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Management
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Counting the costs

SMEs hit hard by the pandemic must now grapple with the economic fall-out of the war in Ukraine, signalling fresh uncertainty for the year ahead, so what’s the best plan of action? COVID-19 lockdowns, global supply chain disruption, inflationary pressure – and now the economic fallout from the Russian invasion of Ukraine.  The headwinds facing Ireland’s small- and medium-sized enterprises (SMEs) show no signs of easing as we enter the third quarter of 2022. Even as the year began, the imminent winding down of Government supports for COVID-hit businesses was already prompting speculation of a spike in insolvencies just around the corner. Now, Gabriel Makhlouf, Governor of the Central Bank of Ireland, has called on a “patient” approach from policymakers and creditors to help ensure that “unnecessary liquidations of viable SMEs are avoided over the coming months.” Speaking at a recent event in Dublin co-hosted by the Central Bank of Ireland, Economic and Social Research Institute, and the European Investment Bank, Makhlouf pointed to the need to “channel distressed but viable businesses towards restructuring opportunities and unviable businesses towards liquidation.” Uncertain outlook For those SMEs in the sectors hit hardest by the pandemic, the fresh economic turmoil sparked by the Ukraine invasion will be a cause for concern. “The outlook right now for SMEs generally in Ireland is very hard to determine,” said Neil McDonnell, Chief Executive of the Irish SME Association (ISME). “It will vary considerably from sector to sector, but after two bad years for hospitality and tourism due to the pandemic, the war in Ukraine is likely to mean volumes will remain low into the summer.”  Pandemic-related insolvencies have yet to spike. Research released by PwC in February found that Government support had saved at least 4,500 Irish companies from going bust during the pandemic, representing an average of 50 companies per week during the period. Insolvency rates are likely to rise in the months ahead, however, as pandemic supports are withdrawn from businesses with significant debts, and PwC estimates that there is a debt overhang of at least €10 billion among Ireland’s SMEs, made up of warehoused revenue debt, loans in forbearance, supplier debt, landlords, rates and general utilities.  “Government supports have to end at some point. We realise this, but it will be accompanied by a significant uptick in insolvencies. This is natural and to be expected, since 2020 and 2021 both had lower levels of insolvency than 2019,” said Neil McDonnell. “Aside from hard macroeconomics, however, we can’t ignore the element of sentiment in how businesses will cope. This is the third year in a row of bad news.” Confidence in the market Before taking on his current role as Managing Partner of Grant Thornton Ireland, Michael McAteer led the firm’s advisory services offering, specialising insolvency and corporate recovery. “What I’ve learned is that you really cannot underestimate the importance of confidence in the market,” said McAteer. “If we go back to 2008 – the start of the last recession – or to 2000, when the Dotcom Bubble burst, we can see that, when confidence is lacking, the pendulum can swing very quickly. “If you’d asked me a few weeks ago, before the Ukraine invasion, what lay ahead for the Irish economy this year, I would have been much more optimistic than I am now. “Yes, we were going to see some companies struggling once COVID-19 supports were withdrawn, particularly those that hadn’t kept up with changes in the marketplace that occurred during the pandemic, such as the shift to online retail – but, overall, I would have been confident. Now, it is harder to judge.” Government supports Neil McDonnell welcomed the recent introduction of the Companies (Rescue Process for Small and Micro Companies) Act 2021, which provides for a new dedicated rescue process for small companies. Introduced last December by the Department of Enterprise, Trade and Employment, the legislation provides for a new simplified restructuring process for viable small companies in difficulty. The Small Company Administrative Rescue Process (SCARP) is a more cost-effective alternative to the existing restructuring and rescue mechanisms available to SMEs, who can initiate the process themselves without the need for Court approval. “We lobbied hard for the Small Company Administrative Rescue Process legislation. The key to keeping costs down is that it avoids the necessity for parties to ‘lawyer up’ at the start of the insolvency process,” said McDonnell. “Its efficacy now will be down to the extent to which creditors engage with it and, of course, it has yet to be tested in the courts. We hope creditors will engage positively with it.” McDonnell said further government measures would be needed to help distressed SMEs in the months ahead. “We already see that SMEs are risk-averse at least as far as demand for debt is concerned. Now is the time we should be looking at the tax system to incentivise small businesses,” he said.  “Our Capital Gains Tax (CGT) rate is ridiculously high, and is losing the Exchequer potential yield. Our marginal rate cut-off must be increased to offset wage increases.  “Other supports, such as the Key Employee Engagement Programme (KEEP) and the Research and Development (R&D) Tax Credit need substantial reform to make them usable for the SME sector.” Advice for SMEs For businesses facing into a challenging trading period in the months ahead, Michael McAteer advised a proactive approach. “The advice I give everyone is to try to avoid ‘being in’ the distressed part of the business. By that, I mean: don’t wait until everything goes wrong.  “Deal with what’s in front of you – the current set of circumstances and how it is impacting your business today.  “Ask yourself: what do I need to do to protect my business in this uncertain climate, and do I have a plan A, B and C, depending on how things might play out? “Once you have your playbook, you need to communicate it – and I really can’t overstate how important the communication is.  “Talk to your bank, your suppliers, creditors, and your employees. Sometimes, we can be poor at communicating with our stakeholders. We think that if we keep the head down and keep plugging away, it will be grand.  “By taking time to communicate your plans and telling your stakeholders ‘here’s what we intend to do if A, B or C happens,’ you will bring more confidence into those relationships and that can have a really positive impact on the outlook for your business. “Your bank, your creditors and suppliers are more likely to think: ‘These people know their business. They know what they’re doing.’ If something does go wrong, they know that there is already a plan in place to deal with it.” Role of accountants Accountants and financial advisors will have an important role to play in the months ahead as distressed SMEs seek advice on the best way forward. “We are about to experience levels of inflation we have not seen since the 1980s. This will force businesses to address their cost base and prices,” said Neil McDonnell. “My advice to SMEs would be: talk to your customers, to your bank, and your accountant. Your accountant is not just there for your annual returns. They are a source of business expertise, and businesses should be willing to pay for this professional advice. No business will experience an issue their accountant will not have not come across before.” As inflation rises, SMEs are also likely to see an increase in the number of employees seeking pay increases, McDonnell added. “Anticipate those conversations, if they haven’t occurred already,” he said. “Any conversation about wages is a good time to address efficiency and productivity – is there more your business could be doing to operate more efficiently, for example, thereby mitigating inbound cost increases?”

Mar 31, 2022
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Strategy
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Reviewing our economy with a focus on value and equity

Tackling climate change will mean embracing economic models that prioritise the many, not just the elite few, writes Kate van der Merwe. In the pursuit of a holistic and inclusive economy that can serve current and future generations, we need to take a fresh look at our economic alternatives.  We are facing existential challenges: a climate crisis that we continue to escalate; a biodiversity crisis that is the sixth mass extinction; and significant inequities that the coronavirus pandemic has served to both highlight and exacerbate.  We must review how our economy works with a focus on real value and equity. In doing so, let’s scrutinise the underlying assumptions and realities, and consider alternative options, including the transformative innovations of social and circular economies. The current context Traditionally, economics is often framed as the study of how people make choices and allocate scarce resources over time, individually and collectively — for example, forsaking consumption now for later benefit (in finance, the choice to invest). Key concepts include ‘utility’ (the satisfaction from something) and ‘consumption.’  The relationship between both is represented by the ‘utility curve,’ which defines utility in direct and positive relation to consumption. Simplified, this means that the more we consume, the happier we are.  In finance theory, utility becomes defined in terms of monetary value. The concept of ‘consumption’ also defaults to a narrow definition of a one-time event. When supply meets demand in the market, for example, economic actors (businesses) are driven to mass-produce for one-off transactions, placing emphasis on short term profits.  When core concepts are so narrowly defined, the underlying utility or value is distorted. By focusing so narrowly on monetary value, we can become disconnected from the real value of the ‘thing’ money is buying and being valued upon. An investor following these limited definitions might, for example, invest in a high-yield mining company even if those yields are derived from destroying the health and wellbeing of their community, and feasibly worsening the investor’s overall utility, particularly in the long term.  If we assume that the fulfilment of our essential physiological needs has the highest incremental utility, then a theory assuming and supporting insatiable consumption — despite the consequences of that consumption threatening our essential physiological needs — appears contradictory.  As the COVID-19 pandemic has highlighted, inequity remains a significant challenge. In the current global economy, just one percent of the population holds 38 percent of wealth, while 50 percent holds just two percent.   During the pandemic, the world’s 10 richest men doubled their wealth. As the average worker faced job insecurity, CEO compensation rocketed. In the US, the CEO-to-worker compensation ratio reached 351:1 (in 1965 it was 21:1).  The pandemic has been a relatively mild precursor to the disruption that is building because of climate change – a threat that we have created, one that our current economic system perpetuates and that we have the power to stem. In facing this disruption, we will need economic models that prioritise the many, not just the elite few.  Alternative approaches Alternative models and ideas include circular, ecological, ‘donut,’ community, collaborative or sharing, social and solidarity economies. Loosely speaking, many focus on or draw inspiration from addressing social inequity and/or the environmental crises.  They look to democratise the economy, to better address systemic inequities, as well as incorporating realistic assessments of nature’s limits, so that we might begin to tackle our self-destructive environmental trajectory. Many of these ideas are not new. They are part of our history.  Their elegance is in their flexibility and compatibility with being layered and combined, an example being a social enterprise engaged in the circular economy. Given the breadth of this topic, this article briefly discusses two of the alternative models: social economy and circular economy. The social economy While the concept of the social economy is long-standing, its definition is evolving. Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Key features include a core organisational purpose of maximising societal and/or environmental impact, not profit, through the reinvestment of profits, and often incorporating democratic governance.  Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Within the EU, 2.8 million (10 percent) of all organisations are social economy enterprises, employing 13.6 million people.  While GDP is a problematic measure, the social economy contributes eight percent of the EU’s. One growing and exciting part of the social economy are those social start-ups that are applying innovative solutions to some of our biggest problems, like climate change, often tackling social and environmental issues simultaneously.  During the COVID-19 pandemic, the social economy gained visibility for its resilience and its value creation on a broader scorecard and structural supports are developing.  Last year, when announcing social enterprise funding, Minister for Rural and Community Development, Heather Humphreys, recognised social enterprises for “the invaluable role” they played throughout the pandemic, making “an important contribution in areas such as mental health, social inclusion and the circular economy.” In 2019, the Irish Government published the National Social Enterprise Policy for Ireland 2019–2022, which is also a core component of the State’s plans for rural and community development.  The EU is also scaling up support for the social economy, publishing the Social Economy Action Plan in 2021 for implementation this year, with plans for an EU Social Taxonomy.  A European stalwart of the social economy, based in the Basque Region of Northern Spain, is the Mondragon Cooperative Corporation.  Established in 1956, Mondragon is one of the largest corporates in Spain, with sales in over 150 countries. It comprises a collection of mutually supporting social enterprises engaged in education and innovation, finance, retail, and manufacturing/engineering (including the esteemed Orbea bicycles brand and Urssa, the world-renowned steel manufacturer).  Mondragon is particularly intriguing given its social impact aspirations — the structures and practices it has created to differentiate itself as social (such as maintaining a pay ratio limit of 6:1), while maintaining success in an ill-fitting capitalist economic structure.  Ireland also has its own booming social enterprise sector, with plenty of examples across a wide range of sectors, such as:  FoodCloud (connecting retailers with charities to donate food);  Airfield Estate (a working farm, kitchen, education, and food destination in Dublin); WeMakeGood (Ireland’s first social enterprise design brand) and; Moyee Coffee (“a radical company with radical [Fairchain] impact”). The circular economy The circular economy is also gaining ground, driven by the threat of climate change. The circular economy designs out waste by optimising scarce resources to build a restorative and regenerative economy.  It does this by deploying interdisciplinary systems thinking, i.e. considering complex systems holistically, and incorporating relationships and interdependencies between parts.  A long-term approach to resources, especially minimising the use of raw materials, fundamentally contrasts the circular economy with the linear ‘take-make-waste’ economic system.  The circular economy treats natural resources as scarce, which serves to keep climate breakdown and the threat to our survival front and centre. Maintenance and repair services grow, while production becomes more focused on non-virgin sources, thereafter prioritising regenerative materials. The emphasis is on prolonging the life and utility to be gained from products. This shifts the focus from expiry-bound consumption to ongoing use. The circular economy also diversifies the ways we transact – from individual ownership to shared ownership or rental (product-as-a-service).  The Whole of Government Circular Economy Strategy 2022–2023: Living More, Using Less, the first of its kind in Ireland and the Environmental Protection Agency’s Circular Economy Programme 2021–2027, both launched in December 2021.  These are core to the Irish Government’s drive to achieve a 51 percent reduction in greenhouse gas emissions by 2030 and to reach net-zero emissions by no later than 2050. A Circular Economy Bill is also in development.  Similarly, the EU is enabling the circular economy as part of the European Green Deal, adopting a new circular economy action plan (CEAP) in March 2020.  This action plan introduces both legislative and non-legislative measures aimed at facilitating the transition to a circular economy, including the establishment of the European Circular Economy Stakeholder Platform for sharing and scaling up the circular economy. Examples of businesses successfully applying circular principles include MUD Jeans, which offers a discount on the next purchase or lease for each pair of end-of-life jeans returned, recycling the returns into new jeans, eliminating waste, and using 92 percent less water in production.  Locally, the Rediscovery Centre in Dublin is the National Centre for the Circular Economy in Ireland. It hosts four up-cycling social enterprises in fashion, furniture, bicycles, and paint, as well as an Eco Store, and provides various educational offerings. Traditional businesses are also increasingly incorporating circular elements. Harvey Norman, for example, is offering preowned, refurbished phones. Holistic view While the traditional economy has a limited singular focus on the point-of-purchase, many of the alternative economy models, such as social and circular, take a more holistic view and can recognise and pursue multiple goals simultaneously.  Such models reflect the complexities of our environment, including the challenges of climate change, and intrinsic value, more accurately. These alternative ideas are also more dynamic. They can be combined with one another and enable better designed, more resilient outcomes.  Greater care is taken in defining what an organisation does as well as how it does it, generating more equitable outcomes by holistically considering impact, and providing greater long-term efficiency in synthesising society’s needs and the management of scarce natural resources.  In doing so, these alternatives better address critical unpriced externalities and offer ways to change our current self-destructive trajectory. Our traditional economy appears to focus on scarcity of value, durable efficiency, and resources, while the alternative economy models focus on their regeneration and restoration.  These alternative ideas offer fundamentally different approaches in how value is created, measured, and maintained, and are better suited to the holistic and inclusive economy needed by current and future generations. Kate van der Merwe, FCA, is a Sustainability Advocate and member of the Institute’s Sustainable Expert Working Group.

Mar 31, 2022
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Management
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Beyond the watershed

COVID-19 has changed the face of banking globally, but what’s next? Billy O’Connell delves into the top 10 emerging trends shaping banking this year. The COVID-19 pandemic has irrevocably changed the banking industry. Customers have become more demanding on multiple fronts - from service fees to sustainability - banks have doubled down on technology, accelerating their innovation drive, and new entrants to the market have become more ambitious, broadening the scope of services they offer. Here are the ten trends most likely to impact banking globally and locally in the months ahead.  1. Everyone wants to be a ‘super-app’ Just as the smartphone consolidated our hardware needs within a single device, super-apps are consolidating many of our retail, social and other needs.  Most digital banking consists of checking balances, paying bills, and making deposits — functionality more and more big technology players are incorporating into broader platforms alongside other services like commerce and social networks.  How should traditional banks respond when faced with the expansion of Amazon, Meta, and others into financial services?  They can try to add non-banking functionality to their own services and compete head-to-head for customer attention or partner with a super-app to provide white-label services. A third option is to wall themselves off from the fray and defend their traditional franchise.  2. Green gets real Investors and regulators will need to see environmental promises being delivered as they urge financial firms to become better stewards of the planet.  Proposed rules will require independent verification, proving that banks are living up to their claims. They will face immense pressure to redirect credit away from carbon-heavy companies toward sustainable energy.  In Ireland, lending has become increasingly ‘green.’ The main financial institutions are evolving their product offerings, focusing on supporting environmentally-friendly economic activity. These products make a real difference as they actively guide consumers towards a change in their behaviours.  3. Innovation makes a comeback Globally, the decade after the great financial crisis was a period of retrenchment in which many banks pulled back from introducing new products and focused on getting the basics right. Start-ups and digital challengers have emerged, with new offerings leveraging innovative solutions to target specific customer pain points.  The growth of Buy Now Pay Later (BNPL) providers is an example of this. However, banks are fighting back with creativity. Irish retail banks have invested significantly in the last five years in technology and innovation projects to deliver new digital services for customers.  We are seeing this in product innovation across the board – in the introduction of fully digitised customer journeys for personal lending and mortgages, instant account opening, data analytics and new digital capabilities to support SME lending.  During the pandemic, we saw retail banks improvising and innovating at speed as they leveraged their technology investments to respond with creativity and agility to the new challenges. 4. Fees Over the last several decades, banking fees have shifted from regular charges for services like account maintenance to in-built fees for facilities like overdrafts.  Fintech firms arrived, promising an array of services for the magical price of free, only to reveal later that revenue must come from somewhere.  Banks are creating features that put the users in charge of fee decisions. Fortunately, digital, AI and cloud capabilities are converging to provide the perfect platform for personalised advice that will help build consumer trust and involvement. 5. The digital brain gets a caring heart Before and during the pandemic, banks continued to invest heavily in digital technology to make banking more accessible, faster, and efficient. However, it is more difficult than ever to win customer loyalty.  Banks realise they have much to gain by learning to better understand and respond to customers’ needs and individual financial situations. Being well-positioned to meet customer needs through the challenges of the past 24 months has been important for banks and customers who needed their support.  Building on this momentum and focusing on AI and other technologies will be important to help banks predict customers’ intent and respond with more tailored messages and products. 6. Digital currencies grow up Several central banks worldwide are now launching digital currencies, and more are thinking about it. These are accompanied by maturing regulations around cryptocurrencies and a recognition that, while decentralised finance (DeFi) may still be in the experimentation phase, many of the core concepts of decentralised trust will likely have enduring value.  We will likely see more financial institutions and government agencies sharing data and ideas on how to incorporate aspects of this new type of money into the global financial system.  According to the Competition and Consumer Protection Commission (CPCC) research, one in ten Irish investors (11%) held crypto assets or cryptocurrency like Bitcoin in 2021. The number jumps to one in four (25%) for those aged between 25 and 34, indicating the appetite amongst younger generations in Ireland for digital money.  7. Smart operations put zero in their sights In 2022, banks will apply artificial intelligence and machine learning to back-office processes, enabling computers to outperform humans in some tasks. This will, eventually, decouple bank revenue from headcount.  Banks have made incremental efforts to streamline their operations at a global level. These new technologies, along with the use of the cloud and APIs, can accelerate their efforts well beyond small efficiencies and toward the long-held dream of ‘zero operations’ where waste and latency are eliminated.  8. Payments: anywhere, anytime and anyhow Getting paid and sending money are now anytime, anywhere features we’ve come to take for granted. The next step in this payment revolution is for these networks to open up. China has already demanded that internet companies accommodate rival payment services. At the same time, proposed legislation in India would force digital wallets to connect and mandate that merchants accept payments from all of them.  Banks with payment offerings will have to compete and cooperate with rival banks, fintech, and other players as the world of networks opens up. We’ve seen this gathering momentum locally, with AIB, Bank of Ireland, KBC, and Permanent TSB coming together on a joint venture to create a real-time payments app. The continued investment highlights the desire to evolve in response to customer needs and compete with digital challengers, such as Revolut.  Customer trust is an essential factor in driving success in the financial services industry. If the banks can give consumers the digital functionality they crave, alongside reliability and service, they could leapfrog their challengers. 9. Banks get on the road again Just as individuals are relishing getting out from under pandemic travel restrictions, banks too will go wandering in search of growth both at home and abroad. In Ireland, we’re already seeing M&A activity from the core banks, causing a seismic shift in the entire landscape.  This includes Bank of Ireland’s takeover of the capital markets and wealth management divisions of Davy stockbroker and its purchase of KBC’s loan book; AIB’s acquisition of Goodbody Stockbrokers and its JV with Great West LifeCo; and Permanent TSB’s purchase of Ulster Bank’s loan book.  10. The war for talent intensifies Figures released from The Workhuman Fall 2021 International Survey Report indicated that almost half (42 percent) of Irish employees plan to leave their jobs over the next twelve months.  As technology has become a critical enabler for banks, a much-publicised shortage of engineering, data and security talent presents a real challenge. Younger workers, in particular, want flexibility and to be valued in their jobs.  Forward-thinking banks are developing integrated plans that holistically address their work and talent issues. They’re mapping the skills they need now and expect to need in the future and are using a variety of approaches to recruit and retain them. They are also re-assessing their structure, culture, and work practices to improve their appeal as employers.    Time for a different approach Decades from now, the most successful banks will be those that continuously shape their businesses to the needs of customers, employees, and other stakeholders. Their greatest asset will be their ability to identify opportunities and innovate efficiently.  Billy O’Connell is Head of Financial Services business at Accenture Ireland.

Mar 31, 2022
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Strategy
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Accounting faculties and the future of the profession

Professor Anne Marie Ward and Professor Niamh Brennan, both Chartered Accountants, make the case for diversified accounting faculties with a healthy proportion of accounting academics who are professionally and doctoral qualified. The accounting profession comprises three pillars: research, policy, and practice. Rigorous research should inform policy, which leads to best practice. Accounting faculties in higher education institutions can foster links between the three pillars. They prepare students for entry to the accountancy profession; hence, they have the potential to influence future practice. They also undertake research that can inform policy, including regulation of the profession, standard-setting, accounting education, and ethical approaches. What is the problem? Some argue that accounting education is too focused on techniques, rules, processes, and procedures, with insufficient focus on the ethical implications of accounting and its role in the economy and society. Some also argue that accounting research is too academic, unrelated to accounting practice and hence has little impact on policy formulation. In academic circles, this is referred to as the ‘theory-practice gap’. We believe that having a healthy proportion of accounting academics with both a professional qualification and an academic qualification (i.e. PhD) within accounting faculties can help resolve these problems. As these individuals have experience in practice, they can better inform student learning. In addition, they are best placed to identify research areas that would benefit the profession. Unfortunately, however, the proportion of professionally trained and research-trained academics within accounting faculties across the globe is dwindling due to retirements and a dearth of accounting doctoral graduates. University ranking metrics have not helped. For example, recruitment policies in the UK since the 1980s have largely ignored the professional accountant pool due to pressures from higher-education performance metrics. Research scoring systems, such as the UK Research Excellence Framework, feed into university rankings and influence university funding. Consequently, university managers focus on recruiting individuals with PhDs who are more likely to achieve the research outputs required to enable the university to move up the rankings and optimise funding. Therefore, there has been a shift to recruiting PhD graduates from other disciplines, for example economics and engineering, to accounting posts because of a lack of accounting doctoral graduates. However, these individuals are not equipped to service technical accounting subjects. Thus, university managers employ non-research trained professional accountants as teaching associates/part-time lecturers to service professionally accredited modules. As a result, accounting faculties in some universities comprise two cohorts: those academically trained (i.e. PhDs) and those professionally trained and qualified (e.g. Chartered Accountants). This dichotomy is concerning for the future of accounting as an academic discipline, as it serves to widen the gap between theory and practice. Indeed, academics argue that the future of accounting as a separate academic discipline is at a crisis point, with accounting departments increasingly seen as service providers (‘cash cows’) that help to finance other academic subject areas, as opposed to being a premium academic subject in its own right. International interventions Accounting profession representative bodies and policymakers in the US, England and Wales consider it strategically important to retain accounting as a quality academic subject area that actively produces research to inform accounting policy and practice. To this end, they have implemented strategies to reduce the shortfall of academically trained professional accountants. For example, the American Institute of Certified Public Accountants’ (AICPA) Accounting Doctoral Scholars (ADS) programme manages the largest investment ever made by the accounting profession to address the shortage of accounting faculty members (www.adsphd.org). This started in 2008 when accounting firms, state CPA societies, the AICPA Foundation and others invested over $17 million in the programme. By 2020, this funding had helped more than 100 CPAs transition into academic careers. In the UK, the Institute of Chartered Accountants England and Wales, (ICAEW) Livery Charity provides four grants every year to successful ICAEW members who decide to pursue a career in academia and undertake doctoral studies. The total grant is £15,000 per successful applicant and is paid on a pro-rata basis throughout the doctoral programme. The situation in Ireland In Ireland, the links between the accounting profession and higher education institutions are strong and recruitment policies to accounting faculty posts have historically favoured professionally qualified candidates. Thus, most Irish higher education institutions have a diverse mix of accounting academics, including those who are: Both professionally and research trained; Research trained only; and Professionally trained only. This diverse range of backgrounds should foster communion between research, policy, and practice. However, increasing pressure on higher education institutions to meet the performance targets required under university quality ranking systems means that recruitment strategies now favour doctoral qualified candidates. Care is needed to ensure that the dichotomy observed in other countries does not become a feature of Ireland’s accounting faculties. A balance between the three pillars is necessary to ensure that accounting remains an important academic subject in its own right within higher education institutions and not a cash cow that generates income to fund other academic subject areas. Lecturers with both professional and academic skills can serve as a bridge between academia and practitioners and between non-professionally qualified, research-focused academics and teaching associates. Combining the skills of a professionally orientated faculty alongside relevant and high-impact academic research not only prepares students for the future of work as professionally trained accountants, it also contributes favourably to the development of accounting, business, society, and the broader economy. The UK Research Excellence Framework places a premium on research that has impact, where research can be proven to have informed society or business. This is more achievable if accounting faculties include professionally qualified individuals with links to the profession who are also research trained. Research has shown that university managers identify an ideal academic as someone who can produce “rigorous and high-quality research, to teach to a high standard, to fuse academic and professional knowledge and experience, and foster relationships with the wider accounting community”.1 This suggests a market for accounting lecturers that are both professionally and academically trained. Why do professional accountants enrol for doctoral education? Research has not examined what drives professionally qualified accountants, who have an established career, to start again at the bottom rung of the ladder in academia. In response to this gap in knowledge, we addressed two questions in our research: What motivates students to enrol in accounting doctoral programmes? Is there a difference in the motivation of professionally qualified and non-professionally qualified accounting doctoral students to enrol?2 To investigate these issues, we surveyed and interviewed 36 accounting doctoral students enrolled at higher education institutions on the island of Ireland. Of these, 13 were professionally qualified. In total, 14 reasons for enrolling for doctoral education were uncovered. Interviewees reported that their main motivations for enrolling for doctoral education were expectations of a career in academia, enjoyment of research or interest in their doctoral topic, the status of the PhD qualification and work-life balance. In terms of differences, non-professionally qualified doctoral students were predominately motivated to enrol by the pursuit of knowledge and financial rewards. In contrast, most professionally qualified doctoral researchers were initially motivated to enrol because of dissatisfaction with their professional careers. In the main, they felt they lacked autonomy over their work and work-life balance. Autonomy is a key psychological need. When individuals consider that they do not have autonomy over their life, it can affect their well-being and happiness. In addition, about half of the 13 professionally qualified interviewees felt that they did not have a sense of belonging in the profession. Those dissatisfied with their professional career anticipated that an academic career would enable them to have more autonomy over their work and work-life balance. In addition, they were attracted by the status of the PhD qualification, and most interviewees identified that they were interested in researching a topic in depth. A career in academia? We end this article with a call to Chartered Accountants wishing to change careers. If you enjoy learning new things, working independently, and being challenged, you will enjoy research. If you enjoy developing other people, you will enjoy teaching. Finally, if you are ambitious, you will be given plenty of leadership opportunities. Most lecturers are course directors or have other leadership positions from early in their careers. Therefore, if you are considering a career change, why not consider a career in academia? 1 Paisey, C., and Paisey, N.J. (2017). The decline of the professionally-qualified accounting academic: Recruitment into the accounting academic community, Accounting Forum, 14(2), 57–76. 2 Ward, A.M., Brennan, N., and Wylie, J. (2021) Enrolment motivation of accounting doctoral students: Professionally qualified and non-professionally qualified accountants, Accounting Forum, 1–24.  This research was funded by the Chartered Accountants Irish Educational Accountancy Trust, CAIET Grant number 201/15. Full details of our research study are available at the following link: https://doi.org/10.1080/01559982.2021.2001127 Anne Marie Ward FCA is Professor of Accounting at Ulster University. Niamh Brennan FCA is Michael MacCormac Professor of Management at University College Dublin.

Feb 09, 2022
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Thought leadership
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What’s on the horizon for 2022?

Resonant with the Institute’s position paper, The Next Financial Year, Michael Diviney surveys some of the issues and changes expected in 2022 and beyond. Changes at the core After years of relative stability, disciplines associated with Chartered Accountancy are about to undergo significant change, a key source of which will be legal and regulatory initiatives from the European Union. In 2022, the focus and effects of this change will be seen in: Environmental, social and governance (ESG) reporting: A new Corporate Sustainability Reporting Directive (CSRD) is due. In tandem with this, the European Financial Regulatory Advisory Group has been asked to develop ESG reporting standards by mid-2022 to be applied in EU member states. Reform of the audit market: An EU Commission consultation on the ‘three pillars’ of corporate reporting, corporate governance, and audit and supervision with a response deadline of 4 February 2022 will undoubtedly lead to attempts to revise EU legislation and regulation next year. International tax reform: At least three draft EU tax directives are due to be published. The first will give legal expression to the 15% minimum effective corporation tax rate for larger multinationals. The second will concern public disclosure of minimum effective tax rates in the EU by companies that fall under the OECD agreement’s scope. The third concerns allocating limited taxing rights to the countries where a corporate entity’s market is located. Anti-money laundering legislation: As part of its action plan to prevent money laundering and terrorism financing, the European Commission has published a set of legislative proposals. These include a sixth Anti-Money Laundering Directive and the establishment of a pan-European monitoring authority to coordinate anti-money laundering activities. What is driving this change? The impact of the pandemic: Many businesses in developed economies are receiving government supports to assist them through the COVID-19 pandemic, which has created a need for additional accountability and reporting. In 2022, government will be bigger. Climate change: There is an emerging consensus on the need for robust sustainability reporting standards to be more widely applied in geography and business scope. High-profile audit failure: Recent business failures have brought the audit market, conduct, and regulation into sharp political focus. International crime: There is increasing recognition that organised crime across national boundaries needs to be tackled with anti-money laundering techniques and more traditional policing and enforcement. Tax: There is now a global consensus that large multinationals should be taxed at an effective minimum rate of 15%. The largest corporate entities should also make corporation tax contributions by reference to the location of their markets and where they are established. Governance Increasing focus on sustainability, corporate failures, and technological advances impacting business are driving corporate governance reforms. For example, the European Commission’s sustainable corporate governance initiative will enhance the EU regulatory framework on company law and corporate governance. As a result, we are likely to see increased responsibilities for directors and more requirements for internal controls and supply-chain management in organisations of a certain size. In the UK, we await the Government’s next steps following consultation on restoring trust in audit and corporate governance. In Ireland, the Government is progressing legislation on individual accountability for certain senior management positions in financial institutions. Gender balance on boards The Irish Corporate Governance (Gender Balance) Bill 2021 proposes that 33% of a company’s board must be female after the first year of its enactment, rising to 40% after three years. If enacted, it would apply to limited and unlimited companies, charities, and all state-sponsored bodies. There would be a few exceptions, such as partnerships and companies with fewer than 20 employees. Gender pay gap reporting New to Ireland in 2022 will be the mandatory reporting of gender pay gap (GPG) information, initially for organisations with 250 employees or more. GPG is the difference between the total average hourly wages of men and women in an organisation regardless of their roles or seniority. It is different from equal pay, which measures if men and women are paid the same for performing work of equal value. GPG is an indicator of whether men and women are represented evenly in an organisation. Regulations will set out details of the reporting and publication processes. Leading on purpose November saw the launch of Evaluating Trust in the Accountancy Profession, a report by Edelman for Chartered Accountants Worldwide, of which the Institute is a member. Based on a survey of 1,450 financial decision-makers, 80% of whom are non-accountants, the report reveals an opportunity, if not an expectation, that Chartered Accountants take the lead on purpose-led initiatives such as driving action on sustainability and diversity, equity and inclusion. Commenting on the report, Ronan Dunne FCA described it as a call to action for Chartered Accountants “to broaden the base of trust”, building on their ethical reputation and professional standards. CEOs are now expected to have opinions on societal issues. This is an opportunity for Chartered Accountants to be influential in establishing the ‘citizenship’ of corporates, advising industry leaders on the integration of purpose with strategy and planning. Technology and the accountant Societal issues are not the only fundamental factors broadening the role and value-add of the accountant. Technology is also a driver of change. Writing in this magazine, Aoife Donnelly FCA and Thady Duggan FCA have argued that, accelerated by the pandemic, and as more traditional finance tasks are automated, the emphasis will be on maximising the impact of digital technology, enabling a shift from a past focus to a future focus. A future focus involves changes in the accountant’s skillset to include: data analysis (at least an understanding of the fundamentals of data analytics to be able to challenge specialists); communicating insights from the data; data governance and assurance; horizon-scanning and innovation; collaboration across the organisation, as well as working with multidisciplinary teams on defined fixed-term projects; and applying technology to support these contributions. The rise of the social enterprise Reflecting the emphasis on purpose and linked to sustainability, 2022 will see the resurgence of the social economy. COVID-19 caused people to pause and reassess their priorities and values, and some entrepreneurs are recycling into social enterprises. Social entrepreneurs bring momentum to the emerging circular economy. They reflect new ways of thinking about business, focusing on digital innovation, diversity and inclusion, and transparency – a magnet for Gen Y and Gen Z. They also influence the future development of mainstream corporations. Social enterprises like Food Cloud, connecting retailers with charities to donate food, need appropriate advice and sources of finance that match their broader societal objectives. Working 3:2 Assuming it is safe to return to the office, ratios like ‘3:2’ will feature as hybrid (or blended) working becomes a reality, at least for those who can work from home. The remote working forced by the pandemic has been a positive experiment in trust. In many sectors, productivity was maintained, even improved. So it makes sense to retain the discovered benefits, including flexibility, which employees now expect to be ‘baked in’. However, the start-up challenges for hybrid working should not be underestimated. There is little precedent, though we can learn from sectors where staff have not been able to work from home during the pandemic. An experimental, patient approach is required from all. New ways of working will be designed. They will distinguish between what we need to do in person, where the focus will be on high-impact interaction (innovation, performance conversations, organisational change), and what can be done remotely. The workplace will be physical and digital in equal measure. The purpose of the office will be redefined, reflected in its layout. New risks include the potential inequalities of a two-tier system of those present in person and those not. Training will be needed for the management of blended teams. Digitalisation Not all work can be done remotely, and not all employers can afford the IT for staff to work from home. There is an opportunity for Government to support the digitalisation of businesses to make the hybrid transition and continue the roll-out of work hubs. Tax and remote working To adapt to this new reality, tax rules must align with remote working practices and fairly reflect the costs of working from home, allowing a tax deduction for expenditure on equipment used for remote work purposes. In addition, an employee’s ‘normal place of work’ should be based on where they carry out most of their work. Childcare The lack of affordable childcare for working parents came to the fore during the pandemic, particularly when schools closed. In an economy crying out for talent, working parents should be encouraged to engage fully in the workforce, or at least have the choice. From September 2022, new funding of €69 million will be available for childcare providers to ensure the sustainability of services. However, it remains to be seen if this first step will have the desired effect of controlling fees. Talent and the ‘perfect storm’ ‘The Great Resignation’ may encompass employees who are resigned to stay in their current roles as well as the millions of people worldwide reported to be changing jobs or who plan to. In any case, for 2022, a ‘perfect storm’ is predicted when increased demand for talent meets the post-COVID phenomenon of career change. There are tools employers can use in recruiting and retaining talented people: offering remote/hybrid working and flexibility; budgeting time for regular conversations with individuals about how they feel about their work; delivering on the ‘employability contract’ – the expectation to learn new, marketable skills; and a strong and empathetic employer brand. Arguably the best way to recruit and retain the best people is to show leadership with values and purpose. Michael Diviney is Executive Head of Thought Leadership at Chartered Accountants Ireland.

Nov 30, 2021
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Management
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A decade to deliver: CFOs’ ESG considerations

Ambrose Shannon explains how CFOs can play a lead role in limiting the future impacts of climate change during what he describes as “the decade of action”. Throughout the summer of 2021, heat waves, wildfires, droughts, and hurricanes served as stark reminders that we should not take our planet for granted. The recently published report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) has made it very clear that unless immediate and large-scale actions are taken to reduce greenhouse gas emissions, these weather patterns, and the corresponding commercial impacts, will only become more severe. In Ireland, like elsewhere, companies are looking at their own commitments to environmental, social and governance (ESG) objectives (see sidebar) encouraged by both regulatory initiatives and wider societal pressures. For example, the Climate Action and Low Carbon Development (Amendment) Bill 2021 is intended to achieve net-zero carbon by no later than 2050 throughout the entire Irish economy. This entails the introduction of five-year carbon budgets on a rolling 15-year basis. In China and South Korea, where similar measures have been deployed, companies have seen significant impacts on their business models, strategies, and performance. Furthermore, the required Local Authority Climate Action Plans are expected to set out ambitious measures to significantly increase renewable energy production, decrease transport emissions, and reduce the impact of agriculture on the environment. Irish businesses have a critical role in achieving this climate-driven transition. And CFOs can play a pivotal role in areas such as leading strategic reviews, allocating capital investment, securing funding lines, protecting credit ratings and driving sustainable business performance. According to Accenture’s 2021 report, CFO Now – Breakthrough Speed for Breakout Value: 73% of respondents claim that the CFO is best placed to ensure the resilience of the organisation in today’s operating climate; and 68% of CFOs globally are now responsible for ESG monitoring and reporting. And momentum is accelerating. In November, the United Nations Climate Change Conference of the Parties (COP26) will bring world leaders together to accelerate movement toward the goals of the 2015 Paris Agreement. We expect agreement on ambitious goals, meaning that politicians, policymakers, regulators, and investors will need to work together with businesses to deliver on ESG objectives. Failure to act on climate change represents an existential risk to society and the global economy and poses a clear financial risk to businesses themselves. The impetus for business to act is time-sensitive and will likely be driven by four key factors: Governments setting legally binding emission reductions and net-zero targets; Investors and financiers wanting to understand climate-related financial risks and long-term business model viability; Employees placing increased importance on the ESG values and actions of their employer; and Customers placing ever more importance on the sustainability of the products they consume – with many seeking “champion brands”.  For business to meet these demands, CFOs and executives need to create and operationalise a comprehensive ESG strategy. Key considerations Regulators have for some time now warned about the threat that climate change poses to the stability of the financial system. Mark Carney, formerly Governor of the Bank of England, is leading a World Economic Forum (WEF) initiative to explore the risk posed to global financial systems associated with the energy transition. According to the Bank of England, as much as $20 trillion of assets could be at risk from climate change alone. The progress of delivery against ESG transition plans varies greatly from sector to sector and geography to geography. A report by Arabesque S-Ray found that just 25% of public companies worldwide are on track to deliver on their ESG-related commitments. Our research and work in this space suggest that CFOs and the wider finance team are uniquely positioned to guide their organisations in the following ways: Assessing the ESG impact on existing business models. CFOs can play a crucial role in assessing and measuring the potential impacts of ESG on current business operations. For example, identifying and modelling risks could include scenarios on the P&L impacts of a 1.5-degree world, the impacts of a higher carbon tax on profitability, the introduction of subsidies, or pricing signals to parts of the supply chain. Highlighting risks associated with ownership of certain assets. It is rational to expect the valuations of certain assets on the balance sheet to fluctuate as we progress through the transition towards net-zero. For example, we have seen large write-downs in valuations among many of the global oil majors. On the other hand, it is equally rational to expect certain asset classes to rise in value, such as those parts of the economy that support the electrification or home insulation agendas. Either way, CFOs will want to avoid holding stranded assets and will need to make more material bets on a more frequent basis over the coming decade. Identifying where investment will be needed to transition to a sustainable economy. Ireland’s transition to a more sustainable future is expected to have a wide-reaching impact on key sectors of the economy. For example, Ibec’s report, Building a Low-Carbon Economy, suggests that Ireland’s electricity and transport systems will need to reduce emissions from 1990 levels by up to 92% by 2050 and that buildings and factories will need to reduce emissions by up to 99%. Decarbonisation needs to go hand-in-hand with technological innovation, and CFOs will play a key role in identifying where investment is needed to ensure that business outcomes are achieved in a way that is economically and environmentally sustainable. Responding to investor demands and attracting investment. In the US, one-third of the $50 trillion of assets under professional management is invested in ESG strategies, according to research by the NewClimate Institute. ESG considerations are increasingly being adopted in assessing the sustainability and risk of investment decisions. At the same time, investors and pension funds are applying pressure on companies to provide products and services aligned with the UN’s Sustainable Development Goals (SDGs). Turning ESG commitments into action. Credibility is not a new concept to finance but is vital in the ESG space. As a profession, we can help our organisations avoid even the suggestion of ‘greenwashing’. Credibility is enabled by robust transition plans with regular and transparent disclosures on progress against them. Some CFOs are investing now to create enterprise-wide data provisioning and analytics solutions for ESG. This will enable them to model multiple commercial scenarios and inform the optimal pace and sequence of the pivot. Conclusion While executing a successful ESG pivot depends upon a strategy that is unique to the qualities and context of the organisation, there are a few best practices you can leverage: Conduct a materiality assessment. These sometimes behind-the-scenes assessments are a data-driven, holistic view of ESG risks and opportunities to identify gaps and prioritise the issues of focus against business and stakeholder importance. Build an effective communication method for the company’s ESG commitments and progress. This typically takes the form of a disclosure with a newly crafted framework and reporting metrics for standalone ESG disclosures, leveraging industry-leading practices. Formalise ESG governance. Stakeholders must be identified as explicitly responsible for new associated ESG activities. The company needs to craft a defined governance model and roadmap for execution, mobilising internal resources and data for ongoing assessment and reporting. These three steps have helped organisations successfully navigate and focus an ESG pivot and capture the associated resiliency and revenue potential. This is the decade of action to dramatically limit the future impacts of climate change – time is of the essence, and the time to act is now. Ambrose Shannon is a Managing Director at Accenture and CFO and Enterprise Value Lead for Ireland and the UK.

Oct 04, 2021
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Personal Impact
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The power of positive leadership

Joanne Hession explains the concept of positive leadership and shares five strategies to help you develop this increasingly vital skill. I remember the financial crisis of 2008. I remember scrambling to try to keep my two businesses afloat. I remember thinking, to paraphrase Seamus Heaney, if I can get through this, I can cope with anything. Across the world, businesses were faced with incredible challenges. It was difficult for everyone. Employees took wage cuts, worked long hours, found new markets, and sought innovative solutions to keep their businesses going until things picked up. Some businesses did not make it while others did. Thankfully, we weathered the storm. Why did some businesses survive while others did not? There are many reasons, but a couple of years ago, I came across research conducted by Dr Fred Kiel in Harvard Business Review (as well as in Dr Kiel’s book, Return on Character). In 2015, Dr Kiel looked at whether business performance has any relationship with the CEO’s character. He asked employees in over 100 organisations to rate their chief executive on integrity, compassion, forgiveness and responsibility. Based on respondents’ feedback, he gave the CEOs an overall score, which he called their ‘character score’. Then, he looked at the return on assets (ROA) of the companies they led to see whether there was any relationship between character scores and business performance. The categorical answer was: yes, there was. The CEOs rated highest for their character score invariably led the companies with the best performance. The five highest-ranked leaders led companies with a ROA of close to 10% over the period. The companies of CEOs with a medium character score had an average ROA of about 5%. Interestingly, the leaders with the lowest character scores had ROA rates of around 2%. For me, this finding echoes the work of psychologist, Prof. Chris Peterson of the University of Michigan. Prof. Peterson carried out an analysis of the common factors among US soldiers who returned from difficult tours of duty with higher resilience levels than others. As he analysed the data he noted that, aside from resilience, soldiers who progressed to leadership positions in the military also had the highest scores on ‘strength of character’ indicators such as honesty, hope, bravery, industry, and teamwork. These traits seemed to be most important in progressing to positions of leadership in the military. This research resonated with me deeply. I have always believed that the most important aspect of leadership lies in character, and both Dr Kiel and Prof. Peterson confirmed this. But more importantly, Dr Kiel’s research demonstrated that positive character attributes directly correlate with better leadership, all the way down to the bottom line. The central point is this: when things are really difficult, as they were in 2008, character is central to how people respond. Little did I know back then just how much more challenging the world would become 12 years later, and just how vital positive leadership would be. The role of influence Leadership is an interesting concept. Ask most people to name a leader and they will invariably choose a CEO, politician or perhaps a team captain. Whatever the context, it will almost always be the person at the top. Bottom-line results are often why one person is chosen over another: X was in charge when Rabona United won the league; or Y was the CEO when Tech Co. Inc. increased its share price three years in a row, for example. There are undoubtedly great leaders among these positional leaders. Yet I cannot help thinking that this notion of leaders as those at the top of their environments misses the point about what leadership is and where we can find it. Leadership is influence. If you influence others, you are leading them. Positive leadership is therefore about positive influence. Whether it is termed ‘authentic’, ‘transformational’, ‘charismatic’ or ‘servant’ leadership, positive leadership is influence that emerges because someone cares, empowers and supports others and because their behaviour or character provides an example that others use to forge their futures. I have been in the privileged position of running several businesses for over 20 years now. As founder and CEO, I have, in a literal sense, led those businesses. But just as importantly throughout those 20 years, numerous others have led me. When one of my staff saw a potential niche market, offering and explaining his findings, I was influenced to change our business direction slightly. When one of our technical experts saw a more efficient way to allow our teams to collaborate, I followed her lead to progress the overall business vision. In purely business terms, I may be founder and CEO, but I am well aware that there are times when my role is to lead, and there are times when my role is to take my lead from others.  This is a liberating and empowering idea. It doesn’t matter what our role is, and it doesn’t matter whether we are running a business or are the newest recruit through the door. Every one of us leads at certain times and follows at others. We all encounter moments every day when our actions, words, or behaviour might influence others. When this happens, others are effectively taking their lead from us, and we are leading them. Equally, we are all influenced by others and, regardless of our seniority, we need to maintain the humility to recognise that leadership is a shared endeavour. When everyone within a business understands that how they act will potentially influence and lead others, and when they are given the space and permission to exercise this leadership role, the benefits are immeasurable. Employee satisfaction increases as strict hierarchical structures gain flexibility; individual ownership and responsibility for behaviour and performance rise; and the sense of mutual collaboration within teams and across departments and functions grows exponentially. Beyond the professional realm, we can be leaders in all walks of life. In our families, we might have children, siblings, or parents who are influenced by us. Among our friends, we are constantly influencing and being influenced. This places a responsibility very squarely on our shoulders – if we are continually being asked to lead, how can we ensure that we are leading well? We all need an understanding of what good leadership should look like. What ‘good’ leadership looks like Good leadership has nothing to do with control or power. We can say that we are leading well only when we have exerted positive influence, whether we are aware of it or not. Even if we are not in a leadership position, we should aim to provide a positive example in how we lead ourselves and potentially influence others in a positive direction also. We cannot force others to follow us; we can only try to behave in a way that others will choose to follow. This means focusing on building our character in order to develop our leadership capacity. As a good starting point in building positive leadership, it is worthwhile to consider five main areas: 1. Reflect on your values. Positive leaders are clear about what they stand for. To develop your positive leadership capacity, you must understand your values. Make this a written exercise. Dig deep. What is it that matters to you? What are the boundaries that you will not cross, regardless of the pressures you might be under? What do you want to contribute to your business, community and family? Take time to reflect on your values because they are the yardstick by which others will measure you, and you will measure yourself. 2. Reflect on your behaviour. Few things are as powerful as seeing someone with deep integrity, who has the courage to be accountable and is willing to stand up for what they believe in. Unfortunately, few of us are as consistent as we would like to be. We all fall below the standards we expect of ourselves occasionally. Allow yourself to reflect regularly on your behaviour in light of your values. Be honest with yourself. Do you have higher expectations of others than you do of yourself? Have you judged others by their actions, but judged yourself by your intentions? Review your actions and behaviour over the previous days or weeks. How do you feel you have lived up to your values? Have you led as positively as you intended? How has your behaviour impacted on your team, colleagues, and those around you? 3. Reflect on your relationships. To influence another, for them to choose to take their lead from us, we must create a real and meaningful connection. People respond to genuine connection. If we want to build our positive leadership, we have to focus on the most basic (but frequently, the most difficult) things: to truly listen to what others are saying; to genuinely understand their perspectives or concerns; to treat everyone with respect and fairness. Assess how you have performed here. What could you do better? 4. Decide how you can improve. One of the most inspiring leadership characteristics is seeing someone who makes the most of what they have and works to maximise their abilities. Unless we learn to give our best and work to improve continually, we have little authority to influence or lead others. When you reflect on your behaviour and identify where you have fallen below your own standards, set yourself a finite and measurable action that will force you to address that shortcoming, even if it is only in a small way. Hold yourself accountable. 5. Repeat. Building positive leadership character is like going to the gym. It needs to become a part of your life to have a meaningful and lasting impact. Don’t try to change overnight. Instead, focus on making the steps above part of the fabric of your routine. Just like ‘peace’, in Yeats’ poem, change “comes dropping slow”, but small actions done consistently can create great change. Joanne Hession is Founder and CEO of LIFT Ireland, a not-for-profit initiative to increase the level of positive leadership in Ireland.

Feb 09, 2021
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Personal Impact
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Game on

Dr Patrick Buckley and Dr Elaine Doyle explain how gamification can enhance accounting education, and why experienced professionals might rail against the concept. Human beings are hard-wired to play. Games are an integral part of our personal, social and cultural identities. Games provoke powerful emotional responses of joy, anger, satisfaction and frustration. Science is discovering deep, complex relationships between our brains, neural systems, learning and game-play. A feature of the modern world is the rise of the video game, from Minecraft to Mass Effect. In 2019, the number of active video game players worldwide was 2.47 billion. For children and young adults, computer games have become a dominant form of media consumption. It is self-evident that computer games have a powerful effect on behaviour. The observation that the mechanics and dynamics used in games can affect motivation and behaviour has led to the concept of gamification. As is often the case with new ideas, there are several competing definitions. Broadly speaking, however, gamification can be seen as a suite of techniques and psychological prompts connected by their association with games and play. More specifically, gamification involves the use of elements traditionally associated with games (such as structured rules, competition, points and leaderboards, for example) in non-game contexts to prompt specific behaviours or emotional responses in individuals.Gamification in practice While gamification is a new term, using game mechanics to solve problems and gain an advantage in the real world is far from novel. For example, consumer loyalty points programmes leverage at least some of the elements and characteristics associated with games. In recent years, interest in gamification has been accelerated by: The ever-increasing pervasiveness of smart devices, such as phones and watches, that provide a platform for gamified activities; and The rise of the ‘attention economy’, where attention is individuals’ scarcest resource. The ability of gamification to attract and hold the attention of consumers, employees and other stakeholders is of significant interest to organisations. Many of us are now very familiar with fitness tracker devices and related apps, the experience of which is grounded in gamification. A variety of goals are set out (steps per day, calories burned and so on). Constant feedback and reminders are received (“Did you move enough this hour?”). Daily targets achieved are celebrated, and badges are awarded for more significant milestones. Fitness trackers also allow goals and achievements to be shared with friends, motivating us and encouraging competition. In business, activities such as marketing, customer relationship management and innovation are especially suitable for gamification. Other potential applications include personal productivity management and health management. The global market value of companies developing and deploying gamified activities and processes is expected to be $12 billion in 2021. Gamification also has the potential to make a difference in education and training. Capturing the attention of students, engaging them, and sustaining their interest has always been a challenge. Many educators feel their work has become more challenging as an ever-increasing array of digital distractions compete for attention. With its promise of positively engaging students and mediating their behaviour, gamification is a valuable tool that can be used to appeal to the digital generations.Gamification in accounting education From one perspective, education has always been gamified to a degree. A final grade can be seen as an external representation of how much you have learned relative to the content of your course. Tests and quizzes provide feedback on how much students have learned, both in absolute terms and relative to their peers. However, many educators are now becoming far more systematic about applying gamification to the design and delivery of their courses. When thinking about how gamification can be applied in educational and learning contexts, it is useful to think of it in terms of engendering particular classes of behaviour in students. For example, a teacher may decide that prompting competition will be effective in motivating students. To attain this goal, a traditional quiz may be adapted. When a student completes the quiz, for example, they will not just be told if they are correct or incorrect, but also how they performed relative to their classmates for each question. A more extreme version would publish results on a leaderboard for everyone to see how they did relative to the rest of the class. Conversely, a teacher may wish to promote collaboration, allocating badges (like ‘Best Explainer’) to a student who helps other students with explanations, using an online forum or a similar collaboration tool. These awards are often valuable in terms of demonstrating valued personal skills and attributes to potential employers. Demonstrated collaborative actions in learning contexts could be integrated into such schemes. Another teacher may wish to prompt creativity. Rather than create a test, the teacher would instruct students to develop a test themselves as a learning exercise, with marks allocated for how well the test meets and tests the learning outcomes of the course. This approach compels students to ask meta-questions about their course, such as: “What am I being asked to learn?” and “How will I know if I’ve learned it?” Extending this approach, students could be asked to take, evaluate and improve on the tests other students create, again prompting collaboration and engagement.Benefits of gamification Gamification is not a one-size-fits-all approach. It requires consideration and careful design to be used effectively and, as with many teaching techniques, it has its advantages and disadvantages. In the context of the teaching of accounting and tax, we have observed interrelated benefits of using gamification. The first and key benefit is improved motivation. Gamified activities are seen as being fun, interesting and engaging, and an improvement on more traditional ‘chalk and talk’ forms of content delivery and assessment. This is particularly the case for younger students, arguably because, having grown up with video games, they are more comfortable with games in general. Improved motivation then explains the other positive effects of gamification we have observed. In general, students tend to be more satisfied with courses that include gamified elements and activities. Students prefer and perform better in courses they are engaged and interested in, and gamification serves that end. More importantly, the learning outcomes for courses, as measured by grades, tend to be better in courses that contain gamified activities.Challenges of gamification In our experience, using gamification in an educational context also involves potential risks and requires careful consideration of at least three key challenges: The most significant challenge is the need for careful contextualisation of gamification. Time and again, we have noticed that different participants respond very differently to gamified activities. One of the most important variances is in how individuals react to competition. Some people are temperamentally inclined to be motivated by competition, while others find it objectionable in an educational setting. This variance seems to occur regardless of the gamification intervention used – some find badges motivating, while others see them as patronising, and so forth. A particular schism we have observed is that undergraduate students tend to respond far more positively to gamification than postgraduate students. From informal conversations, we have inferred that postgraduate students, who have paid significant fees for courses and are much more focused on grades, feel gamified activities are a ‘gimmicky’ distraction. Therefore, we expect that resistance to gamification would similarly be found in professional and continuing education contexts. Gamification works by creating extrinsic motivation like badges, points and leaderboards, as opposed to the intrinsic motivation of learning for the sake of learning. There is a significant body of research that shows how extrinsic motivators can temporarily shift behaviours, but that this shift will be short-lived. Unless the motivators are reinforcing, cumulative, and continually increasing, individuals will become satiated with external motivation, ultimately undermining its long-term impact. The old saying, “You get what you measure”, sums up a final challenge. A well-recognised risk of offering rewards linked to behaviour is that unless the reward is very tightly tied to the desired behaviour, the provision of rewards may encourage behaviours that are not desired by the game designer, but which are more effective at accruing a reward. Conclusion Gamification has attracted much interest as a way of creating more engaging educational experiences. It aligns with the media consumption habits of digital natives. It leverages the power of the pervasive information systems that are now integral to our lives. It offers a framework to address the motivational issues often associated with online learning, particularly useful in the new learning environment forced upon us by COVID-19. It also brings challenges and raises questions. Gamification is perhaps best thought of as a technique to inform the design of content delivery. As with any approach to education, it will be most successful when the learner’s abilities, needs and characteristics are placed at the heart of course design.Dr Patrick Buckley is a lecturer in information management at the Department of Management and Marketing, Kemmy Business School, University of Limerick. Dr Elaine Doyle is a lecturer in taxation at Kemmy Business School, University of Limerick. The business case for gamification ‘Gamification’ is the use of the dynamics and mechanics traditionally associated with computer games to affect behaviour in other contexts. As a generation of children and young adults who have engaged with computer games from their early years enter education and the workforce, educators and employers must understand how gamification can be used effectively to motivate and manage these individuals. This article looks briefly at the strengths and weaknesses of gamification as an educational tool to help facilitate individuals in developing their knowledge and professional skills. Gamification can improve motivation, satisfaction and assist in the achievement of learning outcomes. However, care must be taken to ensure that gamification matches students’ needs and does not obscure the value of learning with badges, leaderboards and the like. As with any tool, it must be used carefully. Nevertheless, the synergy between gamification and the lived experience of young people means its importance is likely to increase over time.

Nov 30, 2020
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How to deal with burnout

Burnout has been creeping into our workplaces and greatly affecting our lives, even before COVID. Noel O’Callaghan outlines how you can identify burnout and manage your work-related stress. Increasingly, we are hearing about how workplace stress is on the rise, especially where work and life both feel uncertain and unpredictable. In a new survey from the Department of Work and Employment Studies at the Kemmy Business School, 60% of employees in Ireland are feeling more stressed since the onset of COVID-19. As we become so ingrained in the day-to-day routine while meeting the needs of employers or customers, we can miss the alarm bells warning that what was a somewhat natural and manageable stress is now morphing into burnout, something considerably more serious. Work culture seeks to identify and label what they call ‘high achievers’ but, unfortunately, delivering more and more with less and less is often the only criteria needed to earn the distinction. Day to day, month-end to month-end, quarter-end to quarter-end, the relentless pace of work makes it seem impossible for someone to put their hand up and say, “Stop. I need to rest”. If you combine this with a personality that is wholly-committed to doing a good job, has a fear of failure, or is unsupported either at work or at home, then you have a recipe for disaster when it comes to excessive stress or burnout. Signs of burnout What are the tell-tale signs of burnout? Burnout can lead to physical and mental exhaustion, a feeling of detachment, or a feeling of never being good enough no matter how much you deliver. Are you: terrified of going to work every day? always tired? disinterested in participating in hobbies outside of work? getting little enjoyment in anything and no motivation to seek it? feeling stuck, with little or no light at the end of the tunnel? (Sometimes these can also be accompanied by unusual physical aches and pains.) These are just a few of the more common red flags, but it can be different for everyone. The great news is that burnout is treatable. Taking breaks, knowing your limits, and watching out for situations or people that elevate the stress can help. However, there are also huge benefits gained from working on your relationship with work. I-It and I-Thou Martin Buber, a theorist and 19th-century Austrian philosopher, suggested that humans have two approaches to the way we interact with people, things and nature. One is an ‘I-It’ approach where we objectify whatever we are dealing with and seek to get as much out of it for ourselves as possible and the other is an ‘I-Thou’ approach, where we turn to the subject as a partner and seek to relate more to it for the mutual benefit of both parties. There is a recurring theme that I see is in relation to how people interact with their career and the workplace. A pattern emerges over years whereby one relates to their career, work or co-workers from an I-It standpoint, viewing it as a means to an end, which can cause the relationship with work to become so unhealthy that people become ill. Having a more constructive relationship can alleviate the symptoms of stress and burnout and instil a sense of nourishment into the workday. We should aim to shift the relationship from I-It to an I-Thou and think of work as something to be engaged in, enjoyed or experienced.  Noel O’Callaghan FCA is a qualified psychotherapist.

Sep 04, 2020
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How to be an LGBTQ+ ally in 2020

How can we support the LGBTQ+ community in the workplace? Alexandra Kane details what it means to be an ally and how it can make a huge difference. “Be yourself, everyone else is already taken” – Oscar Wilde The quote above sits among the desks on the fourth floor of the Grant Thornton Dublin building. It’s a poignant reminder and struck me a little differently reflecting on this year’s Pride month. What would it feel like if I couldn’t be myself in the office, that I had to hide a part of my life from my colleagues? What if I were afraid that a part of my life would create a backlash, negative reaction or possible career repercussion? The place we spend most of our time, albeit virtually and on video calls in the current climate, should be one of welcoming and support. To me, as a LGBTQ+ ally, there is not a single reason that anyone should feel that they can’t be who they want to be, who they identify as, and not face any adversity in doing so. In my organisation, there is a huge drive to stand as an ally with our friends and colleagues through our Ally Programme and Embrace initiative. We have marched in the Dublin Pride Parade for the last four years and, took part in BelongTo's ‘Come In’ campaign last year. This initiative flipped ‘coming out’ on its head by promoting the positive message that everyone should be able to come in and feel welcome as they are, rather than having to ‘come out’ as anyone other than themselves. To be an ally An ally can come in many forms, but should always come from a place of support, openness, kindness and ready to do the work. From recent global events in the Black Lives Matter movement, I have learned that it is safe to speak out and say that I didn’t know how to support or say the right things – and that is accepted when it is accompanied by a willingness and promise to learn, educate and support. It’s never too late to educate yourself, even if you have to start at the beginning. Learning about the Stonewall Riots, listening to the experiences of LGBTQ+ people of colour, and asking how you can support others is an important step to allyship. We can never under estimate the power of support in any form that it comes in, be it going for a coffee to listen to someone’s concerns, wearing rainbow colours in solidarity, attending the Pride Parade, and actively showing support to colleagues and friends in the workplace. Some recommended viewing for allies: Disclosure, found on Netflix. I recently attended a webinar ‘The L to A LGBTIQCAPGNGFNBA’ which explored the ‘lesser known’ letters of the LGBTQ+ community. It discussed why gender identity and sexuality are intrinsically linked. The key take away I received from the webinar is that language is ever changing and our identity is a personal preference. The pronouns or letters we choose is exactly that: our choice. If being an ally makes one person feel more comfortable, supported and accepted as their true selves, I couldn’t encourage being an active ally more. Alexandra Kane ACA is a Manager in Financial Services Advisory at Grant Thornton, a Grant Thornton Ally and member of the Grant Thornton Ally Programme.

Jun 25, 2020
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Lessons from virtual Pride 2020

With no party or march this year, how are businesses showing meaningful support for the Pride movement? John McNamara tell us how can we adapt to actively support the LGBTQ+ community in a virtual space.  So how did you celebrate Pride this year? Yes, we are approaching the end of June, the month where people from all demographics, race, religion and, of course, sexual orientation take to the streets to come together and celebrate acceptance, and agitate for the rights still being fought for. (Unless you live in one of the 73 countries where that is still illegal.) Except, of course, we didn’t march this year thanks to the non-discriminatory nature and reach of COVID-19. Most businesses quickly scrambled to develop virtual programmes to keep staff awareness and engagement alive. Another Zoom call, another webinar, why not? But there are lessons still to be learned that are applicable across the full inclusion agenda, many of which will have the potential for positive enduring business impact. Year-round support Every year there is heated debate on the ‘corporatisation’ of what is, essentially, a protest movement. It will now be very clear which businesses do little else in this space except throw money at Pride parade participation. Now is the time for employees to call out this performative participation in the movement and encourage their organisations to refocus budgets on both active staff collaboration and engagement and support of community organisations throughout the year. LGBTQ+ young people are four times more likely to experience anxiety and depression, three times more likely to experience suicidal ideation and that happens in December as well as June. Creating long-term change If there is no party this year, there is the opportunity to develop meaningful digital messaging, to focus more on staff connection and conversations and to place a stronger focus on advocacy. We have shown more curiosity, shared more of our own lives, and our understanding about our colleagues’ personal circumstances is much deeper than when we sat in the office together. I have heard more conversations on mental health recently than at any time I can think of. The pace of change in many of these issues has historically been too slow. In recent months, however, we have shown our ability to quickly build new business models and our flexibility in remote working. How can we sustain these new ways of working that can, for example, access more women working from home rather than leaving the workforce or accept that highly talented people with neurodiversity need not be present in an office environment to shine in their roles? Intersectionality This year also brings greater awareness of intersectionality which, simply put, means we are complex beings that cannot be defined by one characteristic alone and, depending on the hand you have been dealt, can be disadvantaged by multiple forms of oppression, isolation or exclusion or, conversely, benefit from white privilege. Black Lives Matter is here to stay. The LGBTQ+ community is acutely able to recognise inequality of treatment, that sense of not belonging, and our allyship is evident through activism, protest and sharing the platforms we have through the month and beyond. Do better Most of us do not wish to emerge from this crisis without changing something for the better. We have perfected banana bread, know too much about Joe Wicks and got as far as we could on Duolingo. How about we become proactive in making a personal commitment to ourselves to do more? Become a volunteer, train as a mental health ambassador, develop charity trustee or board experience or become a visible LGBTQ+ ally at work. Do it and you won’t look back. Now that would be something worth celebrating. John McNamara FCA is Managing Director of Canada Life International and a member of the Chartered Accountants Diversity and Inclusion Committee. He is chairperson of the NGO behind SpunOut.ie and 50808.ie, the newly launched free crisis text messaging service funded by the HSE. He a member of the fundraising committee of BelongTo, which supports young LGBTQ+ people.

Jun 25, 2020
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The meaning behind Intersectional Pride

To truly embrace diversity, businesses must view inclusion through an intersectional lens. Deborah Somorin explains why this is so important, both personally and professionally. Intersectionality was first coined by Professor Kimberlé Crenshaw back in 1989, and has gained common usage since. According to Womankind Worldwide, a global women’s rights organisation, intersectionality is “the concept that all oppression is linked… Intersectionality is the acknowledgement that everyone has their own unique experiences of discrimination and oppression and we must consider everything and anything that can marginalise people – gender, race, class, sexual orientation, physical ability, etc..”. In 2015, ‘intersectionality’ was added to the Oxford Dictionary as “the interconnected nature of social categorisations such as race, class, and gender, regarded as creating overlapping and interdependent systems of discrimination or disadvantage”. What does that mean? While Pride is a celebration of the LGBTQ+ community, it is also a protest, and intersectional Pride continues the fight for LGBTQ+ rights, as well as the rights of all marginalised communities in Ireland and around the world. Intersectional Pride Flag You’ll notice the Pride flag on the street and in some corporate Pride logos, such as LinkedIn and Chartered Accountants Ireland, look a little different this year. In 2018, designer Daniel Quasar started a movement to reboot the pride flag to make it more inclusive and representative of the LGBTQ+ rights we are still fighting for. According to Dezeen magazine, “Graphic designer Daniel Quasar has added a five-coloured chevron to the LGBT Rainbow Flag to place a greater emphasis on ‘inclusion and progression’. The flag includes black and brown stripes to represent marginalised LGBT communities of colour, along with the colours pink, light blue and white, which are used on the Transgender Pride Flag. Quasar’s design builds on a design adopted by the city of Philadelphia in June 2017.” Intersectional allyship To quote a recent GLAAD (formerly the Gay & Lesbian Alliance Against Defamation) statement: “There can be no Pride if it is not intersectional”. If we want to celebrate Pride in our profession in an inclusive way, we must make an intentional effort to celebrate intersectional Pride. If Pride doesn’t include the acknowledgement of other marginalised other communities, it is performative. The LGBTQ+ movement doesn’t need performative allies – it needs authentic allies who care about making the communities we work and live in more inclusive of all races, genders, class, physical advantage and sexual orientations. I’m a gay, black woman who happens to be a Chartered Accountant. If your organisation or community is choosing not to view inclusion through an intersectional lens, you are unintentionally choosing not to include people like me. Deborah Somorin ACA is a Management Consultant at PwC, a member of the Chartered Accountants Ireland Diversity and Inclusion Committee and founder of Empower the Family.

Jun 25, 2020
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Reviewing our economy with a focus on value and equity

Tackling climate change will mean embracing economic models that prioritise the many, not just the elite few, writes Kate van der Merwe. In the pursuit of a holistic and inclusive economy that can serve current and future generations, we need to take a fresh look at our economic alternatives.  We are facing existential challenges: a climate crisis that we continue to escalate; a biodiversity crisis that is the sixth mass extinction; and significant inequities that the coronavirus pandemic has served to both highlight and exacerbate.  We must review how our economy works with a focus on real value and equity. In doing so, let’s scrutinise the underlying assumptions and realities, and consider alternative options, including the transformative innovations of social and circular economies. The current context Traditionally, economics is often framed as the study of how people make choices and allocate scarce resources over time, individually and collectively — for example, forsaking consumption now for later benefit (in finance, the choice to invest). Key concepts include ‘utility’ (the satisfaction from something) and ‘consumption.’  The relationship between both is represented by the ‘utility curve,’ which defines utility in direct and positive relation to consumption. Simplified, this means that the more we consume, the happier we are.  In finance theory, utility becomes defined in terms of monetary value. The concept of ‘consumption’ also defaults to a narrow definition of a one-time event. When supply meets demand in the market, for example, economic actors (businesses) are driven to mass-produce for one-off transactions, placing emphasis on short term profits.  When core concepts are so narrowly defined, the underlying utility or value is distorted. By focusing so narrowly on monetary value, we can become disconnected from the real value of the ‘thing’ money is buying and being valued upon. An investor following these limited definitions might, for example, invest in a high-yield mining company even if those yields are derived from destroying the health and wellbeing of their community, and feasibly worsening the investor’s overall utility, particularly in the long term.  If we assume that the fulfilment of our essential physiological needs has the highest incremental utility, then a theory assuming and supporting insatiable consumption — despite the consequences of that consumption threatening our essential physiological needs — appears contradictory.  As the COVID-19 pandemic has highlighted, inequity remains a significant challenge. In the current global economy, just one percent of the population holds 38 percent of wealth, while 50 percent holds just two percent.   During the pandemic, the world’s 10 richest men doubled their wealth. As the average worker faced job insecurity, CEO compensation rocketed. In the US, the CEO-to-worker compensation ratio reached 351:1 (in 1965 it was 21:1).  The pandemic has been a relatively mild precursor to the disruption that is building because of climate change – a threat that we have created, one that our current economic system perpetuates and that we have the power to stem. In facing this disruption, we will need economic models that prioritise the many, not just the elite few.  Alternative approaches Alternative models and ideas include circular, ecological, ‘donut,’ community, collaborative or sharing, social and solidarity economies. Loosely speaking, many focus on or draw inspiration from addressing social inequity and/or the environmental crises.  They look to democratise the economy, to better address systemic inequities, as well as incorporating realistic assessments of nature’s limits, so that we might begin to tackle our self-destructive environmental trajectory. Many of these ideas are not new. They are part of our history.  Their elegance is in their flexibility and compatibility with being layered and combined, an example being a social enterprise engaged in the circular economy. Given the breadth of this topic, this article briefly discusses two of the alternative models: social economy and circular economy. The social economy While the concept of the social economy is long-standing, its definition is evolving. Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Key features include a core organisational purpose of maximising societal and/or environmental impact, not profit, through the reinvestment of profits, and often incorporating democratic governance.  Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Within the EU, 2.8 million (10 percent) of all organisations are social economy enterprises, employing 13.6 million people.  While GDP is a problematic measure, the social economy contributes eight percent of the EU’s. One growing and exciting part of the social economy are those social start-ups that are applying innovative solutions to some of our biggest problems, like climate change, often tackling social and environmental issues simultaneously.  During the COVID-19 pandemic, the social economy gained visibility for its resilience and its value creation on a broader scorecard and structural supports are developing.  Last year, when announcing social enterprise funding, Minister for Rural and Community Development, Heather Humphreys, recognised social enterprises for “the invaluable role” they played throughout the pandemic, making “an important contribution in areas such as mental health, social inclusion and the circular economy.” In 2019, the Irish Government published the National Social Enterprise Policy for Ireland 2019–2022, which is also a core component of the State’s plans for rural and community development.  The EU is also scaling up support for the social economy, publishing the Social Economy Action Plan in 2021 for implementation this year, with plans for an EU Social Taxonomy.  A European stalwart of the social economy, based in the Basque Region of Northern Spain, is the Mondragon Cooperative Corporation.  Established in 1956, Mondragon is one of the largest corporates in Spain, with sales in over 150 countries. It comprises a collection of mutually supporting social enterprises engaged in education and innovation, finance, retail, and manufacturing/engineering (including the esteemed Orbea bicycles brand and Urssa, the world-renowned steel manufacturer).  Mondragon is particularly intriguing given its social impact aspirations — the structures and practices it has created to differentiate itself as social (such as maintaining a pay ratio limit of 6:1), while maintaining success in an ill-fitting capitalist economic structure.  Ireland also has its own booming social enterprise sector, with plenty of examples across a wide range of sectors, such as:  FoodCloud (connecting retailers with charities to donate food);  Airfield Estate (a working farm, kitchen, education, and food destination in Dublin); WeMakeGood (Ireland’s first social enterprise design brand) and; Moyee Coffee (“a radical company with radical [Fairchain] impact”). The circular economy The circular economy is also gaining ground, driven by the threat of climate change. The circular economy designs out waste by optimising scarce resources to build a restorative and regenerative economy.  It does this by deploying interdisciplinary systems thinking, i.e. considering complex systems holistically, and incorporating relationships and interdependencies between parts.  A long-term approach to resources, especially minimising the use of raw materials, fundamentally contrasts the circular economy with the linear ‘take-make-waste’ economic system.  The circular economy treats natural resources as scarce, which serves to keep climate breakdown and the threat to our survival front and centre. Maintenance and repair services grow, while production becomes more focused on non-virgin sources, thereafter prioritising regenerative materials. The emphasis is on prolonging the life and utility to be gained from products. This shifts the focus from expiry-bound consumption to ongoing use. The circular economy also diversifies the ways we transact – from individual ownership to shared ownership or rental (product-as-a-service).  The Whole of Government Circular Economy Strategy 2022–2023: Living More, Using Less, the first of its kind in Ireland and the Environmental Protection Agency’s Circular Economy Programme 2021–2027, both launched in December 2021.  These are core to the Irish Government’s drive to achieve a 51 percent reduction in greenhouse gas emissions by 2030 and to reach net-zero emissions by no later than 2050. A Circular Economy Bill is also in development.  Similarly, the EU is enabling the circular economy as part of the European Green Deal, adopting a new circular economy action plan (CEAP) in March 2020.  This action plan introduces both legislative and non-legislative measures aimed at facilitating the transition to a circular economy, including the establishment of the European Circular Economy Stakeholder Platform for sharing and scaling up the circular economy. Examples of businesses successfully applying circular principles include MUD Jeans, which offers a discount on the next purchase or lease for each pair of end-of-life jeans returned, recycling the returns into new jeans, eliminating waste, and using 92 percent less water in production.  Locally, the Rediscovery Centre in Dublin is the National Centre for the Circular Economy in Ireland. It hosts four up-cycling social enterprises in fashion, furniture, bicycles, and paint, as well as an Eco Store, and provides various educational offerings. Traditional businesses are also increasingly incorporating circular elements. Harvey Norman, for example, is offering preowned, refurbished phones. Holistic view While the traditional economy has a limited singular focus on the point-of-purchase, many of the alternative economy models, such as social and circular, take a more holistic view and can recognise and pursue multiple goals simultaneously.  Such models reflect the complexities of our environment, including the challenges of climate change, and intrinsic value, more accurately. These alternative ideas are also more dynamic. They can be combined with one another and enable better designed, more resilient outcomes.  Greater care is taken in defining what an organisation does as well as how it does it, generating more equitable outcomes by holistically considering impact, and providing greater long-term efficiency in synthesising society’s needs and the management of scarce natural resources.  In doing so, these alternatives better address critical unpriced externalities and offer ways to change our current self-destructive trajectory. Our traditional economy appears to focus on scarcity of value, durable efficiency, and resources, while the alternative economy models focus on their regeneration and restoration.  These alternative ideas offer fundamentally different approaches in how value is created, measured, and maintained, and are better suited to the holistic and inclusive economy needed by current and future generations. Kate van der Merwe, FCA, is a Sustainability Advocate and member of the Institute’s Sustainable Expert Working Group.

Mar 31, 2022
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Accounting for cloud computing costs

Richard Howard and Ryan Mathers share their insights on the cloudy topic of accounting for software-as-a-service costs. Accounting for software costs has traditionally lagged behind technological developments, so it is little wonder that there is some uncertainty around accounting for cloud computing costs. A recent International Financial Reporting Standards Interpretations Committee (IFRIC) agenda decision on cloud computing costs, while employing a sound decision-making framework, gave an answer at odds with the perception of many financial statement preparers. Before IFRS, we had FRSs, and FRS 10 set out that software that made a computer productive was classed as a fixed asset. Software was viewed as an integral part of the hardware. This standard was introduced in 1997, when software was only beginning to become a differentiated product from the computer or server it sat on. Even at this early stage, accounting standards lagged what was happening in practice. We have recently seen the move to cloud computing and software-as-a-service (SaaS). To illustrate the importance of cloud-based expenditure to the global economy, a Gartner survey from October 2021 estimated global IT expenditure of $4.47 trillion. Hardware constituted 18% of this spend, with the remainder spent on software, communications and data centres. Most of that will be spent on implementation and ongoing services for cloud-based software, cloud-hosted data, infrastructure as a service, and platforms. We have seen two recent IFRIC decisions on the topic of SaaS. The first agenda decision, published in March 2019, concludes that SaaS arrangements are likely to be service arrangements rather than intangible or leased assets. This is because the customer typically only has a right to receive future access to the supplier’s software running on the supplier’s cloud infrastructure. Therefore, the supplier controls the intellectual property (IP) of the underlying software code. On its own, many would see this as a logical conclusion. The second agenda decision, published in April 2021, deals with specific circumstances concerning configuration and customisation costs incurred in implementing SaaS. In limited circumstances, certain configuration and customisation activities undertaken in implementing SaaS arrangements may give rise to a separate asset where the customer controls the IP of the underlying software code. For example, the development of bridging modules to existing on-premises systems or bespoke additional software capability. In all other instances, the IFRIC agenda decision is that configuration and customisation costs will be an operating expense. Accordingly, they are generally recognised in profit or loss as the customisation and configuration services are performed or, in certain circumstances, over the SaaS contract term when access to the cloud application software is provided. The March 2019 decision largely endorsed what was general practice. Companies were receiving a service over a period, and companies agreed with the substance of that. The April 2021 decision, however, has been heavily debated. In discussions with many preparers of financial statements, few have agreed with the decision. While CEOs are talking about their digital transformation, this IFRIC decision tells the CFO how to account for the up-front configuration and customisation of that digital transformation, which in most cases is to expense it as incurred. This is at odds with a simple view expressed by many that the benefit of these costs accrue over a period, so why would they not be capitalised? The April 2021 decision, however, is based on various principles that, in aggregate, gives a decision at odds with the view of many CFOs. To understand their decision, it is helpful to summarise the difference between on-premise software and software as a service (see Table 1). In March 2019, IFRIC observed that a right to receive future access to the supplier’s software running on the supplier’s cloud infrastructure does not, in itself, give the customer any decision-making rights about how and for what purpose the software is used. Nor does it, at the contract commencement date, give the customer power to obtain the future economic benefits from the software itself and restrict others’ access to those benefits. Consequently, IFRIC concluded that a contract that conveys to the customer only the right to receive access to the supplier’s application software in the future is neither a software lease nor an intangible software asset, but rather a service the customer receives over the contract term. Some scenarios were set out where the SaaS expenditure may meet the criteria for being an intangible asset, including where the customer is allowed to take ownership of the asset during the contract or where the customer is allowed to run the software on their own hardware (consistent with FRS 10 in 1997!) The April 2021 decision led on from this train of thought, which can be summarised as: “If you incur expenditure connecting your business to a cloud-based solution, you do not own that asset. As it is not your asset, you cannot capitalise costs you incurred in customising or configuring that software.” So, the question arises: are there any scenarios where an entity may capitalise configuration and customisation services? The simple answer is yes, and this occurs when the entity can control the software. For example, this may arise where the customer has the right to keep the software on-premise on their own servers or behind their own firewall. For on-premise software, the activities likely represent the transfer of an asset that the entity controls because it enhances, improves, or customises an existing on-premise software asset of the entity. While IFRIC only discussed configuration and customisation activities of implementing a SaaS arrangement, the full SaaS implementation includes various activities. Table 2 illustrates some examples (not all-inclusive) of typical costs incurred in SaaS arrangements and the likely accounting treatment of each. Practical implications Beyond complying with IFRIC’s meeting agenda decision, there are some considerations for the many companies who have undertaken, or are undertaking, SaaS implementation projects: IAS 8 requires an entity to retrospectively apply an accounting policy change as if the entity had always applied the new policy. Companies may need to determine if they have capitalised costs that IFRIC may suggest should not have been capitalised and if this impacts comparative periods. Budgetary decisions may have been made based on digital transformation projects being largely capital in nature. However, with such costs now being expenses, it may impact performance when reviewed against budget or external forecasts. Some banking covenants contain EBITA or capital expenditure requirements, so the impact on covenant compliance may need to be assessed. Conclusion Interestingly, while the IFRIC Committee agreed with the interpretation from April 2021, out of the 19 comment letters received, only five respondents agreed with the analysis and conclusion. This would suggest that many see an issue with practicality in the decision. Many companies we have spoken to point to the long-term benefit of such costs as the reason they view capitalisation as the appropriate route for configuring and customising software. Others have cited that it is an upgrade on the previously on-premise capitalised costs, hence appropriate to capitalise. As we continue to use assets such as SaaS or other cloud-based solutions, it will be interesting to see how GAAP develops to recognise that software and hardware are no longer interdependent. Other topics such as accounting for open-source software development, open network cooperation, and platform arrangements will be interesting when they become material in the business world. Richard Howard is a Partner in Deloitte’s Technology, Media and Telecommunications industry group. Ryan Mathers is a Manager in Deloitte’s Technology, Media and Telecommunications industry group.

Feb 09, 2022
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Accounting faculties and the future of the profession

Professor Anne Marie Ward and Professor Niamh Brennan, both Chartered Accountants, make the case for diversified accounting faculties with a healthy proportion of accounting academics who are professionally and doctoral qualified. The accounting profession comprises three pillars: research, policy, and practice. Rigorous research should inform policy, which leads to best practice. Accounting faculties in higher education institutions can foster links between the three pillars. They prepare students for entry to the accountancy profession; hence, they have the potential to influence future practice. They also undertake research that can inform policy, including regulation of the profession, standard-setting, accounting education, and ethical approaches. What is the problem? Some argue that accounting education is too focused on techniques, rules, processes, and procedures, with insufficient focus on the ethical implications of accounting and its role in the economy and society. Some also argue that accounting research is too academic, unrelated to accounting practice and hence has little impact on policy formulation. In academic circles, this is referred to as the ‘theory-practice gap’. We believe that having a healthy proportion of accounting academics with both a professional qualification and an academic qualification (i.e. PhD) within accounting faculties can help resolve these problems. As these individuals have experience in practice, they can better inform student learning. In addition, they are best placed to identify research areas that would benefit the profession. Unfortunately, however, the proportion of professionally trained and research-trained academics within accounting faculties across the globe is dwindling due to retirements and a dearth of accounting doctoral graduates. University ranking metrics have not helped. For example, recruitment policies in the UK since the 1980s have largely ignored the professional accountant pool due to pressures from higher-education performance metrics. Research scoring systems, such as the UK Research Excellence Framework, feed into university rankings and influence university funding. Consequently, university managers focus on recruiting individuals with PhDs who are more likely to achieve the research outputs required to enable the university to move up the rankings and optimise funding. Therefore, there has been a shift to recruiting PhD graduates from other disciplines, for example economics and engineering, to accounting posts because of a lack of accounting doctoral graduates. However, these individuals are not equipped to service technical accounting subjects. Thus, university managers employ non-research trained professional accountants as teaching associates/part-time lecturers to service professionally accredited modules. As a result, accounting faculties in some universities comprise two cohorts: those academically trained (i.e. PhDs) and those professionally trained and qualified (e.g. Chartered Accountants). This dichotomy is concerning for the future of accounting as an academic discipline, as it serves to widen the gap between theory and practice. Indeed, academics argue that the future of accounting as a separate academic discipline is at a crisis point, with accounting departments increasingly seen as service providers (‘cash cows’) that help to finance other academic subject areas, as opposed to being a premium academic subject in its own right. International interventions Accounting profession representative bodies and policymakers in the US, England and Wales consider it strategically important to retain accounting as a quality academic subject area that actively produces research to inform accounting policy and practice. To this end, they have implemented strategies to reduce the shortfall of academically trained professional accountants. For example, the American Institute of Certified Public Accountants’ (AICPA) Accounting Doctoral Scholars (ADS) programme manages the largest investment ever made by the accounting profession to address the shortage of accounting faculty members (www.adsphd.org). This started in 2008 when accounting firms, state CPA societies, the AICPA Foundation and others invested over $17 million in the programme. By 2020, this funding had helped more than 100 CPAs transition into academic careers. In the UK, the Institute of Chartered Accountants England and Wales, (ICAEW) Livery Charity provides four grants every year to successful ICAEW members who decide to pursue a career in academia and undertake doctoral studies. The total grant is £15,000 per successful applicant and is paid on a pro-rata basis throughout the doctoral programme. The situation in Ireland In Ireland, the links between the accounting profession and higher education institutions are strong and recruitment policies to accounting faculty posts have historically favoured professionally qualified candidates. Thus, most Irish higher education institutions have a diverse mix of accounting academics, including those who are: Both professionally and research trained; Research trained only; and Professionally trained only. This diverse range of backgrounds should foster communion between research, policy, and practice. However, increasing pressure on higher education institutions to meet the performance targets required under university quality ranking systems means that recruitment strategies now favour doctoral qualified candidates. Care is needed to ensure that the dichotomy observed in other countries does not become a feature of Ireland’s accounting faculties. A balance between the three pillars is necessary to ensure that accounting remains an important academic subject in its own right within higher education institutions and not a cash cow that generates income to fund other academic subject areas. Lecturers with both professional and academic skills can serve as a bridge between academia and practitioners and between non-professionally qualified, research-focused academics and teaching associates. Combining the skills of a professionally orientated faculty alongside relevant and high-impact academic research not only prepares students for the future of work as professionally trained accountants, it also contributes favourably to the development of accounting, business, society, and the broader economy. The UK Research Excellence Framework places a premium on research that has impact, where research can be proven to have informed society or business. This is more achievable if accounting faculties include professionally qualified individuals with links to the profession who are also research trained. Research has shown that university managers identify an ideal academic as someone who can produce “rigorous and high-quality research, to teach to a high standard, to fuse academic and professional knowledge and experience, and foster relationships with the wider accounting community”.1 This suggests a market for accounting lecturers that are both professionally and academically trained. Why do professional accountants enrol for doctoral education? Research has not examined what drives professionally qualified accountants, who have an established career, to start again at the bottom rung of the ladder in academia. In response to this gap in knowledge, we addressed two questions in our research: What motivates students to enrol in accounting doctoral programmes? Is there a difference in the motivation of professionally qualified and non-professionally qualified accounting doctoral students to enrol?2 To investigate these issues, we surveyed and interviewed 36 accounting doctoral students enrolled at higher education institutions on the island of Ireland. Of these, 13 were professionally qualified. In total, 14 reasons for enrolling for doctoral education were uncovered. Interviewees reported that their main motivations for enrolling for doctoral education were expectations of a career in academia, enjoyment of research or interest in their doctoral topic, the status of the PhD qualification and work-life balance. In terms of differences, non-professionally qualified doctoral students were predominately motivated to enrol by the pursuit of knowledge and financial rewards. In contrast, most professionally qualified doctoral researchers were initially motivated to enrol because of dissatisfaction with their professional careers. In the main, they felt they lacked autonomy over their work and work-life balance. Autonomy is a key psychological need. When individuals consider that they do not have autonomy over their life, it can affect their well-being and happiness. In addition, about half of the 13 professionally qualified interviewees felt that they did not have a sense of belonging in the profession. Those dissatisfied with their professional career anticipated that an academic career would enable them to have more autonomy over their work and work-life balance. In addition, they were attracted by the status of the PhD qualification, and most interviewees identified that they were interested in researching a topic in depth. A career in academia? We end this article with a call to Chartered Accountants wishing to change careers. If you enjoy learning new things, working independently, and being challenged, you will enjoy research. If you enjoy developing other people, you will enjoy teaching. Finally, if you are ambitious, you will be given plenty of leadership opportunities. Most lecturers are course directors or have other leadership positions from early in their careers. Therefore, if you are considering a career change, why not consider a career in academia? 1 Paisey, C., and Paisey, N.J. (2017). The decline of the professionally-qualified accounting academic: Recruitment into the accounting academic community, Accounting Forum, 14(2), 57–76. 2 Ward, A.M., Brennan, N., and Wylie, J. (2021) Enrolment motivation of accounting doctoral students: Professionally qualified and non-professionally qualified accountants, Accounting Forum, 1–24.  This research was funded by the Chartered Accountants Irish Educational Accountancy Trust, CAIET Grant number 201/15. Full details of our research study are available at the following link: https://doi.org/10.1080/01559982.2021.2001127 Anne Marie Ward FCA is Professor of Accounting at Ulster University. Niamh Brennan FCA is Michael MacCormac Professor of Management at University College Dublin.

Feb 09, 2022
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Thought leadership
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What’s on the horizon for 2022?

Resonant with the Institute’s position paper, The Next Financial Year, Michael Diviney surveys some of the issues and changes expected in 2022 and beyond. Changes at the core After years of relative stability, disciplines associated with Chartered Accountancy are about to undergo significant change, a key source of which will be legal and regulatory initiatives from the European Union. In 2022, the focus and effects of this change will be seen in: Environmental, social and governance (ESG) reporting: A new Corporate Sustainability Reporting Directive (CSRD) is due. In tandem with this, the European Financial Regulatory Advisory Group has been asked to develop ESG reporting standards by mid-2022 to be applied in EU member states. Reform of the audit market: An EU Commission consultation on the ‘three pillars’ of corporate reporting, corporate governance, and audit and supervision with a response deadline of 4 February 2022 will undoubtedly lead to attempts to revise EU legislation and regulation next year. International tax reform: At least three draft EU tax directives are due to be published. The first will give legal expression to the 15% minimum effective corporation tax rate for larger multinationals. The second will concern public disclosure of minimum effective tax rates in the EU by companies that fall under the OECD agreement’s scope. The third concerns allocating limited taxing rights to the countries where a corporate entity’s market is located. Anti-money laundering legislation: As part of its action plan to prevent money laundering and terrorism financing, the European Commission has published a set of legislative proposals. These include a sixth Anti-Money Laundering Directive and the establishment of a pan-European monitoring authority to coordinate anti-money laundering activities. What is driving this change? The impact of the pandemic: Many businesses in developed economies are receiving government supports to assist them through the COVID-19 pandemic, which has created a need for additional accountability and reporting. In 2022, government will be bigger. Climate change: There is an emerging consensus on the need for robust sustainability reporting standards to be more widely applied in geography and business scope. High-profile audit failure: Recent business failures have brought the audit market, conduct, and regulation into sharp political focus. International crime: There is increasing recognition that organised crime across national boundaries needs to be tackled with anti-money laundering techniques and more traditional policing and enforcement. Tax: There is now a global consensus that large multinationals should be taxed at an effective minimum rate of 15%. The largest corporate entities should also make corporation tax contributions by reference to the location of their markets and where they are established. Governance Increasing focus on sustainability, corporate failures, and technological advances impacting business are driving corporate governance reforms. For example, the European Commission’s sustainable corporate governance initiative will enhance the EU regulatory framework on company law and corporate governance. As a result, we are likely to see increased responsibilities for directors and more requirements for internal controls and supply-chain management in organisations of a certain size. In the UK, we await the Government’s next steps following consultation on restoring trust in audit and corporate governance. In Ireland, the Government is progressing legislation on individual accountability for certain senior management positions in financial institutions. Gender balance on boards The Irish Corporate Governance (Gender Balance) Bill 2021 proposes that 33% of a company’s board must be female after the first year of its enactment, rising to 40% after three years. If enacted, it would apply to limited and unlimited companies, charities, and all state-sponsored bodies. There would be a few exceptions, such as partnerships and companies with fewer than 20 employees. Gender pay gap reporting New to Ireland in 2022 will be the mandatory reporting of gender pay gap (GPG) information, initially for organisations with 250 employees or more. GPG is the difference between the total average hourly wages of men and women in an organisation regardless of their roles or seniority. It is different from equal pay, which measures if men and women are paid the same for performing work of equal value. GPG is an indicator of whether men and women are represented evenly in an organisation. Regulations will set out details of the reporting and publication processes. Leading on purpose November saw the launch of Evaluating Trust in the Accountancy Profession, a report by Edelman for Chartered Accountants Worldwide, of which the Institute is a member. Based on a survey of 1,450 financial decision-makers, 80% of whom are non-accountants, the report reveals an opportunity, if not an expectation, that Chartered Accountants take the lead on purpose-led initiatives such as driving action on sustainability and diversity, equity and inclusion. Commenting on the report, Ronan Dunne FCA described it as a call to action for Chartered Accountants “to broaden the base of trust”, building on their ethical reputation and professional standards. CEOs are now expected to have opinions on societal issues. This is an opportunity for Chartered Accountants to be influential in establishing the ‘citizenship’ of corporates, advising industry leaders on the integration of purpose with strategy and planning. Technology and the accountant Societal issues are not the only fundamental factors broadening the role and value-add of the accountant. Technology is also a driver of change. Writing in this magazine, Aoife Donnelly FCA and Thady Duggan FCA have argued that, accelerated by the pandemic, and as more traditional finance tasks are automated, the emphasis will be on maximising the impact of digital technology, enabling a shift from a past focus to a future focus. A future focus involves changes in the accountant’s skillset to include: data analysis (at least an understanding of the fundamentals of data analytics to be able to challenge specialists); communicating insights from the data; data governance and assurance; horizon-scanning and innovation; collaboration across the organisation, as well as working with multidisciplinary teams on defined fixed-term projects; and applying technology to support these contributions. The rise of the social enterprise Reflecting the emphasis on purpose and linked to sustainability, 2022 will see the resurgence of the social economy. COVID-19 caused people to pause and reassess their priorities and values, and some entrepreneurs are recycling into social enterprises. Social entrepreneurs bring momentum to the emerging circular economy. They reflect new ways of thinking about business, focusing on digital innovation, diversity and inclusion, and transparency – a magnet for Gen Y and Gen Z. They also influence the future development of mainstream corporations. Social enterprises like Food Cloud, connecting retailers with charities to donate food, need appropriate advice and sources of finance that match their broader societal objectives. Working 3:2 Assuming it is safe to return to the office, ratios like ‘3:2’ will feature as hybrid (or blended) working becomes a reality, at least for those who can work from home. The remote working forced by the pandemic has been a positive experiment in trust. In many sectors, productivity was maintained, even improved. So it makes sense to retain the discovered benefits, including flexibility, which employees now expect to be ‘baked in’. However, the start-up challenges for hybrid working should not be underestimated. There is little precedent, though we can learn from sectors where staff have not been able to work from home during the pandemic. An experimental, patient approach is required from all. New ways of working will be designed. They will distinguish between what we need to do in person, where the focus will be on high-impact interaction (innovation, performance conversations, organisational change), and what can be done remotely. The workplace will be physical and digital in equal measure. The purpose of the office will be redefined, reflected in its layout. New risks include the potential inequalities of a two-tier system of those present in person and those not. Training will be needed for the management of blended teams. Digitalisation Not all work can be done remotely, and not all employers can afford the IT for staff to work from home. There is an opportunity for Government to support the digitalisation of businesses to make the hybrid transition and continue the roll-out of work hubs. Tax and remote working To adapt to this new reality, tax rules must align with remote working practices and fairly reflect the costs of working from home, allowing a tax deduction for expenditure on equipment used for remote work purposes. In addition, an employee’s ‘normal place of work’ should be based on where they carry out most of their work. Childcare The lack of affordable childcare for working parents came to the fore during the pandemic, particularly when schools closed. In an economy crying out for talent, working parents should be encouraged to engage fully in the workforce, or at least have the choice. From September 2022, new funding of €69 million will be available for childcare providers to ensure the sustainability of services. However, it remains to be seen if this first step will have the desired effect of controlling fees. Talent and the ‘perfect storm’ ‘The Great Resignation’ may encompass employees who are resigned to stay in their current roles as well as the millions of people worldwide reported to be changing jobs or who plan to. In any case, for 2022, a ‘perfect storm’ is predicted when increased demand for talent meets the post-COVID phenomenon of career change. There are tools employers can use in recruiting and retaining talented people: offering remote/hybrid working and flexibility; budgeting time for regular conversations with individuals about how they feel about their work; delivering on the ‘employability contract’ – the expectation to learn new, marketable skills; and a strong and empathetic employer brand. Arguably the best way to recruit and retain the best people is to show leadership with values and purpose. Michael Diviney is Executive Head of Thought Leadership at Chartered Accountants Ireland.

Nov 30, 2021
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Strategy
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Standard-setting board reform, one year on

Bríd Heffernan provides an update one year after the Monitoring Group issued its proposed reforms to international standard-setting boards. In July 2020, the Monitoring Group issued its much-anticipated paper outlining reforms to the international standard-setting boards – namely, the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA). This article will reflect on the reforms proposed in the July 2020 Monitoring Group paper and analyse where the reforms stand one year on. The journey so far The Monitoring Group is a group of international financial institutions and regulatory bodies committed to advancing the public interest in international audit standard-setting and audit quality. The last set of reforms faced by the standard-setting boards were agreed to in 2003 by the International Federation of Accountants (IFAC) and the Monitoring Group. These 2003 reforms created the Public Interest Oversight Board (PIOB), which was tasked with increasing investor and stakeholder confidence in the standard-setting boards and ensuring that standards are responsive to the public interest. The 2003 reforms put IESBA and IAASB under the oversight of the PIOB, thus making them independent of IFAC. This, in turn, led to IFAC providing support to the standard-setting boards. The proposed July 2020 reforms do not change this structure, but they do propose changes to address the Monitoring Group’s concerns. Effectiveness reviews were built into the 2003 reforms. Every five years or so, the Monitoring Group conducts an effectiveness review and makes recommendations to improve the system. In the early reviews, the recommendations were made and agreed upon, and enhancements were implemented. However, the most recent review in 2015 resulted in the 2017 Monitoring Group consultation paper. Since then, there has been extensive discussion between the Monitoring Group, IFAC and other stakeholders culminating in the issuance of the July 2020 Monitoring Group paper. Monitoring Group concerns The July 2020 Monitoring Group paper titled Strengthening the International Audit and Ethics Standard-Setting System set out recommendations for reforming the standard-setting process. Below is an overview of the Monitoring Group’s main concerns that led to the recommendations, which are also discussed later in this article. The public interest is not given sufficient weight throughout the standard-setting process. Stakeholder confidence in the standards is adversely affected as a result of the perception of undue influence of the accountancy profession on the following two grounds: IFAC’s role in funding and supporting the standard-setting boards and running the nominations process; and Audit firms and professional accountancy organisations providing the majority of standard-setting board members. Standards are not as timely and relevant as they need to be in a rapidly changing environment. IFAC’s response As IFAC operationally runs the standard-setting boards, the Monitoring Group’s concerns and recommendations directly impact IFAC. In an update to its members, IFAC’s Chief Executive, Kevin Dancey, stated that IFAC was focused on agreeing on a workable set of changes that would enhance stakeholders’ trust and confidence in the standard-setting process. These reforms also provide an opportunity for IFAC to address its own issues with the current process, which are: That PIOB members are almost exclusively from a regulatory background. IFAC believes that the PIOB should have a multi-stakeholder composition and perspective. That the PIOB must be more transparent, and there is a need for clarity on its role and the role of the standard-setting boards and how the PIOB carries out its mandate. 2020 recommendations  The July 2020 Monitoring Group paper proposals retain the two standard-setting boards with the same mandates, and they will be retained in a similar size (16 members, down from 18 members). The respective roles of the PIOB and the standard-setting boards are also clarified. The Monitoring Group’s proposals clarify that the standard-setting boards are responsible for developing, approving and issuing the standards. The role of the PIOB is oversight. Combined with making the workings of the PIOB more transparent, this is a step forward. Responsibility for ensuring that the standards were responsive to the public interest was a source of confusion in the past. Was this the responsibility of the standard-setting boards or the PIOB? The July 2020 Monitoring Group paper contains a public interest framework, which confirms that it is the standard-setting boards’ responsibility to certify that the standards are responsive to the public interest. The PIOB will also have to certify that the standards are responsive to the public interest as part of its oversight function. Both the PIOB and the standard-setting boards will have a multi-stakeholder composition. For the PIOB, this means that its members will not simply be representatives of the Monitoring Group members. And for the standard-setting boards, this will ensure a diversity of views at the standard-setting table. Recognition of the significant role of both IFAC and the accountancy profession is a key improvement over the 2017 consultation paper. Current practitioners can still become members of the standard-setting boards, up to a maximum of five practitioners. Impact of the changes on IFAC With respect to IFAC, its ongoing role has been acknowledged in the July 2020 Monitoring Group paper: IFAC will continue to provide operational support to the standard-setting boards, the only difference being that it will be set out in a formal service level agreement. IFAC’s role in adopting and implementing the standards, promoting the standards, and monitoring their adoption and implementation has been acknowledged as an important ongoing responsibility. There will be a change to the nominations process for IAASB and IESBA members, however. The process is currently run by the IFAC Nominating Committee, which is chaired by the IFAC president. To ensure adequate independence in the nominations process and ensure good governance, the July 2020 Monitoring Group paper recommends that the nominations process sit under the supervision of the PIOB. The legal structure will also change. Currently, the standard-setting boards are committees of IFAC. The July 2020 Monitoring Group paper calls for the standard-setting boards to sit under a separate legal entity, independent to IFAC. Furthermore, changes have been recommended to the staffing model for the standard-setting boards. The proposals call for an increased staff complement and for staff to have greater responsibility for drafting the standards with less responsibility in the hands of the standard-setting boards. Since IFAC provides operational support for the standard-setting boards, this request for an increased staff complement will impact IFAC. Transition planning phase It was assumed by many observers that, with the issuance of the July 2020 Monitoring Group paper, all would be known. However, five years after the initial review, the reform process is only at the end of the beginning, seeing as many of the details remain unresolved. According to IFAC, the July 2020 paper is a significant improvement on the proposals outlined in the 2017 consultation paper. It is evolutionary rather than revolutionary. It sets out several high-level recommendations and principles that can be worked with. Right now, IFAC and the Monitoring Group are in the transition planning phase of the reforms – but many outstanding items must yet be worked through. The transition planning phase consists of IFAC and the Monitoring Group developing an implementation plan by participating in 26 workstreams. The goal is to work through all outstanding issues and finalise the recommendations in 2021. The implementation of the recommendations will then take place over the next three years, up to 2024. The changes will be phased in to ensure a smooth transition and no disruption to the current standard-setting process. Funding of the reforms  It is clear from the July 2020 paper that there is no new funding model. The profession’s resources were stretched before COVID-19, and this limitation will be exacerbated post-pandemic. This represents a significant fiscal constraint on implementing the reforms. IFAC’s funding for 2021 is down 13.5% from 2018, and there is no improvement anticipated in the funding outlook beyond 2021. Therefore, a key challenge is to reconcile the cost of the Monitoring Group’s recommendations to the funding available. Next steps As noted, the process is currently in the transition planning phase. The goal is to resolve all outstanding issues in 2021 while reconciling the cost of the recommendations to the funding available and reaching a deal on the phased implementation of agreed changes by 2024. While there is a long way to go before the reforms are implemented, it is positive to see progress that ultimately serves the public interest. Bríd Heffernan is Associations & Institutions Leader at Chartered Accountants Ireland.

Jul 29, 2021
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Strategy
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SCARP: a simplified safety net for SMEs

David Swinburne outlines the practical considerations for members as they prepare to deal with the Small Company Administrative Rescue Process. With the much-anticipated legislation for the Small Company Administrative Rescue Process (SCARP) ready to be enacted, it will be interesting to see how the process evolves. SCARP aims to rescue struggling businesses that form the backbone of the Irish economy – small and micro companies. These SMEs provide the greatest number of jobs in Ireland. The process, by and large, mirrors the successful examinership process, which has been around for 30 years. However, the costs associated with SCARP are expected to be significantly lower than those associated with examinership. Under SCARP, there is no automatic involvement of the Court. Therefore, the costs associated with legal representation for both the company and the examiner are not applicable. Under SCARP, a company does not have protection from its creditors. However, there is the comfort that the Court is there should it be required. Of course, if recourse to the Court is required, costs will increase. What should a company or its external accountant be doing now? In a typical examinership case, there is invariably some event that occurs at very short notice or an unforeseen shock that pushes the company into insolvency. This, in turn, leads to an urgent application to Court for protection and the appointment of an examiner. Thus, the process for the duration of the examinership becomes a pressure cooker. For SCARP to be successful, planning at a very early stage and engagement with an insolvency practitioner (known as the ‘process advisor’ under SCARP) is vital. The insolvency practitioner will need to quickly assess whether or not the company is a suitable candidate for SCARP. The company can only be a suitable candidate if it has the prospect of survival, which means that it must be viable. Before commencing the SCARP process, the company will therefore need to determine (in as far as it can) that there is a strong likelihood that it will emerge successfully out the other end. For this, it must have a viable core business and source sufficient financial resources to fund the SCARP (if its creditors are to be settled immediately instead of over a period of time). The company’s stakeholders will want certainty on the outcome for them. This will form their decision as to whether or not they will support, and therefore vote in favour of, the SCARP. Fail to plan, plan to fail Early engagement with an insolvency practitioner will also allow them to identify creditors that are likely to be more challenging to deal with in the SCARP due to the complexity of the contractual relationship between such a creditor and the company. Such creditors may include landlords and others to whom the company has more onerous obligations. These creditors can be dealt with under SCARP (subject to their consent). However, if the issues are likely to be difficult to resolve, an application to Court may be required. Identifying such creditors before the process begins will be crucial in setting out the options and, consequently, the further anticipated costs that may arise in dealing with them. Based on recent applications before the High Court, it is evident that the Court will want the company to endeavour to engage with creditors and attempt to resolve difficulties before bringing the matter before the Court. Therefore, the Court should not be the first port of call in resolving issues with any creditor. Excludable debt The possibility for State creditors (with a particular focus on Revenue, which is likely to be a creditor in any SCARP scheme) to opt-out of the process has generated mixed reactions. In my experience, however, Revenue is not a blocker. Instead, it is – and will continue to be – supportive of company restructurings, whether informal or formal (i.e. SCARP or examinership). For Revenue to take such a supportive stance, the company and its directors will need to have a compliant and transparent record in their dealings with Revenue. Therefore, companies must continue to meet their Revenue filing obligations – even in circumstances where the company has warehoused debt and is not in a position to discharge its ongoing taxes as and when they fall due. Directors’ duties Under SCARP, there is a requirement for the process advisor to report any offence to the Director of Public Prosecutions (DPP) and the Office for the Director of Corporate Enforcement (ODCE). It is therefore vital that all directors act honestly and responsibly at all times. When will SCARP cases commence? There is a view that as long as COVID-19 State supports are in place, companies will not succumb to the pressure that they may face after the removal of all State supports. However, not all Irish entities are receiving State support. And those that are not are heavily reliant on their trading partners to discharge their obligations to ensure their own survival and future success. Formal insolvencies are at an all-time low. Given the impact of the last 17 months on the economy, you would expect insolvencies to have increased, not decreased. There is no doubt that the various extensive State supports, coupled with payment breaks and holiday periods from other key creditors and stakeholders, have ensured the continued survival of businesses that would otherwise have run out of cash. As the ‘new normal’ continues to be rolled out and we all adjust and adapt, creditors will be forced to become more active in their efforts to collect cash and recover amounts owing. This is when a company becomes vulnerable in terms of its future survival and direction, as its creditors start to take matters into their own hands. Control in terms of survival will quickly switch from being with a company to its creditor(s). Therefore, as highlighted above, early engagement with an insolvency practitioner and an assessment of SCARP as a credible option is a must. Time-frame The end-to-end time-frame for a SCARP is much shorter than examinership (70 days versus 150 days), which means that much preparatory work will take place before the SCARP is formally kicked off by the directors via a resolution and the appointment of the process advisor. Getting difficult and challenging creditors onside is time-consuming. If certain creditors are unlikely to be supportive before the commencement of the SCARP, it is more likely that they will object to it. This will result in an automatic application to Court to seek approval for the SCARP, which impacts the certainty of the outcome for the company, its employees, and its consenting creditors. What should I do next? If one of your clients is struggling now or is highly likely to struggle in the future, or you own or lead an SME that is eligible for SCARP (see sidebar), you should consult now with an experienced insolvency practitioner. David Swinburne FCA is an insolvency practitioner and Advisory Partner at FitzGerald Legal & Advisory, Cork. SCARP eligibility An SME will be eligible for SCARP if it satisfies two of the following three criteria: Turnover of up to €12 million; A balance sheet of up to €6 million; and/or Up to 50 employees.

Jul 29, 2021
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