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THE OFFICIAL JOURNAL OF THE INSTITUTE OF PUBLIC ACCOUNTANTS
TREADING
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Government turns its attention to superannuation and small business regulation
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THE OFFICIAL JOURNAL OF THE INSTITUTE OF PUBLIC ACCOUNTANTS
SUPER VISION Where Australia’s superannuation system is heading
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Practice management software prices plummet – but for how long?
&
Profile
COuRAGe conviction Christine Christian didn’t plan a career in credit reporting. But her bold confidence in Dun & Bradstreet australia helped to transform the industry. by claire heaney
I Scan the symbol with your smartphone to read this article on the Public Accountant digital hub (QR reader required).
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t was Christine Christian’s Kerry Packer moment. The company she steered to a $25 million management buyout in 2001 was being bought back by its global parent for $250 million. Credit reporting giant Dun & Bradstreet was returning its prodigal Australian and New Zealand operation to the fold. That 2010 deal is among the deftest of Christian’s many deft moves. But there is no gloating. Not like Packer, who noted ”you only get one Alan Bond in your lifetime, and I’ve had mine” after he pocketed up to $750 million in the famous Nine Network buyback. Christian can play the corporate diplomat. “It’s all about timing,” she says. “Ten years later, the world had changed completely and Australia was regarded by the D&B corporation as one of
June / July 2013
the growth markets. And they were willing and prepared to buy it back at a premium.” Christian’s education – she earned an arts degree at the University of Melbourne – did not obviously prepare her for a career transforming credit reporting. But her upbringing had honed her business skills from childhood. “My father has always been self-employed and we used to talk business all the time. Talking about business and customers and profitability was not an unusual thing growing up,” she says. “I was given responsibility from an early age and so I take it on fairly naturally.” Christian stumbled into the credit reporting industry when it was still underdeveloped. “I started working for a company called
College Mercantile in the mid-80s … I initially applied for a role as a business analyst or a business reporter, not realising that the role very much centred around credit reporting, credit analysis,” she says. “I soon got to really understand the purpose and importance of the role, particularly from a macro-economic perspective.” By 1989, D&B acquired the business and Christian agreed to manage the integration. “I was given a lot of scope to be very innovative in driving synergies. We were using the latest technology, the latest data sources and it was very fulfilling,” she recalls. Out of the blue, she was promoted to chief executive officer for Australia and New Zealand, the first woman to head a D&B country division and the first Australian to
Profile
lead the local operation. “It was very much a careerchanging moment,” she says. At the start of the 2000s, she believed D&B was an asset waiting to bloom. The dot-com boom had diverted people’s attention away from profitability, as companies spent wildly to create attention and grow revenue. “When that all came crashing down, there was a return to good oldfashioned fundamentals like maintaining a healthy cash flow, having sufficient cash to meet operating expenses and obligations, and a focus on margins and profitability.”
“i was given responsibility from an early age and so i take it on fairly naturally”
photography by jarrod barnes
And D&B was in the unique position of having the largest commercial database of Australian businesses and unique IP in terms of risk-scoring tools. “The data is updated more than one million times each day. It is an enormous repository of information,” she says. “We were very clear that the company played a very important, integral part in the economy in that we helped companies either reduce their risk or increase their cash flow. But it was not well understood as a broad benefit to the business community.”
June / July 2013
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Software and IT
ACCOUNTING from
ANYWHeRe From smartphones and tablets to ‘wearable devices’, new mobile technologies are changing the way accounting happens. by Alex Kidman
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April / May 2014
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Software and IT
A
ccounting and computing are a natural pairing; with either platform, you’re talking about the movement of numbers at a very basic level. For the past couple of decades, that’s revolved around a desktop metaphor for accounting work. The gradual shift to laptops might have made that luggable but it didn’t change the way accounting work was done. Mobile is a different type of operating environment, however, and one that’s overtaken the desktop/laptop computing market with astonishing speed. On the smartphone side, research conducted for Google suggests that more
than 65 per cent of Australians own smartphones, and 75 per cent of users are loathe to leave home without them. While tablets aren’t new – Microsoft had touch-capable Windows XP more than a decade ago – they will soon overtake laptops as the mobile device of choice. That goes some way towards explaining why mobile accounting has grown exponentially in recent years, for accounting firms’ clients and for accountants themselves. Where business goes, software will follow, and one thing on which Reckon Limited’s director of strategy Daniel Rabie, MYOB’s chief technology officer Simon Raik-Allen and Xero’s managing director
Chris Ridd enthusiastically agree is that mobile accounting is hugely important in the current accounting environment and in the one that lies ahead. Ridd notes that when Xero announced its touch-based mobile application, “we had laughter when we said people could sit up in bed and do bank reconciliations ... but that’s what they’re doing!”. According to Raik-Allen, MYOB’s figures suggest that around 95 per cent of today’s accountants are using smartphones and 77 per cent are using tablets – up more than 30 per cent year on year. In using these technologies, accountants are mirroring the behaviour
“... people could sit up in bed and do bank reconciliations” – Chris Ridd, Xero
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April / May 2014
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Offshoring: NEW DIRECTIONS
As routine accountancy work heads offshore, Australian accountants will focus more on interpreting accounts and advising management. by James Dunn
A
ustralian public accountancy practices have been quick to embrace the offshoring route, initially driven by compliance work for small to medium-sized enterprises. And now a second wave of offshoring demand is coming from the needs of self-managed super funds (SMSFs). David Carter, chief executive of outsourced accountancy services provider Odyssey Resources, says the original driver of offshoring activity was the simple fact that “there are not enough accountants in Australia” to service the increasing compliance workload – and those that there are don’t necessarily want to do it. “Whether it’s fewer people doing accountancy at university or the mining boom sucking away good accountants, the fact is that as older public accountants retire, they are not being adequately replaced. At the same time, the compliance workload is increasing – especially in the SMSF area. People have to do a lot more work now to get their super fund returns and audits done, and there are fewer people to do it,” says Carter. Lee Court, sales and marketing manager at Back Office Shared Services (BOSS), which provides accountancy services from India, concurs. “[Careerfocused accountants] don’t want to do the mundane compliance work; they want to
do the more interesting work – if possible, the more advisory work,” he says. “Given the shortage of accountants, employers want to retain staff, so they don’t want to give them the boring, ‘cookie-cutter’ work. And if they’re saving 40 per cent on the cost of that work by offshoring it, it makes it doubly attractive.” Carter says business searching for lower-cost providers is not new. “Australian businesses have traditionally said, ‘look, Melbourne’s expensive, we’ll get this work done in Geelong or Ballarat’. Sydney firms have sent work to Dubbo, Brisbane has sent work to Toowoomba. There has always been outsourcing from large, expensive centres to regional centres; the logical next step was, ‘let’s send the work overseas, providing we do appropriate due diligence on the firm to which we’re sending it’.” Technology has also played a major role in enabling outsourcing and offshoring, says Carter, particularly with the latest crop of cloud-based accountancy packages such as Xero and Saasu. “The cloud has done a couple of things,” he says. “It allows anybody anywhere to do bookkeeping. It has also enabled overseas people to do bookkeeping online. Once it’s on the cloud, it lends itself to a lower-cost solution provider.”
Practice management
Court agrees that the cloud is definitely making it easier. “We work with about half of our clients online and, until recently, with most of those clients, when we’ve been working online we’ve been working directly on their server,” he says. “But we’re seeing quite a lot of people moving over to the cloud, where they don’t have to have the hardcore IT systems to actually work with an outsourcing firm.” The ease of use of cloud computing also fosters a “mindset shift” in services firms in terms of what they can get out of technology, says Court. “I think the firms start to see pretty clearly the ways in which data can be handled and how they can serve their clients better,” he says. “Their mindset changes around what the cloud will enable them to do: they can see how outsourcing is absolutely plugged in to that whole environment.”
“The clever stuff – the interpreting, the management reports – must be done in Australia” – David Carter, CEO of Odyssey Resources Carter believes more sophisticated analysis will stay local. “The mundane bookkeeping – the compliance work – is going to be processed overseas somewhere. But the clever stuff – the interpreting, the management reports – must be done in Australia,” he says. This means that the higher-value, longer-term analytical, management accounting and strategic planning advisory work is an opportunity for Australian accounting firms, says Carter. “You can get someone anywhere in the world to prepare the financial reports, but at the end of the day, someone in Australia has to say to the client, ‘I think you’ve got problems, your debtors have started to slip, your stock’s way out, what’s going on – you’re not in charge of your business’,” he says. “It’s the same with the strategic planning: saying to the client, ‘What’s your exit strategy? What should your KPIs look like in five or 10 years’ time? Where should your debtors’ ratio be?’ That kind of advisory work has to be done in Australia.”
April / May 2013
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Banking
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June / July 2013
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Banking
BankinG
on TrusT the banks are still lending to small business. But after the GFC, they’re lending less because they’re less trusting.
by David Walker
M
any small businesses are feeling the pinch, and part of the pinch they’re feeling is finance. Common complaints are that banks won’t touch new businesses and that they are fixated on lending against bricks and mortar, rather than looking at cash flow. Typical is an accountant Public Accountant spoke to recently who cited a client’s problems: his new business had paid cash for a prime mover and had a contract in place, but his bank told him that he needed to be in business for two years before they would finance further expansion. Banks, for their part, insist
they haven’t changed their lending criteria, although some have reduced loan-to-valuation ratios on home mortgages. What’s the real problem here? Is it that banks are unwilling to finance small businesses? Or have they just returned to pre-boom sanity? Or is something else going on? Some facts are clear. While bank interest rates fell in 2008, interest rate ‘spreads’ – the difference between the official cash rate and actual lending rates – jumped. And small business spreads rose furthest. The gap between large business rates and small business rates is now almost 1 per cent higher than it was in 2007 and
“Banks will lend, but they worry more about their risks”
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June / July 2013
15
Banking
“Have banks shut the doors to small business?” shows no sign of falling. Indeed, the RBA reported in a March research paper1 that spreads on small business variable-rate lending had risen in the first half of 2012. That was partly because such loans were usually secured by housing and thus were priced like home loans.
banks have always charged them more for loans. After the 2008 shock, the price of riskier lending went up.
The increase in the relative price of small business lending is, in a sense, quite understandable once you accept that banks are now less trusting of risk. As another RBA research paper concluded last year2, small businesses are inherently riskier than large ones: their revenues are viewed as more volatile, and they are less likely to have diverse supplies, products and customers. They are more than twice as likely to default as housing loan customers, and lenders lose more when they do. That is why
Cautious approach
But have banks shut the doors to small business? If that were true, we’d expect to see small business loans making up a smaller and smaller share of total bank business lending over time. In fact, lending to small businesses has not fallen as sharply since the GFC as lending to large businesses3. There is simply
20 YEArS OF BuSINESS lENdING
A BIGGEr GAP: Small business has paid (relatively) more for post-GFC loans
Commercial finance commitments – total in $billions
Cumulative change in spreads between the official cash rate and variable lending rates since June 2007
$50 POST-GFC $40
Percentage pionts
Percentage pionts BUSINESS
HOUSEHOLD 2%
2%
1%
1%
0%
0%
$30 PRE-GFC $20
$10
Source: ABS 5671.0
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
-1% 1993
$0
-1% 2008
housing
*
2010
2012
2008
Large Business*
2010
2012
Small Business
“Large business” includes loans greater than $2 million and includes bill lending. Source: Reserve Bank of Australia
References: 1 Benn Robertson and Anthony Rush, Developments in Banks’ Funding Costs and Lending Rates. RBA Bulletin, March 2013. 2 Mihovil Matic, Adam Gorajek and Chris Stewart, Small Business Funding in Australia. RBA, 2012 3 Reserve Bank of Australia, Submission to the Inquiry into Family Business in Australia. 2012. 4 Guy Debelle, Credo et Fido: Credit and Trust - Deakin University’s 2012 Richard Searby Oration. RBA, 25 September 2012. 5 Malcolm Edey, The Financial System in the Post-crisis Environment. RBA, 2013.
16 Percentage pionts
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June / July 2013
Percentage pionts
Banking
“Not enough evidence that banks are systematically avoiding small business loans”
Housing Small Business
Large Business
read this article online at pubacct.org.au
pubacct.org.au
not enough evidence that banks are systematically avoiding small business loans. Even the small business lobby group COSBOA (Council of Small Business Australia) admits that it’s hard to sort out the big truths from the heady mix of anecdotes and statistics now swirling around. “What we keep hearing is that it’s hard to get money from the banks,” COSBOA executive director Peter Strong told media a few months ago, “but we need a lot more information to take into policy discussions.” COSBOA is now undertaking a joint research program with the
bankers’ lobby group, the Australian Bankers’ Association. The available information is consistent with the picture in Public Accountant’s previous story: banks will lend, but they worry more about their risks. They want lower gearing, better interest cover, a longer track record and a more detailed presentation of forward plans. This approach obviously provides less lending than the old approach. As RBA assistant governor (financial markets) Guy Debelle noted recently4, trust was easily given in the years before the crisis. Complacency set in, and
many loans were priced too cheap. Those days have gone. And they may not return anytime soon. RBA assistant governor (financial system) Malcolm Edey has talked5 of a “new normal”, where rates stay low but banks stay cautious. Since its earliest days, accounting has been about creating trust. When lenders need to create more trust among borrowers, accountants have an opportunity.
June / July 2013
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Consulting Software and IT
W
e often think of LinkedIn as ‘social media’, as Facebook for businesspeople. That has some truth: LinkedIn can be a productive place to discuss issues with peers, as well as a good source of articles tailored to your business interests. And LinkedIn’s company pages can reinforce the messages of your own website. But many of the people who make a living helping businesses use LinkedIn’s full potential think of it another way. They see it primarily as ‘Amazon for talent’, a market in which actual and potential partners, suppliers, employees and hirers come to browse, leave reviews and look at the skills on offer. Just as Amazon details the reputation of books and consumer goods, LinkedIn shows the reputations of people. US LinkedIn consultant Wayne Breitbarth describes LinkedIn as “the best research site we have ever had for humans”. Google, for one, seems to agree. LinkedIn profile pages now dominate Google search results for individual names – and in many professional firms, it’s the profile of individual professionals that drives business. Most people now understand the basics of LinkedIn. Its free version gives you the equivalent of an internet-age business card: picture, skills summary, professional history, publications list. It enables you ‘connect’ with other LinkedIn members, so that their messages appear in your LinkedIn home page and yours in theirs. But LinkedIn’s most powerful feature may be its tools for allowing people’s connections to provide feedback about their skills and abilities. Analysts such as UK LinkedIn consultant Mark Lee emphasise
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April / May 2014
the importance of LinkedIn’s ‘recommendations’ – essentially old-fashioned testimonials in which you write a sentence or three on the talents of the person you’re recommending. The second of the site’s reputation tools is one-click ‘endorsements’, which took off at the end of 2012. They show people how many of your connections have agreed you have particular skills. Experts like Lee argue it’s actually too easy to ‘endorse’ a connection, even for a skill they don’t have. But when someone has 37 endorsements for cash-flow management, it’s likely they have at least some capability. Of course, LinkedIn profiles promote individuals, not firms – a potentially problematic issue from a firm’s point of view. For a start, helping staff to improve their profiles could mean helping them get their next job. Indeed, LinkedIn makes more than half its revenue from recruiters. “That’s the double-edged sword of this work,” says Breitbarth, who hears the objection from many of his clients but tells them that it’s a necessary risk if you want to improve your profile. “I’d want my people to stand tall if I had a good firm,” he says. And because individual staff members within a firm control their own profiles, you need to persuade them to ensure that not just their skills, but your brand messages are properly represented in their profiles. “You have to get ‘buy-in’,” says Breitbarth. “People feel they are pretty good networkers already.” Breitbarth brings people along by showing profiles of staff at the firm’s rivals and asking, “would people pick you”? It’s a question that was being asked long before the internet arrived. Only the tools have changed.
US LinkedIn consultant Wayne Breitbarth (pictured above) describes LinkedIn as “the best research site we have ever had for humans” How accounting firms can make the most of linkedIn
■ ■ ■ ■ ■
■ ■
Check that your existing brand statements reflect your intent. Get staff to buy into raising the firm’s LinkedIn profile. Make sure that firm and staff profiles reflect the brand. Check that all profile information is accurate. Ask established suppliers, customers and contacts for recommendations or endorsements. Use LinkedIn to research potential new clients. Provide individuals with the IPA’s Social Media Toolkit (pubacct.org.au/ ipas-social-media-toolkit).
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Yo u r I PA - I n s T I T u T e o F P u B l I C A C C o u n TA n T s h e A lT h C o v e r B e n e F I T s AT A g l A n C e
Software and IT
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More than just ‘social media’, LinkedIn is how professionals now represent themselves digitally to the rest of the business world.
134 135 & quote id 2096515
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drop by your local bupa centre by David Walker
^Available on ultimate Corporate health Cover, Corporate Advantage and Corporate Classic covers when taken with hospital cover on a family membership. For most items covering general dental and physio. Major dental only available in vIC and sA, excludes orthodontics and hospital treatments. gap free physio is not available on Platinum visitors Cover packages. Fund rules, annual limits and waiting periods apply. Child dependants only. ~only for new customers on new hospital and extras cover policies issued by Bupa Australia Pty ltd ABn 81 000 057 590, paying by direct debit (or payroll deduction if available) before 31 December 2013. second month free after initial payment. not with other offers. 2 & 6 month waiting period waiver applies to extras. other waiting periods and annual maximums apply. **effective 1 January 2013. ^^Applicable if you transfer within 60 days of leaving pubacct.org.au AprilBupa / May 2014 Pty ltd 27 your previous health insurer. Waiting periods may apply for benefits not fully covered with your previous health cover. Any unserved waiting periods will apply. Australia ABn 81 000 057 590. 10954-04-13P.
Practice management
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April / May 2014
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Practice management
LONe WOLF IN RETREAT
The individual sales star is giving way to collaborative and team-based sales techniques. by Bernard Kellerman
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April / May 2014
39
Upfront
Congress hailed a success —
The future of the accounting profession emerged as a dominant theme throughout three days of informative and stimulating presentations at the 2013 IPA National Congress. The inaugural Congress was held on 7–9 November at the picturesque InterContinental Sanctuary Cove, on the Gold Coast. Delegates were treated to glorious weather, five-star dining and an array of quality speakers, ensuring the sell-out event was a resounding success. Federal Minister for Small Business, the Hon Bruce Billson, and president of the International Federation of Accountants, Warren Allen, were among the keynote speakers. Other presenters included Dr Michael Schaper (ACCC deputy chairman), Dr Craig Latham (ASBC deputy commissioner), John Price (ASIC commissioner), Matthew Bambrick (ATO assistant commissioner), Stuart Forsyth (ATO assistant
deputy commissioner), Andrea Slattery (SPAA CEO), Matthew Rowe (FPA chairman), Dean Pearson (NAB head of industry economics) and finance expert Noel Whittaker AM. Speakers highlighted that digital technology cannot be ignored if public accountants want to diversify and grow their business. Reckon’s Sam Allert pointed to the changing face of Australian business, due to the rise of smartphones, tablets and new technology. NAB’s Dean Pearson revealed that more than $14.2 billion was spent by Australians online in the year ending August 2013. And Standard Business Reporting’s Geoff Miller’s presentation underlined the theme with this succinct message: technology is the pathway to global growth. Staff and delegates were also very active on Twitter, using the hashtag #IPANationalCongress. Check out some of their tweets from the Gold Coast below!
Practice challenges: a universal picture —
Keeping up with new regulations and standards remains the biggest challenge for small practices in Australia and globally. The latest SMP Quick Poll from the International Federation of Accountants shows new regulation tops even pressure on fees and the challenge of attracting and retaining clients. See more at ifac.org/publications-resources/ ifac-smp-quick-poll-mid-year-2013
What is the biggest challenge your practice is facing right now? 2% 2%
4% 5% 25%
6% 6% 7%
23%
Interesting perspective on technology at #IPANationalCongress that we overestimate short term tech impact and underestimate it in long term @AndrewConwayCEO
—
@therobnixon cloud tsunami is coming – no heads in the sand. remain relevant. #IPANationalCongress @Jason4bs
—
Cloud software is driving accountants to focusing on add services & more strategic re people risk #IPANationalCongress @AleeCochrane
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December 2013 / January 2014
20%
■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Keeping up with new regulations and standards Pressure to lower fees Attracting and retaining clients Work-life balance Attracting and retaining staff Competition Rising costs Ability to adapt to changing client needs Keeping up with new technology Succession planning
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Upfront
IPa in the media
Business media have repeatedly sought out the IPA for comment on regulation and reform. here are just a few recent media items.
New Minister welcomed The Institute of Public Accountants said ... it was the first time small business had been elevated to cabinet in its own right. “We are delighted that the largest segment of the economy will have a strong, vocal and effective advocate in Minister Billson,” IPA chief executive officer Andrew Conway said. – The Australian Financial Review
— broaden tax reform “In our view, tax reform should be more broadly based,” [tony] greco says. “Exclusions [in the tax system] create compliance issues.” – BRW
12
Call for consistent policies “An important ingredient in improving business confidence is clear, and that is to have consistent government policies,” [tony greco] says. – Herald Sun
— Reverse education expenses cap “The IPA, like many professional associations, has been advocating for the government to reverse its intention to restrict investment in ongoing education,” IPA chief executive Andrew Conway said in a statement. “Deferment still means that bad policy is being considered,” he said. – InvestorDaily
December 2013 / January 2014
Transitional provisions “If you were to remove the transitional provisions, what you’re basically saying is you want to shut the door on potentially thousands of qualified practitioners providing advice to clients,” Mr [Andrew] Conway said. – SMSF Adviser
Honour super promises The IPA’s [executive general manager, public affairs] Vicki Stylianou also told SMSF Adviser that the association plans to hold the government to account over its promise to restore stability to superannuation.
—
– SMSF Adviser
tax audit insurance “Many taxpayers have taken out tax audit insurance because it costs so much when the AtO goes on fishing expeditions.”
—
– Tony Greco, Crikey
— Talking sense on GST Regarding the GST [Andrew Conway] says: “The IPA calls for a mature debate, removed from blinkered political ideology.” – BRW
Concern over compensation tony greco, a senior tax advisor with the Institute of Public Accountants, believes not having proper compensation mechanisms in place is “a real concern for our members”. – SmartCompany
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Accounting jobs
wEAKER (21%) StRONGER (5%)
SlIGhtly wEAKER (15%)
StEADy (46%)
HIrInG unCertaInty Strength of current hiring activity compared to the past 12 months. Source: 2013/14 Michael Page Salary & Employment Forecast
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December 2013 / January 2014
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Accounting jobs
JOB mARKEt 2014:
ANAlySE
thIS!
SlIGhtly StRONGER (13%)
the job market heads into 2014 with analytical skills in demand – but student accountants will need to make their own luck. by James Dunn
A
s 2013 winds to a close and 2014 beckons, the accountancy hiring market is improving in some areas but is still soft in others. Roles are open at all levels, say recruiters, but there are definitely sectors that are more of a seller’s market for the right skill sets. The most frequently mentioned? Analytical skills. Kevin Jarvis, a director at recruitment firm Robert Half International (NSW), sees a sweet spot for hiring in the mid-market qualified accountant level, particularly in the analytical areas – financial analysis, business analysis, management accountant. Here, qualified accountants “who can add a lot of value” are in demand, he says. “Those people who know enough to come in and add value and not be too expensive for a company are very good value for money,” says Jarvis, adding that it doesn’t matter whether they worked in public practice, banking, commerce ... “or wherever”. “Because they have a decent amount of knowledge – from three or four years through to 10 years’ experience – we’re finding good opportunities for those people.” Susan Drew, senior regional director of Hays Accountancy & Finance, says business services is a vibrant area, particularly for companies concentrating on efficiencies. “Areas such as changing processes, systems
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integration – the software firms are really a growing opportunity at the moment,” says Drew. “Also the analytical side – companies are looking at that cost-benefit side and looking at analysing sales information and stock information and making sure that they’re moving things as quickly as they can. People with those skills have a lot of appeal.” Some of this demand is being offset to a large extent by the creation of shared service centres, says Adrian Oldham, regional director for recruitment company Michael Page in Australia. “We’ve seen continued activity in this area,” he says, “and when you combine that with the continued trend toward offshoring/outsourcing, it is definitely hampering recruitment.” With both of these trends, says Oldham, fewer accountants are needed. “All sorts of businesses are going down the shared service centre route, typically banking and financial institutions and large corporates with an Asia-Pacific footprint, as well as increasing numbers of Australian businesses,” he says. “That’s hitting all levels – graduates and the movement of experienced accountants. “This is on top of the fact that transactional accounting has in many cases been moved offshore, where basically you’ve got a cheaper resource to do the transactional role that requires less skill.”
December 2013 / January 2014
31
GEttING ClIENtS
RIGht
ON thE mONEy
A surprising number of business people are not well suited to making financial decisions – and accountants need to watch for the danger signs. by John Kavanagh
44
December 2013 / January 2014
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Consulting
A
n experienced accountant or finance professional should be able to work out a client’s likely level of financial literacy very quickly. That is because, as ANZ’s Survey of Adult Financial Literacy in Australia shows, financial literacy lines up closely with age, education, occupation, income and wealth. People who are older, better educated, have good jobs, high incomes and an above-average level of household wealth are odds-on to be knowledgeable about financial matters. However, that is only half the issue. ANZ and the Australian Securities and Investments Commission (ASIC) have pointed out that behavioural ‘barriers’ prevent even knowledgeable people from making good financial decisions. In a 2011 report, Financial Literacy and Behavioural Change, ASIC says: “Knowledge is not enough. People don’t always act in their own best interests.” The barriers to good decision-making that ASIC identified include information and choice overload, complexity and uncertainty, time pressures, underconfidence and over-confidence, and the inability to exercise self-control. These barriers can add up to trouble. The Australian Institute of Criminology provided a good example of the problem in its 2012 report, Serious and Organised Investment Fraud in Australia, which sets out the common ‘actors’ in scams and their likely victims. Australia is an attractive location for fraudsters, because of the overall high level of household wealth and, in particular, the high level of self-managed superannuation funds. The profile of the typical victim was a big surprise. The Institute of Criminology says victims are typically “educated, computer literate and have undertaken preventative research that provides them with a sense of assurance”. A large percentage are middle-aged or older men, who are self-funded retirees or small business owners. They are people who consider themselves financially literate; they usually have above-average incomes and savings; and they are inclined to take more risks with their investments.
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The issue for these people, and for their professional advisers, is not to be better educated about financial and investment matters but to be helped to become better decision-makers. Research on financial literacy typically focuses on consumers, especially school students, investors and retirees. It has rarely addressed firms.
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“Australia is an attractive location for fraudsters, because of the overall high level of household wealth and SMSFs” In its Financial Literacy and Behavioural Change report, ASIC reviewed 25 research documents; it found none dealing with small business owners. Nevertheless, it is possible to extract from the research some important lessons for accountants dealing with financially challenged clients. In particular, ASIC reviewed available research on how to change behaviour. Its take-away? Information on its own is not enough. Here are some of the key ASIC findings: ■
The most effective strategies involve simplifying complex decisions into a series of easy steps and then working through them methodically.
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ASIC worked out that getting people to make commitments to take action helps overcome the barriers of complexity and being time-poor. Prompts help change behaviour, ASIC found. “Reminders are an important tool to help fight procrastination and inertia,” it claims. These prompts can be delivered by making follow-up calls or emails or sending out online or printed newsletters. ASIC also cited research that said people are more likely to continue with tasks that make them feel good. So, prompts should aim to provide positive feedback. The research suggested that tangible services, such as help lines, provided encouragement and removed barriers. One UK study cited by ASIC found that people struggled to remain engaged with professional advice because they felt it was like homework. Approaches that used several different ways to communicate helped overcome this feeling.
ASIC warns that much of the work on behavioural change is speculative. “Although the financial literacy movement has gained momentum over the past few years,” it says, “there is little reliable, conclusive research about whether financial literacy campaigns and programs result in sustained changes in behaviour and improved financial outcomes.” One source of information about the financial literacy of business owners is the Australian Financial Security Authority (formerly Insolvency & Trustee Service Australia). In a 2011 study, Profiles of Debtors, it asked people whose bankruptcies were business-related what they thought caused their failure. Most referred to economic conditions, but some did attribute their problems to a lack of business ability, failure to keep proper books, excessive interest costs and inability to collect debts. That is pretty basic stuff. It suggests that the financial literacy of small business owners is fertile ground for research and intervention. Accountants can take steps now to minimise their risks and help their less numerate clients.
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ouT oF THe
PAYMeNTS lAB ... Australia is emerging as a global leader in payments innovation, thanks in part to a population always willing to embrace the next big thing. by Beverley Head
T
o celebrate its seventh birthday, online retailer CatchOfTheDay offered iPad minis for sale at the knockdown price of $130. The catch was that the tablets could only be bought using V.me – Visa’s newly introduced digital wallet. According to Visa Australia country manager Vipin Kalra, thousands of V.me accounts were opened that day last October. CatchOfTheDay’s website crashed – which is not particularly unusual. And by 7.30pm that night, Visa’s website was getting jammed – which is unusual. That one-off sale did more than merely testify once again to Australians’ appetite for Apple hardware; it also demonstrated Australians’ enthusiasm for new payment mechanisms. Indeed, new payments mechanisms are emerging thick and fast in Australia right now. We’re in the middle of what amounts to a payments ‘land grab’. The explanation lies not just with our innovation-friendly consumers but also with the Reserve Bank of Australia (RBA),
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“Accounting companies could create their own currency” – Simon Raik-Allen, MYOB
which has been keen to open up the payments frontier. The RBA’s 2012 strategic review of innovation in the payments system made a series of recommendations that will, by the end of 2016, make the system more flexible for financial services providers and more convenient for consumers. The review spurred the creation of a collaborative payments hub, allowing near real-time settlement. There are also now plans to establish a central addressing hub that could let people transfer funds
knowing only the payee’s mobile phone number. The Australian Payments Clearing Association and KPMG are steering that initiative and have signed up 17 organisations, including the big banks, smaller deposit-taking institutions and payments giant PayPal, to work on the hub. Not that the industry is sitting back and waiting for an official blessing for innovation. In 2010, ANZ pioneered mobile payments, which can be made from smartphones or tablets, when it released an iPhone app called goMoney. Commonwealth Bank pushed a step further when it introduced a special iPhone case featuring a near field communication (NFC) chip to allow contactless payments using its Kaching app. The underlying NFC technology is the same as that used on the MasterCard PayPass and Visa payWave credit cards, designed for contactless payments. ANZ has contactless smartphone payments apps in trial, and NAB has launched its Flik app, which allows contactless payments on NFC-enabled phones. And both Commonwealth Bank and
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payments innovation
“Australians lead the world in contactless payments” – Alex Boorman, RFi
payments by the numbers 210
Number of credit or debit card transactions the average Australian performed in 2012/13, according to the RBA. It’s double the count of five years earlier. Non-cash payments now dominate the Australian payments landscape.
15.4 million
Number of credit and charge cards Australians use over the course of a month.
Westpac announced new versions of their mobile banking applications in late 2013 that will allow contactless payments on selected Android phones from early 2014. Although Apple has so far spurned NFC chips for the iPhone, there are now cheap NFC stickers – available in Australia from retailer Coles or CBA, for example – that allow contactless payments from a smartphone coupled with a payments app. Smartphone makers are also including NFC, and by 2017 there should be 1.2 billion NFC-ready phones worldwide, according to Juniper Research. Alternative contactless payment systems are also emerging, such as 2ergo’s wi-fi-based podifi system. But given it is slower and less secure, it’s not expected to get the same sort of traction as NFC.
$22.6 billion
Value of purchases or cash advances made with those credit and charge cards.
$8.1 billion
Value of cash flowing out of Australian ATMs monthly.
$42 million
Value of the one million personal cheques now signed by Australians each month.
6,400
Number of bricks-and-mortar access points to the payments network – mostly bank branches – at the end of the 2012/13 financial year. There were also 3,241 Australia Post outlets.
29,989
Number of Australian ATMs.
779,555
DIPLOMA OF FINANCIAL PLANNING Merchants and banks spur demand
Number of Australian eftpos machines.
100,000
Approximate number of Australian eftpos machines equipped to accept contactless payments.
According to Alex Boorman, research director at financial intelligence firm RFi, Australians lead the world in contactless Australians who said they used PayPal in 2013, according payments. The pace of change has been to financial intelligence firm RFi Australia. spurred by large retailers, such as Coles and Woolworths, which benefit from reduced friction and more customer data Australians who said they used a credit card in 2013, making The Diploma of been Financial Planning, and have quick to install contactless this the first year that reported PayPal users exceeded credit card readers. card users. The value of credit card payments remains, for the provided by DeakinPrime, provides you Contactless smartphone payments moment, higher, while virtual currencies remain very much a with an ideal pathway to diversify and grow have been slower to take off than fringe alternative. contactless Butadvantage Boorman believes your practice by cards. taking of emerging digital wallets could change that, as opportunities in the area of benefi financial merchants and consumers t from planning advice. Expected value of smartphone-based payments globally the loyalty cards, coupons and rewards in 2014, as forecast by IT research firm Gartner. That’s This course is also RG 146 compliant. vouchers that can be stored in the wallets. 44 per cent higher than the 2013 estimate. Gartner predicts Whatever the underlying technology, that contactless mobile payments will still represent only To find out more, please visit publicaccountants.org.au/DFP the major banks are racing to mobile 5 per cent of all mobile payments by 2017. payments. They don’t want a repeat of the Sources: rBA payment statistics August 2013; rBA points of access statistics, June 2013; rFi; Gartner 2013 Mobile Payment update. PayPal experience, where they considered
69% 67%
US$235 billion
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themselves invincible, only to then see PayPal eat their lunch. Bankwest executive general manager of enterprise services and chief information officer Andy Weir speaks for many bankers when he says bluntly, “We should be worried.” Weir adds: “I was in the US recently and Starbucks had an app on a phone to buy coffee. That [app] went from zero to 25 per cent of all transactions in less than 12 months.” It should be noted that Australia already has Beat the Q, a smartphone app that lets people order and pay for coffee using PayPal before they get to the coffee shop. PayPal Here, meanwhile, uses a plug-in device that turns a smartphone into a credit card reader (although the current version won’t work with chip-only cards). In response, CBA has announced its own payments platform, called Pi, designed to turn smartphones into credit card readers and a mobile POS device.
Accounting systems embrace innovations
The flurry of activity in payments is also being spurred by start-ups, which are disrupting the banks’ status quo. Weir says the incumbents “need to embrace new entrants in the value chain” and argues that they must choose whether to “create walled gardens or try to connect with services that meet other needs”. He says that is also the approach taken by accounting platforms such as Xero. Xero provides a core service, but then opens its platform to all comers. Xero’s Payment Services facility, for example, can take PayPal data directly into the system and also integrates with payments gateway eWAY. Accounting consultant David Smith, of Smithink 2020, says that the app store approach taken by Xero – and increasingly a range of other accounting software companies – means any payments innovations can be simply plugged into a cloud-based accounting
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“The pace of change has been spurred by large Main centre events retailers, Perth such as Coles Tuesday 4and March Woolworths” Adelaide Thursday 6 March Brisbane Tuesday 11 March with all sorts of payments, including platform. This ability, notes general Melbourne Thursday March virtual currencies like13 Bitcoin. manager of Xero in Australia Chris As far Monday as the operation of the Ridd, is “a fundamental benefitSydney of 17 March being in the cloud”. MYOB is also partnering directly with payments innovators. It last year signed a deal to distribute, license and integrate Mint Wireless’s mobile payment system with MYOB software. Simon Raik-Allen, MYOB’s chief technology officer, says that by providing access through application programming interfaces (APIs) – the digital hooks that let programs connect with each other – accounting systems can integrate
accounting platform is concerned, as long as the payments data can be fed in through bank feeds or through an API, “there’s no difference if it’s a credit card, a virtual currency or PayPal”, according to Raik-Allen. And peering further into the future, the MYOB technology chief believes many more payments models will emerge. “Accounting companies could create their own currency,” he muses. “I’m not saying we will do it, but we could.”
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Education and career
Building
A BETTER
ACCOUNTANT Most accountants have the tools required to become far more relevant to the business community. They’re just not sure how to use them.
by Chris Sheedy
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Education and career
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ccounting and business strategy have always been closely related. Management accounting, in particular, supports the development of strategy in larger businesses. But as automation and globalisation squeeze the prices accountants can charge, even accountants catering to smaller firms are being forced to re-evaluate their role in the broader business. Some experts believe Australia could take a leadership role in the reshaping of the global accounting industry over the coming years. But that will only happen, they say, if we successfully develop an understanding of the knowledge that professionals in the industry need, and if we properly define what it is that will make accountants truly valuable to business. “I can see change happening now, and I have no doubt that Australia will lead the way in reshaping the accounting offering,” says Grant Bloxham, CEO of accounting advisory business Bstar. “Our financial, legal and banking systems are very similar to those of other developed nations, all of which are feeling the effect of change. Our industry knows it needs to change. If we can do it well and do it quickly, then the world will look to Australia as a model for success.” The increasing irrelevance of the old-style compliance accountant is an international problem – so much so that in 2013, the Institute of Management Accountants (IMA) in the US launched the provocatively titled website competencycrisis.org. Dr Raef Lawson, the IMA’s vicepresident of research, says the IMA saw a profession losing its way when it came to broader business education. “We not only recognised that the issue had become a larger problem as accounting roles continued to evolve,” he says, “but we also saw that organisations were losing their focus on the job to be done – provide accounting professionals with all the skills and education
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they need to be strategic business partners responsible for maintaining the health of their companies. “Our key goal is to bring adequate education, training and networking back into focus for accounting professionals, employers and academia.” Lawson says the talent gap begins as soon as new graduates take their first job, then widens throughout their careers when they and their teams are asked to perform in more diverse, strategic roles. He says little has changed in accounting education in the past 25 years, and that employment surveys from organisations such as ManpowerGroup continue to refer to the fact that accounting is one of the most difficult job categories for recruiters to find qualified talent. Bstar’s Bloxham says one of the big threats to the local tax accounting business – cloud accounting software – is seriously affecting about 30 per cent of the traditional work previously carried out by accountants. Increasingly strict regulations and greater competition are also hurting the bottom line of many practices. The way businesses view the accounting role is shifting, and it is that shift that has exposed new threats, as well as fresh opportunities. From Bstar’s research, Bloxham lists the most common issues and concerns for SME owners: • managing cash flow and increasing profit; • finding, developing and retaining the right staff; • ensuring succession plans are in place; • achieving a good level of work/life balance. “But despite these issues,” says Bloxham, “when you dig down into what they are most likely to actually pay for, the number one service they’re after is a ‘board of advice’ to help implement changes. If accountants don’t begin to take these advisory roles in SMEs, then financial advisers will.”
Education and career
“We’re doing our clients a disservice if we simply let them lodge their own tax return via the ATO website” – Kerry King, The Advisor Institute
Research and anecdotal evidence say businesses are hungry for strategic advice. But many SMEs, for instance, are managed by technicians who are buried in the business, busily carrying out its specialised work. They rarely have the time or the bandwidth to consider bigger issues around the management and direction of the business itself. Kerry King, IPA Fellow and founder of The Advisor Institute, says accountants are perfectly placed to fill this advisory role. They possess a natural talent for financial analysis. So why aren’t more accountants playing a greater advisory role? “Many simply don’t have the confidence to offer such a service to their clients,” says King. “They have the technical skills, but they don’t know how to use and communicate them. They don’t have the methodologies to ‘product-ise’ the offering for their clients, to put it in a format the client would understand.” In an environment in which cloud software, ATO web offerings, bookkeepers and BAS agents are looking after the tax accounting for many businesses, accountants must learn to re-purpose their knowledge and skills or risk being pushed down the ladder of relevance. “Accountants should never be processors of tax returns,” says King. “That should simply be a means to an end. If we don’t offer businesses strategies to set up structures that take better advantage of tax benefits, or give advice on credit policies for debt management, or teach clients how to figure out their optimum levels of inventory, then we’re not doing our job. We’re doing our clients a disservice if we simply let them lodge their own tax return via the ATO website.” The most important step, adds King, is to ensure you present to your clients the advisory service offer in the first place. The consultant says he sees many clients whose reaction to his advice is commonly along the lines of: “Why didn’t my accountant ever tell me any of this?”
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