NQ magazine June 2017
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THE VOICE OF ALL NQs Contact us
email: graham@pqaccountant.com twitter: @pqmagazine facebook: pqmagazine.com call: 020 7216 6444
CYBERCRIME Be careful about when you divulge company information Banishing bias? Audit, objectivity and the value of professional scepticism
P14
ALL THE NEWS YOU NEED
and a whole lot more Pages 4 and 7
INTEGRATED REPORTING Putting the finance team at the heart of the decision-making process Page 18
TIME TO KICK ON
FIVE THINGS YOU NEED TO KNOW ABOUT WORKING FOR A START-UP P8
SHOW ME THE MONEY Hays’ latest career survey draws some interesting conclusions
MONEY LAUNDERING: DIGGING THE DIRT MODEL BEHAVIOUR
AICPA wants your help with its Business Model framework Page 22
What should you do if your boss is not disclosing the full facts to the external auditor?
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forging real partnerships Senior FP&A Analyst
Interim Finance Manager
Pharmaceutical, Surrey
Retail, South West London, 12 to 18 months
£45,000 + car + bonus
£50,000 – £60,000 + benefits
• Working closely with Commercial Finance in the analysis, forecasting and reporting of all Sales & Margin and Operating expenses. • Provide a clear understanding of the performance of the business, the projected results and the expected trends to senior management. • Supporting the business by delivering the budgeting and forecasting requirements. • Working closely with stakeholders across the business to deliver clear, insightful reporting. • Assisting the FP&A manager in delivering the business Profit & Loss performance.
• Provision and dissemination of financial reporting information for management up to Director level. • Track record in the provision of detailed and accurate reports and strong technical skills using Excel models. • Key stakeholders will include the management team, greater finance team and project leads across the business. • Focus elements of the role will be month end, forecast, budget, process review and improvement. • You will be qualified or at final stages of qualification, with advanced Excel skills, and PowerPoint.
redefining financial recruitment T +44 (0)20 8408 9999 E info@walkerdendle.co.uk
www.walkerdendle.co.uk
COMMENT
NQ magazine 74%
NUMBER CRUNCHING
EDITOR’S COMMENTS
International standards in your pocket Welcome to the June issue, where NQ magazine homes in on the IFRS – hey, we know how to excite you! The hot news is that IFRS 17 Insurance Contracts is coming to accounts near you from January 2021. The new standard takes over from IFRS 4, which was only brought in as an interim standard in 2004. We also provide you with the first in our pocket guide series to IFRS. These will help you become an instant expert, or just help you remember what the standard was all about. This month’s issue has an excellent piece from CIMA-qualified Nicky Tombs (page 8). She gives you great insight in how accountants can add real value to a start-up. She should know – she’s doing it! Tombs explains the importance of going outside your comfort zone. She stresses that you won’t be able to do your job properly unless you have your ear to the ground and know what’s going on. Oh, and you might need to forget Taylor’s Rational Planning Model. Finally, we focus on the thorny issue of ethics. You really do need to be discreet about who you share information with – a seemingly innocent phone call can expose your company to more than you’d bargained for. And would you know how to deal with a real workplace dilemma? One big piece of advice I can give is to document everything in detail and even take screen shots and photos if necessary. Don’t forget to help us spread the word about NQ magazine. We endeavour to try to make accountancy as accessible as we can. And if there is something you would like us to feature we would be happy to help make that happen. Just drop me an email… Graham Hambly, Editor (graham@pqaccountant.com)
of you believe only some of your work will be automated by the robots P4
17 5
the new international standard on insurance contracts that will eventually replace IFRS 4 P7 things you need to know about working in a startup, by Nicky Tombs P8
90%
of accountants said flexible working was important to them P14
9
the paragraph from the Management Commentary Practice Statement which talks about the importance of putting figures into a proper context P18
126m
number of Nokia 3310 units sold from its release date in 2000 P22
NEWS
The robots will be here soon Automation is coming and accountants know their world is going to change dramatically in the next five years, says FreeAgent’s COO Kevin McCallum. Talking NQ magazine through it’s ‘The Future of Accountancy’ report at Accountex, McCallum said no-one would be surprised that 96% of accountants think the robots will be well and truly among us in 2022. Accountants don’t think they will be surplus to needs though. Some 74% of respondents said that only some accountancy work will be automated. However, nearly two-thirds (62%) did not think their day-to-day tasks would be the same as those they perform today. McCallum said that on top of these seismic changes there is lots in the pipeline for accountants to deal with. You don’t just have Brexit and the government’s attempt to Making Tax Digital. There is also the little matter of the General Data Privacy Regulation, IR35 and PSD2 (the second payment services directive) on the agenda. Open banking comes in January 2018 and could be a massive disruptor. FreeAgent had just signed up a deal with Nat West and RBS when NQ went to see them. ● FreeAgent is an award-winning end-to-end cloud accounting solution for mirco businesses
Recognising the human factors ACCA has put auditor scepticism back into the spotlight with a new report on cognitive bias. It’s report ‘Banishing bias? Audit, objectivity and the value Banishing bias? of professional scepticism’ Audit, objectivity and the value of says that when designing and professional scepticism performing audit procedures auditors must be more aware of their own subconscious bias. They need to take active steps to mitigate its impact on audits. Standard-setters are advised to design audit standards with an eye to mitigating the impact of known biases on decision-making. ACCA recommends that, among other methods, standard-setters review possible ‘bias’ within auditing standards and articulate the importance of minimising known bias in application guidance or other explanatory material. ACCA’s Andrew Gambier said: “The human factor in the audit process is both essential and inescapable; even a machine-led audit may be subject to bias as a result of the information provided and the process of analysis.” 4
Show me the money Accountants have come clean and admitted that money is the key driver for many who are looking to switch jobs. The latest Hays ‘What Workers Want’ survey found that over 50% of respondents were expecting a higher salary if they move jobs. But, almost as equally important (46%) is a more challenging role and better long-term opportunities (43%). That said some 57% of respondents said they would be prepared to take a pay cut in order to work for an organisation that has a better cultural fit for them. Accountants still see analytical skills as the most important attribute to have to be successful. This is closely followed by good communication and time-management skills.
The survey also found that not everyone wants to be a CEO or CFO. Just 19% of respondents said they hoped to reach this level in their career. The vast majority of accountants would be content to make it to the senior management level (46%). Interestingly some 92% of respondents believe that the prospect of Brexit will not change their career ambitions. * See page 14 or more.
IASB proposes ‘improvement’ to IFRS 8 The International Accounting Standards Board is proposing changes to the IFRS for Operating Segments. IFRS 8 Operating Segments was issued in 2006 and sets out the disclosure requirements for information about a company’s operating divisions, products and services, as well as about the geographical areas in which it operates and its major customers. The proposed amendments follow on from a Postimplementation Review (PIR) of IFRS 8. So where does the IASB want improvements? Well, the exposure draft amendments include: l To clarify and emphasise the criteria that must be met before two operating segments may be aggregated. l To require companies to disclose the title and role of the person or group that performs the function of the chief operating decision maker. l To require companies to provide information in the notes to the financial statements if segments in the financial statements differ from segments reported elsewhere in the annual report and in accompanying material. NQ Magazine June 2017
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NEWS
Insurance accounting overhaul has been 20 years in the making The International Accounting Standards Board has now issued its overhauled IFRS 17 Insurance Contracts. It is hoped the first truly international standard for insurance contracts will help investors and others to “better understand insurers’ risk exposure, profitability and financial position.” IFRS 17 replaces IFRS 4, which was brought in as an interim standard in 2004. The IASB said IFRS 4 has given companies dispensation to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches. As a consequent it became almost impossible for investors to compare and contrast the financial performance of what are otherwise similar companies. IFRS 17 should solve the comparison problems by requiring all insurance contracts to be accounted for in
Accountants need more help… Over 15,000 ICAEW members and their families sought out CABA in 2016, the charity supporting chartered accountants. That is a rise year-on-year of 20%. Almost 2,500 people accessed one-to-one support or personal and professional development courses, which CABA provides to ICAEW members. Roughly 13,000 people used CABA’s online resource tools, such as the hugely successful Wellbeing Zone. Andy, an ICAEW member, said: “If you’re struggling in any way, get in touch with CABA – it’ll make all the difference. For my family it made an impossible situation possible again.” If you are struggling in any way take a look at www.caba.org.uk
Amazon Business Amazon has launched a new division that it hopes will revolutionise procurement for UK businesses in the same way it has disrupted the world of consumer retail. Amazon Business will have 100m business products on offer, from office supplies, storage and laptops. Amazon is offering businesses free one-day delivery services on orders of more than £30, as well as VAT-exclusive pricing and VAT invoicing options. There will also be an Amazon Business Analytics function that will help businesses understand what they are spending their money on, with line managers able to set spending limits on business user accounts. The service is already offered in both the US and Germany. It serves 400,000 US businesses and generated in excess of $1bn in sales in its first year there. Some 50,000 customers have signed up to the service in Germany. l Amazon employs some 24,000 people in the UK. NQ Magazine June 2017
a consistent manner. Insurance obligations will be accounted for using current values – instead of historic costs. Information will need to be updated regularly, providing more useful information to users of financial statements. IASB chairman Hans Hoogervorst said: “The insurance industry plays a vital role in the global economy; highquality information to market participants on how insurers perform financially is therefore extremely important. IFRS 17 replaces the current myriad of accounting approaches with a single approach that will provide investors and others with comparable and updated information.” l IFRS 17 has an effective date of 1 January 2021, but companies can apply it earlier.
HMRC launches new hotline HMRC has launched a new hotline for the public to report fraud and evasion in the fight against tax fraud. The service will replace the two separate tax evasion and customs hotlines with one, streamlining HMRC’s intelligence gathering on tax fraud. You can report all kinds of tax fraud and evasion on the new hotline, including PAYE and national insurance fraud, undisclosed offshore investments, non-payment of the National Minimum Wage, tax credit fraud, failure to pay UK duty, tax evasion and VAT fraud. The HMRC Fraud Hotline can be found at 0800 788 887 and is open 8am to 8pm seven days a week, 365 days a year.
Overseas register
The government is setting up a register of the identity of the owners of overseas businesses who hold property assets in the UK. The register, a global first, will hopefully identify oligarchs, overseas government officials and politicians, who have used companies to purchase expensive homes, particularly in the capital. The National Crime Agency (NCA) is hoping the register will help it to trace criminal assets and help tackle money laundering. It was recently suggested that £122bn of property in Britain is owned by foreign companies. The concern is that 160 properties worth over £4.4bn have changed hands in secretive transactions. The NCA’s Donald Toon said: “Greater transparency over the true ownership and control of UK property held in the name of overseas companies will make the UK a less attractive place to launder money.” 7
YOUR CAREER
Time to kick on…?
8
NQ Magazine June 2017
YOUR CAREER
Nicky Tombs outlines five things you need to know about working for a start-up
W
hile coming into a startup organisation as an accountant can be extremely rewarding, there are also challenges to face. Firstly, the environment will be very different from that of an established company. There are advantages to this. For example, where I’m currently working everyone loves ‘beer Friday’. At 4.30pm every other Friday the entire organisation descends on the kitchen, pulls a beer from the fridge, fills up on snacks and challenges each other to table soccer match. This, and the other benefits we enjoy, is a real representation of the job adverts you see for start ups, which are typically described as relaxed and casual, fun-loving environments. However, there are downsides to working in this kind of environment, especially as an accountant. Generally, start-ups don’t employ accountants until the business has reached a crisis point in growth, usually a crisis of control, and there will be a need to improve cost control and financial planning in order for the business to succeed. The founders may understand that it’s time to bring in cost control, but that doesn’t mean that they’ll like it. In fact, it will go against their nature as entrepreneurs. Therefore, to start with, you will be seen as a necessary evil. That being said, if you can get it right, you can really make a difference to the future of a company, and whether it will thrive or crumble. What could be more rewarding than that? So what do you need to know before you take on a role in one of these challenging and rewarding environments?
The numbers only tell half the story It’s really important to understand where the business has come from, in order to NQ Magazine June 2017
understand where it needs to go. We are all taught the value of non-financial information during our studies, and this is never more important than when coming into a start up. So yes, analyse the numbers, but also ask questions. Maybe a supplier looks to be high cost, but actually provides a service that is imperative to your USP. Or maybe a low value customer provides a network that the business is currently reliant on. Ask questions, be interested in the history and the future of the business and understand the implications of any changes you might suggest.
Build relationships Communication is key in any working environment, but building relationships in a close-knit community like a start up is imperative. Accountants have a reputation for being introverted, and it can be difficult to go out of our comfort zones to ensure we have good communication with our colleagues, but you won’t be able to carry out your job properly in this environment unless you have your ear to the ground and know what’s going on. Things change fast and you need to be proactively ready for the outcome any changes bring. Your ideal scenario will be that, if there is the prospect of any change happening in the company, everyone will understand that you need to know about it, and that telling you will be of value. You need to be the go-to person for any analysis that may affect decision-making
Be comfortable with change Things change. A lot. If you’re used to working in an environment that has a planned strategy that fits into Taylor’s Rational Planning Model, then this can be difficult to get used to. Think about what you’ve been taught about organisations that follow
Emergent Strategies or Opportunism, and then try to understand how that would play out in reality. Leaders within the business are constantly on the look out for any opportunities that arise. Decisions tend to be made based more on instinct than analysis, as there is often a need for quick decisions to be made, some people find it a challenge to shift and bend to these changes.
Be flexible You will be working in a fast-paced, ever-changing environment, and the company’s requirements from you will change, sometimes on a daily basis. Maybe you will be completing an analysis on a potential acquisition in the morning, and paying suppliers in the afternoon. The work will be varied. It’s all hands on deck, so you need to be flexible.
Don’t forget your ethics In a fast-paced environment, filled with strong personalities, it’s easy to get swept along if something needs to get done quickly. Don’t lose sight of the big picture. It’s your duty and responsibility to behave ethically. What can seem like a small concession can quickly turn into part of the culture. Remember to retain your integrity and objectivity and stand your ground. NQ
● CIMA qualified Nicky Tombs
is Finance Business Controller at Mr Green Ltd, based in Malta 9
ETHICS – WORKPLACE DILEMMA
Digging the dirt What should you do if you suspect that your boss is not disclosing the full facts to the external auditor? Outline of the case
You are employed as an accounting systems manager in a company that manufactures heavy plant. You and the financial controller both report to the finance director. During your work, you overhear the financial controller saying that he has not been disclosing certain things to the external auditors. These include the fact that a recent acquisition has resulted in a large piece of machinery becoming redundant and of very little value. You are unsure whether to believe this, but you are concerned that the culture within the finance department appears to be one of antagonism towards the external auditors, who are (unreasonably in your opinion) seen as adversaries of the company. In addition, you have heard that a bribe was paid to an overseas company to secure a sales contract. You feel uneasy about the situation, and you are concerned that the close relationship between the financial controller and the finance director may prevent you from exploring the accuracy of the information that you have received.
Key fundamental principles
Integrity: Can you overlook the financial controller’s comments, the culture within the department, and the alleged bribe, and still demonstrate your own integrity? Confidentiality: Is there any basis on which you may or must make disclosures to the external auditors or anyone else? Professional behaviour: How should you proceed in order to comply with relevant laws and regulations, and so as not to discredit yourself or the profession? 10
Considerations
Identify relevant facts: Consider the company’s policies, procedures and guidelines, accounting standards, and applicable laws and regulations. Can you corroborate the facts further through documentation and discussion with relevant parties? Does the company have an internal process for whistleblowing? What channels of communication exist within the organisation, for example with the external auditors, the company’s audit committee or an ethics officer? Identify affected parties: Key affected parties are you, the financial controller, the employee making the allegation of the bribe, the finance director and the external auditors. Other possible affected parties are the internal audit department, the audit committee, the board of directors, and users of the financial statements. NQ Magazine June 2017
ETHICS – WORKPLACE DILEMMA
Who should be involved in the resolution?
You should consider involving the finance director, the board of directors (via the company secretary), the internal audit department, and the audit committee.
Possible course of action
You must check the relevant facts and perform the necessary research into accounting standards, applicable laws and regulations, and any policies and procedures within the company that may support you in alleviating your concerns. In particular, you should consider whether any anti-bribery policies and procedures of the company can help you. If no internal procedure exists, you should discuss the matter with the finance director, regardless of the close relationship he NQ Magazine June 2017
has with the financial controller. If, for any reason, you feel it is inappropriate to discuss the issues with the finance director, or if his response is unsatisfactory, the next step may be for you to take the matter to the board. You should always exercise discretion and tact, and so it is preferable to involve the finance director in your representations to the board. If you have suspicions or evidence of criminal activity (which, in this case, could include the alleged bribe), you might be obliged to report it to one or more authorities. In this respect, you should seek advice from your professional body, and also consider taking independent legal advice. You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgement is challenged in the future. NQ 11
ETHICS – CYBERCRIME
Careless talk Be discreet in who you share company information with – criminals could be setting you up for a fall
K
is an accounting firm employee. She has recently completed her training contract and is now being contacted by recruitment consultants. One of these calls outlines a job that sounds too good to be true. The discussion quickly turns to K’s client portfolio and the structure of her firm. The headhunter seems to know (and be on good terms with) a number of K’s colleagues. He promises to call back soon with more details of this fantastic opportunity. In the pub that evening a member of the finance department (who received a recruitment call similar to K’s) can be heard bragging to colleagues about a great new career opportunity that is coming his way – that is when he’s not complaining noisily about the firm’s ‘woefully inadequate’ IT systems. Not long after, some of the firm’s clients start to receive correspondence from someone purporting to be K telling them that certain transactions on which K’s firm has been advising now need to go ahead quickly and that they must make the necessary bank transfers urgently. Some clients have already made their transfers and are now contacting the firm to check on progress. It soon emerges that the firm’s systems, including its customer ledger information, have been hacked over the weekend. The transfers made by clients were in fact diverted into a fake client money account set up by the criminals. The money has now disappeared.
1. In what ways, if any, was this crime
‘enabled’ either by the firm or individual employees?
K and her colleague in finance are not only victims. Having been convinced by a fraudster to reveal sensitive information, they have become unwitting enablers. Without the information they provided the criminal plan might well have failed. Any firm could find itself in a situation like this purely because of simple lapses in IT or information security and a failure to monitor client activity. Many cyber-attacks are launched at the weekend in the knowledge that there will be no one around to notice the untoward activity. By Monday morning it is often too late.
2. Which fundamental ethical principle is K likely to have breached?
Confidentiality. 12
3. How would you stop this happening again?
Many cybercrimes include an element of oldfashioned, one-to-one deception (now called ‘social engineering’). Professional accountants have skills that are often in high demand and they can receive many, sometimes flattering, calls from recruitment consultants. Of course, employers and clients alike are owed a duty of confidentiality. But the sharing of detailed information about the firm and the affairs of its clients, as happened here, can easily become much more than a breach of confidentiality by actively enabling a fraud or cyber-crime that might otherwise have fallen at the first hurdle. All employees should receive regular training on the ethical requirements of their role, the nature of the fraud risks that threaten the firm and its clients, and what they can do to help prevent these kinds of crime. They should also be actively encouraged to think carefully about what information – especially work information – they share on social media, and to question the professionalism of their motives for doing so.
Meanwhile, the firm should: • Ensure that documents carrying sensitive information are destroyed securely. • M0onitor online references to itself – this can help identify imposters. • Carry out a systems ‘health-check’ – which could include tasking a consultant to attempt unauthorised entry to critical systems – and get professional advice on data security. • Educate staff on IT security and how to spot cybercrime red flags. • Follow the latest expert guidance (from GCHQ) on secure passwords – at least eight characters long, no dictionary words, change them only after a suspected or actual security breach. • Ensure that firewall and anti-virus software is up-to-date. • Use data encryption software in correspondence. • Make special efforts to protect access to applications like searchable databases – these can give criminals a way in. • Remember that weak controls make crime possible. NQ NQ Magazine June 2017
ETHICS – CYBERCRIME
costs cash
NQ Magazine June 2017
13
JOB MARKET REPORT
Show me the money! 14
NQ Magazine June 2017
JOB MARKET REPORT
Ambitious qualified accountants crave a more positive career experience and employers must offer the complete package, says Hays’ Karen Young
I
t’s clear that pay remains top priority for qualified accountants when evaluating whether to stay in a role or accept a new job. However, while competitive pay is a must, a good salary alone doesn’t provide employees with complete job satisfaction, according to our new What Workers Want Report 2017. In fact, culture, career progression and benefits are not to be overlooked as these factors are equal to more than half of the decision making process when accountancy and finance professionals are choosing to stay with their current employer or move jobs. Our research revealed that almost two-thirds of qualified professionals would be willing to take a pay cut if a new job opportunity offered everything else that was important, such as ideal benefits and clear career progression.
Flexible working There have been numerous discussions in recent years about the importance of work-life balance and flexible work within the finance industry. As the workforce continues to change, employee expectations are also changing and it’s no surprise that an enormous 90% of qualified accountant’s stated flexible working was important to them in a future organisation. Despite this, only 30% of employers said they always promote flexible working policies to potential new employees, suggesting employers are unaware of the importance qualified professionals actually place on flexible working when choosing a new job or indeed when considering whether to stay or go. Understandably, flexible working is not always appropriate for every role, but given the amount of importance that is placed on this it should be kept on the agenda of HR teams and line managers to be assessed and considered where possible. Qualified accountants are craving a better work-life balance, with two-thirds of professionals attracted to work for an organisation that restricts out of hours working, including overtime, checking emails and taking calls. Notably, after salary, almost half of the respondents surveyed said they would be tempted to consider a new job if it meant improved work-life balance. Our research also explores the importance of cultural fit and interestingly we found that after pay, it was cultural fit that was ranked by qualified accountants as most important when considering to stay in a job or when evaluating accepting a new job. Almost two-thirds said they would be willing to take a pay NQ Magazine June 2017
cut in order to work in an organisation that is a better cultural fit, with 35% willing to accept a pay cut of more than 5%. All of which highlight how vital it is that employers are offering qualified professionals more than just a competitive salary.
Encouraging ambition Our report has also revealed that qualified accountants want a more positive career experience. Careers in finance tend to be linear and structured, usually equipping professionals with the key skills they need to achieve top jobs in both finance and wider business roles. Qualified professionals appear to have their sights set on the top jobs and over three-quarters of professionals consider themselves to be ambitious with almost half aspiring to reach the C-suite in their career, more than double the overall UK average, which was 21%. Our research found that a third of professionals are dissatisfied or indifferent towards their current role and 36% are actively looking for a new job. Further to this, apart from salary, professionals are hoping their new job will offer a more challenging role (38%), longer term opportunities (38%) and improved work-life balance (37%), all factors to take into account in terms of how you manage your current team. Career progression means more than awarding a promotion; support for professional development and improving an employee’s breadth of skills are also important factors for employers to consider. A third of the survey respondents said they would decline a job offer if the organisation did not offer any professional development or training. In addition to this, 46% said they would like to receive mentoring but only 20% currently receive this. Similarly, 64% said they would like to receive external training but only 40% receive this. Although pay remains a key factor we have seen that qualified accountants are prepared to compromise. Offering flexible working options, as well as promoting all of the interesting aspects of the company culture, can help an organisation to better appeal to the best qualified professionals without necessarily increasing budgets immediately. With such high levels of ambition, employers of finance professionals need to set clear progression pathways and plans, including timescales, with current employees while also communicating this to potential new staff. Employers must assess how they can offer the complete package in order to hire and retain the most ambitious and hardworking individuals their organisations need to see future business success. NQ
● Karen Young, Director at Hays Accountancy
and Finance. For more go to www.hays.co.uk/ recruitment/what-workers-want
15
IFRS
Standard briefing Here is the first in our new series of NQ’s pocket guides to the IFRS. Brought to you with the help of the IFRS Foundation The Conceptual Framework for Financial Reporting The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users. The Conceptual Framework deals with: l The objective of financial reporting (which is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity). l The qualitative characteristics of useful financial information (relevance, faithful representation, comparability, verifiability, timeliness, and understandability). l The definition, recognition and
measurement of the elements from which financial statements are constructed (assets, liabilities, equity, income, and expenses).
IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 1 requires an entity that is adopting IFRS Standards for the first time to prepare a complete set of financial statements covering its first IFRS reporting period and the preceding year. The entity uses the same accounting policies throughout all periods presented in its first IFRS financial statements. Those accounting policies must comply with each Standard effective at the end of its first IFRS reporting period. IFRS 1 provides limited exemptions from the requirement to restate prior periods in specified areas in which the cost of
complying with them would be likely to exceed the benefits to users of financial statements. IFRS 1 also prohibits retrospective application of IFRS Standards in some areas, particularly when retrospective application would require judgements by management about past conditions after the outcome of a particular transaction is already known. IFRS 1 requires disclosures that explain how the transition from previous GAAP to IFRS Standards affected the entity’s reported financial position, financial performance and cash flows.
IFRS 2 Share-based Payment IFRS 2 specifies the financial reporting by an entity when it undertakes a share-based payment transaction, including the issue of share options. It requires an entity to recognise share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets or equity instruments of the entity. It requires an entity to reflect in its reported profit or loss and financial position the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees.
IFRS 3 Business Combinations IFRS 3 establishes principles and requirements for how an acquirer in a business combination: l Recognises and measures in its financial statements the assets and liabilities acquired, and any interest in the acquiree held by other parties. 16
NQ Magazine June 2017
IFRS l Recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase. l Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The core principles in IFRS 3 are that an acquirer measures the cost of the acquisition at the fair value of the consideration paid, allocates that cost to the acquired identifiable assets and liabilities on the basis of their fair values, allocates the rest of the cost to goodwill and recognises any excess of acquired assets and liabilities over the consideration paid (a ‘bargain purchase’) in profit or loss immediately. The acquirer discloses information that enables users to evaluate the nature and financial effects of the acquisition.
IFRS 4 Insurance Contracts Will be superseded by IFRS 17 Insurance Contracts. IFRS 4 specifies some aspects of the financial reporting for insurance contracts by any entity that issues such contracts and has not yet applied IFRS 17. An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. IFRS 4 applies to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds, except for specified contracts covered by other Standards. It does not apply to other assets and liabilities of an insurer, such as financial assets and financial liabilities within the scope of IFRS 9. Furthermore, it does not address accounting by policyholders. IFRS 4 exempts an insurer temporarily (ie until it adopts IFRS 17) from some requirements of other Standards, including the requirement to consider the Conceptual Framework in selecting accounting policies for insurance contracts. However, IFRS 4: l Prohibits provisions for possible claims under contracts that are not in existence at the end of the reporting period (such as catastrophe and equalisation provisions). l Requires a test for the adequacy of NQ Magazine June 2017
recognised insurance liabilities and an impairment test for reinsurance assets. l Requires an insurer to keep insurance liabilities in its statement of financial position until they are discharged or cancelled, or they expire, and to present insurance liabilities without offsetting them against related reinsurance assets. A 2016 amendment to IFRS 4 addresses some consequences of applying IFRS 9 before an entity adopts IFRS 17.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 5 requires: l A non-current asset or disposal group to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction instead of through continuing use. l Assets held for sale to be measured at the lower of the carrying amount and fair value less costs to sell. l Depreciation of an asset to cease when it is held for sale. l Separate presentation in the statement of financial position of an asset classified as held for sale and of the assets and liabilities included within a disposal group classified as held for sale. l Separate presentation in the statement of comprehensive income of the results of discontinued operations.
IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 6 specifies some aspects of the financial reporting for costs incurred for exploration for and evaluation of mineral resources (for example, minerals, oil, natural gas and similar non-regenerative resources), as well as the costs of determination of the technical feasibility and commercial viability of extracting the mineral resources. IFRS 6: l Permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11–12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting IFRS 6. l Requires entities recognising exploration and evaluation assets to
perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. l Varies the recognition of impairment from that in IAS 36 Impairment of Assets but measures the impairment in accordance with that Standard once the impairment is identified.
IFRS 7 Financial Instruments: Disclosures IFRS 7 requires entities to provide disclosures in their financial statements that enable users to evaluate: l The significance of financial instruments for the entity’s financial position and performance. l The nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks. The qualitative disclosures describe management’s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel. Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposures to risks they create. IFRS 7 applies to all entities, including entities that have few financial instruments (for example, a manufacturer whose only financial instruments are cash, accounts receivable and accounts payable) and those that have many financial instruments (for example, a financial institution most of whose assets and liabilities are financial instruments).
IFRS 8 Operating Segments IFRS 8 requires an entity whose debt or equity securities are publicly traded to disclose information to enable users of its financial statements to evaluate the nature and financial effects of the different business activities in which it engages and the different economic environments in which it operates. It specifies how an entity should report information about its operating segments in annual financial statements and in interim financial reports. It also sets out requirements for related disclosures about products and services, geographical NQ areas and major customers. 17
INTEGRATED REPORTING
Let’s be known for innovation in reporting! Neil Stevenson has a three-point plan to help the finance team ensure it is at the heart of pushing the organisation forward – and gets the credit for it
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NQ Magazine June 2017
INTEGRATED REPORTING
T
he finance team, placed at the centre of the organisation, plays a vital role in the overall management of the business. It has high profile and influence. But are its members all seen as maximising their own value within the organisation? While I think it is fair to say the finance team is seen as essential and highly skilled, sometimes we do hear negative comments. I have been at a number of events recently where some questions were raised about the willingness of the finance team to embrace innovations in reporting and their thinking about value creation in the organisation. However, I believe the picture is moving – not least through the strong leadership and vocal support of the global accountancy profession and accountants around the world. Increasingly, I hear that finance teams in forwardthinking organisations are getting involved and leading discussions. And when they do, there is clearly a great deal of value in such collaboration, including engagement in new developments such as Integrated Reporting, broadening existing thinking and processes in the organisation to help better understanding, and better communication of value creation.
Role of financial reporting We could do well to consider how to improve the alignment between financial reporting and developments such as Integrated Reporting. A way forward could be to encourage a stronger partnership between financial reporting and reporting on value creation – after all, accountants are already highly expert in the practices of management commentary. The best possible starting point for this direction has been set through the words of the chairman of the International Accounting Standards Board himself, Hans Hoogervorst. Speaking at the IIRC Council meeting in New York last month he started with the observation that the existing Management Commentary Practice Statement (2010) already calls for elements of integration: ‘Management commentary should provide users of financial statements with integrated information that provides a context for the related financial statements’ (paragraph 9). He then went on to say: “So what information is missing in the financial statements? Users will need information about a company’s intangibles – strategy, business model or technical know-how – many of which currently are not recognised in the financial statements. Users also want to know about the external environment – competition or economic developments – in which a company operates. Generally, users seek more forward-looking information than the financial statements currently provide. These elements are often included in Integrated Reporting.” Such words provide an important directional point that accountants can build on in their thinking and practice. It can help you to make the connection between the essential financial viewpoint and the wider factors of value creation. It can also help you in collaborating with other teams, for example in strategy and sustainability. While these connections bring strategic benefits they are also essential for the long-term health of the organisation. As we all know, NQ Magazine June 2017
an increasing concern is the direct impact of climate change and wider social factors on the ability of the organisation to maintain its business model over time. Sustainable Development Goals and other initiatives by governments in relation to people and planet will lead to increasing pressures and mandates on organisations to rethink the way they do business. This, too, was covered by Hans Hoogervorst when he said: “The increasing awareness that environmental and societal restrictions have an impact on long-term value creation is also clear… Our Management Commentary Practice Statement is silent on the impact of environmental and social restrictions on a company’s value.” Integrated Reporting can be financial reporting’s perfect partner.
Embrace innovation While I started by relaying feedback I have heard myself I have also tried to highlight opportunities. In conclusion, I suggest three ways forward. 1.Seek wider collaboration on the value creation agenda and embrace working with other teams. 2.Look for opportunities to innovate and be prepared to use your own highly-valued professional skills to harness and augment others’ work – show your leadership skills in action. 3.Use existing reporting frameworks and practices to NQ build a bridge to new thinking.
● Neil Stevenson, Managing Director, Global
Implementation, the International Integrated Reporting Council
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ACCA SPOTLIGHT
Nothing to be scared of
Sara Cawley-Wilkinson explains what the ACCA’s case presentation team is all about
I
t is unlikely that NQ readers will have heard of ACCA’s case presentation team and will therefore not understand the role they perform or the value they bring. There is also the possibility that some will have heard of the case presentation team but will understand very little about the role performed by them and therefore possibly view
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the team with some suspicion and trepidation. Neither of these scenarios is particularly gratifying and we think it is time to clarify and indeed rectify what could often be a misperception about why we exist.
The adjudication team The case presentation team sits within NQ Magazine June 2017
ACCA SPOTLIGHT in reality our raison d’etre is the exact opposite. One of the remits of our team is in part making sure the ACCA brand continues to retain its value. We strive to promote and enforce the high standards that the ACCA qualification demands, thereby cementing the public’s perception and trust in the profession. This regulatory function ensures the value of the ACCA qualification and brand is not eroded and diminished.
Value-added service As a result of being at the ‘coal face’ of regulatory and disciplinary proceedings however, we believe that we have a lot of wisdom and knowledge to share where best practice is concerned. We deal on a daily basis with cases that touch on all stages of a professional accountant’s career; from enrolling as a student, to taking and applying for exemptions for exams, to qualifying as a member, to engaging in public practice, to conducting audits and everything else in between. Consequently, we have the most direct and up-to-date experience of how potential issues of conduct and practice are viewed by the Committee’s and would like to outline some of our top three tips for NQ readers.
1.
the adjudication department within the governance directorate of ACCA and consists of qualified and practising solicitors and barristers. We are primarily tasked with presenting hearings on behalf of ACCA before the disciplinary committee, the admissions and licensing committee, the interim orders committee, the health committee and the appeal committee. The nature of the work we do means most will either not come in direct contact with our team, or when they do it is in stressful circumstances where their conduct or practice may be challenged. This can sometimes lead to us being viewed as ‘the enemy’, when NQ Magazine June 2017
Make sure your administration is in order Time and time again, our team comes across regulatory and disciplinary cases that arise, and in some cases snowball, from basic administrative errors. Keep on top of your deadlines for Practising Certificate and Membership renewals and other professional documentation and ensure that you read them thoroughly and complete them accurately. Professional Committees frequently hear about people who have not read the documents they have signed and claim to have read; this does not paint these individuals in a favourable light. When in practice, ensure your procedures are in place, up-to-date, and followed by all staff. Practices that are run without clear procedures in place can easily become unstuck.
2.
Engage and cooperate with ACCA at all times Whenever you are engaged with
your professional regulator, make sure that you prioritise the matters they are concerned with, and that you provide any responses and/or materials required within the specified timeframes. If you are unable to make a deadline for any reason, contact the relevant person at ACCA and seek to agree an extension of time where possible. Quite frequently, a number of matters under investigation can be resolved without formal action being taken where members acknowledge an issue from the outset and take the opportunity available to regularise their position. Do not let yourself end up in worse situation because you failed to take the opportunity to nip an issue in the bud early on.
3.
When in doubt, ask Before embarking on something for the first time, or where you may be a bit out of practice, make sure that you familiarise yourself with all of the required provisions or practices first. Do not be the person in the position of having to explain to a Committee that you weren’t really sure about something but proceeded anyway without checking with someone who would know for certain beforehand. ACCA has extensive resources to help direct you appropriately in any given situation. Being proactive and ensuring you access the available resources is the best way to making sure you are viewed more NQ sympathetically.
● Sara Cawley-Wilkinson, Case Presenter, ACCA 21
CIMA CONSULTATION
u o i a v h b e e l d o M
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NQ Magazine June 2017
CIMA CONSULTATION
The AICPA wants your help as it looks to finesse its Business Model framework. Noel Tagoe explains all
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t the start of the last decade, Nokia was a force in mobile phone manufacturing. The 3310, released in 2000, sold more than 126 million units. Almost everyone over the age of 25 would recognise it. But Nokia was not always a phone manufacturer. In the mid-19th century it operated paper mills in Finland before moving into rubber products and then into electronics. Nokia sold its mobile phone business to Microsoft in 2013 and shifted focus once again. Today, it develops technologies in a range of other areas like virtual reality and healthcare. Nokia’s constant shift in products and sectors is a great example of an evolving business model. That term – ‘business model’ – is arguably one of the most cited and least interrogated concepts in commerce. Almost every person in the private sector will use it; few will give any serious thought to what it means. This is a shame, as failure to understand and adapt your business model against the backdrop of a constantly changing business environment can damage your organisation.
Role of finance professionals Finance professionals play a crucial role in helping organisations adapt and execute against their business models. They gather information, analyse it and communicate the insights they gain to boards and key stakeholders. This impacts the decision making processes of an organisation as well as value creation. Finance professionals should therefore take ownership of the business model and act as a control function by ensuring that objectives are being met. In doing so they enable the business model to perform. Last year, CIMA published a white paper called ‘Rethinking the Business Model’. The paper included a framework, the CGMA Business Model Framework, to help organisations understand, develop, deploy and report their business model. The ultimate aim of the framework is to improve decision making for resilient and sustainable longterm value creation.
Consultation Definition A business model is a map of a company – a representation of how an organisation defines, creates, delivers and captures value for stakeholders. It should address a company’s objectives, values, opportunities and risks, while at the same time link pay to performance and skills. It also works as a narrative and is a good basis for reporting and supporting decision making as well as strategic conversations throughout the organisation. There are many different types of business models and some have had huge impacts on the world of business. Netflix has changed the way we now watch films and TV. They operate a subscription model while at the same time providing streaming media and video-on-demand. Alternatively, there’s the sharing economy model. Two examples are Airbnb and Uber. The popularity of the latter has led to further developments in this area such as food and grocery delivery systems and even created its own term, ‘Uberisation’ or ‘Uberification’, referring to Uber-like business models which shake up staid sectors. NQ Magazine June 2017
The Association of International Certified Professional Accountants is now inviting finance professionals to participate in a consultation which summarises last year’s CIMA report. We are looking for comments on the following elements of the CGMA Business Model Framework: l Definition of business model. l The organisational ecosystem. l Elements of the business model. l Implication for organisations. l The role of finance professionals. We want to use your responses to help us further refine the current framework, to enhance it, and ensure its applicability and ongoing relevance. Furthermore, we will use the responses to inform our development of practical tools to support long-term value creation. The consultation period runs until 6 September 2017. More information on how to participate as well as the consultation paper can be found on www.cgma.org/ NQ BusinessModelConsultation.
● Noel Tagoe, executive vice president for academics — management accounting at the Association of International Certified Professional Accountants 23
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