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By Dorothy Ngwira, managing partner for Graham Carr, the Malawi member firm of international accountancy network Nexia International, and a member of the SMP Committee of IFAC

There can be little doubt that SMPs are a growing and increasingly significant force in Africa’s economic future. With demand growing for accountancy, advisory and tax services from the continent’s burgeoning small business sector, together with new investors who need additional levels of assurance, today’s SMPs in Africa face great opportunities. But there will be challenges along the way as well.

africa-sme

In Malawi in recent years we have seen the number of SMPs double. Employing the majority of accountants working in practice, these SMPs provide a broad range of professional services, such as traditional audit, accounting and tax services. But they also provide value-adding business advice to clients.

These clients, typically SMEs, are critically important to the health and stability of the global economy, accounting for the majority of private sector GDP, employment and growth. But they face challenges as well – according to a recent IFAC survey challenges in Africa include the burden of regulation, economic uncertainty and difficulties accessing finance. So who is best placed to help them? Accountants in SMPs.

However, these SMPs face their own challenges. In the same survey, African SMPs cite keeping up with new regulations and standards, attracting and retaining clients, and a pressure to lower fees as the top three challenges. And in the future, the biggest concern will be the reputation of the profession, alongside the difficult global financial climate and increased regulation.

Technology and communications can also prove difficult to access. In a global economy, businesses expect to be able to contact their advisers easily. This often proves the opposite, though investment on the ground is improving this.

But as SMPs overcome these challenges, they can see a world of opportunity ahead of them. The services they can offer their clients will grow and evolve. The IFAC study shows that while audit and assurance remain the fastest-growing services offered by SMPs, advisory and consultancy services come a close second.

For instance, offering sustainability services to SMEs is proving a rich seam for firms. SMPs will also have the opportunity to merge with similar-sized practices and compete with larger firms. Economies of scale will also come as a result of such mergers.

SMPs can support their SME clients when they do business internationally. Often joining an international network of accountancy firms can enhance this. And through such membership they can benefit from work referred to them from clients based in other countries.

I sense a growing optimism among SMPs in Africa. Last year 42% reported their performance was better than the year before, while on 22% said it had been worse. Some 44% believe that 2013 will prove to be better than 2012, and only 14% believe it will be worse.

The challenges faced by SMPs mainly arise from limited in-house resources, but they can turn to their professional body (in my case, ACCA and the Society of Accountants in Malawi) or IFAC through its SMP Committee for much-needed help and advice. The resources are there, and can be used to ensure that Africa’s SMEs get the services they deserve to compete on the global stage in the future.

To find our more read Access to finance for SMEs: a global agenda. 

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

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By Errol Oh, executive editor of The Star

In some assessments of potential corporate offers or deals, independent advisers are discombobulating investors with seemingly ambivalent advice. It all boils down to the definition of two words.

share-prices

Soon, the capital market and investors may require the expertise of etymologists, given the recent string of cases of independent advisers (IAs) concluding that proposed corporate exercises are ‘not fair but reasonable’.

Who can blame the minority shareholders of listed companies for feeling confused and powerless when presented with seemingly ambivalent advice? The IA tells them an offer for their shares or a deal is unfair, but in the same breath, it recommends that they accept the offer or vote for the deal because it is deemed reasonable.

It all began in March 2010 when the Securities Commission (SC) issued a consultation paper on offer documentation for take-over and mergers. In it, the SC noted that IAs have evaluated the fairness and reasonableness of offers as a matter of market convention, and that in Malaysia ‘fair and reasonable’ was treated as a composite term. It was also pointed out that there was no definition for the term.

The SC says, ‘The Commission is of the view that since the standard of ‘fair and reasonable’ is used to determine whether an offer should be accepted or rejected, it is important that such a standard be clearly defined and interpreted in a consistent manner.’

Through the paper, the SC proposed to advise IAs on the interpretation of what is ‘fair and reasonable’. Last November, the proposed changes became part of the SC’s Practice Note 15 (PN15) of the Malaysian Code on Take-overs and Mergers 2010. A key difference is that the term ‘fair and reasonable’ is now two distinct criteria.

Assessing fairness of a take-over offer is quantifiable: if the offer price is equal to or higher than market price, but lower than the value of the securities that are the subject of the offer, the offer is considered ‘not fair’. Conversely, a fair offer is when the offer prices are equal to, or higher than, the value of the securities. Reasonableness is a bit more challenging to establish. Say the PN15: ‘In considering whether a takeover offer is ‘reasonable’, the IA should take into consideration matters other than the valuation of the securities that are the subject of the take-over offer.’

The PN15 specifies five factors that IAs should consider when evaluating reasonableness, but it also reminds IAs that they are expected to take into account ‘all relevant factors’. The decoupling of ‘reasonable and fair’ has paved the way for IAs to recommend acceptance of an offer or approval of a proposed transaction even if it is considered not fair but reasonable. This is how it is explained in PN15: ‘Generally, a takeover offer would be considered ‘reasonable’ if it is ‘fair’. Nevertheless, an IA may also recommend for shareholders to accept the take-over offer despite it being ‘not fair’, if the IA is of the view that there are sufficiently strong reasons to accept the offer in the absence of a higher bid than such reasons should be clearly explained’.

Even with explanation it is hard for most investors to digest advice that they should support something that is described as unfair yet reasonable. IAs are meant to safeguard the interest of shareholders by enabling them to make informed decision on certain transactions. However, when investors find it difficult to take independent advice, it is neither a fair nor reasonable solution.

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

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By Peter Williams, accountant and journalist

HR is keen for companies and organisations to embrace social media in order to better engage with employees. But bosses have their reasons for not jumping on the bandwagon.

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Statistics suggest that UK employees are not happy. Even though 75% of organisations with more than 100 people on the payroll conduct staff surveys, workers feel management aren’t listening, according to think-tank Tomorrow’s Company and advertising agency trade body IPA. The most recent research, from HR professional body CIPD, shows what it calls ‘a worrying deterioration’ in employees’ satisfaction with their ability to feed views upwards – particularly in the public sector.

The basic premise for the HR profession is the idea that there is a proven link between the existence of the ’employee voice’ and a range of benefits for organisations which include more satisfied, trusting, cohesive and productive workforce. It is not surprising that the employee voice is being drowned out by bad news: the threat of redundancies, pay freezes, the absence of bonus or promotion, the necessity to achieve more with less. The workplace has been a joyless place for many for half a decade.

Despite those outside forces, the HR profession insists listening to employees more would help to shape the future direction of the organisation in a positive way. And it wants employers to take a radical step forward and engage with employees through social media such as Twitter, rather than those annual surveys that many of us will have dutifully filled in.

HR says that a lack of social media savvy is directly harming organisations, holding them back from rebuilding trust lost in the recession and fostering a culture of openness, collaboration and innovation.

All this makes sense at one level: your favourite social media tool does give employees an open channel through which to feed views upwards, enabling collaboration and knowledge sharing between employees at different levels and different locations. And this could drive new ideas and innovation. But there are so many downsides to social media that it is no surprise those at director level are either blind to the upside or ignorant of how it works. At the heart of this is a generational issue. All ages may use Twitter, but watching people of a certain age use it (myself included) is the equivalent of being forced to watch dad dancing.

Digital natives use social media naturally, unselfconsciously and in ways many digital immigrants just don’t get. It unsettles me when those I follow on Twitter for work reasons send out messages about their hobbies, private lives and personal opinions on world affairs. But I also know that’s old-fashioned thinking.

Equally old-fashioned are the bosses who understand enough to know that the problem with social media is the absolute loss of control. The past decades have seen an increasing desire across all sectors to control the message. Social media destroys all that utterly. Give employees access to such tools and they will use them indiscriminately.

The CIPD is right: trying to stop the social media tide sweeping through the workplace is futile. But don’t expect those running organisations to embrace the ensuing free-for-all with anything approaching enthusiasm.

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

By Cesar Bacani, editor in chief of CFO Innovation Asia

Having already made basic post-financial crisis cuts in headcounts, procurement and discretionary spend, companies are now coming under pressure to take more radical approaches.

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In economically trying or uncertain times, the default response is to cut costs. We saw this happen in 1997, during the Asian financial crisis, and in the 2008 global financial crisis.

You would think that by this time, as the European crisis and uncertainty in the US continue to threaten Asia, business would have done all the cost-cutting they could absorb. Apparently you would be wrong.

‘A lot of the low hanging fruits are already gone,’ Nigel Knight, managing partner at Ernst & Young’s Advisory Services in Asia, recently told me. These include basic headcount management, working capital improvement around purchasing and procurement, and slashing discretionary spend such as travel and expenses (T&E).

But the pressure to cut remains intense. Resources firms in Australia, for example, and many enterprises in China face regulatory headwinds and slowing economic growth. With the top line stalling, companies must improve their bottom line to keep shareholders happy.

What consultants like Ernst & Young are seeing, says Knight, are companies moving to a new ‘level of sophistication’ in cutting costs. ‘For example, T&E spend was traditionally just putting arbitrary controls on travel,’ he notes. ‘Now the initiatives that are taking place are much more analytics-based’.

The Big Four firm is working with a large pharmaceutical firm to harness analytics, and track and analyse T&E spending in all business units across the region to find a way to leverage on total spending to maximise discounts on hotel nights, for example, flights and telecom expenses.

A similar approach is being applied to shared services. The first round of cost-cutting involved outsourcing basic finance and procurement activities. ‘Now we’re seeing another round’, says Knight, ‘which is extending the scope,and also using the information to generate further reductions.’

Another effort focuses on the supply chain. ‘There’s a lot of fat to take out’, says Knight, ‘just in the way in which companies globalise spending between countries and also in manufacturing strategies. There’s quite a push even in China, which is becoming more expensive, to move manufacturing capability to Vietnam, Laos and so on’.

‘Multinationals are also looking at their processes much more from an end-to-end perspective, looking to simplify and standardise core processes – procure-to-pay, order-to-cash, and so on – right across the business. They are trying to take advantage of savings not generated in individual business units or countries, but across geographies and business units’.

At this point, I could almost expect cloud computing services providers to chime in, software-as-a-service purveyors, managed IT services guys, teleconferencing providers, business intelligence and analytics software makers…

For plucking the cost-cutting fruits higher up on the tree can mean spending money first for new infrastructure, software and expertise – which may end up costing more if the implementation is not done right. The consultants will be there to help, but they, too, will require paying.

‘You need to spend to save,’ argues Knight. Maybe. The business will be depending on finance professionals to make sure the more sophisticated ways of cost management do not use more money and other resources than the savings they will bring in.

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

By Ramona Dzinkowski, economist and business journalist.

african-mine

On 2 April, the European Commission (EC) issued a consultation paper requesting comment on potential new disclosure rules regarding the use of conflict minerals in the manufacture of goods listed on European exchanges. This initiative follows the US Securities and Exchange Commission’s final 2012 rule on conflict minerals that requires companies listed in the US to disclose their use of conflict minerals manufactured in the Democratic Republic of Congo (DRC) and adjoining countries.

The US rule fulfills the requirements laid out in the Dodd-Frank Act 2008, which required companies using minerals from Africa’s Great Lakes region to publicise their due diligence practices to ensure the minerals they use in their products have not financed illegal armed groups engaged in the Congo’s war. These minerals include tin, tantalum, tungsten and gold, which are often used in the manufacture of a wide range of products. It is anticipated that the rule will affect approximately 6000 issuers in the US who will have to file their first minerals report in May 2014.

The gist of the US rules upon which the EC has framed its proposed disclosure requirements is that companies must determine whether or not they manufacture or contract to manufacture products that contain conflict minerals, whether these minerals originated from the specified conflict region or were obtained in scrap or recycled sources, and whether or not the conflict minerals benefited armed groups in the region.

While many have lauded the initiative, others see it as a prohibitively tall order and are concerned about the costs of the disclosure and the implications for using the reporting system in this way. Similar issues are unlikely to unnoticed by affected parties in Europe.

In response to the proposed ruling, the US-based National Association of Manufacturers pointed out that, among other things, the SEC has ignored the complexity of manufacturing supply chains. More specifically they say there are three major challenges for downstream users attempting to establish a chain of custody from the mine to the product:

1. identifying which mines are conflict mines – that is mines whose output is controlled by or taxed by warring factions;

2. tracing ores from the mine to the smelter; and

3. tracing conflict minerals from smelter through complicated supply chains to the finished product.

Implementation of the legislative language, must therefore, take into account these on the ground realities.

Some CFOs are questioning why the financial reporting system is being used to resolve political conflicts in the first place. For instance, how would CFOs be able to answer the question of which are conflict mines, and tracking down the sort of information required is not a traditional finance function. There’s also the level-playing-field argument that suggests that North American and European companies will now be at a competitive disadvantage against companies originating from countries that have no such disclosure requirement like China, Brazil, Indonesia and Canada.

In Europe, the EC is requesting all interested parties to comment on whether they should craft similar rules. Comments are due by 26 June 2013.

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