December 2012 - CIMA Financial Management Magazine

Financial 

Management 

www.fm-magazine.com • December 2012/January 2013 

Time to 

see the 

light 

Electronic submission to tax authorities is 

becoming a reality. But finance teams continue to face 

cultural as well as technological challenges 

Coca-Cola’s Shirley Liu on the drinks giant’s vision for China 

Former Olympus CEO Michael Woodford on exposing fraud 

8 ways to control your firm’s travel and entertainment expenses 

Plus: 

Whistleblowing 

incentives: the 

UK versus the US p18 

More phones than 

humans: the growth 

of smartphones p35

Illustration: Masao Yamazaki/Dutch Uncle 

Financial Management | December 2012/January 2013 

A word from the president 

Integrated reporting 

and sustainability 

go hand in hand 

CIMA members can play a pivotal 

role in overcoming the challenges 

faced by the business world. This 

message has begun to be widely 

understood and was emphasised 

by Peter Bakker, president of the 

World Business Council for Sustainable Development, 

who has raised it at the Rio+20 conference 

and elsewhere. 

Indeed, at one conference last summer, Bakker 

made every accountant in the room stand up. He 

then said they could all make a difference by ensuring 

that sustainability became more measurable and 

tangible through integrated reporting. It is gratifying 

that integrated reporting is being discussed in 

these terms. 

CIMA maintains that sustainable business 

development and integrated reporting go hand 

in hand. This was underscored in the speech 

I recently gave at CIMA Canada’s excellent conference 

on business and sustainability. Organisations 

in both the public and private sectors cannot develop 

effective, sustainable strategies unless they clearly 

understand and record the links between their strategy, 

governance and financial performance and the 

social, environmental and economic context within 

which they operate. 

CIMA has been working hard to drive home the 

benefits of integrated reporting and this work was 

commended by Paul Polman, chief executive of 

Unilever, and my guest of honour at this year’s 

president’s dinner in October, where I presented 

him with a CIMA honorary fellowship. At the dinner, 

Paul also noted that CIMA’s heritage lay in 

pioneering modern management accounting for the 

manufacturing age. And he pointed out that the 

institute now has a major role to play in pioneering 

a new age of business sustainability. 

Another key skill that CIMA members can offer 

in terms of driving sustainable business success is 

effective performance management. This is the topic 

of the current CGMA innovation theme. As part of 

the programme, the institute celebrated the 20th 

anniversary of the Balanced Scorecard in November 

by inviting its creators, Professor Robert Kaplan and 

Dr David Norton, to receive honorary fellowships 

at a special ceremony. This included fireworks and 

a scorecard-shaped birthday cake. The two performance 

management gurus said modestly that they 

were touched that people had gone to the trouble of 

marking the occasion, let alone in such style. 

Balanced Scorecard thinking has evolved considerably 

over the past two decades and it is fascinating 

to see the many ways in which the tool 

has been utilised. The venue for the CIMA event 

was Scotland’s Royal Botanic Garden Edinburgh 

(RBGE). This location is also an example 

of how CIMA members can be found at the 

cutting edge of developments in business excellence. 

RBGE’s director of corporate services, 

Dr Alasdair Macnab, is a CIMA fellow and has 

pioneered an innovative approach to improving 

public service efficiency based on his adaptation of 

the Balanced Scorecard. 

Alasdair’s work applies a new system of cost 

accounting that ensures overall goals are achieved 

by the judicious use of resources. The accounting 

model identifies staff effort and non-salary expenditures 

attributable to specific activities that are 

directly aligned with departmental, divisional and 

corporate objectives. This is particularly useful 

where organisational structures are not aligned with 

corporate strategies. 

Since making a significant impact on RBGE’s own 

spending efficiency, Alasdair has visited the US, 

China, Europe, the Middle East and much of the UK 

to share his research findings. I am delighted to see 

a CIMA member blazing a trail in the public sector, 

which has so far lagged behind in making use of the 

scorecard system. 

I also look forward to highlighting many more 

ground-breaking initiatives that are being developed 

by our highly talented community of 

chartered global management accountants. 

Gulzari Babber, FCMA, CGMA 

CIMA president 

3 

To access a 

series of CGMA 

reports marking 

the anniversary 

of the Balanced 

Scorecard, visit: 

www.cgma.org/ 

resources/ 

reports/pages/ 

reports-list.aspx

4 

At a glance 

Front 3-18 

A word from the president 

Gulzari Babber – p3 

Update p9–13 Digest of the latest 

developments in management 

accountancy and beyond. 

Hot potato Your ethical 

dilemmas resolved. 

Book in brief The Power of 

LEO: The Revolutionary Process 

of Achieving Extraordinary Results. 

App of the Month Image to Text. 

Learn from... Marks & Spencer. 

I work on... 

Transforming Maersk Oil – p6 

The data 

Global defence sales – p14 

Forum 

Blogs, polls and discussion – p16 

Opinion 

Gavin Hinks of Accountancy Age on 

rewarding whistleblowers – p18 

Features 20-34 

Shirley Liu 

The CPO of Coca-Cola’s Bottling 

Investments Group China – p20 

Taxing times Are corporates ready for 

21st-century tax reporting? – p26 

Ethics Former Olympus CEO Michael 

Woodford on exposing fraud – p32 

Prime number The rise and rise of 

the smartphone – p35 

8 ways to... 

Control T&E expenses – p36 

CIMA is the 

Chartered Institute 

of Management 

Accountants 

26 Chapter Street, 

London SW1P 4NP 

020 7663 5441 

www.cimaglobal.com 

26 

President 

Gulzari Babber, FCMA, CGMA 

Deputy president 

Malcolm Furber, FCMA, CGMA 

Vice president 

Keith Luck, FCMA, CGMA 

Chief executive 

Charles Tilley, FCMA, CGMA 

Director of profile and 

communications 

Victor Smart 

Financial 

Management 

is published for CIMA by 

Seven, 3-7 Herbal Hill, 

London EC1R 5EJ. 


20 

Group editor 

Jon Watkins 

Editor 

Lawrie Holmes 

Group art director 

Simon Campbell 

Junior designer 

Josh Farley 

36 

Creative director 

Michael Booth 

Editorial director 

Peter Dean 

Chief sub editor 

Steve McCubbin 

Senior sub editor 

Graeme Allen


Study notesC39-49 

In association with 

Study notes 39 

Notes Paper 

Study 

Paper C03 

Fundamentals 

of Business 

Mathematics 

Interest is normally expressed in the form of an 

annual percentage rate, but not every loan lasts 

exactly one year, of course, so a mathematical 

technique is needed to calculate an actual charge 

I 

By Bob Scarlett 

Accountant and consultant 

nterest is a fee paid by a borrower of assets to the 

owner of those assets as a form of compensation 

for using them. It may be calculated on a “simple” 

basis, whereby it’s charged on the original princi- 

pal only, or on a “compound” basis, whereby it’s 

charged on the principal plus the interest that has 

accumulated on each stated payment date. 

Say we are lending £100 for a year and charging 

interest at 1 per cent a month. At the end of the first 

month, £1 in interest is charged (£100 x 1%) and that 

amount is added to the principal. The principal 

becomes £101. At the end of the second month, £1.01 

in interest is charged (£101 x 1%) and the principal 

becomes £102.01. This sequence goes on until the 

end of month 12, with interest being charged at 1 per 

cent a month on a compound basis. The amount 

repayable at the end of the term will be £112.68. This 

figure may be arrived at through the following cal- 

culation: £100 x 1.01 12 = £112.68, using the formula 

invested for n periods and compounded at r per cent. 

P1 

Performance Operations (also relevant to 

papers C01 and P2) p42 

To put it another way, the interest rate of 1 per 

It’s also possible to work in the reverse direction, 

with an annual rate being expressed as an equivalent 

monthly compound rate. For example, say we are 

lending £100 for a year at an APR of 15 per cent 

chargeable on a monthly basis. A 15 per cent annual 

rate corresponds to a monthly rate of 1.1715 per cent. 

This figure can be worked out using the following 

calculation: (1.15 1/12 ) – 1, or ( 12 √1.15) – 1. 

If we lend £100 for a year with interest chargeable 

at 1.1715 per cent a month, the amount repayable at 

the end of month 12 will be £100 x 1.01171512 = £115. 

When banks lend (or take deposits), it’s usual for 

The Fundamentals of Business 

Mathematics and accounting for 

overheads for papers P1 and P2 

the associated interest rate to be expressed as an APR 

but with interest charged on a daily basis. The inter- 

est rate may be a fixed amount for the whole term or 

it may be a variable rate linked to some benchmark. 

Large loans may be charged at a variable rate linked 

to the London inter-bank offered rate (Libor). This 

is an independently calculated set of rates, based on 

the rates at which banks are lending to each other. 

So a bank might lend £1m to a customer at Libor 

plus 1 percentage point – eg, 4 per cent if Libor is 

3 per cent on a particular day. The rate applicable to 

this loan will be revised automatically each day. 

Deposits may be placed with banks for alternative 

periods. So, if you have £1m to deposit, a bank may 

quote you fixed rates as follows: 

l One month: 4 per cent. 

l Three months: 4.5 per cent. 

l Six months: 4.8 per cent 

l One year: 4.6 per cent. 

Technical 50-56 

The Venetian-influenced birth of 

financial management and litigation 

funding from a third party 

These rates reflect the bank’s view of how market 

interest rates are likely to move during the year. The 

rates quoted are APRs and, typically, interest is paid 

tions, because the number of days in any month 

varies between 28 and 31. Also, the day exactly X 

months from now may not be a banking day. Most 

UK banks dealing with sterling transactions calcu- 

late interest on the basis of a 365-day year and the 

S = X(1 + r) n , where S is the future value of a sum, X, 

cent a month corresponds to an annual percentage 

rate (APR) of 12.68 per cent (that is, [1 x 1.0112 on a daily basis. The periods stated are approxima- 

‘UK consumer 

credit law 

requires 

financial 

services firms 

to express 

number of days on the basis of overnight holdings. 

their interest Let’s work through an example to illustrate these 

] – 1). charges as APRs’ points. Say you deposit £1m in a bank for three 

Back 57-66 

A look at the... 

Introduction to the City and financial 

markets with Ross Tanner – p57 

CIMA global events 

The calendar of CIMA events, 

including a summary of past 

events – p60 

The Institute 

Disciplinary Committee hearings and 

making the most of your CV – p62 

CIMA CEO column 

Charles Tilley – p65 

CIMA versus... – p66 

Head of pictures 

Martha Gittens 

Acting picture editor 

Louise Fenerci 

Picture researcher 

Alex Ridley 

Production manager 

Michael Doukanaris 

Group publishing director 

Rachael Stillwell 

Commercial account 

director Hilton Young 

Advertising manager 

Andrew Walker 

Email: Andrew.Walker@ 

seven.co.uk 

Editor’s note 

Former Olympus CEO Michael Woodford is 

emerging from a high-profile battle to expose a 

billion-dollar fraud within the company. In our 

exclusive interview, he discusses what business 

must do to avoid similar forms of corruption, adding 

that management accountants hold the key to 

legitimate and robust corporate governance. 

Coca-Cola’s Shirley Liu, featured in this 

month’s Q&A, is the embodiment of a modern 

management accountant. As chief performance 

officer of Coke’s Bottling Investment Group China 

she has added procurement, IT, manufacturing, 

engineering and quality to her finance role. 

Kenny Murdoch, CFO of Maersk Oil, has 

a similar view. “I have always considered myself 

to be part of a multi-dimensional team rather 

than just an accountant,” he says in an interview 

describing the transformation he is leading 

at the Danish energy group. 

In both interviews the CIMA qualification is 

acknowledged as playing a key role in developing 

an all-round technical and commercial 

understanding, considered vital for driving 

performance in a global organisation. 

Lawrie Holmes 

Please send your comments and ideas to 

editor@fm-magazine.com or join the FM 

feedback group on CIMAsphere at 

www.cimasphere.com/groups 

Tel: 020 7775 5717 

Managing director 

Jessica Gibson 

Chief executive Sean King 

Chairman Tim Trotter 

© Seven 

Cover Photography 

Bruno Drummond 

The contents of this publication are subject 

to worldwide copyright protection and 

reproduction in whole or in part, whether 

mechanical or electronic, is expressly 

forbidden without the prior written 

consent of CIMA/Seven. 

All rights reserved. 

Origination by Rhapsody. 

Printed in the UK by Wyndeham Press Group. 

5 

Subscriptions: 

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Tel: 01580 883841 

£45 (UK), £54 (Europe), £72 (rest of world). Back 

issues: £7.50 (UK) £10 (rest of world) including 

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www.cimaglobal.com

6 Financial Management | December 2012/January 2013

I work on … 

Transforming 

Maersk Oil into a 

global energy group 

Start date January 2010 End date Continuing 

I began working for Maersk Oil, part of the Danish 

conglomerate AP MØller, in August 2010, where 

a worldwide transformation of the company 

involving 6,000 staff had been under way for a year. 

This was to turn the company into a truly global oil 

and gas company by creating value throughout the 

entire upstream E&P (exploration and production) 

value chain and growing entitlement production 

[production from this field] by 50 per cent to 

400,000 barrels per day by 2020. 

Soon after joining Maersk Oil, I was given the 

role of executive lead on the project, which required 

a new business infrastructure based on global 

processes and systems, ensuring that development 

projects would be executed with consistency 

and quality. We also changed the company 

culture by introducing new empowered, safe 

and collaborative ways of working. 

The project was driven and owned by the Maersk 

Oil CEO and executive team. It was one of the 

company’s main KPIs so progress would impact 

people’s bonuses. We dedicated resources 

in the organisation to drive and support the 

implementation of the transformation solutions. 

For example, we had a transformation office that 

coordinated activities across functions and 

geographies, and we had change agents in the 

organisation who helped to maintain momentum. 

We also communicated to the organisation through 

road shows, videos, newsletters and intranet stories. 

Today, Maersk Oil is well on its way in its change 

journey. The amount of time lost through safety 

incidents has decreased by 78 per cent in the past 

year and new ways of working on performance 

management and business planning have been 

implemented, streamlining global processes and 

enabling transparency, consistency and value 

creation. The transformation office has been closed 

down as the project enters the implementation stage 

in 2012/14. 

The CIMA qualification was hugely helpful 

because of the breadth of its technical and 

commercial elements. It has meant that I have 

always considered myself to be part of a multidimensional 

team, rather than just an accountant. 

Name: 

Kenny Murdoch, 

i 

ACMA, CGMA 

Role: CFO of Maersk Oil 

Industry: 

Oil and gas 

Location: 

Copenhagen, Denmark 

CIMA qualified: 1991 

7 

Maersk Oil

Gallery Stock 


Update 

Is the talent pipeline 

draining growth? 

Firms around the world are finding it 

difficult to manage their talent base in 

the most effective manner, which is 

preventing them from undertaking 

important projects or initiatives, and 

from innovating and meeting 

performance and growth targets. 

That’s the finding of a new CGMA 

report – “Talent pipeline draining 

growth: Connecting human capital to 

the growth agenda” – which reveals 

that many firms are struggling to 

effectively fulfil their strategies due 

to human-capital related issues. 

Launched at a panel discussion event 

in Moscow, at which finance executives 

from leading Russian companies and 

multinationals discussed issues of talent 

management in the Russian market, 

the report sets out that some of the 

shortcomings are systemic, or fall out of 

organisational structures, while other 

challenges include a lack of leadership 

in measuring the effectiveness of a 

firm’s human capital strategy. 

The report sets out a series of 

recommendations for business leaders. 

It says they must: 

l Embed human capital strategy 

within the overall business strategy; 

develop relevant metrics aligned to 

support and implement the wider 

strategy, with measurement and 

performance management coming 

under the same level of scrutiny 

as other key data. 

l Focus on getting the right information 

and translating it into actionable insight; 

human capital information needs to be 

credible and accurate, and must be 

analysed and translated to provide 

more effective decision support. 

l Leverage the relevant skill set to 

bring credibility to the data and 

subsequent actions; firms should use 

the CGMA’s skills in uniting financial 

facts and non-financial information to 

provide insight. 

l Structure the organisation to 

encourage collaboration and partnering; 

the CGMA is often best-placed to 

partner-support HR. 

The event saw a host of business 

leaders discuss the issue, including 

Oleg Paroev, finance director, Diageo 

Russia; Alex Hofer, CFO, DHL Supply 

Chain Eastern Europe; and Daniel 

Foggia, finance director, BAT Russia. 

To view a video of the Moscow 

event, and to download the 

report in full, visit http://tinyurl.com/ 

apymrl3. 

9


Update 

Now on 

CGMA.org 

For CGMAs, the 

following content 

is now available 

online: 

l A remedy for the broken 

economics of health care: 

Ineffective measurement is 

hampering cost savings in 

health care worldwide, says 

Balanced Scorecard 

co-creator Professor Robert 

Kaplan – who was speaking 

at a CGMA event to mark the 

performance management 

tool’s 20th anniversary. 

Visit http://tinyurl.com/ 

blwrjhe 

l Kaplan: Cost shouldn’t 

drive decision on shared 

service centres: The decision 

to set up a shared service 

centre should not be 

motivated by lowering costs, 

according to Robert Kaplan. 

Business units should always 

question why they want to 

provide a service internally, 

rather than simply turning to 

external suppliers. 


cdst8jw 

l Fewer workplace absences, 

more sick workers, more 

trouble for employers: As the 

average number of employee 

absences falls by almost a 

day a year, other workforce 

issues are taking hold 

globally. More workers are 

showing up to work ill, likely 

caused by concern over job 

security, research shows. The 

effect of “presenteeism” is a 

less-productive and more 

stressed workforce. 


bjc3njm 

l Employers can’t afford 

to let worker retention 

practices lapse: Four in five 

employees in a recent survey 

indicate they plan to remain 

with their current employers, 

but statistics show that 

when unemployment 

decreases, voluntary job 

turnover increases. 

Many organisations have 

been reporting trouble 

finding skilled workers, so 

employers who neglect 

retention practices do so at 

their own risk. 


d8gn89w 

Cost: free 

Category: business 

Updated: October 2012 

Current version: 1.2.2 

Size: 6.5Mb 

Languages: English, 

Japanese 

Developer: Ricoh 

Innovations 

Compatible devices: 

iPhone, iPod touch, and 

iPad 

System requirements: iOS 

3.1 or later 

Our guide to the best online tools 

Image to Text 

You’re out and about and get an email 

requesting information from a 

document you have only in hard copy. 

This app saves you having to type out 

large chunks of copy. Take a photo of the 

page and the app will change the words 

to text that you can edit, copy and send. 

i 

11

12 Financial Management | December 2012/January 2013 

Update 

CIMA president honours ‘game-changing’ Unilever CEO 

The finance community has a critical 

role to play in shaping the journey 

towards the new business models 

necessary for success in the 21st 

century, according to Paul Polman, 

CEO of Unilever. 

Speaking as a guest of CIMA 

president Gulzari Babber at the 

annual President’s Dinner, he said: 

“Today’s finance professionals play 

a pivotal role in articulating the 

economic case for sustainable 

business models to investors and 

Hot potato 

This month’s 

dilemma: 

other stakeholders, developing 

the necessary performance metrics 

and ensuring that our investment 

evaluation – in brands and innovation, 

in research and development, in 

capital – embraces sustainability.” 

The event was held at Merchant 

Taylors’ Hall in London and 

attended by past CIMA presidents, 

as well as lords, MPs, chief executives, 

chief financial officers and other 

senior business leaders and 

decision-makers. 

I have recently resigned from 

my role as financial manager 

due to concerns around how 

financial information was 

managed and reported. I left 

amicably, having raised the 

issues, but am not sure how 

to best position why I left in 

interviews. I worry that by 

saying it wasn’t the right 

environment and that my 

professional standards 

were compromised, I may 

undermine my ability to 

secure a job. 

Our response: 

You need to judge your 

response on the basis of 

each interview and the 

individuals involved. 

If asked for reasons for 

leaving, you should 

balance your integrity 

(section 110) while retaining 

confidentiality (section 140) 

and professional behaviour 

(section 150). 

Ultimately you want to 

work in an environment 

that will not create threats 

to your obligations to the 

Code. If an employer is put 

off by your commitment to 

ethical practice, reflect on 

whether you want to work 

with them. 

For the code and 

other online ethics 

Addressing attendees, 

Gulzari Babber stressed the 

importance of the CIMA qualification 

in helping businesses succeed, adding: 

“I have a message for students: that 

no matter what your background, 

a CIMA qualification is always within 

reach as long as you are dedicated 

and prepared to work hard.” 

He also presented Paul Polman 

with an honorary CIMA Fellowship, 

praising his work at Unilever as 

“game-changing”. 

resources, visit 

www.cimaglobal/ethics 

Tanya Barman, head of 

ethics, CIMA 

Disclaimer 

CIMA does not provide 

legal, investment, 

professional or career 

advice. No responsibility 

or liability whatsoever 

is accepted for any error, 

omission or – (whether 

or not arising out of 

negligence) or for 

any loss or damage sustained 

as a result of reliance on 

information supplied or 

comments made.

Illustration: Denis Carrier/Dutch Uncle, Lucas Varela/Dutch Uncle. Photography: Eyevine, Shutterstock 


Tackling fear and 

greed in the City 

London’s financial sector is 

uniquely structured around 

the principles of fear and 

greed, according to Andrew 

Fisher, chief executive of 

wealth advisers Towry. 

Speaking at the latest in a 

series of “Tomorrow’s Value” 

lectures, hosted by CIMA 

and leading think tank 

Tomorrow’s Company, 

Fisher focused on the 

negative impact that 

inappropriate remuneration 

and incentives have in the 

financial sector. 

“The financial sector 

used to be the servant of 

commerce, but has now 

transformed into the serpent 

of commerce, destroying 

value creation,” he said. 

“Decision-makers in the 

sector have no concept of 

the risk they are taking 

with clients’ assets and 

yet their rewards remain 

For more news, 

including the 

findings of the CGMA 

“One finance” report, visit 

www.fm-magazine.com 

disproportionately high.” 

The lecture also explored 

alternatives to the standard 

remuneration system, 

examining examples such as 

the lockstep remuneration 

model, where remuneration 

is based on the length of 

service rather than 

individual performance. 

In addition, Fisher stressed 

the need for a new culture of 

“trust and integrity”, citing 

the need for “robust codes of 

ethics that are adhered to, 

the removal of inappropriate 

remuneration tools and 

mechanisms, and a desire 

to change”. 

Following the lecture, the 

audience of around 100 

leading professionals engaged 

in a lively debate with a 

business panel comprising 

Damian Carnell, director at 

Towers Watson, and Paul 

Feeney, chief executive of Old 

Mutual Wealth Management. 

To view a video of the 

event, visit http:// 

tinyurl.com/b9bjqo9. 

Learn from... 

Marks & Spencer 

In 2007, global retailer Marks & Spencer launched 

its sustainability programme, Plan A, aimed at 

working with customers and suppliers to combat 

climate change, reduce waste, use sustainable 

raw materials and trade ethically, while helping 

customers to lead healthier lifestyles. At its 

inception, the retailer expected the cost of meeting 

its 100 pledges (this has since grown to 180 pledges) 

to be around £200m. However, its work with 

suppliers to measure community health and 

prosperity in its supply chains, including employee 

rights and responsibilities, health care, numeracy 

and literacy, has led to supply chain efficiencies. In 

2011/12, this helped Plan A contribute £105m net 

benefit back into the business, according to the 

retailer’s annual figures. 

Partnership opens 

student exam door 

Following a groundbreaking 

deal with Pearson VUE, 

CIMA has boosted the global 

reach of its examination 

centres for the Certificate 

level computer-based 

assessments and CIMA 

Islamic Finance exams – 

from 275 to more than 

5,000 worldwide. 

With the number of exam 

centres around the world 

increasing 16-fold, CIMA 

expects to see a significant 

rise in the number of 

students sitting both exams 

in 2013, further boosting the 

institute’s global coverage 

and making it even easier for 

students from every walk of 

life to take exams. 

Other than global 

accessibility, it is hoped 

that the move will provide 

further benefits to students, 

including: 

l Cutting the cost and time 

of having to travel to sit 

exams. 

l Increased ability for 

travelling students to 

continue their studies. 

l Consistency in exam 

centre venues. 

l Enhanced user experience. 

13 

Update 

Book in brief 

The Power of LEO: The 

Revolutionary Process for 

Achieving Extraordinary 

Results 

By Subir Chowdhury 

McGraw-Hill £19.99 

Subir Chowdhury says that for 

quality improvement to be 

effective, a quality mindset 

must be embraced by every 

employee. “Quality” must also 

be embedded throughout a 

firm’s culture – a company 

must listen to customers, 

enrich its product offering 

and optimise the customer 

experience. Here’s a synopsis: 

1. Attaining quality requires the 

dedication of the whole universe 

of stakeholders; every supplier 

and distributor, as well as every 

manager and frontline worker. 

2. Leaders have a special duty to 

constantly reinforce that message, 

delivering it in every meeting and 

by walking the talk and 

demonstrating their commitment 

to quality in their own work lives. 

3. There’s a straight line between 

leaders’ policies and the behaviour 

and attitudes of their workers – and 

between those attitudes and the 

company’s quality measures. In an 

LEO deployment, management 

needs to build employees’ 

confidence in themselves and their 

readiness to take part 

in the quality 

transformation. 

4. Copying a quality 

programme that 

was a smash at 

another company 

rarely succeeds.

14 

The Data 

The world’s leading defence 

companies with sales of 

more than $640m 

Canada 

1 defence 

company 

US 

47 defence 

companies 

Chinese suppliers 

As the world’s second biggest spender on defence, China has 

developed a substantial industry in the sector. However, 

knowledge about the size of the manufacturers is limited. 

“Although it is known that several Chinese arms-producing 

enterprises are large enough to rank among the SIPRI Top 100, 

a lack of comparable and sufficiently accurate data makes it 

impossible to include them,” says Susan T Jackson, senior 

researcher and head of the arms production project in the military 

expenditure and arms production programme at the Stockholm 

International Peace Research Institute (SIPRI). 

“There are also companies in other countries, such as 

Kazakhstan and Ukraine, that could be large enough to appear in 

the SIPRI Top 100 list were data available, but this is less certain,” 

says Jackson. 

Financial Management Financial Management | December 2012/January | July/August 2012 2013 

Brazil 

1 defence 

company 

UK 

10 defence 

companies 

France 

9 defence 

companies 

Germany 

5 defence 

companies 

Spain 

2 defence 

companies 

Italy 

7 defence 

companies 

Trans-European 

2 defence 

companies 

Sweden 

1 defence 

company 

Norway 

1 defence 

company 

Source: SIPRI

Finland 

1 defence 

company 

Financial Management | July/August December 2012/January 2012 2013 

15 

Switzerland 

1 defence 

company 

Turkey 

1 defence 

company 

Israel 

3 defence 

companies 

Netherlands 

1 defence 

company 

Kuwait 

1 defence 

company 

Russia 

11 defence 

companies 

India 

3 defence 

companies 

Top 10 arms companies 

South Korea 

3 defence 

companies 

Singapore 

3 defence 

companies 

CompANy CoUNTRy ARmS ARmS ARmS SAlES 

SAlES 2010 SAlES 2009 % oF ToTAl 

SAlES 2010 

1 Lockheed Martin US 35,730 33,430 78 

2 BAE Systems UK 32,880 32,540 95 

3 Boeing US 31,360 32,300 49 

4 Northrop Grumman US 28,150 27,000 81 

5 General Dynamics US 23,940 23,380 74 

6 Raytheon US 22,980 23,080 91 

s BAE Systems Inc. US 17,900 19,280 100** 

(BAE Systems, UK) 

Trans- 

7 EADS European 16,360 15,930 27 

8 Finmeccanica Italy 14,410 13,280 58 

9 L-3 Communications US 13,070 13,010 83 

10 United Technologies US 11,410 11,110 21 

s * * denotes a subsidiary company. 

Australia 

3 defence 

companies 

Japan 

6 defence 

companies 

World’s top 15 

military spenders 

RANK CoUNTRy SpENdING 

($ BN. 2011) 

— World total 1,738 

1 United States 711.0 

2 China 143.0 

3 Russia 71.9 

4 United Kingdom 62.7 

5 France 62.5 

6 Japan 59.3 

7 India 48.9 

8 Saudi Arabia 48.5 

9 Germany 46.7 

10 Brazil 35.4 

11 Italy 34.5 

12 South Korea 30.8 

13 Australia 26.7 

14 Canada 24.7 

15 Turkey 17.9

16 

Forum 

From the 

blogs 

Pledging to abide 

by ethical code 

Will you be able to evidence 

integrity in your exams? 

“Fact or Fiction” is a new 

report (http://tinyurl.com/ 

cp5xp28) compiling 

discussions from four 

markets in Europe, Asia and 

Africa outlining the skills 

needed to be a successful 

business partner. As finance 

partners, more frequently 

with different functional 

units, it is important to 

reaffirm independence and 

objectivity. 

The findings provide a 

picture of the opportunities 

and challenges finance 

transformation is creating, 

and the knowledge and 

behaviours you need to 

exhibit if you want to be 

in demand. 

In the past few weeks 

I have been at a number of 

events, with speakers from 

leading global companies 

and key financial services all 

emphasising the importance 

of integrity in business 

dealings – not only from 

a risk perspective, but for 

opportunities. With the 

largest companies paying 

huge attention to reputation 

there are also consequences 

You asked… 

What are 

allowable and 

disallowable 

expenses? 

for SMEs. How will the 

smaller firms globally pass 

ever more thorough due 

diligence on their activities 

when pitching for contracts 

from the larger firms if they 

have something to hide? 

Would you be able to 

assess integrity minefields? 

And how would you address 

them? When they come up in 

exams, at every level, you 

need to respond to them 

appropriately, relating to the 

principles of the code (as 

outlined in our online 

animation (http://goo.gl/ 

dKcYs) or our ethical 

dilemmas case study tool 

(http://goo.gl/TtoDb). 

The Fact or Fiction 

findings show that there is a 

demand for individuals with 

influencing skills and the 

ability to navigate their 

colleagues to do the right 

thing. Yet many students 

are struggling to show this 

Fact or fiction? 

The independent business partner 

Transformation within the finance function is leading to more partnering and collaboration. Globally this is at 

different stages, but the value of integration is increasingly recognised. The independence and objectivity of 

the finance professional can bring value and credibility to projects, business cases and decision making, as well 

as safeguarding the wider interests of the business. With appropriate corporate structures and culture, finance 

business partnering models can contribute to long-term business success. 

Discussion paper - October 2012 

GLOBAL 

I am assuming that you 

are referring to expenses 

allowable for tax purposes, 

which have been deducted 

in the Statement of 

Comprehensive Income, 

but are not deductible for 

tax purposes. 

Most standard business 

expenses would be 

allowable. Examples of 

those that would not be 

allowable include those 

Poll of the month 

We asked… 

Would you move to another 

country to improve your career 

opportunities? 

Source: Survey on fm-magazine.com, 2012 

relating to capital items, 

such as accounting 

depreciation (replaced by 

capital allowances instead), 

and profit or loss on the 

disposal of non-current 

assets, though expenditure 

on repairs would be 

allowable. 

Others include expenses 

incurred for private 

purposes, entertaining 

customers and donations to 


I would move to another country again: 36% 

I would consider doing it (for the first time): 48% 

No I would not move to another country: 12% 

Not sure: 4% 

expertise in their 

examinations. Ethics 

features right across the 

syllabus – as ethical 

dilemmas will feature right 

across your working life. 

The examiners have noted 

that there often is a “failure 

to distinguish between 

business and ethical 

considerations relating 

to an issue”. 

Students also can face 

difficulties giving 

satisfactory answers to 

questions regarding: 

l External auditing. 

l Risk of fraud. 

l The importance of 

independence, truth 

and fairness. 

These are business-critical 

issues – how will you set 

yourself apart if you cannot 

tackle them? So ensure that 

you are familiar with the 

Code of Ethics and how to 

apply it across all topics. 

And don’t forget – as a 

CIMA student you are 

already committed to 

uphold it. 

There are resources, case 

studies and tools, including 

the animation, online to help 

you build your ethical 

muscle, and to help you add 

real value in the workplace. 

For more information visit 

www.cimaglobal.com/ethics. 

Tanya Barman, 

head of ethics, CIMA 

political parties. Apart from 

those involving non-current 

assets, questions set will 

usually tell you which other 

items are allowable/ 

disallowable. 

Send in your own 

queries to questions@ 

fm-magazine.com. 

We will ask a specialist 

or tutor to provide 

a response.

18 

Opinion 

Gavin 

Hinks 

former editor of Accountancy Age 

Whistleblowers in the US receive millions of dollars for exposing 

corporate wrongdoing. Are the UK’s incentives lagging behind? 

Whistleblowers are setting new 

records for sounding the alarm. 

It was revealed in September 

that Bradley Birkenfeld, a 

former banker with UBS, had 

been awarded $104m (£65m) 

for helping to expose tax evasion at the Swiss bank. 

The US government recovered $5bn as a result of 

his information and the vast payout was Birkenfeld’s 

reward for having helped. 

He’s not alone. In 2010, the US saw its previous 

record-breaking whistleblower payout – $96m (£60m) 

– after Cheryl Eckard, a former employee at GSK, 

demonstrated that drug production at the company’s 

Puerto Rico plant was contaminated. 

Eckard earned her millions by bringing a lawsuit 

under the False Claims Act, which allows private 

citizens to sue those suspected of defrauding the 

government. If the Justice Department decides that the 

case has merit, pursues it and then recovers money, 

the original complainant is entitled to a share. 

These are phenomenal sums and observers in the 

US claim that they are an emphatic reminder of the 

benefits of whistleblowing. The attractions are obvious. 

It has also been argued that the $104m payout 

stands as a beacon for whistleblowers around the world. 

International companies with US operations could 

find whistleblowers from elsewhere in the world 

by-passing their local managers and watchdogs to go 

straight to Washington. 

So what does this mean for other jurisdictions, such 

as the UK? 

Britain has done much on the whistleblower front. 

The Public Interest Disclosure Act, which became law 

in 1999, provided protection for the employment status 

of whistleblowers. In short, you can’t be dismissed if 

you make a “protected disclosure” – those that reveal 

a criminal offence, a failure to comply with the law, 

miscarriages of justice, health and safety dangers, 

environmental risks, or concealing information 

relevant to offences in these areas. A clause also 

made it clear that there would be no limit to the compensation 

that could be imposed should someone be 

fired unfairly. 

‘Providing 

incentives in 

the UK would 

potentially 

bring more 

people forward 

to report 


But while all this is good, it doesn’t really address 

the incentives issue. True, the Office for Fair Trading 

retains the power to offer rewards for shining a light on 

cartel activity, but that’s a rather narrow area of business 

behaviour. What about others? 

The elephant in the room is, of course, 

banking. It’s interesting to note that 

the investigation into Libor rigging 

began in the US in late 2008, following 

a whistleblower’s tip-off, and yet 

it was more than a year before British 

authorities got their own inquiry under way. 

However, it’s arguable that in those initial stages the 

US provided a more inviting environment for someone 

to come forward. It certainly worked for Birkenfeld 

and Eckard, but would they have come forward 

under the UK regime? 

Providing incentives in the UK would potentially 

bring more people forward to report wrongdoing. That’s 

crucial in its own right; we need to know when people 

are behaving badly. But it also brings other benefits. 

For one thing, we learn what’s going on, what kind of 

activities are taking place. This provides an opportunity 

for further legislation, or to target resources in the right 

place. That could be more people or further powers. The 

key is that the information from whistleblowers gives 

us the opportunity to review what we need. 

The disclosure of more cases also acts as a major 

deterrent. Why risk getting involved in a scam when 

there’s a major reason for someone to spill the beans? 

The risks would be huge. 

There’s also the added benefit that the public gets 

to see regulators acting. Public confidence has been 

lost in watchdogs over recent years as the fall-out 

settled from the financial crisis and other scandals. 

Our authorities need to be seen to be effective. To do 

that the cases need to be heard. 

The big obstacle is that UK authorities are naturally 

uncomfortable with such grand gestures. The aggression 

inherent in US-style incentives could be at odds 

with the UK’s approach of light-touch regulation. There 

are no prizes for speculating that we’re a long way as 

yet from turning UK whistleblowers into millionaires. 

wrongdoing’ Shutterstock

20 

Q&A 

Shirley Liu, ACMA, CGMA, 

chief performance 

officer at Coca-Cola 

Bottling Investments 

Group China 

Interview by Lawrie Holmes 

How and when did you decide to become 

a management accountant? 

From an early age I knew I wanted to work in 

finance, but didn’t know which industry. At the 

time China had just opened up to the world and 

Shanghai was becoming more important in terms 

of commerce. I studied at two institutions there 

– the Shanghai International Studies University 

and the Shanghai University of Finance and 

Economics. My major was in international 

accounting, of which a large part of the 

course was in English. 

When I graduated, the Big Six accountancy 

firms had started moving into China and were 

looking for people who understood English and 

had commercially oriented qualifications. I joined 

Deloitte, which had just 20 people in China then, 

compared to around 12,000 people now. I worked 

for two years on the firm’s global accounts, 

including regular audit, due diligence review 

and internal control review. After several months 

I began leading some audit projects. 

How did you end up working for General 

Motors and what was your experience there? 

I moved to GM when the company first came to 

China and was looking for a local partner to start 

a business in the country. It was looking for 

finance people to develop the business and as 

GM is one of Deloitte’s global accounts, they 

came to the firm looking for someone and I was 

recommended by my manager at the time. When 

I started working for GM as an accountant, the 

company’s presence consisted of two hotel rooms 

Financial Management | December 2012/January 2013


Photography 

by Eric Leleu 

on the 4th floor of the Holiday Inn. The furniture 

and beds were taken out to make room for the 

desks. These days, GM is China’s biggest carmaker, 

producing more than 2.5 million cars in 2011. 

I worked for GM for ten years in various 

positions, starting as an accountant. 

One of my highlights there was the decision 

by GM in 1996 to introduce the SAP system into 

the group at a time when not many companies 

in China had installed the software. Given the 

pioneering element of the work, a lot of days 

and nights were spent ensuring that the 

implementation was successful. 

How did the move to Coca-Cola come about? 

I had aspirations to be the CFO of GM China, 

but a friend who was a head-hunter contacted 

me about a role at Coca-Cola, which took my 

interest as Coke is the world’s strongest brand. 

In the end the role wasn’t right, but Coca-Cola 

came back to me with four other options that 

they wanted me to consider. 

I moved to Coca-Cola in 2005, taking up a role 

in operations, which I preferred to a position at 

headquarters as you can physically see the impact 

of your decisions. I started out at the Shen-Mei 

bottling plant as CFO before moving to the 

Bottling Investment Group (BIG) China’s head 

office as CFO when Coca-Cola acquired Kerry 

Beverages and established the BIG China head 

office in Shanghai. Later, my role was expanded to 

cover not only finance, procurement and IT, but 

also manufacturing, engineering and quality at 

BIG China, starting from late 2010. I was also 

instrumental in setting up KPIs across all 

areas of the organisation. 

How is Coca-Cola Bottling China 

performing at the moment? 

Coca-Cola is one of the most well-known 

international brands in China, with a leading 

position in the soft drinks market. Since 

re-entering China in 1979, Coca-Cola has 

21 

invested more than $5bn in the local market, 

including $3bn of investments from 2009 to 2011. 

By the end of March 2012, Coca-Cola had 

established a total of 42 bottling plants in China. 

The group employs more than 50,000 people in 

the country, virtually 99 per cent of which are 

local hires. In March, Coke opened its latest China 

bottling plant in Yingkou, Liaoning, the largest 

Coca-Cola production facility in China spanning 

an area of more than 170,000 sq m (42 acres). 

The plant represents a $160m investment in 

China and is part of a three-year, $4bn investment 

plan announced last year that underscores 

Coca-Cola’s confidence in China and its fastgrowing 

beverage market. 

‘A head-hunter contacted 

me about a role at 

Coca-Cola, which took 

my interest, as Coke is the 

world’s strongest brand’ 

It is a complex market so it is challenging for 

us to continuously grow market share while 

driving the overall business performance. 

There have been ups and downs in China 

over the past few years, but if we look at the past 

five years’ compound annual growth rate and 

operating income growth rate, we are on track 

to deliver our 2020 vision in China. 

How have your experiences shaped your career? 

When I started out at Deloitte I was just a 20-yearold 

working with executives in their 40s and 50s 

so straightaway it became extremely important to 

understand exactly what the issues were and to

iStockphoto 

Financial Management | May 2012 

Q&A 

always have answers ready for any questions 

I was asked. 

Another big challenge was in 1999, when I was 

involved in GM’s attempt to acquire the financially 

troubled Korean manufacturer, Daewoo. One of 

the issues was around the complexity of bringing 

the accounting system of Daewoo in line with that 

of GM, which worked to US GAAP. 

There was also the issue that I was the only 

Asian female involved in the process. This 

presented a lot of challenges because in South 

Korea at that time women only really aspired to 

the roles of secretary or receptionist. In China, 

women at the time were rarely seen above the 

level of manager, and very rarely at director level. 

In the event, my response was to prove how 

much knowledge I had of the subject, which 

meant that my colleagues were very keen 

to keep me involved in all the decisions. 

Where do you see your career going 

in the next few years? 

In a global company such as Coke there are 

various ways in which I can advance my career, 

either in a general management role or by staying 

on the finance professional path. It will depend 

on my family situation and my own career 

aspirations. But overall, clearly there are broader 

choices available to me in the future. I am happy 

in my current position and working in China, 

where the economy may have slowed a bit but is 

still growing at the rate of 6 to 7 per cent a year. 

China is definitely still the place to be. 

Why did you decide to study for 

the CIMA qualification? 

In 2008, when I was the CFO for Coca-Cola 

Bottling Investment Group China, I decided 

I wanted all finance managers to be performance 

drivers and business navigators, and to do much 

more than a fundamental finance role. In order 

to achieve this I set about finding a training 

partner for my finance team in order to achieve 

these aims. Following a comparison study, we 

‘In China, women at the 

time were rarely seen 

above the level of 

manager, and very 

rarely at director level’ 

chose CIMA to be the organisation to undertake 

this role. We have about 60 people studying for 

the CIMA qualification, of which quite a few are at 

manager level and stage two or three at strategic 

level. To demonstrate to my team the possibility 

of studying and passing the exams while dealing 

with busy daily jobs, I studied and passed the 

qualification in 2010. I thought it was important 

to lead by example by obtaining the CIMA 

23 

Q&A 

‘We have 

about 60 

people studying 

for the CIMA 

qualification, 

of which quite 

a few are at 

manager level 

and stage two 

or three at 

strategic level’

24 

Q&A 

qualification. The course offers my team 

a lot of important knowledge in key subject 

areas, and there are a lot of events organised 

by CIMA with other companies that 

are a great help to team members. 

How has the CIMA qualification helped you? 

After many years working in the operation, it is 

good to go back to the theory book and study 

CIMA to integrate the practical experience with 

the theory and re-engage myself by thinking about 

strategy and new ways in which to do the job. 

What advice would you give to 

today’s CIMA students? 

I would say never stop learning, either through 

CIMA or the daily job. There are always things 

we can learn day by day. Finance people, 

especially in China, tend to be shy so even if 

they have ideas they don’t speak up. 

‘I would encourage 

finance teams to be 

more questioning and 

to participate in 

discussions and decisions’ 

I would encourage finance teams to be more 

questioning and to participate in discussions 

and decisions. If they are able to speak up, 

even if their ideas are not always the best, they 

are still participating in what is going on 

around them in the company. 

When working in China it is good to be 

patient because the Chinese don’t always 

present their ideas as effectively as elsewhere, 

even compared to other Asian countries. 

CArEEr 

LADDEr 

2010: Became chief 

performance officer of 

Coca-Cola BIG China 

after the role was 

expanded to include 

finance, procurement, 

IT, manufacturing, 

engineering and 

quality. 

2008: Implemented 

CIMA qualification in 

BIG China and passed 

the exam herself the 

following year. 

2007: Became CFO 

of BIG China after 

Coca-Cola acquired 

Kerry Beverages in 

China. 

2005: Moved to 

Coca-Cola as CFO 

of the Shen-Mei 

bottling plant. 

2005: Promoted 

to project director 

at the Asia-Pacific 

headquarters in 

Shanghai. 

2002: Became 

CFO at PATAC, the 

engineering joint 

venture for GM 

in China. 

2001: Promoted to 

project manager in 

Shanghai GM, the joint 

venture for GM in 

China, including the 

manufacturing plant. 

1999: Appointed 

project manager at 

GM’s Asia-Pacific 

headquarters. 

1998: Became finance 

manager at the China 

head office of GM. 

1995: Joined GM as 

an accountant. 

1994: Joined Deloitte 

after graduating 

from the Shanghai 

University of Finance 

and Economics with a 

major in international 

accounting.

Illustration by 

Cristian Turdera 

Governments looking to maximise 

their tax receipts have embraced 

real-time tax reporting. But are corporates 

ready for real-time information exchange 

in machine-readable form, such as 

XBRL? Lawrie Holmes and Alex Hawkes 

examine the issue 

eal-time tax reporting is the holy 

grail for tax-collecting authorities. 

They want as much information as 

r possible about companies while 

maximising the amount of revenue 

they collect from them. For 

governments struggling with reduced corporate 

tax receipts the world over, real-time tax reporting 

is a very attractive proposition. 

What makes this process appear possible is its 

machine-readable form, using technology such 

as XBRL, (eXtensible Business Reporting Language). 

Developed by an international non-profit 

consortium of more than 600 companies and 

public organisations, including the American 

Institute of Certified Public Accountants (AICPA), 

this electronic communication provides major 

benefits in the preparation, analysis and communication 

of business information. 

The promise of cost savings, greater efficiency 

and improved accuracy and reliability through a 

“tagging” process for information, has also been 

a huge incentive for regulators and other institutions 

to mandate companies across the world to 

27 

Technology 

Taxing times 

sign up to XBRL, a business reporting language 

based on the family of “XML” languages. 

But while nearly three-quarters of the world 

in terms of GDP are looking to adopt XBRL in 

some form, its application is proving tricky in 

many jurisdictions. The adoption of XBRL by 

tax authorities worldwide is running at different 

speeds, according to Arleen Thomas, chair of the 

XBRL International board of directors, because 

of their different motivations. Thomas, who is 

also the AICPA’s senior vice president, management 

accounting, says that adopters such as 

‘Later adopters, such as 

the Emirates Security and 

Commodities Authority, 

reflect the desire for a 

more efficient use of data’

28 

Technology 

HM Revenue & Customs (HMRC) in the UK were 

motivated by a desire to process information faster 

and more efficiently. 

“Other adopters – the Securities & Exchange 

Commission in the US and the Tokyo Stock 

Exchange and the Japan Financial Supervisory 

Agency (JFSA) in Japan – also took up XBRL. 

Later adopters, such as the Emirates Securities 

and Commodities Authority in the UAE, reflect the 

desire for a better, more efficient use of data,” says 

‘No going 

back, rather 

like the 

internet and 

social media’ 

Benefits and uses for business 

The XBRL International (XII), the international standards organisation that 

develops and maintains the XBRL specification, claims the benefits are: 

All types of organisations can use XBRL to save costs and improve 

efficiency in handling business and financial information. Because 

XBRL is extensible and flexible, it can be adapted to a wide variety of 

different requirements. All participants in the financial information 

supply chain can benefit, whether they are preparers, transmitters 

or users of business data. 

Data collection and reporting 

By using XBRL, companies and other producers of financial data and 

business reports can automate the processes of data collection. For 

example, data from different company divisions with different accounting 

systems can be assembled quickly, cheaply and efficiently if the sources of 

information have been upgraded to using XBRL. Once data is gathered in 

XBRL, different types of reports using varying subsets of the data can be 

produced with minimum effort. A company finance division, for example, 

could quickly and reliably generate internal management reports, financial 

statements for publication, tax and other regulatory filings, as well as credit 

reports for lenders. Not only can data handling be automated, removing 

time-consuming, error-prone processes, but the data can be checked by 

software for accuracy. 

Small businesses can benefit alongside large ones by standardising and 

simplifying their assembly and filing of information to the authorities. 

Data consumption and analysis 

Users of data that is received electronically in XBRL can automate its 

handling, cutting out time-consuming and costly collation and re-entry of 

information. Software can also validate the data, highlighting errors and 

gaps that can immediately be addressed. It can also help in analysing, 

selecting and processing the data for re-use. Human effort can switch to 

higher, more value-added aspects of analysis, review, reporting and 

decision-making. In this way, investment analysts can save effort, greatly 

simplify the selection and comparison of data and deepen their company 

analysis. Lenders can save costs and speed up their dealings with 

borrowers. Regulators and government departments can assemble, validate 

and review data much more efficiently and usefully than they have been 

able to do up to now. 

XBRL use by specific industry sectors 

• Companies 

• Regulators and government 

• Stock exchanges 

• Investment analysts 

• Banks, loans and credit 

• Financial data companies 

• Accountants 

• Software companies 


Thomas. “Carrying the XBRL tag added semantic 

meaning to the data, based on standards such as 

US GAAP or UK GAAP. But other leaders in the 

technology, such as the Netherlands and Australia, 

were looking at it from a different angle. 

The motivation here was clearly for an administrative 

burden reduction,” adds Thomas. 

But despite the different approaches, some form 

of convergence is taking place, and Thomas says 

we are approaching a moment of “no going back, 

rather like the internet and social media”. She says 

that there has been significant adoption among 

the larger countries, as measured by GDP, while 

countries such as Russia and Brazil are currently 

in the early stages of adopting XBRL. 

“It is the emerging global dominance of XBRL in 

institutions around the world that is driving companies 

to become compliant,” says Simon Purkess, 

a partner in KPMG’s UK audit team. Nevertheless, 

there have been problems, such as those addressing 

HMRC’s demand for companies to send com- 

‘Concerns remain 

about the quality of data, 

which is impeding the 

process towards real-time 

tax reporting’ 

pany tax returns online using iXBRL (inline XBRL). 

In force since January 2010, this requires companies 

to send their company tax returns online 

using iXBRL, a viewable version similar to a PDF 

that you can see in a browser rather than a dedicated 

PDF reader. 

Purkess says that it is possible to convert some 

documents, such as Microsoft Word, to XBRL. Various 

forms of commercially available final accounts 

production or tax preparation software are being 

developed to convert other documents appropriately. 

“We are working on hybrid accounts product 

software to achieve this,” says Purkess. 

So the development of XBRL in tax reporting 

has not been without its difficulties. 

Paul Marriott, group tax and treasury director at 

UK construction and regeneration group Morgan 

Sindall, says: “We found it very hard work producing 

iXBRL-tagged accounts. It’s just a really inefficient 

way of getting our data into HMRC’s systems.”

30 

Technology 

For Morgan Sindall, the fourth-largest building 

contractor in the UK, it cost £20,000 in software 

costs “and about the same again in consultancy”, 

says Marriott. It wasn’t that the company didn’t 

have the information held digitally, just that the 

software processes were difficult to deal with. 

Marriott thinks the forthcoming switch to 

real-time reporting of payrolls in the UK will be 

smoother. “That is very clear cut about what we 

have got to report. There are some issues around 

data cleansing, but it’s data we would mostly have 

available. I think that’s perfectly sensible – the 

issue might be whether HMRC makes good use of 

the data. It might take it a few years to start using 

it to full effect.” 

The technology is not necessarily at fault for 

making real-time reporting difficult, says Richard 

Chadwick, an expert in real-time reporting at 

accountancy firm PwC. “It is that people at every 

level of a business, entering expenses or revenues 

into the company computer system, cannot have 

the tax expertise required to be able to ‘tag’ everything 

correctly and immediately, thus enabling 

real-time analysis. You’d need everyone to be a 

deep technical tax expert,” he says. “Concerns 

remain about the quality of data, which is impeding 

the process towards real-time tax reporting,” 

adds KPMG’s Purkess. 

However, the technology is making life easier 

for corporates that are having to address ever more 

complicated tax rules worldwide. Chris Sanger, 

a partner in accountancy firm Ernst & Young’s 

tax policy group, says: “We have an environment 

where tax technology can really help and we’ve 

had many companies wanting to centralise the 

finance function, which they can do through this 

technology. But there are potential difficulties.” 

It has also started to reap rewards for tax authorities, 

which are now getting a clearer picture of 

how much tax companies are paying compared 

to how much they should be paying. 

Bivek Sharma, a partner at KPMG and a tax 

technology expert, says that HMRC has identified 

issues with transfer pricing and VAT through 

its XBRL automation. “It’s helping them narrow 

down their search a lot quicker. Things like ‘Do 

these numbers reconcile?’ and ‘Do they match?’ 

can be done a lot quicker.” 

But what are the limitations of using XBRL as a 

means to develop real-time tax reporting? Sharma 

adds that other countries go a lot deeper in getting 

hold of information as soon as possible. In 

Brazil, China and Armenia, systems exist that tell 

the government every time an invoice is raised. 

‘It will take 

a few years 

before we 

see real-time 

tax reporting 

in its truest 

sense’ 


“The government can track what companies have 

been buying and selling,” says Sharma. 

The issue raises arguments about how far governments 

can use tax-collecting agencies to pry 

into companies’ affairs. James Frederickson, 

professor of accounting at Melbourne Business 

School, says this approach raises a whole host of 

ethical and legal issues. “It would allow tax officials 

to potentially match up accounts from different 

companies, say a supplier and procurer,” 

he says. “The technology would allow you to look 

at both companies’ sets of statements at the same 

time, which would then allow the tax authorities 

to better assess the appropriateness of how the 

companies accounted for certain items.” 

‘In Brazil, China and 

Armenia, systems exist 

that tell the government 

every time an invoice 

is raised’ 

There are also concerns about translating the 

opportunities available through the use of XBRL 

into a fully fledged real-time reporting process. 

Bill Dodwell, a tax policy expert at accountancy 

firm Deloitte, suggests that the idea of reporting 

corporation tax in real-time would be too mindboggling 

to be conceivable. 

“When can you report a profit? [When you 

record turnover], you don’t know if you have got 

a profit. You want the auditors to agree with the 

numbers. You have tax, depreciation and group 

relief to consider. The current law says you have 

to get the return in 12 months after the year end. 

It would be a nightmare even to get that to six 

months. It would be impossible, even for supermarkets 

with up-to-the minute sales information, 

to do in-year reporting.” 

KPMG’s Purkess is in agreement that the days of 

real-time reporting are a long way off. “Even with 

an efficient system in place it will still take days 

or weeks to send out this information. It will take 

a few years before we see real-time tax reporting 

in its truest sense.” 

Alex Hawkes 

is a financial writer for the Mail on Sunday 

Photography: Bruno Drummond

32 

Olympus: 

Blowing the lid 

on a cover-up


Former Olympus CEO Michael Woodford is emerging from 

a lengthy battle to highlight a billion-dollar fraud within the 

company. He tells FM that management accountants hold 

the key to legitimate and robust corporate governance 

ichael Woodford has plenty to 

say about corporate governance. 

The former CEO and president of 

M Japanese electronics giant Olympus 

has spent the past year fighting 

to get to the bottom of a $1.7bn 

fraud that he was alerted to in July 2011. 

When he first wrote to his fellow board directors 

to flag up a series of massive payments to companies 

that appeared to offer no value to Olympus, 

and which were highlighted to Japanese publication 

Facta by a whistleblower, he was stonewalled. 

He then wrote additional letters to directors, 

copying them to the senior heads of Olympus’s 

auditor, Ernst & Young. 

As he pursued the issue with senior directors, 

Olympus chairman Tsuyoshi Kikukawa ceded 

the role of CEO to Woodford. But after Woodford 

commissioned a PwC report that found potential 

offences of “false accounting, false assistance and 

breaches of directors’ duties”, he was sacked in 

October last year. 

He then vigorously campaigned for the truth, 

helping the FBI in the US and the Serious Fraud 

Office in the UK with their investigations. He also 

travelled the world to update the global media 

as revelation after revelation spilled out of 

the company. 

An independent report in Japan found that the 

senior management team at Olympus was “rotten 

to the core”. During this time the company’s share 

price collapsed amid stories that the fraud may 

have been connected to organised crime. Senior 

members of the board resigned soon after, including 

chairman Kikukawa. 

Following arrests in February this year, three 

former Olympus executives (including Kikukawa) 

pleaded guilty in a Japanese court to filing false 

financial reports in September. 

Based on his experience, Woodford is keen to 

see improved corporate governance and better 

protection for whistleblowers in a bid to prevent 

a similar fraud taking place elsewhere. 

A 30-year veteran of Olympus, Woodford had 

been hired as president shortly before the fraud 

broke in an attempt to turn round the company’s 

fortunes after operating income had fallen from 

$1bn in 2008 to around $400m in 2011. 

His determination to pursue the truth reflects 

his difficult position at the moment the fraud was 

revealed. “As president of the company, I had to 

‘The key thing is 

that data needs 

to be legitimate 

and accurate 

because only 

then can an 

external audit 

be robust’ 

33 

Ethics 

sign off the company’s accounts. I was the person 

who had to sign a letter of representation with auditors, 

saying that what we were disclosing was a fair 

and accurate reflection of the company’s position.” 

Considering whether it could happen elsewhere, 

Woodford suggests that once the accusations of 

fraud had been aired it would have been responded 

to quite differently in the UK and US. “If that 

was a British company the non-execs would have 

said, ‘What is this?’ The police would be called in if 

you’re alleging massive fraud. You couldn’t have 

people standing up and defending the indefensible, 

you and your colleagues.” 

Woodford says that part of the problem is cultural, 

whereby various elements of the financial 

and business establishment, including Olympus’s 

largest Japanese shareholders, avoided confrontation 

with Olympus’s directors over the issue. 

“There’s something terribly wrong with corporate 

Japan, why it throws up the leaders it does. I think 

the reasons go back a long, long time.” 

But why wouldn’t the institutional Japanese 

shareholders criticise the incumbent board? 

“I think some of the debates we’ve been having on 

directors’ remuneration and compulsory voting 

on earnings has resulted in shareholder activism 

becoming the single most important element of 

good corporate governance,” says Woodford. 

Woodford refers to the Fukushima nuclear 

plant catastrophe in Japan in 2011 that followed 

the earthquake and tsunami. “When it [operating 

company Tepco] was investigated by a 

Japanese university professor he reported to the 

Japanese parliament a hierarchical system of directors 

blindly following orders, lacking questioning 

and a total deference to authority.” 

But how did the fraud go unnoticed in the first 

place? Woodford suggests that a more robust 

auditing process could have reduced the chances 

of such a fraud taking place. “When I first started 

running companies the audit was much more 

basic. They’d count the widgets on different trays 

of the factory. They would check an expense form. 

I think the forensic side of auditing could be 

enhanced, the statutory audit – the forensic side. 

Sampling transactions could be improved. 

“External auditing has to be done in a very 

rigorous way. The big accountancy firms all have 

forensic branches so you could introduce an 

element of that. It would not be difficult for 

external audit firms to have an element of the

Camera Press, Henry Leutwyler / Contour by Getty Images 

34 

Ethics 

forensic fraud prevention element to the audits 

they carry out, but that would involve going down 

to a micro level where they would check expenses 

and customer transactions in a much more complex 

and detailed way than happens now, where 

everything is high level. We may have to pay more 

money for it, but I think it would be well worth it.” 

Woodford is positive about the impact that a 

cadre of skilled management accountants can 

have in an organisation. “They can do a lot of 

good, auditing subsidiaries such as in jurisdictions 

where corruption is endemic.” But it is in 

the area of preparing data that he believes management 

accountants may have the most impact. 

“The key thing is that data needs to be legitimate 

and accurate because only then can an external 

audit be robust. For capitalism to work, for capital 

markets to work, you really do want to believe 

a company’s accounts are what you say they are.” 

A rotation of external auditors is also on his 

wish list. “I believe that every ten years or so they 

should rotate the external auditors because after 

the fall of Arthur Andersen and Enron, there are 

only four big accountancy firms. I’ve been a director 

of a company. I recognise that human beings 

start to bond and if these relationships have some 

degree of commerciality, which they do, then the 

The story so far 

‘I don’t believe 

in internal 

whistleblower 

lines. If they’re 

going to report to 

somebody, at 

some point 

you’re going to 

get to the board’ 

The Olympus scandal first came to global attention on 14 October 

2011 , when Michael Woodford was ousted as chief executive of the 

Japanese group. Although he had been at the company, which sells 

photographic and medical equipment, for 30 years, he had been 

chief executive for just two weeks. Woodford’s fellow directors, 

including chairman Tsuyoshi Kikukawa, may have hoped he would 

go quietly, but he did not. 

Woodford launched his fightback, alleging that he had been sacked because 

he had been asking difficult questions about multi-billion dollar deals 

carried out by Olympus before he became chief executive. In particular, he 

had become alarmed by the $2.2bn takeover by Olympus of British medical 

equipment company Gyrus Group in 2008. 

What had concerned him was that a $687m fee was paid to a middleman 

for his help in arranging the deal, equivalent to 35 per cent of the deal, 

compared to a market rate of 1 per cent. He was also concerned about three 

other acquisitions in 2008, for industrial waste company Altis, mail-order 

cosmetics firm Humalobo and microwavable dish manufacturer News 

Chef, which all saw massive write-downs the following year. They were 

eventually found to have been used to cover up disastrous speculative 

investments by the company. 

At first, Kikukawa and other executives denied anything was 

amiss, but 12 days later he resigned as chairman. Then, in early 

November 2011, as the scale of the offences became 

impossible to deny any longer, Olympus admitted that the 

payment was “inappropriate” and was designed to cover 

up losses made on investments dating back years, but 

kept secret from investors. 

More resignations followed, topped off by the arrest of 

seven people – three executives and four financial 

advisers – in February 2012. In September this year three 

former Olympus executives, including Kikukawa, 

pleaded guilty in a Japanese court to filing false financial 

reports. The legal cases are ongoing. 


partners are paid on the income they generate and 

they cross-sell their consultancy services. There 

are lots of things in accounting that are open to 

interpretation, such as goodwill impairment and 

valuation of inventories. If you’re the senior partner 

auditing a company and you know that in two 

more years one of your counterparts would come 

in, you would think differently.” 

Woodford concedes that the fraud at Olympus 

would probably never have been detected without 

a whistleblower from the company contacting 

Facta. “Nothing would have happened without 

that person’s actions. Fraud, by its nature, and if 

it’s done in the right way, won’t be discovered.” 

The answer is a catch-all whistleblower system 

that people feel confident in, says Woodford. “If 

you’re working for an organisation where you 

know you can call a confidential number and 

actually meet people and your identity will be 

protected, I think that would give a lot of confidence 

to people. Olympus in Japan had a whistleblower 

line, but it was internal. I don’t believe in 

internal whistleblower lines. If they’re going to 

report to somebody, at some point you’re going 

to get to the board.” 

Whistleblower lines should be compulsory, but 

they should be well funded and managed independently, 

says Woodford. “If they are managed by a 

firm of lawyers, then the firm can’t have any other 

trading relationship with the company. I say this 

because when I was suing Olympus (he eventually 

settled out of court for £10m), I found that many 

firms were conflicted. You want people to feel they 

have enough confidence to say who they are and 

what they are, and know that their identities will 

be protected.” 

But Woodford believes that the large cash incentives 

offered to whistleblowers in the US do not 

represent the way forward. “The person who reported 

a fraud at UBS recently received more than 

$100m: I don’t think that’s right. I think you can 

offer people some degree of protection, including 

financial, but it could be on a graduated scale of 10 

or 15 per cent of the fines placed on a company. The 

money should go back to the exchequer of the sovereign 

state where the fine was issued. 

“They may never work again so a payment of 

$2m or $4m might be reasonable, so I agree with 

the principle,” says Woodford. “But they need 

to refine it. The money needs to be sensible 

in relation to offering the person some 

financial protection, not making them 

a member of the mega rich. You actually 

damage the issue of transparency 

and honesty if you are seen to gain 

hugely from it.” 

Lawrie Holmes 

is the editor of Financial Management

Alamy, Getty Images 


Prime number 

Mobile broadband subscriptions (bn) 

2008 0.1 

2009 0.3 

2010 0.5 

2011 0.9 

2012 1.4 

2013 2.0 

2014 2.8 

2015 3.6 

2016 4.4 

2017 5.0 

Forecast for subscriptions (bn) 

0.04 

2008 

Tablets and mobile PCs 

Smartphones 

0.2 0.2 

0.08 

2009 

0.1 

2010 

0.4 

0.2 

2011 

0.6 

rise of the 

smartphone 

0.3 

2012 

0.9 

0.3 

2013 

By the end of this year, there could be more smartphones on 

the planet than humans, says equipment-maker Cisco, and by 

2016 there could be 10 billion smartphones. Looking to 2020, 

Cisco predicts 50 billion devices of various kinds connected. 

According to Wim Elfrink, Cisco’s head of globalisation, at 

present only 0.2 per cent of such devices are connected. 

1.2 

0.4 

2014 

1.7 

0.5 

2015 

2.2 

By 2017, the volume of 

mobile data traffic will 

be 21 times greater 

than it was in 2011, 

representing a rise of... 

2,100% 

0.6 

2016 

2.7 

0.7 

2017 

Mobile broadband 

subscriptions will 

increase from 900m 

to five billion by 2017, 

representing a rise of... 

455% 

35 

3.1 

Source: Ericsson

36 

The list 

ways to... 

Illustration 

by Borja Bonaque 

…control T&E expenses 

One problem that many finance 

departments face during a downturn 

is that travel and entertainment (T&E) 

expenses head north, while revenues 

head south. It sparks awkward questions 

around the boardroom table, and calls to 

cut these expenses. So just how can 

those T&E expenses be controlled? 


1 

Develop a 

T&E policy 

“A T&E policy can provide a business 

with control over direct and indirect 

costs, encourage travellers to use 

preferred suppliers, improve 

compliance to a preferred-supplier list 

by using negotiated rates and meet 

contractual obligations, resulting in 

savings and increased productivity,” 

says Karen Penney, vice president and 

general manager UK of global corporate 

payments at American Express. 

“Approved payment methods 

are important for controlling T&E 

spend and give many financial and 

administrative benefits, so outlining 

them in the policy is vital.” 

“It’s important that companies 

lay down guidelines for their employees 

as this saves time and reduces the 

risk of ambiguity or excessive 

spending,” adds Eva Bogowicz, 

financial controller at Silverdoor, 

a global accommodation provider.


2 

A T&E policy that rubs against the grain 

of how staff work can be a constant 

source of friction, rather than the basis 

of a smooth administrative process. 

Policies based on mandates that are 

over-prescriptive and enforced with 

a heavy hand don’t work, argues Dean 

Forbes, chief executive of KDS, an 

expense management services 

company. “It’s incumbent on the policy 

to make it easy to do the right thing, 

and easy normally means choice.” 

One company that has taken that 

philosophy on board is Salesforce.com, 

an enterprise cloud computing 

company. It has provided employees 

with an app that lets them compare their 

own costs and carbon footprint against 

colleagues and the company believes it 

contributed to a 9 per cent cut in travel 

costs last year. 

3 

It sounds obvious, but not all T&E 

policies encourage employees to 

consider options that don’t include 

making a journey. “Companies can 

better control T&E expenses by 

combining trips to several nearby 

areas, minimising the travel time and 

cost involved,” suggests Bogowicz. 

“Companies should weigh up the value 

of the trip with the costs involved and limit 

the number of employees who travel.” 

This is also where technologies, such 

as Skype, can play a part by turning 

a lengthy trip into a laptop-to-laptop 

conversation. For meetings where Skype 

is not sophisticated enough there are 

other options, such as BT One 

Collaborate, which provides audio, 

video, web conferencing and streaming. 

A recent update allows call participants 

to communicate in high-definition video 

while sharing documents. 

4 

Get employees 

involved 

reduce the 

number of trips 

Use approved 

travel carriers 

Even with greater use of technology, 

there is still a need for business trips. 

But booking them can be complex 

because rail and airline providers offer 

a bewildering range of ticketing options. 

It’s normal for larger companies to 

have preferred carriers, notes Forbes. 

“Smaller companies with fewer journeys 

can control carrier choice by making 

sure that employees are only reimbursed 

for appropriate flights at an agreed class 

of travel,” he says. 

“Employees should be required to 

use designated suppliers for air travel, 

accommodation and car rental services,” 

says Bogowicz. “All employees should 

be given detailed information on their 

budget before travelling anywhere and on 

whether there will be any reimbursement 

outside of the T&E policy.” 

5 

Hotel costs are a key area where T&E 

expenses can escalate unexpectedly. 

Forbes advises signing up to a hotel 

group’s preferential payment 

mechanism, which enables the 

company to pay direct, rather than 

reimbursing an employee after the trip. 

Many hotels offer deals for rooms 

booked in advance. “Companies can 

save money by looking at the number of 

nights that they may need over a year 

and contacting the hotel for a preferred 

corporate rate,” says Sarah Ahmed, 

sales and marketing director at the 

Lancaster London hotel. 

“Find out during the booking process 

whether there are services that can be 

paid for in advance at a discount, such 

as internet and breakfast,” she adds. 

Bogowicz says: “Serviced apartments 

are a great alternative to hotels, 

especially if a number of people are 

travelling together. Because they can 

eat in, they save on restaurant bills.” 

6 

Seek good 

hotel deals 

Monitor 

expenses in 

real time 

Too often, the finance department is 

faced with approving unauthorised 

expenses – or causing an almighty row 

with a key employee – because the 

money has been spent. 

But because most employees own 

smartphones, they can now input 

expenses on the move using an app. 

7 

A ten-day trip to the US can attract 

roaming costs of between £660 and 

£1,200, according to figures from 

TEP Wireless. It hires out “local” 

smartphones and wi-fi modems, 

which can connect laptops and 

other devices from £4 a day. 

8 

reduce 

mobile phone 

roaming costs 

Use corporate, 

pre-paid cards 

37 

“Managers need to be equipped with 

the tools and systems to manage 

travel and expenses costs pro-actively,” 

says Sanjay Parekh, managing director 

at WebExpenses. 

“Software should contain a pre-trip 

functionality whereby managers can 

approve expenses before a trip and not 

after, when it is too late. Mileage claims 

can be integrated with programs such 

as Google Maps, enabling accurate 

postcode-to-postcode measurements 

when making claims.” 

Employees can only spend the money 

that is loaded on to the pre-paid card 

so there is no danger of them going 

over budget. 

For example, more than 2,000 haulage 

drivers use Contis Group’s credEcard to 

pay for petrol, accommodation and other 

incidentals as they drive around Europe. 

Mike Fromant, group managing 

director at Contis Group, argues that 

pre-paid cards help to streamline 

expenses administration. Instead, a 

finance function uses a software 

program to manage transactions and 

upload new cash to cards. 

It’s safer for the drivers, too, who used 

to have large amounts of cash in their 

vehicles. Since the drivers have started 

to use their cards, they’ve suffered fewer 

personal attacks. 

“It is rare for a card provider to be able 

to improve the safety of a user’s working 

conditions, as well as making their 

operations more efficient and 

convenient,” boasts Fromant. 

Peter Bartram is the author of 

The Perfect Project Manager (Random 

House Business Books)

In association with 


Notes 

Paper 

Study 

Paper C03 

Fundamentals 

of Business 

Mathematics 

Interest is normally expressed in the form of an 

annual percentage rate, but not every loan lasts 

exactly one year, of course, so a mathematical 

technique is needed to calculate an actual charge 

By Bob Scarlett 

Accountant and consultant 

I 

nterest is a fee paid by a borrower of assets to the 

owner of those assets as a form of compensation 

for using them. It may be calculated on a “simple” 

basis, whereby it’s charged on the original principal 

only, or on a “compound” basis, whereby it’s 

charged on the principal plus the interest that has 

accumulated on each stated payment date. 

Say we are lending £100 for a year and charging 

interest at 1 per cent a month. At the end of the first 

month, £1 in interest is charged (£100 x 1%) and that 

amount is added to the principal. The principal 

becomes £101. At the end of the second month, £1.01 

in interest is charged (£101 x 1%) and the principal 

becomes £102.01. This sequence goes on until the 

end of month 12, with interest being charged at 1 per 

cent a month on a compound basis. The amount 

repayable at the end of the term will be £112.68. This 

figure may be arrived at through the following calculation: 

£100 x 1.01 12 = £112.68, using the formula 

S = X(1 + r) n , where S is the future value of a sum, X, 

invested for n periods and compounded at r per cent. 

To put it another way, the interest rate of 1 per 

cent a month corresponds to an annual percentage 

rate (APR) of 12.68 per cent (that is, [1 x 1.01 12 ] – 1). 

‘UK consumer 

credit law 

requires 

financial 

services firms 

to express 

their interest 

charges as APRs’ 

P1 

Performance Operations (also relevant to 

papers C01 and P2) p42 

It’s also possible to work in the reverse direction, 

with an annual rate being expressed as an equivalent 

monthly compound rate. For example, say we are 

lending £100 for a year at an APR of 15 per cent 

chargeable on a monthly basis. A 15 per cent annual 

rate corresponds to a monthly rate of 1.1715 per cent. 

This figure can be worked out using the following 

calculation: (1.15 1/12 ) – 1, or ( 12 √1.15) – 1. 

If we lend £100 for a year with interest chargeable 

at 1.1715 per cent a month, the amount repayable at 

the end of month 12 will be £100 x 1.011715 12 = £115. 

When banks lend (or take deposits), it’s usual for 

the associated interest rate to be expressed as an APR 

but with interest charged on a daily basis. The interest 

rate may be a fixed amount for the whole term or 

it may be a variable rate linked to some benchmark. 

Large loans may be charged at a variable rate linked 

to the London inter-bank offered rate (Libor). This 

is an independently calculated set of rates, based on 

the rates at which banks are lending to each other. 

So a bank might lend £1m to a customer at Libor 

plus 1 percentage point – eg, 4 per cent if Libor is 

3 per cent on a particular day. The rate applicable to 

this loan will be revised automatically each day. 

Deposits may be placed with banks for alternative 

periods. So, if you have £1m to deposit, a bank may 

quote you fixed rates as follows: 

l One month: 4 per cent. 

l Three months: 4.5 per cent. 

l Six months: 4.8 per cent 

l One year: 4.6 per cent. 

These rates reflect the bank’s view of how market 

interest rates are likely to move during the year. The 

rates quoted are APRs and, typically, interest is paid 

on a daily basis. The periods stated are approximations, 

because the number of days in any month 

varies between 28 and 31. Also, the day exactly X 

months from now may not be a banking day. Most 

UK banks dealing with sterling transactions calculate 

interest on the basis of a 365-day year and the 

number of days on the basis of overnight holdings. 

Let’s work through an example to illustrate these 

points. Say you deposit £1m in a bank for three


Paper C03 (also relevant to C01) 

Fundamentals of Business Mathematics 

months at 4.5 per cent. The deposit is made on 15 

April and it matures at 16 July on normal UK banking 

terms. What interest will be paid at maturity? 

The term of the deposit will be 15 + 31 + 30 + 16 = 

92 days. The daily interest rate will be (1.045 1/365 ) – 1, 

which needs to be applied 92 times on a compound 

basis to arrive at the interest charge. Therefore the 

interest payable on £1m for 92 days at an APR of 

4.5 per cent is (£1,000,000 x 1.045 92/365 ) – £1,000,000 

= £11,156.44. 

British banking conventions do not apply all over 

the world, of course. For example, US banks dealing 

with dollar transactions have traditionally 

worked out their interest charges on the basis of an 

assumed 360-day year. So, if an American bank 

quoted 4.5 per cent on a $1m deposit from 15 April 

to 16 July, the interest payable would be as follows: 

($1,000,000 x 1.045 92/360 ) – $1,000,000 = $11,312.26. 

Mathematics of this type can be found widely in 

all areas of financial management. For example, a 

company may sell goods to customers on 30-day 

credit terms, with payment beyond that date incurring 

a penalty charge on a daily basis at an APR of 

30 per cent. If a customer honours a £1,000 invoice 

on day 47, for instance, its payment is 17 days late 

and a penalty charge will be incurred as follows: 

(£1,000 x 1.30 17/365 ) – £1,000 = £12.29. 

UK consumer credit law requires financial services 

firms to express their interest charges as APRs. 

This enables consumers to compare rates easily. 

If a specialist short-term lender such as a pay-day 

loan company offers to lend a customer £200 for a 

term of 10 days with £215 repayable at the end, the 

APR of this loan can be calculated as follows: 

l Let 1 + APR (expressed as a number) = Y. 

l This gives us 200 x Y 10/365 = 215. 

l Therefore Y = (215 ÷ 200) 365/10 = 14. 

l So the APR of the loan is 13, or 1,300 per cent. 

This model can be extended to the concept of 

present value, whereby a future cash flow can be 

expressed in terms of its present value and a stream 

of future cash flows can be expressed as a net present 

value (NPV). For example, say we are assured of 

receiving £1 at year one – ie, year from now (year 

zero) – and the current interest rate is 10 per cent. 

We can borrow a sum at year zero such that we can 

repay it with 10 per cent interest added at year one 

using the £1 when we receive it. If the amount we 

borrow at year zero is P, then 1.10 x P = £1.00. So the 

year-zero present value (PV) of £1 at year one, with 

a 10 per cent interest rate, is £1 ÷ 1.10 = £0.909. Similarly, 

the PV of £1 at year two is £0.826 (£1 ÷ 1.102 ) 

and the PV of £1 at year three is £0.751. The figures 

0.909, 0.826 and 0.751 are the 10 per cent discount 

rates at years one, two and three. We can apply these 

to future cash flows to work out their present value. 

One of the features of any loan is that, when all 

the cash flows associated with it (advance, interest 

and repayment) are discounted at their own interest 

rate, the sum of their PVs must, by definition, be 

zero. Say, for example, we lend £100 for three years 

at 10 per cent, with interest payable annually. Discounting 

the cash flows associated with the loan to 

PV gives the following outcome: 

Year Cash flow (£) Discount PV(£) 

0 -100 1.000 -100.000 Advance 

1 10 0.909 9.091 Interest 

2 10 0.826 8.264 Interest 

3 110 0.751 82.645 Interest and repayment 

0.000 Net present value 

This has numerous practical applications in 

finance. Say we’re planning to lend £1,000 for three 

months at an APR of 25 per cent, repayable in equal 

instalments (principal plus interest) on the last day 

of each month. We can calculate the instalments as 

follows: the monthly interest rate is 1.251/12 – 1 = 1.877 

per cent. So the applicable discount factors for 

months one, two and three are 0.9816 (ie, 1 ÷ 1.01877), 

0.9635 (ie, 1 ÷ 1.018772 ) and 0.9457 respectively. We 

know that the NPV of the cash flows associated with 

the loan must be zero when they are discounted at 

their own interest rate. So, if the equal monthly 

instalments are A, then A(0.9816 + 0.9635 + 0.9457) 

= £1,000. Therefore A = £345.93. This can be confirmed 

using the following discount calculation: 

Month Cash flow (£) Discount PV(£) 

0 -1,000 1.000 -1,000.00 

1 345.93 0.9816 339.56 

2 345.93 0.9635 333.30 

3 345.93 0.9457 327.16 

0.02 

So the NPV of the cash flows is virtually zero, which 

shows that £345.93 is the right monthly instalment. 

Applications of the model explored in this article 

are spread throughout CIMA’s syllabus. Students 

should be comfortable with the required algebra and 

be able to make calculations involving powers and 

roots using a scientific calculator. 

Further reading CIMA Official Study Text – C03 Fundamentals of Business Mathematics, CIMA Publishing, 2012.

42 Study notes 

Paper P1 

Performance 

Operations 

The concept of accounting for overheads is a good 

example of how a topic introduced at C01 level 

remains fundamental to your grasp of increasingly 

sophisticated ideas covered in papers P1 and P2 

By Ian Janes 

CIMA course leader at Newport Business School 

As you enter your workplace or college, 

it may not be instantly obvious, but 

with a little thought you will realise 

that overhead expenditure is all 

around you. The building itself may 

be rented and the organisation occupying 

it will probably have to pay business rates of 

some sort to the local authority – and that’s before 

you’ve even stepped through the door. 

Once inside, you may meet a receptionist at the 

front desk, or a porter or caretaker, and a little further 

on you may come across a coffee bar or a refectory. 

Of course, these are merely a few examples of 

the many types of overheads that can be incurred 

by an organisation. 

Taking a wider view, it’s important to formally 

distinguish direct costs, which “can be specifically 

and exclusively identified with a particular cost 

object”, from indirect costs, which “cannot be identified 

specifically and exclusively with a given cost 

object”, according to Colin Drury in Management 

and Cost Accounting (Cengage Learning, 2012). Crucial 

to these definitions is the notion of a cost object, 

which we often assume when answering exam questions 

to be a unit of a product or service, but which 

can be a department or geographical area or, as Drury 

observes, “anything for which one wants to measure 

the cost of resources used”. 

In your studies you will encounter this concept 

first in paper C01, Fundamentals of Management 

Accounting. Part 1(e) of learning outcome B (“Cost 

identification and behaviour”) states that candidates 

must be able to “calculate direct, variable 

and full costs of products, services and activities 

using overhead absorption rates to trace indirect 

costs to cost units”. 

Let’s look at a scenario that might typically 

appear in a C01 exam to illustrate the fundamental 

principles. The following figures are given for 

Dee Co, which has one department, machining: 

‘Don’t think 

that, once you 

have passed an 

exam, you can 

forget what has 

gone before’ 

Dee Co Machining department 

Budget 

Production overheads $180,000 

Machine hours 45,000 

Direct labour hours 7,500 

Actual results 

Production overheads $175,000 

Machine hours 42,500 

Direct labour hours 8,000 

One product, the Exe, has a direct cost of $15 per 

unit and the manufacture of each unit requires two 

machine hours and three labour hours. So, before 

production starts and perhaps before a price is set, 

Dee Co wants to know the full cost of a unit of Exe. 

First, we need to determine an overhead absorption 

rate (OAR) for the department. The general way 

to do this is to divide the budgeted overhead by the 

budgeted activity for the cost centre. Given that we 

are talking about a machining department, it’s most 

appropriate to use machine hours as the basis for 

absorption. So the budgeted OAR = $180,000 ÷ 

45,000 machine hours = $4 per machine hour. 

This enables Dee Co to obtain its budgeted full 

cost per unit by adding the direct cost ($15) to the 

overhead (2 hours x $4 per machine hour) to give 

$23 per unit. 

The OAR is based on budgeted figures, of course, 

and the actual machine hours worked and the 

actual overheads may well differ from those budgeted. 

Where this is the case, an over/under absorption 

of overheads will occur – a common subject 

of C01 exam questions. In Dee Co’s case 42,500 

actual machine hours x $4 per machine hour gives 

an absorbed overhead of $170,000, compared with 

the actual overhead of $175,000, meaning that the 

overhead has been under absorbed by $5,000. 

There are two reasons for this: 2,500 fewer 

machine hours than expected were used, which 

has caused an under absorption of 2,500 x $4 = 

$10,000, but this has been offset partially by the 

fact that the actual overhead turned out to be 

$5,000 lower than the budgeted figure. 

P1 students should be aware that fundamentals 

in management accounting, such as accounting 

for overheads, don’t end with C01. Future papers 

expect you to build what you have learned. It is 

vital to see the syllabus as a whole. The knowledge 

you gain in C01 and P1 will be applicable in the


Paper P1 (also relevant to C01 and P2) 

Performance Operations 

P2 paper as well. Don’t think that, once you have 

The project team has also obtained the follow- 

passed an exam, you can forget what has gone 

ing information about the support activities: 

before. Similarly, students who have been granted Activity Cost driver Overheads ($) 

an exemption from exams such as C01 should Theatre preparation for each session No of preparations 864,000 

be aware that a number of subjects – including Operating theatre usage Procedure time 1,449,000 

accounting for overheads, standard costing, var- Nursing and ancillary services Inpatient days 5,428,000 

iance analysis and budgeting – may all be retested. Administration Sales revenue 1,216,000 

To paraphrase one examiner speaking recently at Other overheads No of procedures 923,000 

a teachers’ conference: “Having an exemption 

means that the student is exempt from the exam, 

9,880,000 

not exempt from the knowledge.” 

Part A requires us to calculate the profit per pro- 

Let’s look at an example in the November 2010 

cedure for each of the three procedures, using the 

P1 paper. Part A of question 3 illustrates the fun- 

current basis for charging the costs of support 

damental principle of using a blanket overhead 

activities to them – ie, a single overhead rate, 

absorption rate, which C01 covers in detail, while 

based on revenue. 

part B concerns activity-based costing. (Note that 

So the budgeted OAR = budgeted overhead ÷ 

this question demonstrates that section C ques- 

budgeted sales revenue. In this case it’s $9,880,000 

tions in P1 aren’t always on standard costing and 

÷ [($8,000 x 600) + ($10,000 x 800) + ($6,000 x 400)] 

investment appraisal respectively.) 

= $0.65 per $1 of revenue. 

The question’s scenario concerns a healthcare 

So the cost of a hip replacement procedure can 

company, which specialises in hip, knee and 

be shown as follows: 

shoulder replacement operations. As well as pro- 

Surgeon’s fee $1,200 

viding these surgical procedures, it offers pre- and 

Surgeon’s consultation fee (8% x $300) $24 

post-operative care, in a fully equipped hospital, 

Medical supplies $400 

for patients undergoing the procedures. Surgeons 

Overhead cost ($8,000 x 0.65) $5,200 

are paid a fixed fee for each procedure they perform 

and an additional amount for each follow- 

$6,824 

up consultation. These are held only if there are 

When compared against the revenue from a hip 

complications relating to the surgery. No extra fee 

procedure of $8,000, this gives a profit of $1,176. 

is charged to patients for follow-up consultations. 

Now try calculating the cost of the other two 

All other staff are paid annual salaries. 

procedures using this method and work out their 

The company’s costing system uses a single 

respective profits per procedure. The answers can 

overhead rate, based on revenue, to charge the 

be found at bit.ly/P1Nov2010Answers. 

costs of support activities to the procedures. Con- 

Part B of the question is where we really move 

cern has been raised about the inaccuracy of the 

into P1 territory – namely, the nuts-and-bolts oper- 

procedure costs and the company’s accountant 

ation of an ABC system. The idea here, first pro- 

has started a project to implement an activityposed 

in 1998 by Robert Kaplan and Robin Cooper 

based costing (ABC) system. 

in Harvard Business Review, is that traditional 

The project team has collected the following 

blanket overhead absorption is too simple for 

information on each of the surgical procedures: 

modern manufacturing environments, leading to 

Procedure information Hip Knee Shoulder inaccurate costing. As a result, overheads need to 

Fee charged to patients per procedure $8,000 $10,000 $6,000 be broken down into pools according to how they 

No of procedures a year 600 800 400 are driven. In other words, not all types of over- 

Average time per procedure 2.0 hours 1.2 hours 1.5 hours head expenditure are driven in the same way. To 

No of procedures per theatre session 2 1 4 assume that they are leads to inaccurate unit costs. 

Inpatient days per procedure 3 2 1 But it’s not only manufacturing environments 

Surgeon’s fee per procedure $1,200 $1,800 $1,500 that have this problem. In fact, it could be argued 

% of procedures with complications 8% 5% 10% that service environments – eg, the healthcare 

Surgeon’s fee per consultation $300 $300 $300 company – where overheads often form a greater 

Cost of medical supplies per procedure $400 $200 $300 proportion of total costs, need ABC even more.




In exam questions such as this, the cost pools are 

usually clear for you to see and in this case there 

are five, all driven in different ways. 

The first of these pools concerns theatre preparation. 

Note the similarity to the budgeted OAR 

formula when we state that the cost driver rate for 

theatre preparation = the overhead attributable 

to theatre preparation ÷ the number of preparations. 

Bear in mind that, if there are two procedures 

per session, 600 procedures will need only 

300 preparations etc. So it’s $864,000 ÷ [(600 ÷ 2) 

+ (800 ÷ 1) + (400 ÷ 4)] = $720 per preparation. 

This means that each hip replacement would 

be charged with $360, because two procedures can 

be performed per theatre session. 

The second pool is operating theatre usage. The 

cost driver rate for this is calculated as follows: 

$1,449,000 ÷ [(600 x 2) + (800 x 1.2) + (400 x 1.5)] 

= $525 per hour. It’s important that you show workings 

such as this and express the cost driver rate 

in full – eg, per theatre preparation or per hour. 

Performing the calculations for the other three 

pools gives us the following cost driver rates: 

Nursing and ancillary services (per inpatient day): 

$5,428,000 –: [(3 days x 600) + (2 days x 800) + (1 day x 400)] = $1,428 

Administration (per $1 of revenue): 

$1,126,000 –: [($8,000 x 600) + ($10,000 x 800) + ($6,000 x 400)] = $0.08 

Other overheads (per procedure): 

$923,000 –: 1,800 = $513 

We can now use the five cost driver rates to complete 

our calculation of the overhead cost per hip 

procedure as follows: 

Activity Overheads per procedure ($) 

Theatre preparation $720 –: 2 = 360 

Operating theatre usage $525 per hour x 2 hours = 1,050 

Nursing / ancillary services $1,428 per day x 3 inpatient days = 4,284 

Administration $0.08 x $8,000 fee per procedure = 640 

Other overheads $513 per procedure = 513 

Total overhead cost per procedure 6,847 

The direct costs of a procedure remain the same, 

of course, so the full cost of a hip procedure under 

ABC is as follows: 

Surgeon’s fee $1,200 

Surgeon’s consultation fee (8% x $300) $24 

Medical supplies $400 

Overhead cost $6,847 

$8,471 

If we compare this cost against the $8,000 fee 

charged to patients, we can see that there is a loss 

of $471 per hip procedure. Earlier we thought that 

there was a profit on each procedure of $1,176. 

Now work out the cost of the shoulder and knee 

procedures using the ABC method and calculate 

the revised profit (or loss) per procedure. Again, 

you can check your answers against the solutions 

provided at bit.ly/P1Nov2010Answers. 

The sort of information provided by these calculations 

can help managers in the running of the 

business. In the example above, for instance, it 

would seem that the fee charged to patients for a 

hip replacement procedure would need to be 

increased in order to make providing it profitable 

to the company. 

It’s also important to understand why there are 

such differences in the overhead costs of each procedure. 

We can see from our calculations that a 

hip procedure is charged with more overhead 

under ABC ($6,847) than it was under the single 

overhead rate ($5,200). This contrasts with the 

knee procedure, which was charged $6,500 under 

the single overhead rate but is charged only $5,519 

under ABC. The difference is explained by the way 

in which the respective procedures make use of 

the activities. For example, the hip procedure 

needs three inpatient days at $1,428 per day, compared 

with two days for a knee procedure, which 

clearly has a significant effect. Other similar comparisons 

can be performed, but the key general 

point is that the overhead is now not being driven 

solely by the revenue earned from each procedure, 

which meant that a knee procedure was charged 

more overhead than a hip procedure. Instead, it 

is being driven by each procedure’s use of activities, 

which results in the reverse effect. 

What you’re actually doing by performing this 

sort of analysis is a form of strategic activity-based 

management (ABM), which can be described as 

“doing the right things”. By using the ABC information, 

managers can decide which products to 

develop and which activities to use. It can focus 

on profitability analysis, identifying which services 

(in the case of the healthcare company) and/ 

or customers are the most profitable and for which 

sales volume should be increased. 

ABM is a concept that you are more likely to 

encounter in detail in P2, notably listed under part


1(f) of learning outcome B (“Cost planning and 

analysis for competitive advantage”). This states 

that candidates should be able to “apply the techniques 

of activity-based management in identifying 

cost drivers/activities”. 

CIMA’s official terminology defines strategic 

ABM as “actions, based on activity-based analysis, 

that aim to change the demand for activities 

so as to improve profitability”. In contrast, it 

defines operational ABM as “actions, based on 

activity driver analysis, that increase efficiency, 

lower costs and improve asset utilisation”. So, 

whereas strategic ABM is about doing the right 

things, operational ABM is more a case of “doing 

things right”. 

For the purposes of the P2 exam, ABM generally 

acts as a collective term for a number of techniques 

that a business can use in order to gain a 

competitive advantage. These include: 

l Direct product profitability, which focuses on 

key products. 

l Cost reduction, which focuses on key activities. 

l Customer profitability analysis, which focuses 

on – you’ve guessed it – key customers. 

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Question 3 of September 2010’s P2 paper contains 

an excellent illustration of the use of an ABM 

technique, customer profitability analysis. It 

concerns ST, a distribution company that buys a 

product in bulk from the manufacturer, repackages 

it into smaller packs and sells these to retail 

customers. ST’s customers vary in size, so the scale 

and frequency of their orders also vary. Some customers 

order large quantities every time, whereas 

others order only a few packs. 

ST’s accounting system produces very basic 

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is unaware of the costs of servicing individual customers. 

But it has decided to investigate the use 

of direct customer profitability analysis (DCPA). 

The company would like to see the results from a 

small sample of customers before it decides 

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48 



for two customers, and for the whole company, 

for the previous period is as follows: 

Customer B Customer D Company 

Factory contribution 

Number of: 

$75,000 $40,500 $450,000 

Packs sold 50,000 27,000 300,000 

Sales visits to customers 24 12 200 

Orders placed by customers 75 20 700 

Normal deliveries to customers 45 15 240 

Urgent deliveries to customers 5 0 30 

Activity costs $ 

Sales visits to customers 50,000 

Processing orders placed by customers 70,000 

Normal deliveries to customers 120,000 

Urgent deliveries to customers 60,000 

At C01 level, the costs above would have been 

bundled into one pot of $300,000 of overhead 

expenditure, absorbed on a blanket basis: OAR = 

$300,000 ÷ 300,000 packs sold = $1 per pack. Customer 

B would therefore absorb $50,000 of the 

overhead, while D would absorb $27,000. 

Armed with your ABC knowledge from P1 and 

applying it to the ABM concepts of P2, you can provide 

a different analysis by looking at the four overhead 

types and calculating four cost driver rates: 

l Sales visits to customers = $50,000 ÷ 200 visits 

= $250 per visit. 

l Processing customers’ orders = $70,000 ÷ 700 

orders = $100 per order. 

l Normal deliveries to customers = $120,000 ÷ 240 

deliveries = $500 per delivery. 

l Urgent deliveries to customers = $60,000 ÷ 30 

deliveries = $2,000 per delivery. 

These cost driver rates can be used to obtain a 

measure of the profitability of both customers: 

Customer B D 

Costs $ $ 

Sales visits 250 x 24 = 6,000 250 x 12 = 3,000 

Processing orders 100 x 75 = 7,500 100 x 20 = 2,000 

Normal deliveries 500 x 45 = 22,500 500 x 15 = 7,500 

Urgent deliveries 2,000 x 5 = 10,000 2,000 x 0 = 0 

46,000 12,500 

Contribution 75,000 40,500 

Profit 29,000 28,000 

You can see that the overhead assigned to customer 

B under ABC ($46,000) is not substantially 

Study notes 

different from the figure attributed under blanket 

absorption ($50,000), but for customer D it is 

$12,500 under ABC as opposed to $27,000. Given 

that the customers are profitable and there seems 

to be no immediate need to stop supplying them, 

this information can help managers to make better 

operational decisions and improve profitability. 

We may wish to consider why the profit from 

each customer is similar, yet customer B’s contribution 

is almost double that of D. Of course, the 

difference is the level of overhead assigned to each 

customer. ST may wish to investigate why B generates 

three times the number of normal deliveries 

generated by D, but less than twice its factory 

contribution. This could indicate that B places 

many small orders, rather than a few large ones. 

It may prompt ST to try to improve its profits by 

incentivising B to make fewer, but larger, orders. 

Similarly, why does B require urgent deliveries 

when D doesn’t? ST may wish to work out how to 

improve communications with B so as to prevent 

the need for urgent deliveries. 

What we have here is a good case of operational 

ABM – i.e. “doing things right”. Those activities 

that add value to the service can be identified and 

improved. Activities that don’t add value should 

be reduced to cut costs without reducing customer 

satisfaction. Where, for example, customers are 

requesting urgent deliveries, we should find out 

why and try to limit these occurrences. Similarly, 

every effort should be made to work out how to cut 

the cost of activities such as normal deliveries. 

So, from blanket OARs in C01 to a discussion of 

both strategic and operational management issues 

in P1 and P2, we can see that a sound understanding 

of accounting for overheads is essential. 

IMPOrTANT INFOrMATION FOr 

STUDENTS ExEMPT FrOM ANY ExAM 

Exemptions are great – they recognise the value of your past 

studies and get you off to a flying start. But, because the syllabus is 

progressive – i.e. papers often draw on knowledge covered in 

previous exams – you need to be confident in all topics covered by 

any paper for which you’ve been granted an exemption. 

To show how papers in any of the three pillars are related, FM 

has published three articles. The first is above. The other two offer 

advice from the relevant examiners for the Financial pillar 

(available at www.cimaglobal.com/financialexemptionsarticle) 

and the Enterprise pillar (www.cimaglobal.com/enterprise 

exemptionsarticle). You are strongly advised to read these if you 

have accepted, or are planning to accept, any exemption. 

Further reading CIMA Official Study Text – C01 Fundamentals of Management Accounting, CIMA Publishing, 2012; 

CIMA Official Study Text – P1 Performance Operations, CIMA Publishing, 2012; 

CIMA Official Study Text – P2 Performance Management, CIMA Publishing, 2012.


Exam notice 

Visit www.cimaglobal.com regularly for updates 

November 2012 exam results 

The November T4 on PC exam results 

will be released on 13 December. All 

other November exam results will be 

released on 15 January. 

Your results will be sent by secondclass 

post or airmail to the address 

given in your “My CIMA” account. To 

receive your results by email as well, 

update your communication preferences 

in “My CIMA”. 

The institute cannot give out results 

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at any CIMA office. 

You will have received an attendance 

slip for each paper you sat. You should 

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the exams as proof of your sitting. 

Marks per question 

Your exam results will include a breakdown 

of the marks awarded for each 

answer. You should review this information 

together with the exam paper, 

model answers and post-exam guide to 

help identify any problem areas. 

Question papers and 

model answers 

The November 2012 question papers and 

model answers are now available to 

download free through your “My CIMA” 

account. Check past issues of Velocity 

(www.cimaglobal.com/velocity) to find 

more model answers. 

Post-exam guides 

Post-exam guides for each paper above 

Certificate level will be available online 

in February. These are essential reading 

for unsuccessful candidates and those 

studying a new subject. 

Script and administrative 

review services 

After the November exam results are 

released CIMA will offer a script review 

service for the three Strategic level papers 

and the T4 part B Case Study exam. The 

service is available only if you received 

between 40 and 49 marks (between 20 

and 24 credits in T4 part B) in the paper 

for which you want a review. 

An administrative review service is 

available for all Operations, Management 

and Strategic level papers. 

Further information about these services 

and how to apply for them can be 

found in the “After the exams” section at 

www.cimaglobal.com/students/exams. 

March 2013 T4 on PC and 

‘extra’ exams 

The “extra” exams will be held on 25, 

26, 27 and 28 February, and 1 March. To 

sit these exams (where available), you 

must previously have sat or been absent 

from the exam. T4 students may also 

sit for the first time. 

Check www.cimaglobal.com/exams 

for guidance on entering, centre availability 

and centre contact details. The 

closing date for entries is 22 January. 

Information for March ‘extra’ 

exam candidates wishing to 

enter the May exams 

When you receive your March “extra” 

exam results you will have an additional 

period from 22-27 March in which to 

enter the May exams without being 

charged the usual late-entry fee. Please 

don’t enter for any papers before receiving 

your results for the “extra” exams. 

May 2013 exams 

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Online entry will open early in February 

– enter by logging into your “My 

CIMA” account. The standard closing 

date for entries is 5pm (GMT) on 14 

March. If you enter after this date you 

will have to pay an additional late-entry 

fee. The deadline for late entries is 5pm 

(GMT) on 21 March. 

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when you enter. Details can be found 

at www.cimaglobal.com/fees. 

Pre-seen material for papers at 

Strategic level and T4 part B 

The pre-seen material for the March and 

May 2013 T4 part B Case Study exams will 

be available for students to download 

from www.cimaglobal.com/t4preseen 

from mid-January. 

The March 2013 “extra” exam preseen 

material for E3, F3 and P3 can be 

downloaded from www.cimaglobal.com/ 

strategicpreseen now. It’s your responsibility 

to download it and familiarise yourself 

with it. A “clean” copy of the pre-seen 

material and further unseen material will 

be provided in the exams. You cannot take 

any notes with you into the exam hall. 

Computer-based assessments 

at Certificate level 

For details on entering for a computerbased 

assessment at Certificate level, visit 

www.cimaglobal.com/certificateentry. 

If you wish to sit Operations or Management 

level papers in May 2013, you 

must have completed all your Certificate 

level subjects by 12 March. 

CIMAstudy.com 

Visit www.cimastudy.com for information 

about the institute’s online learning 

resource for Certificate, Operations, Management 

and Strategy students, which 

can be used for self-study or as part of a 

blended approach. 

CIMAsphere 

Visit www.cimaglobal.com/sphere, the 

institute’s online community, to ask questions, 

find a study buddy, share information 

and seek expertise and support 

among CIMA students, members and 

alumni. You can also read useful blogs on 

studying and the exams. 

Queries 

Visit www.cimaglobal.com/students/ 

exams or get in touch with CIMA Contact 

(cima.contact@cimaglobal.com) or your 

local office (see panel, page 47). 

Code of ethics CIMA members and students are required to comply with the CIMA code of ethics. 

Ensure that you are familiar with the code and how to apply it. 

Further resources are available at www.cimaglobal.com/ethics. Also see this month’s Hot Potato, page 12.

50 

Technical notes 

Notes 

Technical 

Luca Pacioli’s 

double entry and 

the birth of financial 

management 

Venetian trade was booming at the end of the 

11th century and saw the introduction of double- 

entry book-keeping. Here’s how it evolved... 

By Jane Gleeson-White 

Today, financial management is staking 

big claims in the future of accounting 

– and of the planet – with its focus on 

sustainability and the measurement 

of non-financial value, both human 

and environmental. But what about 

its past? Where did it come from? 

The story of this dynamic, 21st century-branch 

of finance reaches back into the Dark Ages. At the 

end of the 11th century the emerging city-states 

of northern Italy were swept up in a commercial 

explosion sparked by The Crusades. As trade 

flourished, the northern Italians developed a new 

kind of record-keeping to cope with the growing 

complexity of their business dealings. It was perfected 

by the merchants of Venice and became 

known as book-keeping alla veneziana: the Venetian 

method. We know it today as double-entry 

book-keeping. 

The man responsible for its codification and preservation 

– the author of the world’s first printed 

book-keeping treatise – was Fra Luca Pacioli, 

Renaissance mathematician and Franciscan friar 

Litigation funding p54 

who was, in his day, more famous than his collaborator, 

Leonardo da Vinci. As the origin of all 

subsequent book-keeping treatises throughout 

Europe, Luca Pacioli’s book-keeping tract is not 

only the source of modern accounting, but also 

ensured that the medieval Venetian method itself 

survived into our times. And so accountants have 

named Luca Pacioli the “father of accounting”. 

Born in the 1440s near Florence, Pacioli wrote 

the first mathematical encyclopaedia of Europe, 

published in Venice in 1494. It made two significant 

contributions to modern science and commerce: 

it was the first printed book to deal with 

Hindu-Arabic arithmetic and its offshoot, algebra, 

and it contained his 27-page treatise on Venetian 

accounting. Algebra would underpin the Scientific 

Revolution; Venetian accounting the Industrial 

Revolution. 

In his treatise, Pacioli recommended Venetian 

book-keeping above all others. In their ledgers, 

the Venetian merchants divided debits and credits 

into two columns. As Pacioli says, this is the most 

important thing to note in Venetian book-keeping: 

“All the creditors must appear in the ledger at 

the right-hand side, and all the debtors at the left. 

All entries made in the ledger have to be double 

entries – that is, if you make one creditor, you 

must make someone debtor.” 

Because of the power of the recently invented 

printing press to spread multiple copies of identical 

texts relatively cheaply and quickly, Pacioli’s 

book-keeping treatise, as the first printed synthesis 

of the method, made Venetian book-keeping 

the standard across Europe by 1800, the dawn of 

the industrial age. 

The first signs that double entry would be equal 

to the task of monitoring and directing this new 

industrial world of factories, wage labour and 

large-scale capital investment were found in 

England, in the works of Her Majesty’s potter, 

Josiah Wedgwood.

52 

An entrepreneurial and marketing genius, 

Wedgwood built the world’s first industrialised 

pottery manufactory. So ravenous was the appetite 

of the cashed-up classes for his vases that Wedgwood 

described it as “violent vase madness”. 

But the mania for Wedgwood vases brought the 

firm such sudden success that it could not meet 

demand. By late 1769, Wedgwood and his partner, 

Thomas Bentley, had serious cash-flow problems 

and an accumulation of stock. 

The Wedgwood way 

In response, in 1772 Wedgwood decided to use 

double-entry book-keeping to examine rigorously 

his firm’s accounts and business practices. The 

results proved enlightening. He found that the 

firm’s pricing was haphazard, its production runs 

too short to be economical, and that it was spending 

unexpectedly large amounts on raw materials, 

labour and other costs, without collecting its 

bills fast enough to finance expanding production. 

During this period of scrutiny, Wedgwood made 

an important discovery – the distinction between 

fixed and variable costs – and he immediately 

understood the implications of their difference 

for the management of his business. 

He told Bentley that their greatest costs – modelling 

and molds, rent, fuel and wages – were 

fixed: “Consider that these expenses move like 

clockwork, and are much the same, whether 

the quantity of goods made be large or small.” 

He realised that the more their factory produced, 

the cheaper these fixed costs would be per unit 

of production. In other words, by scrutinising 

his books using double entry, Wedgwood had 

uncovered the commercial benefits of mass production. 

And in the process become, perhaps, the 

first cost accountant. 

The shift in outlook required to move Pacioli’s 

book-keeping system beyond its mercantile 

origins in an exchange economy to manufacturing, 

where the emphasis is on the production of 

goods, was huge. Two books on account-keeping 

for factories published soon after Wedgwood’s 

early forays into cost accounting show the conceptual 

difficulties posed by the need to incorporate 

new elements – labour and materials per unit 

of production – into an enterprise’s accounting 

system so that managers could calculate the cost 

of each unit of production. 

The difficulty lay in the fact that the transactions 

needed to incorporate the manufacturing 

of products into the existing double-entry system 

‘In 1772, 

Wedgwood 

decided to use 

double-entry 

book-keeping 

to examine 

rigorously his 

firm’s accounts 

and business 

practices’ 


were not financial transactions; they did not 

involve the exchange of goods, but such manoeuvres 

as adding the cost of labour acquired or materials 

bought. These “non-financial” transactions 

were new – and to fit them into the 300-year-old 

system was not easy. Only after a century of factory 

production had such accounting problems 

become better grasped. 

In the same century the rise of the joint stock 

company brought double entry centre stage – and 

spawned a new profession: accounting. The huge 

amounts of capital expenditure required to build 

railways – raised from private investors on stock 

exchanges and managed by joint stock companies – 

brought new issues of accounting and accountability. 

By the 1860s in Britain, accountants were legally 

required at every phase of a company’s life. While 

in 1800 financial statements were an incidental 

product of an enterprise’s book-keeping system, by 

1900 they had become book-keeping’s raison d’être. 

And Venetian book-keeping proved to be the 

perfect mechanism for generating these financial 

statements. It could accurately record capital and 

income, as required by law and investors, it could 

distinguish between private expenses and corpo-

Getty Images/The Bridgeman Art Library 


rate costs, and it could produce data that helped 

to evaluate past investment decisions. 

With accountants now central to corporate life, 

a number of legitimate practitioners decided to 

distinguish themselves from the herd. This led 

to the incorporation by Royal Charter in 1854 of 

the Society of Accountants in Edinburgh. By 1900 

there were professional accounting associations 

in the United States and most of Europe – and in 

the 20th century the profession flourished. 

The increased significance – glamour, even – of 

accounting information and financial reporting 

after the Second World War is reflected in the massive 

investment that companies began to make in 

the presentation of their financial reports. By the 

1970s public companies were using their annual 

reports as much as a tool for public relations – to 

communicate new concepts such as “corporate 

identity”, for example – as for delivering financial 

accounts and other information. 

Accounting’s forward-looking, post-war 

exuberance was seen in its extended functions of 

financial management, forecasting and business 

planning, rather than its former cautious, pastoriented 

role associated with auditing. In 2012, in 

a new era shaped by the 2008 financial collapse 

and the environmental crisis, these more futureoriented 

accountants – management accountants 

– are well suited to address the challenges of the 

21st century in building sustainable businesses. 

The challenges of this new era are great, but 

just as Luca Pacioli’s medieval Venetian accounting 

adapted to the demands of the industrial age, 

so accountants will find new ways of dealing with 

the demands of our own. 

Double Entry: How the merchants of Venice shaped the 

modern world... and how their invention could make 

or break the planet tells the story of double-entry bookkeeping, 

from its emergence in northern Italy during The 

Crusades and its codification by Luca Pacioli in 1494, to its rise 

to prominence in the hands of a new profession – accounting – 

during the Industrial Revolution and 20th century. 

Jane Gleeson-White is a writer and editor with degrees in 

economics and literature. She’s the author of Double Entry: How 

the merchants of Venice shaped the modern world... and how 

their invention could make or break the planet (£12.99, Allen 

& Unwin, 2012), Australian Classics (2007) and Classics (2005), 

and a PhD student at the University of New South Wales. 

53

54 

Litigation 

funding 

Third-party funders come to the aid of 

finance directors seeking to reduce the 

risk of litigation and control the costs 

What is litigation funding? Litigation 

funding is the financing by 

one party of litigation brought 

by another in return for a 

percentage of any benefits 

received by the litigant. 

What is the problem? 

Litigation is a risky business and can seriously 

damage a company’s balance sheet. Some companies 

consider the management of litigation to be a 

core competence and dedicate significant resources 

to it. The pharmaceutical, tobacco, energy, insurance 

and banking sectors are well-publicised examples 

of litigious industries, and companies in these 

sectors often have large in-house legal teams and 

significant budgets dedicated towards the pursuit 

(and defence) of litigation. Claim sizes often run into 

tens of millions, and in some rare cases the outcome 

of the judgment may threaten the very survival of 

the company. It is therefore not surprising that the 

management of companies in these industries make 

it a priority to develop litigation as core skill. 

However, for directors of companies operating 

in a less litigious environment, and where significant 

actions are infrequent, the prospect of pursuing 

litigation, either as a claimant or a defendant, can 

be daunting, particularly given that management 

may lack the experience to deal with such actions. 

Litigation can be a real headache for the finance 

director, who is expected to manage the financing 

of what is an inherently uncertain and difficult-tocontrol 

expense. The English legal system is worldrenowned 

for the impartiality of its justice, but it has 

become one of the most expensive jurisdictions in 

which to resolve a dispute. In a 2007 Sunday Times 

article, the late Sir Hugh Laddie, a British High Court 

judge, lawyer and professor, attributed the high litigation 

costs (said to be three to ten times the cost in 

Germany and the Netherlands) to the labour intensity 

of cross examination, oral argument, disclosure 

of documents and witness preparation. To make 

matters worse, the English legal system is particularly 

weighted against the loser, who generally 

Getty Images 

Technical notes


55

56 Technical notes 

has to pick up the costs of the winner, known as an 

“adverse costs” award. This can make the system 

doubly expensive for the losing party. 

What is the solution? 

Before the case of Arkin v Borchard Lines Ltd & 

Others (2005), there was considerable uncertainty 

over the effect of the medieval laws of “champerty” 

and “maintenance”, or in common parlance “buying 

into someone else’s lawsuit”. However, in this case 

the Court of Appeal made it clear that third-party 

financing is a legitimate method of pursuing litigation 

and thus opened up the litigation funding 

market in the UK. 

However, litigation funding is not the “silver 

bullet” to all litigation issues faced by companies. 

For example, it is usually only financially viable to 

fund commercial litigation where a claim is for a substantial 

amount and is more commonly available to 

a claimant rather than a defendant; however, there 

are funders who will finance lower-value claims, as 

well as funders who will finance defendants. There 

are, however, some significant advantages, both 

from a commercial and accounting point of view, 

to a party that can secure funding. 

What are the advantages of litigation 

funding? 

First, and perhaps most importantly, it is possible for 

the funded party to lay off the financial risk of pursuing 

a claim in return for giving up some of the upside. 

As a result of funding, the risk profile of pursuing 

litigation changes significantly and the short- to 

medium-term cash-flow position will be improved. 

Once the funder has reviewed the merits of the case 

and agreed to proceed, they will agree to provide 

funding for both the plaintiff’s legal costs absolutely 

and also for the defendant’s costs, where the action 

is unsuccessful. Some funders may also require that 

the claimant enters into a partial conditional fee 

agreement with their lawyers to secure a reduction 

in their fees, which the lawyers only recoup if the 

claimant is successful, together with a success fee; 

this has the effect of aligning the interests of all the 

parties – claimant, lawyers and the funder. 

Second, some funders, particularly those that 

employ experienced litigators, are able to offer a 

well-informed view as to the merits of the case, effectively 

providing a free second pair of eyes and guidance 

as to which lawyers are best suited to handle it. 

This can be particularly useful for companies with 

limited experience of litigation. 

Third, litigation funded by a third party will have 

a neutral impact on the financial statements of the 

‘There are, 

however, 

significant 

advantages, 

both from a 

commercial and 

accounting point 

of view, to a 

party that can 

secure funding’ 

company, whereas self-funded litigation can have a 

negative impact on both the P&L, cash flow and disclosures. 

The following simple example illustrates 

this point. For simplicity the issue of recoverability 

of costs in the event of success has been ignored 

because it is very rare for all legal costs incurred to 

be recovered from the other side in the event that 

the case is won (and in the event of a loss it is rare 

to pay all the opposition’s costs). 

Case study 

A claimant brings a £10m claim with a 75 per cent 

probability of success, with each side expecting to 

incur legal of fees of £1m. Should the company selffinance, 

the impact will be £1m of legal costs, which 

will be expensed through the P&L in the normal way. 

A contingent asset of £8.25m should be disclosed, 

consisting of probability-adjusted damages (75 per 

cent chance of success x £10m = £7.5m) plus the 

probability-adjusted recovery of legal fees from the 

defendant (75 per cent x £1m legal fees = £0.75m). 

A liability of £0.25m should also be disclosed, 

consisting of the probability-adjusted liability 

of the defendant’s legal fees in the event that 

the case is lost (25 per cent chance of losing x £1m 

legal fees = £0.25m). 

A claimant that brings the same case but secures 

litigation funding, where the terms stipulate that the 

funder will take 30 per cent of the damages in the 

event that the claim is successful, will have a P&L 

impact of £0 (the funder picks up the legal fees) and 

a contingent asset of £5.25m consisting of ([£10m 

potential damages – £3m to litigation funder] x 75 

per cent chance of success = £5.25m) and a contingent 

liability of £0 (the funder pays the defendant’s 

legal fees in the event that the case is lost). 

For a company that runs a great deal of litigation 

and can afford the finance it is probably worth its 

while to fund the litigation itself as the cost of the 

losing cases should be outweighed by those that are 

won. However, for a company with only one case and 

little experience of running litigation, the risks are 

higher, in that it does not have a portfolio of cases 

where the winners might outweigh the losers. 

Without funding, the claimant is putting £2m at 

risk to recover £10m. With funding the claimant is 

risking £0 to “win” £7m. When litigation is not a 

developed core competence each corporate litigant 

will wish to examine at board level which option it 

prefers and what is the best and most prudent course 

for the company in the widest sense. 

Mark Spiteri, ACMA, CGMA, is a non-executive 

director of Woodsford Litigation Funding

Shutterstock 

Financial Management | December 2012/January 2013 57 

What you learn on the… 

Introduction to the City and financial markets 

Ross Tanner is the director for all City-focused public and in-house professional 

development programmes at BPP. Previously, he was an insurance company 

prudential supervisor with the Financial Services Authority after working for 

a number of banks in London and New York 

BPP runs 130 courses 

covering all aspects of 

financial services. One 

of the most popular is 

the Introduction to the 

City and financial markets. 

It’s a one-day course, from 9am to 

5pm with a couple of 15-minute breaks, 

totalling 6.5 hours altogether. 

The course will be of benefit to 

those who are new, recent or potential 

recruits to the financial services industry, 

with little or no knowledge of the 

City. If you wish to gain a good overview 

of financial instruments and the 

markets in which they trade, then this 

course is for you. 

At its heart, the City is a marketplace 

like any other, but it can often seem so 

much more complicated than that. This 

intensive course introduces, in a logical 

and jargon-busting way, the basic 

structure and operations of the City’s 

financial markets. No prior knowledge 

of the City or financial markets 

is assumed. 

First, we consider why London is 

so important to the global financial 

industry. We include the fact that 

the geographical position in the UK 

as part of Europe, but between Asia 

and North America in terms of time 

zones, has been a natural advantage 

for many years. 

We also consider the significance 

of the financing techniques practised 

here, the importance of the rule of 

law and the fact that English is the 

dominant language in global business 

and finance. 

We then have a quick history lesson, 

focusing on the development of the 

City, how it came about and its relationship 

with the Bank of England. Then 

we look at market foreign exchange, 

money markets, capital markets, equities, 

bonds and derivatives. 

In currency and money markets we 

review spot and forwards, as well as 

T-bills, certificates of deposit and repos. 

In interest rates we consider the process 

of setting rates and the implications for 

the macro economy, as well as the role 

of interest rate swaps. 

For the bond market we consider 

UK gilts, corporate bonds, ratings 

agencies, warrants and convertibles, 

and eurobonds. In equity markets the 

nature of ordinary and preference 

shares is considered, before we look 

at the primary market’s role of issuing 

new equities and the secondary market 

role of trading shares. Market indices 

and investor ratios such as earnings per 

share and the price/earnings ratio are 

also considered. 

In the area of derivatives the futures 

market is looked at by way of definition 

and terminology, as well as a look at 

the participants in the market, such as 

speculators/hedgers/arbitrageurs. An 

illustration of the simple uses of options 

through the use of calls and puts is also 

examined, as well as interest rate swaps 

and commodity markets. 

Lastly, we review the insurance and 

shipping markets, focusing on Lloyd’s 

of London and the Baltic Exchange, 

as many people don’t realise that 

London is still the centre of the world 

for these activities. 

Throughout the course we look at 

some of the principal players in the 

City, including investment banks, commercial 

banks, private banks, hedge 

funds and other financial institutions. 

We also consider the roles of the Central 

Bank and City regulator – the Financial 

Services Authority. 

In this context I touch on the impact 

of the financial crisis and how it is shaping 

the City and finance globally. At this 

point I am usually asked “what happened?” 

and “what are the repercussions?”, 

which I am happy to address, 

especially in the area of how the banks 

made major mistakes and how the taxpayer 

has had to come to the rescue. 

Concepts such as the “living will” 

that banks are having to consider , and 

the capital adequacy demands placed 

on financial institutions by the Basel 3 

rules, will also be addressed. 

As there are constant changes to this 

landscape we are continuously revising 

the course to keep it up to date. 

For example, the recent huge losses 

at banks employing a Delta One derivative 

trading strategy meant that we 

decided to incorporate this area into 

the course. 

i 

Visit www.cimamaster 

courses.com for more details 

about this and all CIMA 

Mastercourses

60 

CIMA global events 

Past events 

Prestigious CIMA events mark the Balanced 

Scorecard’s 20th anniversary 

The Balanced Scorecard was 20 years old in November and to mark the anniversary, scorecard 

creators Professor Robert Kaplan and Dr David Norton attended a series of events as guests of CIMA, 

including one at the Royal Botanic Garden Edinburgh. The anniversary was also marked by the 

launch of a number of CGMA reports on performance management. For a full rundown of the 

findings of the reports, visit www.fm-magazine.com. 

(left to right) Professor 

Robert Kaplan, CIMA 

president Gulzari Babber 

and Dr David Norton mark 

the anniversary of the 

Balanced Scorecard 

Building a competitive edge 

for the future 

September, mumbai 

CIMA, along with People Matters, organised 

a panel discussion on CIMA’s flagship report 

“The talent gap: Connecting human capital 

to the growth agenda”. The objective was to 

exchange ideas and best practice, as well as 

debate issues thrown up by the survey. 

The panel was chaired by Charles Tilley, 

CEO, CIMA; Judhajit Das, chief human 

resources, ICICI Prudential Life Insurance; 

Mohan M Madiman, vice president, 

corporate HR, Larsen & Toubro, Rajendra 

Ghag, executive vice president – human 

resources, HDFC Standard Life Insurance; 

and Amit Das, senior vice president – 

group HR, RPG Enterprises. The 

moderator was Ester Martinez, managing 

director, People Matters. 

CIMA Canada conference 

on corporate sustainability 

october, Toronto 

CIMA hosted business leaders and experts 

in the field of corporate sustainability to 

discuss at a conference if there is a business 

case for sustainability. 

CIMA president Gulzari Babber 

delivered the opening remarks and the 

keynote address was given by Jim Harris, 

one of North America’s foremost authors 

and thinkers on change, leadership and 

strategic and sustainable business. There 

was also a roundtable discussion chaired 

by Diane Francis, editor-at-large for the 

National Post and distinguished visiting 

professor at Ryerson University. Other 

participants included Pavi Binning, 

president, George Weston Ltd, and Laurent 

Tainturier, president of BASF Canada. 


Jonathan Dart, British consul general 

and director UKTI Canada, with 

CIMA president Gulzari Babber, 

(above); Vidhyaah Manohara, 

intermediate accountant at CNW 

Group, and Dushy Killivalavan, 

accounting manager at All Canadian 

Self Storage (below)


Governance: 

Where is the 

true north? 

September, mumbai 

CIMA, along with 

Corporate Dossier, 

organised the Corporate 

Governance Seminar 2012. 

A collaborative effort by 

Corporate Dossier, 

knowledge partner, 

Spencer Stuart and 

industry constituents, it 

focused on the nature of 

corporate governance and 

the newly found benefits 

organisations are deriving 

from it by using it as a 

strategic tool. The 

discussion revolved around 

corporate governance in 

India vis-à-vis the US and 

the UK, and how the 

governance framework is 

at a crossroads as it adopts 

learning from other 

countries, keeping 

India-specific issues as 

a backdrop. 

CIMA China 2012 

awards ceremony 

and CFO summit 

November, Shanghai 

The CIMA China 2012 

awards ceremony and 

CFO summit, dubbed the 

Finance Oscars, were 

staged recently. 

More than 300 finance 

leaders from all sectors 

attended the summit, 

discussing the increasing 

influence of finance and 

championing management 

accounting philosophy and 

tools as a dynamic, driving 

force for companies. 

At the ceremony the 

winners were chosen by 

a stellar judging panel and 

walked the red carpet, 

sharing their respective best 

practices and preparing 

for the great development 

potential in tomorrow’s 

Chinese marketplace. 

Coming 

events 

UK 

Surviving in the 

middle – risk management 

and performance 

measurement in 

intermediary food 

chain businesses 

24 January 2013 

7pm for 7.30pm 

Portsmouth Business School, 

University of Portsmouth, 

Richmond Building, 

Portland Street, 

Portsmouth 

PO1 3DE 

Growing food is a precarious 

business, yet somehow there 

is a reasonably constant 

supply of fresh produce in 

our supermarkets. How do 

these businesses survive, 

and what lessons are there 

for other supply chain 

businesses? 

Contact Natalia Lada at 

region.eleven@cimaglobal. 

com or visit www.cimaglobal. 

com/centralsouthernengland 

Economic outlook – 

current economic 

climate 

30 January 2013 


Holiday Inn, 

Peartree Roundabout, 

Woodstock Road, 

Oxford 

OX2 8JD 

Glynn Jones, deputy 

agent of West Midlands 

and Oxfordshire, Bank of 

England, will briefly set 

out the role of the banks’ 

agents and context to 

monetary policy. 





Public speaking 

demystified 

16 February 2013 


Hilton Bracknell Hotel, 

Bagshot Road, 

Bracknell RG12 0QJ 

Ever felt nervous when 

speaking in front of a group? 

The ability to communicate 

effectively to an audience 

can give you a decisive 

edge in modern business. 

Attending this event will 

teach you simple, practical 

tips for handling nerves, 

making a positive first 

impression and for 

structuring your thoughts 

clearly when under 

pressure. 





Basic tax for 

businesses 


7.15pm for 7.30pm 

Holiday Inn High Wycombe, 

M40 Jct 4, Crest Road, 

High Wycombe 

HP11 1TL 

Visit www.cimaglobal.com/events for updates and a full list of events, which are free 

unless otherwise stated. CIMA Mastercourses – your catalyst for business change: visit 

www.cimamastercourses.com or call 0845 026 4722. To submit an event for this page, 

email ben.jackson@cimaglobal.com 

61 

Maria Land, ACMA, will 

look at the different types 

of personal taxation. 

Whether for yourself, 

your employers or your 

customers, this event will 

cover the basics of the 

self-assessment tax 

return, referring to the 

more complex areas and 

calculations. This event 

will be preceded by the 

Chiltern AGM. 

Refreshments and 

networking on arrival. 



com or visit www. 

cimaglobal.com/ 

centralsouthernengland 

How to market 

and sell yourself in 

the job market 



Holiday Inn Guildford, 

Egerton Road, 

Guildford 

GU2 7XZ 

Duncan Brodie, FCMA, 

managing director of 

Goals and Achievements 

Ltd, will show you how 

to effectively market and 

sell yourself in a competitive 

job market. 



com or visit www. 

cimaglobal.com/ 

centralsouthernengland

62 Financial Management | December 2012/January 2013 

The Institute 

Disciplinary Committee 

The Disciplinary Committee 

found Lindsay 

Burgess, FCMA, 

CGMA, guilty of misconduct. 

As director of 

Burgess and Associates 

Ltd he had sent a letter in June 2010 on 

notepaper containing the CIMA practising 

certificate logo, whereas from 

May 2008 he was no longer registered 

as a Member in Practice with a Practising 

Certificate. He had thereby acted 

in contravention of the Code of Ethics 

principles of integrity (which includes 

that a professional accountant should 

not be associated with information he 

believes contains a materially false or 

misleading statement) and professional 

behaviour (which includes that a professional 

accountant should be honest 

and truthful as to his qualifications). 

Mr Burgess had also breached CIMA 

Council Regulation 7.10 in providing 

accountancy services to clients through 

his company between May 2008 and the 

spring of 2009 while not registered as a 

Member in Practice. 

The Disciplinary Committee considered 

Mr Burgess’s previous disciplinary 

record (December 2009 and September 

2011), and took into account that the 

facts of events with which it was concerned 

were to some extent concurrent 

with the previous disciplinary matters. 

Also, the Committee recognised that the 

June 2010 letter was sent only to CIMA, 

and so its finding relating to the letter 

did not relate to marketing to clients. 

However, its other finding, relating 

to the continuing provision of accountancy 

services, continued over a much 

longer period and was a knowing omission 

on the part of Mr Burgess. In all the 

circumstances the Committee imposed 

a severe reprimand, with a fine of £250 

and costs of £11,825. 

The Disciplinary Committee found Jon 

Bradbury, ACMA, CGMA, guilty of misconduct. 

He had acted in an unprofessional 

manner (Code of Ethics principle 

of professional behaviour) by 

only agreeing to provide a superseding 

accountant with professional clear- 

ance to act for a former client company, 

and to provide documents relating to 

the company, if there was full and final 

settlement of all invoices (when he was 

not entitled to withhold the documents 

subject to payment). The requests for 

professional clearance had been made 

by way of two letters from the superseding 

accountant and one from a director 

of the company (in January and February 

2010). 

In relation to the matter of the documents, 

Mr Bradbury had also shown a 

lack of integrity (Code of Ethics principle 

of integrity) in that, while not dishonest 

in his action, had been inconsistent 

with any proper principles of 

fair dealing. 

Mr Bradbury had also acted in an 

unprofessional manner in failing to 

respond adequately to a request for professional 

clearance relating to another 

client company in an October 2009 

letter from a superseding accountant, 

and telephone calls. 

The Committee imposed a severe 

reprimand and a contribution towards 

costs of £7,000. Mr Bradbury’s appeal 

that the hearing was unfair, and that 

he was not the correct respondent, 

was rejected by the Appeal Committee. 

Regarding Mr Bradbury’s appeal con- 

cerning costs, while the Appeal Committee 

considered that an order for 

costs was properly made by the Disciplinary 

Committee, they were reduced 

to £3,500 in all the circumstances of 

the case. The sanction of severe reprimand 

stood. 

The Disciplinary Committee found registered 

student Khawar Abbas guilty 

of misconduct. While sitting the E2 

Enterprise Management examination in 

November 2010, he had failed to comply 

with the Exam Rules and Regulations 

by not leaving his manuscript notes 

in an area designated by the invigilators, 

and by having the notes under his 

examination paper, which suggested 

that he could have used them. In this 

latter respect he had also failed to act 

with the integrity required under the 

Code of Ethics (integrity implies fair 

dealing and truthfulness). 

The Committee observed that in the 

absence of strong mitigating factors the 

use of materials that could have enabled 

a candidate to cheat in an examination 

is fundamentally incompatible with the 

status of a management accountant. 

Mr Abbas’s registration as a CIMA 

student was cancelled and he was 

also required to contribute £2,000 

towards costs. 

Mr Abbas appealed the Disciplinary 

Committee sanction cancelling 

his student registration and the costs 

of £2,000 he was required to pay. 

The Appeal Committee dismissed 

the appeal regarding sanction, and 

with more detailed information from 

Mr Abbas it quashed the costs order 

of £2,000, ordering that Mr Abbas 

should pay £500 Disciplinary Committee 

costs. 

Investigation Committee Uncle 

The Investigation Committee 

found a prima 

facie case for Mr Paul 

Litvin/Dutch 

Pikett, ACMA, CGMA, 

to answer in relation 

Dmitry 

to a complaint that he: 

Failed to properly advise and service his 

clients in relation to tax and accounting 

issues affecting them and their compli- Illustration:


ance responsibilities, and in particular 

he: Failed to submit monthly subcontractor 

and contractor returns in 

respect of the client’s business to the 

tax authorities on time between 2000 

and 2004. Failed to submit personal tax 

returns for the clients on time between 

2000 and 2005, and failed to inform the 

tax authorities that they had formed a 

business partnership. Failed between 

2003 and 2006 to claim allowances in 

respect of purchases by the business, 

and failed to advise on the tax treatment 

of such purchases. 

Failed, between 2003 and 2007, to 

submit corporation tax returns for the 

client to the tax authorities on time 

and failed to compile and/or to submit 

accounts for the company to Companies 

House. Made significant errors in 

the accounts of clients, causing them 

to underpay tax. Failed to submit VAT 

returns on time, adversely affecting the 

cash-flow of the client’s business. 

Pursuant to Regulation II.8(e) of the 

Royal Charter Byelaws and Regulations 

(reprint Aug 2011), the Committee 

invited Mr Pikett to consent to the 

imposition of the sanction of a Severe 

Reprimand by way of consent order, 

without further proceedings, to which 

Mr Pikett agreed. A finding upholding 

the complaint was recorded and 

an order for the imposition of a Severe 

Reprimand was issued. 

The Investigation Committee found a 

prima facie case of misconduct for Mr 

Jonathan Brothers, ACMA, CGMA, to 

answer in relation to a complaint that 

he: Failed to deal appropriately or professionally 

with a client’s concerns, 

used unprofessional language and 

behaved in an unprofessional manner 

when communicating with the client. 

Pursuant to Regulation II.8(e) of the 

Royal Charter Byelaws and Regulations 

(reprint Aug 11) the Committee invited 

Mr Brothers to consent to the imposition 

of the sanction of an admonishment 

by way of consent order without 

further proceedings, to which Mr Brothers 

agreed. A finding upholding the 

complaint was recorded and an order 

for the imposition of an admonishment 

was issued. 

Is your CV selling 

you short? 

It’s that time of year again, 

when many of us will start 

thinking about what 2013 may 

bring. Many of us may even go 

as far as putting pen to paper 

and formalising our thoughts 

as new year resolutions. So if you are 

thinking “new year, new you”, what will 

be on your list? Join a gym? Lose a few 

pounds? Find that dream job? 

Well, CIMA may not be able to hang 

out with you at the gym, or glue the 

lid closed on your cookie jar, but it 

can certainly help you to get that new 

job. Here’s how. Take a look at your 

CV. Does it really make you stand out 

from the crowd? It may list all those 

‘Being a CIMA 

professional 

means you have 

a commitment to 

lifelong learning’ 

great achievements, such as saving 

your company money or improving 

profitability and growth, but so could 

the CVs of many other finance professionals. 

Take a look at your CV again. 

Have you included what makes you 

a professional? Perhaps so, but have 

you included what makes you a 

“CIMA professional”? 

Being a CIMA professional means 

that you have a commitment to lifelong 

learning by undertaking CIMA 

Professional Development (CPD). This 

means you regularly assess your devel- 

PrESIDENTIAL 

ENGAGEMENTS 

9 Dec-20 Dec Australia regional visit 

22 Jan-1 Feb Pakistan and India CIMA 

region visit 

63 

opment goals and needs, select appropriate 

activities for improvement and 

act upon them accordingly. In short, 

by keeping your skills up to date you 

remain relevant to business. You are 

also bound by a code of ethics and work 

within its fundamental principles of 

integrity, objectivity, confidentiality, 

professional behaviour, professional 

competence and due care – all of which 

ensure you are trusted, respected and 

highly valued in the workplace. According 

to CIMA’s HR director: “Today, 

employers don’t just look for technical 

skills, but also attributes such as professionalism, 

ethics and integrity. Many 

HR employees look to recruit qualified 

professionals who have been trained in 

these areas, and who are members of 

a professional body. It’s an important 

differentiator in a crowded employment 

market.” 

So take the new year as an opportunity 

to really think about where you 

are and where you want to be. CIMA 

has equipped you with the skills and 

behaviours that employers today 

require, and it’s something you should 

be shouting about. 

www.cimaglobal.com/professionalism 

www.cimaglobal.com/ethics

Illustration: Masao Yamazaki/Dutch Uncle 


CIMA CEO column 

Public sector cuts 

require strong 

management 

One of the most painful lessons of 

the global economic downturn is 

that public and private finances 

can no longer be separated. A 

downward spiral, sparked by subprime 

mortgages in the US, has 

resulted in a devastating sovereign debt crisis in 

many parts of the world. The eurozone seems to 

be stumbling towards some improvement, but 

in the US the talk is of a “fiscal cliff ”. Following 

years of debt-financed public-sector spending 

increases, draconian cuts, also known as “fiscal 

consolidation”, are the order of the day. Governments 

face the arduous task of reducing deficits 

without devastating frontline services and entirely 

losing public trust. 

Management accountants are, of course, every 

bit as at home in the public sector as they are in 

the private sector. Their skills are even more valuable 

at a time of austerity, when value for money 

becomes paramount. Indeed, the discipline of performance 

management becomes doubly important 

in times like these. Running government is 

not like running a business. Civil servants must 

contend with shifting political priorities, along 

with a broader range of vocal stakeholders than 

private companies face. And they simply can’t 

choose to quit a market where returns look poor. 

Certainly, there is no denying the scale of the task 

in front of them. 

CIMA is working with the London-based Institute 

for Government (IfG) to examine the underlying 

problems, focusing initially on the UK. The 

rolling programme of so-called capability reviews 

within the British Civil Service has exposed substantial 

evidence of underperformance in Whitehall 

and significant weaknesses in strategic leadership 

at the heart of government. 

The successful implementation of public sector 

cuts, and the running of the public sector in general, 

requires a culture of strong management 

and open accountability. In May 2012, CIMA published 

a joint report with the IfG and Deloitte, 

which called for improved and more informed 

decision-making in Whitehall. A prime example 

of this necessity is the recent mismanagement of 

the re-bidding for the West Coast rail franchise. 

The Department for Transport was forced to concede 

that there had been serious flaws in the franchise 

assessment and that shortlisted companies 

will be asked to re-bid. This comes at a reported 

cost of £40m to the taxpayer. 

In April this year at a conference sponsored by 

CIMA and the IfG, Francis Maude, Minister for 

the Cabinet Office, highlighted examples of management 

information that would be beneficial, 

but which the government lacks. He cited statistics: 

since 2010 every government department has 

failed to produce exact figures on the running costs 

of its buildings, and each year the public sector 

loses £38bn to fraud, error and uncollected debt. 

High-profile errors such as these raise troubling 

questions about the performance management 

at senior Civil Service level. I am gratified that 

the idea is finally gaining acceptance that Civil 

Servants should be given clear objectives, agreed 

by ministers, and then judged on how well they 

deliver against those. My view has long been that 

government needs to set a clear, overarching strategy 

and then allow accountability to grow through 

a system of performance management of the sort 

most other organisations rely on. The role of the 

management accountant is as key to this process 

in the public sector as it is in the private sector. 

And proper recognition for the unique contribution 

management accountants make is overdue. 

Charles Tilley, fcma, cgma 

Chief executive, CIMA 

65 

“Improving 

Decision- 

Making in 

Whitehall: 

Effective use of 

management 

information” 

can be found at 

www.institute 

forgovernment. 

org.uk 

i 

Charles Tilley 

writes a regular 

column for 

CGMA Magazine, 

entitled “Oneto-one: 

Top 

tips from the 

boardroom”. 

For his latest 

column, visit 

http://tinyurl. 

com/d9zjezz

66 


CIMA and an entrepreneur answer your questions 

This month... 

‘Integrated reporting highlights important non-financial information, such as 

social impact and environmental costs. Investors need this data, but is that the 

limit to the benefits of IR, or will the companies themselves gain an advantage?’ 

CIMA versus Jess Sansom 

A. CIMA include building long-term A. Jess 

Integrated reporting (IR) 

is still in its infancy. Many 

companies have embarked 

on the journey and have a 

belief in the benefits of IR, but 

to most they remain longterm 

gains rather than 

short-term wins. But where 

should these long-term 

benefits accrue? 

More integrated external 

reporting should lead to 

better IR and an improved 

understanding of the business 

fundamentals. That, in turn, 

will drive the adoption of 

more effective strategies for 

long-term value creation. 

The IR spotlight on 

long-term sustainable 

business success should 

encourage more organisations 

to identify their main value 

drivers. Understanding 

them should help to align 

internal reporting with the 

achievement of strategic 

objectives, while the IR focus 

on explaining the most 

material matters in a clear 

and concise way should 

further help to improve 

management information. 

The IR framework 

encourages organisations 

to consider all of the resources 

needed to service a business 

model. Historically, this focus 

would almost exclusively 

have been on financial 

resources – does the 

organisation have sufficient 

working capital to operate 

for the foreseeable future? 

More recently, this 

approach has developed to 

supplier relationships 

and natural resource 

management, but IR is 

driving further developments 

– extending time horizons 

and broadening the range 

of key inputs considered to 

include wider social and 

environmental issues. 

IR is aimed at the needs of 

investors, but organisations 

that adopt more integrated 

thinking, and decisionmaking 

focused on the 

creation of value in the short, 

medium and long term, will 

also share in the benefits and 

gain competitive advantage. 

Nick Topazio is a CIMA 

technical specialist 

Do you have a question 

you’d like to pose to CIMA 

and a top entrepreneur? 

Tell us at questions@ 

fm-magazine.com 

Innocent Drinks is a nontraditional 

reporter when it 

comes to sustainability. We 

don’t produce a glossy CSR 

report for the investment 

community or other 

stakeholders, nor do we 

label our products according 

to their environmental 

credentials for consumers. 

It’s not that these types of 

reporting don’t have uses, 

but more that we have limited 

time and resources available 

so we prioritise spending the 

majority of our time actually 

working on sustainability 

projects, rather than writing 

about them. 

When we do report on 

sustainability we like to tell 

people the stories behind the 

work that we do – it’s much 

easier to relate to a story about 

an Indian mango farmer who 

is adapting to climate change 

than to a number about 

a carbon footprint 

(which, let’s face it, is 

pretty meaningless to the 

majority of the population). 

Is this of benefit to our 

business? Yes, I believe so. 

Loyalty is the result of many 

different factors, but one of 

them is definitely feeling like 

you have a relationship with 

that brand – that you 

understand who they are and 

what they think is important. 

Our sustainability stories 

demonstrate our company 

values to our consumers and 

help them to understand the 

work that we are doing and 

that they, through their 

purchase, are supporting. 

There are also benefits at an 

industry sector level. When 

we are looking to create 

partnerships with other 

companies or to fund NGOs 

through the Innocent 

Foundation they know that 

we are a brand with values 

and that they can trust us. 

Our open and honest style of 

communications helps to 

open many doors and create 

strong partnerships, through 

which we can achieve even 

more on sustainability issues. 

So yes, there are lots of 

business advantages to 

reporting on sustainability 

and they are not always ones 

that can be quantified in a 

spreadsheet, but they will 

definitely be felt across 

the business. 

Jess Sansom is head 

of sustainability at 

Innocent Drinks Illustration: Dmitry Litvin/Dutch Uncle

December 2012 - CIMA Financial Management Magazine

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