PRESIDENT BLOG - Brendan Murtagh

Single set of principles a priority for the UK and Ireland

Our response to the UK Accounting Standards Board's consultation on The Future of UK GAAP placed great emphasis on convergence of accounting standards in the UK and Ireland as necessary so that all companies in these countries report under a single set of accounting principles.

ACCA believes that there is little sense in maintaining the current system, where three tiers of accounting standards are in operation; international financial reporting standards (IFRS), full UK and Ireland standards and financial reporting standards for smaller entities (FRSSE). Instead, we want to see the use of full IFRS and IFRS for small and medium-sized enterprises (SMEs), with the phasing out of the FRSSE.

The benefits are numerous, including the comparability between the reports of listed and unlisted companies in the UK and Ireland. The comparability between reports of companies across jurisdictions, which would contribute to cross-border trade and 'levelling of the playing field'. The preparation of accounting information on a more consistent basis, helping to simplify internal reporting, and so reducing costs for companies.

In addition, the adoption of a single set of standards would bring greater simplicity for accountants in preparing or auditing financial statements as familiarity with only one basis for preparation would be required. This in turn would reduce the scope for confusion and complexity. The training and education of accountants and users would be simplified by being based on a single system of financial reporting. And we must not forget the substantial savings of resources involved in maintaining a separate system of UK GAAP.

As ever, your views on this are welcome.

Accountants for Business: one size doesn't fit all

ACCA's most recent technical paper entitled Living up to Expectations has identified three fairly distinct and coherent groupings as emerging from an effort to benchmark the experiences of businesses smaller than those of the Economist Intelligence Unit (EIU) panel against larger SMEs, and to contribute to a better understanding of how accountants are supporting small businesses through the recovery.
 
Strategists
More numerous than any other grouping (39% of respondents to ACCA's Global Economic Conditions Survey Q4 2009), the Strategists believe that small business owners need to take a moment as economic conditions improve in 2010 to look at the big picture and make robust plans for the future. More than other members, they tend to advise small businesses to seek out opportunities as markets begin to recover, to invest and to explore new or niche markets.
 
Competitives
Competitives believe that the downturn offers a rare opportunity for smart businesses to build a strong competitive advantage. They advise on competitive pricing, achieved by cutting costs or building more efficient operations, as well as on maintaining or improving quality and customer service. More than a quarter (26%) of the respondents to ACCA's Global Economic Conditions Survey Q4 2009 were classified as competitives.
 
Defensives
Defensives typically advise small businesses to be extremely cautious: to prepare psychologically for tough years ahead and to focus on survival. In particular, Defensives are preoccupied with maintaining strong cash flows, improving financial controls and reducing reliance on other organisations, including lenders. This group was also noted as being more likely than any other to direct small businesses to government assistance programmes. Just over one-third (36%) were classified as Defensives, including a substantial part of the sample in western Europe (44%) where they are substantially over represented.
 
The findings of this study suggest that the advice of professional accountants has rarely been more valuable. At the global level, the consensus view appears to be that survival can no longer be the sole preoccupation of small businesses.

For some, time and resources will now allow a brief period of reflection and planning that could yield benefits in the future. Others must wade straight into the recovery in search of competitive advantage. However, in those regions where the recovery is weakest, large numbers of finance professionals are still advising businesses to prepare for the worst.
 
Small businesses appear to have outperformed larger organisations against most of the key indices monitored by ACCA, despite facing disproportionate cash flow pressures and benefiting less from government intervention. In particular, their refusal to engage in indiscriminate cost cutting is serving them and the global economy reasonably well.

Tax after the financial crisis

A new ACCA position paper entitled Tax After the Financial Crisis has just been issued which looks at a range of key issues relating to tax and asks questions such as 'did tax cause the crisis?'

The paper calls on policy makers to consider a number or recommendations, including:

The UK's tax system needs to become less complex and more stable in order to enable business planning. It should also be benchmarked against a larger number of economies than just the G7.

Governments should employ the 'think small first' principle when considering tax legislation.

There should be consistent consultation with business on taxation issues.

Corporate tax legislation should be largely removed from the Finance Bill to provide more possibilities for thorough examination of important clauses.

ACCA endorses the idea of sunset clauses whereby tax legislation is periodically overhauled and consolidated to bring it up to date and make it easier to follow. Outdated laws should be removed.

Governments and tax authorities should devise clear metrics to gauge whether the tax system is being appropriately and sufficiently reviewed.

Your views, as ever, are most welcome.

Diversity and equality in SMEs - there's a challenge ahead

As we start the month of February, let us hope the coming months will continue to bring a faster global recovery and stability.

ACCA and the Federation of Small Businesses (FSB) recently held a discussion on the diversity and equality in small and medium-sized enterprises (SMEs). One of the key findings from the meeting was that SMEs will need to be increasingly mindful of equality and diversity issues.

The Equality Bill is currently undergoing Committee stage consideration in the House of Lords, and SMEs have been exempt from some of the provisions, such as reporting on the pay gap between male and female employees.

However, the implications of the Bill could still be profound. SMEs are often ill-informed about the benefits of a diverse workforce and ill-equipped to seize the opportunities it offers. SMEs employ 59% of the private sector workforce – if they cannot do their part for equality and diversity voluntarily, the entire agenda could be in trouble.

Panellists at the event (including ACCA's CEO and MPs) found that small businesses are among the government's strongest allies in its efforts to improve equality and diversity. Working for a small business is itself a way for many to sidestep discrimination or negative attitudes, and a way out of disadvantage.

Small businesses are able to achieve these positive outcomes for employees without the benefit and burden of written policies. Also noted was an explicit and systematic commitment to equality and diversity is necessary for small businesses themselves to reap the full benefits of a diverse workforce.

As ever, your views on this are welcome.