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Editor’s choice

In this month’s issue, Irish prime minister Enda Kenny, pictured on the cover with US president Barack Obama, tells Accounting and Business about bringing Ireland back from the brink – and the lessons of the Celtic Tiger’s tribulations for finance professionals. See page 14

SERIOUSLY SILLY SEASON The term ‘silly season’ is normally used to describe the emergence of frivolous media stories during the slow news days of summer. Given London’s hosting of the 2012 Olympic and Paralympic Games, maybe we were never destined to have a quiet news season this year. There has indeed been no shortage of silliness – but of a rather more serious nature than record-breaking sandcastles. The summer has been marked by a rainstorm of corporate calamities, ranging from the Libor-fixing saga engulfing Barclays, G4S’s 11th-hour admission that it hadn’t hired enough security guards for London 2012, HSBC’s money-laundering scandal, and the collapse of the South London Healthcare NHS Trust. In our cover story this month, Irish prime minister Enda Kenny reflects on the causes of the Celtic Tiger’s economic problems. There are many themes in common with one or other of the organisational own-goals listed above. These include a focus on profit to the exclusion of everything else, the failure of some key staff to act in an ethical manner, short-term results lulling management into a false sense of security, poor risk assessment and inadequate planning. Kenny outlines many of the initiatives put in place to address such issues and boost Ireland’s economy and reputation. The immediate challenge for the crisis-hit organisations is dealing with the immediate fallout of their problems. The swift response of London 2012’s organisers to the G4S problems is a good example of contingency planning in action – although not many businesses can call on the armed forces to get them out of a tight spot. But it is clear from all these examples that the longer-term need is for a cultural change in terms of both ethics and the quality of management planning. As this summer’s events make clear, there is still some way to go.

Chris Quick,

TAX STORM As tax-avoidance stories make ever bigger headlines in the media, we examine how this emotive issue is affecting the accounting profession Page 18

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NICER PRICES If your pricing strategy consists of just slapping a fixed percentage on top of your costs then you’re missing a trick – and perhaps margin too. Page 46

RESEARCH AND INSIGHTS APP Our free iPad app explores crucial trends and issues for business. Download it via or search for ‘ACCA Insights’ in the iTunes App Store. See page 82 for more information.


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

03/08/2012 11:20

AB UK EDITION CONTENTS SEPTEMBER 2012 VOLUME 15 ISSUE 8 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 Designer Robert Mills Production manager Anthony Kay Advertising Richard McEvoy +44 (0)20 7902 1221 Head of publishing Adam Williams +44 (0)20 7059 5601 Printing Wyndeham Group Pictures Corbis ACCA President Dean Westcott FCCA Deputy president Barry Cooper FCCA Vice president Martin Turner FCCA Chief executive Helen Brand OBE


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

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

18 Taxing times How will the current furore over tax avoidance schemes affect the profession? 22 Waste control A varied career led Julian O’Neill to become FD at anaerobicdigestion company BiogenGreenfinch 26 After Rio Businesses hold the key to bringing Rio+20’s sustainability reporting pledges to fruition

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

31 Carbon concern New UK reporting rules on emissions will hit listed companies Audit period July 2009 to June 2010 138,255

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14 Q&A: Enda Kenny Ireland’s prime minister describes how the new administration is repairing the economy

34 Fiscal fragility In his regular quarterly report, ACCA’s Manos Schizas finds weakening confidence

03/08/2012 15:58


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

41 The view from Olga Nikitina FCCA of Ernst & Young Academy of Business, plus news in brief

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

42 Franchise force Is the model right for you?

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

45 CORPORATE 45 The view from Chris Bull FCCA of Boots UK, plus news in brief

12 Politics ACCA will maintain a high profile during this year’s conference season

46 The art of pricing Canny costing goes beyond simply slapping on a percentage


50 Beyond compliance A guide to issuing investor-friendly statements

36 Robert Bruce Enter the brave new world of the auditor’s report 38 Peter Williams Cracking online passwords is child’s play



39 Jane Fuller Will the US ever embrace IFRS?

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

51 The view from Joe Irvin of NAVCA, plus news in brief

64 CPD: IFRS for SMEs The release of non-mandatory guidance is not without its critics

52 Health warning As a London NHS trust enters administration, what lessons can be learned?

67 Accounting solutions PwC experts answer questions on recharge payments and supplier finance arrangements


40 Dean Westcott As his term draws to a close, the ACCA president applauds members’ commitment

68 The fraud fighters Practitioners have an enhanced role thanks to revised global recommendations

56 The view from Louise Williams ACCA of BNY Mellon, plus news in brief

70 All about EVA A new series lifts the lid on economic value added


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

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CAREERS 73 Celebration time Our quarterly listing of new ACCA members

ACCA NEWS 78 Diary What’s on in the coming months 79 CPD Allow yourself time to reflect 80 Open for business The ACCA Council meeting in Kenya heard positive messages about the profession’s development in Africa 82 News Worldwide online event to highlight sustainability

03/08/2012 16:02


News in pictures


After spending £9bn to host the 2012 Olympics, the UK hopes to recoup £2bn in extra tourism and £10bn over four years in more inward investment


Deloitte is to face an accounting tribunal over its role in providing audit and advice to MG Rover, which collapsed in 2005


Manchester United’s Ryan Giggs poses during a promotional event for Chevrolet, which has signed a seven-year deal as the team’s shirt sponsor from the 2014/15 season

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After two years spent combining ACCA studies with kayak competitions, Ed McKeever’s summer culminated in his attempt to land an Olympic gold in the 200m kayak sprint


Singer Rihanna is suing US accounting firm Berdon for tens of millions of dollars. Rihanna claims the firm took 22% of her tour earnings under a contract that exploited her youth and naivety


Another ACCA student going for gold was Liz Johnson, who went into this summer’s Paralympic Games as the defending 100m breaststroke champion


The midwestern states that make up the corn belt in the US are suffering their worst drought for half a century, with food prices expected to rise as a result. Sunflowers, one of the most droughtresistant crops around, are still holding on in most areas

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30 Spring 2012


Autumn 2011


















Next six months





News in graphics


10 0








Overtime affects many aspects of managers’ lives, according to research by the Chartered Management Institute. The Quality of Working Life 2012 reported a negative impact on areas including stress levels, physical health, social life and productivity.

1 Exercise 2 Stress 3 Social life 4 Psychological health 5 Voluntary activities 6 Physical health 7 Professional development 8 Relationships 9 Morale 10 Productivity 11 Work relationships



0 10 20 30 40 ‘Going out’ per month

Y = Generation Y (18-34) X = Generation X (35-54) B = Baby Boomers (55+) LIVING IT UP

Tightened purse strings are not putting Britain off going out on the town. Deloitte’s latest Taste of the Nation survey has found that the average UK consumer’s monthly outings for food and drink went up by 13% over the last year – led largely by Generation Y’s refusal to give in to austerity.

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rved Obse e v or ha d an h t s fir of d le ge know doing g wron


Spring 2011



Un eth i con illeg cal/ al du req ct m ay uir suc ed fo be ces r s 22 % or by bonus Pressured to s n la p n o ti compensa duct n co l a unethic engage in

19% Reporting other pressures to violate law or engage in unethical conduct

32% 28%


Males fairly li ke engag ly to e in insider tr if they aining % could 18 get aw ay with it



definitely Competitors have engaged ve ha to ely lik or are l activity ica eth in illegal or un l to be successfu


With corporate integrity top of the agenda for financial services, a survey of UK and US finance professionals by law firm Labaton Sucharow, makes for grim reading. Corporate Integrity at a Crossroads found that unethical behaviour is still perceived to be rife.

03/08/2012 16:15


With risk, control and compliance becoming increasingly important in today’s global marketplace, Ernst & Young’s survey of 695 chief audit executives and C-suite executives in The Future of Internal Audit is Now reveals that 80% of organisations acknowledge that their internal audit function has room for improvement.












Regulatory Strategic







For the second year running, Switzerland, Sweden and Singapore are leading the way in overall innovation performance, according to the Global Innovation Index 2012 (GII). Published by INSEAD and the World Intellectual Property Organization, the index ranks 141 countries and economies based on their innovation capabilities and results.

% 5 6

Centralised: in one location

% 16

Decentralised: by business unit Hybrid structure


The survey suggests that internal audit will continue to focus on a mix of business and IT reviews, with an increased emphasis on strategic and operational risks. Internal audit risk assessments, regulatory requirements and enterprise risk assessments remain the top three drivers of the audit plan.

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There is no one-size-fits-all structure for internal audit, the survey also found. While almost half of respondents described functions that were centralised, the remainder worked under other models. Ultimately, says the report, structure must reflect organisational needs.


Almost two-thirds (65%) of mining companies surveyed by Mazars are working towards compliance with the UN’s 31 Guiding Principles on Business and Human Rights, adopted last year. Further, 94% of respondents agreed that mining firms should be responsible for compliance within both their own organisations and among contractors.

02/08/2012 10:59


News round-up


A serious rift has opened between the International Accounting Standards Board (IASB) and the US Securities and Exchange Commission following the publication of the SEC’s staff report on IFRS implementation. The report argued in favour of the continued reliance on national standard-setting. It pointed out that there remain gaps in coverage with IFRS. The report added that most participants in US capital markets did not support the outright adoption of IFRS. Michel Prada, chairman of the trustees of the IFRS Foundation, said he regretted the absence in the report of an action plan for the adoption of IFRS (see page 39).


In an important test case the Court of Appeal has ruled as unlawful a series of transactions structured as derivatives contracts that had no purpose other than to avoid tax liabilities. The ruling related to a single scheme avoiding £11m in tax liabilities, but the same scheme was sold by PwC to 200 top-rate taxpayers. PwC said it expected HMRC to consult on tax avoidance policy. Mary Monfries, head of tax policy at PwC, commented: ‘We welcome the opportunity for there

to be a proper debate to clarify what constitutes unacceptable tax avoidance versus acceptable tax planning.’ (See page 18.)


Ernst & Young has been cleared in an Accountancy and Actuarial Discipline Board investigation of its audit of Lehman Brothers International (Europe). The investigation’s focus was the auditing of Lehman Brothers’ use of repo transactions to raise finance while reducing its balance sheet and leveraging ratios. A US Bankruptcy Court appointed examiner had criticised Ernst & Young for not doing more to question and challenge Lehman Brothers’ disclosures in its financial statements. The investigation concluded there was no realistic prospect that the AADB tribunal would reach an adverse judgment against Ernst & Young.

MENZIES’ NEW SENIOR PARTNER Mike Sands has stepped down as senior partner at Menzies after 18 years in the position. Julie Adams has been appointed the new senior partner. Sands stays with the firm and has no immediate plans to retire. The leadership change coincided with the firm’s 100th anniversary.


The outline framework for integrated reporting has been published by the International Integrated Reporting Council. A prototype framework will be released before the end of 2012, with a draft framework circulated for comment by the middle of next year. Paul Druckman, IIRC chief executive officer, said: ‘Integrated reporting is driven by business and investor needs to gain greater insights into how a company’s strategy creates and preserves value over the short, medium and long term. “Integration”, embedding value-relevant financial and non-financial information into strategic decision-making and a company’s reporting cycle, is gaining momentum in corporate reporting globally.’

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The UK’s four largest banks – Barclays, HSBC, Lloyds and RBS – mis-sold interest rate hedging products to SMEs, the Financial Services Authority has found. The products generated large profits for the banks and substantial losses – running in some cases into hundreds of thousands of pounds – for SME clients. The banks have agreed to provide redress to the customers involved, which must make claims to recover losses.


Begbies Traynor dropped turnover and profit in the year ending April. Revenues fell from £60.6m in 2011 to £57.7m in 2012, while profit before tax dropped from £8.1m to £7.4m. Executive chairman Ric Traynor commented: ‘In a year of progress for the group, we have disposed of our tax, red flag and offshore businesses and delivered a resilient financial performance following the actions taken to reduce the group’s cost base.’


HMRC investigations into property transactions led to a 43% rise last year in collections from capital gains tax enquiries, according to data collated by UHY Hacker Young. Investigations into underpaid CGT yielded £105.2m in 2011, up from £73.6m in 2010 and just £59.7m in 2008. UHY Hacker Young partner Roy Maugham said: ‘HMRC has been working hard to challenge CGT-related tax planning around the sales of businesses in particular and trying to recoup more CGT from the sale of property.’


Rio+20: corporate reporting moves, page 26

PwC has appointed ‘corporate philosopher’ Professor Roger Steare of Cass Business School as an ethics adviser to help business leaders embed integrity into their decision-making, while ensuring their businesses are more sustainable and profitable. Tracey Groves, a partner in the PwC Forensic Services team, said: ‘Unprofessional conduct and unethical behaviour can undermine reputation

03/08/2012 12:20



CARB ON C OSH I Nick Cleg g’s shoc k to man recent y UK- announcem listed companent of man

The recent announcement of mandatory emissions reporting by Nick Clegg may take many UK-listed companies by surprise and put a dent in the profit figures of budget airlines

and share price and pose a serious threat to any organisation’s longevity, and businesses that ignore ethics are missing a trick.’


PwC is again the world’s largest audit firm, supplanting Deloitte after the two firms grew global revenues last year by 10% and 8% respectively. According to the Accountancy Age Top 35 league table, PwC’s revenues in the year ending June 2011 grew to $29.2bn, whereas Deloitte’s rose to $28.8bn. Ernst & Young was third, with revenues of $22.9bn.

f a well-p ies and datory repar repor emi put a ed t of compis an accur annua dent ssions repo l in the ate mirro any viewe perfo from r profi rting cou a blind is nonet rmance, r ‘We t figure rule ld heles the repor felt the annou spot. succe s of budcome as ting A new s suffer inves nced and was ss ing tors even tailing of volun the busin a clearein June reporting get airlina slight Andy off, stagn tary r snapscould give ly Raing ess The es When is ating old, decre hot of Due the gover its execuasing,’ emiss mandatorydoing. how to shelve in April will affect tive expla aimed ions repor greenhouse 2013 a decisnment this direct ins group ting be review 1,800 , the or. fired main at all busin ion on year gas requi regula comp off a tried mark ed in decid esses rement, Excha letter the act, et of 2015 anies andtions e listed to all whether to deput the befor comp nge, raises the Londo on large to e minis will y any. could a mirro n Stock the comp extend glimp It ters the come anies r behin se of will give will have as a from approach and the back a first da shock the 2016 to repor to opera resources of the official t greento many . They broad te. It effect it consu business house , which mes gas ively curre er defini prime tion introd in order ntly of liabili have. uces It’s annou minister a ties Nick nced via thetrue that than 20th Clegg the volun we anniv rule (CDP Carbon tary UN Earth ersar just , who ) has Disclo repor y meeti before but then been ting sure the ‘Britis Summ emiss ng so have popular Project repor h comp it, Rio+2 of the their for ting start ions for 1992 harm 0. anies up a stand greenhousea decad the first of the of the ful emiss need partic ards, e, ‘A signif next time gas the rot to reduc ular each ions plans planet, agend never icant financial from the propp but many for the e an allianthat the major looke year. make because benef Alder a. It was ing big step back d at being ity ce s camp it to stop sgate our saves good busin energ chang this beforwill have aigns including Laure drafte e ACCA Group, for a e, so n bills, companies ess sensey efficie enviro Smar t, for them it’s impro Chang d an amen sustainablethat mone too. nt execu ,’ point a custo e Act It Howe nmental y on dmen tive mers ves their in 2008 direct s out ver, Truco resea t to the economy, their reput energy great rch firm or at long-t and helps ation . Clima st CBI te finds deal of existialso sees Truco is one erm costs them manawith that the regula organ ,’ ng repor flaws st. they many isatio says Clegg ge have comp ackno tion ting in a n that disclo an enviro . and and anies wledg pushe The that ed to whose for these few facts nmen d for involv have tal policysay emen weigh softw first time about it. Repor ed heavi t is are, will mean Since but also ly. buyin ting consi involv under stenc e extra g new lying reaso y is one staff. ns for of makin the g



Professionals, timed to coincide with its first 145 employer details being submitted using RTI. Over 1,300 employers will join the RTI trial between now and September 2012. Gauke said: ‘The RTI pilot is going well and on track for April 2013 when most employers will start reporting PAYE in real time.’


A quarter of UK corporates intend to recruit new permanent professional finance staff in the second half of this year, according to the latest Robert Half Professional Hiring Index. Half of them intend to maintain current levels. Despite the state of the economy, the survey found that 71% of executives remain confident about their company’s growth prospects.


Treasury minister David Gauke has claimed that the introduction of Real Time Information is going well. He was speaking on a visit to the offices of the Chartered Institute of Payroll

UK_B_newsroundup.indd 11

of personal identities is now involved in half of all frauds. Richard Hurley, communications manager at Cifas, said: ‘Whether it’s through malicious computer software or data hacking, criminals are obviously obtaining the personal data that they require to commit fraud. It is, therefore, of paramount importance that software


Barclays Bank has consistently adopted ‘aggressive’ accounting practices that are only just within what is permitted by regulations, according to a letter to the bank’s chairman Marcus Agius from the Financial Services Authority. Examples quoted by the FSA include Barclays’ reporting on its stress test resilience, its attempts to move index hedges from the trading to the banking book, and its use of complex structures. FSA chair Lord Turner said: ‘The net impact has clearly been unfavourable to the degree of external trust in Barclays’ approach to issues such as tax regulation and accounting.’ Sir Mike Rake, Barclays’ deputy chairman, is overseeing a review of the bank’s business practices after fines were imposed on the bank for attempted Libor manipulation.


Equity investment in the UK is driven by short-termism and needs to be replaced by long-term relationships, according to a report by Professor John Kay for the Department for Business, Innovation and Skills. Kay recommends improvements in the quality of engagement, including an Investor Forum, a wider application of fiduciary standards, good practice statements by executives and investors, and the realignment of incentives and remuneration. ACCA head of technical John Davies welcomed the report, saying it was necessary to address incentives favouring short-termism, and ‘the whole issue of the relationship framework between asset managers, beneficiaries, and investee companies’.


KPMG WINS KAZAKHMYS AUDIT KPMG has won the audit of FTSE 100 mineral company Kazakhmys in place of Ernst & Young, following a competitive tender. PwC has won the audit for Yule Catto & Co from Deloitte, after the company put the contract out to tender. Yule Catto is a global business manufacturing specialist polymer chemical products. Luxury car dealers H R Owen replaced PwC with BDO, following competitive bidding.


Account takeover fraud almost doubled last year, says fraud prevention agency Cifas. The takeover of bank accounts often follows hacking into PCs and databases to obtain security information for online transactions, explained Cifas. Misuse

and computer manufacturers, individuals, businesses and police all take this threat seriously.’


Nearly half of insurers are keen to see global convergence of accounting rules for insurance contracts based on IASB standards, according to a survey conducted for Deloitte by the Economist Intelligence Unit. The Financial Accounting Standards Board (FASB) has promised radical reform of US GAAP relating to insurance accounting since 2008. Survey respondents complained about the uncertainty regarding the timing of any globally accepted standard, which is affecting investment in IT systems and investors’ perceptions of insurers’ profitability. Compiled by Paul Gosling, journalist

03/08/2012 12:22





As another political party conference season is upon us, politicians and party activists are returning to the trenches after an action-packed summer. The economy is of course at the top of the agenda and debates will be intense ahead of a parliamentary session that is expected to be crucial for the UK as a whole, but also for the future of the coalition government. ACCA will be present at all three party conferences, organising events to debate issues like access to finance, corporate governance, the representation of women on boards, the eurozone crisis and the accountability of local-level spending. We will be assembling a star cast of politicians, regulators, business leaders, academics and commentators, such as Vince Cable MP, secretary of state for business, and Stephen Haddrill, CEO of the Financial Reporting Council, as well as key ACCA representatives to reflect ACCA thinking at the highest level. Petros Fassoulas is head of policy, Europe and Americas, at ACCA

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Tax advisory firms promoting contrived and aggressive avoidance schemes face sanctions from the government, treasury minister David Gauke has warned. The government intends to further strengthen the Disclosure of Tax Avoidance Schemes (DOTAS) rules and give HMRC stronger powers to force tax advisers to disclose avoidance schemes. It will be made easier to impose financial penalties on advisory firms that fail to provide information to HMRC. Additional action may encourage taxpayers mis-sold tax avoidance schemes to seek redress from advisors. Gauke said that DOTAS had closed-off around £12.5bn in tax avoidance so far. (See page 18)


The European Commission has failed to produce the necessary evidence to justify its proposals for audit reform, according to the European Parliament’s impact assessment unit. Adequate arguments have not been presented for the mandatory rotation of auditors or for the separation of audit and non-audit services to public interest entities, said the unit. It added that proof had not been provided that restricted audit competition had led to impaired audit quality or higher costs. The Commission may now need to present a stronger case if Parliament’s legal affairs committee is to endorse the proposals.


The Financial Reporting Council has proposed reforms to the disciplinary scheme for accountants, including allowing cases to be concluded by the Accountancy and Actuarial Discipline Board by agreement, without the need for a full tribunal hearing. The conclusions in such cases would still be published. In future, initial enquiries could be undertaken without there being a commitment to a full

investigation, while the criteria for the commencement of an official investigation would be refined. In some instances, interim orders may be imposed while investigations continue. Amendments to existing procedures are proposed to reduce delays. It is also proposed to streamline the process for future changes to the disciplinary scheme.


Some £13trn to £20trn of wealth is held offshore, much of it to exploit cross-border tax rules and protect funds from tax liabilities, according to the report, The Price of Offshore Revisited, published by the Tax Justice Network and produced for them by former McKinsey chief economist Jim Henry. Private banks using Switzerland, the Cayman Islands and other compliant jurisdictions are competing for business from clients keen to avoid tax payments, said Henry. But he also pointed the finger at accountancy firms for their role in tax evasion and avoidance. Sources for the report include official data compiled by the Bank of International Settlements and the International Monetary Fund.


Changes to the way that executive remuneration is reported have been released for consultation by the Financial Reporting Council. The proposals are contained in the Financial Reporting Lab’s project report on ‘a single figure for remuneration’, undertaken at the request of the Department of Business Innovation and Skills. The project was conducted in association with leading companies and investors. A consensus was reached between the parties, said the FRC, regarding what elements should be contained within the total remuneration figure, how these components should be measured and the related disclosures required of companies.

02/08/2012 15:30

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02/02/2012 11:05



Irish prime minister Enda Kenny talks to Accounting and Business about reputation, regulation and Ireland’s return to the financial markets – as well as the need for ethics in business


Ireland went from being the successful poster boy of Europe to being one of its most troubled economies. How have you gone about repairing Ireland’s reputation? A Last year, when my government came into office, I made it one of our top priorities to restore the good name of Ireland as a place of business and of investment. In this regard, the progress already made by Ireland in repairing our damaged economy is well recognised internationally. Visits to and from US president Barack Obama and Chinese vice president Xi Jinping have highlighted world leaders’ renewed faith in Ireland. This is reflected in significant progress in returning our economy to growth and in reforming our banking system. Step by step, we are bringing our public finances under control through our fiscal consolidation programme. At the same time, my government has brought a strong and determined focus to the agenda for growth and jobs. As a result, Ireland’s recent performance has separated us from many other European economies. We’re expecting a second year of economic growth, driven by exports. Our balance of payments is now positive. Employment grew during the last quarter in 2011, the first quarterly growth since 2007. Since my election, I have been conveying a clear message in all my international engagements: that now is the time to invest in – and benefit from – Ireland’s recovery. The commitment from the European heads of state and government

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Read my lips: in 2011, Kenny led his party to a decisive victory in the Irish general election, having promised that a Fine Gael government would not raise income tax at June’s EU Summit to break the negative link between the sovereign and the banks is having a positive impact on the market’s perception of Ireland. While the recent bond auction is an important step, the true indicator of Ireland’s success will be our full emergence from the bailout programme and the return to the international markets at sustainable rates. It is clear from that auction that investors are reacting favourably to the commitment by the heads of state and government to break the

negative link, to examine the Irish programme and that similar cases will be treated equally. The Irish economy is growing again, our public finances are under control and the government is using its strong political mandate to build upon this to deliver long-term, sustainable growth. Q Much of the collapse of the Irish economy can be traced to poor banking decisions and poor regulation. How has your government addressed these related issues?

03/08/2012 12:03


Seen here during his visit to China with the country’s premier Wen Jiaobao, Kenny promoted Ireland as a supplier of worldclass products and services and a viable location for Chinese investment

‘AN ETHICAL APPROACH TO DOING BUSINESS… IS NOT LIMITED TO FINANCIAL SERVICES, BUT SHOULD BE THE NORM ACROSS THE CORPORATE WORLD’ A The regulatory failures of the financial crisis have been the subject of extensive and objective analysis. A number of reports and investigations point out the problems to be addressed. Poor supervision, an overly deferential attitude by regulators, poor assessment of risks and a lack of follow-through on enforcement – all played a part in the financial crisis. New proposed legislation draws on the lessons from that experience. A new Central Bank Bill involves a careful overhaul of the statutory basis for the Central Bank’s regulatory powers. The bill brings clarity to the Central Bank’s ability to set requirements. It provides for good information flows and objective analysis to support regulatory supervision. Where things go off course, there is provision for prudential intervention and corrective action. Where the law is broken, there are effective and dissuasive, yet proportionate, sanctions. There are also provisions dealing with restitution and costs after the fact. There is a public consultation process currently open on further proposals for inclusion in the bill. Of course, legislation alone will not be enough to address the failures of the past. In recent years, the level of regulatory activity has intensified with

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increases in staff numbers and skill levels at the Central Bank. On-site inspections and review meetings have also increased. Q What lessons do you think finance professionals need to learn from the current economic difficulties in Ireland and beyond? A Everyone involved in financial services needs to consider how best to enhance its risk management function – there is a real need to monitor and plan for the worst-case scenario. The crisis made clear that, without contingency planning, organisations – both government and private sector – are not in a position to act quickly and effectively to address problems. An important change – which is being looked at, for example, in the context of remuneration – is to ensure that the time-horizon for decisions is sufficiently long. The crisis has shown us that short-term results can be deceiving in terms of an organisation’s actual financial position. A final point to consider is how company accounts can provide the best information to investors and regulators. The Central Bank here has published guidelines for the covered banks to follow in the development and application of their impairment provisioning frameworks.

Q Is there a need for greater attention to professional ethics, especially in the financial services arena? A It is important that all professionals act in an ethically appropriate manner. It is clear that a focus on profit to the exclusion of all else has not led to positive results for either individual companies or for the economy as a whole. The fitness and probity regime being rolled out by the Central Bank for the financial sector will seek to address some of these issues. A broader focus is required, which should of course include an ethical approach to doing business. This is not just limited to financial services, but should be the norm across the corporate world. Q Poor financial planning and excessively optimistic outlooks by major financial institutions played a part in the country’s current difficulties. How can that be prevented from happening again? A We can certainly point to a combination of factors that were responsible. First, it is now very apparent to all that the long period of financial prosperity enjoyed by Ireland lulled bank management into a false sense of security. This was not just a failing seen in Ireland of course – managers of large financial institutions all over the world generally forgot how to price risk effectively. Second, banks placed overreliance on their complex financial models and drew excessive comfort from what these were saying

03/08/2012 12:04


while common sense took a back seat. Third, we now know that there were mistakes made in the accounting and regulatory areas which prompted and enabled banks to hold in reserve less in the way of provisions and capital. Significant changes in the way banks are run and regulated have been implemented both in Ireland and across Europe and more are on the way to ensure that these failings are not repeated. For instance, more conservative provisioning guidelines

Q Some European countries are now starting to reduce their corporation tax rate to bring it closer to the Irish rate. Do you see this trend as a threat to foreign direct investment (FDI) in Ireland in the future? A We have found that the one thing the business community prizes above all is certainty. Ireland’s long-term commitment to the 12.5% rate, which has broad political consensus in Ireland as well as general public support, means that this rate is now

‘IRELAND’S LONG-TERM COMMITMENT TO THE 12.5% RATE… MEANS IT IS NOW SEEN AS PART OF “BRAND IRELAND” ACROSS THE BUSINESS WORLD’ have been implemented by our Central Bank while, at a European level, banks will no longer be able to ‘game’ their capital requirements through manipulating the value of their riskweighted assets as a new simpler leverage metric is in prospect. Q Has your government taken any significant initiatives to make the Irish economy more competitive? A It’s been one of our top priorities since taking office. There have been some recent improvements in competitiveness worth pointing out. For example, our unit labour costs have reduced, the productivity of the Irish labour force is over one-third higher than the EU average, our consumer prices fell in 2009–10 and have only grown at a comparatively low rate in 2011–12, and we have seen our energy costs coming more in line with EU average costs. As part of the Action Plan for Jobs 2012, the government is looking at the costs it can influence, either directly in charges imposed on businesses, or indirectly in dealing with bureaucracy and other administrative burdens. This includes legislating to reform our wage-setting mechanisms; freezing or reducing charges levied by government on business; and promoting supports to business for energy-efficiency and cost-reduction measures.

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regarded as part of ‘brand Ireland’ throughout the business world. The competitive rate is underpinned by transparent and easy-to-use corporation tax rules. However, the 12.5% rate is only one part of a wider policy mix in the taxation area, such as a rapidly expanding tax treaty network, R&D supports, an intellectual property tax regime, a preferential personal tax regime for foreign executives temporarily seconded to Ireland as part of an FDI venture, a holding company regime, and an efficient tax administration system. Q Despite Ireland’s economic difficulties, the pipeline of new FDI projects seems to be strong. How do you account for this success? A Last year saw a strong performance in the levels of FDI won by Ireland, with over 13,000 new jobs created across the 148 investments secured. Government policy is to build on the strength of our existing markets and diversify into new ones. Minister-led trade missions are an integral part of this process and work to expand Ireland’s exports to existing and new markets abroad. In all, 19 minister-led trade missions are planned this year to destinations such as China, the US, India, the UK, Russia and France. On a global scale, Ireland scores extremely well in many of the key

areas of importance to investors. For example, the IMD World Competitiveness Yearbook 2011 ranks Ireland first in the world for corporate taxes, first for business legislation for foreign investors and first for the availability of skilled labour. Q Earlier this year, the vice president of China, Xi Jinping, visited Ireland. Are you confident this evolving relationship will yield economic benefits for Ireland? A My visit to China in March, coming so soon after the successful visit to Ireland of Xi Jinping, was a great opportunity to take our relationship with China to a new level. My key aim was to develop stronger relations with China at the highest political level and to promote Ireland both as a source of world-class products and services and as a location for Chinese investment. I highlighted Ireland’s potential as a gateway to the European market of over 500 million people and our many strengths, such as our young, well-educated workforce and our strong capacity for entrepreneurship and innovation. I also stressed the potential for investment and economic cooperation in key sectors such as education, financial services, culture, tourism, life sciences, cleantech and agri food. A number of significant memorandums of understanding were signed during both visits and I witnessed the signing of more than €35m worth of contracts and commitments while in China. The culmination of my visit was the conclusion of a strategic partnership agreement, which sets out a framework to ensure mutually beneficial cooperation between Ireland and China in a number of important trade and investment areas. Q You recently launched a scheme called Succeed in Ireland aimed at attracting smaller and emerging firms to Ireland. How will it work? A Succeed in Ireland is a programme which provides direct incentives to members of the Irish diaspora and others across the world to create jobs in Ireland. The aim is to

03/08/2012 12:05

British prime minister David Cameron (left) greets Kenny as the leaders held talks on trade and investment links

target international companies and businesspeople, who would otherwise not be reached by the state enterprise agencies, to consider locating economic activity in Ireland, thereby creating new employment opportunities. The initiative will incentivise people around the world to be our eyes and ears on the global stage and help deliver new jobs and investment. This is an innovative scheme that offers a new channel to reach thousands of small-to-medium enterprises and spread the word about Ireland’s strong reputation as a location for business. You can read more about it at www. Q Has the government any specific plans for the shared services sector, which is seen by many as a major success story for Ireland? A In July 2011, I launched the strategy for the international financial services industry in Ireland 2011–16. The strategy recognises that the future growth of the International Financial Services Centre (IFSC) will depend to a significant extent on non-balance-sheet sources, and envisages that Ireland will prioritise its growth as a global provider of vital shared services for international firms. Across areas including technical, legal, accounting, advisory,

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The longest-serving member of the Irish parliament, the Dáil, since being elected in 1975 at the age of 24, Enda Kenny has led his party, Fine Gael, since 2002. An Irish Gaelic speaker from the west of the country, he became prime minister, or taoiseach, in 2011. He renegotiated the country’s EU bailout in 2011, describing it as ‘a bad deal for Ireland and a bad deal for Europe’, reducing the interest rate by 2% and extending the repayment period.

administration and asset management, firms can build on existing expertise in the servicing of both external clients and parent groups to promote Ireland as a centre of excellence in this arena. Ireland consistently ranks among the world’s leading locations for shared services for a number of reasons: the availability of highly skilled, multilingual employees across a range of disciplines, such as accounting, technology and healthcare; the competitive operating environment that exists in Ireland; the mature infrastructure that Ireland offers in technology, roads, air access and utilities; low corporate tax, which naturally

* * * *


supports the development of strategic centralised activities in Ireland; and the track record of major multinationals in Ireland that have, over the past 20 years, built a cluster of multifunctional, multijurisdictional and multilingual activities, providing comfort that a new shared services activity has a high probability of success.

Q Next year, Ireland takes on the presidency of the European Union. What will be your priorities for this period? A Growth, jobs and enterprise is what Ireland and Europe need to focus on. This will be the seventh occasion that Ireland has held the presidency, which will coincide with the 40th anniversary of Ireland’s accession to the European Union in 1973. The Irish government wishes to focus its presidency on advancing issues that will benefit all citizens of the EU. In this, our main objective will be to ensure that the presidency contributes to addressing the key challenge facing the EU today, by promoting sustainable and inclusive growth and jobs. Issues relating to economic governance, fiscal consolidation and financial regulation are also likely to figure prominently on the Irish EU agenda.

03/08/2012 12:05


THE TAX STORM Aggressive tax avoidance schemes promoted by a small minority of advisers have sparked a furore in recent months, but all tax professionals will feel the implications


o say that tax avoidance has been a hot topic over the past few months – and even over the past few years – would be an understatement. Yet press reports and public debate over the issue have positively exploded in recent months, with the revelation that comedian Jimmy Carr used the controversial Jersey-based K2 scheme to avoid paying tax on a reported annual income of £3.3m. Meanwhile, Gary Barlow, Howard Donald and Mark Owen of the pop group Take That have also been accused of using offshore schemes to avoid millions in tax, though the bandmates insist that they pay substantial tax and believe the investments in question to be legitimate enterprises. Just to add to the powder keg, exchequer secretary David Gauke’s remark that the practice of paying tradespeople in cash ‘for a VAT discount’ is ‘morally repugnant’ has sparked a furore.

‘Sweetheart’ anger That’s not all. There was that alleged ‘sweetheart deal’ with HMRC’s then permanent secretary for tax David Hartnett, which, contrary to what the National Audit Office has now found, was said to have allowed Vodafone to unreasonably avoid an estimated £6bn in tax, as well as a court case between activist group UK Uncut and Goldman Sachs over an arrangement of a similar nature, and government consultations on both the Disclosure Of Tax Avoidance Schemes (DOTAS) regime and Graham Aaronson’s proposals for a general antiabuse rule (GAAR) targeted at ‘artificial and abusive tax avoidance schemes’.

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It has all served to put the UK’s tax system – and the tax profession – under a great deal of scrutiny. Ernst & Young tax partner Patrick Stevens said of the DOTAS consultation, which runs until midOctober, that it was ‘understandable’ the government wanted to target those scheme promoters and their clients that ‘have been playing fast and loose with the disclosure rules’. He added: ‘The vast majority of tax advisers and their clients should have nothing to fear about these proposals, assuming they are properly targeted – but there will be a need to make sure these really are targeted and there are safeguards to ensure that normal tax planning is not affected. ‘There is a world of difference between taking advantage of legitimate reliefs, such as those for contributions to a pension fund or charitable donations, in the way intended, and promoting a totally artificial scheme which has no realistic chance of working – and indeed should not work.’ Stevens stressed it was ‘important that those targeted are promoters and sellers of the schemes and not tax agents who may file the tax returns of the individuals concerned without involvement in, or even any detailed knowledge of, these schemes’. He also noted that in conjunction with the GAAR consultation, which runs until mid-September, many questions are likely to be raised about the UK tax system and whether individuals and companies were paying ‘their fair share’. He believes any resulting changes to the system will be ‘farreaching and long-lasting.’ One issue that has not been so

widely reported, however, is what impact, if any, the extra press attention and government proposals are having on tax professionals themselves. While the impact of the proposals is yet to be seen, the tax avoidance stories that have hit the headlines have not always cast tax advisers in the best light. One big question is what tax professionals will have to face in a changing climate from a moral, legislative and public relations point of view. Chas Roy-Chowdhury, head of tax at ACCA, is keen to emphasise that ‘only a very small number of tax professionals get involved’ in the sort of aggressive tax planning scheme that the media and the public are outraged about.

High-risk schemes ‘The vast majority of tax advisers do not get involved in these high-risk tax avoidance schemes, and most do not even know about them, so they shouldn’t need to change the way they work on the basis of the press attention,’ Roy-Chowdhury says. ‘Firms risk their own reputations by being seen to be advising clients about that kind of tax avoidance, and in the current climate, I don’t think anybody else would want to be tarnished in the press, like Jimmy Carr has been, over the use of one of these schemes.’ Roy-Chowdhury says most firms’ clients would not be interested in implementing very costly and high-risk schemes in such a financially tight business environment. He adds that there are not so many opportunities for complex offshore planning right now, that there is still a demand for more mainstream tax planning, and that increased media attention will not

03/08/2012 15:11



Jimmy Carr – pilloried over a legal and fully disclosed but high-risk tax planning scheme Protestors targeted Vodafone for a £6bn ‘sweetheart deal’ reducing its tax bill

fundamentally change how most tax advisers work. Francesca Lagerberg, head of tax at Grant Thornton, largely agrees. ‘Aggressive tax planning schemes are not something most tax advisers deal with on a day-to-day basis,’ she says. ‘Tax professionals have been working in the environment they have been for many years, but now there is greater public and media interest in what we do, which is a good thing, although that increased awareness doesn’t mean our advice to clients will change, because tax advisers still have to give good advice and information on available planning options, and offer a solid overview of each and what would be best for a client’s particular situation, which should include reputational risks. ‘The media spotlight on tax advisers

businesses calculate and pay the right amount of tax on time, and that HMRC relies on these practitioners to help them collect revenue,’ Lagerberg adds. Chris Morgan, head of tax policy at KPMG, also welcomes the greater press scrutiny, saying it ‘has been helpful to those firms seen as responsible’, but cautions: ‘It is important to be clear that the adviser’s role is to advise on the law – including advising on whether a particular scheme is likely to work or not, and any potential negatives, including public perception. It can be difficult for the press and public to understand exactly what a scheme involves as tax legislation is so complex, so there needs to be an awareness by firms and their clients that certain tax planning moves could be seen in a certain way.’

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has certainly raised the profession’s profile, which is a good thing, and has brought tax planning and tax legislation to the forefront of people’s minds, which is something the public does need to be aware of. However, from some press reports, the knee-jerk reaction has been that tax advisers are the “bad guys” for advising on and enabling these schemes, when the truth is that these are very extreme cases of tax avoidance advised and implemented by a very small minority of tax professionals. ‘There are many new government initiatives and tax reliefs to encourage economic growth and help businesses, which more firms are advising clients on. It should be appreciated that there are tens of thousands of practitioners who simply help individuals and

03/08/2012 15:12


The next question is whether there will be any opportunities coming out of the current debate about tax avoidance once it settles down. While some insist the profession does not need to overhaul what it is currently doing, Lagerberg and Morgan believe there will be an element of risk and reputational management that firms should consider for their clients if they are not already doing so.

Standing up to scrutiny Lagerberg says: ‘Business corporate responsibility programmes will be increasingly on the agenda, and tax transparency will become a much bigger issue in the next four or five years. This is where tax advisers will come in. We can help get an organisation’s tax policies and procedures right, ensuring they stand up to close scrutiny – whether by the tax authorities or the general public.’ ‘Public opinion will have an influence,’ Morgan says. ‘Most high net worth individuals and corporates do not want to end up on the front page of the newspapers over their tax affairs, so this may affect their tax planning and commercial transactions. It’s the profession’s job to advise clients of the options available, the legality of some of these schemes, the risks, the likelihood that a scheme will be challenged by the tax authorities, and potential public perception. ‘However, while the change in the public mood will affect the tax advice the profession gives to clients on going forward, there had already been a shift towards doing that about three years ago, before the tax avoidance “scandals” of this summer.’ Roy-Chowdhury stresses the need to be careful when dealing with or discussing matters of tax avoidance: ‘One must remember that there is a difference between avoidance, which is legal, and evasion, which is illegal. Not paying the VAT portion of a tradesman’s bill is evasion, and individuals should know that. With the issue of tax avoidance and planning, the profession needs to know what is acceptable and what isn’t – and what

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David Cameron: ‘Some tax schemes are, quite frankly, morally wrong’

would help is a statement of practice from the government that clearly sets out where these lines should be drawn. Firms themselves will always need to act in the best interest of their client, and should not get involved in a highly risky aggressive tax planning scheme that has been brought to a client’s attention by another adviser.’

Doing a good job Whatever the future holds for the profession once the current controversy around tax has died down, Lagerberg remains positive. ‘One big issue for me that has come out of the whole discussion is that the tax profession is, broadly, doing a very good job,’ she says. ‘HMRC could not collect tax revenues efficiently without the UK’s army of tax professionals, and a lot of the work that tax professionals are involved in is for the good of individuals and businesses together, and that should not be lost sight of in the current debate.’ Santhie Goundar, journalist


ACCA believes that the obligation of taxpayers is not only to act lawfully, but also to pay the tax that is due. Taxpayers should be aware that the official interpretation of what is acceptable practice may change over time, and that exposure as an ‘aggressive’ tax avoider may cause them serious reputational damage as well as difficulties in dealing with the tax authorities in future. The same considerations apply to accountants advising their clients or employers on tax matters. Accountants have an obligation to act within the law, a professional obligation to their clients and their employers to act in their best interests, and ethical obligations to act with integrity, objectivity, competence and due care. Only if accountants advise clients and employers in a way that is lawful, competent and ethical will they, in ACCA’s view, be providing public value, by serving the client interest and the public interest at the same time.

03/08/2012 15:13

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27/07/2012 30/07/2012 11:02 11:28


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FD interview

02/08/2012 10:52


RENEWED FOCUS Former Thomson Airways FD Julian O’Neill has worked in a variety of industries, from food to fashion, but he has now flown in a totally new direction to Biogen


t the risk of over-generalising, finance directors tend to fall into two broad groups: industry specialists who have moved up through the finance ranks of their company or in different companies within the same sector, and ‘career’ FDs who have built up a range of valuable business skills in a number of seemingly unrelated sectors and employers. Julian O’Neill, finance director of Biogen, is definitely one of the latter. Over the span of just under 20 years, his career has led him through organisations as diverse as Vauxhall Motors, PwC, Pizza Hut and Thomson Airways, in roles ranging from consultant to IT director. His varied career path is not accidental, more a result of his openness to new experiences. But underlying it all is a recognition that there is more than one path to the same destination – you can be an accountant who happens to work in business, or a businessman who happens to be an accountant. ‘The people I met while I was growing up tended to be businesspeople,’ says O’Neill, whose father was CEO of an executive jet company. ‘It seemed entirely normal to me to go into business myself.’ So after A-levels and an accountancy degree, he started on his eclectic career at what is now Cable & Wireless as a finance analyst, where he gained his ACCA Qualification. From there he moved steadily up – and around disciplines – before landing his first FD role with Evans, a subsidiary of fashion group Arcadia, in 2007. Two years later, when he was in

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his late 30s, he was offered the FD role at Thomson Airways. So far, so reasonably predictable. ‘If you’d asked me four or five years ago where I thought I’d be in 10 years’ time, I think I would have said that I was aiming to be the FD of a FTSE 250 company,’ he says. But the universe laughs at people who make plans – which is why today, O’Neill is standing in a cornfield in Bedfordshire against a backdrop of several large tanks that are holding what the rest of us have thrown away. And he’s very happy indeed about it, with good cause. Biogen may not be a household name, but it’s a successful player in a sector that has the potential

not a sustainable option, which is why the AD industry is one of the most exciting, fast-growing and competitive sectors in the country. AD breaks down food waste through a natural process that has two by-products – biogas (a mixture of methane and carbon dioxide), which is transformed into energy, and liquid biofertiliser, a nutrient-rich alternative to fossil fuel-derived fertilisers. The technology, which was developed in Germany, has been brought to the UK over the past 10 years or so in various guises by a number of small UK operators, which are now fighting it out to develop the best, and most effective, business model.

‘WE TAKE TONNES OF FOOD WASTE, CONVERT THE METHANE TO ELECTRICITY AND USE THE RESIDUE AS BIOFERTILISER – A COMPLETE CLOSED LOOP’ to grow exponentially over the next few years. The anaerobic-digestion (AD) industry is driven by our need to manage our food waste better, and by a concerted drive by governments and the European Commission to persuade us all to embrace renewable energy.

Waste mountain The UK’s households produce approximately 10 million tonnes of food waste a year, 3 million tonnes of which is collected by local authorities, according to O’Neill. Supermarkets, restaurants, hotels and food-processing factories add considerably more to that load, which until recently has largely ended up in landfill. But clearly that’s

‘The process itself is relatively simple in the sense that it’s easy to explain,’ says O’Neill. ‘We take thousands of tonnes of food waste, convert the methane to electricity and use the residue as biofertiliser – a complete closed loop.’ The two by-products of the process, though, and the logistics of collecting the waste that’s needed to create them, means that not all entrants to the sector approach the problem in the same way. For instance, should you position the AD plants as close as possible to the source of the waste (in other words, in densely populated areas), or in a less populated area where planning consent might be

06/08/2012 11:50


less of a headache? And is the business model about selling energy (at a premium, thanks to the UK’s renewable energy incentives), or about the distribution of fertiliser, or about revenue from waste? ‘You really need to get three things right in the business model,’ says O’Neill. ‘You need to secure the funding to build the plant, you need the operational know-how to run the plant, and you need access to a good and secure supply of waste material. All three are interconnected – investors are looking for a degree of security that you will have reasonably longterm access to the waste you need to run the plant, and that you can run it efficiently. But AD is a relatively new industry, so the people supplying the waste we use might only want to sign a contract for a year or two. It all means that there’s risk involved for everyone – but the market will mature over time and we will see customers willing to take on longer-term contracts.’

Farming first O’Neill adds that companies entering the AD sector tend to think either in terms of the availability and accessibility of food waste, or in terms of the most effective off-take route for the fertiliser. ‘We think farming first, so we’re thinking of how to distribute the fertiliser,’ he says. That’s because the company has its origins in farming. It was set up by Bedfordia Group, a privately owned family company with agricultural businesses. As we went to press the sale of a 50% stake in Biogen to construction group Kier was announced. Bedfordia’s Biogen operation was set up in 2005 as a forward-thinking solution to the problem of managing the pig slurry produced by its livestock. This led to the completion of the company’s Twinwoods plant in Bedfordshire, which processes 42,000 tonnes of organic waste each year.

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The CV 2011

Finance director, Biogen.


Finance director, Thomson Airways.


Finance director and head of international, Evans, Arcadia Group.


Gained MBA from Warwick Business School.


IT director, Pizza Hut UK.


Planning director, Pizza Hut UK.


Principal consultant, PwC.


Commercial manager, Siemens Network Systems.


Senior financial analyst, Vauxhall Motors.


Gained ACCA Qualification.


Financial analyst, Mercury Communications. Biogen bought Greenfinch, a process engineering company that specialised in AD technology, in 2008 and the company now runs three AD plants, in Northamptonshire, Bedfordshire and Shropshire. Between them, the plants process almost 100,000 tonnes of food waste a year. One of the advantages of ‘farming-first’ thinking is that planning,

at least for the Bedfordshire site, was reasonably straightforward because it was built on land that is leased from Bedfordia. The fertiliser produced by the plant is spread, twice a year, on the surrounding fields of grain. It’s a business that’s filled with potential, for many reasons. Biogen already has access to more food waste than it can process – 180 tonnes a day come through the Northamptonshire plant alone. With more and more local authorities beginning to segregate their waste, and fees to deposit at an AD plant like Biogen’s around £50 a tonne less than landfill costs, that supply can only increase. ‘We think that there is capacity for about 100 food waste AD plants in the UK, and at the moment there are only 27,’ says O’Neill.

In demand Renewable energy is also in demand, with the UK government committed to a target of 15% of electricity from renewable sources by 2020. Currently, 65% of Biogen’s revenue comes from power sales (90% of what it produces is sold, with the remainder used by the plants themselves); the balance is made up from fees charged to customers providing the feedstock. Regulation is also working in the sector’s favour. ‘Growth is being pushed by the EU Landfill Directive, which is forcing companies to reduce the amount they put into landfill, and pulled by the Renewable Energy Directive, which is intended

06/08/2012 11:51


The tips


* to increase the supply of renewable energy,’ says O’Neill. The business, though, is risky – evidenced by the difficulties experienced by some of Biogen’s competitors. ‘It’s an emerging industry so the risks are higher, but so are the rewards,’ says O’Neill. ‘It’s a very competitive business and it’s not straightforward, so we need to keep an absolute focus on all areas of the P&L to ensure we are able to harness the potential. And we want to grow, but we have to find the money to do that – it’s not sitting on a platter.’ The risks, he says, are partly what attracted him to the role when it was mentioned by a headhunter while he was at Thomson Airways. ‘It was a risk, but I didn’t see it as a greater risk than any other business. I go home at night thinking that I’m working for a worthwhile business. It has great green credentials, but it’s also commercial, real and cutting-edge. It’s a really interesting mix for an FD.’ The executive team, he adds, are ‘heavyweight’, with more experience and drive than might normally be seen in a small business with revenue of just £8m a year, because they recognise the potential of the company. The move from Thomson meant he switched from managing a team of 30 to just four. But even that has its benefits. ‘A lot of FDs in larger companies are siloed. Until I joined Biogen I’d never spoken to a bank.

UK_F_CFOInt.indd 25

‘One of the advantages of doing different roles is that if you reach CEO level you really understand what you’re asking people to do. I was asked to take on the role of IT director at Pizza Hut when I knew very little about the subject. I learned a huge amount and now have enormous respect for IT directors everywhere.’


‘The first few weeks at Biogen were tough and I made sure that I understood the basic business model before delving into the next level of technical detail. I just kept asking questions of everyone I met, and visiting the plants as often as I could. The only way to really understand the business is by talking to the people who work there.’


‘I hope that my career so far means that there are a lot of paths open to me. For me, it’s all about engagement in the business, the accountability of the role and the people you work with.’


‘My MBA took four years parttime. It’s helped my CV, but I also learned a lot about the different ways in which people approach the same problem.’

I’d never raised money, and I’d never worked in renewable energy. It was a huge learning curve for me and the company took a risk in taking me on. But it’s been a phenomenal experience so far. I’ve learned a lot about myself and a lot about finance – the stuff I used to let other people do, such as managing suppliers and cash. ‘The bigger the business, the more divorced you are from the coalface. You

The basics WASTE FACTS


Just one of Biogen’s anaerobicdigestion plants produces enough power for 3,600 homes for a year, and enough fertiliser to support 1,750 acres of crops.


The UK produces 10 million tonnes of food waste a year, 3 million tonnes of which is collected by local authorities.


According to the government, the renewable energy sector will create 500,000 jobs by 2020.

find yourself managing organisational conflict and procedures, rather than getting on with the job. ‘There’s a strategic element to my job here, but there’s also stuff that just needs to be sorted out, every day. People work very hard here, and we have a clear line of sight about where we are heading.’ Liz Fisher, journalist

06/08/2012 11:52



With the implementation of Rio+20’s goals on sustainability reporting being left largely to individual governments, the corporate world is rising to the challenge


he goal of making sustainability reporting a norm for companies worldwide was boosted by an agreement forged at the United Nations Conference on Sustainable Development (Rio+20) in June. But ultimately, national governments will remain responsible for this key policy area. The investor-led Corporate Sustainability Reporting Coalition (CSRC) led the charge for a deal at the Rio de Janeiro meeting that included solid international commitments on expanding sustainability reporting, and some green activists will doubtless have been disappointed by the result. That was encapsulated in paragraph 47 of the final political outcome document of the conference, called ‘The Future We Want’. Written in what UN officials in Rio called ‘consensus language’, the paragraph states: ‘We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information

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into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building.’ It is worth quoting in full, because even though it’s a call for action, the paragraph does not commit UN member states to anything specific, much less a convention that could include binding commitments under international law to impose ‘report-orexplain’ sustainability reporting as an annual requirement for all public and large global corporations. And while this was exactly what the CSRC asked from the world government delegations meeting in Rio, supporters of the idea think that even getting ‘sustainability reporting’ written into the agreement in this way was a success, especially as its inclusion was subject to tough negotiations.

Prime paragraph ‘Who would have thought, a few years ago, that a paragraph about reporting would be one of the most debated paragraphs in such an important summit on the future of our planet and of our societies?’ said Ernst Ligteringen, chief executive of the Global Reporting Initiative (GRI), during a side event of the main political conference in Rio. According to Ligteringen, paragraph 47 was the most debated clause after the issue of Sustainable Development Goals (SDG), which will replace the current Millennium Development Goals (MDG) in 2015. ‘These issues do come together: issues about environmental impact, social impact, economic impact, the role of business, the role of governments and how this all affects our future,’ explained Ligteringen. Rachel Jackson, ACCA’s head of sustainability, comments: ‘While the announcement does not go as far as ACCA would have liked, we are encouraged that Rio+20 has endorsed the need for big business to integrate sustainability into their reporting cycles.’

02/08/2012 10:55



‘The distinct and credible reporting of ESGs – environmental, social and governance disclosures – have an important part to play in encouraging a positive approach to sustainable development by business and the adoption of long-term and socially responsible investment strategies by investors,’ said Martin Turner, ACCA’s vice president, at the Sustainable Stock Exchanges Event in Rio on 18 June. Turner’s comments were aired at a session which ACCA co-sponsored with Aviva Investors, organised ahead of the full Rio+20 conference. ‘ACCA believes there is a positive and vital role for accountants to play in ensuring that ESGs provide meaningful information to stakeholders, with the aim of encouraging a more holistic approach to risk management by reporting companies,’ he said. ACCA recently published a paper which looks at the possible changes to the ‘zero draft’. The paper also includes a series of expert views from its Global Forum for Sustainability members. The forum was established in 2011 to bring together leading thinking on sustainability and the role of accountants. View Making a Difference at Rio+20 at

Shortly after the final political outcome document was known in Rio, the governments of Denmark, France, South Africa and Brazil coopted the GRI and the United Nations Environment Programme (UNEP) into a group, ‘Friends of Paragraph 47’. The group, which promised to be inclusive and to invite more governments and experts to join in, will look into best policy and practice for sustainability reporting with the aim of building a roadmap of actions to be taken as a result of its text. The ‘Friends’ promised to present a plan to the international community in the next

UK_INT_F_Rio.indd 27

few months following Rio+20. ‘I am delighted that Denmark and France and the others have decided to form the “Friends” to take forward governmental support for corporate sustainability reporting,’ said UK Labour Party MEP Richard Howitt, who, as a member of the European Parliament, has dealt with corporate sustainability legislation in Brussels. He was speaking during a side event organised by the CSRC in Rio, where he noted that the European Commission is expected later this year to propose legislation on non-financial reporting by companies in the European Union.

Sink or swim? Activists used a range of means to get their messages across at Rio+20, including (from far left) creating giant fish made from plastic bottles, campaigning on agriculture and marching against ‘life commodification’ Although he recognised the limits of paragraph 47, Howitt underlined its importance in involving governments and businesses and committing the UN to a process to take sustainability reporting further based on currently existing agreements. ‘We need effective public policy on this,’ said GRI’s Ligteringen. ‘We need to see how we are going to convince policymakers to make corporate sustainability reporting a common practice.’ The idea does have some powerful backers. In February the UK’s environment secretary Caroline Spelman supported the CSRC’s call as one of the priorities of the British government at Rio+20. At Rio she noted the need for good dialogue on what governments can do to follow up on paragraph 47. ‘We can talk to other governments and ask them how they want to approach it and then try to create a norm,’ she stated. ‘You have to very carefully consider what kind of norm you want; it’s all too easy to jump to a standard that is too low or too

02/08/2012 10:56


high. Governments make the mistake all the time, thinking they got it right, and not actually testing waters with the law and regulations,’ she explained.

Corporate action Launched during the Private Sector Forum of the UN General Assembly in September 2011, the CSRC’s specific purpose was to obtain an agreement in Rio for a clear process to be put in place under the UN General Assembly that would commit governments to ask companies registered in their countries to include sustainability reporting in their annual reports or to explain why they would not. Led by the institutional fund management group Aviva Investors, part of Aviva plc, the CSRC united about 70 organisations representing investors with assets under management of approximately US$2 trillion, but also financial institutions such as index FTSE, professional accountancy bodies such as ACCA, non-governmental organisations (NGOs) including the GRI, the Stakeholder Forum and the Worldwide Fund for Nature (WWF) and UN bodies such as the UN Environment Programme (UNEP) Finance Initiative and the UN Conference on Trade and Development (UNCTAD). ‘We all know the benefits (of corporate sustainability reporting): empowering investors and consumers with the information they need to make the right choices, putting sustainability at the heart of business decisions and looking after the bottom line, with financial, social and environmental increasingly intertwined, rather like DNA,’ said Spelman during the CSRC side event in Rio. According to a document circulated at the Rio+20 conference, Aviva Investors made the bold move of asking for corporate sustainability reporting at global level. Robust corporate sustainability reporting would, said the report, help the capital markets go beyond shortterm decisions based on thin information. ‘To include sustainability in our investment decisions, we need

UK_INT_F_Rio.indd 28

information about the sustainability of companies in which we invest. Today, while investors know about a company’s profits and cashflows, they know little about a company’s sustainability,’ read the document. ‘Paragraph 47 recognises that corporate sustainability reporting is a policy to be advanced, that it needs to come to scale and that we need pace behind it,’ Ligteringen told Accounting and Business. He believes that a standard in sustainability reporting is fairly near, since a global move towards this kind of voluntary reporting started at the UN sustainable development conference in Johannesburg in 2002. GRI’s fourth generation of reporting guidelines is expected to be released in May 2013. According to Ligteringen, they are being made more robust so they come as close as possible to a standard in sustainability reporting. However, from Ligteringen’s standpoint, sustainability reporting is not enough to inform investors on the main value drivers of a company. ‘Sustainability reporting talks about the licence to operate, about the effects a company has on the environment and on the society; it helps a company to integrate this; but it is not an instrument that helps a company make an assessment on the main value drivers that informs investors,’ explained Ligteringen. For that to happen, ‘sustainability information needs to interface with other information flows that companies have, to come to an integrated thinking to be able to tell how the company is going to generate value in a different, sustainable economy’. That is where ‘integrated reporting’ comes in which, according to Ligteringen, takes holistic company

Future focus: (Above) Brazilian President Dilma Rousseff delivers a speech during Rio+20’s closing ceremony reporting a step further. Sustainability reporting is just a chapter of an integrated corporate report. But according to the International Integrated Reporting Council’s (IIRC) CEO Paul Druckman, who spoke to Accounting and Business in Rio, integrated reporting uses existing systems, such as greenhouse gas emissions reporting schemes and the GRI guidelines, to describe the strategy of a company. ‘We are sitting over the top of that to understand what the business is trying to do over the short, medium and long term,’ said Druckman. ‘And all of that is absolutely useless if all you get is just a good story.’ While at present there is no global standard for integrated reporting, the IIRC is working on a globally accepted integrated reporting standard bringing together financial, environmental, social and governance information in a clear, concise, consistent and comparable format to be released in late 2013. Druckman considers accountants to be central in the move towards integrated reporting. But to deliver, accountants must, he says, go beyond reporting on financial and manufactured capital, which has been their traditional role, and report on the other elements: natural, social, human and intellectual capital. ‘Accountants are in the prime position,’ he explained. ‘They need to have the breadth of mind to understand it.’ Carmen Paun, journalist based in Rio de Janeiro

02/08/2012 10:57



Twenty years after the first Earth Summit in Rio de Janeiro asked businesses to recognise environmental management among the highest corporate priorities, and 10 years after the second Earth Summit in Johannesburg committed governments to enhance corporate environmental and social responsibility and accountability, it is clear that voluntary commitments to sustainability reporting have not delivered the goods. When Bloomberg introduced environmental, social and corporate governance (ESG) issues in 2009 within its financial data, 75% of the companies surveyed did not publish any of that information. London-based Aviva Investors concluded that this was simply not good enough and convened the Corporate Sustainability Reporting Coalition aimed at pressurising governments meeting at the third Earth Summit in Rio to agree to a ‘report or explain standard’ on sustainability data for companies registered in their territories. ‘Our coalition is collectively asking participants at Rio+20 to commit to develop a United Nations (UN) Agreement on sustainability reporting so that we, as investors, can help guide the world towards a sustainable future,’ said a document circulated by Aviva Investors in Rio. The agreement would include two elements: the first was a commitment by UN member states to develop regulations, codes or listing rules encouraging the integration of sustainability issues in the annual reports of all listed and large private companies. The second was an opt-out alternative for companies that do not want to prepare such a report, provided that they explain their decision to opt out. ‘Companies will never voluntarily internalise external costs,’ explained Paul Abberley, interim CEO of Aviva Investors, who convened the coalition. Therefore we have to structure markets in a way that forces the internalisation of externalities. You can’t do that until you can measure them and understand what they are. Only then, you can have sufficient reporting; you can understand the scale of the problem and come up with market mechanisms

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to price them right. And that is one of the benefits of reporting.’ The coalition was hoping that a process would be put in place in Rio to create a convention on corporate sustainability reporting. While that did not happen, the final outcome document of the Rio+20, ‘The Future We Want,’ encouraged large companies to include sustainability reporting in their reports and called for governments and industries to develop models for integrating sustainability reporting into the corporate reporting practice. ‘Two years ago, I wasn’t confident that we would achieve anything in Rio,’ says Abberley, but the goal was so important, ‘it was all worth all the effort.’ Even though the coalition did not get exactly what it wanted, there was a sense that the need for corporate sustainability reporting has gained momentum at the global level. ‘The thing that concerns me now is how on earth do we keep the momentum going and avoid frittering the momentum that’s been built?’ he told an audience of coalition members and supporters in Rio. ‘From Monday, it all gets a bit messier.’ It is now exploring getting involved in the UN process of defining the sustainable development goals (SDGs), which should be ready by 2015. The SDGs are expected to take over from the current Millennium Development Goals (MDGs) and be the defining UN framework until 2030. ‘It would be entirely appropriate, I suggested to the coalition, to target 2015 as the next stage,’ said Derek Osborn in Rio, board member of the Stakeholder Forum, a branch of the coalition working to advance sustainable development. With the new proposed regulation on non-financial disclosure expected to be published by the European Commission this autumn, there seems to be a momentum to advance corporate sustainability reporting in the European Union (EU), said Abberley: ‘It might well be that in coming months, we try to make some real progress in Europe, and that may well provide an example and a template of how this can work for bodies more generally.’

02/08/2012 10:57

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02/08/2012 11:56


CARBON COSH Nick Clegg’s recent announcement of mandatory emissions reporting could come as a shock to many UK-listed companies and put a dent in the profit figures of budget airlines


f a well-prepared annual report is an accurate mirror of company performance, the viewer is nonetheless suffering from a blind spot. A new reporting rule announced in June could give investors a clearer snapshot of how the business is doing. The mandatory greenhouse gas emissions reporting requirement, aimed at all businesses listed on the main market of the London Stock Exchange, raises a mirror behind a company. It will give a first official glimpse of the back of the business and the resources it consumes in order to operate. It effectively introduces a broader definition of liabilities than we currently have. It’s true that voluntary reporting via the Carbon Disclosure Project (CDP) has been popular for a decade, but then so have greenhouse gas reporting standards, each propping up a particular agenda. It was to stop the rot that the Aldersgate Group, an alliance including ACCA that campaigns for a sustainable economy, drafted an amendment to the Climate Change Act in 2008.

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‘We felt the success of voluntary reporting was tailing off, stagnating and even slightly decreasing,’ explains Andy Raingold, its executive director. When the government this year tried to shelve a decision on the act, the group fired off a letter to deputy

Due in April 2013, the regulations will affect 1,800 companies and will be reviewed in 2015 before ministers decide whether to extend the approach to all large companies from 2016. They could come as a shock to many, which will have to report greenhouse gas

‘THERE’S A QUESTION WHETHER THE COLLECTION AND MEASUREMENT OF EMISSIONS REMAINS WITH PEOPLE IN CSR OR… FINANCIAL ACCOUNTANTS’ prime minister Nick Clegg, who announced the rule just before the 20th anniversary meeting of the 1992 UN Earth Summit, Rio+20. ‘British companies need to reduce their harmful emissions for the benefit of the planet, but many back our plans because being energy efficient makes good business sense too. It saves companies money on energy bills, improves their reputation with customers and helps them manage their long-term costs,’ says Clegg. The CBI is one organisation that pushed for the regulation and whose involvement is acknowledged to have weighed heavily.

emissions for the first time from the start of the next financial year. ‘A significant majority will have never looked at this before, so it’s a big step change for them,’ points out Lauren Smart, executive director at environmental research firm Trucost. However, Trucost also sees flaws in a great deal of existing reporting and finds that many companies that say they have an environmental policy disclose few facts about it. Reporting for the first time will mean buying new software, but also involve extra staff. Since consistency is one of the underlying reasons for making

01/08/2012 10:40


reporting compulsory, a single standard will be required – probably the Greenhouse Gas Protocol – an international emissions standard adopted by the Department for Food and Rural Affairs (Defra). Companies would state how they are reporting against the standard in notes to Nick Clegg: announcement prior to Rio+20 the accounts. If reporting became common across the world, a new IFRS standard could eventually develop. Many financial directors will find themselves musing over emissions data and talking to sustainability managers for the first time, as they will have to sign off the report. Roger Adams, ACCA’s special assignments director, observes: ‘When companies report on sustainability, the FD or finance or corporate governance committees do not always have much involvement in disclosure. But once it’s in the annual report and accounts, all groups are immediately brought into the process… mandatory emissions reporting will bring this more centre-stage.’

The basics

Collection point Alan McGill, sustainability partner at PwC, visualises an even more fundamental shift in the longer term: ‘There’s a question as to whether the collection and measurement of emissions remains with people in the CSR department or becomes part of the domain of financial accountants. Therein lies a transfer from chief financial officer to chief information officer collecting material information. The job becomes much broader in terms of the different types of information they collect and report on.’ The most powerful group affected by the change is, of course, the investors. ESG (environmental, social and governance) reporting does prompt the occasional snort, but company performance can be affected by legislation already in place in various countries across the globe.

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Businesses listed on the main market of the London Stock Exchange will have to report their levels of greenhouse gas emissions from April 2013. The regulations will be reviewed in 2015 and possibly extended to all large companies from 2016. The UK is committed to cutting UK carbon emissions to 50% of 1990 levels by 2025.

In the airline sector, for example, financial metrics do not always pick up on how companies are affected by new laws. They show budget airline Ryanair in a good position – it was hardly touched by the financial turbulence of 2011 and despite being hit by higher fuel costs expects to make

profits of up to €440m this financial year. By contrast, International Airlines Group (IAG), owner of BA, froze senior manager salaries and produced earnings per share consistently lower than those of Ryanair. But FTSE data shows that budget airlines are worse off than IAG in terms of carbon liabilities – and that these are likely to become more acute, possibly leading to a big dent in profits. One reason is that the increase in emissions trading schemes, carbon taxes and other policies around the world (eg South Korea, China, Australia, South Africa) could take a larger bite out of budget airlines’ fares than national carriers’ fares. Paul Druckman, CEO of the International Integrated Reporting Council (IIRC), suggests mandatory emissions reporting could affect longterm investors. ‘Investors thrive on information and will use consistent information if they can rely on it,’ he says, ‘so this could well be a catalyst for them to understand what businesses are trying to do.’ But he warns against box-ticking. ‘The danger with the government mandating carbon reporting is if it’s done as a silo. If reporting, they need to show what it means in terms of strategy. That could be a factor that changes whether investors care about what’s being reported.’ Emissions disclosure looks like small beer in the light of the financial scandals of recent years. Yet if resources were used at a quicker rate than improvements in technology (especially where new technologies do not replace but add to their predecessors), core business strategy would be affected. The question is whether it could kick-start a longer-term trend on mandatory environmental reporting, or be copied around the world. Elisabeth Jeffries, journalist

01/08/2012 10:41

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Taking the pulse of the global economy With business confidence now collapsing in Asia Pacific too, ACCA’s Manos Schizas reports on the gloomy mood of financial professionals Over 2,700 finance professionals took our Global Economic Conditions Survey for the second quarter of 2012. The news was definitely not good. As we had warned at the time, some of the apparent recovery in early 2012 was down to very transient sentiment that has since dissipated. But as much of the gain in confidence was down to improved fundamentals, optimism has not completely vanished. Then again, the global fundamentals have also deteriorated: liquidity and demand have tightened around the world, investment has taken a hit and, despite excess capacity, inflation has not fallen. More businesses failed in the second quarter of 2012 than in the first, although employment was reasonably resilient. Overall, the global economy is about as fragile as it’s ever been since the ‘green shoots’ of early 2009, with the developed OECD economies probably shrinking. The Americas, the Middle East and Africa continue to lead global recovery, as they have for the last nine months. The US is in fact looking decidedly healthy, with investment still growing and both demand and liquidity remaining relatively strong. However,


The UK suffered a loss of business confidence roughly in line with the broader Western European sample in Q2 2012, although there is little basis in the fundamentals for such negative sentiment. Both demand and employment appear to have strengthened consistently over the previous nine months, while most indicators of cashflow stress, including late payment and customer/ supplier failures, appear to have eased. As a result, respondents report a steady increase in capital spending in the UK, which can only be good news. Generally speaking, the South appears to be recovering faster than the North. With the country briefly slipping back into recession, UK respondents called for more, not less, government spending in the medium term. Respondents’ expectations of actual policy are also shifting, with more expecting a rise in expenditure.

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there is a worrying slowdown in China, where both confidence and investment are falling despite an expansion in business opportunities. China’s slowdown, while not yet the ‘hard landing’ many fear, is very bad news not only for ACCA members in the country but also for China’s truly global supply chain, mainly suppliers in Africa and South Asia. Nor are regions that run a persistent trade deficit with China going to benefit. The EU, for example, has about

THE GLOBAL ECONOMY IS AS FRAGILE AS IT’S BEEN SINCE THE ‘GREEN SHOOTS’ OF EARLY 2009 €120bn of exports to China at stake, and since a lot of that is made up of high-tech industrial inputs, Europe’s exports to China are more incomeelastic than China’s exports to Europe. Encouragingly, though, accountants around the world continue to see opportunities for their businesses – more of them, in fact, even in troubled regions such as Europe. Fiscal policy remains a conundrum. Attitudes have continued to move against austerity as global growth continues to disappoint, yet, in the opinion of local accountants, some of the governments the world is counting on for stimulus may already be living beyond their means. US-based accountants are particularly hawkish, warning of a dangerous level of overspending; then again, so are their colleagues in China. In short, the global economy is still weak and could yet endure many more false starts. The most important lesson from the reversal may well be that relief should not be mistaken for recovery: finance professionals should trust the evidence of their own eyes above the hype. More at

03/08/2012 15:14

35 THE ACCA/IMA GLOBAL ECONOMIC CONDITIONS SURVEY – HOW TO TAKE PART The views of ACCA members receive widespread media coverage. The Q1 2012 survey was quoted in the press around the world more than 200 times.

So why not have your say in our next quarterly survey? Simply look for the link in AB Direct or watch out for the email invitation.

The survey is undertaken by ACCA in association with IMA (the Institute of Management Accountants), with respondents coming from both bodies.



Breaking down the ACCA Confidence Index geographically reveals some striking variations, with members in Africa still showing most confidence.

In China, business confidence is plunging and capital spending is heading still lower.

75 50 25 0


0 -10 -20 -30 -40 -50 -60 -70 -80

Q4 2009

Q1 2010

Q2 2010

Q3 2010


THE DANGER DOWNPOINT The ACCA Confidence Index correlates strongly with economic growth globally. A reading of below -13 suggests the economies of the developed world are contracting and the global economy is slowing to a halt.

Q4 Q1 2010 2011

Q2 2011

-25 -50 -75 Confidence

KEY: =Q1 2012

Capital spending

=Q2 2012

30 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80 Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 Q2 2011 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012


Business confidence has gone futher into decline. The graphics show the percentage of respondents saying they have gained business confidence, minus those who have lost it.

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03/08/2012 15:15



Beyond the boilerplate [

Moves to improve the effectiveness and value of auditors’ reports have come up against some traditional challenges, including the all-important question, what are they for? says Robert Bruce

So far the auditors have had a relatively good post-global financial crisis. But there is a growing mood globally that the value they provide is not as clear or as obvious as it should be. ‘The issue of how you get some colour into financial statements is coming up all around the world,’ says Steve Maslin, chair of Grant Thornton’s Partnership Oversight Board and a member of ACCA’s Accountants for Business Global Forum. Auditors’ reports are seen as boilerplate, formal, and less than informative. ‘We need to make sure you have something which allows users to understand the risk areas and the judgment areas,’ adds Maslin. The slogan should be something like ‘beyond the boilerplate’. As a young journalist, one of my first interviews was with the finance director of a Scottish supermarket group. I asked about the value of the auditor’s report. ‘Well,’ he responded, ‘I give them a

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full page in the accounts every year and hope that one day they will take up the challenge.’ And that is at the heart of the problem. These days even the boilerplate takes several pages. The fundamental reassurance is there. But the detail, and the value it could provide, is not. It is these worries that underpin the consultation paper which has been issued by the International Auditing and Assurance Standards Board (IAASB), Improving the Auditor’s Report. It sets out a global agenda for change and wants comments on the ideas by early October this year. It makes clear the need to leave the boilerplate behind, but also recognises the problems. ‘It is notable that the

call for change initially came primarily from institutional investors and financial analysts looking to auditors to help in navigating increasingly complex financial statements and point out the areas on which the auditor’s work was focused – particularly on the most subjective matters within the financial statements,’ it says. And it is that word ‘subjective’ which has auditors reaching for their stomach settlers. The difficulty with subjective information is where it comes from and whose responsibility it is. ‘The big challenge,’ suggests Richard Sexton, deputy global assurance leader at PwC, is: ‘What is it for? Is it to allow auditors to comment on what they have done, or what has come out of the audit, or what has come out of the company?’ All these different information streams muddy the waters, and the responsibilities. And Sexton is firm on the idea that ‘we should not be the original source of information about the company’. The IAASB suggests that this problem can be overcome by changing the emphasis of the information the auditors could provide. ‘Some users have indicated,’ the consultation document says, ‘that there would be considerable value in the auditor highlighting disclosures about the areas in the financial statements the auditor believes are the most important.’ ‘This,’ it continues, ‘would provide a “roadmap” to help users better navigate complex financial reports and focus them on matters likely to be important to help their decision-making.’ One fundamental area, highlighted by events during the financial crisis, is that of going concern, the auditor’s judgment on the ability of a company to keep afloat over the next year or so. The IAASB paper provides great detail on this and the influential

03/08/2012 16:17


*ALL SORTS OF INFORMATION: THE IAASB’S ARGUMENT FOR REFORM The statement by IAASB chairman Arnold Schilder, which opens the consultation paper on improving the auditor’s report, makes the issues clear. ‘A cornerstone of the auditor’s report is the auditor’s opinion, which is either a “clean” (unmodified), or modified opinion with an explanation of the basis for such. This model has many virtues and has been long-standing in many jurisdictions, in some cases for decades,’ he says. But then comes the caveat. ‘More than ever before,’ he says, ‘users of audited financial statements are calling

report produced for the UK’s Financial Reporting Council by one-time KPMG global chairman, Lord Sharman, showed how it could be done. It would certainly cheer the investment community. ‘There is a greater interest in matters of emphasis, as evidenced by the Sharman report on going concern, says Guy Jubb, global head of governance and stewardship at Standard Life Investments. ‘For example, it would be helpful to investors to have the benefit of knowing about matters where the auditors believe the assumptions made, while reasonable, proved difficult to verify. It is about providing signposts to help shareholders understand the accounts.’ And while the IAASB paper suggests there would be problems over auditors ‘disclosing entity-specific information that has not been disclosed by management’, the recommendations about going concern have already gained support. Some of the IAASB proposals could, suggests Maslin, ‘be brought in quickly’, and in particular the going concern proposals. ‘It would,’ says Sue Almond, technical director at

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for more pertinent information for their decision-making in today’s global business environment with increasingly complex financial reporting requirements. The global financial crisis has also spurred users to want to know more about individual audits and to gain further insights into the audited entity and its financial statements. And, while the auditor’s opinion is valued, many perceive that the auditor’s report could be more informative.’ Schilder’s conclusion is inescapable. ‘Change, therefore, is essential,’ he says. (See IAASB update on page 61.)

ACCA, ‘make explicit what is implicit.’ But the wider shores of explaining judgment are more complex. ‘The market struggles with anything other than a clean audit report,’ says Sexton. ‘If we are going to draw attention to things, they need to be seen as signposts, not criticism.’ This is a difficulty with the culture of auditor relationships with the investment community. Traditionally if auditors tell you something out of the ordinary, it will be perceived as a bad thing they are trying to warn you about. We are in the world of unintended consequences. ‘People will interpret things as a problem rather than thinking we are just drawing attention to important things,’ says Sexton. A way needs to be found to let the auditors, as my Scottish FD wished, provide more. But when people ask where the auditors are, the auditors tend to pull up the drawbridge of their statutory duties, shelter behind it, and provide no further information. The reasoning behind the IAASB thinking is that around the world the public doesn’t understand this. The

expectation gap is just as wide as it ever was. Hugh Shields, who has worked in these areas for many years, says that ‘by broadening out the auditor’s report it requires the auditors to have more skin in the game. And that’s a good thing.’ Almond adds: ‘Investor roundtables are very clear that the audit report is not hitting what people are looking for. The next step is consultation. The real challenge is finding out what the users want. Auditors will be all over it, but investors are harder to pin down and get views from. The challenge is to engage with the right people’ The task ahead is for those negotiating the progress of the IAASB paper to try and steer it towards something which enables auditors to provide much more information, both in quantity and in value, without the whole initiative levelling down into something which is no better than the current boilerplate. Investors and auditors have a huge amount of work to do. Robert Bruce is a commentator and journalist

03/08/2012 16:18



Memory games [

Research shows that 22% of us employ the same password in most of our digital affairs, but how are we expected to remember a unique password for each of our many online accounts, asks Peter Williams

In an analogue age many people would have had to deal with nothing more taxing than not forgetting the combination of their bike lock. The first code most people had to remember was probably the number for their bankcard. But now, well just go and add up the number of work, home, retail and leisure passwords the internet demands you remember. Most of us veer between having every password set as password (or password123 if you’re feeling sophisticated or the site demands a couple of numbers) or trying to commit to memory a combination of randomly generated letters, numbers and symbols which would deter the most determined of hackers, but which we would forget instantly or have to record in some way. Living in a digital age there are, of course, some sites which promise to look after your passwords. But putting

online your access to everything from your current account to your LinkedIn details surely seems, well, absurd. But if you are not taking password security seriously, then expect someone to walk right on in, say security specialists. A survey claims a large number of IT professionals believe that the average child could crack most end-user passwords using social networking tools. The view is that the average youngster can now use Facebook so proficiently that adults simply don’t stand a chance to protect information through simple password security. SecurEnvoy, which conducted the survey, claims social networking

sites contain a critical Aladdin’s cave of personal information. Sadly, technology is not going to rescue us any time soon. Biometric security has potential, once we’ve sorted out the cost of the equipment, verifying and enrolling users, and the problem that it is seen as intrusive. The only other viable option, tokens and card readers favoured by banks, pose security questions almost as searching as those asked about passwords. Corporate password security is equally flaky. Earlier in the summer, Experian, the credit reporting and scoring company, found that 54% of us use the same password for two or more online accounts, with 22% using the same password for ‘most’ or ‘all’ of our accounts. Experian advises that we provide a unique and secure password for every online account, change the password regularly and never write them down or share them. One favourite tip is to use the initial letter of a memorable sentence. Experian suggests ‘I need to choose a new password right now’ could become ‘In2c@nPrN’. The only arguments against such sound advice is that it can’t possibly work and life remains sadly too short. Who can realistically follow such guidance when the average Briton is now a proud possessor of 26 online accounts, and younger adults have as many as 40? The evidence bears this out. Experian found for most of those 25-40 passwords we use around five passwords. That figure of five, compared with trying to remember dozens of regularly changing passwords such as In2c@nPrN, seems entirely pragmatic and sensible, even if not completely secure. Peter Williams is an accountant and journalist

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01/08/2012 10:39



Convergence RIP [

A decade on, US adoption of IFRS has still not become reality. As the Securities and Exchange Commission continues to drag its heels, what will it take to get the US on board, asks Jane Fuller

The only surprise about the unwillingness of Securities and Exchange Commission (SEC) staff to recommend US adoption of International Financial Reporting Standards (IFRS) is that anyone is surprised. Annoyed, yes – especially at the London headquarters of the IFRS Foundation and the International Accounting Standards Board (IASB). But when the deadline passed at the end of last year, the pattern of US foot-dragging was clearly established. The best excuses are that the US already has a decent set of standards and that the SEC’s priority has been to write rules implementing the DoddFrank Act. It is also understandable that nothing that smacks of giving up national powers will be contemplated in the run-up to a presidential election. But if patriotic pride in US generally accepted accounting principles (GAAP) remains a significant factor, the main concern for anyone (including the G20) who believes in global standards is that the US will never fully opt in. As with previous SEC documents, this 137-page mixture of a few genuine concerns and lots of nit-picking is a comprehensive source of reasons to say ‘no’. So, 10 years after the IASB and its US counterpart, the Financial Accounting Standards Board (FASB), agreed to converge standards, that process is at an end. As I wrote a year ago, the least that is needed is for US companies to be given the option of using IFRS, as foreign ones listed there already do. In the absence of even that step, the dilution of US influence over IFRS has rightly accelerated. The least controversial aspect of this is that other national standard-setters are doing more work with and for the IASB. Much more sensitive is whether IFRS-US convergence turns into divergence. It has already happened

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with the offsetting of assets and liabilities, which will leave bank balance sheets under IFRS up to 40% larger than under US GAAP. The latest disagreement is over impairment, or the way provisioning for loans can move from an ‘incurred’ to an ‘expected’ loss model. While FASB portrays this as a delay for further consultation, Hans Hoogervorst, IASB chairman, has apparently expressed exasperation that after three years,

there is still no answer. Even on leasing, where the IASB compromised to enable an agreement, further cavilling by the FASB could lead the IASB to revert to plan A. This would remove the recently proposed property-lease option for straight-line amortisation. What if the US never plumps for incorporation of IFRS into its GAAP? Well, after 10 years and the input of many Americans, the standards are not far apart. Projects supposedly nearing conclusion – revenue recognition, leasing, insurance and financial instruments – would narrow the gap to a crack. SEC criticisms with more legs include the need for the IFRS interpretations committee, IFRIC, to be more proactive, which is at last happening, and for the organisation to secure its funding. The SEC reckons that fewer than 30 countries that use IFRS contribute. This is disputed, but even on IASB estimates there are a few dozen free riders. That must be addressed. The most stubborn difference is a cultural one between the US’s preference for detailed and prescriptive rules, drilling down into different sectors, and the IASB’s more principlesbased approach (although it certainly cannot be accused of eschewing detail). This is captured in the SEC’s vision of an endorsement process that would retain the FASB’s ability ‘to add to or modify the IASB standard’. To avoid encouraging centrifugal forces, in the European Union for instance, the US can no longer both retain national power to set standards and be a leading player in the international movement. Jane Fuller is former financial editor of the Financial Times and codirector of the Centre for the Study of Financial Innovation

02/08/2012 13:01



You are our lifeblood


In his final column, ACCA president Dean Westcott reflects on his year in office and applauds the commitment of members

As this is my last column as president, l wanted to take this opportunity to say what an absolute privilege it has been to serve in ACCA’s highest elected office. It has given me an outstanding opportunity to see at first hand what a truly global organisation ACCA is. It is also clear, from the meetings and events in which I have taken part around the world, that ACCA has a great deal of influence in the global accountancy and financial community. What has also been striking is the number of ACCA members who are working in the most senior positions in organisations in all sectors. I have been fortunate to have met with chief executives of leading organisations, as well as government ministers, all of whom are ACCA members and – at the pinnacle of their careers – still recognise the value of membership. The year has clearly demonstrated to me that ACCA is nothing without its membership. I recently spoke in Malaysia about my journey to ACCA’s presidency, and a point that I made then, and that I want to reiterate now, is that members are the lifeblood of our organisation. The work you do, in providing excellent services and advice to the public, to corporate business, to small and medium-sized enterprises and to organisations in the public sector, helps to build our reputation. But it is also critical to have a membership that is engaged and involved in ACCA’s work. My own involvement began with local networks and I want to urge you to think about how you might devote some time to helping our great organisation go from strength to strength. I have been asked what the highlight of my presidential year has been. While that’s a tough question to answer, I would have to put the recent Council meeting in Kenya at the top of the list. This enabled me and my Council colleagues to see the outstanding work that is being undertaken by ACCA and its members in East Africa, and also allowed us to engage with a wide range of stakeholders in this very important region for ACCA. I want to thank everyone who made this event such a great success, along with the countless colleagues and members of ACCA’s staff team who have made the past 12 months so memorable for me. Dean Westcott is CFO of West Essex Clinical Commissioning Group, UK

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02/08/2012 13:02



Kinetic Partners has been named Accountancy Firm of the Year at the Global Investor/ISF Investment Excellence Awards 2012. Kinetic, which operates globally as a specialist service provider to the asset management, investment banking and broking industries, expanded by a quarter in the last year to service 1,300 clients globally. It has opened offices in Hong Kong and the Channel Islands, as well as buying Luxembourg-based AB Fund Services. Julian Korek, a founding member of Kinetic Partners, commented: ‘Global Investor magazine has recognised Kinetic Partners as delivering an exceptional service in turbulent times. Our clients are faced with an uncertain regulatory landscape, new demands for governance standards and changing expectations from investors, and as a consequence they require bespoke, expert advice, and our global presence.’


Ernst & Young has been named by Flagship Consulting as the best accountancy firm for its use of social media. TaxAssist Accountants and PwC were also praised as highly effective. EY was graded highly because of the quantity of content it posted on Twitter and Facebook. Lewis Shields, head of digital and social media at Flagship Consulting, said: ‘There is no doubt that using an informal approach and responding to everyday issues works very well. Using consumer techniques and a personality-driven approach makes organisations much more relevant to their online audiences.’

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The view from: Russia: Olga Nikitina FCCA, senior manager, Ernst & Young Academy of Business, Novosibirsk Q Has the global financial crisis changed how companies and finance teams approach training and development? A It has become clearer that it’s worth investing in education. New knowledge and skills always give competitive advantages, regardless of the economic climate. Many people are now registering for ACCA’s DipIFR (Rus) programme, which is likely to pay dividends in the near future, especially as Russia adopted IFRS last year. Q Any advice for newly qualified accountants? A First, I’d congratulate them – they did a good job to pass tough exams, and ACCA membership will open a lot of doors for their future. But standing on that doorstep, they should pause and think about their long-term goals first. Postqualification opportunities include progression to a higher position, switching sector or even continuing studies. The best advice is never to stop developing professionally; our environment requires us to learn, constantly and quickly. Q Which business leader do you most admire? A Steve Jobs, who was much more than just a successful businessman; he was also a great presenter and, most importantly, an incredibly talented innovator. As he said: ‘Innovation distinguishes between a leader and a follower.’ Q What have you learned from taking on educational responsibilities? A That psychology is an incredibly interesting field for research, with such concepts as motivation and group dynamics.


41 Practice The view from Olga Nikitina FCCA of Ernst & Young Academy of Business; the pros and cons of franchising 45 Corporate The view from Chris Bull FCCA of Boots UK; getting the price right; a guide to issuing investor-friendly statements 51 Public sector The view from Joe Irvin of NAVCA; fears as first NHS Trust enters administration 56 Financial services The view from Louise Williams ACCA at BNY Mellon

Business: Provider of education and training services in Russia and throughout the CIS Locations: Russia (Moscow, St Petersburg, Novosibirsk, Ekaterinburg); Ukraine (Kiev, Donetsk); Kazakhstan (Almaty) Accreditations: ACCA Platinum Approved Learning Partner and ACCA Registered CPD Provider

03/08/2012 15:44



Fancy a franchise? If you want your own practice on the increasingly competitive high street, the franchise route offers a number of benefits. But it’s no guarantee of success and won’t suit everyone The UK franchise industry generates £12.4bn a year turnover, with around 900 franchisors and 37,000 franchised outlets across the country. McDonald’s and other famous fast-food brands offer franchises, along with highstreet names such as Thorntons and Specsavers, and white-collar businesses including letting agents Martin & Co and Pitman Training. Since the mid-1990s, accountancy franchises have also become available. Critics say they are to accountancy what McDonald’s is to gourmet food, that work is price-driven and of low standard, and that franchisors are only interested in lining their own pockets. But personal success stories abound, too, drawing in new recruits with promises of minimal risk and high rewards. Are you tempted? First, consider this.

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Franchising is the practice of using another firm’s proven business model and brand, in return for a licence fee and management service fees. The franchisee has immediate access to clients and support infrastructure. But while the franchisor grows their business without costly investment in a ‘chain’, this only happens if the underlying business happens for the franchisee, too. ‘It’s not about them and us,’ says Elaine Clark, managing director of online practice and accountancy franchisor. ‘The model only works if the franchisees are successful.’ It is in the details where it

gets complicated. Different franchisors offer different packages, structure their fees differently and offer varying levels of lead generation. The extent of training, technical and marketing support differs, too. You really need to do your research.

The right franchise How do you choose a franchise? ‘First, ask yourself what you want to achieve and this should lead you to the franchise model that will suit you,’ says Clark. Do you want multiple offices, partners and staff? Or do you want to operate as a sole practitioner from your home office? Have you any experience of running a business? ‘I didn’t, so I paid somebody to hold my hand,’ says Steve Worth of Worth Accountants in Poole, a former TaxAssist Accountants franchisee. The next consideration is how you will attract business. ‘I’m not aware of

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‘AFTER TWO YEARS I FOUND I HAD OUTGROWN WHAT THE FRANCHISE HAD TO OFFER, YET I WAS STILL PAYING OVER A PERCENTAGE‘ any franchise where the accountant doesn’t have to source and close at least some prospects,’ says accountancy commentator and speaker Mark Lee. Decide on the level of support you will need – and the timescales – to achieve your goals. ‘Be realistic about how quickly you can build your client base,’ warns Clark. Next, research the franchisor. ‘Check how financially stable they are, how many franchises have opened and closed,’ recommends Lee. ‘Then, pick a random selection of franchisees and ring them to find out what’s gone well for them and what hasn’t.’ Ask about their income levels, support they receive and any additional or hidden costs over and above their management fees. As for the franchise agreement itself, which typically runs for five years, do not sign up without taking independent legal advice, says Lee. ‘How easy is it to get out of the contract if the franchisor doesn’t deliver or if your priorities change?’

Balance pros and cons Next, check out the benefits and the downsides of your tie-in. ‘You get clients passed to you straightaway,’ says James Sheard, an accountant with three TaxAssist shops in and around Manchester. You also get immediate brand recognition. ‘When you start in practice, you don’t have any credibility in the marketplace, but TaxAssist – an established, national brand – lends you that credibility,’ he says. However, you do not have any control over the quality of client referrals. ‘I soon opted out of the lead generation part of my contract,’ says Worth. You can, though, choose a franchise package that does not buy you client referrals. ‘If you’re good at marketing and sales, one of our packages gives you the benefit of all the collateral that

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we offer, but you build the practice yourself,’ says Clark. Worth came up with his own strategy; others need a lot more help. ‘None of our franchisees has had any prior experience of marketing,’ says Clark. ‘This is where the franchisor can make a real difference.’ What other support from the franchisor can you expect, in return for your fees? ‘Initial and ongoing training,’ says Clark. ‘We cover practice operations and marketing in two days, and give one-to-one sessions afterwards, depending on what skills franchisees need help with. This is different from the longer training courses other franchisors offer because we only recruit qualified accountants.’ TaxAssist’s initial training takes six weeks and no formal accountancy qualifications are required (although you do need ‘relevant career background’). ‘This shocked me,’ says Worth. There is usually a helpline to assist with technical queries, too. Fees are an obvious downside of a franchise. ‘After two years I found I had outgrown what the franchise had to offer,’ says Worth, ‘yet I was still paying over a percentage of my turnover.’ He also found the exclusive territory restrictive. ‘It stopped me from growing,’ he says. ‘There were real opportunities in the neighbouring territory that other franchisees missed.’

A bit like an employee If you are entrepreneurial, you may find having to follow the franchisor’s operations manual restrictive, too. ‘You are still a bit like an employee, because there are constraints on how you run the business,’ says Lee. A franchisor’s operations manual gives guidance on branding, customer care and best practice. ‘But it’s not like McDonald’s rigid structure, where you have to check the toilets every hour,’ says

01/08/2012 11:13



Sheard. ‘We have a common operating system and software for preparing accounts and tax returns and for managing client details. Otherwise, I’m pretty much free to run my business my way.’ What about pricing? ‘Our franchisees work to’s fees,’ confirms Clark. There are set fees at TaxAssist, too, but Sheard insists that they are just guidelines: ‘There’s no obligation on the business owner to charge them. You are free to exercise your judgment.’ Whatever the downsides, you have to balance them with what you’re getting in return, says Lee: ‘Would you be able to build a successful practice as quickly if you weren’t paying a franchisor?’ You also need to consider if you can afford the licence fee and other startup costs and whether you need to arrange funding. ‘Franchisees are more likely to get finance if they associate themselves with an established brand, because these have arrangements with banks,’ says Lee. Karl Sandall, chief executive of TaxAssist, confirms: ‘Typically the franchise banks, for example NatWest, HSBC and Lloyds, will lend between 50% and 70% of the total investment including working capital, with interest rates, for a secured loan, of between 4% and 7% above base rate.’ Other banking terms tend to be better for a franchisee, too. ‘However, I would advise caution when it comes to any business projections that may be required,’ says Lee. ‘You may have to work harder than you were planning to.’ According to the TaxAssist website, accountancy franchisees ‘could generate a turnover of £200,000 to £300,000 after five years’. Is this realistic? Sandall says: ‘Our franchisees typically grow their fee income by £60K year on year and one of them has just hit £1m.’ Worth, however, thinks that the advertised projections are optimistic: ‘After five years, you’re looking at

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Abacus Established in 2004, Abacus has over 50 practices with a portfolio of over 2,000 clients.

Certax Accounting Launched in 1999, Certax now has a nationwide network of over 100 franchisees and quotes projected net profits of between £45,000 and £86,000 depending on practice location and length of franchise. CheapAccounting An online solution, CheapAccounting has 19 accounting franchisees after three years. TaxAssist Accountants One of the oldest networks, TaxAssist operates from shop-style high-street premises. Its 192 UK and Irish franchise areas earned £21.8m in net fee income last year.

Alternatives to franchising: Hudson Conway A leading practice in Bristol, Hudson Conway has over 20 associate offices in the UK and offers a free seminar on starting and building a practice.

Seahorse UK Seahorse UK offers on-demand marketing and mentoring support (and access to outsourced payroll, accounting and bookkeeping) without any tie-in, annual fees or loss of control.

Members considering franchising should consult ACCA’s rules and standards, available in the members area of the ACCA website. Advice is also available from the technical advisory team on +44 (0)20 7059 5920.

£100,000 to £120,000 average turnover. The only way to achieve the bigger numbers is by investing in the infrastructure and the resources very early on. Most startups don’t have the funds to do that.’ However, Worth admits that he achieved income equivalent to what he had been earning when he was in employment within 18 months of starting the franchise. Sheard, who started with TaxAssist in 2008 and is its Franchisee of the Year for the second year running, is confident about his own projections: ‘£200,000 to £300,000 after five years? I’ll be turning over more than that.’ Not all franchisors or franchisees are that forthcoming with the figures. ‘We don’t give out projected or average income because all our franchisees differ; we’ve got some working part time, some full time and some have taken staff on,’ says Clark. ‘Besides, the income from running your business is only as good as the effort you put in.’

Exit strategy Finally, have an exit strategy, right from the start. What happens after the contract ends and you choose not to renew? What is the position with your clients should you terminate the agreement part way through? Worth had to pay management fees. By Worth’s own admission, his exit from TaxAssist was a clean break. ‘If you’ve never run your own practice, the franchisor is there as a safety net and, in that regard, TaxAssist is a good model. But, as my practice grew, the value of the franchise was reducing while the cost was increasing.’ Clearly, the franchise model can accelerate the rate at which you can build a practice, but it is not a guarantee of success. As Lee sums up: ‘Ultimately you also have to be good at client relationships, good at providing the service and good at winning new referrals.’ Iwona Tokc-Wilde, journalist

03/08/2012 16:28



Late payment has become a ‘badge of honour’ for British businesses, claims debt recovery firm Lovetts. ‘The UK is one of the few European countries where late payment has become a fact of business life,’ says Lovetts’ CEO Charles Wilson. The comments responded to figures from the second quarter of this year which recorded a 38% increase over Q1 in debts passed to the firm for collection. The announcement follows the release of figures by Bacs showing that UK SMEs are owed £35.3bn, up by £2bn in six months. Lovetts urged firms to copy Scandinavia in making late payment culturally unacceptable and to ensure that their payment terms are absolutely clear.

The view from: Retail: Chris Bull FCCA, finance manager – sales accounting, Boots UK Q What does a typical day in your role involve? A An early start! I usually begin by reading endless emails and planning for the day. I work in a team of around 35 people and most of my time is taken up going to planning meetings, having one-to-ones with my team and performance and development reviews. I get more involved in the accounting side of things at month end to ensure it runs smoothly. Q What made you want to become an accountant and choose ACCA? A I was always good with numbers, although I failed my maths ‘O’ level! I naturally fell into accounting roles but didn’t start studying until I was 30. I began with the AAT qualification and was then encouraged to study for a professional qualification; ACCA seemed the best fit for me and what I wanted to do at Boots. I qualified at the tender age of 39, and was the oldest newly qualified accountant at Boots at the time, a record that has since passed. Q What advice would you give to ACCA members starting out in the retail sector? A The retail sector gives all the variety of roles you will ever need, from working in a shop – something we all do here at Christmas, giving you a sense of how important the store staff are – to office roles as financial accountants, finance analysts and business partners. A financial processing team is a good place to start as it gives you so much experience of the sales and purchase ledgers.


Lord Sharman of Redlynch, the former KPMG International chairman and a Liberal Democrat peer, has retired from his role as chairman of global insurance group Aviva. He has also stepped down as a director of the company, chairman of its nomination committee and as a member of its corporate responsibility committee. John McFarlane is the new executive chairman of Aviva. He is a former chief executive of the Australia and New Zealand Banking Group and has been a non-executive director of RBS and the Auditing Practices Board.

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Q What are your interests outside work? A I go to the gym regularly, play tennis and follow cricket and football, but my main sporting passion is ice hockey. I follow the Nottingham Panthers in the UK Elite league and go to the States to watch the National Hockey League when I can. Music is my other big passion; I’ve collected all Paul Weller’s music since 1977 and enjoy going to gigs.

45 Corporate The view from Chris Bull FCCA of Boots UK; getting the price right; a guide to issuing investor-friendly statements 41 Practice The view from Olga Nikitina FCCA of Ernst & Young Academy of Business; the pros and cons of franchising 51 Public sector The view from Joe Irvin of NAVCA; fears as first NHS Trust enters administration 56 Financial services The view from Louise Williams ACCA at BNY Mellon


Location: Nottingham Short CV: Left school at 17, started my career at Boots; 33 years later I’m still here.

03/08/2012 15:54



Is the price right?

An A-Z of pricing jargon

There’s an awful lot more you can do with pricing than just adding a fixed percentage to your costs, and the resulting lift to profits can come courtesy of the CFO Bundle: a basic product is priced together with extras which add value (as well as margin) to the offer and make simple cost comparison with competitive products more difficult. Example: a washing machine plus a year’s warranty plus a year’s supply of soap powder.

Here is an encouraging tale for any CFO who is close to despair because of the impact that falling prices are having on company margins. An engineering company with business in Britain and Italy discovered that the profit margin on its UK projects was around 30% but could be as much as 70% on its Italian work. Managers at the company puzzled over the difference, then explored how projects in each country were priced.

Captive product: a low price is charged for the core product and a high price for the supplies to run it. Example: computer printer (core) and its refill cartridges (captive).

They found that in the UK, the management team used traditional cost plus pricing, working out how much the project would cost, and then adding 30% to the price. But when the Italians were asked to quote on a project they went into a huddle and considered the value of the project

Like so many other areas of management, pricing has its own jargon. Here are some of the buzzwords and modern practices in pricing

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from the client’s point of view, then came up with a price based on what experience and instinct told them the customer would be prepared to pay. ‘Getting pricing right is a mixture of science and art,’ says Alastair Dryburgh, a consultant and pricing specialist. ‘An accountant is going to be pretty comfortable with numbers, which is the science part, but is going

to have to engage with the art, which is more subjective and uncertain.’ Yet, for many companies in a wide range of industries, there has never been a more urgent time to tackle pricing. Too many companies are seeing margins eroded in the face of rising costs, especially of commodities. Craig Zawada, a former McKinsey consultant who is now senior vicepresident in charge of ‘pricing excellence’ at pricing software company Pros, says the price volatility of a basket of 25 commodities has increased by 42% in the past 10 years compared with the 30-year period from 1980 to 2009. ‘This creates a whole lot of challenges for CFOs because you have to be more nimble with your own prices,’ he says. He adds that many companies simply don’t have enough information about the movement of costs and market prices to make reliable margin calls. ‘Reports come in too late to make decisions – and that ultimately affects margins.’ Too many companies can get caught in a vicious cycle of shrinking volume and falling margins, warns Allan Gasson, a partner in Deloitte’s strategy practice. ‘A decline in volume means that the overhead cost increases,’ he points out. ‘Therefore if the price per unit stays the same, the overhead is not likely to be recovered and the business could start to make losses.’ The trouble is that raising prices may drive away some customers, which just makes the problem worse. The answer to this dilemma is to have much more knowledge about the price sensitivity of different classes of customer. ‘In particular, companies need to have in-depth knowledge of which segments are price-sensitive and attribute high value to the product quality and service that you’re

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providing,’ says Gasson. ‘These customers need to be nurtured.’ The trouble is that many companies simply don’t have the business processes or support systems to collect that kind of information, according to Pol Vanaerde, president of the European Pricing Platform, a knowledge-sharing network for pricing decision-makers. He says that decisions about prices are often taken in a fragmented way in different parts of a company. ‘Decisions are split over countries, regions or sales channels,’ he explains.

Three levels of maturity Vanaerde says that CFOs who want world-class control of their pricing strategy need to move themselves through three levels of maturity. At the first level, they will start to take control of the transactions. That means finding out who is setting what prices – and when and where they’re doing it. ‘It’s about finding what prices you have in which channels for what customers,’ he says. ‘It’s the first step in stopping margin leakages.’ With that in place, it’s time to move to the second level of pricing maturity: when the finance team starts to understand in more depth the forces behind price setting. ‘It’s about getting more insight into different market segments and their elasticity of demand,’ he says. ‘With this kind of information, you can start to improve the effectiveness of your pricing. For example, you will probably switch an important part of your portfolio from cost-based to value-based pricing and you may differentiate prices between different segments.’ As the company gets more experience at understanding the detail of its pricing, it can move to the third level of maturity, where it starts to

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optimise profits. ‘That will involve not only thinking about setting prices but about changing the whole business model,’ explains Vanaerde. ‘For example, maybe you will switch from selling your product to leasing it.’ CFOs who still have any doubts about focusing more on prices should consider a finding from a McKinsey study, says Zawada, co-author of The Price Advantage. This showed that a 1% increase in price can yield up to an 8% increase in profit. The problem is that as the recession sent many companies into a tailspin, too many CFOs became fatalistic about the impact they could have on prices. ‘You’re never going to be in a position to change the laws of economics, but your aim should be to do better than you would otherwise have done,’ Zawada says. He points out that many companies have unrealised opportunities to raise prices for some of their customers. He cites a car rental company that found some of its customers were willing to pay more for the service they received. ‘But it takes a lot of hard work to find these opportunities,’ he says. Leveraging them depends on having good up-to-date information on how different customer segments are performing and where opportunities to nudge prices upwards may exist. The internet has introduced a new element in price-setting, but it can be a double-edged weapon. ‘Your own prices are readily available to competitors, but you can also see theirs,’ Zawada points out. This provides opportunities for creative pricing. He mentions an electrical distributor trading in a highly price-competitive market where its normal margin was no more than 1.5%. Each day it looked to see which

Cost-based pricing: the cost of making and delivering the product is calculated, then a fixed percentage added for profit. Widely used but widely criticised by pricing gurus. Economy pricing: the lowest possible cost for the market. Aimed at the consumer who doesn’t want to spend more. Think Ryanair.


EDLP: an acronym that stands for every day low pricing, a concept pioneered by Asda. The sales pitch is that the supplier is keeping prices low by checking rivals’ offerings regularly and matching them.

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standard products were not currently available on competitors’ websites and raised its prices on those products by an average of 5–6%. ‘That slight change had a big impact on profitability,’ Zawada says. And although there may be general downward pressure on prices, there are also opportunities to push prices up, notes Dryburgh, author of Everything You Know about Business is Wrong. He recalls the company that developed a premium brand of dishwasher tablet while its rivals were focusing on economy products. The premium tablets with a higher margin boosted the company’s profits, even though it was a depressed market. ‘People are prepared to pay more for genuinely superior products,’ Dryburgh says. He says markets are becoming polarised between economy and premium products. The danger, from a pricing perspective, may be getting caught in no-man’s land in the middle.

Knee-jerk no-no Yet while it is possible to seek out opportunities to raise prices on some products for some customers, in many markets there is widespread discounting, which has its own range of pricing dangers. For example, when a competitor discounts a product or service, there is a danger of responding with a ‘knee-jerk reaction’, says Mona Bitar, a partner in KPMG’s operations strategy group. The decision may also be muddled by the increasing complexity of supplier offers and rebates. ‘Too often promotional decisions are made on gut instinct rather than facts,’ Bitar warns. ‘In the past, many retailers have used promotions to increase sales volume ahead of incremental revenue and profit generation,’ she says. ‘Taking time to understand the true price elasticity of product categories through structured pricing experiments will help you to understand how margin and volume will react to promotional pricing.’ Andrew Jupp, a director at accountancy and investment

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Optional product: the basic product (a car, say) is priced, then the extras (alloy wheels, etc) added on. Penetration pricing: products offered at a low price to get consumers to try it. Example: introductory offer on magazine subscriptions. Premium pricing: the ability to charge a high price because of the quality or uniqueness of the product. Example: tickets for a music star’s one-off concert. Price pointing: charging £9.95 instead of £10, for example. Product line: the same product in a range of sizes or variants for people who want to spend more or less. Promotional pricing: a price which incorporates a special offer such as ‘buy one, get one free’. Skimming: charging a very high price based on the fact that there is no competitive product, such as the latest version of a high-tech product which represents a musthave’ for geeks. Value pricing: a price is set that delivers real value for customers with little money to spend. Example: ‘value meals’ at McDonald’s.

management group Smith & Williamson, notes that discounts serve two purposes – to reward loyalty and generate new business. ‘There needs to be a clear policy on discounting, and salespeople need to make a judgment call as to whether offering a discount is likely to retain an existing customer or attract a new one.’ Zawada advises trying to get something in return when negotiating a discount. He cites the case of an office equipment supplier which negotiated less frequent delivery and guaranteed order levels on a group of core products in return for a discount. ‘Those two things contributed about 30% of the profitability of a customer contract and were quite easy to negotiate in,’ he says. ‘The customers wanted to claim victory on the discount and weren’t so concerned about the terms and conditions that accompanied it.’ So in the present febrile economic environment, where does pricing policy go from here? ‘Finance has an important role to play in starting the change towards more effective pricing,’ says Vanaerde. ‘The CFO challenge is to translate data into information that can be used by sales and marketing professionals to take pricing decisions.’ Expect more variable approaches to pricing in the future, says Dryburgh. ‘Recessions are always good times for innovators because the status quo is challenged,’ he points out. Look for more opportunities to push prices up, advises Zawada. ‘Most companies have more pricing power than they realise, but they have to find that power through better data and tracking and develop the process to take decisions more quickly,’ he says. Peter Bartram, journalist

01/08/2012 10:47




Page 1

DATA PAGE Bank Base Rates

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

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

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

Figures compiled on 27 July 2012

Retail Prices Index

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

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

Source: Barclays

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

September 2012

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

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

Existing Borrowers - Source: Halifax

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

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

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

13th January 1987 = 100

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

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

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

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

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

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

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

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

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

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

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

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

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 1.1.11 1.7.11

To 30.6.11 31.12.11

Rate 8.50% 8.50%

From 1.1.12 1.7.12

To 30.6.12 31.12.12

Rate 8.50% 8.50%

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

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

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

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

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

2012 1.08% 1.06% 1.03% 1.01% 0.99% 0.90%

3 MONTH INTERBANK - closing rate on last day of month

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

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


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

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

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

Whole GB economy unadjusted *Provisional

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

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

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

2012 238.0 239.9 240.8 242.5 242.4 241.8

Source: ONS

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

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

2012 0.1% 0.7% 0.8% 2.4% 1.8%*

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

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

2012 514.2 514.3 528.9 521.7 523.6 528.3

Figures include bonuses and arrears Source: ONS

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

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

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

All Houses (January 1983 = 100)

Exchange Rates

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

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

% Change Average Weekly Earnings

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

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

2006 2007 2008 2009 2010 2011 2012

YEN 205 233 198 142 142 133 132

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

Source: Halifax on last working day

€ 1.43 1.47 1.25 1.08 1.12 1.13 1.20

2006 2007 2008 2009 2010 2011

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

€ 1.48 1.36 1.04 1.13 1.17 1.20

Income Support Mortgage Rate Effective Date Rate

Effective Date Rate

Effective Date Rate

17.12.06 18.2.07 17.6.07

12.8.07 13.1.08 16.3.08

18.5.08 16.11.08 1.10.10

6.58% 6.83% 7.08%

7.33% 7.08% 6.83%

6.58% 6.08% 3.63%

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


Judgment Debts: High Court (& w.e.f. 1.7.91 County Courts) 8% w.e.f. Decrees: Court of Session & Sheriff Courts 8% w.e.f. 1.4.93 (previously 15% w.e.f. 16.8.85). 1.4.93 (previously 15% w.e.f. 16.4.85). Funds in Court: Special Rate (persons under disability) 0.5% w.e.f. NORTHERN IRISH COURTS 1.7.09 (previously 1.5% w.e.f. 1.6.09). Basic Rate (payment into court) Judgment Debts: High Court: 8% w.e.f. 19.4.93 (previously 15% w.e.f. 0.3% w.e.f. 1.7.09 (previously 1% w.e.f. 1.6.09). 2.9.85). County Court 8% w.e.f. 19.4.93 (previously 15% w.e.f. 19.5.85). Interest in Personal Injury cases: Future Earnings - none. Pain & Interest on amounts awarded in Magistrate Courts 7% w.e.f. 3.9.84. Suffering - 2%. Special Damages: same as “Special Rate” - see Funds 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



Beyond compliance PwC’s Alison Thomas continues her series on how to improve corporate reporting by mapping out the first steps you can take towards issuing investor-friendly statements The journey from mere compliance to fully integrated financial reporting is complex and likely to be different for every company. There are a number of areas to consider: Do your financial statements communicate effectively with the capital markets or are they compliance-focused? Could your financial reviews be better linked to strategy and become an integral part of communicating performance? Could your annual reports, investor presentations and other corporate communications become better integrated and converted into an interactive information source for investors? So how can you take action today? Perhaps the easiest first step is to focus on ensuring your financial statements communicate your key messages effectively by taking some simple actions to improve the quality of your communications with the

* * *

capital markets. Why the easiest step? Because most of these practical steps require very little management time and often virtually no incremental cost.

Quality not quantity Investors often tell us they don’t want simply more information in annual reports but more effective information. They want to see pertinent, material information that helps them make their investment decisions. Investors tell us there are several notes in the financial statements that can leave them unable to see the wood for the trees. Share-based payments, pensions, financial instruments and hedging notes are the most commonly cited examples. So have a think about what information investors actually need about your company, including in the notes to the financial statements. For example, hedging notes could be made more useful through simple disclosures that focus more clearly on what has been hedged and how. Investors need to understand what exposure you are hedging, at what price, in which currency and for how long. They are trying to understand to what extent gains and losses were affected by derivative profits or losses, and how much profit came from maturing hedges versus marked-tomarket gains and losses.

Clear communication We are seeing an increasing number of companies making great strides in improving the commentary in their financial statements. There is,


for example, a growing trend towards integrating the financial review into the financial statements, bringing key information and analysis together. In a similar vein, we have noted a number of entities experimenting with the way they present their accounting policies – both by making it easier to understand how the policy relates to their business and by placing the policies alongside the relevant notes. Companies are becoming more inventive with their financial statements structures – for example, grouping notes into ‘core’ and ‘other’ – which is another way of signalling management’s focus to the investor that can be very valuable. These are just a few ideas. When I look at company accounts, I start with my checklist of items that investors commonly cite as being frustrating. However, this is an area where common sense goes a long way. If an investor can’t work out the economic reality from the accounting disclosures, then it’s time to revisit your disclosure.

Where are you on your journey? All companies should think about how they can improve their communications with the capital markets. Whether you are taking the first steps along your journey, have specific areas in your financial statements or narrative to improve, or are ready to move to a more integrated approach across all your financial communications, you can make improvements. Alison Thomas is a corporate reporting specialist at PwC. To receive ‘Investor views’ highlighting the financial reporting areas of most interest to investors and how to improve those disclosures, email ‘Subscribe to Investor views’ to

01/08/2012 10:42

Public sector


Local authorities are increasingly using maps to detect fraud by identifying households and organisations not paying council tax or non-domestic business rates. Ordnance Survey mapping data, provided under the Public Sector Mapping Agreement, is used together with addressing analysis from GeoPlace – a partnership between Ordnance Survey and the Local Government Association. GeoPlace’s unique property reference numbers provide an up-to-date database that includes non-addressable premises and properties under multiple occupations. Matching this data against councils’ own council tax and business rates records provides a lists of properties from which no tax is being received. Council tax fraud costs local authorities £131m a year, according to the latest National Fraud Authority’s Annual Fraud Indicator.


The winding-down and closure of the Audit Commission is leading to a big increase in demand for external auditors for the public sector, according to the latest Badenoch & Clark Talent Spotlight report. Simon Crichton, its public sector operations director, said: ‘We have seen a high demand for external auditors needed to perform annual audits of public sector bodies from NHS trusts, to councils and central government NDPBs [non-departmental public bodies].’ There is also higher demand for contract professionals with finance skills.

UK_YPUB_Intro.indd 51


The view from: The voluntary sector: Joe Irvin, chief executive, National Association for Voluntary and Community Action Q Who are your members? A Our members are the support agencies for local charities that deliver important services, often those commissioned by local councils. These range from wildlife parks, to community centres, to promoting public health, to supporting troubled families. Q What shape is this sector in? A Our members are showing real resilience but times are tough; they have been at the brunt of public sector cuts. But most of them are still standing and they are providing a good service. Some – 10% – are thinking of merging and nationally we are discussing a merger with our sister body, Community Matters. There has been a 19% cut in our members’ income in the last year and 40% of our members are making redundancies. Q What about the local charities and community groups themselves? A It varies from local authority to local authority. Newcastle is not untypical, where 60% have suffered loss of income and 18% may close this year. Local authority support has been cut and it is difficult to get money from elsewhere. There has been a shift from giving grants to commissioning contracts. The big charities are usually best placed to win those contracts. Our biggest worry is that the commissioning people in local authorities and elsewhere are not really factoring in social value; a new Act of Parliament will require them to do that. It is also harder to obtain grants from charitable trusts – they, too, have been hit. Q How do you relax? A When I can, I relax with my family. When I get time I like to watch movies or read. And once a week I play five-a-side football – for as long as my ageing bones allow me to do that!

51 Public sector The view from Joe Irvin of NAVCA; fears as first NHS Trust enters administration 41 Practice The view from Olga Nikitina FCCA of Ernst & Young Academy of Business; the pros and cons of franchising 45 Corporate The view from Chris Bull FCCA of Boots UK; getting the price right; a guide to issuing investor-friendly statements 56 Financial services The view from Louise Williams ACCA at BNY Mellon


NAVCA has 360 members, supporting 160,000 local charities and community groups. The combined turnover in 2011-12 was about £125m.

03/08/2012 15:48


Public sector

Bitter pill to swallow South London Healthcare NHS Trust has become the first NHS trust to go into administration. We look at what this means and the implications for the future South London Healthcare NHS Trust has made history – but not in the way that it would wish. It is the first NHS trust to be placed in administration under what is termed the ‘unsustainable provider regime’. Department of Health (DH) official Matthew Kershaw has taken charge of the failing trust and must maintain patient services while developing proposals for a more sustainable model for future healthcare provision. In recent years, the South London trust has been propped up with over £70m a year in emergency funds. Even

and treatments as before. The DH has written directly to the trust’s suppliers reassuring them that all liabilities will be honoured, though confirming that the administration could lead to the trust being wound-up. The trust was created in 2009 through a merger of Bromley’s Princess Royal, Sidcup’s Queen Mary’s and Woolwich’s Queen Elizabeth hospitals. Between the 2006–07 and 2011–12 financial years, the DH provided £356m in additional working capital to the hospitals to cover persistent shortfalls – the shortfall over

‘INITIAL RESULTS SUGGEST THAT PFI IS ONLY PART OF THE PROBLEM. THERE ARE FACTORS LIKE THE DEMOGRAPHICS AND SOCIAL PROFILE IN AN AREA’ if the trust’s financial recovery plan could have been implemented, it would have continued to carry a deficit of up to £75m over the next five years. This was unacceptable to health secretary Andrew Lansley and conflicted with his NHS reform objectives of ensuring stronger financial discipline. Kershaw is highly regarded within the NHS – he is currently acting national director for provider delivery, while on secondment from his post as chief executive of Salisbury NHS Foundation Trust. He has worked for NHS acute trusts and also within the DH at senior policy development levels, supporting NHS trusts to convert to foundation status. Kershaw’s role as administrator of a trust is significantly different from that of an administrator of an insolvent business. The trust is not in administration in a legal sense and insolvency legislation does not apply to an NHS trust. South London will continue to provide the same services

UK_YPUB_trust.indd 52

five years is equivalent to the trust’s approved annual budget. This makes South London the worst financial performer in the NHS. But it is not the only trust in financial difficulty (see box overleaf). Four foundation trusts and 17 NHS trusts have required injections of unplanned working capital from the DH. Barking, Havering and Redbridge University Hospitals NHS Trust received an injection of £195m over five years and most of its directors were replaced after the trust accepted it had not had a sufficient improvement in performance. Lansley argues that two private finance initiative (PFI) contracts for the rebuilding of the Bromley and Woolwich hospitals are the key factor in the South London crisis. The £2.5bn projects cost the trust 14.4% of its total expenditure, with financial commitments that last until 2032. However, research on trusts’ deficits being conducted by the Nuffield Trust shows there are other problems. Its

spokesman explains: ‘The initial results suggest that PFI is only part of the problem. There are more interesting factors like the demographics and social profile in an area. And it has to do with the inability of commissioners to successfully transfer care out to a community. Arguably in South London you have an over-provision of hospitals that goes back a long time and pre-dates PFI.’ A similar point is made by Andrew Street, professor of health economics at York University. ‘We have too many hospitals in the wrong places,’ he says. But while he believes there are other problems, he accepts that PFI is a major factor in South London. Its PFI liabilities were ‘clearly unsustainable’, he says, and the financial projections put forward by the trust to pay for them had been ‘clearly optimistic’. ‘There are two problems with PFI,’ explains Street. ‘It is expensive borrowing through the private markets, rather than through government. The other problem is in terms of which PFI schemes got financed and where they were situated. They were all agreed locally without anyone thinking what do we want our health service to be over the next 15 or 20 years and do we need hospitals at all?’

Debt burden What we are left with, suggests Street, is health provision that suffers from a lack of planning and foresight, with many trusts burdened with unaffordable PFI debt. ‘As a result, some of those schemes will not see enough people through the doors to make them financially viable… We have spent a lot of money on those schemes which it will be impossible to recoup. We almost have to write that off.’ There are no easy solutions to this challenge, Street says, but he advises

02/08/2012 17:04


Residents protest outside the Queen Elizabeth Hospital, part of South London Healthcare NHS Trust. Health secretary Andrew Lansley (left) trusts to negotiate to improve the financial terms on PFI contracts. ‘There is a bit of wriggle room, so we should exploit that,’ he says. This view is endorsed by Stephen Dorrell, a former Conservative health secretary and now chair of the House of Commons’ health select committee. He told Accounting and Business: ‘PFI investors expected to make a profit if their investment performed well. In that context it seems to me entirely reasonable for PFI investors in projects which went wrong to be expected to bear their share of the losses.’ But Street goes further than this, suggesting that the structure of the NHS reforms should also be reviewed. The use of Payment by Results creates an incentive to treat patients within hospitals, where that may not be the best or most cost-effective approach. As far as the reforms are concerned, Street argues: ‘The market doesn’t work and there isn’t a pure market… You do need to plan the provider side and that seems to have been ignored by successive governments. I don’t see the current reforms sorting things out.’ This leaves Kershaw with a very difficult challenge. He must produce a

UK_YPUB_trust.indd 53

secretary believes its clinical outcomes are also inadequate.

Huge job

draft report by the end of October – when it will be published in parliament – containing an assessment of the overall problems and suggesting possible solutions. This will then go for consultation with patients, staff and the public, with a final report to go to the health secretary by January of next year. A final decision on the necessary action is scheduled for the beginning of February. In tackling this, he will be supported by experts from the DH and an independent clinical panel. While the trust insists that its problems are financial and not clinical – arguing that its clinical performance meets the highest standards – the health

Lansley recognises that he is giving Kershaw a tough job. ‘This will be a big challenge and my key objective for all NHS trusts is to ensure they deliver high-quality services to patients that are clinically and financially sustainable for the long term,’ says Lansley. ‘Although there have been some improvements in mortality rates, maternity services and infection control, and some early signs of improvements in waiting times, they do not go far enough. It will be impossible for South London to build on these improvements while tackling such a large deficit.’ Kershaw adds: ‘There have been some recent improvements in clinical standards at the trust but these are not being delivered within budget. The trust is overspending by £1.3m each week, meaning vital resources are being diverted away from other services and communities – this is not acceptable or fair.’ The use of an administrative procedure offers the chance of a

02/08/2012 17:05


Public sector

welcome new start, says Richard Fleming, KPMG’s UK head of restructuring. ‘In the private sector, an administration is an important mechanism for making tough decisions to address a severely financially distressed company’s problems,’ he argues. ‘We expect this to be true of health special administrations as well, where the regime seeks to safeguard patient care as a priority but also allows the special administrator to address the most difficult financial challenges.’ But Fleming warns that, as with business administration, an NHS trust administrator must have the capacity to make changes quickly if an effective turnaround is to be achieved. And, as a succession of health secretaries have found to their cost, fast change is one thing that has consistently seemed impossible to achieve in the NHS.


ACCA recently carried out a survey of members working in senior finance professional roles in the health service about what they think of the NHS reforms. Here are some of the findings. More at 1 What is your overall view of the NHS reforms in England? (123 respondents)



Very negative



Neither negative nor positive

2 What are the main benefits of the NHS reforms? (120 respondents)




Very positive

3 What are the main disadvantages of the NHS reforms? (123 respondents)

Paul Gosling, journalist

UK_YPUB_trust.indd 54

Potential for inequity in service provision


Increased bureaucracy


Increased financial risk


More decision-making powers for clinicians


Decision-making closer to patient



A National Audit Office (NAO) report, Securing the Future Financial Sustainability of the NHS, published in July found 21 trusts to be in severe difficulty and these received £1bn in additional cash support in 2011–12. Yet across all trusts there was a surplus of £2.1bn. This underlines what the NAO describes as ‘a large gap between the strongest and weakest NHS organisations’, which was ‘particularly marked in London’. Reforms introduced by the current and previous government are helping to highlight which trusts are financially unsustainable and forcing action to be taken where overspends are persistent. Amyas Morse, comptroller and auditor general, explains: ‘For value for money to be delivered, two things are required: firstly, management of the risks created by transition to a new commissioning model; and, secondly a coherent and transparent financial support mechanism which outlines when trusts should be supported, or allowed to fail.’

Closer clinical involvement in commissioning


02/08/2012 17:12

ACCA’s Accounting for the future is a worldwide event exploring the role finance professionals will play in building a stronger and sustainable global economy. ACCA champions the connected accountant and over five days we will harness the latest technology to bring together finance professionals from around the world to share and learn from their peers. Our experts will share with you the latest insights on how businesses and the corporate sector need to adapt to meet the future needs of stakeholders, regulators, the economy and the environment.


Financial services

The view from: Banking: Louise Williams ACCA, senior financial analyst, BNY Mellon Q What does your role involve? A I work in financial planning and analysis, supporting one of BNY Mellon’s investment management businesses. I’m responsible for forecasting, planning and reporting of revenue, expenses and other key metrics to both the group and the business. I also provide finance support for project managers throughout the life of our many diverse projects. This includes ensuring the correct accounting treatment of development costs in accordance with corporate policy. Our team also acts as a main contact between the business and our many finance functions, and we get involved in anything from audit to ad hoc projects and analysis.

56 Financial services The view from Louise Williams ACCA at BNY Mellon 41 Practice The view from Olga Nikitina FCCA of Ernst & Young Academy of Business; the pros and cons of franchising 45 Corporate The view from Chris Bull FCCA of Boots UK; getting the price right; a guide to issuing investor-friendly statements 51 Public sector The view from Joe Irvin of NAVCA; fears as first NHS Trust enters administration

HSBC has admitted that it faces substantial financial penalties for money laundering. The global bank first admitted in 2010 that it had failed to provide adequate controls to prevent criminals using its international network to transfer funds into the US and elsewhere. At a US Senate hearing into money laundering, HSBC’s head of compliance, David Bagley, dramatically resigned. In a statement ahead of the hearing the bank said: ‘We acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect.’ Investigators believe that a Mexican subsidiary of HSBC moved billions of dollars of proceeds from drug trafficking into the US. HSBC says it has substantially reformed its operations, with a stronger global structure to ensure compliance control and risk management at subsidiary operations.

Q What has been your proudest achievement so far? A Apart from becoming an ACCA member last year, I’m proud that I’ve worked hard to continually develop myself over the past few years so I’ve been able to take on more responsibility and more senior roles over time. Q How does BNY Mellon support your career/ professional development? A BNY Mellon is an ACCA Approved Employer and is committed to providing professional development opportunities for both members and trainees. We take part in a yearly programme of technical updates, and soft-skill courses are also offered. Employees are also encouraged to take part in the annual finance mentoring programme. I took part last year and found it very rewarding. Q What would you be if you weren’t an accountant? A When I was younger I spent a summer working as a BBC researcher which I really enjoyed, so maybe I would be pursuing a career in media! The good thing about being an accountant is that you have the opportunity to work in a wide range of interesting and diverse industries.


Short CV: Chantrey Vellacott DFK, British Airways, BNY Mellon Interests: Tennis, travelling the USA, dogs!

UK_YFIN_Intro.indd 56



The Serious Fraud Office (SFO) has agreed to launch a criminal investigation into the London Interbank Offered Rate (Libor) attempted fixing scandal, following the agreement of the government to provide additional funding. The SFO made its announcement after Barclays admitted providing false information in its returns that contributed to the Libor interest rate-setting process. Barclays was fined £59.5m by the Financial Services Authority after the bank admitted malpractice and a further US$200m by US regulator the Commodity Futures Trading Commission.

03/08/2012 16:07

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03/08/2012 15:23


Technical update

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

AUDIT IAASB STANDARDS The International Auditing and Assurance Standards Board (IAASB) has issued its 2012 handbooks: Handbook of the Code of Ethics for Professional Accountants and International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements. Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements. They replace the 2010 editions of the handbooks. The 2012 Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements includes, in volume 1, details of changes to IAPN 1000, ISA 315 (Revised) and ISA 610 (Revised), and, in volume 2, ISAE 3410, ISAE 3420, and ISRS 4410 (Revised). There is also a changes of substance document which provides an overview of the changes from the 2010 handbook. These can be downloaded from d6hsywx and http://tinyurl. com/c6jysb4



REPORTING IMPROVEMENTS An invitation to comment (ITC) on improvements to

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auditor reporting is open for comment until 8 October and sets out the IAASB’s suggested improvements to audit reports (see box, p61). It provides the following: An improved auditor’s report. Questions. A summary of the board’s rationale. Explanation of how the IAASB’s suggested improvements to auditor reporting could be tailored to accommodate national financial reporting regimes. The illustrative three-page auditor’s report to shareholders is set out with the following paragraphs: Opinion. Basis of opinion. Going concern. Auditor’s commentary. Other information. Respective responsibilities of management and auditors. Report on other legal and regulatory requirements. The going concern illustrative paragraph is used to highlight the use of going concern assumptions and to bring to the user’s attention the auditor’s conclusion on the appropriateness of management’s use of the going concern assumption. There is an explicit statement as to whether material uncertainties in relation to going concern have been identified. Appendix 2 provides examples of how the illustrative auditor’s report would be tailored in relation

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to going concern or other information in certain circumstances. The auditor’s commentary illustrative paragraph highlights the matters that, in the auditor’s judgment, are most important to users’ understanding of the financial statements. One of the examples given is the audit strategy relating to the recording of revenue, accounts receivables and cash receipts. The example highlights a new system that is in use, its impact and importance, the effect on the audit strategy and how those charged with governance have considered the change. You can find the ITC at RBS/NATWEST LETTERS RBS experienced problems with a systems update which started on 19 June. This affected a limited number of accounts over 30 June – a year-end date for some customers. The bank has decided, after advice from ACCA, to continue to issue bank audit letters with the information that was actually held on customers’ accounts on that date. For most auditors this will be sufficient. For the majority of accounts there will be no effect and the actual balance for 30 June will be reflected. However, auditors will need to review the post year-end cut-off work undertaken by the client. If considered necessary, the auditor can seek clarification from RBS and NatWest in respect of

transactions recorded through the account during that period. For further information and comment on the impact on solicitors’ reports under Solicitors Accounts Rules visit uk/members/technical

FINANCIAL REPORTING IFRS FOR CHIEF EXECUTIVES The IFRS Foundation has made the following available: IFRS: A Briefing for Chief Executives, Audit Committees and Boards of Directors 2012. The briefing, written in non-technical language, aims to help chief executives, members of audit committees, boards of directors and others who want a broad overview of International Financial Reporting Standards (IFRS). It summarises all standards issued at 1 January 2012 including those with an effective date after 1 January 2012, and highlights the significant changes in 2011 to the new standards, IFRS 10, 11, 12 and 13, together with the revisions to IAS 19, 27 and 28. IFRSs 10, 11 AND 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12), has an effective date of 1 January 2013. In its commentary the IASB states that the ‘amendments also provide additional transition

02/08/2012 15:21


relief in IFRS 10, IFRS 11, Joint Arrangements, and IFRS 12, Disclosure of Interests in Other Entities, limiting the requirement to provide adjusted comparative information to only the preceding comparative period’. It has also published online revised unaccompanied standards for IFRSs 10, 11 and 12. For more, go to www2. members/technical FRC REFORM The structure and functions of the Financial Reporting Council (FRC) have changed. The changes aim to simplify the FRC’s structure and enable it to operate as a unified regulatory body, with enhanced independence and a more proportionate range of sanctions. As a result of the reform, the FRC board has taken over a number of responsibilities that were previously delegated to its various operating bodies. In particular, the board will now be responsible for issuing and amending UK accounting, audit and actuarial standards, as well as updating the UK corporate governance and stewardship codes. Under the new structure the board is supported by three committees: a Codes and Standards Committee (CSC), a Conduct Committee (CC) and an Executive Committee. As a result the FRC’s activities are now grouped around codes, standards and conduct.

UK_T_update.indd 59

The CSC is supported in its own right by three councils: the Accounting Council, which covers both accounting and narrative reporting, the Audit and Assurance Council and the Actuarial Council. Notwithstanding the reform of the FRC’s structure and functions, the existing body of accounting, audit and actuarial standards, codes, guidance and proposals issued by the former operating bodies of the FRC remains in force. The FRC’s new organisational structure can be viewed at About-the-FRC/FRCstructure.aspx Its website has also been completely overhauled and the micro-sites for the various operating bodies (ASB, APB, POB, FRRP etc.) have been removed. However, all pre-existing publications and documentation, such as accounting and auditing standards, bulletins and practice notes are still available on the main site. For more, go to www2. members/technical DIRECTORS’ REMUNERATION The government published a consultation on the draft regulations determining what companies must disclose in pay reports. The impact could be significant for a large number of companies, especially large and medium-sized ownermanaged businesses. The consultation on the draft regulations closes on

26 September and it’s proposed that any changes would be expected to come into effect from October 2013. The draft regulations provide that the remuneration report shall be in two parts: a policy report and implementation report. The policy report will set out the company’s forward-looking policy on remuneration and potential payments. Once the policy is approved by shareholders, the company will only be able to make payments within the limits it allows. An implementation report. The consultation proposes that companies will continue to report annually on the actual payments made to directors and that the implementation part of the report will include information in a prescribed form. Companies will also be required to report on whether they have taken steps to seek the views of their workforce. For more, go to www2.


* members/technical

TAX THE TAX RETURN CAMPAIGN The tax return campaign doesn’t have long to run as outstanding returns, together with any outstanding amounts due, need to be submitted to HM Revenue & Customs (HMRC) by 2 October 2012. This campaign, rather than being aimed at an industryspecific group, is aimed at higher-rate taxpayers, helping them to bring their tax affairs up to date. The main target is employed or self-employed higher-rate taxpayers, who should have returned other forms of income, such as bank interest or dividends and accordingly paid higher rate tax through selfassessment, but who have not done so. It applies for tax years up to and including 2009–10. The campaign targets both taxpayers who have been asked to submit returns and those who have not. It is interesting to note that the

02/08/2012 15:22


Technical update

You can send your comments on any of the above to advisory@uk.

The Finance Act introduces a high income child benefit charge

scheme applies to nonsubmission of returns already issued to the taxpayer for submission. This is a new feature. Previous campaigns targeted offshore investments, medical professionals, private tutors and coaches, plumbers, electricians, VAT defaulters and online traders. According to HMRC, these campaigns have so far yielded nearly £510m from voluntary disclosures and over £120m from noncompliance follow-up from a large number of civil interventions, including over 18,000 completed investigations. HMRC has also said that there are criminal cases underway. You can read more about the advantages of disclosure, the consequences of nondisclosure and details on previous HMRC campaigns at www2. CONSULTATIONS There a number of consultations closing in September and October. One of note is the Proposed

UK_T_update.indd 60

Changes to ESC A19. Extra-statutory concessions apply where an equitable solution is required to correct a gap in tax law. In other words, they apply where the strict application of the law would produce an inequitable result. One of the more popular concessions is A19 which applies where HMRC has received information from a taxpayer and failed to act on it within a reasonable time. In such a case, the outstanding tax would be written off. HMRC has issued a consultation document seeking to: Introduce the concept of ‘taxpayer responsibilities’ in respect of claims against the recovery of underpaid income tax in line with the HMRC charter. Remove reference to capital gains tax (CGT), on the basis that the requirement for individuals to self-assess for CGT makes the concession redundant. Current consultations can be found at http://tinyurl. com/cjrvf9x



FINANCE ACT AND CPD The Finance Bill received Royal Assent in July. There were a few amendments to the bill during its progress and there are some areas that impact taxpayers in their day-to-day work. A Finance Act 2012 CPD article is available at www. It explores the 229 sections and 39 schedules contained within the act. It revisits the enterprise initiatives, including 50% tax relief from the Seed Enterprise Investment Scheme (SEIS), looks at research and development (R&D) and focuses on the clawback of child benefit via tax coding changes triggered when net income exceeds £50,000. Some of the main schedules covered are: Schedule 1: High income child benefit charge when net income exceeds £50,000. Schedule 3: Relief for expenditure on R&D. Schedule 6: SEIS income tax relief in respect of amounts subscribed by individuals for shares in companies carrying on a new business. Schedule 7: Enterprise investment scheme. Schedule 8: Venture capital schemes amended. Schedules 30 to 32: Climate change levy. Schedule 35: Stamp duty land tax – higher rate for

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* * * *

certain transactions. Schedule 38: Tax agents; dishonest conduct. Sets out the process for establishing whether someone has engaged in dishonest conduct, gives power to HMRC to obtain relevant documents, sets out sanctions and penalties for engaging in dishonest conduct and appeals process. You can find Finance Act 2012 guides, including guides to SEIS and other enterprise initiatives at


REAL TIME INFORMATION HMRC has stated that it has agreed to allow ‘new PAYE schemes which are set up after November 2012 [and] existing employers who in 2012–13 either become clients of pilot software providers, bureaux or agents or whose provider etc makes pilot software available for Real Time Information (RTI) to start sending PAYE information in real time from November 2012 as part of the pilot’. The note goes on to say that ‘new PAYE schemes set up from November 2012 should start submitting RTI from the time they register the scheme where the employer/pension provider uses RTI-enabled software or HMRC’s Basic PAYE Tools. This will enable them to start operating PAYE in real time from the outset rather than having to operate the current PAYE system for the first few months they are in business, only to then change to reporting in real time in April 2013’.

02/08/2012 15:22

MOTORING EXPENSES HMRC has issued an updated notice 700/64. It replaces the earlier notice from November 2011. The linked website areas contained in the notice have been updated to reflect changes in advisory fuel rates. The notice can be found at bosxl3q NATIONAL INSURANCE Revenue & Customs Brief 19/12 highlights the national insurance contributions decision following the Upper Tribunal decision in the case of ITV Services Ltd. The UT decision is that where actors’ contracts provide for remuneration by way of salary there is a liability for Class 1 National Insurance contributions (NICs) under the regulations on all the remuneration payable under the contract types. In the brief, HMRC highlights that at the ‘time the regulations were introduced it was accepted that a small number of highly-paid celebrity entertainers referred to by the entertainment industry as Key Talent or Marquee Talent, would be excluded because they did not need earnings-related contributory benefit protection’. It now states that it expects ‘those in the industry engaging entertainers to comply with the Tribunals’ decisions’ and national insurance will need to be paid. The brief highlights that the decision

UK_T_update.indd 61


The main topic of the recent International Auditing and Assurance Standards Board (IAASB) meeting in Edinburgh was auditor reporting. A great deal of work had been undertaken by IAASB’s task force and working groups to agree key principles on the structure and content of the proposed auditor’s report in advance of the June meeting. As a result, the IAASB was able to debate and approve a wide-ranging invitation to comment (ITC) document which was issued shortly after the meeting. Much of the discussion in forming the final ITC focused on the proposals for: Additional auditor commentary on key areas – specifically the types of matters that might be included and what the auditor might actually say. The ITC contains a range of options, with a discussion of the relative value and potential impediments of each, in order to prompt feedback. Conclusion and/or commentary on going concern and a statement in the auditor’s report of whether any material uncertainties have been identified. This is an area where the IAASB is keen to respond to concerns raised following the global financial crisis. Flexibility within the illustrative auditor’s report to accommodate requirements within different jurisdictions, while retaining the consistency needed from a global standard. The IAASB plans a range of awareness and outreach activities in advance of the response date of 8 October to yield stakeholder input. The IAASB also approved the final version of ISRE 2400 on review engagements, which will become effective for periods ending on, or after, 31 December 2013. The final standard will be released in late September 2012, following Public Interest Oversight Board approval. This standard is timely given the many jurisdictions that are introducing, or increasing, the audit threshold and therefore considering alternative assurance products. The IAASB plans to monitor global adoption of ISRE 2400 and potentially review it in future in the light of practical feedback.




Sue Almond, technical director, ACCA

02/08/2012 16:12


Technical update

can apply retrospectively and explains how HMRC will seek to apply it. The Employment Status Manual 4147 has been updated to reflect the UT decision. For more, go to

FINANCE ADVICE SCHEME The aim of the Business Finance Advice service, launched by ACCA and other professional bodies in association with the Department for Business, Innovation and Skills (BIS), is to help educate businesses so that they are equipped to ask the right questions when it comes to accessing finance. To join this free scheme, all ACCA members in practice are required to complete an opt-in form, which lists four specialisations: Business plans. Business start-ups. Small scale equity issues. Bank loans and overdrafts. Find out about the scheme and how you can use the new accreditation at www2. members/technical

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LOAN GUARANTEE SCHEME The National Loan Guarantee Scheme (NLGS) has been usurped by the Funding for Lending Scheme (FLS), except that some banks continue to offer NLGS. The FLS is open for the next 18 months and is made to banks for a four-year period to pass

UK_T_update.indd 62

to its customers. Read more about the scheme at members/technical

LAW EMPLOYMENT FACTSHEETS Revised employment law factsheets are available at law. They include model contracts and policy statements and have been updated for recent employment tribunal findings and changes to regulations. ANNUAL LEAVE The case of Anderson and others v Resource (UK) Ltd considered the rights of employees to statutory leave. The company informed the claimants ‘that they would not be getting their 28-day entitlement to annual leave as they had received double pay for working specific public or bank holidays’. The case states that the ‘respondent knew that the reduction in leave meant that the basic entitlement to 28 days’ leave would be reduced’. The Northern Ireland industrial tribunal found this to be a breach of the right to a minimum of 28 days’ annual leave. In a unanimous decision the tribunal awarded compensation for breach of their right to annual leave. The industrial tribunal case references are 1553/11, 1572/11, 1428/11 and 1555/11 and refer to William Anderson, Alistair Campbell, Stephen Whitley v Resource (UK) Ltd.

SUPPLY OF GOODS, SERVICES AND DIGITAL CONTENT The consultation on the supply of goods, services and digital content closes on 5 October. It seeks comment on simplification and clarification of the law surrounding the supply of goods and services. The proposals aim: To increase growth, by reducing the burden on business of over-complex law and increasing consumer confidence. To promote fairness, by enabling consumers to understand and assert their rights when they buy substandard goods, services or digital content. In the provision of services section the aim is to bring the services regime ‘more in line with goods by introducing a statutory guarantee and statutory remedies which a service provider would have to offer when the service was inadequate’. For more, go to http:// You can also view an outline of the proposals at h3xqd9atNzM

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REGULATION CHANGES The government has published its summary of the regulations it intends to introduce between July and December 2012. This can be found at br778e7 The more detailed changes can be found in the departmental proposals. BIS and the Department for Work and Pensions highlight,

among other changes due in October, the following: Simplification of the process for businesses registering and renewing trademarks with the Intellectual Property Office. This was an April 2012 change, but was delayed until October 2012 to allow stakeholders adequate time to prepare. Allowing specified companies, over a three-year period, to change their accounting principles from US or Japanese generally accepted accounting principles (GAAP) to UK GAAP or International Accounting Standards. Giving companies more flexibility to switch their accounting framework from International Financial Reporting Standards (IFRS) and UK GAAP. Aligning the UK audit and certain financial reporting requirements with existing EU law to permit more small companies and UK subsidiary companies to opt out of annual audit and certain financial reporting requirements for dormant subsidiary companies. The DWP summary contains many workplace pension reform changes. View it at http://tinyurl. com/cfr6bgq and http://





Other technical updates are available at www2. members/technical

02/08/2012 15:22

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More questions than answers The publication of non-binding Q&A guidance for users of the International Financial Reporting Standard for SMEs has raised eyebrows in some quarters, says Graham Holt

The SME Implementation Group (SMEIG) is a forum that considers implementation questions raised by users of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). It has published implementation guidance as a series of questions and answers. This article will detail the final published questions and answers to date.

Parent entities In some countries, parent entities prepare separate financial statements as well as consolidated financial statements. The first SMEIG Q&A was whether a parent entity, which is required to present consolidated financial statements in accordance with full International Financial Reporting Standards (IFRS), can present its separate financial statements in accordance with the IFRS for SMEs. The IFRS for SMEs is intended for non-publicly accountable entities that publish general-purpose financial statements for external users. If a parent entity does not itself have public accountability, it can present its separate financial statements in accordance with the IFRS for SMEs even if it presents its consolidated financial statements in accordance with full IFRS. The parent may use the IFRS for SMEs in its separate financial statements on the basis of its own public accountability without considering other group entities.

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A parent entity has public accountability where its own debt or equity instruments are traded in a public market (or it is in the process of issuing such instruments for trading in a public market) or it holds assets in a fiduciary capacity for a ‘broad group of outsiders’ as part of its main business. If a publicly accountable entity applies the IFRS for SMEs in its financial statements, it cannot describe those financial statements as complying with the IFRS for SMEs. However, a subsidiary that is part of a group that uses full IFRS is not prevented from using the IFRS for SMEs in its own financial statements as long as it does not have public accountability.

Public accountability The IFRS for SMEs identifies banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks as examples of the type of entity that ‘typically’ holds assets in a fiduciary capacity for ‘a broad group of outsiders’ as part of its main business. The second SMEIG Q&A was whether all those types of entities could automatically be assumed to have public accountability. There is no simple answer here, as judgment will be required to assess whether entities have public accountability. Part of the definition of public accountability relates to the ability of external parties that make economic decisions to demand reports

tailored for their particular information needs. Typically, depositors in banks, holders of shares in mutual funds, etc, are not in a position to demand such reports, so the entity is presumed to have public accountability even if it holds the assets for only a short time. ‘Broad group’ implies that the involvement of only a few individuals would mean that the entity would not be considered publicly accountable. However, there is no simple rule on what constitutes a broad group and so judgment will again be necessary.

Trading in a public market The third SMEIG Q&A continued with the theme of public accountability by considering how broadly ‘traded in a public market’ should be interpreted. Did it refer only to regulated markets or did it also cover other markets such as growth share markets and overthe-counter markets? ‘Public market’ is defined in the IFRS for SMEs as ‘a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets’. The definition includes all markets that bring together those capitalseeking investors that are not involved in managing the entity. The market must be accessible by a ‘broad group’ of investors. If the exchange is simply between parties involved in managing the entity, the market is not public. Advertising by a shareholder does not, by itself, create a public market; neither does the availability of a

02/08/2012 15:27

TO GET THE QUESTIONS GO TO financialreporting

Helen Brand Chief executive ACCA

A PARENT ENTITY MAY USE THE IFRS FOR SMEs IN ITS SEPARATE FINANCIAL STATEMENTS ON THE BASIS OF ITS OWN PUBLIC ACCOUNTABILITY published price mean that an entity’s debt or equity instruments are traded in a public market. There is no definition of ‘public’ in the IFRS for SMEs but it is usually considered to mean affecting a community as a whole; as set out above, it could be open to a broad group of outsiders, even if trading is infrequent.

Exemptions There are a number of exemptions in the IFRS for SMEs on the basis of ‘undue cost or effort’ or because the requirement is ‘impracticable’. The ‘impracticable’ exemption applies where an entity cannot apply it after making every reasonable effort to do so. However, ‘undue cost or effort’ is not defined and SMEIG was asked to explain the term. It involves a consideration of how users’ economic decisions could be affected by the non-availability of information and so requires judgment. ‘Undue cost or effort’ is specifically applied for some requirements but not all. Where ‘undue cost or effort’ is used in conjunction with ‘impracticable’, the application of the standard should be as if ‘undue cost or effort’ had been used on its own. The definition of ‘impracticable’ in

UK_INT_T_HoltCPD.indd 53

the IFRS for SMEs is the same as under full IFRS and refers to effort and not cost. The inclusion of ‘undue cost or effort’ for certain requirements in the IFRS for SMEs is intended to point out that cost is a consideration. The International Accounting Standards Board (IASB) feels that a requirement would result in ‘undue cost or effort’ where the cost or the employee effort would be excessive in comparison with the benefits gained by users of the SME’s financial statements from having that information.

Which IFRS? Often a jurisdiction will require that a certain recognition and measurement policy is followed that is dealt with in full IFRS and not specifically covered by the IFRS for SMEs.The question then arises as to whether the SME in that jurisdiction can state compliance with the IFRS for SMEs. In the absence of specific requirements in the IFRS for SMEs, management must use its judgment in adopting a reliable and relevant accounting policy. The IFRS for SMEs sets out the following hierarchy to help decide the appropriate accounting policy to use: A) the requirements and guidance in the IFRS for SMEs dealing with

Dean Westcott President ACCA

Register and watch Helen and Dean answer your questions ACCA Engage 10 September 2012

02/08/2012 15:28



SOME BELIEVE NON-BINDING GUIDANCE IS INCONSISTENT WITH THE OBJECTIVE OF A SINGLE, STABLE, STANDALONE STANDARD FOR SMEs similar and related issues; and B) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses and the pervasive principles in the standard. The IFRS for SMEs also states that management may also consider the requirements and guidance in full IFRS that deal with similar issues providing that they do not conflict. This requirement does not allow a free choice to apply full IFRS requirements when there is a specific requirement existing in the IFRS for SMEs. If the IFRS for SMEs contains different guidance to full IFRS, the entity will not be able to state compliance with the IFRS for SMEs unless the effect is immaterial.

IAS 39 vs IFRS 9 A related question has arisen with IAS 39, Financial Instruments: Recognition and Measurement. The IFRS for SMEs gives an entity the option of applying the recognition and measurement provisions of IAS 39 to all of its financial instruments instead of following the SME standard. The question arises as to whether an entity can choose to apply the provisions of IFRS 9, Financial Instruments. The IFRS for SMEs refers specifically to IAS 39

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and thus SMEs are not permitted to apply IFRS 9. The reason for this is that the use of IFRS 9 by SMEs would require a change to the IFRS for SMEs. The IASB intends to undertake a thorough review of the IFRS for SMEs and at that time it will also consider new and amended IFRSs that have been issued since the IFRS for SMEs was published, including the requirements of IFRS 9. The review is expected to be completed in 2014, so changes to the IFRS for SMEs would most probably be effective at a similar time to the effective date of IFRS 9. If an SME follows the recognition and measurement principles of IAS 39, there is a requirement that exchange differences arising on translation of a monetary item that forms part of a reporting entity’s net investment in a subsidiary should be recognised initially in other comprehensive income and be reported as a component of equity. The standard prohibits those cumulative exchange differences from being recognised in profit or loss on disposal of that net investment. Similarly, exchange differences arising on translation of a foreign subsidiary should be recognised in other comprehensive income but the standard does not mention recycling to

profit or loss on disposal. The question arose as to whether the cumulative exchange differences arising on translation are prohibited from being recognised in profit or loss on disposal of the subsidiary. The IASB has decided to prohibit all cumulative exchange differences recognised in other comprehensive income from being reclassified to profit or loss on disposal of the subsidiary. This requirement is a difference from full IFRS, and was drafted in order to eliminate the burden for SMEs of tracking the exchange differences after initial recognition.

Inconsistency The provision of non-mandatory implementation guidance by the IASB on the IFRS for SMEs has not been without critics. Some believe it is inconsistent with the objective of having a single, stable, standalone standard for SMEs. The IASB has recognised that providing less guidance than for full IFRS makes for greater diversity in practice on issues that were not addressed. By trying to remedy this, with non-binding questions and answers, it could be seen as calling into question the basic design of the standard and diluting the power of a single standard. 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

02/08/2012 15:28



Accounting solutions In this month’s column, PwC authors answer technical questions on accounting for recharge payments, and supplier finance arrangements



ABC plc has granted rights over its listed shares directly to employees of its subsidiaries in exchange for employee services. ABC plc received a recharge payment from the subsidiaries, which is based on the IFRS 2 grant date fair value. How should ABC plc entity and the subsidiaries account for the recharge? IFRS 2, Share-based Payments, makes it clear that the accounting requirements for group share-based payment schemes apply regardless of whether a recharge arrangement is in place or not. So, initially you need to consider the accounting for the share-based payment award and then subsequently consider the recharge. In the individual subsidiary accounts, the share-based payment arrangement is accounted for as an equity-settled award, as the parent company (ABC plc) has the obligation to settle the award. The related credit to equity reflects the capital contribution received from the parent. In ABC plc’s individual entity accounts, there is an increase to the investment in the subsidiary to reflect the capital contribution and a credit to equity. IFRS 2 does not address the accounting for recharges; however, an illustrative example included in the IFRIC exposure draft D17 did consider the issue. In our view, because the recharge is directly linked to the sharebased payment charge, the recharge should follow the capital contribution in the individual financial statements of the subsidiaries’ and of ABC plc’s individual entity accounts. Any excess recharge above the value of the capital contribution is treated as a distribution. Accounting for the capital contribution and for the recharge are two separate transactions and should be disclosed


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gross in the financial statements, rather than offset. Accounting for a payment that is not directly linked to the award would result in an expense being recognised in the income statement for the amount recharged, in addition to the expense for the share-based payment.


ABC Ltd and its suppliers enter a finance arrangement with a bank. ABC’s existing payment terms policy is to pay invoices after 90 days. The bank will pay ABC’s suppliers the invoice amount less a fee before the due date. ABC will pay the bank the full amount of the invoices on the original due date. Does ABC need to derecognise its original liability and recognise a liability for an amount owed to the bank?

IAS 39, Financial Instruments: Recognition and Measurement, states that a liability should be derecognised if it is extinguished (that is, the obligation is discharged, cancelled or expired) or when its terms are substantially modified. If ABC has been legally released from its obligation to pay its suppliers, this would lead to an extinguishment. In other cases, quantitative and qualitative factors should be considered. Although IAS 39 paragraph AG62 prescribes the use of a quantitative 10% test (the discounted present value of the new and the old liability differs by more than 10%), this threshold is not usually met. Qualitative factors could include (but are not limited to): What was the purpose of entering into the arrangement? Will the arrangement affect the timing of ABC’s cashflows? Does ABC make additional interest payments? Indicators of extinguishment could be: the arrangement is to improve ABC’s working capital; ABC selects which suppliers should be part of the scheme; ABC agrees to pay interest to the bank for any late payments. If the trade payable is derecognised, a new liability to the bank should be presented as bank financing or another suitable heading. If the liability continues to be recognised, ABC may consider presenting the trade payables, subject to supplier finance arrangements, in a separate line item in order to faithfully represent the effect of the transaction. This month’s solutions were compiled by Michelle Millar, Harivadan Patel and Iain Selfridge of PwC’s Accounting Consulting Services

PwC’s Illustrative IFRS corporate consolidated financial statements for 2012 year ends is due out this month. Copies are available to order from

02/08/2012 16:00



Accountants in crime-fight frontline Revised global recommendations give practitioners an increased role in the crackdown on money laundering, terrorism financing and tax evasion, says ACCA’s John Davies One of the very tangible ways in which practising accountants serve the public interest is as gatekeepers in relation to financial crime. Many accountants have by now come to accept that the regulatory obligations they have in this area are not only unavoidable but even helpful; first because they reinforce the status of accountants within society as responsible and trusted intermediaries, and second because the obligations act as an active deterrent to clients or prospective clients who might otherwise try to involve their professional advisers in their own criminal activities.

the economic downturn affecting Europe and North America, KPMG found a steady rise in the incidence of fraud and concluded that 80% of business fraud is committed by employees and managers, often taking advantage of weak controls and defective processes of detection. Bribery and corruption is another area of crime thought to be exacerbated by a harsh economic climate. Despite the well-publicised case of Siemens, which was forced to pay a record $1.34bn in fines by courts in Germany and the US for a series of bribery offences, a survey published in May 2012 by Ernst & Young found that

issued by the Financial Action Task Force (FATF), the global body charged with monitoring trends in financial crime and with developing anti-money laundering and counter-terrorism financing (AML/CTF) measures. The latest set of recommendations, only the third revision since they first appeared, in 1990, imposes significant new expectations on governments to address emerging macro factors, including countering the proliferation of weapons of mass destruction and carrying out national risk assessment procedures to lay the foundation for focused remedial measures. The revised recommendations incorporate a number of changes which stand to have a direct effect on practitioners and their work, as follows.


Client due diligence

The world at the moment is a dangerous and unstable place on many fronts. The international community still faces serious threats from terrorism and the spread of weapons of mass destruction. The depressed state of the global economy is also imposing highly competitive pressures on individuals and businesses alike, and very often the pressures on both are liable to interact. KPMG’s latest UK fraud survey suggests that recorded fraud in 2011 exceeded £3.5bn in total, with fraud by company management up by 74%. Even in Australia, which has escaped

There is only a minor change made to what for most practitioners is the key area of client due diligence (CDD) – namely, the standard range of circumstances in which CDD procedures must be performed and the steps that need to be carried out in those circumstances. Formerly, parties were required by FATF only to obtain information on the purpose and intended nature of a business relationship. The new wording commits regulated parties expressly to understand its purpose and intended nature. The revised wording makes it more explicit that the point of the exercise is

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a staggering 54% of UK executives would not rule out engaging in unscrupulous or illegal behaviour, such as misstating financial statements or providing personal gifts or cash to secure business; the number of respondents prepared to offer bribes had almost doubled in two years. This is despite the introduction in the UK of legislation that exposes companies to criminal penalties if any of their employees, subsidiaries or intermediaries offer or pay bribes. This developing context has now been reflected in the latest version of the authoritative recommendations

03/08/2012 16:36


not solely to ask for information about the client’s intentions but also to understand those intentions; it also implies that the amount of information to be asked for should be in proportion to what the nature and purpose of the relationship is understood to be.

Politically exposed persons The recommendations already cover politically exposed persons (PEPs) to the extent that they come from a different jurisdiction than the one in which the practitioner operates. So, for example, a senior politician or military figure from a foreign country (who is a prospective customer or a beneficial owner) should be regarded as a PEP and so subject to ‘enhanced’ due diligence (EDD). The revised recommendations strengthen the PEP provisions with a new reference to domestic PEPs. Practitioners must now take ‘reasonable measures’ to determine whether a prospective domestic customer or beneficial owner is a domestic PEP (or a person entrusted with a prominent function by an international organisation). Where the prospective relationship is considered higher risk, practitioners are required to apply the EDD measures. Revised recommendation 12 provides that the measures to be taken for both foreign and domestic PEPs should be extended to family members and close associates of the PEP concerned. This includes gaining senior management approval for dealing with

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them, carrying out reasonable inquiries to establish the source of their wealth, and undertaking enhanced ongoing monitoring of the relationship.

Groups Networks of professional firms are covered by a new recommendation to implement group-wide programmes against money laundering and terrorist financing. These should include policies and procedures for sharing information within the group for AML/CFT purposes. Group-wide arrangements could prove particularly advantageous in terms of placing reliance on CDD information acquired by third parties. Where a group as a whole adopts policies which follow the FATF recommendations, and where compliance with them is supervised at the group level by a competent authority, group companies should be allowed to rely on information provided by other group companies. Where such arrangements are put in place, national authorities may also decide that no special weight should be placed on the risk associated with the country in which the provider of information is based (another new element of the revised recommendations).

Extension of scope of the recommendations Some countries, such as the UK, already apply AML/CTF controls to tax offences but this has not until now been required under the FATF

War on two fronts: the soldier at this checkpoint in Sana’a, Yemen, provides a very visible anti-terrorist measure, but accountants will also play an important role as gatekeepers of FATF’s system to create a hostile environment for terrorist financing recommendations. The revised recommendations require individual countries to extend the scope of their AML/CTF measures to cover tax offences in respect of both direct and indirect taxes. It will be up to each country to decide whether to apply a threshold of materiality to this but, essentially, it means that whenever a practitioner suspects that a party has consciously committed a tax crime, then that will become, prima facie, a reportable matter. In those countries where tax offences do not currently form part of the national AML/CTF regime, this change is likely to have a significant impact on accountants. The FATF recommendations do not have regulatory force automatically, but need to be adopted formally by national authorities and regulatory bodies. The process of doing this is already well underway. In Europe a fourth directive on money laundering is currently being drafted as a priority measure, so members in public practice should be prepared for changes to their gate-keeping responsibilities in the near future. John Davies, head of technical, ACCA

03/08/2012 16:35



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

All about EVA In the first in a new series, Dr Tony Grundy looks at economic value added – what it is and what role it should play in the thinking and activity of strategic accountants

Economic value (or ‘shareholder value’) is defined as ‘the present value of the future cashflows of a company, of a particular project or decision’. That means the calculation of economic value may be applied to something much smaller than an entire business’s valuation, such as a specific commercial decision. Such a decision could be whether to invest in a brand, whether to make some organisational change or simply whether to hire in some special skills. It is often referred to as EVA or ‘economic value added’. Present value can be seen from either a management or a shareholder perspective. So that means that the valuation assessment can be arrived at from internal data or from purely outside estimations, in which case there are bound to be differences. Where internal figures are superior to external data, the company could well be undervalued.

EVA is the key This series will take you on a much more detailed journey of what economic value is and how it can provide an extra dimension on top of or instead of reliance on accounting profit for making key business judgments. It follows on naturally from my earlier series on strategy and strategic thinking. All strategic options need some financial quantification, and the purest and the best way of doing this is through EVA. Indeed, this series

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starts where we left off last month – in being able to turn into numbers the financial attractiveness that we saw in the strategic option grid.

Where does it come from? Economic profit comes from two main sources of value: the forecast value of net cashflows (over a planning period) the lump of value at the end of that period (the ‘terminal value’). The forecast period is that over which estimates of cashflows can be made based on meaningful assumptions and taking into account the degree of uncertainty that surrounds these. It could be anything from as little as three years to as many as 10 – or even more in exceptional situations, such as in the aero-engine industry. The cashflow is discounted (or reduced) from the future value to the current or ‘present’ value by the following formula: the end year one cashflow X 1/(1 + the cost of capital). Here the ‘cost of capital’ is the return needed by suppliers of capital to compensate them for: the rate of inflation; risk; parting with that money for a period of time. The third element – the deprival cost over time – is called, rather enigmatically, the ‘time value of money’– economists love their jargon! Normally we expect to have a cash stream that goes on for a period, so

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the second year’s cashflows need to be reduced to present value terms effectively twice or: the end year two cashflow X 1/(1 + the cost of capital) X 1/(1 + the cost of capital). Or, end year two cashflow times the discount factor, squared. While this isn’t the most exhilarating of calculations to do – thankfully, computers can do it – the way in which the compounding works is of interest. For instance, if we take the discount factor first as 8% and second as 10%, it would have the following effect for a cashflow of £100 at year 10: for 8%, £100 X 0.68 = £68; for 10%, £100 X 0.57 = £57. Two things are of interest here: 1) There is a sizable reduction in value as a result of the compounding effect over time and thus longerterm investments have to be extra laden with incoming cash to support this burden. 2) Different costs of capital have an impact on the economic value of a business as a result of the compounding effect, so while not being the most important value driver, the cost of capital is still significant. The ‘terminal value’ is significant, too. Even with a planning horizon of 10 years the terminal value – which is the value of cashflows often carrying on into perpetuity – is often 40% and more of the total value. Where the planning horizon is as short as, say, five years, the terminal

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01/08/2012 10:43


ALL STRATEGIC OPTIONS NEED SOME FINANCIAL QUANTIFICATION. THE PUREST AND THE BEST WAY TO DO THIS IS THROUGH ECONOMIC VALUE ADDED value can be worth as much as 70% of the total value. As most of the focus and thinking is likely to be on the more immediate planning horizon, then the fact that the terminal value may contain, at best, softer assumptions can be forgotten. Arguably, more thinking about the environmental and competitive factors at the end of the formal planning horizon is therefore needed, too.

The seven key value drivers The seven key value drivers that need to be thought about in an economic valuation are: 1) the sales growth rate (SGR); 2) the operating profit margin (OPM);

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3) the incremental working capital investment (IWCI); 4) the fixed capital investment – the replacement fixed capital investment (RFCI) and the incremental fixed capital investment (IFCI); 5) the corporate tax rate; 6) the cost of capital; 7) the competitive advantage period (CAP). The SGR is taken from the profit and loss account. It is the percentage of sales growth (the increase) divided by the base sales, times 100, and is expressed as a percentage. It can be calculated historically from the year-onyear growth experienced over the past few years – assuming that this is a


good guide to the future. Normally you would take a quick look at this to understand the trends and what might have been behind these, and then take a deeper look at the new trends and factors going forward. In particular, one-off factors in the past should be identified and isolated out. Unlike conventional accounting evaluations, the SGR calculation enables the growth dynamics of a business or of a decision to be factored directly into the valuation. The OPM is also taken from the profit and loss account. It is the percentage which the operating profit is of that year’s sales. The operating profit is that profit line before interest and tax – and also before depreciation. Depreciation, which is a non-cash item, therefore needs to be excluded. Again, the same forecasting principles apply for this calculation: look at past trends, isolate any

01/08/2012 10:44


one-offs, then take a more forwardlooking view which factors in any discontinuities. Obviously the resulting numbers are only as good as the quality of the underlying assumptions. Both the SGR and the OPM are normally very important indeed in economic evaluation. They are also typically the hardest assumptions

a little fiddly and you are advised to do a second check of this once you are finished. Even for an experienced analyst it is very easy to pull the wrong figures out from a complex profit and loss account. The capital adjustments will vary a lot in their relative significance. For instance, in the MBA case study of

ECONOMIC VALUE ADDED IS A TOOL FOR STRATEGIC THINKING AND SHOULD BE USED BY ACCOUNTANTS TO SUPPORT MANAGERS DOING JUST THAT (along with the competitive advantage period) to arrive at. After considering the operation value drivers listed above, calculate the investment of cash required to sustain and grow the business for the resulting net cashflows. To do this, you take out any investment in any additional working capital – usually pro rata to the increases – to support sales growth. Likewise, some fixed capital is normally needed both to replace equipment as it wears out and also to increase any assumed additional capacity to meet sales growth. The IWCI and the IFCI are usually derived on a percentage basis from past trends. The RFCI is either worked out from specific known needs or a crude estimation is made by assuming that it approximates to the rate of depreciation. Isolating the right figures from the profit and loss account can be

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valuing the acquisition of Marvel Entertainments the capital assumptions are relatively minor. Of course, in capital-intensive industries such as pharmaceuticals, oil or utilities these assumptions can play a huge role. In one joint venture once contemplated by aero-engine maker Rolls-Royce, for example, the effect of the IWCI was huge as there were 18 months’ worth of debtors! The corporate tax rate is usually relatively straightforward: the tax charge divided by the OPM. Obviously, that’s a bit of a simplification, and we will be looking at the cost of capital in greater detail in the next article in this series. So bringing it all together in a full EVA model you have, year-on-year for the forecasting period: the new sales, based on the SGR; operating profit margin, based on

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units on the web

the new sales times; the new OPM percentage. From this you have to subtract: investment adjustment assumptions (IWCI+RFCI+IFCI); corporate tax charge on operating profit (at the assumed tax rate). This calculation would give the forecast future cashflows. These would then be discounted over the planning period and would be added to the terminal value to give the total value of the strategy. Space precludes this article from going into the detailed calculations for the capital movement adjustments needed too.

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Strategic EVA EVA is a tool for strategic thinking and should be used by accountants to support managers doing just that. It is cashflow-based, brings in a longer-term time horizon, and takes into account the need for a balance of return to risk for shareholders in a way unlike accounting profit. It responds to seven strategic value drivers – two operational, two investment-based, two financial and one competitively based. In the next article we will learn more about this elegant model and also illustrate its application in practice. Dr Tony Grundy is an independent consultant and trainer, and lectures at Henley Business School in the UK

01/08/2012 10:45




Celebrating new members [

We continue our quarterly listing of new ACCA members, here showing those who achieved membership in the second quarter of 2012. Congratulations to all!

Victoria Abbott Rozina Abdur Rehman Roland Chiawah Achiri Dominique Activille Chintan Jyotikumar Adathakkar Isaac Addai Johnson Adetola Adeleye Adeyoola Adeleye Abayomi M Adeniran Olufemi Adewunmi Ejaz Afridi Mira Khimabhai Agath Patricia Chituru Agyare Kamal Ahmed Hasib Ahmed Ahmed Ashfaq Sadan Ahsan Rodney Kwame Aidoo Olufunke A Akinleye Gbemisola Akojenu Badrul Alam Natalie Albone Nazakat Ali Abid Pervez Ali Adetola Amoye Louisa Anagnos Ansaita Ansa Archibong Muhammad Arif Elkanah Arthur Asad Majeed Akiko Asai Steven Asbridge Shahzad Asif Asim Saleem Baig Nicola Atkins Loretta Omamigwe Audu Thet Naing Aung Clara Avanzi Anam Ayaz Natalie Ayres Abiola Kemi Badmus Cara Bailey Hannah Clare Baker

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Philip Ballard Nicholas Ballard Kristina Banner Laura Barclay Kerry Jane Barker Rory Barrow Stephen Batcup Yelena Bavtuto Joanne Bayliss Lisa Beaton George Thomas Beckwith Cerynne Sheila Beesty Rukshana Begum Sarah Bell John Bell Lisa Christine Bell Sarah Bennett Susan Beverton Deepak Jayantilal Bhagwan Bhana Taufiq Ismail Riaz Bharuchi Gemma Anne Bignell Oliver Birkwood Suzanne Black Alison Sarah Blake Jamie Blake Inna Bondarenko Sunil Boorman Ekaterina Bortnovskaya Julie Bowden Jane Bowgen Alan James Bradshaw Scott Brewster Adrian Broad Rachel Broadhead Martin John Brock Lyn Brocklesby Stuart Phillip Browning Jamie Buckley Stephanie Budby Klajdia Bullari Rhiannon Burrell Anna Bursztyn

Tannyth Lee Bush Heather Butcher Rozsa Butterworth Andrew Button Franco Cameli Scott Nigel Campbell Louise Carr Caroline Carroll Huw Carter Sarah Elaine Carter Clare Helen Chandler Laura Chaplin Louise Charlesworth Elaine Anna Cheah Lei Chen Chen Yan Jim Chipalo Salman Tariq Choudry Nicola Christophorou Sawvay Chu Janine Rosina Clark Laura Clarke Beverley Clay Nicola Comba Georgette Connellan Kimberly Conway Garry Coombs Deborah Cooney Victoria Cosby Vanessa Coulson Annie-Lee Latoya Cox Gemma Crampton Rebecca Crate Lucille Ann Crouch Ben Cunliffe Christopher S Cunningham Gaitree Jhowry Cuppoor Christine Marie Currie Jo-Hanna Cutler David D’Cruz Bijay Raj Dali Laura Dalton Sergio Samuel Danso

Muhammad Sajjad Dar Bhavini Dave Lisa Davern Amanda Davy Kofi Acheampong De Veer Johan Richard De Wet Sarah Eleanor Delebarre Timothy Dempsey Amy Dennies Bhavin Dewa Kate Dick Catherine Eleanor Dixon Keenjal Doshi Lenka Drablow Neeraj Kumar Dube Raluca Dumitrache Anh-My Duong Stacey Dyer Farzana Ebrahimji Nsaha Efiom Ekaha Victoria Egglishaw Ei Lin Khaing Ugochukwu Bernard Eke Sarah Jane Elliott Patrice Sona O Elonge Sahed Elouazani Kelly Elizabeth Embleton Nneka Emegwa Dellanie Anne Enano Sarah England William John Evans Kehinde Fakolujo Sarah Farmer Farrukh Iqbal Lodhi Fawad Shaukat Michelle Allison Ferguson Tatyana Fleming Lisa Fletcher Natalia Flynn Angelai Fong Rebecca G Fordwood Martin Forker Basirudeen Adewale Fowora

03/08/2012 15:30


Careers Laura Fox-Brennan Stephanie Franconi Chris Charles Frank Jodie-Ann Friar Louise Fuller Undral Ganbold Daniel Gazzelloni Lisa Michele George Adamu Getachew Pooja Ghelani Mark Gibson Helen Gibson Andrew Gibson Christopher Neil Giles Sian Angharad Gill Stephen Gill Sarbjit Kaur Gill Alastair Gladwin Simon Glaysher Ian Glover Jennifer Glynn Nita Gokani Preash Gola Victoria Golding Daniel Gooch Philip Goody James Alexander Grainger Ryan Grimmett Xiaomeng Guo Jing Guo Steven Ha Matthew Ha Gareth Haddon Daniel Hall Christopher Hall Sarah Louise Handscombe Leigh Hansford Pauleen Haran Haris Tariq Marina Jayne Harris Paul Harrison Nilofer Hasham Pir Ali Akbar Munir Hashmi Alieu Badara Hassan-King Abdul-Waheed Hayat-Khan Ibrahim Hayatuddini Tracey Elizabeth Hedges Rachel Heels Gina Faye Henderson Stacey Heneghan Paul Peter Henehan Lisa Hennessy Joanne Henshell Phillip Mark Henty Emma Hewes Ian Heyl

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Sarah Hodson Donna Louise Holligan Stephanie Holmes Kelly Holmes Yang Hong Alexander Graeme Horner Lynn Houghton William House Kenneth Michael Houston Gillian Howard Dave Howcroft Sylvianne Hui Jeannette Louise Hull David Humpherson Sian Hurley Hakan Huseyin Hussain Rushad Jonathan Hutchings Margaret Ezenwanyi Iheme John Lentswe Ingwe Haley Ison Boyana Ivanova Vivek Jain Azita Jannati Mrs Jenkins Philip Ronald Jenner Francesca Marino Jeremy Shunji Jin Sivasankari Jobling Puneet Johal Kalljit Johal Charlotte Johnson Selena Johnston Nigel Robert Johnstone Emily Louise Jones Alexander Darren Jones Matthew Jones Lesley Anne Jones Mark Richard Jones Scott Jordan Felix Kabutey Shirley Gloria Kamugasa Shingirayi Shelly Kamupira Nilofar Kanji Violet Karamagi Daniel Katte Liam Kavanagh Conor Kavanagh Joanna Louise Keating Egle Kecha Victoria Jayne Keenan Caroline Anne Kelleher Denise Kelly Selina Kennan James Douglas Kent Kathleen Keogh

Shishir Khadka Imran Khalid Kiran Khan Kunal Khanna Aftab Kharas Khin Sandar Kyaw Victoria Rachel M Knight David Knight Sheena Marie Knights Folake Abiodun Komolafe Izabela Kopaniszen Anahit Kozmanyan Tom Krajnyk Ragini Kumar Marieta Kuzmanova Christopher Lam Danielle Louise Lapatrie Marc Lawrence Suzanne Lawson Katrina Layfield David Leaver Patrice Leclerc Elspeth Lewis Huoyun Li Yifeng Li Wayne Liburd Fook Aun Liew Siobhan Lindsay-Kipp Bo Liu Tamsyn Victoria Longman Sarah Low Li Hwa Charlene Lowe Amanda Lukey Duc Luong Nicholas Lyons Pieris Lysandrou Colin James Machray Lynsay Mackenzie Clare Mackenzie David Maddocks Aman Kaur Mahal Majid Tufail Ben Makepeace Malcolm Leow Hwai Jiat Mannika Malhotra Ravine Mann Mansoor Habib Amanda Manuel Julie Manwaring Faran Maqbool Carol Marandola Louise Elizabeth March Katherine Louise Marsh Heidi R Frances Martyn Brett Masterson Angela Mathieson Neil Thomas Maund Alexander WJ May

Robert Maybury Jayne Mcalister Kevin James McAllister Darren Craig McCarthy Susan McColm Nikolina S Mckenzie Md Saifur Rahman Md Monzur Mannan Sumon Waqqas Shabir Memon Marsha Merchant Mi Mi San Tamsin Jane Middleton Jurga Mikutaite Stuart Mills Edward Mills Neelkanth Mishra Anna Marzena Misiarczyk Anusree Mitra Ashinah Mkwaturi Raza Mohammed AM Diego Valeriano Molinaroli Rudy Mootoosamy Frances Mair Morgan Christina Morris Petula Morton Mohamud Adam Mostafa Saleem Muhammad Mujtaba Muhammad Sufyan Julia Munday Yezgani Munthali Leanne Murphy Ramsy Murshed Stella Muziya Andriy Nagirnyy Yumiko Nakajo Maxim Namestnic Suman Nanra Vikas Narsapur Stephen Neville Steven Newman Ni Junfeng Nauman Nisar Clifford Landoh Nkweteyim Noelia Nasim Ghouri Deborah Frances O’Farrell Josephine Oakley Titilayo Onize Obende Tom Odey Darren Ogden Okwuchukwu C Okafor Olayinka Oke Abiodun Olugboji Oluwakemi Mildred Ore Caroline Jane Overton Aytan Oztekin

03/08/2012 15:31


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Berkiye Ozturk Rizwan Paderwala Christopher Michael Page Minal R Palan Daniel Panas Bhavesh Panchal Daljinderpal Kaur Panesar Pang Fu Hing Meghan Paramour Alpa Parmar Nerys Louise Parry Simit Patel Baiju Patel Andrew Patterson Allison Elizabeth Pearce Nicola M Pearson Benedict M Rajeewa Pelpola Katerina Penter James Phelan Arabella Plange Robert Plowman Sarah Pogson Laura Faye Powley Martina Prasivkova James Pringle Rhys Prior Nicholas Jonathan Pritchard Sara Jayne Purnell Jing Qi Altaf Raad Noorina Rajabally Nila Ranchhoddas Fadiya Rassel Daksha Rathod Md Nazmul Alam Razib Emma Bronwen Rees Rebecca Renshaw Sabrina Shanel Richards Laurel Richards Craig Ridgley Leon Ringer Paul Riordan Jemini Rishi Varsani

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Hannah Roberts Nicola Louise Roberts Sam Robinson Amanda Jane Roche Paul Rodriguez Christina Rogers Adam Rowson Magdalena Rozanska Harrinder Kaur Sahota Hayley Louise Salt Nina Marie Samuels Alan Michael Samuels Thomas Sanders Shakiba Sarmadi Sarosh Khan Steven James Schumann Hayley Seaman Gaidy Seck Deryn Senekal Sylvie Michele Shackleton Nikki Shah Bakul Shah Bhaumik Shah Neil Sheehan Noor Sheikh Tatyana Shevchenko Leysan Shilina Sarin Shringi Cynthia Varaidzo Shumba Chris Simeou Parwinder Singh John Michael Small Zar Ni Soe Rachel Sparkes Priya Srinivasan Louise St Louis Emma Louise Staples Carly Stephens David Stewart Katie Marie Stone Rebecca Stone Jonathan Strong Kerry Sumner Lihua Sun Swati Sutar

Mark James Swift Syed Dur-E-Muhammad Abdi Syed Raza Abbas Waldemar Szczerba Alice Taiwo Tony Tasker Helen Louise Taylor Sarah Taylor Anwaar Tayyab Carly Terry Gaurav Thapa Vinoba Tharmalingam Gavin Thomas Jason Allan Thompson Nicola Thorp Brian Bautista Tienzo Swati Tikare Darryl Tinker Oladimeji Stephen TogonuBickersteth Rita Maria Tolgyesi Omoboluwade Tolulope Babatope Laura Tomlin Monika Tomlinson Dawn Marie Townsend Benedict Townsend David John Turnbull Peter John Turnbull David Alan Turton Victor Ugoh Umar Farooq Darshan Vadher Martha Liliana Vanegas Castro Bina Anne Varkey Abhishek Velani Annabelle Walker Leanne Wall Mary Wallbank Sarah Wallis Michael Walsh Denis Walsh Jianwei Wang

Yi Jie Wang Wang Dan Wang Xiaojuan Terence Want Suzanne Warne Emma Warrier Wasel Ahmad Khan Bukenya Wasswa Paul Watson Rebecca Sally Webb Amelia Welker Sonia Geraldine Wells Wenjuan Liu Stephen Wensley Alan Wesselson Timothy Westgate Stacey Louise Whitbread Jocelyn White Christopher Wilks Sian Wills Andrew Wilson Bridget Wilson Henry Wong Benny Chun Pang Wong Kim Wong Gary Wood John Wragg Mengwen Wu Zhou Wu Victoria Wymark Ewa Danuta Wyzycka Dan Xiao Ajagee Yagambrun Yang Jing Neil James Yeoman Shiva Yerradoddi Wai Chiu Yip Monika Zablocka Joe Zachariah Syed Ali Imran Zaidi Arif Uz Zaman Jia Yun Zhang Tianlai Zhang Rufaro Beauty Zinyama Bernadine Zishiri

03/08/2012 15:32


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Over 30,000 ACCA MeMBerS AnD StuDentS hAve regiStereD their CvS On ACCA CAreerS Everyday on ACCA Careers on average we have.... 150 new candidates register 11,352 page views 44 new jobs posted 253 job applications Employers we are already working with include Shell, PWC, Deloitte, KPMG and BBC.

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01/08/2012 11:18 16:16 01/08/2012


ACCA diary


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

EMPLOYMENT-BASED MEMBERS’ NETWORKS INTERNAL AUDIT 12 September, Wednesday Managing Risk and Reward through Diversity of Thinking, London

PUBLIC SECTOR 13 September, Thursday Accountability for Public Money, London

CORPORATE SECTOR 19 September, Wednesday The Impact of New Pensions Regulation, London 17 October, Wednesday What is it like to be a Non-Executive Director? In association with the Financial Times NonExecutive Directors’ Club, London


25 September, Tuesday Discover Jaguar Land Rover, Luton 26 September, Wednesday Environmental Accountability, Nottingham 28 September, Friday Business Lunch and Presentation, Newcastle 1 October, Monday Excel Update, Brentwood 2 October, Tuesday Speaking of Finance, Leeds 2 October, Tuesday Real-Time Initiative and Working with Agents Update, Copdock 3 October, Wednesday Image in Business – It’s Personal, Preston 9 October, Tuesday Cloud Computing, Ashford 10 October, Wednesday Networking Lunch – Companies House and HMRC, Cheshunt

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

11 October, Thursday Norwich Members Network High-Profile Debate, Norwich


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

17 September, Monday Real-Life Ethical Issues, Hull 18 September, Tuesday Tax Update for the Practitioner, Copdock 24 September, Monday New Member Event, Canterbury

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SCOTLAND 13 September, Thursday Aspirational Jobs, Inspirational Locations!, Glasgow 25 September, Tuesday Carbon Accounting, Edinburgh

8 October, Monday Tayside Business Lecture: Bank of England and the Financial Policy Committee Structure, Dundee To book, visit www.accaglobal. com/scotland/events

WALES 24 September, Monday Building Confidence in Yourself and Others, Cardiff 25 September, Tuesday Efficiency Tools and Top Tips for Outlook, St Asaph

27 September, Thursday Topical Tax Update including VAT, London 28 September, Friday Capital Gains Tax Update, London 29 September, Saturday Saturday CPD Conference Three, Manchester 1–3 October Essential Business Skills, London 2 October, Tuesday Taxation of Properties including VAT, London

26 September, Wednesday Inheritance Tax Planning – Planning for Retirement and Beyond, Swansea

3 October, Wednesday Taxation of Isle of Man Companies, Isle of Man

27 September, Thursday Health Conference with HFMA, Cardiff

10 October, Wednesday Accounting Standards Update, Newcastle

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

11 October, Thursday IR 35, London


12 October, Friday VAT including Partial Exemption, London

21 September, Friday Commercial, Employment and Company Law Update, Ashford 26 September, Wednesday IFRS for Accountants in Industry and Practice, Isle of Man 27 September, Thursday Accounting in Germany and France, London 27 September, Thursday ICSA Company Secretaries Conference and Exhibition, London

13 October, Saturday Saturday CPD Conference Three, Bristol 15 October, Monday 21st Century Management Accounting, London 15–16 October Financial Modelling, London For more information or to book your place, visit http:// or email professionalcourses@

02/08/2012 13:07



The secret to getting the best CPD Make sure you leave enough time to reflect on the learning you’ve done and fit it into a bigger development plan. Here are some tips We all know CPD is about learning and how that learning supports your career. But over the years we’ve noticed that not enough of our members reflect on the learning that they’ve done or try to fit it into a bigger development plan. Understandably, it is difficult to reflect on your CPD if you only think about learning towards the end of the year with the aim to gain the verifiable CPD units you need for your declaration. Courses are sold out in minutes and e-learning opportunities relevant to your career might not be available just at that time – not the best experience when all you’re trying to do is develop professionally. So why not use the summer months to learn – work tends to slow down and there are still plenty of opportunities for development.

Relevance, relevance, relevance If you’re an accountant and you want to develop in that role in the future, doing an evening course in oil painting will sadly not count towards your CPD. It might be a great experience, but unless you can prove it has contributed towards your career, you will not be able to use it towards your CPD. An online refresher in managing people can be very useful if you’re involved in managing teams or you manage your own practice; however, it’s hard to prove relevance if, for example, you’re just at the start of your career and your role does not involve any management. Relevance is the cornerstone of ACCA’s CPD policy, yet many members experience delays in their CPD review because they fail to demonstrate the relevance of their CPD activities to their current job or future career. If you work in a relevant role, your CPD will probably be mostly about

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maintaining technical ability and keeping abreast of industry developments. However, don’t forget your other professional skills. A course in presentation skills is just as relevant as a Microsoft Excel course if you have to deliver presentations for work. If you are not currently working in a relevant role and have moved away from accounting and finance, you can still gain CPD if you can demonstrate relevance to your current role. It’s important to note that members in practice continue to maintain competence in their areas of technical specialism and obtain an appropriate proportion of CPD in those areas.

Opportunities to learn Once you fully understand that it is relevance that counts, you can begin to think more imaginatively about how to obtain CPD as there’s a good chance that you are already doing much learning in your day-to-day work.

Day-to-day CPD Let’s take for example report writing. Was the subject matter new? Did you conduct any type of research (speak

with colleagues, business experts or do internet research) to do the report. All this can count towards your CPD as it is in essence new learning that is relevant to your career. Evidence can be provided – the report itself is evidence; additionally, the research notes can be produced, a diary printout or copy showing the time for research blocked off, or a colleague can corroborate that the learning took place. Check the examples of CPD evidence at

What’s the secret of great CPD? Plan in advance! Where do you want to be this time next year in your career? What is the relevant learning that can get you there? To determine relevance, ask yourself: 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? If you can answer with yes to all three questions, then one hour of learning equals one verifiable unit of CPD.

03/08/2012 15:55


ACCA news

SEEING AFRICA IN A NEW LIGHT At the biennial ACCA Council meeting held this year in Kenya, members discovered a continent that is open for business and ready to usher in a golden era ACCA’s 36-strong Council came to East Africa in June to discuss opportunities and challenges for the accountancy profession. The biennial meeting in Nairobi, Kenya, followed by separate visits to meetings in Ethiopia, Tanzania and Uganda, reflected Council’s desire for a clearer understanding of the rapid economic and business developments in Africa. ‘The only way to do this is to be here and to be here now,’ said ACCA president Dean Westcott at the gala dinner in Nairobi. ‘This way we can see first-hand how professional accountants working here create public value. And by public value, we mean working in the public interest, promoting responsible and ethical business, and supporting enhanced global economic performance.’ ACCA chief executive Helen Brand said: ‘As our governing body, Council is elected and consists of voluntary members who possess a global outlook that can only benefit further by meeting together in Kenya.’ The chief guest at the gala dinner was Dr James Mwangi, chief executive of Equity Bank in Nairobi. Mwangi made headlines recently when he was awarded the title of Ernst & Young World Entrepreneur of the Year 2012. As finance director and then chief

IEBC commissioner Albert Bwire, ACCA president Dean Westcott, ACCA deputy president Barry Cooper, and Uchumi Supermarkets CEO Jonathan Ciano (left to right) executive of Equity Bank, Mwangi grew the business from a small microfinance house that was ‘technically insolvent’ into Kenya’s largest bank. It is now a listed company and responsible for more than half of all bank accounts in Kenya.

Jamil Ampomah, ACCA director of sub-Saharan Africa


To mark the Council meeting in Africa, ACCA’s monthly magazine Accounting and Business published an Africa Special Edition. It is packed with interesting articles, which were highlighted by ACCA president Dean Westcott in his speech at the gala dinner. ‘It is a riveting read that’s challenged my thinking on a number of issues,’ he said. The editors include Alvin Chikamba, head of policy for sub-Saharan Africa at ACCA. It also includes a view from Japheth Katto FCCA, CEO of the Ugandan Capital Markets Authority and board member of the International Federation of Accountants. You can read the Special Edition at

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Also among the gala dinner guests were Rosemary Gituma and Abdulwahid Aboo, council members of the Institute of Certified Public Accounts of Kenya (ICPAK), as well as Vickson Ncube, CEO of the Pan African Federation of Accountants. ACCA has a long history of working in partnership in Africa, said Westcott, with learning providers, ICPAK, KCA University and Strathmore University. With the opening of new offices and a growing number of members, ACCA’s presence has increased rapidly in Africa. Member numbers stand at nearly 10,000 for sub-Saharan Africa, and some 82,000 students. ‘This growth could not have been achieved without the partnerships and alliances we have forged here,’ Westcott added. Members across Africa are supported by a team of full-time staff based in 11 African countries, from Botswana to Zimbabwe, and ACCA’s many partners. Africa’s businesses are becoming increasingly important international trade partners and its markets are increasingly attractive as an international trade proposition, said Westcott. ‘This is why professional accountants have a significant role to play in capacity building in Africa.’

03/08/2012 11:23


Referring to the report Making Capital Markets Work in Emerging and Frontier Economies (see box), Westcott drew guests’ attention to the Uganda Capital Markets Authority’s financial literacy work. The body is running a programme to train journalists in financial issues and how to report on capital markets without jeopardising or compromising their professional standards or journalistic independence, he said. ‘As ACCA members have told me, it is time for ACCA and the business world globally to see Africa in a new light. The continent’s economy is growing strongly and its prospects are bright, but it also faces significant challenges.’ As well as new member ceremonies, an employers’ roundtable was held in Ethiopia on the theme of ‘the role of finance professionals in an emerging economy’. There was also an event in Tanzania to launch the two reports on capital markets, while Uganda was the location for an event to discuss the issues relating to effective financial management and transparency. Jamil Ampomah, ACCA director of sub-Saharan Africa, said: ‘It is important Council members from all over the world come to Africa and understand the issues their Council colleagues face here on this continent.’ ‘We will be taking our learning, our understanding and the expertise gained while we have been here back to our own countries,’ said Westcott, ‘to spread the word that Africa is open for business and this is a golden era for Africa.’ Lesley Bolton, international editor

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Above: James Mwangi, Equity Bank chief executive Above right: Westcott on set with NTV host Dan Mwangi Right: Helen Brand, ACCA chief executive Far right: Alvin Chikamba, ACCA head of policy for sub-Saharan Africa


Two reports – The Rise of Capital Markets in Emerging and Frontier Economies and Making Capital Markets Work in Emerging and Frontier Economies – were launched during ACCA Council’s visit to East Africa. The Rise of Capital Markets reviews the academic literature on the development of capital markets, while Making Capital Markets Work is a collection of first-hand accounts and case studies from senior managers and professionals who are spearheading market development. Speaking at the press conference in Uganda, ACCA president Dean Westcott said: ‘Capital markets play an important role in promoting robust economic activity. Emerging capital markets are clearly an increasingly important source of finance to business. Broadening participation in company ownership, especially where the needs of minority shareholders are concerned, requires clear corporate governance, a responsiveness to the many needs of investors, consideration of independent representation on the company board, and transparency of decisionmaking in the interests of all investors and wider stakeholders.’ ACCA believes that capacity building around financial systems is essential. It allows capital markets to enable the most promising businesses – both large and small – to source funds more cheaply and reliably than would otherwise be possible. But in order to do this, these businesses need access to reliable financial information, which in turn depends on the skills and competences of professional accountants. Westcott concluded: ‘Our reports show that the perceived strength of accounting and auditing standards is a leading indicator of the health of capital markets and a strong predictor of their ability to drive economic growth.’ Both reports can be viewed at

03/08/2012 11:24


Accounting for the future Interactive event looks at finance professionals’ sustainability role

Inside ACCA 80 Africa is open for business was the message coming from this year’s ACCA Council meeting in Kenya 79 CPD We show you how to make sure your CPD fits into an overall development plan 78 Diary What’s on in the coming months




I EDITION 05 I 2012


you via live webinars d you can participate d the world. ormation, visit tingforthefuture




future is a worldwide ance professionals ger and sustainable ampions the connected ays we will harness ng together finance he world to share Our experts will share usinesses and the apt to meet the future ators, the economy

ACCA news



ACCA is holding a worldwide event next month exploring the role finance professionals will play in developing a more sustainable global economy. Members joining the online interactive event, to be held from 8 to 12 October, will be given access to the latest research in accounting and finance. They will also be able to watch, hear and question experts who will be sharing the latest insights on how businesses need to adapt to meet the future needs of stakeholders, regulators, the economy and the environment. Topics will include risk management, valuation, corporate reporting, investor engagement and the green economy. Those joining the event will be able to network online with other attendees. The event will be brought to you via live webcasts and on-demand videos. There will also be events taking place in the UK, the US, mainland China, Hong Kong, Africa, Malaysia and Ireland. Registration is straightforward and will allow access to a variety of sessions that will develop knowledge and contribute towards CPD.




I EDITION 05 I 2012









ACCA has launched an iPad app that explores crucial trends and issues for business, economies and the accountancy profession. You can find it at www.accaglobal. com/insightsapp or by searching for ‘ACCA Insights’ in the iTunes App Store. It includes video interviews and podcasts from leading experts, interactive infographics and ACCA research findings. The first edition of the app also looks at how accountants in a wide range of roles contribute to managing risk. ACCA has also introduced a new Student Planner app, available free at the iTunes App Store.


ACCA deputy president Professor Barry Cooper FCCA has been awarded life membership of the Accounting and Finance Association of Australia and New Zealand (AFAANZ), the organisation that represents all accounting and finance academics in Australia and New Zealand. The prestigious award was made for his outstanding and exceptional contribution to AFAANZ, of which he has been both treasurer and Australian president. His work included the re-engineering of the body’s finances. Cooper is head of the School of Accounting, Economics and Finance at Deakin University in Geelong, Australia.


ACCA’s Research and Insights iPad app gives you access to the findings of the risk management survey of our members and explores what integrated risk management looks like in practice. You can download our iPad app for free via, or just search for ‘ACCA Insights’ in the iTunes App Store.

ds London WC2A 3EE United Kingdom +44 (0)20 7059 5000 www.accaglobal.c om


11/06/2012 11:48

The latest edition of ACCA’s Accountancy Futures journal, looking at current and future issues affecting business and the accountancy profession, is now available at www. futuresjournal

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Record-breaking adventurer Richard Parks (above) enthralled guests at a recent ACCA Cymru/Wales dinner in Swansea. The former rugby international was the first man to stand on the highest peaks on each continent and the North and South Poles in one calendar year. He explained how he came up with the idea to raise funds for Marie Curie Cancer Care, and beat frostbite and a crevasse fall to make it happen.

ACCA’s 107th annual general meeting (AGM) will take place on Thursday 20 September at 13.00 BST (12.00 GMT). The annual report and AGM papers can be accessed online at www. As usual, all members have the option of voting online. You will have been provided with your voting codes electronically or with the AGM papers posted to you. Visit to cast your vote.

03/08/2012 16:05

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03/08/2012 11:19



AB UK (UK edition) – September 2012  
AB UK (UK edition) – September 2012  

AB UK – September 2012 of Accounting and Business magazine