The twin pillars of information technology and regulation have dominated the lives of FDs over the past three decades, and look set to continue to do so over the next three. The volume and complexity of financial reporting, taxation and management accounting has changed out of all recognition, brought about mostly by politicians’ desire for business and commerce to be more accountable to lawmakers and stakeholders.
Prior to 1970, there was no mandatory requirement in the UK outside company law governing the presentation of financial statements of companies, and even the statutory provisions that did exist comprised the bare essentials.
Accountancy Age launched around the same time that the accountancy bodies formed the Accounting Standards Steering Committee (ASSC), born out of the perceived need for more authoritative pronouncements on accounting policies and practices than company law provided.
Every financial reporting report, standard and body in place today can trace its antecedents to the ASSC.
Even up to the eighties, it was not unreasonable to think that a competent finance director and financial controller could know sufficiently well the details of every statement of standard accounting practice (SSAP), the forerunner of financial reporting standards. FDs of a certain age could probably still tell you what a SSAP4 was and the definition of depreciation in SSAP12.
Such conciseness and manageability ended with the introduction of the Companies Act 1985. This legislation consolidated 150 years of British company law formed both by government and the courts. But more importantly, it marked the first substantial involvement of the European Union on the activities of companies and finance directors.
Any FD frantically preparing for the introduction of international accounting standards by 2005 knows only too well the direct power that the European Commission has over their professional lives.
But it is not only in financial reporting that Europe now rules. Tax cases are now settled by reference to European law. Perhaps more significantly, when the Common Market was formed it was decided that one requirement of joining was the imposition of a form of VAT. In 1973, the UK joined and replaced the existing sales tax with VAT, and FDs have been struggling with the difference between a cake and a biscuit ever since.
FDs and companies cannot wonder too hard why all this regulation is now in place. As companies with US listings struggle to deal with Sarbanes-Oxley, they have to admit that politician-imposed regulation is a direct response to the failure of securities markets, company directors and professional bodies to impose satisfactory self-regulation.
All of these failures involve fiddling the figures in one way or another, and all companies are guilty by association. The culture of creative accounting and the refusal of companies to accept the authority of accounting standard setters led, through the 1980’s Dearing Report, not only to a tougher standard-setting regime, but also the invention of corporate governance.
Auditors were fed up of being the sole fall guys when companies crashed, and corporate governance is a tribute to their success in pulling company directors (especially the FD) back into the spotlight with them.
The audit committee and the professionalisation of the non-executive director is proof that institutional shareholders in 2004 are no longer satisfied with the quiet word in the right ear to sort things out.
Institutional shareholder activism intervening in the direct running of the company is a result of corporate governance and it is here to stay – just ask the board of Trinity Mirror. It will also go beyond figures: the operating and financial review (OFR), soon to pass into law, is a world away from the old-style ‘jolly good show, chaps’ chairman’s review in annual reports, and will encompass areas of environmental reporting, social responsibility, employee investment and welfare that would have been considered bizarre in the late sixties and early seventies.
While FDs have been coping with a regulatory revolution, they have also been in the vanguard of ushering in a technological one. Imagine a world where the desktop calculator was considered to be the forefront of technology.
When Accountancy Age was launched, bookkeeping technology was closer to the Victorian era than it was to the digital methods deployed in the 21st century.
Computerising accounting was always an obvious step and yet it remains a prize that seems perpetually out of our grasp. The idea of being able to deliver accurate, timely, relevant and complete management and financial information in many ways seems as far away as ever. The other noteworthy technological phenomenon was the rise of the spreadsheet jockey-first with Lotus then the ubiquitous Microsoft Excel. The early spreadsheet was a transliteration of a piece of paper onto the screen with around 60 lines.
Now, for global corporations and tiny outfits alike, billions of pounds are budgeted, projected, recorded, lost and inaccurately manipulated by qualified accountants who spend much of their day staring at their screen and fiddling with their spreadsheets. Surely accountants as yet unborn won’t be doing that in 2039.
- Peter Williams is a financial journalist and former editor of Accountancy Age