Archives For ACCA

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By Jason Piper, technical manager, tax and business law, ACCA

To listen to some commentators, you’d think that the news agenda was about to burst from an oversaturation of tax stories. The tax affairs of politicians and filmstars are making domestic headlines around the world, while the activities of multinational companies have prompted consumer action from New York to New Zealand. It seems that internet and technology companies are as likely to hit the headlines for their tax policies as for the latest product or design breakthrough. Buying a cup of coffee can be as much a political statement as an expression of tastes, and the agenda for global conferences of heads of government is as likely to address tax policy as it is trade agreements or human rights.

Some tax practitioners are perhaps a little bemused by all the attention. After all, tax has always been important hasn’t it? Whether the state’s tax take is 8% or 48% of GDP, some things must be done centrally. It’s inevitable in any kind of organised economy that an element of surplus will need to be appropriated and redistributed for the common good so surely the approach of taxpayers to their relationship with the state and society has always been important?

There are some key factors which have brought things to a head. Firstly, there’s the economic pressure brought to bear on governments by the post-GFC world. Politicians need to be seen to be doing something if they are to command public support, and vilification of tax scofflaws ticks a lot of the right boxes. It’s not necessarily the most cost-effective way of improving public finances, but it’s certainly a popular one. If governments want to spend money, first they must collect it, and the determined abusive avoidance of their legal responsibilities by a minority of taxpayers and advisers gets in the way of that. It’s a fair target for responsible and measured action by the authorities.

Secondly, there’s a wider recognition that outside of any single tax system sits the web of global trade inhabited by multinational corporations. Unlike tax systems, which stick to rigidly defined legal and territorial boundaries, businesses can have the choice of where to operate, which rules to put themselves under, and how to account for themselves. The set of rules which the nations agreed on to try to govern the taxation of international trade were mostly set out in the 1920s, a world before containerisation, the executive jet and the internet. Goods, people and information are mobile in a way that the creators of the old system could never have envisaged, and that brings challenges for tax systems and their designers, resolution of which have been brought to a head by the pressures of the GFC.

Everyone involved in the operation of taxes has a role to play in the reform and rehabilitation of the system. Tax is more than just a bill to pay, it’s an integral part of how society works. And the same can be said of business – re-allocation of the productive surplus of society and aggregation of capital is what takes us beyond a subsistence society and gives us the scope to do things together that we could never do as individuals. But still every company is ultimately influenced by, and influences, individuals and the choices they make. The contribution that a business’s activities make to the tax system and society as a whole cannot be disentangled, and as the mantra of corporate social responsibility sweeps the world, so a responsible attitude to tax is a fundamental part of good corporate behaviour.

Carrying those good intentions into practice relies upon buy-in from management, advisers and stakeholders. Owners and employees are affected alike by corporate attitudes to tax, and can influence them for good or ill. ACCA thinks its members should approach tax responsibly, setting out clearly the rules of the system, highlighting the key features and opportunities, the main risks and downsides. And system designers have a part to play. Trust and good faith are a two-way process, and if taxpayers resent the system or the way it is applied then they are less likely to engage positively with it. Different countries have different needs from their tax systems, and different capacities to operate them .But the principles should be the same the world over, for taxpayers, for their advisers, and for the authorities charged with designing and operating the systems. By working together for a common cause, on common grounds, we can build a far better regime.

Read ACCA’s Global policy on taxation of companies: principles and practices for more insight.

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By Eric Tracey, investor, Governance for Owners

An integrated and individual approach to risk reporting is the key to helping investors make the right decisions.

When I read about a company’s strategy and objectives I want to read about risk as well. You can have higher and lower risk strategies depending on what you are trying to do but risk is inherent: what you want to see is how two companies that do ostensibly similar things are going about, or might go about, them in a way that is different, and that’s what you want to understand.

I want to read about what the directors are really worrying about – not something that is just made up for the annual report.

The great challenge in all reporting is that it gets taken over by advisers. They either make it all very bland or alternatively put everything in but the kitchen sink, in which case it becomes completely useless. That’s the biggest threat to good risk reporting.

Risk reporting should contain a certain amount of policy, but it’s more about what’s changed than what carries on from year-to -year.

What you want people do each year is not to quite start from a blank sheet of paper, but it’s important to say this is what we’ve done this year. Reporting needs to be in the past tense – if it just becomes a whole series of policy statements then it frankly becomes pretty meaningless.

I am also not impressed when issues of commercial sensitivity are used as a barrier to risk reporting.

It’s a fantastic smokescreen to hide all sorts of things and I don’t give it much credence at all. You ought to be able to describe your risks to the business without giving away something that you should keep secret. It’s precisely because it’s sensitive that something should be reported to shareholders.

Where the law limits what can be said, looking forward, there is still a lot that can be said about the company’s approach to risk and who is managing it.

If I saw something that said risk is the responsibility of the audit and risk committee, I’d be more wary than if a company told me that risk is the primary responsibility of the CEO and the management team. Those would be quite different statements.

Similarly a company’s risk appetite can be better communicated by talking about what the company actually does and is revealed in the decisions the company makes. It is reflected in the exposures taken, and whether you are comfortable with them and if the return you are getting is acceptable.

What’s important is that this risk appetite and approach is reflected right through the business all the way up.

In good companies that’s what they try to do – they say, this is how we do what we do, this is how we approach risk, now let’s write that story. So you don’t have these enormous exposures that the board is not fully aware of, which is clearly what happened in the financial crash, when there would have been people somewhere in the banks who understood the risks.

I want to get a clear understanding of regulatory risks and how these are shaped by the various financial control authorities around the world.  More standardisation of the reporting of risk around the world would in theory be a good thing, but the perfect should not be the enemy of the good.

While you can’t object to standardised international reporting, you don’t want to say you want everyone to be in the same place before you do anything.

As far as frequency goes, I am fine with ‘proper annual reporting’. If you do anything other than that you can overload people with information so that they can’t cope or use it in any way. You need to know what’s going on but the shareholder can’t cope if it’s every quarter or every six months – that’s too often and encourages short-termism.

Risk is the “core of capitalism” and developing an adequate understanding of it is an “interesting challenge.”

Does the growth of risk reporting make organisations more risk averse? Possibly, but it’s not necessarily a bad thing. You can have an adequate discussion of risk without beating the hell out of any entrepreneurial spirits.

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By Dr Carol A Adams FCCA, member of ACCA’s Global Forum on Sustainability

If you are confused about what integrated reporting is, rest assured you are not the only one.

A lot of people think it’s about putting together your financial and sustainability reports. Wrong. It is much more than that – and much less. It will not replace either a financial or sustainability report – both must be in place for integrated reporting. But starting to think about the connections between the financials, the relationships your organisation has with its key stakeholders and how it makes use of natural resources, for a start, is a step in the right direction.

Integrated reporting requires thinking about ‘value’ beyond financial terms – a long overdue development given that around 80% of the value of company is typically in intangible assets.

Building strong relationships with stakeholders, building a loyal customer base, developing intellectual capital and managing environmental risks, etc, tend to fall off the radar when corporate execs think short-term. But they are critical to long-term success. Integrated reporting keeps the focus on long-term strategy and integrated reports are forward-looking documents covering strategy, the context in which it will be delivered and how the company has, and will, create value for providers of capital and others in the short, medium and long-term. The International <IR> Framework recognises that long-term success depends, amongst other things, on sound management, relationships, a satisfied workforce and the availability of natural resources.

Much of the information companies are providing to investors is not in their annual review or financial statements – further evidence of the need for change. An integrated report fills some of the gap and allows an organisation to tell providers of capital, and others, how it creates value for them.

If you asked your colleagues how they would describe your business model would they have the same view as you? Probably not. Many corporate execs think about their business model in narrow financial terms or from the perspective about the bit of the business they are responsible for. But if the senior exec work together in conceptualising the business model and start to think about inputs and outcomes in broader terms, a different picture about what needs to be managed and what adds value emerges.

The six capitals concept is intended to facilitate this broader thinking about value and the business model. ACCA has been at the forefront of its development coordinating the work of the IIRC’s Technical Collaboration Group on the capitals and funding my involvement.

Some companies are taking a first step towards integrated reporting by getting their financial and sustainability people working together. This is advantageous in that accountants could better understand social and environmental risks and their impact on reputation and the bottom line whilst sustainability teams need to develop skills in making a business case for their work. But the integrated thinking that goes behind integrated reporting needs to involve all the senior execs. And the Board.

If you would like to know more about integrated reporting, see some examples of good reporting practice and speak with some peers about the challenges and benefits, register for the Master Class in London on 14 March hosted by ACCA. You will hear from Eileen Rae, Director-Finance, ACCA and Jonathan Labrey, Communications Director at the International Integrated Reporting Council (IIRC). Eileen will discuss the preparation of ACCA’s second integrated report. A copy of
of my book Understanding Integrated Reporting: the concise guide to integrated thinking and the future of corporate reporting will also be given.

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By Jamie Lyon, head of corporate sector, ACCA

To my eternal dismay I don’t really get much time on the iPad these days. I don’t have to look far, however to find where it is – invariably it’s in the clutches of either my seven year old daughter (worrying), or my three year old boy (worrying, but for different reasons). Their relationship with this sort of technology however seems very intuitive, dare I say almost hardwired. Technology will be even more coded into their future daily existence, probably beyond the realms we can imagine right now. It’s fascinating to watch, and it’s an extraordinary time to be alive.

Today’s rate of advancement in technology is exponential but I can’t help but think the technology we are becoming accustomed to in our private lives isn’t quite reflected in our business lives. There is no greater example of this than what’s been happening (or not happening) in corporate finance organisations over the last decade or so. If the finance organisation is serious about driving value and supporting the business in its strategic imperatives, one of the things it has to get serious about is the technology it has at its disposal. I don’t, however, subscribe to the view that technology is the panacea to all of finance’s problems, the one-stop solution to deliver the sorts of financial and operational insights the business is crying out for… but it would be naïve to underplay its growing importance, particularly with the digitisation agenda.

So what’s stopping finance technology delivering on its promise? The obvious one is investment costs and multiple legacy ERP systems not being fit for purpose; too much manual workaround, too much time trying to get to the number rather than understanding and explaining to the business the implication of the number. Where we have seen investment in finance technology, typically the investment is focused on streamlining and driving down cost, rather than investing in the sorts of capabilities that are predictive and insightful. But there are arguably other issues too. Has finance shown the necessary finance leadership in the technology agenda? Does it truly understand and can it explain the business case for finance technology investment? Does a typical finance function “culture” present challenges to really embrace the opportunities that technology provides? Is it because finance is too risk averse? Why isn’t it adopting the cloud much? Is the payback on technology that creates insight rather than headcount reduction just too hard to quantify? Is it a capability issue with finance playing “catch up” on the skills it needs to make technology truly deliver?

Lots of questions, not many answers. We explore all of these issues and more in ACCA’s latest CFO report Is finance function technology delivering on its promise? 

I’ll leave with you a final thought – I think the corporate insight agenda offers CFOs and the finance organisation a great opportunity for internal influence and moving the dial on the corporate reputation of the finance department. I also think embracing and making the case for technology and tools is essential to achieving this. My observation is this: if finance doesn’t take this opportunity to lead the insight agenda, perhaps someone else will…

This blogpost first featured in CFO World, February 2014

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By Sarah Hathaway, head of ACCA UK

Membership of the European Union has been an issue the accountancy profession has made little noise about and it’s viewed as a political issue. However, EU membership is an economic matter which is why here at ACCA we feel an obligation to take a view on membership.

The Deputy Prime Minister Nick Clegg MP described leaving the EU as “economic suicide.” He is right. But why do we care? Because accountants, perhaps now more than ever as we emerge from a global recession, have an important role to play in the recovery, future growth and in guarding against future risk to the UK’s economy.

Accountants traditionally look at the numbers, and they paint a convincing picture of why the UK should not back out of the EU. However, the profession is seeing its role and remit broadening into a much more strategic, forward-looking role in business and from that perspective too, giving up on the economic European Union would be bad news for UK plc.

ACCA sees staying in Europe as a no-brainer, and we aren’t alone. Nissan’s chief operating officer Toshiyuki Shiga has pointed to the major benefits for foreign investors in the UK being part of the EU. As Nissan owns the biggest car factory in Sunderland, employing 6,100 people, and is supported by UK supply chains that employ even more, Shiga’s comments should not be ignored.

Leaving the EU is also bad for the smaller businesses further down the supply chain. SMEs would actually benefit greatly from an even more integrated European Union. SMEs could increase export trade by 45 per cent if the remaining barriers in the Union are lifted.

But this issue isn’t just about trade. It’s about people.

Chief finance officers tell us that overseas experience will be a vital skill for tomorrow’s finance leaders. That sentiment fits with ACCA’s qualification – an exportable asset. You can study it in the UK and take the qualification to the Czech Republic or other markets (and vice-versa). In the EU, that mobility is made easier by free movement of people laws.

The UK benefits from being able to access talent from across Europe – employees bring with them market knowledge and close links with clients, customers and other stakeholders. This cultural connection is vital in a global business world.

The EU is also a vehicle for social mobility. ACCA is guilty of repeating the same messages around social mobility, but can you blame us? Since our infancy in 1904, social mobility has been the central principle of our qualification. Who you are and where you come from is no obstacle to the ACCA Qualification. That social mobility principle also applies in the EU.

Social mobility can include upward progression across Europe in finance and beyond, as well as within the UK? Cutting that continental option off and confining social mobility to within the UK’s shores is strangling that upward mobility.

This isn’t just about the current workforce either. Opportunities for Britain’s younger generation won’t be there if major employers have to leave the UK. Where will they get work – Europe? That won’t be so easy if the UK throws in the towel with the Union.

And if jobs and social mobility aren’t concerns for some, perhaps the numbers – more familiar territory for the accountancy profession – can paint a more convincing picture as to why a UK out of Europe is a bleak place.

The EU is the largest economy in world, worth £11 trillion, ahead of the US (£10.3 trillion) and China (£5.4 trillion). Nearly 34 per cent of world trade originates in Europe, worth around £3.5 trillion annually. The EU is also the top trading partner for 80 countries.

UK companies benefit by £500m a year, while 50 per cent of foreign direct investment to the UK comes from other EU member states. Over 40 per cent of UK exports go to the EU and they are tariff-free. More than 300,000 UK companies operate in the EU.

The EU-US trade deal is expected to generate €80bn (£67.7bn) worth of benefits for the EU and create 2m jobs. The EU-South Korea Free Trade Agreement saves EU exporters £1.35bn annually in tariffs.

Amidst the emotional scaremongering about the EU’s threat to British culture, the figures paint a clear picture that big business, overseas investors, small business and UK employment stand to lose if we drop out of the EU.

It’s difficult to ignore the arguments for staying in Europe. The consequences of leaving will hit the UK hard.

This first featured in City AM, October 2013