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Andrew Miller on rebooting the guardian the magazine of icas | june 2013 | ÂŁ3.99

firms join forces why mergers are all the rage in the legal sector

Lending a hand

Are SMEs getting the funding they need?


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quam erat niam, quis suscipit do conse-

3

asking the important questions

Robert Outram is the editor of THE CA magazine

ROBERT.OUTRAM@THINKPUBLISHING.CO.UK follow us on twitter.com/thecamag

Magazine subscriptions

18 05

P  RESIDENT Why the influence of ICAS in public debate is so far-reaching

06

upfront David Gauke MP warns against devolved Corporation Tax; Q&A with Canongate’s Susannah Tastard CA; awards and honours

11 12

Your say Ethics should be taken seriously

Class of 1990 All change in Number 10 and for CAs at the dawn of a new decade

14

ACCESS TO FUNDING Is the Government doing enough to promote SME growth?

18

 INTERVIEW CA Andrew Miller on leading the Guardian Media Group in a rapidly changing digital age

23

 law review How globalisation, a tough market and the need to compete are driving a trend to mergers at all levels of the legal sector

34

BRIEFING The Institute’s concerns over FRC proposals; charities and FRS 102; improving audit quality; Scotland’s

1 year, 12 issue subscriptions: UK £45; overseas £65; students £20. Back issues: £5, subject to availability. Tel: 0131 347 0314 or email professionalservices@icas.org.uk Cover: Corbis

23

volume 117 Issue 1283 june 2013

tigationes us quod ii processus m consueam littera m claram, nitatis per ma. Eodem WHEN A committee of the House rum clari, of Commons summons you to give m dolor sit evidence, you drop everything. So it sed diam was that two senior members of the ut laoreet ICAS Technical staff found themselves . Ut wisi in Westminster, answering questions erci tation from MPs about the findings of the quip ex ea latest ICAS report on the implications um iriurefor the funding and regulation of pensions, should Scottish voters opt e molestie for independence in the referendum giat nulla coming up next year. usto odio The ICAS report had already been tum zzril one of the topics at First Minister’s lla facilisi. Questions in the Scottish Parliament. s eleifend What was it about Scotland’s Pensions g id quod Future that caused such a stir? Typi non The ICAS working party had been entis doing what CAs do best: digging for the facts, asking awkward questions and presenting the results fearlessly and objectively. The report’s most unexpected finding was that a little-known provision in European regulations – as interpreted under UK law – requires that “cross-border” pension schemes must be fully funded at all times. That would have a potentially huge impact on the many companies running what would become cross-border schemes in the event of Scottish independence (for a more detailed explanation, see page 38). As the run-up to the 2014 referendum continues, we can expect to see more pertinent questions coming from ICAS.

contents

e molestie giat nulla usto odio tum zzril lla facilisi. s eleifend g id quod Typi non entis

pensions future; ICAS’s tax principles; understanding Patent Box and R&D tax breaks

45

INSI  DE ICAS CA Admission Ceremony puts ethics first; meet the new Council members

50

 LAST WORD Deloitte’s Ian Steele on how the Micro-Tyco scheme can inspire and empower all of us

Member of the Audit Bureau of Circulation 20,539 (July 2011-June 2012)

june 2013 ca magazine


behind every

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based on an EU test for comparative purposes and may not reflect real driving results. Above rentals based on New Fiat 500L 1.4 Pop Star on Contract Hire payment profile of 3 rentals in advance (equivalent to £597) followed by 35 rentals of £199. All rentals exclude VAT and maintenance. Based on 10,000 miles per annum. Excess mileage charges apply. Vehicles must be registered with FGA Contracts before 30th June 2013. Offer subject to status, guarantee and/or indemnity may be required. FGA Contracts, 240 Bath Road, Slough, SL1 4DX. ^Source: JATO Dynamics. Based volumeweighted average CO 2 emissions (g/km) of the best-selling brands in Europe, full year 2012.


president 5

REFLECTING ON HIS FIRST MONTH AS ICAS PRESIDENT, BRENDAN NELSON IS STRUCK BY THE INFLUENce ICAS CONTRIBUTIONS have on MAJOR DEBATES

spotlight on FUNDAMENTALS If there is anyone out there who believes that ICAS doesn’t have a central role to play in the major debates affecting the UK, who questions whether ICAS can contribute to a political topic in a non-political way, the publication of Scotland’s Pensions Future should make them think again. Welcomed as an important contribution to the debate about Scottish independence by both the “Yes” and “No” sides, this major new ICAS pensions paper asks fundamental questions of both the UK and Scottish Governments. The issues involved affect more than simply Scottish schemes – there are UK-wide implications. It’s heartening to see the extensive coverage given to the paper. That ICAS staff gave evidence to the House of Commons Scottish Affairs Committee is clear evidence of the influence we enjoy. This national and international influence was also evident with the publication of Balanced and Reasonable, a new ICAS discussion paper that proposes a radical change in the level of assurance provided by the auditor over the front half of the annual report. Balanced and Reasonable proposes that auditors should provide more positive assurance on the management commentary sections of annual reports to better meet the needs of stakeholders. The need to address perceived shortcomings in the level of assurance provided by the management commentary is something that affects many in our profession, and in the wider business world. Auditors may have to move out of their “comfort zone”. Balanced and Reasonable is a fascinating, original

ICAS: 2013 ADMISSION CEREMONY

248

New CAs at the 2013 ceremony

TWO Married couples, both admitted

one

Pair of twins, Lynne and Laura Thomson, both admitted

contribution to this discussion, and to the consideration of how greater value can be added by the auditor. A number of round-table discussion events are to be held on Balanced and Reasonable in London and Brussels. I’m delighted that ICAS is continuing to provide leadership and innovative thinking on the role of the auditor, and I look forward to following the discussion this paper will doubtless lead to over the coming months. I urge members to read Scotland’s Pensions Future and Balanced and Reasonable, both of which are available to download from the ICAS website. This is where ICAS should be: using the insights and expertise of our members to act in the public interest – probing, inquiring and seeking clarity on major issues. Meanwhile, as a reflection of the international nature of the ICAS membership, the Admission Ceremony in Edinburgh on 27 April was very striking. Our gold medal winner, Mariya Semenkovich (pictured below, left), is from Aleksandrov in Russia. Among the other new CAs are a variety of backgrounds as rich and varied as the futures that await these newest members of the ICAS professional community. Also evident at the event was the entrepreneurial potential of CAs: Ali Smeaton, a CA admitted in 2007 and the founder of costume company Morphsuits, gave a great presentation in which he outlined a wealth of entrepreneurial activity and instincts. The future of ICAS is well assured. brendan nelson is the President of ICAS

PRESIDENT’S DIARY

26 April – ICAS AGM It’s with pride and no little nervousness that I accept the chain of office from Sir David Tweedie, the finest accountant of his generation.

27 April – The 2013 ICAS Admission Ceremony It is remarkable to see the enthusiasm and energy in the faces of the 248 newest CAs admitted. 7 May – Credit Suisse Lunch Lunch with the CA Club in Credit Suisse in London, a great chance for me to meet fellow CAs, but also for the CAs themselves to network with colleagues. There are a number of these CA Clubs already established and I’d encourage anyone interested to contact the ICAS Member Engagement team. Dover House Reception Anton and I hold a private meeting with Scottish Secretary Michael Moore CA ahead of the reception in Whitehall. Michael joins the event, making a great speech in praise of ICAS, and staying to talk to his fellow CAs. As I write this, I look forward to meeting members who work in Lloyds Bank in London, on 20 May. DIARY FOR JUNE 3/4 June – Event with CA students in Edinburgh 4 June – Holyrood reception 5 June – Evening event in London, to be confirmed To find out more about these, and other events, contact memberengagement @icas.org.uk june 2013 ca magazine


6 upfront

keeping you up to date with the latest developments in accountancy and business

upfront

David Gauke MP

taxation

MINISTER FIRES WARNING OVER CORPORATION TAX rates a bid by the Scottish Government to bring Corporation Tax powers north of the border will be resisted strongly by Westminster, the UK tax minister has warned. David Gauke MP was speaking at an event hosted by ICAS in London on 14 May when he issued the warning, arguing such a move would create confusion and complexity for business operating in and around the borderland. The Scottish Government is set to win powers to vary income tax as part of the Scotland Act 2012, which is due to come into force in April 2016. But while Gauke backed that move, he pledged to fight the governing Scottish National Party’s attempt to extend the powers to Corporation Tax. “[Income tax] is a sensible reform because ca magazine June 2013

it’s about accountability,” he told The CA. “[But] I have much greater concerns about Corporation Tax because I think that could create administrative concerns for businesses operating both sides of the border. I think it’s a different situation in Northern Ireland, because it doesn’t have a land border. [But] I have not seen a good argument for devolution of Corporation Tax in that [the Scottish] context – and we are very resistant to that.” Some commentators have warned that allowing Scotland to vary Corporation Tax could lead to Holyrood cutting it below English levels, effectively creating a tax shelter within the UK, and incentivising ostensibly English businesses to locate just north of the border to benefit from the lower levy.

Gauke, who once courted controversy by saying it was “immoral” for people to pay tradesmen cash-in-hand, also said bringing morality into the public debate over tax policy could be problematic. “Politicians like myself can get into trouble whenever we use the ‘m’ word,” he told The CA. “If there are a number of ways in which a transaction can be structured, I don’t say that they have to structure it in a way where they pay the most amount of tax.” But he added that companies who use “artificial, contrived behaviours” to duck tax fell into a different category. “Whether you use the ‘moral’ word or not,” he said, “I think that’s wrong. I think it’s understandable if companies are criticised for that type of behaviour.”


7

CA is on top of the world

APPS

branded mobile app for quick comms with client base The smartphone market is booming. How many of your clients and prospects now use a smartphone or tablet? For most ICAS members it’s the vast majority of their client base. Now imagine your own app, approved by Apple and Google, which can be used on all your clients’ devices, wherever they go. The app can be customised with your logo and your branding, and is jam-packed with useful features, such as tools, calculators, tax rates, receipt management, and so on. Clients will be able to access them anytime, anywhere, for free. It’s literally like placing your practice in their pocket.

Free App Demo for ICAS members

Register for a free app demo today and from the comfort of your desk you can see how the app works and who else is already using it.

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As head of finance with Bank Leumi Ltd in Jersey, Joanne Chapman CA is accustomed to scaling the heights of her profession. Earlier this year, however, she found herself en route to the summit of a very different kind of terrain. In March, keen climber Chapman participated in a charity trek to the base camp of Mount Everest, a formidable challenge 5,360m up in the Himalayas. The Sherpa-led group of 15 grappled with treacherous icy tracks, altitude sickness, and even a train of yaks to reach their goal after an almost week-long expedition. Chapman found the climbing conditions demanding, but she was rewarded with spectacular mountain views along the way and a fundraising total of £4,600 for the Jersey Women’s Refuge.

Joanne Chapman CA

Reflecting on the experience, she says: “What a fabulous feeling and what an amazing place. It had been really tough going but the sense of achievement was immense and I am so grateful to have had the opportunity to undertake this adventure of a lifetime.”

europe

EU AUDIT REFORM

Members of the European Parliament have voted for a package of reform measures in the audit market that would mean companies being required to change their auditor at least every 14 years. Individual member states will be able to increase this rotation period to 25 years, if certain safeguards are in place. Initial proposals had suggested a six-year rotation. Auditors in the EU will be required to follow international auditing standards and auditors of “public interest entities” (PIEs) such as banks, insurance companies and listed companies

will have to provide more detail on how the audit was carried out. PIEs will be obliged to issue a call for tenders when selecting an auditor and “Big Four-only” clauses will be outlawed. Rules prohibiting auditors from providing certain non-audit services to their audit clients will be in line with existing international standards rather than imposing a total ban. The proposals will go before the full European Parliament later this year. See comment from ICAS, page 34

numbers

70% 30% 557

Chief executives who are planning to cut costs in 2013 (PwC 16th Annual Global CEO Survey) (source: NAPF)

Proportion of complaints against HMRC that were upheld in 2011/12, down from 39 per cent in 2010/11 (source: Saffery Champness)

Corporate administrations recorded by the Insolvency Service in Q1 2013 (compared with 779 for the same period in 2012)

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14/05/2013 16:14

June 2013 ca magazine


8 upfront book reviews

where i am today

The business of teamwork, and teams as a business

WHAT’S THE BEST THING ABOUT YOUR JOB? The variety, and seeing the results when we publish great books.

DESIGNING B2B BRANDS Brian Resnick and Carlos Martinez Onaindia Wiley (£33.99)

HHHH Subtitled “Lessons from Deloitte and 195,000 brand managers”, this book is both a manual on developing and maintaining B2B brands and an extraordinarily detailed examination of the brand strategy of one global professional services firm. Successful branding is about far more than design – although you will learn plenty about Deloitte’s design and its famous “green dot” – and this book also takes in the philosophy of brand development, “sonic signatures” and apps, to select just a few topics. As the authors point out, purchasing decisions in the B2B sphere are not made on impulse, unlike many consumer purchases. Building a trusted global brand in the B2B sector takes time, therefore, and the brand must be capable of reaching its target audiences through a variety of channels. As an in-depth explanation of one organisation’s brand strategy, this guide is both fascinating and full of useful insights. LEADING TEAMS Paolo Guenzi and Dino Ruta Jossey-Bass (£24.99)

HHH Leading Teams: Tools and Techniques for Successful Team Leadership from the Sports World brings together the latest insights on team leadership and motivation, providing an informative discussion of the skills needed. This isn’t sport as an analogy for business, it is sport as business; but there are lessons that other sectors can learn from sport, on issues such as motivation and establishing credibility. There are also first-hand accounts from leading coaches in a range of sports around the world. Based on the authors’ work with top sports figures and corporate executive programmes at the Bocconi School of Management, this title demonstrates an alternative model of team leadership, building on the methods and practices used in the world of sport.

HHHHH essential HHHH very good HHH useful HH flawed H don’t bother ca magazine june 2013

SUSANNAH TASTARD CA, FINANCE DIRECTOR WITH AWARD-WINNING INDEPENDENT PUBLISHER CANONGATE BOOKS When did you qualify as a CA and who did you train with? In 2001 with Gray McDonald & Dinnie, Aberdeen. BRIEF CAREER HISTORY After qualifying I worked in the corporate/audit department at Johnston Carmichael in Aberdeen, where I worked my way up to manager level. I then decided to combine a move into industry with a move to Edinburgh, where I initially worked as financial controller at a property development group, before moving to Canongate Books where I started off as finance manager. WHAT DOES YOUR JOB INVOLVE? I work alongside the other directors on the board to ensure that the company is running as efficiently and effectively as possible and to develop future strategies for the business. I also run the accounts department, dealing with all aspects of finance and overseeing HR and IT matters. WHO DO YOU REPORT TO? Jamie Byng, managing director. WHAT APPEALED ABOUT THIS CAREER PATH? I enjoy working within smaller companies where my role is varied and I can be involved in the strategic side of the business. Publishing appealed because it is an interesting and challenging industry to work in. WHAT DOES A SMALL PUBLISHING HOUSE HAVE TO DO TO SURVIVE IN THE ERA OF THE KINDLE AND OTHER EBOOKS? We ensure that we have a great team of people with the expertise and drive to keep on top of, and ahead of where we can, the changes that are happening in the industry since the introduction of ebooks. Our ebook sales have increased significantly and we are ensuring that we capitalise on this and adapt accordingly.

…AND THE WORST? As in any business, sometimes you have to make tough decisions to ensure you are doing what is in the best interests of the company. PROUDEST MOMENT SO FAR? Being appointed finance director and joining the board at Canongate. WHAT’S YOUR NEXT CHALLENGE? Working with the board to continue to build on the great successes the company has had, and ensuring Canongate remains a strong player in an industry which is seeing so many changes. HOW’S YOUR WORK/LIFE BALANCE? Good. I work extremely hard so I make sure I take time out in the evenings and at weekends to relax. WHAT DO YOU DO TO RELAX? I enjoy dancing – it’s a great means of escapism and to keep fit – and holidays in the sun. WHAT’S YOUR PERSONAL FAVOURITE, OUT OF CANONGATE’S TITLES? Life of Pi [by Yann Martel]. It is not only an amazing book but it continues to be such a great success for Canongate. HOW HAS YOUR TRAINING AS A CA HELPED PREPARE YOU FOR THIS ROLE – IF IT HAS? I had great training in a small company, which gave me a wide range of exposure to audit, accounts and tax, across a variety of businesses and industries. This gives you a wider knowledge base and a real understanding of how businesses operate, as well as preparing you well technically. WHAT SINGLE PIECE OF ADVICE WOULD YOU GIVE TO A CA LOOKING TO PURSUE THIS CAREER ROUTE? Ensure the training and experience you get are as varied as possible, as the knowledge and business acumen you gain are invaluable. WHERE DO YOU THINK YOUR PRESENT ROLE MIGHT LEAD? I’ll continue to be a key member of the team at Canongate and help to drive the business forward as successfully and profitably as we can.

“My personal favourite out of Canongate’s titles is Yann Martel’s Life of Pi. It is not only an amazing book, but it continues to be such a great success for the company”


9 top marks

award

Logan rewarded for excellence

Double exam prize

richard logan CA, finance director with cloud computing company iomart Group, has been awarded Smaller Quoted FD of the Year at this year’s FDs’ Excellence Awards. Angus MacSween, CEO of iomart Group, said: “Richard has played an important role in iomart Group’s strategy of organic and acquisitive growth which has helped us become one of the UK’s leading cloud computing companies. He is a friend as well as a colleague and I look forward to working with him to bring iomart further success.” The ceremony in London featured many media and technology winners, with Ian Griffiths, chief financial officer at ITV, picking up the coveted FTSE 100 FD of the Year award. Established in 2005, the FDs’ Excellence Awards, created by Real Business in association with the ICAEW and supported by the CBI, are the biggest national programme celebrating excellence in financial management.

An ICAS MEMBER has outshone UKwide competition to score the highest mark in an elite industry exam for insolvency professionals. James Dewar CA, a senior manager in KPMG’s corporate restructuring team, achieved the highest overall mark in the Joint Insolvency Examination Board (JIEB) exams. The exams lay the foundations for a career as a licensed insolvency practitioner. Dewar won both the overall UK prize and the ICAS prize, awarded to the highest-placed candidate sitting the Scottish papers. Commenting on the results, Dewar said: “The first-rate technical training given by ICAS and KPMG provided the solid grounding on which my exam success was based.”

sport

CA continues winning form

charity

From left: Alan Kilpatrick, guest speaker Frank Bruno and Ian Dickson at the Beatson’s annual sports dinner

CA honoured for cancer charity work alan kilpatrick CA, regional director of Devro plc and one of the founders of the Friends of the Beatson charity, has been awarded a British Empire Medal in recognition of his and co-founder Ian Dickson’s work to improve care for cancer patients. Prince Edward presented them with their awards during a prestigious ceremony at Bearsden Academy in May. The former cancer patients established Friends

Following stateside success earlier in the year at the Houston Half Marathon, Stuart MacDougall CA added another trophy to his mantel in April, taking first place at the Balfron 10k race event in West Stirlingshire in 36 minutes and 18 seconds. MacDougall works with PricewaterhouseCoopers’ Scottish private business team, where he is joined on regular lunchtime runs by staff from the firm’s Aberdeen and Glasgow offices. This month MacDougall will also be embarking on a two-wheeled challenge as he participates in a charity cycle from Calais to Barcelona. The epic 1,000-mile journey over 11 days will help to raise money for Yorkhill children’s hospital, a cause close to MacDougall’s heart.

of the Beatson in 1995 to provide practical comfort and support for those being treated at the Beatson West of Scotland Cancer Centre, the busiest in the UK. Kilpatrick said: “I am honoured that Ian and I have been chosen to receive the medals. They recognise not just our hard work but that of everyone who has helped us raise over £3m for the charity, providing support and comfort to thousands of Scottish cancer patients each year.” june 2013 ca magazine


10 upfront moving on

LORD SMITH leaving Weir engineering firm Weir Group has announced that Lord Smith of Kelvin CA, who has chaired the company since 2002, will leave at the end of the year. Fellow Glasgow-born executive Charles Berry will succeed him in the role. Lord Smith said: “It has been a privilege to serve as chairman during such a momentous and exciting time for the company. The business has been transformed under the leadership of two outstanding chief executives, Mark Selway and Keith Cochrane. On the appointment of Berry as his successor, he added: “Charles has decades of international business experience and a strong understanding of Weir’s end markets.” Lord Smith still holds a number of high-profile positions, including chairman of SSE and of the organising committee for the Glasgow 2014 Commonwealth Games.

appointment

WOOD GROUP WELCOMES KEMP David Kemp

david kemp ca is to take on the role of chief financial officer for international energy services company Wood Group PSN (WGPSN). Kemp moves from Trapoil, an independent oil exploration and production company he and three other directors founded in 2008. Here, Kemp was responsible for leading the acquisition of Reach Oil and Gas, interests in the Athena field, and Knockinnon, Orchid and Trent East discoveries. Robin Watson, WGPSN chief executive, said: “David’s experience in managing large oil & gas portfolios, and his knowledge of the global trade and acquisitions market, makes him a highly skilled and respected financial professional.” ca magazine june 2013

Movers&Shakers

Your monthly round-up of who is moving where

Essex-based Industrial Chemicals Group Limited (ICGL) has announced Edwin Strang CA as its new finance director. In addition to this role, Strang is a non-executive director of renewal energy company WITT Limited. He was previously group finance director of Bell Group plc, the leading supplier of electronic security systems to UK and Irish banks, which was acquired by the Securitas Group AB in 2004. Denise MacKinnon CA has been named in Accountancy Age’s second annual “35 under 35”, showcasing some of the profession’s brightest young talent. MacKinnon is business services manager with Campbell Dallas and was recognised for her role in restructuring the firm’s business advisory service department in Glasgow. Enable Scotland, a charity for people with learning disabilities, has appointed Tom O’Hara CA as its new director of finance and technology. O’Hara previously served as managing director of Technology Services Group. He joins as Enable invests in new technology to ensure its systems are ready for changes in the social care market, including the emergence of Self Directed Support (SDS). Colin Rutherford CA has taken up the role of non-executive director with bar and restaurant operator Mitchells & Butlers. Rutherford is currently a nonexecutive director of De Vere Group, where he chairs the audit committee and sits on the remuneration and nominations committees. Roshan Puri CA (pictured right) has joined London-based private equity business Calculus Capital as an investment associate. He moves from an executive position with Ernst & Young where he worked on structuring numerous domestic and international mergers and acquisitions and corporate restructuring transactions.

Founded in 1999, Calculus Capital is a specialist in creating and managing tax efficient private equity funds for individuals. Liz Bingham (pictured right) has been named president of R3, the trade body for insolvency professionals. Bingham is currently partner at Ernst & Young and succeeds Lee Manning, partner at Deloitte. Bingham’s practice area specialism is liquidations, both solvent and insolvent, and she has worked for many FTSE 100 companies on global restructuring projects. Christine O’Neill (pictured left) has been elected chairman of Brodies LLP following Joyce Cullen’s decision not to stand for re-election after serving nine years in the role. O’Neill will remain a partner and will continue to represent public and private sector clients, playing a key role in the public law and regulatory practice at Brodies. Jeremy Lawson (pictured right) has been appointed senior international economist for Standard Life Investments within its global strategy team. He joins the investment manager from BNP Paribas where he held the position of director, senior US economist. Lawson will be responsible for economic forecasting, ideas generation for multi-asset investing and detailed analysis. Glasgow-based law firm Macdonald Henderson has announced three appointments. Louise Hamilton is promoted to associate director, Michael Hankinson is appointed to the dedicated litigation team, while Maureen Matheson joins the private client services team. Hamilton trained with Macdonald Henderson and has worked on a number of high-profile acquisitions, disposals and investments.

MHA MacIntyre Hudson has made three changes to its senior leadership. Neil Stern joined the firm in 2006 as a trainee and has now become partner in the North London office. He is a lead member of the firm’s legal services group and business strategy group. Sally Kirby also joins the London City Not for Profit team from Crowe Clark Whitehill, while Tom Byng moves from Deloitte to the North London-based tax team. Energy supplier UK Power Reserve (UKPR) has named Jon Addis as chief financial officer. Addis’ career spans roles at global accounting firm Arthur Andersen, the private equity division of RBS Group, RBPE and the private equity division of Lloyds TSB, LDC. UKPR entered the UK energy market in 2010, and has recently acquired its tenth site as part of a multi-million pound plan to expand its portfolio of flexible power generation assets in the UK. Barclays has named Colin Couchman as relationship director within its oil & gas team. He joins Barclays after holding senior roles with a range of international financial organisations, most recently as senior director, oil & gas, with Bayerische Landesbank (BayernLB). Sarah McKinlay has joined the law firm HBJ Gately as head of its private client practice. Previously a partner with Morton Fraser, she will lead planning, asset protection and capital tax mitigation, as well as being responsible for its wider private client offering. Law firm Young & Partners has announced the appointment of Ruth Waters as its new managing partner. Waters will lead management and client care across offices in Glasgow and Dunfermline. She succeeds Tom Johnston, who is stepping down to focus on his new role as senior partner. Joanna Goddard also joins the team in the newly created role of business development director.


Your

SAY Your comments and views, in association with

11

Write to us at: ca@thinkpublishing.co.uk and you could win a bottle of Benromach 10 Year Old Scotch Whisky, a bottle of Benromach Organic and two blenders’ glasses

letter of the month

focus on ethics to restore credibility the response by Michael

Andrew, Chairman of KPMG, that the insider trading scandal involving one of his firm’s senior US partners is a “one-day wonder”, is truly disconcerting (Financial Times, 24 April 2013). His focus on the damage done to his own firm’s global reputation and business interests rather

than the damage done to the reputation of our profession speaks volumes. More than ever we need to focus on our ethical conduct and our responsibility to the general public that we uphold the highest standards of independence and objectivity. Sir David Tweedie’s focus during his presidency on auditor

independence, ethics and the public interest has never been more timely and I hope is something that our Institute will continue to focus on and promote, if we are to restore the profession’s credibility in the marketplace. Graeme Cosh CA, Boston, Massachusetts, USA

ICAS FORUMS: GET INVOLVED DAVID GAUKE Q&A: Treasury Minister David Gauke MP hosted a Q&A session on the ICAS Forums on Monday 13 May, 9–9.30am, enabling all CAs and students to put their questions to him. Here are a few of the questions, with the minister’s responses: Q: Should there be morality in paying a tax bill? We’re not asked to take a moral stance in paying a utilities bill and, if anything, we’re asked to shop around to minimise such bills. A: Where there is behaviour that is very aggressive, contrived, artificial, clearly contrary to wishes of parliament – that behaviour is not right. Clearly the Government has a duty to close loopholes where they exist... it is not a moral position to declare a company should pay a certain amount. Where the behaviour is contrary to the spirit of the law it creates difficulties. Q: Is there a possibility that an independent Scotland

might become an accidental tax haven if its tax raising powers result in “softer” legislation than English and Welsh ones? A: For a business operating in both Scotland and the rest of the UK, two different tax systems would create considerable complexity and an additional burden on businesses… There are cases – for example, income tax – where we realise the decision to devolve more is the right one. Q: There has been much media attention recently on tax evasion and tax avoidance… If the Government has an issue with something that might be regarded as sharp practice… it should legislate against it… What are your comments on this, please? A: At a time when … there are real pressures on living standards, it’s not surprising there is a focus on this. We have taken a number of steps to tackle tax avoidance, closing 33 loopholes so far in this Parliament and we’ve introduced a General Anti Abuse Rule. This is also an international [issue], and the UK has been leading the way at the G7, G8 and G20 to improve international tax architecture… As a Government we are determined to take steps to counter aggressive tax avoidance. For more on this and other discussions on professional topics, go to the ICAS Forums at forums.icas.org.uk

tweet suite ICAS @ICASaccounting 10 May Richard Logan CA tells @ ICASaccounting “quite delighted” at #FD Excellence award win, shares tips for success http://ow.ly/kUp2q ICAS @ICASaccounting 10 May Sir Peter Housden briefs CAs on #indyref issues facing civil service, praises #ICAS #pension report http://ow.ly/kUbuR ICAS @ICASaccounting 9 May To improve your organisation’s social media strategy, read ‘The Social Media MBA’ from our #ebook collection: http://ow.ly/knjj9 Michael Mallon @m_g_mallon 8 May Day 2 of FR complete. Certainly not as bad as the first. Nice motivational visit from @AntonColella to the classroom also helped ICAS @ICASaccounting 7 May Have Qs about our report suggesting improvements to #audit, #assurance and #reporting http://ow.ly/kMnJp Just tweet us #assuranceQ&A

ICAS Official Members LinkedIn discussion group Topics currently under discussion in the ICAS members group include: l Are you now “what you want to be when you grow up”? l Do FDs/CFOs make good MDs, CEOs, COOs and transition well to general management? l Connecting the business and not-for-profit sectors l Assurance is key to credible integrated reporting l Actuaries have the “best job”, according to US jobs website CareerCast.com june 2013 ca magazine


12 upfront

class of

In 1990 Anti-apartheid campaigner Nelson Mandela is freed from prison in South Africa after 27 years

Reunions and reconciliation greeted the CAs qualifying in 1990, writes Alec Mackenzie As Margaret Thatcher made a tearful exit from Number 10, apartheid was abolished in South Africa, and Mikhail Gorbachev consented to German reunification, defining eras of the 20th century were winding down in 1990. The dawn of a new decade also heralded some momentous changes for a group of promising young finance professionals. Gerry Redmond found out this meant a move from Glasgow to the Far East, where he has been based for more than 20 years. Now partner with Ernst & Young in Hong Kong, leading audit enablement for Asia Pacific, he describes his CA qualification as a “top tier” path to becoming established in business. Colin Sutherland likewise relished the opportunity to travel overseas and worked in various parts of the world, including West Africa. He says: “The difficulties encountered in some countries have I think stood me in good stead to deal with problems, both in work and life, in a calm and rational manner.” Sutherland moved back to the UK with his family four years ago and is a financial manager with Petrofac in Aberdeen. An international outlook has also been important to Heidi Frick who sold her own accountancy firm to Haines Watts and now operates Frick & Company, a financial translations service based in Limekilns, Fife. She says: “My CA training and work in general practice has provided me with a huge amount of knowledge and experience which has proved invaluable.” Shirley McIntosh is a tax partner with Baker Tilly in Edinburgh. She says of the CA qualification: “It’s well recognised and well respected. ca magazine june 2013

This helps in the early stages of developing a trusted adviser relationship with clients.” Like many of his contemporaries, Martin Findlay gained a financial grounding in Queen Street training sessions, which he and his friends would mull over in the bars of Lothian Road, he says. Currently partner in charge of KPMG Aberdeen’s tax practice, he recalls the importance of study breaks: “Most of us would head out straight from work for a drink or eight followed by an obligatory curry, nightclub and Saturday hangover – a simple formula, for a simpler time.” Nelson Yiu has fond memories of the camaraderie of Queen Street classes and meeting other trainees as well. He became a partner in a CA firm five years after qualifying and is now a partner with Whitelaw Wells in Edinburgh. Outside fun in the classroom, thoughts of exams still loom large for many. Gordon Chisholm, a senior partner in Rennie Welch, remembers sitting his at Donaldson’s school and “the boys playing football at lunchtime while the girls read notes for the PM exam”. Alastair Russell also found that tricky test questions weren’t the only thing you had to worry about. He recalls being “in Govan Town Hall doing TPC 1 exams listening to the car alarms going off outside and wondering if it was yours”. As treasury and insurance director for EDF Energy in the UK, he

The CA qualification enabled Colin Sutherland (left) to work overseas

believes being a CA “is a passport and qualification to do things you never thought you were capable of”. For Ali Kennedy, it has led her to running the business tax team at BP in London. Her training not only provided her with professional accounting expertise but “a network to last a lifetime” in the many friends she made along the way. Helen Mitchell, who is based in Tamworth, has left the world of finance behind and is now enjoying family life. She says: “I worked my way up to manager level before deciding being a full-time parent to my two boys (both autistic) was more important. Currently I’m a full-time mum with a part-time job in a primary school, which I love.” Robert Young, a former corporate finance partner at Deloitte, is now chief executive at Edinburgh-based property services business, The Key Place Group. He appreciates the “business sense and confidence” he gained as a trainee and still keeps in touch with CAs from his year: “People have got to the four corners of the world and one has even retired, which is a scary thought!”

West Germany defeats Argentina to win the football World Cup On the big screen There is romance at the pottery wheel in Ghost, while Macaulay Culkin causes mischief when left Home Alone In the charts Madonna starts a new dance craze with the hit single Vogue and Sinead O’Connor tells us Nothing Compares 2 U On the box A strong silent type named Mr Bean makes his television debut Moviestore collection / Sipa Press / Rex Features

1990


13

Unlocking finance for growth Funding for capital expenditure

Working Capital to help deliver on new contracts

Funding entry into overseas markets

Development capital to support new product initiatives

If you have a desire to grow your business and achieve your aspirations, we can help you get there. In today’s economic climate, SMEs continue to experience difficulties in accessing the finance they need to pursue their business plans and exploit market opportunities. The Scottish Loan Fund is boosting investment in Scotland by providing loans ranging from £250k to £5m to qualifying Scottish SMEs.

For further information, please contact us: Maven Capital Partners Glasgow 0141 206 0121

Edinburgh 0131 306 2201

slfenquiries@mavencp.com www.mavencp.com/scottishloanfund

Aberdeen 01224 517 120

ca magazine


14 access to funding

Lending a hand while the “funding for lending” scheme is making a difference in some quarters, is the government doing enough to promote SME growth, asks KEN SYMON george williamson found himself heckling the television news earlier this year. Williamson, who is a partner in a small mortgage advice business in the west end of Glasgow, was scoffing at a news report which claimed that the Government’s Funding for Lending scheme wasn’t working. “I have had the busiest start to a year in six years, things are really buoyant, the housing market is starting to move and that is all down to the Funding for Lending scheme,” he says. It seems that Williamson’s experience on mortgages is far from an isolated case. Matthew Fell, CBI director for competitive markets, says: “Funding for Lending is already making a difference in the housing market.” But while it may be working for mortgages, and the firms who work in that space, the scheme was having less success in terms

“The only way I could see for us to lend more would be for someone to say that we did not have to operate by any commercial standards” Stephen Hester

of another of its aims: helping SMEs (small and medium-sized enterprises) gain access to much-needed capital for growth. According to the latest Bank of England figures published in March, net lending contracted by £2.4bn in the fourth quarter of 2012. Further evidence from the BofE’s Trends in Lending survey, published in mid-April, put it starkly: the availability of credit for SMEs was “little changed”. Lending by banks and building societies to businesses contracted by about £5bn in the three months to February, it says. Robert Downes, a spokesman for small business lobby group the Forum of Private Business, says: “There’s no doubt that bank lending to SMEs in the UK is not in a good place, and certainly not where it needs to be for sustained economic growth. ca magazine june 2013

“Until the banks resume lending, at affordable rates, the economy is going to remain sluggish, and this will impact on jobs and business growth.” Downes went on: “Recent economic data, though, suggests the UK economy may have at last turned a corner, and it could be that the latter part of 2013 will see a marked change, particularly if the Funding for Lending scheme takes off, having recently been tweaked by the Chancellor. “There’s no reason why it shouldn’t either, the banks have access to remarkably cheap credit, and if this doesn’t work, frankly what will?” While we shall have to wait for the official figures for 2013, informal soundings from banks suggest a mixed picture with some bankers saying that the first part of this calendar year is likely to show little change in SME lending while others predict an improvement. One piece of more positive evidence came in May when the UK Government announced an increase in lending to SMEs under the Enterprise Finance Guarantee (EFG) Scheme. Business minister Michael Fallon said that Bank of Scotland, Lloyds and Santander all reported significant increases under the EFG with Q4 lending for the financial year 2012/2013 at £91.7m being the highest level since September 2011. This increase follows the Government’s decision to name banks that were not lending much under the scheme and to encourage them to do more. But the banks insist that a lack of lending is not their fault. Royal Bank of Scotland CEO Stephen Hester put this most forcibly in a colourful intervention in the Sunday Times (on 5 May). He claimed that his bank was “desperate” to lend. “We are lending as much as we can,” Hester said. “We are not constrained by either capital or funding. The only way I could see for us to lend more would be for someone to say that we did not have to operate by any commercial standards – that we would undercut everyone on price because we did not have to make a profit.” Bankers also point to questions of the robustness of SMEs and their case for funding after the difficulty of trading through the last few years.


Facund0 Arrizabalga / Sipa Press / Rex Features

15

SCOTTISH LOAN FUND IN ACTION The three businesses that received funding in the latest round from the Scottish Loan Fund were:

l Compound

Semiconductor Technologies Global of Hamilton, Lanarkshire which makes laser chips and is cashing in on the booming market for smartphones.

l Deep Casing

Tools of Aberdeen received £2.1m in working capital for growth in the shale oil and gas sector, including expansion in the US and Middle East markets.

l VisionWare, a

Glasgow-based software company received £1m from the SLF plus additional funding from Bank of Scotland to boost sales of its data management software MultiVue in the US and UK markets.

Stephen Hester

However, Robert Pattullo of the ICAS Business Policy Committee says there may be a different reason. “A lot of SMEs aren’t asking for funds because they don’t think they would get them,” he says. “But if they have a decent business case funds are there. “There is a fear factor for businesses. SME leaders are saying ‘maybe the best thing is to do nothing, to sit on what cash we have and keep it for a rainy day’.” With the extension of Funding for Lending for 12 months announced in April, and further attempts to publicise what help is available, will things now begin to open up? Matthew Fell at the CBI says that the effects of Funding for Lending are beginning to be seen beyond the housing market. “There are signs that it is starting to lower the cost of finance for

“A lot of SMEs aren’t asking for funds because they don’t think they would get them” Robert Pattullo

businesses,” he says. “The additional incentives for banks should accelerate activity in the small business financing market. “But we need to be realistic – Funding for Lending is only one piece of the finance jigsaw. Boosting firms’ confidence by raising awareness of the various funding schemes available is critical.” Another of those schemes to help SMEs gain funding is the UK Government’s long-awaited Business Bank. At the launch in April Business Secretary Vince Cable said: “Small and medium-sized businesses are still telling me that access to finance is their number one problem, preventing them from investing and growing.” He announced that in the first phase of the Business Bank £300m of public funds would be made available to co-invest alongside private sector cash. This cash is the first tranche of the £1bn of new capital allocated to the measure by Chancellor George Osborne in the 2012 Autumn Statement. Cable said: “Establishing a lasting business bank institution is a long-term project, but getting this money reaching SMEs as soon as possible is the first step.” Much of the detail of how the Business Bank will work is still to be announced, although ministers did say they june 2013 ca magazine


16 access to funding

payfont technology Finding funding for safer e-commerce

David Lanc and Ian Paterson Brown

PayfontTM is a revolutionary IT offering which aims to provide unique, simple, safe online identity protection, to help protect banks, online retailers and their customers from identity fraud. The company’s CEO and founder is Dr David Lanc, who was director of cards strategy and development at Royal Bank of Scotland. His fellow director is Ian Paterson Brown CA, formerly a director with investment houses Ivory & Sime and F&C. To roll out this product will take a significant financial investment, so Lanc and Paterson Brown started by talking to potential angel investors, back in 2006. Paterson Brown says: “Angel investors can all too often be overly focused on tax relief rather than on the investment’s potential. Their view tends to be that they will make a large number of small bets, so raising £1m can mean finding 100 or more individual investors, which takes time.” The financial crisis further delayed fundraising. Lanc self-funded the US

“Nobody doubted that this was a £1bn idea, but the problem was getting them to move on from interest to commitment” Ian Paterson Brown

ca magazine june 2013

patent application and returned to working in banking. When they went back to the angel networks, it became clear that it would take more time and the exercise would still leave Payfont short of the funds it needed. Paterson Brown says: “Nobody doubted that this was a £1bn idea, but the problem was getting them to move on from interest to commitment. So we went back down south and started talking to our City contacts. Within six months we had raised around £350k [from individual investors], more than we had intended!” Paterson Brown adds that they decided not to seek Governmentbacked investment – apart from a small grant – because it would have created more bureaucracy and less flexibility. The initial US patents were published in April of this year, clearing the way to talk in detail to potential customers. The next round of funding – to take Payfont to the “production and revenue” stage – could well involve a US private equity house. So, what have the founders learned? Paterson Brown says: “There are sources of finance you can go to, even if you may have discounted them at the start. The business angels we talked to initially would not have been able to take us to round two; the people who have funded us can do that.” Lanc says: “I would have gone sooner to my own friends and family – after all, who knows you best? I think we wasted a golden opportunity in 2006/7, but now we hope to be generating revenue by this time next year.”

hoped that the first transactions would be completed by the autumn. Another government scheme, this time from the Scottish Government, has been up and running for two years. The Scottish Loan Fund (SLF) is aimed at providing funds for SMEs keen to grow and particularly into export markets. The fund, run on behalf of the Scottish Government by Maven Capital Partners, announced in April that a further £4.8m in mezzanine funding had been awarded to three Scottish SMEs, bringing the total awarded under the fund to £28m. Julie Glenny, investment director at Maven, says: “These three investments help to demonstrate just how flexible Scottish Loan Fund finance can be in helping ambitious SMEs.” She says that SLF worked with banks often providing topup funding to add to what banks were willing to lend. A major advantage of the scheme is that it doesn’t require directors’ guarantees and it is particularly useful for SMEs which do not have a lot of assets on their balance sheet to act as security for a loan. “There have been a number of initiatives launched to help SMEs, but within the Scottish market there is certainly this gap that SLF is able to meet,” says Glenny. “For a lot of companies giving up equity is an emotive issue

“Establishing a lasting business bank institution is a long-term project, but getting this money reaching SMEs as soon as possible is the first step” Vince Cable

so a mezzanine finance product like SLF allows companies to take on debt for growth but once that is repaid there is no long-term involvement in the business.” SLF loans – of sums between £250,000 and £5m – can be repaid over a flexible term of three to seven years with capital repayment holidays being available. Glenny says: “It means that if an SME wants funding for growth which will only start to bring cashflow in year three, then repayments can be structured so that the company only starts to pay when it can afford it.” Scottish Enterprise, the country’s main economic development body through the Scottish Investment Bank, is the lead investor in SLF with Bank of Scotland owner Lloyds Banking Group, Royal Bank of Scotland, Clydesdale Bank, Santander, the Strathclyde Pension Fund and Aberdeen City Council Pension Fund also involved. Robert Pattullo of the ICAS Business Policy Committee says that with these government schemes and the flexibility they afford to banks there is funding available. He stressed that accountants and business advisers have a crucial role in communicating that and in advocating an SME’s case for funding to the banks. He says: “If they think their SME clients are being held back by lack of funding and they think there is a good business case, they should help the SME clients make that case.” KEN SYMON IS A FREELANCE BUSINESS JOURNALIST

Vince Cable


18 interview

Andrew miller CA is relishing leading the guardian media group through the massive changes of a digital age, says robert outram

Freedom

press

of the

one of the dilemmas of modern business is that, while investing for the future is an imperative, so is meeting the stock market’s short-term demands for profit in the here and now. That’s why Andrew Miller CA, chief executive of the Guardian Media Group (GMG), believes he has an advantage when it comes to embracing change in his industry. GMG is owned by the Scott Trust, a not-for-profit body set up in the 1930s to safeguard the campaigning journalistic work of the Guardian “in perpetuity” (see sidebar, page 20). It’s not that GMG can afford to ignore commercial issues – the group as a whole must pay its way – but the drivers are long term, not short term. Miller explains: “The company’s ownership structure gives us great latitude to find a way through what is an absolutely fundamental change in this industry. Unlike some of our competitors, who are under short-term pressures to deliver for shareholders, we can look at it more structurally and that is what we are doing. “So we are growing our audience internationally, making the Guardian an international brand, and building what we think is a really future-proof business for the digital age. It’s very exciting!” GMG’s two core newspapers, the Guardian and the Observer, are currently loss making to the tune of around £30m a year. On the positive side, the group makes money from two jointly owned subsidiaries, the Trader Media Group which owns

“If you try and come at it simply to protect and shore up a newspaper, you miss the obvious opportunities that digital creates” ca magazine june 2013

photography by CHRIS RENTON

Auto Trader and related titles, and the Top Right Group, the magazines and events business formerly known as Emap. In both cases the co-investor is private equity fund Apax Partners. Auto Trader was founded in 1977 and became one of the UK’s leading motoring weeklies. Its last print edition will be published this month, however, as the title makes its final transition to a web-only format. The Auto Trader story provides a stark illustration of the revolution currently turning the world of print media upside down. In 2000 the print edition of Auto Trader reached a circulation of 368,000. By 2013 that had fallen to just 27,000 – but the website was attracting 11 million visits each month. From being one of three or four leading titles in its sector, it is the premier UK player online. Miller says: “We did that by embracing ‘digital first’ and by not being scared to manage the decline of the other side of the organisation. We have transformed the business from a regionalised publisher, to one of the world’s leading digital companies.” There is no doubt that the media industry is undergoing radical change as a result of the proliferation of digital formats. The question is, how – unless you are Google or Amazon – do you make money in the new environment? “That is the great challenge,” Miller agrees. He adds: “I don’t agree that it’s a cyclical downturn; I think that’s a red herring. It’s a fundamentally different way that consumers are choosing to get their media.” The answer, for Miller, is to embrace a “Digital First” policy, which he defines as “the mindset that you will lead the business from a digital perspective”. He believes it is a mistake to see a website as merely an add-on. As he puts it: “If you try and come at it simply to protect and shore up a newspaper, you miss the obvious opportunities that digital creates.”


19

ANDREW MILLER Curriculum Vitae 1991

Qualifies as a CA with Price Waterhouse. Joins Procter & Gamble finance team

1994-5

Group finance manager, Bass plc

1996-97

Commercial planning manager, Walkers Snack Foods

1997-2000

PepsiCo Europe (various financial roles)

2001

Leaves PepsiCo to work on a “dotcom” start-up

2001

Group financial controller, Trader Media Group

2002-04

Chief financial officer, Trader Media Group

2009-10

Chief financial officer, Guardian Media Group

2010-

Chief executive, Guardian Media Group

EDUCATION

Dollar Academy; The University of Edinburgh (LLB, Law) 1984-1988

FAMILY

Married (to a fellow CA) with three children

june 2013 ca magazine


20 interview

THE SCOTT TRUST The Guardian and Observer benefit from what is, for the UK newspaper industry, a unique form of ownership. The Guardian Media Group (GMG), which publishes both titles, is itself wholly owned by the Scott Trust, a not-for-profit body. The Scott Trust was created in 1936 to safeguard the journalistic freedom and liberal values of the Guardian. In 2008 it became a limited company, with the same protections for the Guardian enshrined in its constitution. Its core purpose is to secure the financial and editorial independence of the Guardian in perpetuity. Rather than benefiting shareholders or a proprietor, GMG’s profits are reinvested to sustain journalism that is free from commercial or political interference, and to uphold a set of values laid down by CP Scott, the great Manchester Guardian editor. The remit of the Trust’s charitable arm, the Guardian Foundation, reflects the Trust’s aims of promoting press freedom and meeting its responsibilities to the community.

The Guardian’s website now has more than 80m unique browsers each month and, while the print edition is still largely UK-focused, the digital offering attracts a large international readership across a range of media. Miller says: “A story we ran on a potential cure for AIDS, for example, attracted 24,000 ‘likes’ on Facebook within the first two hours.” Digital provides a degree of instant feedback that newspaper executives of the past could only have dreamed of. A screen in Miller’s office shows how many users individual stories are attracting, on a minute-by-minute basis, and also identifies where users are coming from – both geographically, and in terms of which media they are using. One of the key differences in digital strategy between GMG and some of its broadsheet rivals is that the Guardian’s website is not locked up behind a paywall. There is a school of thought that argues “monetising” digital offerings can only work by getting users to pay for the content, even if that means it reaches fewer people. Miller says: “Some other people take the view that you

“We believe the opportunity lies in opening up your content to as many people as possible, and driving their attention and their engagement with you” ca magazine june 2013

should be much more closed off, restricting your audience and keeping to the old audience. So their paywall strategies are premised on asking people who already subscribe to your newspaper to pay a little bit more to receive a digital version, and then migrate to digital only. “We don’t believe in that; we believe the opportunity lies in opening up your content to as many people as possible, and driving their attention and their engagement with you, and so making more money from that.” The strategy is working, he argues: “Around 70 per cent of our traffic is now from outside the UK. As a newspaper, we’re the fifth largest in the UK, but internationally we’re the third largest newspaper online in the world. We are ranked alongside the New York Times.” He goes on: “People expect to find content at their fingertips, snacking more than an immersive read, and they will switch between different brands, so the most important thing is that your brand is available across all the different social formats, and that you really encourage people to engage. Over time, if the digital world matures and people settle on brands again, maybe that allows a different proposition. But this is such early days, if you close off your content I think it will kill your business, very quickly.” Miller’s experience has been built up in a range of industries, but a common thread is the fact that they have all been consumer-facing businesses. These include: Procter & Gamble, working with some of the group’s big household brands; beer and hospitality group Bass plc, which at the time owned Holiday Inn; and Frito-Lay, working on the Walkers Crisps and Doritos brands. A role at PepsiCo Europe gave Miller experience of working on a Europe-wide supply chain, creating a single business out of 13 different national units. Then, after a spell at a dotcom startup, Miller joined Trader Media Group. What he learned helping to transform that business led directly to his current role at GMG, first as chief financial officer and then as chief executive. So where does he see the business in 10 years’ time? Miller says: “I believe the Guardian will be a truly global media brand, with the very distinct voice and fantastic journalism that it has now; across a wide variety of platforms, including – I hope – still a newspaper; but also around whatever social platforms will be around at that time.” And can the digital future embrace the kind of journalism that newspapers like the Guardian are known for? “It has to,” Miller says. “There is no choice! Journalism is key to keeping our democratic society going, and that’s why it’s exciting to be a part of an organisation that has that as its core purpose.”


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law review 23

It’s all change as many legal firms join forces to maximise efficiencies and extend their global reach. robert outram sifts through the law league tables

take your partners

june 2013 ca magazine


24 law review This month a new star joins the legal firmament, or perhaps it is fairer to say that two stars have combined in the hope of shining even more brightly. After a short engagement – the merger was announced in November last year – London-based international law firm Norton Rose will join with Fulbright & Jaworski to become Norton Rose Fulbright. The merged firm’s statistics show how legal services have become big business – global business indeed. Norton Rose Fulbright will have 3,800 lawyers and 55 offices internationally, including 11 offices and nearly 800 lawyers in the US alone. Fulbright & Jaworski is particularly strong in the energy sector and it is not hard to see why that in particular makes it such an attractive partner for the London firm. Norton Rose’s global chief executive, Peter Martyr, says of the merger: “Our combination will create a truly global practice with significant depth of expertise in the world’s principal business and financial centres. We have been looking at the US market for a number of years, seeking a firm that meets our requirements for excellence in law, good business synergies and a compatible culture. Fulbright & Jaworski meets all our criteria; it is financially strong, with forward-looking management and similar strategic growth aspirations… we also expect to continue extending our global business, not only in the US but in the emerging growth markets, in particular in Latin America, Africa and Asia.” Over the past few years the pace of change in the legal sector has increased rapidly, with mergers – some effectively takeovers – at global, national and regional level and also a few firms becoming casualties of the economic downturn.

32%

of UK in-house counsel believe their company will face more legal disputes this year

(Source: Litigation Trends Survey, Fulbright & Jaworski)

“We expect to continue extending our global business… in the emerging growth markets” Peter Martyr

One of the drivers of change, as with the Norton Rose move, is globalisation. If clients’ business is global, their legal advisers have to be too. Another example of this imperative is the merger between the UK’s Herbert Smith and Australian firm Freehills, which tied the knot in October last year and are just about to consummate the marriage financially this year, as the merged brands become a truly integrated financial whole. The combined firm will have around 2,800 lawyers across 20 offices. Why is a tie-up with an Australian firm so attractive? The Aussie economy is booming thanks to demand for its energy and mineral resources, but the real draw is clout in the fast-growing Asian markets. That ambition is typified by the firm’s latest international venture, opening an office in Seoul to tap into the dynamic South Korean economy. Also following Herbert Smith down under is Ashurst, which is currently finalising the details of its merger with Australia’s Blake Dawson, with a view to full merger some time in 2014. There is another driver to the changes under way in the legal scene, however. Times are tough for lawyers, as PwC’s most recent Law Firms’ Survey illustrates. PwC found that the top 10 firms’ fees per partner fell by a whopping 22 per cent between 2008 and 2012, adjusted for inflation. Profit per equity partner (PEP) was down 24 per cent for the top 10 and 31 per cent for the 10 firms below that. And all that is worse than it sounds, because over the same period the headcount of equity partners fell by 20 per cent, which should have boosted PEP. ca magazine june 2013

£3m the estimated cost of collecting and storing client files safely after law firm Blakemores was closed at the order of the Solicitors Regulation Authority in March 2013

Legal Week Top 30 UK FIRMS REVENUE (£M) 1.

Clifford Chance

1,303

2.

Linklaters

3.

Allen & Overy

1,183

4.

Freshfields Bruckhaus Deringer

1,139

5.

DLA Piper

701.6

6.

Hogan Lovells

581.8

7.

Herbert Smith Freehills

480

8.

Slaughter and May

410

9.

Eversheds

366

10.

Norton Rose

355

11.

Ashurst

322

12.

Clyde & Co

287

13.

Simmons & Simmons

14.

Berwin Leighton Paisner

246

15.

Bird & Bird

235

16.

CMS Cameron McKenna

17.

Pinsent Masons

18.

Irwin Mitchell

1,206.7

251.7

227.6 221 183.7

19.

SJ Berwin

180.1

20.

Addleshaw Goddard

169.5

21.

DAC Beachcroft

22.

Dentons

23.

Holman Fenwick Willan

123.9

24.

Wragge & Co

118.2

25.

Nabarro

113.4

26.

Withers

133.3

27.

Stephenson Harwood

110.2

28.

Hill Dickinson

110.1

29.

Kennedys

109.1

30.

Olswang

108.1

155.84 145

Source: Legal Week (2012 figures)

International expansion is, therefore, a “must have” rather than a “nice to have” for the big firms. The PwC survey also shows that half of the UK’s top 25 companies now source 40 per cent or more of their fee income from international operations. So it is not surprising that half of the top 10 polled anticipate merging with or acquiring an international firm in the next three years. Despite a tough domestic market, however, 82 per cent of the firms in the survey increased their UK fee income – but much of this increase was due to mergers and lateral hires. DWF has been on a buying spree over the last 18 months, picking up Newcastle firm Crutes in January 2012, Birmingham


25

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june 2013 ca magazine


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law review 27

37% of UK corporate counsel say their organisation has been subject to allegations by a whistleblower. Find out more on page 31

Norton Rose Fulbright, from left to right: Peter Martyr, Kenneth L Stewart, Norman Steinberg, and Steven B Pfeiffer

and Coventry’s Buller Jeffries and – once it had become insolvent – failed Manchester-based Cobbetts. DWF ventured north of the border to acquire Biggart Baillie, in a move announced last July. Cobbetts had embarked on some ambitious mergers ahead of the financial crash, and was saddled with heavy fixed property costs. But it was not the only law firm to succumb to the downturn. Birmingham firm Blakemores was effectively shut down in March by the Solicitors Regulation Authority because of fears over its financial stability and its impact on client funds. In Scotland, Semple Fraser was put into administration, some commentators pointing to its reliance on property-based business as a key weakness. Scotland’s legal league table looks very different from just a few years ago. Brodies still tops the table based on partner numbers after a decade of significant progress for the firm, but quite a few names are different, or gone. In the past year, Andersons Solicitors merged with DAC Beachcroft, to become DAC Beachcroft Scotland; Anderson Fyfe merged with TLT, a law firm headquartered in Bristol; and Archibald Campbell & Harley joined with top 40 company Shoosmiths, trading now in Scotland as ACH Shoosmiths.

THE GLOBAL TOP 10 FIRMS GROSS REVENUE (M) 1.

Baker & McKenzie

2,313

2.

DLA Piper

2,247

3.

Skadden, Arps, Slate, Meagher & Flom

2,165

4.

Latham & Watkins

2,152

5.

Clifford Chance

6.

Linklaters

2,090 1,936

7.

Allen & Overy

1,898

8.

Freshfields Bruckhaus Deringer

1,827

9.

Kirkland & Ellis

1,750

10.

Hogan Lovells

1,665

24%

Fall in profits per partner at the top 10 UK firms since 2008 (Source: Law Firms Survey PWC)

The biggest cross-border merger in the Scottish market was between McGrigors and Pinsent Masons. Kirk Murdoch, chairman of Pinsent Masons in Scotland and Northern Ireland – and a former McGrigors partner – says any perception that McGrigors is “gone” misunderstands the impact of the deal. He says: “As part of Pinsent Masons, the firm in Scotland is bigger, not smaller. Our commitment to Scotland has not lessened. We have increased our headcount in Scotland by around 100. “We have been able to move from a ‘discipline-driven’ strategy to one that is ‘sector-driven’. We’re also expanding internationally – we are increasingly working in regions like the Gulf States and we have opened offices in Munich, Paris and Istanbul. As Pinsent Masons, we have a big footprint.” Murdoch added: “When you change your brand overnight, it requires a lot of careful handling, with your clients and with your own people, but we had worked hard on that since the merger was announced. Clients understand why we are taking on a growth strategy in this way.” Not all the deals shaking up the Scottish legal league table were cross-border. Burness – strong in Scotland’s central belt – merged with Aberdeen-based Paull & Williamsons in December, to form Burness Paull & Williamsons. Philip Rodney, chairman of the firm, says: “Merger wasn’t a strategy in its own right for us, it was a means of implementing our strategic objectives. We didn’t want to be in London but we did want full Scottish coverage, including Aberdeen, so we approached the best law firm in Aberdeen. There are good synergies, and very little overlap. It was a case of one and one making three. Neither of us needed to do it! We were both doing well.” He adds that he expects to see more consolidation in the market and more firms coming under pressure: “Bluntly, there are too many lawyers.” Martin Darroch, a CA and chief executive at Harper Macleod, says his firm did not need mergers to achieve around 9.5 per cent growth over the past year. It was achieved through a combination of lateral hires – including Gordon Hollerin, a former Semple Fraser partner; opening an office in Thurso in the north of Scotland to serve clients in the energy and natural resources sectors; and through sheer organic growth. Darroch says: “It’s all about winning work. Hiring is only part of our growth story. We have had significant client wins, retentions and increased corporate activity.” So is he tempted to climb still further up the scale through mergers? Darroch is sceptical: “When you look at the balance


28 law review

LAW FIRMS IN SCOTLAND: RANKED BY PARTNER NUMBERS Firm name Partners1

Partners & Fee earners3 Staff4 Trainees5 Off solicitors2 S

1.

BRODIES

77

255

330

462

34

2.

PINSENT MASONS

68

308

352

482

44

3.

BURNESS PAULL & WILLIAMSONS

58

193

251

339

35

4.

ANDERSON STRATHERN

54

160

241

295

33

5.

HARPER MACLEOD

52

125

179

232

11

6.

SHEPHERD AND WEDDERBURN

49

137

171

300

23

48

115

139

168

21

10

7. MACROBERTS 8.

MACLAY MURRAY & SPENS

46

159

225

329

37

9.

DUNDAS & WILSON

45

184

235

343

32

10.

HBJ GATELEY

42

111

69

170

14

11.

MORTON FRASER13

41

125

140

236

14

37

102

124

177

14

12. DWF

13. BTO SOLICITORS 35 100 119 199 10 14.

TODS MURRAY

34

79

110

190

14

15.

LEDINGHAM CHALMERS

30

73

91

123

8

16.

THORNTONS LAW LLP

29

78

130

262

9

17. LINDSAYS

29

73

105

167

3

18.

MORISONS

23

47

64

109

4

19.

McCLURE NAISMITH

22

58

81

131

11

20.

GILLESPIE MACANDREW

22

55

69

92

10

21.

TURCAN CONNELL

20

73

142

265

19

22.

DLA PIPER SCOTLAND

20

46

86

153

17

23.

WRIGHT, JOHNSTON & MACKENZIE

19

43

47

44

7

24.

BALFOUR & MANSON

18

N/D

N/D

N/D

2

25. BLACKADDERS

17

42

68

141

2

26.

STRONACHS LLP

15

43

56

82

9

27.

MILLER HENDRY

11

26

35

79

2

28.

ACH SHOOSMITHS

11

N/D

N/D

N/D

N/D

29.

DAVIDSON CHALMERS

10

21

26

16

3

30.

YOUNG & PARTNERS

10

19

24

22

0

Staff and partner numbers as at 1 April unless otherwise stated. Notes 1. Number of partners based in Scotland. 2. Number of legally qualified fee earners – partners and other qualified solicitors, based in Scotland. 3. Number of fee earners in total – including partners, paralegals, legal executives, trainee solicitors and conveyancing practitioners, based in Scotland (as defined above). 4. Number of staff in total excluding partners, based in Scotland. 5. Number of trainee solicitors currently in the firm, based in Scotland. 6. Pinsent Masons: Figure given is worldwide fee income (year to 30 April 2012). 7. Pinsent Masons: Pinsent Masons is an international law firm headquartered in London, with offices in Glasgow, Edinburgh and Aberdeen in Scotland as well as Belfast, Birmingham, Leeds and Manchester. Outside of the UK: Beijing, Doha, Dubai, Falkland Islands, Hong Kong, Istanbul, Munich, Paris, Shanghai and Singapore. 8. Burness Paull & Williamsons: These figures are total combined figures for legacy Paull & Williamsons and legacy Burness (year to 31 July 2012). Profit figures are for the year, before Members’ share. 9. Harper Macleod: Revenue for year to 31 March 2013. 10. Shepherd and Wedderburn: Headcount figures are as at 30 April 2013 and on a FTE basis. Fee Income is as per latest statutory accounts, for year ended 30 April 2012.

ca magazine june 2013


29

Offices in Fee income Scotland Scotland (£m)

Fee income Profit UK (£m) Scotland (£m)

Profit International links UK (£m)

3

42.8

42.8

17.5

17.5

Terralex, Unilaw

3

N/D

284

N/D

N/D

See note (7)

3

37.58

37.58 16.46

16.46

3

22.8

22.8

6. 9

5

21

21 N/D N/D

3

N/D

36.6

N/D

N/D

World Services Group

3

11

17.3

17.3

5.5

5.5

See note (12)

3

N/D

46.9

N/D

14.3

Lex Mundi

3

N/D

54.5

N/D

16.35

Best friends network

2

61.5

13.5

61.5

13.5

2

14.1

14.1

3.9

3.9

2

N/D

N/D

N/D

N/D

6

8

9

14

6.9

2 N/D N/D N/D N/D

Association of European Lawyers

Interlaw

Mackrell International, The Harmonie Group

2

11.9815

N/D

N/D

N/D

Multilaw. Lexcel

4

9.716

9.7

3.8

3.8

Lawyers Associated Worldwide (LAW)

5

13.2

13.2

2.6

2.6

MSI Global Alliance

7

10.617

10.6

N/D

N/D

Law Exchange Int.

2

6.7

6.7

N/D

N/D

2

N/D

13

N/D

2.5

2

9.25

9.25 2.65

2.65

2

22.3

N/D

N/D

N/D

1

N/D

N/A

N/A

N/A

See note (21)

3

6.2

6.2

N/D

N/D

See note (22)

2

N/D

N/D

N/D

N/D

4

6.9

6.9

N/D

N/D

2

7.1

7.1

2.3

2.3

3

N/D

N/D

N/D

N/D

1

N/D

N/D

N/D

N/D

1

N/A

N/A

N/A

N/A

Globalaw

2

N/D

N/D

N/D

N/D

Alliuris

18

20

19

WLG (World Law Group)

LEGUS

11. MacRoberts: Revenue for 2011/12. 12. MacRoberts: Advoc, American Bar Association, EELA, Euro IT Counsel Interact, ITLA, IBA and IPFA. 13. Morton Fraser: Merged with Macdonalds Solicitors in 2012. Revenue is year to 30 April 2012. Please note that last year’s “fee earners” figure was incorrect and should have read “330”. 14. Maclay Murray & Spens: UK fee income, year to 31 May 2012. 15. Tods Murray: Annual net turnover for year to 31 March 2012. 16. Ledingham Chalmers: Revenue and profit for year to 31 March 2012. 17. Lindsays: Revenue for year to 31 March 2013. 18. Gillespie Macandrew: Estimates for revenue and profit, 2012/13. 19. McClure Naismith: Revenue for year to 30 April 2012. 20. DLA Piper: Worldwide fee income 2011/12 £701.6m. 21. DLA Piper: DLA Piper is a global law firm with 77 offices in 31 countries. 22. Wright, Johnston & Mackenzie: “Best friends” with solicitors’ firms in Europe, North America, Asia and Australasia.

june 2013 ca magazine


30 law review

“Firms are doing more, but being paid less. We [are becoming] more efficient”

Jane Wright

Allan Wernham

sheet, I’d find it hard to justify a merger with any of the vast majority of law firms.” Malcolm McPherson, senior partner, Edinburgh, with HBJ Gateley, believes the round of mergers is not over yet. He says: “There will be fewer firms, that is inevitable. And there are still more English firms looking at opportunities in Scotland. I would not necessarily expect the mergers to continue at the same pace as this past year, however. Our view back in 2009 was that the market was not coming back to what it had been, and we based our strategy on the market as it was at the time. We had to reshape the business and that has been very valuable.” One windfall for HBJ Gateley has been the arrival of the restructuring team from DLA Piper, led by Yvonne Brady, after DLA’s decision to close its Glasgow office and consolidate its Scottish resources in Edinburgh. “We were expecting 2012/13 to be tough,” says Allan Wernham, managing partner of Dundas & Wilson, which has offices in Edinburgh, Glasgow, London and Aberdeen. “Firms are doing more, but being paid less. We have been taking steps to become more efficient. So for example, we set up our Legal Services Unit to provide paralegal support, allowing our legal resource to concentrate on non-routine work.

ca magazine june 2013

50% of the UK top 10 law firms anticipate merging with or acquiring an international firm in the next three years

(Source: Law Firms Survey, PwC)

“Our strategy means taking a different approach in London and Scotland: in Scotland we have pre-eminence in our market, in London we play to our strengths.” With all this consolidation in legal services, it is important to realise that the trend is not all in that direction. Law At Work (LAW) started out 10 years ago, initially as a boutique human resources and employment law practice within Maclay Murray & Spens. The firm emerged through a management buy-out in August 2012, and since then has grown from 19 to 27 staff. Jane Wright, chief executive, says: “Yes, there is consolidation in the market but we are also seeing the emergence of niche players. If you are specialists that can be an advantage.” She explains: “We are an employment law and HR consultancy, and we provide our service at a predictable cost [ie the billing model is an all-inclusive fee depending on the size of the client organisation, not on billable hours]. It’s all about risk prevention, so we can tackle problems earlier. Our lawyers are appraised on the basis of client satisfaction. In fact, we act almost as an in-house employment law team more than an external firm. It’s a recipe that our clients are buying into.” LAW’s chairman Magnus Swanson, a former Maclays partner, adds: “Strength in depth is the argument in big firms – in practice, it can mean that you just have a couple of guys in employment law. We are dealing with a couple of hundred employment tribunals every year.” For all firms, from global consolidators to niche operators, the economy is the number one concern. McClure Naismith executive chairman Robin Shannan comments: “In most sectors ‘plain vanilla’ work has been scarce, particularly in corporate private company M&A in Scotland, bank lending and commercial property generally. We have been pleased with projects, tax-based transactions, capital markets and commercial contentious work where we have seen results from excellent to good.” Andrew Chalmers, managing partner with Davidson Chalmers, says: “Firms that have a well-developed and focused strategy on clear market segments should be able to deliver a positive and successful 2013.”


31

WE’LL SEE YOU IN COURT This year’s Litigation Trends Survey finds an increase in UK legal action by regulators Regulatory proceedings and investigations are increasingly affecting businesses on both sides of the Atlantic as companies continue to navigate a crowded field of regulatory issues and litigation, according to this year’s Litigation Trends Survey, compiled by global law firm Fulbright & Jaworski International LLP. The survey, based on responses from nearly 400 senior corporate counsel at a range of organisations in the UK and US, found a significant increase in litigation in the UK as a result of action by regulators. Companies in the UK are also increasingly likely to find themselves in court as a result of allegations brought by whistleblowers. The number of UK respondents reporting an increase in regulatory enquiries and investigations brought against their company over the past two years has risen to 44 per cent from 27 per cent in 2011. In the US the figure remains constant, with 41 per cent of respondents again reporting an increase. While 34 per cent of UK respondents reported facing regulatory proceedings in the past 12 months (similar to last year’s figure of 35 per cent), most expect the number of regulatory proceedings their company faces in the next year to increase (33 per cent) or stay the same (50 per cent).

One of the clearest trends to emerge in recent years is the growing incidence and impact on businesses of allegations by whistleblowers. This year, 37 per cent of UK respondents (and 26 per cent of US respondents) have been subject to allegations by a whistleblower, up from 21 per cent in 2011, 13 per cent in 2010 and 6 per cent in 2009. Once again the consequences of these allegations are becoming increasingly serious. Allegations by whistleblowers in the UK led to an internal investigation for 75 per cent of organisations (up from 40 per cent in 2011) and almost half resulted in a regulatory investigation and/or legal proceedings brought by a third party or the whistleblower. Lista M Cannon (pictured), partner and co-chair of Fulbright & Jaworski’s International Investigations practice group, commented: “The financial crisis has meant that businesses of all sizes are confronted by a complex and widening landscape of increased regulatory activity. Pressure from regulators combined with the growing threat of whistleblower allegations continues to concern respondents of the Litigation Trends Survey. Unfortunately for them, this regulatory pressure is here to stay.”

“The survey, based on responses from nearly 400 senior corporate counsel at a range of organisations, found a significant increase in litigation in the UK”

Key findings in the survey included: l 34 per cent of UK respondents faced regulatory proceedings in the past 12 months and 33 per cent expect an increase in the number of regulatory proceedings being brought against their company over the next year l 72 per cent of UK companies retained outside counsel in the last 12 months for assistance in regulatory investigations, up from 27 per cent in 2011 l 37 per cent of UK respondents were subject to whistleblower allegations this year, almost half of which resulted in third-party proceedings or a regulatory investigation (48 per cent) l 18 per cent of UK companies have engaged outside counsel to assist with a corruption or bribery investigation, with due diligence for such matters in business transactions with foreign entities becoming more common (26 per cent of UK companies) l 32 per cent of UK companies expect the number of legal disputes their company will face to increase over the next year, compared to 20 per cent last year l 56 per cent of UK respondents brought at least one claim this year, up from 42 per cent last year and more than double the figure in 2009 (25 per cent) l 86 per cent of UK respondents had at least one claim brought against them this year, up from 47 per cent last year l 45 per cent of UK respondents faced legal proceedings worth in excess of 20m

Our connections, your success With more than 380 partners, over 1,600 lawyers in 17 locations across the globe with a dedicated sector focus. We offer you our experience, expertise and connections to deliver your vision worldwide. For further information contact Kirk Murdoch, Chairman of Scotland T: +44 (0)141 567 8692 E: kirk.murdoch@pinsentmasons.com

© Pinsent Masons LLP 2013

www.pinsentmasons.com

www.Out-Law.com

june 2013 ca magazine


32 law review In association with

ZEAL TO REFORM MEANS MORE PAPERWORK THE GOVERNMENT’S MISSION TO REDUCE THE BURDEN OF EMPLOYMENT REGULATION IS LEADING TO A RANGE OF UNINTENDED AND UNWELCOME CONSEQUENCES, ARGUES DONALD MacKINNON

Donald MacKinnon is director of legal services with Law At Work

it may come as a surprise to many employers but, with the exception of the US and Canada, the UK has the most lightly regulated labour market in the developed world. Spare a thought for many employers in other Western European countries who have to go through considerable hoops (and costs) when dismissing employees, for example. Notwithstanding this fact, there remains a perception among many employers in the UK that employment regulations are overly restrictive; a perception that is shared by many in the Coalition Government who have vowed to cut through the tangle of red tape allegedly strangling business. Given the sentiments often expressed by the Government, it is a paradox that, for this employment lawyer at least, it is difficult to recall a time when so many changes have been implemented and proposed to various aspects of employment law. Barely a month goes by without the release of yet another consultation paper proposing new regulations or alterations to existing ones. It is not simply the volume of change but also the fact that, rather than being introduced on the traditional dates for employment legislation in April and October each year, they are being drip-fed into the system on an almost monthly basis. New regulations or amendments have been introduced in March and April this year, with further changes promised for the summer, September and October with yet other changes earmarked for next spring. Of course some of the changes are easier to introduce and accommodate than others – the doubling to two years of the qualifying period for unfair dismissal introduced last year, and the planned cap of a year’s salary on unfair dismissal awards, to be introduced in the summer, spring to mind. One might argue about the fairness of some of these changes, but they are not difficult to understand or implement.

ca magazine june 2013

In respect of various other planned changes, it is more difficult to see how they are going to ease the perceived burden of employment law on employers, particularly small businesses. To take one example: the Government, despite repeated defeats in the Lords, has signalled its determination to press ahead in the autumn with the introduction of a new concept of “employee-shareholders”. In exchange for being granted shares worth between £2,000 and £50,000 by their employer, employees will give up a raft of employment rights, including the right to claim unfair dismissal and a redundancy payment. These proposals have been met with an almost unanimous lack of interest from both employer and employee organisations, which is perhaps unsurprising given the complexity of the provisions and the tax and other issues that will inevitably arise on termination of employment. There seems to be no-one outside the Treasury offices who genuinely believes that the introduction of employee-shareholders is going to benefit anyone other than the most niche employer. Similarly, how exactly are yet another review of the Transfer of Undertakings Regulations (TUPE) and the proposal to change yet again the definition of what constitutes a TUPE transfer going to simplify the law and consequently reduce the need for employers to take legal advice whenever faced with a potential TUPE transfer? The proposed TUPE changes are symptomatic of a mindset that views the best way to deal with excessive regulation is to produce new regulations or rework existing regulations rather than actually remove them. Sadly, it seems that nothing has been learned from the debacle that followed the introduction of the late (and unlamented) statutory dismissal and grievance processes a number of years ago. Those regulations came on the back of legitimate Government concern that too many claims were


33 being fought in tribunal which could have been dealt with more quickly, effectively and less expensively in the workplace. Unfortunately, in seeking to address these concerns, the Government introduced some spectacularly complex provisions requiring parties to seek to resolve their differences internally before lodging tribunal actions. In practical terms, there was no discernible reduction in the number of claims raised. What did result, however, was a significant increase in the number of preliminary hearings dealing with the interpretation of the recently introduced regulations. Once the scale of the confusion and additional litigation became clear, the regulations were quietly killed off. Compare the above with the present Government’s approach to settlement (compromise) agreements and the ending of the employment relationship. The view has been taken, with no supporting evidence, that too many employers are unable or unwilling to have difficult conversations with their employees about ending the employment relationship, due to a fear that, if the relationship does not end amicably, those conversations can be held against them in subsequent legal proceedings. The Government’s answer has been to create a detailed set of rules to regulate how and when such conversations may take place and, for added spice, it has created a new ACAS Code to flesh out the details. Provided that these detailed provisions are followed, the conversation cannot be referred to in any subsequent claim for unfair dismissal, though confusingly this does not include any claim in respect of discrimination. These provisions are scheduled to come into force in the summer. It is crucial to understand that, as the law currently stands, there is nothing whatsoever to prevent employers meeting employees to discuss issues relating to performance,

“No-one benefits from replacing the current informal process with formal regulations. That would only make agreed terminations more complex” attendance or conduct. These meetings can be formal or informal. Provided that the employer does not behave in an outrageous manner when meeting with the employee, there is little danger of a claim for unfair or constructive dismissal arising from such meetings. As an employers’ representative, Law At Work advises daily on exactly how to run meetings designed to reach a resolution that satisfies both parties. Sometimes the employment relationship is ended and, occasionally, it is mended. Meetings are a good thing, and employers don’t need a set of new regulations to tell them how to run them. If employers genuinely feel unable to hold such conversations, this is a management problem not a legal one. No-one benefits from replacing the current informal process with a formal set of rules and regulations. That would only make agreed terminations more complex, risky and time consuming. All this doesn’t mean that the present system is perfect. For many, particularly small, employers, employment regulation can seem daunting. Time and costs are incurred in defending claims of dubious merit. The introduction of tribunal fees in the summer is at least arguably justified, though a £1,200

fee to raise an unfair dismissal claim when the mean award in such cases is in the region of £4,000 has caused raised eyebrows. However, even here, rather than introduce a simple flat fee for all claimants to lodge claims, the Government has been unable to avoid the temptation to introduce tiered fees and rebates for some claimants, all of which will presumably have to be administered by someone somewhere. The above list of proposed changes doesn’t even include many additional alterations due to come into effect, including Government proposals for the extension of flexible working rights, further adjustments to shared maternity leave after the birth or adoption of a child, an extension of parental leave rights, procedural revisions to employment tribunal cases, changes to whistleblowing and equality legislation, the introduction of protection for expressing political views at work and the introduction of fines on employers who lose at tribunal hearing. Perhaps it’s a cry in the wilderness, but would it not be possible for the Government, at some point when it is bemoaning the burden of red tape on businesses, to actually cut it – or at least refrain from adding to it? june 2013 ca magazine


34 briefing

James Doty on improving audit quality, plus pensions, patent box and R&D tax breaks

auditing

briefing

ICAS questions the TIMING OF FRC’s proposed AUDIT REPORT implementation proposed changes to the auditor’s report from

the Financial Reporting Council (FRC) should be held over until the likely shape of reforms at an international level is clearer. That is the message from ICAS in its response to the FRC’s consultation on proposed revisions to the auditor’s report. The FRC’s proposals are intended to address criticism from users and investors that the current auditor’s report is uninformative and suggest that more details should be provided by the auditor on: the risks of material misstatement; the application of materiality; and a summary of the audit scope. Referring to the FRC proposals, Anne Adrain (right), assistant director, assurance, with ICAS, said: “Whilst we welcome the direction of travel, we favour a move towards the auditor’s responsibilities being extended to the provision of greater assurance resulting

in a positive opinion on the narrative content of the annual report. Our recent discussion paper, Balanced and Reasonable: A Discussion Paper on the Provision of Positive Assurance on Management Commentary, explores this issue. The ICAS response goes on to question the recommended timing of the FRC proposals, which suggest an implementation date of periods commencing on or after 1 October 2012. Adrain commented: “With the International Auditing and Assurance Standards Board (IAASB) expected to issue an Exposure Draft for consultation on auditor reporting this summer, we would prefer that the FRC’s proposals are delayed until further details on the content and requirements of that Exposure Draft are known.” A copy of the ICAS response to the FRC consultation can be viewed at: icas.org.uk/ Auditing/Submissions/ The discussion paper, Balanced and Reasonable: A Discussion Paper on the Provision of Positive Assurance on Management Commentary, is available for download at: icas.org.uk/ Auditing/Publications/

BALANCED AND REASONABLE A discussion paper on the provision of positive assurance on management commentary

I RES_0313_Balanced and Reasonable

cover.indd 1 17/04/2013 14:07

EUROPE

EU AUDIT REFORMS HEADING ‘IN the RIGHT DIRECTION’ ICAS has broadly welcomed the measures agreed, in a vote in April, by members of the European Parliament on reform of the audit market. The European Parliament’s Legal Affairs committee (JURI) had been considering reforms intended to foster greater competition in the audit market and strengthen auditor independence. “We welcome the sensible approach that has been taken on non-audit services, which is in line with the recommendations of the ICAS Nonaudit Services Working Group in 2010,” said ICAS executive director of technical policy, David Wood. ca magazine june 2013

The 14-year maximum engagement period for audit firms, increasing to 25 years if specific safeguards are implemented, is seen as a reasonable compromise. The JURI committee also voted in favour of the selection process remaining the responsibility of a company’s audit committee, a move that Wood also supported. “ICAS welcomes the plan for the International Auditing & Assurance Standards Board to have responsibility for improving the audit report, to provide greater transparency and improve the perceived value of the audit process. We are in favour of audit reports being prepared according to international auditing standards,” said Wood. He added that ICAS supported barring “Big Four-only” clauses, and said ICAS would follow with interest the outcome of negotiations with the European Commission. (See report, page 7)


35 research

The annual ‘Race For Life’ to raise money for cancer research uk

study looks at disclosures

CHARITIES

HOW FRS 102 WILL APPLY TO CHARITIES frs 102, The Financial Reporting Standard However, charities that are eligible to use the applicable in the UK and the Republic FRSSE should note that if they opt to apply of Ireland, brings about a first for UK FRS 102 instead they will have to prepare a accounting standards, including as it does cash flow statement. specific requirements for the accounts of Further information on the topic areas public benefit entities (PBEs), including most likely to require detailed consideration charities, writes Christine Scott. by charities and their advisers is available as The Statement of Recommended Practice an article on the ICAS website at www.icas. (SORP) is being retained for charities. An org.uk/charitiesandFRS102/. updated SORP, therefore, is currently being This article covers key topics including: prepared to align with FRS 102. FRS 100, The pension deficit recovery plan payments; application of financial reporting funding commitments; incoming requirements, requires resources from non-exchange a “comply or explain” transactions (applies to PBEs approach with regard to only); PBE combinations ICAS welcomes feedback the application of SORPs. (applies to PBEs only); from members on Charities, however, concessionary loans (applies technical consultations, are required by law to PBEs only). Also likely and your views will be very helpful in formulating to comply with the to affect charities are the an ICAS response. Please Charities SORP. following: send your comments to Consequential l The classification of assets accountingauditing @icas.org.uk amendments to the FRS held for the provision of social for Smaller Entities (FRSSE) benefits, which will largely impact will be effective for periods on housing associations. These must commencing on or after 1 January 2015 not be classified as investment property. to coincide with the implementation of FRS l “Value in use” is defined in relation to 102. However, there are no actual changes to the measurement of assets held for their the accounting requirements of the FRSSE, service potential as the asset’s “recoverable which will continue for the time being to be amount”, unless a cash flow driven valuation derived from the current UK GAAP, whereas is appropriate. FRS 102 is derived from IFRS for SMEs. This l Grantors of service concession means that the new Charities SORP must be arrangements. capable of addressing the needs of charities l Heritage assets. which can apply one of two differently Christine Scott is assistant derived frameworks. Further details of how director, charities & pensions this could impact on charities using the with ICAS FRSSE will be covered in a future article.

Grant Falvey/LNP/Rex Features

The FRC’s Financial Reporting Lab is calling for listed companies and investors/analysts to participate in a project on approaches to disclosing accounting policy information that are considered to be most effective. This project will also explore the ordering of footnotes to the financial statements. Companies and investors/analysts interested in taking part should contact the Lab team by email at: FinancialReportingLab@frc.org.uk, or contact Sue Harding by telephone on 020 7492 2442.

BUSINESS

FRC URGED TO ‘THINK SMALL FIRST’ ON SHARMAN PANEL RECOMMENDATIONS in its recent response to the Financial Reporting Council’s (FRC’s) revised guidance on implementing the recommendations of the Sharman Panel, ICAS has called for the existing FRC guidance to be updated first, rather than implementing the recent proposals suggested in the latest consultation document. Various concerns were expressed including the extremely short implementation period, a need to harmonise with international accounting and auditing standards and the additional burden likely to be imposed upon SMEs as a result of the new proposals. These latest proposals also appear to apply to all companies and therefore run the risk of introducing a disproportionate burden on SMEs. In the submission to the FRC, ICAS comments: “We believe that a transition period is needed which focuses on updating the existing 2009 FRC Guidance with the least radical proposals first to allow the more radical proposals to be properly digested – think small first.” The ICAS response to the FRC Consultation can be viewed at icas.org.uk/Business_ Issues/Submissions/

Lord Sharman

june 2013 ca magazine


36 briefing

James DOTY, CHAIRMAN OF THE US PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD, GAVE THIS YEAR’S AILEEN BEATTIE MEMORIAL LECTURE FOR ICAS IN LONDON. JUST AHEAD OF THE EVENT, HE SPOKE TO SARAH PERRIN ABOUT THE PCAOB’S MISSION TO IMPROVE AUDIT QUALITY

Lifting the game Sarah Perrin is a chartered accountant and freelance business journalist

AS chairman of the US Public Company Accounting Oversight Board (PCAOB), James Doty is grappling with the big questions in today’s audit environment. A lawyer by profession, Doty’s earlier career saw him advising boards of directors and audit committees on regulatory and compliance matters, serving as general counsel of the Securities and Exchange Commission, and representing the PCAOB itself in court. He was, therefore, no stranger to the knotty problems associated with audit quality and corporate governance when appointed to his current role in January 2001, though he admits to having undergone a “tremendous learning curve”. Right up there on the list of challenging issues is how to deal with the structural conflict inherent in the current audit model due to auditors being paid by the companies they audit. As Doty says: “It’s the most persistent and challenging question: how to address structural issues that generate conflicts of interest and compromise independence; how to reconcile that with the preservation of private audit and accounting functions.” Government or state control of accounting and auditing is definitely not the answer, he stresses. Instead, Doty is committed to a system where audit committees are enabled to play a meaningful role, where they will “support the auditor in standing up for and advocating the sort of audit the auditor knows is required – challenging management’s assumptions”. In this context, the PCAOB’s role in supporting audit committees and holding auditors to account is a vital one. A number of initiatives are underway designed to enhance the relevance, credibility and transparency of public company audits. Probably the most significant, in Doty’s view, is the Board’s work on the audit reporting model – “the first major change in 75 years”. The PCAOB’s proposals, expected to be issued in the third quarter of this year, will attempt to go beyond the “binary opinion” expressed by the auditor – “the thumbs up or thumbs down” – as to whether the financial statements give a fair representation of a company’s financial performance and position. “Investors still want that,” Doty notes, “but they have long said they would like more insight into the way the auditor sees the company. Everyone agrees the auditor knows more about the company than anybody other than management.” While retaining the binary opinion, the PCAOB will therefore see whether additional information can be conveyed. “That’s when the devil becomes prominent in the details,” Doty says, “because how do you structure those communications in a way that would be useful to investors, that would not devolve into formulaic boilerplate, but would still have the auditors speaking about things they know from the audit? That’s the trick, but I think we are getting close.” Any changes to the audit report resulting from this project

ca magazine june 2013

are unlikely to be the last. “It won’t be another 75 years before the audit reporting model changes,” Doty says. “This is the beginning of an accretive expansion of the relevance of the audit, which the auditors themselves have a real interest in seeing work, and which is going to lead to some experimentation, analysis and assimilation of information around the system.” The PCAOB also has work in progress on related party transactions (seen as a real issue for smaller, growing entities) and on compensation. “We want auditors to think about how compensation arrangements may contain adverse incentives,” Doty says. “This is a common problem in many jurisdictions and compensation is an extremely important part of governance. Compensation committees are probably as important as audit committees now, and compensation needs to be studied by auditors with a view to being sure they understand it and can advise the audit committee of what they have learned.” Other initiatives are designed to encourage greater transparency in the audit process. The PCAOB has, for example, already issued a proposal that firms name the audit engagement partner and identify other firms participating in an audit. The way that auditors use the work of others – including non-auditors – is in general an area of growing interest for the PCAOB. “Audit relies now on experts in valuation, people who have sophisticated knowledge bases who may or may not be auditors themselves,” Doty says. “The auditors may have no prior association with their skills. In some cases the auditors have to engage with those skills outside their own firm. So there has to be something that tells the auditor what they must do to synchronise that work. This is going to become more complicated and the standards are going to evolve as additional attest areas emerge. Companies may want attestation for things that are not part of the audit – key performance indicators, non-GAAP measures, sustainability measures they have used. The supervision of that work, to make sure it’s not merely cut and paste, will be important.” On the topic of performance measures, the PCAOB is interested in seeing whether objective measures of audit

“The PCAOB’s proposals will attempt to go beyond the ‘binary opinion’ expressed by the auditor – ‘the thumbs up or thumbs down’”


37 The PCAOB

Created by the 2002 SarbanesOxley Act, the PCAOB oversees the audits of US public companies in order to protect investors and the public interest by promoting informative, accurate and independent audit reports. Its creation effectively ended the selfregulation of the audit profession in the US. The PCAOB’s role includes issuing auditing standards and guidance, and inspecting registered firms. Those firms that regularly provide audit reports for more than 100 issuers are inspected annually.

James Doty

quality can be identified, such as the ratio of audit staff to partners on an audit. But, as Doty notes, simple measures in isolation are inadequate. “A ratio of staff experience may help, but that may cause you, as an audit firm or regulator, to go beneath the surface and see whether those ratios are backed up by sufficient training, mentoring, internal quality review... If a good ratio is coupled with other phenomena, it may be that we will be able to show where the accumulation of certain ways of doing things is a benefit.” Alongside all these initiatives, the PCAOB is working on making its inspection reports more “useful and meaningful” to a wider range of readers. Doty believes that when Congress adopted the Sarbanes-Oxley Act and created the PCAOB, its core aim was that the Board’s inspection reports would have real impact on individual audit firms, “and were for the purpose of making the firm elevate its game, correct its quality control problems”. Ten years on, Doty feels there is strong interest in what the PCAOB’s inspection staff think when they leave the field. “We want to be sure people feel our reports are communicating fairly where we believe there are really serious areas the auditor needs to deal with, so there is pressure on the auditor to deal with them,” he says. This goes to the heart of the PCAOB’s role as Doty sees it. “We are an established critic of the audit profession,” he says. “We are not here to be a cheerleader. We are here to be a critic, and it is through criticism that the audit profession will lift its game. People may express concern that we are being too harsh, that we are undermining public confidence in the audit. I think they are missing the point. If criticism is independent and unaffected by political considerations, the profession – because of its age and expertise – has the ability to address that criticism and create the confidence. The belief is that the audit profession can do what they need to do, if they know they need to do it. That’s the assumption we operate on.” A REPORT OF James DOTY’S SPEECH APPEARED IN THE MAY 2013 ISSUE OF THE CA.

REPORTING

europe’s STANDARD SETTERS CONSULT ON NEW BULLETINS the european Financial Reporting Advisory Group (EFRAG) and the national standard-setters of France, Germany, Italy and the UK have agreed to work in partnership to promote discussion, and to ensure that European views are influential in the debate on the IFRS Conceptual Framework. The partnership recently published three themed Bulletins: l Prudence – considering the role of prudence when developing accounting standards. l Reliability – discussing the replacement of reliability with faithful representation and whether the loss of the trade-off between relevance and reliability is appropriate. l Uncertainty – considering whether uncertainty is best dealt with solely as a matter of measurement or whether it should continue to play a role in the definition of assets and liabilities and/or as a recognition criterion. Comments on the Bulletins are invited by 5 July 2013. The comments received will be considered in developing views so as to best express European opinions in the IASB consultation process. The bulletins can be viewed at www.efrag. org/Front/Home.aspx

green paper

ICAS calls for views on long-term financing ICAS IS calling for members’ views on how finance can better help business growth, following the publication of a European Commission Green Paper on the long-term financing of the European economy. The EC is seeking views on actions to address a broad range of interconnected factors, including: l the capacity of financial institutions to channel long-term finance (including commercial banks, development banks and institutional investors); l the efficiency and effectiveness of financial markets to offer long-term financing instruments; l cross-cutting factors enabling long-term saving and financing; and l ease of access for SMEs to bank and non-bank financing. The paper also poses questions on, among other things, the roles of the banks and institutional investors, whether regulatory reforms aimed at reducing banking risk are also impacting on investment, and whether corporate tax reforms could improve investment conditions. ICAS has expressed a preference for a minimal intervention approach. However, where there is evidence that regulation is beneficial, ICAS supports the principles of better regulation (proportionate, consistent, accountable, transparent and targeted) to enhance competitiveness. To ensure that new EC regulations are supporting rather than hindering growth, ICAS believes that impact assessments should include the criteria of encouraging growth, international competitiveness and cost benefit. To let us know your views, contact ICAS at accountingauditing@icas.org.uk june 2013 ca magazine


38 briefing

what would be the implications for pensioners and companies if voters back independence?

Scotland’s Pensions Future ICAS is calling for the Scottish Government to develop a robust plan for Scotland’s pensions future in the lead up to the referendum on Scottish independence and for the UK Government to scope significant pensions issues for the rest of the UK arising from the independence debate. The report, Scotland’s Pensions Future: What Pensions Arrangements Would Scotland Need?, poses key questions on the regulation of private sector pension schemes and on the funding of public sector pensions and the state pension. David Wood, ICAS executive director, technical policy and practice supports, said: “ICAS calls on the Scottish and UK Governments to engage with business, the pensions industry and the EU to minimise the financial impact on private sector defined benefit schemes. Both Governments have a duty to engage with citizens and other pensions stakeholders to prepare a way forward and agree transitional arrangements to be implemented in case of a ‘Yes’ vote.” Pension schemes operating between Scotland and the rest of the UK would be classed as “cross-border” under EU law should Scotland become independent. EU solvency requirements (as currently interpreted by UK law) would have major implications for employers with such cross-border defined benefit and hybrid schemes. These include: l pension liabilities would have to be fully funded at all times; l underfunding would have to be rectified immediately rather than through a staged recovery plan; and l annual – not triennial – actuarial evaluations would be necessary. ICAS’s suggested solutions to the cross-border problem are: splitting schemes into Scottish and rest of the UK versions; exemption for existing UK-wide pension schemes; or a lengthy grace period to achieve full funding on a technical provisions basis.

When the current regulations were introduced, an agreement between the EU, the UK and Ireland allowed schemes a three-year grace period to “reach full funding levels”. But the report says: “With many schemes operating with recovery plans spanning 10-plus years, the grace period sought by the business community may be outwith the scope of the Scottish Government’s discretion.” The report has already sparked a political debate, with Scotland’s first minister Alex Salmond pledging in Parliament: “… there won’t be a difference or change in the amount of time that companies are allowed to recover.” ICAS staff have also given evidence to MPs in the House of Commons on the report’s findings. The report recommends that the government of a future independent Scotland should continue with existing arrangements initially, but adds that a separate Scottish Pension Protection Fund would most likely be needed. David Wood commented: “This ICAS paper raises questions about the protection and solvency arrangements an independent Scotland would need. For cross-border schemes in the private sector, addressing any underfunding would be a priority for both Scottish and rest of the UK employers.” ICAS says agreement would need to be reached over responsibility for the state pension entitlements of Scots built up prior to independence. Responsibility for the UK’s public sector pension liabilities would also need to be established. Liabilities of £86bn have already been identified as relating to Scotland, of which an estimated £60bn are unfunded. For UK-wide public sector pension schemes, the report says, Scotland’s share would need to be determined as part of the country’s “opening balance sheet”. Scotland’s Pensions Future is available to download from icas.org.uk/ ScottishIndependence

CASE STUDY: WHAT HAPPENS TO ALASDAIR’S PENSION? Alasdair is a retired member of ICAS living in Scotland who worked in Scotland his entire career. He receives retirement income from a number of different sources:

l A UK state pension. l Two defined benefit pensions from schemes sponsored by companies based in England which operate throughout the UK. l Income from three annuities purchased from defined contribution pension pots paid via the Scottish operations of financial services providers headquartered in England. Alasdair asks: Which Government would pay my state pension? Would a “rest of the UK” Government retain responsibility, as his “accrued” entitlement would have been built up prior to independence? If the Government of an independent Scotland acquired the responsibility to pay, agreement would need to be reached about whether assets would be transferred from the rest of the UK to Scotland in exchange for taking on this responsibility. Alasdair asks: How would the creation of a new border affect my pension? The companies which sponsor Alasdair’s defined benefit pensions would become crossborder schemes if Scotland became independent. These schemes are likely to be underfunded and making staged recovery plan payments. As things stand, any underfunding would need to be rectified immediately in the event of Scotland becoming independent. The continued solvency of the schemes would depend on the sponsoring companies’ ability to do this. It is increasingly common for people to have a number of sources of retirement income. Therefore people need confidence that any transition to an independent Scotland would not disrupt these payments.

Business Courses Training for every level of business professional.

For more information visit: icas.org.uk/businesscourses or call the team on 0131 347 0232 BD_1205_Business Courses185x35_strip.indd 1

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15/05/2012 16:42


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ICAS ISSUES PRINCIPLES ON TAX AVOIDANCE with the ethics of tax planning still hotly debated, ICAS sets out its views on how members should advise clients ICAS has issued a set of eight principles in relation to tax avoidance, setting out its views on how members should approach the subject of tax planning for their clients (or employers), in the light of the ongoing debate on tax avoidance in the media and at Government level. This guidance relies on the good professional judgement of members in its application. Guidance on “Professional Conduct in relation to Taxation”, issued by the major professional bodies, is being updated to include an expanded section on tax avoidance, and this will hopefully be finalised later this year, ICAS says. The principles are: 1. ICAS members should act in the best interests of their clients whilst also taking into consideration the public interest. In doing so, ICAS members must take into consideration reasonable and informed public perception in deciding whether to accept or continue with an engagement or appointment. 2. Tax evasion is illegal and should never be condoned. Anyone guilty of assisting in an illegal act such as tax evasion is likely to face prosecution and the imposition of sanctions for bringing the profession into disrepute. 3. It is acceptable for individuals and businesses to manage their affairs in accordance with the law, to claim reliefs and exemptions which the law provides, and to organise bona fide commercial transactions in a way which minimises the tax incurred. HMRC recognises that the involvement of an agent regulated by a professional body such as ICAS is generally helpful in supporting tax compliance and disclosure. 4. The ICAS Code of Ethics obliges ICAS members to respect the fundamental principles of Objectivity, Integrity, Independence, Competence and Professional Behaviour. ICAS members with any concerns about possible non-compliance with the fundamental principles should refer to the Code: if the threat of non-compliance cannot be eliminated or reduced to an acceptable level, they should decline to act or resign from the engagement. 5. ICAS recognises that there is no statutory definition of tax avoidance capable of operating at the detailed technical level of the UK tax system. Nor is there any agreed definition that distinguishes tax arrangements which constitute acceptable planning from arrangements which constitute unacceptable avoidance. Each engagement should be considered on its merits.

6. ICAS’s position is that ethical issues require to be considered if a member is asked to advise a client on: a. a tax avoidance arrangement which may fall within the proposed General Anti-Abuse Rule (GAAR). Such arrangements may have features which are regarded as “abusive”, broadly being not in accordance with the intention of the legislation, involving contrived or abnormal steps, or exploiting shortcomings in provisions. The GAAR Advisory Panel Guidance found at www. hmrc.gov.uk/avoidance/gaar.htm provides further detail and examples; or b. a tax avoidance arrangement which they cannot have confidence will be upheld by the courts. Members should refer to the ICAS Code of Ethics in considering whether to advise a client on such arrangements or recommend or market such arrangements more widely. 7. If a client wishes to pursue either of the courses of action listed in paragraph 6 above, ICAS members should discuss with their client the ethics of doing so, and the risks relating to this course of action. If the client decides to proceed with such an arrangement, the ICAS member should not continue to act if to do so would be in contravention of the ICAS Code of Ethics. 8. ICAS members must act in accordance with ICAS’s Rules and Regulations and the ICAS Code of Ethics. ICAS will initiate an investigation if there is evidence to suggest that a member may have acted in breach of ICAS’s professional or ethical standards in connection with the provision of tax advice to clients or in relation to their personal tax affairs. Any questions on the principles should be addressed in the first instance to David Wood, executive director, technical policy and practice support, at ICAS.

“‘Professional Conduct in relation to Taxation’, issued by the major professional bodies, is being updated to include an expanded section on tax avoidance”

ACCESS YOUR OFFERS AND DISCOUNTS ICAS has negotiated with a number of leading companies to give you and your business the best possible offers and discounts. Visit icas.org.uk/offersanddiscounts BD_1208_Members Benefits 185x35_Strip AD.indd 1

Follow us on Twitter @ICASoffers 13/08/2012 11:04

june 2013 ca magazine


40 briefing

BOX CLEVER BUSINESSES NEED TO STEP UP TO MAKE THE MOST OF THE PATENT BOX AND R&D TAX BREAKS, WRITES ANTHONY HARRINGTON

the coalition Government has introduced what is perhaps its smartest ever tax break for innovative businesses, with the aim of retaining such businesses in the UK and attracting more of the same from foreign parts. The Patent Box legislation, which came into force on 1 April this year, gives both small to medium-sized businesses (SMEs) and large companies a tax break of around 10 per cent on all revenues derived from patented innovation. This is potentially a huge tax break, sitting alongside and complementing the research and development (R&D) tax relief that has been running since April 2000. However, while the essentials of the tax break are easy to grasp, calculating ca magazine june 2013

the actual relief is complex, and sound advice from specialist advisers who understand the legislation well is essential. The reason for the complexity surrounding the calculation of the Patent Box relief, as Jon Meeten, KPMG’s head of tax in Scotland, points out, is that giving away taxpayers’ money does not exactly come naturally to HMRC. “Tax breaks are always a difficult line for the Revenue to adopt. The Government wants to encourage innovative companies and the taxman is being asked to help and to encourage SMEs to take advantage of the Patent Box regime, but equally, they have to make sure that the benefit is ring-fenced and properly administered so that it does the job it is supposed


41

Anthony Harrington

is a freelance business journalist

to do, namely to encourage innovation, and does not become a tax loophole,” says Meeten. KPMG, and the other Big Four firms, played a key role in helping the Inland Revenue to formulate the rules around Patent Box. So much so that Margaret Hodge, Labour MP and chair of the Public Accounts Committee, gave KPMG and other firms a hard time when quizzing them on the Patent Box legislation. Her argument was, in summary, that the Big Four helped HMRC to formulate the rules and would now help their clients to game those rules. Unfair, doubtless, since all advisers should be committed to helping their clients to present what HMRC calls “quality claims”, which is to say claims that enable HMRC inspectors to form a clear view of whether or not the applicant’s claim for Patent Box relief ticks all the right boxes and is genuinely innovative. Cannily, HMRC has left it to the UK and European Patent Offices to determine whether or not real innovation has occurred. What this means is that the Patent Box only applies to patented products. The rule is “no patent, no relief”, so on that score there is considerable simplicity. However, as Claire Rutherford, a patent attorney and director with the international patent specialist Murgitroyd, explains, getting a product through the patent system can take a considerable period of time. The good news is that the Patent Box legislation allows for this by enabling claims for relief to be backdated to the time of the original application, once the patent is granted. The maximum term for backdating is six years. Many SMEs might be put off claiming if they believe that taking out a patent is too expensive a process. Rutherford’s answer to this concern comes in two parts. Firstly, she points out that Murgitroyd is offering a package deal which will see a product taken all the way through the UK patent process for a fixed fee of £10,000. That might sound like a lot, but when you consider the second part of the answer, namely the generosity of the relief on offer, that fee can pale into insignificance. For example, say your business was selling executive jets at £9m to £20m, and you hold a patent on a small but critical subcomponent in these jets, then the legislation says that you are entitled to claim the relief on the whole of the sale price, not on some pro rata apportionment of that price. Instead of paying corporation tax at 21 per cent on your profits of the sale of the whole jet, you would end up paying something like 10 per cent. At a stroke this would make a massive difference to margins, since the whole of the difference would go straight to profit. “The Patent Box regime sits nicely alongside the R&D regime,” Rutherford explains. “The big difference is that to gain Patent Box relief you have to be making a profit. The R&D regime, on the other hand, is great for startups since they can claim a tax credit against their qualifying R&D expenditure, which means that HMRC writes them a cheque even if they are not making any profit.” Another nice thing about the Patent Box regime, she says, is that all a company needs is a single qualifying patented item in the product for all its worldwide profits from the sale of that product line to come under the Patent Box regime.

Heather McKirdy, a senior solicitor with Brodies, points out that the Treasury very much sees Patent Box and R&D relief as complementary reliefs and is promoting them together. “R&D tax credits were introduced in April 2000 and over the years the deduction allowed has steadily increased,” she says. There are two regimes covered by the R&D legislation, namely the SME regime and the large company regime. An SME is defined by HMRC as any company with fewer than 500 employees and either a turnover not exceeding €100m, or a balance sheet not exceeding €86m. The SME regime is more generous than the large company regime, since it allows the SME to reclaim 225 per cent of qualifying expenditure against tax or, if this creates a loss, it can be claimed as a tax credit. Large companies can claim 130 per cent of qualifying expenditure and the regime has been changed so that now they too can claim a tax credit instead of carrying a loss forward. “The feedback we get from HMRC is that the R&D tax regime is well understood, but that it is under-claimed. It is a very specific relief that seeks to achieve an advance in overall knowledge and capability in a field of science or technology. The key here is that you have to be moving knowledge forward for the whole field, not just adopting something that is new for you, but quite widely practised somewhere else,” McKirdy explains. Brian Williamson, managing director of the Edinburgh-based R&D tax credit specialist advisory firm Jumpstart, says that despite the length of time that the R&D tax relief regime has been in place, companies of all sizes, large and small, still tend to flounder when it comes to making claims under the regime. He says: “What we find is that clients often mislead themselves as to what constitutes R&D and what we offer is a team of PhDs with deep specialist knowledge between them of a wide spectrum of businesses, from the life sciences to manufacturing. The idea is to examine the client’s R&D and to provide expert advice on whether it constitutes qualifying R&D for the purposes of the R&D tax credit regime.” For example, manufacturing clients often think that improving their manufacturing process constitutes qualifying R&D. Generally, it doesn’t. To qualify there would have to be some genuine technological innovation which would carry the entire global sector forward. “For our specialists, it is all about understanding at a technical level what the client is doing with the process improvement and to then provide advice as to whether a proper claim can be put together,” says Williamson. Conversely, many clients in the food sector are surprised to find that some new innovation of theirs does qualify. “Making a meringue more chewy, for example, would qualify since you are doing something that has not been done before,” he notes. Another crucial difference between the R&D regime and the Patent Box regime is that for the former, a patent is not necessarily the defining characteristic required. “What we do for clients, once we have tested the validity of the claim, is to write it up as a proper claim that explains to the Revenue why the particular product qualifies for R&D relief,

“It is important to wait until you are delivering a Patent Box profit before you join or you simply erode whatever tax refund might have been due to you” Susie Walker june 2013 ca magazine


42 briefing and we help them compile the costs which go to substantiate their claim for relief,” says Williamson. Johnston Carmichael has been holding joint seminars with HMRC to help to explain the Patent Box regime to clients. Susie Walker CA, the firm’s deputy head of tax, says: “We worked very closely with Colin Wood, who heads up the SME Patent Box relief and the R&D tax team at HMRC’s Maidstone offices. We went to them and said we want to discuss with you how this 60-page document that you produced can be made practical and readily understandable by SMEs.” In Johnston Carmichael’s view, HMRC’s original 60-page guideline and rulebook on the Patent Box was written with large companies in mind. “Big companies have transfer pricing teams who can sit down and work through the mechanics required by the legislation to derive the Patent Box relief numbers. There were several items in the rulebook that were totally inappropriate for SMEs,” says Walker. To the firm’s credit, when Johnston Carmichael got Wood and his team together with some clients around the table to discuss the regime, HMRC saw the difficulties clearly enough. “The complexity is all around how you calculate the Patent Box relief. The legislation requires you to either identify all revenues derived from qualifying patented products, versus revenues from other products, or to apportion the total profit between the two. Then you have to deduct 10 per cent mandatorily from the total that relates to the patent-derived revenues, since this is regarded as an overheads apportionment. Then you are expected to deduct up to a further 25 per cent for ‘marketing assets’, by which HMRC understands things like brand values. That was a real stumbling block for many

SMEs, since they are only as good as their last job in the eyes of their clients and their ‘brand’ as such has no value if they fail to perform,” Walker explains. HMRC’s response was that it intends to take a pragmatic view of things, and if a SME argues that it can’t/shouldn’t deduct the 25 per cent for marketing assets from its patent-derived profit, HMRC will give their story due consideration. Another problematic deduction for SMEs is the mandatory adjustment for a notional royalty. As Walker notes, this is not a very sensible concept for many SMEs and HMRC has indicated that it will be receptive to properly presented arguments here. Many advisers are saying that it is imperative that SMEs elect to join the Patent Box regime with all speed. However, Walker argues that joining while you are loss-making is not sensible, since any patent attributable losses will be carried forward and set against your claim for the 10 per cent deduction in the following year. “It is important to wait until you are delivering a Patent Box profit before you join or you simply erode whatever tax refund might have been due to you,” says Walker. SMEs looking to use these provisions will need a patent attorney to help them evaluate the potential of their product as a patentable item and to do all the necessary searches and document preparation for the patent process. They will also need a good tax accountant or tax lawyer to help them determine exactly what they can claim back under the Patent Box regime. Finally, they should spend some time with an expert like Brian Williamson, checking to see if they have a valid claim under the R&D tax rules. Both R&D relief and the Patent Box offer significant cash benefits, but it is up to individual companies to ensure that they take advantage of what is on offer.

Don’t overlook the obvious in your search for new ideas It may seem obvious, but when you have a good idea, you should safeguard it. So it’s vital you work with people who have the right experience and expertise to protect your intellectual property – and help you fully exploit its potential. At Marks & Clerk, we take time to understand your business – whatever your size, sector and location – and tailor our services to create the most effective intellectual property strategy for you.

www.marks-clerk.com ca magazine june 2013

From the smallest inventive step to the biggest commercial leap, we’re here to ensure you get maximum value and benefit from your intellectual property. Marks & Clerk is the largest firm of patent and trade mark attorneys in the UK. With 9 offices across the country and an impressive international network, we’re the obvious choice to meet your IP needs locally and globally. To find out more, email scotland@marksclerk.com or visit our website.

Aberdeen | Edinburgh | Glasgow


44 briefing in association with

It’s good to share Joanna BoagThomson is a partner in law firm Shepherd and Wedderburn and head of its pharma and life sciences sector group

NEW PRIVATE CLIENT PARTNER Shepherd and Wedderburn has strengthened its Private Client and Charities Teams with the promotion of Chris McGill to partner. Chris joined Shepherd and Wedderburn in 2000, and has been an integral part of the Private Client and Charities Teams since 2002. For more firm news, visit www.shep wedd.co.uk/ news-andevents/

Collaboration is key to capitalising on Scotland’s skills in biotech innovation, says joanna boag-thomson attending the BIO (Biotechnology Industry Organization) International Convention in Chicago at the end of April, I was reminded how vibrant the biotech sector is across the world. The BIO International Convention is the biggest meeting of its kind in the sector, with more than 25,000 partnering meetings taking place in just a few days and doubtless a significant number of licensing and collaboration deals being put together. Scottish participants from the Central Belt to Inverness took part in these partnering meetings, with a number of possible deals coming out of the sessions. This is some good news for the sector, given the well-documented issues around VC funding and start-up funding for the industry being flat. There was more welcome news in January for the Scottish life sciences and health technology community with the establishment of a £50m fund, managed by Rock Spring Ventures and with funding from a number of partners, including Scottish Enterprise. Businesses will need to collaborate, however, particularly in the pharmaceutical industry, if they are to generate new blockbuster therapies and drugs to rival those that are coming off patent in the immediate future (known as the “patent cliff”). That’s where conferences like BIO come into their own. In Scotland we have the education and skills base to create major innovations and a track record of developing life-changing inventions. There are benefits in Scottish businesses collaborating with each other, and with other businesses worldwide, to bring those innovations to market quickly and profitably. Our academic sector has a strong record of international collaborations, and so do many of our companies, but I believe there’s much more that we could be doing to collaborate in a more open manner and to facilitate co-operative development and marketing of products in the biotech sector and elsewhere.

ca magazine june 2013

While there can sometimes be risks in bringing businesses together to exchange information and to work more closely, these risks can be managed and mitigated with expert legal and accountancy advice on how best to structure a corporate or contractual joint venture. Professional advisers need to have a good knowledge of the sector so that we can understand the aims and objectives of the parties, the downside of failure and the upside of success and draft agreements appropriately. Access to, ownership of and restrictions on use of intellectual property can be a key sticking point, but we can usually find a solution that’s acceptable to all parties. After all, sharing a proportion of a successful product’s income can be much more rewarding than owning the whole of a product that never makes it to market. Globalisation is with us and it brings opportunities for collaboration and information exchange as well as the chance for bigger businesses to cross-license innovations with smaller collaborators before deciding whether to acquire or invest in them. We should not let concerns about failure deter businesses from making the most of both local and international opportunities to work together to create the next generation of groundbreaking innovation.

“There are benefits in Scottish businesses collaborating with businesses worldwide to bring innovations to market quickly and profitably”


45

news, updates and events from your institute

inside icas members

ADMISSION CEREMONY PUTS PROFESSIONAL ETHICS to the fore professionalism needs to be nurtured and protected against those who would have you compromise your ethics. That was the message from ICAS president Brendan Nelson to the CAs joining the Institute at the Admission Ceremony in Edinburgh in April. He said: “You must be ready to defend your opinions, to stand up for your insights and to argue for what you believe to be in the public interest.” Nelson also told the new generation, “You are the leaders of tomorrow” and he urged them to think seriously about who they want to be, and about the leading lights of the profession who could be their role models. The new CAs and other members at the event made a public declaration of professional ethics. Guest speaker at the event was Ali Smeaton CA, one of the founders

Rajesh and Anneka Bavalia with Brendan Nelson

SPOTLIGHT ON BUSINESS COURSES A Technical Update for Accountants in Business 11 June – Aberdeen, 12 June – Perth, 19 June – London, 09.30am–5pm, £290+VAT ICAS Pensions Conference 18 June – Glasgow, 9.30am–5pm, £290+VAT i³ Business Analytics & Reporting (i3BAR) Intelligent Excel Models 24–26 June – Edinburgh, 9.30am–5pm, £1,455+VAT UK GAAP Financial Reporting Problems 11 June – Edinburgh, 9.30am–12.30pm, £150+VAT

of Morphsuits, the world’s largest costume company by turnover. He explained how his CA training with Ernst & Young, and his experience with Barclays, had helped him to turn a creative idea into a hardheaded business proposition.

This year’s Admission Ceremony saw the first ever pair of twins to join as CAs on the same day – Lynne and Laura Thomson – as well as two married couples, Garreth and Laura Jane Eve, and Rajesh and Anneka Bavalia.

Keeping Up-to-Date with changes in IFRS 11 June – Edinburgh, 2-5pm, £150+VAT

council

ICAS WELCOMES NEW COUNCIL MEMBERS the icas AGM on 26 April 2013 saw a

number of new members elected and co-opted to Council. In England & Wales David Brownlow has been elected as an area member. He qualified in 2008, and is associate director of finance, pricing and IT for BGL Group’s life insurance operation. In contested election for the two vacant open seats, the two successful candidates were Ann Hansen (pictured right), a sole practitioner

based in Glasgow, and Colin Crosby (pictured right), a consultant with Brewin Dolphin in Aberdeen. Karen Scholes, a sole practitioner from Orkney, has been co-opted to Council and appointed as chair of the new Members in Practice Advisory Board. Judith Sischy, a member of the Court of Queen Margaret University and

a former chief executive of the Scottish Council of Independent Schools, has been appointed as a public interest member. She succeeds Niall Scott, who retired at the AGM after six years. She said: “The key [issues for ICAS]… used to be only represented in the business or financial sections of a newspaper. Now they are everywhere – tax avoidance, whistle blowing, risk management, audits, independence… It’s a fascinating time for ICAS.” june 2013 ca magazine


out& about 46 inside icas

Lectures, awards, hellos and goodbyes… ICAS members have been busy enjoying themselves

ICAS Admission Ceremony, Edinburgh, 27 April More than 240 new CAs were admitted to ICAS in a ceremony held at the Edinburgh International Conference Centre, making a public declaration of ethics along with the other CAs in the audience and on the stage. Meanwhile Lynne and Laura Thomson (pictured far right) became the first set of twins to be admitted to ICAS on the same day. The gathered prizewinners

Pictured, left to right: Ian McPherson, Lindsey Stewart, Stuart Oag (area chairman), Neale Stewart, Sheila Sheils, Elizabeth Gammie, Graeme Sheils and Ken McHattie

Farewell dinner for Sheila Sheils, 19 April Sheila Sheils, co-ordinator for the Grampian Area Committee, stepped down recently to pursue other interests – including studying for a languages degree – and members of the committee marked her departure with a farewell dinner. Veenu Mittal, Brendan Nelson and Janet Aw

Jo Kibble, Diana Hillier and James Chalmers ca magazine JUNE 2013

2013 Aileen Beattie Memorial Lecture, 18 April Jim Doty, chairman of the US Public Companies Oversight Board, was the guest speaker at the Aileen Beattie Memorial Lecture held in London, talking on “the role of audit in the global economy”.

ICAS deputy president Jann Brown with Kishan Rajani, KPMG London

Ailsa Farey, Robin Kennedy and Lucy MacArthur – all being admitted on 27 April


47 CALENDAR

ICAS EVENTS Don’t miss out. Save the date! LOTHIAN AND BORDERS Contact: Kara Brown on metemp@icas.org.uk or tel 0131 347 0216 MONDAY 3 JUNE Growing a Business In Straitened Times Speaker: Angus Cockburn CA, finance director, Aggreko plc Venue: University of Edinburgh Business School, Business School, 29 Buccleuch Place, Edinburgh, EH8 9JS Time: Registration from 5.30pm for 6pm start

ICAS CEO Anton Colella, twins Laura and Lynne Thomson and ICAS President Brendan Nelson

Gavin Hastings, one of the speakers on the British and Irish Lions tour

TUESDAY 4 JUNE ICAS Reception at Holyrood Venue: Garden Lobby, Scottish Parliament, Horse Wynd, Edinburgh, EH99 1SP Time: Registration from 5.30pm for 6pm start WEDNESDAY 12 JUNE Tax Update – Borders Speaker: Elspeth Orcharton, director of taxation, ICAS Venue: Buccleuch Arms Hotel, The Green, St Boswells, Melrose, TD6 0EW Time: Registration at 12.30pm for 1pm start FRIDAY 14 JUNE The New Banks Speaker: Benny Higgins, chief executive, Tesco Bank Venue: The Royal Scots Club, 29-31 Abercromby Place, Edinburgh, EH3 6QE Time: Registration from 8am for 8.30am start TUESDAY 25 JUNE End of Term Interview with Sir David Tweedie CA Speakers: Sir David Tweedie and Professor Irvine Lapsley Venue: University of Edinburgh Business School, 29 Buccleuch Place, Edinburgh, EH8 9JS Time: Registration from 5.30pm for 6pm start

Shrikant Giri, KPMG London, ICAS President Brendan Nelson and Council member Marta Phillips OBE

GLASGOW AND WEST Contact: Kara Brown (as above)

Fiona Martin (right) and family

FRIDAY 7 JUNE The Big Economic Breakfast Speakers: Professor Donald MacRae OBE, chief economist, Lloyds Banking Group Scotland; Lindsay Gardiner, senior partner, PwC; Stuart L Patrick BAcc MBA CA, chief executive, Glasgow Chamber of Commerce; and Douglas Smith, chairman Scotland, CBRE Ltd Venue: PwC Glasgow Office, 141 Bothwell Street, Glasgow, G2 7EQ Time: Registration at 8am for 8.30am start THURSDAY 20 JUNE The Story of Arran Aromatics Speaker: Iain Pittman, chairman, Arran Aromatics Venue: Glasgow City Centre TBC Time: Registration from 5.30pm for 6pm start

HIGHLANDS Contact: Anne-Marie Mearns, Highland area secretary on as-h@icas.org.uk or 07557 550370 FRIDAY 7 JUNE Golf Outing Venue: Kinloss Country Golf Club, Kinloss, Forres, IV36 2UB Time: 2pm Cost: £37 (includes soup and sandwiches beforehand and a two course meal afterwards). The event is open to members and their guests THURSDAY 13 JUNE Quiz Night Time: 7.15pm for 7.30pm start Venue: Kingsmills Hotel, Culcabock Road, Inverness IV2 3LP Cost: £3 per head ENGLAND AND WALES Contact: Lauren Corbett at lcorbett@ icas.org.uk or 020 7839 4777 THURSDAY 6 JUNE A Question of Europe: City Debate Speakers: George Fairweather CA, group finance director, Alliance Boots; and Lord Leach, non-exec director, Jardine Matheson and advocate for changing the UK’s relationship with Europe. Other speakers TBC Time: Registration from 6pm for 6.30pm start Venue: London City Centre TBC THURSDAY 13 JUNE Ladies’ Fashion Evening: House of Fraser, Victoria Venue: House of Fraser Victoria, 101 Victoria Street, London, SW1E 6QX Time: Registration from 5.30pm for 6pm start

FRIDAY 28 JUNE Bank of England Update Speaker: John Young, agent, Bank of England Location: Manchester Time and venue: TBC FRIDAY 12 JULY Bank of England Update Speaker: Graeme Chaplin, agent, Bank of England Location: Birmingham Time: Registration from 8am for 8.30am start INTERNATIONAL EVENTS Contact: Kara Brown (as above) WEDNESDAY 26 JUNE British and Irish Lions Melbourne 2013 Speaker: Featuring a panel including Gavin Hastings OBE; Damien Hill, coach of the Melbourne Rebels; and Nathan Gray, former Wallaby and World Cup Winner Venue: Ernst & Young LLP, 8 Exhibition Street, Melbourne, 3000, Australia Time: Registration from 6.30pm for 7pm start WEDNESDAY 3 JULY British and Irish Lions Sydney 2013 Speaker: Gavin Hastings OBE Venue: PwC Office, Darling Tower 2, 201 Sussex Street, Sydney Time: 6pm start FRIDAY 26 JULY Upside Down Burns Supper – Sydney ICAS members are turning things upside down with a Burns Supper on 26 July. More details to follow nearer the time

JUNE 2013 ca magazine


48 inside icas SGM

icas

ICAS Special General Meeting – 21 June 2013 in Edinburgh members are asked to note that a Special

General Meeting of the Institute of Chartered Accountants of Scotland will be held on Friday, 21 June 2013 at CA House, 21 Haymarket Yards, Edinburgh, EH12 5BH at 1.30pm.

obituaries

In Memoriam

FREDERICK GEORGE HAW CA died on 3 April 2013 aged 73. He was admitted to membership on 25 November 1963. Prior to retirement Fred was a senior monitoring officer with the Scottish Executive. He lived in Gourock, Inverclyde. GERALD FRANCIS ELLIS MITCHELL CA died on 6 April 2013 aged 88. Prior to his retirement, Mr Mitchell was a finance director at Freightliners Ltd, London. He was admitted to membership on 31 March 1954. ALEXANDER HARRIS THOMSON CA, who lived in Cape Town, died on 3 February 2013 aged 86. He was admitted to membership on 31 March 1950. Prior to his retirement, Mr Thomson was a group internal auditor at Syfrets Trust Co Ltd, Cape Town, South Africa. LESLEY MARGARET REID CA died on 28 April aged 58. Prior to her death, Miss Reid’s previous position was as a consultant with Volare Airlines Sp.A, Vicenza, Italy. She was admitted to membership on 26 October 1979. The death has been announced of DUNCAN RUSSELL MILLER CA. He was admitted to membership on 19 September 1952. Prior to retirement Mr Miller was executive chairman of Metro Industries Ltd, Parramatta, Australia.

new members ICAS would like to offer a very warm welcome to all those joining the Institute, and wishes them the best of success in their chosen career. The following were admitted to membership of ICAS on 23 April 2013: Adams, Kerry RSM Tenon, Grangemouth GIBB, Marcia Jillian LLB Deloitte LLP, Aberdeen HOULIHAN, Claudia Ernst & Young LLP, Reading MACARTHUR, Fraser Henry BA(Hons) PricewaterhouseCoopers LLP, Edinburgh MANGAT, Avneet BSc Smith & Williamson Ltd, Birmingham McDOUGALL, Laura Jean MA(Hons) PricewaterhouseCoopers LLP, Edinburgh SMITH, Katrina Carson & Trotter, Dumfries THOMSON, Jennifer BDO LLP, Glasgow WILLEMSE, Kirsty Simpson Forsyth, Aberdeen

Applications for Membership under Rule 3.12 have been received from: • REID, Stephen MA(Hons) CPFA KPMG LLP, Edinburgh

DISCIPLINARY

DISCIPLINARY ACTION AGAINST ROBERT ROY SWINDON robert roy swindon, a member based in Darlington, has been excluded from membership of the Institute of Chartered Accountants of Scotland following a hearing of the Discipline Tribunal. In addition, Mr Swindon was ordered to pay a penalty of £1,000 and costs of £5,000. The Tribunal heard evidence that Mr Swindon was not a designated “Responsible Individual” in terms of the Audit Regulations. Only individuals designated as responsible individuals are entitled to sign off audit reports in the name of an audit registered firm. The Discipline Tribunal found Mr Swindon guilty of professional misconduct in that he had signed off Independent Auditor’s Reports for four companies over a number of years when he knew or ought to have known that he was not entitled to do so. Additionally, Mr Swindon was found guilty of professional misconduct in that he had failed; (i) to cooperate with the investigation into his conduct,

and (ii) to respond to correspondence from ICAS. Peter Anderson, Discipline Tribunal chairman, said: “Mr Swindon’s failed attempt to become a Responsible Individual meant he must have been aware he was not a designated Responsible Individual when he signed the Independent Auditor’s Reports for the four companies. It appeared to the Tribunal that there was no dishonesty involved. But Mr Swindon’s deliberate actings in choosing to disregard the clear terms of the Audit Regulations amounted to serious professional misconduct. Further, the persistent failure to reply to correspondence from the Institute showed such a disregard for the responsibilities of membership that, taken together with the Tribunal’s obligation to protect the public, the only sanction proportionate was the exclusion of Mr Swindon from membership of the Institute of Chartered Accountants of Scotland.”

scaba

SCABA: NOTICE OF AGM and SGM on 17 JUNE 2013 the generosity of fellow CAs enabled

the Scottish Chartered Accountants Benevolent Association (SCABA) to make grants totalling £121,442 in 2012, despite an economic climate that put increasing pressure on the Association’s income. To see the SCABA Summarised Statement of Financial Activities for the year ended ca magazine june 2013

31 December 2012, visit the ICAS website at icas.org.uk/SCABA2012.pdf. A Special General Meeting of SCABA will be held at 10.30am on Monday 17 June 2013 at Merchants House, 7 West George Street, Glasgow to amend the Rules and Regulations to enable the Association to appoint an independent examiner instead of an auditor.

The 82nd Annual General Meeting will be held at the conclusion of this meeting for the following purposes: 1. Adoption of Report and Accounts for 2012. 2. Election of Independent Examiner. 3. Election of the Council for the ensuing year. SCABA was set up to help less fortunate members of the Institute or their dependants.


CA dinner 30 September The Savoy Hotel, London

AfTer dinner SPeAker Jo brAnd

Please contact Lauren Corbett on +44 (0)207 839 4777 londonoffice@icas.org.uk icas.org.uk/cadinners #cadinners


50 the last word with

ian steele

why deloitte rose to the challenge of micro-tyco, a scheme designed to inspire the entrepreneur in all of us and to empower the world’s poorest last year a team of my colleagues at Deloitte took seed capital of £1 and turned it into £52,000. They were taking part in Micro-Tyco, a nationwide challenge that brings together businesses, universities, schools and communities in a celebration of the entrepreneurial spirit, both here and in the developing world. Each of the teams taking part starts with a “micro-loan” of £1, then has just four weeks to turn that into as much money as possible. At the end of that time, the team making the most money wins; although given what happens to the money, it really is a case of taking part is as important as winning. The only rules are no gambling and all transactions must be legal! One of the ventures from the Deloitte team involved four colleagues cooking a meal at the Sheraton, Edinburgh, at a fundraising dinner for more than 100 people, working “Hell’s Kitchen” style under the Sheraton’s head chef. The team’s colleagues and friends took tables to sample their work. The funds raised by Micro-Tyco are invested in microfinance schemes in 28 countries around the developing world, through the WildHearts charity founded by entrepreneur Mick Jackson. WildHearts provides banking for the unbanked, together with business training, through “trust banks” set up and run by the local community. Since the micro-loans are repaid and recycled over a four-month period, an average loan of £150 will fund three businesses every year. And, as all the recipients are women, WildHearts is also helping to bring about a social revolution empowering women and girls across some of the world’s poorest countries. It’s a good cause, but why is it a priority for Deloitte? Personally, and corporately, to make a real change to so many people living in such

EDITOR Robert Outram robert.outram@thinkpublishing.co.uk EDITOR IN CHIEF Anton Colella Managing EDITOR Atholl Duncan PUBLISHED BY ICAS Edinburgh: CA House, 21 Haymarket Yards, Edinburgh EH12 5BH Tel: 0131 347 0100 Fax: 0131 347 0105 Glasgow: 2nd Floor, 7 West Nile Street, Glasgow G1 2PX London: 68 Lombard Street, London EC3V 9LJ

ca magazine june 2013

sub-editor Sian Campbell sian.campbell@thinkpublishing.co.uk design Mark Davies mark.davies@thinkpublishing.co.uk EDITORIAL OFFICE Think Publishing Ltd, Woodside House, 20-23 Woodside Place, Glasgow G3 7QF Tel: 0141 582 1280

challenging circumstances is very rewarding. It’s also the case that if you want good people to come and work for you – and funnily enough we do – you have to be aware of what matters to them, what motivates them, what can make them feel good about working here, and if you can do all that at the same time as having fun and doing something so worthwhile, it’s an easy ask. For the people taking part in Micro-Tyco it’s a big commitment, but they get so much out of it; even to the extent that people who may not work together day to day have the chance to get to know each other and work in a team – it’s a bit like a training course with laughs. Taking part involves creative thinking, problem solving and competition. It’s a great training opportunity and a great team-building exercise. So, there are benefits to the firm, but that’s a nice consequence – it’s just a good thing to do in its own right. And while I’m delighted that Deloitte won the Why not share your experience of 2012 competition, that is not what really matters. CSR at forums? One reason I was keen to get involved with icas.org.uk Micro-Tyco is that it gives a real opportunity to young people to discover what they are capable of. When you are young, being literally “hopeless” (no job, no prospects, no confidence, no role model) must be one of the worst things to contend with. Many young people are growing up in families where no-one has been able to get a job, and it’s harder than ever now, but taking part in an exercise like this shows them they can achieve things they might not have thought possible. The next Micro-Tyco challenge takes place in November of this year. To find out more, go to micro-tyco.com – it may prove to be the start of an incredible experience! ian steele CA is senior partner at deloitte for scotland and northern ireland

“Micro-Tyco gives a real opportunity to young people to discover what they are capable of”

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CA June 2013