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AB

THE MAGAZINE FOR FINANCE PROFESSIONALS

ACCOUNTING AND BUSINESS 11/2014

AB

ACCOUNTING AND BUSINESS INTERNATIONAL 11/2014

DELTA
FORCE
OKAVANGO DIAMOND
COMPANY CFO SUSANNE
SWANIKER-TETTEY

ISLAMIC FINANCE
EMERGING OPTIONS FOR GREEN INVESTMENTS

LEADING FROM THE FRONT

INTERVIEW: KPMGS GLOBAL CHAIRMAN

CAREERS WHAT YOU CAN GAIN FROM NETWORKING
POSTGRADUATE MBAS IN MULTIPLE LOCATIONS
IFRS UNDER THE EU MICROSCOPE

GROWING THE NUMBERS

FARM ACCOUNTING AND PRODUCTION EFFICIENCY

WCOA TECHNOLOGY AND THE FINANCE FUNCTION
WCAER CORPORATE GOVERNANCE
CPD FINANCIAL INSTRUMENTS

WELCOME

Welcome
OPENING DOORS

We always hope that the profiles of the high-achieving

ACCA members that we publish in Accounting and
Business will inspire upcoming finance professionals
taking the ACCA Qualification around the world. This
months edition is no exception. Susanne SwanikerTettey FCCA pictured with the Okavango Delta behind
her on our front cover has helped set up the rough
diamond distribution company Okavango Diamond
Company from scratch on the tightest of timetables. Based in Gaborone,
Botswana, she has more than a decade of experience working in Africa and
believes its commercial environment has moulded her successful career path.
She maintains, too, that ACCA has opened a number of doors for her.
Swaniker-Tettey also has an opinion on the role of women and believes
that more should rise through the professional ranks in Africa. Women need to do
more to make themselves available when opportunities arise, she says.
Meanwhile, we hear from the global chairman of KPMG, John Veihmeyer
(page 30). Leading his firm from the front, Veihmeyer is a great believer in
the importance of trying to shape a corporate culture. One of his priorities is
retaining the firms status as an employer of choice, and one aspect of this is
promoting the firms corporate social responsibility agenda. We want to be a firm
that has a positive impact on the communities we operate in and on the world at
large, he says.
British economist Jim ONeill has become something of a household name
across the globe, having dreamt up the acronym BRIC (Brazil, Russia, India and
China) 13 years ago for the important emerging economies to watch. At the
beginning of this year, he identified the next powerhouses, the MINT Mexico,
Indonesia, Nigeria and Turkey emerging economies. Find out more on page 60.
Its always good to have ones to watch.
Lesley Bolton, international editor, [email protected]

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ACCOUNTING AND BUSINESS

Contents

AB international Edition
november/december 2014
Volume 17 Issue 10
International editor Lesley Bolton
[email protected] +44 (0)20 7059 5965
Asia editor Colette Steckel
[email protected] +44 (0)20 7059 5896
Digital editor Jamie Ambler
[email protected] +44 (0)20 7059 5981
Sub-editors Loveday Cuming, Peter Kernan,
Eva Peaty, Vivienne Riddoch
Digital sub-editors Rhian Stephens, Eleni Perry
Design manager Jackie Dollar
[email protected] +44 (0)20 7059 5620
Designer Robert Mills
Production manager Anthony Kay
[email protected]
Advertising Richard McEvoy
[email protected] +44 (0)20 7902 1221
Head of publishing Chris Quick
[email protected] +44 (0)20 7059 5966
Printing Wyndeham Group
Pictures Corbis

News

6 News in pictures
A different view of
recent headlines
8 News round-up A digest
of all the latest news and
developments

focus

12 Interview: Susanne
Swaniker-Tettey We talk
to the CFO of Okavango
Diamond Company

ACCA
President Anthony Harbinson FCCA
Deputy president Alexandra Chin FCCA
Vice president Brian McEnery FCCA
Chief executive Helen Brand OBE

16 Sowing the seeds

Farm accounting is a
growing specialist niche

ACCA Connect
Tel +44 (0)141 582 2000
Fax +44 (0)141 582 2222
[email protected]
[email protected]

20 Ramona Dzinkowski
Conflict minerals
compliance in the US

comment

21 Alnoor Amlani Despite

the challenges, Africas
cities have much to offer

[email protected]

Accounting and Business is published by ACCA 10 times per year. All views
expressed within the title are those of the contributors.
The Council of ACCA and the publishers do not guarantee the accuracy of
statements by contributors or advertisers, or accept responsibility for any
statement that they may express in this publication. The publication of an
advertisement does not imply endorsement by ACCA of a product or service.
Copyright ACCA 2014
No part of this publication may be reproduced, stored or distributed without
the express written permission of ACCA.

Accounting and Business (ISSN No: 1460-406X, USPS No: 008-761) is

published monthly except July/August and Nov/Dec combined issues by
Certified Accountant (Publications) Ltd, a subsidiary of the Association of
Chartered Certified Accountants, and is distributed in the USA by Asendia
USA, 17B S Middlesex Ave, Monroe NJ 08831. Periodicals postage paid at
New Brunswick, NJ and additional mailing offices.
POSTMASTER: send address changes to Accounting and Business,
701C Ashland Ave, Folcroft PA 19032.
29 Lincolns Inn Fields
London, WC2A 3EE, UK
+44 (0) 20 7059 5000
www.accaglobal.com

Accounting and Business

Audit period July

2012 to June 2013
154,625

22 Anthony Harbinson
Research on Whole of
Government Accounts
has huge implications

corporate

23 The view from

Muhammad Arslan
of Solex Chemicals,
Pakistan, plus snapshot
on financial services
24 Natural capital
Organisations must learn
to manage their impact
and dependency
26 Thinking big
Freemont Resources
CFO Helmut Hauke has
helped to transform the
private company

Contents

CPD

Reading this magazine to keep up

to date contributes to your nonverifiable CPD. Learning something
new and applying it in some way
contributes to your verifiable CPD,
as do the online questions related to
certain articles on the technical pages,
provided that they are relevant to
your development needs.

practice

29 The view from Saad

Maniar of Crowe Horwath
MAK, Dubai, plus
snapshot on forensics
30 World vision
John Veihmeyer,
global chairman of
KPMG, on shaping
corporate culture

insight

33 Going green New

Malaysian sukuk
guidance could boost
environmental projects
35 Graphics Loss trends
and emerging risks
36 WCOA Technology
rules Digital
developments are
shaping the finance
function
40 WCAER Principle
matters The OECD is
revising its Principles of
Corporate Governance
42 WCAER Delivering
value Stakeholders are
increasingly demanding
greater accountability

technical

49 IFRS 9 Putting
the requirements into
practice is a challenge
52 Time to embrace
IFRS in the EU is a
positive step, an ACCA
conference hears
54 Technical update
The latest on audit,
taxation guidelines,
agreements and
financial reporting

people

56 The postgrad
pages Studying
for a postgraduate
qualification in
multiple locations
60 MINT condition
Economist Jim ONeill
on the next generation
of powerhouses

acca

62 AGM Minutes from

the meeting on 18
September
64 News New ACCA
report on Chinas next
global giants launched

44 Careers Dr Rob Yeung

looks at the value of
networking, plus tips for
the perfect business trip

65 Working together
ACCA and IMA members
can benefit from a
strategic partnership

46 Management and
strategy What are your
divestment options?

66 News New president

welcomed; diversity in
business hampered by
data gap; ACCA and
Institute of Certified
Public Accountants of
Greece strengthen alliance

48 Forecast foundations
How to create a
forecasting model

Accounting and Business

news | pictures

blue sky thinking

As many as 4,000 delegates and 3,000 media representatives

will attend Novembers G20 leaders summit in Brisbane

vroom to grow

International motorbike makers

are eyeing up the potential of
South-East Asia, the worlds
biggest motorbike market after
India and China, as machines with
bigger engines grow in popularity

final accounts

Gone Girl actor Ben Affleck is set to star in

The Accountant, a film about a financial
professional who moonlights as an assassin

Accounting and Business

Pictures | news

fashion in a fix

Prada chiefs Miuccia Prada

and Patrizio Bertelli are
beinginvestigated by the
Italian tax authorities for
possible tax evasion

fairy-tale ending?

Euro Disney announced a 1bn refinancing deal after

falling visitor numbers and spending at Disneyland Paris

presidential run-off

Brazilian president Dilma Rousseff was due

to face rival Aecio Neves on 26 October, in
a second round of the presidential elections

tremors spread

The protests in Hong Kong have taken a toll on

the citys retail and tourism sectors

Accounting and Business

NEWS | ROUND-UP

News round-up
Irish corporation tax scrutiny for Apple, US moves against tax avoidance inversions,
refinancing crunch warning for Russian companies, global firms post growth
EC CRUNCH FOR APPLE

taxes. The US Treasury is

also preventing inverted
companies accessing foreign
subsidiaries earnings taxfree through loans. Other
measures include making
it more difficult to invert,
and banning some forms of
restructuring.

Apple could be required

to pay billions of euros in
additional corporation tax
to the Irish government
as a result of a European
Commission investigation
into allegations of
unauthorised state aid
to induce Apple to locate
operations in Ireland.
Accounting practices and
Apples transfer pricing
arrangements are being
examined. Apple and Ireland
both deny wrongdoing.

GOLD-PLATED AUDIT

KPMG has announced that

all its UK-listed clients
are to be offered audits
that go beyond minimum
regulatory requirements,
providing broader qualitative
commentary on the state of
the entity. Pilot expanded
audit reports for three
clients including RollsRoyce met with positive
responses from audit
committees, management
and investor communities.
KPMG said that its
approach goes beyond the
requirement for long-form

INVERSIONS TACKLED

President Barack Obama

has taken action against
corporate inversions
structured to avoid US taxes.
From now on, overseas
inverted companies will be
unable to obtain earnings
directly from a former
foreign subsidiary of a US
parent while avoiding US

7 GENERAL MOTORS
(New York and
Toronto, 2010)

5 VISA

(New York,
2008)

19.7 18.1
US$BN

US$BN

16.0
US$BN

9 FACEBOOK

(New York, 2012)

audit reports specified

by the UK regulator, the
Financial Reporting Council.

EU TAX LAWS GO BEPS

The Organisation for

Economic Cooperation and
Development (OECD)s
Base Erosion and Profit
Shifting (BEPS) Action
Plan is already leading to
changes in European tax
law, according to a study by
KPMG International. The UK
is the first of 44 countries
to formally commit to
using the OECDs template
for country-by-country
reporting, says the report,
Taking the pulse in the EMA
region. KPMG predicts that
European countries will also
address the related issues
of double non-taxation,
transfer pricing and the
use of hybrid corporate
structures for tax avoidance
purposes.

IR DRAWS INVESTORS

The quality of corporate

reporting has a direct
impact on analysts views
of a company and its cost
of capital, according to a
report by PwC. Its study
Corporate performance:
what do investors want
to know? concluded that
more integrated reporting
(IR) enhances investment
professionals analysis of
a business. Only 14% of
investment professionals
think companies disclose
enough information for
them to be confident in
their analysis.
A second study, by the
International Integrated
Reporting Council with
Black Sun, found that 91%
of respondents in IR pilots
reported a positive impact
on external engagement
with stakeholders, including
investors.

8 ENEL

(New York and

Milan, 1999)

17.4
$
US BN

24.7
US$BN*

1 ALIBABA (New York, 2014)

* Flotation value subsequently increased

to US$25bn on 16 September 2014

Source EY: Ten largest IPOs ever by proceeds globally

ACCOUNTING AND BUSINESS

ROUND-UP | NEWS

AWARD FOR DRUCKMAN

International Integrated
Reporting Council CEO Paul
Druckman has been voted
Personality of the Year for
2014 at the International
Accounting Bulletins annual
global industry awards.
Druckman said: I am proud
of the achievement of the
international IR framework
and its contribution to
financial stability and
sustainable development,
and am thrilled that the
IIRCs work has been
recognised in this way.
The credit must
really go to the global
coalition of organisations
and partners who have
supported and shaped the
direction of IR and to the
innovations and leadership
of many organisations
who are adopting IR across
the world.

FIRMS POST GROWTH

Deloitte has reported global

revenue growth of 6.5%
to US$34.2bn in the year
ending May. Consultancy
service revenues rose by
10.3%, tax and legal by
7.7%, financial advisory by

2 AGRICULTURAL
BANK OF CHINA
(Hong Kong and
Shanghai, 2010)

22.1
US$BN

6.8% and enterprise risk by

4.2%. Revenues grew across
all regions.
Meanwhile PwCs global
revenues rose by 6% to
US$34bn in the year ending
June, led by 24% growth
in India. Advisory services
grew by 10%, tax 8% and
assurance 3%.
And EYs global revenues
grew by 6.8% to US$27.4bn
in the year ending June,
with revenues in emerging
markets up by 8.7%.
Advisory revenues grew by
14.4%, transaction advisory
by 6.5%, assurance by 4.5%
and tax by 4.3%.

said: Africa has perhaps

one-third of the worlds
known mineral reserves
and the resources cannot
be wasted or used to
benefit the few. Strong
governance, transparency
and accountability are
crucial. But there is also a
need for a medium-term
fiscal framework to guide
decisions about current
spending, investments to
boost productive capacity
and savings for the future.

EY SETTLES WITH OSC

EY has agreed to pay C$8m

(US$7.1m) to the Ontario
Securities Commission to
settle charges related to its
audits of Sino-Forest and
Zungui Haixi. The payment
includes C$2.1m towards
the costs of the OSCs
investigations and is made
on a no fault admitted basis.
EY paid C$119m earlier this
year to settle class action
lawsuits from shareholders
of the two companies.
EY said: We believe that
this settlement which is
the first under the OSCs
new no contest guidelines
is in the best interests of

AFRICA MINERALS ALERT

The International Monetary
Fund has warned that
sub-Saharan Africa must
do more to manage
its natural resources,
maximise revenues from
those resources and
strengthen public financial
management. It identified
threats to growth as the
Ebola outbreak, security
threats and slowdowns in
emerging markets.
IMF deputy managing
director Naoyuki Shinohara

3 INDUSTRIAL AND
COMMERCIAL BANK OF CHINA
(Hong Kong and Shanghai, 2006)

21.9

10 NIPPON TELEGRAPH
AND TELEPHONE (NTT)
(Tokyo, 1987)

13.6

US$BN

20.5
US$BN

4 AIA GROUP

(Hong Kong, 2010)

US$BN

18.4
$
US BN

6 NTT MOBILE
COMMUNICATIONS NETWORK
(Tokyo, 1998)

all parties. The approval of

the settlement enables us
to put this matter behind us
and remain focused on our
people and our clients.

REFINANCING SQUEEZE

Russian companies are

losing access to world
capital markets because of
sanctions and many will have
difficulty in refinancing when
current arrangements fall
due, Moodys has warned.
When you move into 2016
and 2017, the numbers
start to become a concern if
companies dont have access
to international debt capital
markets, Moodys managing
director for emerging
markets, David Staples, told
the Financial Times.
Moodys has also warned
of a negative outlook for
Russias banking system.
Its latest Banking system
outlook: Russia said that the
operating environment for
Russias banks is becoming
more challenging, with
geopolitical tensions and
sanctions affecting asset
quality, profitability and
likely increases in problem
loans and provisioning.

CHINA TOPS IPOS

Alibabas initial public

offering, which floated
on the New York Stock
Exchange in September,
was the largest ever
globally, raising a record
US$25bn.
The e-commerce
giants flotation means
that Greater China holds
the top four spots in the
IPO league table.
Three US companies
and two Japanese
companies also make
the top 10, while energy
business ENEL is the sole
European representative.
Five of the 10 have
floated only within the
past five years.

ACCOUNTING AND BUSINESS

10

NEWS | ROUND-UP

SMUGGLERS AND FRAUDSTERS BITTEN BY SNAKE

A major joint customs operation coordinated by the European Anti-Fraud Office
(OLAF) and Chinas Anti-Smuggling Bureau prevented the loss of more than 80m
(US$103.7m) in customs duties between February and March 2014. It was the first time
Chinese customs officials had taken part in such an operation.
Over a one-month period, Operation Snake detected 1,500 containers where the
declared customs value was heavily undervalued, with false descriptions of goods, false
weights and quantities, as well as counterfeit goods. In addition, customs authorities
identified several so-called missing traders and non-existent importers, triggering
criminal and administrative investigations in several countries.
Algirdas emeta, commissioner responsible for customs and anti-fraud in the EU, said
the operation reinforces the benefits of joining forces at a global level to fight a common
threat. The undervaluation of imported goods is an endemic problem worldwide,
affecting not only EU customs, but also those of other countries, including China.

FAMILY MISFORTUNES

Most of the worlds family

businesses are struggling
to obtain external finance
to fund investment, a
KPMG International survey,
Family matters, has found.
While 58% of family owned
businesses are currently
seeking finance, finding the
right strategic investment
partner is challenging.
Private equity typically
wants to buy the business,
and other investment
partners may see external
investment as part of a
strategy by third parties to
obtain control. KPMG said
lack of finance is holding
back the development of
family owned businesses.
Family firms generate more
than 70% of global GDP.

BoA SETTLES SEC CASE

Bank of America has paid

US$7.65m to settle US
Securities and Exchange
Commission (SEC) charges
of violating internal
control and record-keeping
requirements. The charges
relate to a portfolio of
financial instruments
transferred to Bank of
America as part of its
acquisition of Merrill Lynch.
According to the SEC, Bank
of America failed to adjust
its holdings of regulatory
capital as it realised losses
on the instruments. The SEC

ACCOUNTING AND BUSINESS

said the bank had violated

requirements to maintain
accurate records and
internal accounting controls
to assure the recording of
transactions as necessary.

EU IMPLEMENTS CSR

Large European companies

will have to disclose a
range of corporate social
responsibility indicators in
their annual reports from
2017. Last years accounting
directive 2013/34/EU
has now been adopted for
implementation. It will apply
to European companies
with more than 500
employees and to public
interest entities, such as
banks and insurers, of any
size. Reports will have to
include information relating
to pollution, human rights,
bribery and corruption,
alongside risk mitigation
strategies.

TURNOVER GAP TACKLED

Women start businesses
at twice the rate of men,
yet those owned by men
are three and a half
times more likely to break
the US$1m turnover
mark, said EY. Its Force
multipliers study proposed
three steps to scale up
womens businesses:
clearly define the purpose,
build a community, and
adapt the leadership

style. Participants in EYs

Entrepreneurial Winning
Women programme had
raised revenues by 63%,
and half those businesses
now had revenues exceeding
US$10m.

EGYPT GROWING AGAIN

A sharp rise in industrial

orders and output in
September suggests that
Egypts economy is on
the turn. The HSBC Egypt
Purchasing Managers Index
showed a rise in output,
while employment increased
at its fastest rate for four
years. Growth in new
orders and employment
shows us market sentiment
is improving, said Razan
Nasser, senior economist
at HSBC. Many challenges
still lie ahead, but overall the
numbers are encouraging,
and we continue to expect
growth to pick up pace
through 2015.

KPMG IN CYBER-BUY

KPMG has made a partial

acquisition of cybersecurity
firm Qubera Solutions.
The deal is one of a series
by KPMG in the US to
strengthen its position
in the sector and follows
acquisitions of Zanett,
Cynergy and Link Analytics.
John Veihmeyer, global
chairman of KPMG, said: As
threats from cyber criminals

grow in scale, companies

are facing a tsunami of new
legislative, organisational,
and regulatory requirements
to ensure that they are
managing and protecting
their critical information
appropriately. These threats
force companies to reexamine their potential
vulnerabilities and seek
counsel from experienced
global providers. Interview,
page 30.

AFRICA ADVANCE SLOWS

Governance improvement in
Africa is slowing, according
to the latest Ibrahim Index
of African Governance. The
index ranks Mauritius as
the best-governed country
in Africa on the basis of a
range of criteria including
security, human rights,
economic stability, just laws,
free elections, low corruption
levels, infrastructure,
poverty, health and
education. Other highly
rated countries are Cape
Verde, Botswana, South
Africa and the Seychelles.
However, all these countries
have deteriorated in some
regards. Mauritius, South
Africa and Nigeria were
all assessed as going
backwards in terms of the
rule of law.
Compiled by Paul Gosling,
journalist

11

Accounting and Business

12

Focus | interview

Accounting and Business

interview | Focus

13

sheer brilliance

As CFO of Okavango Diamond Company, Susanne Swaniker-Tettey FCCA has helped set
up the rough diamond distribution company from scratch on the tightest of timetables

Curiosity recommended
In the 10 years she has been working with companies
producing copper, nickel, diamonds and more, she says that
she has learned to be proactive and take time to understand
the needs of all employees. One needs to be inquisitive
because, if you are not, people will pull the wool over your
eyes. For example, in the mining industry, a machine part
can be fraudulently replaced [with a non-standard part]
over and over again. Therefore one needs to understand the
business one is in.
Company reorganisation and finance process design is
one area of expertise that Swaniker-Tettey has developed
throughout her 16-year accounting and finance career that
started with her gaining her ACCA Qualification in 1998.
In setting up a business process, you need a different
mindset from an ordinary accountant, she says. You need
a lot of cross-functional skills that would impact on human
resources and operations.
Her ACCA training has been valuable. With an ACCA
Qualification, you are not there just as an accountant but
there to be a partner in business, she says. ACCA, I believe,
has opened a number of doors for me. If it was not for
ACCA, I do not believe I could be here at ODC.
Swaniker-Tettey has worked at the diamond company
since January 2013. As CFO, she has undertaken a

2013

Okavango Diamond Company,

CFO, and chairperson of the ACCA
Botswana Network

cv

hile Africa can be a tough place to work,

it offers key opportunities for skilled
financial professionals who can develop
an understanding of how African business
operates. Susanne Swaniker-Tettey FCCA, chief financial
officer at Okavango Diamond Company (ODC), is one
such specialist. ODC is a Botswana-based rough diamond
distribution company established in 2012 and wholly
owned by the government the diamond sector is critical
for the national economy.
Swaniker-Tettey has more than a decade of experience
working in Africa and believes its commercial environment
has moulded her successful career path. Working in the
finance sector in Southern Africa, especially Botswana, can
be very challenging, she says. Her daily routine is based on
the corporate reporting, audit and business planning regime
typical in sub-Saharan Africa, where finance personnel often
take an active management role and may act as think-tanks
for other departments.

2011

Boteti Mining (Botswana), CFO

2008

MBA from Oxford Brookes University (UK)

2007

Tati Nickel Mining Company (Botswana),

commercial manager

2005

Member of the extractive industries group

working committee of the South African
Institute of Chartered Accountants

2004

BCL (Selebi Phikwe), finance manager

1999

Deloitte & Touche (US), audit trainee on a

five-month secondment

1997

Deloitte & Touche Gaborone (Botswana),

final position senior audit manager

1994

Deloitte & Touche (Ghana), audit trainee

particularly demanding job in helping set up the roughdiamond distribution company from scratch. Her key goal
was to create a competitive funding structure for a company
solely owned by government and that had no balance sheet
and no records, making it hard to convince lenders.
It is no surprise that Botswanas government was the first
to extend a loan, but its terms and conditions did not allow
the company to operate effectively, so private finance was
needed. Hitting a tight deadline, ODC started operating

Accounting and Business

14

Focus | interview

in July 2013, with an official launch in September. SwanikerTettey credits teamwork and her own past experience. We
did it within budget and on time. ODC is a multimillion
US dollar business, so we really needed to ensure that the
systems and processes in place were managed carefully.
Its an achievement that is all the more impressive given
she has just two other staff in her department.
Her role was especially critical as the finance sector in
Botswanas minerals-based economy is still struggling to
produce enough qualified accountancy professionals.
Strong financial and accounting skills are needed, she
says. Getting the right skills with depth and experience is
still relatively difficult, because Botswana historically has
not had its own accounting qualification.
Part of the problem, she says, is that while many local
colleges are training accountants, they are doing so with
full-time accounting programmes. So most of the trainees,

communicate with industries to raise awareness on money

laundering, she says.
This is a particular concern in the diamond industry,
where Swaniker-Tettey fears diamond cash purchases could
offer a way to move dirty money in and out of the country.
ODC, for instance, insists on knowing the identity of all
buyers of diamonds in any deal. We need to understand
who we are doing business with, and we go through an
extensive know your customer process, she explains. If we
allow the industry to be tainted, the negative consequences
not only affect ODC but the country as well.
This is especially important internationally, given Africas
poor reputation for business probity one that SwanikerTettey believes is not necessarily deserved. Doing business
in Africa is no more difficult than in any other part of the
world, she says. Yet people see Africa and think Africa
is risky. Africa is an incredibly diverse continent. If you
understand Africa, I do not think
working here is an impediment to
doing business.
Indeed, regional economic
integration within Africa, increasing
regional tourism and a booming mobile
money industry are all helping open
up Africa to business, notably in East
Africa. The young generation tend to be very professional
and do business to international standards, she adds.
However, she is quick to point out that the Southern
African Development Community (SADC) region is lagging
behind West and East Africa in economic integration. SADC
has made progress around customs, but in trade there is a
lot that needs to be done. She adds that the region needs a
common currency and an end to the cumbersome, multiple
visa applications that are required for those travelling within
the region.
At home, she believes the Botswana government should
promote IT, data integration and online services. She
acknowledges there has been progress on the latter for
instance the countrys laws are now available online but
says: We need more services provided online; there is
too much paperwork in Botswana. We need to have the
processes streamlined. For business, the biggest reform is
streamlining a lot of applications.
Meanwhile, Swaniker-Tettey believes more women can
and should rise professionally in Africa, as she has, through
the financial industry. We need more females at senior
finance positions, especially at the board level, but I do
not think there needs to be any discrimination in favour of
women. Women must be treated fairly and given the same
opportunities as men. We need to do more as women to
ensure that we get into positions, put up our hands, and
when opportunities come to make ourselves available and
also to be more aggressive.

people think Africa is risky, but If you

understand Africa, I do not think working
here is an impediment to doing business
when they finish, have qualified on paper, but they do not
have the depth of experience of someone who has gone
through a formal [work-based] training, she says.
Reforms are in the pipeline, notably those authorised
by the Botswana Accountants Act of 2010, which requires
qualified accountants to have a minimum of three years
hands-on training; the changes are being implemented by
the Botswana Institute of Chartered Accountants. SwanikerTettey says: We are moving in the right direction, but we
also need to get the young professionals to understand that
you cannot get there overnight.
Meanwhile, the lack of skilled accounting trainees
impedes departmental managers as they need to be more
involved in overseeing their juniors work.

Money laundering
Swaniker-Tettey also fears that financial professionals
in Botswana are inadequately trained to handle money
laundering, and ignorant of the risks. Most accountants
believe that money laundering is for the banks and banks
should deal with it, she says. Not enough is being done to
educate the people who are supposed to be the custodians
of companies finances. Money is moving under their nose
and some of them are not cognisant of things happening in
their companies that could be deemed money laundering.
She urges companies and industry associations to
partner with the countrys recently formed Financial
Intelligence Agency (FIA) to raise awareness about antimoney laundering policies and controls.
While the rules are there, a lot has not been done to

Accounting and Business

Andrew Maramwidze, journalist based in Gaborone

interview | Focus

Okavango Diamond Company is wholly

owned by the Botswana government,
and buys and sells diamonds from
Debswana, a diamond producing
joint venture between the Botswana
government and minerals giant De
Beers. It sold 12% of Debswanas
rough diamond production in 2013, and
is projected to take up to 15% by 2016.
International diamond sales are made
through an online auction process.

*
*
*

The companys sales are expected to

be over US$500m a year, making it the
largest source of Botswana diamonds.
ODC was founded in February 2012,
fully operational in July 2013, and has
just 25 employees.
A pilot sale in July 2013 saw
around 123,000 carats of diamonds
going to approximately 50 local
and international companies. ODC
wantstoattract diamond buyers
worldwide to each sale and stimulate
investment in the countrys diamond
services industry.

TIPS

basics

15

One of the first things that

finance professionals have to
realise is the need for in-depth
understanding of business. They
must be astute and hard-working. In
most cases in finance, its not a nineto-five job; if you want to get ahead,
then you need to put in the hours and
work smart.

Understand the business environment

so that you can add value to business.
People should see that as an
accountant you are a partner that they
need to work with.

And they should also see you as a

valuable, resourceful person they
can bounce ideas off, whether its
operational, legal or HR issues
itisvery much in line with ACCAs
drive to create complete finance
professionals.

Often, one is required to deal with

more than just finance, to be more
than a finance person and have more
problem-solving skills.

Accounting and Business

16

Focus | Agriculture

Growing
the numbers

Farm accounting has become an increasingly specialist and profitable niche as a result of
policy reforms and a growing need for farmers to analyse production efficiency

s farms and agricultural organisations get to

grips with changing accounting demands from
legislatures and financial institutions around the
world, so accountants are coming under pressure
to develop specialised agricultural knowledge.
Accounting services provided to the farming industry
within the European Union (EU) are increasingly important,
notably because of reforms to the EUs common agricultural
policy (CAP), say the experts. For example, Joe Hickey, a
taxation consultant at Irelands IFAC Accountants, which has
23 branches across the country and a number of clients in
the farming industry, says that a key factor is the upcoming
abolition of milk quotas within the EU, under the CAP
reform, which will result in many dairy farmers incurring
large sums in capital expenditure.
They need additional working capital and they need
enterprise analysis, they need cashflow and they need good,
sound advice in those areas, he says.
Another potential issue, he points out, is trade talks that
could allow South American, US and Canadian farmers to
export more beef to Europe. Profit margin analysis in beef
production for EU farmers will then become more important.
Hickey explains that as such developments continue, farm
accounting will not be restricted to what was the customary,
normal, tax compliance part just the preparation of
accounts, but be used for more constructive purposes. He
continues: I think that, rather than the traditional service of

Accounting and Business

preparation of financial accounts, management of accounts

is going to be required across the board. And that means
that accountancy firms are going to need to be able to give
this service to farmers, and evidently they will have to charge
higher fees for it.

Comparative analysis
Accountants can really help farmers in managing accounts
and enterprise analysis, setting up databanks and applying
power analysis. This could help the farmer gain access to
detailed and specific information about key financial aspects
of running a farm, such as production costs. This helps
farmers compare their performance with others running a
similar enterprise of the same size.
Richard Cooksley, director of the UKs Institute of
Agricultural Management, adds that such changes will
force accountants in Britain and the EU as a whole to work
increasingly closely with farms. Accountants before were
seen as a necessary evil and talked of as a bookkeeper, but
thats changing now, he says. Over the next few years, I
think what is going to be more and more important is what
is almost a partnership between the accountant, adviser and

food for thought

This field of quinoa is typical of the subsistence farming

prevalent in much of South America and which limits production
cost analysis to the extent of the producers memories

Agriculture | Focus

17

and more should you be a limited company, a partnership

or whatever farms will look to accountants to advise on
this area, he says.

Evolving clientele

spreading demand

The accounting requirements of larger agricultural businesses in

the UK are moving beyond tax compliance and into profit margin
analysis and production cost information
farmer because if a farmer spends his time in an office
doing accounting work, hes wasting his time, because hes
got a farm to run and make money from.
He adds that, today, the bigger farms effectively have
their own accountant working for them theyll have a very
strong working relationship with their accountants because
theyre trying to maximise on opportunities.
He believes that more and more farmers will listen
and look for advice on financial matters, with the services
provided by an accountancy firm being a cross between
accountancy and consultancy. Many consultants link with
accountants in the farming sector, because farmers are
looking for grants and development opportunities, and
looking at whens the right moment to spend and whens the
wrong moment to spend.
Hickey says that since CAP reforms will reduce the
percentage of profits attributable to EU subsidies for larger
farms, it will make it even more important for farmers
to concentrate on the management of their enterprises,
and itwill increase demand for accountancy work and
accountancy services.
Meanwhile, says Cooksley, specific farm accounting
methods are evolving. The days of going with a bundle of
paper to the accountant and saying sort this out have gone.
He adds that the majority of farms within the UK, for
example, use some form of farming accounting software,
with one of the most common choices being Farmplan.
Whereas something like Sage is a good accounting package,
it isnt written to deal with milk cheques [payments], milk
levies and things like that.
The measurements and controls associated with milk
levies illustrate the need for specialist software. And thats
where something like Farmplan software is vital, because
that covers all the inputs and outputs from a farm and
enables you to give the information to an accountant in a
structure that they can deal with.
Cooksley says that succession planning and the transfer
of businesses are also concerns for farm accountants. More

Farm-focused accountancy practices should especially track

the growing consolidation of the dairy industry, says Hickey.
In Ireland and several other EU countries (as in the US), a
smaller number of larger dairy enterprises have emerged.
Cooksley predicts a drop-off in the number of farmers
using accountancy services, although the accountancy
services required by those smaller numbers will be greater.
The challenge for the company Im associated with is to
maintain that growth to replace the number of drop-outs of
clients where farmers are retiring or dont have successors.
Meanwhile, the European Commission is planning a
study on data collection by the European Farm Accountancy
Data Network (FADN), examining its methods and costs.
FADN collects structural and accountancy data on farms to
monitor their income and business activities and evaluate
the impact of CAP measures. The FADN survey excludes very
small farms to cover 90% of the total standard gross margin
of the industry. The aim is to gather representative data by
region, business size and farming type.
Madalina Chiriac, a Commission spokeswoman for
agricultural and rural development, says that the common
FADN rules applied across the EU help create a clear
continent-wide picture: We believe that the CAP is not
affected by possibly different accounting practices in
member states. FADN is the source of micro-economic data
that is harmonised ie the FADN bookkeeping principles are
the same for all EU countries.
Accountants in the US are also having to develop
specialised knowledge of farm operations to create the
increasingly comprehensive financial statements required
by banks and lending institutions approached for funding,
says Kevin Green, partner at M Green and Company and an
expert in agricultural accounting in the US. He adds that
the US Financial Accounting Standards Board (FASB) offers
guidance across the US on agriculture accounting, but
notes: Its pretty generic. In the everyday the questions
are much more specific.
For instance, there may also be depreciable well pumps,
drip systems, sinking basins making sure those are all
accounted for in the appropriate fashion is important, he says.
It is also important to properly represent what are
sometimes complex and intermingled farm activities. For
example, a dairy operator could also operate a farm in the
same area, where the feed produced by that farm goes to
sustaining the dairy animals. You develop ways to measure
and price the feed going across as if it were sold from the
farm to the dairy as opposed to the guy down the street
buying all his feed from commercial sources, says Green.
Latin American farming is still fairly fragmented and
accounting is often basic. The INCAE Business School, in

Accounting and Business

FOCUS | AGRICULTURE

A BIG BUSINESS FOR THE EU

Source: European Commission, Eurostat

(most recent data)

Costa Rica and Nicaragua, did a study in 2012 of how coffee

farmers in Brazil, Mexico, Colombia, Guatemala and Costa
Rica assess their production costs. In all countries but Brazil
more than 50% of farmers had no accounting system at all
and relied purely on memory. Fewer than 5% used computers.
In Brazil, though, 55% hired external accountants.
Meanwhile, in China, independently acting farming
households are increasingly forming larger self-help farming
cooperatives, changing farm accounting.
While traditionally farmers got small loans from the
Agricultural Bank of China or the Postal Savings Bank of
China, a growing number of farm cooperatives now have
their own cooperative banking mechanism, says Guangwen
He, a professor at the China Agricultural University in
Beijing. Although they basically decide themselves who does
their accounting, there is a clear trend toward more private
accounting service providers entering the stage, given the
growing number and scale of these farming cooperatives.
He says that local governments have long operated
controls on farm cooperatives accounting practices,
including annual external audits by local accounting
associations. Private accounting service providers are now
complementing these public services.
Jonathan Dyson, Pacifica Goddard, Jens Kastner and Kitty
So, journalists
FOR MORE INFORMATION:

European Commission, Eurostat Statistics explained:

tinyurl.com/eurostat-CAP
Farm Accountancy Data Network:
tinyurl.com/agri-FADN

ACCOUNTING AND BUSINESS

156.9BN

164.2BN

The European Union agricultural sector generated

156.9bn (US$197.6bn) of gross value added at
producer prices in 2012, a 3% increase on the
previous year. The EUs crop output rose by 2.3%
in 2012 to 208.8bn, while livestock and dairy
output grew 4.7% to 164.2bn.
The EUs 2013 common agricultural
policy (CAP) budget for direct farm payments
(subsidies) and rural development the two
key elements of the CAP was 57.5bn,
representing 43% of a total EU budget
of 132.8bn.
The average annual CAP subsidy per
farm in 2013 was around 12,200.

INSIDE THE SILO

208.8BN

18

12,200

US accountants need specialised knowledge of farming

operations to generate the increasingly comprehensive financial
statements required to secure bank finance

THINGS
work
beTTer
wHeN
THey are
compleTe

This applies to accountants too. ACCA

accountants are complete finance professionals
thoroughly trained in all areas of business
and finance including strategy and innovation,
leadership and management, reporting,
professionalism and ethics, taxation and audit.
ACCA develops business ready finance
professionals who can help grow your business.

Find out more at

accaglobal.com/complete
The global body for
professional accountants

20

Comment | Ramona Dzinkowski

SEC is on money with Section 13(p)

How much does it cost US companies using minerals from Africas Great Lakes to comply
with new reporting requirements? The SECs estimate is not far off, says Ramona Dzinkowski
On or about 2 June 2014, 1,300 US
publicly listed companies filed Form
SD to the Securities and Exchange
Commission in response to the DoddFrank Act of 2010 (Section 1502).
The act, and corresponding SEC
ruling, requires companies using
minerals from the Great Lakes
region of Africa to publicise their
due diligence practices to ensure
those minerals have not financed
illegal armed groups fighting in the
Democratic Republic of the Congo.
If an issuers conflict minerals
originated in those countries, Section
13(p) of the Securities and Exchange
Act requires the issuer to submit a
report to the commission that includes
a description of the measures it took
to exercise due diligence on the conflict
minerals source and chain of custody,
including an independent private-sector
audit of the report, a description
of the products manufactured or
contracted to be manufactured that are
not DRC conflict-free, the facilities
used to process the conflict
minerals, the country of origin
of the conflict minerals and the
efforts to determine the mine
or location of origin. Section
13(p) requires the information
disclosed by the issuer to be
available to the public.
As expected, what this
would cost US companies
in the end has been the
subject of much debate,
and estimates vary widely.
During its comment period
on the proposed conflict
mineral rule, the SEC notes
that it received cost estimates
ranging from roughly
US$387m to US$16bn.
The National Association
of Manufacturers estimates, for
example, that companies could
expect to pay a total of roughly
US$9bn. Related costs would include
issuer due diligence, IT systems
modifications, conflict minerals
report audits, issuer verification

Accounting and Business

of supplier information and smaller

supplier due diligence. The SEC itself
expects the programme to come in at
between US$3bn and US$4bn.
In my previous article on this subject,
I invited you to stay tuned for some
actuals, and now, thanks to a Tulane
University research study, we have some
hard data around those numbers. (This
is the second study in the universitys
series that attempts to determine the
impact of complying with the SECs
2012 Rule 13p-1 and Form SD.)

In a representative sample of 112

companies (from the 1,300 that filed
Form SD, as opposed to the 5,900-plus
expected to be affected by the rule),
the authors extrapolated that labour
costs to the 1,300 issuers totalled
US$420,784,310, representing 59.3%
of the total projectcosts.
Smaller companies tended to devote
less time to the task. Those with annual
revenues of US$100m or less spent
roughly 2,500 hours on the project.
This compares with the 5,000 to 8,000
hours spent by companies with revenues
of more than US$1bn. However, hours
spent reporting on conflict minerals
dont riseproportionately with company
revenue, placing the greater burden
onsmaller companies.
Also according to the research,
issuer expenditures on non-IT external
resources such as consultants,
auditors, industry association costs,
pilot programmes and legal fees
totalled US$149,950,495. Similarly, IT
system gap analysis and expenditures
were US$40,866,337. Supporting
IT conflict mineral traceability
processes and reporting costs
totalled US$97,500,000 and,
finally, audit costs came in at
US$650,000. Total compliance
costs for the 1,300 were
therefore estimated to be
US$709,751,142.
All other things being
equal, and if the remaining
companies of the 5,900plus that are expected to be
affected by this ruling eventually
provide a conflict minerals
report, total costs of conflict
minerals compliance inAmerica will
total roughly US$3bn exactly in line
withearlierSEC forecasts.
The results of the study can
beviewed at tinyurl.com/
post-filing-survey.
Ramona Dzinkowski is a Canadian
economist and editor-in-chief of the
Sustainable Accounting Review. www.
sustainableaccountingreview.com

Alnoor Amlani | Comment

21

The two worlds of the city

While Africas cities become ever more vibrant and cosmopolitan, with great rewards for
developers, not enough is being done to house the urban poor, says Alnoor Amlani
Would you prefer a chauffeur-driven
limousine ride through Johannesburg
or a wild taxi experience in Lagos?
Maybe you would like to go out to a
disco in Cairo or have a mocha in a
sleek cafe in Nairobi? From Addis
Ababa to Kigali, Lilongwe to Dar es
Salaam, Africas cities are finally
offering some modern living options
for the people who live and work here.
When the British author Roald Dahl
was posted to Africa during the second
world war, he wrote of everyone having
the same breakfast a pawpaw in
Arusha, Tanzanias second largest city,
because that was all that was available
in those days. Arusha today boasts the
best conference facilities in East Africa
and you can get any kind of exotic
cuisine, from Indian to Italian, if you
want it.
Africas cities have become vibrant,
ever-expanding hives of cosmopolitan
activity. There are often problems
with pollution, security, slums
and more, yet foreigners seeking
an adventurous lifestyle coupled
with potentially huge returns
(to balance the higher risks)
are drawn to these cities
and Africans, too, because
of the high rates
of rural-urban
migration, in turn
driven by rural
unemployment.
While some of the
worlds real estate
values are barely
holding or actively
falling, here the price
of real estate has been steadily
creeping up. The gentleman
from the property management
firm points at the graph of
real estate value growth and
indicates how the capital and
rental returns from his Nairobi
real estate portfolio (lower
costs) outperform the Nairobi
Securities Exchange (NSE). Yet
the NSE was one of the worlds
best performing exchanges in

2013, achieving an astonishing indexed

growth of over 40%.
It is much more difficult to
get accurate data on real estate
investmentgrowth in Africa because
the market is much less regulated
than in more developed economies.
Yet clearly the demand for housing
and working spaces in African cities
is growing rapidly at present and
the supply simply cant keep up. The
situation results in price increases
thathave taken the ownership of a

home away from the reach of the

common man.
There are fewer developers willing
to face the risks of being in the
property business than are required
because they regularly face unforeseen
challenges. To begin with, rentals are
unusually low and prices are unusually
high 300 times the monthly
rental figure is a common multiple.
Furthermore, many items such as tiles,
lighting, doors, kitchens and plumbing
are imported, and there is much less
credit available to the property sector
in Africa; players therefore need very
deep pockets.
Then there are the horror stories of
fake title deeds, corrupt city council
officers and unresolved legal property
disputes that run for decades.
Despite this, the developers that do
succeed in navigating this minefield
achieve incredible returns in a climate
of continuously rising property prices
that defy all the political upheavals
and other social issues.
However, most of the
development going on in Africas
cities is not geared to the
common African. Developers
usually target the middle
and upper-income classes.
What we have
are beautiful
suburban homes
and some
townhouses and
apartments, and
atthe next level
onlyslums.
There are too few
housing projects by the government
or private developers that target lowincome housing. Sadly, every rapidly
growing African city also has an
equally expanding slum.
Alnoor Amlani FCCA is an
independent financial management
consultant in East Africa who
writesregularly on social and
business issues. He is also active
inTV and film in Africa

Accounting and Business

22

Comment | anthony harbinson

Government: the whole story

Does a single set of consolidated accounts for the entire public sector offer users of
those financial statements what they want, asks ACCA president Anthony Harbinson
One of the things that makes me proud to be an ACCA member is its readiness
to think ahead and to undertake research that looks at broader
issues; it seeks to provide answers to questions facing
entire business sectors or even whole economies.
I was reminded of this by a piece of research
that has recently been commissioned by ACCA in
my own sector.
For the first time an in-depth review is being
conducted on whether the move by some
governments to report their spending as a
single consolidated set of figures is worth the
time and effort.
The research, being undertaken by Durham
University, is looking at Whole of Government
Accounts (WGA). The WGA project has been
seen as encouraging greater transparency and
accountability by setting out single bottom-line
figures for what the public sector owns and owes.
But little is known about how useful these
consolidated reports are to a range of users. The
first stage of the ACCA-commissioned research is
to look at the literature on how these accounts are
used in the UK, Australia, New Zealand, Canada and
Sweden and whether essential users are getting the
information they need.
The research is also looking at the pressures each of
the governments face in producing consolidated accounts
and why they are doing so. The research will also identify
who uses WGA, and how WGA may be affected by changes of
government and in public sector organisations.
The research has huge implications for everyone in the
public sector. It might make uncomfortable reading for some
but hopefully will inspire discussions about the direction
and scope of travel of WGA.
It may also inspire change where it is needed.
As finance professionals one of our key roles is to
translate and explain some complex issues to the
wider business or economic community.
One of ACCAs responsibilities is to look
at issues that affect its members and their
stakeholders, to ask the right questions
andtomake recommendations which
ensurethat you as finance professionals
are front and centre in debates around
issues that shape the future of the
profession. I look forward to the findings
of this research along with the results
of other pioneering work that ACCA is
committed to.
Anthony Harbinson FCCA is director
of safer communities in Northern
Irelands Department of Justice

Accounting and Business

CORPORATE | SECTOR

23

The view from

PRESENT YOUR FINDINGS AT BOARD LEVEL

WITH CONFIDENCE, BACKED UP BY EVIDENCE
MUHAMMAD ARSLAN ACCA, ACCOUNTS
MANAGER, SOLEX CHEMICALS, MULTAN, PAKISTAN

Financial control in
agrochemicals entails
familiarisation with a
unique mix of factors. For
instance, most recently
weve had to take soil
vulnerability, crop disease
and salinity problems into
account. Each of these
alone might call for a drastic
revision of our product
ranges, or for changes in
how and when theyre marketed to
customers. Theres a huge amount
of anticipation and what-if modelling
involved, not to mention flexibility
and responsiveness in a sector
where external environmental issues
increasingly come to the fore.
Strategies for growth are underpinned
by finance. The agrochemicals sector
is highly competitive. An important
part of my role is to contribute to the
effective use of funds, and to provide
and interpret data that allows us to
maximise the performance of our
assets. My ideas have helped identify
and reverse the underutilisation of
capacity at our plants, and to devise
better ways to source and consume
raw materials.
Im also involved in product costing,
which impacts on pricing, and internal
assurance activities, designed to
produce more meaningful reports for
management. Many of the reforms Ive
instigated have required me to raise
awareness of finance-related issues
among non-finance departments,
so that everyone is working towards
common goals.
Its critical for finance professionals to
identify with individual line managers
objectives. In my experience, its
only by demonstrating a deep

understanding of the
challenges faced by those
in senior operations
roles that you develop
your credibility. You need
to be able to present
your findings at board
level with confidence,
backed up by evidence,
while being ready for
anything when they start
asking questions and
drilling down into the detail of your
recommendations. This is where your
own managerial and organisational
skills will be tested, since much of the
information you need will have to be
gathered from around the business,
entailing a degree of direction and
deadline-setting, if not always direct,
hands-on management.
My management style is characterised
by support and challenge. If people
show that theyre keen to learn, then
its important to reciprocate and
help them to stretch their potential.
I have around 15 people reporting
to me; creating and maintaining a
friendly but purposeful atmosphere
is one of my top priorities. For me,
what someone lacks in experience,
they might easily make up for with
their energy and ideas. Those of us in
management roles must be prepared
to develop, trust and delegate, if were
to make the most of individual and
team efforts.
If I hadnt gone into business, Id
probably have become a soldier.
Armies are built around discipline, and
I like discipline. But Im proud to be an
accountant; and today my dream job
would be that of a chief finance officer
with a strong change management and
business performance remit, and set
against a global context.

SNAPSHOT:
FINANCIAL
SERVICES
In almost every country in the
world, the financial services
sector has been through the
wringer in recent years. It
now finds itself subject to
previously unheard of levels
of scrutiny and regulation.
US-based Anthony
Graziano, regional managing
director at Randstad
Professionals, says: The
financial services sector
is one of our busiest areas,
as it relates to hiring
accountants. There is
actually a shortage of
accounting professionals
with regulatory reporting and
internal audit experience.
In the US, the main
players in the sector are
JP Morgan, Morgan Stanley,
Bank of America, Wells
Fargo, Goldman Sachs
and Blackrock.
These firms are looking
for individuals coming out
of the Big Four with their
qualification and specific
audit experience within
financial services,
adds Graziano.
US$4.8BN

According to CoinDesk,
using US$ price data
from the CoinDesk
Bitcoin Price Index, the
market capitalisation
of the total number of
bitcoins in circulation
at the time of writing is
US$4,858,908,006.88.

ACCOUNTING AND BUSINESS

24

corporate | sustainability

Preserving natural capital

As pressure grows on our resources, companies must learn how to manage,
measure, report and disclose on natural capital, says ACCAs Rachel Jackson
Awareness is growing of the
dependence of business and society
on the worlds natural resources its
ecosystems in the form of forests
and oceans, for example, as well as
its fossil-fuel deposits. With that
awareness comes a growing sense of
the need to manage and protect the
worlds natural capital; once its gone,
its gone.
National governments are
increasingly looking at how to assess
and preserve their natural capital.
Supported by global coalitions such as
Wealth Accounting and the Valuation
of Ecosystem Services, countries
such as Botswana, Costa Rica and
thePhilippines have taken steps
towards accounting for their natural
capital such as water, forest and
mineral resources.
For businesses, the challenge
is to understand and manage or
reduce their impact and dependency
on natural capital. This requires the
development of strategies underpinned
by measurement, valuation and

reporting. Current developments in

this arena include the work of the
Natural Capital Coalition (NCC) to
draft a harmonised framework for
valuing natural capital to enable
bettermeasurement, management,
reporting and disclosure. Called
the Natural Capital Protocol, the
framework is intended to be a starting
point from which future standards
could be developed.
The draft protocol has two parts:
firstly, a high-level guide for C-suite
executives, particularly CFOs, to
explain both the business benefits from
managing, accounting for and valuing
natural capital, and how they can apply
natural capital valuation in business;
and secondly, a more detailed
document aimed at practitioners
in business, policy, consulting and
research which addresses topics such
as materiality, and techniques and
tools for valuing natural capital.
Alongside the protocol, two sectorspecific supporting guides are being
developed foragricultural commodities

Sweet stuff: how companies report

One of Coca-Colas first major steps
in moving towards sustainable
sourcing was through its work with
Bonsucro a global non-profit, multistakeholder organisation fostering
the sustainability of the sugarcane
sector through its metric-based
certification scheme to implement
a standard for sustainable
production. This has involved
evaluation against sustainability
criteria related to sugarcane
production based on criteria,
including active management of
biodiversity and ecosystem services.
Meanwhile, agricultural group
and Bonsucro member Bunge has
undertaken some innovative projects
on farmland at one of its processing
plants. This includes studying
issues such as fertiliser dosage,

Accounting and Business

water use, species variety

and harvesting seasons. The
long-term project aims to
inform sustainable practices
in sugarcane plantations in
the future.
Bacardi, also a Bonsucro
member, has committed
to sourcing 100% of its
sugarcane-derived products
from certified sources by 2022.
In 2013 it updated its target
to source 40% of cane-derived
product from sustainable
sources by 2017. Its target
for 2014 was to ensure
that at least one of its key
sugarcane suppliers is covered
by either a European Union- or
US-recognised sustainability
certification chain of custody.

used in the foodand drinks sector,

and the clothing sector. The protocol
will be pilot tested, with a view to
finalisation by December 2015.

Important step
The development of the protocol is
animportant step in the evolution
of natural capital accounting and
reporting. It is international in scope,
supported bystakeholders from a
range of backgrounds but all striving
for the same outcome better natural
capital management andpreservation.
This collaborative approach is
essential for ensuring that the final
protocol has maximum buy-in and
that it complements other initiatives,
not least the International Integrated
Reporting Councils Integrated
Reporting Framework, which contains
a natural capital strand. These
need to be harmonised in order to
avoid creating a confusing reporting
landscape for businesses one they
would then ignore.
The need for harmonisation
appears to beaccepted by the NCC
and the Natural Capital Declaration
(NCD), a finance-sector initiative
supported by ACCA to integrate
natural capital considerations
into loans, equity, fixed income
and insurance products as well
as in accounting, disclosure
and reporting frameworks.
The NCD has established four
working groups focused on
understanding, integrating,
accounting for, and disclosing
and reporting on natural capital.
It is collaborating with these
working groups in order to
avoid duplication and ensure
consistency in approaches.
The NCD is also seeking the
participation of investors,
encouraging them to ask more
questions about natural capital
impacts and management.
Another international
development of note is the proposed
expansion of the scope of the Climate

sustainability | corporate

25

Disclosure Standards Boardsclimate

change reporting framework to
include water and forest commodities.
Thescope expansion reflects the
growing interest among investors
and others in organisations use and
management of natural capital, as well
as their greenhouse gas emissions.
ACCA is contributing to the
international debate on and
developments of natural capital
accounting and reporting. We are,
for example, working with KPMG and
biodiversity conservation organisation
Fauna & Flora International (FFI)
to improve understanding of the
accountancy professions role in
accounting for natural capital. The
second in our series of joint briefing
papers, Business and investors: providers
and users of natural capital disclosure,
provides a rationale for reporting on
corporate impacts and dependencies
on natural capital, including examples
of current practice in reporting by
companies such as Nestl (on palm oil),
Coca-Cola (sugar) and Unilever (soya).

Future pressure
Even if businesses dont take the
initiative to investigate natural capital
accounting techniques now, they will
almost certainlyneed to do so in future
due to investor pressure, regulation or
customer demand. Some businesses
are, however, already setting
themselves challenging goals and
developing strategies through which
they can become net positive; rather
than simply neutralising their impact
on natural capital, they seek to have a
positive impact on biodiversity.
Innovation and creativity by
companies in their approach to
natural capital is welcome, enabling
an evolutionary process through which
the best approaches to measurement,
management, accounting and reporting
can emerge. Also welcome are the
many initiatives highlighted here.
It is important, however, that
business and other efforts are
supported by governments and
regulators so that they feed through
into public policy. Only when natural
capital reporting becomes integrated
into other business requirements will it
truly have come of age.
Rachel Jackson is ACCAs head
ofsustainability

For more information:

Business and investors: providers and users of natural capital disclosure is

available at www.accaglobal.com/ab97

Accounting and Business

26

CORPORATE | The challenge

In search of Canadian black gold

Freemont Resources CFO Helmut Hauke FCCA helped transform a small, privately held
oil and gas producer that had never been audited into one run like a listed company
If youre an entrepreneur in the oil
and gas industry in Alberta, Canada,
and need to overhaul your finance
function, you get the man who wrote
the book. That was the strategy of
Kim Wallace, president and CEO of
Calgary-based Freemont Resources,
when he hired Helmut Hauke FCCA.
The small, privately owned Canadian
oil company with annual revenues
traditionally under C$5m (US$4.4m)
had land and production assets in
eastern Alberta and Saskatchewan.
Between 2012 and 2013, revenues
and production doubled while the
oil reserves for the companys main
growth property nearly tripled.
In 2012, with a number of drilling
prospects to exploit and in the process
of raising cash, Freemont needed the

with both large and small company

experience in the sector, Hauke is
known as one of Canadas foremost
accounting experts in the field. He is
a director of the Centre for Energy
Asset Management Studies (CEAMS)
in Calgary, has authored courses in
oil and gas operations accounting and
lectured at the University of Calgary
and other institutions, and is a subject
matter expert for the Certified General
Accountants Association of Alberta.
When Hauke took on the role as
CFO of Freemont in 2012, he had his
work cut out. His challenge was to
help transform the company from a
small, privately held entrepreneurial oil
and gas producer that had never been
audited before into one run like a stock
exchange-listed company.

*
*

Develop a clear vision for the accounting and

financefunction.

TIPS

Never forget the purpose of the accounting

andfinance function to provide information for
decision-making.

*
*
*
*

Communication is critical between different lines of

management and key stakeholders.
Ensure constant and smooth interaction cross-functionally,
especially between accounting and operations.
Ensure the appropriate use of technology.
A textbook is one thing when it comes to obtaining
information, but in real life your information is never as it is
portrayed in textbooks. You have to find it and then you have
to make the best of it.

help of someone who knew their way

around the business, and it needed
them fast. In order to access the
necessary capital to get barrels outof
the ground, the companys finance
function would have to undergo a
majoroverhaul.
German-born Hauke was chosen
for the task. An oil and gas man in
Alberta for almost 25 years, and

Accounting and Business

To gain the confidence of investors

and bankers alike, the company needed
a set of audited financial statements.
As Hauke explains: To be auditable,
your records have to be in order.
Its an obvious Catch-22 paradox,
hepoints out. If you dont get your
audit, then you dont get a bank loan,
and you dont get new investors to join
your company.

Unique complexities
Transforming Freemonts finance
department into a best-in-class
example of accounting and control was
not going to be an easy task. As Hauke
explains, the nature of the oil and
gas business in itself created unique
accounting complexities, and these
were compounded at the time by the
necessary conversion from Canadian
GAAP to International Financial
Reporting Standards (IFRS). Its all
about accounting for and knowing
your assets, he says.
In an oil and gas company, your
key assets are your properties your
wells, facilities, pipelines and so on
and there are many contracts and
agreements behind them. So, one of
the challenges was to match those
contracts with our assets, which was a
huge project to tackle.
Also, while going through those
contracts, we came across some
historical issues with potential
taxation implications which had to be
resolved as well. Added to that was
the reconciliation of our historical
opening balances for all accounts, as
well as building and implementing a
framework for control, processes and
cross-functional communication.
As assets are acquired or developed,
the records of the operations
department including land are
updated, and finance subsequently
sets up the assets in the accounting
system, Hauke explains. Throughout
the operation of these assets, all
departments work together to keep the
information up to date and to resolve
any issues as they arise. The financial
results will be the ultimate output of
these cross-functional activities, and
their quality is directly impacted by
how well these activities are managed.
One of Haukes key objectives was
first of all to align the accounting
records with the land records. In an
oil and gas company, he explains,
the information that resides in the
land department is critical because it
formsthe legal basis for all the oil and

The challenge | CORPORATE

gas properties.
You need to have close
communications with the land
department, he explains. However,
often there is a misconception that,
in a small company, the different
departments naturally work together.
This is not necessarily the case, so
building that relationship was critical.
Hauke laid particular emphasis
on the interaction between those two
departments and putting the right
team in place that would allow them
to systematically go through the
accounting and land records to ensure
that everything was cross-referenced
and substantiated.
The challenges of finding the right

team members in a province hungry

for specialised experience in the oil
andgas sector was another hurdle
to get over. Theres a shortage of
qualified people in this part of Canada
and that shortage is growing, he
explains. Its particularly difficult to
find experienced people who know the
whole production cycle rather than just
bits and pieces of it.
But the solution to delivering an
auditable setof books needed to
go further than that. To complicate
matters, says Hauke, the accounting
results also had to be converted to
IFRS a significant project in itself,
especially for oil and gas companies
that accounted for their capital assets

27

under the full-cost method.

Under that method, which was
allowed under Canadian GAAP,
companies could essentially account
for their assets using one corporate
cost pool. So whenever companies
spent capital lets say to drill a
well they were able to allocate that
money to one huge cost pool, and
that cost pool was then depleted,
according to their production. You
produced X number of barrels and
then you attached a cost to that. With
the full cost method, companies could
capitalise pretty much all of their
costs regardless of whether those
costs ultimately resulted in successful
producing wells.

Accounting and Business

28

CORPORATE | The challenge

IFRS changed all that. Under

IFRS, Hauke explains, costs have to
be accounted for at a much more
detailed level. For Freemont and other
companies, that meant going through
that huge cost pool with a fine-tooth
comb and determining exactly what
was in there and that was quite a
challenge. On the upside, converting
to IFRS really forced oil and gas
companies to get to know their assets,
Hauke reflects. Overall, the IFRS
conversion was a huge thing for the
Canadian oil and gas industry.

A matter of communication
To transform the finance function,
Hauke also had to hone his
communication skills, making the
rationale, process and potential
outcomes clear to everyone, including
his CEO.
The owner and founder of our
company is a geologist, and without
him there would be no company, says
Hauke. But what a financial executive
brings to the table is control, financial
structure, and a way to describe
the company that will not only be

Accounting and Business

converting to IFRS forced companies

to get to know their assets. Its been huge
for the Canadian oil and gas industry
meaningful to auditors and bankers,
but to potential shareholders and
buyers as well.
You have to be clear in explaining
your objectives, he says, and recognise
that other managers and stakeholders
are not accountants. Youve got
to be careful with the terminology,
particularly when it comes to complex
accounting issues like the level of
detail required by IFRS. You also have
to point out, in a very diplomatic way,
the consequences of not following
required processes.
One example, where its important
to explain things very clearly, he
explains, relates to the accounting
for potential environmental liabilities.
This is a significant issue in the
industry and typically companies will
report substantial liabilities in their
balance sheets to show the estimated

remediation costs that will have to be

incurred in 20 or 30 years.
After transforming its financial
management and control functions,
and receiving its first audit assurance,
Freemont is a different company. Some
of its milestones included the 2012
and 2013 audits performed by a Big
Four accountancy firm, acquiring a
line of credit and an equity raise which
allowed it to grow and set the stage for
future growth.
Freemont has also commenced a
comprehensive drilling programme
that, if successful, is expected to grow
revenues and production by 400%. Its
exit strategy is to eventually sell the
company to a larger organisation at a
significant valuation.
Ramona Dzinkowski, economist and
business journalist

practice | sector

29

The view from

ifrs implementation needs strong islamic

finance leadership and robust regulation
saad maniar FCCA, senior partner,
horwath mak, dubai, United Arab Emirates
Aligning International Financial
Reporting Standards (IFRS) and
Islamic finance is an urgent challenge
in this region. Dubais ambition is to
secure the position of Islamic finance
capital of the world. I drive our firms
governance, risk and compliance
agenda, with a particular passion for
tackling practical IFRS issues against
the backdrop of sharia laws more
conservative policies.
Successful implementation will rely on
strong leadership from the Accounting
and Auditing Organization for Islamic
Financial Institutions (AAOIFI), along
with the creation of robust national
regulatory regimes in individual
countries. Without this, investors
may feel they dont have sufficient
confidence in the reports and data they
need when evaluating potential projects.
We cant afford to be left behind.
Foreign investment continues to flow.
The UAEs financial services, oil and
telecoms sectors have traditionally
attracted finance from overseas.
But government initiatives around
infrastructure encompassing road,
rail and shipping are increasingly
generating interest beyond
those core industries.
Funding is also
materialising from
newer sources, such
as India, China and
Brazil. We also have
a thriving SME sector,
thanks to a tax regime
that greatly appeals to
entrepreneurs.
To grow from generation
to generation,
professional
services
firms

must seek out new markets and fresh

ways to create value there. Were
constantly on the lookout for ways
to grow regionally. Were one of the
leading firms not only in the UAE
but also in Bahrain, Kuwait, Oman,
Qatar and Saudi Arabia. Our goal is to
strengthen our position in tandem with
the Middle Easts economic expansion.
Its a key element of our strategy, and
not confined to the Gulf; were also
making inroads in Afghanistan and
Azerbaijan, and looking further afield
for opportunities elsewhere in Asia.
Dubais successful World Expo 2020
bid is paying dividends. Sentiment
among businesses is high, as staging
the Expo means greater government
spending and an extension of our
free enterprise zones. Work is also
under way to transform Dubai into
an innovative, high-tech smart city.
Considering the UAE economy is
already enjoying a positive knock-on
effect as a result of Qatar winning
the FIFA World Cup 2022, the Expo
provides exciting prospects.
Im proud to have contributed to
ACCAs growth and reputation, in the
Middle East and globally. Ive served
on the International Assembly
and currently sit on ACCAs
UAE Advisory Committee,
and frequently comment on
issues such as regulation,
qualifications and financial
reporting on behalf of
ACCA. I find these activities
fascinating and satisfying in
equal measure theyve given
me many opportunities to
connect with people all
over the world
while giving
something
back.

Snapshot:
forensics
The nearest that many
accountants will get to
feeling as though theyre
starring in an episode of TV
show CSI is by working as
a forensic accountant. This
iswhere the job really can
get exciting.
US-based Anthony
Graziano, regional managing
director for Randstad
Professionals, says: Forensic
accounting is a very unique
skillset that is highly sought
after by the FBI, CIA,
Securities and Exchange
Commission and Internal
Revenue Service, as well as
accountancy firms, law firms
and insurance firms.
Forensic accountants
perform special investigative
work dealing with economic
damages, bankruptcy,
insolvency, reorganisations
and security fraud.
Throw in the chance to wax
lyrical in a court of law, help
nail the bad guys and work on
headline-hitting scandals, and
forensic accountancy is not
for the faint-hearted.

69%

According to PwCs Global

economic crime survey 2014,
the most commonly reported
type of economic crime
reported globally is asset
misappropriation at 69%.
Next is procurement fraud,
followed by bribery and
corruption, cybercrime and
accounting fraud.

Accounting and Business

30

practice | interview

Leading from the front

John Veihmeyer, global chairman of KPMG, explains why he believes in the importance
of shaping a corporate culture and how social responsibility is key to attracting top talent

Accounting and Business

TIPS

Nobody is prouder of KPMGs heritage

than its global chairman, John
Veihmeyer. Speaking from his office
overlooking the Manhattan skyline,
Veihmeyer enthusiastically recounts
some of the firms brushes with history.
KPMG, which traces its roots back to
the 1870s, played an active role in
organising the Lend-Lease programme
during the Second World War, which
allowed America to funnel supplies to
the Allied Nations. The firm certified
the election that put Nelson Mandela
in power in South Africa, ending
apartheid. And when New York City
veered towards financial ruin in the
1970s, it was KPMG that helped put
the Big Apple back on track.
KPMG has been honoured to play
arole in such momentous events,
saysVeihmeyer, who took up his
current position earlier this year.
Thatis the kind of culture we are
trying to build on. We want not just
to be successful, but also to make a
positive impact on the world.
Veihmeyer, who is also the chairman
and CEO of KPMGs US practice, has a
strong reason to feel identified with the
firm he spearheads. He joined in 1977,
the year that Gerald Ford handed over
the US presidency to Jimmy Carter
and Apple Computer was incorporated.
At a time when the average US worker
stays at a firm for just over four years
equating to about 15 jobs over a
working lifetime Veihmeyer has been
at KPMG for 37 years.
The wonderful thing about KPMG is
that you can have 20 different careers
within the firm without ever leaving,
he says. You get all the advantages
of diversity and learning, without ever
losing the benefits of having a single
employer. That claim is backed up by a
spree of awards that the firm has won
as a business to work for, including
being ranked as one of Canadas top
employers in 2014.
Veihmeyer knew early on that he
wanted a career in business, and
studied accounting at the University
of Notre Dame, a highly ranked school

Adopt a mindset of continuous learning: A lot of

people get out of university and think they are done with
learning [and say] now let me get doing, Veihmeyer
says. The world is changing too quickly to think like that.
Intellectual curiosity is a great virtue in this environment.
Try to learn something every day that you didnt know the
day before. This may be a new sector or company. I still feel
that I have far more to learn than I already know.

Be globally aware: You do not necessarily need global

experience to be a globally aware citizen. It is becoming
increasingly important to understand other cultures in the
current business environment.

Personal integrity: Always recognise that your personal

brand is your biggest asset. Fostering this is more important
than anything else you are going to do. When ethical
dilemmas arise, protecting your reputation is the priority.

Foster professional relationships: It is critical to build

effective relationships at work. This is a network that can
help you throughout a career. Show genuine curiosity in
thepeople you meet.

We want to be a firm that has a

positive impact on the communities we
operate in and on the world at large
in Indiana. A mentor advised me that
accounting was the most difficult
major in the business area, so it
seemed like a good start, he says.
Itprovided a broad introduction to
many different areas of business that
gave me a great start.
After university he went straight to
KPMG in Washington DC, rather than
the financial hub in New York. This was
at a time when the economy around DC
was really diversifying, he says. Hi-tech
and bio-tech firms were proliferating,
and we were certainly not just focused
on public institutions or government
contractors. Veihmeyer quickly rose
through the ranks, becoming a partner
10 years after joining the firm, in 1987.
By 2003, he was heading up the
DC office as its managing partner,

setting the strategic direction for the

unit. Soon after this, he became the
deputy chairman for KPMG in the US
and global head of risk and regulation.
It was a time when there was a lot of
focus on the quality of our audits and
preventing any conflicts of interest,
he says. During my time in this job,
we developed really robust systems to
avoid any risk that our audit judgments
would be compromised including very
solid Chinese walls between parts of
the business offering different services.
Veihmeyer took over as global
chairman only this year, after Michael
Andrew left the firm owing to ill health.
While Veihmeyer has always been
based in the US, his job is now similar
to that of a roving global ambassador.
I only spend about 10% to 15% of

interview | practice

my time in this office in New York,

hesays. For the remainder Im
travelling between our offices all over
the globe. It is important to be visible
and for the staff to hear the message
directly from me.
Veihmeyer is a great believer in
the importance of trying to shape a
corporate culture. This takes up a lot
of my time. The firms partnership
structure gives KPMG, along with
other accounting firms, a head start,
he argues. Structure alone will not
create a great culture, he says, but
the partnership model does make
this easier to develop a sense of
stewardship that we are enhancing
something for the next generation.
Veihmeyer is focusing on several main
priorities during his tenure. The first is

quality and integrity. We are not just

interested in getting clients that will
expand the bottom line, he says. We
also want clients that will enhance our
brand by association.
Retaining KPMGs status as an
employer of choice is another priority.
One aspect of this is promoting the
firms corporate social responsibility
agenda. If we want to continue to
attract the best talent in the world and
be an employer of choice, our social
programmes are fundamental, he
says. We want to be a firm that has
apositive impact on the communities
we operate in and on the world at large.
A long-standing priority of KPMG
has been in education, a choice
that chimes with the values of the
firms highly educated workforce. Its

31

Family for Literacy programme has

distributed more than two million
books to American children in need and
refurbished many school libraries. Now
the scheme is going global, extending
to eight new countries, including South
Africa and India. The firm has also
worked to promote higher education
among ethnic minorities, offering
scholarships to 39 doctoral students
last year alone. It is really important to
get professors from minorities in front
of the classroom, he says.
In 2013, Veihmeyer was
named Responsible CEO of the
Year by Corporate Responsibility
Magazine. Twoyears before that, he
receivedtheCEO Leadership Award
from Diversity Best Practices for his
commitment to diversity.

Accounting and Business

practice | interview

2014

Global
chairman,
KPMG

cv

2010

US chairman and CEO,

KPMG

2005

Deputy US chairman,
KPMG

2002

Partner in charge of
audit in Washington
and Baltimore

1999

Lead SEC and

professional
practicepartner
Mid-Atlantic area

As a strategy leader, Veihmeyer

also keeps an eye on the global
economy and public policies that affect
accountancy firms. Here, his outlook is
mixed. He is convinced that the world
is reviving well from the 2008 financial
meltdown. A global recovery is creating
plenty of opportunities for KPMG and
our clients, he says.
This judgment echoes a study KPMG
published in July that surveyed 400
chief executives. Close to two-thirds
said they were confident about growth
prospects over the next three years. In
addition, just over a quarter expected
record profits in 2016 and 2017. That
in turn will provide extra financial
firepower for firms to invest in the
latest disruptive mobile and cloud
technologies. This very much plays
to KPMGs strengths, according to
Veihmeyer. We have unique capabilities
in this area, he says. There are plenty
of strategy firms, but we combine this
with deep execution skills.
Trends in global public policy,
however, are less encouraging for
businesses. Greater turbulence in
nations such as Egypt, Venezuela
and Israel has pushed political risk to
the fore for some companies. In rich
nations too, many companies are facing
headwinds from shifts in government

Accounting and Business

policies. The KPMG CEO survey showed

that a third of CEOs are spending
more time with watchdogs and other
officials, or expect to do so.
Tax regimes around the world have
been in flux, he says. And as more
companies operate globally, tax can
create a lot of complexity. Meanwhile,
progress towards the convergence of
accounting standards has been more
sluggish than expected. Reconciling
local GAAP [generally accepted
accounting principles] and International
Financial Reporting Standards has
been progressing slowly, he says. In
a globalised world, that is a problem.
We should clearly be shooting for a
common global set of rules.
Of course, both of these trends
create work for KPMG and other global
accounting firms. But from a public
policy perspective this is far from
ideal, he says.
One policy that may make the
job of accountants harder is the
mandatory rotation of auditors,
which was approved by the European
Parliament in April. This requires listed
companies to hire new auditors every
10 years. The rules were designed to
prevent an excessively cosy relationship
developing between a company and
its accountants. The rules were also

155

Countries in which
KPMG operates

155,000

Staff worldwide,
including 8,664
partners

basics

32

us$23.42bn

Combined global
revenues in2013

1987

KPMG was founded

with the merger of Peat
Marwick International
and Klynveld Main
Goerdeler

1870

The year its history

can be traced back to

less severe than a 2011 proposal that

would have required companies to
change auditors every six years. We
want to continue to enhance the quality
of audits, says Veihmeyer. There are
aspects of mandatory rotation that will
make this more challenging.
Veihmeyer operates in a sector
dominated by four giant firms. These
titans, for example, audit 99% of UK
FTSE 100 firms and 240 of the next
largest FTSE 250, but Veihmeyer says
that rivalry has remained intense:
Consolidation has not made this
industry less competitive. We have also
had to become large and global to meet
the needs of our multinational clients.
But when a new contract comes up, you
really see how vigorous the competition
still is. KPMG is by a narrow margin
the fourth-largest of the Big Four, with
US$23.4bn of revenue last year against
US$25.8bn for its nearest rival, EY.
As global chairman, however,
Veihmeyer has far broader goals than
merely beating competitors. After
years as a top leader at KPMG, he has
long been a powerful voice in shaping
the organisation. Now he finally has a
chance to lead from the front.
Christopher Fitzgerald, journalist
based in New York

islamic finance | insight

33

Green sukuk

A recent initiative from Malaysia one of the main Islamic finance hubs could help turn
Islamic bonds into the financing option of choice for environmentally friendly investments

he ethical traits of sharia-compliant financing, such

as not permitting interest or investments in gambling
and tobacco, have made sustainable and socially
responsible investment (SRI) and green funds an
obvious extension for the sector. But Islamic finance is a
niche market already, and its SRI initiatives have struggled.
Indeed, some initiatives have not got beyond the press
release stage and few have been successfully funded.
However, SRI and green project funding has been revitalised
by the launch of SRI sukuk (Islamic bonds) guidance this
August by Malaysia, one of the main Islamic finance hubs.
The internet is awash with articles about a handful
of green Islamic finance projects launched in recent
years, such as an Islamic green fund issued by Malaysias
AmanahRaya Investment Bank and Asian Finance Bank
(AFB), and the Green Sukuk Working Group (GSWG) set up
in Dubai in 2012 to promote sukuk for renewable energy
projects. But the GSWG is still a work in progress no sukuk
have been issued and the Malaysian initiative did not take
shape as expected, highlighting some of the issues faced by
Islamic finance.
Unfortunately the infrastructure was not there, nor the
working capital, says AFB CEO Mohamed Azahari Kamil.
More recently, London-based financial advisory service
Simply Sharia set itself the target of raising 3m (US$4.9m)
by June 2014 to build a solar energy plant through a shariacompliant funding structure, taking advantage of the UK
governments Enterprise Investment Scheme (EIS). However,
investors did not come on board in time, and legislative

changes disallowed tax exemptions through the EIS as well

as government subsidies, affecting the projects viability.
A primary factor, however, was the performance
differential between Islamic finance structures and
conventional financing for the project. The non-sharia
version had 50%-plus debt to equity whereas ours was a preequity play, so the debt cost 5% a year, which leveraged up
the returns for equity players, explains Faizal Karbani, CEO
of Simply Sharia.
He adds: A key lesson for future investments is to have
parity of returns for sharia and non-sharia, so returns are
comparable or equal to any non-sharia investment out
there. A lot of businesses that want to raise sharia finance
are basically struggling as most financing is dominated by
interest-bearing loans.

Double bubble
Such experiences underline the issues that both Islamic
finance and green energy have faced over the past decade
being overhyped in terms of potential and investor interest.
As with Islamic finance, many green financing projects have
been announced but not come to fruition, in part hampered
by capital issues following the global financial crisis.
United Nations figures from January 2014 show that global
clean-energy investment dropped by 12% in 2013, while
Bloomberg New Energy Finance numbers show investments
of US$254bn last year, significantly below the US$1 trillion
a year the International Energy Agency estimates is needed
to curb climate change.

Accounting and Business

34

insight | islamic finance

Our market soundings have shown returns on green

bonds still need to be there, yet they may garner more
attention by having those credentials, says Michael Grifferty,
president of the Gulf Bond and Sukuk Association (GBSA)
in Dubai.
As for Islamic finance, the sector was valued at US$1.7
trillion in 2013, according to EY, dwarfed by the conventional
capital markets, valued at US$64 trillion in 2012 by PwC.
One issue with the green Islamic space is that it is a
niche of a niche, so to really make that work you need to
get distribution channels in place and sufficient momentum
to pull away and gain maturity, which needs a push at the
government level, says Fergus McDonald, co-founder of
VTA, a banking advisory firm in London.
Malaysias August announcement is a welcome move,
with its SRI sukuk framework requiring information on use of
proceeds, choice of eligible projects, disclosure and reporting
of various elements, and rules on appointing independent
parties for deals.
Siew Suet Ming, senior general manager for structured
finance at RAM Ratings in Kuala Lumpur, says: In green
Islamic finance there has not been a lot of transparency
and consistency in the numbers quoted, while green sukuk
have been fairly loosely bandied about with regard to
green projects as they lack formal certification. As far as
developing governing frameworks, it is quite nascent and I
believe the first formal guidelines are from Malaysia.
Malaysia is promoting Islamic finance and green projects
to develop a more sustainable economy, having launched a

are registration, infrastructure and capital, and more

importantly the human capital expertise in this sector,
especially sharia scholars with IFE [Islamic finance expert]
accreditation.
Over in the Persian Gulf, Dubai is trying to position itself
as an Islamic finance hub by supporting green sukuk, while
the national plans for 2030 of fellow UAE emirate Abu Dhabi
and nearby Qatar both feature environmental sustainability
and different kinds of capital markets.
Green Islamic finance connects the two, and we are
trying to connect them, not just on paper but in reality, to
get the best choices for project selection, says Grifferty
of the GBSA, which is involved with the GSWG. To move
forward, green Islamic finance will need to develop further,
along with the sukuk market itself. Both
sukuk and green bonds are getting more
attention and will definitely draw in more
issuers and arrangers that can bring the
[green project financing] successes of
Europe and elsewhere to Dubai, so its worth
keeping an eye on this space, adds Grifferty.
Indeed, Simply Sharia has learned from
its recent experience, and is not daunted
by the challenges ahead, having successfully worked on
a sharia-compliant farmland project in Argentina, and
currently working on a 10-year, 1bn (US$1.2bn) project on
electric cars in Europe with the potential for a sukuk.
I think the sector is going in the right direction and while
a huge amount has been said about the sectors potential,
it is time for action by marrying Islamic finance and SRI,
says Karbani. Our vision is that Islamic finance needs to be
positioned very much as an ethical alternative for people to
invest in, which is the future of Islamic finance.

In green Islamic finance there has

not been a lot of transparency and
consistency in the numbers quoted
national action plan on the subject in 2009, and in 2010 a
green technology financing scheme with an initial budget of
RM1.5bn (US$465m), which was subsequently expanded to
RM3.5bn (US$1bn). So far, RM1.95bn (US$604m) has been
distributed, almost 40% of which is in participation with
Islamic financial institutions, according to Suet.

Government involvement
Larger-scale financing has been quite limited for green
sukuk to come in, and thats why the government has
been involved in the framework, adds Suet. Investment is
expected to focus on green technology rather than farmland,
as has been the case elsewhere in green finance worldwide,
but there are challenges ahead.
AFBs Kamil says: A lot of capital investment is involved,
so the development of the sukuk market will play a critical
role for long-term investment structures. Challenges

Accounting and Business

Paul Cochrane, journalist based in Beirut

For more information:

See also the October edition of the Malaysia edition of

Accounting and Business, www.accaglobal.com/ab130

35

GRAPHICS | INSIGHT

20.8m Energy
RISK LANDSCAPE

As well as a host of natural and man-made hazards,

global businesses are having to deal with a less forgiving
regulatory and and legal environment, according to
Allianzs latest global claims review for the years 200913.

5.27m Aviation
2.47m Financial lines
2.18m Property

ding 1
Fire 2
h3
c
n ras
Aviatio quake 4
Ear th
5
Storm
6
s
ie
r
inju
7
Bodily
Flood
8
y
it
n
indem
sional
ts 9
Profes duct defec
0
Pro
1
n
w
o
d
break
y
r
e
Machin
Groun

1.23m Engineering
1.21m Liability

RISKY BUSINESS

Of the sectors covered

by the review, the
average claim value in
the oil and gas industry
far outstripped that of
all the other sectors
combined.

1.1m Marine
1.9m Average

LOSS TRENDS

TOP 10 CAUSES OF LOSS

The top 10 causes of loss by value in the sectors covered by the review accounted for almost 70% of total
financial losses in the period. The list was dominated by non-natural catastrophes.

Energy

Aviation

LOSS LEADERS

The chart above shows the single biggest

causeof loss by value in each of the sectors
covered by the review, along with the share
of that sectors total loss in terms of both
volumeand value accounted for by that
particular cause for claims of 1m+.

Liability

Engineering

Property

Grounding

26% 28%

22%
Machine
breakdown

Property
damage
Financial

30%

Fire

Plane
crash

26%

Plane
crash

23%

Bodily
injury

37%

Human error

Fire

44%

50%

Fire

45%

65%

n by volume
n by value

Earthquake

Fire

65%

Professional
indemnity

Professional
indemnity

74% 72%

Marine

THE SURVEY

Allianzs Global claims review 2014: loss trends and emerging

risks for global businesses gives the findings of an analysis
of 11,427 100,000+ insurance claims in 148 countries
across the following sectors: aviation, energy, engineering,
financial lines, liability, marine and property. The full report
is available at tinyurl.com/allianz-review

ACCOUNTING AND BUSINESS

36

insight | world congress of accountants

technology rules
Nina Tan, ACCA, CFO of Trax Technology Solutions talks about the omnipotence of
technology in shaping the businesses of today and how harnessing it is so vital for success

Q: How has technology influenced the way in which a

business operates?
A: Twenty-first-century technological advancements have led
to prevalent use of the internet, affordable pay-as-you-go
software and low-cost scalable cloud-hosting services.
Through the use of web and mobile-based internet
access, communications can take place instantaneously.
And the ability to harness technology has led to improved
revenue-generating capabilities and boosted productivity.
At Trax Technology Solutions, for example, we play
a formidable part in shaping the global retail business
operations by offering our customers a cloud-based imagerecognition application on their smart devices. The app
takes photo or video images of shelves at retail stores, and
turns them into real-time useful key performance indicators
(KPIs) and data analytics. This capability has allowed our
customers to discover new revenue opportunities.

its own profitability measurement, ie, revenue after netting

off related direct selling costs. All these on just one screen
Here at Trax, we replicate the same functionality to
ourown customers, enabling our first-tier FMCG [fastmoving consumer goods] customers to trace their business
on heat territory maps.
As Traxs application software is cloud-based, customers
are able to share information and measure KPIs on a realtime basis with accuracy and ease globally which results
ina common communication platform and the promotion
of a technology-based work culture.
Q: Of the 10 technologies listed in ACCAs Digital
Darwinism report (see box, opposite), which has had
themost impact in what you do?
A: Business analytics technology has a direct impact on
what I do. Handling big data, which involves combining
unstructured social information,
structured operational data and
financials, has led to newforecasting
techniques that take into account
customer sentiment aboutpricing,
products, preferences and campaigns.
This cause-effect analysis requires
the unearthing of causes behind the
companys sales, costs and profits to create meaningful
budgets and rolling forecasts. Analytics help reveal insights
into the revenue and cost drivers.
Let me give you an example of how we used analytics
on data to give insights. Trax customers exist in different
territories with different time zones, and they all need
access to feedback on ground performance data on a realtime basis. To assess the efficiency of how we are using our
human resources, we used analytics to track the peak and
trough service periods. We also made a correlation between
the traffic, time of day and customer location.
With Australia being three hours ahead of Asia, the
service traffic builds to a peak during Asias morning and
Australias afternoon. The trough occurs in Asias afternoon
as Australia would have finished work by then.
The question was whether it would make sense to hire
additional headcount to handle the peak, but leave them
idleduring the trough. The cause and effect analytics on
time zones, traffic data and staff availability resulted in the
adoption of a practical solution that requires only the use

Technology creates a huge positive

impact on the financerole, as we escalate
from being reporting- to analytic-centric
Q: What impact has there been within the finance function?
A: Technology creates a huge positive impact on the
financerole, as we escalate strategically from being
reporting-centric to analytic-centric.
My role has evolved from traditional accounting to
one that now takes a more strategic direction, such as
the valuationof data assets, the use of both structured
and unstructured operational data for business analytics,
product pricing, revenue modelling, equity investment
funding and strategic planning.
Q: How has technology facilitated the processes involved
incarrying out the finance function?
A: Technology has helped to transform traditional reporting
documents into insightful, interactive and meaningful
reports for our shareholders.
For example, imagine using global heat maps to illustrate
where our customers are placed: when you click onto any
location it shows instantaneously what, how much and to
whom we sell to. Taking it a step further, each customer has

Accounting and Business

world congress of accountants | insight

37

WCOA
Top 10 technologies
The ACCA report, Digital Darwinism: thriving in the face of
technology change, lists the top 10 technologies with the potential
to significantly reshape the business and accountancy landscape:
1 Mobile
Anywhere, anytime access to broadband connectivity from
arange of devices, wireless networks, operating systems
andapplications.
2 Big data
The massive quantity and variety of structured and
unstructured data from internet-connected systems,
devices and physical objects.
3

Artificial intelligence androbotics

The broad range of machines and computer systems
that show limited characteristics of intelligence.
4 Cybersecurity
Protection from new forms of cyber-risk,
attack, crime and terrorism caused by
increased reliance on personal and data.
5 Educational
Trends and tools that are changing and
enhancing educational achievements,
developments, techniques and possibilities.
6 Cloud
Internet-based technology resources, such as
software applications, computing power and
data storage, provided remotely as a service.
7 Payment systems
New, evolving and emerging internet-enabled
software applications, currencies, payment
platforms, devices and services.
8 Virtual and augmented reality
Technologies that use computer modelling to
simulate, overlay and supplement reality, and
enable people to interact.

9 Digital service delivery

Technologies used to provide online, interactive, self
service, business processes, software and services.
10 Social
Technologies that support social interaction and
are enabled by communications technology,
suchas the internet.

Accounting and Business

38

insight | world congress of accountants

Technology has helped to transform

traditional reporting documents into
interactive and meaningful reports
enhancing reality

An image is pictured through 3D glasses at global visual

technology firm Christies 4K 3D technology projection screen
of existing headcount instead of hiring new staff. Basically
overlapping two shifts during the peak hours enabled the
company to trim its operational costs and capital spending.
Q: As a finance professional, what challenges do you
encounter in understanding and applying technology within
your role?
A: The challenge is to understand that business analytics
involve a spectrum of data that goes beyond financials to
include unstructured social media data, and structured data
from other operation legacy systems and sentiments.
In applying technology such as business analytics, it
is important to have a clear objective and the ability to
rationalise complex sets of data. Ask relevant questions so
that you can separate the wheat from the chaff, and focus on
information that counts rather than on information overload.

Accounting and Business

In addition, it is not just the

datathatwe have to analyse:
equallyimportant is our intuition
onthe behaviour, emotion and
sentiment of customers and
stakeholders.

Q: Which technology do you think will have the most

impactin the future?
A: The use of artificial intelligence (AI) via computers,
software and machinery for mundane accounting tasks
suchas compliance, verification, computational and
repetitive process-driven tasks is imminent, and has the
most immediate impact to finance.
AI produces accurate, cost-effective, consistent and
reliable results. This technology would transform finance
from an accounting role into a strategic role. To enable
finance to be effective in this strategic role, we need
to beequipped with knowledge of business, human,
neuroscience and strategic intelligence.
Q: How does one make the step change from yesterdays
finance professional to tomorrows (ie, from a narrow to
amore strategic role)?
A: As hardware and software get smarter through in-built,
quick-paced, self-learning processes, finance professionals
do not have the luxury to be complacent.

WORLD CONGRESS OF ACCOUNTANTS | INSIGHT

39

WCOA
DIGITAL DARWINISM
ACCAs report, Digital Darwinism: thriving in the
face of technology change, presents the top 10
technology trends that will have the potential to
significantly reshape the business and accountancy
landscape. It draws on extensive consultation with
experts in the fields of accountancy and technology,
academics, members of ACCAs Accountancy Futures
Academy and the wider membership of ACCA and
the Institute of Management Accountants (IMA).
Accountants and the finance function are part
of the connected world. This is changing the ways
in which they communicate with those in the
businesses they work with and for. Technology helps
them automate and de-skill time-consuming work,
and thereby focus on higher-value work, consolidating
their role as strategic business partners.
By keeping informed about technologies as
they evolve, considering new ones as they emerge,
and then assessing their implications for finance
professionals and those they serve and support,
accountants can be prepared to minimise the
burdens and maximise the benefits.

AI is not yet intelligent enough to replace (or equal)

the complexities of the human brain, as it has limitations
in cognitive development, learning through complex and
emotive experiences, and exercising creativity, randomness
and imagination.
Neuroscience training would enable us to sharpen our
mental capability, capacity, composure and creativity, giving
us head room before AI matures in development.
Q: To what extent will developments in technology
transform the way the finance function, and finance
professionals, operate in the future?
A: Todays modern finance professional is increasingly
viewed as an influencer, business analyst, catalyst and
strategist with a major role to play in strategy development
and overall business success. Underpinning all of this is
the effective application of technology.
We exist in a new era of mobile business intelligence.
At Trax, we regard the mobile device as a data-generation
and processing point, using location-specific images
to enrich information about buying habits, customers,
suppliers, products and sales personnel. From the
finance angle, mobile capability offers not only information
delivery but also enhances workflow and approvals
processes, such as enabling OCR scanning of receipts
and expenses with a mobile phone as part of modern
travel and expense management processes.

Q: How should finance professionals respond to changes

in order to ensure they and the finance function remain
relevant and instrumental in business strategy?
A: We should embrace technological advancement to
remain relevant in our profession, retain a strategic
business partnering role and add value to the business.
Let me give you an example of why technology is
important in the finance function.
I used Visual Business analytics software to process
structured and unstructured data drawn from the sales,
operation and accounting software for predictive analytics.
Real-time sales-pipeline information enables financial
revenue forecast to be reflective of the current sales
strategy undertaken on the ground.
Operations data on the recent rate of images
processed for respective customers facilitates the
educated computation of resource capacity, utilisation
rate and room for scalability.
Financial data provides the cost implications to support
the current scale of operations.
Analytics technology helped to collate information drawn
from all three sources, and turned the data into a predictive
analysis of new strategic revenue-growth opportunities and
areas for cost management. It also highlighted areas for
corrective actions.

*
*
*

Q: Why do technological advances matter in business?

A: Technology advances, particularly the internet,
have opened up access to different social networks,
and allowed businesses to operate in a world without
the limitation of geographical barriers. As a result,
businesses regardless of size are finding cost-effective
ways to place their products in the international market
and showcase their brands.
Technological advances provide businesses with new
capabilities to enhance their competitiveness globally, offer
opportunities to be more productive and lead to new ways
of securing finance. SMEs, in particular, are now enabled to
compete on an equal footing, even without deep pockets.
Q: What tips can you offer finance professionals who have
yet to fully embrace technology trends?
A: As Steve Jobs said: Stay hungry, stay foolish. I would
encourage fellow finance professionals to stay hungry for
knowledge, and stay foolish and humble to learn. Embrace
new technology, but retain your personality and human
touch, which cannot be fully replicated.
Build courage to overcome the fear of technology.
Interview by Colette Steckel of Accounting and Business
FOR MORE INFORMATION:

Download the Digital Darwinism report at

www.accaglobal.com/ab87

ACCOUNTING AND BUSINESS

40

insight | world congress of accounting educators and researchers

principle matters
The OECD is revising its Principles of Corporate Governance, which were previously
amended in 2004, and finetuning guidance for governments, regulators and organisations

ncouraging and maintaining high standards of

corporate governance in business remains a priority
as many economies continue their slow recovery
from the global financial crisis. As part of a drive to
address any shortcomings and adapt to new insights, the
Organisation for Economic Co-operation and Development
(OECD) is revising its Principles of Corporate Governance,
originally released in 1999 and previously amended in 2004.
The Principles are one of the 12 key standards for
international financial stability of the Financial Stability
Board. They provide guidance for policymakers, regulators
and market participants to improve the legal, institutional,
and regulatory framework that underpins corporate
governance with a focus on publicly traded companies,
says Vincent Tophoff, senior technical manager with the
Professional Accountants in Business Committee of the
International Federation of Accountants (IFAC). They also
provide practical suggestions for stock exchanges, investors,
corporations and other parties that have a role in the
process of developing good corporate governance.
According to the OECD, the 2004 Principles embrace
the shared understanding that a high level of transparency,
accountability, board oversight and respect for the rights
of shareholders and role of key stakeholders is part of
the foundation of a well-functioning corporate governance
system. As a result of the review, the OECD envisages
these core values being maintained and, as appropriate,
strengthened to reflect experiences since 2004. It wants to
ensure the continuing high quality, relevance and usefulness
of the Principles taking into account recent developments
in the corporate sector and capital markets. The outcome
should provide policy makers, regulators and other rulemaking bodies with a sound benchmark for establishing an
effective corporate governance framework. IFAC is actively
participating in the revision process through its membership
of the Business and Industry Advisory Committee (BIAC) to
the OECD. Tophoff is acting as the IFAC liaison, contributing
to the BIAC response and participating in person.
In IFACs view, [governances] ultimate objective is to
ensure the creation of sustainable organisational success
and stakeholder value. Governance in an organisation should,
therefore, be about more than a compliance exercise designed
with the sole purpose of satisfying regulatory requirements.
Instead, good governance affects the entire organisational
cycle of strategic planning, resource utilisation, value creation,

Accounting and Business

accountability and assurance. Such a holistic approach

ensures governance is not bolt-on but built-in integrated
into all aspects of an organisation, Tophoff says.
Given the Principles have been developed, issued and
are being revised by the OECD, which mainly consists of
representatives from governments and is primarily focused on
governments, Tophoff believes the OECD should continue to
focus primarily on what policymakers, regulators and market
participants (such as stock exchanges) could and should do to
further governance in their jurisdictions. In this context, scope
for improving the Principles does exist, Tophoff believes.

Target audience
There is confusion as to who the Principles are intended for,
according to Tophoff. For example, some of the discussion
is clearly directed toward governments and regulators, and
what they should be doing to create the appropriate overall
governance environments and framework in their jurisdiction,
while other discussion is more focused on what happens
within, and is in the control of, organisations, Tophoff explains.
However, an individual corporation that would pick up
a copy of these Principles would be confronted with two
challenges: first, many of the provisions are not directly
applicable to corporations themselves and, additionally,
implementing good governance in their organisation typically
consists of more than is dealt with here. To remedy this
potentially would require a major restructure of the Principles.
A quick solution would be to specifically designate these
Principles for governments and regulators, and modify the
title and the introduction of the document accordingly. It
could, he suggests, be renamed the OECD Principles on the
Enablement of Corporate Governance.
I also believe this would better emphasise the unique
selling point of these Principles: there are already many
other corporate governance codes specifically directed to
corporates themselves, but few or none specifically directed
to governments and regulators, Tophoff says.
Focusing on governments and regulators to enable good
governance, and less on what corporates should do would also
relieve the burden on the OECD to have to keep up with the
frequent developments in corporate governance areas such as
disclosure and transparency (section V), and responsibilities
of the board (section VI). Tophoff says: Instead, the Principles
could provide overall principles on how good governance looks
like, complemented with some high-level guidelines on what

world congress of accounting educators and researchers | insight

41

WCAER
Public sector governance
Many of IFACs comments on the OECDs revision of
the Principles were inspired by the recent publication
of the International Framework: Good Governance in
the Public Sector, jointly developed by IFAC and the
Chartered Institute of Public Finance and Accountancy.
The framework encourages better governed and
managed public-sector organisations by improving
decision making and the efficient use of resources.
Tophoff explains: The aim of this framework is
to encourage better service delivery and improved
accountability by establishing a benchmark for aspects
of good governance in the public sector. It is intended
to apply to all entities that comprise the public sector.
The framework is designed to be useful for all those
associated with governance: governing body members,
senior managers and those involved in scrutinising
the effectiveness of governance, including auditors. It
should also help the public to challenge substandard
governance in the public sector, though is not intended to
replace national and sectoral governance codes. Instead,
it is anticipated that those who set governance codes for
the public sector will refer to the International Framework
in updating and reviewing their own codes, he says.
Where codes and guidance do not exist, the guidance
will provide a powerful stimulus for positive action. The
real challenge for public-sector entities remains in the
implementation of such codes and frameworks, as it is
often their application that fails in practice.

specific jurisdictions should do to enable good governance in

these areas, leaving it to underlying governance codes which
would be my preference or to regulation to specifically
address governance for the individual corporates.
Tophoff sees corporate governance as a living organism
that evolves due to changes in both the environment and
stakeholders perceptions. Although one could argue that
some of the main Principles are timeless, their specific
application might change over time, he says. The text in
many parts of the application guidance no longer accurately
reflects good practice, he suggests, referring as an example to
the rapid developments in the area of risk management and
internal control. The OECD therefore has two options, Tophoff
believes: either to bring the text up to par and commit to a
rigorous schedule of frequent updating, or to migrate to a
higher level, more focused on desired outcomes and less on
detailed implementation guidance to achieve those outcomes.
The latter, preferred by IFAC, would increase the longevity of
the Principles, he believes. It would also be better matched
with the primary audience of policymakers, regulators, and
market participants, which should then draft the detailed
arrangements for the corporates within their constituency.

vincent
tophoff

Governances ultimate
objective is to ensure the
creation of sustainable
organisational success
and stakeholder value

Tophoff believes a revised set of Principles, supplemented

with national codes, will be key in ensuring the appropriate
implementation, application and oversight of governance
arrangements, by governments and individual organisations.

Meltdown aversion
Could another financial crisis be avoided by improving these
Principles? Tophoff thinks this would be too much to expect.
There will always be crises, he says, but better governance
arrangements could at least help in removing some of the
causes for crisis, lowering the likelihood of one, or changing
the nature, magnitude or duration of the consequences.
Accounting professionals have a key role to play in ensuring
the revised Principles achieve maximum impact. [Those] who
work in commerce, industry, financial services, education,
and the public and not-for-profit sectors are typically involved
in the planning, implementation, execution, evaluation and
improvement of governance in their organisations, Tophoff
notes. This puts [them] in an excellent position to ensure
integration of governance into an organisations very DNA.
Sarah Perrin, journalist

Accounting and Business

42

insight | world congress of accounting educators and researchers

delivering value

Stakeholders are demanding greater accountability from companies and so policy

makers and regulators must rise to the challenge by improving governance requirements

he ability of companies to create sustainable

value for their stakeholders is becoming complex
and challenging. Information is disseminated
instantaneously but risks still arise with great velocity
and force. Business technology evolves exponentially, making
multi-jurisdictional businesses the norm. Stakeholders are
becoming more active and demanding greater accountability
from companies. In order to sustain growth in corporate
performance, corporate boards need to become effective
in leading, directing and nurturing a culture of ethics and
responsible business management.
Policy makers are now focusing towards corporate
governance as a critical component in supporting boards
and management to navigate uncertainty and deliver longterm value to shareholders and stakeholders.
Global markets have learnt harsh lessons during the Asian
Financial Crisis of 1997 and the Global Financial Crisis of
2008. Poor corporate governance has been cited as a key
contributing factor in corporate collapses and large-scale
financial crises. In particular, concerns regarding the role of
the board, ethical values, boardroom diversity and skillsets,
independence, remuneration structures, risk governance
and integrity of financial statements were highlighted as
significant deficiencies.
As a result, regulators and policy makers often embark
on lessons learned to identify whether the existing corporate
governance landscape within their country is sufficient.
But knowing what and how much to prescribe/mandate
as opposed to deploying principles or better practice
guidelines to generate an improvement in levels of adoption
of corporate governance requirements is challenging. It is
a unique decision-making process within each country due
to political, economic, legal, social and cultural factors
influencing the content, nature and speed of change.
Given the diversity of approaches adopted by countries
in capturing corporate governance requirements, it is
difficult for key stakeholders such as regulators, directors,
practitioners and management to quickly and easily
identify the similarities and differences between country
requirements. This is particularly relevant for directors
sitting on multi-jurisdictional boards. ACCA Singapore
andKPMG in Singapore set out to undertake a study
to identify how countries specify and define corporate
governance requirements. Focused on capturing and
analysing the characteristics of corporate governance

Accounting and Business

requirements in terms of strength (enforceability),

breadth(number of instruments/requirements) and
depth(maturity of requirement), the studys objective
wastodraw out insights in the way countries have
approached developing their corporate governance
landscape. The ultimate aim is to improve awareness of
corporate governance requirements and help countries
continue to raise corporate governance standards.

Big picture
The study captured more than 1,700 corporate governance
requirements, contained in 106 instruments (such as
Companies Acts, Listing Rules, Codes and Guidelines),
across 25 countries globally. With a particular focus on
AsiaPacific compared to other regions, the study also
provides insights into the maturity of corporate governance
across key economic zones such as the Association of
Southeast Asian Nations (ASEAN) (which represents
approximately 9% of the worlds population and has a
combined nominal GDP of more than US$2.3 trillion)
and the BRICS nations (Brazil, Russia, India, China and
South Africa) (which represents approximately 43% of the
world population and has a combined nominal GDP of
approximately US$15.6 trillion).
The Organisation for Economic Cooperation and
Developments (OECD) Principles of Corporate Governance
2004 (first introduced in 1999) provided a solid platform for
raising awareness of key corporate governance principles.
Many countries, developing countries in particular,
haveleveraged on the OECD Principles in drawing up
principles-based corporate governance codes (CG Codes)
to build and enhance corporate governance standards
beyond the minimum basic legal requirements. However,
in recognition that the world of corporate governance has
changed in the past decade, the OECD has commenced
areview to validate the existing OECD Principles (see
pages40-41). The study used the OECD Principles as a
basealong with emerging better practices in corporate
governance to assist in identifying rates of adoption of
OECDPrinciples and better practices.
It is worthwhile noting that the world of corporate
governance requirements is complex, voluminous and
constantly changing. Since commencing this study in
2013,Australia, India, Russia and more recently the UK
havereleased revised corporate governance requirements.

world congress of accounting educators and researchers | insight

43

WCAER
Leading countries (in particular, the UK) continue to raise
the bar in corporate governance standards. Measuring board
diversity, increasing institutional investor stewardship, aligning
reward with sustained creation of value and increasing
transparency of risk governance and going concern matters
are key developments. Countries globally must continuously
review and assess the appropriateness of the instruments and
requirements within their corporate governance landscape to
drive the desired behaviours and outcomes.
The study has identified the following key findings:
CG Codes provide clarity but are not a one-stop shop for
CG requirements as additional requirements exist in other
instruments. The nature and interaction of instruments
within a countrys corporate governance landscape is not
always clear and takes time to analyse
External events (such as corporate collapses, financial
system crises and regulatory change) are a catalyst
for change in corporate governance requirements,
although some countries have not kept pace with
criticaldevelopments
Developed countries have more corporate governance
instruments in place (on average six instruments)
compared to developing countries (on average three).
While multiple instruments are helpful to reinforce and
clarify requirements, they can also lead to inconsistencies
in requirements, creating confusion for stakeholders
The most mature areas of corporate governance are those
that are embedded in the OECD Principles 2004 and that
have received widespread recognition as being critical
components of strong corporate governance frameworks
(including Audit Committee & Financial Integrity,
Remuneration Committee, director independence and the
role of the board)
The least mature areas of corporate governance are
those that have recently been found to enhance corporate
governance effectiveness and are not fully reflected
in OECD Principles (including board diversity, risk
governance and stakeholder engagement)
Economic development (associated with GDP per capita) is
linked to corporate governance maturity (with the corporate
governance requirements identified as the most mature
existing in UK, US, Singapore and Australia). India, Russia
and Malaysia have relatively mature corporate governance
requirements for developing countries. Given the growth
predictions and commitment to ASEAN coming together
as an economic community by 2015, ASEAN displays the
greatest divergence in corporate governance maturity levels
and requires commitment and support to improve and/or
better support current instruments/requirements.
While decisions to develop, define and enforce corporate
governance requirements within particular countries are
unique to the political, legal, economic, social and cultural
norms within each country and there is no one-size-fitsall, there is value in continuing to capture internationally
recognised standards of corporate governance.

*
*
*

*
*

Good timing
Revising the OECD Principles is timely and much needed.
TheASEAN Corporate Governance Scorecard (developed by
the ASEAN Capital Markets Forum and supported by the Asian
Development Bank) will also continue to raise awareness and
provide support to ASEAN nations in improving standards. The
key areas requiring more attention relate to risk governance,
board diversity, assurance, stakeholder engagement
(particularly institutional investor stewardship) and aligning
remuneration with risk, performance and going concern.
For corporate governance standards to adapt to changing
business environments, more awareness of requirements
must be shared, along with the lessons from each country,
geographic region and economic zone regarding their journey
to achieving their corporate governance landscape. Only then
can the future state be clearly assessed with a roadmap to
optimise the instruments used and requirements endorsed.
Irving Low, partner, head of risk consulting, KPMG in
Singapore. The ACCA/KPMG report, Balancing corporate
governance rules and flexibility: a study of requirements
across 25 markets willbe made available on the ACCA
website and also on KPMG in Singapores website

Accounting and Business

44

INSIGHT | CAREERS

Career boost
Talent doctor Rob Yeung reveals how effective networking practices can put more money
in the bank. Plus, planning for business trips, and the five biggest CV gaffes

TALENT DOCTOR: NETWORKING

How much networking have you done recently? Im
sure youve heard the importance of building a web of
relationships with colleagues across your organisation
as well as business associates in other organisations
too. Ive even written about the value of networking in
a past column in this publication.
But in my experience, many people treat the idea of
networking as something theyd like to do if only they had
the time. As a result, they dont get around to doing it.
Perhaps some data collected by business and
economics researchers Hans-Georg Wolff and Klaus
Moser may give you an incentive to do more of it. The
collaborators asked several hundred employees across
different organisations to complete a questionnaire
measuring their networking efforts. The diligent
investigators kept track of these employees for three years
and found that networking was significantly correlated
with salary growth. Putting it another way, employees who
networked more saw their salaries grow the fastest.
If that sounds enticing, you could try this exercise
which Ive introduced to many executives in both oneto-one coaching sessions and leadership development
workshops. Aim to set up at least one meeting a week
that has nothing to do with your current tasks or projects.
If you work within a large organisation, look at an
organisation chart and identify someone in a department
about which you know relatively little. Ask colleagues for
an introduction into that department or try using your
internal directories or intranet to find someones name.
Then approach the individual and explain that youd
like to understand more about what they do in that part
of the organisation. Ask for just 30 minutes of their time.
People may sometimes say no to your request, but often
will say yes. And that gives you an invaluable opportunity
to not only learn more about the activities within your
organisation but also meet a new contact.
Forging relationships with new people is clearly an
important part of networking, but I also recommend
spending roughly two to three times as long maintaining
the relationships you already have. Why?
The study by Wolff and Moser found that maintaining
contacts was a bigger predictor of salary growth than
making new contacts. The researchers warn: A strong
focus on building contacts may lead to many superficial
contacts, but may prevent individuals from establishing
relations with a minimum amount of trust that is
necessary to obtain resources from these contacts.
In other words, having many shallow relationships
may be of little use. So delve regularly into your address

ACCOUNTING AND BUSINESS

book to catch up with lapsed contacts, too. Prepare

some open-ended questions beforehand to make sure
that conversations flow easily. What are they currently
working on? What are their goals and aspirations over the
coming months? And what problems or issues are they
dealing with that you or someone you know might be
able to help them with?
Think of networking as an opportunity to hear
industry news, gain fresh perspectives, learn about new
tools and understand the bigger issues going on around
you. And incidentally, you may earn more, too.
Dr Rob Yeung is a psychologist at leadership consulting
firm Talentspace and the author of more than 20 career
and management books, including How To Win: The
Argument, the Pitch, the Job, the Race. He also appears
as a business commentator on BBC, CNBC and CNN news
FOR MORE INFORMATION:

www.talentspace.co.uk
@robyeung

CAREERS | INSIGHT

45

THE PERFECT: BUSINESS TRIP

Business travel, for the uninitiated, is a career milestone, a
signifier of seniority, importance, success! Yet the reality is that it
is a short-lived novelty that can quickly become a curse, breaking
the will of the well intentioned and seeding career disillusion.
There are highly uninspiring YouTube videos that teach how to
dress on a trip and even how to pack a bag (phew!). Then there are
the amateurish public service videos from Luxembourg that portray
a film noir world of corporate espionage, replete with travelling
dupes and spies be afraid business people, be very afraid
Luxembourg is mildly threatening.
Coming to the rescue is technology. The future of business travel
will be streamlined by mobile apps that smooth the A to Z of your
trip. Apps will alert you when its time to leave and plan the trip to
the airport; they will fast-track your check-in and boarding; they will
automatically add the food you eat on trips to your expense report;
and they will programme your hire cars with your favourite radio
stations. Your hotel rooms will open at the behest of your phone,
while taxis tracking the device will be waiting for you at the airport
or a hotel lobby. You will, though, still have to pack your own bag.

THE BIG BREAK: SUSAN BYRON ACCA

Susan Byron got her finance grounding in small and
mid-tier practices, before moving into industry and
taking financial controller, analyst and management
appointments with eye-watering budgets in companies
such as Zurich and Vodafone, and all in under a decade.
It was in these later roles that I really grew in
confidence, says Byron. Sometimes, you just have to
be thrown in at the deep end to know you can do it.
Developing that confidence was the turning point; your
role and perceptions move from those of an accountant
to those of a business professional.
However, she still takes pleasure in a core accounting
skill: There are moments of real satisfaction when
significant cost savings have been made, or youve ironed
out a problem in the management accounts, she says.
Im also proud of having 100% first-time passes, and
high marks in most ACCA papers, especially as I was
doing up to six exams a year.

DIG YOUR DATA

A survey by Robert Half in

Canada found that 63% of
CFOs think that expertise
in business analytics is a
requirement for accounting
and finance staff.
The ability to translate
key data trends to provide
fact-based insights is now
an essential skill expected
of the industry, said David
King, Canadian president of
Robert Half Management

Resources. Financial teams

are increasingly relied upon
to translate the numbers
into actionable information
for organisational decisionmaking. This demand
will only accelerate as
companies tap into greater
volumes of information.

CV BY GOOGLE

Google HR chief Laszlo Bock

has been penning CV blogs
for LinkedIn.

Her tips on work-life balance

Hobbies should be genuinely diverting, so you dont

* think
back to work on the weekends. Ive found rock

climbing, painting and

running great options.
Remember that your time
in work is worth a lot, so
make the most of it and
dont let things of little
importance consume
time unnecessarily.
Plan ahead for what
you want your next role
to be. There may be
secondments, people you
can talk to or training
opportunities that will
help make it happen.

His first listed the five

biggest mistakes he had
found on CVs, and this is by
a man who has, believably,
personally reviewed over
20,000, so listen and learn:
Typos. Obvious but also
very common no excuse,
no typos.
Length. Make it no
more than two pages,
with punchy, prioritised
achievements.
Formatting. Keep it simple

*
*
*

10pt font, half-inch

margins, white paper,
black ink.
Confidentiality. Dont give
away employer secrets
Lies. Dont tell any you
will get found out.

*
*

This page is compiled and

edited by Neil Johnson
FOR MORE INFORMATION:

www.accacareers.com

ACCOUNTING AND BUSINESS

46

insight | management and strategy

CPD

Ready to split?
In the last of his series on international business, Tony Grundy
looks at the options available for the divestment of a business
Many years ago I wrote
a digest for accountants
called Breaking up is
hard to do. In many ways,
breakups are as hard for
businesses to execute as
they are for people. They
are emotional affairs and
need managing not just at a
strategic and financial level,
but also at a political and
emotional level too.

particularly hard as it was

Bransons first business.
One of his first signings
to Virgin was the punk
band Sex Pistols, who he
heard playing in a club. He
immediately tried to sign
them but they were already
on EMIs books. Fortuitously,
they then appeared on a TV
news programme hosted by
a namesake of mine, Bill

Virgin Group, more or less,

was born.
It must have been like
tearing his own heart out
selling that business. But
Branson is famous not
onlyfor his passion for
starting new businesses
butalso for his dispassion
when it comes to selling
old ones nearing the end
of their shelf life.

we got the punk

Signing the notorious Sex Pistols in 1977 took Virgin Records

in at the punk ground floor, and Richard Branson sold the
label 15 years later for a reported US$1bn

So who, if anyone, has

been good at divestment?
Richard Branson, for one. He
split off and sold his music
business Virgin Records as
well as Virgin Megastore. In
both cases, his timing was
impeccable particularly
with Virgin Records, an
exit which must have been

Accounting and Business

Grundy. The interview ended

in a flurry of expletives
when Bill became overly
forward with one of their
entourage, punk musician
Siouxsie Sioux; soon after,
EMI dropped the band and,
after a brief stint with A&M
Records, they finally signed
up with Branson. And so

Before divesting, you

should take these steps:
Do a portfolio analysis
of the business and
identify possible
candidates for disposal.
Consider what the
options might be for
turnaround with a
cunning plan.

*
*

Get verifiable CPD units

by answering questions
on this article at:
www.accaglobal.com/abcpd

onsider the disposal

* Coptions.
valuate all these
* Eoptions.

Portfolio analysis
To analyse the business,
it is useful to split it up
into different business
units. Each of these can
be analysed according
to its inherent market
attractiveness and
competitive position.
Inherent market
attractiveness is
a combination of
environmental analysis
ie the PEST (political,
economic, social and
technological) factors plus
market growth drivers and
the competitive forces of
buyer power, entry barriers,
substitutes, rivalry and
supplier power.
Competitive position
requires you to think about
areas such as relative
market share, brand
awareness, customer
service, perceived value
for money, relative cost
structure, innovation, skills
and systems.
These two dimensions
can be represented on a
simple three-by-three matrix
known as the GE grid
(after General Electric), with
market attractiveness on
the vertical axis and relative
competitive position on the
horizontal. Any business
in the most extreme
quadrant of low market
attractiveness and weak
relative competitive position
is an obvious candidate for
divestment.
In addition, you might
pinpoint candidates that
have a strong competitive

management and strategy | insight

position but where the

market attractiveness is
about to head south on the
grid ie where the market
attractiveness may well
decline over the next few
years, but this may not be
so evident at that point to
abuyer of the business.
Finally, businesses
that are strong on both
market attractiveness and
competitive position might
attract a large premium.

Turnaround options
Where a business is in poor
shape, then you should still
spend at least some time
seeing what possible steps

such as volumes, pricing,

margins, member acquisition
costs, costs of member
attrition and operating costs
per member?
I also challenged the
cost base on the grounds
that at the health club I was
a member of, I found that
the staff could sometimes
get in the way and stop
me from having a great
experience. I suggested that
he consider getting rid of
almost all the staff. This
and his thoughts on using
lower price to leverage much
higher volumes became
further ingredients of a very
different business model.

a single option to turn it

around; they appeared
depressed, dispirited and to
have given up a big part
of the problem. It was losing
so much that the solution
was a no-brainer.
As the cost of closure
wasnt that enormous I
challenged the group CEO
and FD: I will bet that the
payback period on closure
is 12 to 18 months. I
also bet that you are too
embarrassed to admit this
venture was a mistake. Just
tell the shareholders you
have done a strategic review
and you are now boldly and
in a mature way biting the

Your goal is to maximise the premium

relative to your own uplifted plans rather than
current share price or steady-state projections
can be taken before casting
the business into new
ownership. Not only may
this preliminary exercise
suggest that disposal is
not actually necessary but
it will also strengthen your
bargaining power in getting
a good price for it. The more
options that you have, the
more bargaining power you
will have.
One example of this was
when a friend of mine was
CEO of a chain of health
clubs. One of his clubs was
located in Bristol. It had
negative earnings before
interest, tax, depreciation
and amortisation, and
while it was not a very
big cashflow drain it was
something of a sore. We
gottalking about Bristol and
he said that he was thinking
of selling it.
But John, I said, its
not like you to admit defeat.
What possible different
business models might save
the business? What could be
done if you started playing
with the key value drivers,

Bristol became a big

success and John was able
to replicate that model
initially in new sites, then
by franchise and finally by
rebranding his old clubs
andtransforming his
business model, which is
now copied by others.
An interesting story?
Yes, as without those ideas
being generated and then
evaluated on a napkin, that
business might not be with
us today.
Turnaround might not
always come off, but it is
worthwhile trying first by
looking at the business from
fresh and novel perspectives.
Sometimes a business
is in such a poor shape
that it is simply unrealistic
to conceive of aviable
disposal, let alone a sale.
I once had as a client
a distributor of electronic
games that was losing more
than 10% of its turnover. On
the GE grid we positioned
it in the worst cell. The
incumbent management
could not come up with

bullet. The business was

subsequently closed.

Disposal strategies
The next step is to think of
disposal strategies. These
break down into what to
dispose of, how, to whom
and when.
There is a huge variety
of variables to explore here.
For instance, you might
dispose of all or part of the
business, especially where
there are brands different
brands may be worth more
to different buyers.
Alternatively, you might
look at a trade sale, disposal
to a private equity company
or flotation. While disposals
are often associated with a
weaker business (one in a
poorer position on the GE
grid), this is not necessarily
the case and you may have

47

one that is simply worth

more to another corporate
buyer. When Virgin sold its
music business, this was
probably in the very best
and top cell of the grid.
If a trade sale is
contemplated, you would
identify the different type of
buyer and assess the kind
of value the business might
bring to them, then model
that through economic value
analysis, as covered in my
second series of articles.
Also develop your own
strategic plan and put
a similar value on that;
you can then argue that
much of the value another
owner could harvest would
come out anyway in your
business plan. Your goal is
to maximise the premium
relative to your own uplifted
plans rather than current
share price or steady-state
projections.

Option evaluation
In the very last stage of
the four-step divestment
process, you list the
options and sub-options
for turnaround, closure
and disposal. Split the
sub-options between, for
example, who to sell to and
how, and then evaluate on
the basis of:
strategic attractiveness
financial attractiveness
implementation difficulty
uncertainty and risk
stakeholder acceptability.
Follow these steps faithfully,
and you may find yourself
in Bransons league when it
comes to divestments.

*
*
*
*
*

Dr Tony Grundy is an
independent consultant
and trainer, and lectures at
Henley Business School
For more information:

www.tonygrundy.com
For previous Tony Grundy articles on strategy and
management theories, visit www.accaglobal.com/abcpd

Accounting and Business

48

INSIGHT | MANAGEMENT AND STRATEGY

Roll model

In this latest article on rolling planning,

David Parmenter finishes the foundation work

The one sure thing about

annual planning is that
it will be wrong its
underlying assumptions
have been flawed since Luca
Pacioli invented doubleentry bookkeeping in 1494.
This article completes
my look at the foundation
stones of rolling planning,
a more useful alternative.

outset that its stretch target

might not be achievable with
existing resources. Bonuses
would not be pegged against
the lowered threshold.
Early communication
of the performance gap
enables the board to think
strategically about how to
close the gap.

Be realistic

Rolling planning should

involve budget-holders in
updates four times a year.
The goal is for them to buy
into the targets they will
report against and accept
the new funding level.
Monthly forecasting is too
costly and creates number
noise. The benefits are only
worth the effort if there
are large fluctuations in the
major drivers an airline,
for example, would adjust
monthly for passenger
numbers and fuel costs.
All budget holders should
be able to enter data into
the planning tool (last
months article explains why
Excel is not appropriate).
Training and adequate
support from the in-house
forecaster experts is needed,
and you should have
sufficient licences for budget
holders to enter data during
a two/three-day window.

It is vital to generate realistic

forecasts rather than what
the board wants to hear. The
board might want a 20%
growth in net profit, yet
management might think
only 10% is achievable with
existing products, customers
and capacity constraints.
If the forecasting team
reports what the board
wants to hear, the graph
below shows what happens:
only in the final quarter does
the truth become clear, with
a year-end performance
below expectations. The
annual plan, prepared in
March for the year-start in
July, matches the stretch
target and subsequent
forecasts in June, September
and December to keep up
the charade. In reality, the
truth was always a shortfall.
Better practice is for
the board to accept at the

A quarterly process

HIDING THE PERFORMANCE GAP

Revenue

Target
Truth
Jun

Sep

ACCOUNTING AND BUSINESS

Dec

Mar

Involving the workplace crowd in your planning and

forecasting process can have a big positive impact

NEXT STEPS
1 Draw up a forecasting and planning protocol based
on the foundation stones covered in these articles.
2 Read Delusions of success how optimism
undermines executives decisions in Harvard Business
Review, July 2003.
3 Access my website at www.davidparmenter.com for
more useful information.
4 Email me at [email protected] for details
of how to do a quarterly update in five days.
5 Use the wisdom of the crowd to forecast revenue.

Wisdom of the crowd

Involving a crowd in
forecasting revenue can have
a major positive impact on
the process:
A great deal of trend
information unsold
products piling up,
products being returned,
customer feedback is
noted in the workplace.
Groups are less
motivated to forecast
what management
wants to see.
A small group of
forecasters can process
only a tiny fraction of
the information available,
whereas a crowd can take

Annual plan reforecast

Mar

STRENGTH IN NUMBERS

in an almost unlimited
harvest of data.
Experts tend to have an
optimism bias.

Other stones to lay

The forecasting model should
be built in-house, the forecast
should go beyond year-end,
monthly targets should be
set only a quarter ahead, and
the forecast should be based
around key drivers and built
in a planning application
not in a spreadsheet.
David Parmenter is a
writer and presenter on
measuring, monitoring and
managing performance

FINANCIAL INSTRUMENTS | TECHNICAL

CPD

Get verifiable CPD units

by answering questions
on this article at:
www.accaglobal.com/abcpd

In July, the International

Accounting Standards
Board (IASB) completed its
response to the financial
crisis by issuing the final
version of IFRS 9, Financial
Instruments. IFRS 9 sets out
a model for classification
and measurement, an
expected loss impairment
model and a transformed
approach to hedge
accounting. The IASB had
previously issued versions
of IFRS 9 that introduced
new classification and
measurement requirements
in 2009 and 2010 and
a new hedge accounting
model in 2013.
The latest publication
consolidates the previous
versions of the standard,
and replaces IAS 39,
Financial Instruments:
Recognition and Measurement.
It also changes some of
the requirements of the
previous publications. IFRS
9 is effective for annual
periods beginning on or
after 1 January 2018.
Classification determines
how financial assets and
financial liabilities are
accounted for and measured
in financial statements. The
requirements for impairment
and hedge accounting are
based upon the instruments
classification.
The standard introduces
a principle-based system
for the classification and
measurement of financial
assets, which depends upon
the entitys business model
for managing the financial
asset and the financial
assets contractual cashflow
characteristics.
IFRS 9 utilises a single
classification approach

49

IFRS 9 the final version

Putting the IFRS 9 requirements which will affect all sectors, but
mostly banks into practice will be a challenge, says Graham Holt

IFRS 9 UTILISES A SINGLE CLASSIFICATION APPROACH

FOR ALL TYPES OF FINANCIAL ASSETS, WHICH INCLUDES
THOSE THAT CONTAIN EMBEDDED DERIVATIVE FEATURES
for all types of financial
assets, which includes those
that contain embedded
derivative features. Financial
assets are now not subject
to complicated bifurcation
requirements.
The business model
approach refers to how an
entity manages its financial
assets in order to generate
cashflows either by collecting
contractual cashflows,
selling financial assets or
both. Financial assets are
measured at amortised cost,
where the business models
objective is to hold assets in
order to collect contractual
cashflows. The new standard
clarifies the existing
guidance on the collection
of the assets contractual
cashflows. When determining
the applicability of this

business model, an entity

should consider past and
future sales information.
If an entity holds financial
assets for sale, then it will fail
the business model test for
accounting for the financial
assets at amortised cost.
However, sales activity is
not necessarily inconsistent
with the business model
if they are infrequent and
insignificant in value but,
where these sales are
frequent and significant
in value, an entity needs
to assess whether such
sales are consistent with
an objective of collecting
contractual cashflows.
The sales may be
consistent with that objective
if they are made close to
the maturity of the financial
assets and the proceeds from

the sales approximate the

collection of the remaining
contractual cashflows.
For many entities, the
assessment will be relatively
straightforward, as their
financial assets may be
simply trade receivables and
bank deposits for which the
amortised cost criteria are
likely to be met. For those
entities with a broader range
of financial assets such as
investors in debt securities,
and insurance companies,
the motivations behind the
disposal of the assets will
have to be considered.
IFRS 9 includes a new
measurement category
whereby financial assets
are measured at fair value
through other comprehensive
income (FVTOCI).
This category is used

ACCOUNTING AND BUSINESS

50

TECHNICAL | FINANCIAL INSTRUMENTS

when financial assets are held

in a business model whose
objective is both collecting
contractual cashflows and
selling financial assets.
Unlike the available-for-sale
criteria in IAS 39, the criteria
for measuring at FVTOCI are
based on the financial assets
cashflow characteristics and
the entitys business model.
This business model will
involve a greater frequency
and volume of sales with
the possible objectives
of managing liquidity or
matching the duration of
financial liabilities to the
duration of the assets they
are funding.
This category was
introduced because of the
concerns raised by preparers
who sold financial assets
in greater volume than was
consistent with the previous
business model and would,
without this category, have
to record such assets at fair

includes consideration for the

time value of money, credit
risk, liquidity risk, a profit
margin and consideration
for costs associated with
holding the financial asset
over time such as servicing
costs. Thus if the contractual
arrangement includes a
return for equity price
risk, then this would be
inconsistent with SPPI.
IFRS 9 introduces
guidance on how the
contractual cashflows
characteristics assessment
applies to debt instruments
that may contain a modified
time value element; for
example, those instruments
that may contain a variable
interest rate.
These characteristics will
result in an instrument failing
the contractual cashflow
characteristics test if the
resulting undiscounted
contractual cashflows could
be significantly different

residual category. Also

included in this category
are financial assets that are
held for trading and those
managed on a fair-value
basis. Financial assets are
reclassified when the entitys
business model for managing
them changes. This is not
expected to occur frequently
and it ensures that users
of financial statements are
provided with information on
the realisation of cashflows.
IAS 39 was felt to
work well as regards the
accounting for financial
liabilities; therefore the
IASB felt there was
little need for change.
Thus most financial
liabilities will continue
to be measured at
amortised cost. IAS 39
also permitted entities
to elect to measure
financial liabilities at fair
value through profit or loss
(fair-value option).

FOR CONTRACTUAL CASHFLOWS TO BE SPPI, THEY

MUST INCLUDE RETURNS THAT ARE CONSISTENT WITH
THE RETURN ON A BASIC LENDING ARRANGEMENT
value through profit or loss.
(FVTPL).
Financial assets may
qualify for amortised cost
or FVOCI only if they give
rise to solely payments
of principal and interest
(SPPI) under the contractual
cashflows characteristics
test. Many instruments
have features that are
not in line with the SPPI
condition. IFRS 9 makes it
clear that such features are
disregarded if they are nongenuine or de minimis.
IFRS 9 now provides
more guidance on SPPI. For
contractual cashflows to
be SPPI, they must include
returns that are consistent
with the return on a basic
lending arrangement to
the holder, which generally

ACCOUNTING AND BUSINESS

from the undiscounted

cashflows of a benchmark
instrument that does not
have such features.
Interest rates set by a
government or a regulatory
authority are accepted as a
proxy for the consideration
for the time value of money
if those rates provide
consideration that is
broadly consistent with
consideration for the passage
of time. Such cashflows
are considered SPPI as long
as they do not introduce
risk or volatility, which is
inconsistent with a basic
lending arrangement.
Any financial assets
not held in one of the two
business models above
are measured at FVTPL,
which is essentially a

The changes introduced

by IFRS 9 are restricted to
those liabilities designated
at FVTPL using the fair-value
option. Fair-value changes
of these financial liabilities
are presented in other
comprehensive income to
the extent that they are
attributable to the change
in the entitys own credit
risk. If this would cause an
accounting mismatch, then
the total fair-value change is
presented in profit or loss.
This change is designed
to eliminate volatility in
profit or loss caused by
changes in the credit risk
of financial liabilities that
an entity has elected to
measure at fair value.
IFRS 9 introduces an
impairment model for

CPD

Get verifiable CPD units

by answering questions
on this article at:
www.accaglobal.com/abcpd

financial assets that is based

on expected losses rather
than incurred losses. It
applies to amortised-cost
financial assets and those
categorised as FVTOCI. It
also applies to certain loan
commitments, financial
guarantees, lease receivables
and contract assets. An
entity recognises expected
credit losses at all times and
updates the assessment at
each reporting date to reflect
any changes in the credit
risk. It is no longer necessary
for there to be a trigger
event for credit losses to be
recognised and the same
impairment model is used
for all financial instruments
that are impairment tested.
Other than purchased or
originated credit-impaired
financial assets, IFRS 9
requires entities to measure
expected credit losses by
recognising a loss allowance
equal to either:
A 12-month expected credit
losses. This measurement

FINANCIAL INSTRUMENTS | TECHNICAL

is required if the credit

risk is low at the reporting
date or the credit risk has
not increased significantly
since initial recognition.
B Full lifetime expected
credit losses. This
measurement is required
if the credit risk has
risen significantly since
recognition and the
resulting credit quality
is not considered to
be low credit risk.
Entities can elect for
an accounting policy of
always recognising full
lifetime expected losses
for contract assets,
trade receivables, and
lease receivables. When
measuring expected credit
losses, an entity should
consider the probabilityweighted outcome, the
time value of money
and information that is
available without undue
cost or effort.
IFRS 9 introduces a
reformed model for hedge

accounting with enhanced

disclosures about risk
management activity.
Under IFRS 9, a hedging
relationship qualifies for
hedge accounting only if all
of these criteria are met:
the hedging relationship
consists only of eligible
hedging instruments and
eligible hedged items
at its inception there is
formal designation and
documentation of the
hedging relationship
and the entitys risk
management objective
and strategy for
undertaking the hedge
the relationship meets all
of the hedge effectiveness
requirements.
The hedge relationship
must meet the effectiveness
criteria at the beginning
of each hedged period to
qualify for hedge accounting:
there is an economic
relationship between
the hedged item and the
hedging instrument

*
*

51

the effect of credit risk

* does
not dominate the
value changes that result
from that relationship
the hedge ratio of the
hedging relationship is
the same as that used in
the economic hedge.
IFRS 9 will affect all sectors
through the introduction of
an expected loss model for
loan loss provisioning, but
will impact mostly on banks.
It should give investors
better insight into the credit
quality of all financial
assets. Putting the new
requirements into practice by
the effective date, however,
will be quite a challenge.

Graham Holt is director of

professional studies at the
accounting, finance and
economics department at
Manchester Metropolitan
University Business School
FOR MORE INFORMATION:

www.ifrs.org

ACCOUNTING AND BUSINESS

52

Technical | IFRS

IFRS under the EU microscope

IFRS in the EU has been difficult to introduce and still faces challenges, but the benefits
are already numerous, delegates told a recent ACCA conference held in Brussels
International Financial
Reporting Standards (IFRS)
are not perfect, but their
benefits to the European
Union (EU) have outweighed
their costs, according to a
recent ACCA event held at
the European Parliament.
The European Commission
(EC) is carrying out its first
public consultation on the
impact of IFRS in the EU,
and was seeking formal
comments by 31 October,
helping it generate policy
proposals by the end of this
year. The EC plans to send
its assessment of the EUs
IAS (International Accounting
Standards) Regulation
1606/2002 to the EU
Council of Ministers and the
European Parliament.
Melanie McLaren,
executive director of
codes and standards at

Accounting and Business

the UK-based Financial

Reporting Council (FRC)
went as far as saying:
IFRS has been much more
successful than Esperanto.
She explained: We can
all speak to each other in
a common [accounting]
language, she said. McLaren
mentioned how, in Britain,
where IFRS is optional for
private companies, many
opt for IFRS as it makes
them attractive for outside
investment. They see there
is a value in using that as a
system, she said.
Under the IAS regulation,
unlisted businesses
(including most small
businesses) do not have to
report consolidated accounts
using IFRS, but can use
national reporting standards.
But Claes Norberg,
representing enterprise

group BusinessEurope,
said IFRSimproves
competitiveness in the
EUeven for smaller
players: If we look at
our companies, there
is a big benefit to be
derived from using IFRS,
said Norberg, citing
increased transparency
andcomparability.
Indeed, for all sizes of
business, IFRS accounts
are your best presentation
letter, said Ricardo
Sanchez, the European
Banking Federations
(EBF) representative on
the ECs IAS expert group.
And regarding non-listed,
largeinsurance [companies]
and large banks, he added,
I cant see why they
would not be interested in
presenting their accounts
under IFRS.

Greater harmonisation
Mark Vaessen, chair of the
corporate reporting policy
group at the Brussels-based
Federation of European
Accountants (FEE), argued
IFRS has forced common
improvements in financial
reporting. Furthermore,
national reporting systems
are becoming truly
harmonised: I have also
noted over the last 10
years [that] the dialects
arefading.
He noted the most serious
inconsistencies between
EU member states are in
enforcement of IFRS, but
new guidelines from EU
agencies are improving
matters. For instance, the
European Securities and
Markets Authority (ESMA) is
doing a whole load of useful
actions. But firm action by

IFRS | TECHNICAL

regulators is still needed: We

have to realise ESMAs role is
as a coordinator.
However, Sanchez would
like to see changes to the
scope of IFRS in the EU.
Right now, optionality lies
with member states, he
lamented, highlighting the
ability of member states to
choose which companies
should use IFRS, and
even require large listed
companies to log individual
accounts in national
GAAP (generally accepted
accounting principles). For
instance Germany, Austria,
Finland and others take this
approach. On the other hand,
Cyprus insists all companies
use IFRS and some other
member states insist
private banks and financial
institutions use it.

Law reform
Theodor Dumitru Stolojan,
the centre-right Romanian
member of the European
Parliament who hosted the
meeting, called on the EC,
following its review that
focuses on the expense of
IFRS, to also look at whether
reforms could be made to
how the EUs IFRS rules
are structured.
But after chairing the
panel, head of corporate
reporting at ACCA Richard
Martin said the conference
did not identify significant
reasons to change the
regulation, either in terms
of which companies are
forced to use IFRS or the
endorsement process for
new IAS. He said there were
already important changes
to IFRS in the pipeline,
which were moving in the
right direction.
Didier Millerot, head
of financial reporting
and accounting at the
ECs directorate-general
of internal market and
services, said the IFRS
regulation should be
initially assessed on how it

had delivered results. The

consultation would show
whether IFRS had increased
the transparency of major
EU companies financial
statements and made them
more attractive to EU and
international investors.
Millerot said experts
would help the EC assess
the cost and benefits of
IFRS for companies, and
while the consultation
would yield ideas for future
improvements, Brussels

board, but he does not

think the EC will ask the
International Accounting
Standards Board (IASB)
to change IFRS to better
suit the EU following the
consultation. It is hard to
envision a situation where
the EC makes any blanket
demands that force the IASB
to yield especially as the
IFRS adoption has increased
significantly globally since
2005 even without the US
adopting IFRS, he said.

53

reporting is holding down

costs. We have to clearly
identify what [are] highquality standards and what
[is] high-quality financial
reporting, he said, but
their value depends on the
importance management
places on financial reporting:
If they are just doing the
bare minimum, this is a
cost-benefit decision for
companies to make regarding
the value of IFRS, he said.
Speaking after the event,

IFRS HAS BEEN MUCH MORE SUCCESSFUL THAN

ESPERANTO. WE CAN ALL SPEAK TO EACH OTHER IN
A COMMON [ACCOUNTING] LANGUAGE
would not necessarily table
fresh legislation: It is too
early to draw any conclusions
about whether there is a need
to change the law or not.
Speaking after the
conference, an Australian
accountant based in
Brussels, Peter Jansen van
Galen, said he hoped that
the US would move towards
IFRS, possibly through the
Transatlantic Trade and
Investment Partnership
(TTIP) negotiations.
IFRS has already made
a difference in easing
crossborder reporting in
Europe, he said. Even for
smaller businesses, there is
very little difference between
Belgian GAAP figures
and IFRS, for instance.
This makes it easier for
reporting in head offices.
The consolidation of groups
has been eased throughout
Europe, and companies
within the EU are increasingly
less likely to have accounts in
both local GAAP and IFRS.
Vincent Papa, director
of financial reporting policy
at the CFA Institute of
investment professionals,
noted that it was indeed
a missed opportunity
that the US is not on

Extra procedures
Papa believes the IASB
must cater to the needs
of jurisdictions that are
now adopting IFRS, along
with prospective adopters,
notwithstanding the
importance of the EU as a
key constituency. For him,
the big question is whether
the consultation will lead
to additional consultation
procedures at EU level over
proposed new IFRS.
When it comes to
investors, Papa believes that
while robust consultations
at national grassroots levels
are useful to test the utility
of reporting standards,
he would not welcome
additional inefficiencies.
In his opinion, standards
already take too long before
finalisation and additional
comments on proposed
new standards might
actually cause confusion.
It remains unclear whether
the potential reforms will be
primarily aimed at enhancing
transparency for European
investors and whether
European investor voices will
be strengthened, he said.
Sanchez added another
key challenge to maintaining
high-quality financial

Olivier Boutellis-Taft, CEO of

the FEE, argued accounting
costs are still generated
more by local regulation
rather than IFRS. BoutellisTaft welcomed the ECs
consultation, saying impact
assessment helps industry
players and experts identify
unforeseen challenges
and consequences.
But, he added, this
evaluation should be
objective and independent.
The IFRS debate should
not be hijacked to pursue
objectives that are not related
to improving transparency
and quality of companies
financial information.
For Boutellis-Taft,
feedback from the
consultation should be
interpreted with caution.
He feared the risk of overrepresentation of unhappy
customers, which he hoped
would not lead to frustrating
the silent majority.
Mabh McMahon, journalist
based in Brussels
FOR MORE INFORMATION:

IFRS and the EU single

market: tinyurl.com/
IFRS-single-market

ACCOUNTING AND BUSINESS

54

Technical | Update

Technical update
A monthly round-up of the latest developments in financial reporting, audit, taxation and
legislation from the IASB, the European Union, the OECD and elsewhere
RUSSIA
heavier SANCTIONS

The European Union has

tightened its financial
sanctions on Russia because
of Moscows role in the
Ukraine crisis.
Under the new rules, EU
nationals and companies
may no longer provide loans
to five major Russian stateowned banks: Sberbank,
VTB Bank, Gazprombank,
Vnesheconombank (VEB)
and the Russian Agriculture
Bank (Rosselkhozbank).
EU companies and
citizens have also been
banned from making trades
in new bonds, equity or
similar financial instruments
with a maturity exceeding
30 days, issued by the
same banks. The provision
of services linked to these
instruments brokering,
for instance has also been
banned.
For more information,
visit tinyurl.com/russia-eu

OECD
GLOBAL TAX AVOIDANCE

The first detailed reforms

designed to create a global
set of tax rules that will
prevent multinational
companies shifting profits
to low-tax jurisdictions to
avoid paying tax have been
released by the Organisation
for Economic Cooperation
and Development.
The OECD has been
working with the G20 group
of nations under the OECD/
G20 Base Erosion and Profit
Shifting (BEPS) project to
coordinate its response.
The project has come up
with detailed plans to design

Accounting and Business

new international standards

to ensure corporate
income taxation coheres
through rules to neutralise
hybrid mismatched tax
arrangements.
Also, there are plans
to prevent the abuse of
bilateral tax treaties through
double non-taxation and to
ensure that transfer pricing
outcomes in intangibles
match value creation.
There is an initiative to
improve transfer pricing
documentation and to create
a template for countryby-country reporting, and
another to create rules that
address the tax challenges
of the digital economy.
The BEPS reforms
include assessing
the development of a
multilateral instrument to
amend bilateral tax treaties.
More information at
tinyurl.com/oecd-g20

EUROPEAN UNION
FINANCIAL SERVICES
COMMISSIONER

The UKs Lord Hill has been

confirmed as European
Union commissioner for
financial stability, financial
services and capital
marketsunion for the next
five years.
The Conservative
politician will be a key
member of the new
European Commission under
its president Jean-Claude
Juncker, who should assume
office on 1 November.
MEPs had recalled Hill
for an additional hearing
after he stumbled over
questions about eurobonds
at a confirmation hearing on
1 October.

Update | Technical

Following a second
confirmation hearing,
committee members
affirmed his appointment by
a margin of 45-13.
Other key nominees on
the new commission include
former French finance
minister Pierre Moscovici
as economic and financial
affairs, tax and customs
commissioner, and Polands
Elbieta Biekowska as
internal market, industry,
entrepreneurship and SME
commissioner, with a role
on assessing accounting
standards.
More information at
tinyurl.com/ec-juncker

CROSS-BORDER MERGER
The European Commission
has launched a consultation
on potential changes to
European Union rules on
mergers and divisions.
This would likely involve
amendments to EU directive

55

2005/56/EC on crossborder mergers and the

possible creation of a broad
legal framework governing
the cross-border divisions of
companies.
The consultation ends on
1 December.
More information at
tinyurl.com/cross-consult

AUDIT RULES GUIDANCE

Detailed guidance on
the new European Union
audit rules agreed in April
has been released by the
European Commission.
The guidance brings
clarification to EUdirective
2014/56/EU onthe
statutory audits of annual
and consolidated accounts,
and EU regulation 537/2014
on the statutory audits of
public interest entities.
More information at
tinyurl.com/ec-audit

MONTENEGRO and NZ open

up public procurement
The texts of agreements with the European Union to
allow New Zealand and Montenegro to join the World
Trade Organisations Agreement on Government
Procurement body have been released. The deals
further open up Montenegro and New Zealand public
procurement contracts to overseas suppliers.
For more, see tinyurl.com/ec-montenegro and
tinyurl.com/new-zealand-ec

Keith Nuthall, journalist

Accounting and Business

56

people | the postgrad pages

Multiple-location MBAs
Given that business is increasingly global in nature, its no surprise that MBA students are
favouring postgraduate qualifications that allow them to gain experience in multiple places

Interested in doing an MBA,

MSc or other postgraduate
qualification? Our special
quarterly section of Accounting
and Business explores the options
and the issues involved.

Accounting and Business

Globalisation may have

begun as the process of
international integration in
the business world, along
with other aspects of culture,
but it has now well and truly
reached the education sector.
MBA students are
increasingly looking at
business school programmes
that cover multiple countries,
and are no longer willing to
settle for business school
programmes in one country.
The reasons speak
for themselves. First and
foremost, arguably, is
the globalised nature of
business. Studying for a
postgraduate qualification
in multiple locations will
allow you to build life-long
connections and friendships
with influential global
professionals by giving you
networking opportunities;
it will give you exposure to
different perspectives about
the world economy and
a deep understanding of
different business practices.
Then there is the financial
reward. By building the skills,
knowledge and network
you need to succeed on the
global stage you will, by
default, increase your worth
and your potential earnings.
Not only will a global MBA
with international experience
help your career it is of
great value to all potential
employers, who favour
graduates with international
exposure over those without,
giving you that competitive
edge in a tumultuous
recruitment arena.
Employers who hire
MBAs expect individuals who
can deliver value to their
businesses and, in a world
of global and converging

markets, people with the

skills and experiences to
adapt quickly and drive
performance forward are
highly sought after, says
Sionade Robinson, associate
dean of MBA programmes
at Cass Business School.
Learning and
development design to grow
these skills and capabilities
should be clearly visible in an
MBA programme. We believe
employability is central to
our principles of design in
our programmes.

Whats so special?
So what is on offer in terms
of global MBAs that allow
you to study in multiple
locations? This demand
from students who are
seeking programmes that
incorporate lengthy study
trips abroad, international
exchange programmes
and internships in foreign
countries is changing how
business schools operate.
There are some pioneering
global MBA programmes that
have been able to provide
a genuine understanding
of how the global economy
works and how organisations
can best organise and
operate in it and therefore
ultimately help train a new
generation of leaders.
For example, France-based
ESSEC Business School
offers a global MBA that gives
students the opportunity
to spend three months
outside France with a term in
Singapore and two separate
spells in other countries.
At INSEAD, candidates
sign up in part because they
can study in two different
regions, Europe and Asia,
with the option of also

the postgrad pages | people

57

ALL FOR ONE

The OneMBA is an innovative and creative programme launched by five universities
across four continents.
The University of North Carolinas Kenan-Flagler Business School has joined forces with
the Chinese University of Hong Kong (CUHK), Tecnolgico de Monterrey Graduate School
of Business in Mexico, Escola de Administrao de Empresas de So Paulo in Brazil and
the Rotterdam School of Management at Erasmus University in the Netherlands.
Students attend classes every four to six weeks at their home university. In addition, they
join other OneMBA participants from all partner schools for four global residencies spread
over the 21-month programme. Each global residency lasts seven or eight days.
The OneMBA class of 2015 comprises 95 students from 17 countries, 79% male and
21% female with an average age of 38 and an average 12 years of professional experience.
http://onemba.org

Two-year MBAs back in fashion

According to new research, demand is returning for the traditional two-year MBA degree.
The 2014 Application Trends Survey from GMAC, distributor of the GMAT entry test for
business schools, showed that for the second year in a row, a majority of full-time,
two-year MBA programmes reported rising or stable application volumes.
In 2014, 61% of schools teaching two-year degrees reported an increase in
applications, according to GMAC, up from 50% in 2013. This years results go some way
to allaying fears that the more traditional two-year courses are on their way out as the
popularity of part-time and online MBA programmes grows.

UK and Belgium schools fall back

Britain and Belgium were the big losers in the 2014 Financial Times Masters in
Management (MiM) rankings, with seven out of 11 British schools and three out of four
Belgian schools falling by seven places or more.
Going against the grain was London Business School, which was a new entry in the
rankings at number 10, making it the highest-ranked business school in the UK.
The FTs MiM rankings feature the top 70 management degrees for students with little
or no previous work experience. St Gallen of Switzerland stayed at the top of the table,
followed by two Parisian schools, HEC and ESSEC.
There are four other new entrants in the top 70 table: EBS Business School in Germany
(14), Canadas Sauder School of Business at the University of British Columbia (49),
ESC La Rochelle in France (64), and Chinas Tongji University School of Economics and
Management (65). Only six of the 70 are from outside Europe.

spending time in the Middle

East and the US.
INSEAD has two versions
of its global executive MBA.
The first is a 14-month
scheme starting in October
that includes six weeks on
its European campus in
Fontainebleau, France, four
weeks on its Singapore
campus, and an extra week
at either of these two locales
or a Middle Eastern campus.
The Middle East version is
a 15-month-long programme
starting in November that

features eight weeks in

Abu Dhabi, two weeks in
Singapore and one in France.
Students also spend one
extra week on either the
Asian or European campus.
Meanwhile, Cass has
opportunities for its MBA
students on full-time or
executive programmes
to study abroad. Every
programme has an
international consulting
week at the end of their
core modules, creating
opportunities for students

to use their MBA knowledge

and skills to work with
clients on real business
challenges, says Robinson.
To accelerate and
consolidate learning we put
our students into a state of
heightened awareness, so
the international consulting
weeks are in unfamiliar
economic environments in
South America, Iceland and
Vietnam, for example.
Second, we offer our
students a wide range of
study-abroad opportunities

in our electives they can

study marketing in Las
Vegas, leading complex
change in South Africa,
doing business in China
or the UAE, or even digital
strategy in Silicon Valley.
We also take our students
behind the scenes into
organisations in their own
city of London to optimise
opportunities and networks
they would not usually be
able to access.
Beth Holmes, journalist

Accounting and Business

60

people | economics

Meet the MINTs

Famed as the man who forecast the rise of the BRIC nations and even coined the acronym,
Jim ONeill looks beyond the BRICs to the coming economic powerhouses the MINTs
In early 2014, I tried to
encourage business people
and others to focus on
another group of important
emerging economies that
I call the MINT countries,
namely Mexico, Indonesia,
Nigeria and Turkey. I did
this via a BBC Radio 4
series, MINT: The Next
Economic Giants, following
a week of travelling
around each country and
interviewing a whole variety
of people in each.
So what is a MINT
country, and how do they
differ from the BRICs?
It is 13 years since
I dreamt up the BRIC
acronym and the rise of
Brazil, Russia, India and
China has certainly been
much bigger than I thought
possible back then. China
has become the second
largest economy in the
world well before my
initial prediction that 2015
would be when the country
overtook Japan; indeed, the
Chinese economy is now
not far off twice the size
of Japans. Brazil got to
be larger than Italy about
10 years faster than I had
assumed, and India and
Russia are just inside the
worlds top 10 economies.
Collectively, the BRIC
economies are not far off
becoming as large as the
US, something they will
probably achieve by the end
of 2015.
For many years, I was
frequently asked what made
these countries unique in
the emerging world. After
all, they are not the only
ones with large populations
and the potential for
productivity catch-up the

Accounting and Business

the day job

Jim ONeill is a visiting research fellow to thinktank
Bruegel, conducting research on aspects of global
trade, global governance and targeting higher
sustainable economic growth. He is the former
chief economist and head of asset management at
Goldman Sachs.
He is also on the board of a number of research
organisations and is one of the founding trustees of
the UK educational trust SHINE. He serves on the
board of a number of other education charities and
in 2013 became a non-executive director of the UKs
Department of Education. ONeill is to lead a UK
government review into the use of antibiotics.

criteria I used to project

their rise. I tried to suggest
that for any others to be
regarded as BRIC-like, they
needed either to already
account for 5% of global
GDP or have the potential to
do so in the medium term.

Many years ago, together

with my then colleagues at
Goldman Sachs, I looked
at the BRIC-like potential
for the 11 most populous
emerging economies after
the four BRIC countries.
(We didnt include Ethiopia

for reasons I dont really

recall.) I call this diverse
group the Next11. They vary
from OECD members such
as Mexico and South Korea
to those much smaller
at present, at least like
Bangladesh and Vietnam.
Some years later I tried to
encourage business people
to stop thinking of the
largest emerging economies
as traditional emerging
economies their size
made them different and
to define the eight whose
US$ GDP was more than
1% of world GDP as growth
economies. This was not
to suggest that they would
always grow and never have
any problems, but that they
needed to be distinguished
from the rest of the
emerging world and had as

economics | people

many opportunities in the

developed world. Four of the
eight Mexico, Indonesia,
South Korea and Turkey
were on the Next11 list.
South Korea is a
particularly interesting
economy because it is
reasonably wealthy and
not far off enjoying the
same wealth as peripheral
European countries such as
Portugal and even Spain.
To think about it as an
emerging economy at all
is quite insulting to South
Koreans. The country offers
a lesson to many lowerincome emerging countries
that aspire to higher wealth;
just 40 years ago, South
Korea, too, was a lowincome country.
So I thought that South
Korea doesnt really belong
in a MIST group and, when
approached by the BBC,
I decided to replace the S
with an N for Nigeria, as this
African country, home to
over 15% of the continents
population, has the potential
to be very large.

Nigeria
Nigeria is in the news for
all the wrong reasons,
with terrorism in the

north getting much

understandable attention.
Even without this, some
people were shocked that
I would include such a
corrupt nation along with
the others.
Nigeria has massive
challenges perhaps even to
stay together as one nation,
but if it can it has huge
potential. Its population of
173 million is young and
its demography suggests a
big jump in the workforce
in the future. Its people
have great ingenuity and
I regard the net positive
returnees of the most
educated living overseas
as a good leading indicator
of growth potential. If it
can implement the power
reforms announced in 2013,
the country could easily
grow by more than 10%
foryears.
And please listen to the
iPlayer discussion I had with
the now ousted central bank
governor Lamido Sanusi, one
of the most sophisticated
discussions about corruption
I have ever had.

Mexico
All the MINT countries
have challenges with

corruption, as do most
countries. Mexico, which
is at the opposite end of
the spectrum in terms of
popular investor mood from
Nigeria, also suffers from
it, along with a massive
informal sector.
I enjoyed a session with
a woman who ran her own
childrens clothing stall on
the huge Tepito market in
the middle of Mexico City.
Unless the government can
encourage people like her to
join the formal economy, its
much hyped reforms wont
lead to much.
I also met many of
the top government
policymakers including the
president; their reforms
are so deep and wide they
make former UK prime
minister Margaret Thatchers
attempts seem like those
of a pussycat. Throw in
vastly rising competitiveness
improvements as China goes
up the cost and value chain,
and Mexico faces a much
better future.

Indonesia
Indonesia is a country that
is positively surprising
me since the programme
finished. Of the four MINT

61

countries, I found it most

difficult in Indonesia to get
the wow factor.
Where is your equivalent
of Samsung?, I kept asking
everyone. What is your edge
over the rest of the world
(other than commodities
and 250 million people)?
At the time, they were
under the cosh from the
markets due to a current
account deficit. Yet by mid2014, Indonesian equities
were one of the strongestperforming markets in the
year to date and hopes are
high that president-elect
Joko Widowi, an outsider
who does not come from the
oligarchical elite, might be
able to boost growth, battle
corruption and spread the
wealth. It is a tall order.

Turkey
As for Turkey, it was the first
place we travelled to for the
programme a year ago, not
too long after the summer
protests, and we were not
especially embraced by
policymakers in contrast to
the other MINT countries,
which was perhaps a sign
of things to come. Back
then the country had been
engulfed in a political
brouhaha that concerned
me, with lots of incursions
into aspects of the
democratic lives I thought
Turkish people were being
encouraged to enjoy.
Turkey probably has the
most challenging cyclical
imbalances of the MINT
countries, with a high
inflation rate and current
account deficit. Against that,
it has much going for it in
the longer term, especially
a geographical location that
allows its best businesses
to reach in all directions
of the changing world and
boost their trade, and many
are already doing so with
considerable success.
Jim ONeill, economist

Accounting and Business

62

ACCA | agm

109th ACCA AGM

Minutes of the 109th annual general meeting of ACCA held at 29 Lincolns Inn Fields,
London WC2, on Thursday 18 September 2014. Martin Turner, the president of the
association, took the chair and there were 55 members of the association present
Notice and
auditors report

The notice of meeting and

the auditors report on the
accounts for the period 1
April 2013 to 31 March
2014 were taken as read.
2 Minutes
The minutes of the AGM
held on 19 September
2013 and published in the
November 2013 issue of
Accounting and Business
were taken as read, and
signed as correct.
3 Resolution 1
Adoption of the report of
Council and the accounts for
the period 1 April 2013 to 31
March 2014.
Martin Turner gave his
presidential address
and asked Helen Brand,
chief executive, to give a
presentation. He then invited
questions and comments on
the report and accounts.
The president drew
members attention to the
statement which had been
circulated and which showed
that valid proxy votes had
been cast in respect of
Resolution 1 as follows:
For
3,620
Against 48
The president then put the
resolution to the meeting
and, on a show of hands,
declared it carried, the votes
being cast as follows:

Accounting and Business

For
46
Against 1

Result of ballot for

election of Council
members

The scrutineers report

and the number of votes
received by each
candidate in the ballot for
the election of members of
Council were reported, as
follows:
1 Rosanna Choi
2,608
2 Laura Perrin
2,583
3 Steve Bailey
2,529
4 Pauline Hobson
2,374
5 Ronnie Patton
2,225
6 Melanie Proffitt
2,011
7 Ayla Majid
1,897
8 Brendan Sheehan 1,712
9 Nur Jazlan Mohamed 1,577
10 Taiwo Oyedele
1,525
11 Marcin Sojda
1,488
.........................................................
12 Hastings Mtine
1,457
13 Diarmuid ODonovan 1,451
14 Frankie Ho
1,274
15 Gbor Balzs
1,021
16 Dat Khalid Ahmad 1,017
17 Sam Rozati
978
18 Aamer Allauddin
866
19 Coutts Otolo
845
20 Mike Nyinaku
738
21 Oscar Osabinyi
659
22 Muhammad
647
Junaid Younas
23 Ivo Vesselinov
611
24 Chibuzo Okpala
577
The president, therefore,
declared the following
members elected or reelected to Council:

Steve Bailey
Rosanna Choi
Pauline Hobson
Ayla Majid
Nur Jazlan Mohamed
Ronnie Patton
Laura Perrin
Melanie Proffitt
Taiwo Oyedele
Brendan Sheehan
Marcin Sojda
5 Resolution 3
Appointment of auditors.
The president reported that
Council recommended that
BDO, chartered accountants
and registered auditors, be reappointed as the associations
auditors. He then invited
questions on Resolution 3.
The president drew
members attention to the
statement which had been
circulated and which showed
that valid proxy votes had
been cast in respect of
Resolution 3 as follows:
For
3,511
Against 158
The president then put the
resolution to the meeting
and, on a show of hands,
declared it carried, the votes
being cast as follows:
For
47
Against 1
The president thanked
members for their attendance
and declared the meeting
closed at 2.15pm.

COUNCIL | ACCA

63

Council highlights
Meeting chooses new president, deputy and vice president for coming year

Council held its annual

meeting on the afternoon
of Thursday 18 September.
Prior to the meeting, the
109th AGM of ACCA took
place in the Long Room
at 29 Lincolns Inn Fields.
Members voting at the AGM
gave overwhelming support
to the various resolutions
before the meeting. The
AGM minutes are shown on
the opposite page.
At the annual Council
meeting, Council elected
ACCAs officers for the
coming year. ACCAs new
president is Anthony
Harbinson and he will be
supported by Alexandra Chin
(deputy president) and Brian
McEnery (vice president).
Council also welcomed
six new members whose
election was declared
at the AGM Ayla Majid
(Pakistan), Nur Jazlan
Mohamed (Malaysia),
Ronnie Patton (Northern
Ireland), Melanie Proffitt
(UK), Brendan Sheehan
(Australia) and Marcin
Sojda (Poland). Council
now has members based

in 18 different countries
and one third of these are
female, thus reflecting the
increasing diversity of ACCA
as a whole.
Council took a number of
other decisions at its annual
Council meeting.
It approved Councils
standing orders
for 2014/2015, in
accordance with the byelaws.
It agreed to appoint a
number of lay members
to serve on ACCAs public
interest oversight boards,
together with a nonCouncil member of the
Audit Committee.
It chose three Council
members to serve on the
Nominating Committee
in 2014/2015 along with
the officers.
It agreed a Council
work plan and a set of
objectives for the Council
year 2014/2015.
The next meeting of Council
is on 22 November, which is
immediately after the 2014
meeting of the International
Assembly.

END OF TERMS

ACCA chief executive Helen

Brand with the three principal
officeholders coming to the
end of their current terms

*
*

*
*

INCOMING

Brian McEnery replaces as

vice president Alexandra Chin,
who has stepped up to deputy
president for 2015

OUTGOING

The 2014 president Martin

Turner has been succeeded for
2015 by Anthony Harbinson,
formerly deputy president

ACCOUNTING AND BUSINESS

64

ACCA | news

Giants prepare for global stage

A wave of 100 Chinese companies are preparing to emerge as major global
players in the next three to five years, according to a new ACCA report
on track

Faye Chua said most of the top

100 had doubled in size

A new ACCA report has

identified 100 companies
in China that are set to
become major players on
the global stage.
The report, Chinas next
100 global giants, highlights
fast-growing businesses
that have the right mix of

Accounting and Business

characteristics to emerge as
global giants, and considers
annual revenue, growth,
domestic dominance and
international presence.
Business model and
strategy were also factors.
The reports author,
Professor Andrew Atherton of
the UKs Lancaster University,
noted that the companies
have built very strong
foundations in their domestic
market, in some cases a
dominant position, which
acts as a solid launch pad
for going global. Even those

currently focused on local

markets are likely to appear
in other markets within the
next three to five years.
Its not just about their
balance sheets; its about
growth, added Faye Chua,
ACCAs head of future
research. These companies
future growth trajectories
are based on sustained
annual levels of growth from
2008-2012. The majority of
the top 100 companies we
have identified have doubled
in size and in some cases

quadrupled. They are clearly

doing something right.
Ada Leung, head of ACCA
China, noted the key role
of ACCA members as these
companies emerge on the
global stage.
As ACCA finance
professionals play a more
prominent role in the
strategy and future outlook
of todays businesses,
they will be driving these
companies towards their
continued growth and global
aspirations, she said.
For more information:

Chinas next 100 global giants can be downloaded at

www.accaglobal.com/ab131

STRATEGIC PARTNERSHIP | ACCA

65

Partnership bears fruit

The strategic partnership of ACCA and IMA has much to offer members, with finance
professionals holding both accreditations gaining a well-rounded knowledge base
In 2013, ACCA and IMA
(Institute of Management
Accountants) signed
a global strategic
partnership to support
management accounting
thought leadership and
the career development
goals of CFOs and other
finance professionals.
Through collaborative
research, CFO roundtables
and joint events, the bodies
work together to promote
each others qualifications
and the extensive financial
knowledge that they bring.
ACCA chief executive
Helen Brand said at the time
that both ACCA and IMA,
which is headquartered in
the US, have a long history
of seeking innovations in
finance and accounting,
recognising that a strong
global profession needs

his long-term learning and

development plan.
It was a good choice
because of the exemption
options that came with my
CMA credential, and the
flexible study, he says.
I never saw ACCA as a
competing qualification,
rather as a complementary
one. Both add value in my
job, especially in corporate
finance work, financial
planning and analysis, and
control and compliance.
Meanwhile, Syed Ali
Intiqab, finance manager
at Mustang HDP in Saudi
Arabia, also chose later to
add the ACCA Qualification
to his CMA. The CMA
is more tilted towards
management accounting,
he says. I thought that
having another qualification
that included other aspects

BEST OF BOTH

Danish Nazir (left) and Khalil Elias (right) say that having both
ACCA and IMA qualifications adds value and global recognition
couple of reasons, he
says. IMA was about to
become a member of the
International Federation
of Accountants and had
a good reputation among
employers. It also helped

HAVING TWO QUALIFICATIONS GIVES ME THE

CONFIDENCE AND KNOWLEDGE REQUIRED AT THIS LEVEL
AND THEY COMMAND RESPECT AMONG MY PEERS
to be relevant in a fastchanging world.
The partnership
remains strong, with a
number of accountants
now holding both ACCAs
Qualification and IMAs
CMA (certified management
accountant) credential.
Khalil Elias, regional
decision support manager
at the British Council in
Jordan, became a CMA
in 1997, then became a
certified financial manager
(CFM) in 1999. His line
manager encouraged
him to pursue the ACCA
Qualification as part of

of accounting, such as
auditing and taxation, would
help me in future roles.
Having two qualifications
gives me the confidence and
knowledge required at this
level and they command
respect among my peers.
By contrast, Danish Nazir,
senior auditor at Deloitte &
Touche in the United Arab
Emirates, qualified first with
ACCA in 2005 as a trainee
accountant in Pakistan.
When he joined Deloitte, he
decided to take the CMA
exam, passing in 2012.
I decided to sit for
the CMA exams for a

me refresh my knowledge of
corporate finance, decision
analysis and risk and
cost management.
Elias says that having
both qualifications is useful
for anyone intending to
change careers within the
profession, as IMA has more
of an internal reporting
focus and is well recognised
in North America, while the
ACCA Qualification has an
external reporting element

and global recognition.

Both are highly respected
in the Middle East, he adds.
Im in constant contact with
both institutions through
webinars, publications and
discussion groups, and I find
it all very helpful in keeping
me up to date with trends in
finance and accounting.
Im an active member
of both institutions, adds
Syed, and it gives me a real
boost in planning my career.
Nazir agrees. I value
both qualifications because
the knowledge they bring,
mixed with my experience,
helps me identify audit
risks by understanding
business risks. I think both
institutions are helping
my career by working
closely with employers and
regulators, and focusing
on standards of excellence
in education.
Liz Fisher, journalist
FOR MORE INFORMATION:

Financial leadership and performance, a joint initiative by

ACCA and IMA, can be accessed at: www.roleofcfo.com

ACCOUNTING AND BUSINESS

66

ACCA

Inside
ACCA
65 Benefits The IMA
partnership
64 Chinas future
giants The 100
companies tipped
for global greatness
62 AGM and Council
Minutes of the most
recent meetings
22 President The
whole public story

100

A new ACCA
report has
identified
100
companies
in China that are set to
become major players on
the global stage. Chinas
next 100 global giants can
be downloaded at www.
accaglobal.com/ab131

About
ACCA
ACCA is the global
body for professional
accountants.
We aimto offer
business-relevant,
first-choice
qualifications
to people of
application, ability
and ambition around
the world who seek a
rewarding career in
accountancy, finance
and management.
We support our
170,000 members
and 436,000
students throughout
their careers,
providing services
through a network
of 91 offices and
active centres.
www.accaglobal.com

Accounting and Business

New president for ACCA

Anthony Harbinson pledges to make the public sector and the
ethical stewardship of accountants the highlights of his term
Anthony Harbinson,
Northern Irelands director
of safer communities, has
become president of ACCA.
The senior public
servant is responsible for
the resourcing, policy and
legislative framework for
policing and for reducing
offending. He was elected
ACCA president for 2014/15
at ACCAs annual general
meeting on 18 September
and now represents its
170,000 members and
436,000 students in 180
countries.
Harbinson said: I
am delighted to have
been elected to serve as
ACCA president. It is a
great honour and I look
forward torepresenting
our members and students
around the world.
I will be focusing on
two key themes in the year
ahead. The first of these is

Two key themes

Ethics and the public sector

are the new presidents focus
the issue of ethics and the
role of the accountant. Not
only does our profession
have a responsibility to
behave ethically, but it also
has a duty to ensure that
the organisations for which
finance professionals work

have an ethical approach to

business and operations.
I also want to use my
term of office to emphasise
the importance of the public
sector, the need for it to be
effective and efficient and
to have the proper financial
expertise to achieve this in
the short and long term.
The new deputy president
is Alexandra Chin, a
practising accountant who
has played a leading role
in the development of the
finance profession in the
Malaysian state of Sabah.
She has been a Council
member since 2005.
Joining them is new vice
president Brian McEnery,
a partner in BDO Ireland,
specialising in corporate
restructuring and healthcare
consulting.
See the AGM minutes and
Council meeting report in
this issues ACCA section.

Greece partnership

Diversity and the data gap

A data gap is hampering diversity in business,
according to research from Brunel University,
commissioned by ACCA and the Economic and Social
Research Council (ESRC).
The resulting Towards better diversity management
report urges companies to involve the finance
department to identify the gaps in information about
diversity in their workforce and marketplace, and to
measure, analyse and interpret the data.
Claudia Chapman, head of policy and campaigns
at ACCA, says: The expertise of the finance team can
help demonstrate the linkages between good diversity
management and business performance.
The report recommends that an effective business
case for diversity should not just focus on the
bottom line, but also account for shareholder value,
stakeholder value, the regulatory context and the
global value chain of the companys operations.
Read the paper at www.accaglobal.com/ab132

ACCA and the Institute

of Certified Public
Accountants of Greece
(SOEL) have strengthened
their existing alliance
by signing a strategic
partnership agreement.
ACCA deputy president
Alexandra Chin and
SOEL president Harilaos
Alamanos signed the
partnership papers in
Athens.
The new agreement
builds on the Joint
Examination Scheme (JES)
that ACCA and SOEL have
cooperated on during the
last five years.
Nearly 2,000 students
are following the JES
course to qualify as
professional accountants.

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