Comment

Economists may have a plethora of letter-named predictions for the post-pandemic recovery, but Chartered Accountants are depending on a ‘B-shaped’ comeback. Dr Brian Keegan thinks we need to look to Brexit and the US general election for any real answers.Professions are notorious for using jargon, and different professions have preferred styles for their jargon. Doctors tend to abbreviate the ailments they treat, like the “flu”. Accountants tend to prefer acronyms such as IAASA, IFRS and FRC. Economists, on the other hand, use labels, often with reference to the chief protagonist within the economic phenomenon, hence “Laffer curve”, “Keynesianism” and, even at a stretch, “Pope’s children”.Creeping into the commentary at present is an alphabet soup of labels to describe the nature of the post-pandemic recovery. At the outset, we all hoped for a “V-shaped” recovery, denoting a rapid fall-off in activity matched by an equally rapid recovery. Then, more creative economic types, possibly channelling medical concerns over a second surge of the pandemic, started talking about a “W-shaped” recovery. This way, things will start to get better, lapse again and then recover more fully. The latest commentary talks about a “K-shaped” recovery, whereby some sectors of the economy will recover quite quickly, but others will continue to decline. However, judging from our most recent members survey, there is an expectation among Chartered Accountants of what could be termed a “B shaped” recovery, whereby over time most sectors will loop back to their level of activity post-pandemic. Almost all of our respondents thought that business activity would eventually get back to something resembling pre-COVID-19 days. The main area of disagreement was the amount of time this might take, with our members in the Republic of Ireland expecting a quicker recovery than our members in Northern Ireland. The expected difference in recovery time between the north and south of the island is borne out by the ultimate truth serum of economic status, which is the analysis of tax receipts published each month. Counting money will always give a more accurate picture than counting questionnaire responses. Not only that, because of the recurring nature of tax payments, it is possible to trace a coherent and reliable set of comparisons. Tax receipts in Ireland overall have remained remarkably stable, despite the impact of the pandemic. Yet, tax receipts in the UK are showing a serious decline year-on-year. One reason for the difference is down to timing. Ireland counts tax receipts from 1 January; the UK from 6 April by which time, of course, the pandemic was in full surge. However, the differing financial years do not fully explain the disparity. Consumption has fallen in both countries, as evidenced primarily by VAT receipts, but production, as evidenced by income tax and corporation tax receipts, has not shown the same decline in Ireland as in the UK.Resilience in production over consumption could prove to be critical in the coming months since coronavirus is only the first international crisis of 2020. Despite the behaviour of the respective governments, we are all paying too little attention to the impact the end of the UK’s transition period with the EU in December will have on Irish business. There is also insufficient attention being paid to the economic policies of the two main contenders in the US presidential election, nor much being discussed on how the outcome of that election could shape US trade, international corporation tax policy and foreign direct investment because of the focus on the country’s civil discord.The recovery prospects on the island of Ireland will indeed be B-shaped in 2021, but not because of the shape of the economic trajectory. Think instead about the impact of Brexit, and whether or not there is a Biden presidency. Dr Brian Keegan is Director of Advocacy & Voice at Chartered Accountants Ireland.

Barry Dempsey outlines Chartered Accountants Ireland’s new path to real change – for tomorrow, for good.“Real change, enduring change, happens one step at a time” – the words of the inimitable Ruth Bader Ginsburg. You could argue that the change we have seen in the way we all work and live our lives since March has happened far quicker than she could have foreseen. The unprecedented aside, however, her words have real resonance for our Institute as we embark on our own period of real change as an organisation of over 28,500 members.Real change for Chartered Accountants Ireland will be guided over the coming four years by a plan that I am excited and proud to launch, Strategy24. Change is not new to the Institute; when you are more than 130 years old, it tends to become a necessity for survival! It is change by our members and for our members, and as my colleagues who have worked alongside me can attest, engagement with members has been extensive. It has also been frank and honest; we did not want members to pull any punches. Our profession is changing all around us, so we want to be on our toes, working harder than ever to be the Institute that members need. Strategy24 will help us to do this.Our vision and valuesOur vision for Chartered Accountants Ireland is that of a vibrant, modern and highly relevant organisation with a network of digitally connected members who have a strong sense of belonging, no matter what their industry or where in the world they are. While in some ways, COVID-19 has made the world suddenly feel like a much bigger place, it has also accelerated the digitisation of the Institute, giving members that sense of connection even though they are apart. This direction of travel will continue through Strategy24.The values guiding Strategy24 are:Innovation with ambitionCollaboration for impactSpeed and simplicityInclusionTrustThe final value of “For tomorrow, for good” is the hub around which all the other values exist, driving home the “enduring change” that Ruth Bader Ginsburg spoke of, and through which we will create opportunities for members and students as well as ethical, sustainable prosperity for society.Origins of Strategy24Strategy24 builds on the success of our previous strategic document, Strategy 2020, which proved an effective roadmap for us. It identified what set the Chartered Accountancy profession apart and worked to build these differentiators for the benefit of our members.The themes that underpinned Strategy 2020 were attracting the brightest and best to the profession, being relevant to our members, and being the authoritative voice of the profession.Strategy24 will build on these achievements and seek to drive some broader strategic priorities, which represent a more significant change for our Institute, all developed through extensive consultation with members and relevant key stakeholders over the last year. Again, I cannot overstate the importance of this frank and honest engagement. The resulting plan represents all members and is robust enough to guide us – even at this time of heightened uncertainty. Strategy24 is the product of collaboration, trust and new ways of thinking. It is the very manifestation of the values that will guide us towards 2024.The building blocks of Strategy24Connecting: ‘redesigning the member experience’ and ‘amplifying our voice’. We aim to be a member-centric, vibrant and relevant organisation that facilitates a diverse, digitally connected and engaged network with a strong sense of belonging. We must be the effective and leading voice for members – consulted with, and influential on, key issues affecting the profession and the broader economy.Empowering: ‘educating members career-long’ and ‘building trust’. We will design and deliver high-quality, student- and member-centred, future-focused education that develops the capabilities sought by employers, equipping our members and students to excel at all career stages. In everything we do, we will aim to be recognised as an appropriate and effective regulator that drives value for members, stakeholders and the public, ensuring confidence in – and respect for – the Institute and the profession.Evolving: ‘elevating the brand’ and ‘becoming a high-performance organisation’. We will equip members, firms and employers with a contemporary brand that consistently reinforces and epitomises the values of the Chartered Accountant profession. Under this strategy, our Institute will focus on being a financially sustainable, digitally-enabled organisation with an agile culture that supports innovation and collaboration.A strategy for uncertain times When we started work on this strategy over a year ago, it was hard to imagine a threat more real and wide-ranging than Brexit. Indeed, for most of the duration of the development of this plan, COVID-19 did not have a name, having emerged as a ‘novel coronavirus’ on the other side of the world. Contemporary business language like ‘disruption’ has taken on a whole new meaning when, in weeks, entire industries have been decimated and other, never before imagined, niche industries are up and running.From a broader perspective, globalisation and technology have transformed access. Access to markets, knowledge, expertise, learning and capital has expanded exponentially. At the same time, connections and attachments have become lighter and more transient. Where people belong and what they belong to is blurred.Strategy24 is nevertheless a strategy for this uncertain time, and our ambition matches the scale of the challenge. The impact of the global pandemic on our economies and our societies, as well as the shape of our future relationship with our nearest neighbour, are just two of the unknowns that will become more fully known throughout the life of Strategy24. The reference to ‘24’ of course refers to the strategy taking us successfully through to the year 2024, but it deliberately implies more than that. It marks the prioritisation of an always-on, responsive Institute that is attuned to – and motivated by – members’ needs, whether virtually or in person.I hope that members can support, engage with, and see tangible benefits from Strategy24 as we move forward. The collaborative approach does not end with the launch of the document, however. I will continue to encourage your feedback in the weeks and months ahead so that our strategy can achieve what it is intended to, one step at a time. Barry Dempsey is Chief Executive at Chartered Accountants Ireland.

Swift and immense fiscal stimulus has driven equities to all-time highs in some cases, but inflation and interest rates could yet spoil the party.Having entered 2020 at nosebleed valuation levels, equities reacted sharply and suddenly to COVID-19 by falling by over 40% in Ireland, by over 35% in the UK and by just under 35% in the USA. But then stocks bounced right back. By mid-July, the Irish Stock Exchange index was down 16% compared to the beginning of the year, the FT 100 index was down 21% and in the USA, the S&P 500 index was down just 6%. The Nasdaq has even managed to hit new all-time highs.What is going on? The simple answer is that the world is witnessing an unprecedented level of official policy stimulus that is expected to trigger a sharp rebound in economic activity while interest rates (and corporates’ cost of capital) go lower than would otherwise have been expected. This stimulus is being felt first by financial markets but, if the past is an effective guide to the future, it will soon spread to an economy near you.The scale of the pandemic-induced fiscal stimulus announced by government treasuries and finance ministries is vast. According to BCA Research, a Toronto-based investment research boutique, it is more than double the level of stimulus the global economy got in the wake of the global financial crisis over a decade ago. Not only that, but it’s happening much more quickly. There was initially a delayed element of “crisis, what crisis?” to the last big downturn. The reaction this time has been swift and immense.The size of the fiscal response is dwarfed only by the scale of the monetary response. Even in Japan, where the annual rate of money growth has been under 3% for most of the last 30 years, M3 went up at an annualised rate of 10.5% in the three months to May. In the eurozone and the UK, the corresponding figure is about 20%. But the explosion in fresh money creation has been most evident in the USA where, in the three months to May, M3 rose at an annualised rate of almost 90%. The equivalent year-on-year rate of growth was the largest in modern peacetime history.Commenting on recent monetary policy, Tim Congdon and John Petley of the Institute of International Monetary Research concluded that unless the US Federal Reserve decides to withdraw or reduce some of that money injection, “upward pressures on asset prices, and then on prices of factors of production, and goods and services, will be a marked feature of 2021 and 2022.” Ironically, valuation levels may help contribute to yet higher equity values, despite most people believing that equities are currently levitating.A standard long-run measure of an equity’s value is its cyclically adjusted price earnings (CAPE) ratio. This eliminates the cyclical variability of profits as a factor that can distort the standard price earnings (PE) ratio by using average (inflation-adjusted) earnings over the previous ten years rather than earnings from just one year. Doing this compares a share’s price to an underlying ‘through the cycle’ measure of its earnings. The CAPE for the entire US market is nearly 30. It has only ever been this high twice before: in September 1929, just before The Great Crash, and during the 2000 tech bubble.However, it is not enough for us to look at PE ratios in isolation. We need to compare them to the valuation of competing assets. And right now, the value of the equities’ main asset competitor – bonds – are sky-high. Steve Sjuggerud, the author of investment newsletter True Wealth, charts the US 10-year bonds rate minus CAPE. This measure’s current level suggests that equities are relatively cheap! BCA Research has looked at that measure going back to 1955. They reckon it shows that US equities are historically cheap, relative to government bonds!To me, there are two key conclusions to take from this. First, the tsunami of fresh central bank liquidity being pumped into the global economic system means that, over the next 18 months, an equity melt-up (similar to those seen in Japan in 1989 and on the Nasdaq in early 2000) is far more likely than a meltdown. Second, this party will end abruptly if inflation stirs and interest rates start to rise significantly.Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

Construction has been hit hard by the pandemic, but with the right initiatives and supports it could also play a pivotal role in the country’s eventual recovery, writes Annette Hughes.Ireland entered 2020 in a reasonably strong economic position – preliminary GDP figures for 2019 suggest it was the fastest growing economy in the EU27 over three years, with almost full employment. However, the shock following COVID-19 has been unprecedented.The latest EY economic forecasts (released in May) expect GDP to fall by 11.1% this year. It is envisaged that government borrowing, as opposed to tax increases and public spending cuts, will finance the restart of the economy, predicted to rebound by 6.7% in 2021. Consequently, a benign international lending environment will be crucial, and a budget deficit close to €30 billion – around 10% of GDP – will be required in 2020 (Department of Finance), depending on the evolution of the virus.While the construction sector had been enjoying a consistent, healthy performance at the start of 2020, it was halted abruptly following the onset of the pandemic. All construction and housebuilding sites closed for seven weeks on 28 March, apart from around 35 social housing sites that were deemed essential. Although sites have been re-opening since 18 May, only a slow recovery can be expected. EY-DKM projections based on initial assessments (in May) across housing, non-residential buildings, offices, industrial use and public sector construction show that the volume of construction output by 2022 is forecast at just below 80% of the corresponding volume in 2019. The overall volume of construction output is forecast to decline by 37.7% this year, followed by a rebound of 17.6% in 2021 and 7.6% in 2022.The latest assessment from Euroconstruct has the Irish and UK construction sectors as the poorest performers across 19 countries. The value of construction is estimated to have reached €27.7 billion (8% of GDP) in Ireland in 2019, but the crisis is expected to result in a contraction in construction output by almost 34% in 2020 (5.9% of GDP). In the UK, construction volumes are expected to contract by over one-third. Both Ireland and the UK have the strongest recovery prospects in construction output in 2021 at 17.6% and 22.8% respectively.Meanwhile, the closure of sites is expected to reduce levels of new house building substantially. Notwithstanding supply challenges that existed pre-COVID-19, housebuilding is expected to fall to 14,000 units in 2020, down from 21,138 in 2019 and well below the requirement of 35,000 units per annum.The hope is that the industry recovers more strongly than expected, but there are downside risks, notably uncertainty regarding the virus and fear of a second wave. As such, housing supply constraints could be more significant than they were pre-COVID-19, resulting in an even greater challenge for affordability, the private rented sector, and homelessness.Ireland has the potential to lead the way in a European rebound and there is a substantial commitment of resources for public infrastructure projects by Government in the National Development Plan 2018-2027 and Project Ireland 2040.The new partnership of Government also promised to make “transformative changes” with various actions set out to drive economic recovery and place Ireland as an exemplar in decarbonising our economy. At the time of writing, the immediate actions awaited are the July Stimulus and the distribution of the EU Recovery Fund for Ireland. For construction, it will be essential that funding focuses on capital and labour-intensive projects as well as other essential pre-committed infrastructure projects. As an open economy, Ireland’s recovery is dependent on developments in our major trading partners, notably in the UK. Investing in infrastructure must be ramped up straight away and will deliver substantial economic benefits, as the multiplier spending impacts reverberate through the rest of the economy. But while the Government can transform our country economically, the responsibility for suppressing the virus ultimately rests with the whole of society.Annette Hughes is Director, EY-DKM Economic Advisory.

Des Peelo explains why Chartered Accountants have a responsibility to work hard at good communications.Accountants produce figures; that is our professional function. However, the ability to analyse and communicate those figures is the important role. The circumstances that give rise to the necessity of a report or analysis obviously range widely, but all result in the compilation and sharing of information to be understood by others.If you are in an accounting position and want the world to understand and appreciate your good work, remember that accounting figures – no matter the circumstances – are no more than an outcome and are not in themselves a decision, a conclusion or an explanation.Figures are just that, figures. They carry no intrinsic knowledge or purpose. The real skill for a Chartered Accountant (and in my opinion, we are not good at it) is to present an understandable interpretation and communication of the figures.The higher or greater the decision to be made in business, and sometimes in politics, the more the figures will influence the decision. In my experience, however, you cannot assume – even at the highest levels of business or political life (or, for that matter, in a courtroom) – that all are capable of looking at an array of numbers and knowing what they mean.Financial illiteracy is widespread and rarely admitted. I believe that this illiteracy explains many poor business and economic decisions. It is up to us as Chartered Accountants to work hard at good communications, and as a skill, it should be top of the continuing professional development agenda.In presenting figures, remember the audience. What is the purpose of compiling the figures? Who will read them and what is expected of the audience having read the figures? This last question is most important of all. The accountant must be very careful indeed when it comes to interpretation and presentation as the outcome decision, based on the figures, may be significant capital outlays, a court judgment, a misdemeanour identified, a monetary claim pursued, and so on.What sometimes gets lost in translation is the difference between presenting facts and presenting conclusions. It is important to know and understand whether the accountant, in presentation, is being asked to present facts for the audience to make a decision or draw a conclusion, or whether the accountant is being asked to make that decision or conclusion, as supported by the facts in the presentation. A muddled financial analysis without a clear purpose is of little help to anyone, but in my experience, this is a common scenarioThe audience is not there to be impressed by the detailed calculations or workings in the presentation. A straightforward one- or two-page summary should clearly state the outcome as to the purpose of the presented figures. The detailed calculations or workings should always be shown as appendices and cross-referenced in the summary.Compiling and interpreting figures usually involves making some assumptions. These too should be listed in a separate appendix. Figures are only as good as the likely validity of any assumptions underlying them. Outcomes do not always have to be precise. A range based on valid assumptions such as ‘best’ and ‘worst’, or ‘high’ and ‘low’ is often wise as singular figures, in themselves, can give an impression of being definitive.An enduring bugbear in poor presentations is the numbering of paragraphs. The use of sections, sub-sections and Roman numerals can end up with the likes of “Paragraph 5,2(B)iv”. Most reports require cross-referencing such as “please refer to paragraphs 10 and 16 above”.There is nothing to prevent someone from presenting an entire report as simply paragraph 1, 2, 3 and so on. There can be interspersed chapters or section headings as the report goes along, but the simple numbering is continued. Some readers will be aware that simple numbering is common practice in Germany, the United States, and within multinationals and international organisations. This is standard practice when it comes to emails, as it allows for easily cross-referenced responses.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.

The pandemic and Brexit both provide momentum for bigger government – but don’t expect any protestations from the public, writes Dr Brian Keegan.The late US president, Ronald Reagan, never tired of giving out about big government. It’s a crude measure of the influence of government, but the level of national debt gives us some indication of the gap between what it costs to run a nation and what that nation can legitimately collect in taxes from its citizens.National debt suffers from spikes and fluctuations from wars, recessions and – as we are now seeing – pandemics. Such things are outside our control. But even when they are within our control, the national debt can grow unexpectedly. Despite Reagan’s protestations, the US national debt grew almost threefold during his eight years in office.The current pandemic will not grow the national debt of either Ireland or the UK by a comparable amount, but that is a factor of the scale of the existing national debt. Perhaps a better way to assess the impact of government is to look at the number of government agencies we now must deal with. Ireland’s Comptroller and Auditor General has almost 300 departments and organisations to scrutinise during his audit and assurance work. The UK National Audit Office looks over 400 or so UK government entities. As if to catch up, the new Irish Government’s programme makes over 20 references to the creation of new agencies or to increasing the remit of existing ones.The creation of agencies drives public sector jobs. The Institute of Public Administration recently noted that public sector employment in the Republic of Ireland exceeded 300,000 back in 2018, thus restoring staffing to pre-great recession levels. Before the pandemic struck, public sector employment in Northern Ireland exceeded 200,000. While most of our fellow citizens in the public sector are involved in service delivery, a lot of them are involved in regulation.We are already seeing how the pandemic is driving government size. Over the past few months, much of the Institute’s advocacy work has been about brokering arrangements with government – both north and south – to make things like the Temporary Wage Subsidy Scheme and the Job Retention Scheme work better on the ground. Ensuring that these schemes work well is vital, but they take up time, eating into the capacity of both our members in business and our members in practice to deliver other added-value services. Other business supports like state-backed loan guarantee schemes are also going to bring an additional burden of compliance, assurance and red tape.Brexit too is providing momentum for bigger government. The UK Government is duplicating many control and regulatory functions that were previously unnecessary because of EU treaty arrangements or because they were within the purlieu of European institutions. This pattern is being replicated across Europe. For instance, the Revenue Commissioners were to hire 500 additional customs officers to do the additional cross-border trade checks along with apparently 750 in the Netherlands, 700 in France, and close to 400 in Belgium.By and large, business on the island of Ireland benefits from the degree of State regulation. Yet, its role in attracting and securing foreign direct investment by creating a safer investment environment can get overlooked. On the other hand, businesses do not exist to carry out paperwork. This tension was always there. What the pandemic has changed is the political appetite to increase regulation.I think any Reaganesque political campaign promising smaller government would be unlikely to succeed these days. Even if politicians were minded to rein in the regulatory horses, the pandemic has created a greater willingness among the general public on this island to be governed, as evidenced by the almost blanket acceptance of the strictures of lockdown.Dr Brian Keegan is Director of Advocacy & Voice at Chartered Accountants Ireland.