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By David Hopkins, Business Engagement Manager for the Intellectual Property Office

In a recent survey 89% of accountants told us they thought it was important to gain a better understanding of intellectual property (IP).  In today’s competitive marketplace, the accountancy profession is recognising that understanding IP may give them an edge in attracting new clients and contribute to the growth of their existing clients.

Every business will own or use IP and could include for example a trading name, website, drawings, knowhow and technical innovation. These intangible assets are likely to play a significant role in a business’s future plans for sustainability and growth.

Businesses owning their IP rights can benefit in exploiting those rights in a number of ways. This may include creating licensing opportunities, adding value in the event of the sale of their business and if they approach business angels, venture capitalists for funding.

The main areas of IP are trademarks, copyright, designs and patents. One of the main barriers we hear raised by businesses in not protecting their IP is the cost. It should of course be seen as a relative cost, however. For example a UK trademark applied for online can cost for as little £170 and lasts for 10 years.

There are other benefits for businesses investing in the future. HMRC’s Patent Box offers an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products. There is also the R&D Tax Credits and there is evidence to suggest that it is under claimed.

There are a number of good reasons why understanding IP will also help prevent a business from encountering difficulties. A limited company name does not necessarily give a business the right to use the name in business.  It may in fact be infringing someone else’s trademark so it is strongly recommended that before incorporating a free trademark search is conducted.

The basic rule in copyright is that the creator owns – therefore if a third party creates a website, logo, takes photos, drafts content – then they will own the IP rights unless there is an assignment of copyright.

The IPO is aware that many professionals aren’t confident in their understanding of IP rights. To address this they have designed IP Equip, an online learning tool to help you understand the basics of IP.

The course is free to complete and can be accessed via desktops, tablets and smartphones. It’s also CPD accredited and has received praise from the certification service for being ‘one of the best well thought out and executed courses’ the assessment team has seen.

As part of our outreach programme we are delivering a series of joint seminars with Companies House entitled Briefing for Accounting Professionals.   These events provide a great introduction to both IP and the latest news from Companies House.  The next event will be in Scotland and we will shortly announce dates and locations for next year’s programme here.

wind turbines

By David York, head of auditing practice, ACCA

‘You can’t manage what you don’t measure'; so is that why ACCA has issued Technical Factsheet 190 Carbon accounting for small businesses? To give accountants the tools to help smaller businesses measure their outputs of greenhouse gasses. So they can manage them – reduce them – and help ‘save the planet’.

Partly. Plenty of organisations have been trying to make measurable and reportable the environmental (and other) impacts of business. But almost without exception, these initiatives have been aimed at, and only been taken up by, large corporations.

There is nothing wrong with that. ACCA has been prominent in promoting sustainability reporting and now integrated reporting for giant businesses for which measurable reductions can make significant contributions to reducing global warming. But more can be done.

These existing initiatives are not readily scalable down to very small businesses. The GRI G4 Sustainability Reporting Guidelines for example have over 90 pages and are issued with a 260-page implementation guide. The authoritative Greenhouse Gas Protocol corporate standard is over 100 pages.

In complete contrast, the essence of the ACCA guidance is contained in ten pages. It does this by introducing a simple form of carbon accounting. The simplification comes primarily from narrowing down the scope of reporting to concentrate on common businesses’ activities that have significant measurable emissions, typically energy use and transport.

This makes it potentially accessible to all, so that businesses are not deterred by either the amount of time it will take to complete the carbon accounts or the complexity of the process. The guidance has been developed in conjunction with Green Accountancy, an ACCA registered practice that successfully provides this service in the UK.

The factsheet explains the form of reporting, provides a methodology, and sets out ‘conversion factors’ – the means to convert physical measures, such as electricity used, into a carbon equivalent. Guidance is also provided on the relevant professional responsibilities, such as a suitable engagement letter, and on marketing this new service.

Marketing has a sting in the tail. The client must have trust in a firm’s ability to provide the service. There are many ways to build that trust, but there is one sure way to destroy it: unless a firm ‘practices what it preaches’ and does its own carbon accounting, it will have no credibility.

Why is whistle-blowing such a critical issue and how important is it for businesses to have clear and coherent whistle-blowing policies? asks this video from VLearn. 

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.

Off the hook

aksaroya —  17 May 2013 — Leave a comment

Peter Williams, accountant and journalist, explores the contrast between the impassioned scapegoating of the ratings agencies during the onset of the financial crisis with the meek acceptance of the recent UK sovereign downgrade.

credit-rating

Credit-rating agencies have proven remarkably capable of withstanding the opprobrium of politicians. At the start of the financial crisis, politicians pilloried the agencies, and warned of dire consequences for their part in the crisis. But the tough talk has barely touched the work and the output of the rating agencies.

Perhaps inevitably, the discomfort of a UK sovereign downgrade from its coveted AAA status by the rating agencies has been seen partly through the prism of the political damage inflicted on UK chancellor George Osborne. But he is not alone: the UK has merely followed in the footsteps of the US and France in 2011 and 2012. A few weeks before Moody’s delivered its ratings verdict on the UK economy – and some would say on the chancellor’s stewardship – European politicians delivered theirs on how rating agencies should act in future. Those judgements could hardly have been more different.

The new EU rating agency rules amount to little more than an invitation to carry on as before. The final package aims to reduce the over reliance on ratings and make it easier to sue the agencies if they are judged to have made errors when, for example, ranking the creditworthiness of debt. In particular, the agencies will have to be more transparent when they are rating sovereigns, respect timing rules on sovereign ratings and justify the timing of publication of unsolicited ratings of sovereign debt. The politicians’ stance softened markedly during negotiations with the agencies. The proposal for a state-funded agency was quietly shelved. It is a far cry from the blood and thunder that politicians were threatening back when the financial crisis was still raw and unfolding. The mood then was summed up by US politician Henry Waxman, who declared: ‘The story of the credit-rating agency is a story of colossal failure.’ The agencies’ failure to spot the problem with securities had broken the bond of trust and put the entire global financial system at risk. They were told to expect a radical overhaul, perhaps an entirely new system. The House of Lords report into the agencies in July 2011 was tellingly entitled Sovereign Credit Ratings:shooting the messenger?

Shooting the Messenger?

The four-month inquiry criticised the agencies’ role in the 2008 banking collapse but concluded its EU sovereign downgrades ‘merely reflected the seriousness of the problems in some member states’. The politicians’ overall view on the agencies? They should learn from their past failure to spot emerging risks. Well, yes. A little later, at the height of the Eurozone crisis in August 2011, one leading politician agreed with the Lords’ stance: ‘Credit-rating agencies, however imperfect, are trying to give market investors some idea of the creditworthiness of economies and businesses. They did not cause this.’ Such a view is perfectly reflected in the light-touch ratings agency regulatory regime now swinging into operation. The politician who struck the conciliatory note of reality? Yes, you guessed it: he of the recent credit downgrade, UK chancellor George Osborne.

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