NQ magazine, February 0216

February 2016

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THE VOICE OF ALL NQs Contact us

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MENTAL HEALTH How accountants are tackling their mental wellbeing issues

ALL THE NEWS YOU NEED

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and a whole lot more Pages 5 and 7

RISE OF THE ROBOTS THE DIGITAL AGE Why your company should have a chief digital officer Page 14

YOUR CAREER Patience is a virtue when it comes to landing that dream job Page 12

WILL A ROBOT BE TAKING YOUR JOB? THE TRUTH ABOUT AUTOMATING THE WORKPLACE P8

CHANGES TO IFRS The IASB brings leases onto the balance sheet with IFRS 16 Leases

ETHICAL DILEMMA: A CHARITY CASE What steps should you take to expose malpractice at the charity you work for?

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opening doors Financial Accountant – Tax

Senior Management Accountant

Health & Pharmaceutical, Surrey

Industrial Services, West London

• To £55,000.

• CIMA/ACCA/ACA Newly Qualified.

• Will suit high calibre candidates looking to join a truly global brand, in a highly visible role offering excellent career development and progression.

• Pivotal to the tax governance and reporting within a key area of the business.

• Production of annual corporation and payroll tax returns, quarterly VAT returns and monthly Intrastat returns in accordance with HMRC requirements.

• Leading the production of tax information; maintaining an excellent relationship with Group function of the business, fellow Group companies, finance leadership and external agencies.

• Strong interest in tax essential, as you will be the tax specialist for the business.

• The business will support you in the study of the CTA qualification.

• To £55,000.

• CIMA/ACCA/ACA Newly Qualified.

• Tailor-made for candidates seeking a move into a role placing strong emphasis on business partnering, within a dynamic and very collaborative finance team.

• Key analysis and influencing of business decisions across the UK, providing strong financial support and guidance to key stakeholders.

• Responsibility for reviewing and forecasting business performance, supervision of KPI reporting and the review of headcount reporting.

• Responsibility for leadership and future strategic direction of the management accounting team, including development of junior staff.

• Strong background in partnering with stakeholders and key business analysis essential.

• Experience managing and developing junior staff highly advantageous.

redefining financial recruitment T +44 (0)20 8408 9999 E info@walkerdendle.co.uk

www.walkerdendle.co.uk

COMMENT NUMBER CRUNCHING

94%

EDITOR’S COMMENTS

Who said tax wasn’t sexy?

You know something is strange in the world when media mogul Rupert Murdoch tweets that politicians in the UK and US should hang their heads in shame for giving Google an easy way out of its corporate tax arrangements. Google’s £130m deal with HMRC dominated the front pages of the national newspapers for days.

Murdoch called it a ‘token amount’ handed over to help Google’s PR. What is for sure is tax is now on everyone’s agenda.

It doesn’t help Google when you discover it has had 24 meetings with 18 Government ministers in the past two years. Google boss Eric Schmidt is, of course, a member of the PM’s business advisory group and David Cameron’s former head of strategic communications, Tim Chatwin, joined Google in 2012. Everyone seems a bit too close. The big unanswerable question is what is the right level of taxation for multinational companies! Google’s 3% corporation tax rate is too low, and it is wrong to think it is close to an end game now it has coughed up £130m. The SNP has called for a probe and the European Commission could investigate whether HMRC’s deal constitutes ‘state aid’.

The Commission has now issued new proposals to crack down on tax evasion and avoidance, closing some of the loopholes in existing tax laws. They follow the OECD’s Base Erosion and Profit Shifting (Beps) project.

The Commission wants tax authorities to share information on multinationals among themselves. It is also looking at issuing public country-by-country reporting and will publish its findings in the spring.

Turning back to this issue, the big news is the IASB’s new lease standard – IFRS 16 (see page 22). Listed companies have an estimated $3.3 trillion of lease commitments, of which 85% are currently off balance sheet. This new standard will have massive repercussions for many industries and their balance sheets.

Graham Hambly, Editor (graham@pqaccountant.com)

Chance that your job will one day be done by a robot P8

30%

CABA members who have said they’ve been affected by mental ill health P10

90

Number of world’s top 1,500 companies that have a chief digital office P14

$1,000,000 What Steve Jobs was worth aged 23; read our book review of his life story P18

1 in 2

Number of firms worldwide using IFRS or US GAAP affected by the introduction of IFRS 16 P22

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NEWS

World a better place with accountants in it Simon Walker

FRC to look again at KPMG’s role The Financial Reporting Council’s (FRC) has said its conduct committee has now reviewed the full report from the Prudential Regulation Authority and Financial Conduct Authority into the failures at HBOS. It has decided to ask its Executive Counsel to undertake preliminary enquiries into KPMG’s audit of HBOS. This will look at “the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements for the year ended 31 December 2007”. Counsel will also consider whether there were material uncertainties “about the entity’s ability to continue as a going concern”.

Once the Executive Counsel has presented his findings, the conduct committee will decide whether KPMG or any member is liable for investigation.

The Institute of Directors has warned the FRC that it must conduct the inquiry in a timely fashion. The IoD’s director general, Simon Walker, said shareholders and customers deserve to know what role the firm’s auditors, KPMG, played in this scandal. “The announcement of this long overdue inquiry, therefore, is better late than never.”

He stressed that external audits must be seen as rigorous and for purpose, especially when it comes to systematically important and bewilderingly complex financial institutions.

CIOT calls for rethink on national insurance reduction rules The Chartered Institute of Taxation (CIOT) has warned that curbs excluding one-person businesses from claiming the national insurance Employment Allowance won’t work.

HMRC want to exclude limited companies where the director is the sole employee from claiming the Employment Allowance that reduces a company’s national insurance bill, from April 2016. But the CIOT has pointed out that the planned curbs are easily avoided, either by appointing another director, such as a spouse, civil partner, other family member or friend, and paying that person a token wage; or by arranging payments of earnings so that the worker is not a director when at least one of the payments is made.

The CIOT’s John Cullinane said: “The government may find its plans to be ineffective in significantly reducing Employment Allowance claims because it is open to abuse. It will simply have the effect of penalising those single directoremployee limited companies that are unable to, or do not know, that they could appoint another person as a director or employee in order to claim from Employer Allowance.”

NQ Magazine February 2016

It’s official: accountants make the world a better place. A new study by the global body for the profession, the International Federation of Accountants (IFAC), has found accountancy and the number of accountants in a country is strongly linked to prosperity and improved living standards. In fact, IFAC has estimated that the profession contributes $575bn annually to the global economy.

Research found there is a strong correlation between the number of accountants working in economies with GDP per capita. There is an even stronger correlation with the UN Human Development index, which measures life expectancy, years of schooling and income.

IFAC CEO Faye Choudhury explained that professional accountants contribute to stability and growth through better information, reporting, measurement and decision-making.

This is decisively linked to improving living standards and the wealth and prosperity of nations and their citizens. He added: “When nations have a robust system to track the flow of money in government, within businesses and between organisations, transparency and accountability are improved, organisations are strengthened and economies are enhanced.”

Narrow-scope amendments The International Accounting Standards Board (IASB) has issued amendments to IAS 12 Income Taxes. The amendment ‘Recognition of Deferred Tax Assets for Unrealised Losses’ (Amendments to IAS 12) clarifies how to account for deferred tax assets related to debt instruments measured at fair value.

IAS 12 provides requirements on the recognition and measurement of current or deferred tax liabilities or assets.

The amendments issued this month clarify the requirements on recognition of deferred tax assets for unrealised losses to address diversity in practice.

Entities are required to apply the amendments for annual periods beginning on or after 1 January 2017. Early application is permitted.

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NEWS

Tax havens New leasing standard add transparency need Big 4 will The new lease accounting standard IFRS 16 Leases,

If the Big 4 accountancy firms were to withdraw from tax haven activity the vast majority of the abuse of these places by the world’s multinational corporations would cease, claims chartered accountant and political economist Richard Murphy.

At the recent Kilkenomics festival, Murphy was reported to have “joked that the biggest threat to democracy in the world came from the Big 4”. He later said he was not joking, and emphasised that he made these comments in the context of tax havens. Murphy believes that tax havens have been used to undertake what is best described as a tax war on the right of democratic countries to collect the revenues that are owed to them, as a consequence of the laws that they pass.

He said that without the presence of the firms it would be impossible for the world’s largest corporations to make use of such jurisdictions, because the activities that they supposedly undertake in these places must be audited.

This is what the Big 4 do, giving them a clean bill of health in the process. “Therefore the Big 4 firms can quite rightly be considered to be critical enablers of offshore tax abuse,” said Murphy.

Are you suffering from repetitive task injury?

published recently by the International Accounting Standards Board (IASB), brings added transparency to the balance sheet, according to leading accountancy firms.

KPMG said the new standard requires companies to bring most leases on-balance sheet, recognising new assets and liabilities. At present, many analysts adjust financial statements to reflect lease transactions that companies hold off-balance sheet.

The accounting changes do not affect cash flows directly.

However, given the scale of the accounting changes, KPMG expects that companies will be keen to understand the size of the lease liabilities arising from transactions they enter into between now and 2019.

Deloitte felt the standard will result in many leased assets, previously held off balance sheet, being brought onto companies’ books, potentially adding billions in leaseintensive industries.

It felt that the new standard means that companies will be viewed and compared by their investors differently. That said, the final result should be clearer for both preparers and investors, since a very obvious part of financing will become explicit rather than remain implicit!

• Go to page 22 for the full rundown of the new standard

PKF Cooper Parry & Clement Keys merge Leading Midlands accountancy firms PKF Cooper Parry has now completed a merger with Birmingham-based Clement Keys. The combined firm is now the largest independent firm of chartered accountants in the region, according to PKF Cooper Parry’s CEO Ade Cheatham.

Cheatham stressed that the firm now has ambitious plans for growth in the Midlands, and will be looking to expand its presence in terms of team numbers and expertise.

The newly merged firm, which will trade as PKF Cooper Parry, has combined revenues of £30m and a team of more than 350 people across its two offices in the East and West Midlands.

PKF Cooper Parry is known for its innovative approach to HR, offering staff unlimited holidays and flexible working hours.

Is finance failing to keep pace with the demands of next generation accountancy? UK accountants appear to be suffering from ‘repetitive task injury’ (RTI) as finance departments fail to automate repetitive tasks that are simply increasing workloads and decreasing productivity.

A recent survey by BlackLine found that nearly two-thirds (64%) admitted that accountants often leave jobs because they are not happy with the repetitive manual work.

BlackLine’s CSO, Mario Spanicciati, said: “RTI is a growing concern for the accounting industry. The next generation of accountants are digital natives with advanced technology at their fingertips. In order to retain staff and entice the next generation into the profession, finance departments need to move away from out-dated manual processes.”

NQ Magazine February 2016

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THE WORKPLACE

The rise of the machines Jamie Lyon looks at the truth behind the stories that robots will be taking your job

B

usinesses and the accountancy profession have to be better prepared to anticipate and respond to the unprecedented challenges of a volatile global economy, says a new report.

At the same time, firms need to be seeking and capitalising on all and any opportunities.

The robots are coming. In fact they are already here, silently working away in our midst. They are clever, efficient and cost-effective – think SkyNet from the Terminator films but without the murderous intentions. Although they

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don’t want to kill you, the rumour is they might just be after your job…

That’s a view that has been making the headlines in recent months, but is there any truth in it? The use of robotics in finance is certainly a very evocative subject. It is emblematic of what many see as the next natural step in the evolution of business. Namely – fewer people in favour of intuitive, machine-based learning technologies.

Taken at face value, that could lead to the rather worrying assumption that the days of the human accountant are numbered. In fact, a handy app on

the BBC website lets you fill in your job role and see how at risk you are of being replaced by a robot. Type in ‘accountant’ and you’ll be told you have a 94% chance of no longer being required. Not happy reading at all.

When I discuss the issue with business leaders working away from the headlines out there in the real world it strikes me that there is significant confusion around the whole automation and robots issue. First, the naming convention hardly helps. ‘Robot’ conjures up NQ Magazine February 2016

THE WORKPLACE

images of Skynet-esque machines slaving away in a finance department, which couldn’t be further from the truth. So let’s start using the term properly – RPA, or Robotic Process Automation – because that helps start to bring some contextualisation to the party. The concept is this: RPA is software that interfaces with other application software to effectively replicate the actions of a human being in rules-based, repetitive, transaction processes. In the finance function this could be replicating the actions of workers in the Accounts Payable or NQ Magazine February 2016

Accounts Receivable process as an example. It’s allegedly cheap too, and costs of one-third compared with a fulltime human are often cited.

Yet with such magical numbers being suggested, take up, particularly in a finance function context, remains patchy. On the one hand, the technology seems intuitively simple, but finance leaders will only adopt RPA properly when they see the peers they trust implementing the solution. The jury is well and truly out.

The future business environment will be volatile, uncertain, complex

and ambiguous (the infamous VUCA acronym), and while that sounds scary, it means an environment that presents both huge opportunities as well as big challenges to enterprises. In this type of environment I’d argue professional accountants are going to be even more valuable to businesses, helping them take better decisions, helping them manage their risks more effectively, driving further efficiencies through leveraging technology and so on.

Far from being thrown on the scrap heap, when it comes to unlocking the power of big data finance professionals are a vital source of insight for the whole business, not just the chief executive. It is true, however, that to take up this strategic role in the business, accountants sometimes need to step out from behind their spreadsheets and demonstrate what is important and how it can be used. Worryingly, more than half of respondents to a recent ACCA/KPMG UK survey on enterprise performance management said that the finance team in their organisation is perceived principally as gatekeepers of data, or providers of basic financial analysis at best. To avoid being swallowed up by the march of the robots, these gatekeepers need to evolve into strategic data analysts.

To me, the issue isn’t the admittedly headline-friendly ‘robot versus human’ debate and more around how we ensure big data begins to fulfil its full potential. The finance team undoubtedly needs to step up and begin actively guiding the business towards its strategic aims. Robots provide the means to do this, but they contribute nothing without the right people to translate their output into strategic advice – and as is so often the case, the right people means accountants. As with any profession, finance roles are constantly evolving to reflect what the business needs and this is something to be celebrated, not feared; it is freeing them up to help to set the agenda, and drive more value.

As you make your way through your career, my advice is to think of the rise of the robots as an opportunity to spread your wings rather than a risk to your future.

NQ

● Jamie Lyon is ACCA’s head of

corporate sector

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MENTAL WELLBEING

Chartered accountants in the UK are tackling wellbeing issues head on by speaking frankly about their experiences with mental ill health. Are you?

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ew international research from Chartered Accountants Benevolent Association reveals that 30% of past and present ICAEW members in the UK have experienced mental ill health during their career. The one in three willing to speak about the issue emphasised how progressive attitudes towards mental ill health are in the UK. Not only did the recent CABA research reveal that people are more willing to speak out about mental ill health, it also highlighted that employees felt supported by their employers.

In fact, 47% of those surveyed feel supported by their managers in speaking about any problems and just under half (49%) feel they have adequate support to deal with the pressures of being a chartered accountant.

However, respondents were less likely to speak openly about mental health internationally, with just 12% saying they had experienced mental ill health, demonstrating that a reticence still remains when talking about the illness universally.

Kelly Feehan, services director at CABA, said about the data: “While 30% may seem a high percentage of people to be affected by mental ill health, we actually see this figure as a silver lining. Speaking openly about mental ill health is a big step forward both for the sector and to break the stigma around the illness. We now hope that both employers and employees internationally follow the UK’s lead in being more open about any problems they face around mental ill health, not least because confronting the issue is the first step to recovery.”

The CABA data also showed that 17% of past and present ICAEW members in the UK have taken time

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off due to stress, highlighting how employers need to be prepared to support those feeling under pressure and also have procedures in place to support other team members should core staff need to take time off work.

Feehan continued: “Accountancy is a high pressure but rewarding environment. Our research has shown, however, that this can trigger stress, anxiety or depression. We urge any employee feeling like this to talk to their line manager at once before the situation escalates.

“While our research showed that half of accountants are well prepared for the stresses of the profession and believe it simply comes with the job, many will need a helping hand at some point and shouldn’t ever feel put off about asking for help.”

NQ

● For more information on stress

management, or how to spot the signs of stress in employees, visit the CABA website – www.caba. org.uk NQ Magazine February 2016

YOUR CAREER

Pace yourself

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NQ Magazine February 2016

YOUR CAREER

Recruitment expert Phillippa Lusty explains why patience is a virtue when it comes to you landing your dream job

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ou’ve set sail on your professional voyage into the wide world of finance and it’s full steam ahead. You’ve studied long and hard, and while sat at your desk completing your Excel pivot tables and preparing audit files you find yourself daydreaming about that promotion and holding on to a hazy image of your future self sitting in the Finance Director’s chair.

It’s time to focus on developing that successful career. You want those gleaming credentials and all the trimmings that go with it... but how do you get there? You have a steep learning curve and long road ahead of you; it can be difficult to know which path to choose and it can be tempting to jump around until you find that ‘dream job’.

With the advent of social media it is easier than ever to convince yourself that the grass is greener. We see our friends and colleagues constantly boasting of their successes across various social media platforms with pictures, updates and impressive new job titles, and we find ourselves peering through a perceived glass ceiling while lamenting our own shortcomings. If so many people seem to be fast-tracking their way up the ladder, why is it taking me so long? Yet often what we fail to realise is those ‘successful’ colleagues of ours are looking at us and thinking the very same thing.

The trouble is, we live in an age where we have been conditioned to expect things to happen NOW. With everything available at the touch of a button it is easy to forget the virtue of patience. Even dating has become NQ Magazine February 2016

instantaneous: with the advent of mobile dating apps, you can now match with your potential future spouse by simply being within a 1km radius of each other as you sit sipping a cappuccino and discussing the P&L with your Financial Controller.

But relationships and careers alike take time to build. Of course I’m not advocating that you sit back and wait for your career to fall into your lap, but you must be prepared to lay the right foundations. More so now than ever, you will find yourself being approached and headhunted directly by competitive companies or indirectly through recruiters. Even if you don’t need them now, listen to what they have to say; having a rapport with these contacts will leave you open to future opportunities that you more than likely wouldn’t know or hear of independently. That said, your CV leaves a trail, and there are a few key things employers and good recruiters will look for, including staying power.

It is arguable that staying within one company for too long can potentially inhibit future opportunities – even if you show strong career progression and development within that business you may run the risk of being branded as ‘institutionalised’ or too ‘sector specific’.

The key thing to remember is that when you are employed by a company it is investing in you. It will, therefore, want to feel assured that you are not what we recruiters term a ‘flight risk’.

Unless you specialise in contract or consultancy based roles, ideally an absolute minimum of two years, and closer to three to five for senior

appointments between each move will demonstrate to a potential employer that you are equally as willing to invest in the business in which you work.

In reality, we know that this is not always possible or practical: from restructuring and redundancies to relocations, there are many factors during your employment with a company that may cause you to take an early exit and start looking for new opportunities.

“There are no opportunities for me to progress and develop within my current company” is one of the most common reasons people choose to move. This is, of course, a very valid reason to be looking for a new challenge and demonstrates healthy drive and ambition, and a promotion or step up in terms of salary and role is a great remedy for this complaint.

However, if at interview you demonstrate a mercenary approach of systematically ‘box ticking’, by which you leave each position simply once you feel you have acquired the relevant experience and skill set you need for the next promotion in the next company, this can backfire further down the line. The bottom line is, if your CV shows a regular pattern of ‘job hops’ or short tenures you are likely to get overlooked in favour of someone with a more stable work history.

In a nutshell, don’t be afraid of striving for your end game, but take time to consider the steps you take on your journey. These will determine how NQ and when you get there! ● Phillippa Lusty is a recruitment

consultant at Walker Dendle

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DIGITAL TRANSFORMATION

Adapt, disrupt, transform Does your company have a chief digital officer?

Well, you should be worried if it hasn’t, says a new PwC report

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he digital revolution is moving fast and spurring massive transformations – and disruptions – in industry after industry.

That said, just 6% of the world’s top 1,500 companies have appointed a chief digital officer (CDO) to oversee the digital transformation of their business, according to a new study from PwC’s strategy consulting business, Strategy&.

‘The 2015 Chief Digital Officer Study’ examined the world’s top public and private companies by revenue to determine how many have appointed a chief digital officer to plan and oversee the organisation’s digital transformation.

The numbers of CDOs are increasing, with UK companies leading the field. However, the Strategy& report warns that most organisations are still not embracing the chief digital officer quickly enough, despite the huge focus on digitisation. The report findings include: ● Larger companies are ahead of the curve in appointing CDOs. The proportion of companies with more than 10,000 employees that have appointed CDOs hovers between 5% and 9%, but falls to 1% – 3% for companies with fewer employees. ● Consumer-oriented companies including media and entertainment (13%), food and beverage (11%), and consumer products (9%) are most likely to have a CDO in place.

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● European companies are hiring CDOs at the faster rates than companies elsewhere: 13% in Europe versus 7% in North America, 5% in South and Latin America, 3% in Asia-Pacific and 2% in the Middle East and Africa.

Of the 86 CDOs the study identified, 31 were appointed in 2014, suggesting a realisation among top companies that a dedicated digital leader is needed to drive and transform the business into a fully digital enterprise.

Ashley Unwin, head of UK and EMEA Consulting at PwC, says that in a digital world organisations need to ask themselves why they wouldn’t have a CDO. He said that while we haven’t yet witnessed the rise of a European Google, it is encouraging to see major European businesses lead the way in creating senior roles solely focused on digital transformation.

Unwin feels that, ultimately, the goal of every chief digital officer is to ingrain a digital agenda so deeply into the organisation that it becomes the way of life for everyone.

Once digitisation is firmly entrenched in the companies’ everyday operations, the question then becomes whether the CDO role is needed anymore – but that day is still a long way off.

For companies that have appointed a chief digital officer, over 80% have been hired since 2012 and 40% are members of the C-suite (having the designation of ‘chief officer’).

The study says that this suggests the role of the C-suite is being redefined, with many CDOs coming from a variety of backgrounds, the most common being marketing (34%), sales (17%) and technology (14%).

The chief digital officer role is new and relatively undefined, coming about under very different circumstances than other C-level positions like the CIO and the CMO, says Martin Roets, a London-based principal at Strategy&.

The CDO’s job is to steer the company through an era of mass disruption in every aspect of its external relationships and internal operations.

This is an immense challenge, but as the roles become more defined and successes emerge, the concept of the CDO will move rapidly from the large global undertakings to the SME sector.

Since a digital leader’s role is by definition transformational, CDOs who can adapt to their rapidly changing circumstances while staying tightly aligned to their company’s business goals will be best positioned to succeed.

NQ Magazine February 2016

DIGITAL TRANSFORMATION

Unwin warns that companies, regardless of size, must develop and implement a cohesive digital approach that aligns their current position and future strategy in a way that provides real value to the customer.

He stressed: “Companies competing internationally must do NQ Magazine February 2016

more than simply align technology with existing business goals. Digital is all-encompassing and has the power to transform every aspect of the business, including the business goals themselves.

“So it’s incumbent on companies to appoint CDOs who proactively

help to drive the creation of business strategy – and lead that process if necessary.

“Consequently, successful CDOs will be a source of significant competitive advantage for European business as they drive change and lead innovation.”

NQ 15

ETHICAL DILEMMA

A ch rity

case

You have uncovered fraud at a charity you are advising, so what steps should you take to expose this malpractice?

Y

ou are a self-employed consultant, engaged by the executive board (‘the board’) of a charity to write an internal report concerning the operation of the charity’s internal controls. The board manages the charity on behalf of the trustees.

You are concerned that unauthorised payments have been made by former trustees using the charity’s credit card for their personal use. In your report you have suggested various policies and procedures that should be put in place to prevent this practice in the future, and have recommended that the individuals in question should be investigated by the appropriate authority.

You have presented your report to the board, but you suspect that it will not act on your recommendations as it would prefer to avoid negative publicity. You are unsure whether to take this matter forward yourself or leave it to the charity to address.

Key fundamental principles Integrity: Having presented your report, can you overlook these unauthorised payments by the former trustees and still demonstrate integrity?

Confidentiality: To whom should you turn for advice? Do you have whistleblowing obligations?

Professional behaviour: You must comply with relevant law and regulations. What are your responsibilities? How should you proceed so as not to discredit yourself or your profession?

Considerations Identify relevant facts: The former trustees have committed fraud. You have brought this to the attention of the board and provided your recommendations. The priority of the board is to protect the charity’s reputation, and so it appears likely that the charity will amend its procedures but will not take action against the former trustees who have misused the 16

NQ Magazine February 2016

ETHICAL DILEMMA charity’s credit card. Consider the published ethical policies of the charity, and also any applicable law and regulations.

Quantify the extent of the fraud, and ensure you have sufficient evidence.

Identify affected parties: Key affected parties are you, the former trustees and the board. Other affected parties may be the current trustees, and the beneficiaries of the charity.

Who should be involved in the resolution? You should involve the board and one or more of the current trustees.

Possible course of action You are right to be concerned about the ethical implications of this situation. You have met your responsibilities to the charity in providing the board with an objective report. However, you have knowledge of an illegal act, and you must consider your whistleblowing responsibilities.

First, you must check the relevant facts. You know that the former trustees have misused the credit cards in their possession but, if possible, you should quantify the extent of the fraud, and evaluate the evidence you have. The fact that the charity is concerned about negative publicity suggests that the extent of the fraud is not insignificant. You are required to have regard to the interests of the charity and its beneficiaries, as well as the wider public interest.

If the board has already discussed your report, you should

NQ Magazine February 2016

request a meeting with the board, at which you should highlight and explain some of the report’s contents. If you are still of the opinion that the illegal acts of the previous trustees will not be properly addressed, and you consider the extent of the fraud to be significant, you should discuss your responsibilities with one or more members of the board. If you cannot reach agreement, you should consider how you might best address the board of trustees.

Ultimately, you should determine whether it is either required by law or in the public interest to disclose the fraudulent activity to a third party. Where the public interest is involved, you should bear in mind the need to balance the interests of the charity and its beneficiaries with the wider public interest. However, if you have a legal obligation to blow the whistle your judgement of the public interest becomes irrelevant.

You must consider your responsibilities according to civil and criminal law. You may seek assistance from your professional body, and it may be necessary to obtain independent legal advice.

You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgement is challenged in the future.

NQ

Image credit: Selected by freepik

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BOOK REVIEWS

Book reviews NQ February 2016

The Man Who Thought Different Karen Blumenthal (Bloomsbury, £12.99) “Your time is limited… have the courage to follow your heart and intuition.” So said Steve Jobs, a man who lived by this maxim and inspired countless others to do the same. His life is the embodiment of the American dream – this was a man who made billions having come from the humblest of beginnings.

Much is known about the famously contrarian, Buddist food-fettishist who became one of the most successful businessmen in corporate history. But it is in describing Jobs’ early life, and the birth of Apple computers, where this book scores well.

So back to the beginning. Jobs was given up for adoption by his birth mother, and by happy coincidence was adopted

by Clara and Paul Jobs, who ended up moving to ‘Silicon Valley’ just as the volcanic energy of new technology was about to erupt.

Jobs was a curious child, prodigious yet awkward to the point of obstinacy, with a penchant for playing (rather cruel) 18

practical jokes on classmates at school. Author Blumenthal hints that one of his earliest, and most painful, childhood memories was when a girl of his own age told him on hearing that he was adopted, said: “So does that mean your parents didn’t want you?” Friends and colleagues of Jobs’ told the author that they thought this incident gave him a deep-rooted sense of abandonment that drove his ambitions (something Jobs himself was sceptical about).

Central to the Jobs success story was, like John Lennon and Paul McCartney’s chance meeting in 1957, was his teaming up with fellow computer geek Steve Wozniak. If you think the comparison fanciful ponder the duo’s achievements: the Apple Mac desktop computer, the iPod, the iPad, iTunes and the Pixar animation studio, to name but a few.

Jobs had dropped out of college by the time he and ‘Woz’ created Apple in the former’s parents’ garage, aged just 20.

Before that he had travelled to India seeking enlightenment (remember, when Jobs was younger California was the epicentre of the hippy counter-culture). Jobs was later to say that this experience “taught him the power of intuition and experiential wisdom” – that is, relying on your experience and common sense as much as rational thinking.

Typically of Jobs, he drew from these experiences at school, college and travelling, lessons he would take into the business world. He also developed a ruthless streak which would, periodically, make him extremely unpopular with colleagues. Blumenthal relates the story of when Jobs was offered a special assignment at games maker Atari, who commissioned him, for $700, to create a game that eventually became Breakout. Knowing it was beyond his design capabilities Jobs contacted Woz, offering him $350. The game was duly delivered thanks to Wozniak’s diligence, and Atari bosses were so pleased they gave Jobs a $5,000 bonus.

Without telling his friend Jobs kept the $5k (years later Woz found out what his friend had done and was deeply upset).

What’s astonishing about the Jobs story is how quickly success came to him, Woz and their co-workers once they had taken the plunge and formed Apple on April Fool’s Day 1976. With the invention of the Apple II in 1977 sales exploded; Jobs was a millionaire by the age of 23. By the time he was 24 he was worth $10 million, and Apple had forever changed the computer market, the world of work and, indeed, the world of play.

NQ rating A fascinating insight into the life of a man, loved and loathed in equal measure, who became the Midas of the microchip – everything he touched turned to gold NQ Magazine February 2016

BOOK REVIEWS Work it Out With a Pencil: Outrageous Tales from Twenty Years as an Accountant Timothy Timpkins (Xlibris, £13.99)

NQ rating A great read for accountants and non-accountants alike, funny and moving in equal measure

I approached this book with a sense of trepidation – would ‘outrageous tales’ include such misdemeanours as lost paperclips and being 10 minutes late for a month-end briefing? The first anecdote (a misprinted cheque run) seemed to confirm this prejudice but, thankfully, proved to be just a hesitant start.

For author Timpkins, for more than 20 years a management and project accountant, proves himself a natural story-teller and raconteur. Once he hits his straps the stories comes thick and fast, with some laugh out loud, and even occasionally shocking, anecdotes. An example: in one of the earlier chapters, our hero is being interviewed for a position he very much wants. All is going swimmingly until he is taken aback by a request from the interview panel to “tell us a joke”. Not being burdened with a huge repertoire, the author comes out with a gag that is involves a husband, wife, dog and fishing trip that is far too filthy to be

repeated here (with the emphasis on gag).

Timpkins’ memoire (which is more concerned about the personal and the social than the nitty-gritty of accountancy) is a candid affair. Boys will be boys, and numerous nights on the town with colleagues are described in lurid detail, with no punches pulled.

The main narrative of this work traces the author’s career path, and it is interesting to note how one career path led to another, and then another.

And while there are plenty of laughs to be had, this autobiographical book is laced with sadness and poignancy too. It embraces whistle-blowing, infidelity, divorce and mental ill-health; the author writes movingly of his heartbreak when his wife leaves him for a colleague at her workplace.

Timkins has now quit accountancy; it seems he has, despite this book having some rough edges, a promising career as a writer ahead of him.

The Negotiation Book: Your Definitive Guide to Successful Negotiating Steve Gates (Capstone, £12.99)

NQ rating Everyone needs to master the art of negotiation

NQ Magazine February 2016

The amount of time most people actually spend negotiating is very small in the context of their whole job, and yet the consequences of their performance during negotiations will often dictate how successful they are.

The key, according to author Steve Gates, is not to underestimate the role negotiation plays in your life. As he explains, it can represent the difference between viability and insolvency, profit making and loss, growth or decline; such is the power of its outcome.

Gates wants to help you become the complete skilled negotiator, but warns against letting your ego and competitiveness fuel your need to ‘win’.

Negotiating agreements should not be about winning; they should be about securing the best value.

He also talks about being comfortable with being uncomfortable.

There will be pressure and tension, and how you deal with this can affect the outcome.

Oh, and never forget everyone likes a bargain (look at Black Friday).

Another key skillset you need to master is recognising when the change from selling to negotiating has taken place. Gates wants you to be honest with yourself, too. How did you cope with the ‘uncomfortable’ and how did your personal perspectives affect the deal?

But perhaps his best advice is that in negotiations there are no rules. As he said: “There is no right, no wrong, no good, and no bad way to negotiate.

Only that which is appropriate to your circumstances.”

Power and where it lies should not be underestimated, either. History teaches us that those with power will at some point seek to exercise it. So it is vital to understand where the balance is. A lot of this will dependent on the power of the brands and relative size of both parties. Time and circumstances also offer great power levers.

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WORKPLACE BEHAVIOUR

Is it time for a new approach to incentives?

Work performance is dictated by people’s biology rather than effort or rewards, says Ian Selby

O

ne of the challenges for management accountants is to help managers to optimise both the immediate and long-term future of their organisations.

In particular, management accounting should help individual managers consider both the immediate and delayed outcomes of their decisions.

In practice, however, managers often neglect the long term when they are overly concerned with short-term results. Management accounting systems should be designed to curb this tendency, but are often unsuccessful; some may even encourage short-sighted behaviour by overly relying on immediate performance measures.

With this in mind, I was fascinated by the results from a recent neuroscience study, funded by CIMA’s academic grant programme, which looked at the fundamental, biological drivers of managerial behaviour.

Academics from the Erasmus University’s Rotterdam School of Management and the University of Ljubljana in Slovenia investigated how imposing accountability on managers can affect their decision-making and, in particular, their tendencies towards short-term thinking.

Researchers measured and analysed participants’ brain activity, using functional magnetic resonance

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imaging (fMRI), while they performed a series of computer-based tasks, measuring their ability to assess information under different time pressures and types of distractions.

The researchers distinguished between different methods of accountability, creating one situation in which managers received a monetary reward for speed and accuracy and a different scenario where managers experienced social pressure to perform well.

Interestingly, the study found that more ‘short-sighted’ individuals respond better to monetary incentive, while social pressure is more effective at improving performance in less ‘short-sighted’ individuals.

Practically, this would indicate that accountability schemes would work better if they take into account the pre-existing traits of individual workers. Clearly, a ‘one-size-fits-all’ approach is not going to help either organisations or their workers to achieve their full potential.

Curiously, the researchers also discovered that while both monetary incentives and social pressure result in people working harder, their performance seemed not to improve at all for tasks that requires vigilance and attention. There appears to be an inherent ceiling for ability in work of this nature and no amount of effort or

reward will produce different results.

If basic biology limits our ability to improve at certain types of work, we need to think more imaginatively about the way we measure and reward work performance. It may be much more task specific than we are currently inclined to think.

The research poses a real challenge to companies and indicates that many are causing pointless stress to employees, or are wasting money on ineffectual bonus schemes.

Clearly, for areas of their business that depend on vigilance and attention – such as governance or quality control – firms should consider alternative incentives. Businesses need to recognise where performance limits may lie and avoid frustrating employees when results do not reflect best efforts. Organisations should take care that performance assessments accurately capture the efforts of workers, both to measure whether targets and incentives are effective and to ensure that individuals are rewarded fairly.

There is a wider point, too. Modern companies have a large set of incentives available to them, yet many keep reaching for two in particular: exerting pressure from above, or incentivising through bonuses. In many cases these tactics work, but as this research indicates, sometimes

NQ Magazine February 2016

WORKPLACE BEHAVIOUR

these are simply the wrong tools for the job.

This is the equivalent of a builder trying to make an entire house using just a screwdriver and a hammer.

The solution is for organisations to innovate. They must look at new ways to manage and incentivise people, using the same mindset as they would for product development.

The data from the neuroscience

NQ Magazine February 2016

study already provides some important information for this innovation. But if we are really to introduce research and design processes to performance management, we should expect new knowledge to come to light and ask that organisations respond as wider data becomes available. There is really no such thing as ‘best practice’, in the sense that we can ever arrive at

and implement a perfect solution to raising performance in the workplace.

Instead, just as the product developers are doing, we should be constantly seeking to improve what we have and looking forward to endless possibilities.

NQ

● Dr Ian Selby is Director of Research and Development at CIMA

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INTERNATIONAL STANDARDS

IFRS 16 rings the changes

The IASB brings leases onto the balance sheet with its new standard IFRS 16 Leases

Hans Hoogervorst

T

he International Accounting Standards Board (IASB) has issued a major new accounting standard – IFRS 16 Leases.

This new standard replaces accounting requirements introduced more than 30 years ago and now considered no longer fit for purpose, and are a major revision to the way companies account for leases.

Leasing provides an important and flexible source of financing for many companies. However, the old lease accounting standard (IAS 17 Leases) made it difficult for investors and others to get an accurate picture of a company’s lease assets and liabilities, particularly for industries such as aviation, shipping and retail.

Listed companies using IFRS standards or US GAAP are estimated to have around $3.3 trillion of lease commitments – over 85% of which do not appear on their balance sheets!

That is because, until now, leases have been categorised as either 22

‘finance leases’ (which are reported on the balance sheet) or ‘operating leases’ (which are disclosed only in the notes to the financial statements).

The IASB said that this somewhat arbitrary distinction made it difficult for investors to compare companies. It also meant that investors and others had to estimate the effects of a company’s off balance sheet lease obligations, which in practice often led to overestimating the liabilities arising from those obligations. IFRS 16 should solve this problem by requiring all leases to be reported on a company’s balance sheet as assets and liabilities.

IASB chairman Hans Hoogervorst said: “These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligations.”

Hoogervorst also felt the new standard will provide much-needed transparency on companies’ lease assets and liabilities. In turn, this will improve comparability between companies that lease and those that borrow to buy.

The new standard has been subject to multiple rounds of public consultation and is effective from 1 January 2019. Early application is permitted for companies that also apply IFRS 15 Revenue from Contracts with Customers.

The UK’s Financial Reporting Council (FRC) said that it welcomed the publication of IFRS 16 Leases, and is the combination of more than 10 years’ joint work by the IASB and the US Financial Accounting Standards Board.

Deloitte says the final standard will

result in many leased assets, previously held off balance sheet, being brought onto companies’ books, potentially adding billions in lease-intensive industries.

Deloitte’s Veronica Poole said: “It has been a long haul; with many twists and turns along the way. But the real challenges start now and the volume of work in the lead up to a 2019 implementation must not be underestimated. Identifying all the relevant transactions is challenging enough, not least the boundary between what is now considered a ‘lease’ and a ‘service’. What is in and what is out will result in a series of difficult judgements.”

KPMG’s Brian O’Donovan agreed that the changes will affect a wide variety of sectors, from airlines that lease aircraft to retailers that lease stores – the larger the lease portfolio, the greater the impact on key reporting metrics.

He explained the impact is not limited to the balance sheet. There are also changes in accounting over the life of the lease. In particular, companies will now recognise a front-loaded pattern of expense for most leases, even when they pay constant annual rentals.

And the new requirements introduce a stark dividing line between leases and service contracts – the former will be brought on-balance sheet, while services contracts will remain offbalance sheet.

O’Donovan pointed out that the new requirements are less complex and less costly to apply than the IASB’s earlier proposals. However, there will still be a compliance cost.

NQ NQ Magazine February 2016

INTERNATIONAL STANDARDS

The facts – IFRS 16 Leases CHANGES

BENEFITS

NUMBERS

● IFRS 16 Leases was issued 13 January 2016. It replaces IAS 17 Leases. ● The new Standard is effective 1 January 2019. Early application is permitted (as long as the recently issued revenue Standard, IFRS 15 Revenue from Contracts with Customers is also applied). ● The biggest change introduced by the new standard is that leases will be brought onto companies’ balance sheets, increasing the visibility of their assets and liabilities. ● IFRS 16 removes the classification of leases as either operating leases or finance leases (for the lessee/the lease customer), treating all leases as finance leases. ● Short-term leases (less than 12 months) and leases of lowvalue assets (such as personal computers) are exempt from the requirements.

● More faithful representation of a company’s assets and liabilities. ● Increased transparency. ● Improved comparability between companies that lease and companies that borrow to buy assets. ● Removes the need for most investors, credit rating agencies and others to make adjustments (analysis shows that commonpractice adjustments often over-estimate, but sometimes under-estimate, the value of off balance sheet leases).

● US$3.3 trillion – listed companies around the world have around US$3.3 trillion of lease commitments (future payments). ● Over 85% – percentage of commitments that do not appear on the company’s balance sheet. ● US$1.25 trillion – in 2005, the US Securities and Exchange Commission estimated that US public companies had about US$1.25 trillion of lease commitments off balance sheet. ● One in two – almost half of listed companies using IFRS or US GAAP will be affected by the lease accounting changes. ● 66 times value of debt – analysis of retailers that have gone into reorganisation/ liquidation shows that the value of off balance sheet leases was almost 66 times the value of on balance sheet debt. ● 1,700 – the IASB has received over 1,700 comment letters on its consultations during the standard-setting process (one Discussion Paper, two Exposure Drafts).

NQ Magazine February 2016

IFR S

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