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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 Insolvency rates are likely to rise in the months ahead, however, as pandemic supports are withdrawn from businesses with significant debts, and PwC estimates that there is a debt overhang of at least €10 billion among Ireland’s SMEs, made up of warehoused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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News
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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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News
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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 manager at EY, a member of the Chartered Accountants Ireland Diversity and Inclusion Committee and founder of Empower the Family.

Jun 25, 2020
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Personal Impact
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Emotional intelligence: your firm’s greatest competitive advantage

John Kennedy explains why knowing too much can harm your practice, and where you should apply your focus instead. When I ask Chartered Accountants to make a list of the problems that hold them back from getting new clients, I am sometimes surprised at the issues they include. One point never makes the list, yet it is often a challenge – they just know too much. How can that be a problem? Surely every client wants a highly knowledgeable accountant, someone who is on top of all of the details and knows all of the angles?This is partly true, but it hides how you can inadvertently damage your practice. Unless you take time to step back, think clearly from the perspective of the client and shape your words to meet their needs, you can quickly lose their attention. This problem is compounded by the assumption that your clients pay you for your knowledge of accountancy, but that is not why clients pay you. Why do clients pay you? This is a deceptively simple question. Is it because of the things you know or because of the things you do for them? Or is it because your qualifications mean you are empowered to authorise documents? Each answer constitutes some part of the reason, but each also obscures a vitally important point. There are two crucial distinctions. First, clients do not pay you for the things you do; they pay you for the value you deliver. Second, the value you provide is only partially expressed in monetary terms. The fundamental truth is that, in many cases, clients most value the way you make them feel. Where your real value lies When you were studying as an undergraduate, the emphasis was on increasing your knowledge. You bought textbooks, you attended lectures, you completed assignments and the focus was always on what you knew – more facts, more information, more knowledge. Your exams tested and confirmed your knowledge; the more you could prove all you knew, the higher the grades. And the more you knew, the better you felt and the better you were regarded by the training firms for whom you hoped to work. With this relentless emphasis on knowing more and more, it is unsurprising that you came to assume that knowledge was where your value as an accountant lay. Then you became a trainee Chartered Accountant in a firm. In your application, your interview and all of the tasks you were given, it was assumed that you had the knowledge required. At this point, the emphasis began to shift to the things you did. You were given specific tasks; what you did and the time it took was captured in timesheets. The emphasis of virtually every aspect of your work, your day and your value revolved around recording your activity in your timesheets. And then you set up your own practice. By now, the emphasis had become so engrained – entrenched even – that you assumed that the key to building a successful practice revolved around turning what you knew into what you do, and recording that in timesheets to bill your client. This focus transferred to your client, but the truth is that this is not where your greatest value – nor your greatest opportunity – lies. Your client wants your value, not your time To build a successful practice, you need to move your thinking – and the focus for your client – beyond what you do and towards the value you provide. This involves two steps. The first step is to consciously move the emphasis from the things you do to the value you deliver. This first step is widely accepted but poorly implemented in practice. The second step is perhaps even more critical if much less understood. To build a practice with strong bonds with long-term clients, you need to move the emphasis from facts to feelings. Human beings like to believe that our species is more rational than it really is. We believe that we see or hear something, we analyse it rationally, and we decide. But do you suppress your feelings at work and give dispassionate advice? Are you always logical and provide clients with clearly thought-out analysis? This is what we like to believe, but it is often untrue. The reality looks much more like this: we see or hear something; we filter it through our emotions; we interpret it and tell ourselves a story; and on that basis, we decide if it is right or wrong. This filtering process happens all the time and while every client wants the facts dealt with, they assume that this is the minimum level of service they will receive from their accountant. The bonds that make clients work with you and generate referrals are forged beneath the level of conscious thoughts. Even in business, the way we feel is of enormous importance so you can create a genuine edge by understanding and applying this. The positive feelings generated by your work include peace of mind, increased confidence in decision-making, or the anticipation of a comfortable retirement. These are important sources of value, yet few realise just how vital these submerged feelings are – even in the most dispassionate business transaction. Every interaction has a submerged, and usually unstated, emotional aspect. As a practice owner, you must understand this and use it to your advantage. When making the shift in focus from the things you do to the value you deliver, you must take account of the genuine feelings at play. Value is about more than money Feelings are always there and are an important part of the value provided by a Chartered Accountant – no matter how much we try to convince ourselves that it is “just business”. Everyone has clients they like and clients they do not like; phone calls they look forward to making and phone calls they hate making; tasks they like doing and tasks they hate. We are very skilled at telling ourselves stories that turn these feelings into apparently rational explanations supported by facts to support our conclusions – but there is no avoiding the reality that feelings are very powerful, and this is the same for your client. Let us take an example that shows just how powerful this concept is. Complete this sentence: “More than anything, I want my children to be…” I have used this example for decades and the answer is almost always “happy”. Occasionally, the respondent will say “content” or “fulfilled”, but in each case the answer is an emotion. It is never a financial or factual answer. This is a simple example of just how important feelings are. How to gain an advantage Gaining a client does not begin and end with you making clear all of the things you will do for them. For an individual to act, they must first feel confident that you understand what they want. And more importantly, they must also be convinced and motivated to the point that they are committed to working with you. Being convinced and motivated depends on your ability to address the feelings that so often remain submerged, unexamined, and unaddressed. I have heard about all the effort accountants put into planning and preparing for meetings with potential clients, often spending hours crafting a well-designed and high-quality document and accompanying presentation. But they then go on to tell me that, even as they are discussing the document or giving the presentation, they know it is just not working. Almost everyone has experienced this in some way, but many simply continue as if the submerged feelings are not there or are insignificant. The habitual pattern is to press on with more information, more facts, more details. The result is that you completely overlook the reality that the submerged feelings are the decisive factor in the ultimate success of any relationship. It is much more useful to bring these feelings to the surface. You do this by using questions to draw out how the work you are discussing with your client will make them feel. The truth is that few clients care about exemplary management accounts or pristine submissions. Some do want to use their cash more effectively or to have a clear tax plan in place, but everyone wants to feel the peace of mind or sense of security that these actions bring. Yet, many accountants spend too much time talking about the surface facts, the facts that – even when they are dealt with well – are, at best, efficient and uninspiring. The often-unacknowledged truth is that the feelings you create in your clients are just as valuable in building long-term relationships as the work you do. When you deal with the surface facts well, but the submerged feelings are left unattended, there is the illusion of progress, but the relationship is merely routine with little enthusiasm. New clients in particular will sometimes engage you as part of their initial wave of enthusiasm, irrespective of the work you have done, but that will undoubtedly be a passing phase. The worst-case scenario is where the factual, practical aspects of the relationship are not adequately clarified and addressed, and the submerged feelings are also poorly dealt with. If this is the case, the client may accept you as a necessary evil, and you both bump along for a short time until your client moves to another practice. Even if they stay, these are the clients that are difficult to deal with, slow to pay, and frustrating to have. Only when you take control of, and actively deal with, both the surface level factual tasks and the submerged feelings do relationships take off. When this happens, it is of real value to both you and your client. These are the client relationships you want – you are both in step, you both work well together, and you both feel positive about the work. Too often, however, this kind of relationship is left to chance because the influential role of submerged feelings is seldom acknowledged, discussed, and actively addressed. But you can make these positive and rewarding client relationships a matter of choice. Just get into the habit of raising your clients’ understanding of the importance of the positive feelings generated by working constructively with you as their accountant. Ask about the areas they want to be confident in; probe how putting their affairs in order will reduce stress; and test and draw out the peace of mind they will get. As you become skilled at eliciting and addressing these submerged feelings, you will set yourself apart from your competitors. Move your emphasis from what you do to the value it brings, and then take the critical step of drawing out and addressing the submerged feelings that are most important to your client.   John Kennedy is a strategic advisor. He has worked with leaders and senior management teams in a range of organisations and sectors.

Jun 02, 2020
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Supporting mental health in the workplace

Dr Annette Clancy explains why employees’ mental health should be the organising principle for businesses in the 21st century. 20-30% of us will experience mental health issues during our lifetime. Could the quantity and quality of work have something to do with this?  A recent study conducted in the UK shows that one-third of us are not happy about the amount of time we spend at work. More than 40% of employees are neglecting other aspects of their life because of work, which may increase their vulnerability to mental health problems. As a person’s weekly hours increase, so do their feelings of unhappiness, worry and anxiety. Employees’ mental health is affected by their roles. For example, we might expect to see mental health issues in workers who deal with trauma and violence every day, but studies also show that workplace culture, bullying, disciplinary processes, and toxic workplace relationships all contribute to deteriorating mental health. Many businesses have policies for mental health and workplace wellness, but for those who are trying to cope with challenging workloads and suffering at the same time, policies may not be enough. Very often, people hide what they are feeling for fear they will be stigmatised or punished. Policies need to be backed up with empathetic intervention by managers who have the right combination of ‘hard’ and ‘soft’ skills. Yet, managers are rarely trained to either recognise or manage conversations with team members who may be experiencing mental health difficulties. So, what can managers do to de-stigmatise mental health issues? 1. Create an organisational culture where there is respect for people. This sounds simple, but in practice, it rarely is. Most mental health issues arise from toxic relationships, bullying, harassment or power dynamics. Changing the culture around this would go a long way in helping to eliminate some mental health issues. 2. Train all managers and team leaders in ‘soft’ skills. Help people develop the ability to listen to what is not being said and read body language so that they can pay attention to those they manage. Stress and anxiety are felt, not spoken, so managers must be attuned to how it is expressed. 3. Encourage a culture of openness about time constraints and workload. Employees must feel able to speak up if the demands placed on them are too high. Also, ensure that employees’ jobs are manageable within the time for which they are contracted. Expanding job creep is one starting place for stress in organisations. Monitoring this aspect of an organisation’s behaviour alone could impact significantly on mental health. 4. Allow staff to attend counselling and support services during working hours, as they would for other medical appointments. This proactive initiative sends an important signal that mental health is a priority in your organisation. The World Health Organisation (WHO) defines mental health as “the state of wellbeing in which every individual realises his or her own potential, can cope with the normal stresses of life, can work productively and fruitfully, and is able to make a contribution to her or his community”. The WHO definition provides a policy template for organisations wishing to create a culture in which the mental health of all workers is prioritised, not only those with mental health issues. It offers an interesting insight into how an organisation might be structured if mental wellbeing was the organising principle. As mental health issues continue to increase both within and beyond the workplace, perhaps the WHO definition isn’t so far-fetched. Putting people at the centre of organisations used to be the way we did things; putting the mental health of employees at the centre of organisations may be the way we need to do things in the 21st century. Dr Annette Clancy is Assistant Professor of Management at UCD School of Art, History and Cultural Policy.

Jun 02, 2020
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Avoiding diversity fatigue

How can organisations keep the passion going for D&I? Dawn Leane explores how businesses can do more to successfully deliver their D&I programmes.   Diversity and inclusion (D&I) seems like a simple concept: while we are all different, we are all equal. So why has D&I become such a headache for some businesses? Organisations invest significant resources into D&I programmes, such as creating specialist roles, publishing results and setting up employee groups. However, these often fail to deliver the expected return on investment. Without results, organisations can begin to experience diversity fatigue. People become tired of ideas that don’t gain traction and employees can become sceptical that D&I is little more than a PR exercise.   Creating meaningful change To create meaningful change in an organisation, there are a few things you can do: Diagnose the specific D&I challenges the organisation is facing instead of just rolling out a standard set of programmes or initiatives. Find out what issues need to be addressed and how to measure them successfully. Are the organisation’s D&I programmes and initiatives authentic? Unconscious bias training and inclusion workshops can sometimes be implemented in order to mitigate complaints or, when poorly designed, can treat participants as if they are intolerant, which is ultimately counterproductive. Resist the temptation to tag everything as D&I. Most employees don’t want to be labelled as ‘diverse’ even in a positive way as it can create a sense of ‘otherness’. Make D&I relevant to everyone in the organisation. D&I initiatives often focus exclusively on diverse groups and fail to engage a wider audience of people. This can mean that functional and business unit leaders do not know how to support D&I within their individual areas. Embedding diversity, inclusion and belonging requires an organisational culture change – D&I values and associated behaviours must become part of the organisation’s DNA. This can only happen, however, when there is a sustained focus over a long period of time. Often, small changes have the biggest impact. Developing successful D&I programmes is not a one-size-fits-all approach, it is much more nuanced; organisations and the people who work for them are complex and dynamic. Individualised training An individualised D&I training, which involves a combination of coaching and mentoring, can be hugely beneficial to organisations. These sessions create the space for individuals to talk openly about their challenges and ask questions which they may not feel comfortable doing in a group setting.  A coaching conversation elicits, without judgement, the individual’s attitudes, beliefs and any of the issues or questions they may have. A mentoring conversation then takes this further to identify specific actions and behaviours that will make a difference. In my experience, forcing the D&I agenda in an inauthentic manner only serves to make people know which boxes to tick to be compliant. It doesn’t change attitudes or lead to sustainable change, which is essential for D&I to be successful in any organisation. Dawn Leane is Principal Consultant at Leane Leaders, Developing Inclusive Leadership. She will deliver a workshop on Leadership for Professional Women as part of Chartered Accountants Ireland's CPD programme on 25 March.

Jan 24, 2020
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How to measure the success of your D&I initiatives

Diversity and inclusion have become part of business strategy, but how do you measure their success? Mark Fenton outlines the key areas organisations need to assess when determining the effectiveness of their D&I initiatives. Diversity and inclusion (D&I) have shifted from being two HR buzzwords to key components of business strategy for many of the world’s best and most innovative companies. Businesses recognise that all organisations share the same three strategic challenges that either inhibit or enable success over the longer term: How to hire, retain and develop top talent; How to understand and connect with clients; and How to outsmart the competition. There has been a myriad of initiatives developed for organisations seeking to embrace and integrate diversity and inclusion programmes into their office culture, with a view to create a more attractive brand that will appeal to future top talent, as well as encouraging and strengthening the existing team. It will also enable organisations to understand clients better, and generate an increasingly innovative workplace to get the jump on competitors. Measuring success However, despite all of these initiatives, less attention is being paid to providing organisations with specific success measures for their D&I programmes (including quantitative and qualitative key performance indicators [KPIs]), and identifiable changes that should follow. Here are nine areas that are worthy of consideration when looking to measuring the success of your D&I initiatives. These are best assessed over time, across several diversity areas, such as gender, ethnicity, disability, sexual orientation and age (with the consideration that some may be subject to restriction around data capture availability).  Representation Look at representation in areas across governance (boards, committees) and hierarchical levels. Look at the promotions that have been attained and by whom. Recruitment Assess your applicant pool, who is brought in for an interview and who receives a job offer. It’s important to also assess the diversity of your selection panel. Remuneration Conduct a gender pay gap analysis of all employees. Financial savings Analyse the budget savings attributable to your D&I initiatives such as the utilisation of remote working (which can reduce office footprint and associated costs), the promotion of internal talent (which can reduce hiring costs and talent turnover expenses) and the improved employer brand (which can be effectively generated through day-to-day engagement and word of mouth without expensive marketing campaigns). Employee turnover Assess employee turnover rates and career break returners following parental, care, illness, sabbatical or other leave. Employee resource groups Determine the level of engagement in employee resource groups. Training Check the completion of D&I training such as unconscious bias, inclusive leadership and cultural awareness. Also, investigate the level of access employees have to these programmes. Policies and procedures Assess the policies and procedures in the organisation to ascertain whether they are supportive of gender and minority groups, parental supports and workplace agility programmes including flexible and remote working, talent sponsorship and codes of conduct. Voice Collect feedback on your D&I programmes from employees (via staff surveys), customers (through net promoter scores), and suppliers (utilising supplier diversity policies). In parallel, KPIs can be applied that cover, for example, employee churn rates, performance ratings, employee engagement/job satisfaction, absenteeism, union feedback, grievances or industrial relations-related issues. This data can be further enhanced by overlaying the empirical research that correlates integrated D&I practices with improved financial performance and increased brand value. More than a buzz word An awareness of the power and influence of D&I on corporate culture in conjunction with a framework to tangibly measure and communicate its ability to overcome key business challenges around talent, clients and competitors make D&I much more than a ‘buzz’ issue within the corridors of HR. It is the business strategy for 2020. Mark Fenton is the CEO and Founder of MASF Consulting Ltd. 

Jan 23, 2020
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A new approach to cybersecurity

The coronavirus pandemic accelerated the journey towards the fourth industrial revolution and new threats emerged in the process. Business leaders must therefore think about cybersecurity in a new way, writes Dani Michaux. Over the past year, we have seen significant geopolitical changes driven by the impact of COVID-19, forcing organisations to strengthen their resilience. The realisation has also dawned that the world as we once knew it has changed. Amid all of this, I see a new and very different operating model emerging for business. That new operating model is based on various restructuring activities, accelerating digitalisation initiatives, alternative partnership models, and a sharper focus on core activities. As organisations pivot, it is essential to reflect and consider the risks that may emerge as part of these organisational changes. What do the changes mean for the organisation, its supply chain partners and players, connected industry, government, and broader society? One prominent challenge is the need to safeguard the new digital ecosystem, which underpins this transformation, from cyberattack and information infrastructure breakdown. The world kept turning in 2020 During the early part of 2020, we saw an increased number of CEO identity frauds, payment frauds, ransomware attacks, and crude attacks on insecure cloud services. As the year grew old, we saw more complex attacks targeting supply chains, major cloud environments, remote working applications, security product providers, and even critical infrastructure services. This time last year, we claimed that cybersecurity is key to achieving the fourth industrial revolution. COVID-19 has accelerated that revolution and the use of digital and cloud technologies in both the public and private sectors. Those technologies are now fundamental to our society. Sadly, the pandemic has also shown that organised crime is opportunistic and ruthless in exploiting events to gain financial advantage. Thus, we witnessed a steady stream of high-profile cyberattacks on private enterprise, government, and social media platforms during the year. It is nevertheless encouraging to observe the pace at which organisations rolled out robust digital infrastructure during difficult times and the collaboration between business, technology, and security teams to safeguard these rapidly deployed services. It illustrates how these often-siloed parties can work together effectively to introduce secure innovation at market speed. COVID-19 has propelled Chief Information Security Officers (CISO) into a new dimension. Suddenly, they must manage thousands of home-working sites, personal devices, and a rapid shift to the cloud. The CISO has moved from securing corporate IT boundaries to a broader view of enterprise security. The timescale for many cloud migration projects has collapsed from years to months in the race to meet fast-changing business needs. Hyperscale cloud providers are increasingly dominant and intently focused on security. To succeed in the future, security teams must: Reskill employees to reflect the split of responsibilities between enterprise and cloud-service providers; Adapt to agile development methods and new digital channels; and Enact these innovations while cloud security skills attract a premium salary as the global job market competes for much-needed talent in 2021. The rise of supply chain attacks Political and business leaders have become alert to the global interdependence of many critical functions and the nature of risk that cross-border supply chains have. The pandemic made these murky operational and systemic risks real and gave people pause for thought. Supply chain attacks are not new. However, in the new highly digitalised and interconnected world, they are becoming more prominent. Frequent attacks raise concerns about organisations’ ability to remain resilient. We have seen several prominent cases over the past few years. Examples include the Target cybersecurity attack, where a network intrusion may have exposed approximately 40 million debit and credit card accounts; a global cyber-espionage campaign known as ‘Operation Cloud Hopper’, which formed part of a shift to target managed service providers; a worldwide campaign against telecommunications providers called ‘Operation Soft Cell’; and the latest cyberattack on Solarwinds, a global provider of network management solutions. A common theme in these attacks is the presence of third-party providers of hardware, services, or software. In complex infrastructure, set-ups that include rapid pivoting to new environments and dependencies on third-party suppliers are both common and intimate. Third-party providers are targeted with the ultimate aim of reaching a bigger mark. The methods and duration of the compromise vary, but there are some common patterns. These include exploiting speed and rapid deployment challenges and looking for exposures in security controls as firms shift rapidly to new technology. Of course, smaller organisations within the supply chain may also attract greater attention, based on the assumption of reduced sophistication and scale of security operations. Lessons can be learned from sectors like oil and gas, where human safety is at the top of executive agendas and assumptions are challenged continuously. It starts from the proposition that you cannot assume that anything will work in the event of an explosion. For example, a company might have a procedure to pre-book hospital beds for casualties, but what happens if the hospital doesn’t have a burns unit? What happens if the ambulances can’t get to the site of the explosion? These things have to be planned for in advance, requiring creative paranoia and a certain mindset. That’s the type of culture of resilience that should be in place in all organisations. It is a question of overall operational resilience, not just the resilience of IT systems and security. In this complex world, organisations should address the following practical questions: 1. Understand the risks and dependencies in the supply chain. Here are some questions to ask: What are the threats and exposures associated with third-party access to your environments, services, and products? Do you have contractual agreements in place with clear service level agreements concerning expectations around cybersecurity? Are you in a position to monitor those, including supplier activities? Do you monitor exposures and cyber risks associated with the supply chain and discuss these issues as part of an ongoing agenda within the organisation’s management and risk committees? 2. Understand the full extent of the supply chain within the existing environment and any changes arising from new digitalisation initiatives. Here are some questions to ask: How has the profile changed based on the rapid digitisation, restructuring and transformation initiatives in place? Do you have a view further down the supply chain (to fourth- and fifth-party providers, for example)? 3. Make arrangements to respond to supply chain cyberattacks collectively. Here are some questions to ask: Are there any mechanisms in place? Have you exercised these? Has the organisation included lessons learned from previous attacks? How has the organisation adapted based on the lessons learned from incidents? Are any other improvements required? Stepping into the future As we look to the future of highly digitalised and scalable environments, resilience will be paramount and non-negotiable. Organisational resilience will rely heavily on the stability of the end-to-end supply chain. However, it will also require a new approach to data security. The hunt will be on for cybersecurity orchestration opportunities, robotic process automation around manual security processes, more integration with key IT workflows, and new managed service and delivery models. Third-party security may also need new models for more dynamic risk management and scoring, including better tracking of supply chain stresses. Of course, assessments such as SOC 2 and ISAE 3402 will play a growing role as firms seek to provide evidence once to satisfy myriad client questions about cybersecurity. However, we can also expect to see the rise of ‘utility models’ where intermediary organisations aggregate client assurance requirements to undertake a one-size-almost-fits-all assessment of suppliers’ cybersecurity. This is already happening in the UK with the support of financial regulators. Over the last few years, firms have also sprung up offering risk scoring services based on a scan of a firm’s internet-facing services. They also monitor for data disclosures in the shady corners of the internet and alert customers to a potential supplier problem that they may not be aware of or are yet to disclose. Large companies will often ask these risk-scoring services to monitor hundreds of suppliers. As the outsourcing of non-core business services accelerates, it is worth asking: do you pay sufficient attention to your dependency on third-party actors who are now integral to your security and resilience as a business? As we look to the future, organisations will need to move on from thinking exclusively about enterprise firewalls, anti-virus software, and patching policies. Instead, they will need to consider approaches to security. This begins with the premise that a company’s success is based upon its reputation, which is ultimately a manifestation of the trust others have in its offerings. This mindset leads companies to embed security into products and services, but it also focuses attention on protecting customers, clients, and those increasingly important supply chain partners. It emphasises stewardship of the trust they place in you when they share their most sensitive data or show their willingness to become dependent on you. No organisation is an island, and all of us are part of an increasingly hyperconnected world. In that world, trust in supply chains and ecosystem partnerships matters more than ever. Dani Michaux is Head of Cybersecurity at KPMG Ireland.

Mar 26, 2021
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In pursuit of peace: how Northern Ireland businesses provided a glimpse of normality during the Troubles

Dr Joanne Murphy has researched the Northern Ireland business community’s experiences in facing the challenges of the Troubles to make life as normal as possible for their customers. It is perhaps timely to listen to their voices and reflect on the crucial role businesspeople play in fostering and maintaining peace. “We had a door in the bar that squeaked, and I used to think that sometime in my life, that door will squeak and my stomach won’t tighten – I’ll not have that fear in me. The first year was just like hell.” These are the words of a publican I interviewed, reflecting on his first years in business at the start of the Troubles. While much has been written about this period, few existing accounts reflect the business community’s experience of living and working through violence. From my research in Northern Ireland, the Basque Country, and Bosnia on how leaders and managers adapt to and function in environments of conflict, I have identified four common characteristics among those who share such experiences: The fear, countered by courage, experienced in running a business against a background of the threat and reality of violence; The ability to continue to make decisions in the ‘grey zone’ of an environment where a clear good or positive outcome is often not possible; An acute understanding of the political dynamics at play at a community level; and An ability to seize the business opportunities presented by political change and evolution. Fear and courage It is easy to forget that in violent environments, experiences are visceral. An experience repeatedly shared by business owners I have interviewed is one of living with fear and the need for the courage to confront it. In the case of Northern Ireland, many have described how the disruption and street violence of the civil rights period quickly descended into the chaos of full-blown conflict and its impact on what had been a stable, albeit divided, business environment. A pharmacist with a business at the centre of a market town described the early years of protest and trouble: “When the demonstrations and counter-demonstrations started, we would have had to lock the doors because there were fights bouncing off the windows. It progressed on to the bombing and incendiaries.” As the conflict progressed and periods of violence became more intense, low levels of intimidation sometimes became active threats. The same pharmacist recalled frightening days in 1981: “During the hunger strikes, we got a slip of paper through our letterbox saying ‘When Bobby Sands dies, you close for the funeral’… but we didn’t close and there were three of them that came in about 9.30am. I knew one of them… ‘You’re not closed?’, they said, and I said ‘No’. And they said ‘Are you going to close?’, and I said ‘I’m not. I prayed for Bobby Sands at mass this morning. I prayed for his family. I don’t think he should have taken his own life’. So then, they went out, and about ten minutes later, the phone rang. ‘If you’re not closed in half an hour, you’ll be dead.’ I sent the two staff home – there weren’t many customers about, but I did the rest of the day myself. And I can assure you that every time the door opened…” With towns and cities encircled by barriers and security forces, the economic impact was devastating. Interviewees talked about losing half their business when towns were gated to protect them from bomb attacks, deterring casual shoppers. Even with this difficulty, there were consistent attempts to stay positive and open for business. A shop owner reflected: “The way I looked at it, you had to think of the people that took the trouble to come to you”. Undoubtedly, there was a personal impact on people’s peace of mind and mental health. One business owner reflected on a particularly difficult period. “There were times you would drive into work, the mountains so peaceful above you, and I’d think ‘I’d just love to drive on and walk in those mountains’. I’m a very calm person, but I remember the whole front of the shop was blown out with a bomb, and we had to barricade it up and lock it with a chain and a padlock. One day I couldn’t get it open with the key, and I just kicked it down… not like me at all.” The resilience to persevere through fear and uncertainty was critical. Decision-making in the ‘grey zone’ In his book, The Drowned and the Saved, Italian industrial chemist and Holocaust survivor Primo Levi wrote about the moral ambiguity of being trapped in an environment of terror, the ‘grey zone’, where moral compromises persist and perfect outcomes are not possible. In such situations, business owners struggle to manage relationships when trust is in short supply and there is acute anxiety about outcomes and the consequences of action. One commented on the struggle to find a middle way: “I didn’t trust the cops, and I didn’t trust the paramilitaries”. Many of those I interviewed spoke about making choices to establish acceptable behaviour norms to mitigate a volatile environment’s worst aspects. For example, a publican described taking a stand about bad language in his bar, despite being personally threatened. The difficulty of such decisions should not be underestimated, and many interviewees were open about the dread such choices entailed. They were also clear about the compromises made to be able to trade successfully. The employment of doormen, for example, could put bar and club owners into morally invidious positions. One observed that while such dilemmas had eased as the peace process developed, doing business still involved engaging with paramilitary elements in local communities. He described how demands from paramilitaries had changed from “You need to employ such and such” to a more conciliatory “If you’re employing doormen, will you employ these doormen and it’ll be completely legit, and you tell them what your rules are, and how you would like to run it?” He concluded: “Most things would work out okay”.  One of the factors that facilitated a move away from engagement with paramilitary elements was a high level of political and community knowledge among business leaders. Initiatives like sponsorship of local sports and youth clubs helped embed relationships in the community and allowed business owners to leverage a wide range of connections, providing a protective mechanism against organised paramilitarism. The grey zone was particularly extended for the business community during prolonged periods of heightened tension, such as the 1974 Ulster Workers’ Council strike when many businesses were either forced to close or closed voluntarily in protest at the Sunningdale Agreement. “During the Ulster Workers’ strike, we dealt with it in a very Irish way. We closed the front door and opened the back.” Such compromises, however, often obscured the very firm line businesspeople drew in the sand. “For anyone who has shown weakness, that’s the road to ruin. And anyone I’ve known who has joined in – let paramilitaries put machines in, laundered money, et cetera – it’s ended in a very bad way.” Understanding the political realities When asked about the knowledge and behaviours necessary to survive and thrive in a politically volatile and violent situation, one businessman observed, “You need to understand the environment very well, and the bad and difficult bits of it. I’ve been involved in low-level mediation, trying to do things behind the scenes, you know, when workers are being intimidated. If someone’s getting hassle, I would try to help because I know people. Knowing people is very important.” One common challenge was discrimination based on community background, religious belief, or political opinion. While much has been written about such discrimination in employment terms, respondents were often keen to relay their experiences of similar dynamics affecting the sale of property and the procurement of services. The boycotting of shops would intensify at times of political tension: the Ulster Workers’ Council strike, the hunger strikes, the Anglo-Irish Agreement and the Drumcree protests were all identified as difficult periods. Many were sanguine about the reality of the underlying community division that resulted in people choosing to do business or give their business to a rival based on community identity. One rural business owner noted the difficulties in buying and selling property, comparing it with the experience of racial segregation in the United States. “I remember being the highest bidder a couple of times on unionist property and it being withdrawn from sale and finding out later it had been sold. But I can understand that because those people had to live in the community. It’s not easy… but if they sell to me, they could be in trouble with their own people. You have to be at peace with your own community. Those who step outside that are very brave people.” Seizing the opportunities of change In 1994, the Confederation of British Industry (CBI) published Peace: A Challenging New Era, which became widely known as the ‘Peace Dividend paper’. It argued that a viable peace process would help spur economic growth, which would help promote peace. This initiative coincided with strenuous efforts to move to a non-violent environment, including John Hume’s ongoing dialogue to move the IRA away from violence. The CBI emphasised that the vast amounts of money being absorbed by the Troubles could be reinvested in education and infrastructure. At a local level, the business community could also sense change. One respondent, a Belfast-based businessman, recalled seeing the opportunity and changing his business strategy – but then having his expansion plans rejected by local funders, who were unconvinced. The idea of moving into Belfast city centre, previously an economic wasteland, closed and cut off during much of the Troubles, was indeed radical. “I decided to move the business to Belfast. I thought, I’ve got to get into the city centre – that was that. I knew that when I went to the centre of Belfast, people would start to come in.” While local entrepreneurs may have sensed that the environment and business opportunities were shifting, support was not necessarily forthcoming from regional business development agencies. The same businessman recalls visiting one such organisation in search of support after he decided to move his business into Belfast city centre. “I outlined my vision. They told me it was never going to work. It was a very short meeting, and I haven’t forgotten it.” Others reflected on how they sought to build community relations in various ways, including the employment of ex-combatants. Many also believed that they had the opportunity to give something back and benefit the wider community: “My firm’s ethos and culture is about doing some good here. And, if I’m honest, these things often have a very beneficial business upshot.” For many, the business benefits of peace also sit beside a clear commitment to the region and an investment in its stability and sustained progress. When the conversation with one businessman turned to recent violence by dissident republicans, including the murder of journalist Lyra McKee in Derry in 2019, he was unwavering in his view that a deterioration in the security situation would not impact his commitment to Northern Ireland. “If things got worse, I’d work harder. I’m far too invested in the community here to give up. I feel so blessed that I don’t carry any baggage from the past… I’ve not lost anyone or had anyone injured. I’m lucky in that sense.” The journey to a ‘kind of’ peace in Northern Ireland has been long, and not all stories have been told. We are only beginning to understand the impact local enterprise has on stabilising society and building accord, but the experiences of those who worked through difficult times stand as a testament to their resilience and the need to build on progress. Dr Joanne Murphy is Reader in Leadership & Change at the Centre for Leadership, Ethics and Organisation in Queen’s University, Belfast.

Mar 26, 2021
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Artificial intelligence and the future of the accountancy profession

The accountancy profession needs to engage with  how emerging technologies like artificial intelligence will disrupt traditional career pathways. By Dr Patrick Buckley, Dr Elaine Doyle, and Ruth Gilligan Information technology has become inextricably embedded in virtually every aspect of our professional and personal lives. Data about what we do, what we are interested in, with whom we communicate and where we go can all be captured and stored at a scale unimaginable even five years ago. Technology giants such as Google, Amazon and Alibaba are engaged in a competitive race to capture the data generated by this new reality, lending credence to The Economist’s claim in 2017 that “the world’s most valuable resource is no longer oil, but data”. The data captured is valuable for several reasons. For one, traditional activities such as advertising can be personalised and optimised to a revolutionary degree – think of Facebook. Data also allows companies to build entirely new products. For example, the utility of Google Search results depends on analysing what information others have found useful in the past. A further value assigned to these data streams is linked to the development of artificial intelligence (AI). A host of mathematical and algorithmic tools – some novel, some more mature but turbocharged by the advent of big data – has propelled the development of AI. Leaving aside philosophical questions such as to what extent these systems are intelligent, every-day and now familiar examples of AI (Siri and Alexa, for example), are demonstrably practical and effective. These visible successes, combined with the breakneck pace of development, pose a multitude of questions about the impact of AI on our future – not least its impact on the future of work. The future of work Concerns about automation and jobless futures are not new. Two centuries ago, Ricardo proposed that technology caused unemployment. In the 1930s, Keynes predicted that new technologies would reduce the demand for human labour. In the 1980s, Leontief compared the role of a human in the modern economy to that of a horse in agricultural production – first diminished, and then eliminated by automation. Until the advent of AI, the consensus was that such predictions were overly simplistic. While new technologies can have a destructive effect on a particular industry or sector, their introduction often leads to increased opportunities in other areas. The overall effect is to change the structure of the jobs market, rather than result in a reduction in the work available. The jobs eliminated by new technology are replaced by jobs requiring higher-order cognitive skills (e.g. a robot replaces a welder but requires a software engineer to program it). Though this can be frightening and stressful for individuals, at a societal level, as long as education and training enable people to adapt to changing conditions by acquiring new skills, the long-term impact of technological change on the jobs market should be positive. The rise of AI has disrupted this consensus. In brief, the suggestion is that the human monopoly on tasks requiring significant cognitive processing is being broken. Education and training may become ladders to nowhere if AI systems that match or surpass human cognitive abilities are feasible. A glance at the world today demonstrates that many tasks humans once performed are being automated by AI systems, with virtually all studies showing that the process is accelerating as the capability of AI systems improves. For example, two Oxford economists, Frey and Osborne, predict that 47% of jobs in the US will be automated by 2030. The impact of AI Investigating how this disruption is likely to impact the accountancy profession, our research profiled the tasks that practitioners perform at different stages of their career and at three levels: trainee/junior, manager, and director/partner. We then calculated the probability of each task being automated by aggregating information from a range of sources, including academic studies and reports from professional, industry and government organisations. Our analysis makes it clear that, taken as a whole, accountants perform an enormous variety of tasks for their clients and employers. Some tasks, such as preparing accounts or tax returns, are considered extremely vulnerable to automation. Others, such as designing effective financial control strategies for clients, building relationships, or mentoring juniors and trainees are not. This feature of the profession has two implications: Given the enormous variety of tasks performed and roles fulfilled by accountants, assigning a single probability and suggesting that this represents an objective assessment of how vulnerable the profession as a whole is to automation is a simplification to the point of absurdity. The large number of tasks not vulnerable to automation means that for the foreseeable future, the profession as a whole does not face an existential threat. Tasks like designing effective tax strategies or the financial structures of businesses will require a mix of quantitative and soft skills as well as a deep, strategic understanding of the world beyond the capabilities of AI. Career pathways However, this does not mean that the profession can afford to be complacent. Analysing the potential effects of AI at different stages of a traditional career pathway reveals that the tasks vulnerable to automation belong predominately to early career stages. This is particularly the case for trainees/juniors, but also applies substantially to certain work at manager level. Therefore, while accountants may always be needed, the current economic case for most trainees and some managers may disappear. This presents challenges for the profession. Most obvious is the need to redesign career pathways in response to these trends. A traditional career pathway through the profession follows the well-worn path of trainee to manager to director to partner. A key question for firms and the profession is how to replenish senior ranks if the bottom rungs of the career progression ladder are removed. If there are no trainees or junior staff, where does the next generation of managers, directors and partners come from? A second, related issue is that of skills and knowledge development. Generally, the more experienced individuals in organisations perform the more cognitively demanding tasks. The tasks most vulnerable to AI automation are often seen as repetitive and undemanding. At first glance, the automation of such tasks may seem a positive development for employers and employees alike. However, this perspective takes no account of the knowledge and skills gained by performing these tasks in a real-world setting. For example, designing effective tax strategies requires experience that can only be acquired by spending time working on basic tax compliance. It may be possible to develop the skills and aptitudes required by more senior practitioners without a long, real-world apprenticeship. However, there is no evidence to support this position. At the very least, it seems likely that the entry pathway to the profession will need restructuring, with substantial changes required to curricula and entry requirements. In an extreme case, firms may face severe skills shortages a few years after engaging in significant automation. Higher-order skills may atrophy and disappear due to the lack of entry-level positions rupturing the supply pipeline of employees capable of performing higher-order tasks. Perception of the profession A third potential issue is the attractiveness of the profession to new entrants. If some of the tasks traditionally performed by managers are automated, then this will presumably have the effect of reducing the total number of individuals required at this level. The profession may evolve towards a position where a relatively small number of individuals (say 5%) do high-value, well-remunerated work while the other 95% are relegated to low-value, poorly paid tasks. A rational and risk-weighing decision-maker, the very type of intellect the profession seeks to attract, may select away from careers where the odds seem stacked against being able to access opportunity. In the long run, this selection bias may have a significant adverse effect on the profession’s ability to attract high-calibre candidates. The future of the profession Forecasting the future is a notoriously uncertain endeavour. Any predictions regarding the impact of AI on the accountancy profession (including those in this article) should be treated with scepticism. Reports of the imminent demise of the accountancy profession are, in all likelihood, greatly exaggerated. However, it would be equally short-sighted to discount the potential impact of AI on the profession entirely. It does seem likely that in the medium-term, the traditional career pathways associated with accountancy will be significantly dislocated. Responding to this will require meaningful, profession-wide dialogue and debate about how the next generation of accountants will be recruited, educated, and motivated.   Dr Patrick Buckley and Dr Elaine Doyle lecture at the Kemmy Business School, University of Limerick, and Ruth Gilligan is a Tax Associate at PwC Ireland.

Jun 02, 2020
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Strategy
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Maintaining quality in a changing world of work

Although the weeks and months ahead will undoubtedly be challenging, quality should not be compromised argues Fiona Kirwan. Full-year and interim year reporting deadlines are fast approaching for accountants both in industry and practice. Companies’ financial reporting functions and their auditors are getting used to working in ‘new normal’ circumstances. However, these changed circumstances must not compromise the quality of the work we all deliver day-to-day. Here are some issues Chartered Accountants should consider as they seek to maintain the highest level of quality in all aspects of their work. People COVID-19 has transformed the way we live and work. We have heard this phrase a lot in recent weeks, but it remains true. Almost instantly, employees who are used to the rhythm of the workplace became remote workers – many without the chance to prepare adequately. This creates challenges for managers of both finance and audit teams in leading teams remotely. It is more challenging to coach and supervise people who are not physically in the same location. It is therefore important to stay in touch and stay close to your people. Connecting as a community during this time takes imagination. It could mean developing new channels or social tools for employees to share stories; it could mean embracing video calls to create a sense of physical presence. Virtual social events are becoming the norm. Even small investments in building a genuine community can have a significant impact on your employees’ morale. This sense of community helps when coaching teams. People who are closely aligned on a personal level will find it easier to communicate complex information simply and team members will feel more comfortable asking questions and querying essential messages. Teams must be aware that some colleagues may not have optimal ‘work from home’ environments; some are juggling home-schooling with office hours; others are working from their bedrooms in shared living spaces. Organisations should implement flexible working structures to allow teams to deliver quality work while maintaining processes to ensure confidentiality and transparency. Such flexible working structures mean that everyone in the financial reporting process, both finance teams and auditors, must allow extra time to execute tasks remotely. Technology Almost all finance functions and accounting firms transitioned to remote working arrangements overnight, and the quality of an organisation’s technology is critical to day-to-day operations and ensuring business continuity in this scenario. Some organisations may have challenges arising from the fact that their teams are heavily reliant on desktop computers, second screens, or printing facilities that are not available in the home environment. The move to remote working could also leave team members isolated, but this is where the ability to host video conferences, share screens, and collaborate in files in real-time has become vital. Not only do these technical solutions allow teams to communicate internally, they have also become critical channels for communication between auditors and their clients. At PwC, we utilise our combined suite of audit tools – Connect, Aura and Halo – to communicate with our clients and colleagues across the globe. We also use Google’s G-Suite of collaboration tools, and Datashare to help us work with the data of clients with less complex IT systems. The recent uptake in the adoption of these technologies has seamlessly transitioned a lot of this work, which was historically done in person, into the digital realm.  Controls One area where the successful application of technology solutions has become essential is the implementation of internal controls over financial reporting. The appropriate tone from the top is vital; managers need to remind people that remote working might change how controls work, but it does not lower the bar. How companies operate their controls has been amended to allow for remote working. For example, a manual sign-off may now be replaced with a confirmation by email. In these uncertain times, companies will want to ensure that shortcuts are not being taken and rigour – both in procedures and the provision of appropriate evidence to support the implementation of controls – are maintained. Auditors will need to consider whether the controls, as they currently operate, remain fit for purpose and any increased risks that may have arisen from recent changes. Financial reporting The COVID-19 outbreak, and the measures taken to mitigate its impact, are having a significant effect on economic activity. This, in turn, has implications for financial reporting. Companies and auditors must work together to ensure that quality is not compromised – even in challenging circumstances. The following is a sample of the wide range of accounting issues that companies and auditors have considered in recent weeks: Going concern and viability statement: companies must assess going concern at each annual and interim reporting period, with a look-forward period of one year from the financial statement issuance date. Companies impacted by COVID-19 have had to update their forecasts and provide appropriate disclosures to alert investors about the underlying financial impact and management’s plans to address it, including if conditions give rise to uncertainties about the company’s ability to continue to operate; Subsequent events: the consensus is that COVID-19 was a non-adjusting post-balance sheet event for 31 December 2019 reporting. However, the appropriate disclosure of impact on the overall financial statements is a critical element of the financial statements; Measurements of assets: for year-end reporting and interim statements after December 2019, companies and auditors must assess the timing of COVID-19-related events to determine the impact on assets, including goodwill and indefinite life intangible assets, inventories, and deferred tax assets. Companies and their auditors must consider disruptions to the entity’s business or the broader market in determining recoverable amounts of assets. Careful consideration must be given to the net realisable value of inventory and, in the event of a price decline, whether prices will recover before the inventory is sold; Revenue recognition and receivables: identify the appropriate sales price given increases in expected returns, additional price concessions, or changes in volume discounts. Companies and auditors should be mindful that revenue can only be recognised for new sales if payment is probable under IFRS 15; Alternative performance measures: the European Securities and Markets Authority (ESMA) has provided guidance relating to the use of Alternative Performance Measures (APMs) in the context of COVID-19. Consistent with previous guidance relating to the maintenance of consistency of APMs from one reporting period to another, ESMA advises that rather than adjusting existing APMs or including new APMs, issuers should improve their disclosures and include narrative information in their communication documents to explain how COVID-19 impacted and/or is expected to impact on their operations and performance; the level of uncertainty; and the measures adopted – or expected to be adopted – to address the COVID-19 outbreak; and Internal consultations and reviews: audit teams face significant additional internal consultations and reviews in the current environment. Early agreement on timetables and collaborations between companies and auditors will ensure that quality is not compromised. As events continue to unfold, the challenges faced by accountants both in industry and practice are mounting. The weeks and months ahead will undoubtedly be challenging. However, quality should not be compromised. Supporting our colleagues and utilising our technology capabilities will ensure that control frameworks continue to operate, financial reporting will be clear and transparent for all users, and audit quality will not be compromised. Fiona Kirwan is a Director at PwC’s Assurance Practice.

Jun 02, 2020
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Strategy
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The future of funding

Large customers are good for business, but can stretch your cash flow.  By Peter Brady Have you recently received a ‘polite letter’ from your US multinational corporation (MNC) customer advising of a stretch in your credit terms from 30 days to 90 plus? Or, indeed, from any of your MNC customers? In recent years, the extension of MNC credit terms has become business as usual across the globe but for SMEs, it is anything but business as usual. Think about it. How would an extension of credit terms impact on your cash flow and projections this year? And what are the implications for your growth strategy in 2020 and beyond? Winning a contract with a large MNC is a measure of success for established SMEs. However, an extension of credit terms can feel like a double-edged sword as it puts excessive strain on cash flow. Why does it matter? A strain on your cash flow can have many implications, all of them negative. The first impact is on your suppliers – they expect payment in 30 days. There is an immediate gap in cash flow and you are unlikely to have sufficient sway with your suppliers to realign. This could mean: You are not in a position to fund the initial costs of fulfilling contracts; Pressure is placed on your existing supplier relationships in the form of increased risk around quality, timely delivery and higher prices; Capacity to deliver on-time to customers is affected; and Ability to grow the business at pace is limited. The lost opportunity  It may seem obvious, but having cash tied up in debtors with long credit terms is a fundamental challenge for most SMEs. If SMEs could access this cash early, it would give a distinct competitive advantage when negotiating terms with key suppliers. Think of what you could do if your invoices were paid on day one, not day 90. First, you could pay your suppliers early, enhance the relationship and ultimately secure better terms. Second, you could deploy funds into driving new customer acquisition and fund new business tenders with the comfort of cash flow certainty. So what do you do? You have two options: 1. You could try to negotiate: know where you stand in your customer’s eyes. Do your products or services play an important role in their success? Is your product or service critical to their delivery? Even so, unless you are the sole producer of a key strategic element, there’s another company out there to potentially replace you. Alternatively, your customer might offer softer credit terms in exchange for a pricing discount – but cutting margins is an extremely expensive source of finance and unlikely to be recovered. This course of action doesn’t make good business sense, as it is a race to the bottom. 2. Look at funding options to bridge the gap: the financial market is developing all the time to reflect the needs of business. For decades, when Ireland’s SMEs needed to fill the cash flow gap left by extended credit terms, they had limited choices – commercial overdrafts, short-term lending or an invoice discounting facility. That may have been adequate in the past but such is the success, ambition and global reach of Irish SMEs across all sectors today, this range of funding options falls short of their requirements. Commercial overdrafts are harder to secure and are generally seen as an unreliable method of funding, not directly aligned to the changing requirements of a business. Similarly, short-term lending is onerous to put in place and comes with significant levels of conditionality. An invoice discounting facility continues to plug the cash flow gap for many SMEs in Ireland. However, invoice discounting facilities are operationally clunky and carry significant fixed and hidden costs and limitations. They are therefore not really fit for purpose for today’s SMEs. Many SMEs often have a small number of key strategic customers in their sales mix. Supported by government bodies such as Enterprise Ireland, Ireland’s SMEs have a global footprint. Exporting is crucial to scalable business success, and not just to Western Europe. SMEs are securing contracts across the globe – US, Canada, EMEA and Asia. Invoice discounting facility For years, the invoice discounting facility has serviced working capital funding requirements. However, the facility comes with three major limitations: The facility limit; Geographical restrictions; and Debtor concentration risk limits. The facility limit At the outset, SMEs are subjected to a long and onerous process to get approval for the invoice discounting facility. Fair enough, you may say, as this is effectively a loan and it follows that the bank providing it decides how much the facility is for. SMEs must enter into a long-term commitment, often saddled with non-usage charges or exit fees. SMEs must also pay credit insurance and sign a personal guarantee – something entrepreneurs have grown to fear. Geographical restrictions Exporting to the UK? Great. Exporting to United States (US)? Not so great. Country risk and the law of the land plays a major role in how traditional lenders assess the risk and granting of facility limits. If the country in which your customer is located is outside of what is considered in banking terms to be palatable, funding limits and exclusions will apply. Debtor concentration risk limits The most common reason for restricting funding under an invoice discounting facility remains customer or debtor concentration. It applies when an SME becomes over-exposed to a single debtor. The debtor could be a large household brand name, but traditional lenders must impose facility limit restrictions. For SMEs, it is somewhat ironic that the more business you do with a key customer, the more your funding is limited. So, back to your US multinational extending its credit terms. You’ve worked tirelessly to win this business, but you can’t sustain 90 days’ credit and this customer accounts for over 60% of your debtor book. Your business needs: Consistent certainty of funding, without any limit relating to geography or debtors; Funders who recognise the strength of your business model and the substance of the underlying transactions; and Access to working capital to scale your business globally. Market and product innovation Invoice, purchase order and recurring revenue trading are collectively known as “receivables trading”. Receivables trading ticks all the boxes. It enables SMEs to leverage their customer relationships. By selling invoices and future invoices (purchase orders) to a pool of capital market funders, SMEs can access finance when they need it. What difference do capital market funders make? The funders are capital market institutional funders, pension funds, corporates and sophisticated investors – and there is a large pool of these funders. The fact that there is not just one entity, but a pool of funders purchasing the receivables (invoices or purchase orders) eliminates the requirement for imposing concentration or geographic limits on the SME. It extinguishes the need for any commitment, lock-ins or fixed costs. At no stage is there an ask for a personal guarantee. This funding solution puts control back into the hands of SMEs and allows them to decide when they need to access funding on their terms – a liberating benefit. How does it work? Receivables trading is available via an online platform. A pool of institutional funders (the buyers) are members of the platform. SMEs (the seller) uploads their invoice or purchase order and the buyers purchase them. The model is ideally suited to established SMEs with MNC or sovereign debtors. The SME can use the online platform in conjunction with their existing facility by carving out specific debtors from the invoice discounting facility. In conclusion Business is constantly changing and working capital funding has caught up. Alternative funding where sellers and buyers connect directly via an online platform is fast becoming the norm. With this funding solution, SMEs can tender for business of any scale globally – confident that they can fund the upfront costs. It’s a gamechanger for most. According to the Central Bank Survey of SMEs, which was published in January 2019, the top two reasons for credit applications were working capital, and growth and development. ISME’s quarterly business survey reveals that 70% of Ireland’s SMEs still rely solely on traditional bank funding. In Europe, it’s only 30%. Alternative funding is the future of funding. Peter Brady FCA is Co-Founder and CFO at InvoiceFair.

Oct 01, 2019
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Blocks, chains and see-through walls

Blockchain represents both an end and a beginning for the accountancy profession. By Fearghal McHugh and Dr Trevor Clohessy Transparency can be considered the holy grail of governance best practice. The codes, acts and markets demand it as it enhances the view of corporate transactions, which has in turn affected issues such as environmental and sustainability reporting. Transparency is the core of blockchain, which will affect accountancy while satisfying this core principle and driver of good corporate governance. The difference is that it will not take the blockchain elements outlined below as long to become mainstream as it has taken to impact on environment and sustainability concerns. The consensus is that blockchain and its technologies will change the people skills, the processes, the systems and the structure of accounting practice currently applied to any transactions involved in the recording of any information. This has big implications for those in the sector but, significantly, gives a market opportunity to those who are not. Indeed, this opportunity is further enhanced when artificial intelligence integrates with blockchain. Scale of disruption The potential disruption is on the same scale as Amazon, which competes with all retail shops in the country. The first to market with the ‘Accountazon’ brand, named here first, will dent the current position of large or small practices. Accountazon requires accountants, but the ability to scale, integrate and generate output based on fully transparent and rules-based decision-making at the lower level of processing while, at the upper level, having the decision-making and knowledge base of a collective of highly-paid accountants will affect the accounting industry. This can drive the accounting industry to build on specialisation and value proposition offerings at a higher level than those currently generating income. In other words, intelligent computer systems will do what accountants currently do. The impact will force the industry to seek a new place away from rudimentary transaction-type roles of fundamental audit and tax processes. This will require in-depth knowledge (which artificial intelligence can replace) to pure decision-making; in essence, the better the decision-making, the higher one’s revenue and reputation. The purpose and role of accountants will remain, but will be implemented at a higher knowledge application and analysis level and further away from the current operations position and perspective. A personal approach There is no need for panic yet. As with Amazon, retail shops have continued in business but the pricing, delivery, support, convenience and speed we enjoy from the online retailer may also need to be addressed in the accountancy industry; we need to make accountancy accessible, friendly, convenient, productive and transparent. Either the market or the technology will drive the change, or the accountancy industry will embrace it first and deliver value. A Ryanair approach, encouraging a more direct business model using technology, could be applied in the accountancy industry and is more likely now with blockchain and artificial intelligence. The middleman remains the accountant, however, and if it is deemed that a lot of processes don’t add value, the middleman needs to present a value proposition that cannot be offered by the system itself in order to add future value. In the Ryanair model context, so many travel agents adjusted and seem to have found that personal service, customisation and the time taken to provide a tailored travel package for customers is what many consumers want. The drive for digitisation An example of a driver of this type of change arose earlier this year when the then-head of the IMF, Christine Lagarde, urged central banks to launch digital currencies to satisfy public policy, financial inclusion, security, consumer protection and privacy in payments. While blockchain is mostly linked with cryptocurrencies, digitisation policies embraced by companies like Nestlé, Guinness and Glanbia are being encouraged by stakeholders but embraced in a controlled manner. Blockchain technology is part of the cryptocurrency system that actually worked. It is becoming embedded in many industries from manufacturing to web-based services, facilitating faster and more secure transactions on a growing scale. When companies and consumers have a better, easier, faster and more transparent way to do business, they will select it as time is a critical factor in corporate life. The practical elements and approaches to blockchain, as highlighted below, will be seen by clients as having the potential to reduce charges and the time involved in accountant reviews and advice, which Revenue could see as a means of speeding up returns. Public versus private Blockchain is not a mobile application, a company or a cryptocurrency. In its simplest terms, blockchain is a ledger that records transactions digitally and records details about the transaction. These details are recorded in multiple places on the same network. Blockchain comes in two flavours: public and private. A public blockchain allows anybody on the network to input transactions and data onto the blockchain. No single entity controls the network. A public blockchain operates like Wikipedia in that users have a composite view that’s constantly changing. Bitcoin, the tradename used to represent the familiar digital currency along with another called Ethereum are examples of public blockchains. Private blockchains work in a similar fashion to public blockchains, but with access restrictions that control who has access to the network. One or multiple entities control the network. Think of this in terms of a traditional database system that can only be accessed by specific authorised employees. Two features differentiate blockchain digital ledgers from traditional ledgers. First, the assets and transactions recorded in these digital ledgers are secured through cryptography. As an example, in season four of the Netflix drama, Narcos, Guillermo Pallomari’s financial ledgers records are taken as evidence by the Drug Enforcement Authority (DEA). However, due to the complicated coding system deployed by Pallomari within these financial ledgers, the DEA is unable to decipher the transactions and/or assets in order to use them as evidence. Pallomari holds the encryption key, which would enable the DEA to crack the code. In terms of blockchain, this also holds true. Due to sophisticated encryption keys, the transactions and assets are secure, immutable and unforgeable. Second, blockchain encompasses the disintermediation of traditional financial intermediaries (e.g. banks, brokerages, mutual funds). This disintermediation is made possible by smart contracts, which are complex algorithms that execute the terms and conditions of a traditional contract without the need for human intervention. This leads to a superior ability to prove custodianship and ownership of assets, which could potentially improve efficiency and enhance transparency while also reducing costs and income in the accountancy profession. Complexity and novelty Today, a number of multinational technology organisations enable businesses to implement blockchain practically. For instance, Microsoft currently offers a blockchain development solution that combines the advantages of cloud computing (e.g. virtualisation, scalability, pay-as-you-go pricing model) and blockchain. This service is called Blockchain-as-a-Service (BaaS) and comes with a set of development templates (e.g. smart contract development and integration) that users can deploy and configure with minimal blockchain knowledge. However, prior to diving into the blockchain sea, accountancy organisations should adopt a caveat emptor mantra. History suggests that two dimensions impact on how a new technological trend and its business use can evolve. The first is complexity, which is represented by the level of coordination required by the organisation to produce value with the new technology. The second dimension is novelty, which describes the level of effort a user requires to understand the problems that the new technological trend can solve. The more novel a concept is, the greater the learning curve. Accountancy organisations can develop adoption strategies that map possible blockchain implementations against these two dimensions. Complexity and novelty can vary from low to high in terms of the stage of technology development. For instance, accountancy organisations that are new to the blockchain concept may want to introduce a pilot initiative that is low in novelty and low in complexity. One such initiative could encompass the inclusion of cryptocurrency transactions in a firm’s transactions processes. New skills While blockchain is spread across many systems, it is not public. It protects transactions because they are shared and copied on many parts of storage devices, and would require all parts and copies of the transaction to be amended and/or deleted to have an effect. Deleting a transaction in one place is easy, deleting it from several locations and tracking each one – while not impossible – would require some work. This capability could potentially scare some in that transactions cannot suddenly be erased, but it is encouraging for others. Apply this concept first to the level of payments and receipts and build that up to management reporting, budgets and strategic reports to ensure a higher level of accuracy and clarity. This will eventually lead to a sense of integrity, another governance ideal. With reference to speed, this can move business from reliance on past information to live analysis and if it’s faster, it will be cheaper in the long-run to produce. While a positive for business, it will not require the skill of a finance professional but a computing-finance professional. In a 2018 Irish industry report, one of the authors, Trevor Clohessy, identified that IT/education providers must do more to demystify blockchain and expedite the learning process. The report outlined how the core competencies and skills required for blockchain are broader than the core technology and encompassed skill sets, which fall under the following categories: Foundational technology (e.g. cryptography, public key architecture); Distributed ledger technology (e.g. mining, consensus algorithms); Forensics and law enforcement (e.g. money laundering, dark-net); Markets, economics and finance (e.g. business modelling, cryptonomics); Industrial design (e.g. supply chain, Internet of Things); and Regulations and standards (e.g. smart contracts, governance frameworks). From an accountancy perspective, it is envisaged that certain traditional skills relating to accountancy will be eliminated or reduced (such as reconciliations or provenance assurance, for example). Blockchain transactions will enable new value-adding activities but while the range of extant skills required will change, this change need not be Byzantine. It is envisaged that the markets and regulations categories outlined above will be important for bridging the blockchain literacy gap between various business and technology stakeholders. Looking ahead, accountancy practices can examine their business models in order to derive value from blockchain. Janus, the Roman god, contained both beginnings and endings within him. That duality characterises blockchain too. It will put an end to traditional ways of doing things and usher in a new era for business and for the world at large. It will be divisive, pervasive and transformational all at the same time, and will encourage accountancy professionals to look ahead and not base their operations and decision-making on past data. The blockchain future is one with present and predictive transacting data systems with in-built transparency and integrity.   Fearghal McHugh is a lecturer in Chartered Accountants Ireland and GMIT. Dr Trevor Clohessy is a researcher and lecturer in GMIT.

Aug 01, 2019
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