NQ magazine, February 2017 by PQ magazine

NQ magazine February 2017

P16

THE VOICE OF ALL NQs Contact us

email: graham@pqaccountant.com twitter: @pqmagazine facebook: pqmagazine.com call: 020 7216 6444

THE SPREADSHEET How to take the risk out of spreadsheets – with help from the cloud

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

THE AUDIT SKILLS GAP: a call for action Page 14

P20

INTO THE UNKNOWN NEW REPORT OFFERS PRACTICAL ADVICE ON HOW YOU CAN DEAL WITH “UNKNOWN UNKNOWNS” P8

YOUR CAREER Good recruitment is the foundation of an ethical organisation

CHANGING FACE OF THE PUBLIC SECTOR ETHICAL DILEMMA Should you give a staff member a good reference just to get rid of them? Page 12

What are the drivers changing the public sector across international governments?

P10

opening doors Finance Manager

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

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COMMENT

NQ magazine 59

NUMBER CRUNCHING

EDITOR’S COMMENTS

Time to make audit sexy? There is growing concern about a potential skills gap in audit – it seems that no one will want to do the job in the future! At the same time there is a worry about the pressure on audit to evolve to meet the changing needs of both investors and society. This double-edge sword should be a real worry for both the firms and professional bodies. A recent report from ICAS and FRC suggests that the profession currently doesn’t have the skills base necessary to deliver a service beyond the traditional financial statement audit. What is interesting is the acknowledgement in the report that not all members of an audit team need to be a chartered accountant. Instead, the suggestion is that specialists could be provided with wrap-around audit training. The pyramid set-up of firms with partners ruling the pay roost may have to be changed! Also, how good are you at ‘reading the client’? It appears psychology and behaviour skills might be as important as knowing your audit standards. You can read more on page 14. I also loved the idea of trying to come up with a plan for the unknown unknows! CIMA’s CEO Andrew Harding gets all ‘Greek’ on us with ‘the Maieutic Machine’ (page 8). What I took from his aricle is that the figures alone can no longer be the answer. That means numbers do not tell ‘the truth’ anymore. Rather, they are the prompts. You are being encouraged to scrutinise the figures rather than simply rely on the reassuring certainty of a stable bottom line. Finally, good luck to all the NQs who made it onto the shortlist for the PQ awards, which will be held later this month at the Café de Paris. We will report back in the next issue on who walked off with the coveted trophy. Graham Hambly, Editor (graham@pqaccountant.com)

The number of identities hijacked by accountant Sharjeel Iqbal P4

£6,800

The average professional ‘working class’ pay gap P7 Western 26% ofEuropean

respondents said the global talent pool was a critical factor for public services P10

main skills that need to be developed to equip the audit team of the future P14

£38bn

is the estimated amount of private investment made using spreadsheet calculations P16

190

the total countries who agreed the Sustainable Development Goals in 2015 P22

NEWS The Renault Kwid

Do you have the full stack? The ACCA has identified six business models it believes could transform the way in which companies transact. The ACCA’s Jimmy Greer said that there has been a lot of talk about the disruptive role of technology in the sharing economy. The report Business models of the future: emerging value creation shows the way in which technology innovation is enabling a transformation in the way in which business and the consumer interact. Greer emphasised that technology is only part of the story here, explaining: “It is also about the ability of entrepreneurs and innovators to access new networks, capital and ecosystems amidst a challenging economic climate and in doing create new sources of lasting value.” Entitled ‘The Full Stack’, the six-model framework includes: 1. Platform-based businesses – digital marketplaces that match buyers and sellers (such as Airbnb). 2. Mass customisation 2.0 – ‘on-demand’, local manufacturing services that enable customers to engage with companies to self-build highly tailored products (such as OpenDesk). 3. Frugal – re-imagined R&D processes that open up new market segments for low cost, high quality products and services (such as Renault’s Indian-built Kwid). 4. Modern barter – platforms that enable the exchange of goods and services with fellow users, often through digital or online currencies (such as online time-banking community TimeRepublik). 5. ‘Pay what you want’ – where customers can pay what they think is right, offered as part of tiered or ‘freemium’ deals (such as video game download service Humble Bundle). 6. Mega-hyperlocal – companies that flourish because their deep connection with the community in which they operated (such as London’s Kernel Brewery).

Accountant jailed Bolton accountant Sharjeel Iqbal has been jailed for hijacking the identities of NHS doctors and nurses in a £40,000 tax scam. Iqbal used his position as an NHS finance worker to hijack the identities of 59 carefully selected midwives, nurses, cardiologists and other NHS staff who were genuinely due tax refunds. He then submitted their claims without their knowledge and diverted the money into his own bank accounts. He was sentenced to 21 months after pleading guilty. 4

KPMG takes transparent approach KPMG has published its workforce data, outlining the socio-economic make-up of the firm. It is the first business in the UK to publish such comprehensive data, which measures employees’ parental occupation and education and type of school employees attended. KPMG also shared graduate and school leaver data from the past three years. The stats reveal that the vast majority of workforce, 74% of respondents, had a state school education. Some 60% attended a non-selective state school and 14% attended a selective state school. Some 23% of the workforce went to a private school. Of around 1,000 graduates and school leavers to join the firm in 2016, 11% and 18% respectively had been eligible for free school meals. KPMG’s Melanie Richards said: “When we talk about diversity, people immediately think of gender or race, but social background is equally as important. Professional services firms have often been cited as bastions of the so called social elite and it’s important we consign this stereotype to the past.”

RSM merges with its Northern Ireland firm RSM UK has merged with the RSM Northern Ireland practice (formerly RSM McClure Watters). This includes PACEC the consulting business. The merger means all 70 staff in Northern Ireland will join the combined business that now has a total headcount of nearly 4,000. David Watters will be leaving the newly merged group, with Richard Gardiner taking on the role of Belfast managing partner going forward.

Clarifying standards As part of its yearly improvement plan, the International Accounting Standards Board has published proposed amendments to three standards. It wants amendments to IAS 12 Income Taxes, IAS 23 Borrowing Costs and IAS 28 Investments in Associates and Joint Ventures. The IASB said the changes to IAS 12 will ensure an entity accounts for all the income tax consequences of dividends in the same way, regardless of how the tax arises. It also proposes to amend IAS 23 to clarify which borrowing costs are eligible for capitalisation as part of the cost of an asset in particular circumstances. The IAS 28 amendments clarify that an entity should apply IFRS 9 Financial Instruments to long-term interests in an associate or joint venture to which it does not apply the equity method. NQ Magazine February 2017

www.howett-thorpe.co.uk

real jobs real people Part-Qualified Management Accountant, Fleet Reference number: 13302 This is an exciting opportunity for a Part-Qualified Accountant to join this Management Accounting Function within a leading and dynamic business. This organisation offers a clear career path and encourages development, as such this would be an excellent opportunity for a CIMA or ACCA studier looking to progress. The role will sit within a small Management Accounting function supporting the Technology division, you would need to have made good progress on your studies to date and be looking to qualify within an ambitious time frame. The role would include: • • • • • •

Compiling management reports Responsible for month-end close to tight deadline Revenue analysis and reporting Provide detailed analysis on order to dispatch financial performance Preparation and delivery of forecasting to CFO level Balance sheet Reconciliation and control

The right candidate will hold strong management accounting skills, have an eye for detail and strive to improve and develop business processes. You will need to work well under pressure, on your own initiative and hold a proactive and professional work ethic. An Excel user to an advanced level and experience of financial modelling is essential, SAP experience would be desirable.

Financial Analyst, Woking Reference number: 12987 A newly created role within a nationwide business, operating within the services sector and experiencing phenomenal growth with a forecasted turnover in excess of £30 million this financial year and further growth forecasted over the course of the next twelve months through organic growth. Working closely with the Head of Financial Analysis, you will be facilitating key decision making through the provision of management information reports through the analysis of financial information. As Senior Analyst, you will be providing accurate and timely reports in the format of scheduled and ad hoc management reports, budgeting, forecasting and statutory financial reporting. You may be qualified by experience within an analytical role or currently studying a relevant accounting qualification (ACCA or CIMA) and keen to further your exposure and development within this area of accounts. You must have strong and proven financial modelling skills to include data analysis and report definition with the ability to work with and reconcile multiple complex data sets.

For more information on these positions or to register for new opportunities, please contact Cheryl Ramsden, cheryl.ramsden@howett-thorpe.co.uk 01252 718777 Weybridge Office T: 01932 901 900 E: weybridge@howett-thorpe.co.uk

Reigate Office T: 01737 304 050 E: reigate@howett-thorpe.co.uk

Slough Office T: 01753 313 033 E: slough@howett-thorpe.co.uk

Farnham Office T: 01252 718 777 E: farnham@howett-thorpe.co.uk

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NEWS

How adaptable is your career? CABA has launched an online ‘career adapt-ability’ tool for ICAEW members and their families. The tool identifies how able users are to adapt and manage the changes that are now an inevitable part of modern working life. The charity has identified career adapt-ability as a key to career success, and has customised an existing tool in partnership with the Warwick Institute for Employment Research. This customisation will, it hopes, help past and present ICAEW members to measure how career adapt-able they are across four key areas: concern, control, curiosity and confidence. Users will be asked to answer six questions across each of these four areas, which produces their score in each of the key areas (out of a total possible 24 points). These are then rated as low, medium or high. A high level of career adapt-ability enables people to respond confidently to their professional environment, handle change, and work proactively towards the future they want. Laura Little, Learning and Development Manager at CABA, commented: “Career adapt-ability involves having the skills and abilities needed to successfully shape and adjust to an ever-changing professional environment. This lets employees adapt with the conditions, so they can have the career and future they want.” For more information on the tool see page 20, or visit https:// www.caba.org.uk/how-we-help/career-development

Small businesses targeted An extra £468m in tax was brought in from investigations into the tax affairs of small and medium-sized businesses last year, according to research from Hacker Young. The firm suggested tax investigations into large businesses may be becoming less profitable as we see HMRC shift its focus into investigating SMEs. This could be because large businesses are also often better resourced and able to employ in-house tax specialists who can close down or limit HMRC’s investigations when its approach gets unnecessarily aggressive. Smaller businesses are often unable to do the same, and may therefore prove to be a more profitable target for HMRC, said Hacker Young. Partner Roy Maugham felt that HMRC is showing signs of beginning to exhaust yields from investigations into large businesses. He believes HMRC is gearing up for a crackdown on SMEs and now their tax affairs are coming under greater scrutiny. NQ Magazine February 2017

A disaster that’s just waiting to happen? Plans to digitise tax records and make small businesses send updates to the taxman four times a year could end in ‘disaster’ unless urgent changes are made, says the House of Commons Treasury Select Committee. It has published a highly critical report on Making Tax Digital, identifying a number of ‘serious shortcomings’ with current plans. The committee supports the principle of simplifying the tax system and assisting businesses in keeping accurate accounting records, but it remains concerned that there is a lack of real evidence that MTD in its present form will deliver tangible benefits to businesses and individual taxpayers. The plans, due to come into force in April 2018, look unachievable, says committee chairman Andrew Tyrie. The call has come for a delay until at least 2019 to allow the concerns to be addressed. Doubts have also been cast over official forecasts that suggest the policy will bring in an additional £625m to the public coffers. CIOT President Bill Dodwell said the committee is right to call for a delay in the project’s implementation. He said: “Rushing it through to deliver by April 2018 is just too short a timescale.” He stressed that there are hundreds of different providers of accounting software and right now we have no idea how many of these will be ready and tested in time.

Class pay gap Professional people from working class backgrounds are paid £6,800 less than their colleagues from more affluent backgrounds, says new research from the Social Mobility Commission. The researchers unearthed a previously unrecognised ‘class pay gap’ of 17%. The class pay gap in accountancy is slightly higher than the average, standing at £7,867. This is lower than the £10,218 gap for doctors but higher than the £5,261 difference in lawyers pay, depending on their class background. Report co-author Dr Sam Friedman from the LSE said: “While social mobility represents the norm, not the exception, in contemporary Britain there is no doubt that strong barriers to opportunity still persist.” 7

MANAGEMENT THEORY

Into the unknown

NQ Magazine February 2017

MANAGEMENT THEORY

A new CIMA report outlines how you can deal with ‘unknown unknowns’, offering both theory and practical advice, says CEO Andrew Harding

t is hard enough to lead an organisation in relatively stable economic and political times. Leading in uncertain times is even harder. A conventional approach to dealing with the unknown is to call for more data, based on the belief that more information equals better information. However, this belief is flawed. There is no amount of data that can identify ‘unknown unknowns’ – events or news that fall outside the scenarios for which you have existing metrics. In a complex world, organisations need to accept that the unexpected will happen from time to time, and ensure their organisations can best respond to it. In a recent research carried out by a research team led by Paolo Quattrone from Edinburgh University and sponsored by CIMA, we looked at how we can avoid these blind spots. The report, called Dealing with the Unknown: Leading in uncertain times by rethinking the design of management accounting and reporting systems, suggests that the key to this is to rethink management accounting and reporting systems to make sure the figures used are raising the right questions. We also need to reframe what we understand the ideal outcome to be. Instead of looking for alignment around certainties, we should aim for debate and productive tension. Using numbers to make people agree on a course of action is less productive than using that same information to make people discuss what cannot be represented through financial information. But how can this ‘productive tension’ be encouraged in practice? Looking at different companies across Europe, the US and the Middle East, the report found four key features that allowed management accounting and reporting practices to become effective tools. These features are the key elements of ‘The Maieutic Machine’ – ‘maieutic’ being a term from Greek philosophy referring to the emergence of knowledge through a process of NQ Magazine February 2017

enquiry involving asking a logical sequence of questions. The first feature looks at understanding management account reports as a ‘visual space of interaction’. The notion that processes can be visualised gives management accountants the ability to clearly envisage corporate challenges and goals, together with the best space for engaging with these and the paths towards solutions. This is then combined with looking at reports as a ‘method of ordering and scrutiny’. To be as effective as they can be, reports need to create opportunities for debate and tensions but provide a means to scrutinize and interrogate the ‘unknown unknowns’. Management accountancy lends itself particularly well to the development of toolkits and methods that order complexity. Following this, successful companies are treating their management accounting reports as a ‘platform of mediation’; a facility that helps mediate between different users, manage the interactions between different organisational systems and leverage their subsequent incomplete representations. The last feature focuses on the need for management accounting and reporting tools to be constantly practiced in order to reap the benefits over time. This ‘ritual of engagement’ ensures that participants are able to imagine and engage with practical solutions on an ongoing basis. So, if a system that combines these features is the ideal outcome, how can that be achieved? How does one design a Maieutic Machine? The report makes four recommendations. First, rather than rely on accounting numbers to tell the ‘truth’, see them as prompts to tackle challenges head-on but prudently. For example, thinking of the ‘bottom line’ as financial allowance in a state of flux, rather than a fixed number, creates risk and uncertainty. In turn, this encourages people to scrutinise the figures, rather than

simply rely on the reassuring certainty of a stable bottom line. Second, design the business in a way that creates tensions, but then establish clear ways to mediate them. Usually businesses are divided into different areas by specialism or function and, while this division can foster innovation and team spirit, it can also lead to problematic imbalances of power, such as where one department receives more attention from the most senior executives than others, and thus can overrule its peers. Management accounting systems can be set up to address this, promoting the necessary symmetry then mediating any tensions. Third, keep reporting systems simple. If they are too complex they run the risk of conveying the sense of being comprehensive. In contrast, simply presented information invites the necessary further interrogation. Finally, build diversity into reporting systems. This means not using just one system for many different purposes but as many different systems as are needed, even if this creates a certain amount of uncertainty. Embracing the unknown has never been more important to business. High-quality decision-making is vital in an environment that is increasingly uncertain due to shifting economic conditions, regulatory pressures and geopolitical risk. Reconceiving management accounting as a ‘maieutic machine’ composed of the features outlined can help assist management accountants make full use of the tools at their disposal to encourage the ‘productive tensions’ necessary for their organisations to thrive. The full report can be found at www.cimaglobal.com/Research--Insight/ Dealing-with-the-unknown/ NQ ● Andrew Harding, chief executive, management accounting, at the Association of International Certified Professional Accountants, representing members of CIMA and the American Institute of CPAs (AICPA) 9

THE PUBLIC SECTOR

Our survey saidâ&#x20AC;Ś What are the drivers changing the public sector across international governments? Maggie McGhee explains all

he public sector is vitally important to governments around the world as it is responsible for tackling a number of complex issues across nations. From setting standards in healthcare, education and the environment to defence, employment and economic infrastructures â&#x20AC;&#x201C; eyes are firmly on government responses as they navigate through these areas of responsibility. Globally, the public sector landscape is changing and continues to be reshaped by a combination of demographic shifts, the need for better infrastructure and continuous concerns over sustainability and consumption. These challenges are also heightened by advances in technology and by economic and political uncertainty. In a shifting social and economic environment, all these factors will have serious implications for public sector organisations and their finance professionals.

The UKâ&#x20AC;&#x2122;s public sector is among one of the most renowned, most notably our national health services. Expectation about the quality of public services both here and abroad continues to grow, and rightly so. Governments are entrusted to create effective and sustainable improvements to their country, therefore an understanding of what to expect in the future is crucial for ensuring they can do this effectively. ACCA launched a global study into the key factors that will change in the public sector. The report, Drivers of change in the public sector, uncovers 50 key forces that will affect the global public sector landscape between now and 2021, which encompass challenges from governance and strategy through to operations and

NQ Magazine February 2017

THE PUBLIC SECTOR talent development. Undoubtedly, global changes will have a local impact and governments will need to be at the forefront of tackling their effects. The scale and pace of change in the public sector is accelerating like never before. Effective governments need to understand the issues they need to make their top priority and when they are likely to impact in order to benefit their country. Economic growth, not surprisingly, leads as the top driver of change globally, crucially because it’s a key measure of a nation’s health and prosperity. Western Europe and Asia-Pacific rated this issue particularly highly, followed by Africa and South Asia. Respondents considered the global talent pool to be the second most critical driver for the public sector. The AsiaPacific region ranked this most highly (49%), followed by South Asia (44%), North America (41%) and Africa (36%). Western Europe rated this at only 26%, probably explained by the region’s ability to attract talent from other regions. Nevertheless, attracting people with the right skills is a long-term challenge for the public sector and sustained efforts will be required to close the ‘talent gap’ globally. Business leaders’ responsiveness to change and disruption is also crucial as organisations are generally defined by the qualities of their leaders. People and their ability to lead will always be the key to unlocking organisational value. Respondents in North America and South Asia both rated this equally highly (43%), followed by Africa (38%).

Each driver was assessed against eight categories: economy, politics and law, society, business of government, science and technology, environment, energy and resources, the practice of accounting and the accountancy profession to determine the likely and timely impact they will place on the sector. Collectively, these drivers of change are making the public sector environment more fluid and forcing it to evolve. For professionals working in the public sector, there’s a huge opportunity to help shape the public services of the future, achieving value for money and long-term sustainability. Arguably, there are few other areas that provide the diversity of challenge and fulfilment found in the sector. To perform their roles well, public sector finance professionals need to be able to navigate the present and prepare for the future to ensure that the best value is obtained from public funds. Professional accountants in the public sector finance function will need to adapt to these prevailing winds of change by honing in on their technical and specialist skills, as well as developing new attributes, in order to meet emerging challenges and make the most of fresh opportunities. This also echoes our Professional accountants – the future research, which we have spoken about previously in NQ magazine and which outlines the skills needed by future employers. Crucially, given the pace of change and size of expenditure, it is critical that finance professionals working within the public sector are equipped with the right skills to deal with the challenges ahead. NQ ● Maggie McGhee, Director of Professional Insights, ACCA

NQ Magazine February 2017

ETHICAL DILEMMA

NQ Magazine February 2017

ETHICAL DILEMMA

Should you give a good reference to a troublesome and unpopular member of staff just to get rid of them?

ou are director of finance for a charitable organisation. Aspiring to improve standards, you have worked hard to introduce tighter internal systems and to enhance inter-departmental relationships, and this has helped mould the finance staff into a more effective and dedicated team. Two years ago you recruited a deputy, David, who while technically competent has increasingly sapped your own job satisfaction. Some of your longer-serving staff have commented informally to you that they find it irritating how David often seems unwilling to share information without being pressed. Some volunteers and staff have also told you that his attitude to them has made them consider resigning. However, no staff have formally complained or yet left the organisation. There is tension between yourself and David. He seems to resent any suggestions that you offer and to be incapable of receiving even mild criticism without taking offence. He has implied, several times, that he feels he is being unfairly harassed and bullied when you believe that you are simply requiring ‘best practice’. You have discussed this situation informally with the chief executive. Although she has found David sometimes awkward and defensive, and she knows that another director also considers him somewhat abrasive, she has identified nothing that would warrant disciplinary action. David informs you that he has reached the shortlist for director of finance at another charity, and he believes he is a strong candidate. Quietly, you feel elated at the prospect that he might be leaving. The following day you receive a letter from David’s prospective new employer (David offered your name as referee without seeking your agreement). The letter asks questions concerning the ability of the candidate to work in teams, to motivate volunteers and to accept advice. For several reasons you would very much like David to be offered the position with the other charity. However, you are concerned that an honest response to the enquiries would jeopardise his chances of success, as such a response can only be negative.

Key fundamental principles Integrity: Can you respond to the letter in an honest and straightforward manner? Objectivity: Can you provide a response that is unbiased? Can you avoid producing a response that is unduly influenced by either self-interest or the interests of the charity for which you work?

Considerations Identify relevant facts: Consider your professional body’s code of ethics, applicable law and regulations concerning NQ Magazine February 2017

the disclosure of employee information to a prospective employer, and your organisation’s policies and procedures. Identify affected parties: Key affected parties are you, David and the two charities concerned. Other employees and volunteers within the charity for which you work are also affected by David’s ongoing employment by the charity and his perceived behaviour. Who should be involved in the resolution: As this dilemma concerns sensitive information about an employee, you have limited opportunities for consultation, and you should act with discretion. If the charity for which you work does not have a personnel department with adequate knowledge, you may have to seek external legal advice. You should consider involving the chief executive and the board.

Possible course of action A professional accountant has an obligation to comply with the fundamental principles. There may be times when these obligations and the professional accountant’s responsibilities to an employing organisation are in conflict. Where compliance with the fundamental principles is threatened, you must respond appropriately. As you have discussed David’s behaviour with the chief executive in the past, it would be advisable to involve her, either as the author of the response or the reviewer of your own response. This will provide a degree of objectivity, but will not completely overcome the threat imposed by the interests of the charity. If there is a personnel department or a lawyer within your organisation, you should seek advice concerning the appropriate response to the letter. If you cannot obtain the necessary advice internally, you should consider taking independent legal advice. It may be appropriate to provide a limited response, indicating that it is not your organisation’s policy to provide references beyond confirming that David was deputy director of finance for the period for which he was employed. Above all, your response must be honest; if you have any doubts, you may seek advice from your professional body. If David remains with your organisation, the issue of his compatibility with you and your colleagues will remain unless it is addressed. Currently, disciplinary action is not appropriate. However, you, a member of the personnel department, or the chief executive should discuss the problem with David with a view to resolving it. If the approach is reasonable but David is uncooperative, disciplinary action may become unavoidable. You should document, in detail, the decisions you take in resolving your dilemma, in case your ethical judgement is challenged in the future. NQ 13

AUDIT

Time to sex up audit ICAS and the Financial Reporting Council (FRC) are calling for action to prevent a potential audit skills gap in the future

udit is under the microscope as never before, and in the latest report from ICAS and the FRC – AUDITOR SKILLS IN A Auditor skills in a changing business world’– CHANGING BUSINESS WORLD the call has come for an evolution of skills to ensure audit maintains its relevance. There appears to be a clear choice, say the report’s authors. The statutory audit could be maintained, much as it is now, to provide a basic policing function within the corporate world; or the audit profession could be the driver for change and develop a more insightful audit for a more complex world, and by providing such an audit auditors could help to meet the evolving needs of stakeholders, including investors and society. The profession currently finds itself in a catch-22 situation. Opportunity exists for the audit profession to be at the forefront of evolving the audit into a more holistic assessment of a company’s strategy, business model, risk profile, operations, and performance. However, the report says that it is doubtful whether the profession currently has the skills base necessary to deliver an audit beyond the traditional financial statement. So, it is important to appreciate that the audit skill base needs to be developed at the same time as the audit of the future evolves – however that might be defined. Waiting for the audit to change before developing the skill base will be just too late, given the time-lag involved in recruiting, developing and training staff.

Change has to be demand driven, and the authors say that it is important that stakeholders, in particular, investors are involved in the debate on the future of audit. It has already starting to evolve and there is evidence that the audit of the future will need to provide: • More transparency into what has been learned during the course of the audit. • Perspectives on key information generated by management. • Deeper insights on company performance, operations and risks. An enhanced audit may also provide a more attractive and compelling audit career path for the profession. In this way a new and different talent profile may be attracted into the profession to deliver the audit of the future. The report focuses on three main skill areas that need to be developed to equip the audit team of the future to undertake an audit that is more holistic and useful to stakeholders and society. These are categorised as advanced business acumen skills, technology and data interrogation skills, and soft skills. The authors also identified barriers or current impediments to change, which need to be overcome in order for this vision to become a reality, such as the problems of recruiting and developing audit team members, the extent to which standardisation may impair the development of judgement and audit innovation and the perception of audit NQ as a career choice. NQ Magazine February 2017

AUDIT

Recommendations for the firms PEOPLE • Focus on the skills identified in the research. • Identify those with an enquiring mind and judgement potential, and allow those individuals to develop their skills. • Re-assess how firms retain talented individuals within their respective teams. • Take initiatives to change the perception of audit and promote audit as an attractive career choice. • More time should be spent on the job training, direct client contact, and for senior members more exposure to difficult accounting issues and judgements. • Acknowledgement that not all members of a team need to be a chartered accountant. Instead specialists could be provided with wrap around audit training or provided with a post-graduate auditor qualification to enable them to become more effective audit team members. Professional ethics training will also have to be included here. ENVIRONMENT OF THE AUDIT FIRM •Re-evaluation of audit firm methodologies that appear to promote consistency over judgement and may restrict innovation. • An appropriate audit team and firm culture is essential to encourage the recruitment and rewarding sceptical individuals and to provide an encouraging and supportive environment for the development of judgement. It is essential that professional ethics is embedded into that culture. • There should be a consideration as to how the current partner pyramid model will need to evolve and change. SKILLS • An emphasis is needed on developing the business acumen of audit staff and new methods of increasing business knowledge in audit teams should be adopted. • A focus on the development of IT skills within audit teams to complement the use of IT specialists within the firm. • Further consideration is needed of the integration and functioning of multi-disciplinary teams and the impact on how and who the firms recruit.

RECOMMENDATIONS FOR PROFESSIONAL BODIES • Provision of wrap around training or post-qualification audit training to specialists to enhance their contribution to the audit team. • Initiatives should be undertaken to change the perception of audit and promote audit as an attractive career choice. • Professional bodies’ requirements at IPD and CPD need to reappraise the emphasis on understanding businesses; psychological and behavioural skills – ‘reading the client’; and the risks and use of technology, particularly data analytics. • Professional bodies, firms and IFAC should evaluate the appropriateness of IES2-8.

NQ Magazine February 2017

THE SPREADSHEET

Enterprise spreadsheets:

the journey home How to take the risk out of spreadsheets – with help from the cloud

preadsheet errors have been blamed for a number of high-profile corporate meltdowns, including one in the rail franchise bid process for the West Coast mainline that is said to have cost the taxpayer around £60m. It is estimated that calculations made using spreadsheets represent up to £38 billion of private sector investment decisions a year, and simple errors could be putting billions of pounds at risk. With so many headline-grabbing incidents filling the newswires it may seem unlikely that the spreadsheet is set for a reprieve. However, new developments utilising cloud technology are set to allow accountants to cling on to their beloved spreadsheets and make them robust enough to satisfy regulators and auditors, who have already indicated that they consider them, in their existing state, to be a major potential risk. Large businesses still like to use spreadsheets to analyse data, but difficulties arise because their sheer size can make them very difficult to handle, leading to multiple copy and paste operations that burn up huge amounts of time. Yet people persist because spreadsheets free them from the meticulous clutches of IT and they get the control and flexibility they long for.

Connected to a complex cloud ‘back end’ One option is to industrialise them and transform them into Enterprise spreadsheets that are connected to a secure cloud server designed for group financial reporting and management information. This automates the entire close process, down to P&L, balance sheet, cash flows and other required reports, saving days of laborious and error prone consolidation. This solves the problem of a lengthy and risky manual consolidation process and speeds up reporting by automating the ad hoc reporting process so that it is possible to automate business processes without any disruption and carry on using a familiar tool without any of its well-known problems. The finance team can continue to enjoy the simplicity and comfort of using a spreadsheet at the ‘front end’, with a connection to a very complex (but well-hidden and transparent to the user) cloud ‘back end’ that does all the difficult work. This eradicates, at a stroke, the problem of keeping a complete track of every change made to every spreadsheet cell by every user at every point in time since document inception. This is invaluable for forensic audit and for industrial grade security and eliminates all of the risks. 16

Twenty entities will take minutes, not days to complete group reporting In practice, entities can exist anywhere in the world and all are required to submit financial data to group finance at regular intervals. With Enterprise spreadsheets, each one is connected to a cloud server via a simple spreadsheet interface, from which data is fed and all the local formats are translated to a group chart of accounts. The data is immediately available to view upon submission to the server so you can see a real-time consolidated position of the group. This approach means that the finance team can take immediate control of modifying the fine details of the financial consolidation process and associated adjustments such as defining currency conversion logic. It has the added benefit of ensuring formulae and rules are executed correctly as well as being supported by a full audit trail that logs every change involving accounts or administrative data, which is securely stored in the cloud server.

Combining the old with the new The reporting challenges faced by accountants are complex to say the least and until now, spreadsheets have proved to be most ‘straight-forward’ solution for consolidation purposes and analysis. They are the easiest choice as users are already familiar with them, they are scalable and the IT department does not need to be involved whenever a new report is needed. When weighed up against an expensive enterprise solution, the spreadsheet invariably wins hands down. The demand for combining the best of the old with the advanced technology of the new is a trend that is set to resonate in 2017. Businesses are tired of investing and embracing new tech that fails to live up to the hype. Why reinvent the wheel when you can simply improve it? NQ

TAKING SPREADSHEETS TO THE NEXT LEVEL Synapse Information was founded by a group of British database experts with Silicon Valley experience, who gained backing from a UK government SMART grant to develop solutions that solve the challenge of spreadsheet failure. See http://www.synapseinformation.com/

NQ Magazine February 2017

THE SPREADSHEET

NQ Magazine February 2017

ETHICS

A case for due diligence Tanya Barman explains the importance of recruitment when it comes to maintaining an organisation’s ethical integrity

veryone is familiar with the term due diligence: it’s the process where reasonable steps are taken to avoid committing a tort or offence. But there exists the crucial further concept of ethical due diligence (EDD) meaning that ethical values and standards are applied to corporate behaviour and internal controls. One area where EDD can play an important role for example is the recruitment process. EDD not only reduces economic risk, but enhances reputation, creates customer and employee loyalty, helps value talent and allows businesses to grow sustainably. Increasingly, these areas fall under direct regulatory control, e.g. governance, anti-bribery and employment policies, which means the gap between ethical and regular due diligence is narrowing and in many areas the two now overlap. EDD is a separate exercise from regular due diligence because it is voluntary and not a regulatory requirement. It also has a wider purpose: maintaining a strong ethical culture is critical to ensure sustainability and long-term value creation. And for this, having the ‘right’ people engaged in an organisation is a key part of building this kind of culture. Consequently, applying EDD to the hiring process is crucial. In this way a company can employ individuals who are more likely to reinforce and maintain the values important to them. To help businesses with EDD during the recruitment process, CIMA recently produced a report in partnership with 18

the Institute of Business Ethics. ‘thical due diligence in hiring and assessing professional accountants investigates why ethical conduct is so essential to business success and how companies, as well as employees themselves, can ensure that the recruitment process is used as an opportunity to promote values-based behaviour.

What role do management accountants play? Upholding a professional Code of Ethics and influencing others to do the right thing is vital in instituting ethical practice. Members and students of CIMA, for example, are required to comply with the CIMA Code of Ethics and to adopt the fundamental principles – integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour – to their working lives. They are trusted to be ethical, accountable and mindful of their company’s values. At the same time they are expected to provide challenge and objectivity. Thus, they also have a responsibility to make sure that EDD is applied to the recruitment process and provide guidance when needed. This applies to all levels but particularly when hiring for more senior, influencer positions.

How can this be put to the test? EDD can be applied to a number of stages in the recruitment process: identifying an ethical candidate profile and the values an organisation is looking for; making sure the job profile includes company values; pre-

screening and examining applicants’ CVs; tailoring the questions asked during the interview; checking references; and screening social media profiles once an offer has been made. During an interview ethical competence testing includes asking candidates questions like: What does business ethics mean to you? Have you ever taken a course in business ethics? How would you best apply your professional code to the role? But it can also include discussing scenarios and ethical dilemmas to gain an insight into someone’s thinking process and reasoning and asking about their knowledge of the organisation’s core values. Vetting in these areas can help mitigate ethical risk. Emphasising such an approach makes it clear to would-be employees that ethical values are taken seriously in your business. And those that have undergone EDD testing at the interview stage are more likely to reinforce and maintain the company’s values and set an example to others throughout the firm. This is particularly important when recruiting for “C-suite” positions, ensuring that they have a positive impact in setting the right corporate culture from the top down. Ethical performance assessments should also be applied when considering candidates for career development and promotion within the organisation. This will enable management to review an employee’s performance against ethical criteria. However, what should not be forgotten is the fact that all of this NQ Magazine February 2017

ETHICS

applies to both sides. Millennials are increasingly looking for ethical employers. Companies should therefore be prepared for candidates’ questions about their own ethics and values. These might include inquiries about possible actions when staff breach company policies or regulations or internal ‘speak-up’ procedures. NQ Magazine February 2017

At CIMA, we are committed to upholding the highest ethical and professional standards, and maintaining public confidence in management accounting. It doesn’t matter what industry you’re in, ethics matters across the board. Ethical practice creates value, generates positive reputations, allows

companies to attract high quality human capital and helps businesses grow sustainably. The more the world of work realise the importance of this, the NQ more they’ll reap its virtues.

● Tanya Barman, Head of Ethics,

CIMA

YOUR CAREER

Adaptability is the key to success

NQ Magazine February 2017

YOUR CAREER

Laura Little explains why newly qualified accountants need to be flexible when it comes to work

t seems as if the working world has been given a massive overhaul. We’ve seen the rise of the ‘gig economy’, which has revolutionised the service industry and created massive changes in employment law and the way in which we pursue work. Flexible working arrangements are set to become the most common form of contract in the next four years, and we’ve even seen ‘workplace cake culture’ under threat from dentists. It seems nothing is safe in the ever-changing landscape of work. This is the case even for newly qualified accountants, as their workplace is witnessing a seismic shift which they’re involved in: accountants make the list of people who could see their jobs increasingly automated and thus machines are something which must be considered. Therefore, if there’s one thing we can be certain about, it’s that the working world is unpredictable. New bosses, redundancies or restructures can often leave us feeling out of sorts and alien to companies we once felt happy to work for. It’s important, with these transformations in mind, to make sure we’re always ready for the possibility of change – even at the start of our career. Being able to adapt in the face of change, or being career adaptable, is key to future success. That’s why we’ve been working with the Warwick Institute for Employment Research to re-develop an existing careeradaptability tool in order to help past and present ICAEW members to measure exactly how career adaptable they are. By exploring how an individual approaches the key areas of career-adaptability – concern, control, curiosity and confidence – we can measure how adaptable a person is and help ICAEW members build the skills they need to ensure they can adjust easily to different industries or roles which emphasise being adaptable. So, what’s key to being an accommodating employee who has the skill to thrive in your burgeoning accountancy career?

objectives. This can be helped by talking about hopes and plans for the future with friends, colleagues and family who all make for great advisors when it comes to making such decisions. Talking to a career coach is another viable alternative. They’re excellent resources as they’re used to talking to people who are uncertain about where they would like their working life to take them. They can help those of us who are more uncertain about where our careers are headed to start building a plan for the future. Take things one step at a time. Once people start considering what inspires and motivates them, they can utilise that inspiration to start exploring opportunities that match their personal goals and values. Even taking one step each day can bring a person closer to the career they desire.

Concern and control

Final thoughts

In order to be career-adaptable, a person must exercise a certain level of concern about the future. This is because a desire to achieve certain goals and enter different industries will guide thinking and training pursuits, and this enables someone to easily fit into areas of work they have no previous experience in. Equally, people who wish to think to the future and where it will take them must exert control over their working lives by focusing on what they want to achieve and working towards that goal in a focussed manner. In order to become ‘concerned’ about the future in a ’controlled’ way, people need to set themselves clear

With the workplace culture changing and careers becoming more fast-paced and fluid, being able to understand the stresses you will face will stand you in good stead. Being career adaptable and having high levels of the four characteristics described can help make you more resilient to changes you may face, and help you to drive your career forward. Want to find out how career-adaptable you are? Take the NQ test and find out here.

NQ Magazine February 2017

Curiosity and confidence Curiosity is important – it drives people to investigate the possibilities that are open to them and investigate the world around them. This in turn is fuelled by confidence, which is the last piece of the adaptability puzzle: it gives people the courage to pursue new options, and step outside of their comfort zone. For those who cannot find something they believe to be engaging, it might be time to act on their curiosity and take a risk. Even simple changes such as taking on a new project at work or stepping up to be the lead on an important presentation can really help people to build new traits and discover what they most enjoy. Obviously, leaps like this require a certain level of confidence. People who find themselves lacking in this area should turn to friends, family and colleagues: they’ll be able to provide perspective and list some top qualities that you may have overlooked. Once someone has gained confidence, they can tackle a myriad of issues and develop adaptable skills along the way.

● Laura Little, Learning and Development Manager,

CABA

THE BUSINESS WORLD

Better Business, Better World Neil Stevenson outlines some of the important issues accountants will face in 2017. Can you really save the world?

ccountants really can save the world! Well, that’s the view of the President and CEO of the World Business Council for Sustainable Development, Peter Bakker, who has gone on record several times to say that – most recently, in an article in the Netherlands. This is a big ambition, especially looking at some of the issues facing us today. Let us remind ourselves of some of the big themes for business in 2017. I shall then turn to your role as professional accountants. And how you can save the world. Businesses today are working in an environment where big, unexpected disruptions can happen very quickly, in politics and society, or resulting from competition, technology, or impacts in the natural world. And things do not look to be quieter in 2017! In response to the public agenda, there are increasing numbers of business-led movements whose aim is to reform the role of business. In short, they are responding to decreasing trust in big business and establishing a blueprint for a new approach, based on a recognition of the role and impact of business in society. The most recent of these was produced by the Business & Sustainable Development Commission. In Better Business, Better World, they write: “We must have the courage to strike out in new 22

directions and embrace an economic model which is not only low-carbon and environmentally sustainable, but also turns poverty, inequality and lack of financial access into new market opportunities for smart, progressive, profit-oriented companies.” Here is a summary of some of the themes that I believe we can expect to see become more prominent during this year and beyond. Some of them are, of course, interlinked. Long termism has been a subject for some time. Indeed, the CEO of BlackRock, Larry Fink, has called on companies to communicate on their long-term strategic plans. Investment time horizons and corporate planning timelines are being seen as a key to move companies away from short-term actions that may be to the detriment of longer-term resilience and success. The initiative Focusing Capital on the Long Term will help to drive this. Since they were agreed in 2015 by 190 countries, the Sustainable Development Goals have started to rise not just on government agendas but among business leaders, especially those who, like Unilever, have set their strategy based on sustainable development. Closely allied with this is the movement for inclusive capitalism – with the aim to make capitalism more equitable and sustainable. While we are likely to see inconsistent paces of

adoption around the world, there is no doubt that this train is leaving. These areas are leading to more focus on governance, stewardship and risk. This is coming in a number of forms, from reviews of existing codes (as in the UK) to their introduction in a number of countries. We are especially proud of the King IV governance code in South Africa, which fully embeds Integrated Reporting in its principles. We see investor stewardship also facing similar focus as a means to strengthen the responsible investment agenda. Risk is perhaps a perennial concern. But the focus will come increasingly on the integration of risk and strategy, and on the scope of risk to include factors that impact on value creation over the NQ Magazine February 2017

THE BUSINESS WORLD

longer term – for example, climate change. While the idea of a purpose of a company going beyond profit has been with us for some time, research suggests that the idea is taking hold. A CIMA and Black Sun study, for example, found that 89% of executives agree that business must deliver purpose beyond profit. So how should the accountant respond to these big themes? I encourage you to see these as opportunities – you have skills to bring in response to each of these areas. And you can play an important role in ensuring they are being addressed in NQ Magazine February 2017

your organisations. To take one simple example, is the finance team looking more widely at the drivers of value in your organisation for the long term, and taking steps to measure and report on the key factors? Adopting Integrated Reporting should be part of the solution. The International Federation of Accountants has made the connection to reporting in its publication Enhancing Organisational Reporting, launched this month. They write: “There is a need for a single report that provides a fuller picture of an organisation’s ability to create value over time… the integrated

report can be used as an ‘umbrella’ report for an organisation’s broad suite of reports and communications.” Making connections internally can be a crucial step towards better alignment to long-term value creation. The themes I have outlined in this article are truly global in their scale and impact. But practical solutions, adopted at the organisation level, can start to tackle the giants.

● Neil Stevenson, Managing Director, Global Implementation, International Integrated Reporting Council NQ 23

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