Certified Public Accountant

Many small business owners do their finances and taxes on their own, so you may ask: why should I Selecting a Small Business Accountant? The reason: no matter what stage your small business is in, you can benefit from having an accountant on your side.

• Gustavo A Viera CPA does more than prepare tax forms for their small business clients. They can act as a trusted consultant and advisor to your small business. Gustavo A Viera CPA would be able to advise you on growth opportunities, risk management, bookkeeping, and general financial planning.

• If your small business is closely tied to your personal finances, Gustavo A Viera CPA can help you make sound judgments that are beneficial to both your personal finances and your small business.  This guidance can be especially helpful when you’re just starting up and using your own funds to finance business expenses.

• Gustavo A Viera CPA can serve as a great resource that you can tap into for recommendations on which loans to apply for, banks that satisfy your small business needs, and whatever you need on the finance end.

Good Practices Selecting a Small Business Accountant

Here are some tips for avoiding common pitfalls and needless headaches in Selecting a Small Business Accountant:

Determine your needs

• There is no one-size-fits-all method for managing small business finances. Make sure that your accountant specializes in small businesses, and ideally has knowledge of your industry.  Beyond that, you will need to decide what level of support is appropriate and affordable for your business. Enrolled agents, certified public accountants, and tax attorneys bring different skills and charge different rates.

• Just ask!
  Word of mouth is a good way to find good accountants in Miami. Talk to your family, friends, peers, even your attorney for recommendations. You can also inquire with institutions and organizations like the American Institute of Certified Public Accountants*, your state Board of Accountants, or a local Chamber of Commerce.

• Interview your candidates
  Remember that you are hiring someone that will fulfill your business needs and requirements. Treat it like a job interview that you would give to any potential employee. Ask about:

• Professional qualifications like their licenses and experience

• Personnel who will actually do the work, and their response times

• Fees and charges to make sure they are in line with your budget

• Specialized services that you may want in the future for example, audit support

• Clientele (past and current) so you can gauge their expertise

What if My Current Accountant Isn’t a Good Fit?

If you had a bad experience with an accountant in Miami, take what you’ve learned to find a better fit for your business. You should also consider your timing if you’re just about to file significant tax changes or take on a large financial project, you’ll want to leave yourself enough time to find someone new. After all, a rush to judgment could leave you in the same position you’re in.

Remember

You are the person who is ultimately responsible for your taxes and finances. Be wary of accountants in Miami who promise things that seem too good to be true. If you have concerns about an accountant’s claims you should contact your state’s Board of Accountancy and/or the IRS Office of Professional Responsibility to check their licenses and ensure they are in good standing.

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Yes! Yesterday, the Securities and Exchange Commission announced charges against the Chinese affiliates of the Big Four U.S. accounting firms.

PricewaterhouseCoopers Zhong Tian
KPMG Huazhen
Ernst & Young Hua Ming
Deloitte Touche Tohmatsu
BDO China Dahua Co. Ltd.

All these are being charged for refusing to deliver auditing workpapers related to Chinese firms that trade on US stock markets in relation to the notorious “reverse mergers” and consequent delistings done by many Chinese publicly traded stocks with apparently notional OK from their audit firms.

SEC has been trying for seveal months to get these docs for nine China-based companies under investigation for potential wrongdoing.

Robert Khuzami, director of the SEC’s enforcement division, wws quite straightforward,
“Only with access to work papers of foreign public accounting firms can the SEC test the quality of the underlying audits and protect investors from the dangers of accounting fraud.”

And what the are Big Four doing. They are ducking behind conflicting rules in China and the United States. Under local Chinese laws, Deloitte spokeswoman Lauren Mistretta pointed out.”accounting firms in China are not permitted to produce documents, including audit work papers, directly to any foreign regulator without Chinese government approval, so all firms in China have been unable to produce documents requested by the SEC.”

Chinese law bans the removal offshore of audit papers, while foreign regulators aren’t allowed to work inside the country’s borders.

“While it is unfortunate that the two countries have not yet been able to find common ground on these issues, we remain hopeful that a diplomatic agreement can be reached, and we stand ready to assist that effort in any way we can,” she added.

PricewaterhouseCoopers-China echoed, “involves an issue that needs to be resolved between the U.S. and China.”

Ernst & Young Hua Ming hoped for “an agreement can be reached between U.S. and Chinese regulators that will enable our compliance with all applicable laws and regulations.”

KPMG China is “hopeful” that discussions between U.S. and Chinese regulators “will result in a positive diplomatic resolution” to the matter.

Next step – Over the next few months, a SEC administrative law judge will decide on cases against the Big Four, and if the judge decides against the firms, they could be suspended from seeking new U.S.-traded clients, or even blocked entirely from auditing U.S.-traded companies.

Folks, we are in the midst of a historic face-off between US regulators, US Big Four Accounting firms, and local laws in the US and China. This promises to be full of fireworks, and we will be watching!

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Hurricane Sandy, making its way through the northeast of the United States, has caused several Big4 firms to close their offices in addition to closing trading on the New York Stock Exchange and NASDAQ.

On Sunday, NASDAQ and the NYSE announced that they would close exchanges on Monday and possible on Tuesday. This is the first time markets have closed because of weather since 1985, when Hurricane Gloria stormed through New York City and the region. Several companies were planning to release earnings on Monday, including Pfizer, Thomson Reuters, and Martha Stewart Living Omnimedia. The end of October is typically busy with activity, as many blue chip companies announce their quarterly reports.

Big4 firms have also shut their headquarters in New York City and in nearby cities including Philadelphia and Boston. Public transport has also been shut in several cities, including New York City, where several highways already flooded early Monday as the storm moved northward.

Although Hurricane Sandy has not yet hit land, already several parts of New York City flooded Monday morning and power outages were reported downtown around Wall Street.

The Metropolitan Transit Authority, which runs New York City public transport including its subway and busses, said it will probably suspend service on Tuesday. It remains unclear when trading on Wall Street will resume, and workers can return to their offices at Big4 headquarters in the northeast.

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Big4.com Guest Blogger

If you’re serving the wrong clients, you don’t have a chance for success.”  Bill Hermann, former Managing Partner, Plante & Moran

For professional service firms the client base, in effect, defines the business. Clients represent much more than a revenue stream: They are the magnet that attracts other desirable clients as well as top professionals to the firm. They help shape a firm’s brand and have a powerful influence on its reputation and standing in the marketplace.

In our research for my book, The Art of Managing Professional Services, we asked over 130 senior leaders to rate their firms on client portfolio management. Fifty-five percent of respondents gave themselves a top grade on performance in this area, as shown in the chart below. However, most indicated that they are good at individual client management – their weakness is in overall portfolio management and measurement.

Virtually all firms, whether global enterprises or niche players, allow for opportunistic client acquisitions. However, many believe they have erred too much in that direction and are far too ad hoc in their approach to acquiring clients, allowing partners to bring in new business at their discretion or reactively responding to pitch opportunities with little or no strategic planning. Traditionally, professionals have sought and served clients as part of their personal book of business – and this “lone ranger” mentality is alive and well throughout the professional service industry.

By nature, professionals like to own and protect their client relationships. They possess a natural reluctance to sever ties with clients, particularly those with whom they have long-term working relationships, no matter how unprofitable a fact-based assessment may reveal them to be. This reluctance often goes hand in hand with an unwillingness to conduct an objective profitability analysis.

A number of respondents observed that they have fallen prey to the Golden Goose syndrome: overreliance on a handful of clients who provide a major contribution to the firm’s revenues but who also result in dangerous vulnerability. We heard a number of sobering war stories about near disasters from firms that unexpectedly lost a key revenue-generating client. Everyone who runs a professional service firm understands the danger of keeping too many eggs in too few client baskets, but it is difficult not to be lulled into complacency when deep-pocket, long-term client assignments come your way. Small firms in particular tend to throw all hands on deck to manage these engagements, while long-term planning and business development to keep the new client pipeline active are put on hold.

Mastering the client management life cycle

Based on our discussions and experience in the industry, we have identified five steps to successfully manage the client cycle from concept through acquisition, retention, and renewal. The cycle begins with strategically determining and planning the client mix. As clients come onboard, they are carefully introduced into the firm and are nurtured and managed throughout the relationship via a well-defined process to sustain, grow, solicit feedback, and improve the client relationship. The cycle is completed with regular reviews of client profitability, partner management, and relationship status. Each step in the cycle is integral to building a profitable client base that sustains and nourishes the firm and its professionals.

1. Proactively strategize and plan“If you truly understand your clients, and you truly understand your mix within an industry or geography, you can more effectively manage the profitability of your portfolio.”  Rike Harrison, Chief Growth Officer, WipfliExpecting your business to grow opportunistically with no cohesive strategy underpinning individual efforts is rarely a recipe for success. Firms that adopt this approach run the risk of never gaining critical mass or reputation in any particular market. Leaders of the best run firms agree that the most effective way to maintain and build a strong client portfolio is to proactively plan and manage it. The process starts with an annual review of the entire client base. We have found the basic SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) to be a reliable tool for portfolio assessment. Start with the strengths – which clients are the most profitable, which provide the most promising opportunities for cross-selling or integrating additional firm services, and what type of client work offers the best platform to develop new services and skills?The next step is to pinpoint portfolio weaknesses. Most firms have some clients that don’t make sense from a variety of standpoints. Perhaps the most obvious is low profitability, but this can sometimes be justified if current work has the potential to lead to future, more lucrative engagements. Less obvious weaknesses are strategic and cultural mismatches. Too many pieces of business that are off target and out of sync with the firm’s traditional skill base can confuse the market, and use up a lot of senior time that could be better focused on strategic clients.In the next phase of the analysis, identify new business opportunities. Almost every professional service firm that we have consulted with has multiple opportunities to expand business with current clients. Time and again when we talk to clients of the firms we are working with, we uncover potential new business. And in fact, a significant number of our interviewees admitted that they do not do a good job of identifying the potential for growing current client relationships.Finally, a classic SWOT analysis can pinpoint inherent weaknesses in a client portfolio. Relying on too few clients creates dangerous vulnerabilities, but other threats also can seriously affect a firm’s profitability and positioning. It is always difficult to predict an economic meltdown, an unexpected merger or acquisition of a key client, or the departure of a partner with a large book of business, but top firms are fully aware of their vulnerabilities to these threats and make every effort to ensure that they are not caught off guard.

   Once the current client mix has been thoroughly reviewed and assessed, the next step is to create a vision of the ideal mix of clients that will drive the firm’s strategic direction while meshing with its values and culture. The most successful firms – both large and small – focus services around well-defined functional and industry areas of expertise. Industry is often the first screen applied to the profiling process, followed by determinations based on size, geographic dispersion, functional buyers, the competitive landscape, and an assortment of characteristics such as marquee value, emerging growth potential, level of innovation, and degree of distress.

2. Frame the client experience“Client relationship management is critical. You can take nothing for granted. It’s just like building a relationship with your spouse or your friends — you have to work at it.”  Ralph Baxter, Chairman and CEO, OrrickSavvy firms spend time discussing and documenting their philosophy and processes to create a client experience that exemplifies the firm’s work style, values, and culture. This is an inclusive process that involves partners across the firm in an evaluation of the factors that contribute to a successful client engagement, ranging from client early-stage needs, through the quality of interactions throughout a project, to follow-up activities to identify service strengths and weaknesses. Benchmarks and ROI metrics for determining client satisfaction and client service levels are captured and assessed frequently.Given the importance of clients in the life of a professional service firm, we are continually surprised and dismayed by the fact that so few firms have formal “welcome aboard” programs for new clients. Most firms rely on partners to introduce new clients to the firm. This casual approach works reasonably well for many of the firms studied because professionals typically don’t become partners if they can’t retain and expand client relationships. Yet many client managers readily admit that engagement start-ups can be rocky, both for the professional service team and its new client.An effective onboarding program creates positive expectations, builds familiarity and trust, and demonstrates value to a client early on with the goal of transforming an initial engagement into a long-term relationship. The best-led PSFs use a carefully selected mix of onboarding approaches that go well beyond standard “let’s get acquainted” letters and meetings. They view the initial honeymoon phase as the launchpad for a carefully orchestrated relationship-building strategy (For more onboarding practices listen to Four Tips for Bringing in New Clients).
3. Sustain and grow accounts“Every client has a coordinating partner responsible for overseeing the delivery of services and managing the client relationship.”Firms strongly committed to developing a comprehensive client strategy recognize that someone must be responsible for developing and monitoring every aspect of an integrated client program. Although top management owns the overall strategy, responsibility cascades to business unit leaders and individual partners and professionals to manage and monitor client relationships, solicit feedback, and review and measure progress.Forward-thinking firms have a detailed plan for each of their high-performing clients — that 20 percent or so of their client base that typically provides most of their business. The primary goal is to build a framework for a consistent, client management plan aimed at cultivating optimal clients. A good client plan features a clearly delineated profile of client resources and service needs, includes a service progression map built around a revenue strategy, and has a tracking process and benchmarks for measuring progress against objectives. In a formal client plan, roles and responsibilities are clearly laid out. Client ownership is well defined — not just from a service perspective, but in terms of accountability for expanding the client relationship and generating additional business (see below: Client Management at Ernst & Young).
4. Solicit client feedback“Clearly, getting feedback from your clients is like gold dust. It’s of immense value.”In the best-run firms, client opinions and recommendations are an integral part of service testing and innovation, structure and process improvements, and relationship management. Clients are contacted to solicit their viewpoints formally in periodic surveys or informally during regular engagement interactions. Some firms pilot new offerings and service delivery concepts with key clients to test-run ideas and deepen their commitment to and involvement with the firm.The most common feedback tool is some form of survey, whether face to face or online. Many years of conducting interviews both in person and via telephone have given us a bias toward having conversations rather than relying entirely on an online survey. However, some firms use online surveys as a first step, with in-person or phone conversations as a second-level vehicle if the initial online survey uncovers less-than-satisfactory results.A number of firms across the industry have well-defined and well-executed programs to regularly obtain feedback and mine it for relationship-building data. Some rely on their leadership team and staff to spearhead the feedback process, and others use third-party interviewers. Most who survey their clients do so annually.
5. Review results, establish rewards and accountability“We don’t trust our data on client profitability. We’re working toward it. I’d say we do it well enough to be directional. We’re continually pushing to make our systems better”By far the most politically challenging stage in client life cycle management is assessing and fine-tuning performance. This involves reviewing client service results, taking definitive action based on feedback and financials, and rewarding good performance and mitigating average or poor performance. In general, firms review and measure performance across three dimensions: Are the clients happy? Are the partners doing a good job? Is the firm making any money?Client feedback programs provide input on relationship status, problem areas and needed service improvements. Some firms tie feedback results into personnel evaluations and flag areas for improvement, and others, with formal client plans, review plan goals against performance which in turn links to compensation. And some firms — not enough in our opinion — conduct formal profitability reviews of each client and actually terminate unprofitable relationships.Technology is markedly improving data gathering in this area. Dashboards, that offer real-time reporting, highlight the impact of increased profitability on effective portfolio management and spotlight the negative effects of low-return clients on the firm’s bottom line.

Client Management at Ernst & Young

According to Jim Turley, Chairman of Ernst & Young Global, “At EY, the client is the center of the universe.” As a major global PSF, the organization’s client base is large and diverse with a wide spectrum of needs. To deliver consistent service across the portfolio, EY adopted a multi-level, account-centric client approach to service delivery:

• Account segments: The organization strategically classifies its clients into several categories based on the size and service needs of the client. The objective is to calibrate service levels to client needs or as Turley explains, “to better serve clients where and how they need to be served.” Major multinational clients, for example, require seamless service across the globe from a well-coordinated account team, while an emerging growth client needs hands-on attention from a team which is familiar with the needs of fast growing companies. The segmentation helps EY deliver the types of services required for each client. EY reviews the segment distribution on an annual basis and makes adjustments based on changing client needs.
• Coordinating partner: Every client has a coordinating partner (CP) who is responsible for overseeing the delivery of services and managing the overall client relationship. The CPs are selected based on their specific skill sets and usually reside in close geographic proximity to the client — account teams for multinational companies are typically led by a partner based at the company headquarters. For the largest accounts the CPs are required to develop an annual client plan to address the service needs of the client and deepen the relationship. Account plans are reviewed and approved by senior leadership and are monitored regularly for service quality and staffing consistency.
• Assessment of service quality (ASQ): EY monitors client satisfaction throughout the year through a formal and rigorous process called ASQ which is executed locally and monitored at the global level. A person independent of the account team meets with a number of senior executives — including the audit committee, board members and senior management — to assess the relationship status. The ASQ leader files a written report and any risk areas are promptly communicated to the CP and quickly addressed. For the firm’s largest accounts, the reviews are conducted annually; other accounts are reviewed on a rotating basis.

Turley emphasizes that, to grow the business, EY is looking for profitable work with clients it can serve in a quality way. The client management program supports this goal and creates a win-win situation for both the organization and its clients.

Maureen Broderick is founder and CEO of Broderick & Company (www.broderickco.com), a consulting firm specializing in strategy, training, and research for professional services. Her new book, The Art of Managing Professional Services: Insights from Leaders of the World’s Top Firms was published in November 2010 by Wharton School Publishing.

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Maureen Broderick

Broderick, Big4.com Guest Blogger

“The fundamentals of the professional service business are brutally simple; it’s about talent, it’s about clients, and it’s about teaming to bring it all together to create and deliver value.”  Jim Quigley, former CEO, Deloitte

Operating a professional service firm (PSF) is very different from running a product-based business. Infrastructures, governance, talent management, compensation, and profitability vary significantly from traditional corporate environments. Firm leaders will tell you that managing a successful PSF is a challenging business that requires a delicate balance between structure and autonomy and a unique leadership style.  Not to mention the enormous challenge of managing an organization of extremely smart, highly autonomous, and somewhat quirky professionals. It’s definitely not a job for the faint of heart.

In researching my new book, The Art of Managing Professional Services, my team conducted more than 130 in-depth interviews with leaders of the world’s top firms. What emerged were their proven practices on how to tackle the ten critical areas that firm leaders must monitor to build and maintain a strong organization: vision, values, and culture; people; clients; services; finance; positioning; partnership; strategy; structure; and leadership style.

To keep the firm operating at maximum strength, leadership must constantly monitor and tinker with each of these critical pieces of the organizational puzzle. But even the best firms in the business can find themselves out of alignment at certain periods in their life cycle. And virtually all of the leaders interviewed admitted that many areas of their organization need attention and improvement (to test your firm’s performance on the 10 critical areas, see Management Questions to Ponder). The key is maintaining a vigilant focus on the firm’s vision, values, and culture – the anchor and core of every successful professional service firm.

1. Vision, Values and Culture“For a professional service firm, vision, values, and culture are really 99 percent of the equation.”  Damien O’Brien, CEO, Egon Zehnder InternationalThe leaders of the professional service firms interviewed were passionate about their firms’ values and culture. Values are the bedrock of the organization – the rules that govern behavior toward colleagues, clients, and the communities in which they serve. In successful firms, adherence to the values is cultivated and rewarded; failure to comply can result in expulsion. The organizations we studied devote an enormous amount of time and resources to embedding their values and reinforcing their culture. In fact, the leaders we interviewed agree that the preservation and nurturing of their firm’s vision, values and culture is their number one job.
2. People“Creating an environment where people with very different backgrounds and skills feel that they can have a successful career is essential.”  Dennis Nally, Global Chairman, PwCYou might expect that professional services would be good at talent management. After all, people are the product. Without committed, highly skilled people, there is nothing to sell. Some impressive best practices emerged in our discussions, but perhaps the most important lesson is that people are treated with respect. Their opinions are valued, they are trusted to interact with clients early on in their careers, and their contributions are expected and rewarded. Successful firms invest significantly in recruiting, career management, training and mentoring of their professionals.
3. Portfolio“If you’re serving the wrong clients, you don’t have a chance for success.”  Bill Hermann, Former Managing Partner, Plante & MoranFor PSFs, the client base, in effect, defines the business. Clients represent much more than a revenue stream: they are the magnet that attracts other desirable clients as well as top professionals to the firm. The client base helps shape a firm’s brand and has a powerful influence on its reputation and standing in the marketplace. The best-run firms follow five steps to effectively manage the client cycle from concept through acquisition, retention, and renewal. The cycle begins with strategically planning and regularly reviewing the client mix. As clients come on board, they are carefully introduced into the firm and are nurtured and managed via a well-defined process to sustain, grow, solicit feedback and improve the client relationship. The cycle is completed with regular reviews of client profitability, partner management and relationship status. Each step in the cycle is integral to building a profitable client base that sustains and nourishes the firm and its professionals.

4. Services“Without productization, intellectual capital just builds brand; it doesn’t create a new service portfolio.”  Stephen Rhinesmith, former Senior Partner, Oliver WymanIf talent is the lifeblood of a firm, then an effective service portfolio strategy represents the arteries through which that talent is channeled – and innovation keeps the whole system healthy and energized. Firm leaders agree that successfully managing service development and renewal is a continuous cycle of activities that begins with a portfolio review to identify gaps and retire services that are no longer relevant. It continues with ideation, the often complex task of stimulating and capturing new ideas. The next step is selecting the best candidates for development. And finally, ideas are transformed into viable service offerings, the troops are trained on delivery, and the services are launched. Gathering and sharing knowledge and client experiences is integral to the ongoing success of a service strategy. Each step of the cycle is important in creating a consistent engine of innovation.

5. Finance“Financial management is the bedrock. You can’t be successful if you don’t end up with competitive earnings, whatever metrics you use.”  Steve Harty, North American Chairman, BBHOn the surface, professional services seem like simple businesses to manage financially.  As one leader told us, “It’s mostly a time and materials business driven by rates, revenue, utilization, realization, and expenses.”  But there are nuances that make it challenging. In the short-term project-based PSF environment it is almost impossible for many firm leaders to see beyond the window of a few months, which makes revenue forecasting a distinct challenge. The top firms have a clearly articulated financial strategy that establishes revenue and earnings goals, and responsibilities for financial performance. They are rigorous at tracking key financial metrics – both lagging and leading indicators – and invest in the people and the analytical tools that provide timely, action-oriented financial information. Cash flow is king, as one CEO told us, “If a firm has cash, it’s a well run place. If they don’t, it isn’t.”

6. Positioning“Your brand is the place you occupy in the consciousness of your constituents.”  Frank Burch, Chairman, DLA Piper Global BoardIn professional services, positioning is what you stand for. Positioning defines what the firm does, how it does it and why it is different from other organizations. To succeed, a PSF must identify a credible position to occupy in the market. Determining positioning involves decisions on a number of fronts. Will you be a lower cost/higher volume provider or will you offer high cost, unique solutions to unique problems? What specific services will you sell? Which segments, geographies, companies and buyers will you target? What is the service experience the firm will create for the client? The best firms know who they are and what they do and are masters at communicating their positioning both internally to staff and externally to their market.

7. Partnership“There has to be a lot more than money to hold a group of very smart, type-A partners together.”  Evan Chesler, Presiding Partner, Cravath, Swaine & MooreThe term partnership has a very special meaning in professional services. Much more than a type of ownership structure, the concept of partnership is both an industry mindset – a core belief that everyone is in it together, united by a common vision and cause – and a distinctive set of governance characteristics. A successful partnership-driven governance model is based on shared values, collaboration and teamwork, peer relationships, highly participatory decision making, and equity sharing with partner/owners.

8. Strategy“We spend a lot of time, as a management team, just making sure we are aligned in our ambition.” Steve Gunby, former Chairman, North and South America, The Boston Consulting GroupSome view strategic planning as an art, some as a science – and some as an inspired combination of the two. Firm leaders described their strategic planning processes as everything from intensive brainstorming marathons over weeks or even months to routine annual budget exercises. The best firms view strategic planning as a continuous cycle, not a one-time event. Long-term strategic plans are integrated with annual plans and progress is regularly reviewed and communicated to all stakeholders.
9. Structure“We really hate bureaucracy. That is why we are pretty flat and there is not a lot of politics happening here.”  Donna Imperato, President and CEO, Cohn and WolfeThe choice of the organizational structure and governance model has critical implications for professional service firms. Together they form the internal architecture of a firm – the invisible scaffolding that supports everything, from day-to-day operations to strategic planning and effective execution. The structure delineates the organizational layers and management reporting hierarchies within the firm. Governance is the leadership style – collaborative, dictatorial, or corporate – and the policies, systems and procedures that underpin the enterprise. Organization design choices can reinforce or undermine culture, endanger or enhance performance and service quality, and enable or diminish profitability.

10. Leadership“You’ve got to convince people with whom you are working that they want to follow your vision.”  Ben Fisher, COO, Perkins+WillOf all the ingredients in the professional service mix, leadership is probably the most essential to success – and often the most elusive. In most industries the person in the corner office calls the shots. Operating within a traditional command and control environment is relatively straightforward: the divisions between leading, managing, and following are clearly defined and widely understood. In contrast, the matrix structure that most professional service firms have embraced is a far more dynamic business model; it’s flat, fluid, fragmented, and often unruly.

We asked interviewees to describe the most important characteristics of a successful service firm leader. By a wide margin, the traits they believe define successful leadership – good influencer, listener and communicator; inspirational; passionate; visionary – fall under the umbrella of strong interpersonal skills and emotional intelligence. As one CEO summed up, “There is an under-appreciation of what it takes to lead one of these kinds of businesses – better be darn sure you want to do it.”

Maureen Broderick is founder and CEO of Broderick & Company (www.broderickco.com), a consulting firm specializing in strategy, research and training for professional services. The Art of Managing Professional Services (www.theartofmanagingprofessionalservices.com) was published in November 2010 by Wharton School Publishing.

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Why the IFRS? Its origins and strategies to become the chosen one

Chess mode on!

The IFRS (International Financial Reporting Standards) arose to feed the increasingly global investors needs and the capital markets globalization.

The capital markets world was sharing concerns about which standard it would adopt – there was a trend for the adoption of the USGAAP (United States Generally Accepted Accounting Principles) once the United States holds the biggest capital markets and investors in the world. As US has most of the investors it was natural to think about adopting the USGAAP.

However, by the time the capital markets were becoming really globalized and the investors were strongly starting to use the internet the United States standards were hugely hit by the biggest corporate scandals we have ever seen since 1929 – from the late 1990’s through 2000’s we have noticed some of the biggest scandals on capital markets in the world. Some known examples are: Enron, WorldCom, Arthur Andersen and others.

The US capital markets, authorities and Accounting Principles were fragile at that time.

Coincidence or not, in April 2001 the IASC (International Accounting Standards Committee) was replaced by IASB (International Accounting Standards Board) and the principles so far written as IAS (International Accounting Standards) were replaced by the IFRS (International Financial Reporting Standards). And this was a strategic movement towards the international standardization of the accounting principles.

This movement was mainly a marketing strategy (more than any deep change) and it has brought to focus some concepts of a market facing its biggest turbulence since 1929. The USGAAP was being hit by the world at that very moment with its weaknesses being well-known.

While the USGAAP were based on rules and it was applicable for the Accounting books, the IFRS were based on principles and it was applicable only on the Financial Statements. This being said, the IFRS was tremendously easier to be applied when compared with the USGAAP, already suffering with the corporate scandals and now suffering with the parallel movement of the Europe, led by the United Kingdom, to adopt the IFRS. The English principles were the FRS (Financial Reporting Standards) and with a kind of makeup the UK led the IFRS principles. For example, for some rules in USGAAP that we have about 4 or more pronouncements / interpretations, you can get only one pronouncement for IFRS. It is simple and the companies did not have to change its accounting books – only the Financial Statements pack.

The US corporate scandals allied to the complexity of the USGAAP rules, made most of the countries to choose the simpler and cheaper way to adopt an international standard – the IFRS.

It was the same basis the tech world used to choose for the VHS, to choose for the PC etc. The cheaper – the best;

Chess mode off!

Success! Today, more than 120 countries adopt and accept the IFRS as its standards for the Financial Statements – and some of them has adopted it as its accounting principles (in Brazil, for example).

The IASB was concerned on presenting the benefits and studying the markets to allow more and more countries to adopt the IFRS. But it didn’t supervised nor created an International Agency to do it around the world.

With no supervision the countries has adopted the principles as they understood.

Proof of this: on November 16th, 2011 the Securities Exchange Commission has issued a study (http://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-111611-practice.pdf) with some points and comparisons between the companies around the world. They have chosen 183 companies around the world and in a variety of markets, indicating some strange points.

Most of the companies analyzed, and within the same market sector, have stated different treatments of the same thing.

It was easier to compare a Telecom Company from the UK with a Mining Company in Brazil, than comparing Telecom with Telecom companies in both countries.

When you decide to adopt principles, you need to make sure the countries has the same understanding of these principles, otherwise it could be easier to implement detailed rules. When we talk about principles we have to consider some deviation of understanding and of environment. When we talk about detailed rules, it is specifically for some situations, independently of its environment.

Are the IFRS’s permanent?

What do you think?

Lucio Barbosa works as a Finance Manager at GE Energy; IFRS specialist being member of the IFRS Advisory Group in Brazil from 2009 through 2011; and blogs for some Brazilian websites for business administration and accounting.

LinkedIn: http://www.linkedin.com/pub/lucio-barbosa/9/673/82a

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After external auditors for Olympus were cleared of responsibility in one of the largest fraud scandals in Japanese history, the electronics firm continues to face legal pressure in Japan. Now, the firm has reported separate corrupt practices connected to its Brazil practice to U.S. regulators.

The case involves “irregularities” connected to a doctor training program in the South American country, which the firm reported to the American Department of Justice.

DOJ chairman Yasuyuki Kimoto said that his department “might agree to some sort of violation of the Foreign Corrupt Practices Act in Brazil.”

The violations would be levied against how Olympus accounted for doctors’ expenses related to travel, meals, and entertainment. While the amount of money is small for the multi-billion dollar multinational–Brazil accounts for less than 2.5 per cent of the firm’s sales, according to Bloomberg–the scandal compounds last year’s surprise case involving an accounting fraud scheme that involved top-level executives at the Japanese firm and caused the company’s stock to plummet, in addition to the resignation of key Olympus officials and a restatement of the firm’s earnings.

Both KPMG and Ernst & Young were cleared of responsibility in the Olympus accounting scandal back in January. Japanese regulators looked at the work of both firms and concluded that “the masterminds of this case were hiding the illegal acts by artfully manipulating experts’ opinions,” according to the report clearing the firms of responsibility.

The post New Accounting Fraud Case Brings Spotlight Back to Olympus appeared first on Big4.com.

By Michael Foster, Big4.com Blogger

Auditors and accountants have expressed concern to the Public Company Accounting Oversight Board (PCAOB) that auditors’ consulting businesses are producing a conflict of interest, in addition to worries that other conflicts are compromising audit quality.

The PCAOB held a public meeting on firm independence and rotation in San Francisco last month. At the event, Silicon Valley Bank Chairman Roger Dunbar said that he is “worried” that auditing firms are trying to get audited companies to “spend money with them on consulting” in addition to their regular audits.

This, he added, is a risk for the qualify of audits and is a concern that auditors need to address.

D. Paul Regan, Chairman of Hemming Morse, also spoke on the issue of audit independence and audit failure. Regan expressed concern that the PCAOB has discovered “significant deficiencies related to the valuation of complex financial instruments, inappropriate use of substantive analytical procedures, reliance on entityt level controls without adequate evaluation of whether those processes actually function as effective controls, and several other issues.” Regan recommended that the PCAOB implement “a fair method of rotation that does not cause each registrant to rotate in the same calendar year.”

Several other speakers echoed Regan’s view as concerned brewed over recent banking scandals and large losses, such as the LIBOR fixing scandal in the UK and JP Morgan’s $5.8 billion trading loss.

While no speaker identified the responsibility of auditors and their relationship to these scandals, a repeated concern was that objectivity has been compromised in the accounting sector. Several speakers, including Regan, recommended auditor rotation as a method of discouraging conflicts of interest and reinstating auditor objectivity.

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Fahad lives by his golden rule that what you learn on the job is just as an important as how you learn it. The learning culture at PwC known as “teach-don’t-tell” has launched Fahad’s career. Early on, he got hands-on experience shadowing senior staff from a top brand company to learn best business practices.

He uses PwC’s enhanced working practices to accelerate his knowledge and skills. His coaches and mentors empower him to learn faster, smarter, and better. They listen to his aspirations, and then teach him how to achieve his goals.

On each project, Fahad learns how to maximize his strengths, and boost his areas of improvement. It’s all part of PwC’s lessons learned sessions, that help him be all he can be, and more.

Making an impact every step of his career is Fahad’s goal. As a new Associate within our auditing team, he dreams of being a partner. He credits PwC’s distinctive investment in its people to his learning success.

Fahad is an Experienced Associate working at PwC Canada (based out of the Toronto office). He is the firm’s  National Blogger and “Campaign Star.”
To connect with Fahad, you can add him on LinkedIn and/or follow him on Twitter (@_fahadmeer).
To view the blogs he has written to-date for PwC, click on the following link: http://www.pwc.typepad.com/pwcconnect/fahad/

The post Meet Fahad – PwC Canada’s “Campaign Star!” appeared first on Big4.com.

By: Mary Werner, CPA, MOD, Big4 Guest Blogger  

“In these troubled and uncertain times, we don’t need more command and control; we need better means to engage everyone’s intelligence in solving challenges and crises as they arise.”

~Margaret Wheatley

Command and control leaders. You love to hate them. These leaders are the “my way or the highway” type where the phrase “Just Do It” takes on quite a different meaning than Nike ever intended. But the reality is that this form of leadership has been the long standing default style for many leaders in our Firms and Corporations.

I don’t know about you, but I’ve had the “pleasure” to work with more than a couple command and control type leaders in my years as a practicing CPA.  And my experience is consistent with the research on the negative impact of this leadership style:

No Flexibility - “My way or else.”

No Clarity  – “I only know what not to do.”

No Responsibility – “Just doing my job.”

No Commitment – “I’m just looking out for myself.”

But there is great news coming from a research study of 1,700 CEOs recently completed by IBM. The study reported that these leaders clearly see that the command and control leadership style is outdated and ineffective.

The implications are clear for the CPA profession as well. It’s time for Partners and Managers to move off this outdated and non-productive leadership style and embrace the leadership style that engages, inspires and aligns their professionals to outstanding performance and results. New behaviors can be learned and when CPA leaders see the positive impact on the bottom line, they’ll be more motivated than ever to shift their approach.

A New Era of Openness and Collaboration

The study also revealed what CEOs are looking for in employees, another clue that we’re moving in a direction that’s more open and collaborative. These CEO respondents want to recruit and hire people who excel at working in open, complex, and team-based environments. Highly valued skills are collaboration (75 percent), communication (67 percent), creativity (61 percent) and flexibility (61 percent).

It’s a new day and Firm and Corporate leadership must change with it.

How about you? What is your experience with “Command and Control” leaders? How do you see your leadership style shifting in today’s complex business environment?

To your success,

Mary

Mary C. Werner, CPA, MOD is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  Mary was formerly with Ernst & Whinney (now E&Y) and Partner with Plante & Moran.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

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“Could a greater miracle take place than for us to look through each other’s eye for an instant?”

~Henry David Thoreau

My dog Zoey should have been named “Radar.” She has an uncanny ability to sense what family members are feeling and react to those feelings in kind. Whether we’re watching an exciting basketball game on TV (she goes crazy when we do), or one of us is feeling sad or discouraged (she makes a bee line for our lap), Zoey, completely without judgment, is in tune with our feelings.

Possessing accurate radar is in a sense what the EQ skill of empathy is all about. And empathy is the fifth and final skill that I’ll discuss as being critical to becoming a “trusted advisor.”

When you have empathy, you are “tuned in” to how others are feeling. You are able to look at a problem or conflict from another person’s perspective. Empathy is also a critical skill for negotiation as well, understanding what the other side wants and working to create a win-win result. (So it’s far from a “touchy-feely” skill.)

Empathy involves understanding another’s perspective, even if theirs’ is much different from your own. (Remember, it’s without judgment.) It involves letting the other person know that you have understood them, thus creating a bond and a relationship that surpasses “box checking” or “order taking.”

According to David Maister, one of the key hallmarks of a trusted advisor is their “focus on the client rather than themselves.” That is the essence of empathy. To put yourself in the shoes of the client in order to see a challenge from their perspective, understand what they are feeling and why.

This key EQ skill allows you to forge a strong bond of collaboration that helps you to solve your client’s problems and create successful and lasting client relationships.

Five EQ Skills Critical Trusted Advisor Skills

To recap, over the last several posts I’ve shared five key EQ skills:

1. Pursuit of Meaning: Your goal, desire and motivation to become a trusted advisor.
2. Emotional Self Awareness: You are aware of your emotions and how they impact your behavior and others.
3. Interpersonal Relationships: You have an ability to build and develop mutually satisfying relationships.
4. Problem Solving: You effectively use your emotions in the process of solving a problem by gathering information and making decisions without being emotionally distracted, stuck or overwhelmed in the process.
5. Empathy: You are “in tune” with how others are feeling, understanding their perspectives and forging a bond that builds outstanding relationships.

The good news is that each of these EQ skills can be learned or enhanced. If your goal is to move your role from client server to the next level of trusted advisor, add these five skills to your foundation of technical expertise.  I know it can happen. I’ve witnessed my previously reticent coaching clients successfully make that shift.

What do you think? What are your perspectives on what it takes to be a trusted advisor?

To your success,

Mary

Mary C. Werner, CPA, MOD, formerly with Ernst & Whinney (now E&Y) and a Partner at a regional CPA firm, is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

The post How’s Your Radar? appeared first on Big4.com.

, Big4 Guest Blogger  

“It is very important to understand that emotional intelligence is not the opposite of intelligence,

it is not the triumph of heart over head, it is the unique intersection of both.”

~David Caruso

My last three blog posts discussed your desired movement from technician to becoming a trusted advisor for your clients and the EQ skills you must possess to make that move. The three EQ facets I’ve shared so far are:

1. Pursuit of Meaning: Your goal, desire and motivation is to become a trusted advisor
2. Emotional Self Awareness: Your awareness of your emotions and how they impact your behavior and others
3. Interpersonal Relationships: Your ability to develop mutually satisfying relationships

But even if you possess each of these emotional intelligence skills, in order to become a true trusted advisor you must still solve your client’s most challenging problems. And at the leader level, you must regularly solve their problems when the pressure is on, when the stakes are high and all focus is squarely on you. All while keeping your emotions in check.

In the realm of EQ, what does this problem solving skill entail? Problem solving in an EQ sense is not about the quality of your solutions, but rather at how effectively you use your emotions in the process of solving a problem. It’s your ability to gather information and make decisions without being emotionally distracted, stuck or overwhelmed in the process.

You can possess all the technical knowledge in the world but if your emotions cause you to be frozen in your decision making, unable to consider various perspectives or  avoid dealing with the problem all together, your technical expertise is of little use to your client.

It’s fitting that I’m writing this blog post on the day that one of my former business partners (and trusted advisor extraordinaire) retires from Plante & Moran. My dear friend, Brent Cousino, is one of the most amazing trusted advisors I’ve ever worked with.

Brent had many client facing roles at P&M and, regardless of his position, his clients could always count on Brent to solve their most challenging problems calmly, methodically and effectively. Pressure, deadlines, budgets and client expectations were a constant in Brent’s consulting role and he managed these challenges brilliantly. His clients knew that he would utilize his technical expertise combined with exceptional problem solving skills to make a difference for them

Oh, and he also possesses the first three EQ skills in droves! Brent will certainly take his trusted advisor skills on the next leg of his leadership journey.

How would evaluate your problem solving skills when emotions are in play? Can you be relied on to be there for your clients, cool headed, focused and determined?

Becoming a trusted advisor truly demands these superior problem solving skills.

To your success,

Mary

Mary C. Werner, CPA, MOD, formerly with Ernst & Whinney (now E&Y) and a Partner at a regional CPA firm, is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

The post Solving Problems: Trusted Advisor Style appeared first on Big4.com.

The Securities and Exchange Commission has made a formal request to the Big4 auditing firms requesting that they ask the firms to hand over documents relating to audits of China-based companies listed on public exchanges in the United States.

The requests have gone to Deloitte, Ernst & Young, PwC, and KPMG over audits conducted by Chinese units of the firms.

The SEC has made informal requests for the documents before, and has charged Deloitte with violating American securities laws when the firm refused to hand over documents relating to a Chinese firm. In its defense, Deloitte has said that Chinese laws prohibit the firm from handing over documents in a move that could be punished in accordance with Chinese defense laws. The punishments include possible criminal charges that could see Deloitte auditors imprisoned in China.

The Big4 firms say that they are caught between American and Chinese laws in what is seen as an international diplomatic standoff. PwC said that it, “like other firms who have received similar requests, in dealing with them we are confronted by conflicting laws between the United States and China.”

Previously, Deloitte has said that it is caught in the middle of conflicting laws of two different governments,” adding that “accounting firms in China are not permitted to produce documents directly to any foreign regulator without Chinese government approval.”

Deloitte said that it was cooperating with both governments as best it could.

The SEC may seek further punitive action against the Big4 firms if they do not comply, such as deregistration. If deregistered, the firms could no longer audit companies in America.

Deloitte’s case is still pending in U.S. District Court.

Peking University professor of accounting Paul Gillis suggests that the Big4 firms may face the threat of no longer operating in America. “Without resolution, the only meaningful option… is for the PCAOB to deregister the (audit) firms and for the SEC to ban them from practice before the SEC,” he said.

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By: Mary Werner, CPA, MOD, Big4 Guest Blogger  

“At its core, trust is about relationships.”

~David Maister

In my last two blog posts, I talked about two of the five key EQ skills needed to move from technician to trusted advisor: self actualization and emotional self-awareness.

It won’t come as a shock to you that the third EQ skill is your ability to build mutually satisfying relationships. The key words here are mutually and satisfying.

We’ve all been in client relationships that are one-sided or give us heartburn. Those relationships can never make it to a true trusted advisor status.

What I’m talking about in a trusted advisor relationship is based on a mutual give and take. You must give a favor to earn a favor.  In trusted advisor speak, you must “display your willingness to make an investment in the relationship in order to earn your client’s trust.”

What efforts do you put into maintaining healthy and effective relationships with your clients? Is your talk all technical and single focused? How do you get to know them on a personal level? What matters to them? Do they know what matters to you?  In the end, building a strong relationship requires a certain level of vulnerability and a willingness to open yourself up.

And we all know that a relationship that’s strong and satisfying is one based on thoughtfulness and openness to another’s ideas. The idea of collaboration and connection to others is something that trusted advisors value. And when a conflict arises, both parties work to resolve issues in a manner that is respectful and professional.

There is a misconception that strong trusted advisor relationships can only be built when the advisor is extraverted or gregarious. Quite the contrary. One of the most effective legal advisors I know is quite introverted but has forged strong relationships with his clients in a more reserved, one on one manner. Still strong. Still effective. Still a trusted advisor. He just accomplishes it in a more low-key manner. And his clients love him. He is their “go to guy.”

How would you rate your client relationships? Excellent? OK? Box Checking?

If you didn’t choose excellent, what’s holding you back from building deeper, more meaningful relationships with the clients you serve? Regardless of whether you’re an introvert or extravert, you can begin today to build the skills that it takes for forge mutually satisfying relationships with your clients and move yourself to that coveted “trusted advisor” status.

To your success,

Mary

Mary C. Werner, CPA, MOD, formerly with Ernst & Whinney (now E&Y) and a Partner at a regional CPA firm, is the founder of Werner Coaching and Consulting, Inc., an executive coaching and organizational change consulting firm.  She is also a founding member of  The CPA Consultants’ Alliance, a working group of thought leaders unified in their efforts to further leadership in the accounting profession.  Mary, a certified executive coach through The Hudson Institute, is especially skilled at coaching and consulting with CPAs and other business professionals who are interested in accelerating their personal and professional growth for breakthrough results. She blogs regularly about leadership and change in individuals, firms and organizations.

The post Rate Your Client Relationships: Are You a Trusted Advisor? appeared first on Big4.com.

The aim of the blog is to discuss fraud in general and more specific VAT fraud.  What is the positive correlation? What is the impact on tax controversy, company’s prioritization and the game plan needed to mitigate risks?

“While 37.6 percent of respondents expected to find fraud among the accounts they audit, they anticipated their competitors would find fraud at a much higher rate of 66.9. That represents a disconnect between a given auditor’s expected fraud exposure risk and the general expectations for the industry” Auditors Anticipate Finding Fraud at Clients: Accounting Today.

Top Official Arrested For Bribery

In the Netherlands a top official of a housing organization has been arrested. The housing organization had invested in derivatives and speculated on interest rates. It went wrong and the housing organization needed EUR 1.6 billion to make the payments to the banks.

According to the prosecutor the top official received a kick back for purchasing these financial products and is now investigated for bribery, tax fraud, and money laundering.

In order to survive the housing organization has to raise rents and sell 15,000 houses (within a period of 10 years). The housing organization is the biggest Dutch provider of affordable housing, owning about 89,000 houses.

KPMG withdrew its approval for Vestia’s 2010 annual account.  KPMG said it doubts whether all derivatives have been processed properly in the annual account (Bloomberg).

VAT Fraud

Evaluating post Enron has much really changed from an internal and external control framework if top officials can still execute their ‘evil’ plans.

I have written in my recent blogs about VAT fraud.

Do external auditors investigate and review company’s indirect tax policies and controls?

The same question can be raised about the mandate and associated risks of top officials.

From Netherlands Intensifies Efforts To Combat VAT Fraud:

1. Nasir Khan had a successful accessories business, a jet-set lifestyle and reputation as a pillar of the community. But all that vanished in December when he was jailed for his part in a £250m VAT fraud - March, 2012
2. According to a PwC report: “11 percent of VAT revenue is lost annually through fraud – principally ‘missing trader’ or ‘carousel fraud’ – which equates to in the region of €100 billion.

Based on benchmark findings it is doubtful whether VAT fraud (caused internal or external) is in general managed and monitored closely via good functioning internal VAT controls.

“Only 32 percent rate their VAT / GST policies as very good or excellent. Worse still, only 20 percent rate their implementation as very good or excellent. Sounds like most businesses are well behind where they need to be” - KPMG Benchmark Survey 2012 

According to survey findings C-level (including external auditors) often considers VAT still a ‘cash in’ and ‘cash out’. That impacts prioritization and thus likely spending time and money on the set up of  good functioning internal VAT controls.  I refer to my Blog ‘How To Manage The Perception of C-level and Realize Tax Objectives‘.

However, it is recommended due to the intensified efforts to combat VAT fraud by the governments, the cause effect an increase of tax authority scrutiny, to reevaluate the prioritization of VAT overall and set up the right detection controls to manage VAT risks.

From VAT Throughput – Calculating The Taxes:

“What is the effect of increasing VAT/GST rates on this “VAT throughput”?  Governments increase the VAT rates to balance their budget. More VAT/GST in the system equates to more tax authority scrutiny and higher penalties for errors – the greater the amount of tax in the system, the greater the tax risk. Could be that an update of the tax risk register and tax risk evaluation is necessary.”

KPMG says that fraud is on the rise

We have seen similar fraud where goods or companies were sold lower than market value and a company’s official received a kickback or direct or indirectly ownership of the property sold.

Property traders were suspected of forgery, corruption and money laundering and involved in stealing some €250m from their companies. The two most important suspects were the former heads of Bouwfonds (Rabobank)  and the Philips pension fund.

‘The case came to light when a tax inspector checked out one of top official’s (red: name removed) receipts’ (red: a former director at Rabobank’s property development arm Bouwfonds)

‘He asked questions but did not get a clear answer. He then came across a money trail which led to more dubious bills.” DutchNews

KPMG says that fraud is on the rise. According to the latest KPMG Fraud Barometer a total of 546 large frauds were brought before the courts between 2008 and 2011, costing the Australian economy an aggregate value of over $1 billion.

“We have previously found a positive correlation between levels of fraud and periods of financial instability. We are seeing the first of frauds committed against organisations with gaps in internal controls in this cash-constrained environment”  Gary Gill, National Head of KPMG Forensic

Significant findings in this Fraud Barometer include:

• “80 percent of frauds against commercial businesses are ‘inside jobs’ committed by rank-and-file employees or managers, averaging $1.8 million per fraud. The largest recorded fraud in the Barometer ($45 million) and the largest against an Australian listed company ($19 million) were both insider frauds;
• frauds committed by management cost Australian businesses $400 million over four years, averaging over $2.78 million per fraud, almost triple the average for non-managers. Managers were the culprits in nine of the eleven ‘superfrauds’ (frauds greater than $10 million);
• accounting fraud, which invariably involves insiders, weak controls and a lack of detection processes, remains the most common type of fraud;
• cases related to bribery and corruption are starting to come before the courts as Australia plays catch-up with many other developed economies in toughening its anti-bribery and corruption regime.”

The above study and findings relate to Australia. Are these findings also applicable for the rest of the world?

A Game Plan For Detection And Management

Based on the above examples it might seem that this relates to the real estate industry. That is not the message I want to get across as greed by top officials – Enron scandal, Parmalat scandal, Ahold scandal, Baring Bank (rogue trader Nick Neeson), Societe Generale (rogue trader Jerome Kerviel), Global Financial Crisis etc –  goes beyond that industry.

Sometimes it relates to budget-based incentive targets of the brass. Artificially boosting up company’s performance is not integer but profitable when your bonus is related to that KPI. Often it is simply greed and the opportunity as proper oversight is lacking.

I have written about pitfalls of Budget-based Compensation Targets in my Blog “Pitfalls Of Actual To Budget Exercises Especially In The Downturn“.  I focussed in that blog on disconnect and internal competition within an organization by employees, but a code of conduct such as integrity and common values is something to practice within the entire organization.  The brass has to be role models.

People are getting caught because the fraud itself becomes unmanageable or the company is suddenly not able to fulfill their financial obligations or somebody had reason to whistle. Based on Accounting Today it is not because of proper risk management and controls:

“… typically shows that external audits historically have been among the least effective means of uncovering wrongdoing—well behind accidental discoveries and whistle-blowing” Auditors Anticipate Finding Fraud at Clients: Accounting Today.

An example of a game plan

“Fraud continues to cost Australian organisations and in many cases it’s an internal problem, but fraud should never be seen as an unavoidable cost of doing business. Undertaking robust risk assessments, using data analytics to identify potential fraudulent activity, providing staff with fraud awareness training and putting in place an effective plan for responding to fraud will go a long way in minimising or avoiding losses,”  Gary Gill, National Head of KPMG Forensic

Above game plan can be copied paste from VAT strategic and VAT control framework perspective.

What is your view? Do you agree?

Related Topics

From Management of Reputational Risk:

“The contribution of a tax professional is nowadays not only on not paying more tax than necessary and evaluating associated tax risks when implementing (rate level of tolerance on a risk scale), but should also take in consideration the impact of such planning on the reputation of the company.”

From Recognizing Tax Avoidance Schemes:

“Check out this video by Paul Clitheroe a financial expert and financial commentator. Recommended as it is entertaining and educational at the same time.”

From Audit Defense: Key Considerations:

“The new trend is to have an open dialogue between revenue bodies, taxpayers and tax intermediaries.”

” (…) written ‘agreement’, by which the taxpayer undertakes principally to “actively notify the Tax Administration of any issues with a possible and significant tax risk.”

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

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The CEO of a $12 billion company summed it up neatly when he told me, “When someone walks into my office and is trying to market to me or sell something, I can always tell how experienced they are by the quality of the questions they ask.”

A good power question helps you uncover a prospect’s most urgent needs. It cuts through the noise and gets right to the heart of the issue. It uncovers higher-level goals and aspirations. It shows, in the most convincing way possible, that you’re thoughtful and smart.

When you first meet with a potential client, you must establish your credibility and understand their goals. Our natural tendency is to do this by telling—by describing our company, our services, and the uniqueness of what we do. That’s boring.

The best way to build trust in your competence is to ask credibility-building questions.  These are questions that implicitly demonstrate your experience while encouraging the client to talk about their issues. This is what the CEO was talking about.

It requires good upfront research and planning to develop strong, credibility-building questions. Your questions will vary based on your particular client and industry, but they should sound like these:

• “How are you reacting to the new reporting requirements [i.e., to a trend or a new regulation]? Several of my largest clients have taken a wait-and-see attitude, but others are already conducting in-depth assessments…”
• “Your CEO’s speech to last month’s industry conference certainly put a stake in the ground in terms of your international growth aspirations…how is this going to impact your talent acquisition and development efforts?

A credibility-boosting question, in short, explores the client’s issues while demonstrating your knowledge, experience, and preparation for the meeting.

A second essential objective with a prospect is to understand their issues—what I call their agenda. Every executive has an agenda of three to five critical business goals or priorities. Your job is to explore, understand, and add value to this agenda. One of the most direct agenda-sensing questions is, “How will you be evaluated at the end of the year by your leadership? What metrics will be used?”

A second type of agenda-uncovering question focuses on why. Clients often specify a particular intervention—“We need a training program” or, “We need coaching.” When they do, you must ask “Why?”: “Why have you decided that?” If you ask this, even four or five times, you will expose the underlying need or goal. By expanding the conversation you will expand the potential engagement.

Other agenda-setting questions could include:

• “Where will your future growth come from?”
• “How will you decide whether or not to…(make an important decision)”
• “What organizational or operational capabilities do you need to strengthen in order to support your future strategy?”
• “Who or what could be a disruptor in your business?”
• “As you think about the future of your business, what are you most excited about? What are you most concerned about?”

Remember, one of the important ways you add value in a first meeting is by being thought provoking and helping your prospect think differently about his or her issues. Good questions are a great way to do this.

***************

Andrew Sobel was a Senior Vice President and Country Chief Executive for Gemini Consulting (15 years). He writes about building long-term client relationships, and is the author of four business bestsellers including Power Questions, All for One, and Clients for Life. www.andrewsobel.com.

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The Vault Accounting 50 Rankings for 2013 have been released, and Ernst & Young has skyrocketed to first place.
In 2012, the firm was ranked 22nd, behind the other Big4 firms, but in a year it has reached the top spot with a score of 7.941.  The firm was ranked second in prestige and seventh in diversity.
Despite the top spot, Vault cited long work hours and a heavy workload, office politics, and tedious work as downsides to working for the firm. On a more positive note, Vault cited “lifelong relationships” amongst employees and the firm as well as flexible schedules and “challenging engagements” as benefits.
Immediately behind Ernst & Young was Grant Thornton, which had been the top firm in Vault’s rankings for 2012. This year, the Chicago-based firm earned a 7.818 and was ranking fifth in prestige and eighth in diversity.
Third place went to Deloitte, whose ranking remain unchanged from 2012. The firm was cited as providing a lot of challenging projects to younger employees and giving more learning opportunities than other firms. Deloite’s employees were also cited as being “intelligent, driven, and bright.” Long work hours and cumbersom administrative tasks were cited as downsides to working with the firm.
The top ten was rounded off with the following firms:
5. KPMG (up from 23rd place)
6. Plante Moran (up from 27th place)
7. Moss Adams (down from 6th place)
8. Baker Tilly Virchow Krause (up from 16th place)
9. Rothstein Kass (down from 4th place)
10. Eide Bailly (up from 11th place)
The full rankings can be found at Vault.com’s website.

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There is a joke which sums up some peoples’ attitudes to internal audit; it goes as follows:

“There is a pint glass, it contains half a pint of milk.
The optimistic manager says that the glass is half full.
The pessimistic manager says that the glass is half empty.
The internal auditor says that the milk is sour.”

Well I suppose, having run international internal audit departments in Philips and De Beers, I could be accused of being prejudiced. However, I firmly believe that a well run, independent and pro active internal audit department can add significant value to an organisation and its connected parties (such as shareholders).

I would point out that had the internal audit departments in both Enron and WorldCom operated in a professional and independent manner; then the gross mismanagement and corruption in these two companies would, in my opinion, not have occurred.

So how can an internal audit department add value?

I will start with the basic, textbook, definition of the role of internal audit.

Internal audit provides independent objective assurance to the Board as to the adequacy of the business controls, and the effectiveness of the risk management and risk identification process.

In other words, the internal audit department should tell the Board when the company is being poorly managed, where risks are not being identified or mitigated and when the business objectives are not likely to be met.

In addition to this very wide ranging remit, a well run internal audit department adds value in the following ways:

• It acts as a training ground for future line managers, by exposing fast track members of the department to a variety of situations, activities and functions within the organisation.

• It provides a “one stop shop” for best practice advice.

• It provides an independent, objective opinion as to the quality of the business controls.

• It stimulates risk awareness throughout the organisation.

• It is a source of qualified, experienced talent that can aid management in business improvement programmes.

• It provides specialist professional independent opinions on a variety of situations; such as due diligence exercises.

• It reports on fraudulent activity within the organisation, with a view to understanding how it happened and how to prevent it occurring again.

• It ensures that the company wide initiatives, such as a code of conduct, are being adhered to.

I will expand on the subjects of business controls, risks and what constitutes a well run audit department in forthcoming articles.

Ken Frost qualified with KPMG London in 1988

The post The Added Value of Internal Audit appeared first on Big4.com.

In my previous roles as Head of Internal Audit and International Forensic Co-ordinator, in both Philips and De Beers, I have had many years of experience investigating frauds. Based on this experience I have put together my personal “top ten” list of reasons why frauds occur.

1. Greed – good old fashioned human nature intervenes when an individual, or group of individuals, sees a chance to make “a fast buck”. A good example being those cases where people “adjust” their expense claims upwards.

2. Lack of transparency - complex financial transactions that are difficult to understand are an ideal method to hide a fraud. The Barings fraud was perpetrated by use of an accounting “dump account” that no one understood.

3. Poor management information – where a company’s management information system does not produce results that are timely, accurate, sufficiently detailed and relevant; the warning signals of a fraud, such as ongoing theft from the bank account, can be obscured.

4. Excessively generous performance bonus payments – the more generous the bonus, when coupled to a demanding target; the more temptation there is to manipulate results, such as year end sales figures, to reach that target.

5. Non independent internal audit department – where an organisation’s internal audit department is not independent, eg the where it does not report to a truly independent audit committee but to the Finance Director, the more likely that when there are signals that a fraud is occurring the more likely they will be ignored. It is indeed interesting to note that Cynthia Cooper (Head of Internal Audit at WorldCom) had to bypass her boss (the CFO) and go directly to the audit committee to report the discovery of the capital expenditure fraud.

6. Lack of clear moral direction from senior management – leadership comes from the top. Where the senior management indulge themselves in “semi corrupt” behaviour, eg adjusting their expense claims upwards, others will follow adopting the well worn mantra “everyone’s at it”.

7. Excessively complex organisational structure - designed to obfuscate the revenue streams; and so hide reality from third parties, such as the Internal Revenue Service. Enron, with its complex off balance sheet structure and transactions, is a textbook example of this.

8. Poor accounting controls– where the accounting controls, such as a monthly reconciliation of the bank account, are lapse the signals that a fraud has occurred will be missed.

9. Arrogance – some people believe that they are better than “the system”, and that they can get away anything. The late Robert Maxwell (of the Mirror Group) plundered his company pension scheme, arrogantly assuming that since he was chairman of the company he could get away with it; he almost did!

10. Complacency – I have met many a manager who has an almost childlike faith, based in part on the “old boy” network, in the probity of their colleagues; believing that fraud “is not the sort of thing that could happen here”. Others will, and do, take advantage of that trust.

My simple advice is, if you think that a fraud may be happening then fear the worst; because it probably is.

Ken Frost qualified with KPMG London in 1988.

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In my previous roles as Head of Internal Audit and International Forensic Co-ordinator, in both Philips and De Beers, I have had many years of experience investigating frauds. Based on this experience I have put together my personal “top ten” list of common types of fraud.

1. Falsification of expense claims – an old favourite with both senior and junior staff. Common “ruses” include; inflating mileage claims, entertaining friends and relatives at the company’s expense and claiming for expenses never incurred by stating that “the receipt must have been mislaid”.

2. Stealing money from the company bank account – the perpetrator having got away with this once, will usually try it again and again; until it is discovered. I personally reviewed a case where the perpetrator had been routinely helping himself to company cash for some twenty years.

3. Manipulating sales figures so as to reach target and achieve bonus – a simple version of this involves booking sales in one month (usually a quarter end) then crediting them back the next. Naturally unless the perpetrator keeps this “teeming and lading” up, the overstatement in one month will be shown as a shortfall in the next. Another, well worn, version of this involves booking orders as sales.

4. Falsifying supplier invoices – this is a little more daring, one case I have on record involved a senior manager who had some substantial renovation work carried out on his house. He then arranged for the invoices from the contractor to be sent to the company, posing as costs for work carried out on company premises.

5. Theft of stock – a time honoured way to make a “fast buck”. The perpetrator will over a period of time abscond with a number of items from the warehouse, and resell these to friends, family and members of the public. So long as the stock losses are within tolerance, then it is possible for this “scam” to remain undetected for a significant period of time.

6. Transactions that are not “arms length” – when a well run company asks for tenders for a service contract with a third party they usually obtain at least three closed quotes. The best value quote should then be selected. When the system does not run effectively, there is an opportunity for friends and relatives of the purchasing department to send in quotes that are accepted; bypassing the quotes from reputable suppliers. “Arms length” also applies to sales transactions where the purchaser bribes the salesman in return for a favourable contract.

7. Tax evasion – fraud on the corporate level. Excessively complex organisational structures are created, designed to obfuscate the revenue streams; and so hide reality from third parties, such as the Internal Revenue Service. Enron, with its complex off balance sheet structure and transactions, is a textbook example of this.

8. Fictitious invoicing – where there are poor accounting controls and insufficient segregation of duties in the F&A department the fraudster, if suitably positioned, can arrange for invoices (for services never delivered) from connected parties to be passed for payment.

9. Acquisition of company property at less than market value – this requires the collusion of at least two people (usually quite senior). Company property, such as fixed assets, offered for sale is “sold” to one of the individuals at a bargain price approved by the other. The property is then resold at market value, and the profit split.

10. Theft of raw materials – manufacturers should measure the quantities and costs of the raw materials used in the manufacturing process. Some processes use expensive materials, such as gold. When the measurement system has been compromised, or management do not investigate adverse yield variances, the fraudster has the opportunity to steal the raw material and sell it to third parties.

As I have noted this is my personal top ten, believe me there are many other types of frauds that have been, and are being, perpetrated.

Ken Frost qualified with KPMG London in 1988

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In my blog “The Value Of Benchmarking: Get Some Objective Evidence” I wrote that both negative as positive experiences (e.g. (the first and final) assessments, the amount of savings) would be something to register ongoing and communicate effectively within the organization. These are the benchmark findings of the own company and extremely useful for setting also the own ‘tax audit defense’ strategy. Important as their is a shift from direct to indirect taxation, increase of VAT rates and an increase of tax authority scrutiny are methods of government to balance their budgets.

Overview of Indirect Tax Objectives

Tax Planning: identify, recommend and successfully implement indirect tax projects that assist in achieving the objectives of the indirect tax department part of the business objectives.

Tax Accounting: proactively anticipate on changes in the business and outside the business and successfully communicate these changes to the concerning departments. Furthermore look after a correct implementation of these changes.

Tax Compliance: look after a correct, complete and timely Indirect Tax reporting of all entities. This includes that additional reporting relating to these Indirect Tax returns is taken into account.

Tax Governance: all corporate departments are well informed and/or have the availability of a VAT work instruction so it is clear when to consult the indirect tax department.

Support Other Departments: activities of departments that are being affected by VAT risks have been successfully identified and these departments have been well instructed to reduce these risks.

Audit Defense: roles and responsibilities have been determined who deals with the tax authorities during an audit (announcement) and tax authorities questions and procedures “how to act” (e.g. appoint one contact person, never provide documents without first making copies) have been documented and rolled out.

Tax Controversy Strategy: ‘Proactively Managing the Changing Landscape’

Developing a winning strategy to support your tax position requires having insight on how the tax authorities conducts their examination and anticipating their next move.

Some ‘Best Practice’ quotes

“be polite and cooperative, but don’t forget your rights, choose one room where auditors will be placed, don’t let them wander unattended (…) appoint one contact person to communicate with auditors and never provide documents without first making copies and list what has been handed over” Alexander Bychkov, Baker &McKenzie Russia

“give the auditor a presentation on the company and its business model to create trust” Nicole Looks, Baker &McKenzie Germany

A new trend: open dialogue between revenue bodies, taxpayers and tax intermediaries

The new trend is to have an open dialogue between revenue bodies, taxpayers and tax intermediaries. I refer to OECD promotion of ‘enhanced relationship’ (OECD report: Study Into The Role Of Tax Intermediaries). Even if the authorities have not embraced such an approach (yet), a proactive mode can not only safe time and money but result in a good relationship.

The Dutch ‘horizontal monitoring’

In 2005, the Netherlands Tax and Customs Administration (TCA) initiated a pilot ‘horizontal monitoring’ programme involving 20 of the country’s largest corporate taxpayers. At the core of the programme is a concerted effort by the TCA to build greater trust with this taxpayer constituency as a means of encouraging greater disclosure of tax uncertainties and risks.

The TCA and all participating taxpayers enter into a non-binding but written ‘agreement’, by which the taxpayer undertakes principally to “actively notify the Tax Administration of any issues with a possible and significant tax risk.” In turn, the TCA promises, having received such disclosure, to “state its views concerning any legal consequences” of the matters disclosed, and to “take into account real commercial deadlines” when doing so. Importantly, the agreement covers both uncertain tax positions taken by the taxpayer in the past, and those which it is contemplating taking in the future.

Responses to the programme have been generally positive, with the majority of participating taxpayers and of relevant tax collectors agreeing that it has resulted in more effective and efficient working relationships. (Source: OECD report: Study Into The Role of Tax Intermediaries)

Some similar initiatives of Tax Authorities

1. In 2005, the United States initiated a Compliance Assurance Process
2. In September 2005, the Irish Revenue Commissioners initiated their ‘Co- operative Compliance’ programme with large corporate taxpayers.
3. Budget 2009, Senior Accounting Officer sign off in the United Kingdom

Audit Defense – Key Considerations (overview via YouTube)

Watch Here Via YouTube an overview of the ‘Audit Defense – Key Considerations’

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

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By Kalen Smith, Big4 Blogger

KPMG conducted a seminar on risk consulting management earlier this week. The seminar was conducted in the W Marriott Hotel in Kuwait City. Nearly one hundreds professionals attended, representing both industries and government regulators.

The discussion was conducted by representatives from KPMG Europe. These experts stressed the importance of implementing effective risk management practices and engaging in internal audits. They said that these practices are even more important today, due to the velocity of change in the global economy.

Managing Partner of KPMG Kuwait, Dr Rasheed Al-Qenae, welcomed his European colleagues. He addressed his audience of recipients from around the world, telling them that it is becoming increasingly difficult to engage in business in countries all over the world. He references many changes in technology, political and regulatory insights and economic uncertainty. Al-Qenae said that they will need to implement new policies as they attempt to create new policies to compete on a global scale.

Al-Qenae concurred with his colleagues assessment that they will need to create more effective risk management strategies to safeguard themselves. This will include creating new auditing processes and enhancing the value of audit and risk reporting throughout every level of an organization.

The post KPMG Simplifies Risk Management Practices appeared first on Big4.com.

1. Who’s involved? According to the research conducted by IR Insight, 92 percent of corporate secretaries were involved in say on pay last year. Meanwhile, only 41 percent of investor relations professionals played a part in 2011.

2. Why investor relations? When the investor relations team gets involved, it is usually to work with the corporate secretary on shareholder outreach and the compensation discussion and analysis (CD&A). Among the investor relations professionals involved with say on pay, more than half said that the conversation came up with investors.

3. When to say when? More than 90 percent of companies responding to IR Insight’s survey indicated that they plan to vote annually on executive compensation in the future.

4. Who’s asking? Just over half of the companies surveyed used proxy solicitors last year. Those that didn’t got more support from shareholders than those that did turn to proxy solicitors, but only by a narrow margin. Of the companies that didn’t use proxy solicitors last year, only 7 percent plan to engage them in the future.

5. What are the confines? Seventy-six percent of the companies participating in the survey said that they are subject to proxy adviser recommendations (e.g., from ISS and Glass Lewis) when it comes to executive compensation plans. More than half of them got positive recommendations.

Download the full report now >>

Tom Johansmeyer is a freelance writer and marketing consultant working with IR magazine. He is a veteran of the Big Four, having worked for Deloitte in both consulting and in-house roles. Tom also brought Big4.com into the blogosphere, back in 2005.

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“The more things change, the more they stay the same.” This French proverb originally created to describe 19th century French culture, might equally apply to 21st century Big 4 audit culture.

I’ve got more experience than I’m comfortable admitting-three years of Big 4, six years of Fortune 100 accounting and audit, then 25 or so years as a serial entrepreneur in the financial staffing industry. So, I’ve been all around the Big 4 for 35 or so years as an employee, a client, a vendor, an advisor and now a blogger. So I think I’m probably somewhat of an expert on manifestations of change in the Big 4 culture.

One thing most everyone agrees on is the dramatic impact of technology, regulation and litigation on the public accounting profession. The up or out culture that exists within Big 4 firms also applies in the business environment where those firms operate. Big 4 staff members cannot be faulted for believing they face unprecedented challenges in their daily work. The push to be better and faster, but price competitive, creates a culture of constant change. Not all the change has been positive. I recently read a Wall Street Journal article that severely criticized the accounting profession’s current culture.

“Over the last five years, the staid accounting profession has been transformed into a Darwinian jungle. The major accounting firms are reeling from a sharp rise in competition, shrinking audit business in the wake of client mergers, waves of litigation from disgruntled clients, and unprecedented layoffs and partner defections. Those who remain are finding that the law of survival of the fittest prevails over generally accepted behavioral principles.”

The accounting profession, especially the Big 4, has certainly had its share of tumultuous change during the past couple of decades. After a relatively quiet half century as the Big 8, then #4 Ernst & Young and #5 Arthur Young merged in 1989. This was quickly followed by the merger of Deloitte and Touche Ross to form the Big 6. This combined with the real estate driven recession of the late 80s – early 90s, which produced a blizzard of bank failures and mergers, created a very volatile period for CPAs.

In 1997, KPMG and Ernst & Young announced a merger that would create the largest accounting firm ever. But, it was never realized as regulators tied it up too long. In 1998 though, a Price Waterhouse and Coopers & Lybrand merger was quickly approved forming the Big 5.

Storm clouds were gathering as the 1990’s came to a close. As the Big 5’s consulting practices grew (sometimes consulting fees were exceeding audit fees) ethical issues started to arise as auditors sometimes found themselves reviewing their own firm’s work. Arthur Anderson created a separate consulting division in 1989 then completely divested the business creating Accenture in 2000. Then a series of accounting scandals in the early 2000s culminated in Arthur Anderson going out of business. This sent thousands of AA employees scurrying to secure employment. Whole practice groups and offices were quickly gobbled up by other large firms leaving AA an empty shell and creating the Big 4.

In response to accounting scandals, the 2002 Sarbanes Oxley Act (SOX), sometimes called the accountant’s full employment act, required a significant overhaul of audit methodology. SOX required management and external auditors to report on the adequacy of the company’s internal control system for financial reporting. SOX implementation was very costly as documenting and testing financial controls to the extent necessary to issue opinions on internal control required enormous additional effort .

The great recession of 2008-2009 brought more pressure on the profession as scapegoats were sought for Wall Street failures, investment scandals and burst real estate bubbles. CPA firms and their partners were being held ever more liable for public firm failures.

While life in the Big 4 in the 2010s may seem more challenging than ever, it’s good to study history for perspective. The recessions of 1974, 1982, 1990, 2000 and 2008 all created challenging work environments for Big 4 staffers. CPAs in all of these eras had good reason to believe they were being asked to do more work in less time than their predecessors. I remember living through each of these and thinking “the accounting world has changed and will never be the same again.”

The WSJ article referenced earlier would lead one to believe the profession is on the verge of calamity. That article was in the July 24,1991 WSJ edition. The article went on to state “the profession’s crisis is playing havoc with accountants’ lives…who have become so anxiety ridden their health is in peril.” Little did the author know of the mergers, scandals and regulatory crises that lie ahead.

Steve Barley CPA started his accounting career with Touche Ross in 1973 and has spent his entire career in and around Big 8,6,5,4 firms. Currently he is developing a job posting site for accountants at http://www.CPAstaffing.com. Follow on Twitter @CPAstaffing.

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This blog dots all the postings to the building blocks of the Indirect Tax Strategic Plan (by Richard Cornelisse) and shows what a best practice should look like. It not only about the plan to be produced, but also gives my view about implementation. That could mean that some bottlenecks have to be conquered first.

I start with the “Company’s Culture and Code of Conduct” as it is a top down approach.

This blog includes the highlights of the various postings tagged to these building blocks. More detail about how I see things can be read via clicking on the links.

Company’s Culture and Code of Conduct

From ‘Business Integrity And ‘Being Inspired’ (by Richard Cornelisse): If integrity is an important part of your organizations values, you should always act accordingly and proactively manage as leadership. It is always about doing the right thing and never bargain these values.

Leadership, Integrity, Trust…and Ski-Racing: “Without integrity, an organization is eventually doomed to failure–karma”

Greg Smith: “Why I Am Leaving Goldman Sachs: “The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for…. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money…I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”

Maureen Broderick: ”In a profession that sells a promise of performance versus a tangible product or service, a firm’s vision, values, and culture lie at the heart of that promise. Vision is where the firm is headed. Values are the behaviors the firm holds important, and culture is the feel, the energy, the society within the organization. Collectively, they form the core around which the business is built.”

From ’The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’’ (by Richard Cornelisse):

“A Ferrari is a beautiful, very fast and a state of the art car, but we should not put Stevie Wonder in the driver seat. He is an excellent song writer and performer but he never ever will be the next Michael Schumacher. It will be risky business if he controls the throttle”

The above might be considered a ridiculous example, but strangely enough happens often in our daily practice. The downturn might even make it worse. Why? It is because of budget-based incentive targets.

Everybody feels now the pressure and the focus is on making personal budget first. We might know the best driver, understand that he is the best option, but that does not mean we want Michael actually in the driver seat. It does not matter if Michael works for the same company or that it is in the best interest of the client. Stevie, wants to make his own comfort zone first. It is in his personal interest.

• Should we be surprised?
• Is this not part of our human nature?
• Is that not the reason we have our company culture?

Exactly, the reason why proactive management of common values is needed.

Business Strategy

The Tax Function has to contribute value to the company’s business strategy. What is the impact on business strategy of social media and technology developments and the market entry of non traditional competitors.   Are new business priorities needed?

From ”About Market Leadership And Non Traditional Competitors“ (by Richard Cornelisse): The current impact of Google and Wikipedia is already huge as much content has become less valuable or even worthless from a pricing perspective. Will search engine functionality develop further? Will more content be available and contributed on the Internet?

Adrienne Graham: “With the Internet being so widely available loaded with free information, people automatically assume that you too have to provide information for free. My response to that is go ahead and read the free stuff. But when you still find yourself lacking answers, then apparently the FREE stuff doesn’t work. You can’t come to a professional and ask them to work for free. In essence, that is what you’re doing when you ask to pick someone’s brain. How would you feel if your boss came to you and said, Hey since we can get this done from information from the Internet, I won’t be paying you today. Go ahead, let it sink in. Got that visual yet? Good. That’s exactly how I feel whenever someone wants to take me to lunch or call me to pick my brain”

Benchmarking

From A Spotlight On “Management”: About Being Ambitious And Realizing Goals (by Richard Cornelisse): Negative experiences but also positive experiences (e.g. (the first and final) assessments, the amount of savings) would be something to register ongoing and communicate effectively within the organization. These are the benchmark findings of your own company and extremely useful for your strategy moving forward.

You need to know where you want to go and set up a roadmap how to get there. Benchmark against trends in the market might be supportive in your aim. It provides an overview of the experiences of others and is useful for setting own priorities going forward. It is always interesting to get insight of what others have experienced for own validation purposes.

Watch ‘Benchmark Findings’ Via YouTube

Overview of the ‘Key Risk Areas of VAT paid and VAT charged’ and ‘System Set Up’

From ‘The Value of Benchmarking: Get Some Objective Evidence” (by Richard Cornelisse): Watch an overview of the ‘Key Risk Areas of VAT paid and VAT charged’ and ‘System Set Up and Process Errors’.

Watch ‘Key Risks’, ‘System Set Up And Process Errors’ Via YouTube

This material might be useful for (internal) communication, risk analysis or self assessments:

• “The European Union VAT system – High Level Overview” (by Richard Cornelisse)
• “Why Manage Indirect Taxes” (by Richard Cornelisse)
• “Indirect Tax Exposures Others Have Faced” (by Richard Cornelisse)
• “Audit Defense“
• “System For Dummies“
• “Surveys And research“

Setting the objectives

From Setting The Objectives Of The Indirect Function (by Richard Cornelisse):

• Tax Planning: identify, recommend and successfully implement indirect tax projects that assist in achieving the objectives of the indirect tax department part of the business objectives.
• Tax Accounting: proactively anticipate on changes in the business and outside the business and successfully communicate these changes to the concerning departments. Furthermore look after a correct implementation of these changes.
• Tax Compliance: look after a correct, complete and timely Indirect Tax reporting of all entities. This includes that additional reporting relating to these Indirect Tax returns is taken into account.
• Tax Governance: all corporate departments are well informed and/or have the availability of a VAT work instruction so it is clear when to consult the indirect tax department.
• Support Other Departments: activities of departments that are being affected by VAT risks have been successfully identified and these departments have been well instructed to reduce these risks.
• Audit Defense: roles and responsibilities have been determined who deals with the tax authorities during an audit (announcement) and tax authorities questions and procedures “how to act” (e.g. never provide documents without first making copies) have been documented and rolled out.

From A Spotlight on “Management”: About Being Ambitious And Realizing Goals (by Richard Cornelisse): At the moment that these objectives are validated,  specific goals have to be set within these boundaries. The goals have to be specific, measurable, acceptable, realistic and timely (SMART goals).

Getting support and the tools to make it happen

From ”How To Manage the Perception of C-level And Realize Tax Objectives“ (by Richard Cornelisse): In order to allocate resources to risk and reward areas that matter, the maximum level of risk appetite of the company in the worst case scenarios need to be determined. This facilitates such prioritization as defined acceptable levels of risk means that resources do not spend time on further reducing risks that are already at an acceptable level.

If you know the risk appetite, you have to identify the lowest performing indirect tax processes that have the most direct impact on the company’s business objectives (e.g. benchmark and measure). Short problem statements for the gaps found should be written. It should include an estimate of savings or the amount of hours currently lost due to rework. These statements can subsequently be prioritized and validated with top management. Various solutions are presented with cost benefit analysis, so a constructive discussion with top management can be held about what is needed to close these gaps (e.g. budget and/or resources needed or necessary change of systems, processes and controls etc).

In the worse case the gap(s) will not be closed, but at least you have achieved mutual awareness and hopefully responsibility. However, if the problem is material and addressed in the right way it more than likely it will be dealt accordingly. Why? It has become now a mutual responsibility.

From ”VAT Throughput – Calculating The Taxes“ (by Richard Cornelisse and Kelvin Hulsebos): Insight in the amount of VAT that globally has to be paid or recovered is important for creating proper internal awareness (top down, peers and bottom up), determining the risk appetite of the company and monitor as indirect tax function trends and changes. Throughput gives some insight where the scarce resources of the tax function should focus on.

Change Management:  legislative change

Tracking relevant changes across the globe can be realized via regularly monitoring these Website links (e.g. latest country updates, Global VAT rates and VIES validation, etc). Check this Blog’s Indirect Tax Newsreader often.

Richard’s postings about management of legislative change:

• “VAT Rate Increase Results In Extra Saving“ (by Richard Cornelisse)
• “European Commission – Greenpaper On The Future Of VAT – Towards A Simpler, More Robust And Efficient VAT System“ (by Richard Cornelisse)
• “Would Europe’s Value Added Tax Work For The United States” (by Richard Cornelisse and Kelvin Hulsebos)
• “My Own View” ((by Richard Cornelisse)
• “About US Tax Reform – Larry Lindsey, Former Fed Governor: “A Value Added Tax Should Be On The Table” (by Richard Cornelisse)
• “US VAT introduction: Any Lessons To Be Learned From European VAT Fraud?“ (by Richard Cornelisse and Kelvin Hulsebos)

Change Management:  business change

From a tax perspective the difference between future firefighting or being in control has to do with being involved and the timing of that involvement. A tight connection to the business units and their decision-making process is essential. Leading practice example re non routine transactions by Richard Cornelisse:

• Merger And Acquisition – Integration And Indirect Tax: Managing The Moving Parts Before, During And After A Transaction (by Richard Cornelisse )
• The intersection Of VAT And Shared Service Centers. A Site For Global Savings Or A Source For Worldwide Risk? (by Richard Cornelisse and Katie Downs)

Structure the tax function and people development

From ”The Indirect Tax Profession Is Evolving From An Individual To A Team Sport“ (by Richard Cornelisse): Due to all technological developments it is already part of our present and future. A tax technical advice has to be implemented in systems, processes and controls.  Instructions have to be given to people outside the tax function.  Alignment with the business is key for the tax function to plan in time and avoid future firefighting.

In order to challenge and support a client in his mission an adviser should besides excellent technical skills have a good understanding of communication and collaboration, project management, change management, information technology, negotiation and leadership.

These competences overall are needed to be successful. This is not only applicable for the individual adviser, but as well for an organization with the aim to achieve or maintain market leadership. It is simply no longer possible to excel in everything re global indirect tax management. That means that certain people excel in certain areas of indirect tax and the outcome of the overall team effort will make the real difference from a quality standard perspective.

Jack Welch: ”Break down barriers and improve teamwork up, down, and across organizational lines.  A considerable amount of money is lost due to disconnects or competition between groups that should be working for a common cause: providing value to customers”

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post How to Execute A Tax Strategic Plan And Be Successful appeared first on Big4.com.

I recently placed a candidate in a considerably lower level role than I normally do. Most of my recruiting assignments are for senior level positions with experienced executives. It’s always personally rewarding to enhance someone’s career, both professionally, financially and personally, but this recent placement gave me a different buzz. One I remember liking from earlier in my own career. It’s the great feeling of making a difference in someone’s life, probably one they’ll always remember and knowing I helped create a turning point in their careers.

This also put me in mind of experiences placing  candidates coming directly out of Big 4 for the first time. I did my fair share of these transitions in the good old pre-IPO, pre-SOX days, circa mid-late 1990’s. Hard to believe the many changes that have occurred since, from Enron to the great recession. The one thing that hasn’t changed though is how young talent feels, making the leap of faith from a public accounting firm to private industry. I’m quite sure attorneys and accountants struggle with some of the same questions when leaving the world of prominent law firms and the Big 4. After all, they’ve been groomed for success and high expectations, pitted against their peers for recognition, fostered in an environment of similar professionals; all hard working, bright and ambitious up and comers. Some see a clear path towards partnership while others dread yet another busy season.

And then someone like me comes along – whispering in their ear of opportunity, title, compensation increases, the chance to have a more structured lifestyle. Maybe they’ll work just as hard, after all I believe cranking out the hours is just ingrained in the Big 4 psyche. Regardless of the inducement, there comes a time when the right opportunity hits a nerve and the considerations of change come into play.

What makes transitioning out of Big 4 so different? In addition to their accounting firm experience usually being their first role out of a college they were recruited from, there’s the comfort level of professional commonality and equality. Everyone starts off in a comparable position, with similar skills and education. Everyone is working towards the same goal. Expectations are set and met; there are mentors and an established pattern for growth.

It’s no wonder the thought of leaving the prestigious society created in their firms is such a difficult decision. Here the CPA can rely on mentorship, interesting work and variety. Their peers share the same workload, similar challenges and are bound together in a culture of hard work and long hours. And even though they have worked with and alongside their clients, going to work for them is a completely different ball game. Contemplating submitting their work for the Auditors to review, getting involved in everything from journal entries to financials and often a big challenge in learning how to motivate and lead non professional staff.  Leaving the cocoon of a big 4 environment is a daunting proposition and let’s face it – Managers and Partners will always encourage their star performers to stay.

Despite all the inducements to stay (excluding the long hours!), Big 4 talent often does make it’s way into the private sector. Most do it successfully, embracing private industry, thriving in new challenges and learning how to lead and motivate. Transitioning into the corporate world is almost a right of passage. Their talent is welcomed and embraced whichever side of the fence they ultimately choose.

Cindy Cremona, CPC has over twenty years experience as an Executive Recruiter. Her main focus is in Accounting and Finance, primarily placing senior level roles for clients mainly in the technology sectors.

The post Musings From Cindy Cremona, CPC – Recruiter Of Big4 Candidates appeared first on Big4.com.

Greetings from Washington D.C.!

Special thanks to Big4.com for giving me the opportunity to share my thoughts with you!  This will truly be an exciting journey, and I’m happy to join the guest blogging community.

A little about me…I consult at one of the Big 4, focused on providing consulting services to public sector and financial services clients in the areas of social media, strategy, and business transformation.  I’ve spent the bulk of my career working in industry for companies such as the General Services Administration (GSA), M&T Bank, and Citibank.  Since then, I have brought my talents over to the consulting realm, and have enjoyed every minute of it.  I’m currently wrapping up my Executive MBA at the Goizueta Business School at Emory University in May, and I look forward to being able to take a breather-whew!  I’m also passionate about diversity and inclusion initiatives, and I’m involved in recruitment activities at my firm to bring in a diverse group of top talent.

The focus of my blog will be on my personal observations of the growing public sector practice at many of the Big 4 firms, and the innovative services that are being offered across the industry.  Over the past several years, the market for consulting services in the federal, state, and local governments has grown substantially.  As the public sector continues to remain focused on achieving mission-critical programs, many agencies look to top firms as a trusted advisor to bring innovative ideas and help solve some of their most challenging issues.  My blog posts will highlight
firms that are game changers in public sector consulting by providing news, updates, and insights for readers that are interested in learning more about this industry.

I look forward to engaging with you.  Also, feel free to reach out to me via Twitter (@jhaymee), as I love to tweet.  Happy reading!

J.W. Heinlein is a Senior Consultant at Deloitte Consulting, and has experience providing strategy and business transformation services to commercial and public sector clients.  Blog posts and tweets do not reflect the opinions, thoughts or sentiments of Deloitte or its subsidiaries.

The post Public Sector Consulting at the Big 4 – A Trusted Partnership with Government appeared first on Big4.com.

Interview link: http://www.accountantslike.com/2012/02/accountants-like-interview-with-bob.html

Amazon link (Kindle option too): http://www.amazon.com/Ex-Why-Bob-Sinnott/dp/146360677X/ref=sr_1_1?s=books&ie=UTF8&qid=1329317643&sr=1-1

The post Interview With Big 4 Satirist appeared first on Big4.com.

Methods of governments to balance their budgets are a shift from direct to indirect taxation, increase of VAT rates and tax authority scrutiny.

“The global spread of Value Added Taxes (sometimes referred to as Goods and Services Taxes) has been the most remarkable development in taxation over the last 50 years. Operated in less than 10 countries in the late 1960s, VAT now raises one fifth of the world’s tax revenue and still more countries are adopting it. The increasing importance of VAT as a source of government revenue is likely to continue as countries deal with fiscal consolidation pressures in the wake of the economic crisis while seeking to restore growth.”  Jeffrey Owens Director, Centre for Tax Policy and Administration at the Organisation for Economic Co-operation and Development

From an economic point of view the question is what the impact will be on the economy in the downturn. Increase of prices and often the same or even lower available consumer’s budgets will result in less spending.

Levy of VAT and Impact on shareholder value:

“(UK) Budget 2012: Greggs shares fall on VAT blow. More than £20m was wiped off the value of bakery company Greggs on Thursday, following the Government’s announcement that all hot takeaway food would be subject to VAT.” The Telegraph

US Value Added Tax is considered

The effectiveness of indirect tax revenue is – based on considerable amount of tax literature and Reuters‘ article of March 14, 2012 (by Stella Dawson and its quotes are used) - also seen in the United States. Several prominent commentators, politicians past and present have suggested that the introduction of a VAT or GST may be the “least worst” option open to the US government to raising revenue and to combat the deficit.

“Very large changes are necessary. They need to be structural, they need debating, and this is the year to start the process,” Paul Volcker, former head of the Federal Reserve

” About tax reform: the one thing that unites people right now. It is not only central to reducing the budget deficit and increasing growth, but also vital to economic fairness and social cohesion in a society that has largely lost faith in the political system. The richest 1 percent cannot expect a tax cut, and the U.S. budget deficit cannot be reduced by cutting spending alone. A creative approach to taxes must be part of the solution. We should be open to every possibility”  Larry Summers, former U.S. Treasury Secretary and Democrat.

“a value added tax should be on the table. We need a combination of tax increases and spending cuts. But we need quality rather than quantity,” Larry Lindsey, a Republican and former Fed governor

“Growth-oriented tax reforms would generally involve shifting revenue from corporate and personal income taxation or social security contributions onto consumption and property taxes, including housing taxation.” Recent OECD analysis of growth- oriented tax reforms concluded that “A revenue-neutral tax reform that shifts the balance of taxation more toward consumption and recurrent residential property taxes could [...] strengthen the growth of output over the medium term.” as “… corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable residential property being the least harmful.” (OECD (2010), Tax Policy Reform and Economic Growth, OECD Publishing).

Some highlights of European Union Value Added Tax system

What does it actually mean: an ‘European’ Value Added System?

In its most elementary form a business will charge VAT (‘output tax’) on its sales (‘supplies’), but will be entitled to deduct the VAT (‘input tax’) that it has paid on its costs and purchases (a multi-stage tax). We note that VAT can only be deducted if the invoice meets the invoice requirements (the conditions for this are summarized in national VAT Act) and is reclaimed in the right country (e.g. Italian VAT must be reclaimed in Italy) in the correct period. If these requirements are not met there is a substantial risk of additional VAT assessments increased with penalties and/or interest as a result of e.g. a VAT audit.

In the European VAT system one of the basic principles is that input VAT (VAT paid) can be off sett against output VAT (VAT charged). In case of a surplus of input VAT a refund of tax is claimed and often paid by the authorities.

Neutrality can only be achieved – better is the word earned – if certain formal and material requirements are met.

That means in practice that input VAT deduction and output VAT has to be managed separately to avoid substantial VAT assessments, penalties and interest payments. It is risky business to monitor only the balance between output VAT and input VAT.

Allowing businesses the opportunity to collect and retain large amounts of tax can leave the system open to fraud and manipulation by dishonest taxable persons.  VAT fraud is for a while a key issue for all European Member States.

“11 percent of VAT revenue is lost annually through fraud – principally ‘missing trader’ or ‘carousel fraud’ – which equates to in the region of €100 billion” PwC report

Macroeconomic effects – National Retail Organization reports

The National Retail Organization published their report about introduction of a VAT system and the macroeconomic effects.  It was on their request written by Ernst & Young LPP, Tax Policy Advisers LLC and Baker Institute for Public Policy and Economic Department, Rice University.

The executive summary:

• “As a consumption-based tax, an add-on VAT would be shifted forward to consumers through higher consumer prices. As a result, private consumption would fall. By increasing consumer prices, the VAT also reduces real or inflation-adjusted wages, which would cause labor supply to fall as well.
• An add-on VAT would have particularly adverse effects on the retail industry. There would be an especially pronounced reduction in retail spending because nearly all retail goods would be subject to double-digit VAT rates, while many other consumer purchases would be exempt under a narrow-based VAT. In addition, some consumers would evade the tax – experience in other countries suggests 12 percent non-compliance with the VAT – driving up the VAT rate.
• Moreover, an add-on VAT leaves the economy considerably worse off than a similarly-sized reduction in government spending on income transfers. With an add-on VAT, GDP would initially be lower and the economy would lose jobs; by comparison, GDP and employment would increase with a reduction in spending. Although lower deficits and debt would have positive long-run economic effects for the economy, most middle income Americans who are working age or older at the time of enactment of the VAT would be worse off.
• Perhaps the most troubling aspect of a deficit-reducing VAT is that, if enacted in the near future, its negative effects on GDP, consumer spending, and employment would occur in the face of the current economic climate of weak economic growth, high unemployment, and low consumer confidence. The near-term drop in output, loss of jobs, and sharp decline in consumer spending described by this report would raise additional economic worries, rather than shoring up the weak economy. With the CBO projecting unemployment to not fall below 7 percent until 2013, the initial reduction in employment from a VAT, estimated to be roughly equivalent to 850,000 jobs, would make full economic recovery much more difficult.” - National Retail Organization -
  

  The NRO complete report

Timing

Is the time right?

Some quotes from Reuters article:

“While tax reform as part of a budget overhaul is unlikely immediately after the November elections, progress needs to be made in crafting solutions” Larry Summers, former U.S. Treasury Secretary and Democrat.

“There is a realistic chance that Republicans and Democrats after the election would be ready to strike a bipartisan accord on the budget deficit and taxes” Robert Rubin  former U.S. Treasury Secretary and Democrat”

• Based on the macroeconomic data is it smart to introduce a VAT system in the downturn?
• Is the first priority not to realize economic growth, establish trust in the market and therefore should the focus not be on findings ways to increase consumer spending?
• Is the introduction of a VAT system not counterproductive?

“Raising the standard VAT rate has often been considered as the easiest way to increase revenues from the tax, particularly at a time when many governments are seeking ways to address large fiscal deficits. Some countries have even explicitly linked rate increases to the objective of fiscal consolidation. For instance the Slovak Republic has temporarily increased its VAT rate until the deficit will be reduced to below 3% and in Poland the VAT rates will automatically increase if the public debt to GDP ratio increases above a certain level.” Jeffrey Owens Director, Centre for Tax Policy and Administration at the Organisation for Economic Co-operation and Development

How do you see this?

Lobby groups

When somebody wins, somebody else must lose. Without any doubt indirect tax is the right and maybe only way to combat the deficit, unless of course the US government is going to cut their spending substantially. I don’t consider that likely.  Do you?

Who might feel a loss and what do politicians need to manage to make it happen?

Besides the end consumer, companies might consider it a loss. The implementation and compliance costs (e.g. managing ongoing the VAT numbers) and associated tax risks are bottom line costs of companies and a decrease of corporate income tax is above the line.  The question is whether the shift from direct (e.g. lowering corporate income tax) to indirect tax introduction is seen still as a positive.

The retail industry in general will face substantial costs and it is not a real surprise that the negatives are highlighted in the executive summary of the report of National Retail Organization. It seems that the lobby against has already started. The drop of Greggs share value is a good war story to use in that quest.

Public support for a VAT introduction – assuming it exists – will likely be lost when anti-fraud/tax evasion legislation causes disruption to daily business and is the cause effect of substantial implementation costs.

How do you see this?

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post Would European Value Added Tax Work For The United States? appeared first on Big4.com.

In one of my blogs on my personal website, I took the position that the tax profession evolves from an individual sport to a team sport. It is no longer possible to excel in everything re global tax management. Due to all technological developments it is already part of our present and future. A tax technical advice has to be implemented in systems, processes and controls. Instructions have to be given to people outside the tax function.  Alignment with the business is key for the tax function to plan in time and avoid future firefighting. That means that certain people excel in certain areas of tax and the outcome of the overall team effort will make the real difference from a quality standard perspective.

If teaming is part of a company’s business objective, the company’s “informal” culture or budget-based compensation targets can be the bottleneck to realize such teaming.

Is it good to have Stevie Wonder in the driver seat?

“A Ferrari is a beautiful, very fast and a state of the art car, but we should not put Stevie Wonder in the driver seat. He is an excellent song writer and performer but he never ever will be the next Michael Schumacher. It will be risky business if he controls the throttle” Richard Cornelisse

The above might be considered a ridiculous example, but strangely enough happens often in our daily practice. The downturn might even make it worse.

Why?

It is because of budget-based incentive targets. Everybody feels now the pressure and the focus is on making personal budget first. We might know the best driver, understand that he is the best option, but that does not mean we want Michael actually in the driver seat. It does not matter if Michael works for the same company or that it is in the best interest of the client. Stevie, wants to make his own comfort zone first. It is in his personal interest.

• Should we be surprised? 
• Is this not part of our human nature? 
• Is that not the reason why we have our company culture? 

Exactly, the reason why proactive management of common values is needed.

“In a profession that sells a promise of performance versus a tangible product or service, a firm’s vision, values, and culture lie at the heart of that promise. Vision is where the firm is headed. Values are the behaviors the firm holds important, and culture is the feel, the energy, the society within the organization. Collectively, they form the core around which the business is built.”  Maureen Broderick

Budget to actual exercises

Before I continue, I consider budget exercises still a necessity, especially for large organizations that need to manage the performance of a lot of people. The budget process provides top management some level of control.  Actual to budget exercises are and will remain an important part of people’s performance targets.

It is more about being aware of the pitfalls and its impact. After the budget is set, manipulation of the internal environment to make budget – at all costs – might results in disconnect and internal competition. Such behavior is in my view in conflict with the company’s business strategy such as growth, increase market share or market leadership.

One of the reasons could be that the personal performance -meeting budget-based incentive targets- is considered of a higher priority than the company’s own business objectives.  If this is something structural it becomes the company’s “informal” culture and result in:

1. power struggle over clients (protectionism, claiming clients and wins)
2. own “people first” attitude (no best team approach)
3. service offerings proposed that are actually outside the own area of expertise (no standard quality, increased liability, pricing variation)
4. lack of willingness to share relevant client related information (protectionism)

Budget-based compensation targets might also themselves create an incentive to underperform even in times of growth. Substantially exceeding budget could give discussions about how much the budget has been sandbagged last year with the result you getting higher targets next year. To avoid this, positive results might be carried forward to next year.

Jack Welch’s view

Jack Welch has his own view about budgeting.  He considers it number crunching and a waste of time that could be used in a more productive way. It is all about internal politics and time could be used better by focusing on the external environment: the customer.

What is the amount of time spent on budgeting?

The Beyond Budgeting Round Table, an industry research organization, estimates that the average corporation spends four months and 20-30% of senior executives’ and financial managers’ time on the budget.

“Making a budget is an exercise in minimization. You’re always getting the lowest out of people, because everyone is negotiating to get the lowest number”

” The budgeting process at most companies has to be the most ineffective practice in management. It sucks the energy, time, fun and big dreams out of an organization. It hides opportunity and stunts growth. In fact when companies win, in most cases it is despite their budgets, not because of them” Jack Welch

I like and admire Jack Welch and this kind of statements.

Budgeting a waste of time

Jack Welch’s complaint was that he was being sandbagged in the planning process itself.  Waste of productive time starts during setting the budget.  It is all about managing an internal conflict. The aim of the leadership is to get the budget as high as possible, the manager has an opposite strategy: “negotiation to the lowest”. That is the side effect of budget-based incentive targets.

Such a behavior – “passionately defending modest projections of mediocre performance” – conflicts with business objectives, when the company’s mission statement is to increase its market share and/or maintain or achieve market leadership. Is that not strange?

Jack Welch’s hope was not a better way to negotiate budgets, but an end to the negotiation. However, is it likely that managers propose themselves aggressive goals? If not, does the company’s culture have to change?

Assume that the company’s business plan was to grow with 15% overall and one of the business units exceeds and realizes 25% growth.  The budget is made. What does that say about the responsible manager? Did he do a good job? Should he earn a big bonus? That all depends. If you focus internally only a confirmative yes is the obvious answer. However, it could simply be underperforming when the growth is the cause effect of unexpected increase of demand in the market (external factors).  The same is applicable if competition shows much higher growth figures.

In an ideal world everybody knows how competition is performing, how the teams are set up and what the client portfolio is.  The own strength and weaknesses have been analyzed and measured ongoing. A gap analysis is made with competition and the gaps found can be prioritized and validated with top management. The impact of these gaps on the company’s overall business objectives are discussed. For the various solutions cost benefit analysis are made, so a constructive discussion with top management can be held about what is needed to close these gaps.

In the worse case the gap(s) will not be closed, but at least you have achieved mutual awareness and hopefully responsibility.

The above example is not only applicable for external advisers, but this method could be used by in-house (indirect) tax functions during their budget negotiation (about external spending) and/or getting extra resources.

The strength of this approach is that you look forward and focus on what still can be managed.  Budget to actual is a ‘look back’ exercise.

Maybe the best of two worlds is the winning combination.  Life is often about a good compromise.

How do you see this all?

Richard’s other Big4 publications

• How to Execute A Tax Strategic Plan And Be Successful
• About Market Leadership And Non Traditional Competitors
• Centralized Business Models And ‘Indirect Tax Automation’
• How To Manage The Perception Of C-level And Realize Tax Objectives
• Tax Controversy Strategy: ‘Proactively Managing The Changing Landscape’
• About ‘Business Integrity And ‘Being Inspired’
• The Indirect Tax Profession Is Evolving From An Individual To A Team Sport
• Would European Value Added Tax Work For The United States?
• US VAT Introduction Versus The Proposed Changes Of The ‘European Union’ VAT System

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

The post The Conflict Between ‘Actual To Budget’ Controls And ‘Budget-based Compensation Targets’ appeared first on Big4.com.