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Management May 2012

Making the
right play
HMV Canadas CFO Harvey Berkley
on why his business is thriving
at a time when global specialist
retailers are taking a hit

Why employee-owned businesses are thriving

How predictive analytics can drive your business forward
Robin Pagnamenta of The Times on Indias economy

Nuclear where the
power lies p14
8 ways to be a great
project manager p36
Blowing through
whistle-blowing p50

Financial Management | May 2012

A word from the president

Doing the right

thing, even when
no one is looking

Illustration: Masao Yamazaki/Dutch Uncle

ts time to take the long view on business

ethics. Its no coincidence that the first
theme in our new series of CIMA/AICPA
discussion topics is business ethics, and
how it can add value to organisations. Business ethics is often referred to as doing the
right thing. CIMA likes to complete this phrase with
the words: even when no one is looking. To me,
this strikes at the heart of the issue.
In my February column, I made the point that
ethics must be embedded into the DNA of an organisation if it is to have any real value. It is CIMAs
contention that good leaders make it their duty
to understand the particular ethical challenges
an organisation might face and how they can be
addressed. Once these priorities are identified,
metrics can be put in place to ensure improvement
continues in the long term.
But worryingly, a new CIMA/AICPA study indicates that there is currently quite a gap between the
rhetoric and the reality. A global survey of almost
2,000 CIMA members, students and AICPA members found that while 80 per cent of our members
employers now have a code of ethics in place, only
36 per cent are actively monitoring and evaluating
performance. More worrying still, it appears that
business leaders are less likely to be actively engaged
in reviewing and taking responsibility for ethical
performance than they were at the time of our
previous survey, in 2008.
A weakened tone from the top has serious implications for the overall ethical culture of the organisation. A change in direction is critical particularly
because our analysis also revealed that management accountants are feeling pressure from all sides.
On the one hand, our members are telling us that
they are being asked to pay more attention to ethics
through an increase in ethical codes, training and
overall ethical framing. On the other, they are telling us that there is greater pressure within organisations to act unethically. (This view has risen from
28 per cent in 2008 to 35 per cent in our most recent

survey.) These pressures are at their greatest in

emerging economies where there is the most competition and perhaps more temptation to cut corners.
We believe that CIMA members have a key role
to play; not only in drawing on their training and
understanding of professional ethics, but critically, in obtaining, analysing and acting upon the
information that will help guide their employers to
ongoing success.
Risk assessment and compliance have become
larger functions, yet instilling a strong ethical culture across the organisation as a whole is whats
really needed. It is encouraging, therefore, that more
than 90 per cent of our survey respondents acknowledged that they have a role to play in contributing
to managing ethical performance.
Businesses operating in difficult working environments should also consider collective action with
similar-minded organisations in order to counter external pressures on the business. The positive effects of such an approach are self-evident. As
more organisations challenge and address unethical behaviour from suppliers and customers, both
internally and externally, the more potential there
is to change operating environments and to level
the playing field.
The increase in the use of non-financial information, and the growing emphasis on the value of
integrated reporting, are being recognised by leading companies as key contributors to assessing a
companys present and future position. Central to
this is the transformation of data into knowledge.
I would maintain that management accountants
have the skills to support this approach by gathering and understanding ethical performance information and upholding ethical conduct through
effective governance across a range of businesscritical activities.
Clearly, CIMA members can provide the ethical backbone that is essential if organisations in
both the public and private sectors are to enjoy sustainable success through the difficult years ahead.
Harold Baird, FCMA, CGMA
CIMA president

While 80 per
cent of our
employers have
a code of ethics,
only 36 per cent
are monitoring

Financial Management | May 2012

At a glance



Josef Hoflehner/Galley Stock

A word from the president

Harold Baird p3
Update p913 Digest of the latest
developments in management
accountancy and beyond.
Hot potato Your ethical
dilemmas resolved. Book in
brief The Art of Action: How
Leaders Close the Gaps Between
Plans, Actions and Results.
App of the Month Turboscan.
Learn from... KarmaLoop

I work at...
Tata Steel p6
The data
Proliferation of power stations p14
Blogs, polls and discussion p16
Robin Pagnamenta of The Times on
Indias economy p18



Harvey Berkley,
CFO of HMV Canada p20
Shared success Why employee-owned
businesses are thriving p26
Looking to the future How predictive
analytics can drive performance p32
Prime number Income tax rates p35
8 ways...
To be a great, and efficient, project
manager p36
CIMA is the
Chartered Institute
of Management
26 Chapter Street,
London SW1P 4NP
020 7663 5441

Harold Baird FCMA, CGMA
Deputy president
Gulzari Babber FCMA, CGMA
Vice president
Malcolm Furber FCMA, CGMA
Chief executive
Charles Tilley FCMA, CGMA

is published for CIMA by
3-7 Herbal Hill,
London EC1R 5EJ.
Tel: 020 7775 7775.

Group editor
Jon Watkins
Lawrie Holmes
Group art director
Simon Campbell
Junior designer
Josh Farley

Creative director
Michael Booth
Editorial director
Peter Dean
Chief sub editor
Steve McCubbin
Senior sub editor
Graeme Allen

Financial Management | May 2012

Study notes 39-49

Using ASAP to tackle scenario-based

questions; the annualised equivalent
method; and environmental reporting



The legalities of whistle-blowing laid

out in simple terms; and the transition
from spreadsheets to new systems



A look at the...
Business processes Mastercourse p56
CIMA global events
Highlights of the international
calendar p60
The Institute
CIMA announcements, plus the
latest from CIMA Ethics p62
CIMA CEO column
Charles Tilley p65
CIMA versus... p66
Head of pictures
Martha Gittens
Picture editor
Nicola Duffy
Senior picture researcher
Alex Kelly
Production manager
Michael Doukanaris

Group publishing director

Rachael Stillwell
Business development
director Tina Hanks
Advertising manager
Andrew Walker
Email: Andrew.Walker@

Editors note
Most organisations, especially corporates, are coming
under pressure to deliver results in an ever tougher,
more competitive environment. But this increasingly
tough environment is also inspiring a whole new
approach to how firms should operate, adapt strategy,
and employ better systems to understand how the
world is changing.
Our cover feature looks at the relative success of
employee-owned businesses, compared to their
traditional peers, around the world, be they stockmarket listed entities in the West or state-owned in
China. Although the models may differ, these
companies show that a workforce with more interest
in the companys success is likely to work harder to
ensure continued high levels of performance.
Also in this issue, Harvey Berkley, FCMA, CGMA,
CFO of HMV Canada, reveals how the group is using
innovative new techniques in a fast-changing world
dominated by the arrival of digital technology.
Meanwhile, our feature on predictive business
analytics looks at the skills, technologies, tools and
processes for continuous analysis of past business
performance to gain forward-looking insight and drive
business decisions and actions.
Lawrie Holmes
Please send your comments and ideas to or join the FM
feedback group on CIMAsphere at
Tel: 020 7775 5717
Managing director
Jessica Gibson
Chief executive Sean King
Chairman Tim Trotter
Cover photography
Steve Carty

The contents of this publication are subject

to worldwide copyright protection and
reproduction in whole or in part, whether
mechanical or electronic, is expressly
forbidden without the prior written
consent of CIMA/Seven.
All rights reserved.
Origination by Rhapsody.
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issues: 7.50 (UK) 10.00 (rest of world) including
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should be in sterling drawn on a UK bank.

Financial Management | May 2012

Financial Management | May 2012

I worked on
achieving huge
efficiencies through
Start date June 2010 End date December 2010

Kevin Io,

Organisation: Tata
Steel International
(Singapore) Pte Ltd
Location: Singapore
CIMA qualified:
February 2002

Josef Hoflehner/Gallery Stock

As financial controller at Singapore-based Tata Steel

International, I was tasked with improving efficiency
for the operations department. This was also part of
a plan to improve customer service and consolidate
warehousing in the South East Asia steel industry.
Along with Andrew Heycott, Tata Steel
Internationals general manager for South East Asia,
we signed a third-party logistics agreement with Toll
Global Logistics to help streamline the warehousing
and shipping of steel-related materials to customers.
KPIs, which included delivery on time, stock
accuracy and health and safety, was of paramount
concern, and were reviewed quarterly, with the
project being implemented by adhering strictly to
the groups legal framework.
Key to its success was Tolls commitment to
delivering on the project in the areas of warehousing
management systems, port clearance, customs
documentation and inventory management service.
By outsourcing the logistics division, we were able to
save a substantial amount of manpower time, which
could be diverted to other core competencies,
therefore increasing efficiency levels while achieving
a better order fulfilment rate. Most importantly,
the new operations model has helped us to achieve
a high level of accuracy in stock records and has
significantly improved on-time deliveries to
customers since it began in 2011.
We began by evaluating the core benefits of
outsourcing. The outsourcing arrangement has
always delivered benefits to the company. We are far
more focused on what we are good at selling and
managing the projects instead of allocating limited
resources on logistics. Streamlining has also
increased customer satisfaction over the past two
years. To date, return on investment for the
outsourced operations has achieved the target set
by the group, which I am very proud of.
My CIMA qualification ensured that I was well
equipped when it came to evaluating potential
third-party providers solutions. We spent a fair bit
of time debating the costs and benefits. My
qualification has enabled me to be more receptive
to ideas and viewpoints, and has given me the
confidence to express my opinions at the table.

Financial Management | May 2012


Getty Images

UK female board
members up
but shy of target
The number of women on
the boards of FTSE 100 firms
has risen in the past year,
but still stands at just 15 per
cent of all board members.
The figures, which were
in the annual Female FTSE
Index and Report from
the Cranfield School of
Management, represented
a three per cent increase in
the number of female board
members from 2011. Of the
190 appointments made to
FTSE 100 boards in the past
12 months, 47 were women.
The report came as
Lord Davies delivered an
update on firms progress
towards meeting his
recommendation in his
2011 report, Women on
Board, that 25 per cent
of FTSE 250 directors
should be women by 2015.
For FTSE 100 companies
this target was regarded as
a minimum goal.
Lord Davies update
revealed that 11 all-male
boards remain in the
FTSE 100, down from 21.
However, the number of
all-male boards in the FTSE
250 was 112, accounting
for 44.8 per cent.
The update also showed
that 53 female
appointments were made
within the FTSE 250 in the
past year, meaning women
now account for 9.6 per cent
of all directorships up
from 7.8 per cent.

Recruiters failing
to consider
business outcomes
Most global businesses want
to connect talent decisions
with business outcomes, but
fewer than half do.
That was one of the
findings from the SHL 2012
Annual Global Assessment
Trends Report.
The report analyses how
organisations measure talent
throughout the entire
employee life cycle and
surveyed nearly 500 HR
professionals from 37
countries around the globe
gauging their views on talent

assessment practices, goals

and challenges with current
workforces and new hire
candidates alike.
The survey revealed that
while leadership and
employee engagement have
risen to the top of the priority
list, organisations see much
less value in employee
development programmes
with only one-third of
respondents considering it a
priority, and even fewer using
it as a retention strategy.
Additionally, while the
majority of organisations saw
the value in using talent
measurement data to inform
business decisions, many
lacked the know-how to apply

it to achieve quantifiable
business outcomes.
Our Trends Report has
shown that as the economy
continues its recovery,
organisations are recognising
that their attraction and
retention of top talent is what
will propel them to the top of
their newly reformed market
landscapes, said David Leigh,
This may seem obvious in
theory, but its proving to be
difficult in practice.
While these organisations
aspire to make the best
business decisions based on
key talent measurement data,
many lack the ability to do
it effectively.


Financial Management | May 2012

Now on

Our guide to the best online tools

For CGMAs, the following

content is now available
l Global economic outlook:
CGMAs grew a little more
confident in the first quarter
about global economic
conditions, according to the
inaugural CGMA Global
Economic Outlook Index, a
new quarterly snapshot of
AICPA and CIMA members.
The survey revealed some
significant regional
differences in expectations
and optimism. See whats
worrying executives and
which industries are the
most and least optimistic.
Visit http://tinyurl.

Gallery Stock

l Treasury in the spotlight:

The global financial crisis

transformed corporate
priorities, pushing financial
risk management high up
the list. In turn, this shift has
raised the profile of the
executive who is often
responsible for managing
that risk: the corporate
treasurer. Two financial
execs offer their views on the
top priorities for the treasury

function, how the culture of

their organisations has
changed since the financial
crisis began, and their
relationships with their
banks, among other things.
Visit http://tinyurl.
l Risk management provides

new opportunities for internal

auditors: Business leaders
want more involvement from
internal auditors in the effort
to manage risk. See what
executives, audit committee
chairs and board members
said about the internal audit
function, where they think
internal auditing should put
its risk focus and what
barriers might prevent
internal audit staff from
taking a more strategic role.

Turn your device into a multi-page
scanner for documents, receipts, notes,
whiteboards, or any other hard-copy
documents, allowing you to email them
as multi-page PDFs or Jpeg files from
wherever you are. Turboscan also allows
you to search the documents.
Cost: $1.99
Category: Business
Updated: 31 January 2012
Current version: 2.5.1
Size: 1 MB
Languages: English,
Developer: Tania Sulimov
Compatible devices:
iPhone, iPod Touch
and iPad
System requirements:
iOS 3.0 or later


Financial Management | May 2012


CIMA member scoops

innovation award
A CIMA member has picked up
a prestigious inventors award in
Benjamin Redford won the Ideal
Home Shows 2012 Ideal Home
Inventor Award for his creation the
Olly a robot that can produce smells,
such as strawberry or lemon, when you
get a Facebook mention, or your
partners perfume or aftershave when

Hot potato
This months
I am a management accountant
working for a privately owned
engineering company.
While the finance director
is on leave, I am in charge of
the finances.

they message you on Facebook.

Speaking at the awards, he said:
Were probably going to create a few
more web-connected objects. For
example, the Molly, which will turn
retweets into sweets so it can give you
Maltesers, Skittles or any sweets you
like. Were probably going to put that
into production as well as the Olly in the
next few months.

The managing director

has a directors loan account
and has asked me to make
transactions on it, some of
which are prior to the year end.
He has said this has been
agreed by the other directors.
I do not feel comfortable
authorising this and also feel
that it will not reflect well on
our year end.
Our response:
I suggest you refer to the
CIMA ethical checklist and
consider all affected parties
and whether you are obliged
to keep them informed.
You might also want to
consider what impact this

The gadget beat nine other

contenders for the award, including
a motion sensor that can monitor
elderly people living on their own, a
personal perceptual pod, and a new
freestanding microwave.
The Ideal Home Show, which has run
for 104 years, has previously featured
gadgets that we now take for granted,
including the vacuum cleaner.

may have on the year end.

What are the internal polices
in this regard?
If there is no written
authorisation from the other
directors this is something
you could query and then
In this situation you need
to be sure that you are
upholding your objectivity
(Section 12), your obligations
with regard to preparation
and reporting of information
(Section 320), and bear in
mind any threats and
safeguards (Section 100.12).
For the code and other
online ethics resources,

visit www.cimaglobal/
Tanya Barman, head of
ethics, CIMA
CIMA does not provide
legal, investment,
professional or career
advice. No responsibility
or liability whatsoever
is accepted for any error,
omission or mis-statement
(whether or not arising
out of negligence) or for
any loss or damage sustained
as a result of reliance on
information supplied or
comments made.


Financial Management | May 2012


Illustration: Denis Carrier/Dutch Uncle, Lucas Varela/Dutch Uncle. Photography: Getty Images

Global pay rises

in the spotlight
Pay rises across Europes
largest economies are set to
average around three per cent
in 2012, a significantly lower
increase than in other regions.
The figures were revealed
in a survey by Towers
Watson Data Services,
which suggests that outside
Western Europe, salary
increases are likely to be
much more significant.
Russian companies expect
to grant increases of ten per
cent on average, against an
inflation rate for 2012 of
5.9 per cent. Among MiddleEastern respondents, Saudi
Arabian companies are
increasing salaries slightly
above this rate, while South
African employees will see
pay increase by an average
of 7.5 per cent.
For employees in the UK,
a three per cent rise would be
a little higher than the rate of
inflation, currently running at
2.9 per cent. However, due to
lower rates of inflation in
Germany, France and Spain,
such an increase would feel
more significant.
We are continuing to
see many of the developing

nations increase pay by

double or even triple the rate
of European economies,
said Paul Richards of Towers
Watsons Data Services
Practice. This trend is likely
to continue where inflation
is high and/or where the
developing economies grow
and living standards rise.
The survey also revealed
that 80 per cent of UK,
German and French
companies expect highperforming staff to receive
a larger proportion of salary
increase budgets in 2012.

Most attractive
cities revealed
Although the so-called
emerging economies are
closing the gap on Europe
and the US, when it comes
to attracting capital,
businesses, talent and
tourists, the US and Western
Europe are still ahead of the
The Global City
Competitiveness Index,
a new report from the
Economist Intelligence Unit
(EIU), says that while there
has been much concern in
the West about the impact of
the financial crisis, it has not
significantly reduced their
overall competitiveness. And
while cities in emerging
economies such as China
rank highly in terms of the
speed of their economic
growth, they lack the ability
to attract talent.
New York (1st) and London
(2nd) remain the worlds two
most competitive cities, the
report found, while Singapore
(3rd), Paris and Hong Kong
(joint 4th) completed the top
five. In total, cities from the
United States and Western
Europe account for 24 of the
top 30 cities.

Book in brief

The Art of Action: How

Leaders Close the Gaps
Between Plans, Actions
and Results
By Stephen Bungay
Verso Books
Executing strategy effectively
can be a challenge for those
leading the way in all manner
of sectors. Stephen Bungay
offers a fresh, practical
approach to strategy,
communication and
leadership, encouraging
people to practise a few simple
things that really make a
difference. Heres a synopsis:
1. Executing strategy is an
enduring management

Learn from...

2. There is often a significant gap

between what managers plan,
what they do and the outcome
they achieve.

When Greg Selkoe started his online

clothing company, he gathered all the
money he could from friends and family
to launch, but there was nothing left over
for advertising. So Selkoe decided to pay
customers who successfully referred other
customers and designate them as
representatives for the company. Upon
signing up, customers received a rep
code. If he or she got someone else to
make a purchase, the rep received five per
cent of the sale. The programme only cost
the company when it worked, making it
cost-efficient. Within a few months,
representatives were driving about
20 per cent of the websites total sales.

3. Bungay finds a fresh approach

from an unexpected source the
19th-century Prussian Army.
4. His solution is based not on
theory, but on sets of practices
that have evolved over many
years in the fast-moving,
unpredictable environment
of the battlefield.
5. In outlining these, he
sets the focus on how to
set direction, how to agree
what people need
to do to realise their
objectives, and how
to enable them to be
successful in the
complex, dynamic
arena of modern


Financial Management | February 2011

The Data
Global proliferation
of nuclear power

of nuclear
reactors: 19
Number being
built: 0

Number of nuclear
reactors: 18
Number being built: 0

of nuclear
reactors: 7
Number being
built: 0


Number of nuclear
reactors: 104
Number being built: 1


of nuclear
reactors: 58
Number being
built: 1

of nuclear
reactors: 8
Number being
built: 0


 umber of

being built

Going nuclear
There are currently 435 nuclear power plant units with an installed
electric net capacity of about 368 GW in operation in 31 countries,
and a further 63 plants under construction in 15 countries with
an installed capacity of 61 GW. By the end of 2010, the total
electricity production since 1951 amounts to 67,240 billion kWh.
The cumulative operating experience amounted to 14,745 years by
February 2012. Although the US, France and Japan have the most
reactors, it is the BRIC countries of China, Russia and India that are
committed to building the most new reactors as of February 2012.


Financial Management | May

2012 2011

Number of nuclear
reactors: 10
Number being built: -

Number of
reactors: 9
Number being
built: -

Number of nuclear
reactors: 33
Number being built: 10

Number of nuclear
reactors: 15
Number being built: 2

World map: iStockphoto

Number of nuclear
reactors: 20
Number being built: 6

South Korea
Number of nuclear
reactors: 21
Number being built: 5

Number of nuclear
reactors: 50
Number being built: 2

Number of nuclear reactors: 6
Number being built: 2
Number of nuclear
reactors: 16
Number being built: 26

Source: European Nuclear Society

(February 2012)


Financial Management | May 2012

From the
A new way of
doing business
In our CGMA report on ethics,
our members and students
around the world reported that
human rights had risen in
importance as an issue of
priority for business.
Reflecting this, March saw the
launch of the Childrens Rights
and Business Principles.
As a joint venture between
the United Nations Global
Compact, UNICEF and Save
the Children, the Principles
resulted from wide
consultation with business,
government and civil society
globally, and will be rolled
out across the world. Covering
a wide range of issues, the
Principles identify actions
that all business should take
to prevent and address
adverse impacts connected
with their activities, and
maximise positive impacts
on childrens lives.
At the launch event in
London, the big influence that
companies have on the lives
of children was highlighted.
Businesses everywhere are
under increasing scrutiny to
do no harm, against a
background of a growing
demand from shareholders,
customers and employees for
companies to have high

You asked

What is the main

between EVA
(earned value
analysis) and SVA
value analysis)?

standards. Impacts on
children and youth are at
a range of levels children
themselves may be customers,
they may be employees or they
may be affected directly by the
products created. Or they may
be impacted by family life. For
example, parents working far
from home, or for low wages in
unsafe conditions, or working
long hours.
Companies with complex
supply chains across many
markets need to understand
that the issue can be bigger
than one company alone can
tackle and solutions arent as
simple as just forbidding it.
Collective action, and working
together with like-minded
organisations and
governments, can make
positive changes, with
childrens welfare in the long
term the focus.
Speaking at the launch
event, a leading retailer
headquartered in the UK
explored many of these issues
in relation to the workers in
the garment industry in
Dhaka, Bangladesh. Through
its work there, the company
learned it was important to
share knowledge with other
companies working in similar
industries in relation to health,
education, and safeguards in
factories. Due diligence was
critical for this company, as
well as learning that its impact
went further than the
immediate business activity.
By understanding and
resolving issues, it
Both techniques come under
the general umbrella of
value-based management.
EVA is an internal measure
that highlights the increase in
wealth to the shareholder by
investing in the organisations
shares. It uses adjusted
after-tax profits, less adjusted
capital invested, times by
the weighted average cost
of capital.
Shareholder value analysis

Poll of the month

We asked

Do you consider cybercrime a threat

to your organisation?
A major threat: 56%

A minor threat: 39%

No threat at all: 3%

Not sure: 3%
Source: Survey on, 2012 (Figures exceed 100% due to rounding up)

strengthened the efficiency of

its local operations so in turn
it had a clear financial return.
A representative of the
China National Textile and
Apparel Council spoke about
how it had arranged for
workshop sessions for young
migrant workers to better
understand their views and
needs. There may be a startling
240 million migrant workers
in China. Up to 100 million are
young people, many of whose
parents may have been
migrant workers before them.
This second generation has
higher expectations and
aspirations, which companies
can leverage. A common view
among children and young
people globally was the need
to be respected, and for
business to be fair as well as

to have the opportunity to

develop skills and progress.
When investing in young
people and their families,
businesses are ultimately
investing in the wider
community a better skilled
workforce and a more
prosperous consumer base.
Good businesses attract better
people to work for them. And
good business practices mean
sustainable returns.
A young person from
Bangladesh is quoted as
saying: Children work at an
early age in many countries.
Businesses should take the
initiative for establishing a
training institute, so children
can get skill-based training/
Sandra Rapacioli,
R&D manager, CIMA

identifies the business

value, defined as the present
value of future cash flows
potentially available to
become dividends, plus any
investments or securities the
organisation can sell for cash
without impairing its
performance, less any debts.
Therefore, to increase
shareholder value,
management should improve
the present value of future

cash flows, or reduce debt.

Subsequently, the difference
relates to the fact that EVA
ignores future cash flows,
whereas SVA takes these
into account.
Send in your own
queries to questions@
We will ask a specialist
or tutor to provide
a response


Financial Management | May 2012


South Asian correspondent, The Times (of London)

Indias tiger economy could roar again, but the question is

whether the politicians have the will to allow it to do so

whom promised MPs she would torch the first Wal-Mart

store that opened in her state Congress was forced to
dump the plan unceremoniously a few days later.
Ever since, Congress has tried to maintain the
impression that it plans to return to the reform of Indias
retail sector a change that has been talked about now
for a decade. But after the polls in Uttar Pradesh, forget
about the prospect of foreign direct investment in retail
being passed any time soon.
Forget, too, any idea that Congress will manage to
push through ambitious planned reforms in Indias
pension and aviation industries, its land acquisition
and tax laws all changes that are urgently required
to kick-start growth.

Though crying
out for strong
India still has
big natural

nstead, India appears to be heading for a period

of chronic political constipation. With a general election not due until 2014, a weakened
Congress will now have to stagger on, negotiating with an ever more complex coalition
patchwork of smaller parties and politicians
to get anything done. With this in mind, and against a
background of slowing global growth acting as a drag
on exports, the prospect for a quick return to Indias
boom time of a few years ago looks remote.
Of course, there is a danger of overstating the gloom.
Setting aside its political woes, as an economic power
India still has big natural advantages not least the
sheer size and youthfulness of its swelling population,
which is driving a consumption boom, and the natural dynamism of its best entrepreneurs companies
such as Tata, Infosys, Mahindra and Reliance, which
are exerting growing muscle on the world stage. Indias
central bank also looks poised to offer some relief this
year by starting to trim interest rates that have choked
growth. Nevertheless, taken as a whole, Indias growth
story still looks hamstrung by its feeble political class,
whose failure to grasp the opportunity presented to
them is as frustrating as it is tantalising.
Unlike in Europe and the US, there is no question
that, with the correct reforms, Indias tiger economy
could easily roar again. The question is whether its politicians have the will to allow it do so. At the moment, it
appears they probably dont.

Getty Images

drubbing at the polls in March for

Indias ruling Congress party was a
humiliation for Rahul Gandhi, the
young prince of the countrys ruling
dynasty. And it could turn out to be
even worse news for Indias economy.
Under the partys watch the countrys GDP grew by
a disappointing 6.1 per cent in the final quarter of 2011,
its weakest rate of growth in three years and a far cry
from the eight to nine per cent being trumpeted by the
countrys government as possible a year ago.
Despite offering to dish out food subsidies to nearly
two-thirds of the countrys population, the current government will be remembered better for a string of corruption scandals, in which elected politicians have been
accused of some astonishingly brazen acts of graft
including allegations of kickbacks for 2G mobile phone
licences running into hundreds of millions of dollars.
But electoral defeat in a string of states, including the
Punjab, Goa and Uttar Pradesh Indias largest with 200
million people is unlikely to help deliver better economic results any time soon. Indias electorate, while
clearly frustrated with its political class, does not appear
to be speaking with a coherent voice for change. Instead,
Congress and its main opposition party, the BJP, are
both losing ground to a plethora of smaller, regional
parties often with narrow local mandates and agendas.
What will this mean in practice for Indias future?
In all likelihood, an even weaker government in a
nation that is crying out for strong leadership and an
administration even less equipped to deliver some long
overdue economic reforms.
Last year, one of the more embarrassing moments for
Congress was its disastrous attempt to push through a
bill designed to unlock the nations $550bn retail sector
to foreign supermarkets such as Tesco and Wal-Mart.
What had been billed as a historic reform designed
to catapult Indias high streets into the modern era (and
stop one-third of the countrys fresh produce rotting
before it reaches consumers by boosting investment
in proper transport and refrigeration), instead ended
up backfiring spectacularly.
In the face of fervent opposition from a rag-tag coalition of smaller parties and political showmen one of



Photography by
Steve Carty

Financial Management | May 2012


Financial Management | May 2012

Harvey Berkley, FCMA, CGMA

Chief financial officer
of HMV Canada
Interview by Lawrie Holmes
How did you get started in your career?
After graduating, I began my career at the UK
headquarters of cosmetics group Avon, where I first
worked as a reporting financial analyst. During that
time, I became interested in a career in management
accountancy after completing a course in business
studies at Manchester Polytechnic. I specialised in
accounting, which then led to the desire to pursue
a career in accountancy.
I had decided already against becoming
a chartered accountant, feeling I was more suited to
a focus in industry and commerce. As a result,
I found the CIMA qualification suited the path
I wanted my career to follow. It gave me an overview
of business operations as a whole, and how to be
influential within that business.
How did you find your way to North America?
After leaving Avon, I moved into a role as a
management accountant at Sony manufacturing
and distribution. During this time, I decided
I needed additional experience in other firms.
I moved to Thorn EMI Security, just as it had
transformed into a larger conglomerate, where
I worked as a divisional accountant.

While at Thorn, I saw an advert for a management

accountant role at HMV UK. Once hired, I had the
opportunity to work in three different countries,
something I had always wanted to do. First, at the
age of 29, I moved to New Zealand following my
appointment as finance director of HMVs
operations in that country. I was there for two years,
returning to HMVs corporate office to take up a role
in business development, which entailed supporting
the development of the overseas businesses. This led
to a position in business development in the US,
where I was vice-president, finance, based in
Stamford, Connecticut.
You were heavily involved in HMVs US rollout.
What happened?
We established the US business based on several
preconceptions. We felt we could roll out a US
franchise in the same way that we had successfully
developed the model in the UK. The US market for
physical music was still in growth mode at that
time, with significant specialist competition.
We felt we could deliver a better offering than the
competition that existed in the market.
We looked at many opportunities to acquire new
physical locations from 1993-98, but our arrival was
during the peak of real estate prices in the country.
We were aware of the market opportunity, but
unfortunately less aware of the overall marketplace.
We had opened new locations in many of the most
competitive US markets, including New York, partly
because we had experienced success in the major
cities in the UK.


Financial Management | May 2012


A big part of my
job is networking,
which effectively
leads the charge
for the business
We compared the British market to the US, but
didnt fully understand the differences in size and
density of the US market. As a result, we ended up
pursuing too many real estate deals in too many
markets. At one point, we had 24 stores in the US, all
on the east coast. When market conditions evolved
unfavourably, we were forced to exit the market.
Subsequently, I was offered the opportunity to
become the VP, finance and management
information systems, for HMV North America.
How did you end up in your current position?
Part of my new role was as vice-president of finance
for Canada. At the same time, I was continuing
to focus on our exit from the US marketplace.
Once that was complete, I then became CFO of
HMV Canada.
From 2000 onwards, I was fully involved with the
Canadian business, which had approximately 90
locations in Canada when I began. Our plan was to
increase coverage to somewhere between 125 and
140 sites. At this time, there continued to be plenty
of opportunities for expansion, as Canada was still a
solidly performing market that focused on physical
music sales.
Internet retailing had yet to fully develop here in
the way other countries had by this time, partly
owing to shipping costs in a large and less densely
populated country. Traditionally, Canadians are

more comfortable to search for goods on the

internet, yet the actual purchase would be at the
physical retail location. As a nation, Canadians are
some of the biggest users of the internet, yet remain
less interested as online purchasers.
What were the threats that led to the sale of HMV
Canada to Hilco last year?
Changes in the UK marketplace began about three
years ago, when both revenue and profits were
affected by increased competition by big box
retailers such as Wal-Mart, Best Buy and Tesco.
Specialist retailers, such as HMV, had difficulty
competing on price, resulting in the need to adapt,
for example, creating stronger relationships in
the supply chain. At the same time, more people
began to use the internet for purchasing their
entertainment. The differences between the UK and
Canadian marketplace made the sale advantageous,
as the Canadian operations had a different
experience in our local marketplace.
What does your real estate role entail?
The biggest part of my job is all about networking,
its much more about going out and meeting people.
Effectively that means being a part of leading the
charge for the business. The Canadian retail
marketplace continues to evolve, and weve
undertaken a programme that looks at our retail

Changes to the
UK marketplace
began about
three years
ago, when


Financial Management | May 2012

What area of financial management are you
most focused on?
Now that we are no longer part of the original parent
company, there is more flexibility to be
entrepreneurial, as we no longer need the approval
we once did for major decisions. To continue being
successful, we have discovered that it is all about
cash management, i.e. managing cash and working
capital. We introduced a well-controlled cash
forecasting tool, which we manage on a weekly
basis. It allows us to keep a careful eye on every part
of the business, concentrating on EBITDA and PBIT.
How helpful was your qualification?
The CIMA qualification provided me with the
opportunities Ive experienced. With a more
rounded view of an organisation, it makes it much
easier to have an understanding of things across all
channels. Ive also had the good fortune to have
worked in four different countries. Chartered
accountants, by contrast, are a little restricted.

The CIMA qualification

allowed me to develop
core skills that are
applicable to all
footprints in all markets across the country in the
last year and a half. The key to this role in an
evolving market is being able to share our news that
this business continues to have a strong, healthy life
cycle and make HMV Canada a key part of their sales
and marketing plans.
A good example is in our mall locations as an
entertainment retailer we offer the opportunity for
good foot traffic for all tenants. Were HMV Canada
to exit a particular location, the traffic for
entertainment products would likely disappear from
the mall environment and migrate to big box retail.
How are you preparing for new opportunities?
Its very important to continue to innovate,
especially in an industry thats evolving.
Continuing to maintain profitability is the greatest
challenge we have had, and weve managed to keep
the Canadian business successful.
We believe emerging technology is the focus for
the business we are in the process of developing
our own digital streaming service. We need to take
full advantage of the opportunities from the 35
million customers coming into our stores every year.

Having the CIMA designation has given me the tools

to deal with a multitude of challenges. Also,
studying for the qualification while youre working
provides a good work ethic.
What advice would you give
to CIMA members?
In terms of working in retail and entertainment,
which my role combines, the most important thing
is that you need to be passionate about what youre
doing and why youre doing it.
I dont think you necessarily have to have the
same enthusiasm for working in other business
environments. You have to like the product, that
goes without saying. Im a big music fan obviously,
with an interest in 80s/90s bands such as U2
and Coldplay.
My other piece of advice would be to work in
overseas locations whenever possible. It enhances
what you do and how you do it, develops you and
makes you a better person. The only thing I really
miss about life back in the UK is watching
Manchester United play, so I go to Old Trafford to
watch a match whenever I get back.

1981: Joins Avon as
European reporting
and planning analyst.
1983: Becomes
assistant management
accountant at Sony
1984 Moves to Thorn
EMI Security as
divisional accountant.
1986: Joins HMV
UK as financial
accounting manager.
1989: Transfers to
New Zealand HMV to
become chief financial
1991: Back to HMV
in London to take up
post as international
business analysis
1993: Moves to the
US to become vicepresident, finance
and MIS, based in
Conneticut, for
1998: Across the border
to Toronto to become
vice-president, finance
and MIS, for HMV
North America.
2003: Becomes
vice-president, finance
and MIS, for HMV
North America.
2011: Named chief
financial officer of
HMV Canada as the
firm comes under
new ownership.




As the traditional set-up of institutionally

owned, quoted companies comes under the
microscope following the world economic crisis,
we look at how employee-owned businesses
and cooperatives are flourishing, and how the
finance function is having to adapt accordingly

hen anti-capitalism protesters

set up a camp outside Londons
St Pauls Cathedral, they sparked a
political debate about the future of
big business. But what many of the
protesters may not have realised is
that a growing number of senior managers are also
questioning whether the conventional model of
a quoted company with institutional shareholders
is always the best way in which to organise a firm.
One of them is Marisa Cassoni, who steps down
in May after six years as finance director at the
John Lewis Partnership. Our view is that there
is room in society for different kinds of models
that work, and that make society richer, she says.
It doesnt mean that the quoted stock company is not right, but we seem to have become too
skewed towards one type of model.
After all, its not as though the institutionally
owned, quoted company is the most effective at
delivering financial returns. The Employee Ownership Index (EOI), which tracks the performance of
businesses with more than ten per cent employee
share ownership, has outperformed the UKs
FTSE All Share Index by an average of 12 per cent
each year for the past two decades. Anyone who
invested 100 in EOI companies in 1992 would
now have 639, compared with 216 for an investment in the FTSE All Share Index.
In January, British deputy prime minister Nick
Clegg said that more companies should offer their
employees shares to help to create a John Lewis
economy. Following Cleggs announcement,
Norman Lamb, the business minister, appointed
Graham Nuttall, a lawyer and chartered tax advisor, to advise the government on how to spread
employee ownership more widely.
Nuttall, a partner at UK law firm Field Fisher
Waterhouse, says: My review will look at whether

Photography by
Franck Allais

there should be a preferred model that is better

promoted by the government so that there is a
recognised starting point for anybody wanting to
consider employee ownership.
Ministers in the coalition government believe
that a boost to alternative forms of business organisation could usher in a new form of caring capitalism, such as co-ownership or co-operatives, where
all stakeholders share in the fruits of their labours.
If the government succeeds, it will help Britain to keep pace with a growing trend that has
seen the worlds businesses adopt a wider range of
employee-owned or co-operative business models.

Ministers in the coalition

believe alternative forms
of business organisation
could usher in a new form
of caring capitalism
Ed Mayo, secretary general of Co-operatives UK,
points out that there are 328 million people around
the world who own shares, but already more than
a billion who are members of co-operative enterprises. In the case of co-operatives unlike coowned businesses members may include customers and suppliers, as well as employees. In the UK,
9.1 million people own shares directly, compared
with 12.8 million who are members of a co-operative.
Mayo sees the co-operative movement moving
more into the business mainstream, with its focus
on issues such as how to engage staff to make them
more productive and how to win the passion


Financial Management | May 2012


At ICT provider
Huawei, more
than 65,000
employees own
shares in the

and loyalty of customers. Its not that every business should be a co-operative, but every business
can benefit from being more of a co-operative,
he says.
In the US, 11,300 companies run employee stock
ownership plans covering 13 million employees,
according to figures from the National Center for
Employee Ownership (NCEO). The NCEO points
to research that suggests that companies that turn
to employee ownership grow 2.3 per cent a year
faster than they would have done with only external shareholders.
In the Far East, there is a growing acceptance
of different business models, especially in China.
One of the worlds leading employee-owned businesses is ICT provider Huawei. More than 65,000
of its employees own shares in the company. They
elect 51 representatives and nine alternative reps
who, in turn, elect members of the board of directors and the supervisory board. The companys

Employee Ownership Index vs FTSE All Share Index:

Jan 1992 to Dec 2011

FTSE All Share




Jan 11

Jan 10

Jan 09

Jan 07

Jan 08

Jan 05

Jan 06

Jan 03

Jan 04

Jan 01

Jan 02

Jan 99

Jan 00

Jan 97

Jan 98

Jan 95

Jan 96

Jan 94

Jan 92

Jan 93



most recent annual report described employee

shareholding as a way of aligning the personal
goals of employees with the companys longterm development.
At the John Lewis Partnership, Cassoni says the
co-ownership structure brings back accountability to the owners. We have a virtuous circle so that
what needs to be done to drive forward strategy
and plans gets communicated back to the co-owners to get their ownership, commitment and drive.
There is no dislocation between what
the organisation and what our partners on the
shop floor are trying to do. There is a complete
consistency of stakeholders. You wont see that
in other organisations.

The John Lewis

Partnership eschews
short-termism, so
investments have been
on an increasing trend
Cassoni argues that the John Lewis model enables the company to fight that City disease shorttermism. We would not forgo investment just
because it hit short-term profit, she says. Our
investments have been on an increasing trend,
notwithstanding the downturn.
Cassoni points out that other businesses need
to manage their financial results so as not
to disappoint the markets. But John Lewiss partners, as it calls its employee
shareholders, see results every week
through the work they do, and are
more attuned to where the business
is going. As a result, they will be more
attuned to what that will mean to them for
in-year bonus.
In March, the John Lewis Partnership
announced that its bonus effectively a dividend
would amount to 14 per cent of basic salary. Bonus
is paid at the same level for all staff. That represents around seven weeks pay for a shop-floor
worker. But, Cassoni says, its less than a director of a FTSE 100 company could expect. The
only place where we cant match market rates is
at board level, she says.
But its those giant boardroom bonuses that
have created the crisis in capitalism, according
to its critics. The real issue you are struggling
with in the marketplace is that there are no sanctions for failure, says Cassoni. I dont think


Financial Management | May 2012

anybody objects to people being rewarded for
value creation thats what our bonus is doing.
But when staff are rewarded for no value creation,
thats when people become anxious.
So can business models such as co-ownership
or co-operatives create a new climate in which
even big businesss sternest critics will be won
over? Giving employees a stake in a company
creates a sense of organisational purpose that is
greater than merely financial purpose, says William Davies, academic director of the Centre for
Mutual and Employee-owned Business at Kellogg
College, Oxford University, in the UK. It leads to
long-term investment decisions and higher productivity, when combined with the right management internally, he says.
Ironically, the obsession with short-term
earnings even defeats itself over the longer term,
and profit maximisation eventually leads to
smaller profits.
Davies points to the work of economist
John Kay on obliquity focus on the central

Tullis Russell

a stake in the
company leads
to longer-term
decisions and

Geoff Miller, group finance director at Tullis Russell,

a 175m-turnover employee-owned paper and board
manufacturer, talks about the quarterly meetings he and
fellow directors hold with investors.
In a public company, youd be sitting across from institutional
investors who are financially literate and can ask searching questions
about finance.
But we are sitting across the table from people who are very much
involved in the business. They know it inside out and can ask very
robust questions about strategy and performance.
Miller points up one of the key differences for a finance chief working
in an employee-owned business. The people he is facing across the table
have been elected by their fellow workers onto the employee ownership
board. Its purpose is to ensure that the management is fully aware of the
views of the employee-owners of the business.
Tullis Russell was originally a family owned firm. It moved towards
employee ownership when family shareholders wanted to sell out, but
didnt want the independent firm taken over by a big conglomerate. If
more companies become employee-owned in the years ahead, this could
prove to be one of the main ways in which it happens.
But becoming employee-owned provides a challenge for the finance
function. Explains Miller: As a private company, we prepare statutory
accounts and send them to shareholders. But the majority of employee
shareholders would have difficulty working through statutory accounts
to get the key messages. Instead, the company holds regular focus
groups to explain whats happening in the company and provides a
forum for questions.
And Miller warns that an employee-owned business may not be right
for all managers. The culture is participative and engaging so you have
to be prepared to consult with people. Weve interviewed people
who are technically fantastic, but we know that they wouldnt fit in with
the culture.
Miller advises any company thinking of encouraging employee
ownership to ensure that it has a strong underlying business model.
Middle managers must be on board because theyre the ones who will
make it work day by day. And you to have make sure that employees buy
into the idea of ownership because its a two-way street.
You can put all the mechanisms in place, but unless the workforce
understands what youre doing and are prepared to make it work, then
its going to be very difficult.

purpose of the company and profits will follow

naturally as underpinning the argument for
employee ownership.
But, Davis argues in his new research paper, All
Of Our Business, to encourage employee ownership the government should restore the tax advantages for employee benefit trusts that the Labour
government removed in 2003. That move would
currently cost 51m, but Davies says it could be
recouped from regressive share incentive schemes
for high earners.
Other tax incentive changes that would support the sector include extending the Enterprise
Investment Scheme to employees, and not only
to external investors, and to investment in preference shares and loans at present restricted to
ordinary shares.
No doubt Nuttall will be thinking hard about
these as he ponders his recommendations for the
government. He agrees that financial issues are
some of the most difficult when it comes to creating and sustaining an employee-owned business.

We need more
imagination in financing
models to raise capital
for employee-owned
Its unfortunate that employee-owned companies perhaps have no other choice than to be
taken over by another company, or seek a listing
on the stock exchange as a way of raising additional capital, he says.
We need more imagination in financing
models. Perhaps there should be a market in preference shares, alongside an employee trust continuing to own the ordinary shares.
He points out that the John Lewis Partnership
has preference shares listed on the stock exchange,
which despite not carrying votes, do receive a dividend and are traded.
When he spoke to FM, Nuttall stressed that he
had not yet reached any conclusions about what
would appear in his report. He expects to deliver
his findings in July and says: I have received significant encouragement from the government that
it wishes to turn the recommendations into action
as quickly as possible.
Peter Bartram
is a regular contributor to Financial Management





Tim Cooper examines to what extent predictive

analytics can help drive an organisations future

aterpillar, the global construction

equipment maker, may be a traditional company in most respects.
But its use of predictive analytics highlights just how effective
this set of tools can be in a volatile
economy. Caterpillars project was highlighted in a
recent report from the International Federation of
Accountants (IFAC), which shows how management
accountants can add value and differentiate themselves by using predictive analytics to provide forward-looking, rather than historical, information.
Knowing that its business was tied to shifts in
gross domestic product (GDP), executives at Caterpillar asked its economists to find a leading indicator of performance. They established that sales to
users predicted shifts in the economic cycle with
a lead time of six to nine months against US GDP.
Using this metric, Caterpillar anticipated the US
recession in the third quarter of 2007. Although
it underestimated the depth of the downturn,
it used the information to trim operations and
emerge from the recession in a much better position than its rivals.
Predictive analytics uses a wide range of tools
and techniques to predict business scenarios and
identify appropriate actions for each. It can be
applied to almost any part of a business and in any
industry sector. The IFAC says it is a continuous
process to cultivate decision-making, and one of
the main ways it differs from business intelligence
is its use of external data.
According to the report, the Caterpillar story
shows how predictive insights can draw on the link
between economic indicators and internal performance indicators.
The report goes on to emphasise the importance of analytical skills for accountants in an
environment where the requirement for quality management information is expanding, and CFOs are
increasingly expected to provide decision-making
support as business partners or navigators. It also

by Christian

gives detailed guidance on how to create a structured predictive analytics process, and explains
the tools and techniques involved.
Eddie Short, partner and head of business intelligence at KPMG, says: We look at predictive analytics as a natural evolution of business intelligence
and big data [that is, the huge amount of internal
and external data now available from a wide range
of sources]. In a volatile, globally hyper-connected economy, you will be subject to changes. The
management accountant needs to be able to plan
scenarios and what if analyses so alternatives are
available and the company can meet its stress tests.
Their role is no longer to tell the business and
shareholders whether we met targets, but to show,
with analytical tools, how to meet or beat them next
time. It makes the role of finance more important.
Short says predictive analytics requires a solid
business intelligence platform. If you have an
integrated planning, forecasting, budgeting and
consolidating cycle, then you can build on that.
You can pull in data from outside the business to
add confidence to the forecast. You will never have
100 per cent confidence in a predictive analysis, but
sophisticated algorithms and confidence in your
data might give 90 per cent.
Malcolm Wilkinson, financial analytics partner
at Deloitte, says predictive analytics have a wide
range of applications, from pure financial planning
to finance-sponsored analytics in other parts of
the business, such as commercial, sales or supply
chain management.
For example, finance could sponsor the use of
predictive analytics in price optimisation, he says.
If you adopted different pricing policies what would
that mean to your profit and to your suppliers profit?
Returning to the theme of big data, Short says:
One of my clients refers it to as a data arms race.
Leading organisations are harnessing everything
out there. For example, data from social media
that is a lot more than they have been able to manipulate via internal sources. They are building


Financial Management | May 2012

It is a significant
shift to get from
bolting business
analytics on to
your business
model, to
building it in

confidence in the quality of their data to enrich what

they have from trusted external sources producing more composite forecasts and using them to
be ready with product development when the next
trend emerges. Its about being able to manipulate
massive data sets with a portfolio of tools.
Outside help is often necessary. You cant build
all this yourself, says Short. As well as outsourcing, companies are co-sourcing [working with third
parties to build infrastructure] and crowd sourcing
[using customer input from social media to help
design products]. The amount of data is growing
exponentially so you have to be more dynamic
and responsive.
For accountants used to providing historical
information, it requires a shift in mindset.
Management accountants are used to dealing
with the facts, but with predictive analytics you are
experimenting in a laboratory; you dont have to get
it right first time, says Short. Build an adaptive,
interactive culture and always have several
alternative scenarios in mind. Management
accountants have a life-long learning culture.

Predictive analytics in action

As former director of finance at Punch Taverns, one of the UKs
leading pub companies, Sara Shipton FCMA, CGMA,
demonstrated how management accountants can use predictive
analytics to produce insightful information and challenge the
business to improve performance.
Between 2007 and 2008, her team analysed pub sales data, which
allowed Punch to identify underperformance in product categories.
Shiptons team also helped to develop and manage plans to close this
performance gap.
Shipton, who has since set up her own company, Barton Manor
Consulting, says: Punch Taverns leased around 7,400 properties to
individual entrepreneurs. In December 2006, it bought a managed pub
company, Spirit Group (where the company owned the entire retail
business). This gave us access to electronic point of sale (EPoS) data. By
segmenting the estate by style of pub operation, we could more accurately
provide gap analysis between the sales to our leased pubs against
throughputs in pubs of a similar size and style in the Spirit estate.
The team clustered like pubs based on: size by sales, demographic
data, customer data, and style of trading (for example, local, young
persons pub or destination food pub).
We used these comparisons to help the sales teams target
opportunities, then measured the uplift directly. We gave them a
spreadsheet-based tool that enabled them to rank opportunities
and target their time. Comparing like for like, you could see clear
improvements in sales, before and after. This also helped demonstrate
to the leasees the opportunities to increase competitiveness by, for
example, changing their stocking policy.
This was not a technology-driven initiative as most of the work was done
on spreadsheets using basic macros sets of instructions that can be
triggered by a short cut. However, improvements in remote working did help
field teams hugely by giving access to live data. Getting data to the point of
decision is the clever part, says Shipton. It made a huge difference to the
credibility of the sales team they could see the impact immediately.
Shipton didnt need to bring in external expertise for the analysis:
I had non-accountants in my team and it crossed boundaries into IT
I had some clever programmers. Good knowledge of statistics is hugely
important. Simple correlations are very powerful for this kind of work.
Forward looking information with insight differentiates the profession,
makes it far more commercially based, and drags the accountant away
from the relative comfort of simply reporting history.

They can adapt and are well placed to take

advantage of this.
Short adds that it could eventually change the
way that companies develop strategy: It is a significant shift to get from bolting business intelligence
and analytics on to your business model, to building it in and using it to drive your model.
Predicting the future is clearly tricky and there
are many pitfalls to avoid. The first issue is garbage
in/garbage out confidence in the quality and relevance of your data is an essential starting point.
Then there are practical issues. Wilkinson says:
More than half the time, predictive people have
more analysis than they are using. How will the recommendations be carried out? Some may require
changes to the business model. For example, in
a retailer, pricing analysis might say we can optimise profit by running a different pattern or layout
instore. But it is hard to implement because buyers
in each category have allocations for space and they
wont hit their targets if the allocations are taken
away. Some retailers have over-optimised stores for
profit and forgotten about the customer journey.
Often, it is simply a question of time and resources. Over the next five years, companies decisionmaking structures will catch up with the speed of
what analytics can tell them, says Wilkinson. Data
is available online, minute by minute, and you can
draw meaningful trends on a daily or weekly basis.
To speed up decision-making, you may need to
in-source more of your analytics capability.
If you use a marketing agency, campaign evaluation is done after the fact, says Wilkinson. But your
best indicator of early campaign success is Twitter
feeds and online chat, which you can get for nothing
immediately, so you are better off in-sourcing that.
PiyankaJain, CEO of analytics training company, agrees. She says: Companies used to be
more dependent on external partners, but there is
a huge push towards centres of excellence that make
analytics support part of the business.
John Pearson, ACMA, CGMA, assistant manager, risk advisory services at BDO Ireland, deals with
some large multinationals, who often use sophisticated techniques. He says: If you want top-end
analytics, you need mathematicians experts who
can validate your assumptions.
Analytics can also make strategy much more adaptive. Pearson adds: One company has an aggressive
strategy to increase revenue by 60 per cent by changing its model from direct sales to indirect via warehouses in different countries, which will increase
control. Through its modelling on sales trends across
the globe, it can see already that it is trending against
it its not making as much money. Having seen that,
I would pull back from that strategy.
Tim Cooper
is a freelance management accountancy journalist


Financial Management | May 2012

Prime number

Papua New

Effective income tax rates versus social security rates

on $100,000 gross income (as at May 2011)


Effective income
tax rate
Effective employee
social security rate

While Scandinavian countries have some of the highest income

tax rates, combined income tax and employee social security
rates creates a different picture, with only Denmark in the top
ten. The UK, Japan and the US come a long way down the
combined list, as does Switzerland, a country widely regarded as
having a low tax threshold.

In a bid to reduce its

budgetary deficit in
2011, Luxembourg
effectively increased
its top personal tax by

Aruba took the

accolade for the
highest income tax
rates in the world in
2011, with a rate of



Source: KPMG

Getty Images

Global rates
of income tax


Financial Management | May 2012

The list

by Borja Bonaque
Words by
Peter Bartram

ways to...
be a great project manager
Experts in the field on how to
organise and get the best out of
a team to ensure the success of
change and efficiency projects

Get the right


Finance professionals with project

management skills are increasingly
sought after as employers look for
employees who can take ownership of
change and efficiency projects, says
Chris Young, a manager at recruitment
consultancy Hays Senior Finance.
Accountants who want to add project
management to their work portfolio
should consider a Prince2 qualification.
Prince stands for PRojects IN Controlled
Environments and its a process-based
method for managing projects.
The Project Management Institute
provides a range of qualifications. The
most important is project management
professional (PMP). The entry-level
qualification is certified associate in
project management.


Financial Management | May 2012

Find and nurture

a sponsor

Dont even think about running a

project unless there is somebody else
higher up in the organisation who is
right behind you. Critical to any
projects success is having a good
project manager, but after that it is
pretty important to have a good project
sponsor as well, who will happily act as
advisor to the project manager and will
focus on removing obstacles in the
path of project success, says Peter
Taylor, author of The Lazy Project
Manager and veteran of more than
50 important projects.
The project sponsor should be a
senior manager with the financial and
organisational power to act quickly and
decisively in the overall governance of
the project, adds Taylor.

Assemble a
great team

Even Superman couldnt save the world

on his own. (He needed Lois Lane, you
may remember.) Make sure youve got a
mix of different skills on the project team.
The key to success lies in the ability
to balance the hard project management
techniques, such as schedule control,
risk and change control, with a
command of the soft skills, such as
leadership, relationship building,
stakeholder management and change
management, says Pip Peel, vicepresident of programme management
consulting at Cognizant, which provides
IT and consulting services. Good
project management is about balancing
the use of process with a healthy dose of
common sense, recognising that the
discipline is as much about strong
leadership and team building as it is
about Gantt charts and budgets.

Choose the
best tools and

Most accountants will already know

about the Gantt charts, which Peel
mentions. There are also many other
tools and techniques that accountants
can use to manage projects. But Tom

Davidson, principal at Moorhouse,

a transformation consultancy, warns:
None is a silver bullet without
intelligent application and, badly used,
any of them can be burdensome, or
worse, give a false sense of comfort.
Davidson says that, at its simplest,
project management runs through a
familiar management loop: plan do
monitor correct.
He advises: Dont try and
reinvent everything your organisation
or colleagues will have standard
reporting and planning templates,
and maybe even a standard project
management methodology that
you can learn to apply.

Scope the project


Focus on outcomes and deliverables,

says Simon Chapman, a director of CFO
advisory firm Novo Altum. Break
down projects into bite-sized
deliverables so that you can
continuously check progress. The worst
thing you can do is to wait until the end
of the project to discover that you
havent hit the deadline or the budget.
Chapman says a fail-safe approach is
to focus on when you need to deliver
each outcome and work back from
there to understand what youll need to
do, and even whether it is possible. He
adds: Identify competent people who
will deliver the project. Work with
people to understand their styles.
Always start monitoring each team
member closely until you learn their
style and trust them to deliver.

Communicate at
every stage

The main reason that projects fail

is because the project leader doesnt
establish effective information sharing.
The general guidance is that most of a
project managers time will be spent in
communicating, says Taylor.
Therefore, it is critical that such
communication is effective and this is
about isolating the critical information,
using the optimum communication
method for each person, and delivering
that information at the appropriate
time. You also need to validate its

effectiveness on a regular basis to ensure

continued communication success.
Chapman adds: Equally important
is to communicate upwards and to
communicate early.
The worst thing you can do on a
project is give your superiors surprises.
A no surprise culture is a good project
management culture.

Keep on time and

to budget

You need to make sure that the

projects activities are broken down to
suitably sized chunks each with its
own time/cost/quality objectives so
that you can plan, track and manage,
says Davidson.
Not so large that you only see its gone
off track when the project ends (or should
have ended), nor so small that you have
to devote all the projects resources to
tracking miniscule activities.
Chapman suggests keeping a monthly
track of estimate at completion costs.
Its so you know where the project will
end, based on current cost projections.
Davidson adds: Make sure you have
early warning of good and bad progress.
Experience helps you know when all is
not as its reported. Get under the skin of
whats really happening, then you can
take corrective action early.

Deliver whats

And that, of course means knowing at the

beginning precisely what was expected.
It also means avoiding project creep,
which allows people to add new tasks.
So can accountants cut the mustard as
project managers?
There is no doubt that accountants at
all levels need to develop their project
management skill set to adapt to an
ever-changing economic climate, says
John Roberts, director at change
management consultancy myProteus.
If the profession meets the challenge
head on, then there is a real opportunity
to reap the benefits for both firms and
individual career development alike.
Peter Bartram is the author of
The Perfect Project Manager (Random
House Business Books)

In association with

Study notes


Paper F3
The ASAP method of tackling scenario-based
questions is designed to help you maximise
yourmarks while making the best use of your
time,soits well worth practising repeatedly
By Andrew Finch, BPP Learning Media

n the previous issue, Ian Blackmore showed how

the ASAP approach (analyse the requirements,
source syllabus knowledge, analyse the scenario,
plan your answer) could be applied in answering
a scenario-based exam question from the May 2011
P2 paper. Lets now attempt question 3 from
November 2011s F3 exam to see how ASAP works in
this case. The full paper can be downloaded from
CIMAs website at

A: Analyse the questions requirements

The requirements are as follows:

A. Calculate:
(i) The terms of the rights issue (to the nearest whole
number of shares) at discounts of both 25 per cent
and 40 per cent (three marks).
(ii) The yield-adjusted theoretical ex-rights price
per share at rights discounts of both 25 per cent and
40 per cent (four marks).
B. Demonstrate the likely impact of the proposed
project together with the related rights issue on the
wealth of a shareholder with 100 ordinary shares.
Your answer should consider rights discounts of
both 25 per cent and 40 per cent (four marks).
C. Recommend an appropriate discount if any
for the rights issue. Your answer should address
theconcerns raised by each of the three directors:

The post-exam
guides written
by the examiner
give clear advice
on how marks
were allocated


Paper P1
Performance Operations p44
Paper F2
Financial Management p47

A, B and C. No further calculations are required in

this part (eight marks).
D. Advise the directors of DCD on factors that are
likely toaffect the companys share price, both
before andafter next months planned press statement (six marks).
First, note the key verbs used: calculate in part
A, demonstrate in part B, recommend in part
C and advise in part D. The first verb is straightforward to understand, but the others may not be
so clear. Demonstrate is defined in CIMAs list
of verbs as prove with certainty or exhibit by practical means. Recommend is defined as propose
a course of action, while advise is defined as
counsel, inform or notify.
Part A requires you to calculate the terms of the
rights issue ie, in terms of X for Y and work out
the yield-adjusted theoretical ex-rights price for
both discount levels.
The key phrase in B is likely impact. You need
to exhibit by practical means the probable effect of
the rights issue and the proposed project on the
wealth of a shareholder under both potential
discount levels. This should be compared against
existing shareholder wealth.
Part C requires you to recommend the more beneficial level of discount for the price of the rights
issue. Your discussion must consider the comments
made by each of the directors.
Part D requires you to advise the directors on
information from the scenario that could change
the companys share price both before and after
the press statement is made. This requirement
should lead you to include a discussion of the efficiency of the market.
The post-exam guides written by the F3 examiner give clear advice on how marks were allocated.
These guides are available on CIMAs website at and you should review them as partof
your exam preparation. They stress the importance
of providing fully developed points in your answers,
rather than simply giving a list, and of ensuring that
your points apply to the scenario. I have included


Study notes

these factors in the following rules of thumb to

remember in the exam:
l Assume that each relevant point you make will
earn up to two marks.
l To gain maximum marks for each point, you need
to do three things: make your point clearly, relate
it to the scenario and draw out its implications in
terms of how it solves problems facing the company. (This approach is described in more detail in
a June 2011 Velocity article by Adrian Sims, which
is available at
So for part A the marks available are purely for
the calculations. The same applies to part B. For
part C, providing one well-explained point for each
directors comments will give you six marks. The
remaining two marks can be gained by providing
another well-explained relevant point and recommending a discount level. In part D three wellexplained points should secure the full six marks.
Alternatively, making six briefly explained points
should also give you full marks, but there doesnt
seem to be enough information in this particular
scenario for you to pull out six different points, so
it would seem a better option to explain fewer
points in greater depth instead.
This guidance oversimplifies the marking process somewhat, but the general theme ensure that
your answer for each part reflects the number of
marks on offer is important.

S: Source the syllabus knowledge

Scenario-based questions require you to apply your

knowledge. When analysing the DCD scenario, you
should be thinking about the knowledge you will
need to apply in order to satisfy the requirements.
Possible topics include:
l Terms of rights issues.
l The formula for the yield-adjusted theoretical
ex-rights price (Terp).
l Shareholder wealth.
l Discounted share issues.
l The link between performance and reward.
l Underwriting.
l Stock market efficiency.

A: Analyse the scenario

Dont simply read the question. You need to be

proactive for example, by underlining or highlighting key points in the scenario and making
annotations in the margin. You are permitted to do

Make your
point clearly,
relate it to the
scenario and
draw out its
interms of
howit solves
the company

this during the 20 minutes of reading time you have

at the start of the exam.
Seek out information in the scenario that you can
use to help satisfy the requirements. For example,
in the DCD scenario you are told:
l The company has ordinary share capital of $70m
(paragraph two).
l The shares have a nominal value of $0.50 (para two).
l The current market price per share is $6 (para two).
l The share price has increased from $5.40 three
months ago (para two).
l The manufacturing facilities are operating at close
to capacity (para three).
l New manufacturing facilities are expected to generate a return of 20 per cent and the current level
of return is 15 per cent (para four).
l The rights issue needs to raise $250m (para five).
l The rights issue will be underwritten, but this will
be paid out of existing funds (para five).
l The rights issue will be at a discount of either 25
per cent or 40 per cent on the current market price
(para six).
l Directors A, B and C have each given their views
on the rights issue, which will need to be addressed
(indented points).
l A press statement will be released next month
detailing the rights issue and the investment project (final para).
In order to answer part A we need to calculate
the number of existing shares, the share price at
each discount level and the number of shares to be
issued in order to raise $250m. This figure should
be rounded up to give whole-number terms for the
rights issue. You should have picked out the following points from the scenario:
l Since the shares have a nominal value of $0.50
there are 140 million shares currently in issue.
l The discount should be applied to the current
market price of $6.
To answer part B you need to remember to adjust
the value of the new shares for the different rate of
return that will be generated by the project. The
relative increase to be applied to the share price is
the new rate of 20 per cent divided by the existing
rate of 15 per cent. You will need to compare the
shareholder wealth before and after the rights issue
at both levels of discount. A base level of, say, 100
shares can be used to illustrate each situation.
Part C requires you to address each directors
concerns. You should realise that the point made


Study notes

Paper F3
Financial Strategy
by director A on share prices seems valid, as the
Terp will be lower with a bigger discount. Director
As point about shareholder wealth will be proved
correct or incorrect by your answer to part B. You
should realise immediately that the point raised by
director B is not valid, since the same amount of
funds needs to be raised whichever discount is
offered, although shareholders may feel they are
getting more of a bargain at a bigger discount. You
should also recognise that director C has a valid
point if a stable dividend is taken to mean from
a dividend-per-share point of view. In this case there
would be more shares in issue, which would require
more funds to be able to pay the same dividend
pershare. But if a stable dividend is considered to
be a fixed percentage of earnings, the discount
levelwill have no effect. In addition, if shareholders take up their full entitlement of rights, they will
receive the same total dividend irrespective of the
level of discount.
For part D you should recognise that the share
price has risen in recent months, which suggests
that the markets confidence in DCD is growing.

P: Plan your answer

Writing out an answer plan will help to give structure to your answer and should ensure that it covers
all the points you want it to. Few examiners look at
detailed answer plans, so your plan can be a rough
outline showing key headings and key words. Use
it as a reminder of these points once you start writing your answer.
To aid your understanding, the points included
in the following example are more detailed than
those that you would include in your plan:
Part A (seven marks).
l Calculate the issue prices by discounting $6 by
25per cent and 40 per cent.
l Divide the $250m funds required by the issue price
to get the number of shares to be issued. Round up
the number of shares to be issued to ensure that the
answer can be given in whole-number terms.
l Use the Terp calculation, inflating the price of
thenew shares by the relative rise in rates of return
(20 per cent 15 per cent).
Part B (four marks).
l Use the yield-adjusted Terp results to calculate
shareholder wealth under both discount levels.
l Shareholder wealth is total number of shares at
relevant Terp less the purchase cost of new shares.

Use the same base number in each situation to

compare wealth.
Part C (eight marks).
l Director A: a larger discount may mean the share
price will fall after rights issue. Comment on the
shareholder wealth calculations from part B.
l Director B: discounting may make the price look
more attractive as a bargain. Shareholders will still
need to contribute same level of funds in order to
raise $250m.
l Director C: the greater the discount, the more
shares will be issued. With more shares, greater
funds are required to keep the dividend per share
stable. The dividend as a percentage of earnings is
unaffected by the discount level. The total dividend
to each shareholder will also be unaffected if all
rights are taken up.
l Underwriting costs may be relevant.
l Make recommendation.
Part D (six marks).
l Factors that are likely to affect the share price:
market efficiency (most likely to be semi-strong
and react as the news of the rights issue is made
public); whether the market agrees with the company or not about the benefits from the proposed
project; how strongly the market supports the
rights issue and whether the company can raise
sufficient funds.
Once you have planned your answer, youre ready
to start writing it. Again, remember the four-point
mnemonic acronym Pert (point, explain, relate,
time) highlighted in the earlier Velocity article:
l Point. Make your points in concise sentences.
l Explain. Make the meaning of your point obvious by using phrases such as this is a result of.
Markers can mark only what you explicitly say,
not what you might have meant. For example,
using a simple phrase such as higher risk will
earn fewer marks than a statement such as risk
increases because of potential foreign currency
movements affecting the contract.
l Relate. Try to mention the company in the
s cenario by name in each paragraph and state
why the point you are making applies to the problems facing the company.
l Time. You cannot say everything there is to
say, so keep within your time allocation.
Above all, remember that the points you make
will earn you marks only if they are relevant to the
question that has been set.

Writing out
ananswer plan
will help to give
structure to
youranswer and
should ensure
that it covers
allthe points
you want it to


Study notes

Paper P1
When youre conducting investment appraisals or
making capital budgeting decisions, the annualised
equivalent method will allow you to make a proper
comparison of assets with unequal lifespans
By the examiner for paper P1

uestion 4 of the November 2011

P erformance Operations paper
p resented a scenario in which a
company needed to decide between
two replacement computer systems
thathad different lifespans. Many
candidates calculated the net present values (NPVs)
of both systems, but didnt seem to appreciate that
these werent directly comparable, because the first
system had a lifespan of three years while the
second would last for five years.
The second systems NPV ($671,000) worked
out as significantly higher than that of the first one
($350,000). But if the company were to choose
system one, it would be able to invest in another
after three years. The systems NPVs needed to be
adjusted so that they could be compared on a likefor-like basis. One way of doing this is known as the
annualised equivalent method indeed, the question directed candidates to take this approach.
A similar situation occurs when a company needs
to determine how long to keep an asset before rep
lacing it. A good example of this type of decision
concerns the replacement of vehicles a problem
faced by both companies and individuals. The following example demonstrates how the annualised
equivalent method applies in such situations.
Just In Time Every Time (JITET) is a large org
anisation that specialises in delivering goods from
retailers to consumers. The company, which has
more than 100 vans, is considering whether it should
replace these vehicles after three, four or five years.
Tables 1, 2 and 3 contain the investment appraisal
for each option based on a cost of capital of ten
per cent. But the NPVs calculated for each option
cannot be compared with each other, since they cover
different periods.
Is the NPV of 35,345 for the three-year replacement better than the figures calculated for the other
options? A simple solution would be to calculate
anaverage for each option as follows:

1. Replace the vans after three years

Year Investment
Running costs
Residual value
Net cash flow
0 -15,000
1 -9,900 -9,900
2 -10,000 -10,000
3 -10,100 6,000-4,100

Cost of capital



2. Replace the vans after four years

Year Investment
Running costs
Residual value
Net cash flow
0 -15,000
1 -9,900
2 -10,000
3 -10,100 -10,100
4 -10,400 4,000-6,400

Cost of capital



3. Replace the vans after five years

Year Investment
Running costs
Residual value
Net cash flow
0 -15,000
1 -9,900
2 -10,000
3 -10,100 -10,100
4 -10,400 -10,400
5 -11,200 1,000-10,200

Cost of capital


Three years: 35,345 3 = 11,782.

Four years: 44,224 4 = 11,056.
l Five years: 53,289 5 = 10,658.
These calculations indicate that JITET should
actually use a five-year replacement cycle, because
this produces the lowest annual cost, but they dont
provide a valid comparison, either. The three
options can be compared only by calculating an
annualised equivalent cost for each one.
In order to do this, a cumulative discount factor
or annuity factor must be obtained for three, four
and five years. Fortunately, this is not difficult to
do. CIMA provides cumulative discount factor


CIMA provides
discount factor
tables at the
back of the



Study notes

Paper P1
Performance Operations

Global contact details

CIMA corporate centre
26 Chapter Street,
LondonSW1P 4NP
T: +44 (0)20 8849 2251
CIMA Australia
5 Hunter Street,Sydney,
T: +61 (0)2 9376 9902
CIMA Bangladesh
Suite 309, RM Center, (3rd
Floor),101 Gulshan Avenue,
T: +8802 881 5724
E: zareef.matin@
CIMA Botswana
Plot 50374 , Block 3, 1st Floor,
Southern Wing, Fairgrounds
Financial Centre, Gaborone
T: +267 395 2362
CIMA China: head office
Unit 1508A, 15th Floor, Azia
Center, 1233 Lujiazui Ring Road,
Pudong, Shanghai 200120
T: +86 (0)21 6160 1558
CIMA China: Beijing
C 201, 2/F Landmark Tower 2,
8 North Dongsanhuan Road,
Beijing 100004

T: +86 (0)10 6590 0751

CIMA China: Chongqing
Room 1202, Metropolitan
Plaza, 68 Zou Rong Road,
Yuzhong District,
Chongqing 400010
T: +86 (0)23 6371 3538
CIMA China: Shenzhen
16/F, CITIC City Plaza,
Shennan Road Central,
Shenzhen 518031
T: +86 (0)755 3330 5151
CIMA Ghana
3rd Floor, Ayele Building,
IPS/Attraco Road,
Madina, Accra
T: +233 (0)30 250 3407
CIMA Hong Kong
Suite 2005, 20th Floor,
Tower One, Times Square,
1 Matheson Street,
Causeway Bay, Hong Kong
T: +852 (0)2511 2003
CIMA India
Unit 1-A-1, 3rd Floor, Vibgyor
Towers, C-62, G Block, Bandra
Kurla Complex, Bandra (East),
Mumbai 400051
T: +91 22 4237 0100

Getty Images

tables at the back of the exam paper, so you wont

need to apply a formula. The cumulative discount
factor for three years is found here by identifying
the factor in the interest rate column of ten per
centfor period three ie, 2.487. The cumulative
discount factors for four and five years can found
underneath this figure and are 3.170 and 3.791
respectively. So the annualised equivalent costs of
each option are as follows:
l Three years: 35,345 2.487 = 14,212.
l Four years: 44,224 3.170 = 13,951.
l Five years: 53,289 3.791 = 14,057.
From these calculations, JITET should use a fouryear replacement policy, since this entails the
lowest annual cost.
It is possible to perform this type of analysis using
the lowest-common-multiple method. This evaluates the options over a common time horizon that
covers complete cycles of all the alternatives. The
problem with this approach is that it can involve a
significant number of calculations. For example,
JITET would have to use a 60-year period to evaluate the alternative replacement cycles, since this is
the smallest number divisible by three, four and five.
Most investment appraisal projects also have
qualitative factors associated with them. These are

hard to express in financial terms. In this case JITET

might be concerned that using older vehicles could
tarnish the companys image and delay its introduction of more efficient new vans that should come
on to the market in the next few years. It isnt easy
to get it right, but calculating annualised equivalent
costs for these types of decisions will help companies to compare apples and pears.

CIMA Ireland
5th Floor, Block E, Iveagh
Court, Harcourt Road, Dublin 2
T: +353 (0)1 643 0400
E: cima.ireland@
CIMA Malaysia: head office
CIMA Malaysia, Lots 1.03b &
1.05, Level 1, KPMG Tower,
8First Avenue, Bandar
Utama, 47800 Petaling
Jaya, SelangorDarul
T: +60 (0)3 77 230230
E: kualalumpur@
CIMA Malaysia: Sarawak
Sublot 315, 1st Floor,
21 Jalan Bukit Mata, 93100
Kuching, Sarawak
T: +6082 233136
CIMA Malaysia: Penang
Suite 12-04A, 12th Floor,
Menara Boustead Penang,
39 Jalan Sultan Ahmad Shah,
10050 Penang
T: +60 (0)4 226 7488
CIMA Middle East
Office E01, 1st Floor, Block 3,
PO Box 502221, Dubai
Knowledge Village,
Al Sofouh Road, Dubai,
United Arab Emirates
T: +9714 434 7370

CIMA Nigeria
Landmark Virtual Office,
5thFloor, Mulliner Towers,
39Alfred Rewane Road,
Ikoyi, Lagos
T: +234 1 463 8353 (ext 518)
CIMA Pakistan
201, 2nd Floor,
Business Arcade, Plot 27-A,
Block 6, PECHS,
Shahra-e-faisal, Karachi
T: +92 21 3432 2387
CIMA Pakistan: Islamabad
1st Floor, Rehman Chambers,
Fazal-e-Haq Road, Blue
Area, Islamabad
T: + 92 51 260 5701-6
CIMA Pakistan: Lahore
Flat 1, 2, 1st Floor,
Front Block 3, Awami Complex
at 1-4, Usman Block,
New Garden Town, Lahore
T: +92 42 3594 0311-16
CIMA Poland
Warsaw Financial Centre,
Floor 11, ul Emilii Plater 53,
T: +48 22 528 6651
CIMA Russia
Office 4009, 4th floor,
Zemlyanoj Val 9,
Moscow 105064
T: +7495 967 9328

CIMA Singapore
3 Phillip Street,
Commerce Point, Level 19,
Singapore 048693
T: +65 68248252
CIMA South Africa
1st Floor, 198 Oxford Road,
Illovo 2196
T: +27 11 788 8723
E: johannesburg@
CIMA Sri Lanka
356 Elvitigala, Mawatha,
Colombo 05
T: +94 (0)11 250 3880
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Study notes

Paper F2
Until environmental reporting becomes a legal
requirement, questions on the topic will continue to
focus on the pros and cons of disclosure, but its still
crucial to make a careful note of their requirements

Goals and objectives eg, what kind of image

does the organisation want to portray?
l Targets and achievements.
l Performance and compliance.
The examiner will not ask you to draw up a report,
but a general understanding of its usual content
will help you to consider the important features.

By Jayne Howson
Freelance lecturer specialising in financial management,
reporting and tax, and a marker for F2

What makes a good report?

The answer to this question depends to some

extent on who is looking at the report. But from the
users point of view, a good one will be:
l Timely, conveying up-to-date information.
l Unbiased, giving a balanced view of the good, the
bad and the ugly.
l Trustworthy, perhaps with some sort of verification from an independent reviewer.
l Easy to understand, providing a narrative as well
as numerical information.

ection D of the Financial Management

syllabus relates to developments in external reporting. Constituting ten per cent
of the syllabus, it includes a range of
topics concerning non-financial environmental and social reporting, as well
as international financial reporting standards.
A quick review of past F2 papers will show you
that section A of the exam has included a ten-mark
question about this subject area at each sitting.
Previous articles in Financial Management and
Velocity have covered human asset accounting
pdf) and the convergence of IFRS and US Gaap
(, so I will focus here on
environmental reporting.
This topic is so vast that I could fill the whole
magazine covering the ins and outs of the subject,
but the most important thing is to address why
students fail to achieve a pass mark when answering questions on it. There are two main reasons:
l A failure to understand what environmental
reporting is.
l A failure to answer the question thats set. If
someone asked you the way to London and you
didnt know it, would you give them directions to
Sheffield, hoping that they wouldnt notice the difference? I doubt it. So why do so many students
waste time giving irrelevant answers in the exam?

What is environmental reporting?

It is the public disclosure of information concerning an entitys environmental performance. Environmental reporting makes organisations appear
more accountable for the economic, environmental
and social consequences of their activities.
The reports may include information such as:
l The companys profile eg, its size, its industry,
the markets in which it operates.

Are such disclosures mandatory?

If someone
asked you the
way to London
and you
didntknow it,
wouldyou give
to Sheffield,
hoping that they
wouldnt notice
the difference?

No, but many businesses still feel the need to publish environmental reports in order to:
l Communicate to stakeholders their general
approach to environmental responsibility.
l Increase their competitive advantage.
l Enhance levels of recognition the public are
becoming increasingly aware of environmental
issues, so lets tell them how wonderful we are.
l Set targets if we tell the public what we want to
achieve, that puts pressure on us to hit our targets.
l Ensure that they are well prepared in the event
that environmental reports become mandatory.
The UK government has hinted that they will if it
becomes dissatisfied with the quality and quantity
of voluntary disclosures.
l Improve access to lists of preferred suppliers.
l Manage corporate risk. If the company is demonstrably aware of the environmental risks it faces,
it is more likely to have effective procedures in
place to prevent disasters, thereby reducing the
likelihood that it will require emergency loans.
This could reduce its finance costs and perhaps
give it access to more investors.
l Increase profitability if revenues grow as a result
of an improvement in consumer perceptions.
Some people believe that employees are much
more likely to want to work for an environmentally
friendly organisation, which means that making
such disclosures will help a company to recruit

Further reading CIMA Official Study Text Financial Management (2011-12 edition), CIMA Publishing, 2011.


Study notes

Paper F2
Financial Management
the best workforce. I dont know of anyone who has
applied for a job at a company as a result of
having read its environmental report. In the current climate of high unemployment, I think that
most people are even more unlikely to do that.

Does reporting have any drawbacks?

The main disadvantage of making such disclosures is that the associated labour hours and printing costs are likely to be substantial.
You may think that a company could be giving
away its trade secrets, but because the reports are
voluntary, it can include whatever material it
wants to. Since such disclosures are not audited,
either, the lack of regulation allows each company
to provide the information in the format it chooses.
This makes it more difficult for users to compare
how different companies are performing.

Because the companies making the environmental disclosures get to decide what information is
published, exam questions have tended to focus
on the advantages and disadvantages of providing such information. This in itself is not a difficult
topic, but candidates in recent sittings have failed
to read the requirements properly and identify
whether to comment on the pros and cons from a
users point of view or from that of the business.
Take question 5 from May 2011s P2 paper, for
example. It offered candidates six marks to discuss
the potential advantages that could be gained by
BNM (the company in question) if it included
voluntary disclosures in its annual report. The part
highlighted here in italics is just as it was shown on
the exam paper, but many students still failed to
notice this and their answers listed general advantages eg, how investors would have a better view
of the company which earned them no marks.
A good answer would have perhaps come up with
some or all of the following (note the emphasis on
the benefits to the company):
l The reports may be biased. The firm can concentrate on positive aspects and ignore the negative
ones. (Note that this would be a disadvantage if we
were looking at this from a users point of view.)
l If enough positive aspects are highlighted, the
companys share price may improve.
l Investors may be attracted to the business,
thereby increasing its share price.

Getty Images

What could the examiner ask?

Revenues could increase if more customers are

drawn to the firm.
l The company may appear on preferred-supplier
lists, as some customers would rather deal with
firms that disclose such information.
l The reports may contain information about
aspects that are not included in the financial statements eg, human asset accounting. This will give
potential investors more information and may
encourage them to buy shares.
The second part of question 5 asked for a discussion of the potential drawbacks, allowing candidates to make far more general comments. But
one-word answers such as biased, cost and
time scored very few marks, because the verb in
the requirement wanted some explanation and not
just a statement.
So if you want to score highly on such questions,
you would do well to heed the following advice:
l Use the reading time to understand the requirement. Note the angle that you are coming from.
l Note the mark allocation. One good-quality point
explained equals one mark.
l Plan your answer briefly before you start writing
it, or you will risk striking off on a tangent and stating everything you know about the subject.

inrecent sittings
have failed
toread the


Study notes

Exam notice
Visit regularly for updates

May 2012 exams

The next exams will be held on 22, 23 and

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Index of technical articles

For your reference, and to help you prepare for the exams, an index of all technical articles published in Velocity and FM
and on the wider CIMA website in 2011 was
included in the February issue of Velocity

Past papers, model answers and

post-exam guides

All past question papers, including March

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todownload from the relevant Study
resources pages at
Post-exam guides are also available
todownload from the relevant Study

resources pages. These are essential

reading for unsuccessful candidates and
those studying a new subject.


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all change from 1 July

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Technical notes

Te c h n i c a l

Blowing through

To protect individuals who make certain disclosures of information in the public interest; to
allow such individuals to bring action in respect of
victimisation; and for connected purposes.

It is an absolute that accountants are required to

comply with reporting standards. If they are
directed to present information that is at variance
with those standards, with a likelihood of fraud,
crime or misrepresentation, they must consider
making a public interest disclosure, aka
whistle-blowing. The purpose of this article is to
show the legal position in simple terms, broadly
discuss the outcomes and suggest remedies
John Freeman, FCMA, CGMA, MSc(HR), MCIPD, is a
director of New World Energy, a company registered in
Indonesia focused on providing biofuels for jet airplanes

here is anecdotal evidence that, in

making a public interest disclosure
(PID), accountants put their career
on the line through a tendency to
shoot the messenger. In taking
such a decision, they need clarity as
to whether the law will support them if they experience a detriment.
If one thing is certain it is that clarity is somewhat lacking in this legal minefield. For example, current case law surprisingly does not accept
third-party pressure for variation from CIMA ethical standards as having relevance in supporting
the making of a PID.
The legal position
The purpose of the Public Interest Disclosure Act
(PIDA) 1998 is:

Is personal computing now too personal? p54

provides that a
disclosure, made
by a whistleblower to their
employer, is

And to protect those who did so.

The Act offers protection from dismissal and
victimisation to workers who raise genuine concerns about malpractice in the workplace. This
protection forms part of employment legislation,
but the PIDA has a far broader underlying purpose
than the extension of employees rights to protection from victimisation. It is seen as a valuable
tool to promote openness and good governance.
Statutory protection provides that a disclosure,
made by a whistle-blower to their employer, is protected. The disclosure must be one that the whistle-blower reasonably believes shows the likelihood of a criminal offence, a failure to comply with
legal obligations, a miscarriage of justice, danger
to the health and safety of employees, damage to
the environment, or the hiding of information that
would show any of the above actions. These disclosures do not have to be of confidential information, and this section does not abolish the public
interest defence; in addition, it can be the disclosure of information about actions that have
already occurred, are occurring, or could occur in
the future. An employee will be protected if s/he
makes a disclosure in good faith to a responsible person, and reasonably believes that the
relevant failure... is a matter in respect of which
that person is appropriately responsible and the
information is substantially true.
If an employee does make such a disclosure,
s/he should suffer no detriment in their employment as a result. This includes both negative
actions and the absence of action, and as such
covers discipline, dismissal, or failing to gain a pay
rise or access to facilities that would otherwise


have been provided. If an employee does suffer a

detriment, s/he is permitted to make a complaint
before an employment tribunal. If an employee
has been dismissed for making a protected disclosure, then the burden of proof is reversed and
the employer has to prove the dismissal or detriment was for a reason other than the PID. If they
fail to do so, it is automatically considered unfair.
Similarly, an employee cannot be given priority
when discussing redundancies simply because
s/he made such a disclosure. There is no requirement of age or length of employment before the
protection comes into effect.

Corporate culture
could do better?

European Union
The European Commission has recommended
that companies should not encourage anonymous
reporting since whistle-blowing schemes require
the processing of personal data that is subject to
data protection rules. A procedure is useful only
insofar as it is followed, and to this authors mind
it will reduce the number of reports.
FTSE 100
Researchers from Middlesex University (16 February 2012) analysed the public availability of
information on how to go about whistle-blowing
(internally reporting misconduct, wrongdoing
or suspect practices of an employee or organisation) by checking the websites of all FTSE 100listed companies. The research found that only
just under a third (31 per cent) of companies had
information on how to facilitate whistle-blowing
within the organisation available publicly. The
researchers claim that failing to make it clear how
to blow the whistle on suspect company practices
or employee misconduct puts the company at the
potential risk of lawsuits and, as a result, potential
financial cost and damage to the companys reputation. If a companys whistle-blowing policy is not
made readily available, employees are unlikely to
actively search it out themselves for fear of alerting their superiors.
Law firms
The Solicitors Regulation Authoritys (SRA) Compliance Committee has agreed that the SRA Board
should consider a consultation paper on a whistleblowing policy. If the board agrees, the SRA will be
inviting comments on the idea of imposing more
lenient sanctions on those involved who are helpful during investigations.

Technical notes

An employee
cannot be given
priority when
simply because
they made a

The good

General Medical Council

Evidence has been emerging in recent years of
Trusts restricting the ability of staff to raise the
alarm about bad practices. GMC advice states that
medics should not enter contracts or deals that
seek to stop them raising concerns about poor care.
The guidance also makes clear that doctors have
a duty to act if they believe care is being compromised. It is the latest in a series of attempts to
encourage whistle-blowing.
Financial Services Authority
Between 2007 and 2009, calls to the FSAs dedicated whistle-blowing line doubled and its director of enforcement said the leniency scheme
has been used to good effect. The Office of Fair
Trading carries a promise of similar incentive on
its website.

accountants and

There are specific obligations for accountants and

auditors to report the occurrence crime or wrongdoing to the Serious Organised Crime Agency in
the case of money laundering. Excepting these
express statutory duties, it is somewhat surprising that there is not a general legal duty to disclose
crime or wrongdoing in the public interest only
a power. This power has the effect of providing the
discloser with a defence to an action for breach of
confidence (or where s/he is victimised as a result
and PIDA applies, a claim for compensation).
Should the accountant be reliant at an employment tribunal on a defence of following the
accountancy bodys ethical standards, they may
be discomforted by the following case.
Butcher v Salvage Association
Qualifying disclosure: Alleged breach of an
accountants professional code did not of itself
come within PIDA.
Butcher, an accountant, was in dispute with the
Salvage Association over the content and presentation of internal management accounts. The
employment tribunal said there was no qualifying disclosure as [a] Butchers legal case was
purely that his concern was that s/he should act
professionally at all times, and [b] both experts
said that no relevant legal obligation arose out of
issue. There are other similar cases reported by
the employment appeal tribunal.


Technical notes

particularly where the disclosure threatens peoples jobs. Nevertheless, the number of cases
brought by whistle-blowers to employment tribunals has increased by more than a thousand,
from 157 in 1999/2000 to 1,761 in 2008/9.
David Lewis, writing in the Industrial Law
Journal, highlights what he perceives as weaknesses in the legislation. First, he says it does not
force employers to make a policy relating to disclosures. Second, it does not prevent employers
from blacklisting and refusing to hire those
who are known within the industry to have made
disclosures in previous jobs. The complexity of
the law was also criticised, as was the fact that,
if such a disclosure turns out to be incorrect, the
employee may be sued for libel by his employer.
Volunteers and self-employed people are not covered, nor are those who, in disclosing the information, commit a criminal offence. At the same
time, the law does not make any provision for any
psychological harm caused by whistle-blowing,
which research shows is an increasing likelihood.

Getty Images


Policy presented in
annual reports

Terry Corbin, writing in the Criminal Law and

Justice Weekly, notes that the result of the Act has
been that many more employers have developed
internal processes for reporting issues; partially
due to their desire to fix problems before they
become public reports, and partially because if an
employee chooses to not use these processes and
instead act under the 1998 Act, there is a greater
chance that the employer can depict his/her
behaviour as unreasonable. However, a survey
conducted by Public Concern At Work showed
that in 2010, only 38 per cent of those surveyed
worked for companies with whistle-blowing policies in place, and only 23 per cent knew that legal
protection for whistle-blowers existed.

Human element

One problem is the reluctance that many employees feel to snitch on colleagues. Whistle-blowers
are not necessarily popular with their colleagues,

l That CIMA lobbies vigorously in favour of an

amendment to employment law recognising that
the determination of a belief is based inter alia
on the institutes ethics.
l That CIMA provides members with free legal
advice limited to a discussion as to whether, on
the facts presented, a PID has occurred. In addition, to remind members that some household
insurance policies cover legal costs, including representation at an employment tribunal, and that
there are charities that are supportive.
l That large awards would be a salutary lesson
for erring firms and would be possibly the best
way to encourage an open culture that is more
evident in weighty discourses than in practice.
While the Act stipulates there is no limit to a PID
award, in practice the low financial awards made
by employment tribunals act as a disincentive to
making PIDs. I suggest that the Employment Act is
amended in the following (radical) manner. I suggest an award/compensation is determined on the
assumption that the individual will never again be
in suitable gainful employment up to the retirement age. The claimant is required to make best
efforts to mitigate the period of unemployment following a PID and, should that happen, the size of
the award/compensation would be unwarranted.
I suggest regularly reviewing the claimants circumstances and subsequently scaling down the
award where/if appropriate.


Technical notes

Is personal computing
now too personal?
managers from multi-national organisations about
their use of spreadsheets the answers were surprising. Its not only a spreadsheet problem, one
senior finance manager said. Personally, Id turn
off all the accountants computers for at least two
days a week. That would force them to get out into
the business and talk to real people!

Are todays business partners spending too

much time producing the numbers rather than
understanding them? Ian Herbert, Neil Doherty and
Glynn Lowth ask whether the love affair between
accountants and their spreadsheets could do with
a trial separation?

The change drivers

Ian Herbert is senior lecturer in accounting and financial

management at Loughborough University; Neil Doherty is
professor of information management at Loughborough
University; and Glynn Lowth is a CIMA past president

n 1987, David Norton and Robert Kaplan challenged the relevance of management accounting and the way in which the accounting project
was being driven by a financial accounting system
that produced out-of-date and overly aggregated
data. A significant cause of the problem was the
dependence on expensive central mainframe computers. These were difficult to reprogram and relied
on batch, not real-time, processing. In the 1990s,
personal computers, together with various End-user
Computing tools (ECU), most notably spreadsheets,
enabled accountants to produce the right information, in the right place, at the right time!
However, 25 years on from Norton and Kaplans
challenge, we ask whether the desk-top revolution
has been just that, and that revolution has now
come full circle. Are spreadsheets an anachronism
in truly global accounting systems, based on near
real-time one-source of the truth, with a stronger
emphasis on corporate governance? Is data liberation now seen as risky and inefficient, a personal
indulgence ripe for control and recentralisation?

Shared service centres and ERP

Recent developments in the internet, enterprise
resource planning (ERP) systems, shared service
centres (SSC) and business process outsourcing
(BPO) are challenging organisations to reappraise
their management information systems from a more
global perspective. The shared service model is especially pertinent to this new sense of challenge and
change as it brings into the spotlight the interaction
between the central ERP and distributed ECUs, such
as spreadsheets. Increasingly, the finance function
is being redefined as a customer-focused service.
In a series of roundtable discussions involving
SSCs and BPOs in the UK and Malaysia, we asked

Id turn off
computers for
two days a week
to force them to
get into the
business and
talk to people

The primary driver our participants cited is the new

focus on internal controls and corporate risk exposure through Sarbanes-Oxley legislation. Every
other day Ive probably heard someone say, Oh!
That numbers wrong! complained one manager.
He added: If these errors go undetected, they could
be life-threatening to the organisation.
Without the strict design and operating protocols
that evolved around mainframe computers, the proliferation of individual spreadsheets presents significant control and sustainability issues. For example, what happens when the owner of a spreadsheet
leaves? Or even worse, he or she leaves in a bad mood?
The second driver is a sense of challenge to the
status quo, with a new emphasis on continuous
improvement. In most global organisations, the
migration of transaction processing to BPO and SSC
platforms has radically changed the way in which
business-support functions, such as finance, HR,
purchasing and IT, are configured.
The pursuit of lower costs, while at the same time
improving the service to frontline businesses, is now
targeting activities further up the value chain. For
example, is there is a better way of producing management information? A way that leverages the power of
the ERP, rather than treating it as peripheral system
that merely exists to process the transactions?
Third, many participants are concerned about
the cost of relatively expensive people designing,
writing and maintaining spreadsheets, especially
when someone at a desk nearby might be constructing a near-identical model, but maybe producing
outputs like different colours for a different set of
managers. As one manager put it: Its too easy to
create cottage industries where everyone is doing
their own thing, but altogether they are doing more
or less the same thing.

The devils in the detail

We then asked SSC and BPO managers to be more
specific about spreadsheet use in their organisation,


Technical notes

or their clients. The results surprised us. The positive aspects were largely similar across the groups,
but there was a much longer list of negative points.
It would appear that the once unchallenged ubiquity of spreadsheets and other end-user tools is now
being questioned. The chief concerns are summarised below. Risk being inherent in the first the four,
while the fifth is about cost.

If you find
clicking new
next time you
have a business
problem, think

1 Design and corruption errors in formulas and


it. In any case, the chances are that someone somewhere else in the organisation is doing something
pretty similar. Maybe even at the next desk. The
problem is that when many of these people were
hired, advanced spreadsheet skills were a musthave item on the job spec. Changing embedded
attitudes and skill sets is difficult.
Business partners need to be connected to, and
involved with, business teams. While putting transaction processing into a SSC/BPO environment can
free up business partners to make sense rather than
just simply produce management information, it
cannot be assumed that everyone will seize the
opportunity. Some will, no doubt, prefer to stay
in their comfort zone after all, spreadsheets provide order and structure to those who have difficulty
embracing uncertainty.
If you find yourself clicking new spreadsheet
next time you have a business problem, then think
again. It probably means your ERP system has failed.

2 Data entry processes garbage in, garbage out

And the future?

It is difficult for finance managers to get the same

sense of discipline into writing and checking spreadsheets as would be natural with the ERP. Transparency of the program structure and version control
is difficult when a single user has total ownership.
While spreadsheet software is cheap and simple
enough to get started with, people tend to largely
teach themselves, with the consequence in business
that they often structure and format spreadsheets
in very different ways.
Central IT departments operate with strict controls
over data entry procedures. These tend to be difficult to replicate on individual desktop applications,
especially when individuals might be absent and/
or business managers and customers are pressing
for tighter reporting deadlines.

3 Too big and complex, difficult to audit

While spreadsheets are great for organising relatively simple tasks and generating new insights into
data on an ad-hoc basis, many spreadsheets have
long outlived their original rationale and now should
be a part of the standard ERP routines. The problem
for the CFO is to understand where the tipping point
might lie between appropriate and inappropriate
use of spreadsheets, and reflect this in the culture
of the finance function.

4 Owner continuity

Without the discipline that comes naturally to specialist IT workers in central units, the maintenance
of documentation recording formulae and macro
operations, together with tracking version updates,
are likely to be fraught. Serious problems can arise
when spreadsheet owners leave or are absent. Moreover, variation drives up the cost of external audit.

5 Inefficient use of time the spreadsheet culture

It makes little sense to have highly qualified business

professionals sitting at a computer playing about
with spreadsheets, simply because they like doing

While spreadsheets will probably continue to be the

weapon of choice to tackle a wide range of routine
and ad hoc business problems, it would appear that
the way in which they are designed and used and by
whom is changing. Early findings from the Loughborough research project suggest that organisations
are adopting three main approaches to the understanding and control of spreadsheets.
First, conduct a thorough review of spreadsheet
use and evaluate the business risk. Second, centralise and standardise the design and operation
of the spreadsheet wherever practically possible.
Third, change the way people think about spreadsheets. If you find yourself clicking new spreadsheet next time you have a business problem, then
think again, it probably means your ERP system has
failed. Fourth, ensure that spreadsheets fulfil the
essential attributes of financial information, i.e. reliable, relevant, timely, understandable.
While the popular mantra think global, act local
might suggest that the spreadsheet still has a secure
future, the production of business information is
becoming centralised around specialist teams operating at arms length to business divisions. The new
territory is about business intelligence and insight.
This means understanding business problems,
defining information requirements and explaining rather than merely producing information.

The research team at Loughborough University is keen to hear your stories and experiences at
We will report back as our research progresses. In the meantime, visit the project website at
Project support by the Charitable Trust of the Institute of Chartered Management Accountants. Thanks also to Chris Warner.


Financial Management | May 2012

What you learn on the

Understanding and improving business processes

he course started a
couple of years ago in
response to the increasing use of Lean finance
methods (initiated by
Toyota) to tackle waste,
combined with the Six Sigma approach
of tackling variability out of processes
(created by Motorola). I figured that
a lot of companies were putting in place
a change management process, but
didnt always understand what their
long-term objectives were for the process. My own experience is that when
I left Glaxo in 2007, there were three
and a half months dedicated to do the
budget. I still had 22 years until I retired,
so I realised I was going to spend six
and a half years doing budgets. I felt
this had to change and, increasingly,
I have come to recognise that Im not
alone in this.
The course builds on the Lean methodology of placing customers at the
centre of all we do, and that the methodology is structured to take this into
consideration. One of the issues is to
understand why there is waste, rather
than just trying to fix things. We can do
this through the DMAIC methodology(define, measure, analyse, improve and
control), and we use a two-hour case
study around a fictitious situation at a
shared financial service centre. We also
map out and use tools to consider how
the whole methodology is around value
in the eye of the customer, and how
you ensure that the process will deliver
this to the customer.
The first section looks at What is
value? and asks How can you get
value from the finance process? We
look at the methods that came out of
Lean finance and Six Sigma. It discusses how you ensure the process is
customer-centric, what you want to get
from the process, and how areas such

as budgeting are considered a sub-optimal process.

A second section considers the value
proposition. Its about deciding what
the concept of value is and why we
ought to be considering change. In that
respect, its important to ensure that
people are excited about change. We
create the burning platform notion, in
which you have a fire on an oil platform
and you need to understand how to put
it out rather than jump off the side. Its
like a fire within the organisation if
you dont put it out it can destroy the
I introduce the seven deadly sins
of waste: defects, processing, overpro-

duction, movement, transportation,

inventory and waiting, which came out
of the Toyota Production System, an
integrated socio-technical system. The
sins can all be found in any finance
department, and in this course we go
through and understand them. We look
at examples of how they manifest themselves in the finance department in relation to the concept of flow from Toyotas concept of Just in Time.
The next area I look at is how you
can identify undesirable effects within
a process, once again through the work
of Toyota, which understood the root
causes that undermined efforts. So I
introduce the use of some tools in the
Lean toolkit, which can make solid
improvements, insuring the process is
permanently improved. Then we look
at how you can implement change and
how you can make sure the process
improvements are put in place and the
resulting benefits are delivered.
The course also delivers things you
can take away to implement in your
workplace. It is aimed at anybody in
a finance department who knows that
the process is sub-optimal and creates
problems in the organisation. The interesting thing is that finance people will
generally look to make a bad process
work, because they often find it difficult to express themselves confidently.
Thats when you have to step back
and make the difference in your system.
For me, one of the biggest takeaways for
a finance department is to implement
the culture of Poka Yoke where the
philosophy is so simple never accept
a defect, never make a defect and never
pass on a defect.

Visit www.cimamaster for more details
about this and all CIMA

Jeff Harris/Gallery Stock

Garry Buick, ACMA, CGMA, is the director of the professional development

faculty at BPP Business School and regularly presents on a wide range of
management accounting topics. Before this he was the finance director for
GlaxoSmithKlines Asia-Pacific manufacturing division

To discuss our recruitment solutions call us on +44 (0) 207 775 5590



Market Update
Key skills in
Despite the challenging
market, plenty of
opportunities exist for
commercially focused
CIMA members

Getty Images

lobally, the faster growing markets in the Far

East have experienced
a slight downturn,
meaning that trade
volumes and global
activity have dropped. This is particularly evident across financial services
and has translated into an overall decrease in the number of new roles becoming available. While companies
remain cautious and are focused on delivering short-term results and minimising costs, there has however been
a significant upturn in activity within
SMEs (small-medium enterprises)
while larger companies are keen not
to miss out on key talent as hiring
budgets are relaxed.
Therefore, despite a challenging
market, there are still some great opportunities available for commercially
focused CIMA candidates. Candidates
with commercial management accounts
experience are most sought after, as
there is much greater demand for quality financial information to support decision making. Although controlling
costs remains high on the list of priorities, we are also seeing demand for individuals who are capable of taking a
more commercial approach to protecting margins by accurately evaluating
and reporting return on investment.
In 2009, companies reduced intakes
for their CIMA training programmes,
which means that there are now fewer
experienced candidates available for
each role. Although there are fewer
jobs overall, there are even fewer qual-

ity candidates. So a top quality, newly

qualified CIMA member should still feel
confident. Overall the market is busiest
from finalist level to two or three years
post-qualified experience.

The best advice for

candidates seeking
new roles is to
research prospective
employers carefully
The best advice for candidates seeking new roles is therefore to research
prospective employers carefully. CVs
should focus on achievements and
contributions to the wider business,
beyond straightforward accounting,
while showing that the candidate understands the commercial context
within which they work.
The most sought-after candidates are
those who can clearly demonstrate a

track record of tangible achievements

where they have made a difference to
the business not just tweaked reporting schedules. Strong inter-personal
skills, such as communications skills
and the ability to influence at a senior
level, are also important. Without doubt
it becomes very clear during an interview which candidates are actively
approached by their non-finance colleagues for support. Becoming the go
to person for advice or support really
proves a candidates value and gives
finance professionals the best opportunity to develop rapidly and show off
all their competencies.
For more information on career
opportunities and skills in demand,
contact Nicola Waizeneker at
join our LinkedIn
group, Michael
Page Finance UK.


Financial Management | May 2012

CIMA global events

Past events
Motivational speech for Botswana students

CIMA Botswana held its annual general meetings for members and students from 7-13 March.
At the student AGM (pictured below), Lorato Kedisitse, ACMA, CGMA, gave a motivational talk and
advised students that failing CIMA exams should not be viewed as the end of the world but as
a learning process, because many current CIMA members, herself included, had to re-sit some
papers before finally passing them. Baboloki Peters Mosoto was elected as the Students Chapter
chairman for 2012. The members AGM was held at Cresta Lodge on 13 March. Samantha Louis,
regional director for CIMA Africa, presented a report regarding regional activities and highlighted
the benefits of becoming a CGMA.

Workshops tackle
management and exams

Zambia AGM sets out

new board details and
governance structures

30 March, China
More than 70 financial experts took
part in a CIMA management workshop
at the Beijing Landmark Hotel recently,
entitled Performance management
targeted is the key.
At the workshop, CIMA welcomed
speakers from local universities and
companies to share their experience and
knowledge on performance
management. Meanwhile, a similar
workshop, held at the Yong An Hotel in
Beijing, saw more than 30 students
given access to tips on how to pass the
operation and management level exam.

9 March, Zambia
CIMA Zambia held its annual general
meeting at the Taj Pamodzi Hotel in
Lusaka recently. The AGM was attended
by 57 members. Samantha Louis,
regional director for CIMA Africa,
attended and delivered a presentation
on the joint venture between CIMA and
the AICPA. She also discussed the new
Africa board and branch governance
Danny Luswili, FCMA, CGMA, was
elected as the branch chairman, while
Emmanuel Banda, ACMA, CGMA, was
elected as the new vice chairman.

Future of finance
discussed in
29 March, England
CIMA held a roundtable
discussion with senior
executives from a number
of leading companies
including AstraZeneca,
ING Direct and BUPA
to explore the future of
finance. Topics included
how finance best serves
the business, internal
customer expectations
and implications for
skills development.


Financial Management | May 2012


Singapore annual general
24 May, 7pm to 9.30pm
The Ritz Carlton,
Chihuly Room
Contact singapore@
Global Business
Challenge 2012 China
country final
25 May, 1.30pm to 6pm
West 4th Ring Middle Road
16, Haidian District, Beijing
Five teams will participate
in the event, and the
winner will represent
China in the global
competition, to be held
in Sri Lanka in July.
Contact gbc.china@
Business continuity
16-17 May, 6.30pm
Thistle Haydock, Penny
Lane, Haydock WA11 9SG,
and Shire North Lakes
Hotel & Spa, Ullswater
Road, Penrith CA11 8QT
Business continuity
management is important
for two compelling reasons:
it significantly improves
your organisations chances
of surviving a major
incident, or a nationwide
outbreak, such as pandemic
flu; and it is a corporate
governance requirement

under BS 25999-1 code of

practice for business
continuity management.
Contact region.six@
Creating engaged
employees through
inspirational leadership
17 May, 6.30pm
Birleys Pavilion,
St Stephens Road,
Canterbury CT2 7JS
Cost: no charge
How do successful leaders
keep their teams engaged,
motivated and productive?
Attend this event and
discover how leaders rate
performance, what your
employees really want from
their jobs and how
inspiration creates a more
engaged workforce.
Swing and strike
25 May, 6.30pm
Trafford Centre,
ManchesterM17 8AA
Cost: 10
Sign up for a fun-filled
evening of bowling and
miniature golf at
Manchesters Trafford
Centre. This event will
give you the chance to
show off your competitive
side, or just relax and
enjoy the sport.
Contact region.six@

CIMA Ireland dinner,

attended by guest of
honour: Michael D
Higgins, president of
26 May, 7.30pm
The Titanic Building,
Cost: 80
This prestigious event,
sponsored by Electric
Ireland, marks the
first anniversary of
the establishment of
CIMA Ireland following
the merger last year of
CIMAs operations in the
Republic of Ireland and
Northern Ireland.
Contact nicolaglynn@
Latest employment law
changes is your business
compliant? joint event
with the AAT
29 May, 6.30pm
Ramada Newcastle under
Lyme, Clayton Road,
Newcastle under Lyme
This seminar will
address five important
employment law issues
that your business should
be aware of in 2012, to
ensure compliance with
recent changes in
employment law.
Contact region.four@ or visit

CPD Technical Update:

better decision making in
difficult economic times
29 May, 9am to 2pm
Royal Station Hotel,
Newcastle, NE1 5DH
Cost: 60 (members); 30
(students); 95 (guests)
Bernard Marr, a leading
global expert and
bestselling author on
performance, will help you
discover a range of tools
that will help you generate
real competitive advantages
for your organisation.
Managing your career
13 June, 6.30pm
Mercure Bolton West,
Manchester Road, Blackrod,
Bolton, BL6 5RU (formerly
the Ramada Hotel)
This event will cover how to
write an effective CV and
make yourself stand out
from the crowd
Members in practice
conference business
22-23 June
Heythrop Park, Oxfordshire
Cost: 320
This is a distinguished
convention for
entrepreneurs, run
by entrepreneurs.

Visit for updates and a full list of events, which are free unless otherwise stated.
CIMA Mastercourses your catalyst for business change: visit or call 0845 026 4722.
To submit an event for this page, email


Financial Management | May 2012

The Institute
CIMA notifications

severe reprimand and a fine of 1,000

and Mr Burgess was required to pay
costs of 7,500.

he Disciplinary Committee found Mark

Roberts, ACMA, guilty
of misconduct. While
employed as a financial
controller, his conduct
between April and August 2008 had
resulted in his conviction for fraud on
6 July 2010, relevant to his membership. The fraud was committed in the
course of Mr Roberts employment,
involved a breach of trust and concerned more than 2,000 in total. Mr
Roberts had also failed to inform the
Institute of the conviction, in breach
of the Laws of the Institute.
The Committee decided to expel Mr
Roberts from membership, taking into
account the seriousness of the conduct,
the financial sums involved and the
issue of proportionality. The Committee noted that convictions for offences
of dishonesty committed in the course
of employment are at the highest end
of seriousness, and the case involved a
series of offence`s over a period of some
months. While the Committee had also
noted Mr Roberts previous good record
and his admission of the offences at a
reasonably early stage, protection of
the public, the need to uphold proper
standards and the maintenance of
public confidence required the imposition of the most serious sanction. Mr
Roberts was also required to pay costs
of 12,100.
The Investigation Committee found a
prima facie case for Ms Tolu Abimbola
(registered student) to answer in relation to a complaint that she: Entered
into a Study Clawback Agreement with
her former employer through which
they agreed to fund CIMA course
and examination fees. The money
paid would become repayable should
Ms Abimbola leave employment. Ms
Abimbola subsequently left the company and breached the terms of the
agreement, which led to a county court
judgment being made against Ms Abimbola. Ms Abimbola failed to respond to
the court.

Pursuant to Regulation II.8(e) of the

Royal Charter Byelaws and Regulations
(reprint July 10) the Committee invited
Ms Abimbola to consent to the imposition of the sanction of a Reprimand by
way of consent order, without further
proceedings, to which Ms Abimbola
agreed. A finding upholding the complaint was recorded and an order for the
imposition of a Reprimand was issued.
The Disciplinary Committee found
Lindsay Burgess, FCMA, guilty of misconduct. He had failed to provide
the required handover information
to a former client companys superseding accountant, as requested in
four communications, thus he had
failed to respond appropriately, professionally and in a timely fashion to
requests for cooperation from a superseding accountant. This was failure to
comply with the Code of Ethics (the
fundamental principles of professional competence and due care, and of
professional behaviour).
The Disciplinary Committee noted
that Mr Burgess had accepted a 2009
Investigation Committee consent order
relating to conduct in 2008 and 2009,
and the Disciplinary Committee was
therefore concerned by his continuing behaviour, including his continued failure to respond in January 2010.
The Disciplinary Committee imposed a

The Disciplinary Committee had found

Bashen Valambia, ACMA, guilty of misconduct. The complaint was that as sole
director and shareholder of a company
through which he provides accounting
services, his company website had displayed an ACCA (Association of Chartered Certified Accountants) logo,
which suggested that he and/or the
company were ACCA qualified and/
or authorised, although neither were
ACCA qualified, authorised or associated. As such, Mr Valambia was not
entitled to use the ACCA logo and was
misleading viewers of the website, in
breach of the fundamental principle of
professional behaviour (Code of Ethics),
and thereby in breach of the laws of the
Institute (Byelaw 1).
Regarding misleading viewers, the
Disciplinary Committee considered
that there was sufficient evidence of
recklessness in this regard. The Disciplinary Committee also considered that
the facts fell very much at the lower end
of the disciplinary scale and imposed
an admonishment, which was the very
lowest of the sanctions available, and
a fine of 250. Mr Valambia was also
required to pay costs of 1,250.
Mr Valambia appealed on the
grounds that there was irregularity or
unfairness in the procedure leading
to the Disciplinary Committees decision, and that the decision had been
unreasonable. The Appeal Committee
was concerned with the Disciplinary
Committees finding that Mr Valambia
had acted recklessly, when the charge
against him had not included this, nor
had been amended to do so. The Appeal
Committee did not accept that as there
was a risk of someone being misled and
Mr Valambia did not check the accuracy of the website, he was thereby reckless. (There had been no finding that
Mr Valambia was aware of the risk and
that in the circumstances known to him
it had been unreasonable to take that
risk.) The Appeal Committee allowed
the appeal and set aside the order for
sanction, fine and costs.


Financial Management | May 2012

View from professional


Illustration: Dmitry Litvin/Dutch Uncle. Photography: Getty Images

Latest lecture sets out

power of social innovation
Nick ODonohoe, chief executive of Big
Society Capital, gave a powerful lecture
at the latest Tomorrows Value event
at leading City law firm Morrison
Foerster recently.
Big Society Capital will play a critical
role in speeding up the growth of the
social investment market, and so boost
the ability of social enterprises, charities,
voluntary and community organisations
(collectively the social sector) to deal
with social issues. The organisation is
being capitalised with up to 400m from
dormant bank accounts. An additional
200m will be provided by the four largest UK high street banks.
ODonohoe said that the theories of market economics that have driven growth,
employment, unprecedented technological progress and rampant globalisation
over the past 30 years are being altered in a
fundamental and far-reaching way; and
that the model of market economics, based
largely on self-interest, has neglected to
deal with its own social consequences.
He argued instead for a model that
embraces the financial disciplines of market capitalism, but also provides opportunity and support for the vulnerable, the

6-12 May Visit to Malaysia and Singapore
26 May N. Ireland CIMA Dinner and Awards

dispossessed and the downright unfortunate harnessing the power of social

innovation must be front and centre in
the transformative process under way. We
need to unleash a whole new wave of
social entrepreneurs and help existing
models with proven impact grow to scale
much more effectively.

Council member
Following the resignation of Will James
with effect from the close of the AGM on
9 June 2012, a new candidate is sought to
represent the constituency on the CIMA
Council. The vacancy will be until the close
of the AGM 2013, when the successful candidate may stand for re-election for a
further three-year term. Nominations for
candidates (fellows) may be made by any
six or more members (three of whom must
be fellows) whose registered addresses are
in electoral constituency 3.
Nomination forms may be obtained
from Roopa Deshmukh, Corporate Affairs
Manager (020 8849 2305/roopa.deshmukh or downloaded from
Nominations must be received on the
prescribed form by the Corporate Affairs
department at 26 Chapter Street, London
SW1P 4NP by noon on 14 May 2012 (faxes
are acceptable, but must be followed by the
signed original). If more than one candidate is nominated for the vacancy, a postal
and online ballot will be conducted.

Why is it that when things go wrong we

seem to be drawn to them? Reading about
the misfortunes of others is a bit like slowing down at an accident site. When we
read reports in the press about corporate
wrongdoings, or when professionals fall
below the standards required of them,
how can we turn these real-life examples
into something positive? We can view
these reports as examples of how things
can go wrong and consider how we might
act in the same circumstances.
Dont be afraid to think about what the
answer might be. Refer to the CIMA Code
of Ethics. See it as your most basic tool
and supplement it with the other resources, such as the ethics checklist and the
new animation. Make sure your employers and clients know you abide by it. Mention it in meetings before things go wrong,
and position the Code of Ethics openly
within your company or business early so
that it is the focus of discussions when
you need it. A bit like a good friend, keep
the Code of Ethics and your professionalism about you and travel with it. Be imaginative about using it you could mention
it in a company newsletter or give a presentation about it to your team. Share the
animation with your colleagues. If you
keep the Code about you and raise its profile in good time it will then be there when
you need it, and others will understand its
importance as well.
Visit for more information.


Financial Management | May 2012

CIMA CEO column

Tentative return to
optimism in survey
of business leaders

Illustration: Masao Yamazaki/Dutch Uncle

he future is bright. Well, the future

is certainly brighter than it was
and may be even more optimistic according to a piece of CGMA
research capturing the views of CEOs,
CFOs and other senior management
accountants on the global economy and the outlook
for their businesses.
More than 600 AICPA and CIMA executives (primarily CFOs, CEOs and financial controllers) from 60
countries responded to the first CGMA Global Economic Forecast, and the results proved encouraging.
While most reported optimism for their own
organisations (56 per cent, up from 46 per cent in the
previous quarter), only 18 per cent expressed the
same optimism about the global economy. The most
notable was in the US, where 22 per cent of CEOs said
that they felt optimistic about the global economy.
This represented a big leap from the previous quarters survey, when only six per cent felt optimistic
about the global economy improving.
CEOs are clearly telling us that the further away
they are from the situation, the less confident they
feel. But to drive international growth, CEOs must
continue to focus on understanding their external
markets. For long-term success, it is vital to understand the external environment and how this affects
their business. And as the worlds economy continues to remain unpredictable, there is less room for
error, so keeping their finger on the external pulse
remains crucial.
In general, optimism per country has increased
since the previous quarter, except in the rest of the
world emerging economies, such as South Africa and
the UAE, where the trend is reversed by a one per cent
drop. Meanwhile, the rest of the world developed
countries, which incorporate Australia, Canada and
New Zealand, are leading the way in optimism for
their own domestic economies by 53 per cent, followed by Asia (46 per cent) and the US (44 per cent).
The UK lags far behind, with just 17 per cent feeling
optimistic for their own economy.
But according to the results, Europe has grown in

global optimism, too (21 per cent), along with the UK

at 20 per cent (both up from 8 per cent the previous
quarter), so things appear to be heading in the right
direction, although the overall percentages, when
put into context, remain low.
The impact of the crisis in the eurozone remains
a concern, with just under half of those working in
European companies indicating a break-up of the
eurozone as having a significant impact on their
business. And our survey reveals that many executives believe there is more turbulence ahead. When
asked about the possibility of a Grexit a Greek exit
from the euro in the next 12-18 months the survey
responses revealed an average expected likelihood of
this happening at 52 per cent, with UK respondents
reporting a slightly higher figure, at 59 per cent. This
is a clear reminder that companies must remember to
prepare in advance for all eventualities, including any
eurozone fallout, as part of their risk management.
But for a real indication of where we are heading, it is healthy to look at the views from an industry sector perspective. Here, 63 per cent of manufacturing respondents reported feeling optimistic
about their own companies, closely followed by those
in finance and insurance at 62 per cent. And more
than half of the respondents in the retail and wholesale trade and technology sectors are also optimistic
about their industries. So the general sentiment here
is encouraging. But the outlook for the construction
industry remains a concern, with just over a third
expressing optimism for their organisation.
However, putting this into context, it is encouraging
to see that 42 per cent of CEOs globally said that their
organisation plans to increase the number of employees in the coming year, up from 38 per cent in the previous quarter. And in Asia, more than half say they will
increase their employee numbers, and in the US the
figure was 43 per cent. The trend here appears to be
upwards, which will come as a welcome relief to those
currently searching for employment in such markets.
Clearly, the building blocks for a return to global
growth remain on fragile ground, but the future is
looking cautiously brighter.
Charles Tilley, fcma, cgma
Chief executive, CIMA

It is
to see 42 per cent
of CEOs globally
plan to increase
the number of


Financial Management | May 2012

CIMA and an entrepreneur answer your questions

This month... Our firm is thinking of listing on AIM, but Ive heard it
is expensive and time-consuming. Whats it really like to list?

Listing on Alternative
Investment Market (AIM) is
neither quick, nor cheap, and
wont necessarily ensure you
raise sufficient capital. It is for
this reason that companies
have been delisting from the
AIM. Although the rate of
delisting is slowing, eight
companies listed in the first
quarter of 2010 raised 200m,
while ten in the second
quarter raised just 133m.
An approximate timescale
for listing on AIM is around
five months.
However, an AIM listing is
subject to less regulation
than, say, the NASDAQ, and
is relatively lower cost than
listing on other bourse.
Consequently, other funding
methods should also be
considered before a decision
is reached about listing.
Directors may want to think
about the following benefits
and risks to help them reach
a decision.
Lets consider the benefits.
A listing will raise your
profile and reputation with
the public, competitors,
suppliers and customers.
If successful, a listing will
provide cash for innovation
and development and allow
the company to raise more
cash in the future. It also
allows you to offer tradeable
shares when making
acquisitions, again easing
cash flow. Staff can be
incentivised via share
options, which can lead to
improved performance.
And now for the risks.
Directors often
underestimate the time,

effort and commitment

involved, both during the IPO
and afterwards, in terms of
maintaining investor
relations and legal
compliance. The costs: both
initial and ongoing costs
need to be assessed against
the risk of possibly not
raising sufficient cash. On top
of the AIMs fees, the costs
of internal risk management
and legal compliance can
be significant. Share price
fluctuation the board
cannot control adverse
externalities that can
impact share price, such as
natural disaster and
economic factors.
Any decision on whether
to list will need to account for
all of these factors. Your first
step should be to talk to
someone who has actually
done it.
Naomi Smith, R&D manager,

A. Mike
I founded Belvoir Lettings in
1995, and today it is a
franchise business with 140
offices nationwide. We
wanted to float to raise
money, both to expand and to
allow current shareholders to
exit. So, on 21 February this
year, we listed on AIM. It was
a time-consuming process,
exciting, and at times
nerve-wracking, but looking
back, it was the right decision.
Preparation began in
November 2010 when we
started meetings with our
advisors, the corporate
finance firm Sunaxis. In July
2011, we appointed Seymour
Pierce as our nominated
advisor, or Nomad. We
auditioned six Nomads and
picked Seymour Pierce
because of its excellent
relationship with institutional
investors and the impressive
personality of their corporate

partner, Guy Peters.

The most intense period
was January 2012, when we
presented to institutional
investors for the best part of
four weeks in London and
Edinburgh. It was also
important to talk to our
franchise owners to explain
why we were floating.
The process is stressful.
I did have my doubts, because
at times it took our eye off the
ball of running the company.
The valuation process was
particularly stressful, since
my wife was exiting the
business and offering her
shares in the IPO to create
additional liquidity. We were
eventually brought down to
earth with the valuation at the
pre-roadshow held before
Christmas, since the potential
investors were quite candid
with their views of the
multiple of earnings and
dividend yield that they
were expecting.
The listing raised 7.3m
and the cost, comprised of
legal, Nomad, financial
diligence, PR, but excluding
stamp duty, was in the region
of 1.1m.
The listing fulfilled our
expectations. I am confident
that Belvoir will now embark
on its next phase of expansion
as a plc with even more
enthusiasm and energy.
Mike Goddard is the founder
and chairman of Belvoir
Do you have a question
youd like to pose to CIMA
and a top entrepreneur?
Tell us at questions@

Illustration: Dmitry Litvin/Dutch Uncle

CIMA versus Mike Goddard