NQ magazine, April 2016•

April 2016

P10

THE VOICE OF ALL NQs Contact us email: graham@pqaccountant.com twitter: @pqmagazine facebook: pqmagazine.com call: 020 7216 6444

SALARY CHECKER Are you being paid what you should be?

ALL THE NEWS YOU NEED

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and a whole lot more Pages 5 and 7

TOP CAT TAX SIMPLIFICATION WHY TWO TAXES SHOULD BE MERGED INTO ONE Page 14

ETHICAL DILEMMA What should you do when your boss wants you to write a biased report?

Page 12

WE SPOKE TO SHARON CYBER HARRIS, WHO WAS SECURITY RECENTLY NAMED PQ Self-interest rather MAGAZINE’S NQ OF THE than regulation is the YEAR way forward, says P18 report

YOUR CAREER What are the pros and cons of using a recruitment consultant to find your next role?

P8

working better together Finance Manager

Financial Analyst

Middlesex

Surrey

£60,000 – £65,000 + benefits

£55,000 + benefits

• Responsibility for leadership of the management accounting function of 3 • Preparation and review of monthly management accounts pack • Driving forward business partnering across the business; improving stakeholder relationships • Improvement of systems and processes to ensure smooth delivery of reporting timetable • Qualified CIMA, ACCA or equivalent • Strong understanding of IFRS and UKGAAP • Proven people management skills with previous line management experience

• Preparation of consolidated financial report and regional results • Identifying and justifying variances and anomalies to forecast • Offering technical advice to regional finance teams with emphasis on P&L and balance sheet • Assist in the integration of acquisitions into the financial reporting system • Qualified ACA/ACCA or equivalent • Sound understanding of IFRS and group accounting • Highly proficient on MS office, HFM an advantage • Excellent analytical and communication skills

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

www.walkerdendle.co.uk

COMMENT NUMBER CRUNCHING

5%

EDITOR’S COMMENTS

Leasing is the big story We are again shining the light on leases this month. We know, that is two issues in a row now, but we honestly believe this is big news! The new standard, IFRS 16 Leases, replaces accounting standards introduced more than 30 years ago and considered no longer fit for purpose.

What is being proposed is a major revision to the way companies account for leases. And there are a lot of leases out there. It has been estimated that listed companies alone have US$3.3trn of them, of which 85% do not appear on the balance sheet. How can investors and others get a truly accurate picture of a company’s lease assets and liabilities? In industries such as aviation, shipping and retail leases are a key component in how they operate.

IASB chair Hans Hoogervorst says that when IFRS 16 becomes effective in 2019 it will result in a substantial change to many companies’ balance sheets. All leases will be recognised as assets and liabilities by lessees, better reflected the underlying economics (read Hoogervorst’s thoughts on page 22).

Before you get there you should read about Sharon Harris, our NQ of the Year.

The first thing she did when she qualified was burst into tears from the relief. It’s OK, once she had recovered the rest of the day was spent with a big smile on her face! See page 18 for more.

We have a great, honest piece by Walker Dendle’s Phillippa Lusty about why you should use recruitment consultants (page 8). We believe that using one is a bit of a no-brainer. It is how the market works, so use it to your advantage. It is, after all, a free service. With the help of Hays we also produce an NQ salary checker – you won’t find this anywhere else!

Graham Hambly, Editor (graham@pqaccountant.com)

Number of NHS finance professionals who feel valued by the public and patients P5

£39,942

Average salary for NQ working in the corporate sector, according to the Hays salary checker P10

4.7m

and rising – the number of selfemployed workers in the UK P14

81%

Percentage of large companies to have reported some form of security breach P16

US$3.3trn

The total amount of leases held by listed companies P22

NEWS

New CPD Centre for all ACCA members

Feeling valued? Not NHS finance workers Just 5% of NHS finance professionals feel valued by the public and patients, says a new briefing survey from the Healthcare Financial Management Association (HFMA).

Luckily, faint praise is not what motivates accountants for working in the NHS. The latest ‘NHS Finance Function in 2015: England’ report found that for well over two-thirds (71%) of respondents it is public sector values that keeps them going. Improving patient care is a motivation for 60% of those surveyed.

Finance professionals working in the NHS also feel their departments provide real value for money – well, 89% think so.

Despite the challenges of grappling with tight financial statements and trying to add value to patient care, some two-thirds of accountants say they would like to spend the rest of their career working for it.

In all, 16,211 finance professionals are currently working in the NHS, a 3% rise on 2013 figures.

The survey worryingly revealed that there is still a large imbalance between the number of women working in finance roles and those in the top jobs. Some 62% of finance staff are female, but only 26 % of FDs are women.

ACCA members now have exclusive access to a range of continuing professional development (CPD) courses through a new online CPD Centre provided by BPP Professional Development.

The new CPD centre is a dual-branded platform that both parties hope will deliver a smooth booking process, making online CPD course purchases easier. On offer are 150 high-quality courses and learning packages that have been specifically designed to fit around the schedules of busy business and finance professionals.

To celebrate the launch of the new site, BPP is offering ACCA members 20% off their entire online catalogue until 30 April. You will need to use the code ‘ACCA2016’ at the checkout to redeem the offer.

Sharon Harris (right) of Agchem Project Consulting recently picked up her NQ of the Year trophy from Lisa Dendle of Walker Dendle at the PQ magazine Awards. Harris said: “If I had told my 16-year-old self that, at the age of 52, I would be a chartered accountant with an honours degree I think I would have asked them what they had been drinking.” In the past 12 months Sharon has been accepted as a CIMA member and gained the ACMA, CGMA designation. She also received a first class honours degree from Manchester Metropolitan University in Sustainable Performance Management.

•Read all about her on page 18.

IN BRIEF ¢ Deloitte publishes socio-economic data In an effort to dismiss some of the myths about social mobility Deloitte has become one of the largest UK employers to publish data on the socio-economic and educational background of its partners and staff.

A sample of 1,000 staff shows 43% of Deloitte employees attended a non-selective state school, 16% an academically selective grammar school and 20% an independent school. The data also revealed 51% were the first in their family to go to university, while 9% received free school meals. ¢ Women earn £17,000 less New research has shown that women in accountancy earn £17,000 less than men. Total remuneration for women in accountancy stands at an average of £67,680, while men earn £84,970. Men also did better when it comes to NQ Magazine April 2016

bonuses. The average bonus for men was equal to 18.2% of their basic salary; it was 13.9% for women. The only good news, if there is any, is that the gender pay gap is shrinking. ¢ Aspiring to reach the top? No thanks!

European countries are lagging behind developing countries when it comes to female ambition in the workplace, according to the Hays Global Gender Diversity Report 2016. Just 11% of women in the UK believe they need to reach the most senior levels, MD or CEO, in order to feel successful in their careers, compared with 14% of men. This compares with 28% of women in Malaysia, 22% in Colombia and 18% in the UAE. In contrast, British women are much more satisfied in reaching mid/senior level roles. Almost four in 10 women in the UK (36%) say they would need to reach director level to feel successful.

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Drive your career with pqjobs.co.uk

PQ jobs pqjobs.co.uk

NEWS

Audit must now evolve or die The traditional audit process is not delivering enough, claims the ACCA’s head of audit and assurance, Andrew Gambier.

Following a series of roundtable discussions he said that in developed countries there were strong views that while the audit Andrew Gambier and assurance process was important, it was neither timely nor offered insights as to where businesses could have done better.

He said that in countries where audit is still being developed it was valued far higher than in countries where it has been long established.

Gambier said that investors had said they want real insights into how a company could have addressed risk better and where they could have maximized profits.

Gambier went on: “While the traditional approach might reassure regulators and company bosses, its usefulness to investors is shrinking all the time, prompting questions over its future. Business leaders expect information in real time, so why do we expect investors to wait months for the audit reports?”

He felt that auditors need to look at how they can use technology to deliver high quality audits in a more efficient and timely manner.

• For more read the ACCA report ‘The Future of Audit’.

Preparing for the future The CFO of the future may need to bring much more multidisciplinary skill set to the job, according to ‘Finance 2020: closer than you think’, a new report from Robert Half.

The report says the finance function faces what is possibly the biggest era of transformation in its history. Process automation, corporate digitisation and the ongoing need to protect assets while managing costs are conspiring to bring even more pressure on finance professionals.

For many CFOs the priority is to meet regulatory compliance mandates, but in the long-term it is to keep pace with changing technology.

So, what were perceived to be the most important skills to develop over the next five years? Greater knowledge of financial software packages was seen as the biggest technical skill that needs to be mastered (cited by 45% of CFOs).

Leadership, communication and commercial acumen were seen as the soft skills finance professionals need to develop.

NQ Magazine April 2016

First management accounting standard BSI, the British Standards Institution, has published PAS 1919 – the world’s first management accounting standard. The guide, sponsored by CIMA, is designed as a best-practice guide to management accounting, defining what ‘good’ looks like.

The PAS provides a framework to support decision-making and supports improved performance. It sets out four outcomebased management accounting principles: • Communication provides insight that is influential – encouraging insightful communication that drives better decisions across an organisation.

• Information is relevant – reviewing past, present and forwardlooking performance management information.

• Impact on value is analysed – understanding an organisation’s strategy and business model.

• Stewardship builds trust – balancing short-term commercial interests against long-term value for stakeholders.

Threat of court over new UK sugar tax Soft drinks manufacturers look set to take Chancellor George Osborne to the European court over his ‘discriminatory’ sugar tax.

The new tax put forward in the recent Budget may never see the light of day, as Coca-Cola and other drink makers put together a legal challenge to the proposals.

The soft drinks manufactures look set to argue in the European courts that the tax, due to levied from 2018, is discriminatory because it will not hit other beverages with high sugar content.

This is not an idle threat. There have been successful challenges to similar tax moves in Denmark and Finland. Last year, the European Court of Justice also blocked Scotland’s plan to enforce minimum alcohol pricing.

Chancellor Osborne was hoping the 24p a litre tax on high sugar products would help raise £520m a year.

Many fruit juices and smoothies contain more sugar than the traditional cans of fizz, and should be included in the new sugar tax, according to some experts. “It’s a no-brainer to include fruit juices and smoothies in the levy,” says University of Liverpool’s Simon Capewell.

Among the drinks that would be exempt, for example, is a Krispy Kreme Strawberry Kreme milkshake, which contains 21.8g of sugar per 100g. That is double the amount of sugar found in Coke (10.6g per 100ml). A McDonald’s large strawberry milkshake contains 74g of sugar, 50g of which is added. That’s 12 teaspoons of sugar and is 160% of your recommended (aged 11 and over) daily dose.

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YOUR CAREER

Why use a recruitment consultant?

Phillippa Lusty outlines the pros and cons of using a recruitment consultant from both the individual’s and the company’s perspective

A

nd the hunt begins: you’re on the market and the time is ripe to take the next step along the path of your financial career. Perhaps your current employer can’t give you the opportunities you need to progress, or perhaps it is just time for a change. You have a clear picture of what you are looking for in terms of remuneration, location and role – now it’s just about finding that perfect job. So do you go to a recruitment consultant?

Reasons not to Bad press: In the world of recruitment, a common myth about consultants is that they are shallow, pushy salesmen 8

and women just looking to make a quick buck. Unfortunately, in some cases this may be true, but on the flip side a good recruitment consultancy relies heavily on its reputation and by building positive, long-standing working relationships with clients and candidates alike.

Fees: Clients looking to fill a vacancy have to remember that, like your company, a consultancy is a commercial business and works speculatively. It will invest on your behalf on advertising, job boards and mail shots, taking a risk with you too: no placement, no fee.

Going direct: With the rise of in-house recruiters, online job boards and professional networking sites that seem to cut out the middle man, are recruitment agencies becoming obsolete? The nature of the business is changing, but in this chaotic world of apparently endless opportunity the role of a recruitment consultancy is as valuable as ever. Here’s why…

NQ Magazine April 2016

YOUR CAREER

Why use recruitment consultants?

Experts in their field: Recruitment consultants are career ‘match-makers’ who specialise in their own niche in regards to sector and location. They are therefore great advisers who have their fingers on the pulse; it is their job to know their market.

Remove the stress: Whether you are looking for a job or looking for someone to fill a job, let’s face it: changing jobs is a big deal. It’s an emotional decision and as a mediator between candidate and client, a consultant both presents and represents you: they handle objections from both sides and keep all parties in the loop during the whole process.

Confidentiality: Client or candidate, finding or filling a role is a very sensitive topic and not one that you always want broadcast for all to see for many reasons. The danger of going direct comes with its own hazards and word always gets around.

Time vs. outcome: Finding a new role or new candidate is a long, time consuming process and can become the bane of your life. Recruiters are problem solvers who cut out the legwork by presenting a shortlist of roles or candidates that are matched to your specific criteria.

From the candidate’s perspective Saving time and money: We all know the pain of endlessly filling out extensive applications forms and not even receiving an acknowledgment, let alone a rejection letter. A consultant’s services are free and they bring the jobs to you.

More access to competitive opportunities: Consultants have strong networks and relationships with their clients, and will have access to non-advertised roles through connections with key people in their industry.

NQ Magazine April 2016

Support and advice: From CV and interview help, to sharing knowledge of the client, to giving feedback, to negotiating a better remuneration packages on your behalf.

From the client’s perspective Time vs. money: Finding the right candidate can be like finding a needle in a haystack and filtering through a sea of applicants can be highly time-inefficient for a business.

Don’t underappreciate their service: They may only present a small shortlist, but in delivering this to your desk they will have trawled their networks, sieved through and screened countless applications, interviewed candidates and checked references to provide you with just the cream of the crop. The bottom line is that time equals money and the fee is a small price to pay for the time and effort they save you.

Wider resources: Rather than relying on the keen applicants who crowd your mailbox, recruiters have access to people who will not be in your network. This casts your net wider and brings in a better source of candidates.

What can you do?

Don’t just sign up to any and every recruitment consultancy you come across. Do your homework and pick the right recruiters – ones that specialise in your field and want to get a deeper understanding of your needs.

And keep in contact. A recruiter should be keeping in regular contact with you, but this shouldn’t stop you from picking up the phone and giving them a call. A relationship NQ is a two-way street after all!

● Phillippa Lusty is a recruitment consultant at Walker Dendle 9

SALARY SURVEY

Are you getting should be?

NEWLY QUALIFIED Corporate

North West North East Yorkshire & Humber West Midlands East Midlands East of England London South West England South East England Scotland Northern Ireland Wales National Average:

Typical £40,000 £40,000 £37,000 £40,000 £40,000 £45,300 £48,000 £40,000 £45,000 £37,000 £31,000 £36,000 £39,942

Range £ 36,000-45,000 35,000-42,000 35,000-40,000 36,000-42,000 36,000-43,000 38,300-49,300 45,000-55,000 35,000-42,000 40,000-50,000 35,000-40,000 28,000-33,000 30,000-38,000

Typical £36,000 £38,000 £34,000 £33,000 £33,000 £39,000 £45,000 £38,000 £40,000 £32,000 £30,000 £32,000 £35,833

Range £ 33,000-38,000 35,000-42,000 33,000-38,000 30,000-38,000 28,000-36,000 34,600-41,600 43,000-50,000 28,000-40,000 35,000-42,000 30,000-35,000 30,000-36,000 28,000-36,000

SMEs

North West North East Yorkshire & Humber West Midlands East Midlands East of England London South West England South East England Scotland Northern Ireland Wales National Average:

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NQ Magazine April 2016

SALARY SURVEY

paid what you Here’s our latest region-by-region salary checker, with figures kindly provided by Hays Accountancy and Finance UP TO TWO YEARS QUALIFIED Corporate

Typical £45,000 £44,000 £42,000 £43,000 £43,000 £45,300 £55,000 £40,000 £55,000 £40,000 £35,000 £40,000 £43,932

Range £ 40,000-50,000 40,000-50,000 40,000-45,000 38,000-50,000 38,000-48,000 40,000-49,300 50,000-60,000 38,000-45,000 45,000-60,000 37,000-42,000 32,000-38,000 36,000-45,000

North West North East Yorkshire & Humber West Midlands East Midlands East of England

Typical £42,000 £38,000 £36,000 £38,000 £37,000 £42,300

Range £ 36,000-47,000 38,000-45,000 35,000-40,000 33,000-42,000 30,000-40,000 36,600-45,300

London South West England South East England Scotland Northern Ireland Wales National Average:

£50,000 £40,000 £48,000 £33,000 £33,000 £35,000 £39,358

45,000-55,000 30,000-45,000 40,000-52,000 32,000-36,000 29,000-36,000 32,000-40,000

North West North East Yorkshire & Humber West Midlands East Midlands East of England London South West England South East England Scotland Northern Ireland Wales National Average: SMEs

NQ

NQ Magazine April 2016

11

ETHICAL DILEMMA

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NQ Magazine April 2016

ETHICAL DILEMMA

Working with limited resources and to tight deadlines, you’re expected to produce a report that might be used to justify redundancies at your ďŹ rm. What should you do?

Outline of the case You are a qualified accountant.

You have been asked by your line manager to complete a costing exercise with a very short deadline and limited resources. You think that the president of the company is planning to use this information to restructure the company, including making some of your close colleagues redundant. You are worried that your work cannot be robust enough to be used for such a big business decision, but your line manager is putting you under a lot of pressure to complete the work quickly.

Key fundamental principles Objectivity: Could you maintain an unbiased stance throughout, in view of your close relationships with your colleagues?

Professional competence and due care: Can you realistically produce a costing, with the time and resources available, without compromising the standard of your work?

Confidentiality: Given the sensitivity of the situation you should maintain discretion and not share your concerns with other staff who may not be aware of the president’s intentions.

Considerations Identify relevant facts: The company is considering restructuring, and the president needs to have the most

NQ Magazine April 2016

up-to-date and complete financial information to inform any decisions.

As a professional accountant, you must ensure that any financial information you provide is robust.

Identify affected parties: Key affected parties are you, your line manager, the president and anyone else who may use the results of the costing exercise. Other stakeholders in the company may also be affected, including those employees who might suffer redundancy.

Who should be involved in the resolution? Is there anyone else in the company with whom you can raise your concerns? Is there a senior finance officer who could advise you, or another member of the board with whom you can discuss your dilemma? Should you approach the president directly?

Possible course of action You think that the president of the company is planning to use the information you produce to restructure the company. As a professional accountant you have a duty to make your line manager and other users of the information aware of the limitations in the scope of your work. With this in mind, you should attempt to obtain certainty regarding the use of the information.

You should arrange a meeting with your line manager and explain that you are unwilling to do the work to the deadline requested, with the

resources available, because the work could not be relied upon. You could ask for more time to complete the work to the required standard, or ask for the work to be outsourced.

This would have the added benefit of enhanced objectivity.

Clarifying the process The process of clarifying the intended use of the information and expressing your concerns regarding its reliability is likely to enhance your credibility. You could suggest that your line manager discuss the issue with the president or other members of the board, as appropriate.

If your line manager is unsympathetic to your concerns, you should not allow yourself to be associated with information that may be misleading. You should consider the most appropriate way in which to make your concerns known to the board. This may be through the president or the company secretary.

If after exploring all these routes of communication you still find yourself under unreasonable time pressure you may have to make clear your refusal to conduct the work, and possibly resign from the company.

You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgement is challenged in the future.

NQ

13

TAX SIMPLIFICATION

The Office of Tax Simplification believes two taxes can become one! Here we explain how – and why

B

ringing National Insurance Contributions (NICs) and Income Tax (IT) closer together would create a simpler and fairer system for businesses and taxpayers, says the Office of Tax Simplification (OTS).

The OTS has published the findings of a detailed review into bringing the two payroll taxes closer together to create a simpler and more modern system. It recommends a seven-stage programme to closer alignment to achieve a system more aligned to current and future working patterns, but cautions that the impacts need to be carefully understood and considered.

Angela Knight, OTS Chair, felt most people don’t know what the National Insurance Contributions they pay gives them in benefits, with the system giving different outcomes for the employee, the self-employed and those with more than one job. And employers – who are the collectors of income tax and national insurance – find the current system for NICs complex.

She said: “As the structure of the UK economy moves rapidly towards scenarios often referred to as ‘uberisation’, the ‘sharing economy’ or the ‘gig economy’, these different ways of working are with us, are expected to accelerate and so the current system is simply out of date.”

Inevitably, Knight said some will gain and others will lose from any change. By highlighting both the need for reform and by shining a light on those difficult areas now, the OTS intends this review to trigger a full and

14

informed debate about the impacts, how the changes could be made, how the challenges can be addressed and the timetables required, to make change as seamless as possible and to provide a system that is fit for the future.

The OTS review sets out seven key steps to more closely align NICs with IT, but stresses the need for more work to be done on the proposed changes to properly assess the considerable potential impacts of change.

John Whiting, OTS Tax Director, said: “We found near-universal support for reform to the NICs system with many seeing alignment as a John Whiting simple and obvious step. The potential gains in easier administration, proper transparency and greater understanding are clear.”

However, he was mindful that the impact of change will be considerable.

Whiting explained millions of people would pay more in NICs, but millions would also pay less. Some paying more would gain contributory benefits but all these impacts need to be carefully worked through and thought about.

More work is needed and so is a proper, informed debate about the considerable implications.”

The OTS’s seven key stages to closer alignment are: ● Move to an annual, cumulative and aggregated assessment period for employee NICs as happens with PAYE and income tax. This could mean many

people paying more NICs and many paying less NICs. ● Base employers’ NICs on whole payroll costs. This would be easier to understand and reduce distortions from fragmented hours. ● More closely align the NICs position for the UK’s 4.7m, and rising, selfemployed with that of employees. This would remove complexity and could potentially deliver more benefits. ● Critically review the contributory principle, but first increase understanding of what it really does – and doesn’t – do; for example, finding people who believe that NICs pays for the NHS and that they need to have a full contributions record to qualify for NHS treatment is worrying. ● Align the definition of earnings for IT and NICs and the reliefs available for IT and NICs to make it more equal for employees and cut the burden of managing the differences for employers. ● In the same way, bring taxable benefits in kind fully into NICs to remove the distortions in the NICs treatment of non-cash pay. ● Harmonise the rules governing the management of IT and NICs, and their administration, including setting up a method so that any changes can operate automatically for both taxes, to make it easier for employers and HMRC to administer the system and reduce unnecessary differences.

The OTS review concludes there would need to be a well-signposted path to this major reform, with clear explanations to ensure all groups were well aware of the implications.

NQ NQ Magazine April 2016

TAX SIMPLIFICATION

NQ Magazine April 2016

15

SECURITY REPORT

Looking after your own Self-interest not regulation needs to drive cybersecurity, says Jason Piper

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new report from ACCA claims self-interest rather than regulation is the future of cybersecurity because technology is evolving at such a rate that any legislation would be out of date before it is signed in to law. ÔConstant Forward Motion: The evolving phenomenon of cybersecurity regulation and the race to keep upÕ examines the growing threat to businesses and the problems lawmakers have because of the fast pace of technological evolution.

Cybersecurity falls broadly into two parts Ð preventing attacks and defending against attacks that can and do happen. The most comprehensive theft prevention deals with the cause rather than the effect.

Apprehending attackers is the role of law enforcement, and the often unusual nature of the offences allows for a new range of strategies: either through direct action against individual perpetrators, or wider actions to disrupt their business model.

The stats are alarming: 81% of large companies have reported some form of security breach, costing each large organisation on average between 16

£600,000 and £1.5m, and attacks on SMEs are increasing.

Reported cases Ð and remember most cases will not be reported Ð show 2,460,000 instances of computer misuse and 404,000 of unauthorised access to personal information. The cost of fraud for UK businesses is around 3% of total business expenditure.

For many businesses there are obvious risks such as disruption of supplies, sales and the loss of cash.

But two other areas stand out such as the potential legal action from individuals and companies for loss of their data by a business, and reputational damage, which can spell the end of a business.

There have been many instances over the past five years or so of how much reputational damage a data breach can cause to a large firm or a

public service. Customers and potential customers are likely to think very carefully about their involvement with a company if they have had a data breach. We all want to know that our personal data is secure and that it is protected Ð whether it is our bank details or our medical records.

In this respect, organsiations have to take the lead. They need to be aware of the value of the data they hold, the value in protecting it, and the damage that can be done if they fail to do so.

NQ Magazine April 2016

SECURITY REPORT

Because of the nature of cybersecurity, authorities and governments would be best placed using their resources to raise awareness among businesses, and to put resources in to creating mechanisms to catch perpetrators of cybercrime.

Data is being used in all sorts of ways – for example to predict purchasing and money transfer patterns – and criminals can use this information to commit fraud. As a basic rule of thumb, if there is value in the data to a criminal then there is value in protecting it and because data is digital it can be replicated over and over again, potentially before the business is even aware.

The big question for authorities is, how do you regulate? Is it better to prescribe hard law or soft law? Both have advantages and disadvantages but ultimately the problem that lawmakers have is that anything they pass into law is likely to be archaic very quickly and they could spend the whole time ‘running to catch up’.

The same can be said of insurance.

Mandatory insurance now would force insurers to offer cover without the NQ Magazine April 2016

information necessary to be able to set premiums. Insurance is a growing area in the field of cybersecurity but it is an extremely complex job for underwriters to value data and set suitable premiums. Insurance can however, act as an awareness raiser in a similar way to soft laws – if you can insurance against the loss of data then its security needs to be taken seriously.

Large organisations can play an important role in cybersecurity. Most criminals will look to go after the weakest link in the supply chain as a point to access data. This will usually be the smaller businesses, as they have fewer resources. The larger companies in the chain can support the small ones by providing guidance and expertise. This would be of benefit to the whole chain, as once a criminal has access to one area they will be able to infiltrate the entire chain – causing more damage, both financially and reputational.

The report also looks at other threats to cybersecurity and how technology means that data thefts don’t always have to involve the internet. Physical devices can be used to collect information from ATM cards, electronic

tills and card readers for future use, without the need for any direct internet involvement. As the hardware we use continues to evolve rapidly, so will the available attack vectors – a further problem for legislators trying to keep up with possible offences.

Employees are also major threat to a company’s cybersecurity. It is likely that in every data breach an employee will be involved whether directly or indirectly and whether knowingly or unwittingly. Employee involvement in data breaches demonstrates the need for increased knowledge and awareness amongst all in the company. And it is for this reason that everyone has a role to play in the protection of data.

They also have a role to play in whistleblowing when they think an internal data breach is likely. Managing the risk is clearly important. And this is where the accountancy profession can add real value because we are adept at managing risk. We have to be vigilant against cyber security – in our personal lives and also at work.

NQ

● Jason Piper, Senior Manager, Tax and Business Law, ACCA 17

NQ OF THE YEAR

Driving ambition Sharon Harris was recently named NQ of the Year by our sister magazine, PQ. We caught up with her to find out what makes her tick WHAT SHARON LIKES… • What are you reading?

The End of Oil: On the Edge of a Perilous New World by Paul Roberts • Last CD bought: Coldplay’s A Head Full of Dreams • Favourite TV show?

Currently The Night Manager • When did you last laugh out loud? At Michael McIntyre’s Happy and Glorious show • How do you chill?

Listening to music and reading

‘Shocked, relieved and proud’ was how Sharon describes her feelings on becoming qualified When did you know you wanted to be a chartered management accountant?

Not until I joined my current company and was inspired by a friend who was studying ACCA. However, I hate personal tax so decided to do CIMA instead. Also, CIMA was more relevant for my current job as there is a strong focus on interpreting data for management accounts and KPIs. 18

How did you find the CIMA exams?

I felt very much like a guinea pig as I was in one of the first groups to have to switch over and study using the new syllabus and objective test exams. It was quite shocking the lack of information from CIMA prior to roll out and the lack of practice questions in the early days. However, I understand that things have now improved.

NQ Magazine April 2016

NQ OF THE YEAR

In her spare time Sharon is Treasurer of Solent and District Land Rover Club

What did you feel like once you had finally qualified?

Shocked, relieved and very proud.

What was the first thing you did when you found out you had passed?

Burst into tears from the relief that I had qualified. Then I spent the rest of the day smiling.

Do you have plans for any more study?

I’m considering doing an MSc in Strategic Business Management with Manchester Metropolitan University, but the next course doesn’t start until September so I’m enjoying the break from study and research.

You are now our NQ of the Year – how did it go down at work?

They were thrilled for me and very proud of my achievements (see http://www.apc.eu.com/apcs-sharon-harris-winsindustry-award).

How did you enjoy the PQ Awards night?

I had a lovely time at the awards and even if I hadn’t have won I would have still had a great night out. Accountants are definitely not boring!

You work for Agchem Project Consulting as its finance & operations manager. What is a typical day like?

NQ Magazine April 2016

There is never a typical day at APC and I am still growing into the role with guidance and support from the managing director and the other directors/board members. APC is an expanding business, so I’m currently dealing with the creation of a subsidiary company in Hungary (far too much paperwork!), as well as keeping on top of my normal accounting responsibilities.

We understand you went back to university to study a degree in sustainable performance management. What lessons have you learnt from your BA (Hons)?

Don’t try to do this course while studying for your CIMA finals and holding down a full-time job – it’s far too stressful!

However, the main lesson was that I still have a lot to learn, especially when it comes to sustainability and strategic management decision making.

Where do you see yourself in five years’ time?

Still with APC as a director and full board member.

We know all accountants are interesting, so what do you do to ensure you are?

Outside work I am Treasurer of Solent and District Land Rover Club (www.sadlrc.co.uk), so I tend to spend weekends driving around the countryside – when the Land Rover doesn’t need fixing! NQ 19

CORPORATE SURVEY

Decisions, decisions…

Tony Manwaring outlines the findings of a recent survey into decision making within the organisation

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t its heart, management accounting is about decisions.

For most management accountants this means providing the information and analysis to inform choices. For those who have made it to the top, it means making strategic decisions themselves.

This is why CIMA and our colleagues in the American Institute of Certified Public Accountants recently commissioned a report into the state of decision-making. We surveyed 300 leaders in blue chip companies worldwide – from EY to the US Army – and conducted indepth interviews with nine of these, to ascertain how big decisions are made, what works well, and what could be improved. The result is ‘Joining the Dots: decision making for a new era’, which can be downloaded from the CGMA website.

We discovered five common mistakes in decision-making. Put together, they form a convincing case for arguing that the biggest companies are not necessarily the best decision-makers. But it wasn’t all bad news. We uncovered a minority of organisations – which we referred to as “integrated thinkers” – who are far better able to make the right decisions and achieve great outcomes even in times of disruption and uncertainty.

The first problem we found was that some organisations are too rigid to act quickly. Nearly a third (29%) of respondents said that

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organisational silos and bureaucracy are creating coordination problems.

Some 72% reported that at least one strategic initiative has failed in the past three years because of delays in decision-making. Too many large organisations, it seems, suffer from diseconomies of scale – their size may give them clout, but it has cost them agility. This needn’t be the case. Many of the world’s largest companies remain agile. The solution, we would argue, is the management accountant’s mandate to cut through siloes and consider data from across the business.

A second problem was lack of trust within organisations themselves. Nearly two-thirds (65%) of respondents reported there was moderate or significant room for improving trust between leaders and employees; 70% said the same about collaboration. This has a knock-on effect on decisionmaking – lack of trust prevents the sharing of information and insight that is crucial for the best decisions to be made. Again, solutions to this problem exist: we argue that greater transparency, and empowering colleagues further down the chain, can overcome barriers caused by lack of trust.

Thirdly, many respondents reported that the metrics and rewards they use to measure and motivate their business were poor. A third (34%) say their company’s incentive and bonus structures are hindering their ability to generate value for

the short, medium and long term.

The same proportion report they find it challenging to select the right combination of metrics to measure business performance. We would urge businesses and the public sector to look beyond traditional accounting figures to other measures, such as intangible assets, to help solve this problem.

The fourth problem is the sheer amount of data available in today’s world. An overwhelming 80% of respondents admitted that their organisation had used flawed information to make a strategic decision at least once in the past three years. One-third (32%) say big data has made things worse, not better. Clearly “information is relevant” – the second management accounting principle – is something that not all organisations have yet got to grips with.

Finally, some senior leaders do not have the skills to make effective decisions, and need to develop new abilities. Just 28% of respondents felt their organisation was effective at enabling senior leaders to learn from the outcomes of decisions.

Only 35% of organisations rate their senior leadership’s openness to input and challenge as highly effective.

The solution is to invest in skills, and new learning and review processes.

While the report revealed many issues there was good news, too.

A small but relatively homogenous group of respondents managed to navigate choppy waters and take NQ Magazine April 2016

CORPORATE SURVEY

consistently excellent decisions.

They are characterised by a disproportionate focus on the areas within the Global Management Accounting Principles – they communicate in a way that is influential; they choose the most relevant information; they analyse the impact of their decisions before they take them; and they prioritise being long-term stewards of their organisation.

For newly qualified accountants board-level decision-making can seem distant. But many of the NQ Magazine April 2016

required skills are the same as those management accountants practice day-to-day. Management accountants have a mandate to look beyond the usual numbers, and consider factors such as trust, metrics, and where their data comes from. Continuing to hone these skills can help you become an ‘integrated thinker’, and can hasten your journey towards the top of your organisation. NQ

● Tony Manwaring is Executive Director, External Affairs at CIMA 21

LEASE ACCOUNTING

Shining the light on leases

Hans Hoogervorst says there will be substantial changes to many companies’ balance sheets when IFRS 16 comes into effect in 2019

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Hans Hoogervorst 22

easing is a common form of finance for many businesses, especially in sectors like the airline industry, retail, and shipping.

At the moment, listed companies around the world have around US$3.3 trillion worth of leases. Under current accounting requirements, over 85% of these leases are labeled as ‘operating leases’ and are not recorded on the balance sheet.

Despite being off-balance sheet, there can be no doubt that operating leases create real liabilities. During the financial crisis, some major retail chains went bankrupt because they were unable to adjust quickly to the new economic reality. They had

significant long-term operating lease commitments on their stores and yet had deceptively lean balance sheets.

In fact, their off-balance sheet lease liabilities were up to 66 times greater than their reported debt. Clearly, the accounting does not reflect economic reality.

To compensate for this ‘missing information’, many investors use various techniques to add operating leases back onto the balance sheet.

However these adjustments are often rough calculations, which may be way off the mark.

Moreover, not all investors are able to do this ‘add-back’ and the prevalence of operating leases NQ Magazine April 2016

LEASE ACCOUNTING

indicates that companies are aware of that. In some cases companies go to great pains to structure their lease obligations so that they remain offbalance sheet, probably to look better in the eyes of the unwitting investor.

Finally, the current accounting for leases leads to a lack of comparability.

An airline that leases most of its airplane fleet looks very different from its competitor that borrows to buy most of its fleet, even when in reality their financing obligations may be very similar. There is no level playing field between these companies.

To address these problems, the International Accounting Standards Board, which sets the IFRS Standards for financial reporting around the world, has issued a new standard on lease accounting, IFRS 16.

When IFRS 16 becomes effective NQ Magazine April 2016

in 2019, it will result in a substantial change to many companies’ balance sheets. All leases will be recognised as assets and liabilities by lessees, better reflecting the underlying economics.

This change is expected to affect roughly half of all listed companies and will not be popular with everyone.

Accounting changes are often controversial and can be met with warnings of adverse economic effects, defaults on debt covenants, and costs of system changes. The IASB has looked at all these possible risks very carefully and has concluded that the risks and costs are manageable.

First of all, IFRS 16 will not put the leasing industry out of business.

Leases will remain attractive as a flexible source of finance. It will remain appealing to companies to lease assets so that they do not bear the risks of owning them. While the cosmetic accounting benefits of leasing will disappear, the real business benefits of leasing will not change as a result of the new standard.

Secondly, we think it highly unlikely

that the improved visibility of lease obligations will lead to significant effects in terms of the cost of borrowing and debt covenants. The majority of credit providers and rating agencies already take lease obligations into account when evaluating a company’s ability to pay its bills, albeit often in an imprecise manner. Moreover, many debt covenants are unaffected by changes in accounting requirements.

We do not deny that there will be costs involved in updating systems to implement IFRS 16. But we have done our best to keep these costs to a minimum. For example, we are not requiring companies to put short term and small ticket leases on the balance sheet. This should be especially beneficial for smaller companies.

In sum, we expect the benefits of IFRS 16 to greatly outweigh its costs.

The new visibility of all leases will lead to better informed investment decisions by investors, and to more balanced lease-versus-buy decisions by management. IFRS 16 will lead to improved capital allocation, which should be beneficial for economic growth. NQ • Hans Hoogervorst is the chairman of the International Accounting Standards Board (IASB), the standardsetting body of the International Financial Reporting Standards )IFRS) Foundation.

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