Archives For ACCA

Don’t ignore the draft

aksaroya —  22 May 2013 — Leave a comment

By Barry Cooper, ACCA president

Engaging in the IIRC’s consultation is vital in developing the integrated reporting framework.

Barry Cooper-0513

It has always been a source of pride to me that ACCA has been at the forefront of developments within the accountancy profession – the move to ensuring that our syllabus was based on International Financial Reporting Standards (IFRS) being just one.

Now ACCA is once again demonstrating its pioneering credentials by not only being one of the first adopters of integrated reporting (IR) – having produced our most recent annual report to IR principles – but also by calling for the business community, companies and investors alike to ensure they help shape the future of IR.

We have urged these groups to respond to the International Integrated Reporting Council (IIRC) consultation draft on the integrated reporting framework to help develop a new corporate reporting model. This will enable organisations to communicate their activities more effectively and provide clear information to stakeholders.

In my meetings with members, employers and tuition providers, many have commented favourably on our first annual report produced along IR lines – which enabled our stakeholders to see the bigger picture brought together in what is hopefully an easily digested document. Our next report will be another step along the IR route.

But this initiative is not only an opportunity to demonstrate leadership and innovation in the accountancy profession. It is also critical that those you advise play their part in helping to shape the future of integrated reporting, by looking at issues and challenges which can be addressed now and which ensure that the IIRC gets the full picture.

You have a critical role to play, and I urge you and your companies to engage in the consultation process.

This post first appeared in Accounting and Business magazine, May 2013

In ACCA, Barry Cooper, Corporate reporting, IFRS, IIRC, Integrated reporting
permalink

Capital quandary

aksaroya —  20 May 2013 — Leave a comment

By Manos Schizas, economic analyst at ACCA

Only a fraction of the world’s SMEs are funded by public equity. ACCA considers whether the world’s capital markets can do more for small issuers.

SME capital market

Xavier Rolet, CEO of the London Stock Exchange Group, has been making the rounds recently, drumming up support for Europe’s SMEs as the most reliable job creators in the region. He’s right, of course, in identifying the sector as a powerful engine of employment, but can the capital markets supply SMEs’ funding needs?

The dotcom boom of the late 1990s ended badly – or so I was taught in university. But more than a decade later it seems to me that it was a fantastically benign episode compared to the credit bubble that followed it. Though it had to end some time, it was the dotcom era that made today’s digital economy possible, bequeathing a digital and social infrastructure that we couldn’t live without today.

But perhaps the period’s most lasting legacy may be the stereotype of the twentysomething internet billionaire: starting a game-changing business in his or her basement, then taking it public a few years later, still in jeans, as the prospectus presented to the world. It’s a great story, but also a desperately rare one.

To this day, only a very small percentage of the world’s SMEs are funded by public equity. The figure varies by country but is typically in the low single digits. Because the total population of SMEs is so massive, this relatively small share still means that micro-caps and small caps (with a market capitalisation of less than $65m and $200m respectively) made up 64% of the world’s listed companies in 2011. But they accounted for only 14% of individual stock market trades and 4% of share trading volume, according to figures from the World Federation of Exchanges.

Illiquidity is a market-killer. It scares away investors looking for reliable exit opportunities as much as it does entrepreneurs looking for fair valuation. It also endangers the social mission of markets. Stock exchanges serve society by channelling funds to productive investment through price discover; this however means that liquidity is most crucial in those segments of the market in which issuers most critical future finance needs are still ahead of them.

Appropriately a recent report by UK think tank Centre Forum singled out stamp duty on sales of shares for criticism as an effective tax on liquidity. In the era of high frequency trading, some policymakers may even welcome this outcome. But even if there is such a thing as excess liquidity in capital markets – which is subject to fierce debate – when it comes to small listings, there is no liquidity to waste, no froth to skim.

Governments have used other tax incentives extensively to promote equity finance; after all the interest on debt is tax-deductible, which creates an uneven playing field. Emerging markets, from Jamaica and Trinidad and Tobago, to frontiers such as Cambodia, offer substantial tax breaks to listed firms, subject to clawbacks, as long as they remain listed for some years. Many governments also extend these breaks to investors. In the UK, for example, investments in the AIM exchange are now eligible for inclusion in stocks and shares ISAs.

While tax relief may encourage investors to hold onto more of their gains, the ears of tax and wealth advisers everywhere also prick up at the mere mention of a tax incentive. Tax relief may increase returns, but it is only one side of the equation. Small issuers are seen as riskier – and not without cause. Students of accounting are routinely taught from seminal studies that use business size is a proxy for risk. The lack of analyst following compounds this problem: analysts’ incentives are to generate recommendations for the sell-side and micro-caps simply cannot generate enough sales to justify their time. It is not impossible to develop alternatives, but they won’t come for free either.

Back in the UK, Centre Forum correctly identified the need for a new listing culture in which all stakeholders collaborate to encourage the financing of SMEs through public equity. Ironically, this is precisely the reality in less developed markets – where government, business associations, exchanges and the accountancy profession work hand in hand to groom prospective issuers.

Why not take a leaf out of their book? After all, secondary boards aimed at SMEs, however established the main exchange boards they are allied to, are perpetually in frontier market territory.

Meanwhile, the tiny but rapidly growing crowdfunding industry, which allows retail investors to put small amounts of equity towards promising start-ups, could introduce a whole new generation of potential investors to the concepts and risks of equity investment. Policymakers and exchanges have yet to see the link between crowdfunding and the capital markets, but they should.

For more information read Protecting stakeholder interests in SME companies: good practice adopting and promoting e-invoicing in the EU and The rise of capital markets in emerging and frontier economies.

This article first appeared in Accounting and Business magazine small business special edition, May edition, 2013.

In ACCA, Access to finance, capital markets, Manos Schizas, SMEs, Uncategorized , , ,
permalink

Why balanced finance capability matters in finance today

accapr —  15 May 2013 — Leave a comment

research-insights92

By Jamie Lyon, head of corporate sector, ACCA

Reading a lot of the commentary on finance and the role of today’s CFO you’d be forgiven for thinking that today’s finance function spends all of its time on strategy formulation and execution. I don’t doubt for one second how important the role of finance as a strategic business partner to the organisation is, or the critical role progressive CFOs increasingly play in strategic support to the organisation. But it is also worth remembering the role the finance organisation plays in what I would call the fundamentals – cost management, cash-flow management, finance operations and so on. There are of course differences and changes in priorities – the strategy of the business, the prevailing state of the economy, its industry sector – are naturally factors which shape and influence the focus of finance leaders and the function at any given time. But it seems irrational to think that great finance functions are still not held to account on the strength of control and financial management of the organisation. This indeed is at the core of its fiduciary responsibilities. It’s also critical to get this right if you truly aspire to supporting the strategic agenda of the business – these multiple aims of the finance organisation are not mutually exclusive. Having this bedrock of broad finance capability is also, of course, particularly relevant in a period of on-going volatility and growth challenges.

We recently produced a report examining the future needs of the finance function, and the implications for developing the capabilities needed. The report, the complete finance professional, draws on a wide range of studies, including ACCA research specifically with CFOs and other finance leaders, to test these ideas out. The conclusions were very simple. Great finance functions needs to be able to draw on a wide range of finance capabilities. They can’t survive on staffing their functions with people schooled on a narrow version of management accounting, and this isn’t particularly healthy for developing the capabilities needed in future finance leaders either. Let’s consider the roles some finance professionals perform to illustrate the point – can financial analysts drive truly effective decision-making if they don’t have a broader understanding of risk; can internal auditors perform their roles effectively without a strong grounding across financial and management accounting disciplines; can accountants with investment appraisal responsibilities get by with no awareness of tax, or regulatory changes which may have implications on project benefits…and so on. I don’t quite think so.

Secondly, with public debt, currency instability, emerging market growth, commodity price rises and many other signs of significant volatility, finance leaders themselves are in a huge period of flux, change and uncertainty; we know the role of CFOs continues to evolve but it’s the shear breadth of skills and knowledge that is now called into play; also given the level of volatility in the global economy we see a real call out to balance the quest for growth with the need for control – this ‘balanced finance leadership’ really is as a hallmark of the top finance job right now. The report also comes to other simple conclusions – a recognition that the changing face of finance operations with the advent of shared services, outsourcing, centres of excellence and the retained organisation demands both excellence in traditional finance capabilities (e.g. process mastery, transparency in controls, specialised finance expertise) as well as new capabilities (transformation, project management, dealing with change, customer centricity and so on); and that strong finance functions earn the partnering mandate best by ensuring effective finance stewardship of the organisation as a strong foundation; in short you can’t neglect one for the other, it doesn’t quite work like that.

At ACCA we continue to advocate the need for breadth and depth of financial understanding in finance functions today.

In ACCA, CFO, Finance Transformation, Jamie Lyon , ,
permalink

All change at the top

aksaroya —  10 May 2013 — Leave a comment

As a new CFO takes the helm at TCS, Cesar Bacani, editor-in-chief of CFO Innovation Asia, looks back at how the finance function has transformed and considers the wisdom that outgoing chiefs can pass on to younger colleagues.

IT Consultancy

Before I interviewed S Mahalingam, until recently the CFO of global IT services and business process outsourcing giant Tata Consultancy Services (TCS), I thought he had been in finance for 42 years. He set me straight. Although a chartered accountant, Maha, as he is known, had been in almost all functions except finance in 33 of his 42 years with the Tata Group.

‘I used to write [software] programmes, develop systems, do marketing,’ he said ‘I opened the international offices in the UK and the US. Basically, I have done almost all of the functions – I looked after project delivery management, I looked after HR and training.’

It was a career path that he feels made him a much better CFO when he finally headed finance. ‘I would rate that as the biggest part of it,’ said Maha.

‘Had I been a backroom person [in traditional finance], I think I would not have been able to counsel anyone. I would have reacted to decisions, rather than being a part of [decision-making].’

Not that he had no qualms about switching over to finance; things had changed so much since he qualified. ‘I don’t think anyone was called a chief financial officer,’ he recalled, ‘The finance manager and CFO as a distinct role really came in the 1980s and 1990s.’

‘I was a little worried as to whether I would have the capability to do the accounting,’ he added. And then I realised that the function has moved on far beyond that’ — something that’s not news for more and more of his peers today.

Standards and processes have become more structured and there are things like automation, straight-through processing, outsourcing and shared service centres — all of which Maha harnessed to free finance to focus more on value-added work. For, as the CFO found out, finance’s remit has expanded in all directions.

`You have to really work with the chief executive, to give the relevant drivers for running the business and making sure that you are not only helping in the planning process but also in measuring [performance],’ he said.

Not that the core of finance has been neglected at TCS.

‘Accounting is an expertise function,’ Maha explained, ‘My challenge in the last 10 years has been to create this expertise, in the same way that a specialist structure was also created around global taxation’ (TCS has 58 offices around the world).

I interviewed Maha after he was honoured as CFO Innovation Asia’s CFO of the Year in 2012. He retired on his 65th birthday in February but years before he had already started grooming a successor in Rajesh Gopinathan. An engineer with an MBA degree, Gopinathan was on the business side when Maha brought him over to finance.

`He is not a chartered accountant,’ said the new CFO’s mentor.

The way things are going, though, it seems that even a non-accountant can take the financial reins — provided that he or she is backed by the expertise of accountants, tax experts, treasurers and other specialists.

This article first appeared in Accounting and Business, China edition, April 2013

In ACCA, CFO, Finance Transformation
permalink

When persuasion is not enough

aksaroya —  8 May 2013 — Leave a comment

The contentious issue of how to ensure enough women are appointed to boards of companies is dividing opinion, with some insisting that mandatory quotas are the only way to effect real change, says Errol Oh

diversity

It has been almost two years since the Malaysian Government set the target of having at least 30 per cent women at the decision-making level in the corporate sector by 2016. This is part of the country’s Economic Transformation Programme (ETP). Leveraging women’s talent to raise productivity is a policy measure under human capital development, one of the ETP’s six Strategic Reform Initiatives.

`The decision-making level in the corporate sector’, although not officially defined, is widely understood to mean directors, CEOs and other C-suite positions, particularly those of large corporations and the influential government-linked investment companies.

Most people agree the immediate and more realistic goal is to raise the proportion of women directors of listed companies to 30 per cent. However, the pursuit of this target is not driven by a mandate; the Government prefers to rely on persuasion instead of legislation. It is perhaps time to reconsider this. Malaysia is not alone in rejecting the use of compulsory quotas as a way to get more women into boardrooms.

For example, in the United States, there has been no serious discussion on the subject, although board diversity is a hot topic there, as it is elsewhere in the world. Nevertheless, countries such as Norway, France, Spain, Italy and Belgium have made it a must for their listed companies to have certain ratios of women directors.

Last November, the European Commission proposed that by 2020, 40 per cent of the non-executives on the boards of companies listed on member states’ stock exchanges are to be women. The imposition of quotas for women directors is open to debate. The worry is that they will lead to tokenism – women will be made directors more to satisfy the quotas than because they are qualified and can add value. This may undermine the argument that companies with more women directors tend to perform better. Some who oppose the idea regard quotas as patronising to women.

One of them is Mai-Lill Ibsen, who once had almost 200 boardroom seats in Norwegian companies. In an interview with The Guardian in January, she said: ‘I’ve never seen the glass ceiling, I’m against quotas, they are discriminatory in a way. I feel we [women] are so strong we don’t need that.’

On the other side of the divide are those who have a similar view as that of Viviane Reding, the EU Commissioner for Justice, Fundamental Rights and Citizenship. More than once, she has said she is not a fan of quotas but likes what they do. That is an important point.

Mandatory quotas for women directors force decision makers – in Malaysia, these are almost always men – to include women as candidates. This is likely to make a difference, especially in the selection of independent directors. Often, boards of directors are seen as thinly veiled old boys’ clubs, where even independent directors are associates of the controlling shareholders.

It is not the best setting for good stewardship that protects minority shareholders’ interests. However, there is little incentive for change if the ratio requirement is voluntary. Having women directors will not automatically improve a company’s governance, but if male dominance is no longer acceptable in just about every sphere of life, why should it persist in the corporate boardroom?

Errol Oh is executive editor of The Star

This article first appeared in Accounting and Business, China edition, April 2013

In ACCA, Women in Business ,
permalink