Page 1

uk.ab accounting and businesS 03/2012


accounting and business UK 03/2012

top marks

M&S CFO talks retail therapy

gaar time?

budget 2012’s big issue

audit and consulting BURNOUT avoiding it technical liabilities

UK_front_cover.indd 1

10/02/2012 16:36

When forming a new company, how do you choose the best start? … Ask an member. ACRA, the Association of Company Registration Agents, was established to encourage high standards and to help you find an agent which will form your company to the best legal standard.

Benefits for you: You can trust that your company will be formed using robust Articles, and you will get sound advice on the inclusion of any extraordinary provisions. It is free for you to find a company registration service through ACRA. You are guaranteed that the agent you use will act professionally and employ trusted experts. ACRA members have unique access to valuable information covering new thinking, current legislation and industry specific guidance on Anti-Money Laundering Regulations. You will be working with only the best.

Did you know that forming your company directly through the Business Link website means you would automatically adopt Model Articles?

Business Link use only the Model Articles when incorporating new companies. However there are serious shortfalls in the Model Articles. They make no provision for: Pre-emption rights on the transfer and sale of shares. This means that a company could be sold or transferred without existing shareholders being aware. Multiple classes of shares. Alternate directors, which may be useful where directors are absent for extended periods. Members’ rights, proxies, meeting regimes, or director conflicts. They also unreasonably assume that directors will have sufficient knowledge of these matters as outlined in the Act. The appointment of a company secretary.

ACRA fosters best practice. Shouldn’t you? -AB UK ads.indd 1

09/02/2012 16:50


Editor’s choice In our cover interview this month, Marks & Spencer’s Alan Stewart talks us through the challenges of being CFO in such tough times for the retail sector, and tells us how the iconic chain is remodelling itself to cater for the shopper of the future. See page 14


The week Harry Redknapp was cleared of tax fraud involving payments to a Monaco bank account was not an entirely bad one for HMRC. The day before the Tottenham Hotspur manager’s acquittal on 8 February, after a costly trial and investigation, ex-Vantis tax adviser David Perrin was jailed for 18 months over a tax scam based around Gift Aid rules and the Channel Islands Stock Exchange. The scheme, in which he embroiled some 600 wealthy clients including celebrities, allowed him to pocket more than £2m in fees. If he’d got away with it, the taxpayer would have been defrauded of £70m – comfort perhaps for HMRC investigators that their efforts do benefit the public purse. Both investigations illustrate HMRC’s drive to pursue those it sees as evading tax, something that Chris Martin, its assistant director of criminal investigations, reiterated even as he swallowed the result of Redknapp’s trial. ‘I would like to remind those who are evading tax by using offshore tax havens that it always makes sense to come forward and talk to us before we talk to you,’ he said. And indeed on the day of Redknapp’s acquittal it announced both an extension of its Liechtenstein agreement aimed at uncovering previously hidden taxable funds there, and a campaign to ensure those involved in home improvement trades and direct selling pay the tax they owe. Meanwhile the government seems to be actively considering the concept of a GAAR (general anti-avoidance rule) (see page 18). HMRC sought to play on hardening public attitudes on ‘tax dodging’ by publicising details of the ‘smug celebratory song’ sung at Vantis conferences, containing the words: ‘They should have changed that stupid law, they should have buggered charity, but they have left that lovely tax relief for folks to pay to me.’ Perrin, 46, forged his career, in HMRC and moving to practice, at a time when inventing clever schemes to get around the tax rules seemed acceptable, was often encouraged, and was even regarded as cutting edge. As he has found to his cost, those times are long gone. Chris Quick,

STRESS TEST It’s tough out there, but don’t let the economy grind you down! If you’re feeling the strain, then help is at hand with our top tips to avoid burnout. Page 22

UK_B_Edletter.indd 3

FAIR PLAY With the UK’s major sports creating more revenue than ever, the government is preparing to overhaul corporate governance. Page 28

VIRTUAL BRIEFING CENTRE Attend live and on-demand audio and video webinars in the virtual theatre, chat with fellow delegates in the networking centre, and access the digital library.

ACCA CAREERS Check out thousands of jobs and expert careers advice at www.

10/02/2012 16:35

AB UK EDITION CONTENTS MARCH 2012 VOLUME 15 ISSUE 3 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, Peter Kernan, Eva Peaty, Vivienne Riddoch Design manager Jackie Dollar +44 (0)20 7059 5620 Designers Robert Mills, Jane C Reid 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.

14 Talking shop We meet Marks & Spencer’s CFO, Alan Stewart

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.

18 Is GAAR a goer? Doubts are raised about the efficacy of the proposed general anti-avoidance rule

Copyright ACCA 2012 Accounting and Business. No part of this publication may be reproduced, stored or distributed without the express written permission of ACCA.

22 Get happy! Our top tips for avoiding burnout

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

26 Report card The annual report could do better, an ACCA study finds 28 Fair game The UK’s lucractive sports industry is undergoing a corporate governance overhaul

ISSN No: 1460-406X 29 Lincoln’s Inn Fields London, WC2A 3EE, UK +44 (0) 20 7059 5000

Audit period July 2009 to June 2010 138,255

UK_B_contents.indd 4

10/02/2012 16:56


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 Rhonda Best FCCA of Alexander Bain and Associates, plus news in brief

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

38 Inside Shell We take a look inside Royal Dutch Shell’s HQ in The Hague 42 Being a cost hero Finance teams must be brave in the boardroom

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

46 Outsourcing Ambition and capability are vital to drive change

12 Politics The government’s plans to curb excessive executive pay



48 The view from Ben Wilson of PwC, plus news in brief

32 Robert Bruce The FRC’s proposed reorganisation is meeting increasing opposition

49 Taxing times What are the implications of a Europe-wide Tobin tax?

34 Peter Williams This is the Budget speech that the chancellor really should be making 35 Jane Fuller Look to the financial details for the answers 36 Dean Westcott The annual report has reached a crossroads, says the ACCA president

TECHNICAL 58 Going soft on micro The EU is to relax disclosure rules for micro companies 60 Update The latest on financial reporting, auditing, tax and law 65 CPD: Going concern The differing assessment roles of directors and auditors are explained 68 CPD: Strategic thinking Our new series demystifies the art of strategy 71 CPD: current or non-current liability? Understanding the impact of apparently simple rules is vital


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

UK_B_contents.indd 5

51 PRACTICE 51 The view from Mark Surridge FCCA of Grant Thornton, plus news in brief 52 On the streets High-street accountancy firms are struggling

55 PUBLIC SECTOR 55 The view from Public sector commentator Will Hutton, plus news in brief 56 In the dark As austerity bites, which way now for accountants?

CAREERS 75 Be your own Master An MBA or Finance MSc can enhance your employability in tough times

ACCA NEWS 78 CPD: coaching and mentoring How you support your colleagues can count towards your continuing professional development requirements 80 Diary What’s on in the coming months 81 Council Become a Council member 82 News Launch of new virtual briefing centre; CCAB puts accountants for growth at its heart

10/02/2012 16:58


News in pictures


A 41-gun salute is held in Hyde Park to mark the 60th anniversary of the accession to the throne by Queen Elizabeth II


Eastman Kodak filed for bankruptcy protection after struggling to keep up with rival companies which were quicker to adapt to the digital era


HMRC and police defended their five-year pursuit of Harry Redknapp for tax evasion, after the Tottenham Hotspur manager, shown with son Jamie, was acquitted at Southwark Crown Court

UK_B_newsinpix.indd 6

10/02/2012 12:40



Facebook unveiled plans for a US$5bn stock market flotation. This is half the amount many analysts expected, but the initial public offering, set for May, is still due to be the biggest sale of shares by an internet company


James Wallace from Dumfries demonstrates at Edinburgh Castle for the right of expat Scots to vote in the referendum, as first minister Alex Salmond launched the Scottish government’s consultation on Scottish independence


Chancellor George Osborne is due to deliver the Budget on 21 March. His Autumn Statement ‘mini-Budget’ confirmed a two-year cap on public sector pay rises, a rise in the state pension age and more spending cuts


Tom Croft of England bursts towards the try line during the Scotland v England RBS Six Nations Championship at Murrayfield Stadium

UK_B_newsinpix.indd 7

13/02/2012 11:45

News in graphics



A record number of self-assessment forms were filed online ahead of this year’s 31 January deadline. Of the 9.45 million self-assessment returns submitted on time, 80.9% of them were filed online – a 4% increase on last year and almost double the number submitted to HMRC’s website for the 2008 deadline.


Charcoal is the new blue – at least for suits, according to research by workwear specialists Alexandra. The trend for more subdued shades reflects ‘the bleaker economic climate’, says Alexandra’s Nick Acaster. And, as more people seek a smarter look, sales of pinstripe suits have shot up.




3.7M 46%


JAN 2008

JAN 2009






JAN 2010

JAN 2011



JAN 2012

0% 10% 2% 5%

Black suits Blue suits Charcoal suits Pinstripe suits

Percentage change from 2005



11% 37% KEY:


No change Some change Major change

21% 55% 23% Strategies for managing talent

26% 50% 22% Organisational structure (inc. M&A)


32% 50% 17% Approach to managing risk




0.1BN 0.6BN

38% 42% 19% Capital investment

49% 35% 15% Focus on reputation

55% 29% 14% Capital structure

63% 27% 8% Engagement with board



Not having the right talent in the right place is seen as a key threat to growth, according to PwC’s latest Global CEO Survey. More than three-quarters of CEOs surveyed said that they are changing their talent management strategies.


Facebook supported over 35,000 jobs in the UK in 2011, according to Deloitte. The ability of the platform to enable other businesses to promote their brands accounts for almost half of Facebook’s economic impact in Europe.

UK_B_graphics_08.indd 8



Business participation Platform effects Technology sales Narrow impacts

Total: €2.6bn in UK

Become our fan on Facebook

10/02/2012 12:39


MN 3 2 2 $29, 1

0MN 0 8 , $28


Despite continued widespread fee pressure and intense competition, global accounting firms are reporting growth across the industry and are planning to recruit in 2012. According to the latest global survey of global accounting firms by International Accounting Bulletin, PwC takes back the top spot as the largest global network from Deloitte, which had pipped PwC to the post for the first time in 2010.



Combined revenue of leading global accountancy firms in 2011.


0MN 8 8 , $22



































Combined revenue of global accountancy firms in 2010.


10MN 7 , 2 $2

Global workforce of PwC, the firm with biggest fee income.

2MN 7 6 , $5

Proportion of firms posting revenue growth in 2011.




99MN 8 , 3 $ 6

88MN $3,7

21MN $2,6 10

95MN $2,8 9

22MN $3,2


8 The survey shows that 22 out of the 23 global accounting networks surveyed grew their revenue in 2011, a complete turnaround from 2010. Growth was reported by 86% of the participating networks and associations, while accounting associations grew by 8% – a strong performance compared with last year’s 2% drop. In the survey’s first regional ranking, firms in India (24%), Brazil (16%), Turkey (14%) and China (10%) enjoyed the

INT_B_graphics_09.indd 9

strongest average growth in the past year as the networks invest heavily in these key emerging economies. Firms in the Netherlands (-6%), Germany (-4%) and the US (-2%) found it difficult to generate growth in the market. The top 10 networks grew their audit revenues by an average of 5% and their advisory services by 14%. Tax services also performed strongly, with an increase in demand for internal tax and transfer pricing.

09/02/2012 15:00


News round-up


Deloitte has been referred to the Accounting and Actuarial Disciplinary Board (AADB) regarding its role as corporate finance adviser to the Phoenix takeover of MG Rover. Maghsoud Einollahi, a former Deloitte corporate finance partner, is also to be investigated. Einollahi and Deloitte face a complaint that they failed to adequately consider the public interest and the conflict of interest involved in advising both MG Rover and the Phoenix buyers. A spokesman for Deloitte said that the firm was ‘disappointed’ by the move: ‘We do not agree with the AADB and are confident that when all the evidence is considered, the tribunal will conclude that there is no justification for criticism.’


RSM Tenon may make some non-cash restatements to its accounts for the year ending June 2011, the company has announced. This may cause it to incur some additional non-cash charges to the accounts for the six months ending December 2011. The restatement expectation results from a review of the company’s financial reporting undertaken following the appointment of Adrian Gardner as CFO in October. RSM Tenon warned that it

was likely to incur a loss in the period ending last December, but says it is operating within its banking facilities. The company’s chairman, Bob Morton, and CEO, Andy Raynor, have stepped down. Jeremy Newman, formerly global CEO at BDO International, joins the company as a consultant. A search is under way for a new CEO.


Directors of listed companies have been told by the Financial Reporting Council (FRC) to improve their disclosures of economic risks in their annual and half-yearly financial reports. New FRC guidance advises directors on the preparation of balanced and understandable disclosures that put their company’s position and prospects in the context of current market conditions.


The UK’s Accounting Standards Board (ASB) has dropped contentious proposals to make financial reporting requirements for not-for-profit public interest entities more onerous. Under the revised proposals, the ASB will replace all current reporting standards with a single financial reporting standard (FRS). This will reduce the volume of accounting standards from


‘Ernst & Young has a “shadow” audit team in place targeting [PwC’s audit of the] Lloyds Banking Group,’ PwC alleges in a submission to the Competition Commission investigation into the audit market. PwC’s claim is used to counter suggestions that only it, Deloitte and KPMG audit UK banks, thereby reducing the state of competition in the audit market below the level of the ‘Big Four’. PwC points out that EY conducts audits of US and European banks, including their UK subsidiaries, and would therefore be able to audit UK highstreet banks, adding that ‘it is certainly the best-placed auditor to win such an appointment if a company preferred an auditor outside the other three large audit firms’. EY declined to comment.

UK_B_newsroundup.indd 10

approximately 2,500 pages to 250 pages. The ASB intends to use the IFRS for SMEs, as issued by the International Accounting Standards Board, rather than introduce its previously proposed Financial Reporting Standard for Medium Sized Entities (FRSME), while retaining the existing Financial Reporting Standard for Smaller Entities (FRSSE). Public benefit entities – including cooperatives, credit unions and social enterprises – will now be subject to the same reporting requirements as small and mediumsized enterprises (see page 60).

CFOS ‘UNPREPARED’ FOR CHANGES Senior finance staff are, to a large extent, unprepared for the raft of changes to financial reporting standards, concludes a survey from Ernst & Young. CFOs and other finance professionals are also concerned about the impact of financial reporting reform, including the effects of convergence with US generally accepted accounting principles (GAAP) and changes to lease reporting and revenue recognition.


Fraud in the UK has hit record levels, as the tough economy drives up dishonesty, according to KPMG’s latest Fraud Barometer report. Total fraud last year reached £3.5bn, of which £2.5bn was recorded in the second half of the year. A single rogue trader banking case of £1.3bn distorted the second-half figures, but even without that case the fraud level would have been a record.


Ernst & Young has not commented on the claims

Proposed changes to the Listing Rules have been put out for consultation by the Financial Services Authority (FSA). Under the reforms, companies would be unable to use reverse takeovers to obtain a listing for which they would otherwise be ineligible. Sponsors of a company listing would be subject to stricter obligations, including declaring that a client is complying with Listing Rules. The FSA is also consulting about whether Listing Rules need further reform to protect investors and whether

10/02/2012 16:58



As the move towards adoption of a general tax anti-avoidance rule (GAAR) gathers pace – with a Budget announcement imminent – there are growing concerns that policymakers’ expectations and the reality of tax planning are not aligned


the premium listing standard needs to be enhanced. Other proposed measures would prevent companies avoiding the listing regime through the outsourcing of management functions offshore.


Inconsistencies over business valuations are damaging the economy, claims the Royal Institution of Chartered Surveyors (RICS). Effects include difficulties in raising finance and barriers to mergers and acquisitions deals being completed. Businesses may be blocked from refinancing, expanding and staying solvent, says RICS. It adds that companies are wasting money on due diligence on deals that fail because of poor valuations. RICS is seeking support for the recognition of a discrete profession of business valuers.

how David Perrin, deputy managing director at Vantis Tax, devised a tax avoidance scheme that enabled clients to claim tax relief on almost worthless shares that they donated to charity, for which Perrin earned over £2m in fees. Jim Graham, HMRC criminal investigator, said that Perrin had carried out a ‘cynical fraud’ that ‘conned innocent charities into accepting gifts of virtually worthless shares’.


Chancellor George Osborne has an unexpectedly easy Budget this year because of Whitehall underspends – compared even to projected levels of cuts – says the Institute for Fiscal Studies (IFS). Government departments have spent over £3bn less in 2011–12 than their departmental expenditure limits, with the result that the government has had to borrow £2.9bn less than had been forecast. If the economy improves in line with the Office for Budget Responsibility’s projections, government borrowing in 2016–17 could be £9bn lower than had been expected. However, the IFS warns that there are ‘significant downside risks’ for the public finances, including the possibility of a eurozone break-up. For more on the Budget turn to page 34.


The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) are working together to reduce differences in their classification and measurement models for financial instruments. The cooperation is part of the FASB’s project to produce a new update on its accounting standard for financial instruments and the IASB’s consideration of amendments to IFRS 9.


BDO has acquired BDO Guernsey, an audit practice, boosting the UK firm’s turnover by £4m. The Guernsey firm’s 50 staff transfer to BDO and two of its five directors become partners in the UK firm. Simon Michaels, managing partner at BDO, said: ‘BDO Limited is one of the largest independents in Guernsey and has an enviable reputation. This agreement provides us with an opportunity to acquire a business with growth prospects that will also enable us to enhance our UK offering, particularly in the financial services sector.’




A professional tax adviser has been jailed for 18 months for a £70m tax fraud. London’s Blackfriars Crown Court heard

UK_B_newsroundup.indd 11

will match senior lawyers willing to act on a revenue-sharing consultancy basis with law firms looking to expand. IVL’s chief executive is Mike Jones, former marketing director at EY; the other founders are Chris Harrison, who was EY’s European head of technology, Paul Dodd, a former EY tax partner, and Helen Page, UK director for EY’s Entrepreneur of the Year Award programme. IVL has attracted

Energy companies should adopt more transparent accounting practices, according to a report by BDO for the energy regulator Ofgem. BDO concluded that companies were inconsistent in their approach to financial reporting, reflecting different business models. Ofgem intends to require a standardised approach from companies on how they account for the generation of fuel costs and in their calculation of profits. It will tell energy suppliers to report financial information on a common and more transparent basis.

Former senior Ernst & Young directors have established a new legal service brokerage, IV League Talent. The firm

£400,000 from investors, exploiting a legal change allowing external investment in law firms.

NEW IFRS FOUNDATION DIRECTOR Yael Almog has been appointed executive director of the IFRS Foundation. She becomes responsible for the foundation’s day-to-day management and provides executive leadership for the trustees. A lawyer by profession, Almog joins from the Israel Securities Authority, the Israeli market regulator, where she was director of the Department of International Affairs and was closely involved in the implementation of IFRS in Israel. Tom Seidenstein, the foundation’s chief operating officer, has left to return to the US.

10/02/2012 16:58





In January, business secretary Vince Cable outlined plans to tackle excessive executive pay, at an event in London organised by the Social Market Foundation and ACCA. Cable said the government was focusing on four fronts: boosting transparency, giving shareholders more effective control, increasing the diversity of remuneration committees, and encouraging major businesses and investors to lead by example. He argued: ‘There is now broad consensus across the main political parties and many business and investor groups in support of “responsible capitalism”. This precludes lavish payouts for failure or mediocrity, and addresses widening inequalities in remuneration.’ ACCA believes this is the right approach to take. Private sector board pay should remain a decision for companies themselves, but pay should always be balanced with shareholder value and company performance. Cable’s intervention should be the first step in wider efforts to promote active shareholder engagement. Petros Fassoulas is head of policy, Europe and Americas, at ACCA

UK_B_politics.indd 12

Banks might require ‘a special accounting treatment, perhaps even a distinct accounting regime’, believes the Bank of England. Its executive director for financial stability, Andy Haldane, warned in a speech that fair value accounting exacerbates booms and busts in the financial sector. It was recognised as a factor causing the Great Depression, which is why it was abandoned afterwards. It had similarly contributed to the recent global economic crisis, following a period of asset over-valuation. ‘Accounting rules in general, and fair value principles in particular, appear to have played a role in both over-egging the financial upswing and elongating the financial downswing,’ said Haldane. ‘Better recognition of the uncertainties associated with bank assets, and the fragilities associated with bank liabilities, might make for a more durable accounting regime.’


Future governments will have to deal with a ‘staggering’ burden of unfunded liabilities, warns the Public Accounts Committee (PAC). The MPs found the accumulated value of future commitments under PFI schemes was £131.5bn – four times the value of the assets secured through the deals. Other major liabilities include nuclear decommissioning costs currently provided for at £56.7bn, but likely to cost significantly more. Outstanding claims for clinical negligence could cost £15.7bn. The PAC’s report on the first-ever Whole of Government Accounts expressed concern that £10.9bn of unpaid tax was written off annually by the government as uncollectable. Committee chair Margaret Hodge said: ‘We were surprised to find the Treasury did not have a grip on trends in some key areas of risk or plans for managing them.’


Widespread support for ‘responsible capitalism’ must lead to more appropriate policies on executive remuneration, business secretary Vince Cable insisted. He called for the end of payments for failure or mediocrity, with a cut in the widening inequality of remuneration. Possible reforms include binding shareholder votes on pay policy and the opening up of membership of remuneration committees. Cable also proposed a change to the Corporate Governance Code that specified the use of remuneration clawback where performance targets were not achieved.


Government departments must accelerate cost-cutting programmes if spending targets are to be met, the National Audit Office (NAO) has warned. This requires departments to develop clearer cost-reduction strategies and not rely on short-term measures. ‘Departments will achieve long-term value for money only if they implement new ways of delivering their objectives, with a permanently lower cost base,’ explained NAO head Amyas Morse. Departmental spending was reduced by 2.3% in 2010–11, compared to 2009–10.


Proposals from Scotland’s first minister, Alex Salmond, for independence have run into difficulty with statements from the three main credit ratings agencies saying that the country was unlikely to achieve triple-A status post-independence. This could undermine its fiscal position, with the country paying higher interest rates on sovereign debt. Moody’s indicated that a new country would not have the political maturity to obtain the top investment grade status and that Scotland could be particularly vulnerable to economic turbulence because of its size.

10/02/2012 12:40

87086_gbr_smb_feb_3b_4c_pcp_fp192x260_accounting_&_business_mag_pr.indd 1

2/6/12 4:18 PM


CFO interview


The high street is still very much alive, says Marks & Spencer CFO Alan Stewart, as he positions the retailer to cater for the shopper of the future and remodels its supply chain


genuinely do love shopping,’ says Alan Stewart, who 18 months ago stepped into the high-pressure CFO job at this most iconic of British retailers. With the tightened purse strings of hard-pressed consumers sending a string of retail chains into a tailspin, it’s a tough time to be in such a role. But the 51-year-old South African, whose other weekend interests include cycling and watching rugby and cricket, is no stranger to the retail battlefield. He joined Marks & Spencer from the CFO role at Terra Firma-owned aircraft leasing company AWAS. But before that, the former investment banker was CFO of WHSmith from 2005 to 2008, where he played a key role in improving its performance and gained a reputation as a ‘cost-cutting supremo’. So does he look back nostalgically to those more spendthrift times when life for retail CFOs was, perhaps, less pressurised than now? ‘It is a tough environment,’ agrees Stewart, but he says he doesn’t spend time worrying about the economy. ‘It’s the environment we’re in. I don’t expect it to change suddenly. It’s just part of what we are part of now.’

Mystery shopper It probably helps that he’s an enthusiastic shopper. Most Fridays he goes out and about, leaving M&S’s gleaming glass corporate HQ near London’s Paddington Station to visit one of the chain’s 720 or so stores around the country. Staff don’t always know he’s going to turn up. ‘I walk around and see what it looks like, taking a customer’s perspective. I find out what store colleagues are

UK_F_CFOint.indd 14

saying – and what they say customers are saying.’ At weekends, he confesses, he will often drag his reluctant wife on another retail trip – out of choice rather than professional duty. Stewart is old enough to remember the 1990s recession, when he was an investment banker at HSBC. He thinks the difference between then and now is the degree of uncertainty in the current climate. The key, he says, is to focus on what the company can do – delivering the right products to customers at the right time, at the right price. ‘And then,’ he adds, ‘focus on efficiency improvements and the management

we’re consistently seeing customers shopping more online.’ Not that he thinks the days of the high street are numbered. ‘The shopper of the future will want to have a retail experience, and they will also want to be able to look online and shop on their phone. But even companies which have set up as online-only are realising that some physical presence is necessary.’ Stores, he says, are a key part of M&S’s future – some 20 million customers a week walk into them – and it remains committed to the high street, although he adds that local forces might sometimes change exactly where that high street is. And while

MOST FRIDAYS HE LEAVES MARKS & SPENCER’S GLEAMING HQ TO VISIT ONE OF THE 720 STORES. STAFF DON’T ALWAYS KNOW HE’S GOING TO TURN UP of costs in order to deliver, we hope, a respectable result.’ Although not sparkling, M&S’s Christmas financial performance was indeed respectable, with group sales for the third quarter of its financial year – the period to 31 December – up 2.4% on the year before. It turned in a particularly strong performance in food, but there was a downturn in home sales, affected by the decision to move out of technology products.

Bricks or clicks? But the real star was online performance, with sales in its direct operations up by over 22%. No surprise there, according to Stewart. ‘I think that quarter to quarter we’ll always see some variation, but

out-of-town has seen significant growth over the past 15 years or so, when fuel costs are high people stick more to the high street. Did M&S’s investment in using X Factor finalists in its advertising give the retailer its own festive X factor? ‘I think it did,’ he says, adding that it probably polarised people more than some of its previous Christmas advertising. ‘What we want to do is to surprise people, to make them focus on us as part of Christmas,’ Stewart says. ‘Customers told us beforehand that what they were looking for was a focus on the family, and that they were going to be spending more time in the home than out.’ The X Factor, he says, created that perfect family environment where every

10/02/2012 17:05


UK_F_CFOint.indd 15

10/02/2012 17:05


Saturday night they could sit down and dine on an M&S meal, watch the X Factor, and see an M&S ad as well. Stewart’s role encompasses those of a traditional FD: treasury, tax, internal and external reporting and overseeing business services. But he also has responsibility for IT and logistics – both crucial areas for the organisation. The finance function is 250-strong, split mainly between corporate headquarters and a business service centre in Manchester which takes care of the high-volume tasks, such as accounts payable and receivable.

Both business and finance Finance people, he says, should support both the finance function and the business more widely. ‘They have to provide commercial support, but equally they have to be able to achieve the organisational objectives of financial planning, reporting, cost management efficiencies and so on.’ Since his arrival, he has evolved the finance function to clarify its reporting structure and give it more cohesion, and to focus on management information and planning. Replacing Ian Dyson, who joined Punch Taverns as chief executive, Stewart suffered an early blow soon after arriving with the departure of his financial controller, Andrew Findlay, who moved to become CFO of Halfords. But it gave him the opportunity to promote someone internally and shift people around – Findlay’s old role is now held by Paul Friston, one of seven staff who report directly to Stewart, including the heads of IT and logistics. Stewart says that M&S’s financial planning falls out of its strategic plan, which runs for three years into the future, and is updated annually. As one of six directors who sit on M&S’s executive board led by chief executive Marc Bolland – who he describes as ‘a great boss’ – Stewart has a key role in setting this strategy.

UK_F_CFOint.indd 16

The CV 2010

Takes CFO role at M&S.


Moves to Dublin-based aircraft leasing company AWAS as CFO.


Joins WH Smith as group FD.


Various roles at Thomas Cook, including stint as chief executive of Thomas Cook UK.


Moves to UK and after a brief spell with Deloitte becomes a corporate financier with Samuel Montagu.


Qualifies as accountant in native South Africa while working for Deloitte, Haskins & Sells.

Currently this involves expanding UK retail space, with the aim of reducing driving time for customers; building its multichannel capabilities; and growing its international operations. Last November it opened a flagship store in Paris; other areas of focus include India, China, the Middle East, Turkey and Russia. ‘Around 12% of our turnover and 15% to 18% of our operating profits are from international operations, so it’s not insignificant.’ Around 60% of M&S stores outside the UK are franchises, which reduces risk and capital investment, while bringing in the skills and knowledge needed in local markets. There’s also a strategy dubbed ‘Plan A’, focusing on ethics and the environment, with the ambition of making M&S the world’s most sustainable retailer by 2015. M&S says it also brings financial efficiencies, with a net benefit of over £70m in 2010–11. ‘The challenge for us is that our business cycle, particularly in the clothing area, actually runs far ahead of an annual financial cycle; you can be well outside your current financial

10/02/2012 17:06


year when you’re already buying for the coming season. So you need financial planning to be very closely linked in with your business.’ He adds that over the last year the company has focused strongly on cash generation. Stewart’s wider role involves looking across the business to find efficiencies and improvements – and to cut M&S’s cost base, expected by analysts to be £30m less for the year ending 31 March 2012. He is heading a project to develop the end-to-end supply chain of the future, shortening lead times from design to store, reducing stock and increasing availability. ‘What’s happening in product design areas needs to be understood by the logistics function in order to plan the logistics well. Equally the design people need to understand the issues logistics people are dealing with,’ he says. ‘There is cross-business complexity, and trade-offs need to be made.’

Chain reaction Stewart says that dealing with the complexity of the supply chain, and seeing the results of this work, has been one of the most satisfying parts of his job. It’s all good personal development for Stewart, but widening people’s experience is something he has focused on for the finance team too. ‘We try to give our people the right experience for their development, but which is also consistent with what we need for the company.’ M&S employs 17 ACCA members, with a further nine studying for the qualification. ‘This year we had a full pass rate on everything, which was great. We’re accredited and we firmly believe in professional training.’ And what of the future? He is circumspect about his plans, saying only that it’s important to evaluate your pathways and be aware that particular moves might close down options. He has more to say about the economy. ‘My own view is that UK

UK_F_CFOint.indd 17

The tips *

‘In order to succeed you have to put in a lot of work – that’s a necessary part of success in business. It’s about putting in the hours, focus and commitment to the job and career you have chosen.’ Stewart generally gets in about 7.30am and leaves at 7pm – later if there is a function to attend. He tries to avoid working at the weekends.



‘Focus on the big picture as well as the detail. There’s a danger of getting too bogged down in the detail of what your job requires and not asking questions, and not thinking about what you are trying to achieve. You need to constantly step back and ask: what is it that I am doing in this role, and what is the company trying to achieve here?’


‘People are very important. You need to find ways of working well with people, work out who is supporting you, and where there are weaknesses in terms of experience or development.’


‘You need to have a thirst for improvement. This is one of the key areas of success because companies are more than ever looking for continuous improvement.’

people are very resilient and I think that they will adapt to the situation we are in. They will still want to buy clothes to treat themselves, to eat good food, and to look after their children and their families. We’ll have a couple of years of relatively low growth, and beyond that is too far away to look.’ Chris Quick, editor

The basics


Number of stores across the world; 720 of them are in the UK, while the rest are spread across 43 countries. The total may have increased by the time you read this.

170,000 SQ FT

The amount of selling space at its largest store in Marble Arch, London – that’s about the same as the area covered by Wembley Stadium, London.


Group revenue for the year ended 2 April 2011.


Underlying profit before tax for the year ended 2 April 2011. Analysts predict this will fall to around £700m for this financial year.

10/02/2012 17:06

18 With the chancellor expected to announce further moves on tax avoidance in his Budget later this month, will the UK finally see a general anti-avoidance rule?

DOWN THE W hen the eminent lawyer Graham Aaronson QC revealed his proposals for a general tax antiavoidance rule (GAAR) last November, the tax advisory world was broadly, albeit cautiously, supportive. However, three months later, as the chancellor prepares to deliver his verdict on the GAAR in his second full Budget speech on 21 March, tax professionals are questioning whether Aaronson’s rule, if introduced, would achieve its desired goal. Osborne is widely expected to announce a further period of consultation and, pending the outcome of that consultation, the introduction of a GAAR that will, he and his colleagues in the coalition government hope, put an end to abusive tax avoidance schemes and ensure that, in the politician’s words, everyone pays their fair share of tax. But there is a fear that a GAAR will not achieve this or provide the panacea that policymakers are looking for – there will be a gulf between the expectations of the policymakers and the reality of tax planning. ‘Overall, do we really need a GAAR?’ asks ACCA’s head of tax Chas RoyChowdhury. ‘What Aaronson says seems reasonable, but starting to go down the path of a GAAR could be a slippery slope.’ The problem is, according to Roy-Chowdhury, that the issue of a GAAR, and tax avoidance in general, has become a political football kicked around with little understanding. There is a risk that the GAAR will be brought in as an additional layer on top

UK_F_GAAR.indd 18

10/02/2012 16:59


E GAARDEN PATH of existing, more targeted, legislation. It would then be down to the Office of Tax Simplification (OTS) and other legislators to tidy up the regime. This would add complexity in an already complicated tax system and make it ripe for further abuse. ‘It is dangerous that we bring in something like this, where there is the bizarre situation where it will be up to the OTS to get rid of the unwanted pieces of legislation rather than doing it all at the same time,’ argues Roy-Chowdhury. Such concerns are echoed by other tax advisers. The Chartered Institute of Taxation (CIOT) and the Association

Whiting with little doubt that a GAAR, or something similar, will be enacted sooner rather than later. However, it should be remembered that Aaronson proposes the introduction of a general anti-abuse rule, not a wider anti-avoidance rule. In his report, Aaronson is quite clear that introducing a broad spectrum general anti-avoidance rule would not be beneficial for the UK tax system. But he is equally clear that a moderate rule that does not apply to responsible tax planning, and is instead targeted at abusive arrangements, would be beneficial for the UK tax system.

‘WHAT AARONSON SAYS SEEMS REASONABLE, BUT STARTING TO GO DOWN THE PATH OF A GAAR COULD BE A SLIPPERY SLOPE’ of Accounting Technicians (AAT) have also had lengthy conversations with the HM Revenue & Customs’ GAAR team, outlining some of their concerns. These include the political dimension of the tax avoidance debate that, they believe, could preclude sensible technical discussion of the Aaronson proposals. They are also concerned about the risk that saying anything against the GAAR, however constructive, will be portrayed as supporting avoidance. ‘The whole GAAR debate arouses enormous passion,’ says CIOT’s policy director John Whiting, ‘and there are many people saying it is not going to work and we should oppose it’. But reading the political tea leaves has left

UK_F_GAAR.indd 19

There would, he argues, be a number of advantages to such a rule: it would deter contrived and artificial tax planning schemes; contribute to providing a level playing field for businesses; reduce the need for judges to interpret existing tax law; reduce the battery of specific anti-avoidance sub-rules; and it would allow the OTS to get on with the task of reducing the existing body of tax rules, and remove the need for a clearance system. Tom Duffy of tax management consultancy Affecton and a former head of UK tax at Shell, believes the GAAR, as designed by Aaronson, could have a positive effect on the UK tax regime. ‘If it does actually change behaviours, then this would be a good

*GUARDING THE GAAR Graham Aaronson sets out in his proposals a number of safeguards that he believes would ensure the consistent and fair application of a GAAR. These are: an explicit protection for reasonable tax planning; an explicit protection for arrangements which are entered into without any intent to reduce tax placing on HMRC the burden of proving that an arrangement is not reasonable tax planning; having an advisory panel, with relevant expertise and a majority of non-HMRC members, to advise whether HMRC would be justified in seeking counteraction under the GAAR. This panel should publish digests of its advice giving taxpayers and HMRC the right to refer to material or information which was publicly available when the tax planning arrangement was carried out. This could provide valuable help in determining whether an arrangement should be regarded as reasonable tax planning. This material should be available as evidence, even if it would not otherwise be admissible as a matter of law requiring that potential application of the GAAR has to be authorised by senior officials within HMRC. This is to ensure consistency and responsibility in its application by HMRC.

* * * *



10/02/2012 16:59


‘THE ISSUE OF A GAAR, AND TAX AVOIDANCE IN GENERAL, HAS BECOME A POLITICAL FOOTBALL KICKED AROUND WITH LITTLE UNDERSTANDING’ thing,’ he says, ‘and it is quite possible that it would do so because it would increase the risk of certain schemes not working. We are, however, talking about schemes that are on the extreme end of tax planning.’ Duffy, a member of ACCA’s Global Tax Forum, suggests that HMRC should consider some kind of exemption for SMEs and questions how a GAAR would fit with self-assessment. He also welcomes Aaronson’s analysis that recognises there is such a thing as acceptable tax avoidance: ‘We put it to the HMRC that they have got to accept there are tax planning techniques that are acceptable, and they should be happy that business is going to

UK_F_GAAR.indd 20

do it – it is all part of the choices in organising your business affairs.’ Duffy also notes that if behaviours are changed in the private sector, attitudes at HMRC will also need to change. ‘It could rebalance and make things more grown-up,’ he says. So if a GAAR gives the UK tax system a chance to grow up, then it will have succeeded. But if it adds another layer of tax legislation, then many believe it will not be so successful. And the question remains, will a GAAR capture the schemes that have hit the headlines in recent years? Would it, for instance, have captured a scheme such as the one at the centre of the Arctic Systems case, which used a combination

of dividends and income shifting to reduce the business owner’s tax bill? Duffy says he put this point to HMRC: ‘Is the GAAR being tested?’ he asks. The Aaronson proposal certainly wouldn’t tackle schemes designed to reduce stamp duty land tax (SDLT) on the sale of multimillion pound properties, as Aaronson himself says his proposal would not apply to SDLT. This goes straight to the heart of the problem: will a GAAR achieve what the government hopes it will achieve? Consultations following the Budget may give a clearer answer to this question. Philip Smith, journalist

10/02/2012 16:59


21_(right).indd 21

10/02/2012 11:38


BEATING BURNOUT Last year Lloyds Bank boss António Horta-Osório became the best-known casualty of exhaustion at a UK company. Here, we present 10 tips on how to avoid burnout


hen António HortaOsório, chief executive of Lloyds Banking Group, announced last November that he was taking a couple of months off work because of fatigue caused by working too hard and too intensely, he sent a shockwave through the City. By the end of the day, the value of the bank on the stock market had plunged by almost £1bn and the rumour mill was speculating about which high-flier might be next to burn out. The extended economic depression following the credit crunch has piled more pressures on ambitious financial professionals. There are still stellar rewards for those who make it to the top of large companies – the average salary and bonus for a financial director in a FTSE 100 company was £2m in 2010, according to Incomes Data Services. But the pressures of top finance jobs have never been greater. Senior roles are now more likely to involve placating anxious shareholders worried about a volatile share price, fronting profit warnings to market analysts, providing more financial data to decisions-makers, finding ways to keep corporate liquidity flowing when more customers are paying late, and worrying about what rising costs and

UK_F_burnout.indd 22

falling revenues are doing to the company’s profit margins. So is anybody still interested in those top jobs? Certainly. But, now more than ever, the finance professionals who make it to the executive suite must have much more than outstanding commercial, leadership and technical skills. They also need to know how to deal with stress and avoid burnout as they scramble their way up the corporate greasy pole. Here are the top 10 strategies from a panel of experts for beating that balance-sheet burnout.


Learn how to handle new sources of stress. Ambitious financial executives have to learn to handle new sources of stress, says Carole Spiers, author of Show Stress Who’s Boss. Such stresses include the need to spend more time at work, cope with a fasterpaced business culture, manage email overload and run a finance department with fewer people. And one of the most

stressful tasks of all in the present climate, she says, is trying to motivate staff who aren’t getting a pay rise. Cary Cooper, distinguished professor of organisational psychology and health at Lancaster University Management School, warns that it’s easy for top executives to become so addicted to their work that they forget the rest of their life. Overworking takes a physical and emotional toll, he says. ‘Long working hours damages personal relationships, which feeds back into your work.’ One of the problems is that managers who want to climb that greasy pole need to say ‘yes’ to a lot of what they’re asked to do, says Brendan Johnson, an ‘easyologist’ who runs coaching organisation Outside the Asylum. ‘That’s a source of stress especially when it’s difficult or even impossible to deliver on what’s asked.’


Treat other people right. Financial wizards on their climb to the top will work with different teams of people as their careers progress. But tomorrow’s leaders who trample on other promising accountants on the way up are storing up stress problems for the future, says Cooper. ‘If you’re exceedingly ambitious you may be

08/02/2012 15:21


tempted to play games which can come back and bite you,’ he warns. ‘If you’re going to do things like undermine competitive colleagues or not share information because it’s valuable, you may damage your career, because people remember when they’ve been badly treated. To reduce stress, you need to invest in relationships that work.’

financial director and co-founder of online accountancy firm Crunch. ‘Make sure you have the processes and right people in place to manage any problems that should arise – and be ready to adapt to deal with any bottlenecks,’ he says. ‘Make sure they filter down to all levels of your organisation. If a single person or team is left performing one timeconsuming task, it can hold up the whole organisation.’ The trouble is that too many financial high-fliers don’t take the time to delegate. Or, worse, they delegate but then try to micro-manage. ‘There’s no point in delegating to other people and then watching everything they do because you might as well have done it yourself,’ points out Cooper. ‘You will cause more stress all round because people will get angry with you.’


Plan and prioritise your workload. Mike Clayton, author of Brilliant Time Management, advises time-pressed executives to minimise stress in two ways. First, use what he calls the ‘oats’ principle (outcomes, activities, time, schedule) to plan how you will spend a day or a week. ‘Make a note of the outcomes you want for tomorrow or next week,’ he says. ‘What do you want to be different when the week is over? Next, what activities will you need to carry out to achieve your outcome? Then estimate the time each activity will take. Finally, schedule the activities into your day or week to ensure that the time you need is protected.’ Second, Clayton says executives need to be willing to say ‘no’: ‘Say “no” when requests or opportunities are neither essential nor strategic and they don’t contribute to something important in your life, like relationships or your wellbeing.’


Use your time wisely. Cooper says that very ambitious executives tend to take too much on. ‘They want to be seen as superman or superwoman,’ he explains. ‘If they don’t use their time wisely, they can end up spending

UK_F_burnout.indd 23


their time fire-fighting lots of different things, some more important than others.’ He adds that very ambitious people want to be everywhere – including social media, such as Facebook and Twitter – which may not be wise. ‘Use social media sparingly,’ he advises. ‘Think about which site is most important for networking. Remember that the best networking is still face to face.’


Become a great delegator. Delegation is the key to keeping stress levels in check, says Steve Crouch,

Create a productive working environment. You can help to keep those stress levels under control by making sure that you work in a friendly environment, says Spiers. You need to ensure the ergonomics of the furniture and equipment in your office helps you work easily, without creating unnecessary fatigue. An office with daylight, restful colours, pictures, plants – even a fishtank – is likely to help reduce stress, she says. But tackling the frustrations of modern technology is also important for finance professionals, who spend much of their time working with computers, adds Sam Reily, chief executive of Ansarada, a virtual data room provider for the finance and

08/02/2012 15:21


banking industries. ‘To avoid wasting time and getting frustrated gathering information, I constantly invest in fast IT equipment and software services that streamline – or, better still, eliminate – processes,’ he says. ‘It means less time wasted staring at screens or fewer process steps to get the same or better results. I find that if a product is designed well and is aesthetically pleasing, then it is more enjoyable and less stressful to use than one that’s not.’


Learn to handle difficult people. ‘Fundamentally, I don’t believe there are difficult people, just difficult behaviours,’ says Clayton, who also authored Brilliant Stress Management. ‘Respond well to those behaviours and respect the person and you can train them to behave differently.’ Caroline Carr, author of How Not to Worry: How to Stop Anxiety Spoiling Your Life, recommends a three-step plan for dealing with difficult people. First, you state what the situation is to the person you find difficult; then you describe to them how it makes you feel; finally, you tell them what you would like to happen – and how you will both benefit. ‘This approach is great because it shows that you mean business without seeming hostile or aggressive in any way.’ As a former detective chief inspector in the Metropolitan Police, Jackie Keddy, co-author of Managing Conflict at Work, is used to handling difficult people. She recommends the ‘saw’ approach: situation (describe the situation under discussion), action (give the reason for a course of action), way forward (get agreement that it’s the most sensible approach). ‘It’s particularly effective in cutting to the chase when you need to address an

ANTÓNIO HORTAOSÓRIO SENT A SHOCKWAVE THROUGH THE CITY WHEN TAKING A FEW MONTHS OFF BECAUSE OF BURNOUT FROM OVERWORK uncomfortable topic with someone who is prone to throwing their rattle out of the pram,’ she says.


Manage your way around unreasonable demands. With organisations under financial pressure, it’s no wonder that financial executives are first in the firing line when the board is demanding the impossible. If you find yourself in this situation, you must speak up, advises Fiona Robson, senior lecturer in human resources management at Newcastle Business School, Northumbria University. ‘In many instances, colleagues or executive team members are not aware of the competing pressures within job roles,’ she says. ‘This will remain the case if they are not updated. You may need to take a more assertive approach to explain why a deadline is not feasible – perhaps as a consequence of other commitments – and offer an alternative course.’ With unreasonable demands, it’s worth considering why they weren’t possible to deliver, argues Robson. Was it because the processes behind the demand were too complicated? ‘Identifying stressors is an important step in managing stress and reducing burnout in organisations,’ she says.

during the current recession. A lost big order, a collapse in earnings, a breach of banking convenants, a major debtor – all can precipitate a crisis in the company that the financial team have the prime job of resolving. It’s worth investing in some crisis management training, advises Robson. But the financial team also needs to be clear about what they can and can’t do and when they need to pull in managers with other specialist expertise. ‘Where crises require wider specialist input, managers should not be afraid to identify those who would be able to make a more valuable contribution to specific contexts,’ she says.

10 Develop a rewarding work/life

balance. It’s very important to destress business life, says Graham Whiley, who was a high-flying FD at the age of 25 and went on to become MD of £800m-turnover Booker Foodservice in his early 30s. ‘You have to approach work-life balance with discipline and not in an unplanned and piecemeal fashion,’ he says. ‘It’s not just a “nice to do” when the chance arises.’ Whiley, now chief executive of HR consultancy Sagegreen, says: ‘So if you’re planning to go to the gym three times a week as part of your work-life balance, you should keep to the routine with the same diligence as if it were a high-level business meeting.’ Carr adds that financial executives need to learn about relaxing as well as spreadsheets: ‘Relaxing your body properly sends a message to your overworked nervous system that you don’t need to be in a state of high alert all the time. It will give your mind and body a chance to settle and bring everything back into balance.” Peter Bartram, journalist


Stay calm when you deal with crises. For financial executives, crises have been coming far too regularly

UK_F_burnout.indd 24

08/02/2012 15:21

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

Caroline Tucker MBA FCCA senior finance officer, Virgin Media


STILL ESSENTIAL But more is needed to make the annual report truly fit for purpose, says ACCA’s Ian Welch


ome debates, it seems, go unresolved for years despite their importance. The future of corporate reporting is one. It is now more than five years since the leaders of the biggest six accounting firms declared that the reporting system was ‘broken’. They called for quarterly static financial reports to be replaced by real-time reporting, bringing in a much wider range of performance measures. And they argued that more non-financial information, customised to the user and more easily accessible, would have to be issued by companies as part of a process of bringing corporate reporting into the digital era. In many ways, of course, 2006 seems like a different world. Postglobal financial crisis, the pressing issues for companies have moved on from the boom days, and debates on financial reporting may not be top of the immediate agenda for many. But with more pressure than ever on corporate performance, ACCA recently took another fundamental look at whether the time and effort that still goes into company reports is justified. We surveyed 500 investors and other users in the UK, US and Canada to see whether their views on the usefulness of the annual report had changed since the global financial crisis broke.

More scrutinised than ever Given the resource they expend on the annual report, companies may find it reassuring that 50% of respondents still named the annual report as their primary, or indeed only, source of information about a company. Clearly, those who argue that the traditional annual report no longer has any value

UK_INT_F_annualreport.indd 26

are guilty, at least, of exaggeration. In fact, a majority (57%) of users said they now tended to read reports more carefully than before the crisis. Nonetheless there were many criticisms of annual reports: 47% said they were too long; 40% too general to be useful; and 35% backward-looking. In addition, 35% said reports were too complex, with more than two-thirds of them blaming reporting standards, as well as legal requirements, for making

50% OF RESPONDENTS STILL NAMED THE ANNUAL REPORT AS THEIR PRIMARY, OR INDEED ONLY, SOURCE OF INFORMATION ABOUT A COMPANY them so. This follows the pattern of previous research (in a 2009 ACCA report, Complexity in Financial Reporting, respondents clearly indicated they found International Financial Reporting Standards overly and unnecessarily complex) but suggests standard-setters still have much work to do. Discouragingly, more respondents disagreed than agreed that information provided in annual reports was clear and concise. This is worrying given that the issue of clarity was rated highly in the survey. Is this just the poor state of reporting practice or is the format of the report itself causing the problems? Either way it is an indictment of the current state of reports, given that so many respondents still rely on them. So what did the users want to see? The biggest single answer (71%) was enhanced reporting on risks, which may not be surprising but is definitive nonetheless. A clear statement of a company’s key risks and how it intended to mitigate them was the

most pressing issue. Regulators such as the UK’s Financial Reporting Council have put this at the top of their agenda – a wise move, our study would suggest. The FRC’s ‘cutting clutter’ initiative to reduce the amount of nonessential material in reports would also appear timely. Despite standard-setters asserting that investors are the primary audience for the annual report – a view that ACCA would strongly endorse – there was still a belief that the variety of audiences using the report had led to a lack of focus by companies. And, more worryingly, just as many respondents disagreed as agreed that standards themselves encouraged companies to provide a correctly balanced view of their performance – ie to include bad news as well as good. Almost half the respondents believed too much promotional material had crept into annual reports, undermining the concept of neutrality that must underpin any meaningful report.

09/02/2012 11:34



57% I review the annual report more carefully than before 21% Preliminary results still effectively guide my assessment 18% I still use other sources 4% I now read the annual report, where I did not previously


50% 17% 9% 8% 5% 4% 3% 3% 1%

Annual report Media/press reports/Google searches Recommendations from personal contacts Investor briefings/company prospectus Interim report Liaising with board members directly Liaising with investor relations team directly Other Preliminary announcement



There were some interesting findings in terms of ‘emerging issues’. Notably, while the value of social and environmental data had declined in immediate importance for many investors, the advent of integrated reporting appeared to bring genuine hope of reversing this trend. Including such information in an integrated report (IR) would add value, most said. This finding will encourage the International Integrated Reporting Committee (IIRC) as it tries to deliver an IR framework by the end of 2013. A move closer to more timely information was also favoured by most, indicating that the 2006 aspirations of real-time reporting are still valid even if not enough has happened over the past five years to take them forward. The report was used by many respondents in conjunction with other sources such as quarterly reports, brokers’ reports and press releases. ACCA believes the profession needs to address how such information – especially given the emergence of social and mobile media platforms offering immediate data – can be assured. This might be key to the future of corporate reporting. But in the meantime, what conclusions should we draw? First, investors should be repositioned as the primary audience for the report and be better engaged in its evolution. Second, more emphasis on risk and forward-looking information is needed. And third, a determined effort to prune and simplify annual reports would help all stakeholders. ACCA’s study Reassessing the Value of Corporate Reporting is available at www. Ian Welch is ACCA’s head of policy

UK_INT_F_annualreport.indd 27

09/02/2012 11:35



As football and other UK sports have become big businesses, with vast revenue streams, so the government is insisting on an overhaul of their corporate governance to match


he Football Association (FA) is facing a penalty of its own from the UK government if it fails to meet deadlines for introducing wide-ranging corporate governance reforms. The government has given English football’s principal organisation until the end of February 2012 to deliver plans to overhaul the way the game is governed, including a new licensing system for clubs and wholesale reform of the FA board. if it doesn’t, reform may be imposed by the government. The Department for Culture, Media and Sport (DCMS) says big changes need to be made to the way football is run in England to address financial instability and levels of debt in the game, and to secure its future. From the moment the government set the deadline last year to introduce the reforms – which extend to controls on club debt and more stringent checks on foreign owners – a new chapter for sports governing bodies was heralded.

UK_F_sportgov.indd 28

The threat of legislation to enforce change if necessary follows stinging criticism from sports minister Hugh Robertson, who called football ‘the worst governed sport in the country’.

point the sports minister recognises. He says: ‘There are many reasons we should be pleased with how it has progressed over the last two decades. However, I believe that there are

THE THREAT OF LEGISLATION FOLLOWS SPORTS MINISTER HUGH ROBERTSON CALLING FOOTBALL ‘THE WORST GOVERNED SPORT IN THE COUNTRY’ FA chairman David Bernstein has already signalled his intention to comply, by appointing Heather Rabbatts to the board – the first woman in 149 years. Bernstein acknowledges: ‘This represents a significant change to our governance structures.’ But while Rabbatts’ appointment represents a breakthrough, it is merely the tip of the governance iceberg. Matters may be rapidly coming to a head at the FA, but considerable improvements in corporate governance at sporting organisations have already been made over the past 20 years, a

improvements that can be made in the governance arrangements, which have failed to keep up with the changing pace of the modern game.’

Big business And therein lies the driver of the whole issue. A number of UK sports have become big business; as a result, government is eager to establish corporate governance mechanisms that fit their growing economic status and are akin to City of London standards. The Sport and Recreational Alliance is an example of the drive to improve

10/02/2012 17:00


governance. The umbrella organisation for the governing and representative bodies of UK sport and recreation has more than 320 members, including the FA, the Rugby Football Union (RFU) and UK Athletics. Part of its remit is to assist bodies with their corporate governance models and with putting together a board of directors. Sean Hamil, professor at Birkbeck Sport Business Centre, University of London, gave evidence to last year’s DCMS enquiry. He tells Accounting and Business: ‘Sport is actually a very complex area for corporate governance. In a listed company there is one main stakeholder – the shareholder. However, in sport there are many stakeholders and functions. The question is how to make executive managers operate in the interest of all stakeholders and comply with FRC [Financial Reporting Council] guidelines. ‘The FA board, for example, is responsible for distributing money; they are a competition organiser, they have a development role, a disciplinary role, they manage the transfer system and player agents. Are there conflicts of interest there? Yes, but they shouldn’t be expected to stop carrying out these roles. However, they and other sporting organisations have to be capable of the stewardship of public finance. There are many legitimate reasons for government to be involved.’ Andrew Nixon, an associate at law firm Thomas Eggar, says: ‘The drive is coming from government for two reasons. It wants to be in sport because sport is popular and cool. Also, although they are private industries, the government believes there is a wider public interest here. Sport needs to shake off the image of it being an industry where there are jobs for the boys.’ The English FA is not alone in far-reaching governance changes. In Northern Ireland the Irish FA (IFA) was forced to shake up its corporate governance procedures in 2010 after attracting criticism for substandard governance. A critical report into the

UK_F_sportgov.indd 29

sacking of former chief executive Howard Wells in 2008 sparked the changes. An unfair dismissal case lodged by Wells cost the IFA over £500,000 and its president and second in command resigned amid fears that £30m in government funding for the redevelopment of Windsor Park, the national stadium, would be lost if they remained in office. In rugby union, law firm Slaughter and May completed a three-month review last November, commissioned by the RFU Council. Sports law experts estimate the RFU paid around £200,000 in legal fees for the review, which covered the current corporate governance structures.

Balance of powers The review also looked at whether current practice complies with the rules and regulations, the correct balance of powers of the relevant stakeholders (particularly of the board and council), and whether the rules and regulations and current practice are effective in delivering the necessary direction to the executive staff. It was informed by interviews and written submissions from stakeholders and drew on best practice guidelines for UK-listed companies, recent codes of practice developed for the non-profit and sport and recreation sectors, and a comparison with the governance arrangements at other national governing bodies in England and elsewhere.

The review followed intense criticism in the media regarding the sustainability of the RFU’s current structures. Now it remains to be seen what changes, if any, the RFU makes based on the recommendations. Cricket has also come in for criticism. In 2009, for example, Lord Marland, the former treasurer of the Conservative Party, claimed there were ‘systematic problems’ within the England Cricket Board (ECB) regime. His criticism of the handling of the team contributed to the departure of Kevin Pietersen and Peter Moores – captain and coach, respectively – from their jobs. And he lambasted the ECB’s involvement with disgraced Texan billionaire Sir Allen Stanford, and the disharmony in the county game. The Lawn Tennis Association (LTA) meanwhile, has made some important reforms to modernise and strengthen


Stung by criticism of its exclusively white, middle-class, middle-aged male board, the FA appointed its first female director at the start of this year. The decision to make Heather Rabbatts, a former deputy chair of Millwall FC, one of two new independent non-executive directors, follows a pledge from FA chairman David Bernstein to respond to DCMS recommendations. ‘There were numerous outstanding candidates, but the important thing is that our decision was based on recruiting suitable individuals who are able to provide a strong challenge and supplement the existing range of skills and experience,’ he said. Born in Jamaica and trained as a barrister, Rabbatts made her name in local government, becoming chief executive of Lambeth Council in London in 1995. She moved into the private sector, joining Millwall FC in 2006, and has held a number of non-executive directorships, including governor of the BBC and trustee of the Bank of England. She was awarded a CBE in 2000.

10/02/2012 17:00



The Department for Culture, Media and Sport believes that urgent reform at the FA is essential before it can take on the challenge of addressing the wider problems of English football. Recommendations published in response to a Culture, Media and Sport Committee Inquiry into football governance include a need to review the composition of the FA’s council to improve inclusivity and reduce average length of tenure. It also suggests imposing a rigorous formal licensing model to promote sustainable, forward-looking business plans and underpin selfregulation measures. Also mooted is a strong ‘fit and proper persons’ test consistently applied to new potential club owners, with a presumption against selling a club’s ground unless it is in the club’s interest. The committee recommends abolishing the football creditors rule, which, it says, ‘epitomises the extent to which financial priorities are being distorted’. HMRC is also challenging the rule in the courts because football industry debts get priority over tax debts when a club moves into administration. DCMS wants to amend the law to recognise the special nature of supporters’ trusts and help them overcome the significant legal and bureaucratic hurdles they face when raising funding. An FA review of expenditure at the grass roots is also recommended, with a particular emphasis placed on coaching education.

its governance across a range of areas, guided by best practice across sport and the wider corporate sector. Its changes are designed to mirror the setup of a FTSE 250 company and Sport England has recognised the LTA as having sound and improving governance structures in place after full audits in 2008 and 2010. The LTA reforms were sparked by a 2004 report commissioned from Deloitte. They have been aimed at improving the quality and speed of decision-making, boosting the number of independent non-executive directors on the board, reforming the council by increasing representation from ‘non-traditional’ areas of the sport (beyond the traditional county structure), and reducing and reforming the committee structures.

UK_F_sportgov.indd 30

Alongside this, the organisation has introduced more appropriate checks and balances, strengthened its risk management procedures and created a culture of transparency and accountability within the organisation, through strong reporting structures to the executive, council and main board. Further afield, former attorney general Lord Goldsmith has been appointed to the group with the job of reforming FIFA, the governing body of international football, following a series of scandals. ‘I have accepted the invitation as I believe that there are important issues of reform with which FIFA needs to deal,’ says Goldsmith. ‘I hope my experience from government and now in an international law practice with a heavy emphasis on corporate

Who owns the deeds to Leeds? Ownership questions fuelled the football governing debate

governance and compliance and anticorruption issues will enable me to contribute to that work.’ The FIFA president, Sepp Blatter, has promised to make ‘necessary reforms’. However, Nixon believes that FIFA is an exception to the general rule. He says: ‘FIFA is uncontrollable. It is based in Switzerland for beneficial tax reasons and the Swiss government is not remotely interested in involving itself – it doesn’t care.’ There is no one-size-fits-all solution within sport, but the obligations of the Companies Act 2006 mean directors need to be educated, whatever the size of organisation. And there is plenty of work to do. It is widely accepted that the UK lags way behind countries such as Australia, New Zealand and Canada. And while the UK government doesn’t want direct responsibility for running any sport, the big question remains whether sports bodies in general can prove to be capable of managing themselves. The DCMS says: ‘There is a legitimate role for the national football governing body, working hand in hand with competition organisers, to ensure that appropriate and consistent checks and balances are in place to protect the overall financial integrity of the national game and its long-term viability.’ The targets have been set and the signs look promising, but the governing bodies need to prove not only that they are capable of change, but also that they can remain light on their feet going forward. Alex Miller, journalist

10/02/2012 17:00

-AB UK ads.indd 2

10/02/2012 13:32



Reform sparks revolt [

The Financial Reporting Council’s proposals to streamline its structure by moving statutory powers from its seven constituent bodies to its main board are being met by increasing opposition, says Robert Bruce

As soon as regulating became a growth industry around 20 years ago the problems started. To an outsider the role of a regulator seemed obvious. It would be set up to meet a perceived need. It would meet that need and then, leaving a small organisation behind to carry out the actual regulation, would fold up its tents and melt away. But that is not human nature. Building a small empire is usually followed by the building of a larger one. And, in the world of regulation, that means competing with other regulators to take over parts of their empire and reinventing themselves to make their lives easier and powers greater. The glory of their position often comes to count for more than the growth in stability and security, which the humble folk who are ostensibly being protected by the regulation, desire. And lo, this has come to pass with the Financial Reporting Council (FRC),

UK_F_Bruce.indd 32

with its proposed grand reorganisation. In January the consultation exercise came to a close and the FRC circulated a paper talking of how it had listened and what it was going to do next. There was to be no period of considered calm and consideration and discussion about what should be done in light of the points made during the consultation. The reform proposals were published by the FRC and the Department of Business, Innovation and Skills in October, with a mid-January deadline for responses. They stated that the FRC had a ‘strong reputation – within the UK, the EU, and internationally’, but ‘it is structured in a way that is overcomplex and insufficiently understood, with a risk that, in aggregate,

regulation by its seven different bodies will be over-burdensome’. At present the board of the FRC oversees seven bodies, the UK Accounting Standards Board, the Auditing Practices Board, the Financial Reporting Review Panel, the Board of Actuarial Standards, the Professional Oversight Board, the Audit Inspection Unit, and the Accountancy and Actuarial Discipline Board. It makes up a wide range of bodies, mostly with a very high reputation. And at present the statutory powers are with them. This is where the detailed knowledge and skills lie.

Search for efficiency The proposed solution removes those statutory powers and delegates them to the board of the FRC. This, says the consultation document, will ‘enable the FRC to take decisions at the right level within a streamlined structure’. This streamlined structure would be two board committees, one dealing with codes and standards, and the other with conduct. ‘They will in turn be supported by advisory councils and panels as necessary. In this way,’ the proposals say, ‘the FRC will remain well connected to, and informed by, market participants, but will be able to operate on a more efficient basis’. The proposals attempt to prove this by showing diagrammatically that the new body looks much less cluttered with only two groups reporting to it rather than the current seven. It is a spectacular piece of graphic sleight of hand. The organisation diagram in the proposals simply omits the new advisory councils and panels. As one observer pointed out: ‘If you showed those on the charts you would be pretty much back where you started.’ In other words, the solution is to strip the main FRC bodies of

10/02/2012 12:41

‘These reforms will help promote transparent and high-quality financial reporting,’ says Edward Davey MP, former corporate governance minister (now energy and climate change minister), pictured (right) with Polish minister Marcin Korolec in Brussels

authority. As the ACCA response says: ‘While we agree that the reformed structure of the FRC is important, it is of greater importance that those within the organisation charged with decision-making and providing technical support to the board and the committees relating to accounting, auditing and corporate governance issues have the correct skills and market knowledge and experience.’ This is the nub of the problem. If decision-making moves upwards and away from the experts, then fewer experts will be willing to take part in the process. The executive will have the power, but will be adrift in terms of being able to handle it directly and wisely. As one observer pointed out: ‘Because they won’t have the authority, which will be vested in the FRC board, it will be difficult to get senior people to sit on the advisory boards.’

Public interest Others have the same worry. As one asks: ‘Are there going to be people there who we all respect and who are doing good things in the public interest?’ And that then reverberates around the world. As the response from accountancy firm Deloitte says: ‘One of the key roles of the FRC is to provide a strong voice for the UK on international bodies such as the International Accounting Standards Board and the International Auditing and Assurance Standards Board. The proposed

UK_F_Bruce.indd 33

restructure appears to weaken rather than strengthen the UK’s influence.’ At its heart the changes proposed are based on power and where it lies, rather than the detail which provides the value. ‘It just looks like a power grab,’ says one observer. ‘They are putting all the standard-setting powers with the top board instead of the body which goes through all the technical detail and the due process.’ Taking away the powers of the people who do the work and placing it

in the hands of the board is seen as likely to end in tears. ‘I don’t see it can possibly be putting the decision-making in the right place,’ said one expert. ‘They are putting themselves in the position where if two of three board members agree on something, they can just push the stuff through.’ The empire-building continues. Robert Bruce is an accountancy commentator and journalist


Some of the strongest criticism of the proposals has come from several academics who have long been involved at the heart of the financial reporting world. Take Geoffrey Whittington, emeritus professor of financial accounting at Cambridge, who has been a board member of both the UK and the international accounting standards boards. On the idea that a single advisory committee, with a lay majority, should deal with ‘issues as diverse as actuarial, auditing and accounting standards’, he says: ‘This proposal shows no appreciation of the technical difficulty of the issues involved. Financial reporting is not complex because standard-setters wish it so. Business itself is now much more complex than it used to be, thanks to the efforts of lawyers, financial engineers and others, employed by senior executives, anxious to boost their actual or apparent financial performance. Unravelling this complexity for financial reporting purposes is not a simple task and not for the lay person, and unfortunately it will not always be possible to convey a simple message because the underlying reality is not simple.’ Likewise the views of professor Peter Walton of the ESSEC-KPMG Financial Reporting Centre in Paris: ‘Not having a dedicated standard-setting body with the appropriate technical support will be perceived as an abdication of interest in European and international spheres and will lead directly to a loss of influence in what is supposed to be a focus: the reporting of listed companies.’ And for accounting professor Stephen Zeff of Rice University, it is: ‘profoundly short-sighted’.

10/02/2012 12:41



Fiddling while we burn [

With the forthcoming Budget the least propitious time in a century for just tinkering at the margins, Peter Williams drafts a dream speech for the chancellor to deliver on 21 March

Here is the Budget speech the chancellor should give on 21 March: ‘Mr Speaker, for the last 30 years the tradition of chancellors of all political persuasion has been to tinker: to conjure up initiatives, incentives and reliefs in a bid to grab tomorrow’s headlines and short-term favour. But the pressures from Europe, the growth of an entangled benefit system, commercial complexity and legal decisions have now made the case for radical tax reform so overwhelming that I have decided to act. ‘First, I want to apologise to those who know the tax system best – the accountancy profession – who for years have been describing this crisis. We will listen more carefully in future. ‘Through tax the government takes £4 in every £10 this country earns, but thinking about tax policy has been somewhere between woeful and non-existent. I am acting now because

the global financial and economic crisis means that economic growth is desperately needed. But government can do nothing to promote it other than to get out of the way as much as possible. ‘The principle of the tax system from now on should borrow from medicine: first, do no harm. We need to stop distortion, loopholes and anomalies. The Office of Tax Simplification has done well to show us the impossible job it has working with the present bloated system. And the Tax Law Rewrite project, forgotten by all but the keenest observers, similarly has futility in its DNA. Challenges at HMRC, from

the top to the bottom, are final proof that we cannot carry on as we are. ‘Every business person knows the corporate tax system favours debt finance over equity. I will implement the sound solutions proposed by the Institute for Fiscal Studies’ Mirrlees Review, including an allowance for corporate equity, treating debt and equity equally and ensuring only profits above the normal return to capital invested are taxed. It could increase national income by £20bn, or 1.4%. ‘VAT treats different types of spending inconsistently, and both favours and creates immense complexity for financial services. The solution is to impose VAT on the sector and extend it to nearly all spending, so reducing costly distortions to consumption choices. ‘The taxation of savings is chaotic. Widely different effective tax rates are imposed on returns from different forms of savings, resulting in extensive tax planning, disincentives to some forms of savings and poorly designed incentives to others, including that great untouchable, pensions. ‘Income tax and national insurance will be merged fully – no link between NI and benefits exists. And in the benefit system we must remove disincentive through a universal credit. ‘Finally, the idea is not to tax more but to tax better, and we will continue to seek to stop all those who deliberately cheat the rest of us. ‘I commend these reforms to the House.’ Of course, we can expect no such speech, just selected statistics to tell us it isn’t as bad as we know it is and a little tinkering, which will please no one and just do further damage. Peter Williams is an accountant and journalist

UK_COM_pw.indd 34

08/02/2012 13:39



Slimmer but smarter [

It’s certainly not wads of boilerplate disclosure that investors, analysts and other company stakeholders want in the annual report, says Jane Fuller, it’s the financial details – all of them

The argument over the length of annual reports can often be characterised as preparers versus users. The former want to minimise production costs and keep sensitive information to themselves; the latter to see everything the FD sees, in a form that makes it easy to compare companies. Recently an air of compromise has emerged. Investor groups responding to the agenda consultation of the International Accounting Standards Board (IASB) said they wanted better information, not more. As a user spokesperson, wearing my CFA (Chartered Financial Analyst) UK hat, I have sympathy with clutter-cutting. After all, Warren Buffett started making canny investment decisions when annual reports were slim. These days the length of the disclosure section in a typical exposure draft makes my heart sink. What part of the following paragraph in the revenue recognition exposure draft do preparers not understand? ‘The objective of the disclosure requirements is to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cashflows.’ The Institute of Chartered Accountants of Scotland and its New Zealand equivalent took up the challenge in a report published last year, entitled Losing the Excess Baggage. By focusing on information that helps investors make decisions, and with a strict eye on materiality, they took a red pen to the disclosure sections of many standards. The European Financial Reporting Advisory Group (EFRAG) and the Financial Accounting Standards Board (FASB) should take a similar approach as they launch their transatlantic disclosure framework project. A good illustration of the ‘no easy answers’ aspect of this debate is

UK_COM_fuller.indd 35

the definition of materiality. A long time ago I was told that 5% was a decent materiality threshold. It could be a change of at least 5% from one period to another, or that the business line/exposure added up to at least that portion of a key number in the financial statements. The modern view is very different. ‘An overall materiality threshold applying across all transactions or balances cannot be defined numerically,’ declares

European markets regulator ESMA. It also depends on the type of entity and the trend. Hence the overriding factor is whether omitting or misstating the information could influence a shareholder or creditor’s decision. Another complicating factor is that the information is presented through the eyes of management and, while that gives users a picture of the business model, we actually prefer to see it through our own eyes. As Buffett says: ‘At Berkshire, full reporting means giving you the information that we would wish you to give us if our positions were reversed.’ This includes ‘a lot of financial details’. Sometimes directors’ enthusiasm for a new ‘strategic direction’ mars the consistent reporting that users want. Dutch telecoms operator KPN, for instance, unhelpfully bundles together wireless and fixed line revenues. Defence contractor BAE Systems has decided to give a better breakdown of its electronics and cyber and intelligence activities, but airbrushed out its Land and Armaments division. The fact is that users like consistency over time, comparability with peers, meaningful breakdowns of activities and granularity of information. The more subjective the judgment, the more important it is to provide key assumptions and sensitivities. Sure, there should be pushback against boilerplate disclosure and the indiscriminate treatment of every paragraph on disclosure as a minimum. But my belief remains that there is more scope for cutting clutter in the front half of the book than in the financial statements and their notes. Jane Fuller is former financial editor of the Financial Times and co-director of the Centre for the Study of Financial Innovation think-tank

08/02/2012 13:39



What they really want


In an age of information, the annual report remains a key tool for investors. So let’s make it better, says ACCA president Dean Westcott

After all the effort that accountants put into preparing and validating annual reports, there is sometimes a feeling that the intended audiences do not read them carefully and in some cases never even open them. Yet a recent ACCA survey of 500 investors, capital providers, suppliers, customers and report preparers in the UK, the US and Canada found that stakeholders do value the annual report. Half cited it as their primary source of information about a company, and over a third saw it as an easy way to assess information on a company. It all suggests that the annual report has become more important since the financial crisis, with users reviewing reports more carefully than at any time. But that closer scrutiny has brought with it some key issues for all finance professionals who prepare reports. The report, Re-assessing the Value of Corporate Reporting, suggests that for all their usefulness, annual reports are being held back by confusion over their different audiences, their complexity and their lack of timeliness. Respondents say there is a need for a greater focus on forward-facing plans, risk management and the effective integration of these and other issues into the report in a more coherent way, with investors positioned as the single most important audience. Nearly half also said too much ‘promotional material’ had crept into reports; 47% added that reports were too long, 40% too general purpose, 35% too backwardlooking and 35% too complex (68% of whom blamed reporting standards and 61% legal requirements). Even more important is what users actually wanted to see in reports. More than two-thirds wanted more on risks that could affect company performance, and how the business planned to manage or mitigate key risks. And while many respondents noted a drop in interest in social and environmental information, they also welcomed a move to integrated reporting as a way of reviving the value of this data to them. There are challenges here: respondents say that reports need to be simplified, written with investors in mind, and more forward-looking and risk-aware. But these challenges also present huge opportunities for us to ensure that report users not only engage with the reports we produce, but get the answers they really want. Dean Westcott FCCA is finance director of Hinchingbrooke Hospital in Cambridgeshire, England

UK_INT_COM_pres.indd 36

06/02/2012 16:12



Corporate growth optimism has risen in the last year, according to the latest Professional Hiring Index by recruitment specialist Robert Half. Some 72% of UK executives are more confident about their companies’ growth prospects than they were last year, while 73% of CFOs intend to increase staff levels this year. Phil Sheridan, managing director of Robert Half UK, said: ‘Private and publicly listed companies have above average confidence in their businesses’ ability to grow this year. This positive belief in their future success is the main driver behind stronger predictions for new hires over the next six months.’ Robert Half says that there is particular demand for accountants and IT and human resources professionals, but warns there could be a two-tier labour market this year with weak demand for low-skilled occupations.


Richard Kibble, a PwC partner, joins RBS this month as its group director of strategy and corporate finance. He will report to group chief executive, Stephen Hester and group FD Bruce Van Saun. Kibble has latterly been the leader of PwC’s corporate strategy team, focusing on financial services, and has over 20 years’ experience in strategy consulting. Before joining PwC in 2008, Kibble was managing partner of Marakon Associates in the UK. Hester said: ‘Richard brings strong experience in financial services strategy and we are pleased to have him join our team.’

UK_YCORP_intro.indd 37


The view from: Consultancy: Rhonda Best FCCA, managing director, Alexander Bain and Associates Q What does your role involve? A My role is all encompassing and can vary from day to day; generally I’m involved in shaping our strategy, communicating it, generating new business, providing leadership and direction while ensuring that we support our clients. Q Describe a typical client. A Real challenges arise once a business begins to grow – especially with small and medium-sized enterprises (SMEs). Our clients are those in the growth stage; whether launching a new product line or service, or developing its strategy without the management expertise in-house. We assist in the development of business plans and manage due diligence processes when clients require financing. Q Bank funding for SMEs is consistently low, how do you support struggling SMEs? A SMEs’ failure to secure finance is sometimes due to ignorance or inconsistencies when answering questions. Not only do we assist our clients throughout the application process but, where necessary, we recommend finance sources which may be more appropriate. Q What new business ventures do you have planned? A We are exploring international markets and running seminars in Trinidad and Tobago. Through new relationships formed with SMEs there we are also looking at partnering opportunities for clients in the UK.


Location: London Work motto: Professionalism, ethics and corporate governance in all business matters

37 Corporate The view from Rhonda Best of Alexander Bain and Associates; behind the scenes with ACCA members at Royal Dutch Shell; how to be a superhero in the boardroom; fulfilling the potential of shared services and outsourcing 48 Financial services The view from Ben Wilson of PwC; the pros and cons of an EU-wide Tobin tax 51 Practice The view from Mark Surridge of Grant Thornton; an analysis of the interdisciplinary firm amid the EC’s plans to split audit and consultancy 55 Public sector The view from Will Hutton, former editor of The Observer; accountancy in the new age of austerity

10/02/2012 13:59


Inside Shell

At the controls In the latest in our series on ACCA members’ experiences at big-name businesses, we visit Royal Dutch Shell’s HQ in The Hague and meet Rui Bastos and Calvin Chiu

Walking through the Shell headquarters in The Hague is like taking a tour through the company’s 200-year history. Cleaving the building is a grand staircase, which divides a modern 1980s structure from the original Renaissance-style edifice built in 1915. An old diesel pump stands guard by the main entrance, belying the company’s beginnings as a oneman antiques and oriental seashell dealership in London’s East End. The thriving oil and gas business now employs 93,000 people in more than 90 countries, is active in 36 different industries and made a profit of US$31.185bn (around £20bn) in

UK_INT_YCorp_InsideShell.indd 38

‘THE CLASSICAL AUDIT APPROACH IS CHANGING RADICALLY. WE’RE DEALING WITH NEW REALITIES TODAY. RISK IS NO LONGER JUST ECONOMIC RISK’ 2011. The Dutch royal family owns a small shareholding – less than 1% – a throwback to the 1907 merger between the London-based Samuel family’s Shell Transport and Trading Company, which had grown from that seashell dealership into a flourishing oil exporting business, and the Royal Dutch Petroleum Company, its main competitor at the time. Shell’s operations are twofold: the exploration and extraction of crude oil

and natural gas, and the refining business. The latter converts crude oil into fuels, lubricants and bitumen. Shell also produces biofuels and invests in solar and wind energy, as well as carbon capture and storage. With projects in countries as far afield as Oman, Iraq, Nigeria, Canada and Australia, it has a complicated web of interests to manage. ‘Shell operates worldwide, and oil and gas is an extremely risky and

10/02/2012 13:57


complex business, so you’ve got to understand the dynamics of the external environment, be it political, regulatory, economic and technical,’ explains Calvin Chiu, a governance, risk and controls (GRC) adviser in Shell’s central finance section. Originally from Shanghai, Chiu works in a team of 12 in Shell’s corporate HQ in The Hague, which he describes as ‘the centre of risk management’ for the company. ‘We’re the custodians of the financial part of the Shell control framework and we actively interact with internal audit, external audit, the IT community, financial controllers, community financing and business financing projects,’ he says. ‘I usually deal with a network of governance, risk and control managers and deliver results through them.’ Chiu has helped steer a major overhaul of Shell’s controls framework in his five years at the company. The project was spurred by the introduction of the Sarbanes-Oxley Act in the US, which set strict new standards for corporate governance in the wake of the Enron, Tyco and WorldCom financial scandals. ‘We looked at our control framework to streamline it, make it leaner and meaner,’ he says. ‘We managed to reduce the number of controls from 46,000 five years ago to about 13,000 today, with a core of less than 2,000 – for a company the size of Shell this is a very impressive achievement.’ He is proud of the project, which he says has created a sort of ‘Enterprise One’ mentality. He adds: ‘We have upstream business, downstream business, and all these businesses organise themselves as if they’re independent companies, but by implementing this control framework we managed to glue these different organisations together.’ The evolution of the control framework coincided with the creation

UK_INT_YCorp_InsideShell.indd 39

The CV


Head of corporate and IT audit, Shell.


Partner, technology and security risk services, at Ernst & Young, subsequently assurance and advisory business services partner.


Chief financial officer at PA Cargo.


FCCA with honours degrees in finance, accounting and IT audit, and an MBA from Insead.

The CV


Adviser on governance, risk and controls at Shell. In 2011 spent six months in Dubai, dealing with planning, economics and reporting for Middle East and North Africa. Due to move to group strategy and planning as financial planning analyst.


Various finance roles at Cisco Systems, including financial reporting, processes, systems and SarbanesOxley audit and compliance.


Business planning and marketing at China Eastern Airlines.


BSc in environmental science and engineering, and an MBA from Bradford University. Qualified as ACCA in 2010.

10/02/2012 13:58

Inside Shell



All figures refer to 2010 unless otherwise indicated


Share of the world’s oil produced by Shell


Share of the world’s gas produced by Shell


Barrels of oil and gas produced a day


Litres of fuel sold in 2010



Number of Shell employees

Number of refineries and chemical plants worldwide



Number of countries in which Shell operates

of centres in Kuala Lumpur, Chennai, Manila, Glasgow and Krakow, effectively migrating and centralising large parts of the finance function to Shell locations worldwide. The centres provide an array of services, such as accounting, reporting, management information and inventory management, to Shell companies across the globe. The effort to ‘standardise and simplify the financial control framework’ is part of the migration, Chiu says. ‘However, when you operate all these controls in an offshore environment, then you talk about very different risk profiles.’ Rui Bastos, Shell’s head of corporate and IT audit, enumerates some of the challenges faced by a company that spans multiple continents, time zones and sectors: ‘The variety of topics crossing my desk is phenomenal. One day it’s cloud computing security concerns, the next how to manage controls in the shared service centre or how we deal with physical security in high-risk locations. We also operate in more than 30 different industry sectors, so we are impacted by most major pieces of financial or regulatory

UK_INT_YCorp_InsideShell.indd 40


Number of Shell service stations worldwide

Net income (profit) in 2011

legislation around the world.’ Bastos, who is Portuguese and South African, came to Shell from auditor Ernst & Young. He also oversees the operational logistics of Shell’s almost 400 audits a year, conducted with the help of more than 200 Shell internal auditors all over the world. Shell’s internal audit function operates out of four main hubs in Kuala Lumpur, Houston, London and Nigeria.

Working together ‘We’re a microcosm of the entire Shell organisation,’ says Bastos. ‘We work with integrated audit teams of finance, IT, upstream, downstream, and the other specialty skills required to deliver a specific audit. We have a specialised data analytics team that support internal audits, investigations, regulatory compliance and our continuous auditing activities. ‘We’re also asked to play an advisory role on a variety of topics, given our broad exposure to Shell through our audits. The broad audit coverage allows us to provide very good insights into how a variety of activities are happening on the ground.’

He says that this kind of knowledge is crucial for internal audit to add value: ‘You are called on to discuss a variety of topics with Shell senior management and the audit committee, which requires good insights on what is happening in all levels of the organisation. These insights are key to understanding the consequences of the issue for the rest of the organisation, but also to help shape how the organisation moves forward. From an internal audit perspective, it is both extremely impactful, but also personally very rewarding.’ Spreading these kinds of insights and know-how around the business is part of Shell’s ethos, Chiu says. He transfers the skills he has gleaned from working in corporate HQ to young professionals in the new business service centres, although anyone in the finance function can apply for extra training at any point in their careers. Chiu, in fact, went on a four-month stint to the Dubai office to write the 2012 regional business plan. ‘Shell very much encourages people to move on – almost demands that people move on once every four years to take on

10/02/2012 13:58


Pump it up: Shell is a highly vertically integrated business that is active in every area of the oil and gas sector, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading

‘COMPLIANCE IS NOT A BUREAUCRACY; IT DOES CONTRIBUTE TO YOUR BOTTOM LINE. BP’S MARKET VALUE WAS WIPED OUT BY A THIRD BY THE GULF SPILL’ different challenges,’ he says. Finance professionals can hone their skills in Shell’s ‘open university’, which offers classroom and remote learning. Bastos adds that internal audit adds to the available finance training with targeted audit and leadership skills training via individual development plans. ‘You’re rotating through a variety of audits every year, in essence accelerating your exposure to very different parts of the organisation,’ he says. ‘This exposure gives you a better appreciation of the link between risk and control and what it takes to make a large company like Shell succeed.’ And training is becoming even more important given the radical changes afoot for audit and governance, and the finance function in general. ‘The classical audit approach is changing radically,’ says Bastos. ‘We’re dealing with new realities today; we’re far more information-intensive than we’ve ever

UK_INT_YCorp_InsideShell.indd 41

been. Our position within the organisation and wider society is changing as well – the concept of risk is no longer just economic risk.’ After Enron, WorldCom and Tyco, GRC professionals have to ‘make risk part of the top agenda of senior management’, Chiu says. ‘Risk and compliance is not a bureaucracy; it contributes to your bottom line. BP’s market value was wiped out by a third immediately following the Gulf of Mexico spill.’

Contrasting roles He draws a contrast between his role in governance, risk and control with the internal audit function: ‘Internal audit looks at the events that have already taken place in the past, whereas GRC – and Rui may dispute this – is more forward-looking.’ And Bastos does indeed disagree. He says that internal audit in Shell has

‘been at the forefront of identifying many of the emerging risks and helped trigger the necessary changes in Shell to manage these risks’. It’s an aspect of the role that will be even more central to internal audit in the future. ‘When you look at the way internal audit is moving, it’s increasingly having to predict the impacts of emerging internal and external challenges, and to assess how formal corporate control frameworks but also softer controls (such as corporate culture) will cope, and how the organisation responds. ‘Audit skills will need to continue evolving in this direction. Providing this level of insight will require a higher level of business expertise and knowledge, being able to translate risk and control issues in terms not only of financial but also of social, political and environmental implications.’ Chiu agrees, adding that finance professionals are becoming more integral to business. ‘They are or they should be trusted business partners in the organisation,’ he says. Sarah Collins, journalist

10/02/2012 13:58



Kerrrunch time for costs Centralisation, integration and shared services give finance teams the chance to yoke cost savings with efficiency boosts – and become heroes in the boardroom as a result When Tyco’s home security product and service provider business ADT started a cost-cutting drive in its accounts payable department, it quadrupled the number of accounts payable processed by each member of staff. The figure rose from 10,000 to more than 40,000 per team member per year, and the move slashed £400,000 from costs in the first year after a switch from a manual to an automated system. As the economic downturn lengthens, more companies will be looking for similar big money savings from what are known as back-office or general and administration (G&A) expenses. In the current climate, there are no sacred cows when it comes to admin costs. General accounting, purchase order processing, IT application development, compliance management, HR record keeping and

why finance professionals, weary of always being cast in the role of corporate axemen and women, should take a look at a cost-cutting agenda that can also transform the business. The first reason is the simple fact that the current economic downturn is now threatening to last longer than any previous recession since the notorious Great Depression of the 1930s. The downturn has been accompanied by a sharpening of competition, especially from the rising economies of the developing world, creating a strategic reason for many companies, to become cost leaders in their markets. The second reason is that new management techniques, aided by integrated IT and

A WORLD-CLASS FINANCE FUNCTION SHOULD NOT COST MORE THAN 0.63% OF A COMPANY’S REVENUE infrastructure management are all in the cost-cutting spotlight now. ADT’s project delivered extensive cost savings by integrating and automating previously fragmented and manual work done in different offices into a single shared service centre. ‘Cost cutting is a huge priority for any business,’ says Steve Katona, the accounts payable manager at ADT and Tyco Security & Integrated Solutions. ‘When you see numbers like the ones we’ve achieved, it really highlights the efficiencies and cost savings that automating your processing can bring.’ Pressure from the board to make cost cuts is nothing new for finance functions. But there are two reasons

UK_YCORP_heroes.indd 42

communications technologies, have created opportunities to achieve the twin objectives of boosting efficiency and cutting costs. It’s the kind of combination that can turn finance professionals into true heroes in the boardroom. New research from the Hackett Group, which monitors management trends, shows that leading companies are moving away from standalone functions for accounting, IT and other back-office admin in favour of integrated ‘global business services’. The world-class companies that do this can make huge cash savings, says Joel Roques, managing director of the

European advisory service at Hackett. He says a typical Global 1000 company with revenues of £18.6bn could save £203m a year by integrating functions such as finance, IT, HR and procurement. He points out that there is lots of potential for cost cutting because many businesses’ back-office work has become overly complex as a result of mergers and acquisitions. ‘It’s not rare to see a medium-sized company with a dozen ERP [enterprise resource planning] systems,’ he says. ‘We know companies where you can count the ERP systems in the hundreds. That impedes automation. One driver of automation is to reduce complexity.’ Hackett has developed a number of benchmarks that let companies assess the efficiency of their own back-office admin. For example, Hackett says that a world-class finance function should not cost more than 0.63% of a company’s revenue. The cost of the HR function should not be more than US$1,612 per employee per year. IT should not cost more than US$7,647 per employee per year. And procurement admin should not cost more than 0.604% of procurement spend. Of course, there are bound to be differences depending on industry, location and special circumstances, but the figures provide a snapshot of what back-office admin looks like in the world’s best-run companies. But Roques also sounds a warning: it is easy to cut costs at the expense of

13/02/2012 10:42


performance. That is why Hackett defines its world-class performers through a combination of efficiency (the amount of resources the back-office consumes to provide a service) and effectiveness (the value that the back-office delivers to the company). The problem with any G&A cost-cutting programme is knowing where to start. ‘The first response is often a knee-jerk,’ says Oliver Colling, head of performance improvement at Grant Thornton, adding that travelling and hospitality are frequently first in the firing line. ‘It’s about picking off the low-hanging fruit, but sometimes the way it’s done can seem quite brutal and have an adverse impact on employees’ satisfaction,’ he says. ‘Functions can be thought to be cutting just for the sake of it.’ Yet Colling adds that there are plenty of opportunities in most companies to cut costs as well as to improve performance. For example, he recently helped a company move much of its HR to a ‘self-service’ basis. Staff can now do things such as book their own time off for holidays or process their own expense claims. A good starting point in any costcutting exercise is to step back and observe the company without any emotion or attachment to the staff performing different jobs, Colling says. ‘Look and ask people pointed questions. Why do we produce 100 pages of management accounts every month?’ The finance function scores with cost cutting when it understands what the users of the back-office services that the company provides really want from

UK_YCORP_heroes.indd 43

them, Colling says. ‘What do they need in order to help them do their jobs or achieve their objectives?’ However, too many cost-reduction programmes are started in isolation. ‘Too often it falls on finance to take the lead in cost reduction whereas I see it as a business-wide issue,’ Colling says. ‘There should be clear leadership at board level from the chief executive and all the other directors. I’ve sat with boards who’ve been faced with cost reduction and they agree costs must be cut – but not in their area. The key is to have everybody signed up and committed to sharing the pain.’ Both Roques and Colling see cost cutting being a key issue in 2012. But

much of it will be linked to business improvement programmes. Companies that have moved towards global business services have delivered as much as 30% improvement in the quality of services, Roques says. ‘I think we will see cost reduction going hand-in-hand with more transformational activity, particularly with larger corporates that are going to see this both as an opportunity and a threat,’ says Colling. ‘They will use cost-reduction programmes to transform the way their support functions work, investing up-front to get long-term sustainable cost savings.’ Peter Bartram, journalist

13/02/2012 10:42




When Patrick Thomas became chief executive of polymers and high-tech plastics producer Bayer MaterialScience, he decided a strategic aim was to make the €10.2bn business a cost leader in 80% of its product portfolio. ‘That meant we had to look at each area of the income statement and be as efficient as possible,’ says company CFO Axel Steiger-Bagel. As part of Thomas’s strategy, SteigerBagel was charged with leading a programme to cut costs by standardising processes in the company’s worldwide business units. Steiger-Bagel (pictured here) soon realised that a lot of the unnecessary cost in the accounting and control function was caused by nonstandardised decentralised processes. ‘There were a couple of hundred reports sent to management but they were driven by different key performance indicators,’ he says. ‘We needed to centralise this activity and build one platform so that we could standardise reports that would be produced automatically.’ One of the problems was that acquisition activity over the years meant the company was running regional enterprise resource planning (ERP) systems using different software. So a key aim of the

UK_YCORP_heroes.indd 44

programme was to centralise on one ERP system that the company could use throughout all its operations. Another problem was the fragmented nature of the organisational structure in the accounting and control function. ‘We had controllers sitting all over the world,’ says Steiger-Bagel. He tackled the problem by creating a central function. But in order to ensure that accounting and control doesn’t become divorced from business units, some staff are co-located in the units. ‘We needed to keep financial controllers close to the units so that they enjoyed the respect of the business and became business partners rather than just numbercrunchers,’ Steiger-Bagel says. ‘At the same time, we have made sure that everybody has the same understanding because they are all using the same reporting models.’

Overturning assumptions Steiger-Bagel has been especially keen to break down the cultural divide which had business unit managers looking on themselves as revenue generators but the accounting and control function as a cost overhead. ‘We needed to show that it wasn’t a question of the business units earning the money and the service units driving the costs,’ he says. He has ensured there is much more transparency of accounting and reporting costs so that when business units ask for a service they also get to see the cost implications. Joint ‘customer councils’ bring together managers

from business and service units to discuss issues about the processes needed to serve the business while controlling costs. ‘We have got to the stage where the business units have more understanding about costs and are learning about the triggers that can drive costs down,’ Steiger-Bagel says. As part of the programme of process simplification, Steiger-Bagel’s team has cut the 3,000 cost centres across the business down to 400 cost centre nodes and the number of cost elements from 1,000 to 18 groups. ‘The number of cost centres was driving complexity,’ he explains. ‘More detail doesn’t necessarily bring you closer to the truth.’ The results of the programme have been spectacular. The number of staff in the accounting and controlling function has fallen from between 300 and 400 to between 70 and 80. And in the two years between 2009 and 2011, the programme has delivered cost savings of €17m. Steiger-Bagel says that winning buy-in from the board and convincing everyone that the programme is right for the company are keys to success in such a cost-cutting strategy. ‘If you drive a project and don’t convince people it’s the right path to go, it will fail,’ he says.

13/02/2012 10:43




Page 1

DATA PAGE Bank Base Rates

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

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

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%

March 2012

Figures compiled on 6 February 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

1996 150.2 150.9 151.5 152.6 152.9 153.0 152.4 153.1 153.8 153.8 153.9 154.4

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

13th January 1987 = 100

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

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

2006 2.4% 2.4% 2.4% 2.6% 3.0% 3.3% 3.3% 3.4% 3.6% 3.7% 3.9% 4.4%

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%

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 2012 0.77% 1.08% 0.80% 0.82% 0.82% 0.83% 0.83% 0.83% 0.89% 0.95% 0.99% 1.04% 1.08%

3 MONTH INTERBANK - closing rate on last day of month

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

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


2007 6.3% 7.7% 4.6% 4.2% 4.6% 4.2% 4.5% 5.0% 5.5% 4.2% 5.1% 3.4%

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

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

Whole GB economy unadjusted *Provisional

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%

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

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

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

Source: ONS

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 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 3.5% 1.0% 2.1% 2.5% 2.4% 3.3% 3.0% 2.1% 1.8% 2.1% 2.0%*

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

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

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

% Change Average Weekly Earnings

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

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

2005 2006 2007 2008 2009 2010 2011

YEN 202 205 233 198 142 142 133

MARCH US$ SFr 1.89 2.25 1.74 2.27 1.97 2.39 1.99 1.97 1.43 1.63 1.52 1.60 1.60 1.47

Source: Halifax on last working day

€ 1.45 1.43 1.47 1.25 1.08 1.12 1.13

2005 2006 2007 2008 2009 2010 2011

DECEMBER YEN US$ SFr 203 1.72 2.27 233 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

€ 1.46 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 ADMINISTRATION OF ESTATES in Court above (½ Special Rate payable from date of accident to date of judgment). England & Wales: Interest on General Legacies: 0.3% w.e.f. 1.7.09 Interest Rate on Confiscation Orders in Crown & Magistrates Courts: (previously 1% 1.6.09). Interest on Statutory Legacies: 6% w.e.f. 1.10.83 (previously 7% w.e.f. 15.9.77). same rate as applies to High Court Judgment Debts.

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

Data specially compiled for


the adviser’s portal

The UK’s largest provider of savings and mortgage data

Tel: 01603 476 476



Getting into gear In the second part of his series, ACCA’s Jamie Lyon says that more ambition and better change management are needed to fulfil the potential of shared services and outsourcing Shared finance services and outsourcing have been a significant success, driving down the cost of finance operations through labour arbitrage, stimulating processing efficiency and ticking the finance standardisation box. They have also helped to ensure consistency and to leverage IT to deliver benefits. But, according to professionals working in the field, finance transformation through shared services and outsourcing has not yet had a significant impact on broader business performance, and there is much untapped potential. These are some of the findings in ACCA’s recent report, Finance Transformation: Expert Insights on Shared Services and Outsourcing, which features commentary from 20 world-leading experts in the shared services and outsourcing space. It considers fundamental questions about how CFOs and finance leaders are evolving the finance function to drive down its cost and improve efficiencies, and, critically, how they are seeking to raise the effectiveness of finance as a partner to the business. Other advantages of shared services and outsourcing cited in the report include better governance and control as improved standardisation has delivered greater levels of transparency over finance operations. Our experts agreed that headway had also been made in getting better information

across the business to help decisionmaking and performance measurement. In many respects, the tactical aspects of finance shared services and outsourcing are now well established


UK_INT_YCORP_outsource.indd 46

and delivered. The model has continued to evolve with the emergence of centres of excellence to house typically specialist finance responsibilities such as tax and treasury, complemented by an overarching governance-type function which brings together the constituent parts of the finance model to make it all tick along nicely – in theory. So far, so good, but the conclusion from the report is that much more can be done. Much more value could be added by evolving the finance function further and optimising its structure to unleash new levels of business benefits and make an impact on broader business performance. So why is it that transformation initiatives to date have not always delivered on their promises? First, the report suggests that it is about the ambition of finance leaders and the capability of organisations to successfully deliver on the enormous change programme that is required. Levels of transformation ambition vary. Some finance leaders see finance transformation as a means to transform the business too, rather than simply stopping at a better finance function. Other finance leaders take a slightly different perspective, seeing transformation through shared finance services or outsourcing primarily as a ‘functional finance’ fix. To this end clients differentiate between the capability of providers, seeing some as well placed to help drive business and not just finance solutions. At the heart of transformation success, however, is change management. The so-called ‘softer stuff’ continues to be the greatest impediment to achieving the goals of finance transformation through shared services and outsourcing.

10/02/2012 17:09



VIEW FROM EY: *JAMES MEADER, PARTNER Graham Russell, director of business process outsourcing at WPP Group, says: ‘In all these finance transformation journeys, the hardest part is always change management. People don’t know what they don’t know. And it’s never easy to take people on this journey when they don’t know where they are going, and they are not quite convinced because the function works today and has worked for a long time. There’s a natural pushback to change.’ Many of the experts contributing to the report acknowledged concerns about the capability of organisations to manage the change process effectively. Another key problem with transformation programmes to date has not, perversely, been to do with optimising the remote delivery operations, whether through shared services or outsourcing, at all. Rather, it is that too little attention has been paid to the role and purpose of the retained finance function. This is ironic, because a key driver behind finance transformation is to free valuable finance staff at the centre or embedded in the business units from finance processing so they can concentrate on higher value insight to support commercial decision-making. Logically this means that many businesses are not tapping into and exploiting as much value as they could be. The retained finance function has been underutilised and its purpose lacks articulation. Anoop Sagoo, senior executive for business process outsourcing at Accenture, summarises the problem: ‘It’s difficult to conceive when you’re designing a shared service model that you can get a finance and accounting operation to the right level of efficiency and effectiveness without considering the retained finance function.’

UK_INT_YCORP_outsource.indd 47

In ACCA’s report, both leaders and providers cite the lack of focus on the retained team as a major obstacle to transformation success when adopting shared services and outsourcing. Often the retained team’s roles and responsibilities are not well articulated in the haste to implement, resulting in overstaffing and the formation of a shadow organisation. A key impetus for shared service and outsourcing implementations is that the transaction processing activities are removed from the business, leaving the high-value business partnering activities at its heart. However, many businesses struggle to define business partnering roles clearly and to communicate the transition properly. The result of this can be accountability confusion, skill gaps in the retained team, loss of trust by the business and unclear career paths. To address these challenges, businesses need to define clearly what is expected of the retained organisation, to conduct a skills assessment and train the team, as well as to ensure that career paths are developed and transparent.

Learning curve Once more, it is the issue of capability that is fundamentally at the heart of this problem. The new role for the retained finance team drives a completely new skill requirement. It moves responsibility away from delivering many traditional finance responsibilities and towards sometimes managing governance and service delivery, or becoming a much more valued partner to the business. Commerciality, depth of business understanding, communication and influencing skills are now key. It also calls into play new behaviours. John Ashworth, global head of business process outsourcing at Pearson, says: ‘It requires a certain sort of behaviour, which is to embrace the change and look for opportunities to push deeper and create purpose for the retained function.’ To get this right is a big call. Great change management capability is key to success. Mastering the ability to effectively make the change to the new model will be a critical skill.

LAST MONTH HOW SHARED SERVICES AND OUTSOURCING INCREASINGLY DRIVE PERFORMANCE Jamie Lyon is head of employer services at ACCA you are a CFO or FD interested in * Iffinance transformation, shared services or outsourcing and want to contribute to ACCA’s programme, contact, +44 (0)20 7059 5513

10/02/2012 17:09


Financial services The view from: Financial services consulting: Ben Wilson ACCA, senior associate, PwC Q What is your role? A I currently sit within the firm’s consulting practice specialising in finance consulting and work with large financial services clients on operational finance issues. Most of my time is spent at the client location working with other colleagues to deliver against client requirements.

48 Financial services The view from Ben Wilson of PwC; the pros and cons of an EU-wide Tobin tax 37 Corporate The view from Rhonda Best of Alexander Bain and Associates; behind the scenes with ACCA members at Royal Dutch Shell; how to be a superhero in the boardroom; fulfilling the potential of shared services and outsourcing 51 Practice The view from Mark Surridge of Grant Thornton; an analysis of the interdisciplinary firm amid the EC’s plans to split audit and consultancy 55 Public sector The view from Will Hutton, former editor of The Observer; accountancy in the new age of austerity

Q What is your main objective for 2012? A One of my main objectives for 2012 is to further develop my skills and experience in finance consulting, working on projects which will enable me to learn as well as apply learning to real client issues. I am also looking forward into my future career with the firm and so am starting to think about promotions, and how I will need to develop in order to reach the next step. Q What lessons have you learnt about business? A The main lesson I have learnt is that businesses are complex in nature; hence the business models that are in place require strong direction and leadership. They need the parts making up the whole to work in tandem together in order to work towards the goals set. I think communication and the courage to do the right thing are key in ensuring that this happens. Q Describe a typical day. A At the moment I am working with a client in the insurance industry which is moving towards a new finance operating model. My day is filled with dealing with the main client contacts in order to work through deliverables, as well as coordinating those members of the team that work with my work streams.


Location: London Favourite book: Lord of the Flies by William Golding Hobbies: Travel and fitness

UK_YFIN_intro.indd 48


The former compliance officer at Greenlight Capital, Alexander TenHolter, has been fined £130,000 and banned from performing compliance oversight and money laundering reporting functions. The Financial Services Authority (FSA) found that Ten-Holter, who was also a trader at Greenlight, failed to make reasonable enquiries before selling the firm’s holding in Punch Taverns. The sale was made ahead of an equity fundraising by Punch in June 2009. Ten-Holter received an order to sell Greenlight’s entire shareholding in Punch, despite being made aware that Greenlight had spoken to Punch management a few minutes before it decided to sell. The Greenlight analyst who gave the sell order told Ten-Holter that Greenlight had perhaps a week before the stock ‘plummets’. The FSA also fined Caspar Agnew, a trading desk director at JP Morgan Cazenove, £65,000 for failing to act on a suspicious order from Greenlight that allowed the firm to be used to facilitate insider dealing or market abuse.


RBS has been fined £2.17m for failings by its insurance arms, Direct Line and Churchill, that allowed the insurers to improperly alter files that the FSA had requested to inspect. During the collation of 50 complaint files requested by the FSA for review, 27 were altered improperly before submission, because the firms failed to act with due skill, care and diligence. The majority of the alterations were minor and none were detrimental to customers.

10/02/2012 14:00

Financial services


Tobin or not Tobin? With France and Germany keen to introduce a financial transaction tax but fiercely resisted by the UK government, we explore the pros and cons of an EU-wide Tobin tax A financial transaction tax is almost the perfect tax in the eyes of supporters. Its advocates say the levy, proposed by the European Commission and strongly supported by the German and French governments, ticks several boxes. It would, they say, raise a large amount of much needed revenue to fill the holes in government finances created by the credit crunch – and from the very financial services companies that caused it. It would discourage these companies from pursuing the sort of business that caused the crunch, and might even boost gross domestic product (GDP). But to many of its critics the financial transaction tax – commonly called the Tobin tax after James Tobin, the Nobel Laureate economist who proposed it in 1972 – is just about the worst of all possible measures. They say it would reduce GDP – and that would hit tax revenue in turn. It would virtually wipe out entire mini-industries within the financial services sector. Moreover, it would not just punish financial services companies – whose role as the ultimate cause of the credit crunch is denied by Tobin tax critics anyway – it would damage companies that buy and sell securities to pay pensions and minimise business risk. Critics predict that because the tax would be so damaging, David Cameron, the prime minister, will continue to block any attempt to impose it in the UK – using the power that every individual member state possesses under European Union (EU) rules to veto any EU-wide tax measures. Needless to say, most supporters of the tax are equally confident that it will see the light of day. So what, precisely, is this tax that has provoked such vehement praise and censure in equal measure? The EU version of the Tobin tax – presented by

UK_YFIN_Tobin.indd 49

The Merkozy front: France’s Nicolas Sarkozy and Germany’s Angela Merkel support a Tobin tax as strongly as the UK’s David Cameron opposes it

the Commission in September – would levy a charge on all financial market transactions made by people or organisations resident in the EU. Several combinations have been suggested, but opinion is coalescing around a tariff of 0.1% on the buying and selling of equities and bonds, and 0.01% on all derivatives transactions. The Commission ventures that this would reduce ‘undesirable market behaviour’, including excessive ‘speculation’. The Commission’s own impact assessment suggests that a Tobin tax could raise as much as €400bn a year, reduce GDP by up to 1.76% by increasing the cost of capital for corporates, and lead to the disappearance of several hundred thousand jobs. Many of them would be in the UK – the City of London Corporation and other opponents of

the levy cite figures indicating the UK would shoulder more than half of the EU’s Tobin tax burden. But the Commission’s estimate of the levy’s effect looks only at the costs to the economy, without estimating its benefits. Although the Commission has proposed that the Tobin tax take should be used to shore up the centralised EU budget, member states are eager to see the money raised in each country siphoned to the relevant national government. Working on the assumption that the money raised in the UK stays in the UK, Owen Tudor, head of EU and international relations at the Trades Union Congress and one of the intellectual leaders of the Tobin tax campaign in Britain, says: ‘Our view is that it would probably have a net

06/02/2012 16:13


Financial services

A Tobin tax is part of the EU backlash against financial markets that is particularly marked in debt-plagued Greece

overall positive effect.’ He views a Tobin tax as mainly discouraging speculative trading, which he sees as providing no useful purpose to the economy beyond the tax revenue raised from it.

A tax on speculators Much speculative activity requires frequent buying and selling to exploit market movements – particularly given the increasing popularity of automated, high-frequency trading systems. Since this would incur a tariff every time a transaction was made, the overall Tobin tax bill would be high. Moreover, the levy would divert money currently invested in speculation into channels that could generate further economic growth, says Tudor. One would be extra public spending using the tax revenue raised. Another might be extra investment in industry by financial services companies that needed to find a new use for funds. ‘The money that would be taxed under this alternative measure is not currently being used in a particularly helpful way’, says Tudor. ‘Instead of the finance sector being designed to serve the real economy, it works the other way round.’ But Sarah Wulff-Cochrane, head of tax policy at the British Bankers’ Association, disputes the notion that some sectors likely to be hit hard by the Commission’s proposal serve no broader purpose. At the heart of her argument is a view that the activities which the Tobin tax would discourage boost GDP by allowing companies to operate more efficiently. She cites the example of exporters using derivatives to hedge currency risk and quotes the Commission’s impact assessment, suggesting that the volume in

UK_YFIN_Tobin.indd 50

‘IT DOES NOT DISCRIMINATE, SO ALL TRANSACTIONS WOULD BE HIT, FROM RISK MANAGEMENT PRODUCTS TO LONG-TERM PENSION INVESTMENTS’ derivatives trades, which are often bought and sold rapidly, will fall by between 70% and 90%. She adds that the damage to employment will stretch far beyond the thousands of people who trade in derivatives and other directly affected markets: ‘In the City of London a large infrastructure supports the complex transactions undertaken by the financial services sector. Jobs in auxiliary services, such as the law and accountancy, will also be affected.’ Critics say that some of this business will be relocated outside the EU, but some will disappear altogether. Either outcome would hit UK GDP. Wulff-Cochrane thinks that by reducing output, the tax may in fact lead to a decline in overall tax revenues.

Hitting the real economy Matthew Fell, director of competitive markets at employers’ organisation the CBI, agrees that the Tobin tax would damage the UK’s derivatives business, resulting in ‘significant job losses’. However, he adds that the tax ‘would mainly hit the real economy, including pension funds, asset managers, insurance companies and corporates, as both direct and indirect costs will largely be passed on to the end users’. Fell attacks the assumption of Tobin tax supporters that the levy would primarily hit short-term trading, saying: ‘In reality it does not discriminate, so all transactions would be hit, from risk management products to-long term pension investments.’ Critics also cite research from asset manager BlackRock, which suggests its

low-risk Euro Government Liquidity money market fund would incur extra annual costs equivalent to almost 8% of the fund’s value. This would make the fund unviable. Money market funds – low-risk vehicles investing in short-dated bonds since they carry a lower risk of default – are almost the opposite of speculative, high-risk funds. To UK critics, the damage to money market funds perfectly illustrates the argument that, instead of a scalpel that removes highly specific business lines with surgical precision, the Tobin tax is a sledgehammer that will indiscriminately damage the entire financial sector. Opponents fear that even financial services businesses not sensitive to the Tobin tax could exit the UK if the tax were imposed in the EU but not in other parts of the world. Efforts by France and Germany to win agreement for it by the G20 group of leading economies have come to naught. One senior banking figure suggests: ‘If a great part of what you do is going to be taxed more heavily, you might move the whole lot elsewhere.’ He is also fearful that even if the Tobin tax is not agreed, the backlash against financial markets among many EU member states could in future threaten the UK with other damaging taxes on financial services. Asked whether London will still be one of the world’s biggest financial centres in 10 years’ time, he concludes: ‘One hopes that it will remain so, but it’s under exceeding pressure at the moment.’ David Turner, journalist

13/02/2012 11:46



HM Revenue & Customs (HMRC) has put a widespread campaign of business records checks on hold, following representations from ACCA and business representative bodies. HMRC said that the pilot programme had ‘found clear evidence that it is effective in improving record-keeping practices in smaller businesses’. However, instead of rolling it out more widely, HMRC will make more targeted checks, backed by education and support for businesses. The pilot began in April last year and involved checks by HMRC on the standard of small and medium-sized enterprises’ statutory business records. Of the first 2,437 business records checked, 28% of firms had some issue relating to records-keeping, with another 11% having serious issues that required follow-up visits. HMRC will consult further with representative bodies before carrying on with the campaign early in the 2012–13 financial year.


Traders who accept payment on a cashin-hand basis face a crackdown from next month, Dave Hartnett, HMRC’s permanent secretary for tax, has warned. In an interview with The Daily Telegraph, he urged householders to inform on traders who ask to be paid in cash. ‘Tax provides the funding to run the country: hospitals, schools and everything else,’ said Hartnett. ‘Every time someone pays cash in order not to pay VAT, the nation gets diddled.’ The campaign follows special investigations against undeclared income in the restaurant, plumbing and extra tuition markets and those who trade on eBay.

UK_YPRAC_intro_.indd 51


The view from: Birmingham: Mark Surridge FCCA, senior manager, public sector assurance, Grant Thornton Q How is the business outlook in Birmingham? A Grant Thornton’s business confidence monitor shows a continuing trend of falling confidence in the region. Alongside this, the public sector is continuing to feel the impact of last year’s Comprehensive Spending Review. On a more positive note, there are some good news stories across the West Midlands, for example inward investment from Tata Motors, which will see up to 1,000 new jobs. Q With the reforms in the public sector, is it now in greater need of financial assurance? A As the public sector moves from a period of unparalleled growth to financial stringency and major organisational change, it is clear that public sector bodies need to implement both innovative and transformational strategies with unprecedented levels of collaboration between service providers to deliver quality services. In such turbulent times, financial assurance comes under closer scrutiny, but it is vitally important that local authorities and NHS bodies not only have robust governance arrangements, but are also able to demonstrate this to stakeholders. Q How do you ensure this working relationship is retained? A We provide a service that is delivered by people with an empathy, commitment and a deep understanding of the public sector. This helps us build positive and productive working relationships with our clients, acting as a critical friend, balanced against our wider responsibility to the public interest.


Staff: More than 4,000 Offices: 27 Work motto: To listen to clients and colleagues and understand what matters

51 Practice The view from Mark Surridge of Grant Thornton; an analysis of the interdisciplinary firm amid the EC’s plans to split audit and consultancy 37 Corporate The view from Rhonda Best of Alexander Bain and Associates; behind the scenes with ACCA members at Royal Dutch Shell; how to be a superhero in the boardroom; fulfilling the potential of shared services and outsourcing 48 Financial services The view from Ben Wilson of PwC; the pros and cons of an EU-wide Tobin tax 55 Public sector The view from Will Hutton, former editor of The Observer; accountancy in the new age of austerity

10/02/2012 14:01



Split decision With the European Commission proposing to break up the marriage of audit and consultancy, we explore the arguments for and against the interdisciplinary firm In the early years of this century it seemed like the story of the multidisciplinary audit-cumconsultancy firm had come to an end. After a long estrangement, Andersen Consulting had formally separated itself from Arthur Andersen and rebranded as Accenture. Ominous threats from regulators in the wake of the Enron collapse led the Big Four firms first to prepare their consultancy arms for flotation under names such as Monday and Braxton, and then for trade sale to the likes of IBM and Capgemini. Then two things happened. The regulatory heat died away, and Deloitte did not to divest its consultancy after all. The other Big Four firms began to rebuild their capability in guises designed not to attract regulatory attention – as advisory services or small and medium-sized enterprise growth practices. All were at pains to stress that they were in no way repeating the wild ride of the 1990s, when their practices expanded far from their accountancy roots to become major players in systems integration and outsourcing. This was to be ‘client-side advisory’ work, with an emphasis on close integration with the rest of the practice, while retaining sufficient separation of clients for compliance purposes. Fast-forward to 2012 and the Big Four are back in consultancy, dominant in some sectors such as financial services consulting, and rapidly growing through recruitment and acquisition. But now the multidisciplinary firm is facing a new line of attack, with the Barnier proposals from the European Commission calling for the creation of independent audit firms with only limited ability to offer any non-audit services. The case for separation is summed up by Dr Joe O’Mahoney, lecturer in organisational studies at Cardiff Business School. ‘An inside view of a

UK_YPRAC_consultancy.indd 52

client’s accounts creates two conflicts of interest for a consultancy audit firm,’ he says. ‘The first is the potential to find financial weaknesses, which can be used to target consultancy sales more effectively.’ The second, more serious risk, he says, is the temptation for the multidisciplinary firm to sign off dubious accounts in exchange for large consultancy fees. ‘While recent legislation has sought to minimise this risk, there is little evidence that it has removed it,’ O’Mahoney says. ‘Given recent government attention to transparency and accountability, it is surprising that these risks have not been attended to sooner.’ Many, though, are sceptical of the depth of this risk. Calvert Markham,

‘IF YOU WERE A TOP CARDIOLOGIST, WOULD YOU WANT TO COME INTO A BUSINESS WHERE THE ONLY THING YOU COULD DO IS MEASURE PULSES?’ managing director of consultant training firm Elevation Learning, says: ‘I do not see a dependency between the two as far as clients are concerned, as good practice requires compliance services and consultancy services to be provided from separate firms. However, as a Big Four practice, assuming you have 25% of the compliance market, then the remaining 75% is available for you to offer consulting to.’

Where’s the value? Others doubt whether audit offers any real value to the consulting side. Fiona Czerniawska, co-founder of research business Source for Consulting, says she struggles to see the logic behind the Barnier proposals, which ‘smack of a personal vendetta’. She adds: ‘I think the Big Four do try to keep the things

separate and I’m doubtful if there is much opportunity for cross-selling. It’s in their interests to promote a degree of homogeneity, and some partners can make that work and talk about the value of multidisciplinary work.’ Although Czerniawska says that the strength of the Big Four’s audit brands has helped their consultancy sides to win work in certain areas, ‘anything that has a regulatory slant to it’ has been little help where they face competition from firms that have developed strong specialisms in operational or functional areas. The question for her is not so much what audit brings to consultancy, as what consultancy brings to audit. ‘If anything, it’s helped change the price of audit, which is not financially viable,’ she says.

10/02/2012 14:00

knowledge and skills. Would you want a generalist accountant for a complex tax issue or would you rather you had access to an expert?’ The multidisciplinary firm allows access to a range of high-level expertise that a standalone audit firm couldn’t afford to employ. And even if it could, Tant doubts whether it would be able to attract the best talent. ‘If you were a top cardiologist, would you want to come into a business where the only thing you could do is measure pulses?’ he asks.

Stunted development

Certainly the view from the Big Four is that an enforced separation would lead to drastic consequences for the quality of audit work. Oliver Tant, head of audit at KPMG, says that the multidisciplinary firm offers ‘inordinate value from the perspective of stakeholders in the audit marketplace. Regulators need to understand the activities that are going on. My primary responsibility to my colleagues is to deliver the highest possible quality audit and that we don’t break the business by signing something we ought not to sign. That’s important from a stakeholder perspective, but the example of Arthur Andersen and others demonstrates that purely from a self-interested point of view.’ For Tant, having a multidisciplinary firm behind him is the only logical answer to the complexity of the issues he faces with his audit clients: ‘There are very complex commercial issues which require a pretty deep understanding of those industry sectors. All require specialist

UK_YPRAC_consultancy.indd 53

As well as affecting the quality of current audits, separation would also hamper the development of audit, according to Tant. He says that where there is a need to look at forwardlooking performance indicators – for example, providing assurance over an oil company’s oil reserves or the robustness of its IT systems – skills are required that lie far outside those found in a standalone audit entity. So while it’s clear that audit practices would fight tooth and nail to stay under the same roof as their consultancy and tax colleagues, would the latter return the favour? Certainly the Big Four enjoyed brand advantages as they rebuilt their consulting presence. They were also able to take advantage of ready-made recruitment ‘factories’ that enabled them to recruit large numbers of highquality graduates at low cost. The firms have invested massively to create a strong presence on campuses and in the ‘milk-round’, and any successor entities would have to struggle with rebuilding that presence under a new brand or offering graduates a narrower range of career paths in an audit-only Big Four. Most commentators agree that

10/02/2012 14:41



auditors will retain their current names whatever happens. However, the days when any aspiring consultant would have to train as an accountant are over. While there is still movement within the firms, they very much go to market in their own right. Tony Restell, director of careers website Top-Consultant, suggests that the diversity of the firms was not a huge selling point even at the graduate stage, and that as far as recruitment was concerned, the paths diverged pretty quickly after that. ‘The recruitment firms that are used to hire consulting staff by and large don’t have arms that recruit accountants, so I don’t think there are massive cost-saving synergies for recruitment here,’ he says. And as Markham points out: ‘The psychology of consultants and accountants is different, so they are not always happy bedfellows.’ Are the consulting and accounting worlds doomed to separate then, whether regulators force them or not? Pauline Wallace, head of public policy at PwC, believes that ‘clear lessons have been learned’ from experiences such as the Arthur Andersen and Andersen Consulting split and that today’s more culturally integrated Big Four firms offer clear advantages to their consultancy practices. ‘I believe there is something very different about the culture of any organisation that has a strong audit practice compared with a consultancy organisation that has no audit

UK_YPRAC_consultancy.indd 54


Oliver Tant, head of audit at KPM

‘THERE ARE COMPLEX COMMERCIAL ISSUES WHICH REQUIRE A DEEP UNDERSTANDING OF THOSE INDUSTRY SECTORS’ practice,’ she says. ‘Audit is premised on the need for independence and very strong ethics, and that permeates the whole firm.’

Top down That cultural direction comes from the top of the organisation, she says. ‘We are a regulated business that does some unregulated work; not the other way round. That gives you tremendous strength to do the right thing.’ She also believes this answers the question of why, if consultancy and audit are such a great team, no major consultancy firm has challenged the Big Four on their own by moving into audit. A key differentiation comes from the fact that, as an auditor, PwC is regulated as a complete entity. ‘You

can’t just tack on the audit bit,’ explains Wallace. ‘The audit regulator looks at the whole firms. That’s always something you have to look at when you move into a regulated area.’ She adds that sharing expertise is a two-way street, with the audit practice providing a pool of resource to other areas of the business: ‘If you take the Lehmans insolvency project, we drew resources from all over the firm. You wouldn’t have got that if we’d grown the insolvency practice on its own.’ Ultimately, Wallace believes there is a ‘natural synergy’ between the elements that make up PwC, which is beneficial both to individual clients and the economy as a whole. ‘What we do is address corporate needs,’ she says. ‘We work across the business spectrum and, as a result, have a phenomenal ability to help businesses grow. Smaller companies in particular have less access to suppliers generally and are something that the big consultancies are less interested in.’ Will these arguments prevail? Tant thinks the case for multidisciplinary practices is plain, but worries that, in these heated times, a bandwagon may develop. Wallace believes that debate can only help, by shining a light on aspects of the Big Four’s work that people are unaware of. ‘It’s a great opportunity to explain why multidisciplinary practices are a good idea,’ she says. ‘That’s something I’m passionate about.’ Mick James, journalist

10/02/2012 14:12

Public sector


Local authorities’ financial reports are too complex, undermining accountability, according to the Audit Commission’s Let’s be Clear report. ‘Even professional local government accountants can find the statutory accounts hard to explain,’ said the commission. For councillors and taxpayers, the reports are daunting and difficult to understand. Statutory accounts average 113 pages, with some having as many as 250 pages. Large amounts of explanatory material make the reports even more difficult to read and understand. The commission suggests councils publish well-presented extracts of accounts, enabling councillors and taxpayers to obtain key information; that auditors and accounts preparers do more to rid statutory accounts of unnecessary clutter; and that accounts preparers identify how accounts could be clearer before starting on the next set of accounts.

The view from: Will Hutton, former editor-in-chief of The Observer and public sector pay adviser Q Are public sector managers overpaid? A No. By job weight and responsibility they are paid 50% to 55% of what their private sector counterparts are paid. Only £1 of every £100 that the top 1% of wage earners earn in Britain, is earned in the public sector. Q How does the responsible capitalism debate affect public sector pay? A It is redirecting attention from the top of the public sector, to the top of the private sector. When I conducted the Independent Review into Fair Pay in the Public Sector for HM Treasury, there was nearly as much coverage of public sector ‘fat cats’ as private sector ‘fat cats’. A YouGov poll had 25% of respondents thinking that public sector people were paid more than private sector people. A year later, I doubt the feeling would be like that. Q Should the focus be on pay, or value for money? A Exceptional contribution requires some kind of exceptional reward, by way of bonus. Poor performance requires some kind of penalty. I proposed an ‘earn-back’ system: at least 10% of top public sector managers’ pay to be earned back around meeting a score-card of objectives, of which one might be value for money.


The Ministry of Defence (MoD) has been criticised by the House of Commons’ Defence Select Committee for having its accounts qualified for five successive years. Committee chair James Arbuthnot said the MoD and Treasury needed a clear plan to address the shortcomings in the MoD’s accounting systems. The committee complained that chancellor George Osborne failed to answer committee questions about the policy on departments that defy Treasury accounting rules. The MoD could not provide adequate audit evidence for over £5.2bn of certain inventory and capital spares.

UK_YPUB_intro.indd 55


Q Do you support the localisation of public sector pay? A You can see the argument that fair pay should be related to local price levels. But if you make an exceptional contribution in one part of the country, should the reward be lower because the cost of living there is lower? Or are we living in a national community in which a pound is a pound? I favour the second proposition.

55 Public sector The view from Will Hutton, former editor of The Observer; accounting for austerity 37 Corporate The view from Rhonda Best of Alexander Bain and Associates; behind the scenes with ACCA members at Royal Dutch Shell; how to be a superhero in the boardroom; fulfilling the potential of shared services and outsourcing 48 Financial services The view from Ben Wilson of PwC; the pros and cons of an EU-wide Tobin tax 51 Practice The view from Mark Surridge of Grant Thornton; an analysis of the interdisciplinary firm amid the EC’s plans to split audit and consultancy

10/02/2012 17:11


Public sector

Which way now? With austerity the watchword in the public sector, accountants are entering uncharted territory, says Professor Malcolm Prowle FCCA There can be little doubt that the public sector in the UK and elsewhere is in the midst of the biggest financial crisis it has ever experienced. Certainly, there are only two modern examples from the UK of similar situations – and both of those were associated with the change from a wartime to peacetime economy after the two world wars of the 20th century. Unlike then, many countries are now implementing what are often referred to as ‘financial austerity policies’, implying some combination of significant increases in taxation coupled with large-scale reductions in public expenditure. The scale of expenditure reductions is alarming when you consider that the vast bulk of people employed in public services have probably been used to an environment where public spending increased each year as a consequence of ongoing economic growth (slowed slightly by the occasional economic recession). Now they are being asked to cope with a situation where public spending is reducing significantly in real terms at the same time as the demand for public services is rising. While politicians will try to argue that cuts of this magnitude can be delivered through ‘efficiency savings’, the reality is that the savings that can be made are greatly exaggerated and/ or are exceedingly difficult to deliver for various reasons. Similarly, political statements that everything will be satisfactory when things are ‘back to normal’ – in other words, when decent levels of economic growth have again been achieved – seem hollow in the current economic environment. Instead it seems likely that the public sector will have to make do, for a significant number of years, with lower levels of resources than it has had in the past and must concentrate

UK_YPUB_austerity.indd 56

on making better use of those resources. This leads to certain fundamental questions having to be asked about public services. What, for example, should be the role and limits of the state in the provision of public services? What should be the relative priorities for different aspects of provision? What should public services actually be trying to achieve (ie what are the strategic objectives)? How should public services be paid for, including the balance between tax revenues, charges and insurance schemes? How should the public sector be organised and governed? Can the working practices of staff remain unchanged? What should be the role of the private sector in public service provision? How can improvements in efficiency be identified and realised? Answering these (and other) questions in a period of financial austerity is not always easy and a robust process of analysis and decision-making is needed. Financial concerns are obviously key, and good financial management will be vital. Hence there are very strong roles for public sector accountants – and public sector finance functions – to pursue. The rest of this article sets these out.

1 Promoting transparency

Misleading financial reporting and poor governance in relation to public finances can be seen as contributing to the current financial crisis faced by many countries. Thus, at the highest levels of government, there is a key role to be played, internationally, to improve reporting and governance arrangements so as to avoid any repetition of such events. This suggests a much stronger role for accountants at the heart of government than has traditionally been the case.

2 Ensuring sustainability

Longer-term financial sustainability is a key issue for public sector organisations. However, even before the onset of financial austerity programmes, many publicly funded organisations had service configurations that were simply not sustainable in the longer term in financial and/or operational terms. The advent of financial austerity has merely added to these concerns. Clearly, a key responsibility for accountants in the public sector is to point out those situations where there is no longer-term sustainability and to advise what changes are needed.

09/02/2012 12:07


budgeting models to a multi-year approach where strategic priorities have a clear input into budget decisions.

4 Prioritising service activities * In spite of what politicians say, it is extremely unlikely that the public spending cuts required can be delivered totally by real efficiency savings. In such situations, organisations often have recourse to crude methods of knocking the same percentage off everybody’s budget to balance the books. However, this implicitly assumes that all service activities are of equal value, which clearly they are not. A key role for accountants therefore is to ensure that when spending cuts are being considered the costs and benefits of the activities the organisation undertakes are properly evaluated and some attempt made to prioritise those activities. In this way, spending reductions can be made rationally by eliminating lower-priority activities rather than damaging higherpriority activities through random cuts. These changes then need to be factored into budgets.

3 Stronger strategic focus

Mention has already been made of the need for a clear strategic and longer-term vision of what public services should actually be trying to achieve. In many cases such a vision does not exist and public services operate in something of a vacuum, with little in the way of clear drivers for change. Once such a strategic vision is promulgated the budget system should be one of the key drivers for achieving that vision and a means of shifting resources accordingly. Accountants have a key role to play here. There is a clear need to ensure a strong shift away from annually based incremental

UK_YPUB_austerity.indd 57

5 Performance improvement

Obviously financial austerity poses great challenges to public sector organisations to make quantum leaps in the efficiency of service provision. Accountants have many roles here, including: the development of costing systems to enable service costs to be analysed and compared with other providers the development of budget-setting mechanisms which promote and reward performance improvement rather than inhibit it the use of robust investment appraisal methods when making

* * *

capital investment decisions, including the private finance initiative (PFI) the incorporation of robust financial performance measures into performance management systems.

6 Empowering managers

Many of the problems of public service provision in a time of austerity might be solved by greater innovation by frontline staff. However, this requires a move away from organisations that are managed by heavily centralised management regimes operated by control-freak chief executives. Those same chief executives need to display leadership and empower their staff to find ways of improving services for the same level of resources. Such empowerment can be facilitated by greater delegation of budgets to lower levels in the organisation, and accountants have key roles here to promote and operate such systems. As all of this shows, there are some vital roles for accountants to play in dealing with austerity. Some recent studies – for example, the Audit Commission’s – have suggested that there are serious skill and systems deficits in some public sector organisations which need remedying. All accountants in the public sector need to take account of these studies and take the appropriate actions. Professor Malcolm Prowle FCCA is professor of business performance at Nottingham Business School and visiting professor at the Centre for Accounting and Finance at the Open University Business School. He is co-author, with Roger Latham, of Public Services and Financial Austerity: Getting Out of the Hole, published by Palgrave Macmillan.

08/02/2012 15:24



EU makes micro-entity move The EU is to relax its disclosure rules for micro companies, but ACCA’s John Davies questions whether the developments will lead to tangible benefits

Four years after the idea was first proposed by the European Commission, the EU has finally agreed to introduce new, slimmed-down accounting rules for Europe’s ‘micro’ companies. Under a compromise agreement between the European Parliament and member states, disclosure relaxations

UK_T_EUtech.indd 58

for the estimated 19 million such companies in the EU are set to come into effect over the next two years. Since 1978, all limited liability companies in the EU have had to comply with the requirements in the EU’s Fourth Company Law Directive on the form, content and publication of annual

accounts. All national laws governing these matters derive from the requirements of the directive. There have for many years been derogations from the standard rules for small and medium-sized enterprises (SMEs), but no further special treatment beyond this for very small entities.

13/02/2012 10:42


With the new agreement, which technically amends the Fourth Directive, member states can provide for additional exemptions for companies that meet two out of the following three criteria on their balance sheet dates: turnover not exceeding €700,000 balance sheet total not exceeding €350,000 average number of employees in the financial year not exceeding 10. Member states will be able to choose to exempt micro companies in their jurisdictions from a number of current provisions, including: the requirement to include in their balance sheets ‘prepayments and accrued income’ and ‘accruals and deferred income’ the requirement to prepare notes to the accounts, provided that information on guarantee commitments, loans to directors and acquisition of own shares (in all cases if appropriate) is included at the foot of the balance sheet the requirement to prepare a directors’ report. They will also be able to permit micro companies to adopt streamlined formats for their balance sheets and profit and loss accounts, showing, in the latter, only figures for turnover, other income, cost of raw materials and consumables, staff costs, value adjustments, other charges, tax and profit or loss. The amended directive states expressly that a set of accounts drawn up on this basis will be regarded

* * *

* *


UK_T_EUtech.indd 59

as meeting the core test of giving a true and fair view. Arguably the most interesting of the exemptions is the option to exempt micro companies from the obligation to publish annual accounts. Strong political pressure had been exerted, primarily by Germany, to spare micro companies what was presented as the ‘burden’ of publication. Under the amendment, member states may exempt micros from the existing publication requirement. But this must be on condition that the company’s balance sheet, complete with any required supplementary information, is filed – ie. not necessarily published – either with the country’s designated companies register or else with an alternative official authority designated by the country concerned (which could conceivably be the national tax authority). If the member state chooses to require filing with an alternative authority, then that authority will be required to ‘provide’ the register with the information filed. This form of words opens up the possibility that the information filed by individual micro companies will not routinely be placed on the public record. Companies registers will need to record the information filed or otherwise provided but will not be obliged to then make it available for public inspection, as is the case at present. The alternatives open to member states are therefore either to choose to retain the existing practice

of publishing micro-company accounts and making them available for public inspection, or to require registries to make micro-company accounting information available only on request. The impact of the new amendment will be less than it would have been under earlier proposals from the Parliament, which would have exempted micro entities from reporting obligations altogether. Under the compromise, micro companies will still be required to prepare accruals-based annual accounts which give a true and fair view, and while it may become more difficult for searchers to access accounting information on very small companies, especially if they want to do this on a cross-border basis, they should still be able to do so. The agreement having been made, the ball is now in the court of the 27 member states. Each will decide whether they want to take advantage of the new exemptions at all and, if they do, which they wish to take up. Throughout the process of consultation and debate on this issue ACCA has queried whether any tangible benefits would actually ensue from stripping down disclosure rules in the way proposed. In the current economic climate, however, it seems likely that most EU states will see this as an opportunity to show their domestic SME sectors that they are serious in tackling business burdens. John Davies is ACCA’s head of technical

13/02/2012 10:42


Technical update

A monthly round-up of the latest developments in financial reporting, audit, tax and law FINANCIAL REPORTING IFRS CHANGES The International Accounting Standards Board (IASB) issued International Financial Reporting Standard (IFRS) 9, Financial Instruments, in November 2009. At that time it also said that it might be necessary to make further changes as a consequence of the ongoing project to develop an IFRS for insurance contracts. The IASB has now announced that it will undertake a project to make limitedscope changes to IFRS 9. At the same time, the IASB and US Financial Accounting Standards Board (FASB) will work together to try and reduce the differences that currently exist in their respective models for classification and measurement. The IASB has also stated that in making any amendments, it will be mindful of the fact that many preparers will have already invested time in planning for the implementation of IFRS 9 in 2015. While it has been a slow start to the year as new pronouncements and exposure drafts are concerned, this is unlikely to remain the case as 2012 progresses. A review of the IASB’s work plan shows that there are a number of very important exposure drafts and standards due in the first half of the year. These are listed below. Leases – a revised exposure draft is


UK_T_taxlawupdate.indd 60



anticipated which will continue with a model that will require the majority of lease contracts to be recorded ‘on balance sheet’, but will simplify the way in which those leases are measured compared with the original proposals, particularly for lessors. Financial instruments – a new IFRS for general hedge accounting, which the IASB considers will reduce complexity and allow entities to more closely align their accounting to the hedging models they apply in running their businesses. An exposure draft in respect of macro hedging will follow in the second half of the year. There are also plans to re-expose the proposals addressing the impairment of financial instruments. Insurance contracts – originally exposed in 2010, the proposed standard has been subject to substantial reworking in many key areas and will therefore also be re-exposed.

AUDITING THE FUTURE OF UK GAAP The UK Accounting Standards Board (ASB) has published the following Financial Reporting Exposure Drafts (FREDs): FRED 46, Application of Financial Reporting Requirements (draft Financial Reporting Standard [FRS] 100).


47, Reduced * FRED Disclosure Framework (draft FRS 101). FRED 48, The Financial Reporting Standard applicable in the UK and Republic of Ireland (draft FRS 102). The FREDs set out revised proposals for the future of financial reporting in the UK and Republic of Ireland. The new exposure drafts were issued following the significant volume of feedback that was received in relation to FREDs 43 to 45. The revised proposals recommend: Replacing all current accounting standards with a single FRS. As a result, the volume of accounting standards applicable to the majority of UK companies would reduce from approximately 2,500 pages to 250 pages. Introducing a reduced disclosure framework for the individual entity financial statements of certain IFRS preparers. Retaining existing rules for the smallest companies (the Financial Reporting Standard for Smaller Entities [FRSSE]). FREDs 46 to 48 represent a significant change from the proposals included in the preceding exposure drafts. In particular: The references in FREDs 43 to 45 to IFRS being mandatory for all entities with public accountability have now been removed. FRED 46 does not, therefore, require the application



* *



of EU-adopted IFRS to be extended beyond that required by existing law or regulation. FRED 48, consistent with previous proposals, is derived from the IFRS for SMEs. However, the exposure draft permits accounting treatments that are not available in the IFRS for SMEs, but which are consistent with UK generally accepted accounting principles and IFRS. The accounting treatments now permitted include options to revalue land and buildings, capitalise borrowing costs, and carry forward certain development expenses.

Yvonne Lang, director, and Kern Roberts, associate director, Smith & Williamson, www.

TAX ENGAGEMENT LETTERS The cross-profession (ACCA, the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, the Association of Taxation Technicians, the Institute of Chartered Accountants of Scotland and the Institute of Indirect Taxation engagement letters for tax practitioners guidance, issued as Factsheet 144, will be reissued in the spring. ACCA’s engagement letters will also be revised this spring. They will include updated clauses to reflect changes in the law and best

13/02/2012 10:28



practice since the last issue. For details of when the new factsheet and letters will be available and updates on some of the changes, go to PAYE/NIC SECURITY DEPOSITS As highlighted last month, from 5 April 2012 HM Revenue & Customs (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 national insurance contributions. HMRC has said that it will use this power ‘to target those employers who have a record of using bankruptcy and phoenixism as a way of stepping away from their creditors, leaving debts unpaid with HMRC and legitimate suppliers’. It is similar to the regime that exists for VAT, insurance premium tax and environmental taxes. In the same statement, HMRC said that it ‘will not use these powers where a business is having genuine financial difficulties’.

UK_T_taxlawupdate.indd 61

CAMPAIGNS HMRC continues to focus on selected audiences with targeted tax campaigns during this spring period. Electricians The electricians campaign started in February and unsurprisingly is called the Electrician’s Tax Safe Plan (ETSP). Its main target group is electricians and electrical fitters and, as with all campaigns, its aim is to improve tax compliance and provide an opportunity for an individual to voluntarily disclose any taxes that are due. As with the Plumber’s Tax Safe Plan, HMRC is likely to use information pulled together from different sources, to target and investigate those who have chosen not to come forward. HMRC has said in a comprehensive article (find it at tax) that the campaign is aimed at anyone who installs, maintains and tests electrical systems,

Late filing of a tax return (PAYE or self-assessment), inaccurate returns or late payment of tax incur the majority of penalties. Tribunals have overturned many cases where penalties have been raised. In a recent case, a tribunal judge criticised HMRC for ‘unfairly’ issuing penalty notices for late filing of the employer’s annual return (P35) some four months after the filing deadline. In the First-tier Tribunal case, Talkabout Publishing v the Commissioners for HMRC, tribunal judge Geraint Jones was scathing about HMRC’s motives. This was an appeal against a £500 penalty for late filing of the 2009–10 P35. The appellant accepted that a P35 was not submitted by 19 May 2010, but this was because of a belief that the filing was not necessary, as there was no outstanding liability in relation to the year in question. JPO Accountancy Ltd, on behalf of the appellant, also submitted a letter stating that the appellant’s office, including all the business records, had been destroyed by fire. The fire is relevant because the appellant sought leave to appeal out of time. The judge concluded that leave to appeal out of time should have been granted, that the appeal must succeed and the

penalty be reduced to £100. The reason was that HMRC put forward no explanation whatsoever for its failure to send out a first penalty notice within a reasonable time of the default being known about. The judge went on to say: ‘In my judgement it was conspicuously unfair of HMRC to fail to send out a first penalty notice until four months post default. That is a serious but inevitable charge to be laid at the door of HMRC in this kind of penalty case. The appellant was not given a timeous de facto reminder of its default during a period exceeding four months during which, had an appropriately timed first penalty notice been sent, the appellant could, and as I find would, have avoided all but the first monthly penalty of £100 accruing.’ For links to the case and other decisions, both in favour of and against the taxpayer, go to www2.

13/02/2012 10:28


Technical update

equipment and appliances and covers any tax owed for whatever reason. That includes those who made a mistake in the amount they should have paid, even though they took reasonable care; those who were careless; or those who deliberately didn’t tell HMRC about something they should have paid tax on. It states in the article that ‘once the opportunity expires, HMRC will clamp down on those in the sector who have failed to respond’, and states in the article and guidance that electricians and fitters should come forward before 15 May to tell HMRC they want to take part. If they then make a full disclosure of earnings, most face a penalty rate of only 10%, with a maximum of 20%. Once they have come forward, they have until 14 August to make their disclosure and arrange for full payment, including any penalty that is due. After that date, using information pulled together from many different data sources, HMRC will investigate those who have failed to respond. Substantial penalties or even criminal prosecution could follow. HMRC has also highlighted that the ‘benefit of the Electrician’s Tax Safe Plan is that those who make a full disclosure: will be offered a simple and straightforward way to put their tax affairs right will be charged a low penalty rate – 10% for most who sign up, with a

* *

UK_T_taxlawupdate.indd 62

maximum rate of 20%. Once this disclosure opportunity closes on 14 August, electricians who have not come forward but are found to have unpaid tax liabilities will face higher penalties, rising to 100% of the tax evaded or, potentially, criminal prosecution.’ E-marketplaces The second campaign focuses on those who are using e-marketplaces to buy and sell goods as a trade or business and who fail to pay the tax owed. When considering if an individual is operating a business, you may wish to consider the badges of trade information available at tax_badgesoftrade Tutors and coaches The campaign targeting tutors and coaches is drawing to a close. They will need to provide full disclosure, with payment, by 31 March 2012. Disclosure and payment should be made for all taxes, duties, interest and penalties and disclosed by completing the forms, which should be printed and sent to HMRC.

with unpaid tax linked to investments or assets in Liechtenstein to settle their tax liability under this special arrangement. For updates on all the campaigns, go to www2. hmrc_guidance VAT RATES The VAT rates across the European Union have been increased during the past few months. You can see the changes at www2. VAT ONLINE From 1 April 2012, all remaining VAT-registered businesses – those registered for VAT before 1 April 2010 with a VATexclusive turnover of less than £100,000 – will also have to submit VAT returns online and pay any VAT due electronically. HMRC announced that it will be writing to businesses in the run-up to the change informing them that they will need to file returns online. NOTICE 701/21A Notice 701/21A, Investment Gold Coins is effective now

and replaces the earlier notice from February 2011. This notice is usually updated annually and is designed to be read by traders dealing in investment gold coins. It seeks to provide guidance where HMRC considers that an investment gold coin is exempt from VAT, explains which coins can be considered as investment gold coins, and provides revised lists of investment gold coins whose supply is exempt from VAT. The guidance highlights that there are several changes to the list of qualifying coins and recommends the lists are reviewed. It is also highlights that the notice should be read along with Notice 701/21, Gold. The guidance states that an investment gold coin is: A a gold coin minted after 1800 that: is of a purity of not less than 900 thousandths is, or has been, legal tender in its country of origin, and is of a description of coin that is normally sold at a price that does not exceed 180% of the open

* * *

New campaigns The new campaigns are: Missing returns. Home improvement trades. Direct selling.

* * *

Liechtenstein Disclosure Facility (LDF) Finally, disclosure can also be made using the LDF. LDF is available until 31 March 2015. This allows people

13/02/2012 10:29


market value of the gold contained in the coin, or B a gold coin on the lists in section 3 of the guidance, for example the UK Sovereign. It goes on to say that if the coin doesn’t fall within a) or b) above it is subject to VAT at the standard rate. For more, go to http:// PAYE ON PENSION PAYMENTS HMRC has issued guidance on the steps that need to be considered when a new pension payment is being paid to an individual. The guidance covers the online notification obligations and use of the correct tax code to deduct PAYE tax from the payment and explains which other forms need to be completed. See paye/payroll/pensions.htm VAT: PRE-REGISTRATION CLAIMS Revenue & Customs Brief 01/12 VAT, Pre-registration claims concerning VAT charged to a previous registration of the same legal entity at deregistration, applies from the date of issue. It is a short note by HMRC and removes a concession HMRC previously operated. It highlights that HMRC now feels that it falls within its discretion to allow alternative evidence as set out in regulation 29(2) of the VAT Regulations 1995 to be applied to claims under regulation 111 of the VAT Regulations 1995. See www.

UK_T_taxlawupdate.indd 63 brief0112.htm IMPORTING AND EXPORTING A basic 69-page guide on the procedures businesses should consider when importing and/or exporting can be found at www2. For importers this guidance includes advice on procedures, documentation and payment requirements on the Single Administrative Document, Import Declaration, Economic Operator Registration Identification (EORI), payment of duty and VAT, Customs Freight Simplified Procedures (C FSP), Single Authorisation for Simplified Procedures (SASP) and the government licensing requirements for certain imports. For exporters the guidance covers procedures and includes UK Trade

Tariff, Economic Operator Registration Identification (EORI), Authorised Economic Operator (AEO), export declarations and details needed to be declared, Single Authorisation for Simplified Procedures (SASP), export licence requirements, transit systems, Duty Relief procedures, Inward and outward Processing Relief (IP and OPR), Customs Warehousing and Import Declarations.

BENEFICIAL LOAN RATES The official rates for beneficial loan arrangements remain at 4% for the 2011–12 tax year. TAX ADVICE AND SUPPORT You can read about the dos and don’ts of employment income, withdrawal of Extra Statutory Concession (ESC) 16, PAYE real-time information and updates on recent cases at www2.

*BUDGET 2012 – ANALYSIS FROM ACCA Budget 2012 may include comment on the Red Tape Challenge, public sector pensions, tax credits, benefits and there may be specific changes and progress reports aimed at encouraging investment, both personal and business, and to encourage business to enlarge its customer base, together with an explanation of how the PAYE regime is changing. Economic data and predictions, including the great unknowns of the

eurozone and possible double-dip recession are likely to feature heavily. ACCA will make its analysis, updates and material shortly after the Budget. To see what has been made available in past years, go to tax

13/02/2012 10:29


Technical update

LAW EMPLOYERS’ MANDATORY REGISTRATION The Pensions Regulator has increased its communications in the build-up to the mandatory registration deadlines. When to act? This is dependent on the number of employees, but employers will need to have considered how they can comply with the registration process, including how changes to existing pension scheme rules apply by the announced staging dates, which are as follows: businesses with more than 3,000 staff have a staging date on or before 1 July 2013 businesses with between 50 and 2,999 staff will have a staging date of between August 2013 and March 2015 businesses with 49 staff or fewer will begin automatically enrolling their staff from May 2015. By the above dates employers will have had to amend existing pension scheme rules or established a new company scheme and will have registered their scheme online with the Pensions Regulator. Employers will need to ensure that their pension scheme offering complies with a number of conditions including that a new starter is eligible to join an employer pension scheme from their first day of employment. You can find articles provided by the Pensions

* * *

UK_T_taxlawupdate.indd 64

Regulator including preparing for automatic enrolment, understanding the requirement to review pension arrangements and automatic enrolment for accountants at www2. You can also find an ACCA guide, details of a new vodcast and other guidance. DEFINED BENEFIT SCHEMES TRUSTEE OBLIGATIONS The Pensions Regulator has announced that it will aim to issue a statement in April to help trustees of defined benefit pension schemes on how to deal with the valuation and recovery plan process in the current economic climate. The regulator has said: ‘During the past four years

of economic turbulence, the scheme-specific funding regime has provided the flexibility necessary to support sponsoring employers and trustees to find appropriate funding arrangements that protect the scheme – as well as being affordable and reasonable for the employer. The economic conditions at each valuation date are unique and trustees will need to closely consider the impact of these on their valuation and recovery plan. With this in mind, in April we will publish a statement that will set out our expectations of those trustees starting their valuation process at the present time.’

*CHARITIES ACT 2011 The Charities Act 2011 consolidates previous charity legislation into a single comprehensive act. The implementation date of the act is 14 March 2012. If preparing accounts, reference should be made to the 2011 act where the compilation of those accounts is completed on or after 14 March 2012, irrespective of the financial year to which those accounts refer. The basic advice is that reference should be made to the 2011 act in any document, for example, accounting policies, an audit or independent examination report, prepared on or after 14 March 2012,

Later in the year, the regulator intends to set out its strategic view on how it will regulate schemes in the future. You can find details at PARENTAL LEAVE The UK opted for an additional year’s grace from implementing the EU Parental Leave Directive. The increase in unpaid parental leave from the current 13 weeks to 18 weeks is expected to be implemented by March 2013. Employment law factsheets can be found at www2. Glenn Collins, head of technical advisory, ACCA UK

irrespective of the financial year to which that document refers. The simplest approach is to refer to the provision of the Charities Act 2011 on documents executed following the act’s implementation and to refer to the provisions of the Charities Act 1993 (or other relevant charity legislation) in documents executed before the implementation of the 2011 act. For an update and suggested alterations prepared by Nigel Davies from the accountancy policy team at the Charity Commission of England and Wales, go to www2.

13/02/2012 10:29



units on the web


Going concern ACCA’s Massimo Laudato explains how auditing standards and the financial reporting framework affect directors and auditors in assessing going concern

There is often confusion, or a lack of awareness, about the roles of management and auditors in the assessment of going concern and the related reporting process in the financial statements. That confusion arises from the separate requirements of the financial reporting framework and auditing standards, and it is therefore worthwhile outlining them.

Responsibilities of directors Going concern is a fundamental assumption that underlies the preparation of the financial statements of all UK companies. Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future and therefore it accounts for its assets and liabilities on the basis that it will be able to realise and discharge them in the normal course of business. Financial statements are prepared on a going concern basis unless the management or directors intend to liquidate the entity or cease operations, or have no realistic alternative but to do so. Under the Financial Reporting Standard for Smaller Entitles (FRSSE), UK GAAP and International Financial Reporting Standards (IFRS), directors are required to satisfy themselves that it is reasonable for them to conclude that it is appropriate to prepare financial statements on a going concern basis. Additionally the accounts regulations for small, medium and large-sized companies (Statutory Instruments

UK_T_goingconcern.indd 65

2008, 409 and 410) also include a presumption that a company will continue carrying on a business as a going concern. The directors are required to consider and assess all the circumstances and facts known at the date the accounts are approved. The level of detail of the assessment and extent of procedures required will vary in accordance with the entity’s size and complexity. It is recommended that it should involve, as a minimum, the preparation of a budget, trading estimates and cashflow forecasts and an analysis of the company’s borrowing requirements and facilities, albeit smaller entities may not prepare such a detailed analysis. The accounting standards lay down no maximum review period that the directors have to adopt in assessing going concern. However, the FRSSE and UK GAAP provide for the directors to disclose in the accounts where the period considered as the foreseeable future is less than one year from the date of the approval of the financial statements. Under IFRS there is a requirement that the period considered should not be less than 12 months from the end of the reporting period. The directors of UK companies usually adopt a period of review of not less than 12 months from the date of approval of the statements. When conducting their going concern assessment, the directors will have to evaluate which of three potential

conclusions is appropriate to the circumstances of the company: there are no material uncertainties that may cast significant about the company’s ability to continue as a going concern there are material uncertainties related to events or conditions that may cast significant doubt about the company’s ability to continue as a going concern but the going concern basis remains appropriate the use of the going concern is not appropriate. The accounting standards require directors to make disclosures about the existence and the nature of material uncertainties that lead to significant doubts about going concern. The specific disclosures that should be made are not codified in the standards but they should outline the facts and circumstances that create the uncertainties in a clear manner and should also include an indication that the company may be unable to realise its assets and discharge its liabilities in the normal course of business. Directors should also indicate on what grounds they consider the use of the going concern basis to be appropriate.

* *


Responsibilities of the auditor International Standard on Auditing (ISA) 570 clearly outlines the objectives of the auditor about the use of the going concern basis in the accounts: to obtain sufficient appropriate evidence about the appropriateness


08/02/2012 15:22



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

of management’s use of the going concern basis to conclude, on the basis of the audit evidence, whether a material uncertainty exists about events or conditions that may cast significant doubt about the entity’s ability to continue as a going concern to determine the implications for the auditor’s report.



Planning stage ISA 570 requires the auditor to consider at the audit planning stage whether there are events or conditions that may cast significant doubt about the going concern assumption. In order to do so the auditor should discuss

Such discussion normally takes place at the preliminary meeting with the client that is set to update the permanent information about the entity and identify changes in the business since the last audit that are relevant to the current year audit. Events and conditions that may significantly affect going concern are listed in ISA 570 and could be of financial, operating or other nature. They include net liabilities, current net liabilities, borrowing facilities unlikely to be renewed or replaced, inability to pay creditors or to comply with the terms of loan agreements, the loss of a major market, key customer, supplier or management, or pending legal or

THE AUDITOR’S FOCUS SHOULD BE TO OBTAIN SUFFICIENT APPROPRIATE EVIDENCE TO EVALUATE THE MANAGEMENT’S ASSESSMENT with management their preliminary assessment of going concern, ascertain whether they have identified issues that may have a significant impact on going concern, and how they plan to address them. If management has not performed such a preliminary assessment, then the auditor shall discuss with the directors the grounds on which they intend to use the going concern basis and ask them whether there are events and conditions that may significantly affect going concern.

UK_T_goingconcern.indd 66

regulatory proceedings that the entity may not satisfy. There is no exhaustive list of possible events and conditions capable of affecting going concern, as the significance of issues depends on the specific circumstances of the entity. However, the going concern assessment carried out at planning stage should be aimed at identifying risks of material misstatement in the accounts so that further audit work could be designed and implemented to respond to such risks.

Evaluating management’s assessment The evaluation of the management’s assessment of going concern is an essential part of auditing the going concern assumption. The auditor’s focus should be to obtain sufficient appropriate evidence to evaluate the management’s assessment rather than to rectify the lack of analysis by management by producing an auditor’s own detailed analysis. Smaller entities often do not make an assessment using detailed procedures but rely on in-depth knowledge of the business by management and anticipated future prospects. In such cases the auditor may not need to perform elaborate procedures to obtain sufficient evidence about the management’s assessment but may, for example, discuss with management the medium and long-term financing of the entity, examine supporting documents and evaluate and enquire about the consistency of financing prospects with its understanding of the entity. Nevertheless, a detailed evaluation of going concern based on formal procedures such as budgets and cashflow forecasts is likely to provide the most persuasive audit evidence to evaluate the management’s assessment. In such circumstances the auditor should make enquiries about the process followed by management to make the assessment, about the assumptions on which the assessment

08/02/2012 15:22


is based and about management’s plans for future actions. The auditor should also examine any relevant financial information.

Additional procedures If the preliminary assessment or evaluation of management’s assessment has identified events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, the auditor shall perform further audit procedures to establish whether a material uncertainty about going concern exists. The procedures will include reviewing management’s plans for future actions for going concern, including, for example, enquiries about its plans to liquidate assets, borrow money or restructure debts, reduce or delay expenditures, or increase capital, to establish whether they are feasible and likely to improve the situation. Also, if the entity has prepared cashflow forecasts and their consideration is critical to management plans for going concern, the auditor shall evaluate the reliability of the underlying data used in the forecasts and determine whether the assumptions underlying the forecast can be adequately supported by evidence. That could be done by comparing forecasts for recent previous periods and the current period with actual results. Where management’s assumptions include continued financial support by third parties and such support is

UK_T_goingconcern.indd 67

important to the ability of the entity to continue as a going concern, the auditor may need to request written confirmations from those third parties and to obtain evidence about their ability to provide such support. Written representations from management and directors regarding their future action plans and their feasibility also need to be obtained by the auditor.

Audit conclusions On the basis of the evidence obtained, the auditor shall conclude whether a material uncertainty exists in respect of events and conditions that, either individually or collectively, may cast significant doubt about the ability of the entity to continue as a going concern. A material uncertainty is one whose potential impact and probability of occurrence requires, in the auditor’s opinion, disclosure of its nature and implications for the accounts to give a true and fair view. A specific reporting requirement is placed on UK auditors by ISA 570. If the period considered for the management’s assessment of going concern is less than one year from the date of approval of the financial statements and the directors have not disclosed that fact, then the auditor shall do so in the auditor’s report. For entities applying the FRSSE or UK GAAP such a disclosure is a requirement and its omission will also trigger a qualified opinion. If the


auditor concludes there are no material uncertainties about the going concern assumption, an unmodified audit report should be issued. The auditor may conclude that the use of the going concern assumption is appropriate but a material uncertainty exists, therefore requiring modification of the auditor’s report. If the auditor determines that the accounts adequately describe the nature and implications of the material uncertainty and the management’s plans to deal with it and disclose clearly that the entity may be unable to realise its assets and discharge its liabilities in the normal course of business, the auditor will not qualify its report but will include an Emphasis of Matter paragraph highlighting the existence of a material uncertainty and drawing attention to the going concern disclosures in the accounts. If adequate disclosures are not included in the financial statements, the auditor shall express a qualified opinion. If the financial statements have been prepared on a going concern basis but the auditor concludes that the use of the going concern assumption is inappropriate, the auditor’s report shall express an adverse opinion. A longer article on this topic is available at uk/members/technical/advice_support/ audit_assurance Massimo Laudato is a technical adviser at ACCA UK

08/02/2012 15:22



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

Strategy without the guff In the first of a series of five articles, Dr Tony Grundy sets out to make strategy a practical tool for accountants rather than a bluffer’s paradise

The aim of this series of articles is to lay bare the essence of strategy and show how it can be used by accountants in a very practical way. Along the way it will be demystified as much as possible. Strategy is often over-conceptualised and clouded in unnecessary jargon. Strategy – such a simple term – has become entangled with confusion. As a result, people who deploy strategy terms end up saying things in real life that don’t have much real meaning at all. You may recognise this is what is happening when someone says something about strategy, and you simply don’t get it. If you don’t get it, it doesn’t mean that you are stupid. It may well be that the speaker is either using ‘strategy’ as an excuse to be vague or using terms that they don’t really understand. They may simply be trying to be clever or use the reference to strategy to get you to think in a particular way. The complex and abstract language so often used in strategy is another problem. There are possibly 100 terms or more that get talked about in discussions about strategy; some, like ‘competitive advantage’, are useful and generally clear, but others such as ‘mission’ and ‘vision’ can carry connotations that are simply too general and vague. The number and ambiguity of these terms can make strategy hard to follow, so let’s make a start by defining just what is meant by ‘strategy’.

UK_T_strategy1.indd 68

The road from here to there Many of the possible definitions of strategy are abstract, such as ‘matching the environment’, or are concepts, such as ‘having an inimitable competitive advantage’. This kind of abstraction can quickly put people to sleep, so the first of my three complementary definitions is: strategy is how you get from where you are now to where you want to be – and with real and sustainable competitive advantage. This definition has five ingredients: knowing where you are now knowing where you want to be knowing how you will get there basing the ‘how’ on competitive advantage making this competitive advantage genuine and durable. For this, you need to have a very clear idea as to where you are right now – in other words, your strategic position. This means asking some key questions, such as: What is going on in the environment around your industry/market – the economy, the technology, and so on? How competitive is your market and what are its dynamics? How do your customers see your business and the value that it adds relative to your key competitors? The other aspect here is that ‘where you want to be’ takes you into the future. Strategy encourages people to think future a great deal more than they usually do. Much of what goes on in everyday management is focused on

* * * * *

* * *

the immediate: this meeting, today’s tasks, this week. But as is often observed, the future is so important because we are going to spend the rest of our lives in it. Strategy serves a very real purpose by getting us to think about the future environment, future options, future competitive advantage and so on. Strategic thinking therefore means being able to travel imaginatively through time into the future. In this definition the strategy itself is not just the strategic goals and is very much to be found in the ‘how’ itself. At this point you might be thinking that what is being described here is implementation, which you have always thought of as operational and tactical. But it would be very odd if it were possible to say how a strategy would be implemented without explaing something about its tangible, operational action. Strategy must be specific and tangible; otherwise, how will you achieve it and how will you know if it has actually happened?

What you really, really want My second definition pays homage to British girlband the Spice Girls: strategy is what you really, really want. This definition gets us to imagine a future world with strategic possibilities and where we can realise an exciting dream, but through realistic actions and activities. This definition comes into its own when managers have got entrenched in

08/02/2012 15:22



their existing position and the mindset that goes with that. It encourages people to stand back and reflect (sometimes referred to as ‘helicopter thinking’) on what they wanted in the first place, rather than get too bogged down in the problems and issues of their current strategic position. This definition lifts expectations about what can be credibly achieved. A strategy of the Spice Girls form still needs to be rooted in ideas that are grounded in real competitive advantage and are fully aligned – all the things external or internal to the business that are prerequisites of success (the so-called ‘alignment factors’) must be in place.

premium price positioned it as * its having a high value-add. Subsequently many of these alignment factors were eroded and profits fell by 50% by the 2000s (although they have now recovered), highlighting the need to preserve the sources of real competitive advantage.

The cunning plan My final definition of strategy is the ‘cunning plan’ popularised in British TV comedy Blackadder. The cunning plan: works backwards from the result is fundamentally simple achieves its goals by a combination of obvious, and not so obvious, ideas isn’t particularly easy to imitate.

* * * *

THE SPICE GIRLS DEFINITION OF STRATEGY COMES INTO ITS OWN WHEN MANAGERS HAVE GOT ENTRENCHED IN THEIR EXISTING POSITION An example of a strategy based on alignment is that of James Dyson’s entry into the carpet cleaning market in the mid-1990s. His alignment factors were: the product had technology which made the vacuum bag obsolescent it had more suck it was designed to be a status item rather than be hidden in a cupboard – it was iconic it was patented for some years competitors tried to come up with a better bag

* * * * *

UK_T_strategy1.indd 69

The idea of the cunning plan is relevant as many managers seem content with more or less any kind of strategic plan at all, whether it is a cunning one or not. But it is important to stress that average plans, or even plans that are slightly above average, simply will not do. Over the years I have shown hundreds of accountants Back and Forth, the short film based on the Blackadder TV series. In it, Blackadder and Baldrick invent a time machine so that they can go back into the past and

steal things that can subsequently be sold as expensive items. Unfortunately Baldrick falls on the time controls and they zoom back in time before they know where the present (their ‘current position’) is. They go backwards and forwards through history but can’t find their way back, getting more and more frustrated in the process. Eventually Baldrick comes up with a cunning plan: that they try to drown Blackadder to bring on a near-death experience so that he will recall every moment of his life including the original settings on the time machine. Blackadder, though, has an even better idea and tries drowning Baldrick instead (the ‘stunning plan’); Baldrick does indeed remember the settings and they return. What is memorable about this plan is that it is not obvious. It is very clever, working back from the future desired state (memory recall) rather than planning towards it to try to get somewhere. That is truly cunning.

Strategic thinking Strategic thinking can be defined as: the thinking processes that consider any complex situation from a variety of angles, seeking out options and evaluating them and their implications from differing perspectives in a novel way. Let’s first unpack the key ingredients in this definition: ‘thinking’ – this a structured and creative process which takes into account causality, the degrees of


08/02/2012 15:23


freedom and the constraints, and weighs up the pros and cons of alternative decisions ‘complexity’ ‘looking at things from different angles’ – this can be from external and internal perspectives, over short, medium and longer term time horizons, with different sets of assumptions, etc ‘options’ – distils possible choices into discrete and specific options ‘evaluating’ – assesses the options on the basis of multiple criteria ‘implications’ – looks at things like the investment required, the implementation needs, and how to influence stakeholders ‘novelty’ – the end goal is to come up with some cunning (if not stunning) ideas If strategic thinking is contrasted with more operational thinking, the differences can be listed as shown in the panel below. What becomes clear from this is that strategic thinking is qualitatively very different to operational thinking. It is far more ambiguous and can be challenging emotionally as well as politically.

* *

* * * *

units on the web

MANY MANAGERS SEEM CONTENT WITH MORE OR LESS ANY KIND OF STRATEGIC PLAN AT ALL, WHETHER IT IS A CUNNING ONE OR NOT Strategic concepts Some of the most important strategic concepts include the following: Mission. The mission is the overarching purpose of the organisation – the kind of organisation it wants to be, what businesses it wants to be in, and its guiding philosophy. If a mission is to be of any use it is vital that it has some grounding in robust assumptions about the present and potential strategic position and is distinctive in some way. Vision. The vision is a picture of either the environment (and our fit within it) or just of ourselves at some stage in the future. Objective. A strategic objective is one of the goals of the strategy. The objective should not be confused with the strategy itself; it is an output – and a very specific one at that. Strategic objectives can and should be broken down – for example, into compound sales growth, changes in relative


* *

Operational thinking

Strategic thinking

linear deductive preprogrammed clear boundaries safe

iterative and unpredictable inductive and intuitive creative ambiguous and fuzzy boundaries anxiety-provoking

UK_T_strategy1.indd 70



market share or other measures of relative competitive position, development of key capabilities and successful strategic breakthroughs. Strategic option. A strategic option is a way in which a strategy can be formulated so that it can actually be implemented. This means that the strategy needs to be sufficiently specific not only in terms that allow it to be evaluated, but also in terms that allow it to be executed. While I have presented these strategic concepts in the order in which they might appear in a plan, in practice they are more likely to be generated by looking briefly at objectives, evaluating options to arrive at strategies and only then setting final objectives, vision and mission so that the latter are grounded and realistic. In summary, strategy can and should be demystified, its terms defined and explained, and strategies themselves based on a number of elements, especially the cunning plan. The next instalment will take you further on a much more detailed journey in the demystification of strategy.


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

08/02/2012 15:23

CPD units on the web



Current or non-current liability? Accounting for liabilities may appear to be straightforward but simple rules can have significant effects on corporate financial statements, explains Graham Holt

There have recently been some major breaches of debt covenants reported by companies, but the issue then arises as to how this liability is reported. The question is whether the liability is a current or non-current liability and how to present the liability in the statement of financial position. IAS 1, Presentation of Financial Statements, paragraph 60 stipulates that an entity should present current and non-current liabilities as separate classifications in its statement of financial position, except when a presentation based on liquidity provides more relevant and reliable information. Whatever the method of presentation, an entity should disclose the amount expected to be settled after more than 12 months and less than 12 months. When an entity supplies goods and services with an identifiable operating

Financial liabilities include trade and other payables. If a liability category combines amounts that will be settled after 12 months with liabilities that will be settled within 12 months, note disclosure is required which separates the longer-term amounts from the 12-month amounts. Paragraph 69a窶電 of IAS 1 states that liabilities are to be classified as current if any one of four specified conditions is met. The conditions are: A It expects to settle the liability in its current operating cycle B It holds the liability primarily for trading C The liability is due to be settled within 12 months D It does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. All other liabilities are to be

SOME CURRENT LIABILITIES SUCH AS TRADE PAYABLES AND EMPLOYEE COSTS ARE PART OF THE NORMAL WORKING CAPITAL cycle, separate classification of current and non-current liabilities highlight liabilities due for settlement in the period. Information regarding the realisation of liabilities is useful in assessing the solvency of an entity as IFRS 7, Financial Instruments: Disclosures, requires disclosure of the maturity dates of financial liabilities.

UK_AP_T_HoltCPD.indd 71

classified as non-current. IFRS 7 does not deal with the classification of financial liabilities but the disclosure of information that enables users to evaluate the nature and extent of risks arising from financial liabilities to which the entity is exposed. IFRS 9, Financial Instruments, deals with the classification and

measurement of financial liabilities. In October 2010, the International Accounting Standards Board (IASB) published additions to the first part of IFRS 9 on classification and measurement of financial liabilities. The requirements in IAS 39 regarding the classification and measurement of financial liabilities have been retained, including the related application and implementation guidance. This means that there are two measurement categories for financial liabilities, which are fair value through profit or loss (FVTPL) and amortised cost. The criteria for designating a financial liability at FVTPL also remain unchanged. Some current liabilities such as trade payables and employee costs are part of the normal working capital of the entity and the entity classifies the amounts as current even if they are to be settled outside of the 12-month period. There are some current liabilities that are not part of the working capital cycle but are due for settlement within 12 months or are held for trading. Financial liabilities are an example of this fact. Financial liabilities are classified as current when they are due for settlement within 12 months, even if the original term was for a longer period than 12 months and an agreement to refinance on a long-term basis is completed after the reporting date but before the financial statements are authorised for issue.

09/02/2012 15:02



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

FINANCIAL LIABILITIES ARE CURRENT WHEN THEY ARE DUE FOR SETTLEMENT WITHIN 12 MONTHS, EVEN IF THE ORIGINAL TERM WAS FOR A LONGER PERIOD AND AN AGREEMENT TO REFINANCE IS COMPLETED AFTER THE REPORTING DATE BUT BEFORE THE FINANCIAL STATEMENTS ARE AUTHORISED FOR ISSUE Case study 1 An entity operates in the oil industry. It is constructing and operating an oil rig, which is financed partly by a loan raised in 2010 and the entity classified the loan correctly as a non-current liability in accordance with paragraph 69 of IAS 1. In the statement of financial position at 31 December 2011, the entity reclassified the loan as a current liability. In the 2011 financial statements, the entity disclosed, as an event after the reporting period, that the loan had been settled with cash received under an oil production agreement. The entity also disclosed that a letter of intent in connection with the agreement had been signed by the end of the 2011 financial year. In the directors’ report for the year, the entity stated that the loan was classified as a current liability due to the fact that the loan had been settled in February 2012 when the oil production agreement became legally binding. The original settlement date was 31 December 2015. The entity stated that it had reclassified the loan

UK_AP_T_HoltCPD.indd 72

in accordance with IFRS 7, Financial Instruments: Disclosures.

Solution IFRS 7 applies only to information disclosed in the financial statements and not to the classification of liabilities. Therefore, the standard is not relevant. The classification of the loan as a current liability does not comply with paragraph 69 of IAS 1. In respect of the 2011 financial statements, the oil production agreement, effective in February 2012, was a non-adjusting event after the reporting period as determined in accordance with IAS 10, Events After the Reporting Period. It can be concluded that the loan should have been classified as a non-current liability in the 2011 statement of financial position because the entity did not meet any of the conditions set out in paragraph 69a–d of IAS 1: A The project loan is not a liability which would be settled in the issuer’s normal operating cycle

09/02/2012 15:02



(paragraph 69a). The loan is a financial liability providing financing on a long-term basis. It is not part of the working capital used in the entity’s normal operating cycle. B The issuer did not hold the loan primarily for the purpose of trading but for the purpose of financing the construction of the oilrig (paragraph 69b). C The loan was not due to be settled within 12 months after the reporting period (paragraph 69c). D The entity had an unconditional right to defer settlement of the liability for at least 12 months after the reporting period, because the loan was not due to be settled within 12 months after the reporting period (paragraph 69d). Paragraphs 74–76 of the standard address the consequences of a breach of a provision of a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand. In this case, the liability is classified as current, even if the lender has agreed, after the reporting period and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach. Under IAS 1, a liability is classified as current as the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. However, the liability is classified as

UK_AP_T_HoltCPD.indd 73

non-current if the lender agreed by the reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.

the covenants as of 31 December 2011. Thus, as at 31 December 2011, having failed to fulfil the contractual obligations and being in breach of relevant covenant, the leasing company was entitled to require the entity to repay the debts immediately.

Case study 2


In December 2010, an entity agreed a 10-year leasing agreement with a leasing company and undertook to comply with certain covenants during the term of the lease agreement. The agreement stipulated that, in the event of a failure by the entity to fulfil any of the contractual obligations, or having failed to rectify any such breach within a one-month period, the lessor had the right to terminate the leasing agreement. In such a case, the entity would have to pay all unpaid amounts due before the termination of the agreements. As at 31 December 2011, the entity was not in compliance with the covenants stipulated in the leasing agreement. It was additionally established that on 31 January 2012, the entity was still not in compliance with the specified leasing covenants. In the 2011 consolidated financial statements, the debt relating to the leasing company was classified as non-current in accordance with the payment schedules included in the original agreement. The entity had received, from the lessor, a notification confirming the failure to comply with

The entity’s presentation of the debt as a non-current liability is not in accordance with IAS 1, paragraph 60 that specifies the circumstances in which liabilities are to be classified as current. The amounts outstanding in respect of this arrangement at 31 December 2011 should have been disclosed as a current liability. IAS 1 stipulates that a liability shall be classified as current where it is due to be settled within 12 months after the reporting date, and the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

Conclusion Accounting for liabilities may appear to some to be relatively straightforward but simple rules can have significant effects on corporate financial statements. 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

09/02/2012 15:03


Think Manchester MBA Incentives are available for early applications.

ACCA advert_172x108.5.indd 1

74_(left).indd 74

Our finAnce MBA delivers The skills yOu need fOr TOdAy’s cOMplex ecOnOMic cliMATe: invesTMenT pOrTfOliO MAnAGeMenT, TreAsury And fOreiGn exchAnGe, TrAde finAnce And cOrpOrATe finAnce. As An AccA MeMBer yOu’re enTiTled TO exeMpTiOns when jOininG Our AccelerATed pAThwAy.

Original Thinking Applied +44 (0) 161 275 7212

06/02/2012 10:47

10/02/2012 11:43



Masters of evolution [

The Master’s degree has had to adapt, but an MBA or finance MSc still holds real career value in a changing world under economic strain. Could one take you to another level professionally?

In today’s jobs climate if you can give yourself the edge over an increasingly pressured workforce permanently under the threat of job cuts you will be better able to protect your career. Adding another string to your bow with a Master’s degree is one way of getting that edge. Before you sign up, though, you need to undertake thorough research into what’s available and gain a deep understanding of why and how it can benefit you as well as what to expect from a course. It’s true too that MBAs and finance MScs have been adapting to a changing economic backdrop, both in terms of proving that they offer true value for money, and of how they are taught in an increasingly technologically advanced world.

Justified from the off Estrella Frutos, Masters in Finance (MiF) programme director at London Business School, says that the justification of a higher qualification is obvious from the statistics for subsequent employment. ‘After steering through a tough economy, 93% of our MBA class of 2011 secured employment within three months of finishing their degree,’ she says. However, she points out that there is a slight difference between a standard MBA and a specialist finance Master’s, and that is due to the sector being particularly vulnerable to the economy. ‘Regarding the MiF programme, the impact of the global recession has been particularly felt in the financial services industry, which is currently undergoing major structural changes. As such, 85% of our MiF class of 2010 secured employment within four months of graduation – that was a

UK_CAR_MBA.indd 75

‘GIVEN THE STATE OF THE JOB MARKET, THE QUESTION IS, HOW CAN YOU JUSTIFY NOT TRYING TO UPSKILL AND DIFFERENTIATE YOURSELF IN AN INCREASINGLY COMPETITIVE JOB MARKET?’ significant improvement over the class of 2009, but lower than the levels of pre-recession times. ‘Our students and their organisations tell us now is a key time to develop internally as with the economy many

organisations have to operate more with less and continue to drive growth. Moreover, the increasing competition in the job market enhances the added value of higher education as the vehicle to prepare yourself for global business challenges and to differentiate yourself in a crowded job market. ‘This can be a time to differentiate yourself through training to gain a competitive advantage within your firm. Both now, and when the economy does improve, our participants have a distinct advantage.’ Tim Harris, dean of academic programmes at Kaplan Financial, agrees. ‘Given the state of the job market, the question is, how can you justify not trying to upskill and differentiate yourself in an increasingly competitive job market?’ he says. ‘Having a professional qualification plus an MBA or MSc is the thing that might just give you the edge in a tight job market.’ As with other qualifications and teaching techniques, the way a Master’s is taught has adapted to a new species of digital learner. Although technological advances haven’t altered the essence or content of what is taught in Master’s programmes, they have radically altered the learning process by making it easier to access information in real time, from anywhere in the world whenever you choose. ‘Learners today quite rightly expect to be able to learn in a way and at a time that suits their learning style and lifestyle,’ says Harris. ‘In practice this means increased use of mobile technology and the use of blended learning, which combines the strength of traditional classroombased learning and technologysupported independent learning.’

13/02/2012 10:28



‘Technology facilitates teaching,’ says Frutos, ‘but it can’t replace face-to-face interaction with professors and classmates as an integral part of the London Business School experience.’ She adds that the MiF programme is an example of how learning and teaching have changed with the economic backdrop: ‘We provide a full-time course for those wanting to complete their degree within 10 months and take a break from working, and there is a part-time programme, which takes place Fridays and Saturdays on alternate weekends; this has allowed students to maintain working and studying, opening the door for a range of students globally to continue working and travel to London for the classes.’ Part-time courses allow students to combine their work commitments with further studies. However, the amount of time you will need to invest outside the regular teaching sessions shouldn’t be underestimated. With any Master’s degree, you get out what you put in.

Academic workloads Different study routes and intensity of study consume different amounts of time. Somebody who is approaching an MBA on a full-time basis should expect to have a workload similar to that of a full-time job. Part-time learners and distance learners can expect to spend less time in a formal learning environment and more time working independently or online. The cost of studying differs hugely depending on where you do it. Most institutions offer scholarships and loan schemes, and often students have an undertaking from their employers to cover some or even all of the cost if they sign a retention agreement. Beth Holmes, journalist

UK_CAR_MBA.indd 76

*CASE STUDY: DAVID CHANG KIT David Chang Kit, commercial manager, Europe, for Nexen Petroleum, completed a global MBA. ‘My department within the company has a global structure and is responsible for finding new commercial accumulations of hydrocarbons,’ he says. ‘I am responsible for all European commercial negotiations within global exploration. As I progressed in seniority within my company, I recognised certain skills were necessary to perform effectively within the organisation.’ He chose to do an MBA to acquire those skills and better understand the organisation and its people, and researched courses to ascertain which would best suit his needs. ‘The flexibility of the programme made me choose Oxford Brookes. Although I had to make a lifestyle change to accommodate my MBA schedule, it allowed me to retain a reasonable lifestyle. I was also really attracted by the online seminars. ‘My main concern before I started was balancing work and devoting enough time to studying. I’m afraid when there are only 24 hours in a day, I had to make some lifestyle changes. I stopped most sporting activities and instead of visiting friends I would call them just to find out how things were going. I moved my holidays to after exams or coursework deadlines as it gave me something to look forward to. ‘Studying online allowed me to participate in seminars at different times, especially to a wide, international audience. However, this means that your exchanges do not always get an immediate response, whereas in a classroom you might. But it also allows you to have an accurate record of what has taken place, unlike in a classroom. This

MBA programme is comprehensive, competitive and flexible. Despite the distance learning nature of the course, the tutors and university are remarkably supportive.’ ACCA members are given accelerated entry to the global MBA and their studies each year can meet the 40-unit ACCA CPD requirement. For more information, visit glance/mba/overview.html


13/02/2012 10:28

Take your ACCA qualification further with an MBA or MSc by studying only 3 or 4 modules

Enhance your career with an MBA in Financial Management or MSc in Finance and Accounting.

Match practical skills with academic excellence through our: ƒƒ ƒƒ ƒƒ ƒƒ

World Renowned Faculty On Campus and Online Study Options 1st Class Career Service UKBA Highly Trusted Sponsor Status

We go further, so you go further




Find out more today! 020 3535 1277

Regional Campuses: London +44(0)2035351277 Birmingham +44(0)1216617160 Manchester +44(0)1616694240 Toronto +1 416 800 2204 Singapore +65 6580 7700 InterActive +44 (0) 207 099 0077

London | Manchester | Birmingham | Worldwide

*T&Cs apply, call for details. E&OE.

AB Ad v3.indd 1

07/02/2012 14:56



CPD: coaching and mentoring If you coach or mentor staff, the activity can count as work-based learning and so help to satisfy your continuing professional development requirement What is work-based learning?

The workplace can be a rich source of learning and many of the activities you carry out can contribute to your continuing professional development (CPD) if they help you develop your knowledge or skills. Members following the unit route can gain both verifiable and non-verifiable CPD from a range of work-based activities. Another way of achieving your CPD requirement is to work for an ACCA Approved Employer – professional development. ACCA will recognise any learning activity you undertake, provided that it is relevant to your role or career and contributes to your individual learning and development needs.

What is coaching and mentoring? Coaching and mentoring is generally undertaken as part of a people management role. It usually involves helping an individual to develop specific skills and knowledge around their job. Coaching is a key part of helping others to develop, but it can also help you to develop new skills. By acting as a coach or mentor, not only will you reap the benefits of working with junior colleagues, who will become more able, enthusiastic and ambitious as a result, but you’ll also develop the characteristics and behaviours required of today’s rounded business professional.

How can coaching and mentoring contribute to CPD? Learning certain techniques can not only help you be an effective coach or mentor, but can also be a valuable contribution towards your CPD. For example, these can contribute if

UK_INT_A_CPD.indd 78

you are learning new skills through coaching and mentoring a colleague. Examples of how you can gain CPD from coaching and mentoring include: researching for or preparing for a coaching session conducting a coaching session, if this is new to you or if you are attempting new techniques.

* *

How can I calculate verifiable CPD? It is important to consider whether you learned something through the coaching and mentoring session’s

research, preparation or delivery. If you did, it will contribute to your CPD. Keep notes of your research and the session; the person being coached or another colleague can confirm the learning took place. Remember the learning can be counted as verifiable CPD if you can answer yes to the following questions: 1 Was the learning activity relevant to your career? 2 Can you explain how you will apply the learning in the workplace? 3 Can you provide evidence that you undertook the learning activity?

What are the other benefits of coaching and mentoring? preparing for coaching or * From mentoring, through the session

itself to your post-session review, you’ll improve your self-awareness and your ability to identify your own areas for development. By being a workplace mentor to an ACCA trainee, you will be key to them completing their practical experience requirement (PER) and achieving ACCA membership. The achievements and leaps forward of those you coach or mentor will reflect well on your own leadership ability and potential.



Do you want to give something back? The skills described above are also applicable to the role of the ACCA Workplace Mentor, another way of gaining CPD in the workplace. You can learn new skills in a coaching and mentoring role, and also contribute to the development of the profession, helping to ensure that new ACCA members have the skills, attitudes and behaviours required to be a qualified accountant.

07/02/2012 14:55


Christopher Cope

- Solicitor -

Call: 01769 581581

l Complaints l Regulation l Disciplinary Worried about any of these? Phone today for free initial advice.

Over 500 accountants represented, nationwide. Your PI or office insurance could cover legal fees. Why not join Accountants’ Defence & Advisory Services Ltd today to cover legal/professional fees on any future problem. email: London - Devon Member, Academy of Experts chriscopes.indd 1

16/11/2011 10:00

WE’RE BIG IN FINANCE YOU COULD BE TOO With over 3,500 live accountancy jobs, now is the right time to talk about your next career move. All our consultants have expert market knowledge, strong relationships across the industry and the support of our extensive global network. That’s why organisations of all types and sizes – from international blue chips to SMEs – trust us to find the people who can help transform their business. So, whether you want something local or international, permanent or interim, we have the breadth of coverage and the depth of understanding to help you find it. For further information, visit or call 0800 716 026 to locate your nearest office. HUK-J5034_AB_Mag_Feb_2012.indd 1

UK Page 79_(right).indd 79

03/02/2012 15:51

09/02/2012 17:33


ACCA diary


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


14 March, Wednesday FD to MD, Cambridgeshire


19 March, Monday Office of Tax Simplification, Brentwood

28 March, Wednesday Anti-Money Laundering Speaker: David Blackmore, independent consultant, London To book, please register at

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 05 March, Monday Tax Update, South Cobham 06 March, Tuesday Developments in IT/Cloud Computing, Reading 08 March, Thursday Pensions Update, Worthing 12 March, Monday Social Media, Harrow 13 March, Tuesday Valuation of Companies, London 13 March, Tuesday Valuation of Companies, Enfield 13 March, Tuesday The Update of the UK Economy, Ipswich

UK_A_Diary.indd 80

22 March, Thursday The Business of Sport, Chester-le-Street 24 March, Saturday Presenting and Promoting Yourself and Professional Networking, London 27 March, Tuesday Economic Update, Maidstone

23 April, Monday Measuring Performance, Leeds 23 April, Monday Insolvency, Bankruptcy and Rescue, Ipswich 23 April, Monday St George’s Day Breakfast – Use of Social Media for Business, Brighton and Hove 24 April, Tuesday Top Ten ACCA Technical Queries, London 27 April, Friday Dinner at the Houses of Parliament, London

27 March, Tuesday Image for Business, London

28 April, Saturday Budget Update, London

29 March, Thursday Future of Accountancy in the UK, Croydon

To book visit http:// members/networks/regional

02 April, Monday The Budget Update, Harrow


02 April, Monday IFRS for SMEs, Guildford 16 April, Monday Planning for Death, Brentwood 18 April, Wednesday Network and Develop, Newcastle-upon-Tyne 18 April, Wednesday Influence and Persuasion Skills, Cambridgeshire 19 April, Thursday Using Networking to Generate Contacts for You, and Sales for Your Business, London

To book visit www.accaglobal. com/wales/events

WALES 01 March, Thursday St David’s Day Business Breakfast, Cardiff 27 March, Tuesday Career Planning – Tips and Advice for Interviewers and Interviewees, Cardiff 29 March, Thursday Business Tool-kit Half Day Conference, Haverfordwest 26 April, Thursday Employment Tax Hot Topics, Cardiff 26 April, Thursday Personal Tax Update – Including Inheritance Planning and Trusts, St Asaph To book visit http://www.

08 March, Thursday Networking With Confidence Workshop, Glasgow


16 March, Friday Aberdeen Annual Dinner, Aberdeen

17 March, Saturday Saturday CPD Conference One, London

22 March, Thursday Budget Breakfast, Glasgow

22 March, Thursday Budget Breakfast, London

14 April, Tuesday STV Site Visit and Tour, Aberdeen

22–24 March Spring Update for Accountants, Oxfordshire

17 April, Tuesday Networking With Confidence Workshop, Edinburgh

24 March, Saturday Saturday CPD Conference One, Aberdeen

23 April, Monday Annual Budget Update, Tayside

24 March, Saturday Saturday CPD Conference One, Birmingham

08/02/2012 13:37


26 March, Monday Money Laundering Workshop, London

Elections to Council

31 March, Saturday Saturday CPD Conference One, Swansea

As ACCA’s governing body, Council plays a pivotal role in ACCA affairs. It ensures that ACCA operates in the public interest and delivers the objectives stated in its Royal Charter. It sets ACCA’s overall direction through regular approval of strategy. It acts as a link between members and the professional body, and leads the organisation in the interests of both. It is accountable both to members and the public interest. It acts for all members and future members (today’s students). It provides leadership of ACCA and stewardship of its resources. Council develops policy for ACCA as a whole and Council members are volunteer custodians acting for the well-being of the whole organisation. Whatever their geographical or sectoral bases, Council members do not represent particular areas or functions and are elected by the membership as a whole. ACCA members of all ages and backgrounds are encouraged to stand for election to Council. Long-term or technical experience is valuable, but so is proven ability to participate actively in strategic decision-making. Council experience as such is not necessary. However, an understanding of good governance is essential, and personal and professional integrity must be of the highest order. Specifically ACCA expects members to

14 April, Saturday Saturday CPD Conference One, London 17 April, Tuesday Spring Tax Update including the Budget 2012, London 19 April, Thursday PAYE and Benefits, London 20 April, Friday Strategic Business Insights, London 21 April, Saturday Saturday CPD Conference Two, London 23 April, Monday Creating Compelling Business Cases, London 24 April, Tuesday Business Turnaround Strategies, London 24 April, Tuesday Personal Tax Planning, London

* * * * * *

bring the following skills and attributes to Council: an ability to take a strategic and analytical approach to issues and to see the big picture an understanding of the business and the marketplace communication and networking skills an ability to interact with peers and respect the views of others decision-making abilities an ability to act as ambassadors in many different environments planning and time management a willingness to learn and develop. Nominations are now invited for election to Council at the 2012 AGM. Candidates must be nominated by at least 10 other members in good standing. Candidates should supply a head and shoulders photo and an election statement of up to 180 words, which should not include references to email addresses or websites. Candidates are also required to sign declarations of their willingness to comply with, and be bound by, the code of practice for Council members. Further information on the Council election process, including pro forma of nomination forms, may be obtained by writing to the Secretary at 29 Lincoln’s Inn Fields, London WC2A 3EE, by faxing +44 (0)20 7059 5561, or by emailing (please put ‘Council Elections’ in the subject box).

* * * * * * * *

27 April, Friday Service Charge, London 28 April, Saturday Saturday CPD Conference Two, Bristol For more information or to book your place, visit http:// or email professionalcourses@

UK_A_Diary.indd 81

08/02/2012 13:37



Inside ACCA 81 Council Become a Council member 80 Diary What’s on in the coming months 78 CPD: coaching and mentoring How you support your colleagues can count towards your continuing professional development requirements

Virtual club opens doors ACCA has opened a virtual briefing centre with theatre, networking centre and digital library. The virtual theatre will host free, live and ondemand audio and video webinars throughout the year. Current webinars include automated internal reporting, business process outsourcing and shared services, and integrated reporting. In the networking centre you can join group chats or chat privately with other ACCA members, see who’s online and add presentations, documents and contacts to your online briefcase. You can search content and other ACCA members who have registered to join the virtual briefing centre, update your profile settings, choose an avatar, exchange V-cards with other delegates – and let us know what you think through the feedback link. Assets will be added to the digital library every month and we’ll keep you updated in your weekly issue of Accounting and Business Direct. Right now you can access digital editions of Accounting and Business magazine, and download articles and technical podcasts. You can also read white papers, solution briefs and case studies from our content partners – IBM, Concur and Meridian. Chris Quick, editor-in-chief of Accounting and Business, provides a two-minute video overview of the centre in the lobby area. Use of the virtual briefing centre can count towards your verifiable CPD requirement if the learning activity is relevant to your career, you can explain how you will apply the learning in the workplace and also provide evidence that you undertook the learning activity.

The umbrella body representing all the UK’s chartered accountants has put accountants for growth at the heart of its mission alongside working for the common good of the profession. The move follows the withdrawal of the Chartered Institute of Management Accountants from the Consultative Committee of Accountancy Bodies (CCAB). At the body’s relaunch in January, its growth agenda was highlighted by a panel of four experts. European economic forecaster Douglas McWilliams spoke about the UK’s economic prospects, the eurozone difficulties, and the likelihood and implications of recession. ‘Accountants can lead us out of this mess,’ added MP Nigel Mills, who identified UK growth as coming from small and micro businesses. Westminster City Council chief Mike Moore outlined the pressures on the public sector. He called for a return to financial management basics, and stressed the importance of transparency and confidence. And Richard Carter, director of the Department for Business, Innovation and Skills, praised accountants for working for growth in their day-to-day role as professional advisers. When asked by a member of the audience about what growth meant for accountants, the panel consensus was that it had to be sustainable and not a consumer-led boom. Carter saw companies seeking export markets as a key driver, while Moore called for public infrastructure investment. The CCAB is supported by ACCA, the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland, the Chartered Institute of Public Finance and Accountancy and Chartered Accountants Ireland.


UK_A_backpage.indd 82

10/02/2012 15:54

VT_Software_accountancymag 192x260:VT_Software_accountancymag



Page 1

VT Final Accounts is the popular Excel based accounts production package from VT Software. The latest version can be used to generate an iXBRL accounts or tax computation file from any Excel workbook or from the pre-tagged templates contained within the package. A large number of users of VT Final Accounts have already successfully submitted iXBRL files to HMRC.

To download a free 60 day trial please visit


9 ÂŁ1+9VAT




the magazine for business and finance professionals

get verifiable cpd units by reading technical articles

what you really want strategy and the spice girls

going virtual

our new online briefing centre

annual reports user views GOING CONCERN a guide MBA gaining an edge

UK_back_cover.indd 1

10/02/2012 16:36

uk.ab accounting and businesS 03/2012


AB UK_March 2012  
AB UK_March 2012  

The March 2012 issue of Accounting and Business – UK edition – ACCA.