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NQ magazine October 2017



email: twitter: @pqmagazine facebook: call: 020 7216 6444

ETHICAL DILEMMA Dealing with a conflict of interest


ALL THE NEWS YOU NEED and a whole lot more Pages 4 and 7



HOW A NEW BREED OF Changes to FINANCE FUNCTION WILL international IMPACT ON THE ROLE OF standards – straight from the horse’s THE ACCOUNTANT P20 mouth


CONTRACT MANAGEMENT How to spend money wisely 23 November 2017 A conference looking to the future of the accountancy profession and impact emerging current issues will have.

To register:

Accountancy college of the year


Accountancy college of the year

23 November 2017 | 9am-7pm Keyworth Centre, LSBU A conference looking to the future of the accountancy profession and impact emerging current issues will have. We welcome accountants, accounting students, individuals working in the accountancy profession, or connected with the sector An opportunity for CPD and networking across the sector and with our diverse student body.

For informal discussions about the event, please email Danusia Wysocki To register, please visit:

Lineup of speakers: Alan Hatfield, Executive Director, Strategy & Development, ACCA Mark Protherough, Executive Director, Learning & Professional Development, ICAEW Tony Margaritelli, chair of ICPA and member of the HMRC Agent Strategy Group Lea Watson, Employer Relationships and Apprenticeships Product Manager, AAT

Garry Carter, President and CEO, ICBGlobal Claire Bennison, Head of Sales and Marketing Western Europe, ACCA Pat Keogh, Managing Director, Pro-Recruitment Group Tom Eagle, Head of Finance Practice, Pro-Recruitment Group

Peter Noyce, Partner and Head of Legal Services, Menzies LLP Andy Miles, CEO of Think Marble Limited Maggie McGhee, Director of Professional Insights, ACCA David Oliver, founder of MyFirmsApp Mike Day, Education Director at Xero


Anti-Money Laundering Compliance Company



Where is the future headed? What skills will you need in the future to become a successful accountant? The landscape seems to be ever-changing, and almost daily we are being told our jobs are going to be taken over by the robots. We thought it was time to get the professional bodies and industry experts together to discuss what this new brave world will look like. Together with London South Bank University, we are putting on a FREE one-day London conference on 23 November, and its title is The Future of Accountancy: Success in a Changing World. There will be four streams running thoughout the day, where you will be able to mix and match the subjects that interest you. They are: Going Digital; Own Your Career; Let’s Get Technical; and Employer Advice. To sign up just go to and drill down to 23 November. NQ and PQ readers, and anyone connected with the profession, are welcome to attend.

Become our NQ of the Year It is also time to get your entries in for the PQ awards – the best accountancy awards around (by a mile). Surely you know someone who would like a night out and the chance to win a shiny award? Now in their fifteenth year there are 18 trophies up for grabs. If you get shortlisted you’ll be coming along, too. We understand that sometimes there is no one to sing your praises, so we are happy if you nominate yourself. Now is not the time to be shy. You can also show someone how they have made a difference to your life by nominating them. Go to and click on the ‘pq awards’ bar on the home page to download the nomination form. Graham Hambly, Editor (



November date of the PQ/ LSBU Future of Accountancy conference! P4

18 17

number of PQ Awards up for grabs P4

the number of UN Sustainable Development Goals P14

01/01/2020 date that IFRS 17 becomes effective P16

Five top tips for successful contract management P18


CTA exam makeover

The Future of Accountancy What skills will you need in future to be a successful accountant? The landscape is ever-changing, so we decided to get together with London South Bank University to try to provide some of the answers! Our free one-day conference will have four streams running though the day, so you will be able to mix and match the subjects that interest you: going digital, own your career, let’s get technical and employer advice. Our going digital room will look at developments in the cloud, big data and Making Tax Digital. Over at the career centre we will discuss creating your own brand, how to get headhunted and setting up your own business. The employer room will home in on apprenticeships, the changing skills set, and staff wellbeing. We haven’t forgotten the technical stuff, either. In our technical room we will be running seminars on crowdfunding, intellectual property, money laundering and leases. So how do you sign up? Well, through Eventbrite of course! Just go to and drill down to the 23 November – the date of the conference. All NQ and PQ readers, and anyone connected with the sector, are welcome to sign up. The PQ team will, of course, all be there, too. Watch out as we unveil some of the experts who will give you their take on what the future will hold.

Be our next NQ of the Year Fancy being a cover star? Well, you need to enter the PQ magazine Awards! Nominations are now open for the 2018 awards, including NQ of the Year. Last year’s winner was Harry Pampiglione and he recently graced the cover of PQ, with his PQ! Remember, there are lots of other trophies up for grabs. The current holders of the Accountancy Team of the Year are Bultin’s. We are also looking for Training Manager/ Mentor of the Year, too. So what do we need from you? All you have to do is write 250 words and provide any supporting evidence separately on why you/your nominee should win. You can download the nomination form at Just click on the ‘PQ awards’ bar at the top of the home page. 4

The Chartered Institute of Taxation has unveiled its new-look CTA exams in early September, to much applause. The big story is the move to make the CTA qualification open to all from 2019. The requirement for students to have a prior qualification, which enables them to claim a ‘Confirmation of Eligibility’ to sit, will be dropped in January 2019. The move, however, comes with a warning from CIOT President, John Preston. He stressed that the CTA exams are set at a high standard and in order to give yourself the best chance of success students who do not have a previous qualifications in accounting or law are strongly advised to register for the Tax Pathway route to qualification (https://hub.

The current ‘five sitting rule’ will also be extended to seven from 1 November. That means the exam passed at the November 2017 sitting will be valid up until and including the May 2021 exam session. With effect from the May 2018 CTA exam session, the two Advisory exams (TOMC and ACT) will be merging into one exam – Taxation of Major Corporates. Transitional provisions for existing students have also been put in place to ensure the changes are as straightforward as possible, and the promise is it will not unfairly disadvantage any students.

ICAS CEO on the move ICAS CEO Anton Colella is leaving the top job after more than 10 years in the post. He joined ICAS in 2006 from the Scottish Qualification Authority, and will re-appear as the CEO of Moore Stephens International. In 2016 he was paid £416,000 by ICAS, which included a bonus of £105,000. NQ magazine was recently told (by a reliable source) that the CEO is the only person at ICAS to earn a bonus. We certainly hope that rumour is not true.

NQ Magazine October 2017

Whether you are studying towards CIMA, ACCA or ACA, we have a wide variety of exciting roles available for you during and after your studies. As part-qualified salaries continue to rise and benefits increase to an unrivalled level, there has never been a better time to consider your next career move!

Audit & Accounts Senior

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London £44,000 - £48,000 Looking for a step up into the Top 20? My client is offering above market rate salaries along with one of the best benefits packages on the market! All of the clients are London based so travelling is kept to a minimum. Clear progression to Supervisor available for the right person. Get in touch to find out more!

London £40,000 - £45,000 Do you want to move away from number crunching? If so, this high-profile analytical role offers the opportunity to work closely with non-finance and senior stakeholders within the organisation. You will have the opportunity to manage a small team and progress as the business continues to grow over the coming years.

Audit Senior

Commercial Accountant – Retail

Manchester £35,000 - £38,000 This impressive Manchester-based firm is seeking ACA/ACCA Qualified Audit Seniors who are looking to gain exposure to both advisory and consultancy. Drive away in your company car at this Top 100 firm who are not only offering premium salaries but international travel opportunities too!

London £35,000 - £40,000 Does the fast-paced and dynamic nature of retail appeal to you? Our client is recruiting a commercially astute and ambitious individual to work with their sales teams to drive profitability. You will have exposure to the Directors from day one and work within an environment where you can really add value.

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If you’re looking for your next step in your career, don’t hesitate to contact me for advice and further discussion. Tom Eagle Manager - Accounting & Finance


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Working in the Dark Ages

New research from Xero has found that one in five UK accountant are still using paper ledgers, despite nearly twothirds of accountants believing that the profession is at a technological tipping point. To inspire accountants to move to cloud software as the next revolution in accountancy, Xero has commissioned an artist to recreate the 1500 portrait of Luca Pacioli, the socalled Father of Accounting and Bookkeeping, updating his paper ledger for digital tools! Xero’s Digital or Die Report found 78% of accountants who work in accounting and bookkeeping firms still rely on spreadsheets and 18% use paper ledgers. However, only 20% of accountants do not think moving to digital accounting is imperative to the industry surviving in the next three to five years. Xero’s Damon Anderson said it’s time for accountants to work smarter. He went on: “The UK accounting industry is entering a new digital age, driven by unprecedented changes in accounting technology and a perfect storm of regulation from MTD, PSD2 to GDPR.” The Digital and Die Report has estimated that cloud based accounting could save accountants 117.5 hours a year on average (just over two weeks) by eliminating the time spent on administrative tasks. That’s around £3,153.70 per year per member of staff.

What is a management accountant worth? The latest salary survey has been released by CIMA, and the institute claims pay levels for management accountants are performing well against the backdrop of low global inflation. The survey suggested that average salary increases for CIMA-qualifieds are expected to rise from 4% to 5% year-onyear and from 9% to 10% for CIMA students. The current national average salary for a CIMA member is now £62,000, says the survey. The average for students is £32,000. Feedback from more than 13,000 professionals worldwide on their current salaries and expectations indicated that an overwhelming majority (82%) are expecting a pay rise this year. In addition to that, two-thirds of participants expect a bonus too, the average value of this being 11% of their annual salary. This feedback, says UK director Paul Turner “clearly shows that businesses recognise the value finance professionals with the Chartered Global Management Accountant (CGMA) designation bring”. CIMAs can now go online to check if they are getting the market rate. Just log onto CIMA’s website and use the Salary Insights Tool. NQ Magazine October 2017

Big 4 still dominating the market The Big 4’s continual domination of the UK audit market was worth a total of £3.2bn in audit and non-audit fees in 2016/17, says the FRC in its Developments in Audit 2016/17 report. Between them, the Big 4 earn 80% of the total available audit fee income up for grabs from public interest entities (PIEs) and 85% of the non-audit fees from audit clients. The UK audit market, worth £4bn, remains concentrated across the four firms – EY, KPMG, PwC and Deloitte. The FRC felt there are two consequences of this concentration in the market, with the balance between audit fees and non-audit fee income having particular resonance for audit regulators everywhere (and that includes the FRC).

The first potential impact is on investor perception of audit firms’ motivation and confidence in audit quality. This, says the FRC, points to the critical importance of audit firm governance and culture to ensure in the public interest the highest standards of ethical behaviour. The other worry is market risk, given the reliance on a small number of firms. FRC stressed that it is important for the health of the audit market in the UK that audit firms do not lose their focus on their audit practices, and that they continue to invest in the quality of audit work being done. The report claims that the introduction of mandatory audit tendering and periodic rotation, as well as restrictions on services, has resulted in greater competition on the grounds of audit quality between the established Big 4. The FRC’s Melanie McLaren revealed that the audit market remains even more concentrated for listed entities. She said that 99% of the FTSE 100 are audited by the Big 4 and 96% of the FTSE 250.

Essential measures

Essential service firms who fail to implement effective cyber security measures face fines in the UK of up to £17m, or 4% of their global turnover. The new government proposals are aimed at making Britain’s essential networks and infrastructure safe, secure and resilient against the risk of future cyber attacks. The Department of Digital, Culture, Media & Sport’s consultation document is part of the implementation of the EU’s Network and Information Systems (NIS) Directive, which has to be implemented from May 2018. Fines would be the last resort, and they will not apply to operators that have assessed the risks adequately, taken appropriate security measurers and engaged with competent authorities but still suffered an attack. 7


Standards must change with the changing world

In a recent speech Hans Hoogervorst, IASB Chairman, set out his views on how financial reporting will need to evolve, to ensure that IFRS Standards continue to meet the needs of the market. This is an extract from his speech

I would like to start with

a concrete example that demonstrates that the financial statements of a company are not the source of all wisdom for investors. Ever since going public in 2010, the car manufacturer Tesla has been losing money, burning through $7 billion of cash. Investors experienced a dilution of their shares, yet their market value reached a whopping $50 billion. Tesla overtook the market value of General Motors, even though GM sells more than 100 times as many cars as Tesla and does so profitably. This remarkable data demonstrate that investors do not just look at the reported profit and the balance sheet to guide their investment decisions. Clearly, investors nurture very high hopes for the future of Tesla. They base their hopes on the company’s intangibles: its technological prowess and its business model that combines the production of electrical cars and batteries. These intangibles are not captured in the balance sheet, so in the case of Tesla, the numbers in the financial statements probably play 8

a limited role in the current market valuation of the company. Tesla may be an extreme case, but it highlights a trend towards a widening gap between book values and market values of companies. Given the increasing role of technology and intangible platforms in the global economy, this may not be surprising. But what does this mean for the relevance of financial reporting? There is more going on in the world of reporting. Companies are providing more and more non-financial information, mainly on Environmental, Social and Governance (ESG) issues and they are seeking a wider audience than investors alone. Another widely observed trend is the increasing availability of digital data and the emergence of Artificial Intelligence to mine these big heaps of data. These developments create opportunities, but they also cause confusion and anxiety. With all this information being requested and provided, will we still be able to see the wood for the trees? Isn’t the widely perceived problem of information and

disclosure overload just becoming bigger and bigger? Isn’t financial reporting in the classical sense becoming less and less relevant? What does the future hold for accounting standard setters and indeed for the accounting profession?

KEEP CALM AND CARRY ON My first answer to all these questions is that we should keep calm and carry on. I am not at all concerned that the relevance of financial reporting is under threat. First, for the very fact that financial reporting is primarily (but certainly not exclusively) backward looking, it offers the most concrete evidence of the performance of a company. For mature companies, the income statement is the ‘hardest’ and most comparable source of information for investors. It does not have just confirmatory value; it is also a vital starting point for any projections of future cash flows. That is the case now and I am sure it will still be the case in 10 years. The financial statements will always remain an important reality NQ Magazine October 2017


check. During the Dot-Com Bubble at the beginning of the century, the increasingly absurd price-earnings ratios of Internet start-ups served to feed healthy scepticism that later turned out to be justified. These days, similar concerns are arising about the valuations of the Silicon Valley tech giants and short sellers are getting more aggressive by the day. Ultimately, all value creation has to pass through the financial statements. If it takes too long, the income statement will indicate that the intangibles of a company may have evaporated in thin air, possibly on the trajectory to planet Mars. Second, the more information becomes available, the more need there is for comparability, standardisation and quality control.

Accounting standards aim to achieve this, based on sound economic principles. Just think about the current diversity in accounting practices for insurance activities. No artificial intelligence in the world would be able to make heads or tails from information that is in many cases inherently flawed. This is why I do not see the advent of Big Data and Artificial Intelligence as a challenge to the relevance of accounting standards. They can provide useful supplemental information – certainly in terms of speediness, but they will not replace the financial statements. For all these reasons, I am confident that the financial statements will remain a vital anchor for investors in their evaluation of a company. Whilst

this conclusion may provide some relief, we must beware of complacency. The times, they are a-changin’ and we all need to adapt, the IASB included.

CONCLUSION That ideal world is still far away, I am afraid. In the meantime we will have to make the best of the imperfect world of corporate reporting. The IASB is ready to adapt to the changing world of corporate reporting by increasing the communication effectiveness of the financial statements, facilitating electronic consumption of financial data and by promoting integrated reporting. I hope my contribution has made clear what the IASB can and cannot do to create a bit more clarity in NQ this imperfect world.

With Tesla investors nurture very high hopes for the future

NQ Magazine October 2017



Choosing the right path


NQ Magazine October 2017


Helen Brand, ACCA CEO, reports on the Association’s recent Ethics & Trust In A Digital Age report


our company data has been hit by a ransomware attack and your clients’ financial data has been jeopardised. If you pay the ransom you’re offered the chance to get the data back. But could you justify handing company money over to a criminal in the interests of customers? Might the attack even lead you to consider hiring a ‘white hat’ hacker to safeguard your customers in future? This is the kind of ethical dilemma businesses increasingly face in the digital age. From bitcoin to blockchain, there is a range of muchdiscussed new technologies that could revolutionise how the private and public sector operate. It is often predicted that it will be professional services who will feel the impact of this ‘fourth industrial revolution’. Although innovation frequently solves many existing problems, it inevitably also creates new challenges. With governments and corporations already rapidly digitising, these are real and urgent questions. When facing a choice over how to do the right thing, organisations won’t turn to a robot or algorithm. They will turn to the individuals whose professional obligation and reputation depends on their commitment to ethical behaviour. They turn, invariably, to professionals who are committed to an ongoing ethical code – not least professional accountants. Professional accountants take this responsibility extremely seriously, recognising that it is at the absolute core of the value they provide to business and society. Strikingly, this commitment to ethical excellence grows as they become more senior and more experienced. Ethics and Trust In A Digital Age, ACCA’s recent global study of 10,000 professional accountants, found that 95% of those at CFO level or higher believe ethics is very important to their company’s reputation, internally and externally. That commitment grows because they recognise that in an automated age, human judgment becomes more integral to how decisions are made. When faced with a data breach or a company’s exposure to supply chain irregularities, customers and investors won’t look to a systems bot to blame. They also keenly appreciate that a good reputation is hard-won, over many years of doing the right thing, and can be lost forever through an ethical wrong turn. But while some of the dilemmas may be new, the ethical approach the profession currently adopts does not have to be fundamentally rethought. The view of the members NQ Magazine October 2017

and business leaders ACCA has spoken to is that the International Ethical Standards Board for Accountants’ Code of Ethics – which applies to professional accountants globally – remains a relevant and vital guide. The five fundamental principles which guide accountants and auditors – integrity, objectivity, professional competence and due care, confidentiality and professional behaviour – are as pertinent as ever. What does need an upgrade are how these principles are applied. The majority of those that we have spoken to are clear that ethical behaviour must come from the very top. Responsibility cannot be delegated to ethics committees or other forms of internal or external oversight, although such mechanisms may have an important supporting role to play. Understanding these evolving challenges has informed ACCA’s own approach to updating our Qualification. The Ethics and Professional Skills module, introduced on 31 October, will provide a rigorous assessment of how candidates apply these principles to real-world scenarios. ACCA’s on-going research into the future of the profession last year identified the Digital Quotient as part of the core skill-set for the professional accountant. Yet understanding how this must also be integrated with technical and ethical excellence, alongside the other quotients, is a key concern for accountants looking to act as strategic business leaders of the future. The professional accountants of today have relied upon their key skills to help them adapt and lead in a fastchanging world. The changes to the ACCA qualification we are introducing will ensure these skills remain relevant and future-proofed even as technological innovation further disrupts traditional approaches to how the world does business in the 21st century. The past few years have provided plenty of examples where politics and business have needed to rebuild public trust. And while the rise of the robots has been flagged as a threat to professions, it actually represents a new frontier where the skills and judgment of professionals are critical. For all these reasons, accountants are set to remain at the front-line of ethical challenges in business. It has therefore never been more important for newly qualifieds to remember NQ that ‘ethics begins with me’.

 Helen Brand OBE is chief executive of ACCA 11


Hard choices

You find yourself in the tricky position of knowing confidential information that present a conflict of interest between two different parties you are involved with. So what should you do?


ou are a sole practitioner who used to provide a range of accountancy services for a small company (Company A) that owns a hardware shop in the town where you work. Following a brief retendering process, the client chose to engage an alternative firm of accountants. Both you and the other firm had been asked to tender for a range of services, including the preparation of year end accounts, tax compliance work and a due diligence exercise in respect of the intended purchase of a small hardware business in the neighbouring town. You believe that you were unsuccessful in the tendering process on the basis of cost alone, as Company A is not very profitable, and suffers from the competition of the other hardware business that it intends to acquire. You are the continuity provider for another local sole practitioner. Two months ago he suffered a heart attack, and so you are currently acting for a number of his clients. He is not expected to resume practising for another two months. One of the clients of the incapacitated practitioner (Company B) operates a shop selling electrical goods. The director and majority shareholder has called you to arrange a meeting to discuss a business venture that he is considering. At the meeting, the client explains that he intends to make an offer for the same small hardware business that Company A is seeking to acquire. He is aware that there is another bidder for the business, 12

but is unaware that it is Company A, or that Company A used to be your client. When the meeting is over, you start to feel uneasy. You want to help Company B and provide a valued service on behalf of the practitioner for whom you are the continuity provider. But you realise that you are also in possession of confidential information concerning the plans of your previous client. You are aware of Company A’s problems and its motivation for wishing to acquire the business.

Key fundamental principles Integrity: You must be straightforward and honest. Confidentiality: How will you ensure that you do not use confidential information relating to your previous client to the advantage of Company B? Professional behaviour: How will you safeguard your reputation and that of your profession?

Considerations Identify relevant facts: You have responsibilities to the practitioner for whom you are the continuity provider, and to his clients. You may assume that the target business has a premium value to Company A, because Company A already owns a similar business. However, this is confidential information (which would give Company B a competitive advantage in the bidding process). You must not breach the fundamental principle of confidentiality. In addition to your professional body’s code of ethics, you should consider any applicable laws and regulations.

Identify affected parties: Key affected parties are you, Company B (and its director), Company A (and its directors) and the target business (and its owners). You should also consider the practitioner for whom you are acting as continuity provider. Who should be involved in the resolution? The issue of confidentiality is a sensitive one, and you should not involve any parties in the resolution process without good reason. Any discussion of this ethical dilemma, in itself, risks breaching confidentiality. The involvement of your professional body may be particularly useful in such a situation. If the other sole practitioner is well enough, he should be informed of the dilemma and the actions that you decide to take.

Possible course of action You must not disclose to the director of Company B any confidential information gained from your former relationship with Company A. Nor may you use the information for the advantage of Company B or for your own personal benefit. Your problem is complicated by the fact that you are obliged to act for certain clients under the continuity agreement. However, you must remove (or reduce to an acceptable level) the threat to the fundamental principle of confidentiality. This may be achieved by openly declaring the conflict to the director of Company B. Even so, you must exercise very careful judgement when determining how much information can or cannot be shared. In the first instance, you should evaluate the threat to the principle of confidentiality brought about by the conflicting interests of your current NQ Magazine October 2017


client and your previous client. In this case, you are likely to conclude that it is significant. Even if you believe that the threat can be managed while you assist Company B in its bid for the target business, this may not be the perception of a reasonable and informed third party. Therefore, you should consider declaring the conflict of interest between Company A and Company B, and explaining that you cannot act on behalf of Company B in respect of the proposed bid for the target business. You still have a responsibility to your previous client, but if you need to disclose this fact to the director of Company B, you should not mention the name of that client. Such disclosure should be documented. If pressure is put upon you to disclose the name of the other bidder, you should resist. Under such circumstances, it may be advisable to disengage from the client completely in order to effectively safeguard the threat to confidentiality. This will be a measure of last resort, as you are expected to provide continuity of service to Company B, and also act in the interests of the practitioner who is incapacitated. You should keep the incapacitated practitioner informed, if possible. In any event, you should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgement is challenged in the future. NQ NQ Magazine October 2017



Towards a better world Neil Stevenson outlines why accountants have a part to play in the drive to attain the Sustainable Development Goals


s we have reflected in previous articles, professional accountants have central roles to play in capturing, increasing and measuring value for their organisations. This frequently goes beyond financial measurement alone. It is a role consistent with the aim of accountants to maximise the value of their organisations over time. As time horizons lengthen, so does consideration of wider factors. In this article I shall consider the UN Sustainable Development Goals (SDGs) and their relevance to resilient, successful business. The SDGs themselves may be thought of as an inter-connected system setting out the desired outcome of a more inclusive world, for people and the planet. The 17 goals cover diverse areas – opportunity and equality, care for natural capital, access to sustainable resources, education, and partnership to achieve a lasting change. The goals have been set for 2030. Crucially, the SDGs will explicitly rely on business to help deliver them, in partnership with government. This will require innovation and new thinking. But not less successful business. In fact, the Business and Sustainable Development Commission, in its 2017 report Better Business, Better World, estimates the business benefit in terms of operating savings and new business to be US$12 trillion. So thinking about


the business opportunities associated with supporting or aligning to the SDGs makes sense for accountants. This sounds good – business benefits and we live in a better world. And for leaders of change in organisations, personal opportunity for growth and recognition. However, how to align the business to the goals is a challenge that companies are just starting to address. The IIRC is now working with partners and business to capture and share thinking on how to align to the SDGs, and to play its own role in this big agenda. A new approach that supports businesses looking to contribute to the achievement of the SDGs as part of their value creation process has been published by the IIRC and Scottish accountancy body ICAS, in partnership with the Green Economy Coalition.

NQ Magazine October 2017


The report The Sustainable Development Goals, integrated thinking and the integrated report, authored by Professor Carol Adams CA of the Durham University Business School, has been developed to help organisations enhance their contribution to the SDGs, while reducing corporate risk and increasing opportunities that arise from sustainable development issues. This new publication is centred on the concept of the six capitals, which is a fundamental feature of Integrated Reporting. It addresses how, through efforts to transforms the capitals to create value for themselves and for others, organisations can make a material contribution to the SDGs, as well as clarify how they are mitigating or alleviating any detrimental effects. The International Integrated Reporting Framework focuses businesses on how they create value. Integrated Reporting enables organisations to consider this through the perspective of their strategy and business model. It also encourages them to consider their stewardship of the relationships and resources they use and affect, and understand the trade-offs they make. All of these factors are key for businesses thinking about the SDGs and meeting evolving societal expectations and resource shortages. This report sets out how the IR Framework can inform and support a business’s commitment to the SDGs. This is just one response to the SDGs – indeed, organisations such as

NQ Magazine October 2017

the World Business Council for Sustainable Development, the Global Reporting Initiative and Accounting for Sustainability, among many others, are developing thinking and resources to support business, with more resources in development. For professional accountants, the SDGs provide a rich opportunity – to champion new thinking and place your organisation alongside leading companies that are already embracing sustainable development in their vision and strategy. As Anne Adrain, Head of Sustainability & Assurance at ICAS, said: “ICAS recognises the significance of the role that accountants will play in helping organisations to measure and report on their achievements and progress towards the SDGs.” The year 2030 may seem a long way off. But to deliver the ambition set out in the SDGs, we need an urgent and lasting response, starting today. For accountants at the start of their professional journey, the SDGs could offer a helpful framework for development and career ambition. This may help your organisation grow and develop, and NQ perhaps offer personal growth and fulfilment.

 Neil Stevenson, Managing Director – Global Implementation, the International Integrated Reporting Council



Standard briefing 2017

Here is the last in our pocket guides to the IFRS – brought to you in association with the IFRS Foundation IFRS 13 Fair Value Measurement IFRS 13 defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements. It applies when another Standard requires or permits fair value measurements or disclosures about fair value measurements (and measurements based on fair value, such as fair value less costs to sell), except in specified circumstances in which other Standards govern. For example, IFRS 13 does not specify the measurement and disclosure requirements for sharebased payment transactions, leases or impairment of assets. Nor does it establish disclosure requirements for fair values related to employee benefits and retirement plans. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). When measuring fair value, an entity uses the assumptions that market participants would use when pricing the asset or the liability under current market conditions, including assumptions about risk. As a result, an entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when measuring fair value. 16




Pocket Gu ide to IF RS the glob al financi ® Standards: al report ing lang Paul Pacte uage r

IFRS 14 Regulatory Deferral Accounts IFRS 14 prescribes special accounting for the effects of rate regulation. Rate regulation is a legal framework for establishing the prices that a public utility or similar entity can charge to customers for regulated goods or services. Rate regulation can create a regulatory deferral account balance. A regulatory deferral account balance is an amount of expense or income that would not be recognised as an asset or liability in accordance with other Standards, but that qualifies to be deferred in accordance with IFRS 14, because the amount is included, or is expected to be included, by a rate regulator in establishing the price(s) that an entity can charge to customers for rate-regulated goods or services. IFRS 14 permits a first-time adopter within its scope to continue to account for regulatory deferral account balances in its IFRS financial statements in accordance with its previous GAAP when it adopts IFRS Standards. However, IFRS 14 introduces limited changes to some previous GAAP accounting practices for regulatory deferral account balances, which are primarily related to the presentation of those balances.

IFRS 15 Revenue from Contracts with Customers IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with earlier application permitted. IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Applying IFRS 15, an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To recognise revenue under IFRS 15, an entity applies the following five steps:  identify the contract(s) with a customer.  identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods or services that are distinct.  determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer.  allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract.  recognise revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. NQ Magazine October 2017

IFRS IFRS 16 Leases IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with earlier application permitted as long as IFRS 15 is also applied. The objective of IFRS 16 is to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognise assets and liabilities arising from a lease. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. A lessee measures right-ofuse assets similarly to other nonfinancial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the rightof-use asset and interest on the lease liability. The depreciation would usually be on a straight-line basis. In the statement of cash flows, a lessee separates the total amount of cash paid into principal (presented within financing activities) and interest (presented within either operating or financing activities) in accordance with IAS 7. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes noncancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. The initial lease asset equals the lease liability in most cases. The lease asset is the right to use the underlying asset and is presented NQ Magazine October 2017

in the statement of financial position either as part of property, plant and equipment or as its own line item. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17 Leases. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. IFRS 16 replaces IAS 17 effective 1 January 2019, with earlier application permitted. IFRS 16 has the following transition provisions:  existing finance leases: continue to be treated as finance leases.  existing operating leases: option for full or limited retrospective restatement to reflect the requirements of IFRS 16.

IFRS 17 Insurance Contracts The following summary is based on a near-final draft of IFRS 17. IFRS 17 was issued in May 2017. IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2021, with earlier application permitted as long as IFRS 9 and IFRS 15 are also applied. Insurance contracts combine features of both a financial instrument and a service contract. In addition, many insurance contracts generate cash flows with substantial variability over a long period. To provide useful information about these features, IFRS 17:  combines current measurement of the future cash flows with the recognition of profit over the period that services are provided under the contract.  presents insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses.  requires an entity to make an accounting policy choice of whether to recognise all insurance finance income or expenses in profit or loss or to recognise some of that income or expenses in other comprehensive income. The key principles in IFRS 17 are that an entity:  identifies as insurance contracts those contracts under which the entity accepts significant insurance risk from another party (the policyholder)

by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.  separates specified embedded derivatives, distinct investment components and distinct performance obligations from the insurance contracts.  divides the contracts into groups that it will recognise and measure.  recognises and measures groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset). (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin).  recognises the profit from a group of insurance contracts over the period for which the entity provides insurance cover, and as the entity is released from risk. If a group of contracts is or becomes loss-making, an entity recognises the loss immediately.  presents separately insurance revenue (that excludes the receipt of any investment component), insurance service expenses (that excludes the repayment of any investment components) and insurance finance income or expenses.  discloses information to enable users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an entity. IFRS 17 includes an optional simplified measurement approach, or premium allocation approach, for simpler insurance contracts.  PQ magazine would like to thank the IFRS Foundation for the use of its material

See the May and July issues of NQ magazine for Parts 1 and 2 of this article.



How to spend wisely Mohamed Hans explains how an organisation can achieve value for money through effective contract management


key objective of public sector entities in the UK is to deliver efficient procurement and ensure their objectives are achieved within the financial constraints. With the current budgetary pressures, organisations are considering a wide variety of options to deliver services, but for many years, contracts were outsourced to third party providers. Supporters of outsourcing claim that it is a proven method of driving efficiencies in the public services. Others, however, question whether it is worthwhile, taking into account a litany of recent public sector contract failures. For example, G4S Olympic security contract, NHS contracts for patient services, which collapsed after only eight months because it proved financially unsustainable, as well as the Virgin Coast Main Line rail franchise, which had to be scrapped after major technical errors that resulted in multi-million-pound damages settlement to the aggrieved bidders. Value for money (the optimal use of resources to achieve the intended outcomes) of government spending is one of the tenets of good public procurement. The three E’s readily come to mind: ● Economy: minimising the cost of resources used or required (inputs) – spending less. ● Efficiency: the relationship between the output from goods or services and the resources to produce them – spending well. ● Effectiveness: the relationship between the intended and actual results of public spending (outcomes) – spending wisely. 18

To be successful in delivering value for money, public sector entities must raise their game. Contract management, embedded with value for money behaviours and action, requires significant investment in the right quality staff and internal procedures that prevent the same mistakes happening again and again and to leverage opportunities to improve in service delivery. Procurement and contract management professionals create value by eliminating or reducing inefficiencies and waste during the operational life of the contracts. The value captured during the pre-award phase can be realised throughout the life-cycle by ensuring that the contract is effectively managed. Contract management is also about resolving or easing tensions in contracts to build a relationship with the provider based on mutual understanding, trust, open communications and benefits to both customer and provider – a win/win relationship. To achieve value for money in contract management five steps should be considered. They are:

This requires internal teams to fully understand service issues and get to know their service providers, leading to more constructive and workable relationships.

2) Preparation is critical

For effective contract management, it is important that this stage is considered at the initial identification of need (when developing the business case) and the contract caters for all foreseeable eventualities. The contract should include relevant terms and conditions as well as key performance standards, remedies, monitoring procedures and notice provisions. Contract terms should also be transparent and effectively negotiated.


Active, not passive, contract management There needs to be an acknowledgement that organisations must invest in ‘active contract management’ that will set the path for a good contracts and better services. NQ Magazine October 2017

CONTRACT MANAGEMENT A growing development in a number of public bodies is the establishment of commercial teams that are taking control of all external supplier relationships.

3) Contract champion

Organisations should consider appointing a contract champion who has a strategic role in keeping a commercial eye on all contracts and producing regular reports with key performance issues and ongoing risks. It is crucial to ensure that the right people, with the relevant commercial, interpersonal and management skills are involved in contract management. This also extends to ensuring you get the right external advisers as we seem to have too many contracts which wipe out a rainforest due to the number of pages but is not understood and ends up retaining the contractual risks with the public body, instead of actually transferring this to the provider.

4) Driving performance

Generally, organisations make limited use of service credits and other

NQ Magazine October 2017

financial incentives to drive supplier performance. Although many contracts include relevant terms, service credit deductions for under-performance are often not invoked by contract managers. The main reason cited is that this could damage the customer’s relationship with the supplier, or would not improve supplier performance. A simple way to overcome this reluctance is to provide for automatic deductions – with the possibility of earnback over a period of time. This would however be subject to a comprehensive dispute resolution mechanism in the contract which is understood by both parties and is also workable. The problem with too many contracts is that this is made too complex and it becomes impractical or impossible to put into practice. Like in the recent UKTI example, too often public bodies are over-charged on their contract as there is no ‘intelligent client’ at the centre to scrutinise what the service provider is invoicing. Another example is the reported overcharge of up to £19m involving Birmingham City Council and its repairs and maintenance provider.


Supplier relationship management Developing a proactive approach to meet with your suppliers and not wait until something goes wrong is also key. Time and resources need to be invested into developing a relationship with the supplier that results in better service delivery. While it is important to develop and maintain effective relationships, public sector organisations must not forget that they need to maintain commercial confidentiality to ensure taxpayer’s money is wisely spent. Due to a series of high-profile governance failures, public scrutiny is running high. And so, ensuring that contracts are achieving outcomes must be of utmost importance to procurement and contract management professionals. By following these five steps, those working in the sector will be significantly more empowered to boost value for money and ensure that outsourcing benefits the communities that public sector organisations serve.


● Mohamed Hans, CIPFA

Procurement Advisor



Agility’s the magic word There’s a new breed of finance function, says Peter Simons. Here he explains all – and outlines the implications for newly qualified accountants


ohn Cryan, the chief executive of Deutsche Bank, recently told participants at a Frankfurt conference that a lot of his staff will be replaced by robots over the next five years. The scary thing? He also mentioned accountants, saying they “spend a lot of time basically being an abacus”. We are only seeing the beginning of disruptive technologies and this is already changing the way we live and work. For many finance professionals the question is how to survive and adapt to a world where new technologies could threaten their work. The answer: they must be equipped with the skills for today and the life-long learning resources for the digital challenges to come Yet, organisations must also be agile in the digital age as disruptive technologies enable new business models that could change how business is done in many sectors. An agile company is fit, alert, swift, flexible and nimble.


It is running efficiently and has the profitability and resources to be adaptable. Businesses need to be more alert to threats or opportunities than their competitors. They must be able to quickly make strategic decisions and implement changes promptly. They are nimble in how they can innovate, trying on a small scale first before scaling up quickly with confidence, or failing fast when necessary, but are always learning and prepared to re-allocate resources to where the returns or prospects are better.

What is an agile finance function? In the long run, organisations will only succeed if their finance function is able to support this business agility. An agile finance function is enabled by technology to run smoothly and efficiently. Its finance leaders scan the horizon and keep decision-makers informed. They support

NQ Magazine October 2017

AGILE FINANCE the development of new strategies by promptly assembling relevant information and analysis to assess potential strategic responses. They have the capacity to support implementation projects and provide timely measures and analysis to manage progress towards strategic objectives. They access a wide range of data to track the often intangible drivers of cost, risk and value, continually analysing and predicting performance by dimension. They engage business colleagues in collaborative conversations and are always looking for opportunities to reduce cost, innovate, increase revenues, or improve cash flow. We are talking about a new delivery model for modern finance with certain key features. These have been identified in a report by the Association of International Certified Professional Accountants (the Association), commissioned by Oracle:  Making use of the latest technologies such as cloud enterprise resource planning, robotic process automation, and machine learning.  Working in an integrated and cross-functional way instead of working in silos.  Being able to use big data analytics and artificial intelligence to be able to focus more on innovative strategies and by doing so increase revenue growth.  Developing performance metrics to analyse what is working and where opportunities lie. By making use of new technologies, the finance function will not only be able to focus on predictive analysis and supporting decision making but management accountants themselves will also be able to quickly react to changes.

The agile finance leaders The research has found that those finance functions which are most advanced in transforming to this new operating model are more likely to have demonstrated agility and achieve profitable growth than their competitors. Their management accountants understand their organisation’s business model and how value is created. They are able to look not just at what’s happening on the inside of their companies but are also looking at external


AGILE FINANCE  Digitally enabled to be efficient and effective  Scans horizon; informs decision-makers  Assesses responses to threats & opportunities  Capacity to support strategic initiatives  Analyses opportunities to innovate and/or improve performance

AGILE Fit Alert Swift Flexible Nimble

 Solvent, liquid, profitable and efficient  Alert to developments relevant to its market  Strategic; can develop new initiatives quickly  Capacity to manage implementation  Constantly re-allocates resources to improve performance

factors and risks. Because of this they can advise decision makers on how to react to new developments. To put it simply, agile finance leaders are fully equipped to be successful in a digital world. They know how to work with cloud-based systems and digital technologies and make the best use to support their organisations with their strategies.

What are the obstacles? Essential to the new operating model for modern finance is a breed of management accountant with the skills, mindset and commercial curiosity needed for today. This includes continually developing professionally, acquiring new competencies for the future. However, many finance professionals are still too much focused on traditional areas. Critical thinking, relationship building, and understanding of the business model are the skills asked for. Agile finance leaders are especially concerned about data analytics as well as more general business and multidisciplinary expertise.

How are management accountants prepared? With new technologies and digital tools, continuing professional development (CPD) has become more and more important. CPD is an integral part of the Association, and Chartered Global Management Accountants (CGMA) oblige themselves to learning throughout their career. This ensures that they have the knowledge and the right combination of accounting, business and analytical skills which form the ideal basis for the modern finance function. CGMA designation holders have access to the CGMA Store and to resources such as online courses, video and audio sessions, and e-books. With this they get the insight they need to constantly update their skills and stay at the forefront of the profession. The report Agile finance revealed: The new operating model for modern finance can be downloaded at NQ

 Peter Simons, Associate Director of Research and Development – Management Accounting, Association of International Certified Professional Accountants NQ Magazine October 2017


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NQ magazine, October 2017  

An online magazine for newly qualified accountants and those in the final stages of their qualification. It's packed full of careers advice,...