Comment

The ability to judge the mood music of society could be our greatest asset in shaping how the profession is perceived, writes Dr Brian Keegan. If you happen to be an auditor and are of a sensitive disposition, look away now. Apparently, you are not a member of a profession. This is just one of the suggestions of the Brydon review into the quality and effectiveness of audit, which was published at the end of last year. Brydon’s work was prompted by public disquiet over high-profile business collapses in the UK, where it was believed that the auditors should have done better. The standard response of politicians everywhere to topics that make them uncomfortable is to commission a review. In that way, action is seen to have been taken and the discomfort is spread around. There are many reasons, of course, why Brydon is wrong about auditing not being a profession. An audit is, after all, about the exercise of intellectual skill and knowledge. It is an unfortunately flippant conclusion in a study that otherwise has a lot going for it. Worse, in the court of public opinion, many people won’t necessarily make a distinction between what an auditor is and does, and what an accountant is and does. It is therefore inevitable that the profession often finds itself in the uncomfortable position of having to explain itself. It doesn’t matter that our most immediate stakeholders – board members and investors – know perfectly well the contribution of the audit and the role of the auditor. Government policy in any area is not exclusively formed by listening to, and then following, the views of knowledgeable stakeholders. The perception of the accountancy profession can be contradictory. Surveys conducted by Edelman (admittedly commissioned by this Institute) report that the level of confidence in accountants among financial decision-makers is high relative to the level of confidence in other professions. Yet public opinion is all too willing to jump on the bandwagon when they think we get it wrong. For instance, the response to the exclusion of the former Chair of Anglo Irish Bank, Mr Sean Fitzpatrick, from Chartered Accountants Ireland was heavily skewed. Much of it focused on the length of time our proceedings appeared to take. No one seemed interested that the Director of Public Prosecutions wanted the State’s actions in the matter to conclude first, hence a seven-year delay. Understanding this lack of interest is important because the effective communication of what the profession is and does relies heavily on the receptiveness of the public audience. There are lessons here from politics. Prime Minister “Get Brexit Done” Johnson and President “Make America Great Again” Trump are widely lauded for their communication skills, but that misses the point. The genius of the messaging of Prime Minister Johnson and President Trump is not in their capacity for articulation – it is in their capacity to read the mood of the public. During the recent hustings in the Republic of Ireland, the major political parties would have fared better using slogans like “give people homes” or “hospital beds, not trolleys” instead of plaintive murmurings about futures we can look forward to, or an island for all. Like the more successful politicians, the accountancy profession has to get better at reading public opinion and responding to that mood. If we fail to get across the ethical value and the competency involved in the work that accountants do, and the wider contribution made to society by virtue of that, future government policy towards accountants and auditors will be shaped by the negativity that is already out there. Much is made of the challenge to the profession from things like artificial intelligence and robotic process automation. You can add to that list the suspicion with which the profession is viewed. We now know that some don’t even consider that auditing is a profession at all. Dr Brian Keegan is Director, Advocacy & Voice, at Chartered Accountants Ireland.

Against a backdrop of underinvestment, housing will remain a key economic concern for the new Government, writes Annette Hughes. With 2020 well under way, some of us have already broken our New Year’s resolutions and had our focus shifted to the plethora of election resolutions and promises which emerged over the past four weeks. With the election now behind us, political leaders will need to focus on delivering on those election promises.  Governments generally have a five-year term to fulfil their promises, but experience tells us that some of the policy commitments promised in party manifestos may never be implemented. The new Government faces both challenges and opportunities in steering a sustainable economic path as it embarks on a new term. One of its key functions is to administer public policy and deliver high-quality public services and infrastructure across a range of areas including housing, health, education and transport. Notably, housing was the topic that received the most attention during the election campaign and it remains the Government’s number one priority. There continues to be underinvestment in both private and social housing, and the demand for housing significantly exceeds the current supply. Much has been made of the doubling of housing stock from 2016 to 2019 with 21,000 new homes, however the national annual housing supply requirement is closer to 35,000. We were informed during the election campaign that 6,000 new social housing units were built in 2019. Yet, data from the Department of Housing, Planning and Local Government shows that there were 2,003 new social housing units built in the first nine months of 2019, or 2,229 units when local authority vacant units brought back into the stock are included. Adding acquisitions (1,533), units leased from the private sector (630), households supported under the Housing Assistance Payment (12,853) and the Rental Accommodation Scheme (717), implies that a total of 17,962 social housing households were accommodated in the first nine months of 2019. This may be in the region of 24,000 for the full year. This total is in a year in which the latest assessment of housing need reported that there were 68,693 households across the State (43.2% in Dublin) on the social housing waiting list.  In the meantime, the shortage of affordable accommodation to rent and buy continues to create challenges for Irish policy makers, notably, the escalating homelessness problem, and rising rents and property prices, although the rate of growth has moderated in recent months.  Some of the solutions proposed included building more social and affordable homes, preferably on State-owned lands, which has implications for the level of capital investment on housing (€2.03 billion in 2020), the second largest allocation after transport (€2.5 billion). Other measures included rent regulations, which have proved to have a range of unintended consequences for tenants, including a negative impact on new and existing supply, as well as the potential for lower quality stock. The issue of the decade will undoubtedly be climate change and this too will impact on housing stock. With an estimated two million residential properties across the country, the potential cost of retrofitting to improve energy efficiency could be in the region of €10,000 to €30,000 per home, depending on its age and quality.   The one consensus during the election campaign by all parties was that there needs to be a substantial and fundamental change in housing policy, given the failure by all to address a number of issues over the past decade. The new Government clearly has its work cut out. Annette Hughes is a Director at EY-DKM Economic Advisory.

Cormac Lucey argues that accountants need to discuss one of the most unjust outcomes of Government profligacy – the over-taxing of the State’s high earners. The UK electorate recently faced a general election where, under the leadership of an Islington Marxist, the British Labour Party was offering its most left-wing proposals for a generation. It proposed raising the rate of income tax on earnings above £125,000 (equivalent to €146,000) to 50%. With the 4% UK rate of PRSI, that would have required Britain’s top earners to pay a marginal rate of deduction of 54%. In the Republic, those of us of a right-of-centre political disposition are lucky not to have to face the prospect of barely diluted Marxism as a real policy prospect. Here, government control switches pretty seamlessly between right-of-centre Fine Gael and right-of-centre Fianna Fáil-led administrations. That’s the theory. The reality is something very different. Down south, top earners must already face a 52% (income tax 40%, universal social charge 8% plus 4% PRSI) rate of deduction on income above €70,000. Indeed, if a person is self-employed, they face a marginal rate of 55% on income above €100,000. In terms of top tax rates, high earners in Ireland already face marginal rates of deduction in excess of 50% at incomes of around twice the national average that the UK Loony Left was only contemplating applying on incomes of about four times that average. Largely unnoticed, the contours of the Irish tax system have changed very substantially since 2007. Income tax receipts are up €9.3 billion, or 68%, from 2007 levels. They have risen from 29% of total tax receipts to an expected 40% this year. Thirteen years ago, income tax proceeds were slightly lower than VAT receipts. Last year, they exceeded VAT receipts by 52%. The Organisation for Economic Co-operation and Development (OECD) has concluded that Ireland has the second most progressive income tax system among its 36 member countries and the most progressive among its EU members. In other words, high earners pay disproportionately more in income tax here than in nearly every other developed country in the world. Revenue’s Budget 2020 Ready Reckoner document reveals that the top 1% of income earners (those earning more than around €250,000) contribute more than a fifth of all income tax receipts, while the top 5% of income earners (those earning more than about €125,000) contribute more than 40% of total receipts. By contrast, the bottom 75% of income earners (those earning around €55,000 or less) contribute a mere 18% of total income tax proceeds. The top 1% lose an average of 42% of their income in State deductions while the bottom 75% lose an average of 9%. One might accept this dramatic soaking of high earners if it was required to save the State from imminent insolvency, but the Troika left town in 2013. Large rises in tax revenues since then have been used to fund dramatic increases in State spending rather than to reduce the national debt. When the Government first officially forecast total 2018 Government spending, it expected a total spend of €60.3 billion (according to the 2014 Stability Programme Update). In reality, the Government ended up spending €76.8 billion in 2018, 27% more than its original forecast. High earners are being soaked, not to save the State from bankruptcy or to secure minimum levels of State spending but, rather, to indulge a fiscally incontinent and gruesomely inefficient Government apparatus. It strikes me that we (as a profession) and Chartered Accountants Ireland (as a representative body) should speak more loudly about the clear errors and short-sightedness of this approach.  Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

The resourceful con artist has now moved to online scams, but old advice still holds, writes Des Peelo. Confidence and a presence are often perceived as necessary for business or personal success. This resonates with me in the context of recognising con artists, better described as fraudsters, whom I have encountered. The most outstanding was an approach from a gentleman, intending to be my client, who lived in a suite in one of the great London hotels. Of indeterminate nationality, his occupation – or the source of his apparent wealth – was not evident. Happily, I withdrew from involvement early in the saga but became aware of subsequent events. A mine of false information This gentleman was promoting an opportunity for investment, which was highly confidential, in newly discovered vast ore resources adjacent to a previously worked-out mine in Ireland. The geological studies and supporting paperwork (all forged) was there. The scam worked for nearly £3 million. British aristocracy and London financiers, amongst others, came on board. Subsequently, this gentleman was arrested in the UK. He was refused bail as the police said they found nine passports in his suite. After one year on remand in a London prison, the charges were inexplicably dropped, though an accomplice and a UK solicitor were subsequently jailed. No monies were recovered. During that year in prison, my almost-client managed to have meals delivered from the hotel, paid monthly in advance. He also started a charismatic movement and a choir. On learning of his imminent release, he called the hotel manager, who reportedly said something like “wonderful news; we will send a car” and he moved back into his suite. That was not the end of the story. Some years later, on watching an investigative programme on UK television, there was my almost-client being named for a stunt involving investors and coffee futures in Central America. This time, still based in London, he allegedly had a prestigious commodities brokerage office in Miami. A load of beeswax Older readers may recall the origin of the description ‘widget’. It was first used in an amusing film, loosely based on a real event in the 1950s, about a Texas con artist launching a widget company on Wall Street. None of the financiers knew what a widget was or wouldn’t admit they didn’t know, but the word was that the oil industry was very excited about it. Hence the contemporary use of the word ‘widget’ when nobody understands the product. The modern equivalent of a widget, on occasion, might be a ‘tech disrupter’. My possible ‘widget’ moment involved another gentleman from London. He arrived in Ireland sporting impressive achievements, connections and qualifications (all bogus), including being a medical doctor. His business card showed an address on the famous medical Harley Street in London (which turned out to be a temporary post-box). Accompanied by a self-described titled lady, he rented a country mansion near Dublin and quickly entertained his way into the bloodstock and racing fraternity. He claimed to be developing a product akin to Viagra, long before it was invented. The connection with Ireland was that the magic ingredient could only be sourced from the blood and urine of top-bred horses. State agencies expressed interest, impressive international names were mentioned as possible directors, suitable sites were inspected, and so on. All that was missing, of course, was the millions necessary to bring it all together. Fortunately, shortly before substantial monies changed hands, a sceptical stud farm owner and the IIRS (then a State scientific agency) analysed a prototype unbeknownst to the bogus doctor. It was largely beeswax. The gentleman concerned managed to depart Ireland in time, leaving large unpaid bills. He was last heard of as being in Lebanon, again something to do with horses. Don’t be fooled The world has now changed for the con artist. The old scams are easily identified with instant access to history, profiles and technical information. However, the resourceful con artist has now moved to online scams. If an investment is too good to be true, it is. This adage has never changed. 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.

Brian Keegan considers the poignant parallel between Brexit and New Zealand in the 1970s. "Earthquake? Best thing that ever happened to us.” This isn’t the best response to the damage done to the city of Christchurch in New Zealand in the wake of the terrible earthquake in 2011. My man had the grace to acknowledge as much after he remembered the appalling loss of life and limb from this particular natural disaster. Nevertheless, as someone who was deeply involved in the New Zealand construction industry, he was all too happy to see the opportunities created by the devastation. It isn’t the first time that New Zealanders suffered due to powerful circumstances outside their control. While the memories of the 2011 earthquake are clearly fresher, there is also a folk memory among New Zealanders of the economic damage caused to them when the United Kingdom joined the European Union in 1973. For a country largely dependent on agriculture exports to its former Commonwealth headquarters, the British accession to what was then the European Economic Community some 40 years ago was a disaster. The economic disruption of 40 years ago is comparable to the threatened damage from Brexit to the food industry of Ireland – north and south. In the 1970s, New Zealand’s main exports were butter and lamb. Despite being on the other side of the world, the UK was a key market for these goods and, in fact, accounted for some 30% of New Zealand’s exports. Being members of the Commonwealth, New Zealand had preferential access to UK markets. That access was to be a casualty of Britain’s accession to the EU. In fact, so great was the problem for New Zealand that London committed to doing what it could to protect New Zealand’s vital interests in the course of negotiating the British accession treaty. The so-called Luxembourg agreement guaranteed limited access for New Zealand produce for a five-year transition period. The idea was to give New Zealand breathing space to negotiate free trade deals with other markets and diversify its export offering, but the economy tanked nevertheless. If all this sounds familiar, that may be because we are witnessing history repeating itself in a way that would have considerable entertainment value if the issues weren’t quite so serious. Leo Varadkar’s mischievous remark that Westminster should offer pay-per-view wasn’t that far off the mark. We may, however, be watching the wrong channel if we are to learn from this repeat – it’s the New Zealand experience we should focus on. In the 1970s, New Zealand wine was virtually unobtainable in Europe and kiwi fruits were a rarity. Now they are mainstream. 40 years on, New Zealand’s export destinations are Australia, China, the United States (US) and Japan in order of importance. The country’s volume of trade with the UK has declined by over 60%. Our Brexit discussions must now move on from brinkmanship and dead-in-a-ditch rhetoric. We are going to have to figure out how to co-exist and trade with our nearest neighbours, culturally and geographically. Business will have to work out how to diversify and establish new markets, and hopefully avoid a repeat of the worst aspects of the 1970s suffered in New Zealand. I doubt very much that any of us will ever be exclaiming, however thoughtlessly like my earthquake man, that Brexit was the best thing that ever happened to us. That’s because there’s one other point about the New Zealand experience. Even though it was clear for about a decade that the trading relationship with the UK would inevitably change in 1973, the New Zealanders seem to have done precious little about it until the hammer fell. Sometimes it takes a crisis to deliver change. Dr Brian Keegan is Director of Advocacy & Voice at Chartered Accountants Ireland.

Brexit deadline The 31 October Brexit deadline is fast approaching and clarity on the issue is as far away as ever. At the time of writing, many options seem possible, including a Brexit delay and a UK general election, but perhaps the most likely prospect is a no-deal or limited-deal Brexit. Both the Irish and British governments have urged businesses to prepare for Brexit, particularly those that import, export or transport goods, animals or animal products. It seems that the UK government is operating on the assumption that a hard border will return to the island of Ireland, as revealed in a UK no-deal contingency document codenamed ‘Operation Yellowhammer’, which was eventually published in mid-September after leaks to the press. The document warns of potential unrest in Northern Ireland along with road blockades, job losses and disruption to the agri-food sector, as well as an increase in smuggling and the potential for disruption to electricity supply. We must hope that this is a dire overestimation of a worst-case scenario. Meanwhile, in Dublin, Institute President Conall O’Halloran recently met with Minister for Finance, Public Expenditure and Reform, Paschal Donohoe TD, to discuss the post-Brexit scenario as well as the Institute’s 2020 Budget submission and other business issues. Brexit support Our Institute will do everything it can to support members and member firms at a time of great uncertainty. You can read our latest updates on www.charteredaccountants.ie, particularly in our Brexit Web Centre and our page dedicated to no-deal Brexit planning. We are encouraging businesses across Ireland and the UK to ensure that they can continue to trade with each other post-Brexit. Applying for a customs registration (an EORI number) is just the first step in the process. Getting an EORI number takes between three and five minutes and can be completed online. While some traders have experience in the customs formalities required to import and export outside of the EU, it will be a first for many – particularly smaller enterprises. Businesses need to upskill in the area of customs using Government supports. They should also assess whether they have gaps in customs knowledge. Revenue estimates that customs declarations are expected to increase from 1.4 million to 20 million per year post-Brexit. HMRC estimates that declarations will grow five-fold to around 250 million. It’s best to be as prepared as possible. New academic year As we move into October, our Institute is about to welcome a new crop of students following a campaign to recruit the brightest and best to the profession. A new programme of specialist qualifications covering areas as diverse as corporate finance and cybersecurity are also getting underway. A central part of our strategy is to train the very best business professionals so that they can make a significant contribution to the economy on the island of Ireland, and further afield. We’re working hard to ensure that whatever the economic climate, we’re providing high-quality Chartered Accountants who will make a valuable contribution to firms and businesses. On behalf of my colleagues in the Institute, I’d like to offer our best wishes to all of our new students as they start out on their Chartered journey. Barry Dempsey Chief Executive