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Management
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A roadmap for successful business intelligence

The need for structured, robust, and reliable business intelligence has mushroomed in recent years. As an increasing number of businesses grapple with the issue, Paul Cullen  explains the critical elements for implementation success. Data volumes within businesses have increased dramatically in recent years, primarily driven by cloud-based data solutions. Many companies struggle to harness this data in a way that enables them to focus on the key drivers of their success and to know if the strategies they have executed are having the desired results. Proper and well-planned implementation of a business intelligence (BI) solution can give management the real-time information they need to maximise commercial opportunities and ensure organisational coherence to deliver on agreed performance metrics. Why Excel just doesn’t cut it for BI Accountants have always loved Excel, and it still has a pivotal role as an analytics tool. However, when it comes to flexible reporting and giving end-users the ability to dive beyond the headline numbers to get to the ‘why’, Excel falls short in several key areas: Model maintenance headaches: in a 50-tab reporting workbook, any change to the layout can be very time-consuming (and often error-prone). I frequently encounter client reporting workbooks riddled with errors because one sheet has a misaligned row, which results in an incorrect aggregated summary. The dreaded invisible F2 edit: how many times have you spent hours pouring over an Excel workbook trying to figure out why the individual tabs don’t agree with the summary, only to eventually discover that someone has keyed in a manual F2 edit in a cell? Distributabilty: so you have built this all-singing, all-dancing Excel reporting pack, but it’s 70MB and cannot be shared via email. You also realise that some information needs to be segmented so that specific users can only see select slices of the data. These issues usually mean that multiple Excel models must be maintained, amplifying the risk of error and potentially compromising data integrity. Limits on row numbers: Excel’s sheet row limit has increased to one million in recent years. While this sounds more than adequate, you can easily exceed this limit if you include transactional data. Housing data in this way within Excel will usually result in slow, large file-size models. Usually dependant on one key user: there is typically only one key person who knows how to run and maintain a reporting model. Therefore, reporting quality, outputs, and cycle time rely to a worryingly large degree on one individual. The need for structured, robust, and reliable BI has mushroomed in recent years. As a result, dedicated BI platforms like PowerBI, Tableau, Qlik and ZapBI have evolved to address these shortcomings and provide analytics visualisations and end-user self-service reporting that goes far beyond Excel’s capabilities. Key obstacles to getting good BI Master data Many finance professionals underestimate just how unstructured their data is. I often hear clients say: “Yes, but we use NAV/Dynamics 365, so our data is really good”. They often fail to understand the inconsistencies across the company in how transactions are coded or recorded by staff. These inconsistencies make life difficult when you need to connect transactions across different platforms. For example, say you want to connect salary data for an employee from an HR system with data in a time-recording system. The employee ID is, say, PCULLEN250 on the HR system but CULLP on the time-recording system. This is just one example of the data-mapping tasks that must be undertaken for BI to succeed. I have seen this to varying degrees in every BI project I have delivered because, for many years, siloed teams have had their own ways of doing things. They simply didn’t realise that there would be a future requirement to bring all this data together at a transactionally-connected level. Historical processes or ways of working The ways in which your teams have historically coded transactions on source systems will almost certainly present challenges in initially setting up your new BI platform. I once worked with a ship management group with 1,000 ships under their control. Management wanted to get to ‘vessel profitability’, and we knew that cost allocation would be a challenge due to the complexity of the company’s operating structures. However, we were surprised to find that revenue for each vessel wasn’t available from the ledgers because the company issued just one monthly invoice to each carrier, even though some had more than 50 vessels under management. Furthermore, payroll costs for vessel crews were recorded by office location, not by vessel. Both of these historical processes gave rise to significant re-analysis work and new process design to enable the required analyses. Similarly, one healthcare client wanted to understand their profitability by treatment type. They believed that everyone across the more than 100 clinics they owned used roughly the same few hundred treatment type codes. In fact, there were over 6,000 live treatment codes in use and in some instances, clinics could even create their own codes at will. So expect to change some of your ways of working as a result of embarking on a BI implementation. How far back to go? Once it becomes clear to key stakeholders just how much insight a good BI implementation will bring, there is typically a desire to have as much history loaded into the model as possible. This is often the case where the company is private equity-owned, or a sale is planned. My advice here is the old 80/20 rule. Yes, it might be nice to see this new level of insight going back five years. But if your company is one of those where a lot of re-analysis will be required, you have to ask: is it worth it? I instead recommend that older historicals should, where possible, only be incorporated in aggregate. You should then ensure that the new data processes are designed and implemented so that future analytics are both robust and reliable. How often is too often? When implementing a BI platform, the next consideration is how often the data and outputs should be refreshed. It’s tempting to think: “Great, I can see what the sales team are doing every morning and then follow-up to discuss what’s going on”. However, this approach can quickly create a situation where staff have to spend time each day figuring out what just happened. And this, of course, can lead to ‘paralysis by analysis’. Be judicious about how often BI data should form the basis of a trading or operations conversation, and otherwise use it to indicate the company’s direction of travel. Introducing a new performance management BI tool will initially strain your executives and managers as they sift through a deluge of new and revealing information. This takes me to the following consideration: the need for culture change if a BI solution is to work correctly. Warning! Culture change approaching Imagine you are a sales or production manager, and you wake up to a new, live, web-based BI portal that shows everyone in your organisation where things might not be going so well on your patch. Senior management must avoid using the BI solution to shame or berate colleagues. Instead, it should be seen as a tool to identify opportunities and enhance performance across the business. Tread carefully here and avoid the ‘big bang’ approach of rolling out BI. You want your teams to embrace this new way of working, not run away from it or, worse still, seek to discredit it. With all this new performance management data at your fingertips, you may wish to consider redesigning your legacy compensation and bonus systems to ensure that these insights drive the right behaviours across the organisation. Embedding a robust BI solution in your organisation can be the catalyst for undoing the traditional silo mentality that can arise when different functions perform to their own narrow targets. Factors affecting implementation speed The following four issues will affect the length of time it takes to build and roll out your new BI platform. Poor data mapping: it is critical to understand how different naming conventions are used across your systems. You should conduct a thorough data-mapping audit to ensure that independent systems can be bridged on common field names (by employee ID, customer ID, or product ID, for example). Doing this during the development of the BI solution is time-consuming, but products like Caragon Flex can make the process much more manageable. Organisational readiness: prepare your team for the effort required to clean up your data and, more importantly, how this information will be distributed and reviewed once it is live. Having a new suite of detailed analytics can be overwhelming for data consumers if it is not clearly understood what it will be used for. Also, inform your colleagues that they are not expected to understand every data point that surfaces in the reports. Absence of a project champion: projects that should take weeks often take months due to the lack of an internal project champion. It is vital to appoint one and empower them to ‘herd the cats’ to ensure the project is delivered on time. Unclear output requirements/moving targets: consider what you want to get out of the new BI platform and be ruthless in identifying the key reports and key performance indicators you will need at the outset. Solution providers will typically build a proof-of-concept model to illustrate the art of the possible. This is a good time to agree on the minimum requirements for Phase 1 – but don’t bite off more than you can chew. Some processes must change As the earlier examples show, digging deep on data to build robust processes across multiple systems will invariably highlight process weaknesses that, if not remedied, will compromise the integrity of any BI platform. Therefore, it is essential to understand at the outset that go-live and the ultimate success of the project will be contingent on staff being adequately trained in the new ways of working. This might, for example, mean retraining payroll staff on payroll coding so that the correct costs are tagged to the relevant activity. Similarly, invoicing processes may need to change to ensure that revenue can be appropriately tagged to achieve the desired level of reporting granularity. You should also introduce tighter controls on crucial data fields across your systems (customer codes, product codes or employee IDs, for example). In my experience, this is best achieved by having a data governance standing group, to which all data changes (or new data field creations) must go for approval and communication to other potentially affected users. In conclusion A BI implementation is an exciting journey for a company. To get the most from it, here are my top four tips: Appoint a data champion and BI steering committee to ensure the project both gains and sustains momentum, and the business is prepared for what’s coming. Take the time to fine-tune your data mapping processes. Phase your BI roll-out in bite-size chunks to avoid overwhelming the organisation. Create a sense of ‘new frontiers’ within the business as it embarks on its data-empowered journey. Paul Cullen FCA is CEO at 1Truth, a Belfast-based management information solutions provider.

Jun 04, 2021
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Management
(?)

What next for the CFO?

Aoife Donnelly and Thady Duggan explain how the role of the chief financial officer will evolve as digital change continues apace. As chief financial officers (CFOs) continue to take on more responsibility for strategy and execution, and for the sustainable future of the enterprise, they must build technology strength to unleash breakthrough speed. Doing so is the way to drive breakout value across the business. Accenture’s recently published report titled CFO Now: Breakthrough Speed for Breakout Value identified themes common to a select group of CFOs who deliver significant value to their organisations. We found that, aided by digital transformation, the pace of change is greater than ever before. This was further accelerated by the pandemic, with 79% of CFOs surveyed compelled to ramp up organisational transformation due to the effects of the past year. As chief executive officers (CEOs) embrace speed by accelerating their digital transformation, they turn to finance for guidance. The pace at which finance can support business leaders in real-time is critical and has resulted in the accelerated adoption of digital technologies in the finance function. CFOs said that 60% of their traditional finance tasks have been automated in our CFO Now research, up from 34% three years ago.  Some CFOs are delivering real value from their digital transformation. Our research identifies several key characteristics of these ‘winners’ – finance teams that can provide the business with insights to drive transformation with speed and agility. Economic guardians Compared to their predecessors, the breadth of responsibility and expectation faced by today’s CFO is increasing. To thrive with this increased responsibility, the finance function must transform itself to enable CFOs to support the rest of the business effectively. The pace of technological change in recent years has opened opportunities within finance. Huge strides have been made to optimise processes, maximise the capabilities within existing enterprise resource planning (ERP) systems, and implement other technology enablers. However, this is using today’s technology to fix yesterday’s problems. Timely, accurate, and complete reporting is important, but it should be considered a mere hygiene factor for a high-performing finance function. The business needs informed guidance to navigate the present and anticipate the future, not comfort for the past. That’s where the most significant shift is occurring in the role of CFOs as economic guardians. High-performing finance functions can and should provide predictive insights, but less than half (43%) of CFOs surveyed have used advanced financial modelling in the past two years to identify future risks and opportunities. How can CFOs be economic guardians if they don’t have a perspective on what tomorrow will bring? High-performing CFOs use internal and external data with advanced models to better understand leading indicators of demand well ahead of trends that might show up in the company’s profit and loss account. Others, however, are not sure how to maximise the benefits of digital transformation – only 21% of CFO Now respondents have used operational data to identify new sources of value, and only 20% have used macroeconomic data to support their forecasting. Cloud architectures offer a whole new world of possibilities to the CFO, allowing for much faster decision-making. Yet, only 23% of CFOs use the cloud to provide new insights and only 16% use it to identify new sources of value. Combined with this data and technology utilisation comes a renewed focus on aligning and nurturing talent within the finance function. According to Accenture’s latest CxO Pulse Survey, 75% of CFOs believe that their company is on a course to redesign how people work and reinvent their culture to support new behaviours and mindsets. CFOs understand that finance professionals can’t be left out of this talent revolution. Our CFO Now research shows that they are acting by re-prioritising the skills needed in their functions. Traditional finance and accounting skills are still important but, along with general management skills, are now among the lowest priorities. The top skills being actively introduced are data exploration and analysis (41%), followed by scenario planning and horizon scanning (38%), innovation (37%), and storytelling (34%). Architects of business value CFOs have always played an important role in the organisation, but they now increasingly influence and direct value creation across the enterprise. This enhanced role requires increased collaboration between the finance function and other parts of the organisation, with 86% of CFOs surveyed increasing the frequency and scope of collaboration across the C-suite. The current pandemic and the strains it has placed on business has changed mindsets at the C-suite level, turning what was once a competitive environment into a more collaborative one that enables the CFO to deliver on their expanded role. Leading CFOs understand the power of technology to support these efforts and take appropriate action to ensure that they play a significant role in any major technological decisions. Indeed, 72% of respondents said they have the final say on the technological direction of the enterprise. Catalysts of digital strategy The modern CFO needs to champion digital transformation across the enterprise to support the central theme of our research – breakthrough speed for driving breakout business value. Outside their own function, there are three key areas where the impact of digital strategy are most striking. Business models: our research shows that 41% of CFOs are driving new business models within their organisations. That’s a great start, but it still falls short of the 72% of CFOs who thought their business would need to completely re-think processes and operations to be more resilient in the face of impending disruption. Throughout the past year, organisations had to reconsider their business model and its resilience for the future. Irish companies have used this crisis as an opportunity to reassess their ambitions, using the shift to digital to re-evaluate their global ambition and identify business lines, markets, and other opportunities that were not considered possible before. Security: the most cited barrier preventing CFOs from realising their full potential as drivers of strategic change was concern about cybersecurity. Yet only 28% of finance professionals are engaged in managing risk through data security to a meaningful degree. In many organisations, chief technology officers and chief risk officers report to the CFO. Given this responsibility, it is incumbent upon the CFO to better understand and become more actively engaged in data security. Environmental, social and governance criteria: one striking finding from our CFO Now research was the extent to which CFOs are seen as responsible for their company’s environmental, social and governance (ESG) policies. In fact, 68% of respondents said that CFOs take ultimate responsibility for ESG performance within their enterprise. Driven by the growing concern about the global climate crisis, Irish CFOs are also trying to understand their role in any future ESG reporting requirements. The impact on the finance function The role of finance within the organisation is evolving and expanding. The enterprise expects more, and at greater speed, from the finance function. To deliver this, the function must change. One enabler of this change is the accelerating adoption of digital technologies. This impacts the speed and type of finance activities being performed. Leveraging technology to perform more of the mundane tasks allows the CFO and the finance function to spend more time planning, analysing, and advising on the growth agenda, thereby better serving the enterprise’s changing needs and expectations (see Figure 1). Given this shift, a significant change in the skills being introduced to the finance function makes sense. CFOs know that their teams must gain insights from data and then, crucially, communicate these insights to the business. In conjunction with the shift in the type of work performed by finance teams, the composition of the workforce is also changing with fewer people using more technology to deliver better insights (see Figure 2).  The combination of enhanced capabilities within finance, improvements in technology enablers, and the explosion in data offers an amazing opportunity. To maximise the benefits from this digital transformation, the finance operating model must evolve (see Figure 3). Corporate: group-level functions, the scope of which differs from entity to entity but may include activities such as finance governance, tax strategy, treasury strategy, investor relations, internal audit, and others of a similar nature. Intelligent finance operations: the engine room where both transactional and non-transactional finance activities such as purchase to pay (P2P), order to cash (OTC), record to report (RTR) and significant components of management reporting take place at scale to maximise technology enablers. Business unit finance: direct support to the business, often in the form of finance business partnering, operational planning, and forecasting. Working closely with other teams within the finance function and the business to provide actionable insights to the business unit. Centre for value optimisation: instead of having static groups working on the same thing for months at a time, we see teams with multidisciplinary skills assembling for several weeks to take on short-term projects with defined goals and outcomes. Once work is completed, these teams then disband and new teams with different members tackle the next initiative. These teams are not finance-specific and will typically include non-finance partners. The work they do is supported by the data and analytics hub, where they work with experts to develop recommendations for business leadership. Data and analytics hub: the hub has the dual responsibility of ensuring the veracity of finance data and augmenting the teams in the centre for value optimisation with data scientists, who run multiple models to prove or disprove hypotheses. If the value optimisation squads are the ‘brains’ of the function, the data and analytics hub is the ‘heart’, pumping much-needed blood in the form of data to provide the brain with the fuel required to do its magic. Many of our Irish clients have established the first three components of this operating model. However, they are only starting to fully investigate the potential benefits of multidisciplinary teams that use a single source of truth to identify opportunities and drive insights. What does this mean for Chartered Accountants? The remit of the finance function will continue to expand, and its influence will grow in the coming years. 76% of respondents claim that the pandemic highlighted the valuable role finance teams played in feeding early warning insights to the CFO. Finance will become even more critical to future success as it delivers data-driven insights and guidance at speed. However, to do this, CFOs need to consider all the capabilities within the finance team and any potential future capabilities that may be required. Here are three things to consider. Become more technology-savvy and data-savvy. Become technology-savvy to enable finance leaders to make informed decisions on the organisation’s technology strategy; to understand the tools that can optimise the processes in the function and allow leaders to manage teams in which these tools perform a significant portion of the activity. And become data-savvy to understand the opportunities presented by data to make informed decisions that can drive profitable growth; to understand the fundamentals of analytics to challenge the insights generated by analytics teams, if not actually being part of those teams. Get better at communicating financial insights to non-finance leaders. As the role expands and continues to become less about reporting prior financial performance and more about identifying future opportunities for the business, finance leaders need to convert analysis into a compelling story that business leaders can understand and act upon. Consider how to train and upskill the whole team. The shift to a technology-enabled, data-driven finance function is becoming even more pronounced. Trainee and newly qualified Chartered Accountants must gain enough exposure to ‘traditional’ finance activities to understand the fundamentals of finance management while working in a function where these traditional finance activities are increasingly being automated. This is a challenge that must be solved in the years ahead. Aoife Donnelly FCA leads Accenture’s Finance Strategy & Consulting practice in Ireland. Thady Duggan FCA is a Senior Manager in Accenture’s Finance Strategy & Consulting practice in Ireland.

Jun 04, 2021
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Management
(?)

International financial services: resilience meets ambition

Barrie O’Connell considers how Ireland can achieve continued success in international financial services after three decades of momentous growth. As a semi-senior auditing investments and subscriptions in the offices of Chemical Bank on Lower Abbey Street in the late 1990s, I knew little of the influence international financial services (IFS) would have on my career as a Chartered Accountant. Ireland has built a thriving IFS industry over the last three decades. This success can be measured using several metrics, some of which are outlined in Table 1. So, what are the factors behind this success? In my view, Ireland’s strategic approach and talent have been the two key enablers. Chartered Accountants have played – and will continue to play – a key role when it comes to talent. The ‘Ireland for Finance’ strategy In 2019, the Government of Ireland launched the Ireland for Finance 2025 strategy. The strategy was developed by the Department of Finance, with input from a range of stakeholders, and is part of the current Programme for Government. It contains four pillars: Operating environment; Technology and innovation; Talent; and Communications and promotion. The Ireland for Finance 2025 strategy is aligned with other key Government strategies, including the National Development Plan and the National Digital Strategy. A refresh of the strategy will likely be undertaken after the COVID-19 pandemic to account for the permanent impact on the future of work, the changing operating environment, and the intense competition from other IFS investment locations. Each year, the Department of Finance also publishes an action plan and an update on actions. This allows each action to be measured and provides accountability, as each action has an owner. The IFS team within the Department of Finance plays a significant role in supporting the strategy’s implementation. There is also a dedicated Minister of State for IFS at the Department of Finance, which ensures continuing focus on the sector. Coincidentally, the current Minister, Sean Fleming TD, is a Chartered Accountant. Operating environment Ireland has enjoyed great success as an IFS location for a long time. With new entrants relocating here due to Brexit, there is the prospect of more to come. This will remain the case while there is uncertainty around UK firms’ ability to achieve financial services equivalence and, thus, access to EU markets post-Brexit. However, the environment for IFS is increasingly competitive. Industry participants continually face pressure to optimise their business by delivering new and innovative products and exploiting process and location efficiencies. They must deliver on these issues while serving their customers’ needs and ensuring the global financial system’s continued stability. The industry is more technology-intensive than ever, and artificial intelligence (AI) and automation present both opportunities and challenges for Ireland. We must continue to position ourselves as a location that is open to providing an innovative, supportive, and dynamic environment for companies that seek to leverage our expertise and history in technology and financial services. After COVID-19, other countries will redouble their efforts to attract investment. As IFS is a mobile sector, Ireland must be agile and adapt quickly to the new environment. The IFS sector has been remarkably resilient over the last year, and I am impressed by how the sector adapted to remote working and continued to deliver for customers. This resilience is a key differentiator, and the collective ability to solve issues gives Ireland credibility and trust in a global marketplace – something that is noted internationally. Track record The IDA and Enterprise Ireland have both contributed to the development of the country’s IFS industry. I am continually impressed by the IDA’s work with overseas companies and Enterprise Ireland’s work to create opportunities for indigenous companies to operate successfully from Ireland. Indeed, these organisations are the envy of many other countries globally. Irish Funds is another excellent example. It works relentlessly at an international level to promote Ireland as a funds location, and the quality of the content at its events is compelling and demonstrates some of the best qualities of ‘Team Ireland’. Meanwhile, the European Financial Forum, usually hosted in Dublin Castle, was hosted virtually this year. It is another superb showcase of what Ireland offers in IFS to companies operating globally and is supported by an effective regulatory environment with a fully independent Financial Services Regulator. The development of the “IFS Ireland” brand has been a crucial first step in building an integrated offering across different sectors. We must now market Ireland with consistency and in new and innovative ways.  The secret sauce Ireland’s key asset is its people and talent. Ireland has a well-educated, highly-skilled, flexible, internationally diverse and multilingual workforce. Our demographics are favourable, with 33% of the population less than 25 years old and over 50% of those between 30-34 holding a third-level qualification. Chartered Accountants’ skills and attributes are a good fit for this sector, and I am aware of so many Chartered Accountants Ireland members who have cultivated successful careers in IFS – not just in Dublin, but throughout Ireland. The executive and senior management teams in IFS in Ireland, many of them Chartered Accountants, are a vital ingredient in our competitive advantage. They advocate with head office, look to develop and grow the offering based in Ireland, and are prepared to manage global operations from Ireland – and often exceed expectations when they do. Many have very senior global roles in large IFS organisations, and we don’t always acknowledge them and their relentless focus on expanding their organisation’s footprint in Ireland enough. For example, the recently announced acquisition of GECAS by AerCap, headquartered in Dublin, is a fantastic transaction that demonstrates Ireland’s position as a world leader in aviation finance. Caution needed Now is the time for Ireland to redouble its efforts. Some commentators suggest that the future of work will alter the relationship between talent and location, but I am inclined to challenge this hypothesis. In my view, where the executive and senior management teams are based will continue to be a key consideration for an organisation’s location. With accelerating disruption and digital transformation impacting the IFS sector, Ireland must be aware and adapt accordingly. In the coming years, protecting existing jobs may well be as important as growing the number of those employed in the sector. Ireland must therefore invest in education and training to ensure that workers stay relevant and productive and harness the strengths of Ireland’s technology sector to position Ireland as a leader in technology-based financial services and platform development. Chartered Accountants Ireland’s FAE elective in Financial Services is a welcome development in this regard. Action Plan 2021 The IFS Action Plan 2021, which is available to download at www.gov.ie, outlines several priorities in this regard, including sustainable finance and fintech. These areas have huge growth potential and present an opportunity for Ireland to take a leadership position globally. Sustainable finance and environmental, social and governance (ESG) criteria are strategically important to all companies. It is fitting that the Minister highlighted both as critical areas of focus for 2021 and beyond. Ireland’s recently enacted Investment Limited Partnership (ILP) legislation was an objective in the action plan for several years and has the potential to deliver significant growth in the private equity area. The Central Bank of Ireland also issued a stakeholder engagement consultation in recent weeks, and this will be a key focus for the 2021 action plan. Cause for optimism IFS is a vital element of Ireland’s overall economic strategy. Like all strategies, the strategy for IFS must be continually reviewed and adapted as the world evolves. Given our talent, flexibility, and drive, there is much cause for optimism while resisting complacency. It is incredible to see what started in the IFSC now present in every corner of Ireland, from Killorglin to Letterkenny. Yes, IFS in Ireland will need to change, adapt and continue to improve. But for newly qualified and experienced Chartered Accountants alike, the opportunities in IFS are almost limitless. Go and explore them for yourself. Barrie O’Connell is Partner in KPMG and Chartered Accountants Ireland’s representative on the Ireland for Finance Strategy 2025 Industry Advisory Group.  

Mar 26, 2021
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Management
(?)

Examinership and the Summary Rescue Process

Neil Hughes outlines the survival options for small- and medium-sized businesses as the ‘next normal’ approaches. In general, 2018 and 2019 were good years for Irish business. Many companies entered 2020 with stronger balance sheets, relatively low debt levels, aggressive growth targets, and optimism – particularly in the small- and medium-sized enterprise (SME) sector. By Q2 2020, however, firefighting due to COVID-19 restrictions quickly soaked up all available management time and resources. Growth strategies were shelved, and survival was prioritised. Government supports were immediately made available to companies severely affected by the pandemic. Figures released by Revenue in February 2021 show that the State paid out a total of €9.3 billion in 2020 between the Pandemic Unemployment Payment (€5.1 billion), Temporary Wage Subsidy Scheme (€2.8 billion) and the Employment Wage Subsidy Scheme (€1.4 billion). Seventy thousand companies have availed of the Revenue Commissioners’ Debt Warehousing Scheme, at a total cost of around €1.9 billion. These supports, along with the forbearance provided by financial institutions in Ireland, have helped prevent a tsunami of corporate insolvencies. The concern, however, is if post-pandemic those companies that ultimately need help the most will not reach out and avail of the supports and processes available. Overcoming the stigma It is regrettable that, historically at least, the use of formal corporate insolvency mechanisms to restructure struggling businesses has been viewed quite negatively by the Irish business community. The inference is that such businesses were somehow mismanaged when, in reality, this was often not the case. Companies can fall into financial difficulty for various reasons. Factors outside the control of company directors can necessitate a formal restructure rather than the terminal alternative of liquidation. Now, in the middle of a pandemic, a previously successful business operator, through no fault of their own, can find themselves saddled with an unsustainable level of debt and risk becoming insolvent. While government support measures were necessary to prevent widespread corporate failures and potential social unrest, for many companies, these actions may have simply delayed the inevitable and kicked the can further down the road. In most corporate insolvencies, there is an expected level of pressure for money that the company does not have, which precipitates a formal restructure. This pressure has been temporarily released, but the creditor strain will inevitably build again when trading resumes. ‘Zombie’ companies Low insolvency numbers for 2020 are therefore misleading. There is anecdotal evidence to suggest that several companies have ceased trading, have no intention of reopening and, in some instances, have handed the keys of their premises back to landlords. However, these ‘zombie’ companies are not included in the insolvency statistics, as they continue to avail of government supports and will be wound up whenever the supports end. While helpful, the subsidies and supports do not cover the entire running costs of a business, and many companies continue to rack up debt as their doors remain closed. These debts may seem insurmountable, but there is hope. The Great Recession vs the COVID-19 crisis This current recession is in stark contrast to the ‘Great Recession’ that resulted from the banking crisis of 2008. Back then, there was a systemic lack of liquidity in the market due to the collapse of Ireland’s banking sector, which left SMEs with little or no access to funding. This time, there are several re-capitalisation options with banks (including the new challenger banks) in a position to provide funding, especially through the Strategic Banking Corporation of Ireland (SBCI) Loan Scheme. Many private equity funds are also willing and ready to invest in Irish businesses. After the pandemic All the while, the Government can borrow at negative interest rates to stimulate growth and recovery. With the vaccine roll-out, we are starting to see the light at the end of the tunnel. This begs the question: what will happen when the pandemic is over? There are several key points to note: Consumer behaviour: it is reasonable to assume that a large portion of the population will revert to normal. This could generate a domestic economy similar to the rejuvenation that followed the Spanish Flu pandemic of 1918 and the end of the First World War. There is certainly pent-up demand and savings (deposits held in Irish financial institutions were at an all-time high of €124 billion in late 2020). Unfortunately, a portion of society will change their consumer habits forever due to COVID-19, which will have a detrimental effect on businesses that find themselves on the wrong side of history and unable to survive the recovery. Government action: how the Government reacts will have lasting repercussions. Difficult and unpopular decisions are likely required to pay for the ever-rising cost of the pandemic and its restrictions. Such choices may result in an increase in direct and/or indirect taxes, with less disposable income circulating in the economy. The UK Government has already made moves in this direction with its 2021 budget. The Revenue Commissioners: Revenue’s intended course of action is currently unclear in relation to clawing back the €1.9 billion of tax that has been warehoused or how aggressively it will pursue Irish companies for current tax debt after the pandemic is over. Early indicators are that Revenue will revert to a business-as-usual strategy sooner rather than later. Banks and other financial lenders: the attitude of Irish banks and financial institutions to non-performing loans remains to be seen. Banks have been accommodating to date and worked with, rather than against, borrowers – a criticism levelled against them in the wake of the 2008 banking collapse. Personal guarantees provided by directors to financial institutions to acquire corporate debt, particularly in the SME sector, will have a significant bearing on successful corporate restructuring options. The attitude of landlords: landlords in Ireland are a broad church, ranging from those with small, family-operated single units to large, multi-unit institutional landlords or pension funds. Landlord-tenant collaboration is essential for stable retail and hospitality sectors, and in the main, rent deferrals were a foregone conclusion during the various lockdown stages of the pandemic. However, these rent deferrals still have to be dealt with. The attitude of general trade creditors: in certain instances, smaller trade creditors in terms of value have been the most aggressive in debt collection and putting pressure on businesses to repay debts as soon as their doors reopen. Companies with healthy balance sheets and those that managed their cash flow prudently will be the ones to come out the other side of this pandemic when the government supports subside. Businesses will need time to: Assess the post-pandemic consumer demand for their products and services;  Assess their reasonable future cash flow projections; Agree on payment arrangements for old and new debt; and Make an honest assessment of whether they will be able to trade their way through the recovery phase. For those who have been worst hit, however, all is not lost. Ireland has some of the most robust restructuring mechanisms in the world, with low barriers to entry and very high success rates. The fallout can be mitigated if company directors take appropriate steps. Restructuring options When it comes to successful restructuring, being proactive remains the key advice from insolvency professionals. Too often, businesses sleepwalk into a crisis. Options narrow if there has been a consistent and pronounced erosion of the balance sheet. Those who act fast and engage with experts have the best chance of survival. 1. Examinership There are various restructuring options available, but examinership is currently most suitable for rescuing insolvent SMEs. The overarching purpose of examinership is to save otherwise viable enterprises from closure, thereby saving employees’ jobs. In 2019, liquidations accounted for 70% of the total number of corporate insolvencies in Ireland, and examinership only accounted for 2% of the total. It is plain that a higher portion of those liquidations could have been prevented, jobs saved, and value preserved if an alternative restructuring option like examinership had been taken. There are only two statutory criteria for a company to be suitable for examinership: 1. It must be either balance sheet insolvent or cash flow insolvent. It cannot pay debts as and when they fall due; and It must have a reasonable prospect of survival.  The rationale for examinership in a post-pandemic environment is therefore clear. Companies saddled with debt will likely meet the insolvency requirement, and historically profitable companies that have become insolvent due to the closures associated with the pandemic will pass the ‘reasonable prospect of survival’ test. Once appointed, the examiner must formulate a scheme of arrangement, which is typically facilitated by new investment or fresh borrowings. The scheme will usually lead to creditors being compromised and the company emerging from the process solvent and trading as normal. 2. The Summary Rescue Process One of the main criticisms levelled at examinership is the perceived high level of legal costs required to bring a company successfully through the process. To address this perceived issue, in July 2020, An Tánaiste, Leo Varadkar TD, wrote to the Company Law Review Group (CLRG) requesting that it examine the issue of rescue for small companies and make recommendations as to how such a process might be designed. The CLRG’s reports in October 2020 recommended the ‘Summary Rescue Process’. It would utilise the key aspects of the examinership process and be tailor-made for restructuring small and micro companies (fulfilling two of the following three criteria: annual turnover of up to €12 million, a balance sheet of up to €6 million, and less than 50 employees). Such companies constitute 98% of Ireland’s corporates and employ in the region of 788,000 people. A public consultation process is now underway to finetune the legislation. Here is what we know so far about the Summary Rescue Process: It will be commenced by director resolution rather than court application. It will be shorter than examinership (50-70 days has been suggested). A registered insolvency practitioner will oversee the process. Cross-class cramdown of debts will be possible, which binds creditors to a restructuring plan once it is considered fair and equitable. It will not be necessary to approach the court for approval unless there are specific creditor objections. Safeguards will be put in place to guard against irresponsible and dishonest director behaviour. A proposed rescue plan and scheme will be presented to the company’s creditors, who will vote on the resolutions. A simple majority will be required to approve the scheme. The Summary Rescue Process will be a huge step forward. The process of court liquidation has been systematically removed from the court system in recent years in favour of voluntary liquidations. This new rescue process will bring a similar approach to formal restructuring, allowing SMEs greater access to a low-cost restructuring option akin to a voluntary examinership. It will give more hope to companies adversely affected financially by the pandemic that options exist for their survival. Neil Hughes FCA is Managing Partner at Baker Tilly in Ireland and author of A Practical Guide to Examinership, published by Chartered Accountants Ireland.

Mar 26, 2021
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Management
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A culture of fear?

Eric O’Rourke explains why organisations should not fear the process of corporate cultural change, and how internal audit can play a pivotal role. “If you can’t measure it, you can’t manage it”. When it comes to changing a company’s culture, this quote from Peter Drucker is something I, as an Internal Auditor, have heard often over the years. However, culture can be viewed as amorphous and, therefore, difficult to define and alter. For an organisation’s governance structure (i.e. the board and senior executives), the inability to measure an existing corporate culture can create an apprehension and some degree of fear around how to best progress to a desired culture. Culture matters for any organisation but from a financial services perspective, a positive culture drives conduct by promoting the benefits listed later in this article and protecting against conduct risk. A positive culture provides a guiding light for an organisation, particularly when it faces challenges and difficult choices. Culture guides what you should do, not what you can do. It helps organisations do the right thing and, in the context of financial services, this involves restoring trust and protecting the industry’s social license. In May 2020, the representative body for the funds industry in Ireland, Irish Funds, published the ‘Irish Funds Culture Guidance Paper’ for its members. The paper aims to provide member firms with guidance on key themes and good practices to measure, monitor and embed culture. It considers the critical factors to take into account when implementing cultural change. They include defining culture (present and desired) in addition to metrics that can be used to measure/monitor culture and related changes.   Existing culture vs desired culture For all organisations, the first step is to evaluate the existing culture while identifying the board’s desired culture, as its members effectively lead the organisation’s strategy. Based on this evaluation, the board can then decide whether a culture change programme is required. Employees at all levels should be engaged to ensure that the echo from the bottom matches the tone from the top. The tone from the top is critical to ensure that culture and values are articulated and hence, can be measured. A ‘cultural roadmap’ should then be created. This task should be championed by the organisation’s appointed culture champion or chief cultural officer from the senior leadership level. The advice of Internal Audit (IA) should also be sought at the outset, as the role of IA extends across organisational structures and can provide unique insight.   The art of measurement To measure culture, multiple cultural touchpoints should be amalgamated to give a full picture to key committees and the board. A ‘corporate culture report card’ should also be compiled every quarter and presented to the board by the cultural champion, as culture change is a long process. The report card should be reviewed thoroughly, and corrective action taken if required. Below are some of the metrics that were published in the Irish Funds Culture Guidance Paper. Evidence from the suggested mechanisms should form the basis of the corporate culture report card (see Table 1). Furthermore, IA should audit these metrics as part of any thematic culture audit, or question auditee culture as part of any audit undertaken.   Benefits of a considered and defined culture Many benefits accrue to organisations that embrace a healthy culture, including:   Sustainable growth and improved profitability; A more engaged and motivated workforce; The ability to attract and retain top talent; Better and more transparent decision-making; Responsiveness to change and risk; Improved customer satisfaction; and A corporate image and identity that others aspire to. So the critical question is: what culture is desired? Determining the desired culture and measuring the existing culture are the first steps. In closing, I note the words of Dale Carnegie: “Inaction breeds doubt and fear. Action breeds confidence and courage”. The time is ripe to review and possibly enhance your organisation’s corporate culture. Do not fear change; instead, focus on what can be achieved. Eric O’Rourke ACA is Head of Internal Audit at Sumitomo Mitsui Trust Group Global Asset Services and a member of the Irish Funds Internal Audit Discussion Forum.

Sep 30, 2020
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Management
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From catastrophe to confidence

John Kennedy explains how Chartered Accountants can help their clients break free from the shackles of their current challenges and, instead, work towards a brighter future.As we continue to deal with the implications of the untamed coronavirus, we have all been forced to pause and take stock. Many things we historically assumed can no longer be taken for granted. We, therefore, need to learn new habits, develop new routines, and adopt new ways of thinking.At the core of that change is the need to secure our future by identifying, and wisely investing in, our most precious assets. Take a moment to pause and think of the most valuable assets your practice holds – what are they?In my opinion, there are two: attention and energy. Your future success will be determined by your ability to take control of your attention and energy and, in turn, by how you guide your clients to invest their attention and energy where it is most productive and provides the greatest return. You and your clients must stop wasting your attention and energy on unproductive, corrosive thinking.Corrosive and constructive thinkingThe world is flooded with corrosive thinking right now. And, like anything with massive oversupply, it has no value. Corrosive thinking keeps you in a closed loop of negativity, consuming your attention and energy by focusing on the missteps, the problems, and how costly they will be. You will get no positive return on the attention and energy you invest in corrosive thinking.Constructive thinking, on the other hand, is entirely different. It is scarce and, therefore, has an unusually high value. Constructive thinking moves you away from worrying about how you and your clients reached this difficult place and, instead, focuses your attention and energy on reaching a better place. To move from A to B, however, requires the wise and judicious investment of your vital resources.The key is to take control of your future decisively. This is not an invitation to undertake some form of positive thinking or encourage you to merely wish or hope for better times. It is quite the opposite. It is a specific and practical skill that will enable you to create a clear image of a better future and identify the steps to reach that destination.The kitchen testNeuroscience has helped us understand how to harness the power of our brain and use our capacity to think more effectively. If you don’t take control of this capacity, your brain can easily work against you or steer you off-course. But when you know how to harness the power of your brain and focus it on success, profound change is possible.Achieving the success you seek always begins with creating a clear image of that success. Let us put it to the test.Take a moment to think about a room you are familiar with. Your kitchen is a good place to start. As you develop a clear and vivid image of your kitchen, your mind will work with you and help you set out in great detail the many specific aspects of your kitchen. You will be able to give this image real substance – the colour of the walls, the type of floor, or any paintings, pictures or posters on the walls, for example. You can create an image that is clear, vivid and substantial – and that is a very useful talent.The kitchen test shows that you can harness your thinking to work your way through the recent crisis and create a clear image of a better future. This is key to your investment strategy, as you can create an image of future success that has the same level of detail and clarity as to the image of your kitchenWhy is this important in terms of your future success and your success with clients? Left uncontrolled, your mind will come up with detailed and comprehensive images of the difficult situation you are in. It will default to wasting your much-needed energy by placing too much emphasis on the worries of the present. However, the troublesome present is where the problems lie. You want to be in a better place, but you have – at best – a vague and hazy image of that destination.The difficulties of your current reality will appear more potent than any possible future success. And since the mind values clear and detailed images, it will be drawn to where clarity and detail already exist – in this case, on the difficulties of the present situation. This is why the strength and scale of your problems seem to grow and grow. The more you focus your attention and energy on your current difficulties, the more vivid they become to the point that you may not be able to discern a successful future at all.This is where your investment strategy can provide its most significant return.The high-return investment strategyIn taking active control of your thoughts, you can switch your attention and actively invest your energy where it can deliver a more valuable outcome. This is not a trivial skill – it is scarce, of high value, and the vital key to future success for you, your practice, and your clients.To get full value from this insight, you need to establish a new habit. From this point on, every time a client falls into the routine of talking about the worry and stress they face, take active control of the dialogue and help them create an image of a better future.Don’t waste their attention and energy on vague or wishful thinking. Instead, guide them to create a clear and vivid image of a better place, an image that is as clear and real as the image of your kitchen.Rather than dwell on familiar problems, set them on a quest to establish what a successful future would be like. Your client has already built a business that is successful enough to need your accountancy expertise. Now, you can use your insights to help them leverage their knowledge and experience to create an image of a successful future.Research has conclusively shown that this ability is central to the success of the very highest achievers, those who achieve great success and prevail at times of stress or uncertainty. By helping your clients invest their attention and energy in creating a clear and specific image of future success, you are providing them with an immediate and powerful resource. They turn their thinking, attention and, therefore, energy to what they want to accomplish.For more than three decades, I have encountered a habitual pattern of clients focusing on current problems rather than investing actively in future success. Ironically, this habit can be most pronounced at the very time when it is least useful – when the problems seem so large and so vivid and are the cause of significant corrosive stress.When managers, groups or teams spend their time thinking about their most challenging problems, they tend to become dispirited and demotivated. When you help your clients do the opposite, however, you will become a scarce resource: the route to a better place.John Kennedy is a strategic advisor. He has worked with leaders and senior management teams in a range of organisations and sectors.

Sep 30, 2020
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Strategy
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Deal or no deal

While business continues to hope for the best, the prospect of a no-deal Brexit appears to be strengthening. BY MICHAEL FARRELL More than two years on from the Brexit referendum, the business community still has no clarity on the UK’s future relationship with the EU. In recent months, rising political tension in the UK has contributed to anxiety among businesses that the prospect of a no-deal Brexit appears to be strengthening. A July white paper set out the UK’s approach to economic partnership, security partnership, cross-cutting cooperation (in areas such as personal data, cooperative accords in science and innovation, and fishing opportunities) and institutional arrangements. It said that preparations for a range of possible outcomes, including a no-deal scenario, should continue and “given the short period remaining before the necessary conclusion of negotiations this autumn, the Government has agreed that preparations should be stepped up”. Within days of its publication, the white paper heightened political division in the UK Government with Prime Minister Theresa May’s difficulties compounded by amendments to the UK’s Trade Bill, which is currently making its way through Parliament. These included an amendment ruling out the UK sharing the EU’s VAT area, which could threaten the avoidance of a hard border in Ireland. At the time of writing, while much is undoubtedly going on behind the scenes, things are relatively quiet during Parliament’s summer recess. However, the Conservative Party conference at the end of September will stir tensions again and may impact the UK’s negotiating stance ahead of the next EU Council summit in October. Nothing is agreed until everything is agreed While Brexit may mean Brexit, despite the political to-ing and fro-ing, we’re none the wiser as to what Brexit will eventually mean for businesses. Currently, the draft Withdrawal Agreement between the UK and EU is 80% agreed, with a 21-month transition period envisaged whereby the UK would stay in the Single Market and Customs Union until 31 December 2020 to give businesses and administrations time to adapt. However, all we know for sure is that this could still unravel since nothing is agreed until everything is agreed. Indeed, if anything, the prospects for a no-deal outcome seem to be growing stronger. In June, the EU urged member states to step up preparations for a potential no-deal outcome while, more recently, UK Trade Secretary Liam Fox, quoted in The Sunday Times, put the odds on the chances of the UK leaving without a deal at 60/40. Meanwhile, the border between Ireland and Northern Ireland remains a major hurdle. While the UK and Ireland have both said that they will not erect a hard border, it is difficult to see how customs checks and border police can be completely avoided in a no-deal scenario. Even if a border is somehow avoided, there will be customs and border issues to overcome as EU member states will not want unregulated goods entering the single market. It is also likely that there will be customs skills shortages. Speaking after a Cabinet meeting in Derrynane, Co. Kerry in July, Taoiseach Leo Varadkar said Ireland could have to hire around 1,000 new customs and veterinary inspectors to prepare Ireland’s ports and airports for Brexit and, earlier this year, over 550 border force roles were advertised by the Home Office, including some Belfast-based roles. Worryingly, an InterTradeIreland survey of 751 businesses carried out in June/July 2018 showed that only 20% of respondents anticipate having a Brexit plan ready by March 2019. Of the businesses surveyed, 30% predicted a negative sales impact and 24% are deferring investment plans. The survey also showed that businesses face challenges in areas such as overhead costs, energy costs, new competitors and difficulties in recruiting. Where businesses have plans in place, we are beginning to see estimates of the potential cost impact of various Brexit scenarios. This is particularly true of larger businesses. Bombardier, for example, recently estimated that it would cost their Belfast plant, which operates a ‘just in time’ supply policy, around £25-30 million to hold a number of months’ worth of material to avoid stopping its lines in the event of a no-deal Brexit. Useful reading material For Chartered Accountants, an interesting paper to review is the recent publication by the Tax Strategy Group (TSG) on the taxation and customs impacts of Brexit. This notes that traders may use a customs agent for deferred payment of VAT and excise, and for assistance with customs clearance procedures. The paper points out that such services come at a cost to business. “In 2016, over 1.3 million customs declarations were submitted to Revenue by 140 agents on behalf of numerous Irish traders, whereas only 75 individual businesses submitted declarations on their own behalf. This suggests that a significant portion of third-country trade is facilitated by agents and this is also likely to be a feature of trade with the United Kingdom post-Brexit.” The TSG paper states that customs formalities on trade with “third countries” are currently managed through Revenue-approved authorised economic operators who pay duty and VAT on a monthly basis rather than at the point of import. Ireland has 144 authorised economic operators, which account for 89% of third-country imports. Revenue has identified 38,000 traders who have regular dealings with the UK and a further 100,000 who have less frequent trade. It is the larger group, with infrequent trade, that is at risk of significant changes in processes as they are less likely to have authorised economic operator status, the paper states. Other useful publications include a seven-point fact sheet setting out what businesses across the EU 27 need to do to prepare for Brexit. It warns that businesses will need to make all necessary decisions, and complete all required administrative actions, before 30 March 2019 in order to avoid disruption. It also covers responsibilities under EU law in areas such as the supply chain, certificates, licenses and authorisations, tax, rules of origin, restrictions on the import and export of goods, and the transfer of personal data. Bord Bia has published a guide for current and potential food and drink exporters, which aims to help identify operations partners, establish more efficient distribution channels and devise strategies for reducing supply chain costs. Chartered Accountants Ireland and the Institute of Chartered Accountants in England and Wales have also jointly published a guide to help businesses prepare for the post-Brexit trading environment. Dangers on the horizon As well as trading and supply change challenges, other dangers include a weaker Sterling and recruitment difficulties. Businesses in Ireland and Northern Ireland are not alone in facing skills shortages – recruitment difficulties are also being felt by employers in the UK. According to the latest quarterly Labour Market Outlook from the CIPD and the Adecco Group, labour supply is failing to keep pace with demand, exacerbated by a “supply shock” of fewer EU nationals entering the UK. The number of EU-born workers in the UK increased by 7,000 between Q1 2017 and Q1 2018, compared with an increase of 148,000 from Q1 2016 to Q1 2017. As we move into the last quarter of the year it is frustrating that, more than two years on from the referendum, there is still so much uncertainty. Chartered Accountants will be helping businesses review budgets and plans for 2019 in the coming weeks. As is always the case in uncertain times, cash and costs will need to be the focus pending greater clarity on what the future holds.   Michael Farrell FCA is Director at PKF-FPM Accountants Ltd., a service provider for InterTradeIreland’s Brexit Advisory Service.

Oct 01, 2018
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Strategy
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Pace of Brexit continues to frustrate business

Chartered Accountants can help businesses translate abstract Brexit scenarios into strategic planning. Another significant milestone on the road to Brexit came and went at the end of June, leaving businesses none the wiser about the future shape of the UK’s relationship with the EU. Then, in July, at a meeting at Chequers, the British Cabinet agreed on a plan for negotiations with the EU. Briefly, this envisages maintaining “a common rulebook for all goods” but not for services. The UK is proposing a “combined customs territory”, one benefit of which would be to prevent a hard border in Ireland. However, at the time of writing, due to political developments in the UK, the prospects for this plan are unclear. It also remains to be seen how the detail of the plan will be received by the EU. Meanwhile, a survey conducted among local communities in the border region between March 2018 and May 2018 found that most respondents (59%) now think that a ‘hard’ border is more likely than they previously anticipated. Since the last issue of Accountancy Ireland was published, both houses of the UK parliament have agreed on the text of the European Union (Withdrawal) Bill 2017–19. This legislation enables EU law to be transferred into UK law and allows work to begin on preparing the UK statute book for Brexit. The bill now awaits royal assent, when it will become an act of parliament. Readers will recall that when the draft legal text of the withdrawal agreement was published by the EU in March, it included a “backstop” solution to prevent a hard border on the island of Ireland and avoid a “cliff-edge” Brexit by creating a “common regulatory space” where goods could flow back and forth without border checks. Subsequently, on 7 June, the UK Government published a technical note proposing that “in the circumstances in which the backstop is agreed to apply, a temporary customs arrangement should exist between the UK and the EU.” The UK said this temporary arrangement should be “time limited” pending finding a solution to the border question, which it expects to be in place by the end of December 2021 at the latest. However, the EU’s chief Brexit negotiator, Michel Barnier, said the backstop cannot be extended to the whole UK because it is designed for the specific situation of Northern Ireland. More recently, in the run-up to the EU Council meeting at the end of June, UK and EU negotiators issued a joint statement stating that both parties recognise that the backstop requires provisions in relation to customs and regulatory alignment and are committed to accelerating work on the outstanding areas. Negotiations will continue over the coming weeks. Meanwhile, frustrated by the slow pace of the negotiations, various UK businesses and representative organisations have been highlighting the practical problems this creates for businesses. Accountancy Europe, the organisation that represents one million professional accountants, auditors and advisors from 37 countries, has warned that Brexit-related disruption in audit services could threaten the stability of markets. A recently published paper entitled Implications of Brexit on Cooperation within the European Audit Profession stresses the need for a favourable regulatory framework post-Brexit, where the European audit profession can continue to cooperate effectively and efficiently in the provision of statutory audit. This position is supported by Chartered Accountants Ireland. A Moore Stephens study of 653 owner-managed businesses in the UK, published in February 2018, showed that 94% of respondents feel that the UK Government ignores their concerns on Brexit. When asked about their specific Brexit-related worries, 38% of owner-managed businesses said that the introduction of trade tariffs was their biggest concern. 30% fear a loss of EU labour while 23% are concerned about loss of European customers. Only 33% said that they had no concerns around Brexit. In a risk assessment published in June, Airbus said: “While an orderly Brexit with a withdrawal agreement is preferable to a no-deal scenario, the current planned transition (which ends in December 2020) is too short for the EU and UK governments to agree the outstanding issues, and too short for Airbus to implement the required changes with its extensive supply chain. In this scenario, Airbus would carefully monitor any new investments in the UK and refrain from extending the UK suppliers/partners base.” The ongoing uncertainty appears to be slowing the UK’s commercial property market according to business lender, Capitalflow, which has said that some UK developers and investors are now looking to invest in commercial property in Ireland and “unlike their Irish counterparts, who are still having difficulties accessing finance from the Irish pillar banks, UK developers typically have access to multiple sources of finance”. Meanwhile, there is no shortage of Brexit-related reports from official and other sources. One of these, published by the Irish Government in June, looked at the firm-level impact of Brexit on the most exposed sectors of the Irish economy. A list of 20 potential impacts were presented and firms were asked to rate their level of concern for each and to comment on how they understood and evaluated the risks presented. Across all sectors, fear about changes to the free movement of goods was the top concern, followed by fear of reduced freedom to trade in services. Levels of concern varied within sectors. Of the 15 sectors analysed, the chemicals/pharmaceuticals sector expressed the highest level of concern about the impact on their business while firms in the rental/leasing sector expressed the least aggregate concern. In another report, also published in June, the Irish Government’s Expert Group on Future Skills Needs (EGFSN) addressed the skills need arising from the potential trade implications of Brexit. The study deals with skills such as customs clearance, logistics and supply chain management, which will be needed in a potentially more restrictive trading environment with the UK, as well as skills to support diversification of trade to non-UK markets such as international management, sales, marketing, design and development, foreign languages and cultural awareness. The report makes eight recommendations, with 46 associated sub-actions, aimed at enhancing the pool of trade-related skills available to Ireland-based enterprise. At a practical level, skills shortages are a growing problem for businesses across the island of Ireland. EY’s Economic Eye Summer Forecast projects growth of 236,700 net additional jobs in the period 2017–22 across the island of Ireland and reveals that since the day of the Brexit referendum result, 21 financial services organisations have confirmed that they will move all or some of their operations from the UK to Dublin. This positions Dublin as the most popular post-Brexit location ahead of Frankfurt (12), Luxembourg (11) and Paris (8). While the employment rate is currently high, InterTradeIreland cautions that it may be at a plateau and “we are beginning to enter a critical phase of the economic cycle, with businesses across the island taking a collective pause on many key decisions”. Worryingly, InterTradeIreland says that the level of business preparedness around Brexit has improved, but continues to be low with just 8% of cross-border traders having a plan in place. Chartered Accountants have a vital role to play in helping businesses translate what can appear abstract and difficult Brexit scenarios into their strategic planning, focusing in particular on highlighting solutions that could work in specific sectors. Politically, tensions are likely to intensify over the coming weeks and there must be a question mark over whether meaningful progress can be achieved ahead of the next significant milestone, which is the EU Council meeting in October. Michael Farrell FCA is Director at PKF-FPM Accountants Ltd., a service provider for InterTradeIreland’s Brexit Advisory Service.

Aug 01, 2018
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Strategy
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Managing the new IT risk

Connectivity exposure is the new IT risk many businesses are ignoring at their peril. Utter dependence on a single telecoms circuit for connectivity is the IT risk that the vast majority of Irish businesses are ignoring. They do so at their peril. With even the most basic systems and processes tied to the internet, a network fault has the power to bring companies shuddering to a standstill within seconds. As professional advisors, accountants and auditors must be cognisant of their clients’ vulnerability to costly disruptions and educate themselves about network resilience, or ‘redundancy’, as a means of mitigating risk, improving controls and guaranteeing business continuity. Why network outages are the new IT risk Accountants and their clients are acutely mindful of the threat posed to their security by viruses, malware and fraudulent phishing scams. Yet, even the most informed business owners persist in ignoring single circuit connectivity as their biggest IT vulnerability.  The move to the cloud has been touted for so long, we would be forgiven for presuming we all work in one centrally located nirvana by now. There are many legitimate business advantages associated with moving to the cloud, but cloud adopters must be aware that the very move that helps their business opens their company up to a new risk. In short, by trusting critical applications to the cloud, Irish businesses render themselves wholly reliant on a fast, secure and dependable connection to the internet. Head in the clouds Happily, most companies have a data connection that works for them – most of the time. And many enterprises feel entitled to shrug off the risk of outages, confident that they work in a relatively low-tech environment. A quick look around their operations typically tells a different story. Accounting software, payroll, invoicing, CRM systems, databases, point of sale systems, even Microsoft 365 applications generally all require a network connection to operate, making connectivity junkies of us all. Counting the cost  Operating in this highly connected cloud-based reality means that a network fault or outage will bring work in any office, retailer, manufacturing or professional services firm grinding to a halt. Once a connection is cut, the clock starts ticking on missed business opportunities and plummeting employee productivity. VoIP phones go down, along with email and web queries, making it impossible for frustrated clients to get in touch or for a business to respond. This means that the impact of an outage on reputation and client goodwill may reverberate long after the connection is restored. Faults, payments and penalties Fault repair time from the country’s largest broadband providers can stretch to over five days as losses continue to mount – not that an outage has to be lengthy to be damaging. Imagine, if you can bear to, a network fault that coincides with a peak ROS deadline, resulting in a 5% surcharge of tax liability for every late filing. Accountants are not alone on this one. A small company that misses a CRO deadline could lose their exemption and find themselves embroiled in an audit with all its associated costs. Meanwhile, the real-time reporting regime coming into effect on 1 January 2019 will impose mandatory online filing deadlines on every PAYE employer nationwide. One suspects that explaining to Revenue that your internet connection failed may go down like a lead balloon – landing somewhere close to “the dog ate my homework”. Network redundancy  Why would an otherwise prudent business ignore a risk of this magnitude? Simply put, the larger national and multinational companies don’t. Enterprise-class businesses have led the way in managing exposure in this field. For years, they have protected themselves against network outages by building wired resilience into their infrastructure. Denis Herlihy, Chief Technical Officer at Ripplecom, feels very strongly about owners, managers and professional advisors who are not countenancing network dependence as a vulnerability. “Any assessment of IT risk that ignores the need for network redundancy in this day and age is quite frankly negligent, in my opinion. One bad experience is more than enough to send companies scrambling for a resilient solution but for a smaller business, one bad experience is more than they can afford.” Management controls to minimise risk  No one believes that accountants should advise their clients to shun the cloud and lose all its advantages. So, what measures can be implemented to manage the risk? Disaster recovery plans are on everyone’s risk management radar but while this will protect files, it is powerless to restore productivity or diminish reputational damage. The custom infrastructure built by large companies is beyond the resources of most companies. However, advances in technology mean that more modest-sized businesses can now incorporate a ‘failover’ solution into their IT set-up. A good failover will deliver the type of network redundancy that larger enterprises have enjoyed for years, but at a fraction of the cost. Failover protection At its simplest, a failover adds a second ‘back-up’ connection that takes over when a network fault occurs or a circuit becomes unavailable. A resilient business with a quality failover will have two diverse network connections – one primary and one secondary. Usually, all internet traffic uses the primary connection but when an outage strikes, all connected systems and devices switch quickly and smoothly to the secondary circuit. Once the main connection is restored, traffic switches back to the primary route. Linked systems and devices continue to operate normally throughout the outage keeping customers, employees and ultimately the business happy. Checklist: how to determine the value of a failover However, not all failover solutions are created equal. When investing in a failover, or advising a client who is, consider that – on top of speed, security and cost-effective pricing – each failover connection should use a distinct access method to reduce the possibility of being impacted by the same outage or physical fault. To add real value, a failover should be automatic (an auto-failover) so that no physical intervention is needed on the part of the client or their IT services company. A market-leading auto-failover, such as Ripplecom’s Orion, will be engineered to continue in the same IP stream to allow for a truly seamless switch from one connection to another. Service disruptions and network faults are outside of a business’ control and are impossible to predict. However, a failover solution that meets these criteria will not just mitigate the threat, it will virtually eliminate it. With a suitable failover in place, owners, managers and advisors can relax knowing that, when an outage does occur, their company will stay securely connected and operational. John McDonnell FCA is a Founding Director of Ripplecom, an Irish telecommunications company specialising in resilient connectivity.

Aug 01, 2018
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Strategy
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Why niche offerings are a good idea

General practitioners can capitalise on the trend towards sector specialism, but planning is required.  The accountancy sector, like other professional service sectors, has witnessed an increased focus on sector specialisation to bolster general practice activities over the last decade. This trend is largely driven by clients who want their advisers to be experts not just in technical accounting issues, but also in the issues that impact a particular industry or client type. Niche services can be very profitable provided you choose the right niche. However, it is vital to ensure that the demand for your services will be sufficient for your firm to develop a sustainable and profitable business model – and that is where research comes in. Research the opportunity Once you have identified your target market, the next step is to define your service offering by focusing on your clients’ needs; the aspects of your services that meet those needs; and, importantly, the skills and talents that differentiate you from your competitors. Take time to get to know your target market and bear in mind that this is not a once-off exercise. Businesses evolve and client needs will change over time. It is therefore vital that small- and medium-sized practices (SMPs) are proactive and agile enough to anticipate trends and respond appropriately. The aim is to build a business model that is efficient and easy to replicate for the full spectrum of clients in your chosen sector. If your chosen niche is freelance IT business owners, for example, and you successfully develop a service offering that saves clients time and money while providing value-adding insights that ultimately help their businesses develop and grow, it is likely that your clients will refer other potential customers to you. Communicate your offering Having identified your target niche and refined your service offering, the next challenge is to let people know about it. There are various ways to reach your target market. Your website is important – not from an SEO point of view, although that can sometimes be useful, but because it will likely be the first port of call for prospective clients when they hear about your firm. Your website should be intuitive and easy to navigate. It should provide details of your expertise in plain English so potential clients can easily understand what services you have to offer, and it should provide your contact details. It is important that someone in the firm is responsible for monitoring website queries and responding promptly. Failure to get these basics right can result in lost opportunities. Utilise your website Your website can also act as a platform for your firm’s thought leadership activities – an increasingly popular way for businesses to share their expertise and showcase their abilities. Make it easy for potential clients to read your blogs, insights, press releases and news. If you are active on social media, provide links on your website to make it easy for potential clients to follow and connect with you. Surveys are very useful in generating insights that add value for clients. They can also provide excellent material for press releases, web and social media content. Similarly, attending, speaking at and hosting events for your target market is a great way to build your firm’s brand and profile in the marketplace. To maximise the value of these opportunities, it is essential to invest time in pre-event and post-event activity. Lastly, subject matter experts within your firm should be prepared and willing to accept media invitations for interview. Many accountants are apprehensive about speaking on air and therefore miss out on opportunities to showcase their professional expertise. Media training will help you develop the skills necessary for this valuable activity. Risk versus reward A limited budget doesn’t have to be an obstacle to effective marketing. The key thing is to know your target market and ensure that your message is relevant. Money spent educating yourself about your target market’s sector will deliver more long-term value than vying for attention in a crowded marketplace where your competitors might have deeper pockets. All of the top 10 accountancy firms in Ireland have clearly identified industry sectors in which they specialise. In my experience, if firms spread themselves thinly as generalists, they preclude the opportunity to build the deep, meaningful expertise necessary to reach beyond geographic or traditional markets. While focusing on a narrow market may feel risky as it ultimately means excluding other sectors, a practice that focuses on a small number of specialist areas has well-defined audiences to communicate with. As a result, its message is more likely to be heard.  I was recently chatting about this concept with an astute PR consultant who asked me why a firm would “take the risk” to focus on a narrow industry. But given the opportunity to develop a profitable, sustainable portfolio and win referrals, why wouldn’t they? Mary Cloonan is a freelance marketing professional and founder of Marketing Clever.

Jun 01, 2018
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Strategy
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Tensions persist, but planning must proceed

While the pace of Brexit negotiations has quickened, the stakes remain high – particularly when it comes to the border. Political issues continue to dominate the debate about Brexit. In March, the European Commission published the draft legal text of a withdrawal agreement, which included  provision for a transition period and a “backstop” solution to prevent a hard border on the island of Ireland. In the event that no other solution to the border question is found, this would avoid a ‘cliff edge’ Brexit by creating a “common regulatory space” where goods could flow back and forth without border checks. However, Prime Minister Theresa May has said that the backstop undermines the UK common market and threatens the constitutional integrity of the UK. The UK is still of the view that the border should be solvable through a trade deal and/or technical solutions. At the time of writing, the main insight the UK government has provided into what these technical solutions might involve appeared in an August 2017 paper, which set out two approaches for the future customs relationship with the EU. The first option would use technology-based solutions to streamline and simplify customs requirements; the second would involve the UK, at its external border, applying EU external tariffs and origin rules for imported goods with their final destination in an EU member state, to ensure that the importer has paid the correct EU duties. For goods staying in the UK, companies would seek refunds where the UK’s import tariffs are lower. The paper describes the latter option as an “innovative and untested approach” which would “take time to develop and implement”. More recently, a House of Commons Select Committee on Northern Ireland Affairs looked at how technology might be used to avoid a hard border. Among the technologies considered was Automatic Number Plate Recognition (ANPR). Among other sources, the paper cites an Irish Revenue Commissioners (2016) draft paper which said: “An e-flow-style number plate recognition system would allow vehicles carrying goods to move from the Republic to the North and vice versa without having to stop in cases where a pre-departure/arrival declaration has been lodged and green-routed. In theory, upon arriving at the frontier, a vehicle could be identified by the ANPR system, associated with a particular pre-declared consignment and signalled as to whether clearance had been provided or engagement with customs was required.”  The Select Committee stated that use of cameras would require electronic pre-notification of the movement of commercial vehicles across the border. This is currently required for exports outside the EU. ANPR cameras cannot ascertain if the contents of a vehicle match the electronic customs declaration form, so customs officials would still be required to monitor compliance. In the course of its work, the Select Committee took evidence on the operation of other external EU customs borders. Cameras are used at customs borders in Norway, Switzerland and Gibraltar to help prevent smuggling and monitor the movement of vehicles. Norway is part of the Single Market, but outside the Customs Union. The Norway-Sweden border is over 1,600km in length, there are 57 crossings and 11 customs offices. The Committee was told that everyone declaring goods “has to stop at the border” and must “cross the border where there is a customs office”. One witness to the Committee highlighted the limitations of digital technology in practical terms: “The point that was made on the Sweden-Norway border, where they have a fully electronic system and people are sharing information, was: ‘Why are you still stopping people and x–raying trucks? They have told you what they have in their customs declaration’. They say, ‘How do we know they are telling the truth?’” Switzerland is also outside the Customs Union and has signed 30 free trade agreements with partners outside the EU. It has over 100 bilateral agreements with the EU, which cover many aspects of Single Market rules. Commercial goods entering Switzerland must use designated crossings and complete customs clearance at offices on the border. In Basel, 750 officials at eight customs offices deal with 50% of all Swiss commercial goods traffic. Closer to home, the UK government recently advertised over 550 border force roles. Controversially, candidates must hold British passports if they wish to apply for Border Force jobs based in Belfast. People in Northern Ireland who only hold Irish passports cannot apply for these roles. Meanwhile, the possibility of the UK remaining in the Customs Union has not entirely disappeared off the radar despite Prime Minister May’s repeated statements that the UK will leave both the Customs Union and the Single Market. In April, the House of Lords backed an amendment to the EU Withdrawal Bill that would force the government to explain what they have done to ensure that Britain can remain in a Customs Union after it leaves the EU. Understandably, political discussions continue to hog the spotlight; however, business leaders are all too aware that Brexit is not just a matter for national authorities. Business planning cannot wait for political certainty and there are important legal repercussions to consider, not least – as mentioned in my earlier Accountancy Ireland article – for Chartered Accountants providing statutory audit services and finance teams in companies subject to audit requirements. These individuals and firms will need to bear in mind that, subject to any transitional arrangement which may be contained in the withdrawal agreement, as of the withdrawal date, the EU rules in the field of statutory audit (in particular, the Statutory Audit Directive) will no longer apply to the UK when it becomes a ‘third country’. Elsewhere, Chartered Accountants can play a valuable role highlighting potential solutions that could work in specific sectors. For businesses moving goods between jurisdictions and concerned about the potential delays that may result from customs requirements at borders, a practical option worth considering is to apply for Authorised Economic Operator (AEO) status. This internationally recognised quality mark indicates that your role in the international supply chain is secure and that your customs controls and procedures are efficient and compliant. A benefit of having AEO status is that it gives you quicker access to certain simplified customs procedures and, in some cases, the right to fast-track your shipments through some customs and safety and security procedures. Mutual recognition agreements with other customs jurisdictions mean that companies authorised in one customs jurisdiction can be recognised as an AEO in a second customs jurisdiction. The EU has mutual recognition agreements with Norway, Switzerland, Japan, Andorra, the US and China. The EU summit in October is the target set by Michel Barnier to reach agreement on the Withdrawal Treaty. Before that, another significant milestone looms at the end of June when EU leaders will decide if enough progress has been made for a ‘political declaration’, which would set the framework for trade negotiations with the UK. While political tensions persist, there is a danger that progress made to date could still unravel, given that “nothing is agreed until everything is agreed”. European Council President, Donald Tusk, recently warned that without a solution to the border issue, “there will be no withdrawal agreement and no transition”. As this edition of Accountancy Ireland goes to press, there is talk that Prime Minister Theresa May could seek to align the entirety of the UK with the EU for a period of time pending the development of other solutions. It is as yet unclear whether she can win enough support to allow her to take this proposal to the EU. Unless a ratified withdrawal agreement establishes another date, all EU primary and secondary law will cease to apply to the United Kingdom from 30 March 2019. With less than a year remaining to that date, the pace of negotiations has quickened and stakes remain high. Michael Farrell is Director at PKF-FPM Accountants Ltd., a service provider for InterTradeIreland’s Brexit Advisory Service.

Jun 01, 2018
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