Comment

Differences divide us, and that’s why we need to find the values that unite us, writes Sinead Donovan. It strikes me that, in today’s world, we are constantly putting labels on things or people. We are either male/female, Gen Z/Gen Y, baby boomers, LGBT+/straight. We have the labels of our culture or our creed, and while I am so in favour of diversity, and have pushed the diversity and inclusion concept incredibly hard within my firm and throughout the work I have done in Chartered Accountants Ireland, I sometimes wonder – have we made too many labels? Are we defining ourselves by labels rather than looking for the commonality and the thread that keeps us all together?   It’s not a new concept but, as perhaps I progress in my career and through management, I sometimes think it’s better to look for what binds us together than at what differentiates us. Maybe by finding those common threads it will enable us to be a more holistic family together, despite our gender, culture, religion, or sexual orientation.  So, I suppose the big question is: are there common threads and, if so, what are they? To me, it comes down to people’s beliefs. Fundamentally, underpinning us all, as it does in our professional careers, are the value sets that define us. For us, in our business unit in Grant Thornton, we have identified those values as: Adaptable; Innovative; Passion for what we do; Collaborative; Going the extra mile; Ethical and professional; and Technically knowledgeable. People may have different values they use to identify themselves, but whatever it is, there should be that common link in us all. With Chartered Accountants, it has to be the value set of ethics. These underpin our profession, despite how wide it has become or the labels we have put on each other as accountants: are we forensic accountants, cybersecurity accountants, auditors, tax advisors? Whatever you are, the one item that underpins us all is our code of ethics.  Ethics is taught in the early days of a student’s profession, sits beside us as a professional, and maybe gets looked at once or twice in our career. However, I would urge that the concept of ethics is used more widely to link us together as one family of accountants – be that Chartered Accountants Ireland, ATI, or membership to any other accountancy body. We have a responsibility to our stakeholders, the people we report to, the people who use our knowledge, and the daily work that must be done in an ethical manner.  As a member of the Diversity & Inclusion Committee in Chartered Accountants Ireland, I am not saying any of the above to absolve ourselves of the need to identify the differences we all face in life. But what I am saying is, maybe sometimes, let’s just celebrate our similarities and, with that, see ourselves as a family of accountants in the first instance and then ensure any differences that we may have are 100% noted, understood, managed and included because, just as in any family, there are different characters, beliefs, and personalities. And, while there are going to be difficulties, there has to be that underlining acceptance of who we are and what we are. To me, it starts on the journey as a student and, I think, that our profession is more open than it may have been when I started. However, I do know that from our work in CA Support, difficulties, prejudice, and unbelievable stress which may not be acknowledged or identified, remain. So, look out for your student members, your newly qualified members, and even look out for the more experienced members who may be going through difficulties in their professional or personal lives. If I can leave you with one thought, let it be this: let us identify the differences, ensure those differences are respected and brought together in one bucket of inclusion. Importantly, we need to unite in our underlining similarities that we have as Chartered Accountants and use that as a thread to tie us together.   Sinead Donovan FCA is a Partner in Financial Accounting and Advisory Services at Grant Thornton.

We are in the middle of an unprecedented health emergency. In recent weeks, many of us have had loved ones, friends and acquaintances suffer illness, hospitalisation or worse. It is an extremely difficult time for many. We must hope that the actions of businesses and the general public in following the official safety guidelines, combined with the herculean efforts of healthcare workers, will effectively curtail the spread of COVID-19 and a more normal life can resume sooner rather than later. After safety, our key priority has been to ensure that we maintain the highest level of service possible for members and students during the health crisis. In terms of our staff, the collaboration across the board to bring all of our processes into a new way of working has been rapid. For members, we have provided a vast range of insights, services and supports – from CA Support to Practice Consulting and Professional Standards supports – to individual members and firms through a busy schedule of webinars. The COVID-19 Hub also provides a one-stop-shop for members seeking information and guidance. We are providing our members with the best information, skills, and guidance that we can. For students, we have moved quickly to accelerate the changes that were already planned. Our e-assessment pilot interim exam has now concluded and sets us up well for the next development phase, to cover main exams later this year. On the delivery side, we see great innovation as we move online, supporting digital enrolment and changing how we support training organisations. We exist to serve our members and students, and Chartered Accountants Ireland is a mirror of the profession. Our member firms, members, their clients, and students are under severe pressure and are experiencing some very challenging circumstances. The crisis will also undoubtedly have some longer-term economic effects, and the expertise of our members will be vital in helping business and broader society overcome these challenges. Over the past weeks, the Institute has moved quickly to step-up service to our members in their time of need, and our staff have responded rapidly to adapt to new ways of working. I know that our Institute will come through this crisis as a stronger, smarter organisation. As an Institute and as a profession, we are all in this together. Our Officers, our volunteers, and our staff right across the island of Ireland and beyond may be required to work from home, but they continue to work hard to support members in their professional lives. We know that the skills of our members will be needed more than ever throughout the crisis and in the period of rebuilding ahead. We pledge to do all that we can to continue to effectively support our members, member firms, and students to make that vital contribution. Barry Dempsey Chief Executive

Given the world’s fragmented approach to the COVID-19 crisis, Dr Brian Keegan considers the potential for lasting suspicion of international standards of all sorts – not least accounting. There is a theory that suggests that 150 is the maximum number of people with whom any one individual can meaningfully interact. This number, known as Dunbar’s number after the anthropologist who came up with the idea, feeds into a myriad of management texts. Working in Chartered Accountants Ireland, whose staff complement is close to 150, Dunbar’s idea feels right. There is a sense of community and shared purpose here which, if anything, has been highlighted by the coronavirus crisis. But just as there may be a ‘best’ maximum number of staff in an organisation or business division, is there a maximum population beyond which meaningful government responses to crises cannot be developed? Big is not always best The varying coronavirus experiences and responses of countries right across the world suggest that big may not be best unless the government is of a totalitarian hue, as in China. It is surely no coincidence that the most populous countries in Europe – Spain, Italy, France, and the UK – have suffered some of the worst impacts of coronavirus per head of population. Germany, of course, is somewhat of an outlier; but then again, when is it not? The challenges of scale seem even more pronounced beyond national borders. Where the power of local or national government is subordinated to international organisations – or international treaties or federal systems, as in the case of the EU and the federal government in the US – official responses seem either inappropriate or inadequate. A fragmented response The EU’s approach to tackling the pandemic has been, to put it charitably, fragmented. The EU does not have a core role in health matters, but it does when it comes to financial supports. The Commission seemed slow out of the blocks in its initial response. Countries that usually see eye-to-eye on fiscal issues, such as Ireland and the Netherlands, found themselves at odds with each other over the issue of eurobonds to support bailouts for individual member nations. The G7 group of the world’s wealthiest nations couldn’t even come up with a joint declaration on the pandemic in March, apparently because the US Secretary of State, Mike Pompeo, insisted on referring to the disease as the “Wuhan virus”. The US also very publicly pulled its support for the World Health Organisation (WHO), but perhaps more insidious than that were the suggestions that its Ethiopian chief executive was unduly influenced by Chinese investment in his home country. The seemingly unstoppable momentum for international corporation tax reform sponsored by the OECD has waned, with crucial decisions adjourned sine die by governments with more pressing matters on their agendas. A newfound suspicion If the authority of major agencies like the EU Commission, the OECD, the WHO and the G7 is being diluted, undermined or plain ignored as governments attempt to tackle the pandemic, it seems that global approaches aren’t entirely cutting it. An international reach used to be enough for these agencies to assert their authority, but not anymore. That is not great news for a profession like accountancy, which prides itself on its global approach. One lasting legacy of the pandemic could be a suspicion of, and resistance to, efforts to establish international standards of all descriptions, accounting among them. Who will be trusted by governments to set and maintain the standards in accounting if countries can’t even agree on who should set the standards on issues like healthcare? A new Dunbar’s number is becoming apparent for the number of countries that can act together in any kind of meaningful way when dealing with a crisis. That number is not higher than one.   Dr Brian Keegan is Director, Advocacy & Voice, at Chartered Accountants Ireland.

There are several signs that the EU may be splintering at the edges, writes Cormac Lucey. One of our weaknesses as a species is our self-regard. Sitting at the top of the evolutionary tree, we are in danger of overlooking some fundamental weaknesses. One is the conceit that we make critical decisions based on our thoughts when there is considerable evidence that feelings heavily influence our decision-making. A prime example of feelings misleading decision-making occurred in the Irish property market in the years 2006 and 2007. In a Davy research note published in March 2006, Rossa White (then the stockbroker’s chief economist, now occupying that position with the National Treasury Management Agency) issued a warning in the note’s title “Dublin house prices headed for 100 times rent earned”. He cautioned investors that “the fundamentals suggest that it will be an adjustment in prices – rather than rents – that will eventually bring valuations down to more realistic levels”. The problem was that investors had extremely positive feelings about property as an investment class resulting from its extremely strong performance in the preceding decade and a half. Feelings trumped thought. Thousands got caught in the resulting carnage. There is a danger that similar forces may blindside us to weaknesses developing within the European Union (EU) today. When we look back, we see a relatively strong and united body. From an Irish perspective, we associate the dramatic rise in our prosperity in recent decades with our EU membership (much more than with our turbo-charged foreign direct investment sector). But there are several signs that the EU may be splintering at the edges. Faultline one… There have been recent calls from the Élysée Palace for the EU to issue jointly guaranteed bonds (debt securities) to help those member states worst afflicted by COVID-19. The alternative, according to the French president, is to risk the collapse of the EU as “a political project”. What you may not be aware of is that in 2019, before any of us had heard of the virus, France and Italy already had the second and third largest budget deficits in the EU. Having maxed-out their own national credit cards, they now want to use the hard-won creditworthiness of others to borrow more. Faultline two… The differing borrowing capacity of various EU member states has resulted in widely varying budgetary responses to the pandemic. Germany, which went into the crisis with relatively healthy public finances, plans to spend more than 6% of GDP to boost its economy, before considering the effect of loans and guarantees. Italy, by contrast, entered 2020 with a weak fiscal position and can afford an immediate fiscal impulse of less than 1% of GDP, even though it has been hit much harder by the pandemic than Germany. France is similarly constrained. We can look forward to more wailing from the Élysée Palace. Faultline three… The actions of the European Central Bank (ECB) are increasingly running up against political and legal constraints. The German Federal Constitutional Court recently ruled that the ECB had exceeded its legal mandate and “manifestly” breached the principle of proportionality with bond purchases made under previous quantitative easing programmes. How might it rule on the ECB’s current programme, which has been deliberately disproportionate to reduce financial strains in Italy? A related problem concerns the ECB’s Target 2 balances. They are a key measure of financial market strains within the euro area. They record how much a national central bank is borrowing from the ECB to lend to domestic commercial banks that are suffering deposit withdrawals. For years, Italy and Spain have been borrowers while Germany has been on the opposite side of the equation, helping to fund the ECB. In March, the Italian central bank’s borrowing jumped by over €100 billion to €492 billion, while the amount the Germans lent into the system rose by more than €100 billion to €935 billion. As the US economist Herb Stein quipped, “if something cannot go on forever, it will stop”. We just do not know when. Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

Annette Hughes outlines the four consumer behaviour trends that have emerged from the COVID-19 pandemic. The COVID-19 crisis is being defined by four distinct consumer behaviour responses, according to the first edition of the EY Future Consumer Index. The survey tracks consumer sentiment and behaviour across several geographies, but these four behaviours, outlined below, are all evident in Ireland and have implications for the pending economic recovery. Cut deep (27%): these consumers are mainly more than 45 years old and have seen the biggest impact on their employment status. Almost one-quarter have seen their jobs suspended, either temporarily or permanently. 78% are shopping less frequently, while 64% are only buying essentials. Stay calm, carry on (26%): these consumers do not feel directly impacted by the pandemic and are not changing their spending habits. Just 21% are spending more on groceries, compared with 18% who are spending less. Save and stockpile (35%): this segment has a particular concern for their families and the long-term outlook. 36% are spending more on groceries, while most are spending less on clothing (72%) and leisure (85%). Hibernate and spend (11%): usually aged between 18-44, these consumers are most concerned about the impact of the pandemic with 40% shopping less frequently. Rationalised personal consumption From the Irish economy’s perspective, the unprecedented impact on the labour market has a significant effect on consumer spending. Personal consumption accounts for around one-third of Ireland’s GDP. Before COVID-19, the economic recovery was associated with a healthy annual average growth in consumer spending of 3.5% over the last five years. With the categories affected by containment measures accounting for around one-half of consumer spending, according to the Central Bank of Ireland, a sharp contraction in consumer spending is expected in 2020, which in turn impacts on investment and overall GDP. Recent projections from the Department of Finance forecast that personal consumption will contract by 14.2% this year, with GDP down by 10.5% (April 2020). The impact of the pandemic on employment, supply chains, travel and tourism, and mobility has hugely reduced consumer confidence and spending – and the shock is likely to be felt for some time to come. Looking beyond the immediate effects of COVID-19, few consumers expect to revert to pre-crisis behaviours any time soon. Overall, 42% of respondents believe that the way they shop will fundamentally change as a result of the COVID-19 outbreak. Plummeting consumer confidence While these four segments could morph as the crisis abates, the adverse impact of the pandemic on consumer confidence remains. In an Irish context, the KBC Consumer Confidence Index fell to its lowest level in the survey’s 24-year history due to a combination of weak conditions and the risk of poorer prospects. 584,600 people are in receipt of the Pandemic Unemployment Payment while the unadjusted Live Register total for April 2020 was 214,741. An additional 425,204 are being facilitated through Revenue’s Temporary COVID-19 Wage Subsidy Scheme. This implies that in the region of 1.224 million people – or almost 50% of the workforce – are in receipt of some form of income support. Joined-up thinking required The recovery in consumption will depend on the extent to which the unemployment situation is reversed. Companies that were struggling to keep up with changing consumer behaviour before the pandemic are now faced with the challenge of anticipating how consumers will evolve beyond the pandemic. The Government’s roadmap to ease COVID-19 restrictions and re-open Ireland’s economy and society on a phased basis are welcome, but the pace at which different sectors and regions begin to recover will vary greatly. While smaller towns may benefit from increased local spending, online sales are likely to remain high, at least in the short-term. We must look at what business and governments can do together to help everyone get through what continues to be an incredibly difficult period to ensure that they are all ready to participate in the recovery when it comes.   Annette Hughes is an Economist and Director at EY-DKM Economic Advisory.

Des Peelo shares his one guiding principle for setting a fair professional fee. Professional fees occur in many occupations including dentists, doctors, accountants, solicitors, barristers, and architects. Public relations practitioners, management consultants, estate agents, investment bankers and technical advisers of all kinds also charge professional fees, as do lecturers and conference speakers. But how should you calculate a professional fee? There are no guidelines as such, other than custom and practice within a particular sector. Competition law prevents price-fixing within a sector. Nevertheless, norms or rules of thumb usually develop over time. Enquiry suggests that a routine GP visit costs between €55 and €70, while a medical consultant may charge between €250 and €300. An estate agent may charge 1-2% plus outlays and VAT on the sale price of a property, and an architect may charge a percentage of the project costs. Practising accountants typically charge an hourly rate for routine services such as audit, accountancy, and tax work. For more complex work, mainly carried out by larger firms, such as a major investigation or a difficult liquidation, an hourly rate of €450 per hour plus VAT has been quoted in the High Court for a partner’s time. This €450 currently seems a benchmark rate and is scaled downwards for less senior staff. In general, straightforward work such as audits for an accountant, conveyancing or probate work for a solicitor or routine dental work for a dentist is competitive, and fees fall within identifiable ranges. It is difficult, however, to generalise in linking a fee to the mix of expertise provided, responsibility taken, and the value to the client. What is the value of a careful and competent diagnosis of a malady from a GP, or a substantial tax saving through expert knowledge? What is the value of the identification and rectification of a serious IT glitch, or a crisis successfully managed by a skilled public relations practitioner? Round sum fees are common for non-routine work or work not measured in terms of time incurred. There is the story of a computer glitch that closed down an entire business. A technician arrived, turned a nut, and got the system up and running again. The bill was €1 million, and the client demanded a breakdown. The response was €100 for the hour in turning the nut, and €999,900 for “knowing which nut to turn”. Legal fees, apart from routine matters, can be a mystery – particularly in litigation. There are regular reports of substantial fees across all types of litigation. A UK judge once remarked that the Savoy Hotel and the courts are open to everyone. In my experience, this is because of the extensive input necessary in almost any litigation, such as identifying the issues and the law relating thereto; assembling the relevant documentation and preparing the required procedural paperwork; accessing expert evidence; consultations; and, of course, the actual court hearing. There is an amusing story about legal fees allegedly involving a firm of solicitors in the United Kingdom. A long and complex litigation case had come to a satisfactory conclusion, and it was time to finalise the bill. The more technical aspects had already been completed as to measuring the files at £100 per inch and weighing the files at £150 per pound. Instead, each partner had to review the files and put his or her estimate of the total fee in a sealed envelope, placed in a box. When the box was opened, the partner with the lowest estimate did not share in those fees and the partner with the highest estimate had to collect the fees. An optimum balance. Investment bankers charge astronomical fees. This is because they can. The transactions involved are mega takeovers or the funding of large projects. The enormous sums of money involved are often backed by prestigious names, not necessarily professional expertise, and this is what underpins the hefty fees. Fees of 1-3% of the amounts involved do not seem unduly high when expressed that way, but these percentages translate into millions of dollars or euro. George Bernard Shaw observed that professions were conspiracies against the laity. This, of course, does not refer to Chartered Accountants and professional fees. A guiding principle as to good professional practice is to ensure that the subsequent fee is not a surprise to the client. Service before remuneration.   Des Peelo FCA is the author of The Valuation of Businesses and Shares, which is published by Chartered Accountants Ireland and now in its second edition.