accounting & business (international edition)_january 2012

measuring up?australia’s green taxes experience

advising oman senior economist hamid hamirani on meeting new challenges

2012 what’s worrying you?networks get connectedtechnical goodwill impairment

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A BUMPY RIDEWith volatility threatening businesses on multiple levels, global financial controllers should brace themselves for 2012.Page 28

HAPPY RETURNSACCA’s first ever global salary and career survey uncovers what accountants make of their pay, prospects and work-life balance.Page 60

NEW YEAR NEW JOBCheck out thousands of jobs and expert careers advice at www.accacareers.com

TECHNICAL WEBINARS

Automating internal reporting processes www2.accaglobal.com/automate

Integrated reporting www2.accaglobal.com/integrated

Having lived everywhere from Pakistan to Dubai to the UK, and fi lled every sort of fi nance-related post from accountant to auditor to vice president, Hamid Hamirani FCCA now advises Oman’s minister of fi nance. Read his tips from a 30-year career, on page 16

CAN’T SEE GREEN FOR THE BLUES?As the clock ticks over to 2012 we find ourselves in a world that is more uncertain than ever. The eurozone crisis continues to plunge the economies of the developed world into a rollercoaster of pessimism, punctuated by short bursts of optimism whenever an announcement is made of a new masterplan that can solve the crisis. In turn, stockmarkets around the world go up and down in response to the latest sentiments.

Against such a background, there is a very real danger that the pressing need to address global climate change will be pushed onto the back burner. As we went to press, the United Nations secretary-general Ban Ki-moon was admitting that securing a binding climate deal at COP 17 – the conference of the parties to the UN Climate Change Convention currently taking place in Durban, South Africa – would be ‘challenging’. In order to effect a second commitment period to the Kyoto Protocol, the competing interests of 130 countries are being considered.

Our cover feature this month (page 12) explores the controversial green taxes that finally reached the Australian statute books on 8 November 2011. The issue has been headline news for many months. Heralded by prime minister Julia Gillard as a ‘victory for historic reform’, we look at what they will really mean for the country’s businesses. Again, it is uncertainty that is proving problematic. The legislation passed by the slimmest of margins and, according to Tim Nelson, head of carbon analysis at power company AGL, businesses must continue to sit on their hands.

Back in Africa, more positive news emanated from the continent’s accountants. On page 24, we report from the first African Congress of Accountants, held last November. The congress was the first attempt to organise the contemporary issues surrounding the profession across the continent into a coherent gathering. The accountancy profession in Africa has come of age.

Happy new year to all our readers around the world.

Lesley Bolton, [email protected]

3Editor’s choice

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Features12 Carbon conundrum What will Australia’s new carbon tax mean for businesses?

16 Learning curve We talk to Hamid Hamirani FCCA, the senior economist advising Oman’s minister of fi nance

20 Going global The number of countries adopting IFRS has hit the 100 mark

24 Brave new world Accountancy in Africa has taken an important step forward

26 E-learning As a training tool, e-learning is set to expand even further

28 Sweet dreams? Global fi nancial controllers could be in for sleepless nights in 2012 and beyond

33 Barnier’s grand audit plan We examine the European Commission’s proposals for the future of the audit market

VOLUME 15 ISSUE 1

AB INTERNATIONAL EDITIONCONTENTS JANUARY 2012

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BRIEFING06 News in pictures A different view of recent headlines

08 News in graphicsWe show a story as well as tell it using innovative graphs

10 News round-upA digest of all the latest news and developments

VIEWPOINT35 John Davies Europe’s audit proposals are too interventionist

36 Robert Bruce Plans for ‘pure’ audit fi rms could prove disastrous

38 Ramona Dzinkowski Plans to bring the US into the global standards fold stall

39 Dean Westcott Embrace technology to control our destiny, urges the ACCA president

41 PRACTICE41 The view from Sally Aubury of SingerLewak, plus news in brief

42 Network know-how Local fi rms should make the most of international accountancy networks

45 CORPORATE45 The view from Ju Majid of Procter & Gamble, plus news in brief

46 Harnessing the energy A look at what it’s like to work at Shell

Regulars

CPDAccounting and Business is a rich source of CPD. If you read it to keep yourself up to date, it will contribute to your non-verifi able CPD. If you read an article, learn something new and apply that learning in some way, it will contribute to your verifi able CPD. Each month, we also publish an article or two with related questions to answer. If they are relevant to your development needs, they can also contribute to your verifi able CPD. One hour of learning equates to one unit of CPD. For more, go to www.accaglobal.com/members/cpd

WorldwideThere are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab

Your sectorTECHNICAL50 Doing business in China A guide to incorporation models and tax implications

54 CPD: IAS 36 Understanding the implications of an amendment on the size of cash-generating units

57 Update The latest from the standard-setters

CAREERS60 Salary survey ACCA’s fi rst global salary and career survey shows high levels of career satisfaction among members

ACCA NEWS59 Take fi ve Hints to help you plan your CPD for 2012

62 2012 Rulebook A look at the changes in the latest edition

64 International Assembly Senior members gathered in London to discuss the challenges that lie ahead

66 Student service Exam registration and results fully online

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01 Militant Italian protestors took

to the streets of Rome during a protest inspired by the Occupy Wall Street demonstrations in the US

02 Heavy floods swept through

Accra, the capital of Ghana, killing nine people. President John Atta Mills visited the affected areas

03 As 2012 dawns, three new PMs

are getting to grips with the eurozone’s problems: Spain’s Mariano Rajoy (right), Greece’s Lucas Papademos and Italy’s Mario Monti

News in pictures6

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04 Camera-maker Olympus went

into meltdown after admitting losses going back more than 20 years. Former auditor Ernst & Young has come under fire

05 Months of heavy rain have

affected about a third of Thailand’s province, destroying farmland and forcing tens of thousands from their homes. Some 500 people have died and the government has announced a 100 billion baht recovery plan

06 More than 600 people died in

an earthquake which hit eastern Turkey’s Van region in October. A second quake struck the same area two weeks later, bringing down weakened buildings

07Sixteen-time Grand Slam

winner Roger Federer is set to play the Australian Open in Melbourne. The Swiss national won a record sixth World Tour Finals at the O2 in London in November

7

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STAYING POWERThe top three countries in the 2011 AT Kearney Global Services Location Index – India, China and Malaysia – have held their positions since the index began, thanks to deep talent pools and cost advantages. Egypt was one of only three non-Asian countries in the top 10.

TAXMAN CLOBBERS MOBILESTaxation as a share of the total cost of mobile phone ownership has risen over the last four years, according to research for the GSMA undertaken by Deloitte. The countries experiencing the biggest hikes are often those that have introduced an airtime tax, although handset taxes and higher VAT rates have also had an effect.

1 TURKEY2 TANZANIA 3 UGANDA7 DOMINICAN

REPUBLIC 9 GREECE

26 DEM REP CONGO

48 GABON 56 MADAGASCAR66 PAKISTANn/a CROATIA

HIGH COST OF THE TYPICAL TEAMA finance benchmarking analysis by PwC Kenya has revealed a big gap between the cost-efficiency of top-quartile and typical (median) finance teams in Kenyan and East African companies. The best 25% restrict the cost of the finance function to 0.2% of corporate revenue.

RANK: 4EGYPT

28.3%MADAGASCAR

6

29.1%DEM REPCONGO

5

30.4%GREECE

4

31.6%PAKISTAN

3

37.2%GABON

2

48.2%TURKEY

1

27.8%TANZANIA

9

27.9%CROATIA

8

28.2%UGANDA

7

RANK: 3MALAYSIA

RANK: 2CHINA

RANK: 1INDIA

EASY BUSINESSSingapore has topped the Doing Business survey for the second year in a row. Through indicators benchmarking 183 economies, the report – from the World Bank and the International Finance Corporation – tracks changes in the regulations applying to domestic companies in 11 areas in their life cycle.

0.2%TOP-QUARTILE FINANCE TEAM

0.7%TYPICAL FINANCE

TEAM

27.7%DOMINICAN REPUBLIC

10

2007 RANKINGS

News in graphics8

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8.5%The percentage fall globally for the total tax rate for small and medium-sized enterprises since 2006, according to PwC’s Paying Taxes 2012.

1.84%The percentage of UK gross domestic product reliant on accounts receivable finance, according to GE Capital.

50%The level of luxury purchases by Chinese consumers taking place overseas, of which half take place in duty-free shops.

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Corporate tax 2011

Indirect tax 2011

Corporate tax 2010

Indirect tax 2010

HEAVY-HANDED TAXATION MAKES WAY FOR THE LIGHTER TOUCHAccording to KPMG International’s annual Corporate and Indirect Tax Survey, corporate tax rates have been steadily falling for a decade, while goods and services tax (GST) and value added tax (VAT) systems have been introduced, rising to higher rates and applying to more items as indirect tax systems mature.

1 ASIA: DOWN FROM 24% 2 LATIN AMERICA: DOWN FROM 25.3%3 EUROPE: UP FROM 20%4 OCEANIA: DOWN FROM 24.2%5 NORTH AMERICA: DOWN FROM 23.7%6 AFRICA: SAME AS 2010

7 ASIA: UP FROM 11.6%8 LATIN AMERICA: DOWN FROM 13.9%9 EUROPE: SAME AS 201010 OCEANIA: UP FROM 12%11 NORTH AMERICA: SAME AS 201012 AFRICA: UP FROM 13.9%

KEY

GLOBAL FRAUDDespite a significant drop in fraud cases, global executives are reporting increased vulnerability to nearly all types of fraud, according to Kroll’s Global Fraud Report, conducted in conjunction with the Economist Intelligence Unit and surveying the sentiments of more than 1,200 senior executives worldwide.

1 Corruption and bribery 2 Money laundering 3 Internal financial fraud or theft4 Vendor, supplier or procurement fraud5 Regulatory or compliance breach

6 Theft of physical assets or stock 7 IP theft, piracy or counterfeiting8 Management conflict of interest9 Financial mismanagement10 Information theft, loss or attack

22.8%ASIA

1

2

25.1%LATIN

AMERICA

3

20.1%EUROPE

4

23.8%OCEANIA

5

22.8%NORTH

AMERICA

6

28.3%AFRICA

7

11.7%ASIA

8

12.8%LATIN

AMERICA

10

12.5%OCEANIA

12

14.2%AFRICA

44%

41%40%

39%38%

25%

50%47%

46%

1 2 3 4 5 6 7 8 9 10

KEYXX% Incidences of fraudXX% Percentage who see themselves as highly or moderately vulnerable

42%20%

4%

10%11% 16%

19%19%21% 23%25%

11

5%NORTH

AMERICA

9

19.7%EUROPE

9

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BIG FOUR FACE BREAK-UPThe Big Four would be unable to operate as both auditors and consultants under the European Commission’s revised reform plans. Nor would auditors be allowed to provide consultancy services to their clients. The mandatory rotation of audit firms is also proposed. In another move designed to challenge the dominance of the major firms, lenders and other counterparties would be banned from stipulating that audits must be conducted by a Big Four firm. However, there will be no move towards mandatory joint audits. Internal markets commissioner Michel Barnier said: ‘It is now high time for the situation [of Big Four market dominance] to change and for auditors to respond to the societal role that they are entrusted with.’ The creation of a European ‘passport’ for auditors has also been proposed, to increase mobility across the single market. (See pages 33–37.)

AIR PARTNER SWITCHES AUDITORDeloitte has won the Air Partner audit from Mazars. Air Partner said the auditor change followed a competitive tendering process. Mazars’ final audit report statement said there were no circumstances that needed to be brought to the attention of shareholders. Air Partner provides private jets and planes for charter.

GUIDANCE ON GREEK DEBTThe European Securities and Markets Authority has issued guidance to issuers and auditors on how IFRS and legislation should be interpreted when deciding on the accounting treatment of Greek and other at-risk sovereign debt. Issuers are encouraged to provide information on exposures to sovereign debt on a country-by-country basis in their financial statements. The ESMA is seeking to achieve a consistent interpretation of IFRS on the treatment of sovereign debt.

STANDARD-SETTERS GET CLOSER The International Federation of Accountants (IFAC) and the IASB have agreed to increase cooperation on the production of public and private sector accounting standards. IFAC supports the International Public Sector Accounting Standards Board (IPSASB), responsible for developing International Public Sector Accounting Standards (IPSAS). IPSAS are used by an increasing number of public bodies around the world and many draw on IFRS. A memorandum of understanding between the two bodies commits them to closer joint working and the creation of greater consistency between the two sets of standards. The memorandum conforms to the strategy set by the IFRS Foundation Trustees, which called for the IASB to work more closely with other standard-setters.

BDO REVENUES UPBDO’s revenues rose in the year ended September for its global network, including its US and Spanish members. The rise was worth 4.41% measured in euro, or 7.36% in the dollar. Turnover for the year was US$5.672bn. The fastest-growing region was the Middle East, where income rose 31%, helped by the recruitment of new member firms in Lebanon and Saudi Arabia. Revenues rose by 21% in Asia Pacific, assisted by the Hong Kong merger with Grant Thornton. Revenues rose by 16% in sub-Saharan Africa and 1.1% in Europe.

NEW MEMBERS FOR BDOBDO has admitted a new member firm in Kuwait. BDO Kuwait – Al Nisf & Partners – is one of the three largest audit, tax and consulting firms in Kuwait. Its clients include large local listed companies and multinationals operating in Kuwait. ‘Kuwait is an important economy in the Middle East and our new firm strengthens BDO’s presence in the entire Middle East, and in the Gulf in particular,’ said Martin van Roekel, CEO of BDO International. BDO has also admitted Edison Consulting Group as a new member firm in Slovakia, which now trades as BDO Slovak Republic.

INFORMATION SECRECY INFLICTS SOVEREIGN DEBT PRICEThe failure of governments to release key financial information to finance institutions, credit rating agencies and the public undermines confidence in sovereign debt, says an Ernst & Young study. ‘This has potential ramifications for the global economy if those audiences making critical investment, regulatory and political decisions do not have the most relevant and reliable information,’ said Philippe Peuch-Lestrade, global government and public sector leader at Ernst & Young. ‘Governments should be motivated following the financial crisis to put in place the conditions for modern management and to reform their accounting methodologies, but more progress is still needed to address concerns about transparency, accountability and sustainability.’

EU finance ministers try to thrash out a solution to the debt crisis in the eurozone

10 News round-up

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P33

REVERSE MERGER CHANGEThe US Securities and Exchange Commission has approved new rules strengthening the standards for companies going public through a reverse merger. The move addresses concerns that the SEC sometimes has difficulties obtaining reliable financial information from reverse merger companies based overseas. Reverse mergers have been used to list on US stock exchanges as a way of enabling overseas companies to access US investors and markets.

EU ACCOUNTS FAULTY AGAINThe EU’s anti-fraud commissioner Algirdas Šemeta has blamed but not named three member states for the EU’s accounts again being declared faulty by financial watchdog the Court of Auditors. The court concluded that while the 2010 accounts presented the EU’s financial position fairly, the payments underlying the accounts were still affected by material error, with an estimated error rate of 3.7% for €122.2bn of spending. The court said there were ‘breaches of public procurement rules, ineligible or incorrect calculation of costs claimed to EU co-financed projects, or over-declaration of land by farmers’. Šemeta noted the court’s conclusions that the majority of errors concerned seven operational programmes in three member states.

AFRICA VAT CHALLENGEBusinesses operating in Africa face serious challenges because of the multiplicity and complexity of VAT systems, says a report from PwC. This exposes multinationals to tax risk, errors and inconsistencies in applying the law. Most of Africa’s 54 countries have VAT systems in place which foreign investors and businesses need to understand, said PwC in its Overview of VAT in Africa. Charles de Wet, PwC’s national VAT leader for southern Africa, said: ‘The VAT systems in Africa are not aligned, which has a major effect on a company’s operating and financial systems. As a result the compliance burden on companies may be onerous.’

TAX REFORMS BENEFIT SMEsSome 123 countries have significantly reformed their tax systems to ease the burden on SMEs, concludes a joint report from the World Bank, the International Finance Corporation and PwC. The study, Paying Taxes 2012, found that 33 of the 123 economies studied had made it easier and cheaper to pay taxes in the period June 2010 to May 2011. The most common

reform was the increased use of online systems, which has helped cut tax administration by an average of a day a year. Tax rates have also dropped by 8.5% since 2006.

FAIR VALUE GET-OUTPrivate and not-for-profit companies in the US may be spared some obligations to report assets at fair value. A Financial Accounting Standards Board project will evaluate the need for existing disclosure requirements for private companies and not-for-profits for fair value measurements that are determined using significant unobservable inputs, such as expected future growth rates.

CLEANEST HANDS IN NZ New Zealand has been ranked the world’s least corrupt country, by Transparency International. Somalia and North Korea were ranked joint last in the perceptions survey. Russia was rated most corrupt of the major nations, at joint 143rd of the 183 countries rated. TI pointed out that eurozone countries with debt crises are among the lowest-scoring EU countries,

partly because of their failure to tackle the bribery and tax evasion that are key drivers of the debt crisis.

PCAOB SHARES WITH ISRAELAn information exchange deal has been signed by regulators in Israel and the US. The US Public Company Accounting Oversight Board and the Israel Securities Authority agreed to improve the supervisory oversight of auditors and accounting firms that practise in both jurisdictions. The deal was made possible by last year’s Dodd-Frank Act, which permitted the PCAOB to share confidential information with other national regulators.

CHINA REFORMS STOCK RULESChina has reformed its China Securities Regulatory Commission, appointing Guo Shuqing as its new head. Guo said the regulator’s primary focus was now to crack down on insider trading. He joins from state-owned China Construction Bank – the second largest in the country – where he was chairman. Xiang Junbo, the former leader of China’s Agricultural Bank, becomes the head of the insurance regulator. Meanwhile, China Banking Regulatory Commission chairman Shang Fulin announced that it would increase its level of intensive supervision of banks regarded as systemically important and increase cooperation with financial regulators in other countries. It is also increasing capital adequacy requirements for China’s banks. Both national and local governments have begun closing down unauthorised stock exchanges.

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Guo Shuqing: insider trading focus

AnalysisEUROPEAN BULL ENTERS AUDIT’S CHINA SHOPThe European Commission’s proposals on audit reform seek to tear up the status quo, with mandatory rotation and tendering, and much more in the same vein. We investigate the grand plans – and the reaction to them

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12

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CONUNDRUMO

n 8 November 2011, Australia’s federal parliament finally passed a carbon tax after more than a decade of

debate. It means that, from 1 July 2012, around 500 of the country’s biggest polluters will pay for each tonne of carbon they emit. The price will be fixed at A$23 per tonne for the first three years, after which it will be determined by the market. A raft of personal tax cuts, and increases in pensions and benefits, have been announced to assist householders with the extra costs that will be passed on by businesses.

Prime minister Julia Gillard declared the legislation a ‘victory for historic economic reform’. Carbon pricing is the most effective way to cut carbon pollution and create a clean energy future, she said.

ACCA’s head of sustainability Rachel Jackson broadly agrees. She says that placing a price on carbon can be an effective tool to curb the use of fossil fuel-based energy, although she cautions that it is just one tool. ‘Carbon taxation should be used alongside other instruments, such as emissions trading schemes and increasing investment in renewable resources,’ she says.

Jackson adds that national efforts to tackle climate change will be most effective if they take place within an internationally co-ordinated framework. She sees COP 17 (the conference of the parties to the UN Climate Change Conventions taking place as we went to press in Durban, South Africa) or next year’s COP 18 as the venue for the

introduction of such a framework. ‘An international agreement on emissions reduction and climate change mitigation activities is crucial if we are to make rapid progress towards a green economy where our reliance on fossil fuels is limited and our use of resources is sustainable,’ says Jackson.

Back in Australia, though, few businesses are cheering the new legislation from the rooftops. The reason is a pervading uncertainty. The legislation passed by the slimmest of margins that constrains every major reform attempted by Australia’s minority Labor government. The opposition Liberal Party has threatened

to repeal the law if it wins the next election (scheduled for 2013) – and that, according to Tim Nelson, head of carbon analysis at power company AGL, means businesses must continue to sit on their hands. ‘We are still struggling with the uncertainty of it all,’ he says.

Nelson is referring to investment in green energy alternatives, which AGL, the largest renewable energy company in Australia, is keen to develop. The company invests in wind, hydro and geothermal power sources, putting A$3bn into renewable energy in recent years, on top of its traditional power

generation. But that will be it for the foreseeable future, AGL has said.

‘Not until carbon pricing has bipartisan support at the commonwealth level will we have confidence to invest in assets that last for decades,’ Nelson says. ‘If we have carbon pricing for three years and then it is repealed, businesses can essentially be stranded.’

Not everyone is unhappy, though. Emma Herd, director, emissions and environment, at banking giant Westpac, says that the ‘investment certainty’ the legislation provides helps businesses to ‘understand their obligations, identify opportunities for competitive

differentiation and move to implement an operational response’.

Gillard herself noted the ‘great deal of anxiety’ some Australians still feel about a carbon tax, and the ‘bitter debate’ it has sparked. But why is carbon pricing so controversial in the country in the first place? Other developed nations have been putting a price on carbon since 1990.

The people who are tossing around this political hot potato basically fall into two camps: first, those who believe that Australia – as one of the top 20 polluters in the world, and, on a per capita basis, the highest

‘NOT UNTIL CARBON PRICING HAS BIPARTISAN SUPPORT AT THE COMMONWEALTH LEVEL WILL WE HAVE CONFIDENCE TO INVEST IN ASSETS THAT LAST FOR DECADES’

Australia’s carbon tax has at last reached the statute books – but it continues to be mired in controversy. So what will it really mean for the country’s businesses?

13

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emitter of greenhouse gases among the developed economies – has a duty to lead on environmental issues. ‘If we did nothing, why would any of the other countries do anything at all?’ says Greg Combet, minister for climate change and energy efficiency. ‘Obviously, on our own we would have very little impact. But we are part of the international community, and as the highest per capita polluter you have a responsibility to step up to the plate and reduce your own emissions as part of a global effort.’

Opponents question whether carbon pricing can reduce global temperatures in any measurable way. They point out that some countries don’t have a carbon tax – including the US, which won’t even discuss it – or, like France, are backing away from one. They suggest that the tax may put Australia’s competitiveness at risk.

Yet Christopher Wright of the University of Sydney Business School,

What exactly does Australia’s new carbon pricing scheme look like? In a series of reports on the business of climate change, Ernst & Young dissected the detail of the Clean Energy Legislative Package. It found that the issues affect many businesses, not only the 500 or so entities with direct liabilities under the carbon pricing mechanism, but also businesses that will be impacted by cost pass-throughs and a changing economic environment.

Mathew Nelson, EY’s climate change and sustainability leader, says that the passing of the legislation only gave businesses some ‘short-term certainty’, but without bipartisan support for the legislation they were hesitant to plan for the medium to long term.

‘Uncertainty is impacting on the way businesses are making medium and long-term investment decisions that incorporate carbon pricing. The sooner we move to an unrestricted market and businesses can make concrete plans around their valuations and transactions, then the sooner they can appropriately price their products and services,’ Nelson says. ‘The ability of businesses to begin to prepare for full trading is also impacted and there is a sense of hesitancy in getting into the forward market until there is greater certainty.’

Nelson, who attended Carbon Expo Australasia on the day the legislation was passed, observed ‘definitely a mixed response’ among the executives present. ‘This seemed to be across companies who tend to do well out of it, and those who tend to do not so well,’ he says.

‘Even those companies who will be significantly impacted by the scheme would say that carbon pricing is an appropriate response – it is around the edges that there are concerns,’ he adds.

It boils down to the permit allocation method in Australia’s legislation, rather than the auctioning system other countries have adopted in their emission trading schemes, according to Nelson.

‘When you auction, the government raises funds that can go back to the community through tax breaks and other incentives,’ he says. ‘There is a balance between what businesses pay and what the end users pay.’

*AN UNCERTAIN FUTUREPowering ahead: Australian prime minister Julia Gillard and climate change minister Greg Combet inspect a solar concentrator in Canberra

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INT_F_cover.indd 14 08/12/2011 11:08

Businesses are supportive of a price on carbon ‘as long as it is left to the market to determine the price’, says Mathew Nelson, Ernst & Young’s climate change and sustainability leader. Another concern is the price Australia has set on its carbon – A$23 per tonne, which is ‘substantially higher’ than the international price of €7, set by the European Union.

‘When the economy comes off, production slows down, and greenhouse gas emissions slow as well,’ Nelson says. ‘The price of carbon should come down too, but with a fixed-price tax, there isn’t that flexibility. This is why businesses would prefer a full emissions trading scheme.’

However, Anthony Hobley, a lawyer specialising in international carbon finance, says Australia’s system compares well to the EU’s Emissions Trading System. Hobley, global head of climate change and carbon finance with law firm Norton Rose, believes that Australia has learned from early problems encountered in the EU. ‘I think it compares favourably with schemes across Europe and New Zealand,’ he says.

One thing is certain: according to the EY report, with legislation now passed, holding off ‘is not an option’.

Nelson believes that it is critical that businesses respond and focus on the development of climate change and emissions reporting strategies in the short term, because not doing so puts them at risk of Australian Competition and Consumer Commission scrutiny, and ending up with contractual disputes over recovery of costs associated with a carbon price.

Measures that need to be undertaken immediately include establishing a committee to ensure that issues are managed effectively across the business, developing systems for compliance, assessing strategies to pass on the carbon pricing costs to downstream customers and markets, and developing an accounting treatment policy.

‘This should be part of a comprehensive carbon strategy which covers internal abatement, purchasing credit based on marginal abatement cost-curve assessments and re-engineering of business processes,’ Nelson says.

*HOLDING OFF ‘NOT AN OPTION’

CLIMATE CHANGE IS VIEWED AS A KEY STRATEGICISSUE IN WHICH BUSINESSES ARE INVESTING SIGNIFICANT ENERGY AND RESOURCES

and three companies were highlighted as models of good practice: General Electric for its development and manufacture of more fuel-efficient engines, Westpac for pricing carbon risk in its institutional banking, and AGL for its investment in alternative energy sources.

‘The innovative firms we have focused on favour the introduction of a market-based mechanism to price carbon emissions,’ says Wright. ‘There may be some discussion about the best way this should be introduced, but many of the firms in our study have advocated to government the need for carbon pricing.’

Companies opposing the carbon tax, Wright says, ‘are typically SMEs lacking the strategic planning or internal capabilities to engage with this issue, or larger players in fossil-fuel industries or high-emitting manufacturing. For the latter, there is significant regulatory risk to their operations from the pricing of carbon emissions and hence opposition to regulation makes short-term sense in extracting transitional assistance and concessions. However, we have also spoken to major energy utilities and mining companies, which do accept the science of climate change and are engaged in significant actions to reduce their carbon emissions through increasing use of renewable energy, production efficiencies and longer-term strategic restructuring to reduce their carbon exposure.’

The Business Council of Australia (BCA) takes a different view – that the legislation could significantly increase risks to Australia’s economic growth and competitiveness. ‘It is extremely disappointing that the parliament has not heeded the council’s calls to include essential safeguards in the legislation and act in Australia’s national economic interest,’ says BCA chief executive Jennifer Westacott. She says that the council’s analysis shows the legislation to be based on ‘optimistic assumptions in the Treasury modelling that have not been stress tested’.

‘The lack of safeguards in Australia’s approach is particularly concerning given the uneven pattern of growth in Australia, the increased uncertainty in the global economy, and the lack of progress on international negotiations to put a price on greenhouse gas emissions,’ she continues. ‘The legislation as passed risks placing Australia too far ahead of its competitors in pricing carbon.

‘If the assumptions in the Treasury modelling are proved to be optimistic, and the impact on Australia’s business competitiveness is worse than anticipated, then the government must be prepared to amend the legislation.’

Peta Tomlinson, journalist

says Australian businesses are keen to act on climate change and to embrace carbon pricing, and the political debate has muddied the picture.

‘Contrary to the popular media depiction of Australian business as sceptical or resistant to the need for action on climate change, our research has found extensive corporate engagement with the issue,’ he says. Citing data from 20 of Australia’s leading companies, the university’s researchers found that climate change is viewed as a key strategic issue in which businesses are investing significant energy and resources.

The study covered a range of sectors

15

INT_F_cover.indd 15 08/12/2011 11:02

16 Interview

INT_F_Hamirani.indd 16 08/12/2011 14:02

From a self-described ‘bean counter’ in Dubai to one of the top economists in the Sultanate of Oman, Hamid

Hamirani FCCA built his career by continually learning new things and meeting new challenges.

In his 30-year career, the ACCA member has been an accountant, an auditor, a manager, a CFO, a senior vice president, and today he’s the senior economist advising Oman’s minister of finance. Hamirani has worked in diverse fields, too, including sea ports, agriculture, airlines and aviation, oil and gas, and government finance. He credits ACCA for much of his success.

‘If I have been successful, it’s thanks to ACCA. I was exposed to various subjects. I started learning and enjoying economics and accounting,’ Hamirani says, sitting in an airy office in Oman’s ministry of finance, which is nestled between craggy mountains and His Majesty Sultan Qaboos bin Said’s palace by the Arabian Sea in the capital, Muscat.

Hamirani, who was born in Pakistan and raised in Iran and the UAE, never thought he’d become an accountant, much less an influential government adviser. As a child he wanted to be a doctor, following in his older brother’s footsteps. But he was distracted by a passion for cricket, and didn’t make the grades for medical school. Instead he went to business school, and ended up working in accountancy for Dubai firm Malik and Marzouk, which had ties to British company Morley and Scott while he also played professional cricket. There, he caught his superiors’ attention and they decided to send him to the UK for ACCA accreditation.

During his ACCA studies, Hamirani’s life took an unexpected turn. At a session on organisation and development, the trainer advised students to frequently evaluate themselves and know their own market value. Hamirani took the advice to heart, applied for jobs elsewhere and joined Associated British Ports in 1992, where he learned about port operations. There, he happened to meet Talal Abu-Ghazaleh, head of Talal Ghazaleh, the biggest accountancy and auditing firm in the Arab world, who suggested he move back to the Middle East. In 1997 he joined the firm as a consultancy and audit manager.

High flyer‘I came to visit the area and I fell in love with Oman. I moved here and had immediate success,’ Hamirani recalls.

Hamirani started his career in Oman advising Royal Flight, the Sultan’s private airline, and advising the Muscat Securities Market on

finance processes, purchasing and accounting. A drive to hire more Omanis – ‘Omanisation’ – was being pushed, and Hamirani created a policy and procedure manual to assist it – what he refers to as an ‘“idiot’s guide” for financial policies and procedures to faciliate Omanisation. It got a lot of recognition and it was successful.’

From Royal Flight, Hamirani became involved in Oman Air, and worked

closely on the privatisation of the local airports. Unlike advising, he says, this position was more hands-on. Hamirani helped reorganise the ground crews so that the workers did several tasks such as cleaning the aircraft cabins between flights, and handling baggage and cargo. Bringing them all together as airport service workers improved productivity and saved time and money. ‘I always wanted to get involved in industry, because that’s where the fun is. It was also a fantastic learning curve,’ he says.

Hamirani’s next move was one that got him noticed by the top bankers in Oman. In 2003 he became financial controller and head of investments at Dhofar Cattle Feed, a sleeping giant among the local investment houses with a live dairy farm where it produced fresh milk and fruit juices under the name A’Safwah. The company wasn’t as productive as Hamirani thought it could be, and in just under three years he turned it around, modernising it and

making it profitable. ‘This is where the fun began for my career because I was able to influence the whole “stable-to-table” process, from the udder of the cow to your lips,’ Hamirani says, a spark of excitement in his dark eyes. He loved his work there, but after four years he was happy to change and learn new things when Darwish Al Balushi, then the undersecretary at the ministry of finance, offered him a job.

LEARNING CURVEHamid Hamirani FCCA, the senior economist advising Oman’s minister of fi nance, describes his varied 30-year career and his commitment to the future of the Arab state

‘I CAME TO VISIT THE AREA AND I FELL INLOVE WITH OMAN. I MOVED HERE AND HAD IMMEDIATE SUCCESS’

17


The CV2009

Hamid Hamirani appointed senior economist, ministry of finance, Oman

2008Appointed senior vice president, Vision Investment Services Co, Oman

2007Financial expert for investment and privatisation, ministry of finance, Oman

2003Appointed financial controller and head of investments, Dhofar Cattle Feed, Oman

2000CFO for airport services at Oman Aviation Services Co, Oman

1997Appointed consultancy and audit manager, Talal Ghazaleh International, Oman

1992Internal audit manager, Associated British Ports, UK

1989Senior auditor, BKL Weeks Green Chartered Accountants, UK

1985Moves to the UK for ACCA studies; semi-senior accountant, Morley and Scott

1981Hamirani starts his career as a trainee accountant with Malik and Marzouk in Dubai, UAE

At the ministry, where Al Balushi was named minister in March 2011, Hamirani has had the chance to learn a lot more, which he clearly enjoys. He’s involved in various projects, ranging from Petroleum Development Oman, where he descries his learning curve as ‘vertical’ as he learns about the oil and gas industry, to the Sovereign Wealth Fund, where he works on development opportunities for the Sultanate. He also gives advice on various macroeconomic issues and in dealing with the International Monetary Fund (IMF) and World Bank. ‘I get the opportunity to advise my boss on the investments. Obviously my boss makes his own decisions, but I get the opportunity to give him my view, my summary and my opinions.’

Oman is a country that has gone from just three schools and 10 kilometres of paved roads in 1970 – when Sultan Qaboos came to power – to a modern country with numerous colleges and universities, a strong oil and gas industry, and new ports and free zones today. One of the current big projects that Hamirani is working

on is the development of a port, dry dock, airport and free zone in Duqm, once a tiny fishing village on the coast. It will be one of the biggest ports in the world, with both refuelling and repairing facilities; with nothing like it in the region, it will have a competitive advantage. The project has been criticised for taking too long, but Hamirani defends it. ‘A lot of thought has gone into this,’ he says. ‘We have taken a step back and thought about it. We are making sure every angle of the project is good, because we are not a rich country compared to the UAE or Saudi Arabia. We have to be right the first time.’

Growth potentialHamirani says that Oman is still a growing country that has many opportunities with special projects, and constant new developments make his job more interesting. It has great potential, too, as a tourist destination, with its amazing places for eco and adventure tourism as well as beautiful beaches for relaxing getaways. It’s also closer to European markets than

18


The tips*‘Explore. Do not limit yourself to being an auditor or, if you’re lucky, CFO. ACCA builds the jumping ground for you to be whatever you want: an entrepreneur, an economist, a CEO.’

* ‘Make sure you do a lot of reading. That will enable you to complement your education.’ Hamirani spends at least an hour a day reading about economics and finances, and he blogs about his financial opinions, too.

*‘It’s you who are the stumbling block – nothing else.’ Hamirani says that it’s important to believe in yourself, and work hard to achieve what you want.

*‘Get your fundamentals right.’ Learning the basics of accounting and finance helped his career immensely, Hamirani explains.

*‘Have courage. Grab opportunities. Identify them and take them.’ He says he wouldn’t be where he is today if he had played it safe in one job, rather than looking for new challenges.

* ‘It’s important to enjoy what you do.’ Hamirani has been working for 30 years, but when he talks about his experiences, the passion for his work is still evident in his voice.

*‘Marry young so you don’t get distracted. Marriage is the best thing that has happened to me.’ Hamirani says his success is due to his ACCA qualification and his very supportive wife.

The basics SULTANATE OF OMAN, MINISTRY OF FINANCE The Arabic mandate of the ministry of finance reads: ‘Ensure the best use of financial resources of the state and the quest for diversity of those resources and to find a balance between revenues and expenditures.’

The ministry is responsible for Oman’s financial affairs; minister of finance Darwish Al Balushi was appointed in March 2011. Legal duties include implementing laws concerning income tax, financial investment, profit tax and the state’s general financial laws. Every finance project comes through the ministry and is provided with a budget. It also makes the national annual budgets. It provides funds for health care and education, both of which are provided free to Omani citizens, while providing some support to the private sector in the economic and service areas.

The ministry also oversees development projects and manages the revenues from natural resources, especially from the oil and gas sectors. Current priorities include financing the development of the ports and free zones in Sohar and Duqm, providing more jobs for Omani citizens and investing in tourism.

the Caribbean or South-East Asia, and greater investment in resorts, retail space and general infrastructure should increase its appeal. ‘That is where the opportunity lies for the future, if we manage it right,’ Hamirani predicts.

Given Hamirani’s success in both the corporate world and the ministry of finance, Oman seems to be in good hands as he advises its decision-makers but, long term, Hamirani still has more to achieve on a personal level. He has learnt a lot in his current position, but still sees it as a building block for his career because it has given him the opportunity to learn about industries such as oil and gas, and investments including the Sovereign Wealth Fund. He wants to use this knowledge to advise other governments, possibly even the British government, on investments and trade with the Middle East, especially the Arabian Gulf countries. ‘This job is a diversification strategy for me. I’d like to have my own consultancy. I’m not a greedy man. I just want to be able to advise people and share my experience with them. I can bridge the cultural gap,’ he says.

Hamirani has worked hard and taken career risks and opportunities to get to where he is today. Yet he still credits his success to ACCA and he hopes the association can become stronger and help more Omanis with their careers. In Oman, he says, ACCA members are working in a tough environment.

‘I have been a CFO. I’ve been an internal audit manager. I was an adviser and consultant, for a variety of industries. And it was because ACCA provided the solid academic background from which I could jump.’

Sarah MacDonald, journalist

19


With more than 100 countries now having adopted International Financial Reporting

Standards (IFRS), the benefits of the global system are becoming clearer. Consistency in how companies prepare their accounts around the world has made it easier for investors to evaluate how they allocate capital, while companies themselves have found it easier to attract investment and manage their own global groups.

This view is backed up by a recent ACCA survey, Towards greater convergence: assessing CFO and investor

perspectives on global reporting standards, which reveals that nearly 40% of CFOs around the world found that the benefits of switching to the international system outweighed the costs of such a switch. Only one in five (18%) said that costs generally outweighed the benefits.

It is a similar picture for investors. The same survey shows that nearly a third of investors feel that the costs of conversion are outweighed by the benefits, and less than one in 10 (7%) believe the opposite to be true.

‘One of the greatest benefits has been a single set of rules which underpin a single set of numbers by which the

With an increasing number of countries adopting the same set of international accounting rules in the form of IFRS, the cost-benefi t tipping point has been passed

ALL TALKING THE SAME LANGUAGE

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group is run,’ says Russell Picot, chief accounting officer for the UK business of global banking group HSBC, in the ACCA study. ‘It’s done away with the Tower of Babel of different reporting and accounting languages that we had before.’

It is this consistency between countries, for CFOs and investors alike, that drives the perceived benefits of a single set of standards. IFRS might not be necessary if your organisation is based in one country and its investors are also based in that one country, but in today’s globalised business world, such isolationism is increasingly rare.

As Hans Hoogervorst, chairman of the International Accounting Standards Board (IASB), told a conference in Australia recently: ‘Ten years ago few countries used international accounting standards. Everyone did their own thing, which made international comparability very difficult.’

But perhaps more importantly, two-thirds of investors and more than half of CFOs in the survey say their view of IFRS has become more positive in the wake of the global financial crisis.

‘The move towards global accounting standards is seen as an essential element of the global financial reform agenda, providing the bedrock on which to build a better, more resilient global infrastructure,’ Hoogervorst said.

Veronica Poole, global head of IFRS at Deloitte, backs this view. ‘What we have seen with this financial crisis is that the world is a very small place, everything is interconnected, and you

cannot have a localised crisis. So the only way you can deal with a global crisis is through global regulation, and you can’t have global regulation unless you have global accounting in place.’ So as well as the economic advantages of the reduced cost of capital for individual entities, there is the macro-economic advantage of transparency in the marketplace with one accounting language, Poole argues.

It is against this backdrop that the costs of converting to IFRS should be measured. ‘We’re all very good at being able to identify costs and put a price tag on conversion,’ says

Anne Simpson, head of corporate governance at CalPERS, the California Public Employees pension fund, in the ACCA report. ‘But should we be visited by horrors like the financial crisis and realise we’ve not invested sufficiently in quality accounting and auditing, then the cost runs to billions. Billions were wiped from the CalPERS portfolio. Those are the sort of numbers we should be looking at when people complain about costs.’

Poole says Europe is the key example of the benefits of IFRS accounting harmonisation: ‘The European regulators and the European Commission have said it is quite clear that there is no way back to different accounting for Europe. They have said that they have seen tangible evidence of the reduced costs of capital in European countries. And this is very much what we are hearing from our clients as well.’

There is of course an elephant in the room when the real benefits and costs of IFRS and related international standards for auditing are considered. That elephant is the US, which has been following a convergence path with the IASB but retains its own generally accepted accounting principles (GAAP).

The US financial regulator, the Securities and Exchange Commission (SEC); the US standard-setter, the Financial Accounting Standards Board; and the IFRS-setter, the IASB, have been working closely, moving towards a point where both IFRS and US GAAP are much better aligned, but differences still exist. And this creates an unsustainable situation, as Hoogervorst explains: ‘In the long run, a dual decision-making process is a very unstable way to work. It can lead to diverged solutions or sub-optimal outcomes at the very end.’

IFRS for the US a mustHarvey Goldschmid, an IFRS Foundation trustee and former SEC general counsel, says that the adoption of IFRS by the US is a ‘national imperative’. He recently argued that it would reduce regulatory arbitrage opportunities, increase US company attractiveness to foreign investors by lowering capital costs, and reduce analytical costs and opportunities for fraud.

‘Both IFRS and US GAAP now have strengths and weaknesses… but only IFRS has the prospect of global acceptance,’ Goldschmid recently said. He conceded there would be transition costs, but said the strength of the US oversight system, combined with high-quality auditing standards, had in the past reassured investors to help create a 15% premium in value for foreign issuers that had listed in the US.

Poole has been encouraged by recent progress reports from the SEC, which

ALL TALKING THE SAME LANGUAGE

‘THE ONLY WAY YOU CAN DEAL WITH A GLOBAL CRISIS IS THROUGH GLOBAL REGULATION, AND YOU CAN’T HAVE GLOBAL REGULATION UNLESS YOU HAVE GLOBAL ACCOUNTING IN PLACE’

GET THE REPORT AT: www2.accaglobal.com/af/reporting GET THE REPORT AT: www2.accaglobal.com/af/reporting

21

INT_F_IFRS.indd 21 02/12/2011 16:37

she sees as having taken a very even-handed approach. ‘If you were holding a crystal ball, I think sooner or later you would see a move closer to IFRS. Whether that is going to be IFRS in its entirety, I do not know,’ she says.

As Poole observes, most jurisdictions have an endorsement mechanism and process in place, so the SEC staff paper proposal on ‘condorsement’ (a hybrid between convergence and endorsement) is not so far-fetched. ‘Condorsement just means we will move there slowly,’ she says.

Varying interpretationsHowever, the current endorsement processes do mean that local variations in the application and interpretation of IFRS remain, a point highlighted by the recent SEC reports. And for CFOs, keeping up with the local variances, or carve-outs, within different jurisdictions that implement IFRS is the sort of operational hurdle that acts as a disincentive to conversion by adding costs and complexity.

As James Singh, CFO at Nestlé, the Switzerland-based food group, said in the ACCA study: ‘In terms of subsidiaries, some of ours are quite large and material to the group. So as a multinational company, we can’t afford to have different accounting standards in different locations.’

One of the major concerns, particularly in the US as it considers adoption of IFRS, has been and will be the transition costs involved in moving from set of standards to another, and it has been argued that the current point in the economic cycle may not be the best time for such a transition.

As Goldschmid noted, changes caused by the financial crisis, such as the Dodd-Frank Act in the US, and the current economic downturn have made some organisations feel that 2011 and 2012 are the wrong years to

create new burdens. But he believes that a date of 2016 or 2017 would give US corporations ample time to put new processes in place alongside the necessary planning, education and training. More to the point, he says: ‘The IASB and the FASB have already done much to reduce transition difficulties and costs by narrowing differences between the two systems in their convergence projects.’

Of course, it is not just the US that is considering adoption of IFRS – there are other significant economies that

are debating the merits of joining the single set of standards club. Notably, IFRS is on the agenda for Japan, China and India. Were these economic blocs to come on board then it could be said that a common global financial language had been established.

‘Chinese standards are very close, it’s happening,’ says Poole, adding that in Japan, many multinationals are already implementing IFRS. ‘Once you have that, then the rest will follow,’ she says.

Philip Smith, journalist

This year, the IASB aims to put in place a single set of high-quality accounting standards. Its revised work plan, as published in October 2011, runs as follows.

Financial instruments

* Effective date of IFRS 9 – finalisation was expected by end of 2011.

* Impairment – confirmation of re-exposure, now due in first half of 2012 (deferred from possible issue in Q4 2011).

* Hedge accounting – an exposure draft on macro hedge accounting now due in first half of 2012 (deferred from possible issue in Q4 2011); finalisation of general hedge accounting project remains first half of 2012.

* Offsetting – finalised amendments to IFRS 7 and IAS 32 were expected by end of 2011.

Other core projects (no changes to expected timing)

* Leases – re-exposure in first half of 2012, finalised IFRS in second half of 2012.

* Revenue recognition – re-exposure in 2011, finalised IFRS in second half of 2012.

* Insurance contracts – review draft or re-exposure in the first half of 2012, no target date set for a finalised IFRS.

Post-implementation reviews (indicative timings)

* IFRS 8, Operating Segments – review initiated in 2011, target completion in 2012.

* IFRS 3, Business Combinations – review to be initiated in 2012.

Agenda consultation

* Decisions on the agenda expected to be made in 2012.

Other projects

* No updates in relation to annual improvements (although the 2009 annual improvements are expected to be finalised in the first half of 2012), IFRS 1 amendments for government loans, or the exemption from consolidation for investment entities.

*THE 2012 AGENDA

create new burdens. But he believes are debating the merits of joining the

HANS HOOGERVORST ‘IN THE LONG RUN, A DUAL DECISION-MAKING PROCESS IS A VERY UNSTABLE WAY TO WORK. IN PRACTICE, IT CAN LEAD TO DIVERGED SOLUTIONS OR SUB-OPTIMAL OUTCOMES AT THE VERY END’

22

INT_F_IFRS.indd 22 02/12/2011 16:37

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In November last year, for the first time ever, hundreds of Africa’s accountants drawn from north, south, east and west – and

just about everywhere in between – gathered in Nairobi to discuss the role of accountants in developing Africa’s infrastructure. It was an unusual event because, as everyone knows, it is difficult to take large numbers of senior practising finance professionals away from their desks and get them together in one place. More importantly, they discussed a coherent set of topics structured around the theme of accountancy and infrastructure in Africa.

Now that it has happened once, it is the type of thing that is likely to happen more often in the future. From the start it was clear to the participants that accountants can certainly contribute to the development of infrastructure for the continent if their energies are properly focused.

In May 2011 the Pan-African Federation of Accountants (PAFA) was launched in Dakar, Senegal, to accelerate the development of the profession and strengthen its voice within Africa and beyond. With this congress the accountancy profession in Africa took another step forward into the brave new world.

The first African Congress of Accountants was held at Nairobi’s Kenyatta International Conference Centre. ACCA’s president Dean Westcott was in attendance as were accountants working in government, the private sector, development agencies and academia across Africa.

Day oneAfter a much delayed opening ceremony where the patient participants were entertained by dance and music, Mwai Kibaki, the president of Kenya, arrived and addressed the gathering. He made the point that there was a great need for good accountants in the public sector because of the steady loss of its trained accountants to the private sector. The day’s sessions then began.

Globalisation and the implications for accountants in Africa was the first topic addressed by Johannes Zutt, the World Bank’s country director for Kenya. He looked at the challenges – accounting standards, professionalism – and the opportunities coming to Africa with the wave of globalisation.

He was followed by Samuel Ndungu, CFO at West Indian Ocean Cable Company (WIOCC), who gave an enlightening talk on connecting Africa. He showed his contemporaries what has been happening with the various undersea and terrestrial fibre optic cables that are knitting the continent together and bringing new customers, products and services along with them. It is clearly the biggest infrastructure project under way around and inside Africa and the congress learned that the opportunities for accountants in the future connected Africa are enormous.

After that eye-opener, for the rest of the first day it was down to the nitty-gritty of accounting standards, auditing standards, independent oversight, the challenges of offering accounting services to small and medium-sized companies, and networking.

COMING OF AGEThe accountancy profession in Africa took another step into a brave new world with the fi rst African Congress of Accountants last November. Alnoor Amlani FCCA reports

Day twoAfter two plenary gatherings covering small and medium-sized enterprises’ accounting services and funding options for infrastructure, the gathering broke into four concurrent tracks or groupings covering more detailed aspects of the overall theme.

The break-out sessions included well-defined and specialised topics that each participant was free to choose between. The sessions included a peek into the workings of the Professional Accountancy Organization Development Committee (PAODC), sustainable energy for Africa’s development, an overview of economic partnership models for Africa from Bretton Woods to China, updates on International Financial Reporting Standards (IFRS), a session on enhancing service delivery by small and medium-sized practices (SMPs), another on financial capacity requirements for successful public-private partnerships (PPPs) and one on gender mainstreaming in the accountancy profession.

This suite of very relevant and interesting topics made it remarkably difficult for each participant to decide which sessions they should attend and which they should miss. The speakers were well chosen for their skills and experience in the area and they spoke with passion and verve, drawing out the issues, taking questions and making contact for continued discussions beyond the congress.

For this writer the most interesting break-out session was concerned with the challenges of financial reporting in the public sector. The speaker, Khemraj

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INT_F_Africa.indd 24 08/12/2011 11:22

YOU CAN NOW EXPECT THE PROFESSION IN AFRICA TO BE MORE VOCAL, ORGANISED AND INFLUENTIAL

Reetun, from Mauritius’ National Audit Office, talked about how accountants could make governments more accountable to the people.

He told the session that Mauritius has managed to achieve what many accountants in governments across Africa would consider it impossible to do: the government had been moved away from erroneous cash accounting and implemented accruals accounting, while also ensuring that annual accounts are prepared by every department, parastatal body or ministry based on IFRS (something that many accountants would not dare attempt) and that every annual financial statement is signed by the accounting officer in charge to indicate that he or she is responsible for it – just as is done in the private sector. This required more computerisation, training, discipline, skill and implementation and the highly developed IT and financial sectors were useful in achieving this.

The result is something little short of revolutionary. Mauritius now has a much more transparent and accountable government and has opened the doors to greater inward investment in infrastructure and better public-private partnerships. And the way is open for the rest of Africa to learn from its experience.

The day ended with a plenary session on enhancing accountability

in infrastructure development projects that was addressed by PLO Lumumba, the outgoing director of the Kenya Anti-Corruption Commission.

Day threeThe final day was assigned to bigger things, with only two sessions, both plenary gatherings of all participants. The first debated a roadmap to a single African common market, and the second discussed governance in Africa and leadership challenges. Jamil Ampomah from ACCA presented the results of a survey in September 2011 sent to all ACCA Africa members to which 855 had responded.

Accountants have a role in shaping, leading and influencing government policies, according to 95% of the respondents, and over 77% believe accountants have a positive impact on economic development in Africa.

They also believe accountants have a more significant role in ensuring ethical practices are followed in the private sector than in the public sector and government, with the majority believing that accountants should be involved in driving activities to improve ethical practices.

Only 29% think that accountants play a very significant/significant role in ensuring ethical practices are followed by government. Rather more (40%) believe accountants have a very significant/significant role in ensuring

ethical practices are followed across the public sector, while an encouraging 70% believe this is the case in the private sector.

The survey findings suggest that accountants can influence more ethical practice and indeed should champion this cause especially in government and the public sector.

The sessions left participants with a good vantage point of the overall theme and the rest of the day was devoted to visiting the city and making use of the networking opportunities.

A firstThis congress represented the first attempt to organise the contemporary issues surrounding the accounting profession across the continent into a coherent gathering. There were the expected delays, some issues with the venue, food, accommodation and logistics – all the usual things that accompany pioneering attempts in Africa. But overall the congress left participants better informed about what the future could hold for accounting professionals in Africa.

Writing on the wall The accountancy profession in Africa has come of age and the global accountancy profession can now expect it to be more articulate and vocal, better organised and more influential in the future.

Alnoor Amlani FCCA is an independent financial management consultant in East Africa who writes regularly on social and business issues

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While e-learning is no longer a novelty, the unrelenting pace of IT progress means that

modern online training is expected to become ever more exciting, challenging and rewarding.

Technology is now an integral part of our work and personal lives. Only 20 years ago, schoolchildren would be hunched over library books researching the secrets of the pyramids or how the atom came to be split. Now, the stock answer to any request for information from an overworked parent is surely: ‘Let’s Google it when we get home.’

And it’s not just children who can benefit from the educational properties of the digital world. Professionals – both ‘digital natives’ and those old enough to remember life before email – have also come to take it for granted.

ACCA recently commissioned a report exploring the world of the e-professional and how online learning affects development, the impact of technology on finance professionals and their clients, and what the future of online learning may look like.

Digital advances are something that everyone with an interest in educating the finance professionals of the future are embracing, including ACCA. Clare Minchington, ACCA executive director – learning and products, says: ‘In June 2011, we announced that ACCA would be working towards delivering all its examinations online through an innovative and forward-facing programme of e-assessment. This will lead to a new generation of professional examinations that maintain the rigour and quality

associated with the ACCA brand and appeal to the coming generation of e-professionals, employing technologies they will increasingly be using in their social lives.’

Attitude shiftThere are two key reasons for a change in attitude towards e-learning. The first is the growing sophistication of the options, with everything from Skype to iPhone apps to webinars; the second is the flexibility that e-learning offers both to learners and trainers. Learning programmes now often fit around work, rather than work being accommodated around study leave.

Any suspicions that professional standards are being compromised by insufficiently robust online learning and assessment programmes are quickly challenged by those on the front line. Martin Taylor, CEO of BPP

Business School, argues that online learning is actually more demanding than traditional forms. ‘E-learning can be incredibly demanding, because learners are doing a lot of the learning and the research themselves, which is incredibly beneficial to deep understanding,’ he points out.

These issues are increasingly important in the aftermath of the global economic crisis, when employers are forced to prioritise efficiency, with customers typically wanting more for less.

Laura Overton, managing director at Towards Maturity, an organisation that works with employers to implement and benchmark e-learning capability, says: ‘This raises questions not only about how employees learn on the job in a formal programme, but what informal learning opportunities employees have access to.’

Blended is bestGreg Owens, director of technical training and student qualification at BDO, says: ‘There has to be a way professionals can get that initial knowledge and then apply it to a real client experience. It’s how you make it all real that’s the hardest bit.’

This is where blended learning – the combination of e-learning with on-the-job and classroom training – comes into play. The blended approach reflects the 70/20/10 theory of learning: 70% of learning happens informally and is available on demand, 20% comes from ‘social learning’ such as networking and coaching, and 10% from courses and reading.

The 70/20/10 approach recognises

THE NEW LEARNINGAs more of us get to grips with online training, e-learning looks set to become the norm. But while the tool is becoming ever more exciting, it brings challenges, too

2 BILLIONNumber of internet users worldwide5 BILLIONNumber of mobile phone users worldwideSource: The e-professional (see below)

35%Proportion of US smartphone users who use an app before they get out of bedSource: Ericsson ConsumerLab

*FAST FACTS

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Fast forward: visitors to the Time Tunnel exhibit at the fifth Electronics and Informa-tion Fair in Hangzhou, China, in 2011

and exploits the less regimented learning structure that is characteristic of modern digital students. As Damian Day, head of education and quality assurance at the General Pharmaceutical Council, says: ‘They don’t start at A and end up at Z; they learn in a much less structured way.’

Globalisation is another driver, says Richard Pollard, global development leader of PwC: ‘We currently have 170,000 people in our organisation and can see that growing to a quarter of a million and more over the next five years. Given general levels of attrition, keeping up this volume of professionals is a huge, huge effort.’

The importance of global consistency means organisations need to be sensitive to regional preferences. May Chan, learning designer at Standard Chartered Bank, says: ‘People in Asia will not ask so many questions, and they may prefer to type in questions rather than ask them in a live webinar or masterclass.’

This links back to one of the biggest

benefits of digital learning: flexibility. Kristin Watson, director of the UK national exam training team at Ernst & Young, says: ‘Where students are doing some form of blended or distance learning, they are not tied to a particular course or date. This allows businesses to give their students study leave on a convenient date.’

Advance on three frontsGiven what may be possible with technology over the next five years, there are three main growth areas in e-learning: mobile devices, social networking and gamification.

Mobile devices may be able to access more information in easier-to-read formats, and share information with other devices while on the move.

Social media is increasingly appearing in e-learning. Jim Robertson, vice president for tax, Eastern hemisphere and global tax practices at Shell, says: ‘If you are in well engineering at Shell, there will be a global expert in how to drill in a

particular geology such as sand, and that person will receive lots of requests for help by email, instant messaging and blog facilities. It is a form of e-learning, but it is very task-specific. I expect we will see a lot more of that in the future.’

And gamification aims to reproduce the simulation capabilities of gaming environments in e-learning. Taylor says: ‘Gaming is gaining real traction in the learning environment. Three-dimensional, even four-dimensional, capabilities allow learning designers to introduce different scenarios and throw in surprises to replicate the real world more closely.’

Beth Holmes, journalist

To read The e-professional: embracing learning technologies, and to see the video interviews, visit: www.accaglobal.com/eprofessional

‘GAMING IS ALLOWING LEARNING DESIGNERS TO INTRODUCE SCENARIOS AND THROW IN SURPRISES TO REPLICATE THE REAL WORLD MORE CLOSELY’

*CLICK TO VIEW

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Last year was one of mixed messages. Albeit guarded, renewed consumer confidence and increased industrial

production in some sectors around the globe were offset mainly by European concerns and what could be called irrational investor behaviour. Long-term fundamentals were trumped by short-term nervousness, and with the market volatility that closed out 2011, senior financial executives are bracing themselves for what could be another unpredictable year.

The combination of regulatory confusion, particularly as it relates to the adoption of International Financial Reporting Standards (IFRS) in the US, the political and fiscal instability in both the US and EU, and growing concerns over currency fluctuations and inflationary pressures in emerging economies top the list of what will be keeping global controllers up at night in 2012.

Regulatory uncertainty Regulatory uncertainty is front of mind for many global finance chiefs whose companies are exposed to changing rules both at home and abroad. Emerging accounting, reporting and industry standards will dominate the agendas of finance chiefs as they rethink their control environments.

Morgan Stanley, one of the world’s largest investment banks, is bracing for regulatory changes on three fronts: the US Dodd-Frank Act, the potential adoption of IFRS in the US, and Basel III. According to the bank’s deputy CFO Paul Wirth, the effects will permeate the company. ‘What we’re

doing from systems, reporting and control standpoints is going to form a very large part of our agenda going forward,’ he says.

The industry used to be able to rely on a steady regulatory state, but nowadays regulation keeps changing. ‘I think you’ve got an ever rising bar now,’ says Wirth, ‘whereas in the not too distant past you probably went through a crisis – the compliance bar got raised, you dealt with it for a time and then you sort of hit a sense of normalcy. Frankly, I think that those days are over. You’ve got to figure out where your attendant risks are, ensure the proper controls are

in place, in a lot shorter period of time than ever before.’

For manufacturing and science group DuPont, regulatory uncertainty will present the biggest accounting and control challenge in the coming months. The issues are the evolving memorandum of understanding standards between the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) (in particular, leases and revenue recognition), the potential adoption of IFRS in the US, and the proposed MD&A audit changes and mandatory auditor rotation from the US Public Company Accounting Oversight Board (PCAOB).

According to Barry Niziolek,

DuPont’s vice president and controller, the timing and direction of the proposed new standards will have the biggest impact, particularly for resource allocation. ‘Proposals like mandatory rotation of external auditors and an expanded auditor’s report will take time to address and we have to make sure we have the resources to be part of the dialogue, and ultimately get the company prepared,’ he says.

Niziolek also sees a change in resourcing around the execution of controls for financial accounting and reporting processes. It’s not just a singular audit rotation built around

an external auditor, he says. ‘It would be on additional work that we have under way where we would be bringing outside expertise into DuPont,’ he points out. ‘We would also have to consider that as part of our rotation.’

As for the resource implications of IFRS adoption by the US, he urges that the adoption process, whatever it is, is outlined with absolute clarity. ‘The key point is we don’t want to be in a continual state of implementation,’ he says. ‘A cloud of uncertainty makes it harder to procure resources and corporate attention. It’s tough to get the attention of any organisation if you’re talking about something that could happen at some yet unidentified time, so greater clarity

SWEET DREAMS?Ramona Dzinkowski looks at what will keep global controllers up at night in 2012 and identifi es the three key issues that will impact their roles for months, if not years, to come

‘IN THE PAST THE COMPLIANCE BAR GOT RAISED, YOU DEALT WITH IT FOR A TIME AND YOU SORT OF HIT A SENSE OF NORMALCY. THOSE DAYS ARE OVER’

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around the direction and the timing of implementation will make it easier.’

At the same time as US-based finance executives are struggling for clarity around changes in accounting, reporting and audit standards in 2012, many of their international colleagues will be facing wholesale changes

in their corporate governance and operating environments.

Gulshan Dua, country controller and CFO of IT hardware component manufacturer Freescale Semiconductor India, says that 2012 will undoubtedly be a very challenging year for the Indian corporate because of the

multiple changes that are coming into their fiscal and regulatory systems.

In 2012 the antiquated Indian Companies Act of 1956 is expected to be revised while the Companies Bill 2011 will be reintroduced as the modernised companies legislation. The Income Tax Act of 1961 will be

29


replaced by a direct tax code, and the central government is in discussion with state governments about the April implementation of the Goods and Services Tax (GST), which will replace all indirect taxes levied in the country.

Meanwhile, all companies listed in India and their subsidiaries, including those overseas, will for the first time be required to file their financial statements using eXtensible Business Reporting Language (XBRL).

And last but not least is phase 1 of the implementation of IFRS by large public companies.

Dua recognises that the positive intent of these broad initiatives is ‘ultimately to make the Indian regulatory and fiscal environment much more transparent, to enhance governance, to simplify financial reporting and to have a more harmonious fiscal and tax system’. But he also points out the significant challenges they pose for Indian companies and their CFOs.

In addition to the growing accountability and expansion of duties, he says, these wide sweeping regulatory initiatives have a myriad of implications. ‘This means enhancing competencies and reinventing CFOs and controllers like us,’ he says. ‘We are to forget what we learned in the past in our business schools and our accountancy institutes. It appears that we have to go back to the drawing board but this time we are faced with a steep learning curve to respond swiftly to changes and ensure that the organisation is ready to incorporate them in good time.’

Global economic volatility Added to the impact of regulatory changes will be the effects of fiscal instability in the EU and the related market volatility around the world.

According to Wirth, the global economy under current circumstances has sharpened the corporate focus on

risk management. ‘The dynamics of the global economy make us all the more conscious of where we allocate scarce resources, where we can best deploy capital and manoeuvre through the environment to be successful,’ he says. Combined with the regulatory changes, it ‘makes the notion of what you want to do strategically much more of a challenge’. For example, when you are building out systems, you want to enhance what you’re currently doing in terms not only of effectiveness and control, but also of efficiency.

‘As a consequence, I think decision-making is probably taking more time than it would in the past,’ Wirth says. ‘If there are four or five things that you’ve got to try to accomplish under very different domains, you have to ask yourself where the connection points are. You’ve got to look for those efficiencies; you’ve got to look for that effectiveness across multiple domains in order to be able to get things done.’

At the same time, the focus of, say,

the Indian controller in 2012 has to remain hedging to offset currency volatility. Dua explains that if the value of the rupee increases by 15% in a two- to three-month period against the US dollar, as happened in 2011, many Indian companies will be worrying about narrowing margins. When the currency is depreciating at 15%, says Dua, it can wipe out a company’s entire earnings, depending on where those revenues originate.

He adds: ‘If I were to take the Indian IT service industry as an example, the majority of revenues is likely to be in US dollars, and when I look at their P&L statements, I would assume about 70% or more of their cost is in Indian rupees. When the Indian rupee is weaker, it therefore results in a windfall for the business.

‘On the flip side, when you look at manufacturing industries where a large amount of the inputs is imported from overseas, it will surely be an insurmountable challenge to

‘ANY TIME YOU HIT A CRISIS, YOU NEED TO FIGURE OUT MULTIPLE SCENARIOS. YOU’VE THEN GOT TO MANAGE THE RISKS WITH THE RIGHT RESOURCES’

30


maintain their costs and operate within budgets, let alone manage the effect of declining profit margins.

‘All these aspects are going to be important and in my view this could be one of the reasons why some of us will have sleepless nights.’

Evolving role of the CFO For Wirth, the current regulatory and market volatility has underscored the importance of risk management. ‘Any time you hit a crisis, you need to figure out multiple scenarios,’ he says. ‘You’ve then got to get up to speed as quickly as possible to try to manage those risks with effective controls, having the right resources, the right people and the right systems to be able to deal with any unanticipated shocks.

‘Currently, there’s much more stress

testing, reliance on models and more regulatory oversight. There’s a much closer tie between a CFO organisation and risk organisation than there has ever been before. You couple that with the changing risk capital rules that require financial institutions to identify operational risk, and there’s clearly an expansion of the domain of the CFO going forward.’

Similarly, according to Dua, the regulatory changes anticipated in India for 2012 will have long-lasting impacts. Even though all these laws are coming into effect into 2012, the changes will continue to affect the life of CFOs over the next four to five years, if not more.

‘If, for example, you’re making a decision or taking a position on a tax matter today, then the outcome of that decision will only be seen at a

later date when your case goes to the revenue authorities and your judgment is evaluated.’

From a controller’s standpoint, DuPont’s Niziolek believes the ongoing expansion into emerging economies in 2012 and beyond will require greater effort and vigilance on the part of controllers. They will need to ensure that their organisations have strong internal financial controls.

Integrating accounting changes into business practice will be even more important, as will the need to communicate with business leaders to explain how it’s all going to affect them and how they run their business.

‘At least with DuPont because there’s so much change we place greater emphasis on having our controllers on the front line of our businesses.’

31


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BARNIER’S GRAND PLAN

The long-awaited, much-leaked and even more lobbied-against proposals from the European Commission on the future of

audit were finally published on 30 November. They proved to be like the proverbial curate’s egg – in parts good, bad and indigestible.

The EC’s proposals have been at the centre of heated debate ever since the initial green paper of October 2010. Given the intensity of the lobbying and the radical nature of some of the proposals, it is perhaps surprising that they have stayed largely intact.

But the press statement from internal markets commissioner Michel Barnier, which accompanied the proposals, made clear his views on the importance of his mission: ‘The 2008 financial crisis highlighted considerable shortcomings in the European audit system. Audits of some large financial institutions just before, during and since the crisis resulted in “clean” audit reports despite the serious intrinsic weaknesses in the financial health of the institutions concerned.’

He continued: ‘Investor confidence in audit has been shaken by the crisis and I believe changes in this sector are necessary: we need to restore confidence in the financial statements of companies. Today’s proposals address the current weaknesses in the EU [European Union] audit market, by eliminating conflicts of interest, ensuring independence and robust supervision and by facilitating more diversity in what is an overly concentrated market, especially at the top end.’

So Barnier’s determination to change the status quo was never in doubt. But even he had to make some concessions. His biggest perceived ‘climbdown’ was on joint audits. On several occasions Barnier praised the French practice as a good principle and was clearly keen to implement this as mandatory for the largest companies to create more opportunities for the next-tier audit firms to step up. This was a centre-piece of his measures to break the Big Four oligopoly, as he sees it. But last-minute internal lobbying seems to have won the day and joint audit is now merely ‘encouraged’.

However, companies opting for joint audits will only have to rotate their audits every nine years rather than the six introduced as a maximum tenure for firms on other large audits. This is a radical move which did remain largely untouched from all the lobbying.

Cost burdenACCA cannot support this. A legal requirement for companies to change auditors every six years could amount to a heavy cost burden ultimately borne by businesses. Given that it typically takes an audit firm two or three years to get up to full speed on complex audits, it seems unnecessary and unreasonable for them to have to leave again relatively shortly afterwards.

There is no demand for this in the investment community and while it is hard to defend large companies remaining with the same auditors for 48 years – as was revealed as typical by the UK House of Lords audit inquiry in March 2011 – this seems to move from one extreme to the other.

The other eye-catching change to remain, despite all the opposition, is

In the fi rst of three articles on the European Commission’s newly published proposals on the future of audit, ACCA’s Ian Welch discovers where the cracks lie

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a major crackdown on the provision of non-audit services to audit clients. This has been effectively banned, except for some specific ‘related financial audit services’ which include audit or review of interims, assurance of corporate governance and corporate social responsbility statements, and tax compliance – and even these must only form 10% of the audit fee. Large audit firms, said the commission, ‘will be obliged to separate audit activities from non-audit activities’.

While all the details were not immediately clear, it seems that firms deemed too big will have to set up separate, legal ‘pure audit’ firms. The Big Four immediately criticised this move as likely to damage rather than enhance audit quality by denying them access to their advisory arms.

ACCA, too, is worried that the prospect of pure audit firms will do little to encourage talented people from joining the profession. We are not convinced that banning non-audit services will improve audit quality or independence, and do not consider that the suggested benefits outweigh the costs and disruption. Once again there is no evidence that shareholders want this; often an incumbent auditor has built a good knowledge of the entity which leaves them best-placed to provide cost-effective services. It should surely be the audit committee’s role to make this judgment.

The existing ethical rules warn against providing additional services which could impede their independence. ACCA believes legal reforms should be the last resort.

Some good newsSo is there anything we do like? Yes. ACCA is pleased that the EU executive is willing to facilitate the crossborder mutual recognition of audit firms and

statutory auditors. We also welcome the proposal to harmonise audit standards through the introduction of International Standards on Auditing (ISAs).

ACCA supports the proposal to allow member states to adapt standards to the size of the audited entity through a proportionate and simplified audit for small and medium-sized enterprises (SMEs). It is important, though, that common standards are applied consistently. It will be interesting to see

how other, non-EU regulators respond. The US Public Company Accounting Oversight Board is moving in a similar direction but there is little sign of Asia doing so. How global audits can be carried out with myriad different regional rules is a key question for the profession should Barnier’s plans survive their next hurdle – the response of the EU member states.

Ian Welch is head of policy at ACCA

The proposals regarding the statutory audit of public-interest entities, such as banks, insurance companies and listed companies, aim to enhance auditor independence. Mandatory rotation of audit firms Audit firms will be required to rotate after a maximum engagement period of six years (with some exceptions). A cooling-off period of four years is applicable before the firm can be engaged again by the same client. The period before which rotation is obligatory can be extended to nine years if joint audits are performed; this is a way of encouraging, but not mandating, joint audits.

Mandatory tendering Public-interest entities will be obliged to have an open and transparent tender procedure when selecting a new auditor. The audit committee (of the audited entity) should be closely involved in the selection procedure.

Non-audit services Audit firms will be prohibited from providing non-audit services to audit clients. In addition, large audit firms will be obliged to separate audit from non-audit activities in order to avoid all risks of conflict of interest.

European supervision The European Commission believes that it is important that oversight of audit networks takes place at EU level as well as internationally. It wants this coordination of the auditor supervision activities to take place within the framework of the European Securities and Markets Authority (ESMA).

Enabling auditors to exercise their profession across Europe The EC proposes the creation of a single market for statutory audits by introducing a European passport for the audit profession. The proposals will allow audit firms to provide services across the EU and to require all firms to comply with international standards of auditing (ISAs) when carrying out statutory audits.

Making smaller audits ‘proportionate’ The proposals also allow for a proportionate application of the standards in the case of small and medium-sized enterprises (SMEs).

*KEY ELEMENTS OF THE PROPOSAL

WE ARE NOT CONVINCED THAT BANNING THE PROVISION OF NON-AUDIT SERVICES WILL IMPROVE AUDIT QUALITY OR INDEPENDENCE

KEY ELEMENTS OF THE PROPOSAL

Ian Welch

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[Heavy-handed on corporates and skimpy on SMEs, the EU’s audit proposals face serious scrutiny, says ACCA’s John Davies

As expected, the European Commission’s draft regulation on audit concentrates on the audit of public interest entities (PIEs – mainly listed companies) and amounts to a concerted attempt to legislate for greater visible independence and competition in the audit market in this sector.

These are highly interventionist measures and some appear to have been framed without conclusive evidence that they are needed to pre-empt future audit failures. In particular, it is not clear how the act of enshrining many aspects of current professional and technical standards in legislation – for example, the requirement to conduct audits in accordance with professional scepticism – will serve to improve audit quality. While the EC is entitled to stress the public interest dimension of audit at this level, we also need to ensure that the eventual legislation takes into account the needs and wishes of companies and investors.

The strong focus on PIEs means that comparatively little attention is given by the EC to the audit of small and medium-sized enterprises (SMEs). That is not to say, though, that what attention is given to that area is insignificant.

For the first time it is being proposed that small entities should be formally excluded from the scope of European Union law requiring accounts to be audited. This recognises the reality that the great majority of EU countries have by now taken advantage of the existing provisions in the Fourth Directive, which allow small entities to be made exempt from national laws requiring audit. The draft directive makes clear, though, that where a member state chooses to require small company accounts to be audited, those audits are to be deemed ‘statutory audits’ and will thus have to meet the various criteria set out in the directive, including in respect of eligibility to act. Similarly, if any small company chooses to have a ‘voluntary’ audit, the draft directive provides for that to be treated as a ‘statutory audit’, too. These provisions are positive in that they will help to provide certainty as to what an audit amounts to at this level.

The draft directive confirms that all statutory audits, including ‘voluntary’ ones, are to be carried out in accordance with International Standards on Accounting (ISAs). However, the most significant provision as regards SME audits appears in articles 43a and b, which provide that member states are to be required to ensure that the application of audit standards to SMEs is ‘proportionate to the scale and complexity’ of the companies

concerned. Thus the EC is envisaging some sort of modification of the existing requirements of ISAs as they are applied to SMEs.

If this proposal helps to maintain the long-term relevance of audit in the SME sector, then it can only be a good thing. Scaling back the requirements of ISAs is, however, an area fraught with technical difficulty, given that the extensive procedures set out in ISAs are currently seen as integral to the achievement of the key benchmark of reasonable assurance. The other aspect, which will need to be considered carefully, concerns the delegation of authority to the individual member states to decide what proportionality means in respect of SME audit standards in their jurisdictions. Apart from the question of whether member states are the right people to decide on audit standards, the danger is that we could end up with 27 different forms of SME audit requirements. If we are trying to maintain confidence in the credibility of published accounting information, including at the SME level, the last thing we want to do is to create any new cause for confusion.

So while some rationalisation of the application of ISAs at the SME level is an attractive one, at least in principle, we should at least be aiming for a harmonised solution and one which does not create any new expectations gaps.

John Davies is head of technical at ACCA

35Comment

concerned. Thus the EC is envisaging some sort of

EU targets the big fi rms

INT_COM_Davies_audit.indd 35 07/12/2011 18:44

The final version of the Barnier proposals, which aim to shake up the auditing profession across Europe, have had the most remarkable reception. Predictably, the large audit firms are against them. ‘They are completely at odds with good auditing,’ says John Griffith-Jones, chairman of KPMG Europe. But the investment community is also resistant. ‘The bottom line is that it still doesn’t do anything for the issue of choice,’ says Guy Jubb, head of governance and stewardship at Standard Life Investments, ‘and that is what investors wanted to encourage.’

The corporate community, particularly through their CFOs, are also furious. Andy Halford, CFO of Vodafone and chairman of the Hundred Group of finance directors, says that ‘taken together the reform package will have the effect, both directly and indirectly, of reducing audit quality, particularly during the

Rotten prospect for Big Four

Comment

[Europe’s audit proposals have been attacked from all quarters, says Robert Bruce – not least the plan for ‘pure’ audit fi rms, which could, say critics, damage the sector’s attractiveness as a training ground

period of transition, increasing cost and diminishing the value of the audit opinion to investors, without any compensating tangible benefits’. Small wonder that an astonished John Cridland, director general of employers’ organisation the CBI, had this to say: ‘The European Commission has pulled off some feat with its proposals for audit market reform. It has united businesses, investors, the Big Four and, even on some points, emerging and mid-sized auditors, in their criticism of the proposals.’ That unprecedented unity was ‘proof of a bad idea with dreadful timing’.

The proposals, after much leaking and behind-the-scenes manoeuvring,

call for much change. Internal markets commissioner Michel Barnier wants the largest accountancy firms to be broken up into separate entities for pure audit and for all other services. He has almost completely dropped his previous proposals for compulsory joint audits, but has compensated by reducing the mandatory rotation of auditors from every nine years to every six. He also wants much change which no one would really disagree with: expanded information in the audit report, a greater and more public role for audit committees in, for example, the appointment of auditors, and so on.

But it is the splitting up of the audit firms into separate business streams and the insistence on short-term rotation of auditors which have raised the most hackles.

Pure daftMaking firms break themselves up into ‘pure’ audit firms and ones that provide complementary services was described by one senior partner as ‘daft’. Others agreed. ‘In order to do a high-quality audit you need to have access to specialist skills,’ says Richard Sexton, head of reputation and policy at PwC.

‘You can’t do audits to the standard required as an audit-only firm,’ says KPMG’s Griffith-Jones. ‘The work from, for example, the risk experts, the tax experts, the actuarial experts and so on is invaluable.’

‘There are a lot of peripheral things to the audit that the firms are best able to provide,’ says Halford. And the market, says Sexton, ‘will not accept an audit-only model. They will press the firms to recreate those services.’ We are back in the world of unintended consequences.

There is also the question of the role of audit firms as trainers of future generations of people in the UK business world who traditionally

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train with the audit firms. ‘We are concerned,’ says Halford. ‘If firms become audit-only a lot of the attractiveness of those firms as a training ground will diminish, and the quality of the people coming though to us in business would diminish.’

Auditor rotation across only six years is seen as a nightmare of compromise, falling quality and rising inefficiency. In Italy, where auditor rotation has been tried, all that happened was that companies seeking continuity in their audit process simply ensured that the partners and team who dealt with their audit moved to another firm, which was then awarded the audit. Quality was retained and the legislation complied with. It was another unintended consequence.

‘The people who are by far the best placed to decide who should be auditors are the audit committee,’ says Griffith-Jones. ‘It is one for the audit committees, not for legislation.’ ‘Investors,’ says Jubb, ‘would like to see “comply or explain” adopted rather than mandatory rotation.’ ‘It is not clear that rotating auditors would help,’ says Halford from his CFO standpoint. ‘CFOs do shop around and change suppliers if they see a reason to do so.’

Ultimately, the whole Barnier package faces a tough time both within the politics of the EC and outside from all the interested parties. He expected opposition from those he refers to as ‘the Anglo-Saxons’. But it seems he was unprepared for the furious opposition that came from many of the most recent entrants to the EU. Smaller countries with fledgling, but

successful, capital markets were angry that such changes might endanger or hamper their efforts. The original joint audit proposals came under withering fire from them and were dropped. And now the rest of the proposals face a lengthy period of argument, political squabbling and compromise. The proposals for pure audit firms are expected to fall at some point. But it is going to be a long, long, bureaucratic and political process. No wonder Steve Maslin, head of external professional

affairs at Grant Thornton, asks: ‘Do you end up with something which might have started as a coherent whole but ends up as unconnected measures and doesn’t achieve the goal of audit market restructuring?’ And the answer is probably: ‘Yes, Steve.’ It is no longer about audit, or the firms. It is about the conflicting ambitions of politicians in the European sphere.

Robert Bruce is an accountancy commentator and journalist

Perhaps the most significant element in the Barnier proposals is that it has changed the underlying debate. Until now, the argument has been about supply – having only a Big Four of major accountancy firms was not considered enough. The UK’s Financial Reporting Council has always pursued this supply argument – how to expand the Big Four to five or more. But the Barnier proposals have turned that on its head. They, perhaps unwittingly, have turned it into a demand argument: who wants more firms and how could you create that demand? As David Maxwell, a member of Grant Thornton’s National Leadership Board, points out: ‘It is not about our ability or resources, it is about the buying behaviour.’

In the view of Jonathan Hayward, partner at consultant Independent Audit, ‘it treats it as a demand, not a supply, problem. The mid-tier firms are perfectly capable of doing a lot of the top-level work, but nobody wants to buy it.’ The only way to increase competition is, he says, to change the nature of audit: ‘Most audit work is services to management and it is a valuable service. The audit is part of management’s “get it right first time” process and companies see the Big Four as being better placed to do it than the mid-tier firms.’ Hayward thinks that should continue, but as a service rather than the audit. ‘For shareholders, firms could just audit the consolidated accounts, and not the group,’ he suggests. ‘It would be perfectly feasible to have an investor audit and it wouldn’t need the resources of the largest firms.’

This is why looking at the demand question is important. ‘If you change the demand side,’ says Hayward, ‘you ask what are you buying audits for. Firms like Grant Thornton would be perfectly capable of auditing the consolidated accounts of a large multinational and they wouldn’t have to do the worldwide work and all the trouble-shooting that the big firms do.’

* THE ARGUMENT CHANGES: DEMAND, NOT SUPPLY

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Comment

For Sir David Tweedie, various other leaders of the global standard-setting community and the many international preparers and observers who have been encouraging the US for some time now to just get on with IFRS adoption, this is likely to turn out to be a winter of discontent. The US financial regulator the SEC promised an announcement of some sort before year’s end, but big bangs are not expected, to say the least.

If the Securities and Exchange Commission (SEC) follows the framework of its recent ‘condorsement’ proposal for incorporating International Financial Reporting Standards (IFRS) into US GAAP, then US GAAP will remain US GAAP in name, not IFRS.

The US and international standard setters – the FASB and the IASB respectively – will continue to collaborate on standard setting, much as they currently do, with the aim of incorporating IFRS into US GAAP over time, piece by piece, and converged as much as possible to accommodate the US market.

At the end of the day, it is the SEC that will have the final say on whether those standards will be a go or a no-go. One significant feature, however, is that the condorsement approach will ultimately make the IASB the standard-setting authority for the US, with the FASB having a substantive but consultative role in the process. At the same time, the SEC will increase its involvement with the IASB.

But six months after the release of the SEC proposal, the FASB’s oversight body, the Financial

A bad case of cold feet[The outlook has turned decidedly grim for IFRS enthusiasts hoping to get the US on board in the single

global accounting framework project, says Ramona Dzinkowski

Accounting Foundation (FAF), has effectively asked the SEC to put the brakes on incorporating IFRS – as written by the IASB – in the US. It seems that the FAF whole-heartedly opposes any notion that the FASB will

lose its authority and ultimate role as the sovereign authority over financial reporting and standard setting for US capital markets.

At the same time, a November SEC staff paper, An Analysis of IFRS in Practice, also suggests opposition to the US adopting IFRS at this time. The paper points to the inconsistent application of IFRS between companies and countries: ‘In some cases, diversity appeared to be driven by the standards themselves, either due to explicit options permitted by IFRS or the absence of IFRS guidance in certain areas. In other cases, diversity resulted from what appeared to be noncompliance with IFRS.’

Where will all this negativity leave the SEC and its roadmap towards one global accounting framework? Some would say it’s more than an alphabetical accident that the SEC’s global accounting standards workplan didn’t make it to the front page of the Spotlight on Topics of Current Interest, and is in fact at the bottom of that list. Given what can only be described as lukewarm enthusiasm from the US corporate sector for any sudden movements – or even slow and staged movements

– towards a change of financial reporting regime, particularly with

the economic malaise in the US, not to mention the upcoming headache of a mandatory auditor rotation and an expanded audit proposed by regulator the Public Company Accounting Oversight Board (PCAOB), where exactly is the pressing incentive for the US to just get on with it? Sorry, Sir David, none that I can

come up with.

Ramona Dzinkowski is a Canadian economist and award-winning journalist

38

INT_COM_Ramona(RD).indd 38 08/12/2011 15:10

[By embracing the best that technology has to offer, we are ensuring the profession controls its destiny, says ACCA president Dean Westcott

Perfectly e-positioned

Writing at the start of 2012, I would like to wish you all a happy and healthy year ahead.

As this is a time to look forward, it also seems fitting to give you a sense of the work ACCA is engaged in. This looks ahead not just to the coming year, but to the generations to come.

At the end of last year, ACCA’s Council and its International Assembly discussed the advent of the e-professional, looking at how technology developments over the next three to four years might affect the working lives of accountants and the skills that they will need.

The challenges are highlighted by the changing role of the CFO. Finance leaders increasingly need to interpret data provided by outsourced or shared service centres. Similarly, with audit manuals and working papers now online, there is a greater focus on the synthesis and analysis of information within public practice.

Technological advances will not change the core skills and capabilities which accountants will need. In fact, the skills of interpretation, critical thinking and judgment for which accountants are so particularly valued will become even more important. However, accountants are now expected to understand the whole business and not just the numbers. This means that, if we do not embrace digital advances, we may get left behind and displaced by other professionals.

Within three years mobile technologies will enable finance professionals to work anywhere at any time. Yet the core skills and capabilities we need to demonstrate will not fundamentally change. Accountants will always need to be skilled communicators, whether online or face to face, and this will present different challenges for different generations.

ACCA has moved to meet such challenges with an innovative new e-assessment programme. The move to online delivery of ACCA examinations, announced last year, will bring greater choice and access for employers and students around the world, and will let us test students’ knowledge and skills in a way that better reflects real-life workplace scenarios and activities.

In this way we can ensure that those with the ACCA Qualification will continue to be in demand among businesses for many years to come.

Dean Westcott FCCA is finance director of Hinchingbrooke Hospital in Cambridgeshire, England

39Comment

INT_UK_A_pres.indd 39 08/12/2011 14:03

40

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RW (left) 2.indd 40 09/12/2011 11:47

Q It’s in vogue for finance managers in industry and commerce to style themselves as business partners. Are those in accounting and consulting firms doing so too? A It’s absolutely critical and it’s reshaping the profile of tomorrow’s accountants. So much of what they do involves close interaction

with clients, who rely on them to identify and analyse information to run their businesses better. That means getting under the skin of the client’s business and sector to understand the challenges they face. They are the people who will thrive.

Q What should firms be doing now to retain top talent when the jobs market takes off again? A The importance of training and development as retention tools can never be understated. First-class accounting and consulting work is about people, not numbers. Coaching and knowledge-sharing are great motivators for curious, ambitious people, especially if integrated into targets for promotions, pay rises or succession-planning.

Q What advice would you give newly qualified accountants considering post-qualification options? A Enjoy your work! It may be tempting to leave for a higher salary but so many other factors contribute to job satisfaction and sense of work-life balance.

Q What differences do you notice between accounting firms in the UK and those in the US? A It might just be how we do things at SingerLewak but we hire people who we believe will gel with the rest of the team. Even at entry-level, interviewees spend the best part of a day with us. They don’t just meet the recruiting partner and manager; they’re taken to lunch by their potential colleagues and peers, feedback from whom goes into the melting pot along with their interview performance.

FIRM FACTSRanking: Consistently in US top 100 firms, and California’s top 10Headcount: 235 people, 36 partnersConnections: Part of IGAF Polaris, a global association of independent accounting firms

MID-TIER UKRAINE SHAKE-UPThe Ukraine firms of Baker Tilly and Grant Thornton have merged under the name Baker Tilly Ukraine. Baker Tilly said the merged firm would become the leader in the delivery of transaction services to Ukrainian companies aiming to tap international markets for equity and debt funding. Alexander Pochkun, managing partner of Baker Tilly Ukraine, said: ‘We are confident that this merger will strengthen significantly choice within the audit market in Ukraine, providing a new alternative to Ukrainian and international companies.’ Vitaliy Kazakov FCCA, current managing partner of Grant Thornton Ukraine, added: ‘Our decision to withdraw from the Grant Thornton International network is balanced and deliberate: we are keen to improve the competitiveness of the merged company, and leverage the experience of staff and partners.’

IFAC UPDATES ADVICE TO SMPsThe International Federation of Accountants has updated its guidance to small and medium practitioners (SMPs) on using International Standards on Auditing (ISAs) in SME audits. The guide aims to help practitioners understand and efficiently apply the clarified ISAs, and the update refines both technical content and presentation. An implementation guide provides practical advice on conducting risk-based audits of SMEs. ‘Practitioners in many jurisdictions have begun using the clarified ISAs, and effective implementation of these standards is key to audit quality,’ said SMP committee chair Sylvie Voghel.

The view from: The US: Sally Aubury FCCA, SingerLewak

41 Practice The view from Sally Aubury of SingerLewak; how Chinese fi rms can make the most of international accountancy networks

45 Corporate The view from Ju Majid of Procter & Gamble; what it’s like to work at Shell

41Practice

INT_YPRAC_intro.indd 41 08/12/2011 11:03

Buried in the pages of a self-help tome in your local bookshop is a saying about how two people investing in a relationship will see the value of that relationship increase twice as fast as their investment.

That maxim holds true for a number of international accountancy networks in Asia Pacific. Extensive investment in relationships over the past decade has seen many of the international networks admit leading independent local firms into markets including Australia, Cambodia, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Singapore, Taiwan, Thailand, Vietnam and, the region’s economic behemoth, China.

The pay-off in terms of revenue has been positive for some networks. Organic growth from BDO’s existing member firms, particularly in Asia Pacific, boosted its 2009 revenues with member firms in Singapore and China, reporting combined growth figures of 31% and 17% respectively. Grant Thornton International’s 2010 revenues from its member firms in Asia Pacific grew by 3%, helped by a 17% increase from business in China.

On a global level, these international alliances are improving governance within the profession and are seen as a positive step, according to Eugene Liu, Hong Kong-based head of transaction advisory services and head of China practice, audit and assurance services at RSM Nelson Wheeler.

‘The accountancy profession needs more governance,’ he says. ‘It is facing tougher regulation and supervision worldwide, and to demonstrate that accountants are competent and able to help themselves, we need to ensure they are following the same rules. For the long-term benefit and health of the industry we need the governance that comes with belonging to an

international network so we can behave as good corporate citizens.’

China – or rather its size – is key to many of the networks’ expansion plans, as Daniel Lin, managing partner of Grant Thornton Jingdu Tianhua in Hong Kong, explains. ‘Most of our clients in Hong Kong have operations in China. If we were two separate firms in Hong Kong and the mainland, the client would not be best served. Being one national firm, fully integrated financially and operationally, is a successful model for our clients and us,’ he says.

Grant Thornton expanded its member firm in Hong Kong in 2007 with the addition of partners and staff from Moores Rowland. In 2009 it added Beijing-based Jingdu Tianhua CPA to its network. It now has 10 offices in China – including Hong Kong – with around 1,500 people and 70 partners.

Ten years and countingAlliances between mainland Chinese firms and international networks have been happening since the early 2000s; the larger, predominantly city-based accountancy firms in China initially gained referral business. More recently, an appreciation of the resources of an international network with its access to people, training and skills and wider geographic reach is driving firm member recruitment in China, according to Liu.

‘It’s essential for a mainland Chinese firm to have the capability to serve multinationals as well as domestic corporations that have branches and operations across China,’ he says.

The recent expansion through international networks of Chinese firms’ national coverage seems also to be an attempt by the Chinese government to counter the dominance of the Big Four firms on its home

turf. Shu Lun Pan Management, for example, is one of China’s largest independent accountancy firms, with five firms based in Beijing, Nanjing, Shanghai, Fuzhou and Guangzhou, and a range of branch offices nationwide. Shu Lun Pan joined BDO International in 2009. Meanwhile, Shanghai-based Zhonghua CPA, which has branches in several other cities across China, joined UHY earlier this year having previously been in two other top-10 international networks.

A numbers gameBeing part of an international network with a strong presence in China has distinct advantages. In RSM’s case, its mainland firm comprises 3,000 people in 22 branch offices serving 2,000-plus audit clients, of which some are huge, state-owned enterprises. As Liu explains, the China network achieved critical mass when, in 2008, it admitted as a full member the country’s fifth largest accountancy firm, Zhongrui Yuehua CPA. This opened up opportunities for its member firms in Hong Kong and Singapore.

‘It’s not just about tapping into foreign investment, he says. ‘Chinese companies are looking to Hong Kong and Singapore capital markets for IPOs [initial public offerings] and to help them in their overseas acquisition of enterprises.’

They are buying petroleum, technology and metal companies – strategic industries that fit into the government’s national policy,’ Liu continues. ‘As a member of an international network, a Chinese firm can serve domestic clients who want to go global, buy other enterprises or set up joint ventures or investments. In other words, the international networks are helping local Chinese firms flex their muscles.’

The right connectionsAll over the world the international accountancy networks are proliferating mightily and nowhere more so than in China. How can local fi rms exploit the opportunities this presents?

42 Practice

INT_AP_YPrac_Networks.indd 42 07/12/2011 18:06

‘THE INTERNATIONAL NETWORKS ARE HELPING LOCAL CHINESE FIRMS FLEX THEIR MUSCLES’

And while much of the multinational conglomerate business in and out of China is serviced by the Big Four, international networks are in a prime position to service China’s growing local businesses. They are looking to cross borders to become international, according to Ladislav Hornan, chairman and CEO of UHY Hacker Young in London and board director of UHY.

‘The more global business becomes, the more opportunities there will be for local Chinese firms and international networks to do business together across borders. There is a real gap right now for mid-tier firms to service medium-sized businesses locally and internationally,’ he says.

Learning curveLacking the standards of the Big Four who have worked in China for decades, local firms need to quickly gain the skills to allow them to successfully compete for domestic

business. Being admitted to a network that has experience in the US, Canada, Australia, the UK and European countries will accelerate that learning curve.

For Hong Kong firms, the lure of an international network is very much about seeking the opportunity to serve clients on both sides of the border. Most clients in Hong Kong now have operations in China. The ability to provide a seamless service to clients in both places is critical to business growth, Lin explains.

‘We are a Hong Kong firm and our partners and people travel to China often. But the China accountants in our network may not have as much international exposure as those in Hong Kong. So for some of the more complex clients we are able to put in a joint team to service them in both markets. From the mainland firm’s point of view, Hong Kong and China are two separate firms; they cannot serve

their mainland clients who want to use Hong Kong as a springboard to go overseas. But we can help.

‘That’s why you need a global network because when you’re helping a client with transaction advisory services, this often involves the Hong Kong and mainland China offices, and in some cases the Latin American and European offices. Without the global network you can’t really serve the client properly,’ Lin says.

In Singapore, firms are also using international networks as a way of servicing clients who are operating overseas. Singaporean companies like CapitaLand are investing heavily in projects including industrial and technology parks across China. It is good business to have a platform there from which to service Singaporean companies, as Lee Sen Choon, partner at UHY Lee Seng Chan & Co in Singapore, acknowledges.

‘It’s important to be able to service

43


our clients globally as a good number of our existing clients have expanded their businesses internationally – not just into China,’ he says. ‘As such, there is a need for firms that are affiliated with us to service this group of our clients’ overseas businesses.’

Lee also notes that, other than the number of referrals from members, the biggest benefit of network membership is the enhancement of the firm’s image. ‘We are now seen as a firm with strong international connections and capable of providing services to our international clients. We weren’t expecting to benefit so greatly.’

Challenges of cooperationNotwithstanding the benefits, international networks seeking member firms must understand cultural and corporate governance differences between themselves and their member firms. The first mainland Chinese firms, for example, were motivated to join networks by the prospect of referrals. When this didn’t happen as quickly as expected, many simply moved on to a different network. While there is a greater appreciation of the wider and long-term benefits of belonging to an international network, finding a Chinese firm for the long haul is not always straightforward, as Hornan reflects.

‘Constant developments within the Chinese accounting market leading to a number of consolidations of firms have meant that UHY twice lost its China member when it merged with another firm,’ he says.

‘We understand that developing close relationships with important players in the accountancy profession in China, both at an individual and institutional level, is not something that can be created overnight,’ Hornan continues. ‘Rather, it is a long-term project that continues because of the importance of relationships in Chinese business.’

For local Chinese firms, having sufficient professionals able to speak good English is still a challenge. The

process will become easier as more Chinese nationals qualify overseas and return to China to practice.

As Liu notes, practice management and standards are rising quickly. ‘About 10% of our organisation’s staff is in China. But as a member firm for only two years they are still learning about our network’s direction, strategic moves and internal policies,’ he says.

‘That said, it’s only a matter of experience and time before a Chinese partner becomes part of the international policy board or board of partners. As early as next year it will be likely that a representative of the Chinese firm will become a board member of the international organisation,’ he adds.

To increase the chances of success when seeking an international network, Lin advises local firms to choose carefully. ‘Make a decision about why you want to join an international network. If you want a name on the wall, then choose a network based on that. If you want a network of substance that works for you globally, you need to look for this when you choose a network.

‘When our mainland firm joined the Grant Thornton network about two years ago, we wanted to work with an international network on a very close basis. That’s why we chose Grant Thornton – it is very close-knit.

‘But don’t expect to put the name on the wall and for nothing to change. Our firm now has a new partnership structure,a new remuneration system, new management, corporate governance structure, and IT platform, an enhanced risk management regime, and in HR we have invested heavily in people and culture to meet the expectations of our global network.

‘But every country has its own culture and you cannot impose best practice from one country to another. What we have been able to do is consult with our US and UK member firms and use them as a reference for what we think would be workable in China. Being able to explore both systems and talk to other member firms ensures that we’re in line with network practice while also doing the best for our firm.’

Kate Watson, journalist

Ladislav Hornan, board director of UHY, was recently in Beijing, where he presented a seminar for members of the Chinese Institute of Certified Public Accountants about what to expect as a member of UHY’s board of directors.

‘It is not a matter of simple election, nor can a local firm expect to obtain a position on an international accounting network board of directors simply by virtue of their size and importance in China,’ Hornan said. ‘Individuals will need to be well known among existing board members and well regarded among the rest of the membership of the network.’

He outlined a board member’s major responsibilities, length of term, meeting and time commitment, and expectations. Typical responsibilities include providing organisational and strategic leadership, formulating and overseeing policies and procedures, financial management, organisation of the board and working groups, and member recruitment. Board directors should also expect to attend regular meetings/telecons, participate or lead working groups, help communicate and promote the firm’s strategy and programmes, and understand its policies and procedures.

‘It will help if someone is already involved in groups helping to develop network policy and strategy or are contributing to knowledge sharing interest groups, and if they show that they and their firm are willing to invest time and resources into the development of the international network,’ Hornan said.

*INTERNATIONAL NETWORK BOARD MEMBERSHIP

44 Practice


Q What are your priorities at the start of each day?A It’s about getting organised and prioritising, however many emails or phone calls come your way. It’s easy to get to the end of the day having been incredibly busy but not achieving much. I work from home, which many people assume is full of

distractions but I find the opposite is true.

Q Why has the idea of accountants as business partners so much resonance in today’s world? A Earlier in my career, I had a superb coach and mentor who drummed it into me that you have to be a business expert first, then a finance expert. Understand the business and you can then provide strategic advice and set objectives against a relevant backdrop. It’s our responsibility in finance to own that process and take it to the business.

Q What advice would you give newly qualified accountants considering post-qualification options?A Ask yourself some critical questions and answer them truthfully. How passionate are you about your work? Does it give you a sense of purpose? If you change jobs purely for money, the satisfaction may be short-lived – but never be afraid to ask your employer for a discussion about money.

Q How important is work-life balance in the current economic climate?A It’s never unimportant. For me, personal fitness is critical. I’m out there at 6.30am at least twice a week, running round the park, whether it’s 40° or -10°. Even if I have a 14-hour day ahead, the energy and mood I generate keeps me sane.

FAST FACTSHome and work: Lives in New York City, works from home, spends one week a month at the officeGlobetrotting career: Worked in Shanghai, began ACCA self-study in Sri Lanka, qualified in the Philippines, relocated to US with Procter & GambleFinance career: Category financial analyst, senior cost analyst, supply chain finance manager, global financial analysis manager (chemicals)

OLYMPUS INQUIRY LAUNCHED The UK’s Serious Fraud Office is investigating allegations of illegal payments made by Japanese camera-maker Olympus during acquisitions. An SFO spokeswoman said: ‘We have opened an inquiry into Olympus and are liaising with other organisations and international colleagues following information given to us by the former Olympus CEO.’ Michael Woodford briefly became Olympus CEO and president in 2011, but was fired after allegedly being stonewalled over inquiries into suspicious payments to enable acquisitions to take place. Three board members resigned over allegations of incomplete accounting related to the payments. The company has admitted it had ‘discovered it had been engaging in activities such as deferring the posting of losses on investment securities’, and apologised to investors, employees and customers.

FRAUD ‘REMAINS BIG THREAT’Accounting fraud has declined significantly but is still one of the three most common forms of economic crime, according to PwC’s Global Economic Crime Survey 2011. More than a third of respondents were victims of some form of economic crime last year. The most common experience was theft or asset misappropriation, with accounting fraud and bribery the next most common. Nearly a quarter of corporations have been victim to cybercrime. Bribery and corruption have emerged as particularly costly, with 20% of those affected putting their losses at more than US$5m.

The view from: The US: Ju Majid ACCA, global fi nancial analyst, Procter & Gamble

45 Corporate The view from Ju Majid of Procter & Gamble; what it’s like to work at Shell

41 Practice The view from Sally Aubury of SingerLewak; how Chinese fi rms can make the most of international accountancy networks

45Corporate

INT_YCORP_intro.indd 45 08/12/2011 11:02

Inside the behemoth: Augustas Daugela and

Linzi McGarva

In the world of big business, they don’t come much bigger than Royal Dutch Shell. Ranked second only to Walmart in Fortune magazine’s Global 500 of the world’s biggest companies, its vital statistics are breathtaking. Around 93,000 employees in more than 90 countries; stock market listings in London, New York and Amsterdam; and profits of more than $20bn last year on revenues approaching $400bn. So what’s it like to work for a global behemoth?

ACCA members Linzi McGarva and Augustas Daugela work at Shell’s business service centre in Glasgow, one of five finance operations hubs around the world that handle shared processes including management information, data management, expenditure and revenue.

‘I guess because Shell is a large, successful energy company and quite a big employer in Scotland, it’s exciting to work here and to be part of a recognised brand that people can relate to,’ McGarva says. ‘They’re a good employer, they care about their employees. You are rewarded for hard work and delivery. They offer flexible working to accommodate business needs and individual lifestyles.’

Daugela adds: ‘Getting to meet different people from various countries around the world is one of the most enjoyable aspects of the job. My finance manager and control are based in the Netherlands but other people could be based in Belgium, the US, India or Singapore. It’s a truly global environment so it’s very exciting having these opportunities to deal with people from various backgrounds.’

McGarva is part of Shell’s management information team and provides finance support to the group’s downstream functions (which include refining and shipping crude worldwide and producing petrochemicals for industrial customers). ‘My particular

Harnessing the energyIn the fourth article of our series on ACCA members’ experiences at big-name businesses, we meet Augustas Daugela and Linzi McGarva of multinational Royal Dutch Shell

46 Inside Shell

INT_UK_YCORP_insideShell.indd 46 07/12/2011 15:12

The CVAUGUSTAS DAUGELA

2007Completed HND in accountancy at Stow College in Glasgow

2007Shell, UK: Global systems administrator; financial reporting analyst, financial reporting accountant

2011Qualified with ACCA

role is ops manager for finance, and I and my team of seven provide management information and analytical support on finance functional spend. The key to that really is around building relationships with stakeholders and providing stakeholder satisfaction through credible analysis and data integrity.’

Daugela is a reporting accountant for a global lubricants company within Shell, responsible for submitting management accounts and quarterly group finance accounts. ‘We also operate a number of controls for quarter-end processes and report intra-group balances,’ he says. ‘Working on ad hoc projects is another aspect of the job. We’re currently involved in a dual-currency project which will result in us having a different functional currency but reporting for fiscal reasons in the local currency.’

Daugela finds the scale of the business remarkable. ‘There are so many various materials and different types of fuels and lubricants that we work with – literally thousands,’ he says. ‘My company’s activities mainly consist of supplying base oils and waxes, additives and finished lubricants to Shell group or third-party companies operating in the lubricants sector, so it’s business to business rather than business to consumer.’

McGarva studied for a degree in accountancy at Napier University in Edinburgh and qualified with ACCA during an 11-year spell at Lucas, the auto and aerospace engineer, where she was latterly finance manager. She then spent six years with General Electric in Prestwick before joining Shell in 2008 as an analyst for downstream finance.

There’s no ‘typical day’ in her job. ‘Sometimes I am caught up all day in meetings, other days I do my numbers,’ she explains. ‘We have

traditional cycles of monthly reporting, planning and forecasting. We can’t start our reporting until the ledger’s closed and data has been submitted to our management information system. We get a lot of ad hoc queries and as a team we discuss and share a lot of information. That’s the beauty of having a centralised team. We support and work off each other.’

Daugela was born in Lithuania but

came to Scotland after school. After an HND in accountancy at Stow College in Glasgow, he started at Shell as a global systems administrator in 2007. He qualified with ACCA in June 2011.

‘We need to submit our results quarterly on day seven, so we pretty much have seven working days to prepare everything and liaise with the business people to review and analyse the results and make sure the financial

‘BECAUSE SHELL IS A LARGE, SUCCESSFUL COMPANY AND A BIG EMPLOYER IN SCOTLAND,IT’S EXCITING TO WORK HERE AND TO BE PARTOF A BRAND THAT PEOPLE CAN RELATE TO’

The CVLINZI MCGARVA

1990Lucas UK: joined as a graduate trainee; various roles including internal audit, management accounting, financial accounting, systems implementation and management and finance manager

1994Qualified with ACCA while at Lucas

2001GE, Prestwick: financial controller; financial planning and analysis manager

2008Shell, UK: analyst for downstream finance; management information manager for downstream finance

47


results we’re reporting are correct,’ Daugela explains. ‘We spend a lot of time communicating with various stakeholders in all the businesses and there are also intra-group discussions to align our reporting positions.’

Both highlight the wealth of training and career development opportunities at Shell.

‘Shell supports and encourages professional development and sponsors training through a number of professional bodies including ACCA as one of the main ones,’ says Daugela. ‘We also have the Shell Open University with a number of virtual or face-to-face courses that employees can attend. There are other tools to learn softer skills like leadership or negotiation. I’m also involved in the

Shell mentoring scheme for ACCA students, which is designed to support students through their studies. That’s about sharing my experience with mentees: how I went about studying; what we do in various departments; the kind of skills you need; and career progression opportunities.’

Diversity and opportunityMcGarva adds: ‘There’s great diversity in the different processes in Glasgow and the number of roles within that – and quite a big span of job grades – which allows for a number of opportu-nities within itself.’

Health and safety is a particularly high-profile aspect of life in the energy industry. ‘It’s top of every agenda and is reinforced all the time – it’s part of

our culture,’ McGarva continues. ‘We have an annual safety day and it’s mandatory that everyone takes part.’

‘We tend to have different themes,’ adds Daugela. ‘There are things like the 12 life-saving rules: don’t use your mobile while driving, wear your seatbelt and so on. Any time you hear a senior leader from Shell talking, safety is top of their list.’

McGarva feels ‘finance is finance’ pretty well wherever you go but that the oil industry is interesting and exciting: ‘There are stories on the oil industry in the media every day. Energy affects us all, in our day-to-day lives. It affects the economy and the environment and with the increase in demand and the changing needs of consumers and changing sources of energy it’s always going to be topical and relevant. It’s good to be able to relate who you work for to the wider world.’

Victoria Masterson, journalist

‘SOMETIMES I AM CAUGHT UP ALL DAY IN MEETINGS, OTHER DAYS I DO MY NUMBERS’

48 Inside Shell


*TEAM TACTICS: THE SECRET OF SHELL’S SHARED SERVICE SUCCESS

Shell’s business service centre in Glasgow is one of five finance operations hubs around the world that operates shared processes including expenditure, revenue, data management, management information and various record-to-report activities. The other four centres are in Manila, Chennai, Kuala Lumpur and Krakow. Between them the five sites employ more than 5,000 people.

George Connell, vice president of strategy finance operations at Shell, joined the company in 1998 at the start of its shared services journey and has a wealth of knowledge on strategies for success.

‘Many blue-chip companies tend to operate some form of finance shared services model as an integral part of their finance agenda,’ he explains. ‘It’s important to be clear on the objectives of the shared service organisation from the outset. For a transformation of this size, you absolutely must have board-level sponsorship and management commitment at all levels, supported by a robust change management programme with dedicated resources, project plans and so on. It can be useful to start with easy wins to build credibility and momentum.’

Connell’s top tips include ensuring that there’s a compelling rationale for the changes being made, putting in place a structured methodology for migrating work and controls, and using strong and consistent metrics to embed accountability and to measure and benchmark progress.

Shell has a three-tier model of metrics – strategic, managerial and operational – for each process and associated targets to achieve top-quartile performance delivery. A regular review of effectiveness, efficiency and compliance helps to realise economies of scale and increase standardisation of processes. This is enabled by a continuous

improvement programme using lean techniques and training and accreditation for finance staff to ‘master black belt’, ‘black belt’, ‘yellow belt’ and ‘green belt’ levels.

‘By the end of 2010, around 20% of our staff in finance operations had been trained and accredited to minimum green belt standard,’ Connell says.

The theme of ‘connected finance’ has been developed to describe how Shell’s finance function partners and interfaces with others in the rest of the organisation and externally. ‘Our colleagues – known as business partners – are encouraged to visit the centres when they can and our employees regularly engage with them. There’s very much a feeling of one connected team based in multiple locations,’ Connell says. ‘Using video-conferencing technology as a key enabler of this connectivity is becoming more widely used in the centres.’

Connell reflects that employee turnover rates in shared service centres tend to be higher than in traditional finance organisations. He says that higher staff churn is inherent in the operating model and something that is constantly monitored and managed. Employees receive regular training and there are also personal development opportunities available. Achievements are regularly rewarded and celebrated, while the annual Shell ‘people survey’ allows the group to assess and improve its performance where required.

When compared to locations in the East, Scotland compares well in terms of social and geopolitical stability, and benefits from its proximity to Shell’s businesses and main corporate offices. In terms of trends, Connell has seen an evolution from simply and solely focusing on costs to capturing added

value by means of grouping skillsets together – for example, enhanced opportunities for continuous improvement in areas of critical mass.

‘I’m really proud to be part of an organisation that has evolved from a peripheral influence to a key enabler for finance to deliver top-quartile performance in one of the largest corporations in the world,’ Connell concludes. ‘I enjoy working with my colleagues from many different organisations, countries and cultures as we continue our exciting journey.’

Connectivity is the key to a winning approach, says Shell’s George Connell

49


Doing business in ChinaYongjun Peter Ni sets out the business incorporation models that are permitted in China and the tax implications of each from the foreign investor’s perspective

A BRANCH OFFICE STILL NEEDS TO FILE A TAX RETURN AND PAY INCOME TAX BASED ON A UNIQUE INCOME ALLOCATION MECHANISM

As China becomes a major economic power in the world, so the number of business structures the country permits has grown.

Of all the choices, the most popular is the limited liability company. While it is relatively easy for domestic investors to set up a limited liability company, the creation of a foreign-owned company still needs regulatory approval and thus takes more time. In some cases, it is still not possible to set up a 100% foreign-owned company.

It is also possible to set up branch offices. However, while it is an easy and straightforward matter for a domestic company to set up a branch office, only foreign companies in specified strategic industries such as financial services and oil and gas may do so.

For a foreign company that wishes to have a small presence in China, a representative office can be the most suitable choice. A representative office is easier and quicker to set up than other business structures and easier to maintain. The capital requirement is also quite low.

Recently, we have seen more and more fund investors using partnerships as the legal vehicle of choice for their investments. Depending on the investor, the partnership can be either domestic or foreign-owned. Compared with other forms of business structure, the partnership is a relative newcomer in China.

As private wealth management starts getting people’s attention, so the trust

has joined the family of permitted business entities and has emerged as a good choice for individual investors (and sometimes enterprise investors) for investing, managing and protecting their assets.

Lastly, for certain industries such as technology and media, the variable interest enterprise (VIE) has long been used as a structure to effectively consolidate onshore business operations and financial results for the

purpose of offshore listing.Each of the business entities

mentioned above has its own business, legal and tax implications. Income taxation is typically one of the most important considerations for investment structuring. As China’s tax law becomes more complex, so does tax analysis, and this article briefly discusses the income taxation of business vehicles in China, with the aim of offering a high-level roadmap for future investment structuring.

Income taxationCompaniesIn China, a company falls into the definition of ‘enterprise’ for tax purposes and is therefore subject to the Enterprise Income Tax Law, which

is the main income tax law governing all kinds of business.

The enterprise income tax regime in China is similar to those in other countries, with the business basically being taxed on its taxable income on an annual basis. The current tax rate is 25%. The distribution of after-tax profits is tax free if the recipient is another domestic enterprise. There is a 10% withholding tax on the distribution of after-tax profits to a foreign

enterprise, although the 10% withholding tax can be reduced if permitted by a tax treaty.

However, China has adopted very strict anti-avoidance rules over the past few years, making it more and more difficult to use a traditional holding company structure to reduce withholding taxes unless the holding company structure is backed up with sufficient business substance.

While China no longer offers generous tax incentives, certain strategic sectors can still enjoy tax holidays and reduced tax rates. For example, an enterprise certified as high-tech and new-tech enjoys a 15% income tax rate. However, such tax incentives are typically granted to enterprises only. In other words, China

50 Technical

INT_T_China.indd 50 02/12/2011 12:37

branch offices of foreign companies and partnerships normally cannot enjoy these tax incentives.

Branch officesA branch office of a domestic enterprise is not a separate taxable entity and its profits and losses are consolidated at the head-office level for income tax purposes. However, because of the unique tax revenue-sharing system in China, a branch office still needs to file a tax return with the local tax authority and pay income tax based on a unique income allocation mechanism.

A China branch office of a foreign enterprise is essentially taxed as if it were a company. However, the distribution of after-tax profits by a branch office to its foreign head office is currently not subject to any withholding tax. To the extent that a branch office is a legally permitted entity, it is more tax-efficient than a company for this purpose.

Representative officesA representative office is a strange animal from a tax perspective. While it cannot legally conduct profit-making activities such as making sales and providing after-sales services, it is often treated as a separate taxable entity in China. That is because the tax authorities consider the services provided by a representative office within a controlled group, such as those provided to the affiliates of the representative office’s parent company, to be taxable as well, even if they are just liaison services. As a result, most representative offices are subject to tax on their ‘income’, which is calculated using a deemed profit method.

Under a deemed profit method, the total expenses of a representative office will be considered and a formula applied to arrive at the total deemed gross income. Another formula will be used to arrive at the deemed taxable income. A 25% income tax rate will be applied to the deemed taxable income

to determine the final income tax liability of a representative office.

Because a representative office is treated as a separate taxable entity – and because the deemed profit method takes into account the minimum mark-up for services provided between two related parties under China’s transfer pricing rules – there is essentially no difference from a China tax perspective between a representative office and a service subsidiary that conducts the same activities as the representative office.

PartnershipsThe rules on taxation of partnerships in the country are markedly underdeveloped. The Enterprise Income Tax Law specifically excludes partnerships. The only existing rules are the ones applicable to partnerships formed by individuals. Under those rules, a partnership is basically a conduit for tax purposes and each individual partner is subject to

China’s growth is exerting a huge attraction for businesses, but which legal structure has the most favourable tax consequences?

51

INT_T_China.indd 51 02/12/2011 12:37

individual income tax on its share of the taxable income of the partnership. However, even for individuals, there are no clear rules on whether general partners and limited partners should be taxed differently. There are no rules whatsoever that apply to partnerships formed by enterprises, including foreign-owned partnerships.

According to China’s Partnership Law, a partnership formed by

enterprises is tax-transparent and partnership income is taxed only when it is in the hands of each enterprise partner. With that general rule, it is likely that the country’s tax authorities will require any foreign general partners in a partnership to pay a 25% enterprise income tax on their share of the partnership income.

There is also a good possibility that a foreign limited partner that is not involved in the day-to-day management of the partnership may pay only a 10% income tax on its share of the partnership income.

Although partnerships are more tax-efficient than companies (which are subject to double taxation), foreign investors rarely use partnerships to invest in China because of the lack of tax clarity surrounding partnerships.

TrustsTrusts are a common law concept that were nevertheless adopted 10 years ago by China, which is a civil law country. Trust status is widely used in many countries for various purposes such as asset protection, succession planning, estate tax saving, charity, business, investment, etc. In China, trusts are currently used by financial institutions in the main as a structure

for investing funds for individual and enterprise investors. For example, trust companies often design and sell unit trusts and use the proceeds to invest in securities, real estate, leasing, financing and other areas for the benefit of investors.

Although unit trusts are very popular in China, there are currently no rules on the taxation of unit trusts. As a matter of fact, there is no tax rule at all on trusts. The tax authorities are said to have been studying the topic but there is no indication on when any new rules will appear.

VIEsThe VIE structure is typically used for listing on foreign stock exchanges those China-based businesses in regulated sectors such as technology

and media. The VIE structure has the advantage of bypassing China’s regulatory restrictions on foreign ownership in those sectors.

Typically, a series of agreements including intellectual property licence agreements and service agreements are entered into by all the parties with the effect that the foreign-incorporated listing company effectively controls the business operations of the relevant domestic entities from an accounting perspective. Although the foreign-incorporated listing company doesn’t legally own those domestic entities, all the income of those domestic entities is shifted to the foreign-incorporated listing company through its 100% owned entity in China.

From a tax perspective, the main tax issue is how to comply with China’s transfer pricing requirements – ie, ensuring all the related party agreements are priced at arm’s length.

Assistance recommendedThere are more types of business entity in China these days. The tax implications of each business structure are different. Some offer distinctive tax benefits, but there are no specific rules on the taxation of such entities. Foreign investors should accordingly consider seeking professional assistance when they are structuring their investments in China.

Yongjun Peter Ni is a partner in law firm Zhong Lun, Shanghai

A PARTNERSHIP IS BASICALLY A CONDUIT FOR TAX PURPOSES AND EACH INDIVIDUAL PARTNER IS SUBJECT TO INDIVIDUAL INCOME TAX ON ITS SHARE

52 Technical

INT_T_China.indd 52 02/12/2011 12:37

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AN ENTITY THAT ACQUIRES A PARTIAL INTEREST IN A SUBSIDIARY CAN CHOOSE HOW TO MEASURE THE NON-CONTROLLING INTEREST

The basic principle of impairment is that an asset may not be carried on the statement of financial position above its recoverable amount, which is the higher of the asset’s fair value less costs to sell and its value in use. An asset’s carrying value is compared with its recoverable amount and the asset is impaired when the former exceeds the latter. Any impairment is then allocated to the asset, with the impairment loss recognised in profit or loss.

All assets subject to the impairment review are tested for impairment where there is an indication that the asset may be impaired, although certain

assets such as goodwill and indefinite-lived intangible assets are tested for impairment annually even if there is no impairment indicator.

The recoverable amount is calculated at the individual asset level. However, an asset seldom generates cashflows independently of other assets, and most assets are tested for impairment in groups of assets described as cash-generating units (CGUs). A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely

independent of the cash inflows from other assets or groups of assets.

Goodwill acquired in a business combination is allocated to the acquirer’s CGUs that are expected to benefit from the business combination. However, the largest group of CGUs permitted for goodwill impairment testing is the lowest level of operating segment. Under IAS 36, Impairment of Assets, impairment testing of goodwill must be performed at a level no larger than an operating segment as defined in IFRS 8, Operating Segments.

However, complexity is created because IFRS 8 allows operating segments to be aggregated into a

higher-level reportable operating segment if certain criteria are met. IAS 36 was not clear as to whether the highest level of aggregation of CGUs for goodwill allocation and impairment testing purposes was to be no larger than an operating segment before or after this aggregation.

To deal with this lack of clarity, the International Accounting Standards Board (IASB) has issued an amendment to IAS 36 to clarify that a CGU cannot be larger than an operating segment before aggregation.

Entities should ensure their CGUs are aligned with their operating segments.

The recoverable amount of a CGU is the same as for an individual asset. The carrying amount of a CGU consists of assets directly and exclusively attributable to the CGU and an allocation of assets that are indirectly attributable on a reasonable and consistent basis to the CGU, including corporate assets and goodwill. Where goodwill has been allocated to a CGU and the entity disposes of an operation within that CGU, the goodwill attributable to the operation disposed of is included in the carrying amount of the operation when calculating the profit or loss on disposal.

Similarly, an entity might reorganise its business and change the composition of one or more CGUs to which goodwill has been allocated. In such situations, the goodwill attributable to operations that are moved between CGUs is calculated on the basis of the relative fair values of those operations and the remainder of the CGUs from which the operations are transferred. Liabilities that relate to the financing of the CGU are not allocated to determine the carrying amount of the CGU as the related cashflows will be excluded from the impairment calculations.

An impairment charge calculated for a CGU should be allocated to the CGU’s individual assets – first of all to goodwill allocated to the CGU, and then

GET VERIFIABLE CPD UNITSAnswer questions about this article onlineStudying this article and answering the questions can count towards your verifi able CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

54 TechnicalGET VERIFIABLE CPD UNITSAnswer questions about this article onlineStudying this article and answering the questions can count towards your verifi able CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

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Impairment of goodwill and CGUsAn amendment to IAS 36 has clarifi ed that a cash-generating unit cannot be larger than an operating segment before aggregation. Graham Holt explains

INT_T_HoltCPD.indd 54 07/12/2011 14:53

to the other assets of the CGU on a pro rata basis according to the carrying amount of each asset in the CGU.

In allocating the impairment loss to a CGU the carrying amount of each asset within the CGU should not be reduced below the highest of:a) fair value less costs to sell;b) value in use;c) zero.

Any unallocated impairment should be reallocated to the CGU’s other assets, subject to the same limits. This could result in a process that continues until the impairment loss is fully allocated or until each of the CGU’s assets have been reduced to the highest of each asset’s fair value less costs to sell, value in use and zero. The recognition of impairment loss should not, however, result in recognition of a liability, unless it meets the definition of a liability under another IFRS.

IFRS 3, Business Combinations, brings in new requirements for the allocation of impairment losses when dealing with goodwill. An entity that acquires a partial interest in a subsidiary can choose on an acquisition-by-acquisition basis how to measure the non-controlling interest (NCI). It can be measured at the NCI’s proportionate share of the fair value of the subsidiary’s identifiable net assets at the date of acquisition or at the fair value of the NCI at the acquisition date.

An entity’s choice of method will affect the amount of goodwill that will

be recognised in the consolidated financial statements. Under the partial goodwill method, only the holding company’s share of the goodwill is recognised; under the full goodwill method, goodwill includes both the holding company’s and the NCI’s share of the goodwill in the subsidiary.

Management should consider the measurement method’s impact on their impairment test when choosing how to measure an NCI under IFRS 3. Entities will need to keep records of each component of their goodwill balances.

Any CGU containing goodwill is tested for impairment annually. However, the way that entities choose to measure their goodwill and NCI affects the nature of the test and the amount of impairment loss recognised. Under the partial method, a notional gross-up of the entity’s goodwill balance is required to ensure the carrying value of the CGU includes any goodwill attributable to the NCI. The grossed up amount is compared to the recoverable amount of the CGU and an impairment loss calculated. Only the holding company’s share of the impairment loss is recognised in profit or loss. This requirement is not new and entities will already be grossing up goodwill from partial business combinations in impairment tests. Under the full goodwill method, there is no grossing up required because the goodwill figure already captures the goodwill that is attributable to the NCI.

ExampleAn entity acquires 60% of a subsidiary, which is a CGU. At the year-end, the carrying amount of the subsidiary’s identifiable net assets is $30m; the recoverable amount of the CGU is $43m. Goodwill is $12m using the partial method or $18m under the full goodwill method. The first table below (this page) shows the impairment test under the partial goodwill method; the second table (on the following page) shows the impairment test under the full goodwill method.

Under the partial goodwill method only the holding company’s share of the impairment loss is recognised in profit or loss because only the holding company’s goodwill share is recognised. This is 60% of $7m, or $4.2m.

Using the full goodwill method, the impairment loss charged to profit or loss is higher for an entity that elects to adopt the fair value method. There will almost always be a difference in

55

Partial goodwill method

Identifiable net assets

Goodwill grossed up($12m x 100/60)

Total carrying amount of CGU

Less: recoverable amount

Impairment

$30m

$20m

$50m

$43m

$7m

Example

5555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555555 TO GET THE QUESTIONS GO TO www.accaglobal.com/ab_tech

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the impairment figure calculated under the two methods. Under the full goodwill method, the impairment loss is recognised in full.

There are requirements for allocating goodwill impairment losses between the holding company and the NCI. Where the subsidiary with the NCI represents a CGU for goodwill impairment-testing purposes, the allocation of the loss is done on the same basis as the allocation of profit. Under the full goodwill method, the full impairment loss of $5m is charged against the goodwill/the net assets and in profit or loss, 40% is allocated to the NCI ($2m) and 60% ($3m) to the holding company.

The allocation of impairment losses between the holding company and the NCI can become more complex if the subsidiary is not a CGU itself but part of a larger CGU for impairment testing purposes. The full goodwill method introduces some complexities in impairment testing in this scenario and

management should consider the impact on impairment tests when choosing goodwill method. Difficulties may well occur where entities have a CGU that has goodwill from several sources. Examples will be subsidiaries acquired before IFRS 3 was revised that apply the partial goodwill method, subsidiaries acquired after IFRS 3 was revised that apply the full goodwill method, and entities that have goodwill from 100%-owned subsidiaries.

ExampleIn the above example let’s assume that the subsidiary (A) that has been acquired is part of a larger CGU that includes another subsidiary (B) that is 100%-owned by the holding company. Assume that goodwill of $27m arose on the acquisition of the wholly owned subsidiary. The carrying amount of the identifiable net assets of the combined CGU (A plus B) is $50m and the recoverable amount of the combined CGU is $80m. If the full goodwill method is used, the results are as shown in the Impairment Problems table on this page.

Under IAS 36, impairment losses are allocated first to goodwill and then to the identifiable assets on a pro rata basis. All the impairment loss in the example relates to goodwill and is allocated to the two subsidiaries that form the CGU. The loss will be allocated based on their relative carrying amounts of goodwill. The loss will be allocated

40/60, based on the goodwill values of $18m and $27m respectively.

Thus the goodwill of wholly owned subsidiary B will be charged with a $9m impairment loss and that of partially owned subsidiary A with a $6m impairment loss. B’s impairment loss will be charged entirely to the profit or loss of the holding company whereas A’s will be split on the profit-sharing basis (60/40) between the holding company and the NCI – $3.6m and $2.4m respectively.

This example does not reflect all of the complexities that might well occur in practice. Under IFRS 3, impairment losses have to be allocated between each component of the goodwill in the CGU, which will mean detailed tracking of each component of goodwill.

Graham Holt is an examiner for ACCA and associate dean of the accounting and finance division at Manchester Metropolitan University Business School

Full goodwill method


Goodwill

Total carrying amount of CGU

Less: recoverable amount

Impairment

$30m

$18m

$48m

$43m

$5m

Impairment problems


Goodwill ($18m+$27m)

Total value of CGU

Less recoverable amount

Impairment loss

$50m

$45m

$95m

$80m

$15m

56 Technical


FINANCIAL REPORTING

REVENUE RECOGNITIONIn 2010, the International Accounting Standards Board (IASB) issued an exposure draft (ED) proposing a new framework for revenue recognition.

The core principle set out in that ED was that an entity should recognise revenue to reflect the transfer of promised goods or services to a customer. The revenue would be measured at an amount representing the consideration to which the entity expects to be entitled, in exchange for those goods and services.

The ED proposed five steps to apply the principle:

*Identify the contract or contracts.

*Identify the separate performance obligations in the contract.

*Determine the transaction price.

*Allocate the transaction price.

*Recognise revenue when a performance obligation is satisfied.

While feedback from the ED showed broad support for the overriding principle and the steps needed to achieve it, a number of areas were considered to require either further clarification or simplification.

Accordingly, the IASB has now made a number of changes from the original ED, but, recognising the importance of revenue to financial statements, has chosen to re-expose its proposed standard,

Revenue From Contracts With Customers.

While the broad principles of the standard remain the same, there have been a number of changes from the 2010 exposure draft, which include the following:

*Amending the principle for identifying separate performance obligations in a contract.

*Adding criteria to determine when a performance obligation is satisfied over time and, therefore, when revenue is recognised over time.

*Simplifying the measurement of the transaction price.

*Aligning the accounting for product warranties more closely with existing requirements.

*Limiting the scope of

the test in the previous version to identify onerous performance obligations.

*Adding practical expedients for retrospective application of the proposals.

*Any impairment losses relating to contracts with customers being presented as a separate line immediately after revenue.

*Specifying the disclosures required for interim financial reports.

The comment period closes on 13 March 2012 with a final standard planned for the second half of 2012, but with an effective date of at least 1 January 2015.

IFRIC INTERPRETATION 20The IFRS Interpretations Committee has issued IFRIC

Interpretation 20, Stripping Costs in the Production Phase of a Surface Mine, which applies for periods beginning on or after 1 January 2013. Interpretation 20 clarifies when production stripping should result in the recognition of an asset and how that asset should be measured, both initially and in subsequent periods.

IFRS 1 AMENDMENTThe IASB has also issued for comment a proposed amendment to IFRS 1, First-time Adoption of International Financial Reporting Standards, dealing with how a first-time adopter would account for a government loan with a below-market rate interest rate. The amendment would provide the same relief as is granted to existing IFRS

A round-up of the latest developments in fi nancial reporting and audit

Technical update 57

INT_T_update.indd 57 07/12/2011 18:08

preparers when applying IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. AUDIT AND ASSURANCE

REVIEW OF ISAS

The International Auditing and Assurance Standards Board (IAASB) has announced its intention to undertake a post-implementation review of clarified International Standards on Auditing. Responses are requested by 31 October 2012.

Yvonne Lang, director, Smith & Williamson

EUROPEAN UNION

SPOT TRADING OF CARBON EMISSIONSThe European Commission has proposed that the spot trading of carbon emissions permits be controlled by EU financial instrument laws, reducing this market’s exposure to fraud.

At present, these spot trades are not regulated by EU legislation – the Commission highlighted ‘a series of unfortunate fraudulent activities which the market has experienced in recent years’. The unfortunate activities include the digital theft of pollution permits from EU registries during January 2011.

The Commission is therefore proposing that these trades be controlled under the EU’s Markets in Financial Instruments

Directive (MiFID) and Regulation (MiFIR). MiFID and MiFIR would impose on purchasers a duty of disclosure, notably on their industrial activity, plant capacity and utilisation.

The change comes as the Commission plans to overhaul the EU rules for securities markets by amending MiFID. Brussels wants the directive to properly regulate new trading platforms and high-frequency trading, repair regulatory weaknesses regarding investor protection, enforcement and supervision, working through the new European Financial Markets Authority (ESMA).

The Commission also wants tougher rules on market manipulation and insider dealing.

For more information, visit www2.accaglobal.com/mifid

NEW FRAUD PROGRAMMESThe European Commission is planning to propose two new anti-fraud programmes spanning 2014 to 2020.

The larger of the programmes – Hercule

III – will invest €110m in joint customs operations, training, and supplying IT tools to customs teams, to reduce the fraudulent evasion of duties.

The other planned programme, Pericles 2020, is designed to tackle the counterfeiting of euro banknotes and coins.

EU STRIKES WTO DEAL WITH RUSSIAA final agreement between the EU and Russia helping pave the way for Russia’s accession to the World Trade Organization is expected to be approved between 15 and 17 December.

The deal will guarantee the rights of EU accountants and bookkeepers to work in Russia. Contracts would have to be a maximum of six months a year, and staff would need three years’ experience and full qualifications. More information at www2.accaglobal.com/eu_russia

OLAF REPORTThe EU’s OLAF anti-fraud office has revealed in its

2011 annual report (on the EU’s 2010 accounts) that fraud continues to be a serious problem across the continent.

OLAF opened 225 new investigative and operational cases in the year – more than in 2009 and an increase on the previous year. However, there was a steep fall in the amounts of money recovered from closed OLAF enquiries in 2010 – €67.9m compared with €251.3m in 2009 and €147.7m in 2008.

In terms of national breakdowns of current investigations, Bulgaria (often criticised for its anti-fraud performance) had the most cases, with 81. It was followed by Italy with 41, Belgium with 37 (a number inflated by the large number of EU institutions that are based in Brussels), Romania with 36, Germany with 34, and Greece and Britain both with 23.

The anti-fraud report can be downloaded at www2.accaglobal.com/olaf

Keith Nuthall, journalist

58 Technical update

INT_T_update.indd 58 07/12/2011 18:08

Five ways to plan your CPD The easiest – and the most satisfying – way to fulfi l your CPD requirements is to make sure you’re on top of the process by following the fi ve golden rules listed here

1 Reflect on last year’s CPDBefore considering the year ahead, it’s worth looking back at the development you undertook last year. What activities or approaches to your learning and development went particularly well? Is there anything you would do differently in the future? Are there any specific areas you need to revisit in 2012?

2 Be practical with your planningBy planning your CPD at the start of the year, you can ensure you think not only about your learning needs but also about when, where and how you will do your development. When planning your CPD, particular areas you will need to consider are relevance and verifiability.

Relevance should be at the centre of your CPD planning. CPD is not solely about updating your technical accounting knowledge. If you’re no longer in an accounting or finance role, then you should identify your CPD needs in relation to the latest developments both in your profession and in the business world in general.

Verifiability of learning is also key. If you are following the unit route, you need to complete 40 units of CPD, 21 of which must be verifiable. Non-verifiable CPD can be general relevant learning activity such as keeping abreast of business developments through reading or informal networking. For CPD to be verifiable, however, you need to be able to answer ‘yes’ to the following three questions:

* Can you explain how a learning activity is relevant to your career?

* Can you explain how you have applied what you have learned or how you will apply it?

* Can you provide evidence that you undertook the learning activity?

3 Use ACCA’s planning toolsACCA has two planning resources that

have been designed specifically for ACCA members.

The first, ACCA Compass, enables you to assess your level of experience and skill and compare it to a recommended market average for a total of 20 different finance and accounting job titles.

The second, the Professional Development Matrix, is designed to help you identify your preferred learning style and the knowledge, skills and expertise you may need in either your current role, or in roles which you are interested in for the future – whatever your chosen career.

4 Try something new for 2011Our innovative approach to development means we have a comprehensive range of services and tools to support you in planning, sourcing and achieving CPD – and the list is growing. From networking on the ACCA LinkedIn members’ group to mentoring or coaching a colleague, there is something for everyone.

If you’re looking for a source of low-cost online CPD, ACCA has a new, improved virtual learning centre. We are working with a number of top e-learning providers to bring you flexible, interactive and affordable CPD opportunities. Go to

our e-learning gateway and get started.Direct link: http://virtuallearn.

accaglobal.com/pages/To read more about CPD learning

opportunities, please visit www.accaglobal.com/members/cpd/cpd_learning

5 Put some dates in the diaryIt’s good to plan your CPD now, but to ensure you keep the momentum up, try introducing regular checkpoints during the year to ensure you are on track to meet the requirement. How about setting a reminder for June/July in your online diary to see how you are placed and how much CPD you still have to do?

Visit www.accaglobal.com/members/cpd for more.

59

INT_A_CPD.indd 59 08/12/2011 13:58

A unique passport[The fi ndings of the fi rst worldwide salary and career survey from ACCA powerfully demonstrate the benefi ts

of possessing a global accountancy qualifi cation – from increased remuneration to wider experience

Increasing levels of satisfaction – not only with their salaries but also with their career opportunities and work-life balance – is the outstanding message from ACCA’s recently released report on the salaries and benefits, bonuses and working conditions of members around the world, as well as their career plans and priorities.

Probably uppermost in accountants’ minds is remuneration, and many members have enjoyed positive salary experiences and are upbeat about their future expectations. The report, ACCA Members’ Global Salary and Career Survey 2011, found that members can expect their salary to increase strongly during their career and earn significantly more than the national average. Indeed, in 2010, 61% of

members surveyed had received a hike.Members in financial services and

public practice employees received the highest increases, and those in larger organisations. Employees of small and medium-sized enterprises (SMEs) were the most likely to experience a freeze.

Money, of course, is by no means the be all and end all – bonuses, benefits and conditions are high priorities. Of members receiving a bonus, 59% received a higher one in 2010 than in 2009. And 46% anticipate an increase in bonus again in 2011. Those most confident were younger members and those working in financial services.

The most common benefits were pensions (59%), payment of professional subscriptions (59%) and healthcare (53%). But flexible working hours were a popular benefit, with older and female members more likely to record shorter working weeks. Employees in the corporate sector

typically work the longest hours, while those in not-for-profit organisations work the shortest.

ACCA members make the most of the portability of the qualification, taking the opportunity to work in different sectors and gaining varied work experience. Of those surveyed, 60% of members have worked in a different sector in the past.

Most members (58%) are keen to experience a varied career with different roles in business and finance, rather than

following a single specialised route. The survey demonstrated ACCA

members’ high aspirations: 82% plan to work in a more senior position in the same area and 63% want to head up a finance team; 42% have that entrepreneurial spirit, aiming to start their own business at some point. Foreign postings are also desirable; 36% would like to work in another country.

Country variationsIn some markets the positive trend in salaries has been particularly strong. In Singapore 73% of members have received a pay rise compared with the 61% global average. This is likely to be down to Singapore’s economy expanding at a record level (over 14% in 2010).

Working weeks are longer in South-East Asia (48 hours in Singapore and Malaysia compared with the global average of 44) and Pakistan (49), but shorter in the UK (42), Republic of Ireland (43), Canada (43) and Australia (44).

The percentage of members with multiple-sector experience is particularly high in Africa (Zambia: 81%; Uganda: 73%; Ghana: 73%), Jamaica (72%), Malta (76%), Pakistan (71%), Canada (70%) and the Czech Republic (69%).

Setting up their own business is a particularly popular ambition among members in Canada, the Czech Republic, Ghana, Greece, Jamaica, Luxembourg, Malaysia, Mauritius, Pakistan, Poland, Trinidad & Tobago, Uganda, UAE and Zambia.

Lesley Bolton, international editor, Accounting and Business

To download the survey, visit www2.accaglobal.com/documents/salary_survey.pdf

60 Careers

INT_C_salsurvey.indd 60 06/12/2011 18:10

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Pay rise (%)

Don’t know (%)

Pay reduction (%)

No change (%)

Pay rise (%)

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Pay reduction (%)

Corporate sector

Financial services

Not-for-profit

Public practice

2010 2011 (expected)

Public sector

*SALARY LEVEL CHANGES IN 2010 (BY SECTOR) *SALARY CHANGES

*WORKING HOURS PER WEEK

50

49

48

47

46

45

44

43

42

41

40

UK

Can

ada

Cyp

rus

Irel

and

Aust

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Zam

bia

Cze

ch R

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Jam

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Mau

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ong

Mal

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Pol

and

Sin

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UA

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61

66

65

62

55

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5

34

61 62

272

9

35

30

33

34

39

40

5

4

2

4

6

7

61

INT_C_salsurvey_graphs.indd 61 06/12/2011 18:11

Fine-tuning the rules[ACCA’s Ian Waters runs through the changes that have been made in the 2012 edition of

the ACCA Rulebook to refl ect the development of the association and its processes

This article sets out the main changes to ACCA’s bye-laws, regulations and its Code of Ethics and Conduct, as published in the ACCA Rulebook. The Rulebook is usually updated once a year. However, during 2011, interim changes were made, which took effect on 1 June 2011, and were reflected in the online version of the Rulebook at that time. These interim changes have been included in the details set out in this article.

Bye-lawsThe following changes to the bye-laws were approved at the 2011 AGM and subsequently by the Privy Council:

* When a member (or his or her firm) has been subject to a disciplinary process other than that of another professional body, it is more appropriate to discipline the member under a provision of bye-law 8(a) other than 8(a)(v) or (vi).

* Prompt notification to ACCA is required by a member when he or she or another member may have become liable to disciplinary action (save where this would be contrary to a legal obligation).

Membership RegulationsThe principal amendments to the Membership Regulations are as follows:

* The meaning of ‘book-keeping’ and the permitted activities of ACCA students have been clarified, including the entitlement of ACCA students who are licensed insolvency practitioners to undertake insolvency work.

* The Practical Experience Requirement (PER), set out in appendix 2 to the regulations, has been clarified to say that it must involve 36 months’ work experience in one or more accounting and finance-related roles.

* A definition of ‘workplace mentor’ has been provided.

At the start of 2011, ACCA launched a new suite of entry-level qualifications known as Foundations in Accountancy (FIA), and the Mature Student Entry Route is no longer available. Interim amendments to the Membership Regulations were necessary to reflect the fact that, since January 2011, students are being registered to the new FIA suite of qualifications, which includes the Certified Accounting Technician (CAT) qualification, but also other entry-level and ACCA feeder qualifications.

Other interim changes included:

* amendments to recognise the new practical experience requirement for CAT, called Foundations in Practical Experience Requirement;

* a change to the name of paper P1, from ‘Professional Accountant’ to ‘Governance, Risk and Ethics’, to reflect the increased content in the syllabus in respect of risk in response to feedback from employers.

Global Practising RegulationsThe substantive change to the Global Practising Regulations allows non-accountants to act as continuity nominees in respect of some activities, such as insolvency work.

Global Practising Regulations – Annexes 1 to 4Substantive changes to Annexes 1 to 4 to the Global Practising Regulations:

* clarify that a licensed insolvency practitioner in the UK is in public practice, and so a member who holds an insolvency licence from another professional body must hold an ACCA practising certificate;

* require a member applying for an audit qualification in the UK, Ireland or Cyprus on the basis of audit experience or a certificate obtained

some time ago to demonstrate relevant recent audit experience and CPD, or to undergo appropriate audit training;

* align the European annexes with the requirements of the European Statutory Audit Directive in that only two of the three years of practical training for the audit qualification need to be under the supervision of a statutory auditor;

* reflect the minimum professional indemnity insurance requirements in the UK and Ireland for firms wishing to conduct insurance mediation activities.

Global Practising Regulations – Australian AnnexThis is a new Annex, brought about as a result of ACCA achieving recognition by the Australian Tax Practitioners Board (TPB). TPB registrants may undertake tax and business activity statement agent services, and Annex 5 sets out the requirements of ACCA members who wish to undertake such services, incorporating the TPB’s requirements of ‘good fame, integrity and character’.

Irish Investment Business RegulationsThe only substantive amendment here reflects the new name of the investment business lead regulator in Ireland (now the Central Bank of Ireland). There are corresponding amendments to the Regulatory Board and Committee Regulations, the Authorisation Regulations, the Irish Annex to the Global Practising Regulations, and section 270 Custody of client assets of the Code of Ethics and Conduct.

Regulatory Board and Committee RegulationsThe substantive changes here better reflect the way in which the Regulatory

62 ACCA

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THE RULEBOOK IS AVAILABLE AT:www2.accaglobal.com/rulebook2012

Board is appointed by Council, and how Committees are established.

An interim change was also made, because the terms of office of all the lay members of ACCA’s Regulatory Board expired in September 2011. In order to aid succession planning, future appointments will be made so that one-third of the Regulatory Board’s lay members will retire, in rotation, each year. Amendments to the Regulations were required to facilitate the issue of contracts to members of the Board for terms shorter than three years.

Authorisation RegulationsThese now clarify that the Admissions and Licensing Committee may only order a hearing to proceed at short notice if it deems it to be in the public interest. It may also exclude from any hearing anyone (including the applicant) who is likely to disrupt the orderly conduct of proceedings.

Complaints and Disciplinary Regulations The substantive changes to the Complaints and Disciplinary Regulations:

* provide a definition of ‘finding’ and amend the definition of ‘order’ accordingly (a change reproduced in the appeal regulations);

* separate interim orders from conditions imposed on an adjournment, and clarify that conditions imposed on an adjournment cannot be appealed;

* set out the effective dates of interim orders and conditions imposed on an adjournment;

* clarify the regulations relating to publicity in light of the new definition of ‘finding’ and in respect of conditions imposed on adjournment;

* enable the chairman, under certain conditions, to correct errors without a further hearing;

* enable the Disciplinary Committee to exclude disruptive individuals from hearings (including members from their own hearings);

* require the Disciplinary Committee to indicate the facts on which its findings are based before a member is invited to make submissions on mitigation and sanction;

* allow for suspension of membership or registered student status at a health hearing.

Appeal RegulationsSubstantive amendments to the Appeal Regulations:

* make separate regulations for Disciplinary Committee and Admissions and Licensing Committee appeals, because a ‘finding’ is applicable only to a Disciplinary Committee hearing;

* specify what needs to be included in the appellant’s grounds for requesting the Appeal Committee to reconsider an application notice;

* provide a procedure for ensuring timely notification to ACCA if the appellant wishes the Appeal Committee, at a full appeal hearing, to reconsider some grounds of appeal where permission was refused by the chairman;

* allow the Appeal Committee to rescind findings as well as orders;

* clarify the regulations relating to publicity.

Code of Ethics and ConductDescriptions of professional accountants and firms and the names of practising firms – Section B4The change to this section clarifies that ethical requirements in respect of ‘stationery’ apply to websites and other electronic communications.

Professional liability of accountants and auditors – Section B9The proposed change incorporates the model rule, encouraged by the Ministry of Justice, in respect of paid trustees and trust draftsmen, whereby if the trust document is to include a ‘trustee exemption clause’, the member has a duty to take reasonable steps to ensure the person creating the trust is aware of the meaning and effect of the clause.

Ian Waters, regulation and standards manager, ACCA

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Some 56 senior members from 40 different countries gathered in London in November for ACCA’s annual International Assembly.

They debated ACCA’s strategy, future trends in ACCA’s policy development, and discussed how it should deal with issues such as the advent of the e-professional.

ACCA president Dean Westcott, deputy president Barry Cooper and vice president Martin Turner took part in the Q&A session on how the profession should move forward.

The event culminated in a discussion on the future of reporting, introduced with a scene-setter from the president. ‘Is reporting still valuable, or has it become marginalised?’ he asked. ‘When we look at issues such as complexity and relevance, it is clear that reporting has a case to answer in terms of its value as a business tool.’ And what, he asked, was the role of reporting in the ‘financial ecosystem’?

Westcott touched on non-financial reporting issues, such as the concept of integrated reporting. He also highlighted ACCA’s backing of a call by Aviva Investors for the UN Conference on Sustainable Development, to be held in Rio this June, to pass a resolution that disclosure on sustainability should be made mandatory on a comply or explain basis.

Sustainability reporting was tackled in depth by guest speaker Steve Waygood, Aviva Investors’ head of sustainability research and engagement.

He outlined how fund managers were increasingly working sustainability issues into their valuations of companies and investment decisions. Describing this as a ‘silent revolution’, Waygood said: ‘The point is that a lot of sustainability issues have an impact of financial performance.’

He said that not enough companies were publishing sustainability data,

and gave some examples of companies whose revenues and performance were being affected by issues relating to climate change, societal and environmental factors.

Another guest speaker, Nik Hasyudeen, chair of the Audit Oversight Board in Malaysia, highlighted the importance of the human factor in reporting.

Describing the various groups and organisations involved in a successful reporting system, from the reporting company itself, through to auditors, regulators and others, Hasyudeen said: ‘Underlying all this is the quality of

human resource we need to have, so underneath it’s all about education. There is a fundamental need to nurture young accountants.’

He stressed that education was not just about talent and skill sets, but also about ensuring that accountants had a strong sense of ethics.

The final speaker, Tracy Gordon, senior manager for Deloitte’s UK national accounting and audit team, focused on the relevance and usefulness of annual reports.

Currently their content, she said, was about 50% narrative and 50% financial statements, with the balance just in

International AssemblyAn imposing turnout of senior members for the International Assembly discussed ACCA’s strategy, changes in corporating reporting, the rise of the e-professional and much more

64 ACCA

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favour of narrative. She questioned how far annual reports worked, saying they had become ‘tremendously complex’ and weren’t forward-looking enough. ‘There is a blurred purpose. Are they for shareholders, regulators, a marketing document, or for other stakeholders? Is anyone actually using them?’

Challenges for the future, Gordon said, were how reporting could deal with the increasing demand for immediate information, especially in an assurance environment, how to get values and culture across, and how to deal with the many different types of business model that are emerging.

Clockwise from top right: this was Solomon Kebede’s sixth and last assembly appearance; vice president Martin Turner listens to the debate; Nisreen Rehmanjee makes a point as Michael Michaelides looks on; ACCA deputy president Barry Cooper (left) and president Dean Westcott share a joke; William Mak (front), Kaka Singh and Edmund Mndolwa (back) ponder the issues; Chama Kamukwamba (centre) accompanies ACCA executive director Clare Minchington (right), Mubashir Dagia (left) and other delegates in to dinner; Anthony Tyen (far left), Saad Siddiqui (left), Michael Scicluna (right) and Kathy Grimshaw, ACCA director – markets, take part in a discussion; and chief executive Helen Brand gives an update on ACCA’s strategic aims

65

INT_A_Assembly.indd 65 02/12/2011 17:56

Inside ACCAInside Inside Inside Inside Inside Inside Inside Inside Inside Inside Inside Inside Inside

Suzanne GodbehereWarner Johnston

GENDER SPLIT ON CRISISAn ACCA study has revealed that women are more critical of responses around the world to the economic crisis.

Women accountants were more likely to be negative and less trusting of government policies designed to deal with the financial crisis than their male colleagues.

However, women were also more likely to interact with business support initiatives, including access to finance projects.

Rosana Mirkovic, the report author and senior policy adviser at ACCA, said: ‘The findings also suggest that female respondents expected that government spending would turn out to be more excessive and wasteful than men expected it to be.’

Female Perspectives in the Global Economy is available at www.accaglobal.com/content/dam/acca/global/pdf/pol-afb-fpge.pdf

Students go online ACCA rolls out web-based system for exam results and other student services

To increase choice, processing speed and reliability, ACCA is launching a fully online service for examination registration, entry, dockets and results.

From early 2012, these services will be available exclusively online and will no longer be issued as paper documents in Hong Kong, Singapore, Malaysia, Australia, New Zealand, the UK, Ireland and Ukraine. The online service will be made available to other countries in the coming months.

Most students are currently interacting with ACCA online and this initiative reflects student demand for, and positive feedback on, online services.

ACCA is also introducing improvements to its exam results service, including reducing the length of time between the end of an exam session and the release of the results.

The December 2011 exam results will be made available for students to view online and sent by email or SMS in the week beginning 13 February 2012. ACCA has also introduced a service that lets students print out their results via myACCA.

Students in the countries listed above can print an official notification of their results via myACCA. Paper copies of exam results will not be issued to students in these locations.

64 International Assembly Senior members discuss ACCA strategy and the rise of the e-professional

62 Rulebook A look at the changes included in the 2012 edition

59 CPD Five ways to make the ongoing training requirement straightforward as well as satisfying

NEW FACES IN NORTH AMERICAACCA has appointed new heads for its offices in the US and Canada. Warner Johnston, recently featured as one of the top 40 under 40 in The Capitol newspaper, will head up ACCA United States. Suzanne Godbehere is the new head of ACCA Canada. They will focus on supporting members and building relationships with employers, regulators and policymakers.

66 ACCA news

INT_A_backpage.indd 66 08/12/2011 10:56

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How mucH?highlights from acca’s salary survey

cPDget verifiable cpd units by reading technical articles

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the magazine for business and finance professionals

african congress profession comes of age

ifrs us concernsaudit eu proposals

doing business in china

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accounting & business (international edition)_january 2012

Documents

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