NQ magazine, June 2016

NQ magazine June 2016

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THE VOICE OF ALL NQs Contact us

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

PROFILE Meet one NQ who really is making a difference

P16

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

DATA PROTECTION Prepare yourself now for changes to data protection rules Page 12

INTANGIBLE ASSETS WHY IT’S TIME FOR A RADICAL CHANGE TO THE REPORTING OF INTANGIBLE ASSETS P14

INNOVATION Accountancy is changing – so use these changes to your advantage

ACCOUNTEX Catch up with events from the leading trade show for accountants Page 8

WHISTLEBLOWING How buinesses can put effective policies in place to protect staff who feel they need to speak out P20

forging real partnerships Management Accountant

Senior Finance Analyst

Global Real Estate Company, Surrey

Retail, London

To £45,000

£40,000

• ACA/ACCA/CIMA Qualified.

• Looking for an organised and personable accountant, with a good foundation of knowledge that can be expanded on, in this rapidly growing company.

• Assisting the Finance Manager with quarterly unaudited financial statements and announcements required in terms of JSE and SEM, and with year-end audit queries and statements.

• Monthly duties include, recording buy and sell trades of listed securities in prime broker Excel models and in general ledger.

• Evaluating and recording interest payable on broker equity swaps.

• Producing quarterly preparation of VAT Returns.

• Recording rental revenue and property related expenditure.

• ACA/ACCA/CIMA Qualified.

• Looking for a newly qualified candidate to be focussed specifically on central costs; you will be working closely with other members of the Financial and Management Accounts team.

• Assistance in the production of the monthly overheads and payroll accounts for relevant cost centres and IT, preparing and inputting adjustments, accruals and pre-payments.

• Challenging customers and offering advice and support from a financial perspective.

• Preparing balance sheet reconciliations and analysis for assigned accounts, ensuring business processes behind entries are understood.

• To actively build knowledge and understanding of the business as a whole.

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

www.walkerdendle.co.uk

COMMENT

NQ magazine 43%

NUMBER CRUNCHING

EDITOR’S COMMENTS

Is your future in the cloud?

NQ magazine recently spent two days at the Accountex exhibition. For those not in the know it is the flagship event in the UK’s accounting calendar. The ACCA, CIMA, ICAEW and CIOT were all there, along with the all the major software providers. In all, some 6,500 accountants travelled to Excel in London to find out the latest trends.

FreeAgent’s CEO Ed Molyneux told us in an exclusive interview that the future for accountants was in the cloud, and he felt as HMRC takes us all digital we will all have to look to evolve.

He also admits that change is so rapid that mapping out your career as an NQ can be almost impossible. Molyneux, along with Exact’s Gavin Fell, stressed that it really is time to embrace the technology and not be frightened by it. Automation may be seen as a threat by some, but both believe professionals are more than capable of evolving into virtual FDs for many businesses.

We like to get about on your behalf, so NQ also attended the launch of the Global Intangible Financial Tracker 2016. This is an annual review of the world’s intangible value. Brand Finance, along with CIMA, asked whether it is time for a revolution in the financial reporting of intangible assets. We think Brand Finance’s David Haigh makes a convincing argument for change, and you can read what he has to say on pages 5 and 14.

In this issue your NQ magazine looks at whistleblowing and slavery, too. Where else could you read about the latest developments in accounting software and the accountant’s role in ensuring the end of slavery? Nowhere, we hear you say!

Graham Hambly, Editor (graham@pqaccountant.com)

Women who believe the promotion processes in NHS finance is fair and based on merit. This means 57% believe it is unfair! P7

6,000

Number of Robert Gordon University students studying off campus in over 100 countries P10

$30.5 trillion The amount of intangible value that is now undisclosed – surely that’s too much… P14

50%

Of business owners expect their accountants to provide coaching and strategic advice P16

45.8m

The estimated number of people who have to endure modern-day slavery P24

NEWS

Time for a revolution in intangible reporting There needs to be a radical change in the way intangible assets are reported, according to Brand Finance’s David Haigh (left).

He explained that there is clear evidence that both producers and users of financial accountants want to see a change in the antiquated way intangible assets are reported. He stressed: “Now, more than ever, we need a new framework for setting expectations of short, medium and long-term value creation to guide investment and management decision-making.”

The worry is the total disconnect between what investors seem to want and accountants’ ability to deliver when it comes to intangible assets. Haigh believes that the time is right for the IASB, and its soon-to-be-unveiled new conceptual framework, to tackle this problem head on. If they don’t, then the accountancy regulators are not doing their job properly, he ventured.

Brand Finance recently released the Global Intangible Finance Tracker report (GIFT) for 2016, which found a total failure to regularly appraise intangibles. Even more critical, however, is the fact that internally generated intangibles (as per the current standards) are generally not recognised at all.

It all means there is insufficient information about company assets, which leads to a broader, less helpful values (we are talking guesswork here).

Intangible assets such as brands, people, know-how, relationships and other intellectual property now make up a far greater proportion of the total value of most businesses than tangible assets such as plant, machinery and property.

New international accounting standards qualification A new ‘refreshed’ qualification in international accounting standards has been unveiled

by CIPFA. The institute’s Head of Governments Faculty, Gillian Fawcett, said CIPFA’s International Public Sector Accountancy Standards (IPSAS) qualification is designed to give public sector professionals the skills they will need to implement the standards successfully.

Studiers are now able to achieve two formal qualifications – CIPFA Certification IPSAS (Cert IPSAS) and CIPFA Diploma in IPSAS (Dip IPSAS). The Cert IPSAS provides foundational knowledge of IPSAS. It also provides the basis to progress to the DIP IPSAS, which applies the standards to accounting practices within public sector organisations.

The new qualification replaces a previous IPSAS certificate, offering greater depth of professional knowledge and up-to-date approaches.

4

Where is the top Brand?

The ICAEW’s Sharron Gunn is one of the surprise entries for CityAM’s Power 100 Women this year, which celebrates the City’s most inspiring women. But where is accountancy’s most powerful woman?

CityAM seems to have overlooked ACCA CEO Helen Brand (above).

Amongst the list of 10 top female accountants is Sacha Romanovitch, Grant Thornton’s boss, and Jean Stephens, the chief executive of RSM International.

Also on the list are Beth Brooke-Marciniak (EY), Tracey Groves (PwC), Stephaine Hyde (PwC), Maria Pinelli (EY), Michelle Quest (KPMG), Sharon Thorne (Deloitte) and Ingrid Waterfield (KPMG). ● Gunn is the ICAEW’s executive director of its commercial team.

FRC CORNER BHS AND THE FRC The FRC’s CEO Stephen Haddrill has written to Richard Fuller MP to tell him what it is up to when it comes to BHS! Haddrill explained that the FRC is looking into events at BHS to determine whether to investigate under its enforcement arrangements. These arrangements apply to accountants, auditors and actuaries who are members of a professional body in the UK. FRS 105 AMENDMENTS ISSUED The FRC has issued ‘Amendements to FRS105 – Limited Liability Partnerships and Qualifying Partnerships’. Following a change in legislation, LLPs and qualifying partnerships can apply the micro-entities regime and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime has been changed to reflect this.

NQ Magazine August 2015

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NEWS

Audit of revenue is a ‘weakness’ Do the big firms need to do more training for the audit of revenue? This appears to be a key ‘weakness’ of many of the audits looked at as part of the FRC’s audit quality reviews of the six largest firms.

The FRC said in PwC’s report that revenue is an important driver of an entity’s operating results and auditors need to evaluate and address fraud risk in relation to revenue recognition. It goes on to say that a failure to perform sufficient audit work in this area increases the risk that auditors will not identify a material misstatement of revenue in the financial statements.

It told KPMG that insufficient revenue testing was performed on three of its audits. On one audit the analytical procedures and control testing did not provide sufficient audit evidence. In the other two audits only the recognition of revenue in the correct period was tested in detail, without testing the underlying revenue.

The FRC now wants to see KPMG reviewing its methodology and training for the audit of revenue.

The FRC said there was an overall improvement in its assessment of Deloitte, EY, Grant Thornton, and PwC, when compared with last year. Half (of the eight) audits reviewed at BDO ‘required improvements’.

There was a significant increase in the number of audits reviewed at KPMG this time around. Two audits were assessed as requiring significant improvements and a further six required improvements. The FRC said it needs to see an improvement in “the scope and depth of the audit work performed by certain of the firm’s specialists”.

The perceived bias of NHS finance More needs to be done to improve Diversity gender diversity in NHS finance in beliefs, be NHS Finance Le adership haviours : and barri ers departments, says a report from Future-Focused Finance.

While women make up two-thirds (62%) of the NHS finance workforce just 26% of finance directors are female, a figure which has increased only slightly since 2009 when it was 21%.

The real worry is the number of women who believe the promotion processes are fair and based on merit – just 43%.

Some 28% of female NHS staff also felt they were more likely to experience barriers to career progression than their male counterparts. This stops them applying for promotions and other positions.

Another problem is the fact that 71% of women working in NHS finance believe it would be harder for them to maintain a work-life balance if they moved into a more senior role.

The NHS’s chief finance officer, Paul Baumann, said: “Diversity within the workforce, and in particular finance, can be used to drive business success, enabling organisations to become better equipped to meet future challenges.”

A report

NQ Magazine June 2016

from Futu re-Focused Finance

HMRC urged to postpone quarterly digital reporting The Association of Taxation Technicians (ATT) is calling on HMRC to postpone the introduction of quarterly digital reporting by at least a year. ATT believes there needs to be a delay in the consultation process because of the EU referendum means the new timetable is overly ambitious.

In all there are expected to be five consultation documents on Making Tax Digital, which will all now be issued simultaneously. The five are expected to cover the scope of quarterly reporting, administration, software, penalties and payments.

ATT’s Yvette Nunn (above) said that the Making Tax Digital Project represents the biggest change in the way taxpayers will engage with HMRC since the introduction of PAYE in 1945.

Her worry is that HMRC will stick with the launch of the public testing phase of April 2017, giving just six months for full and frank consultation.

Nunn stressed: “Rushing ahead with this project without adequate time for the consultation and testing phases could put at risk the many potential benefits for taxpayers and HMRC which greater digital working can bring. That would be a tremendous mistake and in a worst case scenario could result in a system that was not fit for purpose.”

A charity champion Laura MacPhee, a newly qualified ACCA who works in the Glasgow practice Alexander Sloan, has raised over £3,000 for Crohn’s & Colitis UK by hosting a charity fundraiser in Rutherglen’s 100 Acres function suite earlier this month.

Laura, 28, who was diagnosed with the inflammatory bowel condition, Ulcerative Colitis, six years ago, was motivated to raise funds in gratitude for the support she has received from the charity.

She said: “Despite having my final exams recently I was really keen to put on the event and do my bit to raise money for the charity. It’s all about raising awareness of the condition.

“People are often diagnosed with Ulcerative Colitis between 20 and 35, and it is important to show that although it’s tough to come to terms with, it is a controllable condition and there is lots of support available to get on with your life.

“Various members of my family did a sponsored 46-mile cycle a few years but I was too poorly to join in so I have put my energy into this fundraiser and I’m delighted that over a hundred people turned up and dug deep into their pockets to help us raise such a large sum.”

• Crohns & Colitis UK, founded in 1978 aims to make life easier for the 300,000 people in the UK with Ulcerative Colitis and other forms of Inflammatory bowel disease.

7

ACCOUNTEX 2016

ACCOUNTEX ROUND-UP NQ Editor Graham Hambly visited Accountex, accountancy’s premier exhibition, to speak to some ‘movers and shakers’ in the profession

FUTURE IS IN THE CLOUD The future of accountancy is in the cloud, says FreeAgent’s CEO Ed Molyneux. And as HMRC takes us all ‘digital’ accountants will have to look to evolve.

Molyneux agrees that it makes it very hard for PQ and NQs to map their careers. No one really knows what their world will look like in even five years’ time, he suggested. All that you know now might quickly become ‘old-hat’, and only good for the bin!

While some people see automation as a real threat Molyneux is in no doubt that the profession is more than capable of evolving, and will be able to take full advantage of the brave new world ahead.

The accountant’s role will change, of course.

Instead of chasing receipts and working out what happened last year they will be expected to help small business set-up and grow. That means accountants will shift from crunching the numbers to becoming virtual FDs. In turn, that also means accountants can help businesses that they couldn’t before – those microbusinesses. ● FreeAgent provides award-winning cloud accounting software for accountants working with micro-business, freelance and contractor clients.

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ADVERTISING WORKING FOR QUICKBOOKS Who says advertising doesn’t work? Just ask QuickBooks’ head of business development, Nick Williams, and he will tell you you are wrong!

He believes the TV ads and sponsorship of Aston Villa have helped put Quickbooks on the map, and most definitely ahead of the competition. There has been a dramatic growth in the numbers of people buying its software – some two million small businesses and 200,000 accountants now use QuickBooks.

The ads have also meant small businesses have been physically going to their accountants and asking them why they aren’t using QuickBooks.

To help, QuickBooks has developed a ‘matchmaking’ service for small businesses using its products so they can find an accountant. It also has a great new platform called Hero Apps, which allows users to integrate their books with a range of tools that help take the business to the next level. Among the list are Receipt Bank and Taxfiler.

The world is changing rapidly, said Williams, Two years ago people were still asking ‘what’s the cloud?’ Now they expect to be in it!

He stressed that mobile capability is just as important to many small businesses.

NQ Magazine June 2016

ACCOUNTEX 2016

RECKON ARRIVES IN UK Aussie accountancy software company Reckon came to London recently to launch Reckon One, its easy-to-use and affordable online accounting software for small and medium-sized businesses.

Although it might be new in the UK the company already has a $100m turnover.

Director Mark Woolley said he felt Reckon had a ‘fair price point’ that would appeal to many accountants. Another nice bit is the VAT modelling, which selects the best scheme for the business. He believes this will help accountants add value to their relationships. It also offers an ‘off and on-able’ switch for seasonal business, which will be a hit with many.

INTEGRATION ON THE CLOUD Wolters Kluwer used Accountex to announce an initiative to integrate its UK software with that of leading Cloud solutions in a move that helps accountants improve efficiency and their service to small and medium sized businesses.

The Open Integration Programme will allow data to be shared between Cloud applications and Wolters Kluwer’s Central software suite, which combines tax, accounting and auditing functionality based around a single client database.

As well as eliminating the need to re-key data from one system to another which wastes valuable chargeable time, the programme will ultimately ensure that accountant always have data they need to give the best advice to their clients.

DON’T BECOME IRRELEVANT – EMBRACE THE TECHNOLOGY TAKING THE INTELLIGENT APPROACH Artificial intelligence, machine learning and automated data collection will enable a world of always-on accounting, explained Sage’s Jennifer Warawa at Accountex 2016. She felt that such ‘intelligence’ is already becoming accepted within the industry. “There’s a seismic shift taking place in the accounting industry as a new, digitally native generation joins the profession,” she said. They expect anytime, anywhere access and instant business insights as standard, and see new technologies as enablers rather than threats.

Sage used the national accountancy exhibition and conference to unveil two new products that it believes take it a step closer to this future. Sage Live for Accountants and Sage One Partner Edition are designed to help accountants grow their practices and move towards a cloud-based service model.

NQ Magazine June 2016

If accountants don’t embrace the cloud and technology then they will become irrelevant, says Exact’s Gavin Fell. He stressed that today’s young entrepreneurs often don’t have an office. They have an iPad and a phone which they access everywhere and anytime.

This ‘new accountancy’ age means you have to embrace technology if you want to attract these young businesses. So, you have to look to see if what you can offer is ‘fit for purpose’ and there is little doubt in Fell’s mind that you will lose out if you don’t embrace the technology.

Exact is a ‘best kept secret’ in the UK, said Fell. But he seems ready to take on the so-called big boys such as Sage and Intuit, and believes it has the technology to do that.

9

DEGREE COURSES

Fast track to the top You can get a degree in a year with Robert Gordon University

R

obert Gordon University’s (RGU) Aberdeen Business school has teamed up with CIMA to offer online distance learning ‘top-up’ degree courses for CIMA newly qualified members.

The BSc Accounting top-up course, which is fully online, is open to students who hold the CIMA Advanced Diploma, while those who are fully CIMA exam qualified may be eligible for the MSc Strategic Accounting. Both courses can be studied fully online in just over one year (or longer if studying part time). These courses provide a unique opportunity for students to use their CIMA qualification towards gaining either an undergraduate or postgraduate degree to further enhance their career prospects and development.

RGU’s experience in online distance learning is long-standing and the university currently delivers several courses to a global audience, including the increasingly popular and highly regarded AMBA accredited MBA programme. Our virtual learning environment, Campus Moodle, allows students to communicate easily with tutors and fellow students, providing 10

all the help and support needed for studying in any location across the world.

For both the BSc Accounting and MSc Strategic Accounting top-up degrees, all resources are available online and modules are assessed by coursework. Tutor support is provided for all modules and for some topics students will be allocated a supervisor for additional guidance. The BSc Accounting covers areas linked to the CIMA syllabus in addition to modules on Auditing and an Academic Literature Review. Academic credits are also given for the demonstration of six months (minimum) relevant practical work experience. This undergraduate course can be studied full time, completing in one year, or part time over two years.

The MSc Strategic Accounting top-up degree has been developed to further prepare students for a career in business and will equip graduates with the skills for independent research, critical investigation of accounting issues and effective communication.

The course comprises three modules – Research Methods, the Business Environment and a dissertation. In

addition to being fully CIMA exam qualified, applicants must also hold either an undergraduate degree or a minimum of three years’ relevant work experience. The course can be completed in just over one year, or may be extended to a period of 16 months.

RGU is the ‘professional university’ and has developed courses that prepare its graduates for the world of work with an impressive record of graduate recruitment. All full time and part time students are given full access to online resources, study help and tutorials, student discount and access to the on-campus sport facilities. RGU has over 6,000 students studying off campus in over 100 countries and as a graduate of RGU you will become part of its 90,000 strong international alumni community. NQ

Further information on course content and our flexible payment plan can be found at www.rgu. ac.uk/bscaccountingcima or www.rgu.ac.uk/ mscaccountingcima or contact the Course Leader, Brenda Paver, at b.paver@rgu.ac.uk NQ Magazine June 2016

DATA PROTECTION

New EU data protection laws set a new standard Prepare now and budget for a new, stricter, and more complex era of data protection in Europe, says Mark Woolley

F

ollowing three years of negotiations, the European Parliament has now finalised and approved new General Data Protection legislation that will set new standards for privacy for EU businesses. It sets the bar high and expects businesses to have ‘privacy friendly’ techniques such as ‘encryption and data protection by design and by default’ in place, along with the right systems and processes.

With the new legislation set to come into force in early 2018, advances in document management technology and secure document portals are providing a simple to use and effective response to this latest compliance challenge.

For those that breach EU data protection regulations the fines levied could be enormous, with a maximum fine of up to 4% of global annual turnover for the preceding financial year. The fact that this is double the original 2% that was suggested implies a significant change in the mind-set and ‘privacy’ now needs to become an urgent item on Board agendas.

The main burden for companies is likely to be administrative as there are significant record-keeping requirements under the new law. For example, companies with over 250 employees require a data inventory, and significantly more data processing situations will require the ‘free and informed’ consent of an individual before their data can be processed. Keeping an audit trail of that consent to demonstrate evidence of compliance and consents represents yet another challenge for the time-pressed business.

12

Here is a quick overview of the key points: ● Right of portability. ● Right to be forgotten – new erasure rights. ● Privacy by design. ● All organisations to have a data protection officer if they have a large scale customer database or are processing sensitive data on a large scale. ● Privacy impact assessments with a limited exception for SMEs unless considered high risk. ● Notify security breaches to the DPA without undue delay and within maximum of 72 hours.

Keeping data safe and private will be of paramount importance, both when stored and when communicated electronically. Emails will need to be encrypted with the use of a document portal, or alternative, as the regulation allows users to claim damages in the instance of data loss or as a result of unlawful processing. This could indeed prove costly to businesses both in financial terms and in terms of reputational damage.

NQ Magazine June 2016

DATA PROTECTION

A personal data breach is considered to be any breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to personal data. This has implications for any business acting on behalf of clients that has cause to email information relating to the client that could potentially fall into the wrong hands as the loss or unauthorised modification of an email address or a phone number would constitute a personal data breach.

The steps businesses should take now:

1

Protect against data security breaches with rigorous procedures that ensure emails cannot be sent to the wrong recipient.

2

Use encrypted email for communication of personal data – a document portal provides the highest levels of security and can be customised with own branding.

3 4 5

Put in place clear policies for a timely response to any data breach and notify in time where required.

6

When transferring data internationally, it’s important to ensure that there is a legitimate basis for transferring personal data to jurisdictions that are not recognised as having adequate data protection regulation.

The UK Information Commissioner has already suggested that some large organisations may need to budget up to £5 million for initial compliance reforms as “token steps to comply will not be sufficient”. With the risk of such high fines for non-compliance, businesses cannot afford to take the risk of leaving it too late to make such essential changes.

They will need to adopt entirely new behaviours in the way they collect and use personal information and the planning needs to start now.

Processes and procedures will need to be reviewed to ensure businesses are not vulnerable and the systems put in place to ensure that all data is kept confidential. Privacy is the key word here and businesses should prepare and budget for a new, stricter, and more complex era of data protection in Europe with more requirements and more NQ stringent provisions.

Ensure procedures meet the standards laid down in the new regulations to demonstrate compliance.

Check that you have legitimate grounds for the retention of personal data.

NQ Magazine June 2016

● Mark Woolley, Director, Reckon Software

Limited and developers of Virtual Cabinet (www.virtualcabinet.co.uk)

13

INTANGIBLE ASSETS

Bring on the revolution It’s time for a radical change to the reporting of intangible assets, says David Haigh of Brand Finance

I

ntangible assets such as brands, people, know-how, relationships and other intellectual property make up a greater proportion of the total value of most businesses than tangible assets such as plant, machinery and property.

The current international consensus among auditors and accounting standards setters is that all acquired intangibles should be recognised on the balance sheet, but that internally generated intangible assets, in almost all circumstances, must not be.

In Brand Finance’s view this creates a ‘blind spot’ for accountants, investors and other stakeholders and disadvantages companies that create value rather than just acquiring it.

The present situation does at least represent some form of progress. It was only in 2001 that FAS 141 introduced the requirement for US companies to capitalise acquired intangibles following an acquisition. Under the standard, intangible assets should be separately disclosed on the acquiring company’s consolidated balance sheet. It was even later (2004) that IFRS 3 introduced the same requirement as a global standard and a further year hence when, in 2005, all listed companies in EU member countries adopted the IFRS. At present, approximately 90 nations have fully conformed with IFRS, with a further 30 countries and reporting jurisdictions either permitting or requiring IFRS compliance for domestic listed companies.

This is a step in the right direction and the widespread adoption of IFRS accounting standards means that the value of disclosed intangible assets is likely to increase in the future.

However, the present situation remains far from ideal. Brand Finance produces its Global Intangible Finance Tracker (GIFT) report annually, it is the world’s most extensive research exercise into intangible assets, examining 57,000 companies (with a total value of US$89 trillion) across 160 jurisdictions. The study reveals a 14

number of potential pitfalls arising from inadequate reporting of intangibles.

From the perspective of analysts, pricing shares with insufficient information about company assets leads to a broader, less helpful spread of values. Investors acting on the incomplete information (and the analyst reports that draw upon it) are, in effect, forced to act with one eye closed. In turn, this has a host of negative effects for those responsible for managing the businesses. Share price volatility is one, affecting the stability and sustainability of finance. A hostile takeover is another significant risk. Lack of information about the true value of their assets leaves boards and shareholders in a naïve position, prone to acquiesce to acquisitions that should not take place or to sell individual assets at less-thancompetitive prices.

This even has implications for national economies.

Whether at the government or corporate level, intangible assets are ‘undisclosed’ on balance sheets and are all too easily overlooked by those who should be protecting them.

There are many keen to exploit this lack of vigilance. Markets are erratic and a dip in share price leaves companies open to opportunistic bids, potentially snuffing out a nation’s pioneering brands in lucrative, tertiary industries. Ownership, profits and expertise may flow out of the country as a result, or worse, the acquisition may be by asset strippers with no concern for the long-term interests of the business, its employees or the country.

In Brand Finance’s view, a commitment to undertake an annual revaluation of all company assets, including tangible assets, acquired intangibles in previous years and internally generated intangibles, would be a boon for boards, accountants, investors, analysts and even governments.

Under this scheme of ‘fair value reporting’, in effect management would be required to report its assessment of the total value of the business at each year end together with supporting assumptions. The transparency and clarity this would afford would enable boards to make more effective NQ Magazine June 2016

INTANGIBLE ASSETS

use of their assets, accountants to have a truer picture of asset values, and investors and analysts to more accurately price shares.

There is clearly a strong and growing appetite for this. As part of the GIFT report, Brand Finance, CIMA and the IPA (Institute of Practitioners in Advertising) recently conducted survey of equity analysts and CFOs. Over 50% felt brands were becoming increasingly important in risk management and lending decisions and over 70% felt brands were becoming increasingly important in M&A activity. Some 68% of analysts and 58% of CFOs thought all internally generated NQ Magazine June 2016

brands should be separately included in the balance sheet and that all intangibles should be revalued each year.

There is clear evidence that both producers and users of financial accounts want to see a radical change in the antiquated way intangible assets are reported. With US$30.5 trillion in intangible value undisclosed and growing annually, a revolution in the reporting of intangible assets cannot come a moment too soon.

NQ

â—? David Haigh is founder and CEO of Brand Finance 15

Dawning o new era

INNOVATION IN ACCOUNTING

Gavin Fell explains how accountancy is changing and how you can use these changes to improve your business

Y

ou only have to look at something as simple as the history of football to see how things can change significantly over a short space of time. Even when I look back 20 years to the beginning of my football career, the way the sport has evolved is not something I could have predicted. And this state of constant development doesn’t just stop at sport.

Our society is always moving forwards and many industries go through periods of change – sometimes a little and sometimes a lot.

The accountancy world is not immune to this cultural shift. You don’t have to look far to see that technology has changed everything, and accountancy is becoming more and more digitalised by the second.

As a newly qualified accountant you’re probably reading this and thinking I’m pointing out the obvious, but please don’t switch off! They say that familiarity breeds contempt, and in my opinion familiarity may be one of the biggest threats to this profession today.

Previously, reports were based on historic information – going through weeks, months and years’ worth of information. However, this only provided a very good understanding of what happened in the past. These days, the focus has shifted. Your 16

16-17_NQ_0616.indd 16

clients need you to think outside of the box, move away from the numbers and be able to contribute to their business as a whole.

Our Cloud Barometer Research last year revealed that 50% of business owners expect their accountants to provide coaching and strategic advice.

On the other hand, only 12 per cent of all accountants consider gaining industry specific knowledge as an important business challenge. But how can you coach and advise your clients if you don’t know anything about their business?

Accountants are missing a trick.

In the same way that companies that refuse to utilise technology will die, accountants who don’t diversify their service will become obsolete. There is a massive opportunity for accountants to change with the times. It may seem daunting, but here are three ways to start making the journey:

1

Look beyond the numbers

This is probably the hardest step.

When you have spent years training and studying it will go against every bone in your body to not focus on the numbers. Don’t get me wrong – numbers are important, but they are only a small part of the picture. The administrative process is becoming

increasingly automated and the Cloud enables inexpensive and easy realtime collaboration, meaning that bookkeeping isn’t the only way to keep the revenue coming in. It’s time to broaden your perspective and look beyond the numbers.

2

Be client-centric

This is important. Your client should be at the heart of everything you do – if not, it’s time to re-evaluate. At Exact, we talk to our clients constantly.

Whether it’s with a survey, some market research or catching up over a coffee – everything revolves around them.

Their feedback is imperative to our development – there are features in our software that are there because they were suggested by a client. Get to know your client as well as their accounts.

Find out what’s going well, what they’re struggling with and look for ways to help. Being client-centric means that you consider them first and allow their input to bring valuable insight to how you do your job.

3

Be proactive

Once you’ve invested time in being client-centric and widened your knowledge of their business landscape it’s time for you to run with it. Our research showed 54% of SME leaders NQ Magazine June 2016

03/06/2016 15:10

of a

INNOVATION IN ACCOUNTING

trust their accountant more than their other half, business partner or bank manager. This is a privileged position and the perfect opportunity for you to shine. Don’t just do what your client asks, but do the things that will make them better. Be intentional and focused, be innovative and smart – you have the potential to influence their business decisions. Don’t forget, you’re a part of their team, and when they succeed, you do too.

These three things are at the heart of ‘new accountancy’ – our initiative to encourage accountants be more than ‘number crunchers’ and contribute to their client’s businesses in a different way. This new way of working will create new opportunities and revenue streams and will ensure that the role of the accountant remains relevant and secure.

As technology becomes more engrained and pricing, more competitive, accountants will only stand out by the added value they provide to their clients. Are you ready for NQ this new era of accountancy?

● Gavin Fell, general manager Cloud Solutions, Exact UK. Gavin played professional football with Wimbledon FC NQ Magazine June 2016

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03/06/2016 15:10

AUDIT

Young auditors suffer from social ‘mismatch’ Is the audit process being compromised by the ‘generation gap’? A new report says the answer is yes, says NQ editor Graham Hambly

T

he whole audit process is being compromised by the social ‘mismatch’ between young, inexperienced auditors and older, more experienced client management, says award-winning research from US academics Bradley Bennett and Richard Hatfield.

Their study found that this age mismatch often impacts on the staff auditors’ willingness to gather additional audit evidence, needed to properly complete the audit confirmation task. Young auditors, sometimes with limited experience, can find themselves in intimidating situations with more knowledgeable and experienced clients, who according to the research can often quickly become annoyed with what they perceive as silly questions.

The worry is that when young auditors are paired with these older, more experienced company accountants just 35% of them chose to meet with the accountant face-to-face to ask further questions and gather more information. When the age gap between the two was a better ‘match’ some 83% of auditors wanted to meet face-to-face to ask those extra questions.

The reluctance to ask follow-up questions results in less evidence being collected and lower-quality documentation and conclusions, claimed Bennett and Hatfield. And, it didn’t end there, as work papers were often prepared in a vague way, making the loss of information hard to detect during the review process.

The only saving grace in the process has been the rise in the use of email. Younger auditors are much more likely (69%) to request additional evidence this way. Bennett and Hatfield said that email curtailed the reduction in evidence collection caused by avoiding live face-to-face interaction, but did not eliminate it altogether. They said: “Overall, while electronic communication helps, it does not completely erase staff auditors’ reluctance to ask follow-up questions and, 18

importantly, such communication loses the richer context of inperson interactions.”

Bennett told PQ magazine that there may be some specific training that firms could provide to address the staff auditors’ decisions when they feel ‘outmatched’ by client management. He felt that managers and partners must be fully aware of the problem so they can address and discuss the issue in a more proactive manner.

The ICAEW’s Qualifications Director, Shaun Roberston, said current training gives its trainees the confidence to question the views of more senior members of an organisation. He stressed: “They have proved themselves to be professionally sceptical and able to give sound, objective business advice. Their experience or age does not imply a barrier to asking the full questions needed to complete a full audit.”

The ACCA’s head of audit and assurance, Andrew Gambier, was also sceptical about the report’s one-sided view of the audit process. Seeing young auditors as weak and clients as mean is too simplistic a view, he said, although he loved the authors’ psychological look at the audit process and wanted to see more of it.

In Gambier’s view, young auditors are incredibly independent and strong-minded, who are not cowed by difficult clients. He felt another piece of research was missing from the report – clients who are scared of the auditors!

He was not surprised by the move to email ‘conversations’. An email from a client is much better NQ evidence than a hand-written note! ● Bennett and Hatfield’s report, ‘The Effect of the

Social Mismatch Between Staff Auditors and Client Management on the Collection of Audit Evidence’, was recently recognised with the Deloitte Wildman Medal.

NQ Magazine June 2016

We’ re G Awa iving App y An le T V

WHISTLEBLOWING

Is it safe to blow the whistle?

ACCA’s Jo Iwasaki explains how business can put effective policies in place to protect staff who feel they need to speak out

C

orruption is a complex social, political and economic phenomenon that ultimately destroys integrity.

From bribery to embezzlement, the view that these corrupt activities are necessary evils is long-standing, and sadly they’re too often seen as just a part of the process to get things done in business.

Corruption goes unchallenged unless someone speaks out about it. Speaking up, or blowing the whistle, is a major step in highlighting the dishonesty and dysfunctional behaviour in organisations.

However, controls on information and inadequate investigation of whistle-blowers’ claims can all deter people from speaking out. But the issue is being met with fierce desire and drive for change by today’s professionals in global organisations.

A witness account can provide invaluable insights into corruption, and are powerful tools in the fight against it.

From exposing multi-million-pound financial scams to dangerous practices, whistle-blowers play a crucial role in saving resources and lives.

Their individual bravery is only part of the deal. Ultimately, it is organisations and not individuals who are responsible for ensuring whistle-blowers feel secure enough to speak up. Through robust processes and a commitment to visible action, firms can emerge from a crisis with enhanced trust, both internally and externally as they ‘do the right thing’.

In the global fight against corruption in all its forms, it is vitally important that potential whistle-blowers have a clear view of not only the avenues available for speaking up, but also the full path ahead of them as they go through the whistle-blowing journey.

This isn’t just the right thing to do. It’s also best for the business. If employees feel that wrongdoing will be dealt with 20

promptly, fairly and in a transparent manner, they are far less likely to make the issue a public one.

In order to implement a successful ‘speak up’ policy, organisations need to consider how the arrangements interact with cultural issues. While cultural challenges are surmountable, this might take a little more time and effort using suitable strategies to address issues such as regional differences and language.

Additionally, it’s highly worth businesses considering the use of an external independent channel that sits alongside their internal conduits. It may feel counter-intuitive to set up channels that are external and possibly more formal when you are trying to build trust internally. However, if people use independent external channels and have a positive experience, the trust developed from the experience can transfer to others, including internal channels that they may use in the future.

In some of the most corrupt countries blowing the whistle can carry high personal risk – especially if there is little legal protection against dismissal, humiliation or even physical abuse. But there’s a great will among people, and indeed the respective governments to fight corruption at its source.

Earlier this year in Afghanistan, national media in Kabul carried an announcement from Mohammad Aqa Kohistani, head of the finance ministry’s treasury department, that 1,000 high school graduates would be beginning their training in professional accountancy, delivered by ACCA. One of the key compulsory areas of learning for all of these students, alongside the various technical and business-related components of their training, is our ethics module. It is how all of our students, regardless of their background, place of origin or indeed gender, learn what it truly means to operate ethically in the finance and business NQ Magazine June 2016

WHISTLEBLOWING

Taking a stance: Michael Woodford was the CEO of Olympus Corporation when he uncovered huge financial corruption at the corporation

world in a structured and consistent manner. It is to this single, universally high standard that every one of them is held, throughout their career.

Across the world, these bright and motivated young individuals achieving the qualification will go on to provide finance and accounting services. Through their commitment to this, and the rigorous grounding they have received in governance, good practice, ethics and transparency, the next generation of professional accountants will ensure that corporate culture always strives to be better.

Now more than ever, how an organisation does business is just as important as the results they achieve. It’s no secret that many of the great reputational disasters of recent years have been made worse by attempts to sweep the issue under the carpet. If effective speak-up arrangements NQ Magazine June 2016

are implemented through corporate governance, public sector accountability and professional responsibility, it will contribute to sound risk management, which is in the organisations highest interest.

ACCA has recently published a report offering professional insights into what makes whistle-blowing procedures effective. The report examines the challenges, opportunities and best practices associated with various types of speakup arrangements. It provides practical recommendations to those who develop, operate and oversee such NQ arrangements in order to make these effective.

� Jo Iwasaki is the ACCA’s head of corporate

governance

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PROFILE

Making a difference

Indy Hothi, winner of the ICAS One Young CA competition, has been using his skills to help others in need across the world. This is one remarkable young accountant

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One day, when I’m old, I don’t want to have any regrets. And I would like to have some interesting stories to tell my grandchildren,” says Indy Hothi.

He is modest about the achievements he’s packed into his relatively few years – they are far more than just interesting stories.

Winning the ICAS One Young CA competition 2015 and representing ICAS on the global stage are only part of it. He’s an economist at EY where he is involved with diversity and inclusiveness initiatives and leads the EY Sikh Network – one of the largest professional Sikh networks in the UK. Indy is also a trustee at Khalsa Aid, an international humanitarian organisation for whom he has built a long-term strategy and willingly rolled up his sleeves. “The passion side of things has taken me to the front line, but one of the things I’ve also brought as a CA has been a level of professionalism, expertise on finances, and more importantly around the future strategy of the organisation,” he said.

He’s quite clearly talented and driven, so it’s something of a surprise to learn that his clarity of purpose is relatively new.

“I always find it interesting that people ask what you want to do, but never what you’re passionate about. Until quite recently I wasn’t sure what I was passionate about – apart from video games! I was looking for what defines me and there were so many different roads and many different paths.

“People would ask what I do and I’d say ‘I’m a CA’ and I’d be bombarded with requests for help – ‘can you help me with my charity, my finances, my governance, my strategy’, etc. I realised how much my skills were valued.

“I realised that fulfilling my passion wasn’t about having a flash car or getting a promotion or the latest gadgets. It was about sharing my most precious commodity – my time and my skills – to help others in need.”

Indy hasn’t wasted any time. He’s been to Bosnia to help those affected by terrible flooding, to refugee camps on the Serbian-Croatian border, to orphanages in Haiti and, closer to home, to those affected by flooding in Cumbria last year.

And while he’s delighted to be able to provide hands-on aid where it’s needed, as a CA the contribution he offers brings more benefit than one man dispensing food or comforting the frightened can do.

22

“I don’t think Indy can even begin to think or realise the impact of his actions as one person who follows his passion to help those in need,” read a letter of gratitude sent to one of the EY senior partners. “And in Nepal [he] has benefited many families and literally saved lives. He will likely never meet the thousands of people he’s boosted through his work, but nonetheless provided his helping hand through what he knows best.”

The letter referred to his part as a member of a team with the UN that, after the devastating earthquakes, co-ordinated more than 500,000 hot meals at a displacement camp in Kathmandu, built 500 homes and organised more than 10 tonnes of medical aid from the UK. High praise, but for Indy it’s not glory to bask in; instead an illustration of the power that he – and his fellow CAs –

“I realised that fulfilling my passion wasn’t about having a flash car or getting a promotion or the latest gadgets. It was about sharing my most precious commodity – my time and my skills – to help others in need.”

NQ Magazine June 2016

PROFILE

have to help when they simply apply their skills to some of the world’s more pressing problems.

“The CA provides you with the skill set and the confidence to help people on a larger scale, for the next generation. By acting on what I know, I have the ability to make a positive lasting impact on the world.”

In his speech to this year’s newly admitted CAs, Indy urged them to rise to the challenge and join him in making a difference, calling it a “moral responsibility and obligation” to make the world a better place.

There’s a sense too that he is aware of the rich opportunities life has presented him and how the smallest change of circumstances might have yielded an entirely different outcome.

Reflecting on his time at refugee camps on the Croatian/ Serbian border, he said: “I found it particularly moving to discover that many people in the camps came from educated backgrounds and had careers which could greatly benefit host countries. I met teachers, journalists, lawyers and finance professionals who had to flee because everything that they called home had been destroyed.

“I quickly realised that if I had been born in a different NQ Magazine June 2016

part of the world I could easily have found myself in a similar situation. Being a refugee is not a life anyone would ever choose.”

And so Indy has chosen to help them as much as he can and wants to inspire as many of his fellows to join him in directing their talents and passion. “CAs like us are the ones with the inherent skills and expertise to support in solving some of the most pressing issues in the world today.

“We need to demonstrate our purpose, our values, our commercial expertise and the highest ethical standards. We need to demonstrate these qualities in everything we do, not just in our professional lives but our personal lives and only then can we really build a better working world.” NQ

The ICAS One Young CA 2016 competition was widened this year. ICAS sought out nominations for the Top 35 ICAS CAs under 25. The overall winner will still be crowned The ICAS One Young CA and will represent the institute at the One World summit in Canada in September. Nominations closed in late May for this much-covered recognition.

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ETHICS

Human rights and human wrongs

Primark was an early signatory of the Accord on Fire and Building Safety in Bangladesh – following the collapse of the Rana Plaza

CIMA’s Tanya Barman explains how modern-day slavery is impacting on the business world

S

lavery is not a thing of the past. Shockingly, the 2016 Global Slavery Index estimates that 45.8 million people are subject to some form of modern slavery, from government-sanctioned forced labour to forced marriage or low-cost labour. Some 58% of those living in slavery can be found in only five countries – India, China, Pakistan, Bangladesh and Uzbekistan. If you think that this means slavery does not affect us, you are mistaken. Thanks to globalised supply chains many of these countries produce consumer goods for western markets.

One case that gained huge attention in recent years was the collapse of the Rana Plaza building in Bangladesh in 2013. Over 1,000 people were killed and more than 2,500 injured in the collapse that was caused by poor-quality construction materials and building code violations. One of the building’s factories supplied Irish clothing giant Primark, who found themselves faced with accusations of driving poor working conditions to maintain the low prices for their products. Primark were quick to take action. They reacted by carrying out building surveys in Bangladesh to assess the structural integrity of factories supplying its 24

stores. The company also became an early signatory to the Accord on Fire and Building Safety in Bangladesh, which aims to ensure sustainable improvements to working conditions in the Bangladeshi garment industry. By reviewing procedures and taking action companies are well placed to manage human rights challenges. Earlier this year, Primark announced a new partnership with the UK’s Department for International Development to improve working conditions for garment workers in developing markets all over the world.

It is not only the clothes industry that is affected by human rights problems. Almost any product on your desk – from your plug to your phone – could contain components sourced from a supplier which is guilty of human rights abuses, be they forced labour, child labour, dangerous working environments, land clearance, environmental degradation, or harassment.

Governments have not been blind to this problem.

In 2008, the UN Human Rights Council endorsed the UN Protect, Respect and Remedy Framework – a move that established a global consensus that businesses – irrespective of their size, purpose of business or where they NQ Magazine June 2016

ETHICS

operate – have the responsibility to respect internationally recognised human rights. Last year, the UK adopted the Modern Slavery Act – the first of its kind in Europe. This, together with the government’s national action plan on business and human rights, provides a regulatory motivation for businesses to do everything they can to prevent human rights abuses and therefore to eradicate modern slavery and human trafficking.

What does this have to do with management accountants?

Even if a management accountant is not responsible for human rights due diligence, he or she has ethical and professional responsibilities – codes of professional bodies stipulate accountants must work with objectivity, independence and integrity. Therefore, management accountants should be aware of human rights issues and identify their organisation’s risks and impacts – something that is becoming increasingly important for their profession.

This requires both integrated working and integrated thinking.

In order to help finance professionals support their businesses in upholding human rights, we have published a guide – Business and Human Rights: Evolution and Acceptance – written in partnership with the UN Global Compact’s UK Network. It sets out the context for the importance of human rights issues to business NQ Magazine June 2016

and identifies the human rights-related areas that management accountants should consider in relation to their organisations. Having a clearer understanding of the implications of human rights to the business will also help financial decision making by highlighting areas where investment is required and enabling the evaluation of procurements options and performance. This will help to inform short-term key actions and processes and to support long-term corporate objectives and overall reputation.

Our guide covers areas where management accountants can inform and influence human rights practice – some of which are surprisingly simple measures. Business and Human Rights: Evolution and Acceptance also includes stepby-step guidance and areas to inquire about as well as case studies from large international companies such as Unilever and Newmont, as well as Marshalls, a smaller UK firm with global reach.

Above all, this guide is a call to action for management accountants and provides a roadmap showcasing how you can pursue these new professional responsibilities.

The guide “Business and human rights: Evolution and acceptance” can be downloaded on http://www.cgma.org/ Resources/Reports/Pages/business-and-humanNQ rights.aspx ● Tanya Barman is Head of Ethics at CIMA 25

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