The GAAPweb blog

The big bonus clampdown

The Financial Services Authority (FSA) has made a brave move by becoming the first regulatory body to publish a code of practice concerning remuneration and bonus schemes at banks and other financial institutions. This is scheduled to be introduced in January 2010.

With further news of plans to implement a ‘High Pay Commission’ scheme that restricts excessive rewards, it seems like the end might be near for uncapped and unmodified bonus schemes.

I’m not saying there’s anything greatly wrong with a bonus culture – at its most basic level it’s a financial incentive to improve performance. However, it needs to be monitored in an appropriate way, which it obviously hasn’t been over the past few years. In fact, it’s been grossly neglected.

So who’s accountable for the public outcry when it comes to bonuses? Should it be the ‘fat cat’ banks who hand them out? Or should the FSA bear the brunt of it? Not according to Hector Sants, FSA Chief Executive, who terms the issue a ‘moral’ one rather than a ‘regulatory’ one. He believes that politicians should implement taxation policies rather than point the finger at the FSA.

Guaranteed rolling bonuses that are paid regardless of performance need to be curbed. According to the code of practice, the maximum term that firms should guarantee a bonus for is one year. It makes sense that any remuneration that follows should then be performance-based.

Mr Sants also commented on a ‘general international agreement’ on this issue, but indicated that it was important that the FSA make the first move, which has, in general, been met with praise.

With a question mark still dangling over who should answer to past mistakes, there’s still a certain element of ‘too little, too late’. However, it’s great that the rules are finally in place…they just need to be followed.

Self-dedication

World-class performance requires a lot of hard work and dedication, not just a tick in a box.

This week has been a huge week for sport. A man has run 100 metres in less time than it takes to name the Big 4 accounting firms, the credit crunch-proof Premiership season has kicked off, and we’ve still got a hope against the Australians in the cricket. On top of that, the unbeatable ‘Sunday Tiger’ was tamed in the USPGA Championship.

Watching all these dedicated professionals competing in their fields made me realise the practice, sacrifices and dedication it takes to win a World Championship heptathlon, a Grand Prix or Golf Major. Just because it’s ‘sport’, it’s all too easy to forget that these men and women are excelling in their fields. For anyone, accountants included, to be as successful in our chosen careers, we need to look at how much effort we are putting into our abilities and skills to compete in the modern workplace.

Even a snooker or darts player competes or practices every day of the week. Top footballers are lucky to get a three week break every two years. But most accountants, myself included, get a reminder to complete their Continuous Professional Development (CPD) self-certification and then rush to tick a few boxes online. How much effort have I really put into keeping my ‘fitness’ in the last 12 months? Very little, compared to a top athlete. I had to be reminded to fill in my CPD submission this week – that’s how much effort I’ve invested.

I appreciate that most finance professionals have very heavy workloads and regularly put in long hours which makes the parallels to sports stars a little disingenuous. But, if you ask most accountants if they really feel that they’ve stretched their abilities and skills as much as they wished that they could, the answer would probably be “ummm … no”.

On a recent holiday I took the opportunity to catch up on some essential business reading. It’s reignited my thirst for knowledge that will further my career. The books weren’t strictly accounting- related (‘Free – The Future of a Radical Price’ by Chris Anderson, ‘What they teach you at Harvard Business School’ by Philip Delves Broughton, ‘The Accidental Billionaires ...’ Ben Mezrich), but did involve a heady mix of finance and economics.

My personal challenge for the next CPD year ahead is to keep up this brain-training regime, whilst flicking between various sports programmes of course.

Colin qualified with Arthur Andersen in 2000, eventually leaving in 2002. After a brief stay at Centrica, he joined Carphone Warehouse and worked in assorted roles with Talk Talk and as Finance Director. He’s now working with Mint Digital, a social media development agency based in Vauxhall.

An international stage for financial reporting

Following on from last week’s blog, I’d like to mention how significant it is that the improvement of financial standard-setting is being recognised outside the UK.

The most recent call for International Financial Reporting Standards (IFRS) came from Ian Ball, chief executive of the International Federation of Accountants (IFAC). Writing to the G20 Secretariat, Mr Ball expressed the need to address “problems of accountability and transparency” when it comes to financial standards, and pitched it as a key driver in combating the global crisis.
   
Over the past few months, the IFAC has been outspoken about the necessity for IFRS, encouraging accountants to be open and honest and calling for road maps to be put in place by standard-setting bodies.

With UK financial reporting currently in a “good” state according to the Financial Reporting Review Panel (FRRP), it makes sense for the G20 nations to look to the UK as a successful model and follow its example. That would certainly make a refreshing change!

It might take a while to fully implement industry standards on an international scale, but at least it’s a move towards a healthier economy.

I look forward to reading the next snippet of positive news surrounding financial reporting; it seems to be coming in thick and fast.

Financial reporting sets the standard

The economy’s getting better. Oh no wait, it’s getting worse. Anyone else finding it difficult keeping up with the endless stream of projections, forecasts and reports? With opinion on the state of the financial market continually changing, you’ll find it comforting to know that financial reporting standards are on the up.

Companies’ financial reports are used in setting industry standards and providing benchmarks. For this reason, it’s necessary that regulators ensure that these reports retain high levels of impartiality, accountability and integrity. And so far, things are looking good.

GAAPweb news recently showed that the current state of UK financial reporting is indeed “good”, according to the Financial Reporting Review Panel (FRRP).

However, there are still certain areas that need to be improved. The FRRP suggests that companies’ financial reports should provide more information on risk assessment, projections and policies. In addition the chairman of the FRRP, Bill Knight, encouraged reports to detail how the recession is directly affecting company performance rather than just providing “generic descriptions of the economy” (I think we’ve all had enough of those).

The Financial Crisis Advisory Group (FCAG) recently explained that standard-setting and accurate reporting will be a major factor in helping the finance sector through the recession. I couldn’t agree with this more; the last thing we need is more inaccuracy and uncertainty.

Furthermore, if companies use financial reporting to set clear targets, then they’ll be better prepared for the upturn as and when it happens. From a business perspective, surely it’s much easier to manage the impact of the recession at a ‘local’ level, rather than getting swamped by broad economic forecasts?

By making sure that standards are up to par, accurate financial reporting is sure to instil a sense of confidence and improved stability…which is what we all need in times like these.