Cima Sept 2013

www.fm-magazine.
com September 2013
AFRICA
CALLING
How the mobile phone
revolution has opened the
continent for business
HM treasurys
Kirstin baker on
keeping Britains
banks afloat during
the financial crisis
Why a paywall is
n0ton the menu
atthe guardian s
online newspaper
Financial Management | September 2013
A word from the president
Our generation Y survey is one of the most comprehensive of its kind
D
Illustration: Jrn Kaspuhl/Dutch Uncle
uring my recent travels as

CIMA president I have noticed
that one of the hot topics in
many regions of the world
concerns how generation Y
todays group of 20- and 30-somethings
might shape business in the future.
Pinning down the characteristics of
generation Y is a little more difficult.
Anumber of people claim to be experts
in capturing the motivations of this
group, but I wonder what generation
Y-ers think about all this themselves.
As I outlined in my previous column,
leaders in government, business and
academia urgently need to address the
high level of youth unemployment
worldwide and the ongoing skills gaps
inmany professions accounting
included. CIMA is committed to helping
solve these problems by providing a
global pathway for a better-skilled
workforce. And we are working on how
we can accelerate this process.
As I write, I have just read the
preliminary results of CIMAs global
generation Y survey. This is one of the
most comprehensive studies of its kind
and will draw together enough in-depth
data to give a clear picture of generation
Ys career aspirations. We will then
compare these findings with the results
of a second global poll that asks
companies what qualities they are
seeking in their generation Y employees.
We sent our first survey to 130,000
people, aiming at those aged between
How has the institute helped your
career? Wed like to hear from
members and students about how the
CIMA qualification has accelerated
their progress. Email your story to:
responses@cimaglobal.com
15and 33. Over the next few months

theinstitute will analyse their responses
in depth to build a profile of generation
Y in different parts of the world.
From my own interpretation of the
results, one of the most interesting
findings relates to what generation
Y-erslook for in a prospective employer.
Given the choice, two-thirds of the
respondents said that they would prefer
to work for an organisation that shared
their values and fitted in with their
lifestyles, as opposed to a company
thatoffered them big financial rewards.
As the dustsettles from the global
economic downturn, I think this is
atelling sign of the times.
We also asked our sample what they
thought employers were looking for in
terms of skills. More than three-quarters
said they thought softer skills were
mostimportant at entry level. When it
came to both middle-management and
senior levels, they rated professional
management skills as most important,
followed by soft skills and advanced
technical skills. I will be interested to
seehow employers respond to this same
question in the second survey.
When it came to career development,
most of our generation Y respondents
told us they thought that the
responsibility should be shared equally
between themselves and their
employer.Fewer than 10 per cent said
that their employer should provide for
all their training requirements. This is
CIMA
LinkedIn
group:
tinyurl.com/
ahxyoda
another interesting nugget of

information to put into the pot.
Reassuringly, when our financebased respondents were asked which
accounting qualification they would
choose, most opted for CIMA, saying
they viewed it favourably because it
would enable them to achieve a globally
recognised standard. This could be
another sign that the new CGMA
designation is striking a chord with the
business leaders of the future.
The final results of the generation Y
survey may have a slightly different
toneonce they have been reviewed and
weighted, but it is fascinating to get an
idea of whats going on inside the heads
of the next set of business leaders.
Thereal value of this study will emerge
once we combine it with the results of
the employers survey. In the meantime
Ilookforward to meeting many more
generation Y-ers and discovering at first
hand how CIMA can help to fast-forward
their career development.
Malcolm Furber, FCMA, CGMA

CIMA president
at a glance
Inform
3-21
A word from the president

MalcolmFurber p3
I worked on Implementing global
accounting standards at the International
Organization for Migration p6
Inform p915 A digest of the latest
developments in management
accountancy and beyond:
Hot potato Ethical dilemmas resolved
Gen Y The cloud versus online fraud
Must read When the Money Runs Out
Thinking and opinion A study of soft
skills in accounting; plus Sarah
Thompson of the Australian Financial
Review on Australias botched attempts
to tax its mining industry
Led by finance How Ceylon Cold Stores
strengthened its position in Sri Lankas
ice cream market p17
36
32
22
The insider view South Africa p18

The data A new name from China tops
the list of the worlds biggest banks p21
Features
22-43
The smart continent Africas mobile

boom and its commercial benefits p22
Hold the home page The Guardians
plan for profiting from its website p28
Cover photograph: Sam Hofman and Kyle Bean
Information overdrive The next stage

of the integrated reporting journey p32
Q&A: Kirstin Baker, finance and
commercial director, HM Treasury p36
8 ways to Use business intelligence
better p42
CIMA is the
Chartered Institute
of Management
Accountants
26 Chapter Street,
London SW1P 4NP
020 7663 5441
www.cimaglobal.com
President
Malcolm Furber, FCMA, CGMA
Deputy president
Keith Luck, FCMA, CGMA
Vice-president
Myriam Madden, FCMA, CGMA
Chief executive
Charles Tilley, FCMA, CGMA
Head of media and

communications
Katie Scott-Kurti
FM is published for CIMA
by Seven, 3-7 Herbal Hill,
London EC1R 5EJ
Group editor
Jon Watkins
Editor Lawrie Holmes

Managing editor
Darren Barrett
Technical editor Neil Cole
Group art director
Simon Campbell
Junior designer
Josh Farley
Creative director
Michael Booth
Chief sub editor
Steve McCubbin
Deputy chief sub editor
Chris Ryder
Deputy picture editor
Louise Fenerci
Resource 45-64
Study notes
T4 part B case study, paper P2 and
paper P1 p45
Technical notes
Two ways to tackle disclosure overload;
plusthe benefits of automating
balance sheet reconciliation p55
What you learn on
CIMAs Mastercourse on transforming
the finance function p60
The institute
How the benevolent fund is helping
one member in need; plus a report from
the investigation committee p63
CIMA events
Dates for your diary, plus a summary
ofrecent institute events p64
Back
65-66
Editors note
How do you run a firm whose governance process is
quite unlike that of most others? Andrew Miller, CEO
of the Guardian Media Group (GMG), has just such a
task. Although the Guardian website is a world-leading
online news source, hes working out how best to profit
from its status while observing a strict code of editorial
integrity and, crucially, without installing a paywall.
Its about setting a clear strategy and understanding
what you want to achieve, Miller says.
In our other feature interview Kirstin Baker, finance
and commercial director at HM Treasury, discusses
why the issues she faces make her key government role
as challenging as any corporate equivalent. We worry
about the economy and the social impact and we
deal with some pretty complex problems, she says.
All of those elements came to the fore when Baker
found herself in a small policymaking team struggling
day and night to save a number of British banks at the
height of the financial crisis in 2008.
We were battling on all fronts, she recalls. And we
did feel that, if we got it wrong and the markets didnt
like what we were announcing, we could be in a
position where there was no more money in the banks
cash machines.
Lawrie Holmes
Please send your comments and ideas to
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www.cimasphere.com/groups
CIMA CEO column

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Watercooler p66
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Name Ovais Sarmad, ACMA, CGMA

Organisation International
Organization for Migration
Role Chief of staff
CIMA qualified 1988
I worked on
Implementing
global
accounting
standards
in an intergovernmental
organisation
Start date 2009 End date 2012
Location Geneva, Switzerland
I joined the International Organization

for Migration (IOM) in 1990. The IOM
represents the interests of refugees,
economic migrants and residents of
countries denied sovereign status.
In the 1980s I had held jobs in finance
atmarketing company William Levene
and race relations body the Runnymede
Trust in London, as well as working at
accountancy firm G&GB Young.
Having qualified with CIMA in
1988Imoved to the IOM and began
contributing to the growth of the
organisation by implementing
management accounting principles.
Streamlining administrative processes
and strengthening internal controls has
cut waste, duplication and bureaucracy,
optimising resources for the maximum
benefit of our ultimate beneficiaries.
As migration has developed into one
of the worlds most significant trends,
the IOM has expanded significantly.

Founded in 1951 by a group of 16
countries, the organisation sits
alongside, and has bilateral agreements
with, the United Nations, where it also
has a seat on the general assembly as an
observer. In my time at the IOM, where
Ihave held a number of roles including
head of the Philippines mission and
director of the global administrative
centre I have seen its budget increase
sixfold from $200m in 2012.
Chief of staff, the job I was promoted
to last year, is the highest position in the
organisation after the politically elected
posts of director-general and deputy
director-general.
In my previous job as director of the
department of resources management
Ibegan the IOMs implementation of
international public-sector accounting
standards (IPSAS). We started the plan
[The IOM by numbers]

Represents
151
member states
Employs
9,000
people in
450
locations worldwide
Has an annual budget of
IOM 2013
$1.3bn
four years ago and completed it last year.

Our audit was conducted by the
comptroller and auditor-general of the
government of India, which issued a
report certifying that our accounts for
year ended 2012 were IPSAS compliant.
In order to comply, we needed to
implement an enterprise resource
planning (ERP) system. This took three
years and the total cost, including that
ofrolling out the new software to our
offices around the world, was about
$25m. The project was implemented on
time and within budget, and was a key
element in moving the IOM towards
accrual accounting.
Operating to internationally accepted
accounting standards is vital if you are
an organisation that relies on hundreds
of donors worldwide all of which are
working to their own key performance
indicators. It has also enabled the IOM
tomanage its administrative costs and

overheads more effectively. We have
created a flatter organisation and
maintained a lean HQ structure of about
250 employees in Geneva. We achieved
I have seen our

budget increase
sixfold from
$200min 2012
this by establishing administrative
centres in the Philippines and Panama,
from where a range of back-office
functions such as accounting, HR
administration, procurement support
and IT services to offices worldwide

areperformed.
The decentralisation of support
functions has enabled us to implement
operational activities to benefit migrants
and mobile populations at minimum
administrative cost and with maximum
efficiency. The IOMs overhead rate of
5per cent is one of the lowest among its
peers. This has been made possible by
the cost-conscious and proactive
management of scarce resources.
The skills to drive and manage growth
in the IOM by complying with IPSAS,
implementing ERP, decentralising
back-office tasks and maintaining a
leanorganisation with low overheads
are based on the principles of value
addition and management innovation,
which is what the CIMA qualification
provides to all students andmembers
oftheinstitute.
INFORM
news/opinion/comment/insight/analysis
CFOs value reputation

over short-term profits
Getty Images
s corporate activities face growing scrutiny,

organisations are becoming increasingly
prepared to forego short-term profits if this
would protect their reputations in the long term,
aCGMA survey has found.
According to the global poll, conducted by CIMA
and theAICPA, 76 per cent of CFOs and other senior
finance professionals believe that their organisations
are prepared to make such a sacrifice.
The respondents cited three main reasons for this
increasing preoccupation with reputational risk:
l Growing market demand for greater transparency.
l Incidents at leading organisations or competitors
leading to a loss of reputation.
l The rise of social media.
Of the CGMA designation holders surveyed, 65 per
cent said that their organisations often or always
considered the financial implications of reputational
risks when making investment decisions. Almost half
(44 per cent) said that their organisations had
rejected a project that made financial sense because
its reputational risks were too great.
Organisations are increasingly recognising the
need to take reputational risks very seriously if
potential crises are not to turn into catastrophes.
After all, nearly a quarter of the businesses surveyed
admitted to experiencing a reputational failure
andthe widespread use of the internet and social
media casts a harsher spotlight than before, said
Tanya Barman, head of ethics at CIMA. But what is
very worrying is the revelation that businesses still
seem to be struggling to manage their non-financial
reporting in this area.
For more details, visit www.tinyurl.com/p5jolrf
10
inform
HOT
potato
This months dilemma
Finance and HR can have more

impact by working together
IMA has started a collaboration

withtheChartered Institute of
Personnel and Development (CIPD)
aimed at fostering a closer working
relationship between the finance and HR
management professions.
The ultimate goal of this initiative is
toincrease the two functions combined
contribution to business, with an early
focuson transforming how organisations
understand, measure and report data on
theirpeople to drive success.
The work will include a programme of
jointresearch on subjects including big data,
integrated business reporting and shared
services for HR and finance, with the first
shared project researching human capital
measurement. This study will explore a
sharedconcern that organisations arent
consistently good at valuing the contribution
of people to their performance and value,
oratassessing the risks to business success
that poor people management can pose.
poll of
the month
The institutes will also make their relevant

continuous professional development and
training programmes available to each
othersmembers in order to help boost
knowledge, development and understanding
through learning.
In a joint statement, they said: While
financial information is a critical and
recognised measure of a companys value,
theimportance of people data is not fully
understood by many businesses and is
therefore overlooked, often to the detriment
of longer-term thinking something that
CIMA and the CIPD are striving to rectify.
CIMAs chief executive, Charles Tilley,
added: When talking about property value,
the adage often used is location, location,
location. When thinking about the driver
of any business, we should be saying it is
people, people, people.
Visit www.tinyurl.com/o89r5q5 to read
more about the collaboration. See also the
CIMA CEO column on page 65
Yes: 34%
We asked
Is global corporate governance
in crisis?
No, but a significant improvement is needed: 54%
Source: www.fm-magazine.com
Dont know/undecided: 2%
No, its in good shape: 10%
The dilemma In the food factory

where I work as finance business
partner, a new production manager
has arrived. Less is being spent on
quality control now and a batch
ofbiscuits has just failed selective
testing. There are no health risks
assuch, but control is no longer of
thequality that we claim publicly.
He insists that we should go to
market as its only a minor defect.
CIMAs RESPONSE This is an issue
of integrity (handbook section 110).
Does distribution undermine any
commitments to quality by being
materially false or misleading, or by
omitting or obscuring information?
Consider the consequences both
financial and reputational and
whether there are any regulatory
breaches. Also consider whether
the manager is trying to intimidate
you to comply (section 310). If so,
take the matter to your director.
For the code and other
online ethics resources, visit
www.cimaglobal.com/ethics
Disclaimer CIMA does not
provide legal, investment,
professional or career advice.
Noresponsibility or liability
whatsoever is accepted for any
error or omission (whether or not
arising out of negligence), or for
any loss or damage sustained, as
aresultof reliance on information
supplied or comments made.
What the poll says

The results of FMs latest online
survey show that, following a
seriesof high-profile scandals
andinvestigations, confidence in
corporate governance has been
damaged considerably. Most
respondents feel that corporate
governance is either failing or in
need of significant improvement.
Perhaps more telling is that only 10
per cent feel its in good shape.
11
Disengaged staff
hitting profits
arge organisations could be

damaging their profitability by
failing to motivate workers,
withonly a quarter of their employees
agreeing that they are highly engaged
with their jobs, new research suggests.
A survey of 200 companies employing
more than 1,000 people each by US
consulting firm Temkin Group has
found that fewer than half of businesses
place a high priority on taking action as
a result of feedback from employees.
The lack of a clear engagement
strategy and the narrow reach of
engagement activities contribute to fewer
than 25 per cent of organisations earning
strong or very strong scores on our
employee engagement competency
assessment, Temkin Group said.
A report based on the survey suggests
that companies with such poor
employee engagement could suffer a
negative impact on their bottom lines.
on
cgma.
org
Getty Images
For CGMAs, the

following content is
now available online
When we compared companies with

strong employee experience scores
withthe others, we found leading firms
to have better financial and customer
experience results, the report stated.
Temkin Groups figures indicate that
three-quarters of the companies that
reported stronger employee engagement
efforts provided an above-average
customer experience. This correlates
with better financial performance.
Eight out of ten companies that made
stronger efforts to motivate their
employees had above-average financial
results, compared with only half of firms
that made weaker engagement efforts,
according to the research.
Expansion back
on CFOs agendas
he finance directors of some of

the UKs biggest companies are
shifting towards expansionary
strategies and are becoming more
willing to take on risk, according to
Deloittes latest CFO survey.
The research, which gauges the
viewsof 135 CFOs including 37 from
theFTSE100 and 45 from the FTSE 250
shows that their expectations for
recruitment, investment and
discretionary spending have returned
tolevels previously seen in early 2011.
Forty-five per cent of respondents
said that the time was right to take risk
on to the balance sheet the highest
Why youre never safe from more

work even after hours. Just
because its midnight doesnt
meanyour boss expects you to
stopworking. More than a third of
employees have reported
receivingwork-related emails
outside working hours. Mobile
technology isexpanding the
boundaries of the workplace in
many ways not all of them good.
www.tinyurl.com/ojck3tt
New duties on horizon for
internal auditors. Strategic
responsibilities will become an
increased focus for internal
auditors over the next two years,
percentage in six years and double the

number surveyed a year ago.
CFOs are also placing more emphasis
on expansion through acquisition
andthe introduction of new products
orservices. They also seem to be
softeningtheir stance on cost reduction:
only 34 per cent said that cutting
costswas a priorityfor their business
down from 42 per cent in Q1 2013.
Business optimism has been
improving for some time, but our latest
survey shows that CFOs are translating
this confidence into action. A rising risk
appetite and a shift towards expansion
show that large corporations are
increasingly planning for growth.
Therecession-era focus on cost-cutting
and debt reduction is easing, said
IanStewart, chief economist at Deloitte.
Its particularly encouraging to see
the move towards growth among
UK-facing companies, he added.
Thesehave been consistently more
defensive than their international-facing
peers in the past two years. Their shift
towards more pro-growth strategies is
asign of an improving UK outlook.
according to a global EY survey.

Fewer than one-third of
respondents said strategy was
theprimary mandate or focus of
internal audit, but that they
expected the emphasis to shift.
www.tinyurl.com/qx8uucu
Corruption and business risk on
the rise worldwide. Transparency
Internationals 2013 Global
corruption barometer survey
hasfound that 5 per cent of its
respondents in the UK and the US
had paid a bribe in the previous
12months when interacting with
key public bodies and services.
www.tinyurl.com/l77j6ln
Three steps to safeguard against

corruption. Regulators worldwide
have stepped up their enforcement
of anti-corruption laws, especially
as more and more companies of all
sizes have invested in doing
business abroad.
www.tinyurl.com/pdfvroy
Three lessons in managing supplychain data. Aidan Goddard, FCMA,
CGMA, the CFO and COO of
LOccitane en Provences AsiaPacific operations, explains how
bigdata, when harnessed, can help
a company to cut costs and refine
its sales and marketing strategies.
www.tinyurl.com/kqjvc3p
12
inform
A big fraud or a fraud killer?

Chris Kennedy on cloud computings opportunity to enhance its
image by helping organisations to combat online payment scams
One of the most hyped, yet misunderstood,
strategies of recent years is the new world of
business evangelised by the proponents of cloud
computing. Few new commercial IT solutions
emerge today without reference to the cloud
andthe wonders held within it. Although many
financial professionals remain reluctant to take
advantage of cloud computing deterred by
security concerns and the fear of losing control
overtheir data the cloud is actually beginning
toplay its own role in improving information
security and preventing fraud.
Online fraud is the next great hurdle for the internet.

Lastyear, more than $1.4trn-worth of transactions were
completed on the web. Although this represents only
The cloud can play an invaluable role here. We at Trustev

are working to eliminate fraud for online merchants by
ensuring that they can properly identify whom they are
doing business with. We are adopting a new approach to
thetypes of data we analyse: in addition to using traditional
data sets, such as postal addresses, were also looking for
patterns in data dynamically generated by online services
about particular individuals.
Chris Kennedy,
chief technology
officer and
co-founder
ofTrustev
This automated system analyses patterns behind the

data, not a users private information itself. The sheer
amount of data processing and security that is required
forthis form of anti-fraud solution depends on cloud-based
technology. Not having a cloud solution would
necessitatean investment in the region of hundreds of
thousands of pounds in physical hardware before a
companycould even get started in this area a huge barrier
to entry. Heres an opportunity for the cloud to be on the
right side ofthe fraud discussion.
Illustration: Mitch Blunt/Dutch Uncle
Behind the technical complexities and the jargon,

thecloud comes back to one simple premise. Itmeans
thatbusinesses no longer need to make massive
investments inhardware such as file servers, yetitoffers
them the abilityto create virtual computers thatsit on
theinternetand perform the functions they need,as and
whenthey need them. If youre busier than normal, you can
simplyadda few virtualmachines. When things are quieter,
you can turnafew off. The cloud enables you to adjust
yourorganisations technologyprocesses as it changes size
andits technology needs develop.
5percent of total retail commerce, the proportion of

moneylost as a result of internet fraud is increasing rapidly.
Atpresent, almost 1.6per cent of all online transactions
turnoutto be fraudulent. At the current level of anti-fraud
technology, nearly 27 per cent of online transactions need
tobe manually reviewed by a human. Clearly, with the
rateat which e-commerce is growing, this approach to
verificationisnt sustainable.
must read
13
Policy myopia: a
ticket to dystopia
The author of When the
Money Runs Out HSBCs
chief economist warns
thatthe West must face up
to its new economic realities
When the
Money Runs
Out: the End
ofWestern
Affluence
Stephen D King,
20,
Yale University
Press
he stimulus versus
austerity debate has
diverted attention away
from the key long-term
economic challenge
facing policymakers
inthe West. In the face of persistent
stagnation, is it still possible for the
financial and political claims made
over many decades to be honoured?
What happens to pensions, healthcare,
education and the value of assets if
policymakers are simply unable to
return GDP growth to its rates of old?
Western economies have already
plodded through one lost decade. In the
UK, for instance, per capita incomes
roseby only four per cent in 2003-13
the lowest increase by far in any
postwar decade. Yet many people
behaved as if the good times were still
rolling: fiscal spending as a share of
national income surged; taxes were cut;
business leaders gave themselves huge
pay rises; and investors hunted ever
Getty Images
Twitterati
What business leaders
have been tweeting recently
about strategy, risk and
innovation
more aggressively for yield, seemingly

unaware of the associated risks. All the
while, policymakers allowed their
forecasts to be infected with optimism
bias, persistently assuming that strong
growth was just around the corner.
In truth, the Wests golden age of
growth which ran from the 1950s to
theend of the 20th century has ended.
Thisera was dominated by one-off
advances: trade opened up after the
protectionism of the interwar years;
millions of women joined the workforce;
consumer credit surged, enabling
households to spend today and pay
tomorrow; and higher education became
an achievable ambition for the many,
not only the privileged few.
Although technology remains an
important economic driver, of course,
itwill not be enough onits own to
replicate the growth seen in the postwar
period. Yet we continue to believe that,
with a few adjustments to monetary
policy and some fiscal stimuli here
andthere, we can quickly return to

business as usual.
Evidence collected from hundreds
ofyears shows that economies do
sometimes hit a brick wall. From the
Black Death to the French revolution
toArgentinas 20th-century financial
demise, economic distress can then
leadto sociopolitical upheaval. As
AdamSmith once argued, the risk is that
societies then shift from progressive
toeither dull or melancholy states
where trust breaks down, loss aversion
sets in and entrepreneurialism dies.
The West doesnt have to succumb
tothese pressures, but the risks will
onlyincrease in the absence of lasting
reform. We have to learn to live within
our means, not pretend that future
growth will automatically bail us out.
That entails tough choices on among
other things public spending, banking
regulation and the inter-generational
divide. Otherwise, it really will be the
end of western affluence.
Sir Richard Branson,

chairman of
VirginGroup:
@richardbranson
Find the right people
to work with and you
cant go wrong.
Jeff Immelt, CEO of

General Electric:
@JeffImmelt
Thomas Edison
looked at what the
world needed and
proceeded to
inventit.
Umair Haque,
economist:
@umairh
Its stupid to bet on
the future. But its
stupider not to.
Rupert Soames,
CEO of Aggreko:
@rsoames
I am really getting
into this Twitter
thingamajig.
14
inform
Thinking
How effective is the process of developing
interpersonal skills for financial managers?
Management
accountants
need to be
excellent
communicators,
but employers
are concerned
about a skills gap
in this key area
We have also found that employers are
worried that key skills are not being
exhibited, despite all the efforts to
develop them. Of particular concern is
alack of communication skills. We need
to improve our understanding of the
barriers to the development of these
crucial skills. Traditional approaches
tohoning such skills have been shown
notto work because of these barriers.
They must therefore be dismantled.
When individuals choose to pursue a
career in management accounting they
must be made aware of the range of

interpersonal skills required of the
modern financial management
professional. Theseshould become a key
part of all recruitment literature and job
specifications. Relevant performance
metrics should also be developed to
measure the required skills during the
selection process.
By John Joyce, professor of management
accounting education, and Trevor Hassall,
professor of accounting education, at
SheffieldHallam University.
Illustration: Karolin Schnoor /Dutch Uncle
anagement
accounting is
changing. The
main factors
behind this are
globalisation and
advances in technology, which are
making the business environment
increasingly dynamic and complex.
Tomeet the challenges that await them,
therefore, management accountants
need to become market-orientated
financial analysts and strategic advisers.
Software developments have led
management accountants to focus less
on inputs and more on interpreting
financial data and getting involved in
strategic planning. The demand is for
them to add value through activities
such as customer profitability analysis
and process improvement.
There has been a long-standing
debate about the changing personal
development needs of management
accountants. Central to it is the breadth
of skills required and the balance
needed between technical knowledge
and personal qualities. Theemerging
view is that management accountants
will not only be required to know that;
they will also be required toknow how.
Akey factor will be to develop the
interpersonal skills required to put
knowledge into practice. Skills such as
communication, teamwork, time
management and problem-solving will
be needed to enable technical accounting
to be exercised in the relevant context.
Ourresearch, which involved
management accounting professionals
and their employers, sought to establish
not only the importance of a range of
interpersonal skills, but also the
priorities for developing them.
Communication skills have emerged
as a key factor. Our study has
highlighted an important relationship
between these and the development of
skills such as teamwork and leadership.
15
Opinion
Two botched efforts to extract tax revenue from the mining industry will not have helped
the Australian Labor Partys chances in this months election, writes Sarah Thompson
Illustration: Lyndon Hayes/Dutch Uncle
ustralias attempts to
tax its miners huge
gains resulting from
Asian demand in
recent years have
become a curse for its
politicians. The ill-conceived resource
super-profit tax (RSPT) broke Kevin
Rudds prime ministership in 2010,
while the minerals resource rent tax
(MRRT) was similarly damaging for his
successor as Labor PM, Julia Gillard.
The MRRT created considerable
global uncertainty as the share prices of
Australias resources companies some
of the biggest in world were marked
down after its implementation in July
2012. Only a meagre amount has been
raised so far, suggesting that the cost of
administering the tax could even exceed
the revenue raised. In fact, the most
significant impact of the MRRT, a tax on
profits made from the extraction of
non-renewable resources in Australia,

isthat it has created more jobs for
accountants, who are needed to tackle
its mind-numbing complexity.
A replacement for the RSPT, which
was withdrawn just before its planned
implementation, the MRRT is levied at
30 per cent of super profits gained
from the mining of iron ore and coal.
Acompany becomes liable when its
annualprofit reaches A$75m a measure
designed so as not to burden smaller
players. Potentially, more than 300 firms
could be affected. There is no time limit;
the tax is there in perpetuity unless a
future government decides to end it.
Rudd and his finance minister at the
time, Wayne Swan, had announced the
RSPT as part of their response to a
wide-ranging review of the tax system
chaired by Ken Henry, then secretary to
the Treasury. The RSPT was to be levied
at 40 per cent and to apply to all mining,
Sarah Thompson
is editor of the
Street talk
section of
theAustralian
Financial Review
including for gold, nickel and uranium.

The planned measure was a key factor
behind Rudds downfall in June 2010.
Gillard replaced it immediately with the
MRRT after she took over as PM. Thetax
won support from the Australian
Council of Trade Unions and various
miners unions, along with conditional
backing from the Australian Greens.
BHP Billiton and Rio Tinto have not
opposed the MRRT publicly in the same
way that they resisted the RSPT, but other
big industry players and the Liberal/
National opposition have all come out
against it. Andrew Forrest, chairman of
Fortescue Metals Group, said that the tax
would reduce investment in Australia,
while Gina Rinehart the nations
richest person and owner of Hancock
Prospecting argued that it would do so
to the tune of billions of dollars.
The measure must be seen in the
context of Labors pledge to cut the
company tax rate from 30 per cent to
29per cent in 2013-14, but with no
commitment for another cut until the
fiscal position improves. In the May 2012
budget it was claimed that the MRRT
would bring in A$3bn for the year. By
October the forecast was cut to A$2bn.
In May 2013 the government was
forced to admit that its annual MRRT
receipts were expected to be a mere
A$200m. Rudd said that his Labor
colleagues Swan and Gillard had to take
responsibility for the MRRT and deal
with the consequences of its near
non-existent revenue.
The controversy was another nail in
the coffin for Gillards increasingly
unpopular leadership. On 27 June she
resigned after losing a party ballot to
Rudd, who was reinstated as PM.
The campaign to tap some of the vast
new wealth of Australias extractive
industry has not only undermined the
value of its leading companies. It has
also come at a cost to Labors credibility
as the general election approaches.
Led by
finance
In 2009 a Sri Lankan food and drink
manufacturer called Ceylon Cold
Stores was struggling to preserve its
share of a toughening market. The
firms sector financial controller at
thetime, Daminda Gamlath, explains
how it turned the situation around
The context Ceylon Cold Stores (CCS), a 146-year-old
listed firm that can trace its origins to the Colombo Ice
Company, has constantly reinvented itself to remain
competitive. As well as producing carbonated soft
drinks, CCS has been manufacturing ice cream products
under the Elephant House name for 75 years in two key
categories: bulk(take-home) products and impulse
products that are consumed away from home. It also
hasother sub-brands.
17
The plan Innovation formed the basis of CCSs multipronged strategy, which included freshening up the
companys image and adopting a weighted brand structure,
with bulk ice cream products taking advantage of the
Elephant House master-brand identity and impulse
products developing their own sub-brands. The brand
revitalisation was given the go-ahead in 2009 after it
secured approval from the executive committee of CCSs
largest shareholder, John Keells Holdings.
The team Reporting directly to the board, the consumer
foods sector president led a cross-functional project team
in which each member was responsible for communicating
the plan and its objectives to their respective departments.
For example, the finance function produced parameters
andcriteria designed to enhance the efficiency and
effectiveness of all functions, from product development
tosales. Outside agencies and consultants did the research
and worked on the creative concepts.
The challenge CCSs dominant position in the market

wascoming under pressure. It needed to respond
successfully to four external factors fast-changing
consumer tastes, a decrease in its customers
purchasing power, dated perceptions of the brand
and the emergence of low-priced competitors while
remaining profitable.
Illustration: Mike McQuade
The process CCS knew that it wouldnt win the battle without
investing in product innovations and developing new channel and
pricing strategies that would keep it ahead of the competition.
Having established a stronghold, we went on to consolidate it,
making long-term plans for monitoring the businesss progress more
closely and realigning it when needed; tightening internal controls;
and implementing variance analysis, management by exception,
credit analysis, risk mitigation and continuous work-study
improvements. Detailed operational plans were also made for
streamlining production, sales and transport processes in order to
ensure more timely and efficient deliveries while keeping costs down.
Many sustainability initiatives were implemented to reduce our
operations carbon footprint, conserve energy, improve labour
practices and ensure product quality.
The outcome After the initiatives were completed in July 2010, CCS
made an annual profit after tax of Rs1.1bn (5.5m) the highest in its
history. It was also ranked seventh in the top 100 list of Sri Lankas
mostrespected entities by business magazine Lanka Monthly Digest.
Theturnaround was recognised at the Sri Lanka Institute of
Marketings brand excellence awards as the best turnaround brand
of the year.
18
inform
The insider view:

South Africa
FM examines how business is conducted in countries around
the world, with local experts acting as business guides
19
COMMERCIAL environment
South Africas economic prospects
look relatively good, with GDP growth of
between 2 and 3 per cent a year forecast
for the medium term, according to
Marius Ungerer, resident chair in
strategic management at University of
Stellenbosch Business School, who says
that this must be viewed in the context of
how the countrys economy is planned.
The national development plan sets
out South Africas wider long-term
investment targets and its development
focal points. It aims to eliminate poverty
and reduce inequality by 2030 by
(among other things) developing an
inclusive economy, building capacity
and promoting leadership and
partnerships throughout society.
South Africa is one of the primary
gateways to the continent, Ungerer
says. This offers very good growth
prospects for businesses using South
Africa as a springboard. Our economy
reflects a dual nature: it has both

developed and developing components.
We have a growing middle class, as well
as a large base at the bottom of the
pyramid. This dual-economy reality
holds many opportunities.
Maryvonne Palanduz, FCMA,
CGMA,head of retail finance and risk
atMetropolitan Holdings, agrees.
SouthAfrica remains attractive for
most mid-sized and large organisations,
she says. Consumerism has continued
to be buoyant over the past few years,
despite tough global conditions. This
has largely been attributable to growth
in earnings from the lower-income
market, fuelled by unsecured credit
thats not sustainable. GDP growth
hasslowed over the past few months.
Therehave been several instances of
labour unrest, particularly affecting
themining sector. Nevertheless,
SouthAfricans have a high degree of
entrepreneurial spirit that comes from

operating in a competitive market.
The nations banking industry has
been having a tough time too. Alfred
Ramosedi, FCMA, CGMA, managing
director of Nedbank Private Bank, says:
Its been a very difficult trading period.
A lot of customers are indebted and
there are threats of downsizing and
retrenchments. But he adds that
management accountants are well
placed to take the opportunities that
stillabound for them in South Africa.
Werelucky because we are at the
gateway to Africa, which is a melting
potof development opportunities for
firms that are willing to take a risk.
For local guidance onSouth
Africas management culture,
visit FMs website at
www.fm-magazine.com/feature/
depth/insider-view-sa
[South Africa by numbers]

GDP in 2012
$384.3bn
South Africa is the worlds
28th
Gallery Stock
Doing business
Make sure that you understand
the culture in South Africa,
advises Alfred Ramosedi. There
are many quirky aspects of South
African culture in general, as well
as in business, to get used to.
Forexample, if someone says Ill
do something just now, it does
not mean Ill do it immediately.
Although South Africas
infrastructure is sound, including
fantastic financial systems, some
services eg, telecoms arent
extremely good. Be prepared,
then, to find islands of excellence
in an ocean of inefficiency,
Ramosedi warns. This forces
business people to plan properly
around these aspects.
Internet connectivity is widely
available, but its slow and costly
by international standards. While

labour is sometimes not as
productive as it could be, South
Africans can work hard and be
resourceful, Ramosedi says.
Employment legislation is also
very strict and is somewhat biased
towards employees, rather than
employers. So you need to know
your labour law. Most important,
he adds, is to be flexible, creative
and customer-centred.
Ungerer suggests partnering
local firms to create mutual
benefits. You need to support
the principles of the Broad-Based
Black Economic Empowerment
Act 2003 (BBBEE). This is
essential for doing work with the
government and big business,
he says, adding that BBBEE
largest economy
GDP growth in2012
compliance promotes the

constitutional right to equality;
increases the effective
participation of black people in
theeconomy; supports faster
economic growth; and promotes
increased employment and more
equitable income distribution in
order to encourage the economic
unity of the nation, protect the
common market and promote
equal opportunity and equal
access to government services.
Ungerer urges foreign firms to
understand regional legal
requirements, as well as local
needs and domestic economics at
all levels. This is essential to take
advantage of the different
sub-segments of the consumer
market, he says.
2.5%
CPI inflation in 2012
5.4%
Unemployment in 2012
25.2%
Source: Statistics South Africa
Population
51.1 million
Source: World Bank
Contact
Lorraine van Schalkwyk,
CIMA South Africa
Email: lorraine.vanschalkwyk@
cimaglobal.com
21
The data
At its peak price in late

2006, one Citigroup share
wasworth $55.70, giving
theUS company a market
value of
The worlds
biggest banks
In 2012 HSBC agreed to pay a

recordfine to the US authorities
(for,among otherlapses,
allowingitselfto be used to
launderdrug money) of
$277.2bn
$1.92bn
By tier-1 capital as at 31 December 2012 ($bn)
or the first time, a Chinese bank

has taken the top spot in the
global rankings. Industrial and
Commercial Bank of China (ICBC) is
now the worlds biggest by tier-1 capital,
according to The Banker magazine,
compared with a rank of 32nd only
eightyears ago. The country now has
four out of the worlds 10 biggest banks
and 96 of the top 1,000. The US also has
four top-10 banks, but Europe has only
one: HSBC,which benefits greatly from
its operations in Asia.
Illustration by
Leandro Castelao
ICBC (China)
JP Morgan Chase (US)
Bank of America
HSBC (UK)
China Construction Bank
Citigroup (US)
Mitsubishi UFG* (Japan)
Wells Fargo (US)
Bank of China
Agricultural Bank of China
BNP Paribas (France)
RBS (UK)
Source: The Banker, Bloomberg, Thomson Reuters
Assets
($trn)
*As at 31 March 2013
22
23
the smart continent

The rate at which Africa has adopted mobile phones in the past
decade speaks volumes about the regions economic potential.
Now that well over half of the population have access to a handset,
mobile connectivity has not only transformed how people
communicate it also signals a leap forward for business
By Beth Holmes
he commercial opportunities presented by Africas mobile

revolution have encouraged western IT giants such as
Microsoft, Hewlett-Packard, Intel and Google to establish
footholds in the region from which to expand. With demand
for both hardware and software services plateauing in mature
economies such as the EU and the US, the vast growth market
that Africa represents is also of particular interest to investors
from China, India and Russia. But no two countries in this
complex and diverse continent present the same challenges
particularly infrastructure constraints for a new entrant of
any size. Its fair to say that South Africas mobile industry
differs from that of Angola, for example. Yet Angola, with
nocable network providing fixed broadband whatsoever,
canstilloffer 4G connectivity. In this case, skipping a
technological generation doesnt seem much of a hindrance.
Africa is the worlds fastest-growing mobile telephony
market and is driving the mobile-only approach, says
AndreHugo, director of Deloitte Digital. This is evident in
thefact that the number of mobile connections has grown
by44 per cent here in the past 12 years, with 700 million
activeconnections predicted to be in use in sub-Saharan
Africa by 2016. We see mobility as a driving force that
willfundamentally change the face of business and the

economy in Africa.
Gustavo Fuchs, who runs Microsofts Windows Phone
business for the Middle East and Africa, concurs. He believes
that theres a real desire for new products at the right price.
The market has taken an opportunistic view of Africa.
Paul Roberts, co-founder and director of ForgetMeNot
Africa, which has developed technology enabling any mobile
to send and receive email and messages on any carriers
network, confirms that there is a large pent-up demand.
Theres a very large emerging middle class that is aware of
technology services and products, but until recently has not
had access to these because of political, financial and/or
infrastructure constraints.
Mightier than the sword

So what will be the impact of the mobile boom and the access
to the web its enabling? The most dramatic example has been
the use of smartphones by the democracy movement in north
Africa to co-ordinate its revolutionary campaigns during the
Arab spring of 2011, filming and broadcasting footage of
protests and government crackdowns to the watching world.
The widespread adoption of mobile technology certainly
has contributed to reforming political processes and
institutions in various countries, Roberts says. A seemingly
mundane incident can catalyse the reformation process and
mobile and internet channels can help to spread awareness of
the issue. They are enablers.
Hugo agrees that the arrival of new communications
technology will always be a catalyst for change. The financial,
retail, medical and education sectors will be the largest
beneficiaries from the adoption of mobility in Africa.
24
[The mobile phone market by numbers]
5.98bn 85% 644m

Number of mobile phone
subscriptions globally
of the worlds population

use mobile phones
Newbusiness models and

products are constantly
beingdefined in countries
such as Kenya, Nigeria and
South Africa as market
demand drives innovation
formobile-only solutions.
Oneonly has to look at great
mobile-based solutions such
asthe eLimu educational
application, the agricultural
insurance packageKilimo
Salama, the Hello Doctor
health service and Way-C
Africas answer to the iPad to see examples in practice.
To what extent, then, is the mobile revolution changing
howbusiness is done in Africa?
The biggest game changer will be that traditional bricksand-mortar operations will have to adapt to the needs of the
consumer, Hugo says. We dont believe they will disappear,
but their business models and footprints will change just as
the consumer is changing to be more aware of the products
and services they can purchase and at what price.
Roberts adds: It all comes down to awareness in my view
awareness that products and services exist and awareness
ofhow much these cost in other regions and online. No longer
can the veil of obscurity and opaqueness be used to pricegouge consumers or to provide a bad service. Awareness
leadsto options, which lead to changes in provider and
supplier information. This will open up new competition
andindustries inmany emerging markets. Mobile financial
services, insurance products and information-based services
are likely to be very interesting for a number of companies.
Number of mobile subscribers in Africa

out of a population of 1.1 billion
of completely replacing it.

Thismeans that, even as
smartphones and higher-end
feature phones continue to roll
out, the market still requires
services that can work with the
limitations of the mass of
feature phones in use.
He continues: Remember
also that, while it may be
relatively easy to set up
channels for distributing
consumer devices such as
smartphones, the network
infrastructure that would maximise the potential of these
devices is not always as widespread. Low-cost 3G smartphones
may also be piling into Africa now, but these are often limited
by the relative lack of network coverage. We can expect such
shipments to increase over the next five years, but I believe
that feature phones will retain a relatively large share of the
market owing to their high reliability, low cost and the
continuing reuse of embedded devices.
According to IT News Africa, mobile transactions are also
revolutionising banking practices. For example, Safaricoms
M-Pesa system has taken hold of the east African mobile
money industry with its text me money technology. This
enables users to store funds, pay utility bills and complete
commercial transactions on their mobiles something that
most consumers in the developed world are not yet doing.
No longer can the veil

ofobscurity and
opaquenessbe used to
price-gouge consumers or
to provide a bad service
Halfway handset
While smartphones have taken hold in developed nations,
agrowing trend across Africa has been the emergence of
so-called feature phones. These are souped-up basic mobiles
that offer some of the functions found on a smartphone.
Thesemay offer web access and have a camera, an MP3
playerand satellite navigation capability, as well as the ability
to run simple apps.
Nigeria and Kenya have the highest proportion of
inhabitants using feature phones in the world, with 89 per cent
and 88 per cent respectively, according to mobile advertising
network BuzzCity. The popularity of these models provides
afantastic opportunity for developers to get on board
something they have been slow to do. There is a relative dearth
of apps aimed at this market.
Feature phones are well and truly widespread throughout
Africa, Roberts says. They number hundreds of millions
andthey continue to be embedded ie, reused within
communities. So, although more sophisticated devices are
being sold, they are adding to the mobile device base instead
26
18%
Estimated percentage of Africas

population that are smartphone users
[The mobile phone market by numbers]
65% 5
of Africas GDP is accounted for by self-employed
small business owners micro-entrepreneurs
One word of warning from

Hugo concerns generalising
trends across such a large
continent when analysing how
far Africa may represent a
microcosm of wider emergingmarket development enabled
by technology.
The biggest misconception
is to view Africa as a whole and
assume that what works in
Kenya will work in Zimbabwe
or South Africa, he says. To a
large extent, this is one of the
reasons that M-Pesa has not been as successful outside Kenya
and Tanzania. To benchmark Africa against other emerging
markets could therefore lead to the same misconception.
Eachemerging market will have its own particular cultural,
economic and political nuances, resulting in a dramatic impact
on what technology or platform will be successful locally.
Roberts agrees, saying that, while there are similarities to be
found across developing markets, each country in the
continent has its own nuances, restrictions and opportunities.
Having said that, the impact of communications technology in
particular, coupled with a growing awareness by citizens of
emerging markets of what is possible, does appear to be
accelerating the adoption of technology across Africa. This has
a powerful effect in boosting technology uptake, again based
on awareness of what is possible and what exists elsewhere.
Number of main international cables in place

providing bandwidth to Africa
Many African countries have

little or no fixed-line internet
infrastructure. The use of
wireless 4G networks here
becomes an attractive
proposition compared with the
costly option of installing and
maintaining new fixed lines.
Mobile networks allow for
wider coverage, especially in
sparsely populated rural areas.
Fixed-line infrastructure does
have its place, but the total cost
of ownership and availability
becomes a key consideration for providers.
Roberts adds: Countries that have bypassed fixed-line
infrastructure can certainly benefit in several ways. The sheer
cost of maintenance and line upgrades can be a drain on the
resources of state-owned and private companies. By leaping a
generation, that investment can go into newer infrastructure
thats more relevant to the countrys needs and this is
usuallymobile. Lessons learnt in other countries that have
rolled out newer tech can also be applied without having to
learn the hard and expensive way.
As James Mwangi, CEO of Kenyas Equity Bank the first
bank in the world to offer a completely mobile account
saidat a recent IBM conference in Nairobi: Africa is better
positioned to adopt the next generation of technology than
anywhere else, because its not tied by a legacy system.
The biggest misconception

is to view Africa as a whole
and assume that what
works in Kenya will work in
Zimbabwe or South Africa
There have been several studies on the growth of mobile

phone usage in Africa, but their findings appear to vary wildly
contrast Microsofts estimate of 10 per cent penetration rates
for smartphone usage with the 18 per cent cited by the African
Mobile Factbook 2012.
Fuchs thinks that the significant difference between the
figures can be explained by the large number of products
imported through distribution channels that are unauthorised
by the manufacturer. We have data showing that these grey
imports are huge and that hurts the economy. Dealing with
this issue means understanding how you drive policy with
governments on taxes, fees and import regulations, he says,
but adds that the development of different countries should
not affect how piracy problems are tackled. The maturity
ofnational governments here varies greatly, but our
conversations tend to be the same. Microsoft will invest in
countries that have the right policy, licensing and stability.
Given the vastly differing levels of market maturity across
the continent, what impact might jumping a whole generation
of telecommunications technology as has happened in Angola
have had?
I wouldnt consider it a technology jump, Hugo says. That
would imply that there was already some technology in place.
Alamy, Panos. Source: African Mobile Factbook 2012.
Mixed signals
28
29
Hold the home page

As publishers continue to suffer at the hands of
theinternet, Andrew Miller, chief executive of the
Guardian Media Group, tells FM why putting
newspaper articles behind a website paywall is
noton his online menu for now, at least
By Lawrie Holmes Photographs by Ivan Jones
he Guardian has broken some of the worlds biggest news

stories in recent years. An exclusive interview in June
revealing the identity of former CIA operative Edward
Snowden, whod leaked details of the National Security
Agencys spying activities, drew seven million readers to its
website from the US alone, for example. The brand of
investigative journalism that exposed the extent of phonehacking at the News of the World has helped to lift the Guardian
from the UKs ninth-biggest paper by circulation to the worlds
third-largest online news source, with 84 million unique users.
Developing a digital platform that has delivered such
impressive figures is only the start for Andrew Miller, chief
executive of the Guardian Media Group (GMG). The Scot,
whoran the finances of GMGs Auto Trader subsidiary before
becoming group CFO and then CEO three years ago, must
nowfind ways to capitalise on the brands global recognition.
Thatsno mean feat, given that the industry is still reeling
from the digital revolution. Some publishers have clung to
thetraditional paper format in the hope of hauling in some
advertising revenue, while many others have set up websites
and placed some articles behind paywalls to encourage users
to subscribe for exclusive material. GMG sees profiting from
the Guardian site as a long game that first requires it to gain
mass appeal, which is why a paywall has not been installed.
The sector is going through a fundamental transition thats
happening very, very quickly, Miller says. News is being
consumed primarily in digital formats. The great opportunity

this gives us is that we can become global very quickly. A story
like Snowdens is taking the Guardian from being known by a
few people in the US to being a well-known brand there in a
matter of weeks. Our aim, therefore, is to find an audience and
ensure that as many people outside the UK as possible trial the
product. And through trial we will build business models.
GMGs relatively early investment in establishing a web
presence has put the group in a strong position to profit from a
growing online readership, according to Miller. His experience
at Auto Trader, a car-selling magazine that launched a website
back in 1996 and stopped publishing print editions this year,
highlights the importance of being quick off the mark.
In the world of classified ads, where I spent nine years,
thedigital space is where the first mover has a core advantage.
Thefirst mover cements its brand name, he says. This is also
true in news: there will be a battle among providers to be the
main news brands worldwide. Sitting back and waiting for it to
happen for you is not an option. You dont necessarily have to
be first, but you have to be one of the first and have the right
model. We were one of the first to build a proper standalone
website and a mobile app. If youre not known as digital and
dont invest in trying new things, youll get left behind.
One of the complexities affecting his search for profit
concerns the Guardians stance on offering free web content.
Some observers have suggested that the strategy pursued by
its senior management, including editor Alan Rusbridger, has
been inflexible to the point of a willingness to lose revenue.
The perception is that were rigid; the reality is very
different, says Miller, who previously worked at Procter &
Gamble and drinks firms Bass and PepsiCo. What were being
rigid on is having open journalism thats trying to engage
people and bring them into the debate. That is not the same as
opposing a paywall. We believe this is a moment when we want
to grow the Guardian and when we want people to engage with
it across different platforms. A paywall in my view and this
comes back to my time in consumer goods stops them
30
[Guardian Media Group by numbers]
84 million 196m
Number of unique users of the Guardian website worldwide
trialling your products. You

cant say that you have a
multimedia product if you
cant get people to access it.
Miller points to a chart on
his office wall showing how
many stories are being read
onthe website at any time.
Themost popular one as we
speak is an article on the Tour
de France, which is being read
by more than 3,000 people.
Most readers have accessed the
story via links on Twitter.
If we were behind a paywall, we wouldnt be getting people
reading that story through something like Twitter. Its too early
to say theres a right answer and its also too early to close off
access to your content, although it doesnt mean that paywalls
are wrong, he says. If wed closed ourselves off, we wouldnt
be where we are right now, with 84 million unique users and a
digital revenue of 56m up 28 per cent on the previous year.
Its absolutely right to be getting people to try us. Things
mightbe different in a few years time once consumption
settles, butright now it doesnt seem right to put up a paywall.
Group turnover in the year to March 2013
and business-to-business
publisher Top Right Group,
which are both jointly owned
with private equity firm Apax.
Given Millers confidence in
the robustness of its finances,
why has GMG made four
rounds of redundancies that
have affected its editorial
department key to the
groups offering in particular?
The new world we are
operating in is in continual
transformation and that
entails continual restructuring, he says. Sadly, in a business
where the largest cost is people, pressures on people and cost
reductions are inevitable. Thats tough, but the workforce
when I started at Auto Trader was over 4,000. It now stands at
about 1,500, so it has meant a strong reduction. That doesnt
mean its inevitable; it means you have to manage your way
through it at a pace thats right. If the revenues in digital grow
in a way that we expect at speed there will be less pressure
on the cost base.
Some critics of the job cuts have suggested that in place of
journalists GMG has come to rely increasingly on readers and
other amateur contributors in the form of citizen journalism.
To me thats an inevitability of digital people want to be
involved in the discussion, Miller says. A lot of the skill
remains with the journalist who specialises in this space.
Justas important is the core skill of a good editor: managing
journalists while also bringing in bloggers
who have a real interest in a topic and
people who just want to join the debate.
The group is pursuing a number of
innovative projects aimed at delivering
digital profitability without a paywall.
TheGuardian Soulmates dating site,
forexample, is making a significant
contribution. Weve taken its revenues
from 37m two years ago to 56m, but
there are other things we think well add
in due course to grow the revenue. Its not
only about chasing the revenues that we
are earning successfully. Its also about
putting digital first and taking the global
opportunity we have two-thirds of our
readership is outside the UK, yet weve
barely monetised that, Miller says.
Among the new ideas is Guardian Labs,
a creative initiative working directly with
clients to shape content in the right kind
of way for advertisers. What advertisers
want is something that can offer them a
multi-brand opportunity. We can do that
What were being rigid on

ishaving open journalism
thats trying to engage
people. That is not the
same as opposing a paywall
Paper money
The Guardian newspaper and its Sunday stablemate the

Observer saw their annual operating losses fall to 31m in the
year to March 2013 from 44m the previous year, while the
group returned to the black with a pre-tax profit of 23m.
We have closed the gap significantly
regarding losses and we will draw on our
assets to fund these losses while we find
this new business model, says Miller,
who points out that all big investment
decisions are informed by the groups
ownership by the Scott Trust, which has a
mission to deliver high-quality journalism
in perpetuity. The unique structure of the
organisation ensures plenty of flexibility
in handling its assets, delegating
management to a board of heavy hitters
including former Virgin Media CEO Neil
Berkett and lastminute.com co-founder
Brent Hoberman. Rusbridger, on the other
hand, reports directly to the Scott Trust.
This gives him complete editorial
independence its a great model, says
Miller, who points out that questions of
how the trust structure works should it
need extra capital remain hypothetical,
since GMG has cash reserves of 250m
plus assets not marked to market in Auto
Trader (known as Trader Media Group)
31
187,000
Average circulation of the Guardian (founded in 1821), measured

by the Audit Bureau of Circulation (ABC) in June 2013
Operating loss of the

two newspapers in the
year to March 2013:
31m
Pre-tax group profit:
22.7m
while not many others can.

This is about designing
campaigns and meeting
campaign requirements with
them using our content.
Where the process of
innovation takes an interesting
and, for some observers,
potentially alarming turn is the
use of the Guardian name for
such purposes. They point to
the appearance of a range of
sponsors including one or
two bugbears of campaigning
NGOs that have helped to double its digital display
advertising revenue to 27m in the past year. But Miller insists
that their presence does not damage the brands integrity.
We will do sponsorship around content in conjunction
withthe editorial team. To me thats a core innovation. In fact
its one of the main drivers of our digital revenue in the past
12months, he says. But I can be absolutely categorical that
the independence of our journalism is preserved. I have no
ability to influence what is written and thats an appeal for
advertisers. The brands integrity remains the same, whichis
agreat asset. It doesnt make some conversations with some
sponsors any easier at times. But, once they go through the
logic of the Guardian offering, they realise its the kind of
thing they want to be with.
Miller says there has never been a call to drop a sponsor
because of a backlash from readers. It would be an editorial
decision only. So, if the editor wanted me
to pull something from publication, we
would probably pull it. But its something
weve never had to face because the
process that we have works really well.
212,376
Average circulation of the Observer (the worlds oldest Sunday

paper, founded in 1791), measured by the ABC in June 2013
that the editor can act without

any need to work directly with
me, he says. It means that
our brand is very pure. We are
very careful commercially to
work with the brand and
ensure that we never stray into
the wrong territory.
Miller stresses that, despite
cash-burn required by him and
his predecessor, Carolyn McCall
(now CEO of easyJet), to deliver
the digital model, the number
of mistakes made along the way
has been minimal. Everything has been done in the right way
at the right time. Errors may have been made in individual
decisions, but in the round were in a fantastic position as the
consumption of news is accelerating in the digital space.
Commenting on the distressed state of many leading
American publications, he says: The US experience shows
that, if you dont act to get ahead of a structural not cyclical
change, you have a real challenge on your hands in news
journalism. Some US news organisations cut the journalism
back too quickly and theyre suffering as a consequence.
Miller counters the idea that the Guardians largely
liberal-minded readership is reluctant to spend money:
Farfrom it theyre reasonably affluent. We have to build
aproposition and ensure that its going to be robust for
advertisers, from direct revenue and indirect revenue.
Healsoconfirms that the future of the groups newspapers,
including the Observer, is secure:
Theyrethe bedrock of what we do
three-quarters of our revenues are based
on newspapers.
In the meantime, GMG has been
addressing concerns that the value of
TopRight Group, which, while ringfenced along with Trader Media Group,
fell sharply after acquisition, although
Trader Media Group delivered a profit of
143m. GMG wrote down 70m on the
radio station assets it sold recently,
including Jazz FM acquired for 45m
and sold back to its founder for 1.
From my perspective these things
happened in the past, says Miller, who
stresses that his main focus is on working
with the unique features of his creatively
driven company. What one cant do is
mandate change. Its about setting a
clearstrategy, understanding what you
want to achieve and working with people.
And thats the fun of it. I wouldnt have it
any other way.
I have no ability to
influence what is written
and thats an appeal for
advertisers. The brands
integrity remains the same
Bean counting
The live concept, where readers can

interact with the groups journalists at
events such as masterclasses, has also
earned GMG several million pounds.
Another intriguing approach has been the
launch of a Guardian-branded pop-up
coffee shop in trendy Shoreditch, east
London. Its something well try for five
or six months to see where it goes and
what we learn from it, Miller explains.
We can hold events there that cement the
brand and well also find a sponsor, so its
something that doesnt lose us money.
He is adamant that the integrity of the
Guardian brand is in no way undermined
by any of these projects. The great thing
about our organisational framework is
32
Information
overdrive
By Lawrie Holmes Illustration by Tadaomi Shibuya
33
The integrated reporting movement is gaining

momentum as the investment community puts
itsconsiderable weight behind the concept.
Aleadinglight in the campaign, Steve Waygood
ofAvivaInvestors, traces its progress so far
lthough integrated reporting is a relatively new idea, Steve

Waygood, chief responsible investment officer at Aviva
Investors, has been interested in encouraging firms to make
more complete disclosures for the past 15 years. This stemmed
from a frustration in his company about the lack of detailed
information on which to base its investment decisions.
Markets work on the basis of data. If the information we
rely on from companies is short term and thin, then a shorttermist view will prevail in the capital markets, he says.
With this in mind, Aviva Investors has been among a
growing group of big asset management firms pushing for
companies to report non-financial aspects of their business
inorder to paint a more detailed picture of their current and
likely future performance.
Non-financial doesnt mean that these issues are
irrelevant to evaluation, Waygood stresses. We need some
idea about areas such as customer retention, employee
retention and government relations in order to have some
satisfaction about a companys cash flows.
A watershed moment for Aviva Investors came in 2008
when Alan Dromer, its chief executive at the time, called for
adebate with stock exchange listing authorities on the issue.
Hewas pushing for a requirement on the boards of all firms
with market caps of $2bn or more either to issue sustainability
reports or to explain why not. Dromers declaration quickly
caught the attention of Gavin Power, deputy director of the
United Nations Global Compact, a joint initiative between
theUN and big business topromote sustainable commercial
development. Power and Aviva Investors organised a
conference the following year at the UNs headquarters in
NewYork, where Paul Abberley, the companys current
interim CEO, spoke. The event drew a number of key
regulators, standard-setters and big investors, including the
International Organization of Securities Commissions,
theWorld Federation of Exchanges and Goldman Sachs.
All of them, Waygood recalls, were saying that this was
the way forward.
The movement snowballed to such an extent by 2011 that a
similar event attracted representatives of asset management
firms controlling a total of $5trn in investment funds. The
Sustainable Stock Exchanges Initiative was born, modelled on

the approach taken by the Johannesburg Stock Exchange and
influenced by the work of Mervyn King, professor of corporate
citizenship at the University of South Africa, who had
writtenapioneering paper on integrated reporting in 2009.
Waygoodreports that the Johannesburg Stock Exchanges
equivalents in Brazil, India and Hong Kong have since adopted
roughly similar approaches, while others are looking at how to
incorporate ideas about wider corporate disclosure.
The exchanges in Singapore and Malaysia have changed
their guidance and I know that Istanbul and Nasdaq are
talking about it. Nasdaq hasnt done anything yet, but it has
asked all investors to come together on this issue. It would
prefer that every exchange does the same thing, says
Waygood, who believes that the US stock market is anxious to
ensure that any new rules dont drive companies away from it
which is what happened in 2002 when the Sarbanes-Oxley
Act tightened up the corporate governance standards expected
of US-listed firms after the Enron and WorldCom scandals.
The engagement with exchanges is still very much a work in
progress London and New York, for example, are not yet
committed, but talks are ongoing, he says. Deutsche Brse and
Toronto Stock Exchange have been very engaged, although they
havent taken the obvious step in changing their listing rules.
Road from Rio

While some headway has been made in increasing the number
of firms committed to making any form of wider disclosure,
aphenomenal gap remains in the range and quality of
databeing reported, according to Waygood. Determined to
hastenprogress, he was influential in convening 40 likeminded organisations to form the Sustainability Reporting
Coalition, which last year lobbied the UN at its Rio conference
on sustainable development to produce a comply-or-explain
framework for sustainability reporting.
We asked for a treaty and were effective in getting a few
paragraphs in the conferences outcome text, he says.
Paragraph 47 of this document, entitled The future we want,
states that the UN encourages industry, interested
governments and relevant stakeholders to develop models
forbest practice and facilitate action for the integration of
sustainability reporting. To Waygood, this means that, while
the UN acknowledges the importance of the issue, it is a weak
paragraph that is quite a political indication of the direction
oftravel, as it doesnt really do anything. We need to ensure
that regulators are aware of how investors feel about this, so
our coalition has been continuing to push the UN. The panel
on post-2015 development goals chaired by the British prime
minister endorses our recommendation, while the Sustainable
Development Solutions Network chaired by economist
35
Jeffrey Sachs [special adviser

to UN secretary-general
BanKi-moon] backs them too.
Waygood is confident that
faster progress can be made in
the next phase of development.
Were pleased that it looks like
one of the replacements to the
UNs millennium development
goals could refer to integrated
reports and sustainability
reporting, which would be an
amazing outcome, he says. Another more likely immediate
outcome could come from the European Commission, which
has tabled the narrative reporting proposal for which I was
on the expert group partly because of the work were doing
advising those writing the commissions proposal. Weve
beentalking to the Lithuanian presidency of the Council of the
EUto ensure that it tables time in the next debate its chairing.
And atthe G8 meeting we called on the leaders to push the
commissions proposal, so a real head of steam is building.
What happens next in the development of integrated
reporting could depend on how far global bodies will push for
non-financial matters to be included in the full report and
accounts of a company, rather than in a separate document.
At the moment not one

international organisation
hascreated definitions that
aregenerally endorsed and in
common use, so we all have
different perceptions of what
these terms mean, Waygood
admits. But Im pleased that
the commission is proposing
that non-financial disclosures
need to be in the report and
accounts. It means that this
information should be synchronised with the main data.
At present, most firms issue information on corporate social
responsibility (CSR) and sustainability more than six months
after they publish their main report (see graph). That makes
itnext to useless, although you can look at trends over time,
he says. So the commission is talking about narrative
reporting, but it has declined to talk about integrated reporting
in the main articles of the proposal. Its concerned that the
meaning of the term is not clear enough. Im frustrated by
that, because I think the concept is perfectly clear.
Integrated reporting
encourages integrated
governance, which itself
drives integrated thinking
THE timeliness of
firmssustainability
reporting by nation
Denmark 57%
Australia 56%
Netherlands 48%
Sweden 45%
Singapore 43%
Hong Kong 38%
Norway 33%
Japan 32%
Malaysia 29%
Switzerland 28%
UK 28%
Canada 26%
China 24%
US 22%
Germany 20%
Spain 19%
Finland 19%
Belgium 15%
South Africa 15%
Austria 10%
France 7%
Mexico 7%
South Korea 6%
Brazil 6%
Italy 3%
Percentage of companies with

year-ends in Q4 2011 that issued
2011 sustainability performance
information by 1 May 2012
Sources: CK Capital, Aviva Investors and Bloomberg
Integrated capitalism
While integrated reporting is considered the goal in the
disclosure debate, Waygoods ultimate aim is what he calls
integrated capitalism. He explains that integrated reporting
encourages integrated governance, which itself drives
integrated thinking by boards. Thats not enough, though,
because we need the integrated cost of capital of the company
to be lower if the board is running it well and in an integrated
and sustainable way. That cost of capital is a function of
investors integrating these issues call them non-financial,
CSR, sustainability, whatever into our evaluation work.
Without that, our buy, sell and hold decisions wont reflect
narrative reporting figures, so a company that is well run on
these aspects wont be rewarded with a lower cost of capital.
And, of course, the lower your cost of capital, the easier it is to
raise money and give your business a competitive advantage.
Waygood argues that the process should start with fund
managers clients, who need to take an integrated approach
when mandating fund managers to make long-term
investments on their behalf.
It is a good idea for pension funds and other clients to
ensure that long-term issues are being considered. That also
requires them to integrate into their disclosures to their
beneficiaries whats being done in their name with their
money, he says, noting that at each stage of the capitalmarket supply chain there is a similar obligation to achieve
integrated capitalism. How do we go beyond integrated
reporting and ensure that capital markets integrate these
issues throughout? I think thats not going to happen in the
next few years. Were talking about a decade or more before
wecan get to that point.
36
national
treasurer
By Lawrie Holmes
Kirstin Baker, ACMA, CGMA,

finance and commercial director,
HM Treasury
37
Kirstin Baker has played a key role in one of the UKs most
important institutions. She explains how her work became
vital to the countrys interests during the financial crisis
andreports on the ongoing changes in her department
What are your main responsibilities?
Im finance director for the Treasury Group and
Imanage the departments finance team, as well
asits commercial, IT and estates functions.
Thegroup includes the Debt Management Office,
UK Financial Investments and various smaller
bodies, as well as the core department. Im on the
Treasury board and the board of UK Financial
Investments. With an HR director, I jointly manage
the corporate centre group, which comprises more
than 150 people.
In some ways were the back office that provides
services to the business, which in the Treasury is
policymaking. The finance team also gets involved
in some of the more complex transactions that the
department undertakes. For example, there is a
project team working on the mortgage interest
guarantee scheme that the chancellor announced
in the budget. We will work with that team on the
detailed design of this scheme. I also take a sort of
non-executive role in some of these large projects:
Iwill sit on the steering board or on the project
board for undertakings with significant financial
oroperational risks.
How closely do you work with politicians?
At the moment I play a supporting role to other
Treasury officials who work with ministers very
closely. The ministers decide which policies they
want to pursue, but they rely on officials to advise
on how best to achieve the objectives they have set.
We do challenge them if we think that a proposal
will not work in practice. Part of my role is to
ensurethat the advice we are giving on the costs
and benefits of different options is robust, so that
the permanent secretary, Sir Nicholas Macpherson,
is satisfied that any spending we commit to will
represent value for money.
How much pressure is the Treasury under to
achieve cost savings?
Like most central government departments, the
Treasury has been reducing its budget and staff
numbers. We are going from more than 1,200
employees to about 1,000 over three years,
makingit a pretty small department by Whitehall
standards. This process, which will shrink the
corporate centre as well, is the result of 2010s
strategic review.
While making such savings, we need to ensure
that we can still provide the service to ministers
wewant. Weve restructured and we have really
pushedfor more flexible working. We now have

some staff in a central project pool, so that we can
move people quickly when priorities change.
TheTreasury often has to respond rapidly to new
policy priorities or external events, so were getting
better at deploying people where theyre most
needed. When the Cypriot financial crisis struck
inMarch, for instance, we were able to bring some
people in very quickly, as we had lists of individuals
who had worked on similar events. We were able to
get the desk space ready for them and we have an
ITsystem that enables them to work quite flexibly.
Weve also made savings on some of our backoffice costs. For example, we have moved to desk
sharing and let out the office space that this has
freed up in our building, reducing the net cost to
us. We will also be sharing some of our corporate
services with other Whitehall departments to
obtain economies of scale.
How did you develop your career, given that
you started at the Foreign Office?
After gaining a first-class degree in history and
politics at the University of Cambridge, I joined
thecivil service fast-stream development
programme as a generalist. I wanted to work in
public service and was interested in the political
decision-making process.
I joined the Foreign & Commonwealth Office
in1993, where I specialised in European issues
andEUnegotiations. I studied for 15 months at
thecolenationale dadministration, where
Frenchcivil servants are trained, and later spent
time working at the European Commission in
Brussels.So I spent a decade in various different
EU-related jobs at the Foreign Office, the
CabinetOffice and the European Commission.
Iworked on the enlargement negotiations when
Finland, Sweden and Austria were coming into
theEU and when I was in Brussels I worked on
competitionpolicy as a regulator, covering big
airline alliances and mergers.
I was always interested in jobs that had an
economic or financial element to them. Over time
Ispecialised in microeconomic and financial
policy, so it seemed to make sense to come to the
Treasury. Initially, I was on a formal secondment
from the Foreign Office, but I hadnt been back
therefor about five years and felt that the Treasury
would be a more natural home for someone with
my skills and experience. I felt at home as soon as
Iarrived, so it was definitely the right decision.
How dark were the days of the financial crisis

in2008 when your team had key interventions
to make in the banking industry?
When I joined the Treasury to help prepare for the
2004 spending review, the economy was growing
steadily. We were starting to say: Itsbeginning
toflatten off in terms of the rate of growth of
spending, so Whitehall departments will need to
tighten their belts. Withhindsight, those were
years of plenty for the sector.
At that time we would set future public spending
by making an economic forecast of what GDP
growth was going tobe in x years and wed then
make a fiscal forecast. On the basis of that, we could
say how much tax revenue we were expecting to get
in and therefore how much money we could expect
to spend. It is clear now that in the early 2000s our
forecasts werepretty optimistic, although not many
39
people were saying that at the time. (Since 2010,

economic and fiscal forecasting has been done
outside the Treasury by the independent Office
forBudgetary Responsibility.)
The crisis started with the collapse of Northern
Rock in September 2007, but the worst of it seemed
to be over by the spring of 2008 when I went in to
manage the Treasurys Northern Rock shareholder
team. As things started getting worse in the
summer, we were bringing in more people, but we
were still very thinly staffed as more and more
institutions started getting into difficulty.
The toughest time was the autumn of 2008:
afterthe downfall of Lehman Brothers, Bradford
&Bingley got into difficulty, the Icelandic banks
collapsed and then RBS and Lloyds/HBOS had to
bebailed out. All these things happened in quick
succession and there were three or four weeks
where we were working all hours of the day and
night, weekends included. We were dealing with
lots of different crises at the same time many of
which were completely new to us. We were making
policy very rapidly and then having to implement
it. The markets are watching your every move, so
you have to be in a position first thing on a Monday
morning to be able to announce something.
It was pretty frightening. We could see the
immediate crisis we were trying to sort out, but we
knew that doing so was going to lead to a huge hole
in the public finances. I can remember going home
and saying: Thats the finances completely in a
mess for the foreseeable future.
We were battling on all fronts and we did feel
that, if we got it wrong and the markets didnt
likewhat we were announcing, we could be in
aposition where there was no more money in
thebanks cash machines. So it felt like a huge
responsibility a situation where you were very
tired, yet trying to put a lot of things in place.
Under normal circumstances policymaking isnt
necessarily a slow process, but it usually takes a
little time. Theres a lot of consultation and its
harder for radical solutions to get through because
theyre inevitably more risky. But in that situation
we simply needed a solution and all kinds of ideas
were on the table things you might typically have
dismissed before. Some of what we did, such as
allowing Lloyds and HBOS to merge, which had
implications for competition that are playing out
now, we wouldnt have wanted to do in normal
times. On the other hand, if the whole financial
system almost falls down, youre thinking: At this
point were not as worried about competition our
first priority is simply to keep the system going.
40
Has the financial crisis led to improvements in

the governments risk management?
If a bank were to get into trouble now, wed be much
better at dealing with the situation. The Northern
Rock crisis exposed the fact that we didnt have
legal mechanisms in place enabling us to
nationalise the bank we couldnt simply pay out
to depositors in the way we are able to now.
Now that the Office for Budget Responsibility
hasbeen established to make the economic and
fiscal forecasts, I think the system is more robust.
Previously, you had a team of economists here
doingthat and their work was signed off by
ministers. Forecasting always requires judgement
and ministers might affect that judgement.
We did feel that, if we

got it wrong and the
markets didnt like what
we were announcing,
wecould be in a position
where there was no
more money in the
banks cash machines
Then theres the question of how we look at
risksand prepare for unlikely, but very highimpact, events. We are better at that in the
Treasurythan we were before 2008. We do
consider, for example, how the eurozone might
collapse and what the consequences might be.
There has been alot of contingency planning with
regard to the eurozone and what the worst-case
scenario might be, so there is more thinking about
what might happen and what we might do. The
crisis in Cyprusshowed the value of doing lots of
contingency work beforehand, so we were able
torespond rapidly as events unfolded.
Is the economy on the mend?
I hope so the recent signs are good but it is
takinga long time. When we set up UK Financial
Investments we thought it would be selling shares
within a few years, but five years later its not even
started. Its all taking longer than expected and

thats mainly because the economic situation
wasmore difficult than anybody had foreseen.
Withthe banks, I think that were beginning to
seelightat the end of the tunnel, but the fiscal
positionremains challenging because the
economyhas taken so long to recover.
We are just having another spending round,
setting budgets for 2015-16 in which we are
imposing more cuts. The expectation is that
therewill have to be more cuts beyond that.
Withinthe Treasury we will have to make
furthersavings and were working on how to
dothatwithout further reducing our workforce
orlosing policymaking capacity.
What made you decide to take the CIMA
qualification in 2010?
A phase of the crisis had come to an end, so
Iwanted to leave the Treasury for a bit to get a
slightly better work/life balance and challenge
myself by doing something different. I moved to
Edinburgh to work for the Scottish government,
looking after capital spending and issues of
private-sector investment. It was really interesting
to work in an institution with a different culture
and I learnt a lot. Its much easier in Scotland to
geteveryone interested in an issue around a table,
which makes for a much more collaborative style
ofworking than is often possible in Whitehall.
I completed the CIMA qualification in two years.
Although I was quite familiar with accounting
concepts, I thought that it would be useful to have a
financial qualification to formalise this knowledge.
I had spent a lot of time with both investment
banking advisers and finance professionals in
government and Id talked with them about all
kinds of concepts. I was familiar with that language
and understood it reasonably well, buttheres
something about doing the exams and someof the
calculations from the bottom up that makes your
understanding more robust.
I think the CIMA qualification gives you
credibility. I certainly wouldnt have got my
currentjob without it. Id really encourage people
working towards it to consider a public-sector
career. Some of the problems we have to deal with
in government are far more complex than those
inthe private sector. In business youre worried
aboutprofitability, but in government we also
worry about the economic and social impact of
what we do. We deal with some pretty complex
andimportant problems and we need really
goodfinance people to help us with those.
Kirstin
Baker
1993 Enters the civil
service and spends a
decade working on
European economic
policy at theForeign &
CommonwealthOffice,
the Cabinet Office and
theEuropean Commission
in Brussels.
2003 Moves to the
Treasury to manage the
2004 spending review.
2005 Becomes head of
the general expenditure
policy team.
2008 Appointed head of
the Northern Rock
shareholder team and
works on a series of
Treasury interventions
during the financial crisis.
2010 Joins the Scottish
government on
secondment, leading its
work on capital budgeting
and investment policy.
2013 Returns to the
Treasury as finance and
commercial director.
Photographs by
The Gasette/
Phil Gammon
42
8 WAYS TO
Use business
intelligence
better
By Peter Bartram
Firms have a vast amount of data

available to them from a huge range
ofsources. Business intelligence tools
are designed to help them sift useful
information from all this material, but,
aswith any tool, they should be used
intelligently to achieve optimal results
Illustration by
Borja Bonaque
Develop an
analytical
culture
You need to develop a workforce thats

enthusiastic about finding insights from
business intelligence (BI), says Eddie
Short, partner and head of BI at KPMG
Management Consulting. But a typical
problem is that most investment goes
into developing the tools and far too
little into making the best use of them.
Short thinks that many firms have
access to so much data that its easy to
cherry pick material that supports your
owntheories. Its therefore important to
obtain validation from key members of
your organisation. If you dont like
what the numbers are telling you, you
need tofind new options, responses and
scenarios not to find a way of getting
the figures to bewhat you want, he says.
Deliver information
wherever its
needed
In a typical company far more people

work flexibly than was the casetwo
decades ago. This has given rise to the
need for BI tools to be available on
employees mobile devices. Theability
to process big data on these anywhere
and at any time is crucial, according
toRachel OBrien, an information
management and analytics specialist
atHP Enterprise Services.
Tom OFarrell, a director of business
and technology services company
Aiimi,believes that its important for
workers to be able to view real-time data
on their mobile devices. Any failure to
deliver information this way could be
bad news when it comes to keeping
customers and winning new ones.
43
information need to answer in order

tomake effective decisions, he says.
Designers of management information
should ensure that they include the
rightcombination of data dimensions
toanswer the key questions that
managers will be asking as they probe
and challenge the information.
Masters recommends making the
information interactive, so that it helps
individual managers to search for the
specific insights they need.
Make more
use of unstructured
data
In the past, most of the information

inBIsystems came from structured
datasuch as sales figures. Today, some
of themost vital insights are hidden in
avast mass of unstructured data,
including e-mails, Word documents,
PDF files and images. In fact, 80 per
centof information inatypical
organisationis unstructured, according
to Seamus Galvin, head of R&D at
Espion, aspecialist ininformation
security. Thevolume of unstructured
data is growing at 50 per cent a year.
Galvin suggests that companies
couldanalyse their unstructured data
tospottrends indicating fraudulent
behaviour, for example, or to gauge
attitudes to the organisation among
customers and employees.
Focus on
the future
Too much management information

concerns what has happened rather than
whats likely to happen. Ithas been said
that managing with historic data is like
driving a car by looking in the rear-view
mirror. More firms should be using
predictive analytics, argues Steve Farr,
product marketing manager at Tibco,
aprovider of infrastructure software.
Its not necessary to have a
mathematics degree to work this kind
ofanalysis, he says. These tools
remove complexity, allowing users to
focus on making decisions, asking
questions and exploring data.
A particularly useful feature of
predictive systems is their ability to
monitor events and take action
automatically. For example, a system
could forecast events that might lead
aclient to want to switch to another
supplier and then act to discourage
them from doing so.
View information
pictorially
Visualisation converting raw data into

pictorial form is a powerful way of
understanding complex information,

according to Nathan Yau, the author of
Data Points: Visualization That Means
Something (Wiley, 2013).
Visualisation takes advantage of all
kinds of graphs and pictograms. Yau
believes that this should enable users
tosee trends, patterns and outliers
thattell you about yourself and what
surrounds you. He adds that good
visualisation is a representation of
datathat helps you to see what you
otherwise would have beenblind to if
youd looked only at the naked source.
Yau says that visualisation involves
answering four key questions: what
datado you have? What do you want
toknowabout it? Which visualisation
techniques should you use? And does
whatyou can see make sense?
Keep
information
uptodate
In a fast-moving business world,

information that was useful a year ago
may not now be adequate, warns
JohnMasters, solutions director at
Metapraxis, a business analysis
company. Management information
should anticipate key questions about
business performance that users of the
Mine social
media for
intelligence
Online forums, blogs and news sites are

packed with information that firms can
use, but they need the right systems to
do so. Social media sites are especially
useful for monitoring rivals activities.
The first step is to analyse a range
ofrelevant sources to gain a full picture
of your industry, advises Richard May,
asenior executive at Spotter, which
specialises in textual analysis.
Whittle down and categorise the
datayou do receive to remove the
background noise, he says. That
should leave you with accurate, useful
information that will enable you to
outmanoeuvre the competition. A true
sign of a firms ability to monitor social
media is the accuracy of its data.
Ensure that
managers use the
information
Producing great BI is only the first step.

Its wasted effort if managers arent
using it. Theyre more likely to make use
of itif the information is presented in
the most user-friendly format possible.
Masters says that people process
tabular information sequentially and
graphs using their visual ability.
Graphs are generally the most
appropriate device for communicating
insights when the message is contained
in the shape of its values such as a
trend, a pattern of behaviour or
evidenceof exceptional performance
or when we need to reveal relationships
among whole sets of values, he explains.
We should always design the simplest
chart possible to make the message
clearand obvious.
44
CIMA My JOBS
www.cimaglobal.com/myjobs
Job-search clinic sponsored by Robert Half
Contract work:
myth vs reality
ew research shows
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ison the rise. More
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chieffinancial
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orsomewhat increased their use of
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necessityUK businesses have to engage
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Organisations are increasingly reliant
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critical processes, with research showing
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(18%) departmental employees two years
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eight percentage points. The highest use of
temporary workers is within small
companies, where nearly one third (30%)
of departments comprise temporary or
contract staff.
This pattern can be seen as good news
for unemployed workers or accountants
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Myth: working as an contract
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Reality: Many businesses view contract
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still scrutinising costs, employers are
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hiring but theyre also struggling with
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Myth: temporary and contract work is
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Reality: Although project consulting
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As to wages, the specialised and niche
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Myth: you cant include temporary or
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Reality: As the temporary industry has
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Myth: you cant develop new skills

working for a recruitment consultancy.
Reality: Accounting and finance
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Whats right for you?
As the economy gains momentum,
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45
RESOURCE
STudy & tech notes/the institute/events
study
notes
In this issue:
Paper P2 Performance
Management, p48
Paper P1 Performance
Operations, p50
T4 part B
Test of Professional Competence
in Management Accounting
Its crucial to ensure that your supporting calculations are accurate and
complete. Youll earn marks for this, of course, but it will also improve
your chances of scoring well when you make your recommendations
By the T4 case study writer
bout 10 of the 15 marks

obtainable under the
application criterion
in the T4 assessment
matrix are available
for the preparation of
arange of supporting calculations.
Accuracy is vital here. In the real
world, operational and senior managers
will look to you, as their management
accountant, to analyse any given fin
ancial situation correctly and explain
the results to them. You must therefore
develop the ability to prepare accurate
figures, understand what they mean

andexplain the likely financial effects
of various courses of action.
T4 tries to emulate such r eal-world
situations. The unseen material always
provides new problems and proposals
on exam day and its your task to write
a cohesive, well-structured report containing sound financial analysis. If your
calculations are wrong, you could end
up recommending the wrong decision
or rejecting a viable proposal. Most
crucially, your calculations should help
you to analyse the opportunities and
problems facing the business in the case

study and to form a sound financial basis
for your recommendations. Its clear,
then, that accurate calculations do more
than gain you credit under the application criterion. They should help you to
understand the implications of the
a lternative actions available, which
should in turn enable you to gain higher
marks under the important judgement
and logic criteria each of which carries 20 marks.
Lets consider the types of calculations that have been required in four
recent T4 exams.
l BVS fleet maintenance case, March
2013: the effect on operating profit of
changes in utilisation levels for 10 underperforming workshops; the net present
value (NPV) of the proposed extension of
the firms coverage for servicing electric
vehicles; the NPV of the opportunity cost
of the lost margin from the customer called
FAST ifthe proposal to extend the coverage for servicing electric vehicles were to
be rejected; and the cost of the proposed
apprenticeship scheme.
l D plc house building case, November
2012: NPVs for two alternative joint
46
to PIE if it cant generate a positive NPV

inside three years. Some candidates did
not p erform any further NPV calcul
ations and they simply recommended
rejecting the proposal, because it did
not meet PIEs criterion. But in doing
sothey were i gnoring the NPV of the
o pportunity costof the lost margin on
796,000 from the servicing proposal

plus 2,774,000 for the effect of the
potential lost gross margin from FAST.
Candidates who rejected the proposal
because they had calculated only the
negative NPV would not have scored
many marks because theyd have failed
to consider every relevant factor. Part of
FASTs 4,500 vehicles if this client were

to terminate its contract with BVS. The
T4 exam is all about looking at the
bigger picture and taking all relevant
factors into account, so what was expec
ted here was a calculation of the cost of
losing FASTs custom.
FAST has 4,500 vehicles: 3,500 conventional ones, generating a margin of
310 apiece, and its planned 1,000 new
electric vehicles, each of which will generate a margin of 70. So, if FAST were
to terminate its contract, the lost margin
would be 1,155,000 a year. Even if a
candidate compared only the one-year
figure of 1,155,000 with the negative
NPV of 796,000, it would give a positive figure and show that the proposal
was financially sound.
The correct financial analysis should
have shown that, in the required threeyear period over which the proposal is
being evaluated, the annual saving of
1,155,000 would generate a positive
NPV of 2,774,000. This is the opportunity cost of retaining FASTs custom.
When the bigger picture is taken into
account, therefore, the proposal would
be acceptable both to BVSs board and
to PIE, providing an overall positive NPV
at the end of year three of 1,978,000.
This is based on a negative NPV of
the job of the management a

ccountant
is to look at all material aspects and
c onvince stakeholders, such as PIE, of
the viability of this proposal when the
loss of the FAST contract is taken into
account. Candidates who recommended
that the proposal should be accepted and
that PIE needed to be convinced about
the financials would have scored high
marks under the logic criterion.
In the T4 exam, as in business life, all
relevant factors should be evaluated in
order to arrive at a commercially sensible
recommendation. You should look at a
number of past T4 papers on the CIMA
website, work through some of the calculations and check your solutions
against the model answers.
Remember that managers in industry
will depend on you to advise them on the
financial effects of alternative courses
ofaction. The analysis that you prepare
needs to be accurate and it must also
takeinto account every significant issue.
T4 is trying to prepare you for whats
required out in the real world.
Further reading
CIMA Official Study Text T4 Test of
Professional Competence in Management
Accounting, CIMA Publishing, 2012.
Getty Images
ventures; the savings and payback from

restructuring the company; the residual
income from a housing development
proposal; and the reduction in operating
profit resulting from a decline in the
number of new homes built owing to
competition from a rival firm.
l D plc house building case, September 2012: the effect on profit and cash
flow if the new proposals were to be
a ccepted; and the effect on profit and
cash flow if they were to be rejected.
l Jot toy company case, May 2012: the
total manufacturing cost and effect on
profitability of a potential new order for
atop-selling toy using different pricing
structures; the forecast cash flow for the
rest of the year; the effect on the forecast
cash flow of offering early-payment
d iscounts to customers; and the effect
on the forecast cash flow of introducing
debt factoring.
As you can see from the above list, the
three most common types of calculation
required are as follows:
l NPV evaluations of new proposals.
l Cash flow forecasts.
l Other costing exercises relevant to the
industry setting.
Lets work through the NPV calculations required by March 2013s T4 exam.
The question paper and the examiners
model answers can be downloaded from
CIMAs website at bit.ly/T4March2013
and bit.ly/T4March2013Answers.
The scenario concerns BVS, a fleet
maintenance company that has a private
equity investor, PIE, which owns 60 per
cent of its shares. The unseen material
gives cost and revenue figures for a proposed geographical extension of the
firms servicing capability to increase
thenumber of electrically powered
v ehicles covered. It also provides
information about FAST, a big client that
isplanning to replace 1,000 of its conventional vehicles with electric ones and
has stated that it will terminate its contract for servicing 4,500 vehicles if BVS
decides against expanding its coverage.
The NPV calculations for extending
BVSs servicing capability for electric
vehicles to all 440 of its owned and
m anaged workshops show a negative
NPV of 796,000 at the end of year three
and a positive NPV of 17,000 at the end
of year four. Most candidates were able
to work out these figures successfully.
The unseen material states clearly
that the proposal will not be acceptable
48
Paper P2
Performance
Management
Approach two to 6(a)
Your solution to any given question is unlikely to replicate the model

answer in the post-exam guide. But using a different method shouldnt
stop you from scoring full marks if its clear, comprehensive and correct
By Norwood Whittle, FCMA, CGMA
here are several acceptable ways of answering

most exam questions.
Both questions in section
B of May 2013s P2 paper
were no exception, allowing multiple approaches. Candidates
whose answers differed from the official
CIMA solution could still earn the maximum number of marks available.
Lets work through questions 6(a),
7(a)and 7(b) which can be obtained by
downloading the question paper from
CIMAs website at bit.ly/P2May2013
using two approaches to tackle each one.
Question 6(a) requires us to calculate
a firms optimum production plan for
the month and the resulting profit, for a
maximum of 11 marks (technically, 11

are available, according to the allocation
guides in tables 1 and 2). The firm will
either buy the component in question
or make it in house. It will not do both.
Approach one to 6(a)
Our first method compares the contributions per skilled labour hour for products
D, E and F with that of the bought-in
component, C. For C the contribution will
equal the difference between the external
purchase price and the internal cost of
making it. As table 1 shows, manufacturing C produces the lowest-ranking contribution per skilled labour hour, so the
firm should keep buying it. The resulting
product plan is shown in table 2.
1. Ranking contributions per skilled labour hour approach one to Q6(a)

D
E
F
CMarks
Selling price per unit ($)
112
136
153
80
Total variable cost per unit ($)
(58)
(64)
(118)
(37)
Unit contribution ($)
54
72
35
43
1
Skilled labour hours per unit
1.0
1.5
0.5
1.0
1
Contribution per skilled labour hour ($) 54
48
70
43
2
Ranking
#2 #3 #1 #4
1
2. Optimum production plan for month one approach one to Q6(a)
2

Units Skilled labour hours Unit contribution
Total contribution Marks
F 3,000
1,500
$35
$105,000
D 2,400
2,400
$54
$129,600
E 1,000
1,500 $72 $72,000

5,400
$306,6002
Fixed costs ($150,000)
Profit $156,6001
3. Ranking contributions per limiting factor approach two to Q6(a)

D E F[ext] F[int]Marks
Selling price per unit ($)
112
136
153
153
Total variable cost per unit ($)
(58)
(64)
(118)
(75)
Unit contribution ($)
54
72
35
78
1
Skilled labour hours per unit
1
1.5
0.5
1.5
1
Contribution per limiting factor ($)
54
48
70
52
2
Ranking
#2 #3 #1
#41
Our second method compares details of

the three products, plus the figures for
F on the assumption that component C
is made in house. Table 3 compares the
contribution per limiting factor for F
when C is bought in (F [ext]) rather than
manufactured (F[int]). The option with
the highest contribution per limiting
factor will be chosen. Its clear from the
table that the contribution per limiting
factor for F[ext] is greater than for F[int],
so the company should continue to buy
in C. The resulting production plan will
be the same as that for approach one and
is again worth five marks in total.
The most common errors committed
by candidates in answering question 6(a)
included the following:
l Presenting the figures poorly.
l Failing to calculate the correct number
of skilled hours per unit of C.
l Choosing the right product mix but
using the wrong contribution per unit.
l Assuming that its better to buy in C
and failing to compare this option with
manufacturing it in house.
l Failing to calculate a contribution per
limiting factor and ranking purely on
contribution or profit.
l Failing to subtract the total fixed cost
from the total contribution. The question required a profit figure.
Question 7(a) offers us 12 marks to
calculate the profits of divisions S and R
at varying levels of external demand for
the components made by S division.
Approach one to 7(a)
As all transfers must be made at opportunity cost, S division would be indifferent as to whether it sells to outside
customers or to R division. Since the
SRgroup has adopted the opportunity
cost approach, the profits of the group
as a whole atall three levels of demand
will be thesame. But the split by division will o
bviously vary as the e
xternal
demand on S changes. Table 4 shows the
profits of both d
ivisions for each level of
demand, expressing the sales from S as
a variable cost for R. In each case, the
groups profit is $2,550,000.
Approach two to 7(a)
The first step when taking this alternative

opportunity-cost method is to calculate
S divisions profits using table 5. From
this its clear that S could, if components
49
4. Both divisions profits for the three levels of external demand approach one to Q7(a)
S division
15,000 units 19,000 units 35,000 units Marks
External sales: 15,000 x $200
$3,000,000
1
Sales to R:
20,000 x $105
$2,100,000
1
External sales: 15,000 x $200 $3,000,000
Sales to R:
4,000 x $200
$800,000
1
Sales to R:
16,000 x $105 $1,680,000
1
External sales: 15,000 x $200
$3,000,000
Sales to R:
20,000 x $200
XXXXXXXXXX XXXXXXXXXX $4,000,0001
Total sales
$5,100,000 $5,480,000
$7,000,000
Variable costs: 35,000 x $105 ($3,675,000) ($3,675,000) ($3,675,000)1
Contribution $1,425,000 $1,805,000 $3,325,000
Fixed costs ($1,375,000) ($1,375,000) ($1,375,000)
S divisions profit
$50,000
$430,000
$1,950,000
R division
Sales $8,000,000 $8,000,000 $8,000,000
1
Own variable costs ($2,500,000) ($2,500,000) ($2,500,000)
1
From S ($2,100,000) ($2,480,000) ($4,000,000)3
Contribution $3,400,000 $3,020,000 $1,500,000
Fixed costs
($900,000)
($900,000)
($900,000)
R divisions profit
$2,500,000 $2,120,000
$600,000
werent sold to R, have made an extra

4,000 x ($200 $105) = $380,000 at an
external demand of 19,000 units or an
extra 20,000 x ($200 $105) = $1,900,000
at an external demand of 35,000 units.
We can now calculate the profits for
R. First we work out the contribution as
($800 per unit $250 per unit) x 10,000
units = $5,500,000, which is worth two
marks. S ubtracting the fixed cost of
$900,000 from this figure to produce a
profit before transfer costs of $4,600,000
gives us half a mark. We can then put
this figure into table 6 in order to cal
culate Rs profits at different levels of
external demand for Ss components.
Question 7(b) offers us six marks to
calculate the impact on group profits if
R ignores the transfer pricing policy and
buys the 20,000 components it needs
from an external supplier at $170 each.
5. S divisions profits for the three levels of external demand approach two to Q7(a)

External sales
$3,000,000 $3,000,000 $3,000,000 1
Opportunity cost
0
$380,000
$1,900,000
4
Variable costs
($3,675,000) ($3,675,000) ($3,675,000)1
Contribution
($675,000) ($295,000) $1,225,000
Fixed costs
($1,375,000) ($1,375,000) ($1,375,000)
Profit (loss)
($2,050,000) ($1,670,000)
($150,000)
Approach one to 7(b)
6. R divisions profits for the three levels of external demand approach two to Q7(a)
S output
R profit before opportunity cost Opportunity cost
Profit Marks
15,000 units
$4,600,000
0 $4,600,000
1
19,000 units
$4,600,000
($380,000) $4,220,000
1
35,000 units
$4,600,000 ($1,900,000) $2,700,000
1
7. Impact on profits of R and the group if R buys components externally approach one to Q7(b)
S external demand 15,000 units 19,000 units 35,000 units Marks
External price:
20,000 x $170 ($3,400,000) ($3,400,000) ($3,400,000)
1
Transfer price from S: 20,000 x $105 $2,100,0000
1
Transfer price from S: 4,000 x $200
$800,000
1

16,000 x $105 $1,680,000
1
Transfer price from S: 20,000 x $200 XXXXXXX XXX XXXXXXXXXXX $4,000,000 1
Impact on profit ($1,300,000) ($920,000)
$600,000 1
8. Group profit if R ignores transfer pricing policy approach two to Q7(b)
S external demand
S divisions profit (from table 4)
$50,000
$430,000 $1,950,000
2
R divisions profit
$1,200,000
$1,200,000 $1,200,0001
Group profit (A)
$1,250,000
$1,630,000 $3,150,0001
9. Group profit if R follows transfer pricing policy approach two to Q7(b)
S external demand
S division profit (from table 4)
$50,000
$430,000 $1,950,000
R division profit (from table 4)
$2,500,000
$2,120,000
$600,000
Group profit (B)
$2,550,000
$2,550,000 $2,550,0001
10. Impact on group profit if R ignores transfer pricing policy approach two to Q7(b)
A B (from tables 8 and 9)
($1,300,000)
($920,000)
$600,000
Because an opportunity transfer pricing

policy is in operation, Ss profits would
not change, but the profits of R, and
therefore the group overall, would be
affected as shown in table 7.
Approach two to 7(b)
Using this method, Rs profit stays the

same for all levels of demand as follows:
Revenue$8,000,000
Other variable costs
($2,500,000)
Units purchased externally ($3,400,000)
Fixed costs
($900,000)
Profit
$1,200,000
We can use this profit figure in table
8 to calculate the groups profits where
R ignores the transfer pricing policy and
in table 9 to calculate the groups profits
where R follows the policy. Table 10
shows the differences between the
groups profits in the two scenarios.
The most common errors committed
in answering 7(a) and 7(b) were presenting the figures poorly and failing to label
or describe them properly.
In the October issue I will look at what
went wrong in Mays P2 paper to help candidates get it right in November, while in
Velocity (www.cimaglobal.com/velocity)
the examiner will offer tips on exam
preparation and technique.
Norwood Whittle is CIMA course leader
at the University of Northampton and
the lead marker for P2.
50
Paper P1
Performance
Operations
Since the very first sitting under the 2010 syllabus, all P1 papers have
contained questions on investment projects, yet candidates still make
the most basic blunders when applying standard appraisal techniques
By the examiner for P1
he section on common
errors in each P1 post-
exam guide is a great
resource. It helps students
to see where past candidates have gone wrong
when appraising investment projects
and to ensure that they dont follow suit.
But its clear, from seeing the same
lapses listed repeatedly in these guides,
that many students are failing to learn
from their predecessors mistakes.
There are three areas that you need to
understand fully before you even come
to calculate the net present value (NPV)
of a project: the relevant costs and revenues; the timing of cash flows; and the
application of taxation.
The relevant costs and revenues
CIMA defines relevant costs and revenues as those that are appropriate to a
specific management decision. These are
represented by future cash flows, whose
magnitude will vary depending on the
outcome of the management decision.
Ifstock is used, the relevant cost, used
in the determination of the profitability
ofthe transaction, would be the cost of
replacing the stock not its original purchase price, which is a sunk cost.
The only costs and revenues that
should interest us, then, are future cash
flows that will be affected by the decision. Any cash flows that arise, no matter
what decision is taken, are irrelevant and
can be ignored as can any past costs.
Questions often feature a sunk cost for
example, a feasibility study that has
a lready been conducted. You should
ignore such costs, since theyhave been
incurred and the investment decision
cannot affect them. Unfortunately, many
candidates fail to realise this, adding
these on to the initial investment.
The question will normally detail the

initial investment and how it is depre
ciated. This is important information,
as depreciation is not a cash flow and
somust not be included in your calcu
lations. You need to check whether the
figures provided for future costs include
or exclude depreciation. If it is included,
you need to remove it and use the figures
excluding depreciation as the cash outflow. Too many candidates either dont
adjust for depreciation or do it wrongly.
Perhaps the area that causes most difficulty is the concept of opportunity cost.
This is the value of the benefit foregone
when choosing one course of action over
the next best option. It has arisen many
times in P1, where the decision to start
a particular project will have an effect
on current operations. In March 2013s
paper, for instance, the question centred
on a potential investment in a mobile
tyre-fitting service. The effect of making
the investment was that some of the customers who would previously have used
the firms depots for replacing tyres
would use the mobile service instead.
The lost contribution from the depot
sales needs to be treated as a cash outflow arising from the investment decision. Some candidates treated this as an
inflow, which is obviously wrong.
You should also note that in some scenarios the cash i nflows from a project
may not take the form of sales revenue.
Firms may decide to invest in equipment
that will result in cost savings. These
future savings represent the cash inflows
from the project because, as costs are
reduced, cash inflows will be increased.
The timing of cash flows
The timing of cash flows is crucial, since

the value of money today is not the same
as it will be in a years time. In project
appraisals the convention is to refer to

year zero, year one, year two and so on.
You need to be clear what this means.
To make discounting easier, we make
the simplifying assumption that cash
flows arise at year ends, so cash flows in
year one arise at the end of year one. But
year-zero cash flows arise at the start of
year one or right at the start of the project. These are not discounted, since they
are assumed to arise now. The initial
investment should therefore always be
treated as arising in year zero and not
bediscounted. Students still make the
error of including the initial investment
in year one and discounting it at the cost
of capital. This is clearly wrong, because
the initial investment is incurred at the
outset and at todays time value of money.
Also remember that any residual value
in the project should be treated as a cash
inflow at the end of the project.
Its normally assumed that working
capital will remain the same throughout
the project. Unless you are told otherwise, you should treat the investment in
working capital as a year-zero cash outflow. Most candidates do this, but what
some then fail to do is to bring back the
working capital as an inflow when the
project finishes. The idea is that the firm
sells any inventory, recovers its accounts
receivable and pays its accounts payable,
resulting in a cash inflow at the end.
The application of taxation
The tax calculations in project appraisals can be a minefield. If tax is included

in the scenario, youll normally need to
calculate tax depreciation and the corporation tax due on the net cash flows.
Accounting depreciation is not an
allowable expense for tax purposes, but
the authorities have a system of tax
depreciation that enables the net cost of
assets to be deducted as an allowable
expense. Note that the tax depreciation
claimed in the final year is the tax-
written-down value minus any residual
value. It is worth checking that the total
tax depreciation you calculate over the
lifetime of the project equals the initial
investment less the residual value. Tax
depreciation is calculated each year at
25 per cent of the tax-written-down value
of the assets.
Lets look at the simple example of a
firm called X with a project that involves
an initial investment of $1,000,000 in
51
1 Calculating the tax depreciation on Xs investment project

Year
Tax depreciation
Tax-written-down value
0
0$1,000,000
1
25% x $1,000,000 = $250,000
$1,000,000 $250,000 = $750,000
2
25% x $750,000 = $187,500
$750,000 $187,500 = $562,500
3
25% x $562,500 = $140,630
$562,500 $140,630 = $421,870
4
25% x $421,870 = $105,470
$421,870 $105,470 = $316,400
5
$316,400 $200,000 = $116,400
Residual value of machinery = $200,000

$800,000
2. Calculating the tax payable on the cash flows of Xs investment project

Year 1
Year 2
Year 3
Year 4
Year 5
Cash flow
$500,000 $500,000 $500,000 $500,000$500,000
Less tax depreciation $250,000 $187,500 $140,630 $105,470 $116,400
Taxable cash flow
$250,000 $312,500 $359,370 $394,530 $383,600
Taxation @ 30%
($75,000) ($93,750) ($107,811) ($118,359) ($115,080)
3. Calculating the net present value of Xs investment project

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

$ $ $ $ $ $$
Cash flow
(1,000,000) 500,000 500,000 500,000 500,000 500,000
0
Residual value
200,000
Less tax (37,500) (37,500) (53,906) (53,905) (57,540)(57,540)
payments
XX XXXXX XXXXXXX (46,875) (46,875) (59,180) (59,179) XXXXXXX
Net cash flow (1,000,000) 462,500 415,625 399,219 386,915 583,281(57,540)
Discount factor 1.000 0.909 0.826 0.751 0.683 0.6210.564
Present value (1,000,000) 420,413 343,306 299,813 264,263 362,218(32,453)
machinery that will have a residual value
of $200,000 at the end of five years. The
project has net cash inflows of $500,000
each year. The investment is eligible for
tax depreciation. The company has a cost

of capital of 10 per cent.
Table 1 shows how the tax depreciation
is calculated. The total tax depreciation
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over the life of the project is $800,000

that is, $1,000,000 less the residual value
of $200,000. Table 2 shows how the tax
payable on the cash flows is calculated
(the tax rate is usually 30 per cent, butthe
question will specify the rate). Acommon
error is to include the initial investment
and/or the residual value in the calculations. This is wrong, because both of these
have already been included in the calculation of tax depreciation.
We can now perform our NPV calculation, which is shown in table 3. Adding
up all the present values on the bottom
line of the table gives an NPV of 657,560.
Some students treat the tax depreciation
incorrectly as a cash outflow it results
in a reduction in tax payable but is not
an outflow itself. To work out the NPV we
need to use the cash flows before deducting tax depreciation and then deduct the
tax payments. In the exam you will be
given information about the timing of
the cash flows, but usually half is payable
in the year it arises and the remainder is
payable in the subsequent year.
The NPV calculation is relatively easy.
The harder aspect is getting the cash
flows and tax fi
gures right. Once you
have gained a good understanding of
these areas youll be able to tackle project appraisal questions with confidence.
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55
technical
notes
In this issue:
How automating balance
sheet account reconciliation
can lead to a real return
oninvestment, p57
A first step towards reducing

disclosure overload
By Paul Vos,
senior financial markets manager, Shell International
he increasing size and

complexity of companies annual financial
statements (AFSs) has
created several negative
effects that are cause for
widespread concern. First, the sheer
volume of a typical statement is not
helpful to users. According to research
by Deloitte1, the average length of a listed
companys annual report was 56 pages
in 2000. By 2010 it was just over 100
pages. Second, its many immaterial disclosures serve to obscure the relevant
information, making it hard for readers
to see the wood for the trees. Third,

b ecause some of the information it
p rovides is beyond what the management team needs in order to run the
business, preparers have to incur considerable time, effort and cost in making
all these extra disclosures.
I have analysed the responses to three
2011 discussion papers issued by the
International Auditing and Assurance
Standards Board, the UK Financial
Reporting Council (FRC) and the European Securities and Markets Authority.
These publications prompted 120 stakeholders including standard-setters,
regulators and the preparers, auditors

and users of AFSs to submit extensive
and thoughtful replies covering more
than 1,000 pages. The vast majority of
stakeholders said that they frequently
encountered immaterial disclosures
and nearly all users saw this as problematic. Information overload reduces their
ability to make investment decisions,
which could mean that they rely less on
these statements in future. This state of
affairs is not only detrimental to individual investors and creditors; it could
ultimately also make the distribution of
capital in the economy less efficient.
To make matters worse, a decline in
reliance among investors on AFSs has a
negative effect on the companies that
issue them. They could lose a channel
for communicating with investors and
thereby lose a method of attracting
capital. This could, in turn, oblige firms
to rely more upon other channels, such
as investor relations presentations.
Standardised and mandatory reporting through AFSs is widely believed to
generate societal benefits the positive
externalities first identified by research
in 19712. This commits firms to reveal
The Financial Reporting Councils model of the factors fuelling disclosure overload
Standard-setters
Regulators
Auditors
AFS preparers
are keen to be seen as effective.
want to minimise the risk of

attracting any criticism.
are anxious to avoid any

challenge and adverse publicity.
fear breaching the regulations,

so err on the side of caution.
Their disclosure requirements

arederived from an anti-abuse
viewpoint and are driven by the
need for verifiability.
They focus on inclusion, rather

than exclusion, while their
reviewsmay appear to seek
tick-box compliance with the
disclosure requirements.
They rely on manuals of

accounting produced by the big
four; their illustrative accounts
and Gaap checklists address all
disclosure eventualities; they have
a tick-box view of compliance;
andtheyre influenced by what
everyone else is doing.
They build on previous years

disclosures, focusing on what to
insert (regardless of materiality),
rather than what to omit, in
orderto ensure compliance.
Theprospect ofan external review
by auditors or regulators
reinforces their tick-boxapproach.
Source: FRC, Cutting clutter: combating clutter in annual reports, 2011.
56
Preparers and their

auditors believe that
they are better off
simply making all
disclosures as listed
under IFRSs
financial reporting standards (IFRSs),
regardless of their relevance, and providing notes to each line item listed in
the primary statements, even if these
dont provide material information.
My research reveals that all stakeholders accept this behavioural model to a
large extent (although auditors are
slightly less united in their views). Judging from all the responses to the FRC
discussion paper, I think that preparers
and auditors cannot realistically be
expected to solve the problem independently. Encouraging them to change
requires strong and vocal support from
regulators and standard-setters.
So how could disclosure overload in
statements prepared under IFRSs be
reduced? The IASB is clearly well placed
to show leadership here. I believe that a
public endorsement by the IASB of the
key recommendations made in Losing
the excess baggage, a 2011 research
report3 it commissioned two accounting
institutes to produce, would represent
the strong and credible support needed.
The proposals made in the report boil

down to two approaches:
l Reducing disclosure requirements in
individual reporting standards. Being
listed in an IFRS does not automatically
make something material.
l Disconnecting the decision to include
a specific line item in the primary statements from the decision to provide information in the notes. Its not a given that
a material line item always comes with
material information and vice versa.
Most parties acknowledge that both
proposals are actually in line with IASB
guidance. In theory, these should be
irrelevant because only material disclosures are obligatory anyway. But, in practice, a clear public endorsement by the
IASB of these approaches to disclosure
will encourage preparers not to issue
immaterial information automatically.
Such an endorsement would be a
robust and plausible first step. Although
it would not dilute the IASBs existing
guidance, it would have a positive influence on all other stakeholders in the
reporting process.
An endorsement would not meet
approval in all quarters, of course, but
the potential critics could merely be
motivated by their reluctance to exercise greater judgement on matters of
materiality. Because reducing disclosure
overload requires preparers to be more
discerning, such views would actually
support the IASBs adoption of a more
selective approach towards its disclosure requirements. Furthermore, by
backing the recommendations the IASB
could take a step towards a reporting
regime based on a single p
rinciples-based
disclosure framework or one founded
solely on disclosure principles in individual standards.
References
1. Deloitte, Swimming in words:
surveying narrative reporting in annual
reports, 2010.
2. J Hirshleifer, The private and social
value of information and the reward to
inventive activity, The American
Economic Review, Vol 61, No 4, 1971.
3. New Zealand Institute of Chartered
Accountants and Institute of Chartered
Accountants of Scotland, Losing
theexcess baggage reducing
disclosures in financial statements to
what is important, 2011.
Getty Images
information in a non-selective and truthful way, preventing them from giving

only the good news to investors.
But realising these positive externalities does require that AFSs are actually
used. In fact, where mandatory AFSs are
not being used, it represents a loss for
society. This is why disclosure overload
is also a concern for the custodians of
these externalities eg, policymakers,
standard-setters and regulators.
For our part, we need to make sure that
disclosure requirements are appropriate,
says Hans Hoogervorst, chairman of the
International Accounting Standards Board
(IASB). Bottom up, each requirement
mayhave made sense when a standard
wasintroduced. But, from a top-down
perspective, do the disclosures in totality
improve the clarity of financial reporting
or do they make it more difficult to see
what is really going on?
Hoogervorsts American counterpart
on the US Financial Accounting Standards
Board, Leslie Seidman, observes that disclosure overload is one of the most
common concerns that I hear from all
types of stakeholders. Many tell me that
financial reports are just too long and, as
a result, that theyhave become much less
effective tools for communicating with
investors. Yet investors continue to say
they want more information, particularly
when there is a business downturn or failure. Often the information these investors
want is available in the financial statements, but it is hidden in plain sight.
Its apparent that all parties to the process are suffering the effects of overload.
Yet its also clear from the continuing
growth of immaterial disclosures that
no one seems to be tackling the problem
effectively. In its discussion paper, entitled Cutting clutter, the FRC sets out
a charmingly simple and powerful
behavioural model that suggests what is
fuelling the trend (see diagram, previous
page). This model illustrates how the
actions of one stakeholder affect those
of the next one along the chain.
Standard-setters, regulators, auditors
and AFS preparers want to be seen as
effective and are fearful of criticism. This
is shaping their behaviour. Preparers are
risk-averse and tend to err on the side of
caution. Because regulators arent seen
to challenge unnecessary disclosures,
preparers and their auditors believe that
they are better off simply making all disclosures as listed under international
57
How automating balance sheet

account reconciliation can lead
toareal return on investment
By Mario Spanicciati,
executive director, EMEA, and executive vice-president of operations
at BlackLine Systems
nsuring that investments

deliver returns is more
crucial than ever during an
economic downturn, as
organisations work to limit
their costs and allocate
capital only for projects that they are
sure will deliver a tangible return on
investment (ROI). A seemingly mundane
and so often overlooked process
thathas been proved time and again to
deliver an impressive return when optimised through automation is balance
sheet account reconciliation.
Account reconciliation is an under
appreciated, yet crucial, process to help
ensure an organisations financial integrity. Weaknesses and inefficiencies in
the reconciliation process often lead to
mistakes on the balance sheet and overall inaccuracies in the financial close.
Inorder to ensure the accuracy of its
financial statements, a company must
first be certain that its underlying general ledger account balances are correct.
The problem has been compounded
by ever-increasing regulation and the
convergence of accounting standards.
Working to multiple sets of standards
including IFRSs, Gaap and statutory
accounts creates an even more onerous burden for global companies when
they close their books every month.

Thenumber of reconciliations, tasks,
journals and so on is multiplied for each
setof books maintained. But, by making
the most of the IT available, a business
can automate its reconciliations and link
accounts across different standards to
minimise the amount of manual labour
required for each financial close cycle.
More than 90 per cent of companies
still manually reconcile their balance
sheet accounts and most of them use
Microsoft Excel spreadsheets. A preparer
opens a spreadsheet, types in the balance, some reconciling items and other
information with the aim of validating
that the accounts balance is correct. The
spreadsheet is printed, either before or
after approval, and placed into a binder.
The preparer then logs the completion
of the reconciliation into another
spreadsheet for tracking purposes.
There are many risks surrounding
this process, not least of which is that
manual data entry leaves the process
wide open to human error. In the end,
what appears to be a small mistake
candramatically disrupt the resulting
figures in the financial statements if its
not caught in time.
It seems that no one is immune to this
risk. You only have to look at the errors
found by a university student named

Thomas Herndon in an influential 2010
paper written by Harvard economists
Carmen Reinhart and Kenneth Rogoff.
Herndons analysis determined that
theresearch conducted for their Growth
in a time of debt report (based mainly
on numbers entered manually into
aspreadsheet), contained mistakes that
drastically altered the global economic
outcomes they suggested. It turns out
that anyone even eminent professors
can make errors when keying in data.
Eradicating human error altogether
may never happen, but automating previously manual processes significantly
reduces the probability that incorrect
fi gures will go undetected or even be
entered wrongly in the first place. Consider a simple example where a journal
figure keyed into a spreadsheet has
itsdecimal point moved one place by
m istake. Depending on the size of the
business concerned, this could result in
asingle account reconciliation that is
off by 1m even tens of millions. The
discrepancy in the numbers, of course,
can increase exponentially when multiplied by the number of inputting errors
and accounts to be reconciled. Then
theres the case where some firms realise
only after implementing a new IT solution that there are accounts that have
never been reconciled yet are making
their way on to the financial statements.
While the errors found in Growth in
a time of debt did not affect the bottom
line of any company (it was an indepen
dent report on national economies), they
were certainly a wake-up call for many
organisations still struggling with the
temperamental nature of Excel. In an
article for BBC News online 1 about the
repercussions of spreadsheet mistakes
and Excels accountability Colm
ORegan noted: Our lives are g
overned
59
Getty Images
by Excel. This would probably ring true

with accountants across the UK. One
cannot help but look to a software package, now past its 30th birthday, that is
becoming the scapegoat when things go
wrong. Excel is only as good as the
person using it.
Streamlining the financial close process by automating account reconciliations is an important first step towards
achieving integrity in the balance sheet
numbers. The key benefits include:
l Centralised control. Managers have
real-time reporting and can rely on
improved accountability from specific
account ownership.
l Improved monitoring. Balance changes,
new accounts, delinquencies and other
risk-associated events can be monitored
through email alerts.
l Increased productivity and efficiency.
Standardised templates with defined
formats, including access to policies and
procedures, enable reconcilers and managers to concentrate on content rather
than form.
l Reduced operational costs. The savings to be gained purely from the elimination of paper, binders and storage
associated with the account reconciliation process can add up significantly. IT
support and maintenance costs are other
potential hard cost savings. Accountants
can be reassigned to more strategic roles.
l Reduced audit costs and risks. Data
presented in a consistent format, as well
as the direct accessibility of reconc il
iations, enables auditors to revise their
audit approach and to do this from
theiroffices, reducing both staffing and
travel costs. Having complete and consistent reconciliations across the entire
organisation reduces the risk of unrecorded adjustments or material misstatements popping up.
l Improved accessibility. The system
canbe configured to give 24/7 access
from any mobile device to all important
r econciliations, numbers, reports and
supporting documents.
l Increased data security. All key information is backed up electronically.
Calculating a tangible ROI for any
technology investment is extremely
important. As companies resort to ever
more expensive initiatives to ensure
their survival, there is no longer room to
take a relaxed approach to reconcil
iations. In the past, one small mistake
would have been serious, but a minor
One cannot help but

look to a software
package, now past
its30th birthday,
thatis becoming the
scapegoat when
things go wrong
inconvenience in the long run. Today,
one simple error can have huge impli
cations for an organisation. Thanks to
advances in technology and solutions
specifically designed to automate and
optimise the financial close process, it
has become simpler than ever for firms
to keep on top of their books and ultimately ensure accuracy and reliability
in their financial statements.
Analyst reports are readily available
to show ROIs of well over 100 per cent
in most cases for companies that have
automated their financial close processes. Documented case studies show
quick and substantial returns, with a
payback period of as little as three
months. One firm determined that its
total investment was recovered in the
savings on paper alone in the first year.
The time savings for preparers from
the efficiency improvement are estimated
at anywhere from 20 per cent to 40 per

cent. Supervisors and managers time
savings can be as much as 50 per cent
because of the very visible workflow and
consistency provided by a standardised,
automated system. There seems to be
acommon view that automation enables
auditors (both internal and external) to
devote their time to more important
matters than chasing down binders full
of spreadsheets and constantly checking the account reconciliation and close
control processes.
The advantages of automating the
account reconciliation and financial
close processes far outweigh the costs,
but technology alone is not enough.
Proper training in reconciliation techniques, standardised templates, ongoing
monitoring and support from senior
managers are all key factors in creating
a top-class reconciliation process.
Given the risks and errors inherent in
the manual approach, the smart combination of technology, proper training
and continuous process improvements
will lead to a faster, more controlled
financial close, producing greater confidence in an organisations results
ultimately resulting in a justifiable ROI
for the project.
Reference
1. Colm ORegan, The mysterious
powers of Microsoft Excel,
BBC News online, 21April 2013
(bit.ly/ExcelErrors).
60
What you learn on
The Transforming the finance function Mastercourse
This one-day course is designed to

show the next generation of finance
professionals why they need to broaden
their scope if they are to addgreater value
to their organisations andhow to do it.
The intended bottom-line outcome is
good financial performance management
based on a clear understanding of the
organisations strategic objectives.
The course, managed by BPP
Professional Education, covers all
aspects of why finance teams have to
transform their approach, presenting an
overview of the reasons. The need for
change is unrelenting, with the biggest
driver being the growing demand for the
financefunction to play a greater role
ata strategic level and not only in
determining financial strategy.
Transforming finance is a neverending journey of change, because
thebusiness environment is evolving
constantly, as is the organisation.
Istartthe course by considering how
financialprofessionals can transform
the function with the help of powerful
management accounting tools. This
means not only collating numbers
butalso looking at whats driving the
organisation to get to those numbers.
Indoing so, finance professionals
become finance partners, working with

peers in every part of the organisation to
add tangible value. As a result, the
finance function can be considered not
as a cost but rather as a value generator.
Research by global management
consultancy Hackett Group, which
works with CIMA, has found that in
best-practice organisations around the
world up to half of the finance function
works to support strategic decisionmaking. I use case studies to highlight
organisations where the finance
function has made such a positive
contribution using management
accounting tools and techniques. One of
these is Shell, whose CFO, Simon Henry,
identified thatthe finance function
added 15 per cent to that groups net
present value at one point.
High-tech hints and tips
World-class performance as a finance

professional can be achieved through
contributing to an organisations
strategy by making full use of big data
and analytics other areas that I cover
on the course. Applying these resources,
the function can provide a futuristic
view through predictive analytics
andenhance the insights that the
One of the best-practice case studies focuses

on the achievements of Shells finance team
organisation derives from using key

performance indicators, activity-based
costing and high-level variance analysis.
When you combine management
techniques such as lean and Six Sigma
with social media platforms and
business intelligence tools, the impact
can be significant, making the
management accountant a dynamic
member of the team. It can mean
working as a partner to sales in the field
or as a production partner in the factory.
Management accountants must
therefore have skin in the game, as
Warren Buffett puts it. This means
thatifa business outcome is successful
they will receive plaudits for their
contribution. Conversely, if it fails they
will accept responsibility along with
others on the project.
The ultimate impact of finance
transformation is working smarter
rather than harder. This could entail
areduction in the size of the function as
management accountants become even
more integrated into the organisation.
To some degree the function as we know
it may become extinct before long. Its
clear to me that financial professionals
must change to offer a far more dynamic
and value-adding proposition.
For further details about
Transforming the finance function,
visit www.cimamastercourses.com
Getty Images
ubrey Joachim, FCMA, CGMA,

isabusiness and management
accounting practitioner with
more than 30 years experience
in a range of sectors. A past president
ofCIMA and a graduate of the Australian
Institute of Company Directors who
holds anMBA from Sydney Graduate
School ofManagement, he now travels
the world as atrainer, coach and mentor.
63
The institute
The latest developments from CIMA, plus upheld decisions
CIMA issues revised How the institutes

members handbook benevolent fund
helps members
he members handbook,
avehicle for the

institutes constitutional
documents and some
ofits subordinate
documents, has been
updated. The publications content
has been revised and its navigability
improved to make iteasier for
management accountants to refer
toasan aid to compliance.
The handbook contains CIMAs
charter, byelaws and regulations.
These govern the conduct of all
students and members, plus that
ofCIMAs management through
itscouncil. Theyunderpin the
institutesregulatory framework,
forming the building blocks for the
professional standing of its members
and students through regulation,
monitoring and, where necessary,
disciplinary procedures. In short,
theyhelp to ensure that members are
competent, trusted and working in
thepublic interest.
Overview of contents
The handbook contains the following:

l The laws of the institute.
l CIMAs code of ethics.
l Guidance on licensing and
monitoring, professional conduct and
external oversight of CIMA.
Any feedback on the revised
handbook should be sent to
elaine.smyth@cimaglobal.com
Presidential
engagements
12 September Executive committee meeting
andnew members celebration, Leeds.
18 September Appointments committee.
19-21 September The Society of Accountants in
Malawis lakeshore conference, Malawi.
27-29 September Memberss annual
conference,Zimbabwe.
IMA operates a benevolent

fund thats designed to help
management accountants
and their families in times
of difficulty. Mark, for
instance, is a member who,
having worked as a management
accountant for ten years in a variety of
organisations, suffered a stroke that
affected his ability to work.
The left side of my body was hit by
astroke in the middle of the night,
herecalls. By the time the ambulance
arrived, I had passed out.
Initially, Mark hoped for a swift
recovery and return to work. But, while
he recovered in a rehabilitation unit,
itbecame apparent that the damage to
the right side of his brain would keep
him out of action for longer than hed
first expected.
At this point the benevolent fund
provided a grant to support him
financially through his rehabilitation.
The grant has made a big difference
to my recovery, he says. It means that
Im able to go outdoors with my son, for
instance, and Im able to use that time
totalk to him. I couldnt do this if I
hadnt received the grant. I have a lot to
be grateful to CIMA for and I can assure
you that I think about this daily.
Supporting members and their

families in their hour of need
The benevolent fund relies on the

generosity of more fortunate CIMA
members for the financial resources
thatit needs in order to support
members and their families through
difficult periods. Members can donate
online or set up regular donations
through their My CIMA accounts.
For further information, visit
www.cimaglobal.com/benevolentfund
Notices of
uphelddecisions
investigation
committee
The investigation committee found
aprima facie case of misconduct for
Amarjit Jassi, a registered student, to
answer in relation to a complaint that
he: had acted unprofessionally by
invoicing a third party for advice given,
although no agreement regarding
payment for services had been made
andthe discussions were informal in
nature; and had disclosed confidential
information to the third partys
employer in a malicious and vindictive
attempt to cause harm after the third
party had refused to pay the invoice.
Pursuant to regulation II.8(e) of the
royal charter byelaws and regulations,
the committee invited Jassi to consent
to the imposition of the sanction of a
severe reprimand by way of consent
order without further proceedings
towhich Jassi agreed. A finding
upholding the complaint was recorded
and an order was issued for the
imposition of a severe reprimand.
The investigation committee found
aprima facie case of misconduct for
JonBradbury, ACMA, CGMA, to
answerin relation to a complaint that
hehad provided accounting services
in2008-12 without being registered as
member in practice with CIMA.
Pursuant to regulation II.8(e) of the
royal charter byelaws and regulations,
the committee invited Bradbury to
consent to the imposition of the
sanction of a reprimand and fine of
500by way of consent order without
further proceedings to which
Bradburyagreed. A finding upholding
the complaint was recorded and an
order was issued for the impositionof
areprimand and a fine of 500.
64
Events
Your guide to recent and forthcoming CIMA events
Past events
CIMA 2013 GBC national finals
Throughout May, multiple locations
The institutes flagship 2013 Global
Business Challenge, sponsored by
Barclays, has been in full swing around
the world in recent months. National
finals took place across three continents,
as teams from Malaysia to Pakistan and
the UK toGhana battled it out to win a
place in the global final in South Africa.
Girl power triumphed in the
Malaysian final at INTI International
University as an all-female team of
students clinched the national title.
Representing Universiti Teknologi
Malaysia, Team E-Z found it was
anything but easy as they battled to beat
four other teams.
The Middle East showcased its
growing potential, with more than 100
Coming events
UK
Interviewing technique
forinterviewers
12 September, 6.30pm for 7pm
Haydock
Contact Anna Willis on
0208849 2334 or visit
www.cimaglobal.com/
northwestengland
andnorthwales
Networking with
professionalism
andconfidence
16 September, 6pm for 6.30pm
Rotherham
Sue Tonks, managing director
of Synergy Consulting and
Training, will teach you
networking skills that will
last you a lifetime.
Visit www.cimaglobal.com/
northeastengland
teams from 24 universities across the

region, including the UAE, Saudi Arabia,
Qatar, Bahrain, Kuwait and Oman,
registering to take part in the
competition. All six finalists presented
strong business cases, but Middlesex
University, Dubai, once again produced
the winning side as Pinnacle emulated
the successes of its predecessors.
Not to be outdone, South Africa
produced a nail-biting national final,
with Simplified Solutions beating three
other teams to clinch victory in
Johannesburg. Head judge David
Cropper, CIMA Africa regional board
chairman, said: We were extremely
impressed with the quality of work
presented. Thetalent displayed makes
us hopeful that the youth of today will
lead South Africa into a brighter future.
Glasgow 2014: 300 days

togo until the XX
Commonwealth games
24 September, 6pm for 6.30pm
The Corinthian Club, Glasgow
Mark Drummond,
financialplanning
managerat Glasgow2014,
will reveal the plan to take
the project from 300 days to
go to being games ready,
including lessons learnt from
London2012.
Visit www.cimaglobal.com/
scotland
Memory techniques
25 September, 6.30pm for 7pm
Stoke-on-Trent
Contact Julie Witts on
0247684 9380 or visit
www.cimaglobal.com/
westmidlands
Cricket day bowls them over

22 June, Toronto
The CIMA school cricket tournament
was a big hit in June, with the Toronto
Police team winning the CIMA Mayors
Trophy. Rogers Communication won the
CIMA Media Trophy and E&Y the CIMA
Accountants Trophy.
Torontos mayor, Rob Ford, and
CIMAs president, Malcolm Furber, were
on hand to present the prizes.
Bank of England overview

of the economy
26 September, 6.30pm
Cambridge
Contact Cathy McGrath on
01508 522025 or visit
www.cimaglobal.com/
eastmidlandsandeastanglia
CPD technical update
leadership for finance
professionals
2 October, 9am
Birmingham
Cost: 60 members, 30
students, 95 guests
Email mastercourses@
cimaglobal.com
CIMA North West
autumnball
12 October, 7pm
Liverpool
Cost: 50 (discounts apply

fornew members and
students see CIMAs website
for furtherinformation)
Contact Anna Willis on
0208849 2334 or visit
www.cimaglobal.com/
northwestengland
andnorthwales
Canada
CIMA Canada conference
29 October, 1.30pm-5.30pm
( followed by cocktails)
Toronto
Productivity: Canadas
21st-century challenge is the
theme of this conference,
which has Craig Alexander,
chief economist at TD Bank,
as the keynote speaker and
CIMAs president, Malcolm
Furber, as guest of honour.
Visit www.cimaglobal.com/events for updates and a full list of events, which are free unless otherwise stated.
CIMA Mastercourses your catalyst for business change: visit www.cimamastercourses.com or call 0845 026 4722.
To submit an event for this page, email ben.jackson@cimaglobal.com
65
CIMA CEO column
The human dimension is crucial to an organisations sustainable success
E
Illustration: Jrn Kaspuhl/Dutch Uncle
state agents are well known for

stressing the key factor affecting
property value: location, location,
location. But, when it comes to
addressing what determines a
businesss value, few corporate leaders cite
the importance of people, people, people.
Many recent business crises can be

traced back to failures in corporate
culture that could have been picked
upmuch more quickly had longer-term
people-related indicators been given
more weight. CIMA has long argued
thatgreater emphasis should be placed
on measuring the value of non-financial
assets including a workforces skills,
experience and motivation.
Employees are key stakeholders in
any business. They are also a key asset.
It seems out of place, therefore, that
investors assessing a company do not
always have access to data about the
people power behind the businesss
outputs and financial achievements.
Thereport that marked the launch of
our CGMA designation in early 2012,
Rebooting business: valuing the
humandimension, highlighted this
need. It predicted that business leaders
would focus increasingly on the value
afforded by factors such as customer
relationships and the knowledge and
human capital represented by
employees. Nearly 200 of the 280 global
CEOs we spoke to agreed that these
non-financial factors were crucial value
drivers. So the consensus is very much
that the human dimension is central to
an organisations sustainable success.
To accelerate the development of
accounting for people, CIMA has
The COLT and CORT tools can be
found at www.cgma.org/talent
engaged in several new collaborations.

Ourrecent survey with the Economist
Intelligence Unit, for instance, showed
that inadequacies in human capital
management had led more than 40 per
cent of the firms covered in the research
to experience problems affecting their
ability to innovate or hit key financial
targets. More worrying still, only 12 per
cent of CEOs in the sample told us that
they were confident about the quality of
the management information they were
receiving on human capital.
Together with the AICPA, we are
designing resources in the area of
human capital and workforce analytics.
For example, organisations need to
know the underlying cost and impact of
losing and replacing talent. As a result,
we are developing Cost of Losing Talent
(COLT) and Cost of Replacing Talent
(CORT). These tools are intended to help
an organisations HR and finance teams
assess the value of its employees.
CIMA also recently joined forces with
the Chartered Institute of Personnel
andDevelopment to strengthen
expertise in this field. This collaboration
aims to foster closer working links
between the finance and HR professions.
It will focus initially on transforming
how organisations understand, measure
and report information about their
people to drive business success. One of
our first projects will focus on human
capital measurement. This is designed
to address a shared concern that
organisations are consistently failing to

cost the contribution of people to their
performance or worth and that they
seldom assess the risk to their success
posed by poor people management.
Measuring human capital means that
businesses can assess quantitative data
to track the success of initiatives such as
recruitment or training campaigns and
respond quickly to the findings.
HRdirectors are increasingly being
asked to act as business partners
alongside CEOs and CFOs to inform
business strategy. This is a positive
development that should be encouraged.
Without accurate and relevant
information in this area, businesses
willnot be able to optimise the return
ontheir investment in human capital
orplan effectively. Management
accountants are ideally skilled to help
atthis intersection by helping to analyse
both financial and non-financial data
and putting it to good use. Now, thats
what Id call smart, smart, smart.
Charles Tilley, fcma, cgma

Chief executive, CIMA
66
Watercooler
Just checking that my email got through to you
My inbox contains more than 40,000

emails, of which 4,996 (4,997 no, make
that 4,998) are unread. Im not boasting;
Im bulging. As part of the process of
completing my time sheets I religiously
sweep up anything that might have
arrived from the net and slipped through
mine. I do delete stuff. At least I move
messages to a delete folder for safe
keeping until the PC does it for me Im
far too wary to destroy material myself.
There is an abundance of guidance
onhow to handle email. Write today,
send tomorrow seems to be a favourite
maxim or, as I call it, mail in haste,
repent in panic. Remember that feeling
of hitting the send button too soon?
And how can Julia Streets would like to
recall her email do anything other than
pique the interest of the very person you
dont want to open the email?
Another top tip advises us to check our
emails only once or twice daily. What?
Nothing raises my pulse more than email
separation. At an embassy reception
Iattended recently, allcomers were
obliged to part with their mobile devices
at the door. My theory is that this was
nothing to do with security. Rather, it
was a deliberate ploy to reduce alcohol
consumption, as many guests raced off
early to be reunited with their gadgets.
Analogue in
My approach to email management

relies on good old pen and paper.
Ifamatter needs attention, itll make it
on tomy list. I did try using my email
programs task list, but that was soon
overrun withflagged, linked items and
ever-red unread notes. One client
suggested that Ishould flag up emails
and move them into a new folder called
action. Imagine my frustration as
Iscrabbled around, never finding the

email I needed had I moved it or not?
Ishould have called the folder
distraction. I could have consulted my
list and finished the task in half the time.
Back in the early 1990s the speed of
communications relied on the efficiency
of the mail-room junior and the postal
service. Wethumped out typewritten
correspondence in carbon-copy
triplicate and our working day revolved
around cries of: Whens the last post?
Has it gone? We called that pressure.
Keen for us to embrace email, my
employer at the time ran a competition
to reward the email-using employee of
the month. I bet that firms staff
competition is now for smallest inbox.
I have always embraced progress, yet the
nostalgic in me enjoys the fact that the
lingering CC and BCC abbreviations
hail from those crazy memo-in-areusable-internal-envelope days of
carbon copy and blind carbon copy.
So keen are some of us to keep on top
of our email and social media updates
that one handset isnt enough. How we
juggle and, all too frequently, drop them.

Our clumsiness is understandable: our
thumbs are simply too tired to grip.
(Thumb yoga, the next craze you heard
it here first.) A top tip Im told: if you
drop your mobile in liquid, switch it off
and bury it in rice (dried, not cooked;
grain length unimportant) for 24 hours.
A top tip Im telling: laptop users prone
to spillages should not try the same
thing imagine the grains and groans
from sticky-keyboard double-typing.
Spam a lot
Ridicule it as I might, I do get our did

you get it? obsession, because emails
doget caught in spam filters. Who knew
that the term spam emanated from
thedastardly tactics of abusers on
gaming bulletin boards? To scroll other
users text off the screen, they would
repeat the word spam over and over
again. Wouldnt a longer word
marmalade, say, or bulldozer have
been moreeffective and require less
effort? I like the idea of your email got
caught in my marmalade filter.
I confess that I have checked my
emails many times while writing this
column. I have even checked my folders
for deleted emails and spam. And, tomy
horror, Ive just found an old email in
the latter from my editor asking about
myarticle. This is a little embarrassing
and awkward. I never replied. Oh, well.
He should have texted.
Thank you to everyone who has
written to me sharing their experiences
of corporate jargon, which Ive discussed
in previous articles. The subject seems to
have hit a common nerve. Do you have
any tips about handling emails? Id love
to hear from you.
Julia Streets is the founder and director of Streets
Consulting, an international business development,
marketing and communications consultancy.
Sheisalso a writer (author of The Lingua Franca
ofthe Corporate Banker), after-dinner speaker
andstand-up comedian. The Lingua Franca of the
Corporate Banker is available from Searching
Finance, Amazon and Barnes& Noble.
Facebook The Lingua Franca of the Corporate Banker
Twitter @streets_ julia
Email julia@streetsinthecity.com
Illustration: Dmitry Litvin/Dutch Uncle
Someone has texted to say that theyve sent me an email.

Really? Itmight have taken me time to email back, but Id
have got to it. Weirder still was my initial reaction: I checked
my voicemail. Why? Was I expecting a message on there
askingme to check for a text asking me to check my email?

Cima Sept 2013

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www.fm-magazine.

com September 2013

Financial Management | September 2013

A word from the president

Our generation Y survey is one of the most comprehensive of its kind

uring my recent travels as

15and 33. Over the next few months

another interesting nugget of

Malcolm Furber, FCMA, CGMA

A word from the president

Financial Management | September 2013

The insider view South Africa p18

The smart continent Africas mobile

Cover photograph: Sam Hofman and Kyle Bean

Information overdrive The next stage

Head of media and

Editor Lawrie Holmes

Financial Management | September 2013

CIMA CEO column

The contents of this publication are subject to

Financial Management | September 2013

Name Ovais Sarmad, ACMA, CGMA

I joined the International Organization

the IOM has expanded significantly.

Financial Management | September 2013

[The IOM by numbers]

four years ago and completed it last year.

tomanage its administrative costs and

I have seen our

and IT services to offices worldwide

CFOs value reputation

s corporate activities face growing scrutiny,

Financial Management | September 2013

This months dilemma

Finance and HR can have more

IMA has started a collaboration

The institutes will also make their relevant

No, but a significant improvement is needed: 54%

No, its in good shape: 10%

The dilemma In the food factory

What the poll says

Financial Management | September 2013

arge organisations could be

For CGMAs, the

When we compared companies with

he finance directors of some of

Why youre never safe from more

percentage in six years and double the

according to a global EY survey.

Three steps to safeguard against

Financial Management | September 2013

A big fraud or a fraud killer?

Online fraud is the next great hurdle for the internet.

The cloud can play an invaluable role here. We at Trustev

This automated system analyses patterns behind the

Illustration: Mitch Blunt/Dutch Uncle

Behind the technical complexities and the jargon,

5percent of total retail commerce, the proportion of

more aggressively for yield, seemingly

andthere, we can quickly return to

Sir Richard Branson,

Jeff Immelt, CEO of

Financial Management | September 2013

must be made aware of the range of