is proving a major headache for SMEs. A survey last year by the Forum for Private Businesses estimated that small firms were paying out £5.8bn for regulatory compliance services to external firms. The average payment of £4,900 per year for advice on issues such as employment, health and safety and tax was more than double the £2,100 average annual bill in 2009. The figure for tax advice alone is in excess of £3.3bn. A similar survey carried out by Crunch Accounting found that rising fees were the ‘biggest accounting gripe’ for 15% of smaller business, 16% of whom had not been given appropriate tax advice, while 9% said they had been fined as a result of late filing by their accountants.

16/05/2012 11:34


PENSION GOVERNANCE VITAL Employers must take seriously their corporate governance responsibilities for collective pension schemes, argued the Pensions Policy Institute in a submission to the House of Commons Work and Pensions Select Committee. Employers offering collective defined contribution schemes need to ensure that these operate on a large scale; have higher levels of contributions than are required under automatic enrolment legislation; have good investment returns; have transparent providers’ fees and charges; and provide clear information and advice. Collective defined contribution pension schemes can provide higher average returns and lower variability of outcomes than personal pension defined contribution schemes, said the institute. There were eight million members in the 1960s but just 1.6 million today – less than a quarter of those in workplace pension schemes.


Corporate lending will continue to shrink and will not recover to precrisis levels until 2016, according to Ernst & Young’s ITEM Club Outlook report. ‘The contraction expected in 2012 is more acute than the 6.1% contraction last year and means that the funding squeeze that corporates and SMEs have been experiencing is only set to get worse,’ said Neil Blake, senior economic adviser to the Ernst & Young ITEM Club. ‘The government’s three-year £20bn scheme to boost loans to small businesses is just about large enough to cover around 9% of SME lending on average over the next three years.’

UK_YCORP_intro.indd 45


The view from: The car industry: Darren Gillespie FCCA, senior auditor, Ford Motor Company Q What is your role at Ford? A My job involves liaising with Ford personnel at each of the company’s locations and assessing the adherence to risk, corporate policy, and legal and regulatory guidelines. This involves me visiting various different Ford locations around Europe. Q What do you think the next year will hold in store for Ford and the motor industry? A Ford is currently in a very strong global position. Last year we launched the all-new Focus around the globe, and this year has seen the company introduce the high-tech, 1.0-litre EcoBoost engine. The current economic climate and the rising cost of fuel means that our customers are continually asking for more fuel-efficient vehicles, and this is one of Ford’s top priorities. The introduction of a new global brand promise, Go Further, is allowing the company to meet and exceed customer needs, while the globalisation of products and services under the One Ford initiative continues to be one of our biggest strengths. This international plan is to increase profitability while delivering high-tech, fuel efficient and greatlooking vehicles. Q How has FCCA status helped you in your career? A The training I have received has enabled me to use my knowledge and experience in a variety of different finance roles during my career, from financial accounting to management accounting and now auditing. The online courses have also helped me in keeping my CPD up to date. Q What do you enjoy most about your job? A I enjoy travelling to different countries and learning about their different cultures. I enjoy learning about the innovative ways Ford conducts business to suit different European markets.


Location: Wickford, Essex Work motto: Preparation is essential

45 Corporate Darren Gillespie of Ford Motor Company; on the couch; an outsourcing romance; the need for capital disclosure 37 Practice Julie Campbell FCCA of Profit Counts; the virtual accountant; fighting for SME clients 52 Public sector The view from Michael Maskey of Stormont’s PAC; public private partnerships 55 Financial services The view from Ade Olabode of Credit Suisse; the long arm of the tax collector

Apologies to Marc Fecher FCCA of Kingston Smith, whom we incorrectly described as an ACCA on this page last month.

16/05/2012 12:12



Companies on the couch Forget management consultants – organisations faced with seemingly intractable people problems are starting to turn to business psychologists instead

For most organisations faced with an insoluble problem there tend to be two main options: look to in-house resources to tackle the problem or engage an external expert, usually a management consultant, to help. Most business problems – a flawed process, say, or poor management communication – can be solved by one of these two approaches. However, consider the following problem: business manager Sarah Smith isn’t performing satisfactorily and her line manager is unsure how to proceed. ‘If you can be certain that Sarah is dysfunctional in the role and her poor performance has nothing to do with what’s going on around her, then you can probably call someone in who’s an expert in managing performance, because you can see what the problem

UK_YCORP_psycho.indd 46

is and where it resides,’ says Steve Whiddett, managing director of WHE UK and chair of the Association of Business Psychologists. ‘However, if there are several people who are displaying similar behaviour to Sarah, and if she didn’t show any of those behaviours when she joined, it would suggest something else is going on. And if the management can’t confidently put their finger on what that is, then a business psychologist [BP] may be able to help,’ he adds.

Planning and problems Typically, there are two reasons business psychologists are brought in. First, an organisation might be planning positively for the future. ‘I recently worked with a company that was preparing itself for a takeover,

working with a strategic delivery team to look at how they went about delivering strategy,’ says Whiddett. ‘So we asked how they needed to change. It was very successful, they were targeted for acquisition, and their private equity owners made a great return. But with a lot of organisations, we’re usually there to focus on the other side, where things aren’t going well and they want to correct them.’ Fuelled by a growing cynicism over the effectiveness of the management consultancy industry (promising lots, delivering less), Whiddett and his fellow BPs (and occupational psychologists) are increasingly popular. But he’s at pains to point out what exactly BPs can do – and what they can’t. ‘In effect, a good BP ought to be able to see beyond the presenting issue and

15/05/2012 12:34


help the organisation understand what it could do to prevent those issues recurring,’ he advises. In most cases, a general management consultant will be focused elsewhere, specifically on solving a predefined problem. Companies often know what the problem is, but don’t have the skills in-house to solve them and, as a result, go to a craftsman with the skills to solve the problem. Or the business can also go down the route of training people in-house to tackle the issue, or simply buy an off-the-shelf solution. ‘But in those last two cases, you need to know what the problem is and what skills are necessary to solve it,’ says Whiddett. ‘BPs are often called in for those problems, but there is an issue where some of them have got themselves into a situation where HR sees them as an extra pair of hands to be called on to do a bit of assessment or performance guidance or coaching. But that underplays the value of business psychology, which is much more holistic.’

More of the same? BPs presented with a company having difficulty in recruiting will typically ask the business why it is having to recruit so much, why people are leaving, and whether turnover is high. Only once you’ve asked those questions, Whiddett says, ‘can you start to look at whether there are problems built into the job that make it difficult for individuals to perform well, in which case you can look at job redesign. Ultimately, the real difference is between buying a spare pair of hands and bringing in someone to ask some pertinent and intelligent questions.’ Whiddett tells his clients that rather than offering a quick-fix solution, BPs apply scientific rigour and deductive reasoning to go beyond simply treating the symptoms. ‘A lot of people who look at people-related issues are often tempted to look at symptoms because, ultimately, they are displayed by people,’ he says. However, while somebody who doesn’t deliver on an objective can be

UK_YCORP_psycho.indd 47

blamed for that failure, it may be that a look under the surface will reveal unrealistic deadlines, a poor brief and so on. ‘So what I would do is look at the whole thing and suggest how the whole process can be improved, aligned with goals and values, and ensuring that the systems and processes are right,’ says Whiddett. Mike Gibney is one senior executive who has benefited from employing a business psychologist. As deputy director of HR and organisational development at NHS Merseyside, which

work has been done to find out what the cause is, you can’t go forward to solve it.’ As an example, Gibney’s work at NHS Merseyside is founded on an imperative to change. They know what they don’t want to be, and they have the prospect of massive NHS reforms hanging over them that will change the way in which they operate. ‘So the emphasis will now be on delivery and customer satisfaction. What we need is someone to come in to identify the behaviours we need, to

BUSINESS PSYCHOLOGISTS APPLY SCIENTIFIC RIGOUR AND DEDUCTIVE REASONING TO GO BEYOND SIMPLY TREATING THE SYMPTOMS is made up of a cluster of four primary care trusts, his biggest challenge is redesigning the organisation so it is fit for purpose under the new Health Bill. ‘We’re undergoing transformation through the changes in the way commissioning happens in the NHS, so we were looking to a transformational change programme, not an evolutionary one,’ he explains. ‘In order to achieve that we needed to change a number of things – most importantly, staff behaviours. As an organisation that has a £2.1bn spend, it’s a whole new landscape – which means the people I manage have to make a huge change, focusing on different aspects of the job with less resource. It’s not just about what they do, but how they do it.’

First research, then solution BPs will work in a variety of ways. In some cases, where symptoms have to be addressed quickly, they will intervene immediately. ‘If, say, someone was losing large numbers of staff from a department, then you might go straight in asking questions and using the evidence you find to change things,’ explains Whiddett. ‘But a lot of the work I do will involve research up front before any solution can be found. Usually, the presenting issue is symptomatic, and until the

set a framework for our values. As part of that, we’ll need new recruitment and talent management policies, particularly focusing on the way we appraise our staff,’ says Gibney. ‘And a change is necessary because if we don’t maintain good relationships with the commissioning groups, then they will soon be able to look beyond us to the broader market. So we have totally transformed the way we do it,’ he adds. As part of his work with the NHS, Whiddett’s team interviewed staff and conducted focus groups to assess current behaviours and arrive at strategies for change. ‘And using scientifically qualified people also gave us credibility in our dealings with clinicians and GPs,’ says Gibney. ‘Whiddett also spoke to private sector providers of healthcare to find out the skillsets they employ that we haven’t got. This will help us achieve a more commercial approach.’ Ultimately, the proof of the effectiveness of the approach will only be evident years down the line, but it’s fair to say that business psychology has opened up another front in the war against inefficiency and poor performance. The question now is who is brave enough to use it. Christian Doherty, journalist

15/05/2012 12:34



Keeping the love Entering a business process outsourcing contract is like agreeing to a marriage, says KPMG’s Claudio Altini. So it needs ongoing love, care and attention as it matures The relationship between an outsourced service provider and a client is like a marriage, whether the service provider is a third party or a captive entity. At the start, both parties are flushed with happiness and hopeful their expectations will not just be met, but exceeded. Unfortunately, as the relationship matures, satisfaction levels can drop. In outsourcing relationships, with both parties having typically committed to it lasting between five and seven years, this happens when there is misalignment between services agreed in the contract, services expected by the client, and the services actually delivered. This misalignment is sometimes exacerbated by the role of the ‘marriage arranger’ – represented in outsourcing by the specialist teams from both service provider and client who negotiate contract terms. The negotiators are not necessarily those who will be providing and receiving the outsourced service, thus increasing the risk of misalignment between client expectations and the service agreed in the contract. For example, some services covered by the contract may be neither expected nor delivered, and are thus irrelevant. Other services may be agreed and expected, but not delivered. Service providers can also waste resources delivering services that are neither expected by the client nor agreed in the contract. There is a sweet spot where the services expected by the client are both agreed in the contract and delivered by the service provider. The bigger the sweet spot, the better. However, over a long-term relationship, careful management is required to avoid any creeping waste in service provision or growing misalignment between client expectations and service delivery.

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It is never too late to establish a leading practice outsourcing governance team: a lack of governance can erode deal value by as much as 15%–20%. Realise that effective operations managers usually don’t make effective governance executives. Shadow organisations often exist in client organisations, increasing cost: root these out. Outsourcing governance teams should ebb and flow as needs change through transition and steady-state phases: make sure your teams flex accordingly. Learn how to track the value of your outsourcing relationship. Focus on the ‘what’ and not the ‘how’. Make sure your enterprise business intelligence and knowledge management initiatives include all data and information related to outsourced processes, and that it’s tracked throughout the lifecycle of the relationship. Track internal client satisfaction. Maintaining open dialogue and obtaining regular feedback from internal clients is key to maintaining expectations. Ensure you and your provider have aligned goals, or risk failure to deliver on the ‘intent’ of the deal. Determine your organisation’s level of trust toward its provider. Do whatever is necessary to maintain or regain trust to avoid diminishing value.

Based on KPMG firms’ experience, value leakage in outsourced service relationships is most likely to stem from three core areas: operational, performance and portfolio management challenges.

Avoid duplication Operational challenges arise, for example, due to the duplication of services provided by both service provider and client. To avoid this, attention needs to be given to redesigning and re-skilling the retained finance function, so that individuals are equipped for their new roles managing the service contract. Performance challenges can arise when problems are not managed or the service provider’s performance is not at expected levels. This could, for example, result from the high degree of personnel churn currently experienced by many service providers.

Turning to performance management challenges, value leakage can occur when service providers identify opportunities for improvements, but the client is unresponsive or fails to make adjustments. Improvement opportunities are likely to be identified once the service handover is completed and process standardisation achieved. Having analysed the client’s data, the service provider may gain new information that could be applied to improve the service – but client action will often be required. Existing contracts can be reviewed to identify where client organisations could be driving increased value from their outsourcing relationships. Reviews conducted by KPMG over the last 12 months, using our value assurance framework, reveal some typical areas of conflict between client and service provider. There are, for example, often issues around performance, with the credibility of performance metrics often

14/05/2012 15:57



challenged. This may be exacerbated by insufficient pre-contract baselining. Clients moving from a decentralised service delivery model to an outsourced model are unlikely to have the right baseline information available. This makes it difficult to set realistic baseline service levels for the provider, or to hold the provider accountable.

Lack of trust Problems arise with processes too, with efficiencies sometimes lost through clients’ failure to focus on end-to-end process optimisation. This can result from a lack of trust in the provider and an unwillingness to hand over certain processes. KPMG’s reviews have also found problems in realising the full potential of outsourcing contracts. Some firms complain they are not receiving the

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levels of innovation outlined in their contracts; but service providers are dependent on client cooperation to help implement innovative ideas. Other challenges arise in terms of a client’s ability to implement change globally. First-level savings can be achieved through labour arbitrage, but achieving additional benefits requires more significant change. Unless these changes are made, service providers contracted to deliver cost savings will take the hit and suffer falling profit margins, with declining service levels certain to follow. Both parties must, therefore, agree in advance how they will work together to deliver additional savings beyond any easy, early wins. Finally, problems with perception often occur. Many CFOs often comment that, from what they have heard, their organisation has a poor relationship

with its service provider. On investigation, however, KPMG firms often find few significant issues; the CFO is simply picking up ‘noise’ within the system. Day-to-day minor issues do arise, just as they did before the outsourced service contract was put in place. The noise they create is amplified, however, because now an external party can be blamed. Experience suggests that the higher up the organisation you go, the more ‘noise in the system’ occurs. Such negative perceptions are dangerous and need to be managed. If key stakeholders have poor opinions of the outsourcing relationship, it will ultimately fail and achieving the expected value will prove impossible. Claudio Altini, head of the business process sourcing practice at KPMG, UK

16/05/2012 16:54



Capital competition There is real competition for capital, but companies can improve their chances of securing the right funding with some simple voluntary disclosures, says PwC’s Alison Thomas In the economic downturn and with the continued strain on the availability of financing, there is real competition for capital in the market. Investment professionals say that companies can improve their chances of securing the right funding at the right price with some simple voluntary disclosures.

Key issues Investors tell us that without good disclosure, ‘the cost of funding goes sky high’; companies that do not make their cash and debt disclosures clear and accessible risk a struggle to raise capital or borrow funds. Investors have highlighted three key areas from where management can make small changes to disclosures that would have a significant impact on their ability to compete for ever more scarce capital in today’s market: cash, net debt reconciliations and debt. So why are these disclosures important to investors, and what might good practice disclosure look like for your entity?

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Cash Cashflow information is critical for investors, not simply as a critical input to the valuation of entities but because it allows them to understand

management’s ability to service the entity’s working capital requirements and debt position, and any risks associated with it. Here are some areas where current reporting can be enhanced: Cashflow statement – historical cashflow data is the basis for investors’ assessment of the adequacy of future cashflows to meet working capital and funding requirements. Yet investors tell us that ‘understanding cashflow reporting is like doing a jigsaw with half the pieces missing and without the box’. Investors are not technical accountants. They would like more meaningful descriptions of the adjustments made to derive operating cashflow so that these can be related to items on the balance sheet. They also say they would find it more helpful for the reconciliation of profit or loss to operating cashflow to start at the operating profit line (or pre-tax profit line) rather than at net income. This would simplify the disclosure and remove the need for spurious reconciling items, which may need to be both eliminated and then added back to arrive at a total for operating cashflow.

10/05/2012 12:16


Capital expenditure – how much of an entity’s capital expenditure is required to keep things ticking over? How much is being used to grow the business further? Understanding the split between maintenance and growth capital expenditure is important to an investor. This is partly because it gives an indication of the growth opportunities available to management; but of equal importance in tough economic times, it gives insight into those expenditures over which management has discretion and those that would be harder to postpone. Most entities disclose one number for capital expenditure in the investing section of the cashflow statement (albeit split between tangible and intangible elements). Investors would like disclosure of capital expenditure to be separated into ‘maintenance’ and ‘growth’ spend, as investors see working capital as a key funding need. Segmental information – segmental cashflow information is highly valued. One analyst told us: ‘It is rare to see good cashflow reporting at segment level. When I see it, I sing Hallelujah.’ Many investors believe that multisegment entities should use the reportable segment as the unit of analysis for providing cashflow information. Our research shows that, in addition to existing lines, the cashand debt-related lines that investors look for on a segmental basis include debt, operating cashflow, working capital and operating capital employed. Repatriation – investors need to see clear disclosure of any restrictions on the repatriation of cash that might impede the ability to meet future financing needs.

Net debt reconciliation An analyst recently told us: ‘Without a good net debt reconciliation, we are flying blind.’ It is an easy way of

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assessing whether an entity that seems to have had a significant increase in cash has, for example, achieved this only by taking on a corresponding increase in debt. Without a net debt reconciliation, investors struggle to understand the impact of foreign exchange movements arising on debt, the value of debt acquired or disposed through business combinations, the impact of fair value and fair value hedge adjustments. Net debt reconciliations are not required by financial reporting standards, but investors tell us that entities that provide one really set themselves apart. While there is no standard definition of net debt, it generally includes the entity’s borrowings, including finance leases, less cash and cash equivalents. Some entities also include deficits on defined benefit pension plans and an adjustment for operating lease obligations. The inclusion of other debt-like liabilities provides additional insight into entities’ significant expected future cash outflows. This variation means that it is important for management to explain clearly what it means by net debt and to keep that definition consistent over time. Having an accounting policy for net debt would be very useful.

Debt In addition to the net debt reconciliation, investors would like to see enhanced disclosures around: Maturity information – investors tell us that they need a comprehensive maturity table for all material components of debt, showing both the contractual maturity of each type of debt and when management expects it to be repaid (if different). Rather than reporting using broad buckets (for example, two to five years), investors are looking for detail of the debt repayments that fall due every

year (for a minimum of five years), as well as underlying par values and currencies of debt. Investors find it difficult to reconcile the numbers presented in the maturity schedules to the carrying values in the balance sheet. It would be a significant improvement if management could help them to tie the two sets of data together, showing principal and interest payments separately, and reconciling to the balance sheet (that is, showing adjustments for measurement at fair value, discounting, fair value hedges, swaps etc). Covenant restrictions and terms – financial reporting standards require disclosure of any defaults or breaches of loan agreement terms that are not resolved by the period end. Additional detail of the terms and measurement of the principal covenants in place, not only when breached, provides investors with an understanding of the restrictions in place and the entity’s compliance. Investors focus not only on whether covenants have been breached, but what those covenants and restrictions are, and the risk that they may be breached in the future. Disclosures on the key covenants for an entity’s finances are of much greater value to the investor’s decision-making process than a statement that there haven’t been any breaches in the past. Details of average debt balances – Another easy win is to disclose average debt balances throughout the year, rather than just the year-end snapshot, to enable users to understand the debt position over the year. 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

10/05/2012 12:16


Public sector The view from: Government: Paul Maskey MLA, MP, chair of Stormont’s PAC Q How important is the Public Accounts Committee? A It is one of only two committees to have a specific statutory footing. It is very influential; it demonstrates why the controls and procedures in the public financial accountability system are so important. That accounting officers, rather than ministers, answer to the committee makes the dialogue with government less politicised. The vast majority of recommendations are accepted. But it is frustrating when recommendations made previously have not been heeded.

52 Public sector The view from Michael Maskey of Stormont’s PAC; public private partnerships 37 Practice Julie Campbell FCCA of Profit Counts; the virtual accountant; fighting for SME clients 45 Corporate Darren Gillespie of Ford Motor Company; on the couch; an outsourcing romance; the need for capital disclosure 55 Financial services The view from Ade Olabode of Credit Suisse; the long arm of the US tax collector

Q How closely does the PAC work with the Northern Ireland Audit Office? A The Audit Office is the assembly’s scrutiny partner. The comptroller and auditor general and his team provide the reliable and impartial evidence for the committee to work on. The committee makes its own decisions – but that would be impossible without the hard work and independence of the auditors. Q Does being a new PAC create difficulties? A Having a local committee means more intense scrutiny and more preparation for the civil service. When I became chair four years ago, we worked through a backlog of older reports. Now we work on recent investigations and officials before the committee has actual experience of the case. The relationship can be tense, but we want the dialogue to be constructive. Q What has most shocked you? A The destruction of documents that were part of an audit trail. The number of cases coming before the committee is breathtaking. When we have done follow-up work, we have found real improvements. And I am struck by the consensus on the committee for getting value for money. We always reach an agreed position. Q How do you switch off from politics? A I find it hard. I love spending time with my family and enjoy walking on the Belfast hills.

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More than 2,000 civil servants are paid via private companies to reduce income tax liabilities. Departments and agencies reportedly cooperated to cut national insurance costs. However, the arrangement may cost the exchequer £30m a year in net terms. Treasury chief secretary Danny Alexander ordered a review of civil servants’ pay and tax arrangements after the chief executive of the Student Loans Company was found to have been paid via a company. David Cameron said that such practices are ‘never acceptable’. Civil servants may now be required to regularise pay and tax arrangements urgently, or lose their jobs. A spokesman for HMRC said: ‘HMRC treat all taxpayers the same and will take action where necessary against anyone found abusing the tax rules.’ It will now adopt tougher IR35 tests to determine whether a person is employed by an organisation paying for their services.

Danny Alexander


The government expects savings of over £100m a year from the abolition of the Audit Commission – double the amount predicted when the decision was announced in August 2010. Local government minister Bob Neill said: ‘Working estimates from the draft impact assessment of local audit reforms show that these savings, together with the end of inspection work and the disbanding of the commission, will save around £650m over the next five years.’ Calculations to justify the figures will be published later this year, the minister added.

01/06/2012 16:08

Public services


Going private Public private partnerships have been used to finance all sorts of projects, but a new ACCA study questions whether they really offer greater value for money

The private finance initiative (PFI) and other forms of public private partnerships (PPPs) have been widely adopted by developed and developing nations. The main driver has been the need to pay for new public infrastructure, without the government paying in advance. But there are important differences in the reasons why developed and developing countries use PPPs. In richer countries, such as the UK and Japan, PPPs have been used to keep the cost of additional public infrastructure off the government’s balance sheet. In the UK, the House of Commons’ Treasury Committee recently concluded that off balance

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‘IT MAY BE WRONG TO COMPLETELY WRITE OFF THE CAPACITY OF PPPs TO DELIVER IMPROVED AND AFFORDABLE PUBLIC INFRASTRUCTURE. BUT THEY ARE NO PANACEA’ sheet accounting had been decisive in promoting PFI. Japan’s use of PPPs declined substantially when accounting rule changes moved liabilities on to the balance sheet. Developing nations are differently motivated. Improved public infrastructure is needed to sustain high rates of growth. Although future tax revenues can meet the cost of those upgrades, governments do not have the

money today. The use of PPPs can be justified because the cost of not improving infrastructure outweighs other factors. Value for money (VFM) criteria are less relevant. In contrast, VFM should be central in developed nations’ decision-making but, as has been shown by the UK’s National Audit Office, this has often not been achieved by PFI/PPP schemes. Research published by ACCA, led

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Public services

by Professor Graham Winch of Manchester Business School, finds that ‘only in rare cases can there be high confidence that a private finance alternative offers greater value for money than a public sector comparator’. In the UK, PPPs were widely used because there was no alternative available to obtain additional infrastructure. Developing nations can be attracted by drawing private sector expertise and risk-sharing into a public sector project. But here, too, the rationale may be flawed. In China, partner companies may be state-owned enterprises. In Malaysia, the sovereign wealth fund may be a financier. The reality can be that the ‘private finance’ is actually public funding. And in both developed and developing nations the skills base in the public and private sectors may be too weak to maximise the benefits of PPPs. In addition, experience in developed nations suggests that some risks often cannot be effectively transferred. In developing nations such as China, private sector partners have required the government to provide a guaranteed return that undermines incentives to maximise operational efficiencies. It may be wrong to completely write off the capacity of PPPs to deliver improved and affordable public infrastructure. But they are no panacea and both the public and private sectors must learn from a difficult experience. Gillian Fawcett, head of public sector at ACCA, explains: ‘The UK has been the leader in the use of PPP, where it has been a bold experiment, in terms of its scope and innovation. As with all experiments though, there have been mistakes, errors and


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CHINA: Drivers: demand for infrastructure from urbanisation and fast economic growth. Public investment limited by budget concerns. No clear definition of PPPs, legal framework or VFM evaluation systems. ‘Private investment’ often from state-owned enterprises. FRANCE: UK-style PFI not yet popular. Lack of enthusiasm from public procurers and, since financial crisis, the private sector. INDIA: Massive increase in use of PPPs since 2009: 1,112 projects worth US$135bn in pipeline. Drivers: economic growth and need for poverty alleviation. Constraints: poor administration; weak private sector engagement. INDONESIA: PPPs in place since 1980s. Drivers: need for equitable distribution of infrastructure, fast economic growth and desire to transfer project risk to private sector. Criticisms: inability to transfer risk and alleged nepotism. JAPAN: Government committed to extensive use. Motivation has been ‘additionality’ of infrastructure, not VFM. Public sector less keen to use since accounting change put PFI debt on balance sheet. Monitoring of PFI projects has been inadequate. MALAYSIA: Government claims PPP very successful: enabled services and jobs to transfer to private sector, saving public investment and generating asset sales. SINGAPORE: Only eight schemes procured. Drivers: VFM and private sector expertise. Constraints: efficiency of existing public sector infrastructure; administrative weakness in creating PPP opportunities. SOUTH KOREA: Drivers: need to improve infrastructure while paying for aging population; risk transfer; private sector skills; improved VFM. Schemes moving to schools, hospitals and homes. THAILAND: Transport; energy; telecoms. Variable success. Constraints: lack of appropriate legal framework; no standardised contracting. UK: Nearly 30 years’ experience. Drivers: public spending constraints; off balance sheet accounting; additionality. Problems: transaction costs, weak VFM; lack of risk transfer; impact of global financial crisis.

misunderstandings. ‘The case for private finance in the public sector has yet to be proven. The benefits gained from the availability of “extra” finance, the transfer of risk from public to private sector and improvements in decision-making processes are too nebulous to provide any certainty that they outweigh all the known problems about PPP. ‘PPPs allow governments to acquire additional and improved infrastructure earlier, stimulating economic growth. But in the UK, this has led to an

overhang of debt in the shape of commitments to unitary charges stretching 30 years into the future. The legacy of PPPs can be a lack of flexibility both in how the infrastructure is used and in the management of public finances.’ Paul Gosling, journalist The ACCA report, Taking Stock of PPPs and PFIs Around the World, can be found at publicsector

15/05/2012 11:11

Financial services


Leading London insurer Mitsui Sumitomo Insurance Company (Europe) (MSIEU) has been fined £3,345,000 by the Financial Services Authority (FSA) for serious corporate governance failings. The FSA also imposed a ban and fine of £119,303 on its former executive chairman, Yohichi Kumagai. MSIEU is a subsidiary of Japanese insurer Mitsui Sumitomo Insurance Company, one of the world’s largest non-life insurance groups. Until 2007, MSIEU supplied wholesale insurance cover only to Japanese firms operating in Europe and the Middle East; it then expanded into non-Japanese business. The FSA advised Kumagai in 2009 that expansion into Europe required careful oversight from an experienced board. But the FSA has concluded that he failed to ensure the company was run in a competent and controlled manner.

The view from: Banking: Ade Olabode ACCA, assistant vice president, UK Regulatory Reporting – Production, Credit Suisse Q How long have you worked at Credit Suisse? A I joined about eight months ago from Morgan Stanley where I worked as a regulatory controller. I currently work as a regulatory reporting analyst and I’m responsible for monthly reports to the bank’s senior management and supervisory authority, with regards to credit and market risk control. Q What encouraged you to train as an accountant? A I think I was subconsciously influenced by the fact that my dad was an accountant. It must have had a big effect on me and my brothers because we are all accountants. I’m also married to an accountant (seriously)! I specifically chose ACCA because of the reputation and relevance of its qualification and it’s worked wonders for my career. Q What impact has the ongoing economic downturn had on your role? A The downturn brought about increased regulatory requirements and scrutiny in the UK and indeed the world. This has had a direct impact on my role because there have been new regulations such as Basel III and the Dodd-Frank Act. I ensure that I’m abreast of new developments and requirements by taking advantage of the numerous workshops and training opportunities.


RBS group finance director Bruce van Saun has been appointed a non-executive director of the bank’s underperforming Direct Line insurance subsidiary. Van Saun has been RBS FD since 2009 and was previously group finance director of the National Westminster Bank subsidiary. He has also been CFO of Bank of New York Mellon. In March, RBS appointed Mike Biggs as chairman of Direct Line; Biggs was involved in the flotation of Norwich Union. RBS says it is seeking to turn around the performance of Direct Line and float it as a separate plc.

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Q What are your outside interests? A I volunteer as a treasurer for Hackney Quest, a charity that does tremendous work in supporting young people and their families. I’m also currently vice chairman of ACCA UK’s Financial Services panel and we’ve been busy planning interesting summer events for members.

55 Financial services The view from Ade Olabode of Credit Suisse; the long arm of the US tax collector 37 Practice Julie Campbell FCCA of Profit Counts; the virtual accountant; fighting for SME clients 45 Corporate Darren Gillespie of Ford Motor Company; on the couch; an outsourcing romance; the need for capital disclosure 52 Public sector The view from Michael Maskey of Stormont’s PAC; public private partnerships


CV: Deloitte & Touche, Barclays Capital, Morgan Stanley


16/05/2012 11:44


Financial services

Something to declare The Foreign Account Tax Compliance Act extends the long arm of the US tax collector across borders, with draconian punishments for ‘recalcitrant’ financial companies

When critics accuse the US of wanting to run the world they are usually thinking of its soldiers rather than its tax collectors. But over the coming years US revenue officials will be spreading their influence across the globe. Financial institutions thousands of miles from the US will be forced to adjust to Uncle Sam’s tax rules and many governments will be compelled to change their laws. The reason for this is the Foreign Account Tax Compliance Act – more commonly known as FATCA. The controversial law, passed by Congress in 2010, aims to clamp down on Americans using foreign accounts to evade tax in the US. Part of the impetus for this assault on tax cheats came from a 2009 scandal in which Swiss bank UBS was fined $780m for helping Americans hide taxable money. While every nation wants to catch tax dodgers, the means employed by FATCA are considered


extreme by many experts. The core of the act is its requirement that foreign financial firms disclose the details of any account worth more than $50,000 that is held by a US citizen. Firms that fail to comply will be labelled ‘recalcitrant’ and a 30% withholding tax slapped on all their income and asset disposal proceeds from the US. This would be enough to

to get stronger tax enforcement on somebody else’s dime.’ Complying with US dictates will not come cheap. Even after recent efforts by the US to make FATCA less onerous, accounting firm KPMG still expects the new rules to cost financial institutions between $20bn and $30bn globally over the coming five years. Meanwhile the US tax authorities are expecting a

‘THIS ACT ATTEMPTS TO TURN THE WORLD’S FINANCIAL INSTITUTIONS INTO US TAX AGENTS. IT’S TAX ENFORCEMENT ON SOMEBODY ELSE’S DIME’ bar any uncooperative financial firm from capital markets in the US – a draconian punishment indeed. ‘In essence this act attempts to turn the world’s financial institutions into US tax agents,’ says Steven Rosenthal, a tax lawyer and fellow at Washington’s Tax Policy Center. ‘America is trying

mere $800m a year in extra revenue from FATCA. This is scarcely a bonanza for the US tax take, which amounted to $1.9 trillion in 2010. Adrian Harkin, who heads KPMG’s division focused on FATCA, explains the task that will be faced by CFOs and accountants at financial firms.

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‘The sheer complexity of the rules is intimidating,’ he warns. ‘In several decades working in financial services I have never seen any regulation that requires such a broad skill set to handle. Non-US financial firms will need individuals with expertise in US tax law, the FATCA rules, data and IT systems as well as the full range of financial businesses.’ Even the first step of identifying US taxpayers will be no mean feat. ‘Current systems often don’t capture the citizenship of account holders,’ says Neil Bromberg, a principal at Ernst & Young in New York, who focuses on FATCA compliance. ‘On new accounts this can be changed but searching out Americans holding existing accounts may be harder.’

Manual intervention On some accounts, firms will be able to search digitally for ‘indicators’ of US citizenship, such as address, power of attorney, linked US bank accounts, or telephone prefixes. Occasionally, however, this work might have to be done manually. The Japanese Bankers Association, for example, has noted that its national banks will have to review more than 800 million accounts. The trouble may not stop there, adds Harkin. ‘Once you suspect someone might be American you have to contact them through mail or phone,’ he says. ‘They may not answer. If they don’t, the firm will have to start withholding tax from the account, which is another bureaucratic headache.’ To make matters harder still, one unlucky individual at each finance firm will have to sign a document personally attesting that their company is complying with FATCA. This is rather like the US Sarbanes-Oxley legislation, which requires a company’s chief executive to guarantee personally the reliability of its financial statements. ‘Not many are likely to volunteer for this task,’ says Harkin. ‘Most people


want to be able to fly to Florida for their vacation without worrying about ending up in a jail in Alabama.’ It may also be relatively easy for genuine tax cheats to continue to evade detection. Since accounts worth less than $50,000 will not be reported, it should be possible to split large fortunes into numerous accounts at various institutions.

Potentially illegal Aside from the red tape, some nations make it illegal to hand over such information to foreign governments. Some nations have already tried to find a way around this. Under a recent deal struck with Britain, France, Germany, Italy and Spain, national governments will collect this data from their own financial institutions and only then pass it on to the US. Harkin says that this will reduce the hassle but not eliminate it. ‘Other nations might have to modify their information privacy rules or adopt versions of FATCA themselves to avoid having their financial institutions locked out of the US,’ he says. So FATCA is causing considerable resentment across the globe among governments and financial institutions, particularly as there are plenty of less intrusive ways for the US to cut down on tax evasion. Some say a good starting point would be to stop cutting the Internal Revenue Service’s budget. The budget of the tax collection agency was reduced by 2.5% for 2012, forcing it to cull some 5,400 staff. Republican lawmakers have been pushing for even bigger cuts. Such reductions make it harder for the agency to combat tax evasion, which costs the government up to $500bn a year, according to the Center for American Progress. Official estimates suggest that every extra dollar spent on the IRS can shrink the deficit by $3. In addition, the IRS could

devote more resources to auditing the tax affairs of the super rich, who may be the only group able to squirrel away large sums of money overseas. Few experts have anything good to say about FATCA. While it is sensible to try to ensure that Americans pay their proper share of tax, this law is an extremely onerous way of doing so. As a result the US is paying a heavy price in terms of international goodwill. Given the relatively modest sums US tax collectors are likely to recoup, it is arguably not a price worth paying. Christopher Alkan, journalist based in New York



* *

The Foreign Account Tax Compliance Act was signed into US law in March 2010 and was intended to catch US tax cheats who conceal overseas investments. The act insists that financial firms around the world hand over information on accounts worth more than $50,000 that are held by Americans. Insurance policies worth over $250,000 also need to be reported. Companies that refuse to comply will be hit with a 30% withholding tax, deducted from any funds transferred to the company from a US bank. The tax will also apply to the proceeds from the sale of any US property. The law not only affects banks but also brokers, dealers, hedge funds, asset managers and insurance firms. The rules come into force on 1 January 2013. In January 2014 ‘recalcitrant’ financial institutions – those that refuse to hand over information – will start to be charged the 30% withholding tax.

15/05/2012 12:45



Goodbye FRS, hello FRS In the first of two articles on changes to UK and Irish GAAP, ACCA’s Paul Cooper looks at the Accounting Standards Board’s proposals for Financial Reporting Standards 100 to 102

The ASB’s latest exposure drafts were open for comment until the end of April 2012, with final versions likely to be published later this year. The project affects entities which do not apply the Financial Reporting Standard for Smaller Entities (FRSSE) and, by law, the consolidated accounts of companies listed on a recognised exchange still have to be prepared in accordance with IFRS as adopted in the EU (other entities may still choose to adopt EU-adopted IFRS). All existing Financial Reporting Standards, Statements of Standard Accounting Practice and Urgent Issues Task Force Abstracts will be replaced by three proposed Financial Reporting Standards 100 to 102. FRS 100 covers practical application aspects, such as transition and legal requirements. FRS 101 lists disclosure exemptions from EU-adopted IFRS in the individual financial statements of entities which are included in publicly available consolidated accounts. FRS 102 is titled The Financial Reporting Standard applicable in the UK and Republic of Ireland. It contains most of the requirements for entities adopting UK and Irish Generally Accepted Accounting Practice other than the FRSSE. In just a few cases, such as interim financial reporting and operating segments, entities will refer

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to the relevant EU-adopted International Financial Reporting Standard. At this point, it may help to clarify the situation with regard to two other reporting standards, the International Financial Reporting Standard for Small and Medium Entities (IFRS for SMEs) and the Financial Reporting Standard for Medium-sized Entities (FRSME). IFRS for SMEs is published by the International Accounting Standard Board (IASB), and has been adopted in a number of jurisdictions, though not the EU. The FRSME was the earlier version of the ASB’s proposals for the UK and Ireland (issued in October 2010). It is now superseded by the proposed FRS 102 (issued in January 2012), which is again based on the IFRS for SMEs.

Increased thresholds For smaller entities, the FRSSE will remain in place, but it will need revising to reflect FRS 102, and changes in the proposed EU accounting directive. The directive increases the thresholds for small (and medium-sized) companies. Its current proposal that member states cannot require small companies to add to the specified disclosure requirements marks a key (and much debated) development. The changes most relevant in Ireland will be those in the EU Directive, as adoption of the FRSSE is less widespread than in the UK.

The FRSME aimed to make minimal changes to the IFRS for SMEs, which contains a number of simplifications of full IFRS, and does not include certain accounting treatments permitted by both IFRS and current UK/Irish Financial Reporting Standards. These are now possible under FRS 102 – principally, tangible fixed assets in addition to investment properties can be revalued, and development costs can be capitalised under circumstances familiar to UK and Irish preparers. Whilst the ASB is being responsive to concerns, it has moved away from the IFRS for SMEs. To assist long-term international convergence, another strategy would have been for the ASB to lobby the IASB about making these changes in the IFRS for SMEs itself. Also, the section on income tax in FRS 102 follows current UK and Irish GAAP (except for the internationally based requirement to account for deferred tax on revaluations). This is because the equivalent section in the IFRS for SMEs did not become accepted accounting practice. Again, could the ASB and IASB have worked together to produce an international standard which the UK and Ireland would then be able to follow more closely, and which might be better placed for EU adoption? Despite some disappointment, supporters of international

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convergence will still find many areas of similarity with international standards and interpretations; for example, in the agriculture and service concession arrangements. As might be expected, FRS 102 uses the concept of fair value, including for financial instruments. Investment properties will also be carried at fair value, but changes in this value are posted to profit or loss. It will also be possible to adopt a costdepreciation model where fair value involves undue cost or effort, although this may be difficult to justify for property types covered by standard published indices.

Three becomes two In addition to the legal requirements for listed groups, the ASB originally proposed a three-tier system. ‘Publicly accountable’ entities (such as banks, and pension schemes – ‘Tier 1’) were to apply EU-adopted IFRS. With smaller entities able to adopt the FRSSE (‘Tier 3’), the FRSME (‘Tier 2’) would have been mainly for the ‘mid-tier’ of entities, as its name implied. Tier 1 has now been abolished, and publicly accountable entities will now adopt FRS 102, which has additional sections relevant to them (covering financial institutions and retirement benefit plans). As mentioned above,

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there is also a reference to the full EU-adopted international standard in a few instances. The demise of Tier 1 results from comments about the costs of compliance with EU-adopted IFRS, compared to the benefits to users of the financial statements. There were also concerns that public accountability could not always be precisely defined. Interestingly, the ASB has not sought to amend the publicly accountable definition to make it workable for interested parties. The solution may have been to apply clear,

clients on the changes. Finally, there will be a need to gather information for comparatives before the standard comes into effect. ‘Public benefit entities’ (such as charities) will also be subject to a revised SORP, to be applied at the same time as FRS 102. The revision process has yet to begin, raising a concern that public benefit entities may, as a result, have less time than they would wish to implement the new requirements. They will certainly have less opportunity to apply FRS 102 early, compared to other entities.

FRS 102 WILL BE EFFECTIVE FOR ACCOUNTING PERIODS STARTING ON OR AFTER 1 JANUARY 2015 objective criteria, such as the size of total assets. Most would argue, for example, that the level of risk, complexity and public interest is lower for smaller retirement benefit schemes and local credit unions. FRS 102 will be effective for accounting periods starting on or after 1 January 2015. This seems a long time ahead, but do bear in mind that you might need to do several things. Firstly, you will have to familiarise yourself with its requirements, and then perhaps educate colleagues or

The time is approaching when unlisted non-small entities will have practically a single point of reference for their accounting requirements, but this is not the IFRS for SMEs, or the FRSME. FRS 102 does represent further convergence between UK/Irish and international frameworks but, arguably, certain compromises too. Finally, changes will also arise from the separately proposed EU Directive. Paul Cooper, corporate reporting manager, ACCA

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The future of UK GAAP? There are some significant changes to previous ASB proposals in the standards body’s latest plans to reshape financial reporting in the UK and Ireland, says Graham Holt

The Accounting Standards Board (ASB) in the UK has published financial reporting exposure drafts (FREDs) setting out revised proposals for the future of financial reporting in the UK and Republic of Ireland. The proposals are contained in the following: FRED 46 (draft FRS 100), Application of Financial Reporting Requirements. FRED 47 (draft FRS 101), Reduced Disclosure Framework. FRED 48 (draft FRS 102), The Financial Reporting Standard Applicable in the UK and Republic of Ireland, which will be the new FRS for UK GAAP reporters. The proposals recommend replacing all extant financial reporting standards (FRS), statements of standard accounting practice (SSAP), and Urgent Issues Task Force (UITF) abstracts in the UK and Republic of Ireland with a single FRS, introducing a reduced disclosure framework for the financial reporting of certain qualifying entities, and retaining and updating the Financial Reporting Standard for Smaller Entities (FRSSE). Consistent with its previous proposals, the ASB is proposing an adaptation of the International Accounting Standard Board’s IFRS for SMEs to replace current FRS. FRED 48

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goes some way towards this aim with the use of some International Financial Reporting Standards (IFRS) principles. The ASB is proposing significant changes to its previous proposals, including the elimination of the tier system, which was dependent on the status of an entity. It now says that where an accounting treatment is currently permitted in UK and Irish accounting standards and in IFRS, then it should be utilised. The proposals also incorporate guidance for public benefit entities. FRED 46 outlines the revised framework: Entities required by company law to apply EU-adopted IFRS must do so. Entities that are not small and not required to apply EU-adopted IFRS will apply the draft FRS 102 applicable in the UK and Republic of Ireland. Small entities may apply the FRSSE. Qualifying entities may apply the reduced disclosure framework. If the entity is not eligible to apply the FRSSE, or is eligible but chooses not to, it has a choice of applying the new FRS or IFRS. The ASB’s previous exposure drafts proposed the use of EU-adopted IFRS for entities that have public accountability. The ASB has

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removed the reference to public accountability and now proposes that the requirement to use IFRS only applies to consolidated financial statements of entities listed on a regulated market in the EU. The proposed replacement for UK generally accepted accounting principles (GAAP) continues to be based on the IFRS for SMEs and in response to comments on the previous FRED, the ASB has tried to simplify the transition process to IFRS for many UK entities. The ASB has looked at the principles for amending the IFRS for SMEs for application in the UK and this has resulted in the allowance of certain accounting practices that include the options to revalue land and buildings, capitalise borrowing costs or carry forward certain development expenses. Additionally, merger accounting is permitted for group reconstructions and grants may be recognised in the profit and loss account on a systematic basis. The ASB also proposes a timing differences approach to accounting for tax, rather than applying the full requirements of IAS 12, Income Tax, as well as allowing hedge accounting for net investments in foreign operations. There is also reference to IFRS for areas including segment reporting, interim

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reporting, recognition and measurement of financial instruments, insurance and earnings per share. Further changes to the previous exposure drafts include: replacing the primary statements based on the IFRS for SMEs with formats based on UK company law; restricting the presumed useful life

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accounting policies in those areas where group accounts are prepared under EU-IFRS. All entities reporting under UK GAAP will be affected, as they will have to decide whether to apply IFRS, the new FRS or, if eligible, the FRSSE. Qualifying entities will need to consider whether they wish to use the reduced disclosure

THE ASB’S DRIVE IS LIKELY TO BE SUPPORTED BY THE MAJORITY OF FINANCE LEADERS AS THEY WILL SEE BENEFITS IN GLOBAL CONSISTENCY for goodwill and intangible assets, when an entity is otherwise unable to make a reliable estimate, to five rather than 10 years; and including the revisions to IAS 19, Employee Benefits, regarding the change in the method of calculating net interest for defined benefit pension schemes. The ASB intends to publish a supplementary exposure draft to the new FRS for financial instruments once the remaining phases of IFRS 9, Financial Instruments, are complete. These changes should help to reduce the administrative burden by enabling companies to follow consistent


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framework. This may be attractive to subsidiaries in IFRS groups that wish to have statutory accounts prepared on a consistent basis with the IFRS consolidation, but with reduced disclosures. It will allow many subsidiaries of entities applying EU-adopted IFRS to use accounting policies consistent with those of their parent, without needing to apply the full requirements of EU-IFRS. IFRS groups in particular may be interested in early adoption of the IFRS reduced disclosure framework if this eases their statutory reporting burden. Although the ASB is pushing ahead with moving UK GAAP onto an IFRS-based


framework, it has decided to defer the mandatory effective date of the revised framework to 1 January 2015. This is because of the interaction with the potential effective dates of new IFRSs, including revenue recognition, leases and financial instruments projects, which could have resulted in companies making several accounting changes in the short term. The revised date effectively allows entities a choice, either to undertake the accounting changes in a single period, or adopt a more gradual approach over a longer period if early adoption is chosen. Some entities will delay moving away from current UK GAAP until 2015. The ASB’s drive towards an IFRS framework is likely to be supported by the majority of finance leaders as they will see benefits in global consistency of accounting and reporting. When deciding whether to apply IFRS or the new FRS, management should consider the consequences for tax, ability to pay dividends, data and systems requirements and corporate structures. The choice of reporting approach and timing for an entity needs to take account of numerous factors including the tax impacts of conversion, the impact of GAAP differences and how these could affect key performance

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indicators and distributable reserves, whether the options available under one particular GAAP may align better with the business, the opportunities afforded by first-time adoption, the benefit of avoiding dual reporting by groups, and the size and complexity of the entity as the fewer requirements of FRED 48 may be attractive. Complex groups with large numbers of subsidiaries could particularly benefit from early planning. This is particularly true of tax planning. Moving from UK GAAP to the new framework could have a significant impact on tax payable. For each GAAP difference, consideration needs to be given to whether there is an impact on tax payable, which may be subject to transitional rules or specific exemption. If the tax treatment follows the new accounting treatment, there could be tax effects. Lease accounting changes could be significant. For example, both current UK accounting standards and FRED 48 require an entity to classify each of its leases as either a finance lease or an operating lease. Under UK GAAP, a finance lease is defined as one ‘that transfers substantially all the risks and rewards of ownership of an asset to the lessee’. There is a rebuttable

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presumption that if, at inception, the present value of the minimum lease payments amounts to 90% or more of the fair value of the leased asset, the lease is a finance lease. FRED 48 also takes a risk and reward approach to lease classification and has an almost identical definition for a

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operating lease to be treated as an investment property. Current UK GAAP is not explicit on this point, and therefore it may occur at present, although it is likely to be applied rarely in practice, and thus it will usually constitute a change when applying FRED 48.

THE REVALUATION MODEL IN FRED 48 MAY BE APPLIED TO INDIVIDUAL ITEMS, WHEREAS UK GAAP REQUIRES APPLICATION TO A CLASS OF ASSETS finance lease. However, there is no direct equivalent to the 90% test and leased assets that are of such a specialised nature that only the lessee can use them without major modifications, are finance leases. These changes are representative of a move towards accounting under IAS 17, Leases. Similarly, under UK GAAP and FRED 48 there is an option to revalue items of property, plant and equipment. However, one potentially significant difference is that the revaluation model in FRED 48 may be applied to individual items, whereas UK GAAP requires application to an entire class of assets. In certain circumstances, FRED 48 permits a property held under an

The ASB’s latest proposed timetable for the new financial reporting regime is that it should apply to accounting periods commencing on or after 1 January 2015, requiring a transitional balance sheet at 31 December 2013. Companies will be able to adopt these proposals early once the final standards have been issued. This is expected to occur in the second half of 2012. The ASB sought comments on the FREDs by 30 April 2012. 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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Accounting solutions In this month’s column, PwC authors answer technical questions on business combinations and the recognition of goodwill; and on related party disclosures



Entity A acquired entity B some time ago and recognised goodwill on that business combination. The goodwill was then allocated to entity B’s two cash-generating units (CGU Y and CGU Z) based on the synergies that were expected to be derived from the acquisition. During the current year, entity A announced a restructuring plan of its global operations. The restructuring will result in most of CGU Z’s assets being transferred into a new division that is separate from entity B. CGU Z’s remaining assets do not support the originally allocated goodwill; management is therefore considering impairment. Is management’s thinking right? Not necessarily. IAS 36, Impairment of Assets, requires reallocation of purchased goodwill when an entity reorganises its reporting structure, and that reorganisation changes the composition of one or more cashgenerating units. The reallocation should be based on a ‘relative value approach’ unless management can demonstrate some other method that better reflects the goodwill associated with the reorganised units. The restructuring of the CGU Z appears to be a reasonable trigger for entity A’s management to consider the reallocation of goodwill. The standard is not prescriptive about how this reallocation should be performed. If entity A’s management chooses the ‘relative value approach’ because there is no better method available, it must establish a reasonable method



for determining relative value. The reallocation might be performed, for example, based on relative ‘value in use’ or ‘fair value less costs to sell’ measures or even on the existing carrying values of the two cash-generating units. It is likely that some – possibly all – of the goodwill in CGU Z should be transferred to the new division.

Keep up to date with the latest IFRS developments through PwC’s twice-monthly email update. It provides you with a summary of the latest issues and links to further guidance. To subscribe, email requesting ‘subscription to mailshot’. Or sign up for the IFRS RSS feed at

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XYZ Ltd has entered into an arrangement with its finance director in the year ended 31 December 2011. The entity is in the process of relocating its head office and requires the FD to move to another location. It has agreed that it will purchase the FD’s residential property from her in the event that she is unable to find a buyer for it before 31 June 2012. XYZ Ltd is preparing its accounts for the year ended 31 December 2011. Is disclosure of this agreement required in the financial statements? IAS 24, Related Party Disclosures, includes members of key management personnel within the definition of related parties. The standard also notes that ‘key management personnel’ includes all directors of the entity (whether executive or otherwise). So the FD is a related party of XYZ Ltd, and the agreement between the two parties should be disclosed in XYZ Ltd’s financial statements if it meets the definition of a related-party transaction. IAS 24 was amended for annual periods commencing on or after 1 January 2011. As part of this amendment, a requirement was added for an entity to disclose commitments with related parties, including ‘a commitment to do something if a particular event occurs or does not occur in the future’. The arrangement for XYZ Ltd to purchase the property from the FD if she is not able to sell it should therefore be disclosed in the accounts under this requirement, even though the actual purchase of the property has not occurred during the financial year. This month’s solutions were compiled by Imre Guba, Richard Tattershall and Iain Selfridge of PwC’s Accounting Consulting Services

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Managing strategy In the fourth article in our strategy series, Dr Tony Grundy shows how strategy needs to be managed as a living process and how to deal with implementation

In this fourth article we look at how strategy is a living process and not just an organisational routine. But first to recap: In the first article, we looked at what strategy really is and how its processes and language need to be kept simple and clear. Some key terms were explained and differentiated, such as strategy, options, objectives, mission and vision, and in the second article we also defined competitive advantage too. We also explained that strategic thinking was a much more fluid and creative process than more operational thinking. We also defined strategy in three ways. First, analytical: moving from the current position to future goals; second, creative: the ‘cunning plan’; and third, aspirational and visionary: ‘what we really, really want’. All definitions add value. In the second article we explained how important the external environment was – particularly how important the competitive forces were for impacting on margins and returns. We also explained how competitive advantage had an equally important impact too. These competitive variables all change over time, resulting in a need to adapt the strategy, as we saw in the Bikram yoga case. In the third article we looked at how we could be more creative and indeed cunning in our generation and evaluation of options, with the Octopus and the Option Grid –techniques used to develop successful strategies at major corporations like Diageo and Tesco.





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We now look at how this can be applied as a process and particularly how to deal with implementation. Strategy needs to be managed as a staged process – see table, right. Here we see that the first stage is one of diagnosing the current position – quite separate from that of option generation. This separation is crucial, as otherwise managers will be trying to do too many disparate things – analytical and creative – all at the same time; the result being a mess. We then select from those options a small number of options – maybe as little as three – that are true ‘strategic breakthroughs’ to implement in this period, or ‘strategic decisions that will have a major impact on competitive position or capability or both, and on financial performance’. If these breakthroughs are too numerous, then there will be a lack critical mass of resources, effort and attention. We might thus have to say ‘no’ to options even with good scores. Saying ‘no’ is good. Strategy is about concentration. Implementation is a separate cycle of strategic thinking (stage four) where we are scoping strategic projects, doing detailed planning, business cases, the financials, planning change, gaining support and mobilising. This is still the land of strategic thinking. The final stage, control and learning, is not just about monitoring the operational and financial metrics, but also progress against strategic milestones. The accountant should play a very big part in this to ensure that it doesn’t get too tactical. This is also a learning process too, so we are reflecting on what is/isn’t working in implementation and why, and

adjusting it, and also continuing to learn about our changing environment. This is a very organic, living process and this may not work well if there is too much emphasis on metrics and control. The first stage tools were addressed in the first and second articles. Turning to the third, implementation, be warned that this is often the graveyard of strategy. Here: performance = quality of strategy x quality of implementation x timing. This explains why if we mess up implementation, the result can be so poor. Timing is also very important too, as the external and internal timings need to be right, so some strategies might get accelerated and some delayed. To get implementation right requires the following: project managing of strategic breakthroughs robust business cases change management issues thought through and managed appropriate strategic milestones and metrics frameworks in place strategy implementation techniques used well. Strategic breakthroughs, like entering a new market or a new distribution channel, are complex and may impact different parts of the organisation. They must, therefore, be project managed and this may mean that instead of relying on busy operational managers to do it, that some managers are full-time project managers instead. Project managing business projects, especially those involving a lot of change, is a different thing to managing technical projects, and demands a more fluid approach.

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Strategic planning process Current position

* SWOT * PEST forces * Five Vision and * objectives * Competitive bench-marking

Future options

plan/ * Cunning checklists analysis * GAP Strategic * option grid

Strategic breakthroughs


and cost * Value drivers

over * Difficulty time

STRATEGIC BREAKTHROUGHS, LIKE ENTERING A NEW MARKET, ARE COMPLEX AND MAY IMPACT DIFFERENT PARTS OF THE ORGANISATION There is a lot more work on business cases and on the broader long-term financial projections of revenues and costs. This involves looking at the value and cost drivers of each of these, the key assumptions, and evaluating these qualitatively and quantitatively, and producing influential and resilient business cases and incremental cash flows by strategic project. This is interesting work for the accountant. Change management can be addressed by taking the key shifts between the present and the future and doing an extended ‘gap analysis’ of these, or ‘from-to’ analysis. Here we split out the key shifts of ‘from-to’s’ and score how far from the old to the new we are, perhaps on a 1-to-10 scale. We can use a cut-down ‘seven S’ model, or by analysing the key shifts as: strategy systems skills structure style.

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All the usual softer issues also need to be thought through in terms of buy-in, culture change, structure change, team building/rebuilding, etc. It is well known that in a major change some individuals and teams will move through the transition phases of change at different speeds and, in the course of this, performance can dip (the ‘transition curve’). This effect is magnified if done badly – for example if an acquisition is integrated badly. Where the change is severe due to the difficulties of the business – a ‘strategic turnaround’ – then this puts more pressure on the strategy development and implementation process. Leadership needs then to be both commercially and strategically astute, and also charismatic. Where there is inappropriate leadership, strategy will get bogged down no matter how good the process is. In terms of controls, it is important that besides the conventional financials and efficiency metrics (and customer satisfaction ones) that we find in a

Control and learning

‘balanced score card’, that we also include more outward-looking, dynamic and less tactical ones too, such as: relative market share customer ratings compared with those of key competitors strategic breakthrough milestones achieved long-term economic value actually generated (‘economic value added’ is the net present value of net cashflow in the business). Finally a number of strategy implementation tools can be deployed, including: the option grid (see third article) to evaluate and prioritise different ways of implementing a strategy, and also individual strategic projects, both before and after the extended ‘gap analysis’ in the form of ‘from-to’ analysis, as we saw earlier, perhaps with the cut-down seven Ss value and cost driver analysis, see last article the ‘difficulty over time curve’, see below. When evaluating implementation difficulty – both to go behind the box in the strategic option grid and also within the detailed planning of the breakthroughs – there are a number of tools. One of these, ‘force field’

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16/05/2012 11:15

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analysis, which splits out and evaluates the key enablers and constraints, is very good and is worth a look. Here one does a vector picture to evaluate how impactful the positive and negative forces are likely to be – on the basis of your most cunning implementation plan. Then you look at the overall picture of vector arrows up and down: if they are mainly down it tells you that you will have a very rough ride. A simpler and far more dynamic tool is just to attempt to picture how difficult you envisage the implementation to be over time, given your most cunning implementation plan. Ideally you would also do a force field to support that. Moving on we now have some very useful tips to make the process living and easier. We mentioned project management and this should kick in at the start. The first stage of the process should be to do a ‘plan for the plan’. This is an area where you the accountant should be very much be involved. A ‘plan for the plan’ is defined as ‘a detailed document of the optimal stage-by-stage process which deals specifically with the strategic issues faced in a creative, incisive and robust way, and that produces appropriate insights and outputs of maximum value’. A plan for the plan typically contains: a list of the key strategic issues a very high-level view of the likely gap analysis to get an idea of the stretch some separate first-stage planning activities (‘planning modules’), such as market analysis, customer

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value analysis, technology change, competitor analysis, process development, organisation development, cost management second-stage activities, such as strategic options workshop, board integration workshop, change management, communication, controls and metrics timings and time absorbed. Each one of these might have as a one-pager: outputs process and tools inputs (data, etc) interdependencies with other modules people, timings and facilities. The accountant can play a big role in planning this. A second area of input for the accountant is in writing ‘strategic position papers’ or ‘documents which diagnose the current position and explore options for a particular area or more generally without reaching definitive conclusions’. The aims of these are to generate a rich debate of the issues before making resource and other decisions, to provide input to the final strategic plan, to build commitment and to influence key stakeholders. A spin-off is that the eventual plan is often very much like the position paper material – the latter is certainly much quicker to write. In conclusion, we are now in good shape for the final article on ‘strategy and the finance function’.

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Dr Tony Grundy is an independent consultant and trainer and lectures at Henley Business School in the UK,

16/05/2012 15:03

Technical update


A monthly round-up of the latest developments in financial reporting, audit, tax and law FINANCIAL REPORTING CONVERGENCE UPDATE The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have issued a joint update note setting out the progress made on convergence between International Financial Accounting Standards (IFRS) and US GAAP. The note primarily provides an update on the projects contained in the memorandum of understanding (MoU) between the two parties. The note identifies that most of the short-term projects identified in the MoU have either been completed or are close to completion. One project, income tax, has been determined as being of lower priority than originally assessed and no immediate action is planned. Of the longer-term projects, several are now complete but there are three where technical decisions have yet to be finalised – leases, revenue recognition and financial instruments. The note anticipates standards for these three projects will be issued by mid-2013. For preparers and users of financial statements that apply the IFRS for SMEs, the IFRS Foundation has provided some new and updated guidance. A revised version of A Guide to the IFRS for SMEs has been produced. The guide is written in nontechnical language and

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is intended to be used by lenders, creditors, ownermanagers and other users of IFRS for SME financial statements. Four final questions and answers have also been issued by the SME Implementation Group addressing the following: Application of ‘undue cost and effort’. Circumstances where a jurisdiction requires fall back to full IFRS. Fall back to IFRS 9, Financial Instruments. Recycling of cumulative exchange differences on disposal of a subsidiary.

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FRC REFORM The UK Financial Reporting Council (FRC) and the Department for Business, Innovation and Skills (BIS) have finalised their proposals to reform the FRC. Following a period of consultation, the government and the FRC believe that the final proposals will align the scope of the FRC’s activities with the investment focus of its mission, streamline its governance and structure, and enhance its independence from those it regulates. The government now proposes to make legislative changes to underpin key aspects of the reforms. Subject to parliamentary passage of the necessary secondary legislation, these changes will come into force on 2 July 2012. Alongside the legislative process, the FRC will make the other proposed changes,

consulting as necessary with interested parties as to the detailed implementation of the reform proposals. For more, go to FRAB CHANGES The Financial Reporting Advisory Board (FRAB), a body set up to oversee and report on the standard of financial reporting achieved by the government, announced in its recent annual report that there had been some changes to the board’s structure and operational processes to ensure it remains fit for purpose going forward. Most significantly, the composition of the board has been revised with the addition of one further independent accountant member, to enhance its independence. The FRAB has also taken steps to ensure that the board’s operational processes are transparent, with a considerable amount of additional material being published on its website.

AADB SANCTIONS The Accountancy and Actuarial Discipline Board (AADB) has published a consultation document on guidance it proposes to issue to AADB tribunals on determining sanctions in disciplinary cases relating to the accountancy and audit profession. The guidance includes proposals for calculating fines, which in some cases may lead to higher fines. It is designed to promote clarity and help ensure that sanctions determined by the AADB tribunals are: consistent; proportionate to the misconduct and the circumstances of the particular case; and an appropriate deterrent to future misconduct. Responses are requested by 11 July 2012.

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AUDITING IAASB ANNUAL REPORT The International Auditing and Assurance Board

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Technical update

(IAASB) has issued its annual report for 2011 entitled Foundations for the Future. The report highlights the new and enhanced international standards issued by the IAASB, as well as implementation support and guidance material. The report also includes details of over 100 outreach activities undertaken in the year with investor groups. Yvonne Lang, director, and Kern Roberts, associate director, Smith & Williamson, www.

TAX INCOME TAX IN SCOTLAND HM Revenue & Customs (HMRC) has issued a note on how the Scotland Act 2012 impacts its administration of stamp duty land tax (SDLT) and landfill tax. It has also stated what it will do to help identify Scottish taxpayers. The note states that the ‘Scotland Act 2012 gives the Scottish Parliament the power to set a Scottish rate of income tax to be administered by HMRC for Scottish taxpayers. It is expected to apply from April 2016. The Act also fully devolves the power to raise taxes on land transactions and on waste disposal to landfill – it is expected that this will take effect in April 2015, at which point the existing SDLT and Landfill Tax will not apply in Scotland. The Act also provides powers for

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*IAASB FOCUSES ON AUDITOR REPORTING The main topic of the recent International Auditing and Assurance Board (IAASB) meeting in Toronto was auditor reporting, following the IAASB’s reprioritisation of this area in the light of proposals by the European Commission and the Public Company Accounting Oversight Board. The IAASB plans to issue a wide-ranging consultation paper this month (June). It has set up a task force and four subcommittees – the meeting covered preliminary thinking from each of the subcommittees. Changes considered for the current audit report include: Additional auditor commentary on key areas. Conclusion and/or commentary on going concern.

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new taxes to be created in Scotland and for additional taxes to be devolved.’ On the difficult area of helping employers identify employees who are Scottish taxpayers, HMRC has stated that for employees and pensioners: ‘HMRC will issue tax codes to employers in the months before April 2016 which will identify those employees who are Scottish taxpayers, and employers will deduct tax at the appropriate rates, which may be higher or lower than or the same as those which apply in the rest of the

other audit firms involved in group audits. A more flexible format to deal with different types of entity and local regulation. A new ‘look and feel’. The IAASB also approved the final version of ISAE 3410, Assurance reports on Greenhouse Gas Statements, which will become effective for periods ending on or after 30 September 2013. It also approved its 2012–14 strategy. In addition, the IAASB discussed proposed changes to the draft ISRE 2400 on Review Engagements in response to comments received. A proposed final standard is due to be considered for final approval this month.

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on other *Conclusion information published with the financial statements. Revised wording for the description of an audit. Additional transparency regarding the name of the audit engagement partner. Additional transparency regarding the names of

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Sue Almond, technical director, ACCA UK

UK.’ It goes on to state that ‘the definition of a Scottish taxpayer is based on the location of an individual’s main place of residence’, but acknowledges that employers and taxpayers will need additional guidance. A short guide is available at scotact2012-faqs.pdf

or the administration of an estate. HMRC has produced some simple guidance that includes how to work out if the estate passes the 10% rule and worked examples. This can be found at www. pass-money-property/ charity-reduce.htm

IHT AND CHARITABLE GIVING The reduced inheritance tax rate of 36% now applies where 10% of the estate is left to a qualifying charity. This needs to be considered as part of estate planning

PAYE/NIC SECURITY DEPOSITS HMRC has published its proposed update (www. pdf) to its security manual ( sgmanual/index.htm) to

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reflect the new PAYE/national insurance contribution (NIC) security deposit requirements. As highlighted in previous editions, HMRC will be able to ask employers to pay a security deposit where there is serious risk that they won’t pay over their PAYE or class 1 NICs. HMRC has also said that it ‘will not use these powers where a business is having genuine financial difficulties’. EXPORTS Notice 827, European Community Preferences: Export Procedures, has been updated. It replaces the earlier notice of the same name issued in 2007. The update takes into account the changes in rules and procedures including: The new reciprocal preferential trade agreements between the EU and the following countries: Serbia, Montenegro and BosniaHerzegovina. Information on the African, Carribean and Pacific states that are part of the Market Access Regulation agreement and information on the CARIFORUM states. The current details for applying to be an UK or EC-wide approved exporter and provides the address to which INF4 Information Certificates can be forwarded. The scope and use of preference documentation at section 20 of this notice, including the current value limits, and takes account of





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the change to the value limits for exporting lowvalue goods. It can be found at http:// Notice 275, Export Procedures, has also been updated. It replaces an earlier notice issued in July 2010 and incorporates Notice 502. This 67-page guide sets out a series of questions aimed at new or existing exporters and aims to help them navigate the different options. It can be found at http:// Notice 112A has been updated and replaces the earlier notice issued in September 2010. It highlights when you can ask HMRC officers to attend your workplace or home for import and export

clearance. Visit http:// You can find more at uk/members/technical/ business/your_business/ impexp OVERPAID VAT CLAIMS Brief 11/12, VAT: Road Fuel Scale Charges (RFSCS), highlights the possible claims for overpaid VAT and current consultation. The guidance states that: ‘HMRC now recognises that there is a defect in this aspect of current law and that, where the business does make a charge for the private use of the fuel, the business should be given the option of accounting for VAT on the basis of the amount charged to the employee.’ Some businesses will be

able to reclaim overpaid VAT. HMRC are inviting claims. The guidance also highlights a technical note on VAT road fuel scale charges on which it is inviting comment. The technical note is open for comment until 20 July. Details of the claim and technical note can be found at vat/brief1112.htm VAT: PAYMENTS ON ACCOUNT Notice 700/60, Payments on Account, replaces the earlier notice from October 2009. It applies to businesses which account for VAT quarterly and have a total VAT liability of more than £2.3m. The notice has been updated to reflect current thresholds. For more, go to http://


HMRC has issued its IR35 guidance. It includes record keeping requirements, business entity tests and example scenarios. It is HMRC’s view on how it will apply the legislation and will assess risk of noncompliance. HMRC’s risk basis operates by putting individuals into three risk bands – low, medium and high. It clearly gives the impression that HMRC is asking a single question – have you thought about IR35? It is quite clear that HMRC will have expected the business to have referred to its guidance and

to furnish evidence based on this. It should be remembered that 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. The tests do not

reflect all of the factors that the tribunals usually consider when deciding an IR35 case. You can see commentary and guidance at www2. members/technical/ advice_support/tax

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Technical update

TOOLKITS HMRC has published five updated toolkits for 2011–12 returns, covering capital gains taxes and trusts and estates. For more, go to agents/prereturn-supportagents.htm VAT: LAND AND PROPERTY Notice 742, Land and Property, has been updated and replaces the notice of the same name issued in March 2002. The notice highlights HMRC’s view of when transactions in land and buildings are exempt from VAT. Significant changes are: Paragraph 2.5 – definition of ‘licence to occupy land’. Paragraph 4.4 – guidance on parking for dwellings. Paragraph 7.8 – guidance on the treatment of land and buildings on hand at deregistration. The notice can be found at

* * *

CONSULTATIONS The consultations listed are all open for comment until 22 June. Simpler income tax for the simplest small businesses As highlighted last month, it is proposed that small unincorporated business could be ‘taxed on the basis of the cash that passes through their books’. Businesses will not be able to use the cash basis if they are: Small businesses with receipts of more than £150,000 in any year.


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businesses. * Property Farming businesses. * Registered for VAT but * not using the VAT Cash Accounting Scheme. Subject to corporation tax, including limited liability partnerships. Financial trading businesses. Individuals who are members of Lloyds and who are carrying on underwriting business as defined by section 184(1) of the Finance Act 1993. The consultation seeks comments on the adoption and design of simplifications for small unincorporated businesses, both sole traders and partnerships, and how they could be taxed on the cash basis and file cash-based returns and accounts. It’s a consultation that all practitioners should read.

* * *

Above the line (ATL) credit for research and development Businesses would be eligible to claim for the ATL credit for accounting periods beginning after April 2013. The consultation seeks views on the design of the credit and sets out implementation proposals. Proposed changes to tax rules on manufactured payments

This consultation aims to gain a better understanding of the impact of proposed changes to the rules, including the potential for tax avoidance. Possible changes to income tax rules on interest This consultation seeks to consider the options that are available, possible changes to income tax rules on the taxation of interest received, and rules on the deduction of tax from interest paid. You can find more on the consultations at http:// Comments on any of the above can be sent to

LAW NATURAL CATEGORIES The Charity Commission accruals accounts completion note describes and sets out the conditions when natural categories can be used. Statement of Recommended Practice appendices 5.3.2 and 5.3.3 allow charities that are not subject to statutory audit to analyse financial activity by activity or natural categories. This applies to both incorporated and unincorporated charities. The guidance has been

drawn up for unincorporated charities, but, subject to Companies Act and accounting standards format requirements, could also be referred to by incorporated charities. The guidance looks at both the activity and the natural option and provides explanation and examples. The following illustrates the difference between the two options; the second being examples of natural category descriptions. OPTION 1: INCOMING RESOURCES Incoming resources from generated funds Voluntary income. Activities for generating funds. Investment income. Incoming resources from charitable activities Other incoming resources Total incoming resources

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OPTION 2: INCOMING RESOURCES Donations, legacies and grants. Fundraising events. Interest and dividends. Fees for charitable services. Other income. Total incoming resources

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You can find links to the guidance and examples at d2qp7sh


Finance is at the heart of a business’s ability to survive, grow and flourish. A fourpart 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

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TERRORISM GUIDANCE The Charity Commission has updated its counterterrorism guidance. It’s a piece of guidance that trustees should review. It highlights the following: Key factors relevant to its strategy for safeguarding the sector from terrorist abuse. The scale and nature of the threat. The commission’s role and approach. Strategic objective and the four-strand approach – awareness, oversight and supervision, cooperation and intervention. The awareness section brings together published guidance and toolkits and is a useful reference for trustees, those responsible for day-to-day governance and those who work in high-risk areas. It includes the reference to, and explanation of, the online toolkit, Protecting Charities from Harm. The guidance can be can be found at http://tinyurl. com/ceealvg

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CHARITIES ACT 2011 Reference should be made to the Charities Act 2011 in any document, for example, accounting policies or an audit or independent examination report, prepared on or after 14 March 2012, irrespective of the financial year to which that document refers. The full advice was published in the March edition of Accounting and Business.

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TRUSTEE CHARITY TEST The Office of the Scottish Charity Regulator (OSCR) has produced a two-page checklist for charity trustees that sets out some of the key areas that should be kept in mind to ensure that charities continue to meet the requirements of the charity test. It highlights procedural matters, constitutional matters, governance and administration arrangements and public benefit consideration. It also poses activity questions and looks at umbrella bodies. Questions range from ‘Do we review the charity, its constitution, activities and governance arrangements, on a regular basis as a matter of good practice?’ to ‘If the charity is not active, should we wind it up?’ Go to cwrafsq PENSIONS FUNDING The Pensions Regulator has provided guidance on how pension scheme funding valuations should be approached in today’s challenging economic environment. It states that its first annual funding statement ‘is aimed at trustees and employers of defined benefit pension schemes who are undertaking their scheme valuations with effective dates in the period September 2011 to September 2012’. It estimates that this first statement applies to approximately one third of the UK’s 6,500 defined

benefit schemes, and accounts for around 4 million scheme members. The statement sets out The Pensions Regulator’s views on ‘acceptable approaches to the valuation process in the current economic environment in order to protect members’ benefits, without undermining the viability of employers, whose support is vital to pension schemes’. The following extracts indicate the delicate balance the regulator has considered in forming the guidance. It states that ‘irrespective of the current economic climate, recovery plans should usually be based on what is reasonably affordable without compromising the employer’s long-term ability to support the scheme. In the vast majority of situations, a strong and ongoing sponsoring employer is the best support for a scheme’. It comments on contribution levels and the assessment of adequate contributions by reminding users that ‘as a starting point, we expect the current level of deficit repair contributions to be maintained in real terms, unless there is a demonstrable change in the employer’s ability to meet them. This assumes that the current contributions were properly set’. The caveat to this statement is that ‘most employers can afford appropriate dividend payments without prejudice

to the funding of the pension scheme. However, if there is substantial risk to the likelihood of the pension scheme delivering the benefit entitlements promised within it, then dividend payments need to be re-assessed in light of the obligations to the pension scheme, and other creditors’. Go to cg2n4ys AUTO ENROLMENT Between October 2012 and April 2017 employers will be required to auto-enrol employees into a qualifying pension scheme. They will also be required to make a minimum contribution. In an ACCA vodcast, Susannah Hines, customer propositions manager from The Pensions Regulator, answers questions on workplace pension reform, what it means for businesses and what needs to be considered. These include: What is auto-enrolment? What are the new timeframes? What is it that employers actually have to do? How do employers identify whether a staff member is eligible for auto-enrolment? Who is responsible for registration and are there penalties for nonregistration? What support is available? Go to www2.accaglobal. com/podcasts

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Glenn Collins, head of technical advisory, ACCA UK

15/05/2012 15:49







Long-distance relationship [

Distance-learning MBAs, increasing in popularity, may provide a flexible solution for time-pressed professionals. But what is the reality – and do they really measure up against traditional programmes?

Deciding to study for an MBA is a big decision and it can be difficult to juggle work, family and study. For these reasons distance-learning business education is gaining in popularity and turning into something of a success story. For instance, according to the FT’s Online MBA 2012 Listing, SBS Swiss Business School offers a global distance MBA and currently has 387 students enrolled, 82 of whom are international, while 72 of the 117 students enrolled at Spain’s IE Business School on its global executive MBA are from overseas. These days anyone from anywhere can do an MBA without having to physically turn up to a classroom and learn. Yet students who take their MBAs at a distance can find themselves facing a certain amount of snobbery from some employers – and full-time counterparts. So what are the advantages and disadvantages of distance or online learning, and do the rewards make up for any perception of inferiority? The first thing to understand is the intrinsic and perpetual value of an MBA. Stacy Blackman, CEO of Stacy Blackman Consulting and MBA blogger, says: ‘An MBA is a clear stamp on a resumé that says an individual was

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screened by the very best, and made it through. It’s validation and a helpful tool for recruiters screening numerous resumés. Top employers still run heavy recruiting programmes on campus at business schools. It’s a big priority for them and for some it’s really the only way in to the company. Finally, most

top companies are already filled with MBAs who are more than happy to network with and hire fellow alums.’ Paul Allen, associate director at Coutts & Co, is distance studying for an MBA at Durham Business School. ‘I have always had a deeprooted desire to challenge myself, perform and prove that the environment in your formative years needn’t be an inhibitor to your future success. The MBA was another personal challenge and one that I hope will afford me a degree of occupational flexibility. I’m a firm believer in giving yourself options, and I feel that an MBA can be an excellent way to demonstrate a broader understanding of business which can ultimately open the door to switches in occupation and industrial sector.’ While Allen admits that he underestimated the commitment to sustaining his studies while working full time, he has chosen to complete the course in the quickest time possible – two years – in the knowledge that he could extend his studies by an additional three years should he wish. ‘This flexibility is essential and, coupled with the support and availability of the tutors and access to

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Careers WANT A NEW JOB? Visit

the online learning resources, provided me with the confidence to pursue this method of study,’ he says. The degree is broken down into core and elective modules followed by a dissertation. Each semester starts with the home delivery of the module notes and learning materials. The business school provides hard copies, CD media and online access to all course notes, which affords maximum flexibility. ‘My preference has always been for the hard copy materials as I can make notes easily and then draft practice papers from these,’ says Allen. ‘Given the nature of my job I spend a lot of time travelling and so planes and trains have been my primary place of study, with weekends reserved for exercise and assignment work.’ Modules are made interactive via a portal which facilitates learning. Here, group work can be undertaken where students can work together on a variety of tasks. ‘This is a key feature of the distance-learning medium, as part of the value in undertaking a traditional MBA is in the people that you meet,’ Allen says. ‘Developing networks and learning from other cultures and professionals from different industries needn’t be the preserve of full-time MBAs.’

Missing the energy? But Blackman has reservations. ‘I do not think that online MBAs are as effective,’ she says. ‘That’s not to say that there is not value there, but being in class, in person, meeting the teacher, the guest speakers and, perhaps most importantly, fellow classmates, is a huge benefit. The energy created by having so many people together in a room is enormous and exciting.’ This lingering question mark over whether online courses are ‘as good’ as classroom-based ones has meant that the more prestigious schools may have been slower in jumping on the

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bandwagon. But with the irrefutable advantages in terms of flexibility with both schedule and location, more business schools are signing up to it – with some offering blended schemes, a mixture of distance and classroom learning.

On and off ‘If you are going to invest time and money in an online MBA, you should evaluate it with the same criteria as you would an offline MBA,’ Blackman advises. ‘You would want to look at the programme reputation and career offerings following graduation, the strength of the alumni network. You should evaluate curriculum, teaching style, strength of faculty. Of course you may decide that the convenience outweighs a lower ranking in some categories, but you absolutely want to

take all of these criteria seriously to ensure a smart choice.’ ‘I spent a lot of time researching business schools and MBAs, here in the UK, North America and Asia,’ says Allen. ‘International recognition of the school, degree content and quality were of primary importance to me. The various league tables – notably the Wall Street Journal rankings – confirmed the international pedigree of Durham Business School above and beyond anything. It also helped having access to international recruiters who spoke very highly of Durham MBA graduates.’ Allen has a final piece of incentiveled advice. ‘I took the decision to finance my own studies; I’m convinced that having skin in the game helps focus the mind!’ Beth Holmes, journalist


Prague-based ACCA member Jan Švorc is a manager in a Big Four management consulting department. He embarked on Durham Business School’s global MBA (finance) programme as a distance learner. There are, he says, four key advantages to the programme: ‘good quality and reputation of the school, reasonable fee, flexibility and specialisation in corporate finance’. Before enrolling, Švorc had studied for the ACCA Qualification, where preparations for exams were held mostly in distance-learning mode, although some classes were also available for the modules. ‘I was pretty comfortable with this way of learning as it brought the results and was suitable for me because of the flexibility,’ he says. Švorc hopes that the MBA will bring two main benefits. ‘Firstly, I think it helps to consolidate and cement my knowledge in various managerial topics,’ he says. ‘My professional career brought a great deal of pieces of experience and managerial knowledge, but they were unstructured. Secondly, I have learned how to approach business research and build up my reports.’ To complete a typical module, Švorc expects to spend several days – ‘actually, nights’ – working on the formative assignment and about two weeks for the final one. ‘If there was an exam in addition, the preparation takes about 10 evenings and a weekend at minimum. It depends on the topic.’ Švorc admits that working full time and studying during the evenings and weekends has taken its toll on his social life. But his hope is that achieving an MBA will propel him to a senior position in financial management at a mid-sized, internationally operating company.

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AppleCare Finance is looking for an experienced Subject Matter Expert to help lead and influence design & implementation of system improvements and reporting to support service across all products, channels and regions. The role will work closely with multiple stakeholders.

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The role will involve balance sheet accounting, technical accounting and management accounts for the business. At this stage you will supervise 1-2 staff, but staff management is not essential.

A market leader within the retail sector experiencing a period of restructure and reshuffling, is currently recruiting for ideally a part qualified accountant to join its growing finance function at their impressive Head Office location within the Cambridge area.

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We are an ambitious, fast growing 3 partner firm of Chartered Accountants based in North West London requiring an audit manager with at least 3 years post qualification experience in audit and general practice accountancy.

The most extensive and successful mobile banking and payments services in the world. It is a publicly listed business with in excess of 3m registered end users, a market capitalization of circa £170m and aggressive plans for further growth.

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The main responsibility of this role will be to provide management information, analysis and support to the board and operational departments by producing accurate Management information to support business decision making.

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“ACCA Careers gives me the latest and most varied range OVER 24,000 ACCA MEMBERS AND STUDENTS of job opportunities from all the major organisations and HAVE REGISTERED THEIR CVS ON ACCA CAREERS UK jobs June.indd 3 10/05/2012 16:28 UK jobs June.indd 8 10/05/2012 Everyday on ACCA Careers on average we have.... 150 new candidates register 11,352 page views 44 new jobs posted 253 job applications

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To advertise with ACCA Careers there are 2 options, using our online self-service you can post a job right now at or you can contact our dedicated account management team on +44 (0)20 7902 1210

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CPD: getting into good habits ACCA has developed several tools and resources to help members plan their CPD effectively, such as ACCA Compass and the Professional Development Matrix In addition to improving the focus of your career development, setting time aside for planning your CPD can save you money and time.

Plan to succeed It is no secret that members who take time to identify their development needs in advance of selecting learning activities are more likely to put together a more effective development plan and obtain their CPD easily. Planning your CPD early enables you to think strategically about which learning mediums will be the best fit for different areas of development. Face-to-face may be best for some types of learning, whereas e-learning, research or learning on the job may be more effective for others. It is important to undertake CPD activities that are relevant to your role. Practising members should aim to ensure that an appropriate amount of their development is undertaken in their area of technical specialism. If your career has moved away from accounting and finance, you should undertake learning which is relevant to your new role. Remember that your CPD is about technical and nontechnical areas. You don’t need to leave all your CPD to the end of the year. Every year we

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see a surge of CPD activity during the last quarter from ACCA members. This suggests that CPD may be viewed by some as something they ‘have to do’, rather than an ongoing process of professional development. CPD is really just a practical expression of professionalism, and something you are likely to be doing on an ongoing basis as part of your working life. Don’t forget you can include activities you undertake in the workplace; for example, briefing sessions, learning from experts, and coaching and mentoring.

Resources to help you ACCA has developed several tools and resource web pages to help you succeed in planning your CPD. ACCA Compass is an interactive tool that allows you to assess your level of experience and skill and compare this to a recommended market average for 20 different job titles. ACCA Compass allows individual members to undertake a competence self-assessment process to encourage a more focused professional development, making it a perfect resource for the beginning of the CPD year. Acting as an electronic coach, the Professional Development Matrix (PDM) is designed to help you



identify your preferred learning style and the knowledge, skills and expertise you may need in either your current role or in roles which you are interested in for the future. It will also help you to produce a personal development plan. There is also ACCA’s CPD i-guide, which you can use to coach and support you through CPD.

What happens next? We’ve talked about how to plan your CPD, but we would also recommend a learning cycle of Plan, Do and Review as best practice. Doing your CPD is about carrying out the right learning opportunities. Once you know what you need to learn or develop, you can browse and select learning opportunities from ACCA’s new CPD online section. It’s a one-stop shop giving you access to articles, podcasts, online seminars, research and qualifications from our partners all in one place. Reviewing your CPD activity involves thinking about what you have learned, how you will apply the learning, and providing evidence for it. For more on CPD and the learning cycle, visit our new and improved CPD section at

17/05/2012 11:11

79 The big numbers Former chancellor Norman Lamont recently spoke at an ACCA event. Here he shares his views on the recent Budget, closing tax loopholes and the future of the euro Norman Lamont is famously remembered for being chancellor during Britain’s exit from the European Exchange Rate Mechanism and for employing a 26-year-old David Cameron as an adviser. But he is less well remembered for being Britain’s negotiator preceding the Maastricht Treaty. He ensured that Britain did not enter the euro. He was also the chancellor who introduced the concept of inflationary targeting, a measure that has become one of the key economic indicators. In 1998 he was recommended for a peerage and became Baron Lamont of Lerwick. Prior to giving the keynote address at ACCA’s Northern Dinner in Manchester, Lord Lamont agreed to be interviewed. Q You’ve delivered a Budget in uncertain economic times; how well do you think George Osborne did? A The important thing is to keep your eye on the big numbers. I thought the chancellor managed to make some changes with very little room for manoeuvre, but I think the important thing is the deficit reduction and that task has been started. Of course, there is a long way to go yet. We’ve had the tax increases, but very little in the way of cuts. I thought on the whole the budget was a balanced one. Q The coalition has made much of clamping down on tax avoidance. Given the complexity of our tax system, can much headway be made? A I think we do have a complex tax system, too complex in fact. Much is made of HMRC’s efforts, but often it is trying to catch up with what is happening in the private sector. When you block one loophole another tends to open up. I think the best thing is to have simple taxes and low taxes.

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Lord Norman Lamont (right) and ACCA president Dean Westcott

Q You say the UK tax system is too complicated. If you could pick one area to simplify, what would it be? A It may not be simplifying, but I think a change that urgently needs to be made is to the point at which people start paying 40% tax. It’s all very well taking people out of income tax at the bottom end, but if the price of that is putting more people into the 40% bracket, that is not so desirable. If this continues, people on quite modest incomes will be paying 40% and I think this is more important than cutting the top rate. Q Will the euro fail or will France and Germany continue to prop it up? A It’s too much of a political project to be allowed to fail, but I don’t see it working well in the foreseeable future; I think its future is questionable in the long run. Q Looking forward, what are the major threats to the UK recovery? A There are a number of threats, such as the eurozone. The price of oil is another issue. The price rise has in part been caused by the sanctions imposed on Iran. The major threat is that if there is a spike in the price of

oil, maybe caused by a military conflict in the Middle East, the economy is in too fragile a state. A third threat could be a slowdown in the Chinese economy. Q The UK government has said that it wants to restore our manufacturing base, but can we compete with China and other emerging economies where costs are lower? A I think Britain will need to find a niche, maybe in that mysterious area that is part manufacturing, part service. If you look at America, it is seeing growth in the service sector. Think of social networking and the businesses that has spawned. I think we are very good in some of those spaces too. Q As a Scot, what is your view on the referendum for Scottish independence? A I am by identity British and Scottish and I wish to remain British, and Scottish. It’s for the people that live in Scotland to decide, but I can’t really see there is a big gain for them in independence. Ray Allger, ACCA

16/05/2012 11:14


ACCA diary


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

EMPLOYMENT-BASED MEMBERS’ NETWORKS CORPORATE SECTOR 21 June, Thursday Practical guide to managing through double-dip recession, London To book, register at https://

REGIONAL MEMBERS’ NETWORKS AND DISTRICT SOCIETIES Please note the majority of events take place in the evening, but please check the websites listed for times and details.

ENGLAND 14 June, Thursday ACCA East Midlands Networking Dinner – Commerce and Cohesion, Nottingham

21 June, Thursday ACCA South Western Networking Dinner – The Curmudgeon Hunter, Exeter

To book, visit www. events

26 June, Tuesday Tax Update, Bristol

14 June, Thursday Summer Site Visit and Networking, BAE Systems, Broughton

26 June, Tuesday Engage in Networking, Northampton 26 June, Tuesday Tax Update, Norwich 28 June, Thursday Tower of London Visit, London 29 June, Friday Business Lunch and Presentation, Manchester To book, visit http:// members/networks/regional


15 June, Friday Guernsey Quarterly Networking Lunch, Guernsey

7 June, Thursday The Financial Challenges of Running a Modern Local Newspaper, Highland and Inverness Courier Site Visit, Inverness

15 June, Friday Jersey Quarterly Networking Lunch, Jersey

13 June, Wednesday Pension Update, Aberdeen

19 June, Tuesday Kaplan – Current Economic and Budget Issues, Leeds

13 June, Wednesday Business Lecture: United We Stand, Divided We Fall? Edinburgh

20 June, Wednesday HMRC Tax Enquiries and Business Records Check, Southampton

19 June, Tuesday Stress Reduction – you are seven steps away from being stress free! Tayside & North Fife

20 June, Wednesday Brockholes – Cost savings/ efficiencies, Preston

20 June, Wednesday Pension Update, Edinburgh and East of Scotland

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18 June, Monday Accounting Problems for Small Companies, London 19 June, Tuesday Building High Performance Teams, London

18 June, Monday Webinar – Finance Act Update

19 June, Tuesday Practical Guide to ISQC1 for Partners and Managers, London

26 June, Tuesday Accounting Standards Update, St Asaph

19 June, Tuesday Exceptional Performance Management, London

27 June, Wednesday Bribery Act 2010 in Action, Cardiff

20 June, Wednesday Managing Change and Uncertainty, London

To book, visit www. events

20 June, Wednesday Dealing With Difficult Situations, London


21 June, Thursday Everything You Ever Wanted To Know About VAT – Part 1, London

15 June, Friday Accounting Standards Update, London 15 June, Friday Corporation Tax Update, London 16 June, Saturday Summer Update for Practitioners: Accounting and Auditing Conference, London 16 June, Saturday CPD Conference 2, Swansea

21 June, Thursday Meeting the Revenue – Interviews and Tribunal Appeals, London 22 June, Friday Tax Update for the Busy Accountant, Ashford 22 June, Friday Everything You Ever Wanted To Know About VAT – Part 2, London

18 June, Monday The Outstanding Delegator, London

22 June, Friday Preparing the Financial Statements of Smaller Entities, London

18 June, Monday Getting More From Your Talent, London

23 June, Saturday Saturday CPD Conference 2, Sheffield

15/05/2012 11:12


23 June, Saturday Saturday CPD Conference 2, Aberdeen 25 June, Monday Business Ethics In Action – Bribery Act 2010, London 26 June, Tuesday Advanced Budgeting Planning and Forecasting, London 26 June, Tuesday Spreadsheets Skills for the Finance Function, Cardiff 27 June, Wednesday An Introduction to Lean Finance, London

29 June, Friday Interpreting Accounts and Reporting Relevant Information, London 29 June, Friday Lean Finance – Taking a Deeper Dive, London 29 June, Friday Social Media, Guernsey 29 June, Friday Starting In Practice, London 29 June, Friday The Influential Manager, London

6 July, Friday Employment Law Update, London 6–7 July Residential Conference for Practitioners, Birmingham 7 July, Saturday Summer Update for Practitioners: Taxation Conference, London 7 July, Saturday Saturday CPD Conference 2, Manchester

29 June, Friday The Confident Negotiator London

9 July, Monday Fraud Prevention and Detection – Essential Techniques to Manage the Risks, London

30 June, Saturday Saturday CPD Conference 2, London

9 July, Monday Group Accounting Under IFRS, London

2 July, Monday Effective Narrative Reporting: Getting Your Story Right, London

10 July, Tuesday Capital Allowances – Refresher and Planning, London

2 July, Monday Joint Ventures and Strategic Alliances – Are You Getting the Accounting and Tax Right? London

11 July, Wednesday UK Financial Reporting Update – The Future of UK GAAP – Changes, Issues and Problems, London

3 July, Tuesday Risk, Control and Assurance, London

11 July, Wednesday Effective Report Writing, London

28 June, Thursday Maximising Personal Effectiveness, London

4 July 2012, Wednesday Advanced Analysis of Financial Statements, London

11 July, Wednesday Powerful Presentations, London

28 June, Thursday Managing Your Personal Profile, London

5 July, Thursday Auditing Projects and Project Risk, London

27 June, Wednesday Data Security and Risk Management, Isle of Man 27 June, Wednesday Effective Communication, London 27 June, Wednesday Successful Networking, London 27–28 June Automating Forecasting and Reporting with Excel VBA Macros (Introduction), London 27–29 June Channel Islands Conference, Guernsey

29 June, Friday Company Law Update, London

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5 July, Thursday Business Partnering, London

12 July, Thursday Managing and Participating In Meetings, London 12 July, Thursday Improving Your Project Management, London

13 July, Friday Anti-money Laundering and Counter Terrorist Financing – An Essential Update, London 13 July, Friday Creative Problem Solving, London 13 July, Friday Teams That Really Work, London 16 July, Monday UK and EU VAT Update, London 16 July, Monday Capital Allowances and Planning, London 17 July, Tuesday Capital Tax Update, London 17 July, Tuesday Inheritance Tax Planning, London 18 July, Wednesday Accounting Mistakes and Common Problems, London 18 July, Wednesday Service Charge, London 19 July, Thursday IFRS Adoption – How Prepared Are You? (Part 1), London 20 July, Friday IFRS Adoption – How Prepared Are You? (Part 2), London For more information or to book your place, visit http:// or email professionalcourses@

15/05/2012 11:12



Crucial role for profession Vice president Martin Turner addresses UNCTAD

Inside ACCA 80 Diary What’s on in the coming months

Martin Turner, ACCA’s vice president, told the 13th session of the United Nations Conference on Trade and Development (UNCTAD) in April that high-quality accountancy, financial reporting and auditing can play a crucial role in improving economic performance around the world. As part of the conference, held in Doha, Qatar, UNCTAD’s Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) held an event on 22 April focusing on the role of the accountancy profession. At the ISAR event, Turner emphasised the importance of capacity building in the accountancy profession to ensure that there are the necessary number of qualified accountants to guide economic development in emerging markets at all stages of their economic growth. He also focused on the crucial role of accountants in promoting sustainability,

79 Interview Norman Lamont shares his views on the recent Budget 78 CPD: planning Get the low-down on ACCA Compass and the Professional Development Matrix


Investors should be placed at the heart of global financial and accounting standards, say ACCA and Grant Thornton in a new report. However, it warns that investors’ views on shaping future standards are not being heard. Putting Investors at the Heart of the Financial System is based on a series of roundtables for investors and investor representatives held around the world. It says that the piecemeal, fragmented way in which solutions to global economic uncertainty are proposed and the lack of focus on investors in the reform process prolong global economic fragility, and proposes seven steps to

UK_A_backpage.indd 82

Doha, Qatar

drawing on material from a policy paper – The Role of the Accountancy Profession in Economic Development – that ACCA Martin Turner prepared to coincide with the event. ‘ACCA was pleased to be part of this high-level ministerial event and to have an opportunity to emphasise the crucial role we believe the accountancy profession plays in supporting sustainable economic development,’ Turner said. ‘UNCTAD-ISAR has been tireless in its efforts to enhance the capacity and ability of the global accountancy profession to help bring nations into the world economy. A key part of its mission is to promote globally sustainable economies, a goal which ACCA wholly endorses.’ During the event, UNCTAD launched its new Accounting Development Toolkit, comprised of an accounting development framework and a set of accounting development indicators. This is designed to provide guidance to policymakers on the current level of development of a country’s accountancy infrastructure in order to identify gaps, define priorities and help focus national efforts to improve. The Role of the Accountancy Profession in Economic Development is available at

improve matters. ‘Investors should be the primary focus for global financial and accounting standards, yet their voices are not being clearly heard,’ said Sue Almond, director of technical at ACCA, adding that ‘the investor community opinion isn’t necessarily homogenous, but this doesn’t mean all voices should be ignored’. Read the full report at

Sue Almond

16/05/2012 11:46

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16/05/2012 11:02



AB UK (June 2012 edition)  

The June 2012 UK edition of Accounting and Business magazine (ACCA)

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