tag:theconversation.com,2011:/us/topics/accountancy-1511/articlesAccountancy – The Conversation2019-04-02T11:03:50Ztag:theconversation.com,2011:article/1121972019-04-02T11:03:50Z2019-04-02T11:03:50ZPaid work experience and ‘sandwich degrees’ help boost social mobility – new research<figure><img src="https://images.theconversation.com/files/266789/original/file-20190401-177193-1pe3rxk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's not a level playing field.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/business-competition-concept-flat-style-334893695">Sira Anamwong / Shutterstock</a></span></figcaption></figure><p>The upper echelons of British society are filled with graduates <a href="https://www.theguardian.com/education/2017/oct/20/oxford-cambridge-race-class-and-oxbridge-stranglehold-on-british-society">from elite universities</a>. These universities are, in turn, disproportionately full of students from wealthier backgrounds, many of whom <a href="https://theconversation.com/why-britains-private-schools-are-such-a-social-problem-111369">went to private school</a>. For these graduates, their top education and superior knowledge of the “rules of the game” regarding how institutions work gains them entry-level graduate jobs in elite professional firms. </p>
<p>It may seem that Britain has progressed little in the 130 years since Lord Fermor <a href="https://etc.usf.edu/lit2go/113/the-picture-of-dorian-gray/1939/chapter-3/">reflected</a> in The Picture of Dorian Gray that “if a man is a gentleman, he knows quite enough, and if he is not a gentleman, whatever he knows is bad for him”. Indeed, if you’re from a working class background the <a href="https://theconversation.com/why-britains-class-system-will-have-to-change-58188">odds are stacked against you</a> if you want to make it into an elite profession. Going to university on its own does not guarantee a top professional job at the end of it. </p>
<p>This is a complex problem and there is considerable debate over how to improve social mobility. Our <a href="https://doi.org/10.1080/03075079.2018.1476482">new research paper</a> shows the importance of work experience. Specifically, year-long placements in industry as part of a degree programme can effectively help working class students secure entry to top professional firms. This is significant considering the fact that social mobility into high-quality, high-status and high-reward professions like accountancy and financial services <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/61090/IR_FairAccess_acc2.pdf">has slowed down in recent decades</a>.</p>
<p><a href="http://openaccess.city.ac.uk/14346/">Research shows</a> that upper-middle-class students are more likely to take internships at university due to family social connections and greater financial resources. By looking at year-long paid internships, the so-called “sandwich placements” in some student degree programmes, we wanted to see how level the playing field really was for working class students. </p>
<p>We found that working class students were actually judged purely on their academic merits. In a victory for meritocracy, the sandwich placements overwhelmingly went to the brightest students from a wide range of social and economic backgrounds. There was also evidence that these kinds of placements, which are also well-paid, can facilitate the social mobility of academically driven students who aspire to work for these kinds of companies. </p>
<h2>Foot in the door</h2>
<p>This is significant because these were sandwich placements in accountancy, a top profession which has suffered the greatest decline in social mobility <a href="https://www.ft.com/content/78f85720-ddaa-11e7-8f9f-de1c2175f5ce">over the past 30 years</a>. Social exclusion in elite accountancy and investment banking firms <a href="http://openaccess.city.ac.uk/13614/">is</a> <a href="https://www.emeraldinsight.com/doi/full/10.1108/AAAJ-10-2012-1133?fullSc=1">evident</a> in the recruitment process for professionals at graduate entry level. </p>
<p>A 2017 <a href="https://www.emeraldinsight.com/doi/full/10.1108/AAAJ-10-2012-1133?fullSc=1">study</a> by Angus Duff, a professor at the University of the West of Scotland, revealed that unpaid work experience in accounting firms is used to maintain the status quo. Internships are often given to children of senior partners and important clients. As Duff notes, this is a recruitment process that is clearly “removed from notions of inclusivity and social equality”. This gives young people from privileged backgrounds an important foot in the door, which can often lead to jobs in the future.</p>
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<img alt="" src="https://images.theconversation.com/files/267069/original/file-20190402-177171-1eol06d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/267069/original/file-20190402-177171-1eol06d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/267069/original/file-20190402-177171-1eol06d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/267069/original/file-20190402-177171-1eol06d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/267069/original/file-20190402-177171-1eol06d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/267069/original/file-20190402-177171-1eol06d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/267069/original/file-20190402-177171-1eol06d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Children of partners and clients often have an unfair advantage at getting work experience.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/father-son-businessmen-wearing-eyeglasses-reading-1085240033">Shutterstock</a></span>
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<p>The students in our study all attended the same, well-regarded university. Offering lessons for social mobility, this shows the importance of working class students applying to good universities if they wish to improve their chances to work for, and succeed in, elite professions. This is, of course, an initial important barrier to overcome. </p>
<p>Once at university, it’s then important for working class students to get top grades, as elite professions offered their yearlong paid placements to the best performers. This may involve a degree of self-awareness, identifying what they are best at and strategically choosing modules and courses to improve their averages or grades. </p>
<p>Finally, working class students must actively participate in the placement application process and improve their interview skills to succeed. It takes a long time to write professional CVs, fill in the application forms and conduct mock interviews with recruiters from elite professional firms. </p>
<p>Universities usually have dedicated staff to help students through the whole process but working class students must actively seek out and engage with this help as it can pay high dividends. The flip side to this is that working class students are often more shy and less likely to seek help from advisers and the university in general, compared with their upper-middle-class counterparts. </p>
<p>Nonetheless, our study shows that while the barriers to social mobility in elite professions have become greater in recent years, they are not insurmountable. The year-long paid placement is one way that working class young people can breach the barricades against social mobility.</p><img src="https://counter.theconversation.com/content/112197/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In a victory for meritocracy, sandwich placements overwhelmingly go to the brightest students, irrespective of their background.Ian Crawford, Senior Teaching Fellow, School of Management, University of BathZhiqi Wang, Senior Lecturer in Accounting and Finance. School of Society, Enterprise and Environment, Bath Spa UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/911892018-03-20T15:20:53Z2018-03-20T15:20:53ZWhy accountants of the future will need to speak blockchain and cryptocurrency if they want your money<figure><img src="https://images.theconversation.com/files/209111/original/file-20180306-146703-1sf5sxu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/download/success?src=zGBaV-nY3YoTB17qumT3hA-1-0">Shutterstock</a></span></figcaption></figure><p>If you haven’t already heard of Bitcoin, you either haven’t been paying attention or you’re a time traveller who just touched down in 2018. Because by now, most of us will have heard of Bitcoin and some of us have even jumped on the bandwagon, investing in cryptocurrencies. </p>
<p>But despite its popularity, many people still don’t understand the technology that underlines it: blockchain. In very simple terms, <a href="https://www.coindesk.com/information/what-is-blockchain-technology/">blockchain technology</a> is an open access shared ledger that keeps a record of all the transactions between parties and allows all users to agree on its contents. New information is added in blocks linked to the previous blocks, resulting in a chain of blocks being built. </p>
<p>This ledger is verified by “<a href="https://www.economist.com/blogs/economist-explains/2015/01/economist-explains-11">miners</a>” to make sure it’s true – and so creating an audit trail. Past records can be viewed but not altered without the consent of the majority. And it is this technology that is behind cryptocurrencies such as Bitcoin – the value of which rose almost <a href="https://www.bloomberg.com/news/articles/2018-01-04/-blockchain-mentions-in-press-releases-have-soared-this-year">1400%</a> in the past year, but has at times, also fallen massively too.</p>
<h2>Crypto is here to stay</h2>
<p>It can certainly be anticipated that this evolutionary technology is set to spark a huge revolution in the business world. It’s already being trialled at governmental level, from the <a href="https://arstechnica.com/information-technology/2016/06/blockchain-tech-tested-sweden-land-registry-system/">Sweden Land Registry</a>, to the Big Four accountancy firm such as E&Y – who <a href="https://cointelegraph.com/news/ernst-young-is-going-bitcoin-while-pwc-deloitte-and-kpmg-push-permissioned-blockchains">accept</a> Bitcoin as payment for its consultancy services.</p>
<p><a href="https://www.ft.com/content/c9b86e8e-dae4-11e7-a039-c64b1c09b482">The Australian Securities Exchange</a> is also considering the use of blockchain technology to replace the current clearing and settlement system of share trading. And even the Bank of England is planning its own Bitcoin-style <a href="https://theconversation.com/the-bank-of-england-is-planning-a-bitcoin-style-virtual-currency-but-could-it-really-replace-cash-89585">virtual currency</a>.</p>
<p><em>Listen to The Conversation’s Anthill podcast episode: <a href="https://theconversation.com/anthill-23-bursting-the-bitcoin-bubble-93337">Bursting the Bitcoin bubble</a></em></p>
<p><audio preload="metadata" controls="controls" data-duration="2453" data-image="" data-title="Anthill 23: Bursting the Bitcoin bubble" data-size="40901544" data-source="" data-source-url="" data-license="CC BY-NC-ND" data-license-url="http://creativecommons.org/licenses/by-nc-nd/4.0/">
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Anthill 23: Bursting the Bitcoin bubble.
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a><span class="download"><span>39 MB</span> <a target="_blank" href="https://cdn.theconversation.com/audio/1088/bitcoin-full-edit.mp3">(download)</a></span></span>
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<p>Major governments around the world have acknowledged and further legitimised the use of Bitcoins as payment vehicles. In fact, more and more major companies are accepting Bitcoins – Microsoft, Virgin Galactic and Subway to name a few. It seems certain then that blockchain technology has a wide appeal. And although it may be a rocky road ahead, with countries such as <a href="https://www.reuters.com/article/us-india-budget-cryptocurrency/india-vows-to-eliminate-use-of-cryptocurrencies-idUSKBN1FL56T">India</a> and <a href="http://www.scmp.com/business/banking-finance/article/2132009/china-stamp-out-cryptocurrency-trading-completely-ban">China</a> banning or restricting the use of cryptocurrencies, crypto is here to stay.</p>
<h2>Wider implications</h2>
<p>A recent <a href="https://www.icaew.com/-/media/corporate/files/technical/information-technology/technology/blockchain-and-the-future-of-accountancy.ashx">report</a> from the Institute of Chartered Accountants in England and Wales on blockchain, claims it is fundamentally an accounting technology. In its simplest of definitions, accounting is a process of keeping records, and this is precisely what blockchain offers in a more “modern” and “foolproof” way. As once the records are agreed upon and validated, the records are bundled into blocks that are virtually impossible to change, making the technology <a href="https://medium.com/@stufffromsam/the-blockchain-tamper-proof-technology-3544969c222d">tamper-proof</a>.</p>
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<img alt="" src="https://images.theconversation.com/files/209112/original/file-20180306-146697-117wpjz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/209112/original/file-20180306-146697-117wpjz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/209112/original/file-20180306-146697-117wpjz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/209112/original/file-20180306-146697-117wpjz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/209112/original/file-20180306-146697-117wpjz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/209112/original/file-20180306-146697-117wpjz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/209112/original/file-20180306-146697-117wpjz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Blockchain technology is commonly associated with Bitcoin and other cryptocurrencies.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/block-chain-concept-digital-code-3d-712558591?src=6vae4yXADGluhR5yXVQUfg-1-0">Shutterstock</a></span>
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<p>Essentially, as the business world adopts the use of accounting systems that use blockchain technology, accountants will spend less time doing the mundane tasks of bookkeeping and reconciliations, and will instead focus their energy and time on the interpretation of information and decision making.</p>
<p>Blockchain technology will also make it easier for accountants to measure the accuracy of data. Meaning that the technology should effectively cut down on <a href="https://www.intheblack.com/articles/2017/11/09/blockchain-how-does-it-work">fraud</a> and make accounting errors disappear.</p>
<h2>The new accountants</h2>
<p>A <a href="http://www3.weforum.org/docs/WEF_GAC15_Technological_Tipping_Points_report_2015.pdf">report</a> by the World Economic Forum suggests that 10% of global GDP will be stored on blockchain-related technology by 2025. This implies that the way transactions are recorded and communicated will completely transform between now and then. </p>
<p>It it easy to see then, why accountants of the future will need to educate themselves about Bitcoin and other cryptocurrencies if they are to account for transactions denominated in it. The profession will evolve and adapt massively over the coming years. And in fact, auditors have already started <a href="https://www.journalofaccountancy.com/news/2017/nov/blockchain-opportunity-for-accountants-201717900.html">auditing</a> transactions in the blockchain.</p>
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<img alt="" src="https://images.theconversation.com/files/209113/original/file-20180306-146694-11in76a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/209113/original/file-20180306-146694-11in76a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=443&fit=crop&dpr=1 600w, https://images.theconversation.com/files/209113/original/file-20180306-146694-11in76a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=443&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/209113/original/file-20180306-146694-11in76a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=443&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/209113/original/file-20180306-146694-11in76a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=557&fit=crop&dpr=1 754w, https://images.theconversation.com/files/209113/original/file-20180306-146694-11in76a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=557&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/209113/original/file-20180306-146694-11in76a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=557&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The Bank of England is planning a bitcoin-style virtual currency – but could it really replace cash?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/644464534?src=6vae4yXADGluhR5yXVQUfg-1-23&size=huge_jpg">Shutterstock</a></span>
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<p>Universities around the world have already begun offering <a href="https://www.ft.com/content/f736b04e-3708-11e7-99bd-13beb0903fa3">blockchain-related courses</a>. Even the professional accountancy bodies now feature blockchain technology in their qualification syllabus. </p>
<p>But of course while all this might sound a bit futuristic to some readers, the evolution of money is something that has been going on for centuries. From a barter system to gold bars, metal coins to paper money, to plastic cards. All we are looking at now, is simply the next cycle in evolution – from electronic money to cryptocurrencies.</p><img src="https://counter.theconversation.com/content/91189/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anwar Halari does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The evolution of cryptocurrency and how it is replacing modern cash.Anwar Halari, Lecturer in Accounting and Finance, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/928632018-03-05T15:48:26Z2018-03-05T15:48:26ZGender pay gap reporting rules should extend to ethnicity and class – here’s why<figure><img src="https://images.theconversation.com/files/208880/original/file-20180305-65533-pnhss1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">All for one?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/directly-above-shot-creative-business-people-344608976?src=mQSuUDyff7xYWPJNcjZZ1Q-3-42">Andrey_Popov</a></span></figcaption></figure><p>Ever since the BBC <a href="https://theconversation.com/government-media-policy-means-bbc-pay-inequality-is-likely-to-grow-worse-81411">published</a> the pay of its highest earning talent last July to reveal a big gap between male and female earnings, the issue of gender pay has never been far from the news. We have seen headlines on similar disparities between men and women everywhere from <a href="https://www.thetimes.co.uk/article/revealed-mps-gender-pay-gap-glzhtb0g7">the houses of parliament</a> to the <a href="http://www.bbc.co.uk/sport/43240059">Football Association</a>. </p>
<p>A fuller picture will soon emerge as all UK employers with 250 or more employees <a href="http://www.bbc.co.uk/news/business-39502872">have to</a> publish their gender pay gap by April – with the vast majority <a href="https://www.ft.com/content/353e031c-1cad-11e8-aaca-4574d7dabfb6">still to</a> do so. This gender transparency is welcome and the gaps that have already been revealed show major systemic inequalities among UK employers. But the disclosures won’t tell the whole story. Much of the full picture about gender pay will remain obscured, along with other worrying disparities around socioeconomic background and ethnicity. </p>
<p>First a quick word about what gender pay means in this context. It should not be confused with equal pay, which relates to paying men and women the same rate for the same job. Gender pay relates to the difference in total average pay. A company could pay all men and women at the same grade the same amount (so would have equal pay) but could still have a gender pay gap if women are concentrated in lower grade positions with lower pay rates.</p>
<h2>Data drawbacks</h2>
<p>So what’s wrong with the requirements? They will tell workers how male and female pay levels compare at their employer but they won’t tell them how their pay compares with workers at other, similar, firms. The new rules also only apply to firms employing 250 or more employees, so won’t reveal the gender pay gaps in smaller firms.</p>
<p>Take the case of a female chartered accountant. The “big four” international firms which dominate the profession – KPMG, PwC, Deloitte and Ernst & Young – <a href="https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2017/12/pay-gap-report-2017.pdf">have</a> already <a href="https://www.pwc.co.uk/press-room/press-releases/pwc-reports-its-gender-pay-gap-under-the-governments-new-regulations.html">revealed</a> their <a href="https://www2.deloitte.com/uk/en/pages/press-releases/articles/deloitte-publishes-gender-pay-gap-data.html">gender</a> pay <a href="http://www.ey.com/Publication/vwLUAssets/ey-pay-gap-report-2017/$File/ey-pay-gap-report-2017.pdf">gaps</a>. At these firms, female employees earn 14%-22% less than male employees on average (this is known as the median gender pay gap).</p>
<p>Women are also concentrated in lower levels at these organisations, so are less likely to reach the top and earn the highest salaries. The big four acknowledge this and have all committed to implementing policies aimed at addressing these inequalities.</p>
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<a href="https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">By all accounts …</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/successful-business-woman-economist-formal-wear-727157914?src=-sgWXj2HWRuhFUfgj-YdNA-1-19">Roman Samborskyi</a></span>
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<p>Outside the big four, the gender gap looks even worse – according to new data just published in <a href="https://www.icas.com">The CA</a>, the monthly magazine of ICAS (the Institute of Chartered Accountants of Scotland). A survey of over 1,200 Scottish chartered accountants working in all parts of the UK, employed across a wide range of sectors and occupations, which we analysed on behalf of The CA, showed a median gender pay gap of 31.8%. </p>
<p>The gaps in financial services and oil and gas are particularly worrying – 38% and 32% respectively. And for all newly qualified female chartered accountants, the data shows an 8% gap. This raises serious questions about frequent arguments that gender pay gaps are because women are more likely than men to work part-time and have career breaks once they have children. </p>
<p>With women comprising a third of ICAS members and just over 40% of trainees, the data reflects what is happening to a lot of people. The females who qualify as chartered accountants have done well at school and nearly all are high flying graduates, so the fact that their gender pay gap starts so early in their careers shows there are systemic challenges that need to be addressed.</p>
<h2>More gaps</h2>
<p>Besides gender, other factors affect pay too. At the 2017 general election, both the <a href="https://www.conservatives.com/manifesto">Conservative</a> and <a href="https://labour.org.uk/manifesto/">Labour</a> party manifestos included a commitment to get large employers to report on their ethnicity pay gaps. So far, the government has been preoccupied with other things and there is no prospect of ethnicity pay gap legislation appearing any time soon.</p>
<p>The big four accountancy firms <a href="https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2017/12/pay-gap-report-2017.pdf">have</a> taken <a href="https://www.pwc.co.uk/press-room/press-releases/PwC-publishes-BAME-pay-gap.html">the lead</a> and <a href="https://www2.deloitte.com/uk/en/pages/press-releases/articles/deloitte-uk-publicly-reported-ethnicity-pay-gap.html">voluntarily</a> published <a href="http://www.ey.com/Publication/vwLUAssets/ey-pay-gap-report-2017/$File/ey-pay-gap-report-2017.pdf">ethnicity</a> pay gap data, however. This shows a gap of between 8% and 13%, which is high if not as high as the gender gap; again these firms have committed to tackling it. New figures meanwhile <a href="https://www.theguardian.com/society/2018/mar/02/sadiq-khan-vows-action-over-london-public-workers-ethnicity-pay-gap">show that</a> London’s public workers have an ethnicity pay gap of up to 37%. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=481&fit=crop&dpr=1 754w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=481&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=481&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Brown barrier.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/handsome-black-business-man-three-employees-552201988">Uber Images</a></span>
</figcaption>
</figure>
<p>Then there is social background. <a href="https://www.ft.com/content/8001d074-dcc9-11e6-86ac-f253db7791c6">Research</a> last year by the London School of Economics and University College London for the Social Mobility Foundation showed that a wide range of professionals from working-class backgrounds, including lawyers, accountants, doctors and engineers, earned £6,800 less than more affluent colleagues. </p>
<p>The ICAS data bears this out. Chartered accountants who were privately educated earned on average £12,109 more than their comprehensive school counterparts, a 14% gap. Graduates from the <a href="http://russellgroup.ac.uk">Russell Group</a> of 24 leading UK universities earned £5,500 more than other graduates (a 7% gap). </p>
<p>Those who had a father who had been employed in a higher professional or managerial occupation (such as a doctor, lawyer or chartered accountant) earned £5,000 more than those who came from non-professional or managerial backgrounds (a 6% gap).</p>
<p>In short, the government needs to look again at this area. The rules around gender pay gap reporting need widened. Not only should they include more organisations and make comparisons between them possible, there also needs to be reporting requirements around ethnicity and socioeconomic background. The effects in these areas are substantial enough that there is no justification for focusing on gender alone.</p><img src="https://counter.theconversation.com/content/92863/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This article includes reference to data drawn from an ICAS salary survey published in the March issue of The CA. Catriona is a member of Council of ICAS but the comments in this article are made in a personal capacity and are not made on behalf of ICAS.</span></em></p><p class="fine-print"><em><span>Betty Wu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Big new accountancy survey highlights the limitations in UK government’s approach to pay gap reporting.Catriona Paisey, Professor in Accounting, University of GlasgowBetty Wu, Lecturer in Accounting and Finance, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/589542016-05-08T15:05:33Z2016-05-08T15:05:33ZUniversities and the financial sector must work together to plug skills gaps<figure><img src="https://images.theconversation.com/files/121625/original/image-20160508-2540-1s06l67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's a big gap what between universities teach and what industries need.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Africa’s CEOs <a href="http://www.pwc.co.za/en/press-room/talent-skills-gap.html">are worried</a> that there aren’t enough skilled professionals on the continent. The financial services sector is particularly hard hit by this shortage. </p>
<p>In South Africa, where I teach and conduct research, many financial institutions complain that a dearth of skilled professionals leaves their employees vulnerable to being poached by competitors, both local and from elsewhere in the world.</p>
<p><a href="http://www.aifmrm.uct.ac.za/wp-content/uploads/2015/08/Financial-Services-Sector-Assessment-Report-2014.pdf">Research</a> conducted jointly by the <a href="http://www.aifmrm.uct.ac.za/">African Institute of Financial Markets and Risk Management</a> at the University of Cape Town and the Western Cape province’s Department of Economic Development and Tourism confirms these concerns. One company involved in this Financial Services Sector Assessment Report estimated its staff turnover at 9% per year. More than half of this was attributed to poaching by competitors.</p>
<p>Companies are being forced to import skills from the rest of the world. South Africa’s Department of Higher Education and Training publishes a list of the top 100 <a href="http://www.inseta.org.za/downloads/Top%20100%20scarce%20skill%20occupations%20in%20south%20africa.pdf">scarce skills</a>. Finance managers are sixth on the list; accountants come in at number 12. Actuaries feature, too.</p>
<p>Yet the South African government’s <a href="http://www.statssa.gov.za/?p=5837">spending on education</a> is at an all-time-high. R60 billion was spent on tertiary education in the 2013/14 financial year. Why hasn’t this increased spending brought South Africa any closer to plugging the skills gap? The answer lies in the disconnect between universities’ existing programmes and employers’ requirements.</p>
<h2>Graduates don’t meet needs</h2>
<p>Research by <a href="http://www.africaneconomicoutlook.org/en/theme/youth_employment/education-skills-mismatch/">African Economic Outlook</a> suggests that there’s a major mismatch between new jobseekers’ skills and what employers want. The numbers underline this: African Economic Outlook notes that South Africa currently has around 600 000 unemployed university graduates and 800 000 vacancies in the jobs market that employers are struggling to fill.</p>
<p>We spoke to Paulette Bourne of the financial statutory body <a href="http://www.bankseta.org.za/">BANKSETA</a> while researching this article. Bourne, the organisation’s work-integrated learning and bursaries manager, says there are a number of critical skills absent in the financial services sector. These include legislative compliance, specialist financial skills, customer interface, management and leadership, and information technology. University graduates just aren’t filling these gaps. Bourne told us that:</p>
<blockquote>
<p>Universities are expected to produce human capital according to labour demand. Yet the universities’ programme registration process is not sufficiently responsive to industry demand; hence the perception that graduates are not meeting industry requirements.</p>
</blockquote>
<p>The Financial Services Sector Assessment Report that my colleagues and I produced <a href="http://www.aifmrm.uct.ac.za/wp-content/uploads/2015/08/Financial-Services-Sector-Assessment-Report-2014.pdf">back this up</a>. The respondents, who came from a wide range of financial services companies, said that graduates didn’t understand the industry’s processes, procedures and how different business areas are connected within the type of company. The respondents added that, on average, graduates required between 12 and 18 months of industry immersion to become valuable to an employer.</p>
<h2>Positive developments</h2>
<p>There are two conclusions to draw from this. The first is that universities desperately need more postgraduate programmes that focus on professional qualifications. Apprentice-style training and internships should be a key part of these programmes.</p>
<p>Secondly, academia needs a close alignment with employers and potential employers if it is to produce graduates who are more in tune with a specific industry’s demands.</p>
<p>There are some new examples of such programmes both in South Africa and elsewhere on the continent. For instance, the African Institute of Financial Markets and Risk Management launched a Master of Commerce in Risk Management of Financial Markets at the beginning of 2016. This was done with <a href="http://www.biznisafrica.co.za/bankseta-backs-a-new-approach-to-create-job-ready-graduates-for-financial-market/">funding support</a> from BANKSETA. The programme has been designed as an occupational qualification and contains components of workplace immersion. There’s been deep consultation with the financial services industry. The curriculum will be reviewed annually by the industry and will be adjusted to keep up with their feedback.</p>
<p>Another project that’s seen the importance of this approach is the <a href="http://discover.sap.com/skills-for-africa">Skills for Africa Programme</a>, which was launched in Kenya and Morocco in 2013 and <a href="http://www.itnewsafrica.com/2015/09/sap-africa-launches-sa-chapter-of-sap-skills-for-africa-initiative/">South Africa</a> in 2015. Unemployed young professionals receive training in business technology skills. The programme is developed with the help of companies that act as partners to the initiative. All graduates are guaranteed paid positions with the programme’s partners. </p>
<h2>How industry can get involved</h2>
<p>The way forward is clear. The academic community needs to take into account four key ingredients to producing truly useful graduates: student selection from diverse backgrounds; the acquisition of both technical skills and a comprehensive understanding of the work environment; an apprenticeship ethos throughout the degree; and a determined focus on “job readiness”.</p>
<p>But this cannot be achieved without industry and government involvement in every aspect of the process. That includes curriculum development and assessment, research co-supervision, teaching, mentoring and lecturing, and facilitated access to experts and data.</p>
<p>The <a href="http://www.pwc.co.za/en/press-room/talent-skills-gap.html">PwC global survey</a> cited at the start of this article revealed that 40% of CEOs look to governments to do more to create a skilled workforce. An overwhelming 93% of business leaders realise that it is up to them to change their strategy for attracting and retaining talent. This could include becoming more active architects of the graduates they would like to hire.</p><img src="https://counter.theconversation.com/content/58954/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Taylor does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Financial institutions in Africa are worried that universities aren’t producing graduates with relevant skills for the industry.David Taylor, Director of the African Institute for Financial Markets and Risk Management, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/328362014-10-13T13:21:02Z2014-10-13T13:21:02ZGloomy outlook from IMF, but it is still not facing up to what caused the banking crash<p>There are mixed messages from the International Monetary Fund. The <a href="http://www.ft.com/cms/s/0/7c1bd61a-4dfd-11e4-bfda-00144feab7de.html#axzz3Fj6T3EN6">UK gets a pat on the back</a> for its recovery, but the fund warns of darker clouds ahead in its latest World Economic Outlook.</p>
<p>Overall, the view is that in the foreseeable future the western world is unlikely to return to the pre-crisis era of <a href="http://www.theguardian.com/business/2014/oct/07/imf-economic-growth-forecasts-downgraded-crisis">economic growth</a>. A major reason for this is the <a href="http://www.thetimes.co.uk/tto/business/economics/article4221660.ece">shrinking purchasing power</a> of ordinary people due to wage freezes and a largely low-wage economy, though this receives little attention from the IMF.</p>
<p>But the IMF failed to address the banking sector, which remains the Achilles heel of the world economy. Politicians tell us that far-reaching reforms are being implemented. But scratch the surface and you see the pre-crash practices being repackaged. </p>
<p><a href="http://www.bankofengland.co.uk/financialstability/pages/fpc/stresstest.aspx">Bank stress tests</a> are a case in point. These are supposed to test a bank’s ability to withstand adverse developments. The key idea is to ensure that banks will have adequate capital to manage financial shocks such as erosion of credit, liquidity, changes in markets and lines of credit. The tests look at the quality of a bank’s assets and loans. </p>
<p>In general, a dynamic balance sheet mimics the “what-if” scenarios to ascertain how a bank can manage adverse developments. Of course, many of the risks are in the system where troubles for one bank can have a knock-on effect on others and bring down the whole thing.</p>
<p>Before the 2007-2008 banking crash, stress tests were mostly carried out by the banks themselves rather than by external regulators. Typically the models for stress tests used ratings provided by <a href="https://theconversation.com/downgrade-your-expectations-it-pays-to-be-wary-of-credit-ratings-agencies-12603">credit rating agencies</a> and hired the Big Four accountancy firms to do the number crunching. </p>
<p>We all know the consequences. <a href="http://www.hsgac.senate.gov/imo/media/doc/financial_crisis/financialcrisisreport.pdf?attempt=2">Credit ratings</a> confidently gave AAA ratings where they weren’t due, many turning out to be worthless. The industry is mired by <a href="http://www.sec.gov/news/studies/2013/credit-rating-agency-independence-study-2013.pdf">conflicts of interests</a> as it has a close business relationship with banks. </p>
<p>Despite their knowledge of stress tests and risks at banks, the Big Four accountancy firms gave a <a href="http://www.sciencedirect.com/science/article/pii/s036136820900018x">clean bill of health</a> to almost all distressed banks, with some collapsing within days of receiving a clean bill of health. The firms collected large amounts in audit and consultancy fees. The firms were effectively auditing and reporting on the outcomes of the stress tests they themselves had carried out.</p>
<p>Following the 2007-2008 crash, central banks, such as the <a href="http://www.ecb.europa.eu/press/pr/date/2014/html/pr140808.en.html">European Central Bank</a> and the <a href="http://www.bankofengland.co.uk/financialstability/pages/fpc/stresstest.aspx">Bank of England</a> assumed responsibility for bank stress tests. But they continue to rely on credit ratings developed by the agencies, whose success is judged by private profits rather than any service to the state or people. </p>
<p>And, the regulators have hired Big Four accounting firms to do the calculations. Spending <a href="http://www.ft.com/cms/s/0/ab4e00e2-286a-11e4-b085-00144feabdc0.html#axzz3Fj6T3EN6">€500m</a> on stress tests, this work from the ECB is a boon to consultants and accountancy firms in particular.</p>
<h2>Lessons, what lessons?</h2>
<p>Hardly any lessons have been learnt from the folly of relying on these accountancy firms. PricewaterhouseCoopers (PwC) is under scrutiny for the £250m accounting hole at <a href="https://theconversation.com/trolley-load-of-trouble-in-store-for-tesco-and-its-bean-counters-32008">Tesco</a>. The firm also audited <a href="http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543065483#.VDgE2VRwb5p">Bank of America</a> which has been fined for overstating its capital by about US$4 billion. </p>
<p>At the height of the crisis, some US$5,000 billion of assets and liabilities went <a href="http://www.ft.com/cms/s/0/33cab6b4-31d1-11dd-b77c-0000779fd2ac.html#axzz3Fj6T3EN6">missing</a> from bank balance sheets audited by the Big Four firms. Their gravy train rolls on, even though the firms are unable to serve the interests of regulators. </p>
<p>Recent examples include PwC receiving a US$25m fine from New York’s financial regulator for <a href="http://www.dfs.ny.gov/about/press2014/pr140818_pwc_htr_report_versions.pdf">sanitising its report</a> to regulators regarding sanctions and anti-money laundering compliance at Bank of Tokyo Mitsubishi. In 2013 <a href="http://www.dfs.ny.gov/about/press2013/pr1306181.htm">Deloitte</a> was fined US$10m for “misconduct, violations of law, and lack of autonomy during its consulting work at Standard Chartered on anti-money laundering issues”. But the Big Four continue to be trusted with auditing banks for the public good and not their own profits.</p>
<p>Following the banking crash the regulatory deckchairs were rearranged; but little has changed. Despite their failures, regulators continue to rely on credit rating agencies and accountancy firms. </p>
<p>This reliance on external advisers means that the regulators have failed to develop an adequate in-house knowledge base and are in a poor position to manage the risks of bank behaviour. Let’s hope it doesn’t take another crash of the financial market to encourage the IMF and the regulators to reflect on institutional failures in the banking system that is at the heart of the global economy.</p><img src="https://counter.theconversation.com/content/32836/count.gif" alt="The Conversation" width="1" height="1" />
There are mixed messages from the International Monetary Fund. The UK gets a pat on the back for its recovery, but the fund warns of darker clouds ahead in its latest World Economic Outlook. Overall, the…Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/286302014-06-30T16:43:59Z2014-06-30T16:43:59ZBig accountancy firms have a human rights problem
<p>Protest and dissent are the foundation stones of modern societies and have helped secure a measure of democracy and human rights. Against all the odds, ordinary people have struggled to secure universal suffrage, equal opportunities, rights for women, rights to education, healthcare, pensions, protection of minorities and much more. Eventually, these achievements paved the way for the <a href="http://www.un.org/en/documents/udhr/">Universal Declaration of Human Rights</a> which is adopted by every nation. These rights include the “right to freedom of opinion and expression”. </p>
<p>People in Hong Kong have recently chosen to exercise their human rights by <a href="http://www.bbc.co.uk/news/world-asia-china-28076566">organising an referendum</a> on democratic reform. China has said local residents will be able to select their leader in the 2017 elections. However, candidates will be chosen from a list approved by an autocratic politburo – campaigners instead want the public to directly elect the territory’s next leader.</p>
<p>The so-called “Big Four” accountancy firms aren’t pleased. In an unprecedented move KPMG, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and Deloitte & Touche have jointly taken out press advertisements in Hong Kong newspapers to <a href="http://www.ft.com/cms/s/0/574791ee-fdc1-11e3-acf8-00144feab7de.html#axzz367hwOVPS">oppose the people’s referendum</a>. They claim the protests will persuade multinational companies to leave Hong Kong.</p>
<h2>Enemies of the people</h2>
<p>These adverts show the length to which big accountancy firms go to cultivate profitable relationship with authoritarian regimes. Big accountancy firms were among the foremost supporters of the <a href="http://www.sciencedirect.com/science/article/pii/S036136820800072X">apartheid regime</a> in South Africa and have been accused of <a href="http://www.sciencedirect.com/science/article/pii/S1045235498903173">appeasing Nazi Germany</a> just before the outbreak of World War II, sending a special delegation to cultivate a profitable opportunity.</p>
<p>Without tax revenues, no government can meet its human rights obligations. These include the citizens’ right to education, healthcare, housing, pension and security. Yet accountancy firms have developed a vast <a href="http://visar.csustan.edu/aaba/PINSTRIPEMAFIA.pdf">organisational infrastructure</a> designed to empty the public purse.</p>
<p>Last year the Big Four firms became the subject of a hearing by the UK <a href="http://www.publications.parliament.uk/pa/cm201213/cmselect/cmpubacc/870/870.pdf">public accounts committee</a>. Just before the hearing the committee received evidence from a former senior PwC employee stating that within the firm the policy was that it would sell a tax avoidance scheme which had only a 25% chance of withstanding a legal challenge. As the committee chairperson put it “you are offering schemes to your clients – knowingly marketing these schemes – where you have judged there is a 75% risk of it then being deemed unlawful”. The other three firms happily admitted to “selling schemes that they consider only have a 50% chance of being upheld in court”.</p>
<p>Laws do not seem to deter the big firms. KPMG paid a <a href="http://www.justice.gov/opa/pr/2005/August/05_ag_433.html">fine of US$456m</a> after admitting criminal wrongdoing and fraud which generated phony tax losses for its clients. It also collaborated with Barclays Bank to mass market a tax avoidance scheme to several corporations, including AIG, Microsoft and several major financial institutions. Last year, the scheme was declared unlawful and the presiding judge said that the conduct of those involved in this and other transactions was “<a href="http://www.uscfc.uscourts.gov/sites/default/files/opinions/SALEM.pdf">nothing short of reprehensible</a>”.</p>
<p>In May 2012, a BBC Panorama documentary showed how <a href="http://www.bbc.co.uk/news/business-17993945">PwC devised schemes</a> to enable multinational corporations, such as GlaxoSmithKline and Northern & Shell, to move profits to offshore tax havens via Luxembourg and avoid corporate taxes. A PwC inspired mass marketed tax scheme was <a href="http://www.bailii.org/uk/cases/UKUT/TCC/2013/276.pdf">struck out</a> by the courts last year and <a href="https://www.gov.uk/government/news/hmrc-wins-in-court-have-protected-over-1-billion">HMRC said</a> the scheme had “43 followers, with £87.7m of tax at stake”. </p>
<p>Ernst & Young was reportedly once described by the <a href="http://www.theguardian.com/business/2009/feb/07/tax-gap-avoidance-schemes">UK’s senior tax collector</a> as “probably the most aggressive, creative, abusive provider” of tax avoidance schemes. In 2013, Ernst & Young paid a <a href="http://www.justice.gov/usao/nys/pressreleases/March13/EYNPAPR.php">fine of US$123m</a> to resolve tax fraud allegations by the US authorities. The firm admitted wrongful conduct by certain partners and employees. Google, a well known tax avoider, has been <a href="http://www.publications.parliament.uk/pa/cm201213/cmselect/cmpubacc/716/716.pdf">advised by the firm</a>. When the Public Accounts Committee asked for details of the schemes, Ernst & Young <a href="http://www.publications.parliament.uk/pa/cm201314/cmselect/cmpubacc/112/112.pdf">refused to co-operate</a> and hid behind its duty of confidentiality to the client.</p>
<p>Banks may have been bailed out by taxpayers, but bankers don’t like paying taxes. Deloitte & Touche designed a scheme to enable staff at the London office of Deutsche Bank to avoid income tax and National Insurance Contributions on bonuses adding up to £92m. The scheme was declared to be unlawful by courts and the <a href="http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC00944.html">judge said</a> the scheme “as a whole, and each aspect of it, was created and coordinated purely for tax avoidance purposes”. </p>
<p>In 2013, Deloitte paid a fine of US$10m and was also <a href="http://www.dfs.ny.gov/about/press2013/pr1306181.htm">suspended for 12 months</a> by the New York regulators from undertaking consulting work at financial institutions. This arose out of <a href="http://online.wsj.com/public/resources/documents/SCBorder0806.pdf">regulatory action</a> against Standard Chartered Bank for violating US sanctions on Iran, Burma, Libya and Sudan. Deloitte was asked to oversee the implementation of an anti-money laundering programme, but leaked confidential information to the bank.</p>
<p>The above is a tiny glimpse of mounting evidence showing that major accountancy firms prevent million of people from enjoying their human rights. The intervention in Hong Kong simply represents a particularly obvious example of a wider trend.</p>
<p>In many other organisations such subversion of the human rights would be considered to be a badge of shame. At major accountancy firms it is increasingly considered to be a sign of business acumen.</p><img src="https://counter.theconversation.com/content/28630/count.gif" alt="The Conversation" width="1" height="1" />
Protest and dissent are the foundation stones of modern societies and have helped secure a measure of democracy and human rights. Against all the odds, ordinary people have struggled to secure universal…Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/185862013-09-24T17:30:59Z2013-09-24T17:30:59ZBarclays and KPMG involved in $660m tax ‘sham structure’<figure><img src="https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gloomy times for BB&T bank, as it misses out on $660m in tax credits.</span> <span class="attribution"><span class="source">zen Sutherland</span></span></figcaption></figure><figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=429&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=429&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=429&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=540&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=540&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=540&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Gloomy times for BB&T bank, as it misses out on $660m in tax credits.</span>
<span class="attribution"><span class="source">zen Sutherland</span></span>
</figcaption>
</figure>
<p>What are the chances that in the face of public criticisms, big business would curb its tax avoidance practices? Well, not much, as evidenced by a case decided by the US Court of Federal Claims.</p>
<p><a href="http://www.uscfc.uscourts.gov/sites/default/files/SALEM.pdf">Salem Financial Inc v United States</a> relates to a complex financial transactions known as STARS (Structured Trust Advantaged Repackaged Securities). The case involved Salem Inc, a subsidiary of North Carolina based bank, BB&T. </p>
<p>The scheme was designed by <a href="http://group.barclays.com/about-barclays/citizenship">Barclays Bank</a>, a major UK financial institution; <a href="http://www.kpmg.com/uk/en/about/whatmakesusdifferent/ourvalues/pages/default.aspx">KPMG</a>, one of the world’s biggest accountancy firms; and Sidley Austin, a US law firm. At the centre of the dispute is a tax liability of some US$660m.</p>
<p>Through collaboration with Barclays, KPMG specialised in developing transactions that took advantage of differences between international tax systems. Barclays marketed some versions of STARS to a number of corporations, including AIG, Microsoft, Intel, and Prudential. KPMG introduced the STARS transaction to BB&T at a January 17, 2002 meeting and used a slide show to outline the steps necessary for the scheme to work. KPMG had little prior business relationship with BB&T.</p>
<h2>Contrived transactions</h2>
<p>The key idea of the tax avoidance scheme was to generate large-scale foreign tax credits which could in turn be used to enhance revenue and reduce taxes payable by BB&T in the US. A series of transactions with circular cash flows were designed to create the tax savings. </p>
<p>The court noted that in essence the scheme called for BB&T to establish a trust containing approximately US$6 billion in revenue-producing bank assets. The monthly revenue from the trust was then cycled through a UK trustee, an act that served as a basis for UK taxation. Although the revenue was immediately returned to BB&T’s trust, the assessment of UK taxes generated tax credits that were shared 50/50 between Barclays and BB&T. </p>
<p>A US$1.5 billion loan from Barclays to BB&T was also part of the structured transaction, although the loan was not necessary to the objective of generating foreign tax credits. The Barclays monthly payment to BB&T represented BB&T’s share of the tax credits, and had the effect of reducing the interest cost of BB&T’s loan. </p>
<p>The main question for the 21-day court hearing was whether the STARS transaction had any purpose other than to generate tax savings, and if not, whether penalties should be assessed against BB&T. The 67-page court judgment found in favour of the government and the company has been ordered to pay US$680 million plus penalties of US$112 million.</p>
<p>After examining some 1,250 exhibits the judge <a href="http://www.uscfc.uscourts.gov/sites/default/files/SALEM.pdf">referred to the scheme</a> as “an abusive tax avoidance scheme” and said that the “conduct of those persons from BB&T, Barclays, KPMG, and the Sidley Austin law firm who were involved in this and other transactions was nothing short of reprehensible”. </p>
<p>The judge went on: “The professionals involved should have known better than to follow the STARS path, rife with its conflicts of interest, questionable pro forma legal and accounting opinions, and a taxpayer with a seemingly insatiable appetite for tax avoidance”. The whole STARS set-up was described as “a sham structure”.</p>
<h2>Controversial pasts</h2>
<p>Barclays and KPMG are no strangers to tax avoidance controversies. After lengthy investigations by the <a href="http://www.gpo.gov/fdsys/pkg/CPRT-108SPRT90655/html/CPRT-108SPRT90655.htm">US Senate Permanent Subcommittee on Investigations</a> and action by the US Department of Justice, KPMG were <a href="http://www.justice.gov/opa/pr/2005/August/05_ag_433.html">fined US$456 million</a> for “criminal wrongdoing” in tax matters and a number of its former personnel were also given prison sentences. The firm has also been the subject of investigation of the <a href="http://www.publications.parliament.uk/pa/cm201213/cmselect/cmpubacc/870/870.pdf">UK House of Commons Public Accounts Committee</a>, but this has not dulled <a href="http://visar.csustan.edu/aaba/PINSTRIPEMAFIA.pdf">its appetite for profits</a> through the sale of tax avoidance schemes.</p>
<p>Barclays relies upon taxpayer guarantees for its core business, but operates a very lucrative <a href="http://www.theguardian.com/business/2013/apr/03/barclays-tax-avoidance-salz-review-scm">tax avoidance business</a> which is estimated to have generated around a billion pounds in fees each year between 2007 and 2010. Last year the UK government had to introduce emergency legislation to negate two avoidance schemes used by Barclays for its own business which could have deprived the UK Treasury of around <a href="http://www.bbc.co.uk/news/business-17181213">£500 million</a>. Despite fines and prison sentences major businesses remain addicted to tax avoidance. Public opprobrium has become just another cost of doing business.</p>
<p>It is time to shut down businesses who routinely pick citizens’ pockets through tax avoidance. Their schemes are undermining revenues that are much needed to revive the economy and provide education, healthcare, pensions, security and other public goods that distinguish civilised societies from the rest. </p>
<p>Yet the UK government continues to shower gifts on tax avoiders, KPMG continues to receive public contracts and Barclays is propped up by taxpayer-funded guarantees and loans. Only this week Ed Miliband hired KPMG’s deputy chairman for advice on <a href="http://www.theguardian.com/politics/2013/sep/22/ed-miliband-labour-proposals-at-a-glance">low pay</a>. Rather than giving them another consultancy job, politicians should be asking KPMG to explain the firm’s role in the erosion of social fabric.</p><img src="https://counter.theconversation.com/content/18586/count.gif" alt="The Conversation" width="1" height="1" />
What are the chances that in the face of public criticisms, big business would curb its tax avoidance practices? Well, not much, as evidenced by a case decided by the US Court of Federal Claims. Salem…Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/180752013-09-10T19:12:12Z2013-09-10T19:12:12ZMG Rover debacle can’t hide accounting regulation failures<figure><img src="https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">c e e c h</span> </figcaption></figure><figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31113/original/v67rvnv9-1378833352.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Needs some more tinkering under the hood.</span>
<span class="attribution"><span class="source">antonychammond</span></span>
</figcaption>
</figure>
<p>The UK accountancy watchdog has barked. The Financial Reporting Council (FRC) has fined Deloitte & Touche <a href="http://www.frc.org.uk/News-and-Events/FRC-Press/Press/2013/September/FRC-publishes-Final-Report-of-Disciplinary-Hearing.aspx">£14 million</a> for failures relating to the demise of MG Rover. The <a href="http://www.frc.org.uk/Our-Work/Publications/Professional-Discipline/Tribunal-Report-Deloitte-Touche-and-Mr-Maghsoud-Ei.pdf">report</a> says Deloitte was engaged in huge conflicts of interest as the firm acted both as auditor and advisor to the company and its directors.</p>
<p>The MG Rover debacle began in 2000 when four businessmen (subsequently known as the Phoenix Four) bought the ailing carmaker from BMW for just £10. The purchase was accompanied by a loan of £423 million from BMW and the UK government also provided additional funds. Deloitte acted as auditor of MG Rover and an adviser to the Phoenix Four. The company continued to receive a clean bill of health from auditors. Between 2000 and 2005, the Phoenix Four collected around £42 million in remuneration. With advice from Deloitte some £7.7 million ended up in an <a href="http://www.thesundaytimes.co.uk/sto/business/Companies/article1091072.ece">offshore trust</a> in Guernsey. In 2005, the company collapsed with debts of nearly £1.4 billion. Some 6,000 workers lost their jobs.</p>
<p>Following a public outcry, the Department of Business Innovation and Skills appointed inspectors, one of whom was an accountant, to investigate the debacle. The two volume report (<a href="http://www.berr.gov.uk/files/file52782.pdf">here</a> and <a href="http://www.berr.gov.uk/files/file52783.pdf">here</a> ) cost £16 million and was published in 2009. The report noted that between 2000 and 2005, Deloitte received £30.7m in fees, of which £28.8m related to consultancy, that is, only £1.9 related to audits. </p>
<p>Deloitte was advising the company and its directors and then audited the resulting transactions. Hence the concerns about possible conflicts of interest and the disciplinary tribunal’s conclusion that Deloitte “failed to be sufficiently objective in its work for MG Rover”. Deloitte is found guilty of “misconduct” and the <a href="http://www.frc.org.uk/Our-Work/Publications/Professional-Discipline/Tribunal-Report-Deloitte-Touche-and-Mr-Maghsoud-Ei.pdf">FRC report</a> states: “the acts which amount to misconduct were quite deliberate” and the firm and its lead partner “placed their own interest ahead of that of the public and compromised their own objectivity. This was a flagrant disregard of the professional standards.” </p>
<p>The FRC’s reputation as an accounting watchdog was severely battered by the banking crash. All distressed banks received a <a href="http://www.essex.ac.uk/ebs/research/working_papers/wp_09-04.pdf">clean bill of health</a> from their auditors even though depositors were queuing outside banks to withdraw their cash and governments were bailing out banks. The FRC failed to investigate any of the auditing firms. The MG Rover debacle has given it an opportunity to reinvent itself. The £14 million fine on Deloitte is the highest ever against any accounting firms. But all is not what it seems.</p>
<p>For any regulatory system to be effective regulators need to act swiftly. That has not been the case for the FRC. It <a href="http://www.frc.org.uk/FRC-Documents/FRC/FRC-Progress-Report-MG-Rover-Group-Companies-Act-I.aspx">initially announced</a> its intention to investigate the conduct of Deloitte as auditor and adviser to the MG Rover Group in August 2005. The wheels of the profession grind slowly and then it claimed that will proceed after the inspectors’ reports if finalised, which was published in 2009. It has taken the FRC another four years to do anything. This is hardly a model of swift action.</p>
<p>The £14m fine may be the largest ever, but needs to be seen in perspective. It is less than half of the £30.7m fees collected by Deloitte. So despite failures and “misconduct”, the firm has still made considerable profit. The firm’s <a href="http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/About%20Deloitte/uk-deloitte-annual-results-2013.pdf">UK revenues</a> are around £2.5 billion; that’s £6.85m a day. The fine amounts of the loss of about two days’ revenue. This is unlikely to make accountancy firm partners quake in their boots. </p>
<p>The fine will fill the coffers of the FRC and will not be used to compensate creditors, employees, or taxpayers who provided social security and other benefits for the redundant workers. </p>
<p>The MG Rover episode does not herald a new dawn in the regulation of auditors. Despite the toxic effects of conflicts of interest and calls from parliamentary committees, the FRC has <a href="http://www.ft.com/cms/s/0/a16fbee8-967a-11df-9caa-00144feab49a.html#axzz2eTUdpIVR">resisted</a> a total ban on auditors acting as consultants for companies. So companies will continue to audit the transactions they themselves have overseen. Some of the darker practices could be flushed out and given public visibility by compulsory <a href="http://www.frc.org.uk/News-and-Events/FRC-Press/Press/2013/August/FRC-responds-to-Competition-Commission-s-Provision.aspx">tendering of audits</a>, but the FRC opposes that too. </p>
<p>For the time being, the MG Rover episode may legitimise the FRC’s regulatory credentials but the fault lines are as big as ever and will not go away.</p><img src="https://counter.theconversation.com/content/18075/count.gif" alt="The Conversation" width="1" height="1" />
The UK accountancy watchdog has barked. The Financial Reporting Council (FRC) has fined Deloitte & Touche £14 million for failures relating to the demise of MG Rover. The report says Deloitte was engaged…Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/139452013-06-20T20:36:22Z2013-06-20T20:36:22ZIntegrated reporting to walk more than the bottom line<figure><img src="https://images.theconversation.com/files/25632/original/jskv8m8j-1371429258.jpg?ixlib=rb-1.1.0&rect=0%2C1%2C1000%2C663&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Boards will need to be ‘six-capital literate’ in order to assess performance, identify risks and develop strategy.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Paul Druckman, the CEO of the International Integrated Reporting Council <a href="http://www.theiirc.org">(IIRC)</a>, recently led the coalition’s global charge on corporate reporting changes to Australia, where he bolstered support and talked uptake turkey with business leaders and officials. </p>
<p>“We’re not about more reporting, we’re about better reporting,” Mr Druckman told <a href="http://www.thesustainabilityreport.com.au/iirc-ceo-favours-market-led-adoption-of-integrated-reporting/3829/"><em>The Sustainability Report</em>.</a></p>
<p>The council’s Integrated Reporting initiative has the potential to change the relationship between business, society and the environment by changing the way accountants and boards, in particular, think about business success and strategic-decision making. </p>
<p>Climate change and scarce natural resources, for example, all have an impact on the long-term success of a business and Integrated Reporting would bring this into focus.</p>
<p>Until now, corporate reporting has primarily focused on bottom-line dollars. Integrated Reporting requires organisations to also report on their governance and strategy in the context of their internal and external environments - including their workers and environment. </p>
<p>The initiative has high-profile backers, including regulators, the accounting profession, investors, standard-setters and non-government organisations concerned with social and environmental stakeholders.</p>
<p>However, the consultation draft of the international Integrated Reporting framework released in April is already causing concern among directors, with the <a href="http://www.afr.com/f/free/markets/capital/cfo/regulators_stay_away_from_integrated_fIsbX7cXqeid6vR89TVEKN">Australian Financial Review</a> quoting directors worried about the prospect of being sued if disclosures on future strategies and business models don’t come true. </p>
<p>Anticipating resistance, the consultation draft states: “…the banner of commercial sensitivity is not to be used inappropriately to avoid disclosure”.
In fact, Integrated Reporting can help directors in their governance of risk-management processes and their decisions about strategy. It requires the development of processes to identify issues that materially affect strategy, the business model or the ability to create value. Such processes will improve risk management – thereby reducing director risk. It makes good business sense.</p>
<h2>Corporate changes</h2>
<p>The key issues on which Integrated Reporting is set to change corporate thinking are:</p>
<ol>
<li>Longer-term strategic planning</li>
</ol>
<p>Integrated Reporting stands out from other reporting frameworks with its emphasis on long-term thinking. The requirement to provide information on an organisation’s strategy will encourage senior executives and boards to think long term.</p>
<p>This is a win-win for the environment, society and business. Short-term thinking has contributed to significant negative environmental impacts that have damaged business reputations. There are ample examples of companies plundering the environment and abusing human rights to make a quick buck.</p>
<ol>
<li><p>Focus on the ‘six capitals’</p>
<p>The ‘six capitals’ concept is a key innovation. These are: financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital. In preparing an Integrated Report, a business recognises that they are all play a role in creating value. </p>
<p>Natural capital includes water, land, minerals, forests, biodiversity and ecosystem health. The maintenance of natural capital is seen as fundamental to long-term business success and organisations would be required to report its importance to the business, how the company affects it, and steps taken to maintain it.</p>
<p>Integrated reporting promotes an understanding of the trade-offs that are made across the six capitals in the process of creating value for providers of finance. This will improve decision-making. Boards will need to be ‘six-capital literate’ in order to assess performance, identify risks and develop strategy.</p></li>
<li><p>Creating value</p>
<p>The concept of creating value by working with a broad range of stakeholders such as workers, customers, local communities and regulators encourages senior executives and boards to think about performance more broadly than the financial bottom line so that value creation is long term and considers the effect on the other capitals. </p></li>
</ol>
<p>The process of developing an Integrated Report has many benefits:</p>
<ul>
<li><p>‘integrated thinking’, which involves collaboration across functions to consider the business model and identify trade-offs in the development of strategy</p></li>
<li><p>a future focus on strategy</p></li>
<li><p>identification of risks to the continued availability, quality and affordability of all six capitals, which are required to fulfil the strategy</p></li>
<li><p>development of systems and processes that will capture a broader set of information needed to make sound decisions.</p></li>
</ul>
<p>Issues are defined as material if they could “change the assessments of providers of financial capital with regard to the organisation’s ability to create value”. This style of reporting relies on providers of capital having an understanding of what creates value, being concerned about the long term and communicating this to business. Reporting on social, environmental and economic sustainability performance will remain important for informing investors and others where value is depleted as well as enhanced.</p>
<p>The Integrated Reporting Consultation Draft mentions stakeholders in terms of their potential to affect the ability to create value – but not their concerns about organisations depleting value. </p>
<p>However, organisations ignore stakeholders at their peril. Stakeholder engagement is critical to challenging organisational thinking and making this change.</p>
<p>According to Mr Druckman, such engagement will be an ongoing process. </p>
<p>“The more that mature organisations are doing integrated reporting, the more they understand that they’re on a journey,” he told <a href="http://www.thesustainabilityreport.com.au/iirc-ceo-favours-market-led-adoption-of-integrated-reporting/3829/"><em>The Sustainability Report</em>. </a>“Integrated Reporting should be flexible enough that as societies’ objectives change, as investors’ objectives change, as the company changes its strategy and philosophy, that Integrated Reporting should change and mature at the same time. I don’t think there is a destination.”</p><img src="https://counter.theconversation.com/content/13945/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carol Adams receives funding from the Association of Chartered Certified Accountants. She was a member of the IIRC's Capitals Technical Collaboration Group. </span></em></p>Paul Druckman, the CEO of the International Integrated Reporting Council (IIRC), recently led the coalition’s global charge on corporate reporting changes to Australia, where he bolstered support and talked…Carol A Adams, Director, Integrated Horizons. Part-time Professor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/110492013-01-07T03:43:57Z2013-01-07T03:43:57ZAccountants going ape over APES 230<figure><img src="https://images.theconversation.com/files/18347/original/xxmgn46q-1354672061.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Australian accountants are concerned new industry standards which ban "conflicted remuneration" such as commissions on insurance in in conflict with financial planning legislation.</span> </figcaption></figure><p>Right now, the Australian accounting industry is in uproar about financial planning. The new standard APES 230 Financial Planning Services, issued by the Accounting Professional and Ethical Standards Board last month, has generated huge concern within the profession. </p>
<p>The controversial issue in APES 230 is the banning of conflicted remuneration such as commissions on insurance and percentage based fees on investments. APES 230 has limited grandfathering provisions for the new rules, with compliance required by 30 June 2018. </p>
<p>This is inconsistent with the recent Future of Financial Advice (FoFA) legislation which permits the continuity of asset fees (except on gearing) and commissions on life insurance (except on certain insurance policies in superannuation funds). </p>
<p>The APES standard binds members of the three Australian accounting bodies CPA Australia, ICAA and IPA. In other words, APES 230 sets a different, higher standard for accountants who also provide financial planning advice versus financial planners with no professional accountancy qualification. </p>
<p>The APES Board justifies its position on conflicted remuneration as in the “best interest” of the client, stating in an <a href="http://www.apesb.org.au/uploads/apesb-230-ed-july-2012/apes-230-ed-explanatory-memorandum.pdf">APESB explanatory memorandum</a> that: “threats to the fundamental ethical principles of integrity, objectivity, and professional competence and due care arise from receipt of conflicted remuneration”. </p>
<p>This is despite FoFA legislation already establishing a statutory fiduciary duty for financial advisers requiring them to act in the best interests of their clients. </p>
<p>The APES Board was established by CPA Australia and the ICAA in 2006 to set the code of ethics and professional standards for Australia’s professional accounting bodies. Development of APES 230 commenced in 2007 with the first exposure draft issued in 2010. </p>
<p>Submissions to the APESB from the three professional accounting bodies recommended that APES 230 follow the FoFA requirements. The first tranche of FOFA legislation commenced on 1 July 2012 with a voluntary compliance period until 1 July 2013, aligning with the commencement date of APES 230.</p>
<p>The FoFA reforms are aimed at improving the trust and confidence of Australian retail investors in the financial planning sector. Apart from the “best interest” duty, FoFA also enshrines the term, “financial planner” with <a href="http://www.wealthprofessional.com.au/article/financial-planner-financial-adviser-to-be-enshrined-in-law-146817.aspx">recent draft legislation</a> providing that only those fully licensed and authorised to provide personal financial advice can call themselves a financial planner or financial adviser.</p>
<p>Licensed financial planners hold an Australian financial services licence. Many accountants also complete the necessary qualifications to become a licensed financial planner. However, not all licensed financial planners complete accounting qualifications. It’s not surprising then that many in the accounting world are claiming that APES 230 will impose significant differential costs on accountants who also provide financial planning advice, or those who partner with financial advisers. </p>
<p>The IPA has already indicated that it will not promulgate APES 230 but will instead develop its own <a href="http://www.publicaccountants.org.au/library/media-releases/media-release-ipa-stands-ground-over-apes-230">standard</a> consistent with FoFA. There are also <a href="http://www.moneymanagement.com.au/news/accounting/apes-230-challenge-cpa-australia-and-ipa-members">rumours of a possible legal challenge</a> to the standard.</p>
<p>The furore within the accounting fraternity is not as self serving as it might appear. The FoFA reforms have dramatically changed the financial planning industry in Australia and financial advising is a major revenue source for many accounting firms. For these firms APES 230 represents a costly add-on to the existing significant costs of FoFA implementation, placing them at a disadvantage in the financial advising marketplace. At the same time, there appears to be little benefit to the retail investor who is unlikely to understand the difference between a licensed financial planner who is also an accountant and one who is not. </p>
<p>A longer term consequence of APES 230 is the likely separation of financial planning and accounting professional services. Membership of an accounting body now brings with it the obligation for members providing financial advice to use “non-conflicted” or fee-for-service remuneration models, an obligation not imposed on non-member licensed financial planners. The higher “best interest” standard on financial advising contained in APES 230 may simply mean fewer accountants in the future.</p><img src="https://counter.theconversation.com/content/11049/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julie Walker is a Fellow of the Institute of Chartered Accountants in Australia and has in the past received research grant funding from the Institute of Chartered Accountants in Australia. She is currently a member of the Education Board of the Institute of Chartered Accountants in Australia.</span></em></p>Right now, the Australian accounting industry is in uproar about financial planning. The new standard APES 230 Financial Planning Services, issued by the Accounting Professional and Ethical Standards Board…Julie Walker, Associate Professor in Accounting, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/85742012-08-26T20:45:04Z2012-08-26T20:45:04ZThinking outside the square: accountants have a role to play in a sustainable future<figure><img src="https://images.theconversation.com/files/14197/original/krq47pzx-1344833179.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When it comes to accounting for the carbon tax, accountants need to embrace a transdisciplinary approach.</span> <span class="attribution"><span class="source">Image from www.shutterstock.com</span></span></figcaption></figure><p>Can business and accountants guide us on the path to sustainability? Will business and accounting leaders of the future have the necessary skills to solve complex sustainability problems? How can new pathways to the accounting profession support education in accounting for sustainability?</p>
<p>Our research at the the <a href="http://www.unisa.edu.au/cags">Centre for Accounting, Governance and Sustainability</a> (CAGS) at the University of South Australia suggests that accounting academics and practitioners need to collaborate with other disciplines if skills are to match the demands of clients in relation to sustainability.</p>
<p>It discusses the rapidly changing environment in which accountants work. Legislation, policy and practice are creating new and complex challenges for accountants, requiring a new set of skills.</p>
<p><strong>The example of accounting for carbon</strong></p>
<p>Accounting for carbon and the carbon tax is one example in which accountants need to develop a new approach and a new skill set. It requires thinking beyond discipline boundaries to incorporate elements of engineering, economics, law, and social and natural science; to create a new way of engaging with the broad issues facing business and society.</p>
<p>The carbon tax means that accountants need to understand and engage with physical measures of carbon and carbon equivalent outputs from different processes that affect their clients – inputs to industrial processes such as furnaces, energy sources for driving production and service delivery, product based carbon footprints and carbon released when products reach the end of their lives.</p>
<p>Engineers have considerable expertise in this field, so in developing measures of market activity in carbon trading — market price, quantities of emissions, quality and type of emissions of carbon equivalents such as methane — accountants need to engage with and understand engineering metrics. Similarly, economists have expertise in market pricing and in the provision of prices where markets do not exist. We have coined a phrase for the collaborative approach required – the “transdisciplinary” approach.</p>
<p><strong>Is there demand for “transdisciplinary” accounting?</strong></p>
<p>Is there strong demand for carbon and sustainability expertise? What is the demand for graduates armed with sustainability knowledge and ‘transdisciplinary’ education? To answer these questions, we surveyed 121 professional accounting firm managers in South Australia.</p>
<p>We found that the firm managers perceive sustainability education as important when recruiting graduates for their intake. Further, these managers believe that universities need to increase dramatically their delivery of sustainability education in the future.</p>
<p><strong>What is the role of the professional bodies?</strong></p>
<p>Universities will not be able tackle the sustainability challenges alone. The profession has to acknowledge the need for a wider skill set that incorporates understanding of the metrics of other disciplines. The professional bodies have a significant role to play in the development of alternative pathways into the profession that meet these needs. Collaboration between universities, the professional bodies, and employers is needed to prepare future accountants for a transdisciplinary approach to the profession.</p>
<p>For example, water accounting - which manages both water shortages and pricing - requires engineering, science and other disciplines like meteorology, to develop sustainability measures. Results of our research, presented in the article, suggest that the profession considers it essential that universities continue as the main provider of sustainability accounting education, but also see a role for the professional bodies in the development of staff with knowledge and experience of sustainability issues.</p>
<p><strong>Reality checking through a team-based approach</strong></p>
<p>Including accountants in transdisciplinary teams ensures an accounting perspective is included in sustainability solutions. Recent interviews by the Centre for Accounting, Governance and Sustainability (CAGS) researchers examine how transdisciplinary teams are used by top German companies in managing carbon accounting. Interviews with 40 staff of leading companies showed an integrated approach to solving carbon accounting problems, with involvement from different disciplines and collaboration between researchers, stakeholders and the community across a broad range of disciplines and perspectives to provide a reality check on research processes and outcomes.</p>
<p><strong>The way forward</strong></p>
<p>Our research shows that accounting firm managers perceive growing pressure for sustainability accounting knowledge and services. With accounting firms demanding employees capable of a transdisciplinary approach, education for sustainability accounting needs to be increased at the university level, in collaboration with the professional bodies and employers. Accountants are at the forefront of transdisciplinary approaches to solving corporate sustainability problems; indeed, to meeting the challenges of global sustainability solutions of the future.</p><img src="https://counter.theconversation.com/content/8574/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Can business and accountants guide us on the path to sustainability? Will business and accounting leaders of the future have the necessary skills to solve complex sustainability problems? How can new pathways…Joanne Tingey-Holyoak, University of South AustraliaRoger Burritt, University of South AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/46982012-01-05T20:15:06Z2012-01-05T20:15:06ZDo accountants act in the public interest? Not always<figure><img src="https://images.theconversation.com/files/6715/original/qr3xzpx9-1324447220.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Coalition's election promise controversy highlights the fraught nature of accountancy.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>According to the profession’s code of ethics, “a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.” That is, not exclusively to satisfy the needs of an individual client or employer.</p>
<p>One wonders if that responsibility was front of mind when two partners from the Perth firm of WHK Horwath issued a <a href="http://www.scribd.com/doc/36050742/Coaltiion-Costings-Document-August-18-2010">flimsy report</a> on the cost of the Opposition’s election promises, just days before the 2010 Federal election. Claims about the validity of the Opposition’s promises were well publicised. Plainly, the report was intended to influence voters.</p>
<p>Tony Abbott had earlier stated that the Opposition’s policies would be independently and authoritatively costed by a third party. The shadow treasurer Joe Hockey and shadow finance minister Andrew Robb had foreshadowed that they would be issuing a report of an “audit”. After publication they continued to claim that the “fifth largest accounting firm in Australia” had independently “verified” their “costings and assumptions”. </p>
<p>Horwath’s report did no such thing. In a half-page letter addressed to Abbott, the firm merely stated that it “has reviewed the complete set of recurrent and non-recurrent policy commitments and savings, and is satisfied that based on the assumptions provided, costed commitments and savings have been accurately prepared in all material respects”. </p>
<p>In other words, Horwaths had done little more than check spreadsheet calculations. They had not “independently verified” any assumptions about costs or expected savings of proposed initiatives.</p>
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<img alt="" src="https://images.theconversation.com/files/6714/original/6txjzb5m-1324446580.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6714/original/6txjzb5m-1324446580.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=917&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6714/original/6txjzb5m-1324446580.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=917&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6714/original/6txjzb5m-1324446580.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=917&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6714/original/6txjzb5m-1324446580.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1152&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6714/original/6txjzb5m-1324446580.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1152&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6714/original/6txjzb5m-1324446580.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1152&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Do accounts live in an ivory tower?</span>
<span class="attribution"><span class="source">HikingArtist.com</span></span>
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<p>Moreover, by not repudiating highly publicised claims that their work was an “audit”, the accountants had allowed themselves to be associated with communications that were false and misleading, or which omitted or obscured information so that the communications were misleading. </p>
<p>All this so offended me that I was moved to lodge a formal complaint (in a personal capacity) with the Institute of Chartered Accountants in Australia, citing chapter and verse of auditing standards and the ethics code, and alleging that the Perth accountants had failed to meet the standards of conduct and performance that are expected of members of the profession. </p>
<p>What followed provided disturbing insights into how this profession engages in “self-regulation”. </p>
<p>The first event was advice in September 2010 that ICAA management had “determined” that there was no evidence of conduct which would warrant disciplinary action by the institute. The Perth accountants had responded that no one would have made a financial decision on the basis of their report. They were not obliged to comply with auditing standards since they were not the auditors of the Liberal Party. In any event they had not undertaken an audit of prospective financial information but had undertaken an “agreed upon procedures” engagement – referring to an obscure <a href="http://www.auasb.gov.au/admin/file/content102/c3/AUS904_07-02.pdf">auditing standard AUS 904</a> that was not indexed in the Institute’s members’ handbook. </p>
<p>The complaint had not even been referred to the institute’s Professional Conduct Tribunal. </p>
<p>This was more annoying since it was obvious that, contrary to their claim, the Horwaths report had not even complied with AUS 904. Hence a further complaint was lodged in September 2010.</p>
<p>Some months later in response to enquiries about the fate of this second complaint, it was explained that correspondence had been misfiled or misdirected within institute offices, and that the matter would henceforth be dealt with “swiftly”. Yet it took close to 13 months – until late November 2011 – for the complaint to be dealt with, if only in part. On technical grounds (non-compliance with AUS 904) it was announced that the Perth accountants had <a href="http://www.theage.com.au/national/lib-policy-costings-exposed-by-ruling-20111130-1o773.html">each been fined </a>$5,000 plus $750 costs. And they received a reprimand (downgraded on appeal from a “severe reprimand”).</p>
<p>The tribunal’s finding (soon to be reported in the institute’s journal) made no mention of the complaint about the failure of the accountants to have regard to the public interest.</p>
<p>To place this in context: a discussion paper issued last year by the International Federation of Accountants titled <a href="http://www.ifac.org/sites/default/files/publications/exposure-drafts/ED-Reg-Public-Policy_IFAC-Definitional-Framework-of-the-Public-Interest.pdf">A Public Interest Framework for the Accountancy Profession</a> proposed three criteria for determining what matters are in the public interest – and one of these related to support for democratic principles and processes. </p>
<p>In March, a body with the grand title of the Accounting Professional and Ethical Standards Board – which represents the ICAA, CPA Australia and the National Association of Accountants – <a href="http://www.ifac.org/sites/default/files/publications/exposure-drafts/comments/CIMA---Response-Pos-4.pdf">wrote in support</a> of the IFAC proposals, agreeing that adherence to democratic principles and processes should be a criterion for determining what was in the public interest.</p>
<p>It short, there are competing narratives about the profession’s ethics. At one level, it is proclaimed that a distinguishing feature of the profession is its concern with the public interest. But when it comes to disciplinary proceedings, the profession only responds to complaints (sometimes, coupled with media pressure), and even then is tardy, and focuses on technicalities. </p><img src="https://counter.theconversation.com/content/4698/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bob Walker recently retired from full time academia and is an Honorary Professor of Accounting, University of Sydney. He is a third generation chartered accountant. He is not a member of any political party. </span></em></p>According to the profession’s code of ethics, “a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.” That is, not exclusively to satisfy…Bob Walker, Professor, Discipline of Accounting, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/32862011-09-22T20:46:13Z2011-09-22T20:46:13ZAccountants are humans too – the problem of ‘attachment bias’<figure><img src="https://images.theconversation.com/files/3799/original/accountants.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People naturally develop relationships, so is it possible to eliminate bias in professional settings?</span> <span class="attribution"><span class="source">gonzalo_ar</span></span></figcaption></figure><p>Media commentators, regulators, and the judiciary continually express their concerns over the independence of auditors and other accounting professionals when they prepare expert reports.</p>
<p>Typically, this concern peaks in the wake of corporate scandals and collapses, and is not confined only to auditors: witness the role of the credit rating agencies in the global financial crisis and, also, the role of directors in many of the company crashes that occur. </p>
<p>Are such allegations of bias justified? Is it possible for a professional ever to be truly independent in a professional services setting?</p>
<h2>Testing independence</h2>
<p>In a recently completed study, we investigated the effects of unconscious bias on professional judgment in a setting where professional (and legal) standards and rules mandate independent and unbiased opinions.</p>
<p>Using an experiment, we examined a specific form of bias, referred to as “attachment bias”. </p>
<p>Psychology research shows that this bias is unconscious. In exercising their judgment to make to a decision, individuals unconsciously reach conclusions to favour their own interest (or those of their relationships), while maintaining a belief in their own objectivity. </p>
<p>This means that the bias is created by the attachment to one’s “self” and to other people in the relationship. </p>
<p>Individuals are not knowingly corrupt or unethical. They are simply less objective than they believe themselves to be.</p>
<p>In our experiment, an independent accounting expert calculates the amount of loss arising from a contract dispute. </p>
<p>There are two parties to the dispute, and each party is entitled to retain their own expert to provide valuation evidence. However, in providing this professional opinion, the professional accountant is bound by a code of conduct mandating independence. </p>
<p>Our results show that regardless of this mandate, the judgment is biased towards the interests of the client retainer. </p>
<p>The loss calculated by the plaintiff’s expert witnesses are consistently greater than those of the defendant’s expert witnesses.</p>
<h2>Expert witnesses</h2>
<p>The issue of professional independence has been appreciated for a long time. However, there has been little research on factors that are likely to affect the independence of expert witnesses. </p>
<p>Expert witnesses are an exception to the tradition that witnesses attest to facts and personal knowledge only. </p>
<p>Expert witnesses must possess appropriate specialised qualifications or experience relevant to the opinion they provide. </p>
<p>Therefore, they are able to assist the court in providing their expert, unbiased opinion on specific matters in dispute. </p>
<p>Forensic accountants, providing expert opinion on commercial valuation, are a common manifestation of the court’s need for independent opinion.</p>
<p>In our experiment, we used a case based on a real dispute between two parties over the alleged economic loss incurred through the failure of refrigeration equipment in a dairy business. </p>
<p>The defendant supplier of the equipment does not deny liability but disputes the amount of loss claimed. </p>
<p>Our experiment participants were graduate forensic accounting students, most with professional accounting experience, who had been trained over a 12-week period in the regulations governing expert witness and accountants’ independence. </p>
<p>They were randomly assigned as forensic accounting experts to either the plaintiff or the defendant, and required to calculate the economic loss on the basis of identical facts.</p>
<p>A key part of our research design is that on completion of their reports, participants had to present their reports in a moot court. Practising barristers, one acting for the plaintiff and another acting for the defendant, examine and cross-examine the participants about their expert reports. </p>
<p>This moot court enhances the external validity of the expert witness exercise. Consequently, in preparing their report, there is a pervading tension brought about through the anticipation of appearing in “court” as an expert witness to defend the quantification of the economic loss and the underlying basis of the quantification. </p>
<p>The participants know they must act independently and know that they will be examined in court on this issue. </p>
<p>This cross-examination process creates the strong de-biasing effect of accountability, as participants are made accountable for, and must justify, their judgments of economic loss. It adds to the experimental realism and militates against finding bias.</p>
<p>We found that the average plaintiff loss across repeated iterations of the experiment to be $4.26 million, while the equivalent defendant loss is $2.75 million. The plaintiff’s experts are systematically estimating higher losses.</p>
<h2>Idealistic impartiality</h2>
<p>Our experiment shows that attachment bias exists in our controlled setting, even in the absence of any economic attachment to a client, and in the presence of only a hypothetical relationship to a client (plaintiff or defendant). </p>
<p>We expect the effect of attachments to be much greater in the real world, where professionals are paid real money by clients with whom they are in a real relationship.</p>
<p>Objectivity is one of the key ethical principles of the profession, and one presumed of an accountant expressing an opinion on a professional issue.</p>
<p>It requires that professional judgment not be compromised because of bias, conflict of interest, or the undue influence of others. Absence of bias is a noble ideal, but there is considerable evidence that it is no more than that. </p>
<p>Professional service providers will naturally have economic, financial, and human relationships with their clients, creating an attachment bias.</p>
<p>Costly regulation of independence has focused on addressing the outward form of the relationships, but fails to acknowledge that this bias is arguably an inevitable component of the human psyche and may not be able to be addressed. </p>
<p>Rather it must be recognised and taken into account when considering a professional opinion.</p><img src="https://counter.theconversation.com/content/3286/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Colin Ferguson sits on The Conversation's board.</span></em></p><p class="fine-print"><em><span>Jane Hronsky does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Media commentators, regulators, and the judiciary continually express their concerns over the independence of auditors and other accounting professionals when they prepare expert reports. Typically, this…Colin Ferguson, Professor and Director, Centre for Accounting and Industry Partnerships, Department of Accounting, The University of MelbourneJane Hronsky, Lecturer, Department of Accounting, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.