Independent study highlights closeness of international convergence of auditing standards

The case for global convergence of auditing standards is strengthened, says ACCA as EC study is published

ACCA believes the case for the global convergence of auditing standards has been strengthened following the publication of an European Commission report comparing future EU and US standards.

The report, prepared independently by the Maastricht Accounting, Auditing and Information Management Research Center (MARC), evaluates the differences between International Standards in Auditing (ISAs) and the standards of the US Public Company Accounting Oversight Board (PCAOB).

The ISAs have been clarified by a recently-concluded modernisation and are currently the subject of an EC public consultation on their adoption in EU member states.

'This is an important study, and its independence is a key factor,' said David York, ACCA's head of auditing practice. 'Comparing the US system with that proposed for Europe is a timely exercise that also holds lessons for governments, regulators and investors.

'This is a valuable identification and understanding of the similarities and differences between the two systems. In the main, MARC concludes that there is little or no difference between audits under the clarified ISAs and PCAOB standards; this will increasingly be the case in future as the PCAOB is proposing to change its standards on the auditor's assessment of and response to risk, essentially to catch up with the risk-driven principles-based ISAs. There will remain significant differences because of the Sarbanes-Oxley need for separate reporting by auditors on internal control over financial reporting.

'The report confirms that investors are in favour of one set of auditing standards that are followed on a global basis; so it will be interesting to see the reaction to the study in the US. The report also makes the significant point that auditing standards are just one element. Audit quality depends on how they are applied by firms and enforced by regulators. By extension, investors should be in favour of consistent global standards of audit firm governance and transparency and consistent regimes of inspection and oversight.'

Courtesy By ACCA

ACCA Pakistan joins hands with BP

ACCA Pakistan awarded BP Pakistan Exploration with Platinum Approved Employer status in recognition of their commitment towards training and development of ACCA trainees. ACCA’s Approved Employer Scheme plays a pivotal role in the recruitment, development and retention of the ACCA qualified employees in the approved organisations. It allows organisations to reach global best practice in the provision of learning and development opportunities for ACCA trainees and members. The certificate was presented to Mr Farhan Sadiq- Head of Finance, BP by Mr Arif Masud Mirza, Head of ACCA Pakistan. During the ceremony Mr Farhan Sadiq emphasized BP’s commitment to professional excellence and the role of organisations such as ACCA Pakistan in supporting the industry to achieve the same. He stated, “BP looks forward to continuous engagement and co-operation with ACCA in achieving this objective”. Speaking at the occasion, Mr Arif Masud Mirza discussed potential areas of cooperation between BP Pakistan and ACCA Pakistan, including training of Cambridge ICFE, IFRS Diploma and Diploma in Financial Management for its employees. He also highlighted the launching of a Career Portal that would facilitate screening process for recruitment by ACCA Approved Employers in the future.

ACCA Pakistan joins hands with Adamjee Insurance

ACCA Pakistan awarded Adamjee Insurance Company Limited (AICL) with Silver Approved Employer status in recognition of their commitment towards training and development of ACCA trainees and members. The certificate was presented to Mr Mudassar Zubair, CFO, Adamjee Insurance by Mr Arif Masud Mirza, Head of ACCA Pakistan. During the ceremony Mr .Mudassar Zubair stated that, “It is a great pleasure in becoming an ACCA Approved Employer. Our vision is to explore, innovate and differentiate to become leaders to the Insurance Industry. We are constantly exploring new avenues and developing new methods to excel in our endeavors through teamwork and determination.’’ ACCA’s Approved Employer Scheme plays a pivotal role in the recruitment, development and retention of the ACCA trainees and members in the approved organisations. It allows organisations to reach global best practice in the provision of learning and development opportunities for finance and accounting professionals. Speaking at the occasion, Mr Arif Masud Mirza, Head of ACCA Pakistan said that awarding Approved Employer Status will open new vistas of mutual growth for ACCA Pakistan and Adamjee Insurance. He congratulated Adamjee’s entire team for joining the list of over three hundred high profile Approved Employers who are currently investing in ACCA Training programme.

Accenture Provides Application Co-Sourcing To BritAmer Tobacco

Accenture, a global technology services and management consulting company, and British American Tobacco have signed a five-year application co-sourcing contract. This contract will help British American Tobacco to improve its design and also in the development and implementation of IT solutions for its various business operations. However, the financial terms of the contract were not disclosed.

According to this contract, both the companies will design a wide range of applications together for British American Tobacco’s functions. These applications include finance, sales and marketing, and supply chain. Accenture will develop these applications for global, regional, as well as for local use. This program will be beneficial for transforming the solution delivery function of British American Tobacco into a standardized, global and simplified operation.

A joint application development center has been set up to deliver the co-sourced services. It will be delivered through the Accenture Global Delivery Network with British American Tobacco in Spain. It will also involve the delivery centers of India and Philippines.

Craig Wallace, the head of solution delivery of British American Tobacco, believes that this co-sourced program will make them more effective across their global enterprise. He further stated that collaborating with Accenture will enhance their skills, knowledge and capabilities. This will also help them to reshape and transform their solution delivery within the business. Craig Wallace mentioned that “Accenture is arguably the leader in this field and brings world-class people, tools and assets, combined with a deep understanding of and close relationships with SAP and Siebel”.

Koen Van Bockstaele, the senior executive of Accenture’s Consumer Goods & Services practice, stated that this program will help British American Tobacco to deliver their IT solutions in a more coordinated, focused, and efficient manner across their global operations. Mr. Bockstaele also said “We look forward to helping the company significantly improve the speed of technology delivery and reduce the level of complexity in the process”.

Courtesy By Big4

Bearingpoint Signs Agreement For Sale Of EMEA Practice

BearingPoint, a global management and consulting service provider, has announced that it has signed a definitive agreement with the European management team of the company. The agreement was signed for the sale of the EMEA (Europe, Middle East and Africa) practice. It was done for an aggregate purchase price of around $69 million US dollar in total consideration.

The terms of this definitive agreement states that the EMEA practice of BearingPoint is now a legally-independent entity and is owned by EMEA management. Moreover, it will operate as one single partnership. Peter Mockler, BearingPoint EMEA’s executive vice president, and the existing management team will be providing leadership in order to facilitate the transition of the practice successfully. The practice will also continue to operate under the brand name of BearingPoint. Thus, it will benefit from existing brand awareness and equity.

Peter Mockler said that they are confident and that this is the best path for both their clients and employees. He further said “The EMEA leadership team and I are dedicated to the success of the practice and remain steadfast in our commitment to serving our clients”.

The sale of the EMEA practice will be completed either on or before August 31, 2009. However, the sale is subject to the fulfillment of some conditions as well as to the bankruptcy court approval. Moreover, the company has neither assured that the Court will approve the proposed sale nor claimed that this particular transaction will be completed.

Courtesy By Big4

Deloitte And Oracle Extend Alliance For IFRS Solutions

Deloitte, a leading multidisciplinary and professional service provider around the world, has extended its alliance with Oracle, the largest business software company of the world. They are extending their alliance to help the executives address organizational challenges that are associated with the conversion to IFRS (International Financial Reporting Standards). Jointly, Deloitte and Oracle will focus on the various industry-specific challenges that USA and other countries can face while adopting International Financial Reporting Standards.

International Financial Reporting Standards is a set of accounting principles, which focuses on principles and objectives. However, it is less dependent on detailed rules in comparison to U.S. GAAP (U.S. Generally Accepted Accounting Principles). Some of the benefits of IFRS are greater transparency, improved efficiency, reduced complexity and increased comparability. It’s due to these benefits that the investors, who want a clearer insight into corporate performance, have globally accepted IFRS. A roadmap was published by the U.S. Securities and Exchange Commission for adoption and transition of IFRS. This will run from 2011 to 2016. The transition to IFRS will impact the tax, financial regulatory reporting, systems and business processes of a company. However, this impact may vary depending upon the industry as well as the countries from where a company operates.

Deloitte believes that IFRS affects a number of aspects of a company. It may even create effects which may flow throughout the organization. Performance measurement implications and internal and external reporting can also be associated with IFRS. Jointly, Deloitte and Oracle will deliver guidance and innovative solutions to assist the leading Fortune 1000 companies so that they can plan for the transition of IFRS. The highly specialized financial management solutions and IFRS integration team of Oracle and the cross-functional service capabilities of Deloitte will provide an exceptional depth of industry experience. This will help the organizations to manage multiple accounting frameworks, improve business processes and information quality, capitalize on opportunities and enforce global standards.

Terrance Wampler, VP - Financials Product Strategy of Oracle said that “Over 100 countries already require or permit the use of IFRS today, and many organizations are already using Oracle solutions to comply with IFRS requirements”.

Courtesy By Big4

Financial detectives

Thanks to the behaviour exhibited by characters such as the notorious Bernard Madoff, fraud continues to plague the international business community. Recent scandals involving Siemens of Germany, Satyam Computer Services of India, and Daniel Dantas of Brazil indicate that fraud has become endemic in our financial world. And it shows no signs of slowing down. If anything, rapidly deteriorating economic conditions will only serve to encourage even more unscrupulous acts. Those with careers in fraud examination should not find themselves unemployed anytime soon.

What is fraud?

Although no precise international legal definition exists, the term 'fraud' is generally used to describe a variety of acts – including deception, embezzlement, corruption, bribery, forgery, extortion, collusion, theft, conspiracy, misappropriation, concealment of material facts and false representation. In its broadest sense, fraud encompasses any crime for gain that uses deception as its mode of operation.

In general, fraud examiners work to resolve allegations of fraud. But their specific tasks are many and varied, depending on factors such as position, background, industry, and organisation type. A look at current job postings throughout the world shows that fraud examiners may perform audits, conduct financial analyses, interview witnesses and potential suspects, obtain documentary evidence, write investigative reports, present or testify to findings, research records, examine documents and transactions, occasionally conduct surveillance, and assist in the detection and prevention of fraud.

Although many fraud examiners are accountants, fraud examination is not the same as auditing or forensic accounting. Auditing encompasses a general review of financial data for the purpose of expressing an opinion on that data. And because many frauds are financial crimes, there is necessarily a certain degree of auditing involved. Forensic accounting – which is the use of accounting knowledge or skill for courtroom purposes – is often performed in a fraud examination.

Aside from accountants, there are numerous other categories of fraud examiners. They include law enforcement officials, attorneys, finance executives, educators, computer scientists, information technologists, corporate security specialists and private investigators. Organisations throughout the world employ fraud examiners. These organisations include government bodies at all levels, public and privately-held corporations, accounting and auditing firms, law firms, insurance companies, business consulting firms, banks, security consulting firms, detective agencies and small businesses.

The examiner's ideal profile

Given the variety of fields and contexts in which fraud examiners work, it should be no surprise that the skills they need are also many and varied. Not only are certain professional skills and qualifications required, but there are also certain character and personality traits that are invaluable to the field.

For example, fraud examiners working as forensic accountants in the healthcare industry must combine their accounting, auditing, legal, and investigative knowledge to analyse and interpret business and financial evidence. To be successful, they must possess strong analytical and research skills, along with knowledge of the inner workings of the healthcare industry. They must understand billing systems and the many types of fraud perpetrated by medical providers, patients and facilities. Many hold degrees and other professional designations in accounting, law, or a related field. Aside from having certain technical abilities, fraud examiners who work as forensic accountants must be ethical individuals who have remarkable curiosity, attention to detail, intuition and persistence.

Let us look at a more blurred role – that of the external auditor of a publicly traded company. Are these also fraud examiners? If not, do they have any responsibility for combating fraud? If so, what exactly is that responsibility?

Despite the fact that such questions have haunted auditors, investors and the public for decades, there are still no clear answers.

ISA 240, from the International Auditing and Assurance Standards Board, claims that although auditors are required to conduct audits with a healthy degree of scepticism (by obtaining 'reasonable assurance' that financial statements are free from material misstatement caused by fraud), the 'primary responsibility' for fraud prevention and detection rests with management and those charged with governance. But before they buy into this, auditors should take note of myriad lawsuits that have been brought against auditors around the world for failing to detect fraud. There also exists the reality that many auditors will encounter some sort of fraud during their career.

Of course, auditors won't catch every fraud. But this doesn't mean they shouldn't take steps to increase their chances. External auditors must be well-versed in fraud detection and prevention, in addition to their core competencies in accounting and auditing. They must also be ethical, inquisitive, analytical and detail‑oriented.

Aside from formal education and on‑the-job training, what can accountants and auditors do to cultivate their fraud examination skills? Those interested in becoming a fraud examiner may want to consider pursuing the Certified Fraud Examiner (CFE) credential, administered by the Association of Certified Fraud Examiners (ACFE). This globally recognised credential denotes proven expertise in fraud prevention, detection, and deterrence. By obtaining student membership (offered at a discounted rate) of the ACFE, students gain access to a comprehensive set of resources on fraud, including articles, tips, career opportunities and advice.

A career in fraud examination is challenging career and financially rewarding, and growth in the field of fraud examination will remain strong so long as fraud continues to invade the international business community. Given all current indicators, fraud examiners with the right combination of skills and experience should enjoy long standing careers.

Table – Auditing vs fraud examination: the differences explained

Joseph T Wells is founder and chairman of the Association of Certified Fraud Examiners

Green financial futures

 

With world leaders at the G20 summit earlier this year pledging $1.1 trillion to boost the economy while aiming to build an inclusive, green and sustainable recovery, the future looks bright for renewable energy.

Not only are renewable energy companies busy developing green technologies, such as wind, solar and geothermal, but traditional energy companies – the oil and gas behemoths – are also banking on a greener future, and basing their strategies around promised investment from government and fiscal incentives to up their game.

All of which is great news for accountants working in renewable energy, who tackle sector-specific financial issues against the backdrop of a dynamic commercial environment.

Challenges for accountants

One of the financial challenges particular to the renewable energy sector is explained by David Gray, finance director of independent energy consultancy McKinnon & Clarke: 'The main issues are balancing short-term and long-term goals,' he says. 'Prices for renewables will undoubtedly come down in the long term and are forecast to drop below traditional energy prices – but how do renewable companies balance the current needs of profits, cash flow, investment in R&D and investor needs against the longer-term potential benefits to be gained?'

An associated difficulty is that accountants have to rely on traditional financial modelling – such as return on investment – while dealing with a business model that usually presents an imbalance with traditional technology payback in terms of time and efficiency.

FDs working in renewable energy also face familiar problems shared by their counterparts in other industries amid the global economic crisis.

'Those who took on too much debt in the past few years are now working hard to make the interest payments or refinance the debt as it matures,' says Robin Griffiths, an interim CFO who has worked extensively in oil and gas, as well as mining. 'For those management teams that were more conservative, some great opportunities are materialising to pay good prices to purchase rivals or enterprising young companies who were less prudent. For accountants, those with good treasury or corporate finance experience are really feeling wanted right now.'

One benefit renewable energy has over some other sectors is that there is a government-supported drive to invest. But how are the promises to build an inclusive green and sustainable recovery likely to convert into real investment?

Griffiths is sceptical as to whether it will translate into hard cash in the short-term. 'Unfortunately, we are now seeing that the direct investment available from governments is minimal, as they are too indebted themselves to have much free cash.'

The next big thing?

The truth is that investors will gravitate towards the areas most ready for profitable expansion. Adrian Scholtz, who leads KPMG's renewable energy corporate finance activities in the UK and Germany, believes the most likely are 'directly linked to investment promises in the Budget'.

The first is wind power; Scholtz says that the UK's Budget announcement of £525m for the development of offshore wind projects directly led the Eon board to announce investment in building the first phase of a wind farm in the Thames Estuary which, once complete, will be the world's largest.

Scholtz also believes that carbon capture and storage is an area ready for expansion, where natural storage facilities such as old oil and gas fields are used to catch CO2 and store it.

Griffiths, though, warns, 'We will only start approaching profitability for the total product once there is sufficient demand to push down unit costs sufficiently – which for many green technologies seems years away, if not longer – and the most obvious hope for profitable renewables in the short-term is the mass production of some kind of clean car technology.

'On the back of commercial development, some of us hope that costs will come down enough to enable their deployment to somewhere with real pressing need and suitability such as mass solar energy to a developing part of Africa. And accountants can help be a part of that.'

Career prospects in renewable energy

For trainee accountants, what is the job market climate in renewable energy?

'Career prospects for trainees are strong,' says Roland Seddon, regional director at Hays Senior Finance. 'Jobs in renewable energy are likely to increase over the coming year.'

And those jobs can be found not only at the energy companies themselves but also at the professional services firms that advise them. They provide, says Scholtz, a 'big opportunity for people with financial skills to have more commercial roles'.

And as well as tax-related issues increasing in the future – such as organising tax-efficient structures for energy companies – he says that the majority of his work involves investment appraisals.

Working in industry is also attractive, partly because of the buzz surrounding renewable energy and its importance going forward, not to mention its worthy connotations.

'Blue chip energy companies are diverting more of their resources into this sector; we are seeing more and more small renewable energy start-ups,' says Seddon. 'The fact that it's a growing sector – one that's enjoying increased investment – makes it very attractive. Candidates are increasingly looking to work for companies that can demonstrate a social and moral conscience; and they are keen to display green credentials on their CVs.'

Although previous experience in renewable energy is valuable when looking for work, few finance professionals have long track records due to the relatively embryonic state of the sector. So which existing skills will stand you in good stead?

Those with experience in the mining, manufacturing and engineering sectors have an advantage, according to Seddon, who adds, 'Strong candidates will be able to demonstrate skills in investment appraisal, raising finance and corporate finance – skills attractive to a number of employers in renewables as they look to grow over the coming years.'

International opportunity for green thinkers

So if you want to do your bit for the world and move into renewables, which countries will serve you best as you forge an international career?

The answer may surprise you because, while the US fares poorly due primarily to its carbon emissions, Gray points out, 'Most of the largest international players are either based or have a presence in the US; it has companies covering all of the main renewable energy sources. For example, there are companies such as SunPower, who developed photovoltaic [solar] solutions with far greater efficiencies, while GE Energy is the world's leading turbine supplier.'

If you want to work in Europe, Germany is considered by many to be a leader in the development of green policies. 'Germany accounted for 50% of the world's photovoltaic installations in 2007,' says Gray. 'A large part of the reason for this is the system of feed-in tariffs, which rewards those who invest in renewables and export to the grid with high resale prices for the energy exported. This seriously reduces the payback times for renewables.'

As Gray concludes: 'Because of the conflict between traditional financial accounting methods and environmental concerns it certainly helps for accountants to be green thinkers, so that they can think outside the box and look at other returns, rather than just financial ones.'

CASE STUDY: HEENA PANESAR

Heena Panesar is studying for three of her final papers with Kaplan Financial and currently working at Switch2 Energy Solutions, which procures and sells energy to private wire networks. It uses combined heat and power (CHP) engines, which produce heat and electricity in the same process, consuming about 35% less fuel than if the energy is produced separately.

'I wasn't specifically looking to get into the energy sector; I had no idea what was involved, but two and a half years later, it has turned out to be a great area to be working in. When I started, I had no idea what a CHP engine was and how it was energy efficient,' says Heena.

Heena particularly likes working in the energy sector because it is so dynamic. 'It's a great field to work in – there's a growing need for renewable sources of energy, and new developments are moving more towards the use of CHP as an efficient and green way of producing energy. '

She has developed a sound knowledge of the sector through her work.

'On a monthly basis, I produce the financial accounts – but in line with that, there's a lot of investigative work to do on the inputs and outputs of the energy system. I get involved with everything from calculating the selling tariffs for our customers to producing models to monitor the efficiency of the system. I have meetings with clients to discuss any issues that have been identified as a result of the analysis; this can in turn save the company money.

'Now, I'm using the technical knowledge to contribute to the company on a profit level – and it's great working for something that's so important these days.'

Beth Holmes is a freelance journalist

ACCA Increase to exam and exemption fees

From 16 August 2009, the exam and exemptions fees for the ACCA Qualification will be increased. These fees will apply to all students who register with ACCA after the closing date of 15 August and to all students entering for the December 2009 exams.

New fees

Papers F1-F3 £53

Papers F4-F9 £66

Papers P1-P7 £78

Students who registered for the ACCA Qualification before 15 August and have submitted requests for exemptions will still pay the existing exemption fees:

Papers F1-F3 £50

Papers F4-F9 £60

Why is ACCA increasing fees?

The demand for the ACCA Qualification continues to grow and more students are sitting exams in more locations than ever before. Consequently, the costs we incur in running our exams continue to increase.

In addition, to maintain the rigour and reputation of our exams, we are continuing to invest in the latest technologies in exam assessment and delivery to ensure our exams continue to be administered in an efficient and secure manner.

Please can you inform your students of these changes.

Regards

ACCA

Global ACCA pass rates for the June 2009

More than 5,000 students successfully complete exams

17 Aug 2009

A total of 187,335 candidates took 370,715 papers in ACCA's June 2009 exams session. This compares with 182,449 students taking a total of 365,528 papers in December 2008.

The exam results, issued on 17 August 2009, revealed that 5,416 students successfully completed their final examinations to become ACCA affiliates.

The pass rates for the June 2009 sitting of the ACCA Qualification are as follows:
F1 Accountant in Business - 73%*
F2 Management Accounting - 57%*
F3 Financial Accounting - 55%*
F4 Corporate & Business Law - 43%
F5 Performance Management - 41%
F6 Taxation - 61%
F7 Financial Reporting - 30%
F8 Audit and Assurance - 34%
F9 Financial Management - 42%
P1 Professional Accountant - 48%
P2 Corporate Reporting - 44%
P3 Business Analysis - 50%
P4 Adv Financial Management - 30%
P5 Adv Performance Management - 32%
P6 Adv Taxation - 37%
P7 Adv Audit and Assurance - 37%
SOURCE: ACCA

Train the Trainer

ACCA Pakistan’s teacher training initiative

As part of ACCA’s continued efforts towards developing excellence in professional accounting education and establishment of best practices among tertiary accounting educators, a workshop - “Train The Trainer” was held today at a local hotel in Karachi led by Dr Afra Sajjad, Head of Education and Policy Development, ACCA Pakistan and Mr Wali Zahid, CEO, Skillcity. The participants appreciated ACCA’s innovative efforts at enhancing the capacity of accounting faculty. They felt that the workshop was very useful and relevant to their work as it enabled them to learn new teaching skills and methodologies.  Speaking at the event, Dr Afra stated that the “Through initiatives like Teach the Trainer ACCA aims to facilitate tutors to help young men and women of Pakistan to pursue their ambition of a successful career in finance, accounting and taxation and become world class professional accountants”. Mr Wali Zahid emphasised on achieving student excellence through motivation not only towards academic endeavours but also towards professional life.

Courtesy By ACCA

The training of tomorrow’s business professionals requires a radical overhaul

The speed of business in the 21^st century means that management training and development will have to alter drastically according to The future of professional development, the latest report in ACCA’s (the Association of Chartered Certified Accountants) Insight Series.

According to the report, if continuous professional development programmes are to be fit for purpose, keep up with regulatory change and provide acceptable returns on the hundreds of millions of dollars invested each year, then a radical overhaul is needed.

Tony Osude, acting director of professional development at ACCA said: “The set piece ‘talk and chalk’ lectures cannot survive. Business professionals need immediate access to good quality information, and they need to know how to apply it to their work.

Mr Arif Masud Mirza, Head of ACCA Paksitan said that “Accountants are operating in a very different environment and we believe all professional development programmes should reflect this. Although there will always be a place for traditional classroom learning, the way they are taught is going to fundamentally change. The generation entering the profession now is far more technologically adept, and the business benefits of using technology to teach are compelling – it’s really about organisations getting the training blend right.”

Courtesy By ACCA

ACCA Global Economic Confidence Survey

Latest findings reveal renewed optimism and confidence

According to ACCA's latest global survey of finance professionals, economic recovery should be possible within the next 18 months.

The ACCA Global Economic Confidence Conditions Survey for the second quarter of 2009 reveal tentative signs that panic is no longer a major driver of the economy.

Optimism continues to depend substantially on the actions of national governments, but the reliance on state assistance has dissipated since the survey for the first quarter of 2009, and business confidence is now more clearly linked to expectations of future growth. Morale in key regions such as Asia Pacific is much higher, with small and medium-sized enterprises and large financial firms in particular increasingly buoyant about the future. 

According to the survey, 64% of finance professionals feel the global economy has bottomed out – twice the number of those in the Q1 survey. More than a third even expect a recovery within the next 12 months.

However, 10% of respondents are far less optimistic, saying they expected the downturn to remain for three years or longer – a view that is twice as common among public sector accountants.

As far as regional expectations are concerned, the survey reveals that Western European financial professionals the least optimistic about a recovery, while those in Africa are more likely to believe conditions are improving. Respondents in Asia Pacific, however, are generally the most optimistic and consider that the worst is behind them, with expectations of a speedier recovery.

Despite this largely positive shift in perceptions, the survey of 546 ACCA members in 77 countries found only a marginal improvement in trading conditions in the three months to May 2009.

'While there is little evidence of economic recovery, there is renewed confidence and optimism,' said Dr Steve Priddy, ACCA director of technical policy and research. 'Our next quarterly survey will look for real changes in trading conditions which support that viewpoint and whether the private sector is backing its confidence by investing in people and capital – or whether public sector finance professionals are right to think that the global economy has some way to go before recovery begins.'

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Courtesy By ACCA

World leaders: action still required

In spite of the embryonic signs of recovery, there are still many challenges facing world leaders. The first is to ensure that they are not too optimistic. The IMF and World Bank are still predicting declining growth and contracting output around the world, and the outlook according other indicators such as unemployment will remain gloomy. Although the steps taken so far may be beginning to yield results, much more work is still needed to ensure the recovery.

Any optimism may actually go further than stopping the recovery in its tracks - it could reignite the financial crisis. Leaders and economic policy makers will need to ensure that they balance their approach: large government deficits could generate inflation and make it more expensive to borrow on international markets. But implementing a shift towards policy restraint too early will impact with considerable force on the fragile recovery.

A further challenge facing world leaders is the waning momentum for change. As some indicators begin to pick up, public and political pressure to push through reforms is decreasing and there is a danger now that the impetus for radical and necessary change will be lost. The result of this would be - except for a few cosmetic changes - the global economy will emerge from this recession looking much as it did before, only smaller and with more people unemployed and angry.

Reform, for example, of the Bretton Woods institutions is something that is not only important - it is something that has to be implemented more quickly. The Western powers need to face up to political reality and offer a reform of governance that properly reflects the distribution of power in the new global economy. Without these reforms, developing economies, particularly countries such as China and Brazil, may begin to reject the institutions on the basis that they are not representative enough to efficiently pursue their primary objectives, ie. stability of the international financial system and the fight against poverty.

The scale of the current crisis has been associated with inadequate regulation and supervision of banks and financial markets. But rushing through new financial regulation in a purely reactive response to the financial crisis would be a mistake. The priority should be to ensure that existing regulation is enforced thoroughly.

There have also been many political criticisms relating to fair value accounting rules, alleging that they caused some of the market volatility and may have been a factor in the financial crisis. Fair value did not cause the financial crisis, and world leaders should use this crisis to show commitment to the principle of an accountable, transparent and sound system of international regulatory cooperation, maintaining full support for the move towards a single set of high quality international accounting standards. The globalisation of business means that one set of reporting standards, the principles-based IFRS, is essential.

In addition to bigger businesses, SMEs are vital to driving economic recovery through the role they play in creating jobs, innovation, and macroeconomic growth. It is crucial that leaders recognise the importance of SMEs and find more ways to collaborate and partner with business, civil society and governments in encouraging institutional changes to help improve the operating environment for SMEs.

Finally, while politicians struggle to retain votes and work economies out of recession, it is crucial that they acknowledge the climate crisis as well. Acting early, as key policy documents, economic forecasts and project proposals are urging, will raise our chances of diverting catastrophe at a reduced financial and environmental cost, while building a strong green economy.

Courtesy By ACCA

Shocking Accounting Scandal at Huron Consulting Group

Just after market close on Friday July 31st, 2009, Huron Consulting Group dropped a bombshell on investors by announcing an intention to restate its 2006 to 2009 financial statements due to incorrect accounting of “non-cash charges relating to how payments received by the sellers of certain acquired businesses were subsequently redistributed among themselves and to other select Huron employees”. Shell shocked investors immediately sold HURN stock, causing the stock to fall by an astounding 70% from close of market on Friday at $45 to open at a paltry $12 per share at open of market on Monday August 3rd, 2009, and leading to an instant shareholder value disappearance of almost $700 million.

It is now apparent that Huron had agreements to pay some employees at four of its recent acquisitions “earn-out” compensations based on their unit performance after the transaction was completed. These agreements were on their own quite legal, but their accounting was not quite done right. Instead of charging these compensations to P&L expenses as non-cash charges with negative impact on Huron’s net income, they were booked as purchase price goodwill on the balance sheet, thus with no impact on net income and EPS.

Thus, net income and EPS were overstated for these years, and the restatement has the effect of reducing net income by these incorrectly accounted charges. These restatements are not insignificant, in 2006 net income would have decreased by $4 million from $27 million to $23 million; in 2007, net income would have decreased by $18 million from $42 million to $24 million; in 2008, net income would have decreased by $31 million from $41 million to $10 million; in Q1-2009, net income would have decreased by $4 million from $10 million to $6 million. Cumulatively, the total restated amount was $57 million over these four years.

Upon disclosure, the market reduced Huron’s shareholder value by 12 times the fictitious additional earnings of $57 million. Just before this announcement Huron’s P/E ratio was $44 share price divided by estimated EPS of $3.16 or about 14x. Which kind of makes sense.

Huron started as a spinoff from Andersen in March 2002 with about 25 partners and about 200 consultants, principally from Chicago and some pockets in New York, Houston and other parts of the US. The heart of Huron was the Litigation consulting group from the Midwest offices at 33 West Monroe, Chicago downtown. In a matter of weeks while Andersen was crumbling, Huron was able to pull together its core partners, and with financial backing from Lake Partners and Gary Holdren and Dan Broadhurst in the lead, quickly set up its own operating structure and separate offices. Since the core partners had strong and profitable individual practices, they were able to move their clients and personnel to Huron, and given the imminent collapse of Andersen, this was an appropriate move, though with always the inherent risk of a startup entity. Paul Charnetzki, Jim Rojas, Michael Kennelly, Jim Roth, Lisa Snow, Susan Gallagher, Gerald Richardson, Mukesh Gangwal, Michael O’Connor, Robert Wentland, Timothy Zeldenrust among others formed the core team of Chicago partners who launched Huron. Interestingly, this group was a purely consulting practice and had no connection with the Enron audit which caused the downfall of Andersen.

Even at its inception Huron had strong and profitable practices, and notched up annual revenues of $35 million. It focused on litigation services, forensic accounting, bankruptcy, education and healthcare consulting, all services in good demand. Over the years, it grew with amazing rapidity adding new services, new experts, new consultants and new offices both in the US and abroad. Revenues surged to $100 million in 2003. Huron went public in October 2004 (Nasdaq: HURN) with revenues of $150 million and 600 employees, providing an early and financially rewarding exit for Lake Capital and making the initial core partners quite wealthy independent shareholders. Huron continued to grow to $600 million in revenue in 2008 and with 2,000 employees, bucking the economic downturn with services that were quite recession-proof over the last few years. Huron also made a number of acquisitions during this time extending its service depth and international footprint. In 2009, Huron was expecting revenues of about $700 million and about $65 million in net income.

So what happened?

The media and blogs are conveniently pinning the Huron debacle on its Andersen roots, and hinting that the Enron malfeasance bled into Huron. We don’t fully subscribe to this theory, while Huron’s senior management team certainly was from the core of Andersen Chicago, it was hardly involved with Enron’s audit and was quite angry with the way things turned out for the Andersen firm taking the hit for the bad actions of a few employees.

Rather than jumping on the Andersen bandwagon, we think that what transpired here was the result of simple universal human emotions - fear and greed - playing themselves out. Fear of reporting less than satisfactory results to Wall Street which had very high expectations and the financial greed associated with an increasing stock price were in our opinion the key underlying factors for this debacle.

Put yourself in the shoes of Gary Holdren, Huron’s CEO in 2008. Would you rather report to a tough Wall Street crowd a stupendous 23% increase in sales from 2007 and a nearly flat change in net income OR would you report a robust sales growth and a precipitous decline in net income from 2007 to 2008. While we may never find out if Gary Holdren senior management knew of this accounting treatment, our guess is that they preferred the former position and continued to report false numbers in the fervent hope they never get found out. In the battle of truth versus falsehood, truth unfortunately got trampled by greed.

And ironically it is really not senior management which came out with this revelation. According to Huron’s statement, it came to the attention of the Audit Committee of the Board of Directors that there was something amiss when selling shareholders of an acquisition had an agreement among themselves to reallocate a portion to a Huron employee who was not a shareholder, upon which it launched an inquiry to see if other similar situations existed, and further engaged legal and financial advisors and notified PricewaterhouseCoopers, Huron’s auditors who were apparently unaware of this situation. Reading between the lines, it appears that the Audit Committee stumbled upon something and had the guts to chase it independently, senior management never seemed to be quite ready to disclose its errors.

With all this in the background, we are ready to hand out our kudos and shame awards:

First, kudos to the Audit Committee (John McCartney, Dubose Ausley and James Edwards) for unearthing this issue and pursuing it fearlessly to its terrible end.

Second, shame on senior management to succumb to greed and not complying strictly with accounting standards

Third, shame also on the auditor, PricewaterhouseCoopers for failing to spot this issue, especially in 2008, when the amount of money kept in goodwill was $31 million, three times the true net income of Huron of only $10 million

Fourth, shame on Huron itself for providing accounting, internal audit, internal controls, Sarbanes, and similar advice to its corporate clients, while following shady accounting practices. Physician, heal thyself first.

Finally, our sympathies for all the hard working and honest Huron consultants who had nothing to do with acquisitions or their accounting, and are likely as mad as anyone that this could happen to them.

The Chicago Tribune and Crains Chicago are already asking whether Huron will survive this scandal and continue as a company, given the impacts on its standing and potential large scale departures. We think that while this is a devastating hit on the company’s reputation and stock price, it is not a body blow and (unlike BearingPoint) the business will survive over the long term as its consulting service is quite healthy and utilization % quite reasonable. The first steps to announce the restatement, take the full market hit, fire the CEO and CFO, are all in the right direction. It will be tough going for a while (3 shareholder lawsuits already filed), but mass exodus of consultants seems rather unlikely (really, who’s hiring nowadays), and if the new management team which has already survived the Andersen crisis has the right attitudes and goals, (we hope) will make the move to a reputable consulting firm.

We’ll watch and see how things shape up, but the stock seems to be slightly on the upswing with a 6% move up today, which indicates to us that the market move down was perhaps a touch overdone, considering that core operations are still presumably fine.

It’s not fun to see another offspring of the Big4 firm take a nosedive, but its better to take the hit now and find a road to survival, then continue festering longer and be completely wiped off the map. Having seen what transpired at Andersen in 2002, this seems like déjà vu all over again.

Courtesy By bigfouralumni

Climate change: what the UK needs to do to get results

Despite its potentially strong position in the renewable energy market, the UK must do more if it is to achieve climate change targets, says ACCA (the Association of Chartered Certified Accountants) in a new report called The future of renewable energy, which follows up a recent ACCA ‘Friday Forum’ event.

Vicky McAllister, ACCA’s sustainability adviser, explains: “In terms of its investment potential in renewable energy, the UK needs to do more if it is to achieve EU ‘202020’ targets. Investment in renewable energy and low carbon technology is key if the UK is to meet its share of the commitments.”

The main points of the paper are:

• The UK is not taking advantage of investment potential in renewable energy technology, despite having good resources and a number of strengths in the industry
• The UK, along with other EU countries, has committed to meeting its share of the ‘202020’ commitments
• One part of meeting targets is increasing the proportion of renewable energy in the energy mix
• Key elements of a global policy framework for a ‘green new deal’ include effectiveness, efficiency and equity: ‘the three E’s’

Dimitri Zenghelis, climate change economist for Cisco and senior visiting fellow at the LSE’s Grantham Research Institute on Climate, who was one of the speakers at the event, said:

“More needs to done by the Government and businesses in the UK to ensure that the UK’s renewable energy opportunities are properly utilized. Currently, the UK is not taking full advantage of investment potential in renewable energy technology”.

For more information about ACCA’s ‘Friday Forum’ events, and for further information on ACCA’s work on sustainability, please go to: www.accaglobal.com/sustainability

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Notes to Editors
1. ACCA is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We have 362,000 students and 131,500 members in 170 countries worldwide.
2. ACCA has worked with governments, national organisations and development agencies in emerging economies- for over 20 years- promoting the accounting profession, to create value for the communities, businesses and individuals it serves.
3. ACCA believes that globalisation of business means that one set of reporting standards is essential. We favour the principles-based IFRS.
4. ACCA understands the real issues facing small businesses as 63,000 of our members work in SMEs or small partnerships worldwide.
5. ACCA’s next Friday Forum is on ‘USA Climate Change Policy’ and is being held on 17 July 2009.

Courtesy By ACCA