NQ magazine August 2016
P14
THE VOICE OF ALL NQs Contact us
email: graham@pqaccountant.com twitter: @pqmagazine facebook: pqmagazine.com call: 020 7216 6444
ETHICAL DILEMMA How do you avoid being caught up in a politcal scandal?
ALL THE NEWS YOU NEED
P22
and a whole lot more Pages 4 and 7
MAGNIFICENT 7 CAREER ADVICE It’s good to talk – especially when you want a new role Page 10
MAKING TAX DIGITAL
Four reasons why the government’s digital initiative is good news for you Page 12
A NEW ACCA REPORT OUTLINES THE SEVEN QUALITIES YOU NEED TO SUCCEED AT WORK. SO WHAT ARE THEY? P8
CORPORATE CULTURE Ensuring the board sets the standard for the whole organisation
AN INSPECTOR CALLS… What you should expect if you or your firm receives a visit from HMRC inspectors
P16
forging real partnerships Management Accountant
Senior Finance Analyst
Global Real Estate Company, Surrey
Retail, London
To £45,000
£40,000
• ACA/ACCA/CIMA Qualified. • Looking for an organised and personable accountant, with a good foundation of knowledge that can be expanded on, in this rapidly growing company. • Assisting the Finance Manager with quarterly unaudited financial statements and announcements required in terms of JSE and SEM, and with year-end audit queries and statements. • Monthly duties include, recording buy and sell trades of listed securities in prime broker Excel models and in general ledger. • Evaluating and recording interest payable on broker equity swaps. • Producing quarterly preparation of VAT Returns. • Recording rental revenue and property related expenditure.
• ACA/ACCA/CIMA Qualified. • Looking for a newly qualified candidate to be focussed specifically on central costs; you will be working closely with other members of the Financial and Management Accounts team. • Assistance in the production of the monthly overheads and payroll accounts for relevant cost centres and IT, preparing and inputting adjustments, accruals and pre-payments. • Challenging customers and offering advice and support from a financial perspective. • Preparing balance sheet reconciliations and analysis for assigned accounts, ensuring business processes behind entries are understood. • To actively build knowledge and understanding of the business as a whole.
redefining financial recruitment T +44 (0)20 8408 9999 E info@walkerdendle.co.uk
www.walkerdendle.co.uk
COMMENT
NQ magazine 308,000
NUMBER CRUNCHING
EDITOR’S COMMENT
Seven is the magic number The accountant’s role has been revolutionised over the past decade, with finance professionals becoming leaders, trusted expert counsel and key strategic advisers to organisations whether in the public or private sectors. That’s not me talking here, that is what ACCA CEO Helen Brand thinks has happened since 2006! Now a major new study from the ACCA has ‘discovered’ what makes the perfect professional going forward. There are apparently seven attributes that will be vital to your success. And here they are: intellect, creativity, emotional intelligence, vision, experience, technical skills and a mastery of the digital world. Not much then! Brand is right, however, to stress that you will be required to show a whole new set of skills on top of basic technical competence. So, how creative and visionary are you feeling right now? As Brand said, everyone has their own strengths and weaknesses. The key is to recognise where you excel and where you need to work to build your competency. She is talking CPD here, but you knew that was coming. You can read more about this report on page 8. Strategic alliance Something is going on with the accountancy bodies. CIMA members recently voted to create the Association with the AICPA. No sooner was the ink dry on that one than the ACCA and the Chartered Accountants Australia and New Zealand (CA ANZ) created their own strategic alliance. But, it hasn’t stopped there. Now, CIMA has said it is in ‘discussions’ with both ICAS and CIPFA. It is looking to offer these bodies members a route to CIMA membership and access to the Chartered Global Management Accountant (CGMA) designation. WE will find out more later in the year. Meanwhile, ICAS and CIPFA have been working together for some time, even creating their own joint audit qualification. Dare we start to talk about the ‘M’ word. Graham Hambly, Editor (graham@pqaccountant.com)
the number of members of both the ACCA and CA ANZ, who have announced a new strategic alliance P4
31%
could be the number of business service jobs at risk from being automated over the next 20 years P7
7
Future professional accountants are going to have to master seven key skills if they want to keep ahead of the curve P8
2020
is the date the government wants to Make Tax Digital. As an accountant are you ready for this? P12
£300
plus £60 each day — the penalty cost of ordering HMRC officers off your premises if they turn up unannounced P16
NEWS
New strategic alliances are name of the game Just as CIMA unveiled the creation of the ‘Association’ with the AICPA we also got the news that ACCA and the Chartered Accountants Australia and New Zealand (CA ANZ) had created their own strategic alliance. Some 89.7% of CIMA members voted for the changes, and the Association will now launch in 2017. It will represent some 600,000 current and nextgeneration professionals worldwide. Both CIMA and the AICPA insist that the new organisation is designed to complement rather than replace them. The ACCA deal seems to have come out of nowhere, and NQ magazine understands it has put some UK body’s noses out of place – namely ICAS’s and the ICAEW’s! The ACCA and CA ANZ believe by sharing expertise across geographies and sectors the alliance will ultimately create a stronger voice on behalf of 308,000 members and 480,000 students across 181 countries. The move will provide an opportunity for dual membership of both bodies. ACCA members resident in Australia and New Zealand will be invited to apply for CA membership, and CA ANZ members will be invited to apply for ACCA membership, subject to meeting the eligibility criteria of the other body. ACCA President Alexandra Chin said that CA ANZ is a natural partner for ACCA, sharing its commitment to upholding the highest ethical, professional and technical standards.
BIG 4 NEWS
KPMG APPOINTS ‘HEAD OF BREXIT’ Following the result of the EU referendum KPMG has appointed its own Head of Brexit, in the form of Karen Briggs. She said that dialogue with clients showed that they need expert support on mitigating the risks and taking advantage of the opportunities that arise from a Brexit. KPMG has been using a ‘2:2:2’ model: “We have been advising our clients to consider the next two weeks, two months and two years to assess the path ahead.” NEW SERVICE FOR SMES Deloitte is investing £2.5m to launch Propel by Deloitte, a cloud-based service that aims to help ambitious start-ups and SMEs to grow. Alongside a core accounting service, Propel provides customers with a bespoke dashboard that gives a real-time view of how their business is performing, from a cash position to web traffic. Customers receive a full bookkeeping and accounting service on a monthly subscription. The company’s data is then fed into a bespoke Propel dashboard to give a real-time view of their financial performance. EY UNVEILS 62 NEW PARTNERS EY has appointed 62 equity partners to its UK business. Some 33 of these are internal promotions, with the other 29 direct entry partners from its competitors and industry. EY chairman Steve Varley explained: “Of the 62 partners appointed over the last year 29% (just one point shy of the firm’s 30% rolling target) are women and 15% are from a black and minority ethnic (BME) background – exceeding EY’s 10% target.” 4
It’s better down south! Southern accountants apparently enjoy a better standard of living than their Northern counterparts, says a new quality of life index study. The index found that accountants in the South West had the highest standards of living, with the region boasting the highest proportion of accountants satisfied with their current job role. East Midland accountants come bottom of the rankings with the lowest average salaries and job satisfaction levels. The research ranks UK regions on the basis of average salary, as well as commuting times, housing affordability, job satisfaction and hours worked each week.
The Marks Sattin Quality of Life factors Region
Average Salary
Weekly Commute
Job
Weekly Hours
Housing
North East
£33,995
1hr 12mins
79%
33.4
3.6
North West
£32,936
1hr 18mins
84%
33.7
4.4
Yorkshire & Humberside
£32,020
1hr 24mins
79%
33.4
4.6 5.0
West Midlands
£34,522
1hr 18mins
78%
33.8
London
£92,875
2hrs 18mins
80%
32.6
5.1
East Midlands
£26,767
1hr 18mins
78%
35.2
6.3
South West
£35,185
1hr 12mins
85%
32.8
6.5
South East
£42,011
1hr 30mins
81%
34.0
7.2
East
£36,395
1hr 30mins
79%
32.9
7.2
Audit confidence is up Confidence in audit has grown, but more needs to be done in terms of market competition and improving good practice in the profession. That is the conclusion of a report issued recently by the Financial Reporting Council (FRC). The report, ‘Developments in Audit: An Overview 2015/16’, is the first of its kind from the FRC as the UK’s Competent Authority for audit. The FRC believes that there is justifiably a higher level of confidence in audit as a result of changes to independence requirements and the promotion of quality as a driver for competition. However, it also notes some remaining concerns around confidence. Recent corporate failures and the resulting increased public scrutiny of auditors have undermined some of the progress, says the FRC. It has launched two new big investigations recently; one into PwC’s conduct in relation to the audit of BHS, and the other into KPMG’s audit of HBOS. Concerns also remain that the FTSE 350 audit market is still heavily concentrated across the Big 4 firms, as smaller firms are thought to struggle to match on skill level, resource and ability to bear the cost of the tendering process. NQ Magazine August 2016
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NEWS
CIPFA and EY offer ‘game-changing’ service
Tilley steps down Charles Tilley (pictured) has announced he is stepping down as CEO of CIMA. After 15 years at the helm Tilley is leaving his post to become the executive chairman of the CGMA Research Foundation. Tilley is leaving just weeks after CIMA and the AICPA have announced the creation of a ground-breaking association. MD Andrew Harding will become acting CEO from 1 August until the Association is formed in January 2017. He will then become the first CEO of the new ‘CGMA Unit’ of the Association. Harding said: “I am delighted to be leading CIMA and the new CGMA Unit – and very much look forward to working with our members, partners and students across the world in forging the new Association.
Automation is a real risk to business services jobs More than a quarter of jobs in the business services sector are at high risk of automation in the next 20 years, says a new report from Deloitte. The Big 4 firm suggests that automation will be seen as the answer to rising cost of labour. These rising costs are also happening at a time when the cost of technology is falling. Deloitte says 800,000 (25%) to 1m (31%) of 3.3m business service jobs have a high chance of being automated. The only good news is that these figures are lower than the national total (36%), highlighting that the business services sector is less exposed than other areas of the UK economy. Partner Simon Barnes explained: “We expect the pace of automation to increase exponentially over the next few decades. Business services companies need to consider the full potential of intelligent automation, both as a way of improving operational efficiency and quality standards, and in order to innovate to remain competitive.” NQ Magazine August 2016
A new partnership to produce fully compliant accounts for local authorities has been unveiled by CIPFA and EY. The Assured Managed Services offering draws on CIPFA’s expertise as the official standard-setting body for the sector and EY’s extensive experience in monthly reporting and accounts closedown for companies. The services are designed to meet specific requirements of different councils in financial analysis, budgetary control and accounts production. Using sophisticated software developed with leading local authority finance experts, CIPFA and EY will be able to provide regular reports to better inform decision making, as well as end of year accounts. CIPFA’s CEO Rob Whiteman (pictured) said: “Statutory requirements have made local government accounts increasingly detailed. That’s great for planning and transparency, but the process can swamp finance teams causing log-jams and additional costs, such as employing temporary staff. “Together we can offer a game changing service to boost performance and reduce costs by freeing up finance teams to focus on good financial management.”
Multi-currency payments being looked at by ACCA ACCA has revealed that it is looking at its multi-currency pricing structure. This is in direct response to concerns from members and if instituted could have massive ramifications for the ACCA’s 188,000 members. The association is currently assessing the impact such a move would have on IT systems and financial risks of currency fluctuations. At present fees have to be paid in pounds sterling. ACCA’s Mark Cornell said: “We hear from members, affiliates and students that multi-currency payments options would greatly enhance their ACCA experience, so it is important that we assess this and indeed other issues raised by members to ensure that we focus on providing the best value possible to all members.”
There’s a new definition for significant control From 30 June 2016, companies needed to create a People with Significant Control (PSC) register. This should include information about the individuals who own or control companies, including their name, month and year of birth, nationality and details of their interest in the company. A person of significant control is anyone that holds more than 25% of shares or voting rights in a company, has the right to appoint or remove the majority of the board of directors or otherwise exercises significant influence or control. This information will in future form a central public register of people with significant control, which is free to access.
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PROFESSIONAL DEVELOPMENT
The magnificent
seven
Faye Chua outlines the seven qualities today’s finance professionals need in order to succeed in the workplace
T
he world is changing fast. From the global fall in oil prices back in March to the months of uncertainty that now stretches in front of us following the result of the EU referendum, so far 2016 has been an unpredictable year for businesses in the UK. Of course, challenges such as these are nothing new. In the modern, global economy, volatility is the new normal. The question now for business leaders is how do they chart a steady course for their business when the only thing we know for certain is that nothing is certain? The answer is, as with most things, to be found with their people. We know better than anyone that when it comes to 8
future-proofing, the finance team is one of the most valuable resources a business has at its disposal. What that team looks like – the skills and expertise we as finance professionals possess and the role we undertake within the business – has changed beyond all recognition over the past decade. To succeed as a professional accountant in 2016, a vastly different set of skills is required than was necessary just 10 short years ago. And in the next decade, things are likely to change even faster and more dramatically as the global economy continues to evolve at an ever-quickening pace. ACCA has a big responsibility in ensuring the current and future generations NQ Magazine August 2016
PROFESSIONAL DEVELOPMENT
of professional accountants have what it takes to deliver what businesses, governments and indeed society needs in this fast changing world. Recognising this, two years ago we embarked on a major global study to define the key qualities required from the future finance professional. That study, which we’ve called ‘Professional accountants – the future’ showed us seven clear areas of strength. Intellect, creativity, emotional intelligence, vision, experience, mastery of the digital world, and technical skills make up these ‘magnificent seven’ sought after skills. And perhaps most crucially, they must all be underpinned by a strong ethical compass. These seven skills are based on the information and insight we collated from over 2,000 finance professionals worldwide across two years. Collectively the seven distinctive attributes they identified come together to create an optimum blend of technical knowledge, skills and ‘soft skills’ as they are often called. While the need for technical proficiency remains clear, some of the other skills specified show just how much the world is changing. With the emergence of greater regulation, huge technological advancements, increased globalisation and ever growing risk, the accountancy profession needs to be prepared for an uncertain and volatile future. Tomorrow’s professionals need to have the highest level of professional standards. They also need to see beyond the numbers. Over the past decade, successful finance professionals have revolutionised the way in which they work. They are becoming leaders, trusted expert counsels and key strategic advisers to growing organisations across the public and private sectors. Because of this, finance professionals are more vital than ever to the success of firms. After all, in taking this strategic role they are now responsible for steering businesses through the good and bad times. NQ Magazine August 2016
The seven qualities that have been identified in the report are the key drivers shaping the profession over the next decade and beyond: Technical and ethical competencies (TEQ): The skills and abilities to perform activities consistently to a defined standard while maintaining the highest standards of integrity, independence and scepticism. Intelligence (IQ): The ability to acquire and use knowledge: thinking, reasoning and solving problems. Creativity (CQ): The ability to use existing knowledge in a new situation, to make connections, explore potential outcomes and generate new ideas. Digital quotient (DQ): The awareness and application of existing and emerging digital technologies, capabilities, practices, strategies and culture. Emotional intelligence (EQ): The ability to identify your own emotions and those of others, harness and apply them to tasks, and regulate and manage them. Vision (VQ): The ability to anticipate future trends accurately by extrapolating existing trends and facts, and filling the gaps by thinking innovatively. Experience (XQ): The ability and skills to understand customer expectations meet desired outcomes and create value. The future finance professional must be alive to a far wider range of issues and influences as their remit spreads into more and more areas of the business. Despite that, the contributors to our report unanimously attested that technical competency will continue to be the foundation upon which the future finance professional is built. Now a well-established area of focus for the professional accountant, digital skills are only going to grow in importance in the coming decade. As an ever-growing number of upcoming technologies continue to become an inextricable part of our working lives, a digital focus by professionals is already a necessity. Notably, 55% of respondents to our research thought the development of automated accounting systems would have the most impact on the industry over the next 10 years. Interestingly, this impact is overwhelming predicted to be positive, with most seeing it as an enabler in the move to a more strategic position, rather than a threat to job security. Alongside technical, ethical and digital expertise, the modern accountant must possess another set of skills perhaps not historically associated so closely with the profession. Namely creativity, emotional intelligence and vision. Modern accounting requires the ability to steer a business on a steady course between risk and opportunity. This requires collaboration, strategic thinking and a real 360 understanding of the business – its environment, its people and its opportunities. It is safe to say that the age of accountants as beancounters is over. A truly modern business demands far more from its finance team, and it is the job of ACCA to ensure we continue to create future professionals who are up to the task. As part of this project, we have created a test designed to help anyone in business understand how they stack up against our seven quotients. You can find it online at NQ www.accaglobal.com /thefuture ● Faye Chua, Head of Future Research, ACCA 9
YOUR CAREER
It’s good to Walker Dendle’s Estha Heiden explains why it’s vital you have good channels of communication with your recruitment consultant – especially by phone!
T
his article deals with the rules of engagement – although I think ‘rules of engagement’ is an oxymoron! After all, there are no rules when it comes to the recruitment consultant/candidate relationship. Each individual interaction is subjective; what works for one person does not work for another. I do believe there are some basic elements that, if adhered to, should result in three happy parties (let's not forget the tripartite relationship includes our clients and your possible employer). The first is the form of communication that I prefer and, if not used at all, does not allow me to give you the service that you deserve – the telephone. Most of us have one, and a smart one too, but hardly any of us actually use it to make calls (socially, I am 100% guilty of this!). If you are inclined to get in contact with a consultant by email (complete with CV and brief synopsis) this is perfect. It allows consultants to prepare any questions they might have before calling you. And they will call! If you can't take the call you might get an email to follow up, but if you have put your CV out there then it is fundamental that you engage verbally. This can be a stumbling block for some candidates. It’s hard, you’re busy at work and may not even be able to take calls, so where’s the benefit? Well, recruitment is a sales job, there's no other way to describe it, but there are complexities. For example, you're a person, we don't sell products, and it's the undefinable 'chemistry' between individuals that generally secures a job offer. 10
Your CV simply does not tell the full story. Which brings me to my next point. Your CV. I spend hours perfecting CVs so that they end up as the most effective marketing tool I can present for a candidate and so that I have a document that should secure said candidate interviews for their role or roles of choice. As with people, CVs come in all sorts of shapes and sizes. The quickest way for us to come up with a compliant and marketable CV is to speak to you so that we understand your story and we can make sure all the vital information, that we know our clients will ask for, is there. Compliance is king for the foreseeable future and many preferred supplier’s listings will audit agencies to make sure that they have obtained proof of right to work and reference details as a minimum. Something that is not often mentioned, and I feel compelled to mention given the amount of recruitment consultant bashing on platforms such as LinkedIn, is that if you speak to a consultant you might like them. I know from when I was on the other side of the fence, and working as a finance contractor, this was absolutely key. The recruitment consultants that I engaged with and formed productive professional relationships with were the ones I liked. I also felt understood and that they were switched on enough to represent me fairly to their clients. So I would suggest making your life easy; speak to and meet no more than two or three agents (conversations will help you whittle agents to this number) and start to enjoy the job hunting experience by working in partnership.
There's nothing to say these individuals might not be fundamental to helping you achieve your career goals, particularly those with experience and enviable networks. The communication tools we now have at our disposal are numerous and this enables us to create layers when engaging with candidates and clients. Social media is a wonderful, often visual, form of communicating that we may use personally but, some, are yet to explore professionally #walkerdendlefinancialrecruitment. However, nothing will ever beat personal interaction, either verbally or face to face. The subtleties of human interaction are still beyond our general understanding, it is also how we, ultimately, define ourselves as humans. Once you've got used to the whole 'talking' thing don't stop, trust me, it really will serve you and your consultant in NQ good stead! ● Estha Heiden is a
recruitment consultant at Walker Dendle
NQ Magazine August 2016
talk
NQ Magazine August 2016
YOUR CAREER
11
MAKING TAX DIGITAL
A land of opportunity Ed Molyneux has four reasons why digitisation is great news for accountants
F
or the accountancy profession, Making Tax Digital, the government’s initiative to fully digitise the tax system by 2020 signals the dawn of a new era: one in which digital services will lie at the heart of an accountant’s day-to-day role. Of course, accountants aren’t completely new to the digital world: many utilise online tools to help them run their own businesses, while a growing number use online accountancy software to manage their clients’ accounts and collaborate with them in real time. However, the revolutionary nature of Making Tax Digital, which promises ‘a transformed tax system and the end of the tax return’, may lead some accountants to fear that the initiative presents a challenge, or possibly even a threat, to the industry. With the accountancy profession currently at something of a crossroads, digitisation actually represents a genuine opportunity for accountants to both grow their practices and work more effectively with their clients. And here are some of the reasons why…
You’ll say goodbye to unnecessary admin The government’s Making Tax Digital plans are aimed at ‘eradicating bureaucratic form filling’ and making sure taxpayers ‘never have to tell HMRC information it already knows’. That means a clear focus on saving microbusinesses valuable time when it comes to managing and preparing their accounts, and paying their tax. As a result, accountants also stand to benefit from the time saving opportunities of Making Tax Digital. Traditionally, the run-up to the 31 January self assessment deadline has been one of the busiest times of the year for accountants with many spending hours on admin such as correcting mistakes, wading through expense receipts and
12
preparing end of year accounts for their clients. Under the new system, however, HMRC will only need to receive a quarterly update about each business not a full tax return. So provided that clients are using digital technology such as cloud accounting software that makes it easy to manage their day-to-day financial admin and stay on top of their tax, updating HMRC will simply be a case of pushing a button.
You’ll work with richer client information With more micro-businesses set to use digital software to manage their daily financial admin in the coming years, accountants will benefit from having a much clearer picture of their clients’ accounts than ever before. After all, when bank transactions are being logged automatically into accounting software and expenses are being recorded swiftly via smartphones, there’s less chance of important information being missed out of clients’ books and more likelihood of the data being up-todate and accurate. Equipped with this full picture of your clients’ accounts, you’ll have far richer information to work with and will be able to provide deeper and better insights into how their finances are actually performing.
You can focus on providing higher value services The reduced administrative burden of moving to a fully digital tax system means accountants will be spending less of their time managing simple admin or bookkeeping tasks for their clients and that will free them up to provide higher value services such as compliance and business support. These services, which demand the time and expertise of accountants, inevitably attract higher margins than
NQ Magazine August 2016
MAKING TAX DIGITAL
day-to-day bookkeeping tasks and lend themselves to a value-based approach to pricing. It’s also arguably more rewarding to help clients achieve their goals for their business than it is to spend hours chasing down paperwork and completing basic administrative tasks.
You can start being proactive The availability of real-time accounting data and a shared accounting picture allow a shift from offering reactive services (often manifested in a single interaction at year-end), to a far more proactive service. Systems such as FreeAgent can provide weekly or even daily updates via alerting and exception reporting tools, which means
NQ Magazine August 2016
you’ll always have real-time information about all of your clients’ accounts. Armed with this information, you’ll then be in a great position to notice and address potential problems in plenty of time and provide accurate and relevant NQ advice exactly when it’s needed.
● Ed Molyneux is CEO and co-founder of FreeAgent, which provides award-winning cloud accounting software to accountants working with contractors and micro-business owners
13
ETHICAL DILEMMA
A
d u ty D D care of
14
NQ Magazine August 2016
ETHICAL DILEMMA
With local elections looming you could potentially be caught up in a political scandal. So what should you do? OUTLINE OF THE CASE The year end accounts for a local authority have been prepared, and they will soon be adopted by the council, ready for audit. You are the head of social services finance, and you have become aware that some work has been performed by a consultant that has resulted in a proposal to close an elderly persons’ care home. The council members want to suppress this information from becoming public knowledge because there is a forthcoming by-election in the electoral ward where the care home is located. The consultant has agreed not to submit the invoice for their fees, which are significant, until after the byelection. Normal accounting treatment would require the consultant’s fees to be included as an expense in the accounts. Additionally, the estimated costs of the potential closure may need to be included as a provision in the accounts. The members will not make their decision known until after the by-election, which will be after the audit has been completed and the opinion signed.
KEY FUNDAMENTAL PRINCIPLES Integrity: How can you ensure that the accounts are an accurate and honest representation of the council’s activities? You cannot allow yourself to be involved in the publication of information that is misleading. Professional behaviour: You are required to perform your work in accordance with applicable law and regulations, including relevant accounting standards. How should you act so as not to discredit yourself or your profession?
CONSIDERATIONS Identify relevant facts: Consider the Local Government Code, generally accepted accounting standards, and applicable law and regulations. Also, establish the extent of the potential misstatement of the accounts. What is the likelihood that the council members have already decided to act on the consultant’s advice, in which case the provision for the costs of closing the care home is also required? Could past accounts have been misleading as well?
WHO SHOULD BE INVOLVED IN THE RESOLUTION? As the intention to conceal the consultation exercise is that of the council members, you should involve the leader of the council in the resolution process. You should also consider involving other senior managers, the internal audit department, and the external auditor.
POSSIBLE COURSE OF ACTION The consultant’s fees are significant, and so they should be included in the local authority’s year end accounts. You should establish, through discussions with senior management, whether the accounts should also reflect the proposal to close the care home. You should try to explain to your colleagues the accounting principles that require the liability in respect of the consultant’s charges and the potential provision in respect of the closure of the care home to be accounted for. You should make clear your professional and ethical responsibilities, and be prepared to discuss the issues with the leader of the council, if necessary. You could notify the central finance team, who may decide to bring the matter to the attention of those responsible for internal compliance (e.g. the internal auditors). They should also immediately notify the external auditors. If it appears necessary to whistleblow to third parties, you should consider carefully to whom you should report, bearing in mind the fundamental principles of confidentiality and professional behaviour. You could consult your professional body for advice, and consider seeking independent legal advice. You should determine what access you have to organisations that can offer guidance and support to employees who find they have a whistleblowing responsibility. You should document, in detail, the steps that you take in resolving your dilemma, in case your NQ ethical judgement is challenged in the future. •Thanks to the CCAB for this article.
✔ ¨
Identify affected parties: Affected parties include you, the council, council members, the consultant, the occupants of the care home, and the electorate.
NQ Magazine August 2016
15
HMRC INSPECTIONS
An inspector calls…..
T
here’s a number of reasons why HMRC might want to come to client’s premises. It could be any one or more of a VAT control visit, a PAYE compliance review, as part of an enquiry into the corporation tax, personal or partnership returns or to collect money and/or levy distraint against goods and assets of a business or person where an unpaid liability has already been established. It could also be as part of an enquiry into the National Minimum Wage, Tax Credits, or a visit from a National Insurance Inspector.
The visit
Ben Chaplin explains what you should expect if you are subjected to a visit from HMRC officers
16
In most cases, the officer(s) concerned will give some measure of notice of a visit to the premises and then it is up to the client and his professional advisers as to whether they want to agree a visit to the premises or request that HMRC visits an alternate venue such as the accountant’s office. In all cases, whether the visit is arranged beforehand, or they perform an unannounced visit to the client’s premises, it is worth knowing what rights the clients have in all circumstances. The legislation that outlines these rights is mostly within Finance Act 2008 Schedule 36 starting at paragraph 10. In most cases, the agent and the client will receive a letter arranging to make a visit or perhaps have a preliminary telephone conversation with the agent. FA2008 Sch.36 Para 12 provides that the occupier of the premises should be given seven days’ notice of an intention to undertake an inspection. However this provision can be varied with the agreement of an authorising officer. Essentially, an authorising officer is a senior officer who is required to satisfy himself of the necessity of an unannounced visit – perhaps because there is a fear that certain documents may not be made available if the normal seven-day notice period is given. In recent unannounced visits by HMRC to fish and chip shop premises in Glasgow, HMRC turned up at around 7.30pm to a number of businesses in the city and provided a notice of inspection that had been signed off by
NQ Magazine August 2016
HMRC INSPECTIONS
an authorising officer. However, what the clients didn’t know is that they could have ordered the officers off the premises and advised them to contact them at some future time. You would not expect the clients to be able to contact their accountants at that time of the evening and even if they had, many agents are not fully aware of their clients’ rights during such a raid. There are penalties for hampering an officer during an inspection (i.e. by ordering them off the premises). However, those penalties can only be levied if the notice has been signed off by the First Tier Tribunal. If it has been signed off by an authorising officer, a penalty cannot be levied and on request HMRC is required to leave the premises. During a visit to review the records, the officer can inspect the premises. However, inspection does not mean ‘search’ and while they can ask to see the contents of boxes, or locked rooms, they cannot go delving into filing cabinets without permission. In addition, they are entitled to inspect anything on the client’s premises, thus, if a company van is in the car park, they can ask to see inside that van. Conversely, HMRC does not have a right of entry or inspection to a person’s private accommodation. If a business is based at someone’s home, they can ask to meet there but this is purely within the gift of the taxpayer and he is within his rights to refuse.
The records HMRC is entitled to request sight of any statutory records on the premises when they do visit. The problem is that ‘statutory records’ is almost undefined within the legislation so it is perhaps necessary to take a more common sense approach as to what constitutes ‘statutory records’ and items such as purchase and sales ledgers and company bank records. It does not include (for instance) private bank records of the owners/directors. So, what practical advice should be provided to clients concerning HMRC’s visits to premises?
Document review and inspection If HMRC arranges a visit, ideally this should be arranged at the professional
NQ Magazine August 2016
adviser’s premises to avoid any disruption to the business. However if the officer insists, he should be provided with a room and provided with the statutory books and records he has requested. The room he is in should not hold any of the other records. The officer will normally ask for an overview of the business from the proprietor(s)/director(s) but the client does not have to speak directly to the officer, nor can the officer insist on meeting them. However, relevant persons like a book keeper can be made available in their stead, provided they are briefed to answer questions only within their purview and that they revert to the owners/ directors if HMRC query something outside of their remit. If they wish to inspect the premises, the proprietor/ director or a senior employee can.
Unannounced visits HMRC Officers come to your client’s premises on an unannounced visit – what should your clients do?
Briefly: ● Insist on seeing and reading the notice carefully, taking particular note of who has signed off the notice. ● If it signed off by an authorising officer, you have the right to order HMRC off the premises and request that they return at a more convenient time. ● If it is signed off by the First Tier Tribunal, you can still order them off the premises but you will be liable to a penalty of £300 plus up to £60 for each day that the obstruction occurs. ● It is open to the proprietor to comply with the notice and allow entry, review of records and inspection but they should note carefully everything that the Officer requests and this information should later be provided to their professional advisers to ensure that HMRC has not acted outside of their powers. ● If there is no one on the premises, and the door is open, they can enter the premises and undertake an inspection – they merely have to leave the formal notice in a prominent position. A good reason to maintain proper security!
Debt collection If you are in the position of owing HMRC money, you are likely to see more of the personal touch from HMRC Collection Officers such as letters, telephone calls and personal visits. As time goes on their procedures allow them to step up the process to amongst others, obtaining county court judgements, seizing goods and assets, and applying for a bankruptcy order. For most of these, it is advised to obtain competent legal advice as the matter has gone beyond arguing over the level of the liability with HMRC. As regards the Collector’s right of entry, they cannot, as a matter of course, force their way onto premises, however, once they are on the premises, they cannot legally be prevented from exercising their legal right to either collect the debt of remove goods and assets in satisfaction of the debt. If they are denied access, S61 (2) TMA 1970, S121A (2) SSAA92 and Para 2(2), Sch.12 FA 03 allow Officers to apply under oath to a Justice of the Peace for a warrant to break open the premises to levy distraint for direct taxes, NIC and SDLT. These provisions are rarely used and such a warrant would be granted only in exceptional circumstances, depending on the quality of the evidence. There is no statutory right to apply for a warrant to break open premises for indirect taxes.
Conclusion In the stress and confusion of an HMRC unannounced visit, it can be easy to fall into line with what an officer wants however, clients should be instructed that they do have rights and, in cases where they do not have immediate access to professional advice, unless the formal notice is signed off by an Tribunal, clients should be advised to consider asking HMRC to leave the premises until a more convenient time for the visit can NQ be arranged.
● Ben Chaplin is managing director of Taxwise Services
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HUMAN CAPITAL
PEOPLE POWER
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NQ Magazine August 2016
HUMAN CAPITAL
Tony Manwaring explains how the Valuing Your Talent initiative can help you unlock the talent within your organisation
Reporting Human Ca pital Illustratin g your com pany’s true value
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business’ greatest asset is its people. They are the most significant of the six capitals and drivers of value. Without people and their capacity to learn, develop and innovate, businesses couldn’t thrive. However, this means they can also pose a significant risk to ongoing success. Issues such as low productivity and skills gaps are all people-related problems that can have a real negative impact on a business. While many companies try to manage ‘people-risks’ by measuring and reporting on factors such as wellbeing, turnover and attendance, these measures can’t tell an organisation exactly where the issues are. For many companies, when the difference between success and failure could be down to the culture of an organisation or any number of people related issues, it is crucial they make sure they are giving themselves the best chance by ensuring they have better insights in this area. It is clear that much like attitudes have shifted toward accounting for social and intellectual capital, human capital now needs to be valued. Although there has been an overall increase in human capital reporting, who it benefits is still to be seen. While investors use this kind of information to make decisions, people measures won’t just benefit them. As well as providing investors with additional clarity around elements such as culture to make better decisions, employees also only stand to benefit from improvements in people measures, and organisations as a whole will thrive. FTSE 100 companies alone spend over £200 billion on their workforce yet there is no agreed way of understanding the impact of this investment. In addition, Brand Finance’s 2015 annual study of 58,000 companies across 120 stock markets shows since 2012 undisclosed intangible value has increased by 50% to $27 trillion – the value of human capital is a significant driver in this figure. This all highlights there is a clear gap in general understanding around where value sits in many organisations. It was with the aim of filling this gap that the Valuing Your Talent partnership was formed. It is a collaborative, industryled movement first established in 2014, and partners working together on the project include CIMA, the Chartered Institute of Personnel and Development (CIPD), the Chartered Management Institute (CMI) and the former UK Commission for Employment and Skills (UKCES). The project aims to transform how the workforce is viewed in business and help employers, investors and other stakeholders from finance, management and HR to better understand the benefits of human capital reporting and people measures. Since the Valuing Your Talent movement was established in 2014 two reports have been released; the first ‘Managing the value of your talent ’ in July 2014, and the second ‘Human capital reporting’ in January 2015. The latest piece of research from the partnership, called ‘Reporting Human Capital: Illustrating your company’s true value’, showed
NQ Magazine August 2016
although FTSE 100 companies understand the importance of having some view of their workforce, and are gathering information about and reporting on the people in their organisation, they haven’t included all relevant information about them in their annual reports. This shows there is still some way to go in changing the perceptions of the importance of maintaining a clear view of their organisation’s workforce. An essential part of the programme tries to address existing perceptions and involves creating a common language and set of tools and mechanisms that finance, HR and managers in any organisation can use to gain greater clarity around how the people they employ drive and preserve the value in their business. For example, the Valuing Your Talent Framework facilitates and provides the basis for conversation between all parts of the business to understand how best to ‘join the dots’ and unlock the value of their people. It will provide organisations with a deeper understanding of the drivers, motivations, competencies and gaps enabling them to be run with greater proficiency. As a finance professional just starting out you may be tasked with helping to meet the demand from your organisation to develop greater and significant insight about its workforce and recently qualified management accountant’s will be able to use their unique skill sets to understand how to use the Valuing Your Talent framework to apply the relevant metrics that allow you to account for the business and not just the balance sheet. The Global Management Accounting Principles can also support you here. Used in combination with the Valuing Your Talent framework it will help you ask the right questions and look in the right places. The Principles will also support you in ensuring that the insights you develop are directly linked to the business model, and effectively communicated. Finally, they will also support you in your role as steward – helping HR and managers interpret their people data and analytics into the language of the boardroom so decision makers are armed with all the information they need to make NQ the right decisions. ● Tony Manwaring, Executive Director of External
Affairs, CIMA
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VALUE CREATION
Creating the full picture Neil Stevenson explains what every accountant needs to know about value creation
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n my experience, accountants entering the profession are looking forward to variety of work, opportunities for promotion, wide experience across sectors and borders. Above all, they want to make a difference to the organisations they work for and to the society they live in. This brings together their personal aspirations with technical knowledge and commitment to ethical conduct. Are you in a position to maximise your personal value today? For example, would it worry you to know that you might only be looking at 20% of the likely value of your organisation? The reality of today’s business models means that up to 80% of the value of the company is not on the balance sheet – technology and know-how, brands, people, unique business models. When you think about how your organisation creates value, it is relying on resources and relationships that go far beyond financial capital and include human and intellectual capital as well as resources in the social and natural space. Accounting for the value of the whole organisation should become the goal of all professional accountants – to go further as finance managers to becoming ‘value managers’. Integrated Reporting (IR) is a development in corporate reporting that recognises this trend. The International IR Framework, released in December 2013, is a strong foundation which introduces a ‘multi-capitals’ system for understanding and articulating value creation as the best way of achieving harmony between the human, social, natural, intellectual, manufactured 20
and financial resources that make up a modern economic system. It positions financial reporting as an essential part of a broader canvas of resources that must be managed holistically, not in isolation. It is also a development that recognises that, to become mainstream, sustainability data must be connected to broader performance, including financial performance, as well as to the strategy of the business. It is an approach that helps to deliver greater cohesion and bring an end to the silo mentality that can conceal material risks making them virtually impossible to manage, let alone disclose. From Brazil to South Africa, India to Japan, in the US and across Europe organisations such as Aegon, Arcelor Mittal, Danone, DBS Bank, Deutsche Bank, General Electric, Generali, HSBC, Itau Unibanco, JLL, Marks & Spencer, Philips, Prudential Financial and Unilever – to name a few – are moving towards Integrated Reporting. In the UK, many companies are advancing far on their journey as IR is consistent with the requirements of the Strategic Report. IR is also aligned to the direction of an increasing number of leading investors. For example, the global CEO of BlackRock investors, Larry Fink, has asked every CEO to ‘lay out for shareholders each year a strategic framework for long-term value creation’. And the investor representative body, Eumedion, in the Netherlands has called on businesses to adopt IR in its annual letter to companies for three years in a row, leading to increasing take-up by listed companies in that country.
Accountants stepping up! We believe that reporting influences corporate behaviour and brings many benefits to the integrity and quality of thinking within the organisation. Based on my personal experience working in the accountancy profession, I also believe that accountants can – and should – play an instrumental role in leading on value creation. This is an opportunity for personal value creation. As accountants, your skills include preparing and communicating robust information, using judgment, professional scepticism and ethical conduct as guiding lights in all your work. And you can build on existing strong skills around financial management – so integral to sound business performance. NQ Magazine August 2016
VALUE CREATION
Benefits Organisations who are adopting IR typically report: ● I ncreased understanding of their value creation model. We believe IR can lead to personal fulfilment, helping you to unlock value, make better strategic connections, and lead higher understanding at board level as to how your organisation creates value. CFOs of the future will likely have used IR to influence strategic change and improved performance in their organisations, and to have used IR to enhance their organisation’s long-term perspective and focus on sustainable development. IR therefore links your personal role to goals that benefit us all in the world today.
Training in IR I am pleased to note that today a number of professional accountancy bodies have incorporated IR into their core syllabuses – including NQ Magazine August 2016
ACCA and CIMA. And, increasingly, IR is on the agenda for continuing professional development. We have also established our own training programme, setting out the learning outcomes essential for good Integrated Reporting practices. A number of organisations have partnered with the IIRC to develop their own programmes (see www.integratedreporting.org for a list of providers). This will promote a consistent quality of training in the market, which in turn will drive higherquality integrated reports. Integrated Reporting is aligned to the agenda of professional accountants and to the creation of better business, well tuned to movements towards long-term investment and inclusive capitalism. We invite you to use your
● P roviding investors with a better understanding of the organisation’s strategy. ● R educed silos leading to better and more robust data.
skills to heighten your personal role and create more value. You can find out more about the IIRC at integratedreporting.org ● Neil Stevenson, Managing
Director, Global Implementation, International Integrated Reporting Council 21
CORPORATE CULTURE Martin Winterkorn, chief executive officer of Volkswagen, resigned following the carbon emissions scandal
Taking control Ian Peters examines the role of the Board, and how to ensure values at the top match reality on the ground
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hat are your organisation’s values? Are they being lived out day-to-day at all levels? In the wake of numerous recent corporate scandals, from the automotive sector emissions scandal to healthcare to financial services, it’s becoming increasingly clear how much organisational culture matters. However, defining what this should look like and embedding it effectively throughout organisations are challenges that public and private sector boards alike must address. Understanding where culture sits on the agenda – in theory and in practice – is critical to improving standards, helping Boards to see its value and identify ways of driving best practice. We recently participated in the Financial Reporting Council’s ‘Culture Coalition’ initiative into how corporate culture can be better managed, conducting some in-depth research among Heads of Internal Audit (HIAs). Their role providing independent assurance that an 22
organisation’s risk management, governance and internal control processes are operating effectively makes them well placed to provide valuable insight into corporate culture, and its impact on the management of risk.
A mixed picture The picture that emerged from this research is mixed. For example, more than half of the HIAs we surveyed said that assessment of culture is included in their audit plans – in which they assess whether organisations are adequately managing all major risks facing them, ranging from financial mismanagement, through to fraud and environmental risks. However, despite this, and despite almost a fifth planning to do so next year, a substantial minority report that it is not included. Clearly, for culture to be evaluated the board’s desired culture first has to be explained, communicated and understood. HIAs also need to be given the mandate (and NQ Magazine August 2016
CORPORATE CULTURE the resources) to assess it. However, our results show that almost a third of companies have failed to establish or articulate what their values are and what organisational culture should look like. Of the majority that do articulate the desired culture and values, just over a third analyse whether these values are reflected in staff attitudes and behaviours. Failure to profess a clear tone at the top and, crucially, to ensure it filters down effectively throughout the organisation can have significant ramifications. Poor corporate culture can lead to behaviours that can be extremely damaging to reputation and ultimately to the bottom line. However, this is often easier said than done. Culture is an abstract concept, one that evolves over time and is subject to a variety of external and internal influences. Defining it and changing it are not straightforward processes – but that’s not to say it shouldn’t be attempted. In order to address the issues and help guide organisations through this challenging process, we have published a new report based on our findings (‘Organisational Culture – Evolving Approaches to Embedding and Assurance’).
Leading from the top It is for Boards to take the lead here. In essence there are several key tenets we believe Boards should adopt to embed the right culture within their organisations. First, clarity and communication are crucial. Boards need to define and express what values and behaviours they expect from staff at all levels and ensure that these are being lived out on the ground. Fostering a ‘just’ culture should also be a priority. This means promoting an atmosphere of trust and encouraging staff to speak out about issues or concerns, while at the same time setting clear benchmarks for acceptable behaviour. Encouraging the inclusion of culture in internal audit plans could also deliver valuable insight, which can be enhanced by a combination of ‘soft’ controls, for example
individual observations or surveys, and ‘hard’ controls, such as technology and data. This last point merits some further explanation; we need to look at how culture can be audited and compare the advantages and drawbacks of different methods.
‘Soft’ versus ‘hard’ controls There are many ways in which HIAs can make use of ‘soft’ controls. Sitting in on a range of senior committees or project groups would give them as much insight into culture from the tone and tenor of discussions as from the subject matter itself. Interviews and behavioural observations are other key ways to audit culture, although while HIAs are adept at using their professional judgement and experience in this respect, this is always subject to the caveat that they are not trained psychologists or behavioural experts. Staff surveys, value statements and reports on complaints handling and whistleblowing may also be of some value. ‘Hard’ controls can provide a valuable counterbalance – helping to affirm or challenge instinct, observation or opinion, all of which are clearly subject to human bias and error. On a macro level, having hard data can provide evidence that supports or undermines accepted norms. Today, with the emergence of Big Data, organisations can increasingly leverage the information they hold about themselves to paint a clearer picture of their culture, as is already happening in sectors such as the NHS and aviation, with the focus on how it impacts on quality and safety. Finding ways to combine the two is the logical – though by no means simple – next step, so that culture is hardwired into management systems, via both people and technology. If organisations are to ensure that the ethics and values they want to embody are projected by those working for them, they need to encourage buy-in and effectively monitor progress. Ensuring that principles match up with the operational reality on the ground will be a continuous work in NQ progress – one that Boards cannot afford to ignore. ● Ian Peters is the Chief Executive of the Chartered
Institute of Internal Auditors
NQ Magazine August 2016
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