The good, the bad and the future

People
Depending on your disposition, a recession is either a good or a terrible time in which to prosper. It was certainly a difficult year to make your mark but some managed to stand out.

Richard Meddings, finance at Standard Chartered, along with his opposite number at HSBC, Douglas Flint, stood out for being involved with banks that rode out the recession much better than most. Meddings became the Blue Chip FD of the Year, while Flint took the prize for Outstanding Industry Achievement at the Accountancy Age Awards.

Other FDs looked to 2009 to progress their careers. Marks & Spencer finally launched a search for a new chief executive and FD Ian Dyson soon became one of the favourites for the job. But it didn’t happen. The post went to Morrisons CEO Marc Bolland. The appointment immediately raised questions about Dyson’s future, but also that of Richard Pennycook, the Morrisons FD, who became a clear candidate for the CEO’s post at the supermarket.

There were significant handovers in regulation too. Paul Boyle left the CEO’s job at the Financial Reporting Council to be replaced by Stephen Haddrill (see our interview this week).

HMRC brought charges against Roy Faichney and David Perrin of Vantis for tax evasion, with many believing the pair were being used as an example to others by the taxman. They deny the charges and the case remains in dispute.

Elsewhere the wrongdoing was absolutely clear. Both the Madoff and Stanford scandals put accountants in the headlines for all the wrong reasons. Madoff’s auditor David Friehling pleaded guilty to securities fraud but denied knowing about the $65bn ponzi scheme, while Allen Stanford’s CFO James Davis also pleaded guilty to fraud and is now helping the authorities with their investigations.

Aidan Birkett, head of corporate finance at Deloitte, got the job of restructuring the £35bn debt of Dubai World, the state-owned gulf company that had to go cap in hand to lenders asking for a debt moratorium. If anyone exemplifies how accountants can find themselves caught up in internationally important events, it is him.

Practice
The last 12 months have been a painful mix of redundancies, restructuring and battening down the hatches for all firms. But the dire economic circumstances have yet to yield a major casualty, either through litigation or a collapse into insolvency.

Practices of all shapes and sizes have desperately shuffled staff around to keep job cuts to a minimum, and while many partners have said goodbye to their firms, some practices have attempted to keep student numbers up so that they avoid a frenzied recruitment drive when things turn around.

Grant Thornton took an approach described by Accountancy Age as “brave”, in taking the hit for its merger with Robson Rhodes in its 2008/09 results, leading to its profits per partner dropping by 19%.

At the same time Titcheners entered administration following a series of acquisitions that went wrong, a move that only temporarily staved off the taxman.

Around 500 firms are classed as in financial difficulty a month, according to Begbies Traynor’s numbers, and the situation could get worse before it gets better. Experts are predicting that continued cashflow problems will see more firms disappear – either into insolvency or just simply swallowed up by rivals.

Something else to watch out for in 2010 are attempts at “mergers of equals” – where firms merge offices but keep their separate identities. With the likelihood of culture clashes and power struggles, we await the emergence of this new model with great interest.

Tax
It could be said 2009 has been a monumental year for tax – but whether it has been a good one depends on your perspective.

With it’s beefed up powers, HMRC will look back fondly on the last 12 months but for those in the taxman’s crosshairs, this will be a year to (never) forget.

The seismic effect of the credit crunch on corporate tax revenues triggered an HMRC offensive on avoidance and evasion, but at the same time an olive branch was offered to struggling companies. More than £3bn of time-to pay arrangements for VAT were cleared by HMRC. However individuals, companies and advisers were all put on notice, and the hardening of the tax regime saw major multinationals flee our shores for more welcoming fiscal destinations.

Vodafone and AstraZeneca have both fought bitter court battles with the taxman on controlled foreign company issues, and businesses are still crying out for clarification from policymakers.

The second tax amnesty for rich individuals with assets held offshore began, and the view from the ground is it is distinctly less friendly than it sounds.

Banks were told to give up account information to help HMRC amass files on offshore account holders, causing them confidentiality issues.

Advisers were branded alchemists by Dave Hartnett for allegedly turning income into capital and avoiding tax payments, much to the chagrin of the profession.

Insolvency
How do you sum up insolvency in 2009? Lehmans, if you had to do it in a word – but to some extent that would be unfair just to restrict this short piece to that topic.

We’ve seen major high street brands enter insolvency, such as Threshers and Borders. The revival of the CVA process has won approval of landlords, bringing some relief to Blacks Leisure, Focus DIY and most importantly JJB Sports. The pioneering work by KPMG, which saw landlords accept compromise agreements at JJB, won the firm an Accountancy Age Award.

Administrators putting businesses into pre-packs have been criticised for the opacity of the process. The SIP 16 regulation was introduced to keep tabs on them.

Others have voiced concerns over insolvency practitioners handling of bankruptcies and IVAs. Both processes have been on the government’s radar.

ehmans’ story was one of tremendous ups and downs for PwC’s Tony Lomas and his fellow compatriots. While Lehmans will still dominate the insolvency profession next year, here’s what we think will be the byword of 2010 – Dubai.

Environment
Environmental issues have crept up the agenda for finance directors throughout the year, with impending legislation set to increase their compliance burden.

One of the biggest factors in focusing FDs’ minds is the upcoming government legislation forcing large companies to pay for their carbon emissions under the Carbon Reduction Commitment. And, as if to increase the confusion, the legislation has also undergone rewrites in the past 12 months.

Earlier in the year finance directors were told they would have to register and start the scheme in April 2010. They were then told they just had to register by April 2010.

The biggest concern surrounding the CRC for FDs came from the announcement that two years of emissions would have to be pre-accounted and pre-paid for in April 2011. Confused? So were many finance chiefs. As the dust settles and the deadline looms the government have finally drafted what is to be the final version of the CRC which entails FDs registering in April 2010 and paying for emissions in 2011.

Technology
Security fears have been among the biggest factors holding back accounting practices from embracing online technology.

Although the issue there have been many reassurances from software vendors about the safety of allowing financial information to be used over the internet through cloud computing or Software as a Service, the technology still brings many accountants out in a cold sweat.

And on a final note, what happened to Microsoft’s foray into small business accounting software? It’s big plans way back in 2005 have fallen by the wayside, with quite frankly a bit of a whimper. Mamut has been left to pick up the pieces.

The year ahead
Next year will see the economy recover – but don’t expect everything to be easy.

Last month we reported the astonishing number of accountancy firms, 500, that find themselves in financial trouble each month.

With a recovery expected only in the third quarter by most people, that’s unlikely to change for at least the first half of next year. There will be a special focus on the business management of firms, a direct call for ‘physician, heal thyself’.

Business recovery departments will continue to prosper. The rate of business failure lags behind improvements in the general economy, so if you are an insolvency specialist work will continue to flow even as the economy recovers.

Key debates will rumble on - not least the one about what on earth an audit should set out to do. The crisis has quiet rightly thrown a spotlight on to this question, not because audit failed but because it became patently clear that audit tackles only a very narrow brief. The key will be whether auditors prove willing to engage in this debate. After all, it also implies increased risk if the scope of audit is broadened, and nobody likes that.

2010 will also be the year that the new chief regulator at the Financial Reporting Council, Stephen Haddrill, settles into his new role. His focus will be on shareholders. Their role in the crisis has so far been underplayed and Haddrill has the opportunity to take their obligations much more seriously.

Lastly, as the economic rescue effort dies down, more attention might be focused on the International Accounting Standards Board and its status. The French don’t like it and the IASB seems to be gaining few friends in Brussels after a frenchman took over as international markets commissioner at the EU.