Pay now, avoid debt later

Personal debt. National debt. Upcoming ghost-of-Christmas-future debt. Gen Y is almost completely unfamiliar to the concept of a debt-free society, and I’m pretty sure this will perpetrate for generations to come unless something drastically changes.

Everyone seems to have an opinion on who got us here and who’s responsible for getting us out. The latest establishment offering their (somewhat more than) two-cents’ worth is the National Institute for Economic and Social Research (NIESR), whose recent report predicted that income tax might have to be increased by 7p if the UK’s economy is to stand a chance at full revival.

The report stated: “The UK faces a structural budget deficit of 6 per cent of GDP. The build-up of government debt, which may reach 93 per cent of GDP by 2015, will leave a burden for our descendants.”

A rise in income tax has never been a particularly popular option historically (particularly around election time), and it’s unlikely to be now. Nobody likes the thought of more money deducted from their payslip each month without any tangible proof of where it’s going.

Even the BBC’s highest earners are setting up their own companies to avoid paying hefty taxes on their burgeoning salaries as they take on ‘freelance engagements’. I’m not condoning this, but I do think it’s representative of the general public’s view towards income tax: if there’s a legal way we can pay less of it, we’ll take it.

So putting income tax up? Yes, it might help to alleviate national debt and result in fewer years of suffering for future generations. Will it be popular now? Er, no.

Banks on board … but is it a bonus?

The decidedly chillier onslaught of October brings with it the somewhat warmer news that, at last, five of the UK’s largest banks are setting the standard by agreeing to rein in excessive bonus payouts.

Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered have signed up to the proposals, following pressure from Chancellor Alistair Darling and suggested reforms at the G20 meeting in Pittsburgh.

The Financial Services Authority (FSA) has been keen on remuneration reforms for some time, but with five key banks on board, surely it’s only a matter of time before the others follow suit. I’m just not holding my breath that any of this will happen before Christmas.

Neither, it seems, are bankers, who are monumentally unconcerned that it will affect this year’s payouts, but who agreed that pay needed to come down. Opinion in the city is still divided as to whether these reforms will have any real impact.

Unsurprisingly, the Treasury is yet to persuade Goldman Sachs and JP Morgan to cap bonuses. And since the FSA’s planned code of practice for January 2010 is not compulsory, it could still be quite some time before we see a balanced and unified bonus culture on a national, let alone a global scale. The only logical way forward from here is compulsory legislation that holds all banks and other financial institutions to accountability.

It’s impossible to say whether or not financial stability really can be achieved through these measures. However, with the backing of the banks and cooperation from financial institutions at all levels, it’s one more step in the right direction … or at least it will be from 2010.

Don’t let any of this put you off pursuing a financial career; you’re still like to earn a healthy living, just without the wild compensation that was once available.

GAAPweb scoops nominations for two awards events

If you needed further proof that you’ve been looking for your next finance and accounting role in the right place, here it is.

This year’s National Online Recruitment Awards nominees have been announced, and it’s with great pleasure that I can reveal that GAAPweb has been shortlisted in the Best Specialist (Niche) Job Board category.

NORAs defines this category as: ‘A purely online job board, advertising vacancies within a defined range of disciplines. These sites must operate independently of recruitment firms or publications’. If you’re familiar with GAAPweb (which I’m sure you are if you’re reading this), you’ll know that we’ve been the UK’s leading specialist accounting and finance jobsite for over 11 years.

On a shortlist of eight contenders, GAAPweb is the only finance and accounting niche site nominated. Overall, there were 654 contenders for the Awards, resulting in 25,000 nominations.

As further testament to the success of GAAPweb over the past year, the IFA (The Institute of Financial Accountants) has also nominated GAAPweb in their recruitment category as part of their Achievement Awards.

Industry recognition and accolades are undoubtedly nice to have, but here at GAAPweb we’re more interested in giving you the latest news, highest quality jobs and access to the best recruiters.

Consumers indifferent to VAT cut

It’s actually quite easy to believe it’s been nearly been a year since VAT was trimmed down from 17.5% to 15% in an effort to stimulate consumer spending. It was a change intended to improve the economy that somehow passed by under most people’s radars.

So did it work?

Not according to Big 4 firm PricewaterhouseCoopers (PwC). Almost nine out of ten of people surveyed were unaffected by the change, and certainly weren’t inclined to increase their spending habits because of it. A relatively high 5% of the 2,000 consumers polled didn’t even notice a difference. But then again, they probably had more pressing concerns.

If, like me, you’re a regular consumer whose main focus over the past year has been watching the pennies whilst trying to secure employment or safeguard your job, it’s unlikely you’ll have been persuaded to spend more because things are suddenly marginally cheaper.

The only change that you might have noticed is an item or service costing a slightly more arbitrary figure, rather than say your standard x pounds and ninety-nine pence.

Retailers have felt the change more significantly, since changing price points, hard-coded finance spreadsheets and IT systems have all had to be manually modified to accommodate the VAT drop.

Implemented as part of Alistair Darling’s pre-budget report, and estimated as costing £1bn a month thus far, it seems like a rather expensive way to rejuvenate the flailing economy.

However, it was always designed to be a temporary measure; it’s due to go back up to 17.5% in January 2010.

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.

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.

Fraud in the face of recession

The credit crunch has prompted a few trends: budget shopping, year-long sales and price wars, baby booming, junk food ‘cuisine’ and that fickle temptress, fraud.

I was taking part in a pub quiz the other day when the following question came up:

“What’s the most common illegal practice in the UK today?”

All the teams bar one wrote down fraud (incidentally, the correct answer was speeding). But it goes to show that fraud is considered one of the most frequently committed illegal activities.

According to GAAPweb news, KPMG’s Fraud Barometer reported that the number of serious fraud cases coming to court in the UK hitting a record 21-year high over the first six months of 2009. The total value of these cases was £363 million.

With no immediate sign of economic recovery, more and more people are being driven to varying types of fraud – identity, credit card, benefit, insurance, cash machine, investment, pyramid and Ponzi schemes – the list goes on. It seems that for some, the necessity to pay the bills is greater than the need to abide by the law.

But with fraud costing the economy and individuals so much, it’s safe to say that the general public regard fraud with disdain (Bernard Madoff, anyone?).

Business, professional and personal ethics are extremely important in difficult times. In fact, the Chartered Institute of Management Accountants (CIMA) advocate ethical integrity and encourage it as part of Continuing Professional Development (CPD).

Thankfully, finding a legitimate job during the recession is still the most popular way of making ends meet.

First marketing, now HR. Finance unifies with…everyone

I recently blogged about a new business model designed to align finance and marketing departments for a more beneficial outcome.

Now there’s news of a further CIMA-funded study that has focused on the working relationship between finance and HR departments.

The international case-study report found that the closer these departments work together, the healthier their company’s performance will be.

It seems that if there is cohesion between HR management, management accounting and organisational performance, as well as strategic plans, bonus schemes and annual budgets, there will be a positive impact in the long term.

HR Directors and Financial Directors can use the findings to set an example for their departments by working together more closely. John Innes, one of the researchers behind the study, said that for finance professionals to “view employees as ‘assets’ rather than ‘costs’” can only be a good thing.

It seems fairly necessary to put the ‘human’ element back into finance, particularly at a time when costs, facts and figures with regards to redundancy have been swamping company mentality.

I’m looking forward to the next offering of research that suggests that finance should work with IT. And sales. And production. Let’s face it, ALL departments in ALL companies in ALL sectors need to enhance their levels of communication with each other for a unified and productive future.

Prepare for a changeable financial forecast

A recent walk through my childhood town’s shopping centre left me feeling a little unnerved. Signs were up in about a dozen shop windows bearing the simple notice: ‘Sorry, this shop is now closed’. The fact that no further explanation was given (or needed) suggests to me that we are inherently accepting the failure of businesses as a sign of the times. The forecast looks bleak. Or does it?

There seem to be a mountain of conflicting reports concerning the future outlook of the recession. On the one hand, there’s a feeling that we might be over the worst of it; on the other, we could have a fair few years to go until the economy has completely recovered.

But there has been doubt raised over the validity of these financial forecasts. According to recent news, Chief Financial Officers (CFOs) could be making fundamental errors by basing their predictions on annual budgets and out-of-date information. Only 37% of those surveyed claimed to be updating their forecasts on a monthly basis; the rest admitted to relying on annual reports to help them predict future trends.

If you’re the one in charge of predicting your company’s financial outlook, it’s hugely important that you analyse the most up-to-date information so that budgets can be planned appropriately. If you haven’t already, put a risk adjustment plan in place to help your business survive the downturn.

The status of the recession seems to be changing daily – it’s up to you to keep up with these changes and prepare for a brighter looking future…whenever that may be.