NQ magazine, December 2018

NQ magazine December 2018

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THE VOICE OF ALL NQs Contact us

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LEADERSHIP What skills will CFOs need to deal prosper in the digital age?

ALL THE NEWS YOU NEED

P22

and a whole lot more Pages 4 and 7

ARTIFICIAL INTELLIGENCE AN ETHICAL DILEMMA: How to keep your principles intact Page 20

WORKING OVERSEAS

How Adam Walker made the move from Stoke to Sydney Page 12

ROBOTIC PROCESS AUTOMATION IS COMING WOMEN YOUR WAY – BUT BEWARE, ACCOUNTANTS Women are still not THEY DON’T ALL LOOK getting equal shares, LIKE US says survey P8

FINANCING THE TERRORISTS How to spot the tell-tale signs of money laundering

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COMMENT

NQ magazine EDITOR’S COMMENTS

It’s awards time!

Welcome to the latest NQ magazine. Sorry they haven’t been as frequent as they should have been. We will make sure that doesn’t happen again. Expect your next fabulous issue at the end of February – 2019!

But before that we need you to help us help you.

Why not enter a colleague – or even yourself – for the PQ magazine awards? You could be our next NQ of the Michael Scott, winner Year, and even a shortlisting gets you an invite to the top accountancy awards around. That’s exactly what our of our NQ of the Year current NQ of the Year Michael Scott did – and what a award in 2018 night it turned out for him! The ICAS-qualified NQ has also just moved to a new job as DPS Group’s group financial controller.

The awards are a unique opportunity to thank the people who helped you along the way, too. Perhaps there’s a training manager you want to nominate, or how about nominating the whole team for Accountancy Team of the Year?

Deadline for entries has just been extended to Friday 11 January 2019, but don’t delay, get that enter in before Christmas. You can download the nomination form at www.pqmagazine.com by clicking on the ‘pq awards’ bar on the home page. All we need is 250 words on why you/your nominee should win a coveted award. It really is as simple as that.

What’s inside We have a great issue for you again. We cover everything from working down under to working with robots. There’s a article on how to break the glass ceiling, and we look at the increasingly thorny issue of intangible assets. What’s not to like!

Graham Hambly, Editor (graham@pqaccountant.com)

NUMBER CRUNCHING

£30,000

Amount female FDs earn less than their male counterparts p.a. P4

10%

Rise in the fees FTSE 100 companies paid for their audit in 2017 P7 in 11,000 Distance miles Adam Walker travelled from Stoke-onTrent to Sydney to start a new life in accountancy P12

US$57.3 trillion Value of global intangible assets, the highest figure ever P14

Five

Top five issues that are keeping today’s FDs up at night P16

70%

Respondents to a survey who believe that women are not equally represented in the accountancy profession P22

NEWS

Emotional intelligence is key to success in this digital age To the casual observer emotions and accountancy seem uneasy bedfellows.

But to succeed in an era of increasing digitalization, professional accountants increasingly need a rounded set of skills that go beyond technical knowledge.

ACCA calls these skills ‘the professional quotients’ – a unique model that encapsulates technical excellence, ethics, and a range of personal skills and qualities, one of which is the emotional quotient.

In a new report entitled ‘Emotional quotient in a digital age’, ACCA says a growth mindset, self-knowledge, perspective-taking, empathy and influence all help to develop EQ. The findings show that EQ can be ‘learned’ – it is not a magic trick, and like most other skills, it can be developed and improved over time.

A unique diagnostic tool has also been launched alongside the report for individuals to self-assess their level of EQ against a credible global benchmark specific to the accountancy profession.

The tool provides practical guidance on how to improve effectiveness in this competency.

Check out the report and take the test https://tinyurl.com/y9rq4sr2

An end to nonaudit add-ons?

Two of the Big 4 look set to agree to put a self-imposed ban on themselves selling extra services to their audit client.

KPMG and Deloitte have backed the idea of stopping non-audit work for FTSE 350 clients if they are already auditing them.

A KPMG memo from chairman Bill Michael told partners this would “remove even the perception of a possible conflict” of interest.

If KPMG phases out all but essential non-audit services for the 90 firms it audits this will put pressure on the other firms to follow suit.

Sources close to Deloitte say it has had similar discussions at senior levels.

The moves are in direct response to the Competitive and Markets Authority review.

4

Female FDs earn £30,000 less a year

Male FDs are earning on average almost £30,000 a year more than their female counterparts, according to the latest analysis from the Global Accounting Network.

Among financial managers and directors, women make up 42% of the roles and earn an average of £42,674, compared with the £71,986 salary of their male contemporaries. This difference equates to £29,312, a gap of 31.6%.

The gender pay gap for accountants more generally is much lower. Data from the Office for National Statistics shows that where the workforce is split equally in terms of gender the pay gap is 5.1%. At chartered and qualified accountant level men are earning £37,250, compared with the £33,010 that women brought home.

Global Accounting Network’s Adrian O’Conner said that the problem is too many employers ask “how much do you currently earn?” as a standard interview question. That means women, who already earn less, will continue to be underpaid as they move up the career ladder. He said employers need to offer a rate for the job, which would allow women to align their salaries with their ability to do the work.

Haddrill to step down in 2019 Stephen Haddrill is to step down from his role as CEO of the Financial Reporting Council (FRC) in late 2019, putting an end to speculation surrounding his future.

The exact date of his departure will depend on a number of factors, including the outcome of Sir John Kingman’s review of the FRC, the search for a successor, and any agreed transition period associated with that appointment.

Haddrill (pictured above) said: “I am incredibly proud to have led the FRC for nearly nine years. However, I believe that it should be the job of a new CEO to lead the FRC when the way ahead is decided. In the meantime, I remain fully committed to taking forward the FRC’s important programmes on audit reform, investor stewardship, corporate reporting and preparing the FRC for EU exit.”

Lonley fight against the anonymous critics Grant Thornton’s CEO, Sacha Romanovitch, has decided to step down at the end of her first term in office. She recently hit the headlines after a group of colleagues leaked a dossier to media organisations criticising the way she had run the firm for the past four years. Among the package, purporting to be from 15 unhappy partners, was her performance review, along with an anonymous document criticising her leadership style. She is apparently accused of “forcing people to conform to socialist ideals” and removing partners from key roles “for asking challenging questions”.

Grant Thornton brought in private investigators to find the source of the leak.

Romanovitch admitted being CEO of the firm could be a “lonely job” at times, and she has had to make decisions that some partners may find painful in the short term in order to create a sustainable business for the future. l Grant Thornton’s new CEO will be Dave Dunckley.

NQ Magazine December 2018

NQ NQ/Year 18_Layout 1 22/11/2018 15:55 Page 1

Could you be our next NQ of the Year?

There’s still time to enter the PQmagazine* Awards 2019 - but you must hurry!

The deadline for entry is Friday 11 January.

All we need is 250 words on why you – or your nominee – should win one of our coveted awards.

You can download the nomination form from www.pqmagazine.com by clicking on the ‘pq awards’ bar on the home page.

Or just email us your entry direct, to awards@pqmagazine.com. Please make it clear which category you are entering You can also post your entry to: The Editor, PQ magazine, Unit 3a, Kingfisher Heights, 2 Bramwell Way, Royal Docks, London E16 2GQ Michael Scott, current NQ of the Year

*PQ is the sister paper to NQ magazine

H M R C

E nq uiries n es igations owers

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S L E T T E R

(6 issues p er y ear )

The go to publication if your clients have an investigation or enquiry mrc a in es igation co u ree or

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issues

NEWS

Name checks to begin on bank payments In an attempt to combat fraud, from next summer the name of someone receiving a payment will now be as important as their bank details.

Currently, no check is made on the recipient’s name when it is entered with a sort code and account number. However, from mid-2019 the sender will be alerted if the name does not match the account.

Banks have been criticised for being slow to introduce this system, but they have now decided to act.

So, here’s how it will work: • If you use the correct account name you will receive confirmation that the details match and can proceed with the payment.

• If you use a similar name you will be provided with the actual name of the account holder to check. You will then be allowed to update the details and try again.

• If you enter the wrong name for the account holder you will be told the details do not match and advised to contact the person or organisation you are trying to pay.

Top 10 issues on the FD agenda What are the issues keeping FDs awake at night? Here are their top 10 (2017 rankings in brackets): 1. Controlling costs (2) 2. Growing revenues (1) 3. Recruitment & retention (4) 4. Cyber security (3) 5. Fraud prevention (5) 6. Corporate governance (8) 7. Other IT issues (6) 8. E-commerce and the internet (10) 9. Bringing new products and services to the market (7) 10. Regulatory issues (UK) (13)

Controlling costs is now the biggest worry for finance chiefs, according to a new survey of FDs and CFOs from ICAS. ICAS CEO, Bruce Cartwright (pictured), said: “Historically controlling costs, growing revenues and recruitment & retention have consistently been FDs’ top priorities.

“But with the increasing reliance we all place on information technology, and the ever-increasing array of threats from ‘distributed denial of service’ attacks to targeted phishing by fraudsters, it’s perhaps no surprise that cyber security features in the top four headaches for the FD.”

Where’s the diversity policy?

The vast majority of FTSE 350 companies treat diversity as a compliance ‘tickbox’ exercise, which shows a real lack of commitment, says a new report from the Financial Reporting Council (FRC) and University of Exeter Business School.

The revised UK Corporate Governance Code, which takes effect on 1 January 2019, requires improved reporting on diversity. It says boards must include a description from their nomination committee in their annual report of how they have applied the company’s diversity policy, including how it links to progress on achieving the company’s objectives.

The Code also has a renewed emphasis on succession planning and diversity reporting, encouraging boards to think beyond gender diversity and to develop broader diversity policies.

The FRC’s Tracy Vegro said some of the findings from the report are obviously disappointing, and the FTSE 350 companies should provide fuller disclosure on all diversity. She stressed: “We are writing to companies to challenge them to take a more strategic approach to diversity and inclusion, and to consider their approach to reporting on it.”

NQ Magazine December 2018

BDO partners earn more than KPMG counterparts Partner ‘pay envy’ may have moved to medium-sized accountancy firms, following the announcement of the new average salary levels at BDO. This means the average pay per partner for BDO’s 196 partners now stands at £531,000.

It is being reported that this is the first time that partners at a mid-tier firm have out-earned one of the Big 4 firms.

Just so you know, the biggest earners work for Deloitte, where average partners’ pay was £832,000 last year.

The PwC average is £712,000 and at EY partners received £677,000.

BDO is number six in the accountancy firm league table. It achieved revenues of £464m, a rise of 9% year-on-year.

Consultancy conflict cuts fees Bosses at the UK’s biggest companies have drastically cut the amount of consulting and tax advice they take from their auditors because of concerns over corporate governance, claims research from Source Global.

In the past year fees that UK accountancy firms made from non-audit services dropped by 11%, and now accounts for 19% of total fees.

Meanwhile, the fees FTSE 100 companies paid for their audit rose by 10% to £723m.

This news comes as a possible ban in lucrative consulting jobs for audit firms was being estimated to mean a loss of £1bn for the Big 4 firms. It would appear the big companies are already enforcing their own ‘mini ban’ already.

Source Global’s Edward Haigh said that audit firms and their clients were nervous about regulatory and political scrutiny. He said: “There are genuine concerns that regulators will step in.”

7

ROBOTIC PROCESS AUTOMATION

Understanding the

importance of robotics Business leaders are becoming alive to the opportunities a digital transformation can deliver for their businesses, says Clive Webb

T

he mention of Robotic Process Automation (RPA) often evokes images of great sophisticated robotlike machines, assembling computers or cars, but the reality couldn’t be further from the truth. In fact, RPA is a software easily programed by end users to perform high-volume, repeatable, rules-based tasks and is currently garnering significant market attention as a good automation choice for finance functions.

A new report authored jointly by ACCA, CA ANZ (Chartered Accountants Australia and New Zealand) and KPMG, called ‘Embracing robotic automation during the evolution of finance’, explores the significant opportunities automation presents for the finance function. The benefits of adopting RPA practices in finance go beyond just the cutting costs factor, it also brings improved control, faster processing speed, better data quality and making finance teams much happier, freeing up valuable resources from mundane tasks.

Despite the palpable advantages, fear of technological change is nothing new and while RPA can lead to role 8

displacements, this is more than counter-balanced by the creation of new positions and the removal of boring tasks away from employees.

This creates new learning opportunities and helps create the appropriate cultural transformation needed in the finance team to successfully adopt the technology.

CURRENT STATE OF PLAY There is still a way to go with further adoption of RPA technology in finance.

The report’s findings revealed less than half of individuals surveyed have adopted RPA, while 50% of respondents say their companies have not even trialled or fully implemented robotics. What was surprising was that 45% of those asked said they still need to understand exactly what robotics is before implementing it.

So for all the recent talk of robots in finance you could be forgiven for thinking automation in finance is a very recent thing, the dazzling new technology kid on the block.

But that really isn’t true. In fact, business and finance teams have been automating for quite a long time.

Particularly since the early 1990s we have had an explosion in corporate systems, increasing

technology complexity, ongoing system upgrades, the rise of so-called swivel chair processing and so on. We have had growing process complexity and still we spend a lot of time manually reworking those processes.

When we think about automation around many finance processes, typically, there is a choice to be had between traditional automation through application programming interfaces (APIs), or the emerging technology of robotics.

RPA doesn’t typically involve complex programming – rather than having to use an application specialist to develop complex automation code to make the software work and automate the process, a key benefits of the software in its simplest

form is that it can be configured by the end user (the person in the finance team).

In its simplest form, RPA technology uses desktop recording practices to record the exact keystrokes and clicks the employee would for a given process. The recording process creates a script which the robot follows to repeat the tasks over and over again. So using RPA, the finance professional essentially ‘configures’ the software to perform the activity exactly, hence the term ‘robot’.

This is also why RPA is sometimes called a ‘virtual worker’, it is replicating the exact actions the human would perform.

It also operates at the same system access levels that the employee would be using similar login IDs. That means there’s no need to change, replace or compromise the underlying enterprise systems. That’s very different to traditional automation through API. So as a basic rule of thumb where we are looking at processes which are less complex and where we need a quicker fix to the solution robotics would be the automation fix of NQ choice.

l Clive Webb is ACCA’s head of business management NQ Magazine December 2018

ROBOTIC PROCESS AUTOMATION

Getting it right What lessons can we learn from the RPA pioneers?

Here are 10 points to consider 1. INVEST IN CHANGE MANAGEMENT CAPABILITY The introduction of robotics technology into the finance function requires strong change management skills to ensure effective programme delivery and to manage employee engagement.

The benefits of RPA must be continually communicated throughout the adoption process.

2. ENGAGE EMPLOYEES THROUGH THE JOURNEY It is vital to have employees engaged in the process, so they can understand the advantages RPA is expected to bring. This ensures minimal resistance as the organisation goes through the change process.

3. BUILD RPA CAPABILITIES WIDELY IN THE FINANCE TEAM Ensuring the finance team understand the technology guarantees less reliance on the external parties or a small number of experts within the organisation. This minimises risk, places responsibility in the hands of those that truly understand the business process and is a strong platform for wider adoption and scale up.

4. START SMALL The opportunity to try, test and learn with robotic software in relatively NQ Magazine December 2018

safe environments, where risks are minimised on smaller processes is important and a key beneficial feature of the technology.

5. GET IT INVOLVED EARLY Involvement of the IT function from the outset helps secure buy-in for RPA adoption and provides vital support, particularly in terms of security, programme management and robot coding capabilities, as well as providing on-going maintenance and ensuring greater performance reliability and analytical insight.

6. GET THE GOVERNANCE MODEL RIGHT A strong, centralised RPA governance structure ensures the appropriate supplier and licensing arrangements are efficient, the ‘bots’ are appropriately maintained, controlled, and performance managed, utilisation is maximised through appropriate work scheduling and where processes change.

7. CHOOSE PROCESSES CAREFULLY It is important to have a very clear understanding of the process and any inherent complexities or characteristics that exist before applying the software.

Organisations often initially go wrong by being too ambitious with their RPA

adoption plans on processes which are too large.

8. LOOK TO OPTIMISE PROCESS FIRST The robots are not designed to fix bad processes and will work better with preconfigured processes where much of the thinking has been done up front.

The software is also likely to require some process change to be applied effectively and sustainably. Process optimisation is likely to be a better solution than configuring a robot on a process which is too elaborate.

9. KNOW WHERE TO STOP WITH RPA RPA is rarely the solution to automating 100% of an end to end process, and businesses are often faced with diminishing returns where they try to do so – for many processes trying to automate the final part may involve too many “path” options or problematic exceptions.

10. RECOGNISE WHEN RPA IS NOT THE RIGHT SOLUTION RPA is not the remedy to all automation challenges. Sometimes replacing legacy systems or building an API interface using more traditional IT automation protocols may be the better solution longer term than applying a ‘bot’.

NQ 9

MONEY LAUNDERING CASE STUDY

Terrorist financing: how to spot the signs You need to be especially on your guide to spot the signs that money is being laundered for the purposes of terrorism

M

r X, a customer of LoganBank, receives large cash deposits into his account. He says they are his wages from an employer in Iran.

Some of the money is used by Mr X to rent property in his country of residence. These transactions arouse sufficient concern for a LoganBank official to submit a suspicious activity report (SAR).

Mr X also owns a Syrian company and this also receives substantial transfers from Iran. Further enquiries reveal that the manager of this company has already been convicted of terrorism

10

and that the company itself is caught up in an on-going anti-terrorism investigation. The cash deposits in Mr X’s personal account do indeed prove to be linked to the financing of terror.

exercising due diligence a professional can avoid unwittingly enabling crime and instead help in the investigation and apprehension of the criminal.

Where are the red flags?

Why can terrorist financing be considerably more difficult to spot than money laundering?

The main difficulty is that the money itself might be ‘clean’ right up to the moment it is used to finance a terrorist attack. There may be no typical trail of dirty or suspicious money to follow.

This case is a good example of how by

Again, we see the importance of adequate risk assessment as the first step in undertaking client due diligence. It is unlikely that simply obtaining documentary evidence of Mr X’s identity would have brought the fundamental issue to light. A better, more secure approach would have been to make enquiries about the individual’s NQ Magazine December 2018

MONEY LAUNDERING CASE STUDY

business and the source of his income, both of which actions are an integral part of all good AML risk assessment.

The Financial Action Task Force (FATF) publishes this helpful list of the main red flags associated with terrorist financing.

• Unusual business activity.

• Inability to identify funding sources.

• Wire transfers made soon after cash deposits.

• International transfers of money from and/or to locations of specific concern (it helps to keep an eye on the list of high-risk jurisdictions maintained by HM Treasury and the Office of Financial NQ Magazine December 2018

Sanctions Implementation).

• Commercial or account behaviour that is atypical.

• Transactions with links to charities or relief organisations.

• Big cash transactions, particularly in areas with frequent terrorist and criminal activity.

• Media coverage of the account holder’s activities.

• Large sums transferred between the accounts of people or newly-established companies with no apparent business relationship.

• Frequent cash deposits or withdrawals from charity accounts involving people

with no apparent relationship.

• Unexplained transfers into the accounts of individuals and companies from foreign jurisdictions with a reputation for terrorist activity.

• Either the identity of an account holder or the destination of the transfer is supported by little, incomplete or unverifiable information.

• Frequent international transfers into and out of the accounts of companies created by the nationals of terror-prone NQ countries.

l Thanks to the CCAB for this article 11

WORKING OVERSEAS

Why not go Walkabout?

Adam Walker swapped the Potteries for life nearly 11,000 miles away in Sydney.

Here he shares some of his experiences

A

s myself and my colleagues embarked on the threeand-half-hour drive from Quilpie to Cunnamulla, on a dirt road with only wild kangaroos to keep us company, I had to stop and ask myself: “How did I end up here?”

Ten months prior to this I was living in Stoke-on-Trent and had successfully completed the last of my ACCA exams. Becoming a member, as any NQ will tell you, is the culmination of years of toil and sacrifice that sets you off on your chosen career path. I’d always wanted to travel, and decided to put ACCA’s global reach to 12

full use by moving to Sydney. I landed without a job or anywhere to stay beyond the first two weeks, which can be extremely daunting, but as soon as you stand above Bondi Beach with the sun on you, the worries fade away pretty quickly.

Sydney is a beautiful city, rich in culture and surrounded by some of the best sand and surf anywhere in the world. The locals are accommodating and friendly, with an attitude of ‘mateship’ that is infectious, drawing you in from the moment you land.

I soon took up a Senior Auditor role with Prosperity Advisers. The

team there had numerous clients in a variety of sectors, but the main sector that I took on while working for them was local councils. This work took me all over outback Australia, to places that most Australians have never seen, let alone a bloke from the Potteries! From the town of Willcannia, with a reputation as Australia’s most dangerous place, a reputation that couldn’t be further from the truth (as I found out while winning the pub quiz at the Wilcannia golf course with a local indigenous man name Horse) to a two-week sojourn around outback Queensland, NQ Magazine December 2018

WORKING OVERSEAS

Sydney Harbour Bridge, with the Opera House visible in the background

The Australian Outback

taking in Qulipie, Cunnamulla and St George along the way.

It was an unbelievable experience to be able to get out to these communities, while being paid, and experience things that most Australians would have no clue about.

One thing that stood out when considering the move was a distinct lack of information on the process for a NQ to move to Australia, and which route is the best to take. I took the working holiday route at first; this visa allows you to move to Australia and work freely for whoever you want for one year. However, you NQ Magazine December 2018

can only work for one employer for six months at a time, and if you want to extend your visa you must complete ‘regional work’. For most people this means farming in the bush for around three months in order to satisfy the criteria for the second year. The visa costs A$440 (around £240) so is a relatively small outlay for the opportunities it provides.

If, like me, farm work doesn’t appeal, another option is to gain sponsorship from your employer. This is a process that I am currently going through with my current employer PKF. This means that you can stay in

the country for up to four years, as long as you are willing to stay with your employer. This is a process that will likely only appeal to people who enjoy their role and where they work.

The final and most difficult option is to apply for permanent residency.

As long as you choose an employment category that is on the desirable skills list, and you can get enough ‘points’ to satisfy the Australian government, you will be invited to permanently reside in Australia (with the option to apply for a passport after four years).

Points are awarded for the age bracket that you fall in, your fluency in English (you have to take a test to prove this, which I can confirm is a lot harder than it sounds!) and the level of your qualification.

ACCA members have to get a skills assessment from the Chartered Accountants of Australia and New Zealand (CAANZ) to satisfy that they are appropriately qualified to work in this field.

ACCA is truly a global qualification, if it can take me from Stoke to Cunnamulla, who’s to say where the next batch of NQ’s could end up if they take a step out of there comfort NQ zone?

l Adam Walker is an accountant working for PKF, based in Sydney

13

INTANGIBLE ASSETS

Global intangible value hits record high

Over 75% of the world’s intangible assets are kept off balance sheet as public companies break new value records

G

lobal intangible value has surpassed US$50 trillion for the first time in history, reaching US$57.3 trillion at the beginning of the current financial year, according to the latest Brand Finance Global Intangible Finance Tracker (GIFT). This constitutes 52% of the overall enterprise value of all publicly traded companies worldwide, which now amounts to an equally recordbreaking US$109.3 trillion, exceeding the US$100 trillion mark also for the first time.

Worryingly, however, 76% of the world’s intangible value – US$43.7 trillion – remains unaccounted for on balance sheets. At US$35.0 trillion last year, undisclosed intangible value has grown by a whopping 25% year on year – five times faster than the value of disclosed intangible assets (up 5%) – and outpacing by far the overall global enterprise value growth (up 18%).

The past year has also seen a decline in the granularity of intangible asset reporting as the gap between disclosed intangible assets – accounted for in detail on balance sheets – and goodwill has widened dramatically.

Goodwill is a premium paid over the fair value of assets in the event of a company being purchased and is sometimes used as a shortcut to avoid performing a more granular valuation of intangibles. Companies now list a stunning US$2.3 trillion more goodwill

14

NQ Magazine December 2018

INTANGIBLE ASSETS

than disclosed intangible assets, compared to US$1.8 trillion last year.

David Haigh, CEO of Brand Finance, said: “Insufficient reporting of intangible assets leads to a host of problems for analysts, investors, boards, and stakeholders. With little information on particular assets, analysts’ assessments are not as accurate, forcing investors to act with one eye closed. This, in turn, has negative effects on share price volatility, affecting the stability and sustainability of finance. Equally, the lack of granular information on the true value of assets leaves boards and shareholders prone to hostile takeovers or selling and licencing individual assets below competitive prices.”

Intangible assets (such as brands, relationships, know-how) make up a greater proportion of the total value of many businesses than tangible assets (such as plant, machinery, and real estate). However, current financial reporting rules allow intangible asset disclosure only during M&A activity, resulting in no knowledge of the worth and business importance of intangibles unless they are subject to an acquisition.

Haigh added: “A commitment to undertake an annual revaluation of all company assets, including tangible assets, acquired intangibles, and intangibles generated internally, would be a boon for boards, accountants, investors, and analysts. Newly-gained

GIFT™ 2018

Global Intangible Finance Tracker (GIFT™) 2018 — an annual review of the world’s intangible value October 2018

transparency and clarity would enable boards to make more effective use of their assets, accountants to have a more detailed picture of asset values, and investors and analysts to more accurately price shares.”

According to Brand Finance’s survey of financial analysts, conducted in 2016, most back this demand for an annual revaluation of all intangible assets (73%), including the full disclosure not only of acquired intangibles (79%) but of all internally generated ones too (68%).

The problem is best highlighted by

the stark disparity between the list of the world’s top 100 most intangible companies and an equivalent list ranked by disclosed – as opposed to total – intangible value. Amazon (with intangibles worth US$827 billion), taking over as the most intangible company in the world, as well as last year’s leader Apple (US$648 billion) do not even make the list of top 100 companies by disclosed intangible value. Their intangible value remains undisclosed at 98% and 99% respectively.

The Internet & Software sector, where Amazon is joined by other digital giants such as Alphabet and Alibaba, has a very high percentage of enterprise value attributable to intangibles overall (87%), placing it just behind the Cosmetics (90%) and Aerospace (90%) industries. It also has the second-highest absolute intangible value among all sectors of the economy, at US$6.8 trillion, behind only Banking’s US$8.5 trillion. Despite this exposure to intangible value, Internet & Software is among those sectors which account for a very low value of their intangibles, reporting just 9.1% in goodwill and disclosed NQ assets.

l To download Brand Finance’s GIFT 2018 report go to https:// tinyurl.com/ybjqo6do NQ Magazine December 2018

15

LEADERSHIP

What skills will CFOs need by 2020?

With businesses embracing big data, new tech and digital media, the role of CFO is evolving from financial expert to strategic partner, data analyst, talent curator and more. James Booth explains why this offers more potential than ever for CFOs to be the architects of change

TOP FIVE CFO PRIORITIES FOR THE NEXT 12 MONTHS In Q2 of 2018, CFOs listed the following as strong priorities for business in the following 12 months: 1. 49% say increasing cash flow is the top priority 2. 47% say reducing costs 3. 37% say introducing new products and services and expanding into new markets 4. 18% say expanding by acquisition is a priority 5. 14% say raising dividend or share buybacks 16

At Instant Offices we’ve identified five key skills CFOs are going to need to develop in the very near future. They are: ● The CFO must become a leader of innovation: New tech, including AI, will become a core part of the innovation strategy within businesses looking to remain competitive, and CFOs will be required to understand the opportunities presented by new tech to drive growth. By 2020, 48% of CFOs are set to be using AI to improve performance.

● CFOs must embrace big data: According to a report by the ACCA and IMA, the CFO and finance team is set to be at the heart of the data revolution.

In order to make sense of the large volumes of data the world will be generating by 2020, CFOs will need to be able to accurately interpret data to generate quality, actionable insights for CEOs and board-level decisions. ● The CFO must manage risk under scrutiny: As tech grows and presents more complex risks to business, expectations on the CFO will be high.

They’ll be required to implement and NQ Magazine December 2018

LEADERSHIP

manage cutting-edge risk management processes within the finance department and business as a whole. A proactive approach towards threats will be key. One report by NJAMHA showed four in 10 finance chiefs currently own or co-own cybersecurity responsibility within their organisations. ● CFOs must prepare talent for the future: Prepping talent for a finance role was once the domain of HR, but in order to prepare new employees for the future of finance, CFOs are going to be required to increase involvement to ensure new employees can multitask, show technical competence and handle business strategy. Around 42% of CFOs are also prioritising soft skills as a key element for future hires. ● The CFO must be a leader in a rapidly changing workplace: With the consumerisation of real estate becoming a global trend, more businesses are choosing an agile approach to office space to expand into new markets, reduce costs, increase networking opportunities and improve staff happiness. Tied into this, the modern CFO will need to develop leadership skills to not only manage talent but also implement development strategies that work across remote teams with geographic and language differences.

Multidiscipline strategist Today, the role of the CFO has evolved from financial expert to a multidiscipline strategist. In addition to traditional accounting and finance responsibilities, by 2020 research shows the top priority for CFOs will be keeping pace with technology and harnessing big data.

CEOs expect CFOs to have an impact on business direction and strategy more than ever before.

And while the question of who owns analytics is still an open question across sectors, according to a report

by Deloitte, finance is the area most often found to invest in analytics at 79%, and CFOs can use it to bridge the gap between strategic and NQ operational decision-making.

● James Booth is Chief Financial Officer at Instant Offices NQ Magazine December 2018

FIVE FACTORS KEEPING CFOS UP AT NIGHT

1

Brexit

Around 75% of CFOs worry Brexit could have a negative impact on business in the long-term, compared to just 9% who don’t, according to Deloitte. Along with Brexit risks, weak demand and the prospect of tighter monetary policies are ranked as the top worries for CFOs in 2018. Despite high levels of uncertainty across the board, research shows CFOs are still highly focused on growth plans, and the level of desire to expand business over the next year is at its highest since 2009.

2

5

Increased cyber security threats Studies from Verizon show that 59% of cybercriminals are motivated by financial gain and are likely to target finance and HR – areas which fall into the CFO realm – suggesting CFOs are going to be expected to take a proactive approach to cybersecurity.

Skills shortages

According to research, 44% of CFOs have reported recruitment difficulties and skills shortages in 2018. To add to the challenge, The Open University Business Barometer revealed a massive 91% of UK organisations say they have had difficulties hiring skilled employees in the last 12 months.

3

Rising stress levels

Some 78% of UK CFOs believe stress levels are set to rise in the next two years as workloads increase, business expectations grow, and companies face a lack of staff, according to Robert Half.

Research also shows CFOs expect their finance teams’ workloads to increase, while 52% are planning to hire interim staff as a shortterm solution.

4

Big data

Research firm IDC predicts that by 2025, we’ll see 163 trillion gigabytes of data output every year. And a recent study

by Accenture suggests that by 2020, 90% of a CFO’s time and efforts will be spent on working with data scientists to turn data into actionable insights that organisations can use for strategic decision-making.

17

CORPORATE REPORTING

Creating value with purpose Neil Stevenson explains why a focus on value creation for your organisation is the way to promote inclusion and long-term thinking

P

urpose has become popular in recent times. It is a word now to be found in many CEO letters in annual reports, and used as a shorthand for restating or redefining the social role of companies, at least in part as a response to a lack of public trust. Companies such as AXA, Eisai, Marks & Spencer, Schneider Electric, Unilever and Vodafone – to name but a few – are actively connecting their thinking and reporting to their purpose.

In many ways, this is actually a return to an older concept of companies explaining and acting on their broader societal purpose.

This idea is taking hold, not just in the way companies articulate how they create value and for whom, but also in the way employees are now encouraged to think and act. Successive changes to corporate governance codes around the world are putting a broader definition of value creation centre stage.

Take the examples of Japan, and a governance agenda designed to understand and communicate 18

better the true value of companies in capital markets; the Netherlands and the emphasis in their code on long termism; and in the UK the recent changes to the FRC’s Corporate Governance Code places a greater focus on the directors’ duty to report on how the board has considered the interests of stakeholders in discussions and decision-making. And the South African King code has put multicapitals thinking at its core.

The agenda is shifting to a broader understanding of value creation in which the emphasis is on the board taking a longer-term perspective and a holistic view of value created in the context of key stakeholders, to promote trust, resilience and a better world. I believe that professional accountants can play a prominent and leading role in this shift.

In this context, integrated reporting is vital to the international agenda.

Just as we have global standards for accounting, which provides consistency and common languages for reporting, it

is right that we should have a globally accepted framework for understanding value creation. It provides a context to allow organizations to consider ‘What value are we creating?’, ‘Who are we creating value for?’ and ‘How are we creating value for long-term success?’.

As the IIRC’s Chair Emeritus, Prof Mervyn King argued in an address earlier this year, we need to rethink the focus of business to meet the needs and challenges of the 21st century. And this view is supported by research conducted by the Association of International Certified Professional Accountants and Black Sun, in partnership with the IIRC, where 93% of respondents endorsed the need for a wider view of value creation.

We should therefore restate the currency of integrated reporting for today’s environment. Here are five areas where you can play a role in your organisations and through your own personal purpose to take forward this agenda: l Is the thinking in your organisation NQ Magazine December 2018

CORPORATE REPORTING

centred on value creation? Is it focused on strategy and long-term outcomes. A ‘company centric’ model means that boards are considering purpose, strategy and business model in the context of performance and future prospects. l Are you clear about who are your most important stakeholders? You can only adopt a successful strategy for long-term value creation if they genuinely identify their key stakeholders and ensure they are creating value for them, including understanding their needs and expectations. This is linked to reputation, social license to operate and responsibility through the supply chain. l Have you personally adopted multicapitals thinking – recognising the range of resources and relationships that your organisation uses, and embracing purpose beyond profit? This includes understanding the trade-offs and impacts across the capitals, and both the negative and positive outcomes. l The demand for high-quality NQ Magazine December 2018

information by investors, especially on ESG, is growing fast. You can help investors and your managers with their need for relevant information that is communicated in the context of strategy, performance and prospects.

You can also contribute to the overall controls environment to increase quality, reliability and comparability of data. l Investors and other stakeholders are increasingly interested in the way the company does business – its values, ethics and transparency, reputation management, and impact on the capitals. Does your reporting show how corporate governance is enhancing value creation over time, especially in relation to long-term outcomes?

Too often we read about governance structures and representation: investors and others are also interested in the way in which the board thinks about and oversees value creation.

Conclusion

is clear. Businesses have to meet high expectations around the value created for society and their ability to deliver value that is consistent with the needs of sustainable development. Integrated reporting is more relevant today than it was when it was first founded. We have always talked of a movement whose time has come. But now with developments in thinking about the purpose of the company and ideas and the context of value creation, integrated reporting offers an essential solution to the way in which employees are being urged to think and act. Professional accountants who embrace this thinking will have personally rewarding careers and, I believe, will enhance their potential as future business NQ leaders.

l Neil Stevenson, Managing Director, Global Implementation, the International Integrated Reporting Council

The direction of travel in the 21st century for the purpose of the company 19

ETHICAL DILEMMA

A matter of trust You are under pressure to doctor an audit for an NHS hospital trust. What should you take into consideration when deciding on your course of action?

OUTLINE OF THE CASE You are the external auditor of a hospital trust. The trust is hoping, and expecting, to receive enhanced status in the near future, which will afford it more autonomy and provide opportunities to pursue a number of exciting projects.

As the trust passed its financial year end some unforeseen liabilities came to light. The trust’s director of finance and chief executive had reported to the board of trustees and the regulator that the trust would break even for the year. The director of finance then made a number of accounting adjustments in order to ensure that the trust would meet its financial responsibilities, including the requirement to break even each and every year.

The adjustments required changing the accounting policy in respect of stock, which had previously been valued on a ‘first in, first out’ basis as specified

by International Financial Reporting Standards. In addition, certain salaries have been capitalised, and the trust has failed to account for its share of liabilities under a partnership agreement with a local authority, which has yet to prepare the memorandum account.

The adjustments come to your attention during your audit process, and you do not accept that they are correct. As they are material, if the trust does not amend its accounts you will have to qualify your audit opinion on the year end accounts. When you discuss the issues with the director of finance, he is emphatic that his view 20

represents a legitimate interpretation of accounting policy. He indicates that if you do not accept it he will ensure that the trust appoints different auditors next year. He also threatens to tell the local newspaper that your firm is determined to make the trust’s financial position look worse than it is.

KEY FUNDAMENTAL PRINCIPLES Integrity: Would you be acting with integrity if you were influenced by the finance director’s threats, and accepted his year end adjustments?

Objectivity: How can you maintain your professional objectivity in the face of the threats made by the finance director? If your firm’s local reputation and continued engagement by the trust affect your own position, how can you avoid self-interest influencing your ethical judgement?

Professional competence and due care: You must observe relevant auditing and accounting standards, policies and procedures, so that you demonstrate your professional competence.

Professional behaviour: You are required to perform your work in accordance with applicable law and regulations, including relevant auditing standards. How should you act so as not to discredit yourself, your firm or your profession?

CONSIDERATIONS Identify relevant facts: The director of finance has adjusted the year end

financial statements primarily in the interests of the trust and those working within it. You are being intimidated by the director of finance, who is asking you to compromise your objectivity. You must research the relevant accounting requirements to ensure that your technical knowledge is accurate and up-to-date.

Identify affected parties: Key affected parties are you, your firm, the director of finance, the chief executive, the trust and the general public. Others employed within the trust may also be affected.

Who should be involved in the resolution: Within the trust, you should involve the director of finance, the audit committee and, if necessary, the chief executive. However, you should also involve senior members of your firm, as NQ Magazine December 2018

ETHICAL DILEMMA

the firm will take responsibility for the audit report and its reputation is being threatened in terms of both competence and ethics.

POSSIBLE COURSE OF ACTION You should ensure that your technical knowledge is accurate and up to date by reviewing the relevant accounting standards, guidance and manuals issued by the government health department and discussing the technical issues with appropriate members of your firm and, if necessary, your professional body.

You will then be able to discuss the issues further with the director of finance and the chief executive, if appropriate, and refer them to the relevant NQ Magazine December 2018

accounting standards and the ethical requirements of your professional body.

If this fails to persuade the directors to make the changes to the financial statements that you consider necessary, you should formally report the implications of this to the trust’s audit committee, setting out the requirements of the accounting and auditing standards concerned, and the necessary amendments to the financial statements. You should explain the consequences for your report – a qualified audit opinion – if the trust fails to amend the financial statements.

You should make senior members of your firm aware of the accounting issues and the threats – to objectivity and to the firm’s reputation. They should be involved in the drafting of the report

to the audit committee, and then kept informed of developments.

You and your firm should consider whether the intimidation from the director of finance should be reported to the chief executive and the chair of the audit committee. You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgement is challenged in the future.

In particular, if you conclude that the financial statements continue to be materially misstated, your firm must issue a qualified audit opinion, and it is essential that you document fully the reasons for doing so.

l Thanks to the CCAB for this article 21

WOMEN IN ACCOUNTANCY

Breaking the glass ceiling Women are still not equal in accountancy, says Elaine Clark – and she has the survey results to prove it

A

n extract of the results from a survey undertaken by my WomenInAccountancy. com web site disappointingly reveals that 70% of respondents believe that women are not equally represented in the accountancy profession; a statistic that should be more associated with 1918 rather than 2018.

But that’s not all. Two-thirds of respondents felt that they had reached a glass ceiling in their job and that they had been paid less than their male counterparts. By far the worst finding was that over 70% said that they had encountered sexist or misogynistic behaviour in the accountancy profession.

I qualified back in 1988, so I’ve been around the profession for some time now. While equality has moved forward somewhat from when I started, ‘Partners Row’ is still a corridor of offices occupied by more males than females. You’ve only to look at the partner profile pages of the top accountancy firms to see that diversity and equality are words being uttered, but in the main unsubstantiated by the evidence. Though equality seems to feature highly in the new entry recruitment process something is going very wrong during the career progression path, as there still seems to 22

NQ Magazine December 2018

WOMEN IN ACCOUNTANCY Clark: ‘Partners Row is still a corridor of offices occupied by more males than females.’

be a lack of female partners in practice.

Working in industry does seem to be a better career option, but still evidence shows that females continue to be unrepresented on boards, reaching a glass ceiling in their roles.

Yes, some firms are beginning to promote flexible working or appointing a partner responsible for diversity and equality, but change is slow – too slow. Much more needs to be done, supported and driven by the professional accountancy bodies, to ensure that accountancy is shown to be one that not only encourages women into it but actively finds ways to retain this talent pool through their career as life changes occur.

I’ve spoken with many females who find that their career progression dramatically takes a nosedive once they start a family. Too little flexible working opportunities are available, probably because with men in charge there is a lack of understanding and empathy to support radical changes to the traditional working patterns.

This is a huge pity and leaves both the profession and industry missing out on very talented accountancy resource. That said, PwC do seem to NQ Magazine December 2018

be bucking the trend here with their recent announcement about their Flexible Talent Network. According to their website, this network “has been created to give people the opportunity to work for the firm without being tied into a full-time contract and standard working hours. People can choose a working pattern that works for them - whether that’s shorter hours or only working for a few months a year.”

This certainly seems to be a step in the right direction and I hope other firms follow suit.

‘Manels’ I started the WomenInAccountancy. com website on the back of calling out the biggest accountancy conference hosts, Accountex, about their lack of female speakers. Luckily, the Events Director of Accountex is a female – Zoe Lacey-Cooper. So Zoe and I have joined forces to ask for women speakers to step forward. We need to see an end to ‘manels’ (all-male panel of speakers).

If that needs to be achieved by targets then so be it, although meeting targets should never be an excuse not to offer quality speakers. It’s time to demand equality and if that means rattling the

cages of those on Partners Row then so be it. Women have a role to play at the top table and it’s not one of a server.

Sexual harassment While the survey seems to have mainly highlighted issues of inequality, on the face of it the majority of women respondents had not been sexually harassed at work. You have to hope that this is a true representation of reality and not a misleading response, hiding the true situation (as other professions have experienced).

But it’s not all bad news: over 80% would recommend the accountancy profession to others. Accountancy is a great profession, giving everyone, men and women alike, many career options and the flexibility to progress into different industries, sectors and roles. Being an accountant opens doors; it’s up to the accountant to walk through that door and seize the NQ opportunity.

l Elaine Clark is Managing Director of award-winning digital accountancy practice www.cheapaccounting.co.uk, and founder of www.WomenInAccountancy.com 23

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