April 2012

I’d love to invite you to lunch but…

Published on: 28 Apr 2012

Have you ever been to lunch with a colleague?

My guess is that unless (a) you work by yourself, (b) nobody likes you , or (c) you have a serious body odour problem then the chances are that you have had lunch with a colleague.

Now let me guess. What did you talk about over lunch?

Was it by any chance “work”?

Yes, we all do it. If we go out for lunch with a colleague then a lot of the time we’ll probably end up talking about work. Now, this could be the latest racy gossip about Mr X and Mrs Y but the chances are it may well just be about some project you are currently working on.

So is this a problem that you are talking about work over lunch?

Tech giant Apple seem to think that there could be some issues over talking about work whilst eating your lunch. They have just announced plans to open a restaurant which is reserved solely for employees.

This isn’t an on-site canteen or cafe. No, it is a two-storey building that will be located several streets away from Apple’s headquarters in Cupertino, California.

Apple already run a restaurant called Caffe Mac but this restaurant is open to non-Apple employees as well as Apple employees. An obvious concern of this is that if all the Apple people are chatting away about projects they are working on such as the iPhone 28 then who knows if Mr Samsung, Mrs HTC or Miss Nokia are sitting at the next table pretending to read a newspaper.

The new “Apple only” restaurant will be a separate stand-alone restaurant exclusively for Apple employees who will be free to talk as loud as they like about the latest project they are working on.

I wonder though whether the waiters and waitresses will be using Samsung or HTC phones…

Should a PwC partner blame the junior staff?

Published on: 25 Apr 2012

If something goes wrong on an audit, whose fault is it? Is it the partner’s fault or the junior member of staff’s fault?

Over in Australia, the Sydney Morning Herald newspaper has provided some interesting commentary on a legal case that is currently taking place concerning an audit undertaken by PricewaterhouseCoopers (PwC).

The background to the case is that shareholders in a company called Centro are claiming that PwC misled and deceived them by failing to properly disclose that the Centro group had billions of dollars of short-term debt that needed to be refinanced in 2006 – 2007.

The lead PwC partner on the audit, a gentleman by the name of Stephen Cougle, is facing a bit of a grilling in court at the moment.

Under cross-examination yesterday in the Australian Federal Court, Mr Cougle denied trying to “bury” one of the errors by putting it in the small print notes at the back of the accounts.

According to reports, he said “when one of his PwC colleagues told him in late August that a $1.1 billion bridging loan had been wrongly classified as a long-term debt in the unaudited, preliminary accounts, he suggested Centro might need to disclose it publicly. When Centro declined this idea, he decided one option was to point to the discrepancy in a note to the final accounts”

According to Mr Cougle though he did not try to “bury it”.

Whether or not it was satisfactorily disclosed will be a decision for the court and that decision is not expected until the end of May

However, one thing for sure is that a number of the junior PwC staff members who were on the audit are probably not currently the best of friends with Mr Cougle.

Despite being the lead partner on the audit, he has already “declined to accept any responsibility for the accounting debacle” and has “blamed junior staff.”

Now blaming junior staff for an error in the accounts that you signed off on is in itself an interesting point to debate. After all, there is a well-known saying that you “can delegate work but you can’t delegate responsibility”.

The outcome of this case will be very interesting for auditors around the world. Not least for guidance on who is the best person to blame if there is an error on your audit…

Which is more important to you – the first or last bag?

Published on: 20 Apr 2012

It never ceases to amaze me. You’re at an airport, you check-in and then wave goodbye to your luggage. When you arrive at your destination you expect your luggage to arrive on the luggage carousel at the same time you.

I met an old friend last week who was telling me about a situation he faced a few years ago when working on a project at an airport.

The aim of the project was to improve the business process of unloading the bags from the plane and getting them onto the luggage carousel.

This is something we take for granted but the logistics involved are not always that simple and passengers can quickly get frustrated if they don’t get their luggage within a few minutes.

One of the Key Performance Indicators (KPI’s) in place to measure the efficiency of the process was the time it took to get the first piece of luggage from the plane to the luggage carousel.

Now whilst this may sound like a sensible KPI, it was also used to determine the bonus that the luggage handlers would get (the quicker the luggage was delivered the higher the bonus).

Unfortunately for the management of the airport it was also open to abuse.

It may seem obvious now but what was happening was that the baggage handlers were getting the fittest member of their team to literally grab a bag from the hold of the plane and run to the carousel so that the time between landing and the “first luggage on the carousel” was minimal.

Meanwhile, all of the remaining pieces of luggage would be unloaded at a much slower pace.

The end result was happy baggage handlers but unhappy passengers!

Needless to say management soon identified this and the KPI was changed so that it was now the time taken to unload the last bag rather than the first bag that was important.

Would Michael Porter sleep in this bed?

Published on: 18 Apr 2012

Michael Porter is arguably the world’s most famous management theorist. His theories such as the 5 forces model and Value Chain Analysis are key parts of the syllabus for several ACCA and CIMA papers.

His generic strategy approach of “differentiation” and “cost leadership” has been around for a number of years and whilst there is a clear argument that a significant proportion of companies are nowadays trying to combine both approaches by aiming to differentiate the product or service whilst at the same time focusing on cost reduction, there is one particular segment of the hotel market that almost certainly has to differentiate to survive.

The boutique hotel segment inherently struggles to compete with the big national and international chains of hotels on the cost leadership approach (these bigger hotel chains will have significant economies of scale for example).

Instead, they will need to be “different” in terms of for example location or “friendliness”.

When it comes to differentiation, the aptly named Jumbo Stay Hotel will be hard to beat for people that are keen on airlines.

Located on a disused runway at Stockholm Arlanda airport, the Hotel is in fact an old Jumbo jet that that has been converted into a luxury hotel. The Jumbo Jet hotel has 27 bedrooms with 76 beds but the best room has to be cockpit which has now been made into a luxury suite with panoramic views of the airport.

The upper deck of the plane which used to house business class passengers is now a cafe serving fresh food and drinks.

We’ve blogged before about Ryan Air’s cost leadership approach to their flights and it’s nice to see a differentiation approach to another part of the airline industry.

Is this the new face of Ernst & Young?

Published on: 16 Apr 2012

I guess we’ve all done it at some time or another.

We’ve woken up one morning and due to too much work (or too much drink…) you look in the mirror and think “oh dear” (or some similar but slightly stronger words).

Well step forward Mr Ed Moyse and Mr Ross Harper who when they looked in the mirror recently saw the Ernst & Young logo staring back at them.

Now this wasn’t a drunken night out at an EY party that went wrong. No, it was a deliberate move.

The two entrepreneurial university students were thinking of ways to reduce the student debt that they had built up when they came up with the idea of using their faces as mobile advertising screens.

They set up their website – buymyface.com – and are selling their “advertising board” faces for one year.

One of their first clients was EY who paid them to display the EY logo on their faces during a skiing trip to the Alps so that EY could advertise to potential new recruits.

The idea seems to have caught on and according to their website as of today they have raised £34,000 from selling their unusual advertising boards.

Their going rate for a day’s advertising on their faces has also increased since they started their business.  They are now charging £600 for a day’s advertising.

EY seem to be so impressed with them that they have now become the main sponsor of the website.

Does this mean that at some stage in the future your accountants “uniform” of dark suit and white shirt will be accompanied by the corporate logo painted on your face?

Does it matter if your food is hot or cold?

Published on: 13 Apr 2012

Now I’m not talking about the nutritional benefits of food. No, I’m talking about the cost to you of purchasing food.

The recent tax budget in the UK has caused a bit of a debate.

The background to matters is that, as is the case in a lot of countries, when food is sold in the UK it is zero rated for VAT purposes. In other words, there is no VAT charged on it.

The exception to this is any food which is sold as a “supply in the course of catering”. This means that whilst “food” bought at a supermarket does not have VAT added to it, food bought at a restaurant or at a takeaway does have VAT applied to it as it is a “supply in the course of catering”. The adding of the VAT to the cost obviously makes it more expensive to the individual customer.

So far it’s all fairly clear with in general terms, food having VAT added to it if it is to be consumed immediately whilst food purchased to eat later doesn’t have VAT added to it.

There have however been certain types of food which have had a somewhat “confused” existence.

“Pasties” for example are in effect meat and vegetable filled types of pie which originate from the south-west part of England. People would often buy pasties from bakeries just as they had been baked and the question was whether these items were food to be taken home to be eaten later (VAT zero rated) or food that was to be consumed immediately (VAT standard rated).

To date, the treatment has been one of zero rating but in the recent budget the government announced a proposal that any food sold above the ambient air temperature would be liable to VAT at the standard rate.

This would mean that if people bought a pasty that had just been cooked they would have to pay the VAT even if they were going to eat it several hours later at home after it had cooled down.

Whilst the additional tax revenue that would be generated by this approach would be relatively small, the amount of publicity that this is getting in the UK is significant.

The tax authorities issued a consultative document on budget day called “VAT: addressing borderline anomalies” and within this was the topic of hot take away food.

Because it’s a consultative document it’s not actually law at the moment. Instead, people can comment on the issue prior to it becoming law and there may well be some changes.

The closing date for comments on this is 4 May 2012 and no doubt there will be lots of pasty lovers closely watching the outcome.

Hello and goodbye to the CEO of Deloitte Netherlands…

Published on: 09 Apr 2012

It’s been a mixed year for Piet Hein Meeter the (former) chief executive of Deloitte in the Netherlands.

It started well for him as he was appointed as the new CEO of the Dutch operations of Deloitte on the 1st of January this year.

However within a few months his fortunes have changed dramatically.

Deloitte recently announced that Mr Meeter had resigned from his position due to “infringement of independence rules which surfaced following a routine internal compliance review arranged by Deloitte”.

The background to this is all about auditor independence.

In order for auditors to be able to do their job of “checking the books” of clients they have to be independent. After all, if an auditor is not independent from the company he is checking then there’s a risk that he or she may give a biased or incorrect opinion on matters.

In the case of Mr Meeter it seems that he had shareholdings in some of the clients of Deloitte Netherlands and hence broke independence rules (i.e. he headed up an audit company that checked the accounts of a company which he part owned).

It does seem rather strange that Mr Meeter held these shares as it’s a fundamental independence issue for senior staff and partners within accounting firms not to hold shares in clients.

It may well have been a simple but extreme case of oversight by him as there was no evidence of him benefiting from his shareholding and position (the investigation by Deloitte pointed out that “Meeter had no involvement in any of the audits of the applicable companies and that Deloitte’s independence as audit firm of these clients has not been impacted).

Deloitte quite rightly acted quickly though to avoid any potential problems and Mr Meeter is now no longer with Deloitte.

We wish his successor, Mr Peter Bommel, the best of luck in his new role.

Mr Bommel is currently the interim CEO of Deloitte Netherlands and no doubt has recently reviewed his personal investments very carefully to ensure that there is no repeat of Mr Meeter’s error.

Not the best way to start a presentation…

Published on: 02 Apr 2012

The IT guys I’ve met in my career have all been very nice people. Admittedly they all seem to be slightly mad and do tend to talk in a strange language with lots of mentions of “coding this and coding that”.

To be fair though they all probably think I’m slightly mad when I talk to fellow finance people in my strange language about “SOCI this and SOFP that”.

If you talk to your IT colleagues though one thing that they tend to take very seriously is the level of security.

Now whilst there are lots of higher level security precautions present such as firewalls and anti-virus programmes there are also some more simple precautions that you should take.

Memory sticks (or USB or flash drives as they are sometime known) can all contain confidential documents and most memory sticks are not password protected.

It pays to double check what’s on the memory stick you’re carrying around with you in case it contains confidential documents and you lose it.

In a similar vein it’s always worth checking what other files are on your flash drive if you’re about to make a presentation.

Unfortunately for Father Martin McVeigh, a Catholic priest in Northern Ireland, he didn’t check what other files were on the flash drive he was going to use when he recently did a presentation to some parents of children at a local primary school.

According to media reports, whilst loading up his presentation for the parents, Father McVeigh inadvertently showed a slideshow of indecent pornographic images onto a screen.

The x-rated slideshow was on the memory stick that Father McVeigh had put into the computer to load up his intended presentation.

Father McVeigh was understandably a bit shocked at seeing the naked pictures on the screen (although to be fair probably not as shocked as the parents in the audience were) and according to the BBC website he was “visibly shaken” and “bolted out of the room”.

He later stated that he didn’t know how the images got onto the memory stick.

And the morale of the story?

Well, I guess that IT security is not just the higher level technical areas but also the more simple areas such as making sure you know what else is on your memory stick…

The ExP Group