December 2015
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THE VOICE OF ALL NQs Contact us
email: graham@pqaccountant.com twitter: @pqmagazine facebook: pqmagazine.com call: 020 7216 6444
IT’S GOOD TO TALK Why soft skills are taking on increasing importance
ALL THE NEWS YOU NEED and a whole lot more Pages 5 and 7
OUR ETHICAL DILEMMA SEES YOU UNDER PRESSURE TO ‘COOK THE BOOKS’ Page 16
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BROADEN YOUR HORIZONS WITH A STINT OVERSEAS ACCOUNTING FOR INTERNATIONAL DEVELOPMENT IS LOOKING FOR NEWLY QUALIFIEDS LIKE YOU!
P8 & 9
PROFILE Meet Eilidh Johnston, trusts finance manager at People’s Postcode Lottery
WORKPLACE PENSIONS
BOOK REVIEWS Three of the best books we’ve read this year – put them on your Christmas list! Page 20
All you need to know about pensions auto-enrolment
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HAVE YOU GOT THE RIGHT SKILLS? OPINION IS DIVIDED The Capability Gap 2015 report – lifting the lid on how finance professionals are rated and how they rate themselves. There’s a lot to be positive about in finance. Salaries are rising, bonuses are back and companies are hiring – all pointing to more career opportunities. But despite this, only 42% of finance professionals are focused on where the profession is heading and developing skills in these areas, with only 29% working towards additional qualifications. By not developing your skills, you could be affecting your career prospects. To add to this, employers rate their staff’s proficiency in key skills much lower than their employees rate themselves. We call this difference of opinion the ‘capability gap’.
Rate your skills now at skills.hays.co.uk
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COMMENT NUMBER CRUNCHING
22
The number of supervisory bodies who oversee money laundering in the UK P5
EDITOR’S COMMENTS
Goodbye 2015, hello 2016 Well here it is, the last issue of NQ magazine of 2015! One thing that you should get from this issue is that we love tax. We believe it is vital that people understand and talk openly about the role tax plays in a democratic society. And, like Richard Murphy, we want tax to be properly taught in schools, colleges and universities. You may not agree with Murphy, dubbed the creator of ‘Corbynomics’, but you would be hard pressed not to be interested in his take on creating a fairer tax system. To this end we have reviewed his book ‘The Joy of Tax’ (see page 20). There is also a big European dimension to tax that is often overlooked. The CIOT has set EU tax officials six objectives to ensure SMEs can really take advantage of the single market (page 12). And we take a look at the commission’s rulings on the tax affairs of Starbucks and Fiat. Worrying research has revealed that nearly half of all accountants have been pressurised to ignore adjustments to accounts so they look better (page 5). Commercialism seems to be winning out, with whistleblowers unprotected. Nothing seems to have been learnt from recent corporate scandals (other than don’t get caught). The professional bodies are trying hard to make their members understand the importance of having a moral compass, but it appears that having rules doesn’t protect many accountants from the commercial realities they face on a day-to-day basis. Finally, we have joined up with Accounting for International Development (AflD) to show how newly qualifieds can make a real difference around the globe (page 8). You, as an individual, can really make a difference to people’s lives and be a force for good. Have a great break and we will see you again in 2016. Graham Hambly, Editor (graham@pqaccountant.com)
30%
Nigh on one in three ICAEW members have experienced mental ill health P7
53
The number of charities supported by the People’s Postcode Lottery P10
6
CIOT has set the EU six objectives to create a simpler VAT system in the single market P12
€20m
The amount of tax now due by Starbucks after a commission ruling over illegal tax deals P13
73%
Number of business and IT executives who said their CEO was a ‘digital crusader’ P18
investing in people Commercial Finance Analyst
Finance Business Partner
Retail, Surrey
Media, Surrey
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redefining financial recruitment T +44 (0)20 8408 9999 E info@walkerdendle.co.uk
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NEWS
Accountants have no moral compass!
ACCA named in Parliamentary motion The Labour MP For Luton North, Kelvin Hopkins, has sponsored a House of Commons ‘early day motion’ on ACCA voting procedures. The motion says: “This House is concerned at reports of voting procedures employed at the AGM of the ACCA during which the President is alleged to have cast hundreds of proxy votes against motions from members calling for an end to the delegated proxy vote system; understands furthermore that a recommendation from the ACCA Council was printed prominently on ballot papers urging members to vote against motions seeking more democratic voting procedures; is further concerned that those ballot papers were approved by Electoral Reform Services Ltd; and therefore urges that those electoral practices be investigated by an appropriate Government agency with a view to seeking reforms to ACCA’s voting procedures for the future.”
Year-end advice to preparers of annual reports from FRC The Financial Reporting Council (FRC) has written to around 1,200 smaller listed and AIM quoted companies with advice on where, with investors in mind, their annual reports can be improved. In particular, investors expect to see clear explanations of how the company generates cash flow. Accounting policies have to be clear and specific, especially Stephen Haddrill in relation to revenue recognition and expenditure capitalisation. Finally, the strategic report has to be ‘clear, concise, balanced and understandable’. FRC CEO Stephen Haddrill explained that for smaller quoted companies investors rely heavily on the annual report because other information is relatively scarce. He went on: “They look for company specific information, rather than a standard template report, that they can understand and use to make informed decisions.” NQ Magazine December 2015
Unethical practices are worryingly rife in the accountancy profession, despite the corporate scandals such as WorldCom and Enron and the concerted efforts to tighten professional standards. Latest research by CareersinAudit recently revealed nearly half of accountants (48%) had either been pressurised (or knew someone that had) by a manager or partner to ignore an adjustment that should have been made to a set of accounts. In addition, 40% are aware of a senior colleague who deliberately chose a commercial option for their company or client even though it could be unethical. The majority of those surveyed believe that their managers do not appear to be able to act independently of these commercial pressures. A significant number of accountants believe those in the profession help clients create a set of accounts that are deliberately misleading, but are worried about coming forward because whistleblowers are not protected. Worryingly, three-quarters of accountants said that if an employee reports the conduct of a colleague their organisation wouldn’t support the whistleblower against victimisation or dismissal. Some 54% of respondents believe their professional boss should be doing more to promote awareness of ethical standards. CareerinAudit’s Simon Wright said that simply identifying and articulating ethics is not enough. He went on: “There is a school of thought that accountants tend to focus on the technical issues and lack ethical sensitivity to recognise ethical dilemmas involved with their work, which could ultimately lead to making wrong decisions. Perhaps accountants could be trained or guided to identify the moral dimension of seemingly technical issues.”
Money laundering rules are ‘flawed’ The UK’s anti-money laundering safeguards could be unfit for purpose, says a new report. A radical overhaul of the UK’s anti-money laundering system is needed if the UK is to close the door to the billions of pounds of corrupt money pouring into the country every year, according to Transparency International UK (TI-UK). The 22 supervisory bodies who oversee the key sectors have come under fire for their approach and TI-UK is calling on the government to strip the various bodies of their roles and consider creating a single, well-resourced ‘super’ supervisor to protect the UK against money laundering. TI-UK’s Rachel Davies says: “If the UK wants to permanently shut the door on dirty money there must be a serious change in this flawed system. We are proposing that the patchwork of different supervisors be replaced by one single organisation.” 5
Your jobs board I need to find pqjobs.co.uk now!
PQ jobs pqjobs.co.uk
NEWS
Speaking openly about mental wellbeing
How do you value your best asset? Many companies claim that ‘people are our greatest asset’, but new research commissioned by CIMA shows that few really bother to value that asset in practice. The survey revealed that while nearly 97% of repondents believe that good management and investment in employees has a direct, positive impact on a business’ performance, some 57% of senior decision-makers are either unaware of or do not use any human resources data when deciding business strategy. The vast majority (94%) of those who took part said that they think poor management of employees can contribute to corporate failure. The research was published following CIMA’s President Dinner event, where the importance of human capital metrics was highlighted – measures that capture and evaluate a company’s investment in and management of its people. Newton Investment’s CEO, Helena Morrissey, was the star turn at the dinner. She said: “A great many companies say that their talent is their greatest asset and they invest significantly in that talent. However, there isn’t really a framework for reporting on the value of that talent, making it difficult for all of us, including investors, to assess this vital aspect of a company’s future prospects. The gap also means that companies are less motivated to ‘finish the job’ of developing a fully inclusive approach to talent.”
FRC proposes limited scope improvements to FRS 102 Concerns over certain disclosures required from financial institutions and retirement benefits plans under FRS 102 has lead to a new FRED. The Financial Reporting Council (FRC) has issued an exposure draft (FRED 62), proposing limited scope improvements to these areas in FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The proposals are intended to simplify the preparation of disclosures about financial instruments for the entities affected, while increasing the consistency with disclosures required by EU-adopted IFRS that users of the financial statements will often be familiar with. FRC said that as the changes proposed in FRED 62 will not affect the majority of entities applying FRS 102, and there should be no delay or disruption to implementation plans. NQ Magazine December 2015
Nearly one in three ICAEW members (past and present) have experienced mental ill health during their careers, new research from the Chartered Accountants’ Benevolent Association (CABA) reveals. The charity believes the fact that one in three accountants is willing to speak up about the issue emphasises the progressive attitudes towards mental ill health in the UK. Employers are also doing more. Some 47% of those surveyed feel supported by their managers in speaking about any problems and just under half (49%) feel they have adequate support to deal with the pressures of being a chartered accountant. CABA found that respondents were less likely to speak openly about mental health internationally – just 12% said they had experienced mental ill health. The association’s Kelly Feehan said: “While 30% may seem a high percentage of people to be affected by mental ill health, we actually see this figures as a silver lining. Speaking openly about mental ill health is a big step forward both for the sector and to break the stigma around illness.”
Heart beats head
When it comes to the big decisions business chiefs still follow their heart over their head, says a new global study from KPMG and ACCA*. Of course in the knowledge-based economy the optimised use of data is central to helping organisations make better decisions. However, this study found that almost 40% of finance professionals believe decisions at the top are still primarily based on ‘gut feel’. The problem is that if management does not trust the data on which performance insight is based, or would rather use their instincts, it becomes even harder for the rest of the business to see it as an essential part of the decision-making process. More than half of respondents (56%) said that the finance team in their organisation is perceived principally as gatekeeper of data, or providers of basic financial analysis at best. KPMG’s John O’Mahony said: “The finance function is finding its reputation as a data repository hard to shake.” That means the team needs to step out from behind their spreadsheets and actively guide the board and work with them to drive the strategy for the business. * ‘Performance Reporting – an eye on the facts’ is a KPMG and ACCA Thought Leadership report 7
VOLUNTEERING OVERSEAS
Broaden your horizons H
ave you ever wondered what it would be like to volunteer overseas? If so, you may well have imagined yourself teaching English, handing out mosquito nets or painting the walls of an orphanage. As worthwhile as this work is, would it be the best way to make the most of your skills and experience? As an NQ accountant a whole new network of professional volunteering opportunities is open to you. Charities and NGOs across the developing world are doing extraordinary work, often in the most difficult of circumstances, but they all too often struggle to obtain the essential skills training needed to run their operations effectively and meet the financial reporting requirements of their donors. Accounting for International Development (AfID) was founded in 2009 with a commitment to providing long-term support to their charity partners, involving several volunteers over a number of years. This approach means that there is always a need for accountants from all backgrounds and levels of experience, from PQs and newly qualifieds right up to those with senior level industry experience. One recently returned volunteer, Erin Petaski, left on assignment to South-east Asia before knowing whether she had passed her final exams with CGA Canada. Erin travelled to Cambodia to support two wildlife conversation organisations, Samson Mlup Prey and the Sam Veasna Centre.
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She said it came as a surprise to her that she was able to use her newly gained expertise before fully qualifying: “When I first came across AfID I knew it was something I wanted to do at some point in the future. It was only through speaking to them that I realised I could do it right away. I’d made the assumption that they would only be interested in fully qualified accountants with vast experience.” Erin said that it’s normal to have some fears – and second thoughts – on whether you have the necessary skills to help an overseas organisation, but that these fears were soon allayed. “Before speaking with AfID I felt under-qualified, and only went ahead after being assured that my skills would be of good use and value. It was reassuring to understand how they match a volunteer’s individual background and experience to one of their charity partners,” she said. “Once I started, I found that I was comfortable and that they had provided a good match not only to my personal preferences but also to my accounting background. “As soon as I arrived I found the local accountants were eager to tell me about their department and offer areas where I might be able to provide assistance. I soon found not only how needed any professional office experience was, but also that I personally could be of value to my partner organisations.” She added: “I think that sometimes we can take for granted the most basic knowledge we learn in school and
NQ Magazine December 2015
VOLUNTEERING OVERSEAS
Thinking about a career in international development but can’t gain the relevant experience? Accounting for International Development (AfID) has assignments available for newly qualified accountants just like you our entry level positions, as well as the ability to consult with supervisors and teachers with questions and doubts we may have. “I was surprised to realise that often in the developing world there simply is no one to ask for help, no supervisor or peer, the network of relevant knowledge and experience does not exist, yet the very real need for accurate and meaningful financial information is as necessary to a Director in Cambodia as it is Canada. “That is how I realised how important AfID is and how we, especially as young students and accountants, can really lend a meaningful hand and not only make a difference in the organisation you support but also the
NQ Magazine December 2015
individuals you work with and mentor on a daily basis.” As a part or newly qualified accountant you can truly make a difference, and you just might make a few great friends, meet other volunteers from across the world, and experience places tourists don’t usually get to see too. Could this be your next challenge? NQ ● To find out more about AfID’s work, read
first-hand volunteer experiences and to take the first small step to arranging your own volunteering experience visit www.AfID.org.uk.
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PROFILE
Nothing left to chance
Meet Eilidh Johnston, 33, trusts finance manager at People’s Postcode Lottery Let’s start at the beginning – why accountancy? From a young age I always really liked maths. At secondary school I discovered in my third year that I had a real aptitude for accountancy. It all started quite early.
How did you find the exams? The exams were pretty difficult; I made the decision early on to only tackle two exams at a time to allow me to give them my full attention. I continued to work full-time, so this was as much as I wanted to do at one time. I was a selfstudier and didn’t attend any external classes, so I had to be really focused throughout the whole studying period.
What was the first thing you did when you found out you had qualified? I would love to say I did something really exciting like jetting off to Paris, but I think I phoned my mum and then went out to celebrate with my best friend.
EILIDH IN BRIEF What are you reading? A great book by Mary’s Meals founder Magnus MacFarlaneBarrow, called ‘The Shed That Fed A Million Children’. It charts the remarkable journey of Magnus and his mission to one day bring about the end of child hunger Last CD bought/downloaded Taylor Swift, 1989 Favourite TV show Home and Away When was the last time you laughed out loud? The atmosphere in work is always really great and we laugh daily, I’m really lucky to work with such a great team How do you chill? My family live in Inverness so I visit them as often as I can. I enjoy eating out, walks in Royal Botanic Garden Edinburgh and trips to the cinema
Tell us a bit about what you do at People’s Postcode Lottery?
Where do you see yourself in five years’ time?
People’s Postcode Lottery is a charity lottery where players play with their postcode to win cash prizes, while also supporting amazing charities across Great Britain and internationally. I work within the charities team as trusts finance manager and I’m responsible for ensuring that all of the 53 supported charities receive their funding. I regularly attend trustee meetings, write financial policies and prepare management accounts and budgets. Recently, I have become more involved in the compliance side of the business.
I would love to remain part of the People’s Postcode Lottery family, and maybe even as head of charity finance.
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Is that it with study? Do you have any other plans? People’s Postcode Lottery invests heavily in employee development; we all have access to role-related development programmes. I’m currently researching charity law focused courses. The level of support with learning is great and really allows us to prepare for future opportunities within the organisation.
What is the best advice you’ve been given? Never leave until tomorrow what you can do today. I’m generally a pretty organised person, but this is such a fast-paced environment to work in I have found myself having to become even more organised as there are always new and exciting things to work on every day. I like to have my to-do list ticked off by the end of the day. NQ NQ Magazine December 2015
TAX
6 challenges to create a simpler VAT system in Europe The Chartered Institute of Taxation (CIOT) has set EU tax officials six objectives to ensure more UK small and medium-sized enterprises (SMEs) consider Europe to be their home market or at least carry greater pan-European ambitions
E
veryone has to welcome the commitment ‘in principle’ to make it easier for small and medium size businesses (SMEs) to operate across Europe. To this end the European Commission’s Internal Market Strategy wants to address key difficulties that SMEs and start-ups face in all phases of their lifecycle within the single market. No system can be foolproof
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when it comes to worries about evasion and avoidance, but it is right that the focus should be on easing burdens to SMEs to boost innovation and create jobs, says the CIOT’s Peter Dylewski. The chairman of CIOT’s Indirect Taxes Sub-Committee, Dylewski explained: “VAT is a particular burden because it is supposed to be fullyharmonised across Europe but isn’t,
and this creates headaches for many owners of British SMEs. “We believe there are six challenges that VAT policymakers in the EU face before success can be achieved. We hope when proposals are drawn up to meet them, national governments will rise to the challenge of working together to deliver an accessible single market for all small and medium business.” NQ Magazine December 2015
TAX The CIOT’s six challenges are: 1) End the disparity in registration rules To support a healthy SME sector, and minimise compliance burdens, a high registration threshold is preferred. Different countries have very different VAT registration thresholds. A business established in the UK with a turnover of less than £82,000 does not have to register for UK VAT. But if the same business had a turnover of £72,000 and turnover of £1,000 in each of 10 other EU member states, it has to register for VAT in each of those member states. 2) Simplify getting VAT back from other member states If a small business incurs VAT in another member state for its taxable business, it is usually entitled to get it refunded but the rules are complex and our experience suggests not adhered to consistently by some countries. 3) Reduce the complexity of rules All EU countries operate by the same rules in theory but in practice some things are left to each member state
to define and in some instances countries have been permitted to apply derogations (an exemption from or relaxation of the VAT rules). Exceptions to a rule always complicate tax and undermine the aim of simplicity and we believe the need for derogations should therefore be rigorously challenged. 4) Address inconsistent interpretation of common definitions EU member states can have totally different views on how the same words in European VAT legislation should be interpreted. The EU must address how small or micro business can deal with such inconsistencies and where they can find better information on what they need to do to comply with member states’ rules. 5) Tackle the complexity in compliance Administration of VAT is complicated because member states determine their own compliance rules such as the form of the VAT return, deadlines for submission and tax payment, recordkeeping requirements.
6) More effective dispute resolution Dispute resolution in the UK can be costly at the best of times despite laudable efforts to increase the use of alternative dispute resolution and other approaches to avoid litigation in the Tax Tribunals. Cross-border disputes are more costly and this is likely to be a particular barrier to small businesses, which may then discourage them from doing business elewhere within NQ the single market.
Starbucks and Fiat had illegal tax advantages
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oth Starbucks and Fiat benefited from illegal tax deals that artificially reduced their tax burden, the European Commission has ruled. In the case of the Starbucks investigation it was found that the company had been able to take advantage of undue tax advantages in the Netherlands since 2008. The commission said that Starbucks Manufacturing EN BV paid a very substantial royalty to another Starbucks company in the UK using coffeeroasting ‘know-how’. It was felt this royalty couldn’t be justified because it did not reflect market value. Other Starbucks group companies and independent roasters are not required to pay a royalty for using the know-how in essentially the same situation. It also claimed it paid a highly inflated price for green coffee beans to Switzerland-based Starbucks Coffee Trading SARL. NQ Magazine December 2015
As a result of these two moves, Starbucks Manufacturing’s taxable profits in the Netherlands were substantially reduced. The amount of tax now due is estimated to be between €20m and €30m. In another ruling it was found that Luxembourg tax authorities had granted Fiat Finance and Trade
‘savings’ of between €20m and €30m. The commission said the extremely complex and artificial methodology used to calculate Fiat Finance and Trade’s taxable profits could not be justified by economic reality. As a result of the calculation Fiat only paid taxes on its underestimated profits. The commission’s analysis showed that its taxable profits in Luxembourg would have been 20 times higher if the calculation had been done at market conditions. Luxembourg and Netherlands must now recover the unpaid tax from Fiat and Starbucks. This, explained the commission, will remove the unfair competitive advantage they have enjoyed and restore equal treatment with other companies in similar situations. Last year, Fiat Finance and Trade paid less than €400,000 in corporation tax and Starbucks NQ Manufacturing €600,000. 13
CIMA REPORT
Rebecca McCaffry explains why soft skills are taking on increasing importance for accountants – and why it’s good to talk
The conversations that count 14
NQ Magazine December 2015
T
he post-crisis economy presents difficult trading conditions; it is volatile, uncertain, complex and ambiguous, and is further intensified by the rapid pace of change brought on by globalisation and advances in technology. It is getting harder for businesses to react quickly, with the right response to the opportunities and risks that this environment presents. As well as this, and possibly in response to these changes, we have seen an evolution in the kind of skills that business need their workforce to have. To remain competitive and achieve sustainable success organisations are depending on their finance teams to have soft skills that are just as strong as their technical skills. And as a newly qualified accountant you will have an important part to play. According to a newly published CGMA (Chartered Global Management Accountants) report, ‘Finance Business Partnering – the conversations that count’, this demand is a reflection of the ever-decreasing margins of difference between companies, and the increasing importance of quality decision-making. The report provides a roadmap for accountants who act as finance business partners, taking responsibility for supporting decision-making and performance management, alongside their more traditional responsibilities. Finance business partnering is also an important way of supporting the CFO – given CFOs cannot typically participate in every single decision made across the organisation.
CIMA REPORT Answering or even considering these questions can improve organisational understanding of your company’s position, performance and prospects.
Three key areas
Questions that are focused on scanning the horizon for possible risks could help your company address risks that they may have already known about but not necessarily focused on as well as identifying any risks that are interconnected with opportunities. Checking risks in this way will help businesses respond sooner to investors, stakeholder and even regulator’s concerns. And maintaining an ongoing dialogue around performance measures will help remind the decision-makers in your organisation how the business creates value. It may seem daunting to ask these questions early in your career, but do not be afraid to pose them if you feel they are relevant. By asking them you will be rightfully acting as steward and helping your CFO to ensure good governance throughout the business. The accounting qualifications you have earned mean you already have the necessary hard skills of business understanding, analysis skills and accounting skills, so don’t be afraid to use your new role to develop the soft skills you need to be a strong and dependable finance business partner. While doing tasks associated with your traditional role, take every opportunity to show your passion for business, commercial curiosity and professional objectivity: these will enable you to NQ contribute insights around the drivers of cost, risk, and value.
Finance business partners contribute to decision making and driving business performance in three areas:
● Rebecca McCaffry, Head of Public Sector
Research, CIMA ● Supporting decisions at group level – cascading leadership and supporting change management. ● Decision support at business level – planning and budgeting, supporting big decisions such as capital expenditure and mergers and acquisitions, along with regular decisions such as budget control. ● Performance management – cost leadership, performance appraisal, project management and risk management. Finance business partners cascade the CFO’s influence and financial disciplines throughout the company. Professionally qualified management accountants are able to contribute to decisions not just due to their overview of the business and their accounting and analysis tool kit but, most significantly, because of their professional objectivity and the mandate to participate in conversations, ask the right questions and join up the dots. These conversations ultimately provide the insights needed to improve performance. The ones that generate insights are… Conversations about the business model particularly when discussing: ● How your organisation generates value. ● What the non-financial success factors and intangibles are. ● How your organisation develops its business model to ensure long-term success. ● What your company needs to measure and manage. ● What data your organisation needs to manage your performance. NQ Magazine December 2015
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ETHICAL DILEMMA
Rags to riche s? You are under pressure from your MD to overstate the value of stock at the clothing company you work for. So what’s your best course of action? Outline of the case You are finance director of a clothing retailer. The company’s year end is 31 March, and you are finalising the year end accounts. You have recently been advised by the warehouse manager about a significant level of slow-moving stock. The stock in question is now more than nine months old and would normally have been written down some months previously. The shareholders are trying to sell the company, and the managing director (the majority shareholder) has told you that it is not necessary to write down the stock in the year end accounts. You are sure that the managing director wants the financial statements to carry an inflated stock valuation because he has found a prospective buyer. The managing director has indicated to you that, if the proposed deal is successful, all employees will keep their jobs and you will receive a pay increase.
Key fundamental principles Integrity: In the light of the information you have, you must ensure that you act honestly, and that you are open and straightforward towards those with whom you come into contact. 16
Objectivity: Can you act without bias, despite the significant threats in the form of self-interest and intimidation? Professional competence and due care: You must act diligently. Do you have sufficient information to be able to determine the appropriate value of the stock to be included in the accounts? Professional behaviour: You are required to account for the stock in accordance with relevant accounting standards. Would any of the actions you are considering discredit the profession in the opinion of an informed third party?
Considerations Identify relevant facts: You are receiving conflicting information from the warehouse manager and the managing director. The managing director is putting you under pressure to account for stock at a higher value than that with which you feel comfortable. He proposes misrepresenting information about the company in the financial statements, which would be contrary to the fundamental principle of integrity. A self-interest threat to your objectivity arises from the financial benefit that you are likely to receive if the company
is sold under the proposed deal. You are also feeling intimidated by the managing director. He appears to be suggesting that the future employment of other employees depends upon the proposed deal being successful and, therefore, upon the results shown by the financial statements. Identify affected parties: Key affected parties are you, the managing director (and the other shareholders) and the potential purchaser of the company. Other employees of the company may also be affected, as it has been implied that their jobs are at risk if the proposed deal is unsuccessful. Who should be involved in the resolution: You should involve the warehouse manager, the managing director and, if necessary, your fellow board members.
Possible course of action You cannot simply do what has been asked of you, because the principle of integrity requires a professional accountant not to be associated with information that they believe to be false or misleading. Relying on the potential buyer’s due diligence to identify the overvaluation is not appropriate. You are responsible for the honest presentation of the accounts, and you NQ Magazine December 2015
ETHICAL DILEMMA
should not transfer that responsibility to either the buyer or the auditors. The first step is to ensure that you have sufficient information. This would include establishing the basis of valuation of the company’s stock, investigating the system for counting and evaluating stock, and discussing with the warehouse manager the reason why the stock is slow-moving. You may also need to discuss the realisable value with someone else, such as the sales director. Once you are sure of the facts, you should discuss the matter with the managing director. If, in your opinion, the managing director continues to insist on an inflated stock valuation being incorporated into the financial statements, you should consider how best to raise the issue with the other board members. Initially, you could suggest that both you and the managing director raise the matter with the other board members. If you feel it appropriate NQ Magazine December 2015
to discuss the matter with anyone else within the company, you must bear in mind the need for appropriate confidentiality and be clear about your reasons for raising the matter. Discussions with the managing director may be made easier by reference to the company’s own code of ethics, if it has one. If it does not, you should make the managing director aware of the ethical requirements of your professional body. You could suggest that the company engages an independent expert to value the stock. At each stage, you should consider the need to follow meetings with email or other written correspondence to record your points of view. This would be particularly appropriate if you are of the opinion that the managing director or the board has not been sympathetic to your concerns. You might have to consider raising the issue externally, for example alerting the auditors to the existence of the slow-
moving stock, or seeking advice from your professional body. If the situation remains unresolved, you may have to remove yourself from the conflict. The clearest way to disassociate yourself from misleading financial accounts would be to resign. However, this would only be an option to be exercised, as a last resort, in the most extreme circumstances. Resignation alone would not help to resolve the situation. It would be advisable to take legal advice before considering resignation. You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgement is challenged in the NQ future. ● This article is taken from a
series of Ethical Dilemmas – Case Studies, published by the CCAB. See http://www.ccab.org.uk/ reports.php 17
MAKING IT WORK
Going digital
PwC’s latest digital survey shows there are 10 things companies can do that really affect the bottom line
W
hen it comes to digital investment, PwC has identified 10 critical behaviours that translate directly to strong revenue growth and profit margins. Companies with the highest scores across these 10 areas are 50% more likely to achieve rapid growth and twice as likely to achieve rapid profit growth compared with the other respondents to its digital survey. PwC’s Chris Curran explained: “Everyone talks about digital, but few understand the specific leadership behaviours that drive performance.” He added, however, that there were signs that this was changing. As digital technologies become more pervasive, the clever digital practitioners are looking at how today’s investment can improve tomorrow’s business results. Companies and executives are seeking more strategic value from their digital investment. Top of the list is revenue growth (45%). Next is providing better customer experiences (25%), followed by improved profitability (12%). This is all leading to those surveyed investing more than 15% of their revenue into digital. So what are the 10 behaviours PwC identified that show a correlation to stronger financial performance? Here they are:
1
The CEO is a champion for digital. Some 73% of business and IT executives said that their CEO was a digital crusader, a significant increase over the 57% who said they had a CEO champion in 2013. 18
2
The executives responsible for digital are involved in setting high-level business strategy. The CEO may set the tone and vision for digital, but those responsible for ‘operationalising’ digital, often the CIO or CDO, are instrumental in setting high-level business strategy. This is especially true in companies where digital leaders have their own P&Ls and are responsible for a significant share of the business.
3
Business-aligned digital strategy is agreed upon and shared at the C-level (high ranking executives). Organisations and leaders that are aligned are more likely to maximise investments and can better identify areas of overlap and resource gaps that could derail efforts.
4
Business and digital strategy are communicated enterprise-wide. Strategy isn’t complete without engagement from everyone in the organisation. Currently, 69% of companies say that business and digital strategy are shared enterprise-wide; last year that figure was 55% and in 2013 it was 50%.
5
Active engagement with external sources to gather new ideas for applying emerging technologies. Top-performing companies find digital inspiration everywhere, especially outside their organisation. Innovative companies are much more likely to evaluate many emerging technologies, characterising
their approach to adoption as one that’s purely technology driven (69%), in contrast to the rest of companies (54%). They also look to a wide variety of sources, actively engaging with industry analysts (63%), customers (46%) and vendor ecosystems (44%) the most.
6
Digital enterprise investments are made primarily for competitive advantage. An indicator of evolving roles, 68% of digital spending comes from budgets outside the IT budget, a significant increase from 47% in the previous year. Also, the executive responsible for digital investment continues to shift, with the CIO (27%) and the CDO (14%) sharing that job with the CEO (34%) and CFO (13%). NQ Magazine December 2015
MAKING IT WORK
7
Effective utilisation of all data captured to drive business value. Getting value out of data often means using it to guide strategic decisions, like how to grow the business or whether to collaborate with competitors. This remains a challenge for executives, citing specifically behavioral and skills barriers, such as understanding which data to use and how it benefits their role, nearly as much as issues with data quality or accuracy.
8
Proactive evaluation and planning for security and privacy risks in digital enterprise projects. As companies add new technologies, customers, partners, devices and data, there are NQ Magazine December 2015
ever more interdependencies and risks to address. That’s the baseline today. What’s different when it comes to Digital IQ is the level of proactivity required. Businesses need to consistently think about how their cyber security strategies can help build brand, competitive advantage, and shareholder value.
9
A single, multi-year digital enterprise roadmap that includes business capabilities and processes as well as digital and IT components. Progress has ebbed and flowed as digital has become more pervasive in the enterprise while at the same time also more fragmented. Today, 53% of companies have a comprehensive
roadmap that includes business capabilities and processes, as well as digital and IT components. Four years ago 63% of companies did.
10
Consistent measurement of outcomes from digital technology investments. Consistency in measurement is also crucial. Businesses want to see the value they’re achieving from digital investments. Top performing companies lead lower performing ones here (79% – 72%). Demonstrating this requires a combination of traditional metrics (like ROI) to track against growth goals, as well as newer ones for measuring more disruptive NQ investments. 19
BOOK REVIEWS
Book reviews NQ December 2015
The Joy of Tax: How a fair tax system can create a better society Richard Murphy (Bantam Press, £16.99) So what is tax? Very early on in this great book Richard Murphy provides his own description, because he thinks the current ones won’t do: “In a democracy with a universal franchise that provides every adult with a right to seek election, tax is that property held in trust by an individual or company that is due to the state whose rightful and legal property it is.” He also tackles the question of who should be shaping tax policy. He points out that to ask burglars to both define the law of theft and at the same time to shape public opinion on the issue because they are self-proclaimed experts on the subject would be by common consent to be considered unwise! We should then take the same view of the supposed 20
tax specialists who expertise is largely based on their prowess in denying the state access to its rightful property, he says. Murphy – many of whose ideas have been ‘adopted’ by Labour leader Jeremy Corbyn – believes tax must be taught in schools, colleges and universities. He is, quite frankly, amazed it is not already happening. We really do all need to talk about it openly, and the fact we do not teach it is for him a national scandal. When he searched (in June 2014) for a course in accountancy he found 573 courses at 122 universities. When he asked for a tax course there was ‘no match’. The author certainly has some interesting tax ideas. Even he seems to understand that a tax on the receipt of gifts would not be well received by many – but he still wants to do it, it seems. Interestingly, Murphy wouldn’t merge income tax and national insurance. He describes National Insurance as a dishonest tax no longer fit for purpose, but combing would mean the resulting tax rates would just be too high. His alternative is a tax on the sums paid into and out of people’s and companies’ bank accounts – a progressive tax on bank transactions! Basically, he wants to tax wealth and believes if this happened then inheritance tax could be abolished. The wealth tax charge would be progressive and start at 1% per annum on portfolios worth more than £1m. This would not be charged on main residences, family farms and private business that would be subject to capital gains tax. Nor would Murphy tax pension wealth. This new wealth tax would be on let-property portfolios, financial investments, personal property and other assets. He also believes we need a proper land value tax; he wants to see all housing subject to capital gains tax, and stamp duty abolished. Interest relief on mortgage borrowing for landlords also has to go – it divides the market and has fuelled house prices by subsidising the cost of buy-to-let arrangements and has driven a massive increase in housing benefits costs as a result. He would, however, buy properties from distressed landlords. That is by no means everything; you really do need to take a look at the book. It’s only 250 pages long, but Murphy manages to challenge almost every idea we have about tax in his hugely readable tome.
NQ rating We commend the Joy of Tax to the House! NQ Magazine December 2015
BOOK REVIEWS Rise of the Robots: Technology and the Threat of a Jobless Future Martin Ford (Basic Book, £18.99) The robots are coming, and Martin Ford explains in his latest book that artificial intelligence will transform every sector of the economy – nowhere and no one is safe. Ford claims we are at a major crossroads, and are about to witness a fundamental shift from tasks being performed by humans to a world where the machines rule the workplace. We could be talking economic ‘armageddon’ for many. Remember, software is now driving cars and even marking essays and exams – so what else could they do? The winners in this AI new world will be ‘no one’, says Ford, with the losers the human race! The rise of the robot economy could bring a world of plenty, leisure, health care and education for all. Or will it create a world of
inequality, mass unemployment and a war between rich and poor? So what is Ford’s answer? Well, it is a so-called ‘citizen dividend’, where everyone is provided with a minimum basic income (this has not gone down too well with many economists). Most of the experts believe (or is that hope) that there is a natural cycle of creative destruction. We got through the shift from agricultural societies to the industrial age; and manufacturing decline was replaced by the rise of the service sector. But it may be a step too far once the robots are in charge.
NQ rating So you think no machine could do your job? Then read on…
Why You? 101 Interview Questions You’ll Never Fear Again James Reed (Penguin £9.99) Author James Reed knows a thing or two about how interviews work – he is after all chairman of recruitment giant Reed, which gets 46 million job applications a year. His introductory chapters deal with general points around the interview and are thought-provoking, but the real meat of this book is the subsequent chapters dealing with the ‘killer’ interview questions we all know and dread. Reed takes a clever approach to these questions; he first lists the actual question, then underneath explains what the ‘real’ question is – namely, what the interviewer is driving at. He then recommends a ‘Top-line Tactic’, suggesting how you tackle the question without falling into a trap or digging a hole for yourself. So for example: Question 48 – Have you ever stolen a pen from work? Reed says the ‘Real Question’ here is ‘will you pretend you’ve never put a foot wrong, or will you do the right thing?’. His suggested Top-line Tactic is that you understand that the firm is more worried about your integrity than their inventory. The author suggests you deal with this type of – very common – question in NQ Magazine December 2015
a perfunctory manner, explaining that you’ve may have accidentally taken pens home from work, but have always tried to remember to return them. This way you’re admitting to an honest mistake without painting yourself as a saint. The 100 other questions from the title are dealt with in similar fashion. So if you want to know how best to deal with the question, “Every CV has at least one lie on it. What’s yours?”, then you really need to buy this tome. Reed explains the four main points readers should take from the book. They are: the best person you can be at interview is yourself; the way you talk about yourself and your potential is more important than a good CV or expensive education; every interview question asked is a variation on a handful of underlying questions; and to an employer, a job is a problem to be solved – all other concerns are secondary, including yours.
NQ rating Read this book now, its insights will stand you in good stead. 21
PENSIONS LEGISLATION
All you need to know about pension automatic enrolment Workplace pensions are changing, and it pays to be aware of what’s happening as it may affect you, says Laurence Vogel
T
he introduction of automatic enrolment for workplace pensions is intended to ensure that many more employees begin to make proper provision for having a work-based pension. Automatic enrolment into workplace pensions has been rolling out across the UK since 2012. However, the first batch of small and micro employers with 30 or less employees only began to enrol in the scheme on 1 June 2015. There is estimated to be 1.8 million small and micro employers in the UK. It is expected that all employers will be part of the scheme by February 2018. A new campaign has been launched jointly by the Department for Work and Pensions and The Pensions Regulator. It features a large bear called Workie, a striking physical embodiment of the workplace pension. The bear will be seen visiting people in all sorts of work environments over the coming months, asking them not to ignore him and auto enrolment. The campaign includes TV, radio, print, online and outdoor advertising and will run for the rest of this year and into 2016. The humorous ads come with a serious message of the importance for both employers and employees of a workplace pension.
Preparing for automatic enrolment While staff may be automatically enrolled, there is significant work for employers who need to prepare for the changes. For many employers, particularly small and micro employers, the introduction of automatic enrolment is a new and unfamiliar process. There are also many issues to communicate to 22
employees who need to be informed about workplace pensions. There are specific requirements for employers to notify employees about what automatic enrolment means for them. By the time that automatic enrolment has been phased in all employers will need to have a workplace pension (even if there is only one employee). The new rules only apply for the provision of pensions to employees, not the self-employed. The methodology for phasing in the scheme is known as ‘staging’.
Staging dates Staging dates are based on the size of an employer’s PAYE scheme as at 1 April 2012 not the number of employees on the date that the automatic enrolment is due to start. The greater the number of people in the PAYE scheme (on that date) the earlier the staging date. Most small and micro employers with less than 50 employees will commence the process between 1 June 2015 and 1 April 2017. New employers will get their own, later, staging dates but should all be signed up to use automatic enrolment by February 2018. It is also possible, under certain circumstances, to bring forward or move back an employer’s allocated staging date. The implementation of automatic enrolment is being staggered, in part, to ensure that the process is well managed and to take into account the time needed for businesses to adjust. NQ Magazine December 2015
PENSIONS LEGISLATION
‘Workie’ is the star of a high-profile advertising campaign on auto-enrolment
Contributions for automatic enrolment
Accessing pension funds
Both the employer and employee need to make contributions to a pension scheme. There is a minimum employer contribution that will eventually reach 3%. Employers can make higher contributions if they so decide. Employees must also make contributions which are part funded by tax relief. By 1 October 2018, contributions in total will be a minimum 8%: 3% from the employer, 4% from the employee and an additional 1% in tax relief. For the current (2015/16) tax year this is set between £5,824 and £42,385 a year. This means that the first £5,824 of an employee’s earnings isn’t included in the automatic enrolment calculation. For example, if a worker earns £20,000 their qualifying earnings would be £14,176. The maximum amount contributions can be based on is £36,561 (£42,385 minus £5,824) for the 2015/16 tax year. This issue has received much press commentary as employees won’t actually see the 8% contribution based on their full salary.
Employees will usually be unable to access their pension’s savings until they are 55. There are special rules for individuals that are seriously ill. Employees will also be able to have some choice over how risk sensitive they want their investments to be. There are also Sharia-compliant and ethical funds available.
Opting out of a pension scheme Employers are not allowed to try and encourage employees to opt out of a pension scheme. This is known as ‘inducement’. However, an employee is allowed to opt out of a pension scheme if they so wish. They will obviously lose out on valuable contributions from their employer and the government. There are certain rules that must be met in order to opt out of a pension scheme. In addition, employees will usually be re-enrolled again every three years or after starting a new job. If this happens and an employee still wishes to opt out, they will need to complete the opt-out process again.
Enrolling employees The law states that employers (after their staging date) must automatically enrol workers into a workplace pension if they are: ● Aged between 22 and State Pension Age ● Earns more than minimum earning threshold (£10,000 – 2015/16) per year ● Work in the UK ● Not already a member of a qualifying work pension scheme.
Setting up a qualifying scheme? Employers who do not have a pension scheme or want to change from an existing scheme will need to find a pension provider that offers an automatic enrolment scheme. Proper due diligence should be used to ensure that any scheme providers identified are well run and meet all the necessary legal requirements. NQ Magazine December 2015
Penalties There are many complex rules that employers must follow in implementing and running a pension scheme. If an employer fails to comply with their duties, the regulator may take enforcement action and issue an enforcement notice and/or a penalty. A recent survey found that almost one in three firms had completed their application at the last minute or missed the deadline. Employers failing to comply with their autoenrolment duties and missing their staging date can trigger statutory notices, fixed penalties and even court action. We would urge all employers to check their staging date and ensure they are properly prepared. NQ ● Laurence Vogel is Head of UK Operations at
Informanagement
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