October 2013

The Vatican Bank publishes its first set of accounts.

Published on: 29 Oct 2013

The Institute for Religious Works, or as it is more commonly referred to, “The Vatican Bank” has released its first set of published accounts.

The report comprises a hefty 100 pages and contains some interesting figures.

the-vatican-bankThe bank’s balance sheet total was €5 billion and it had a net profit of €87 million in 2012. This was more than four times the profit it had in 2011.

So, what has caused the increase in profit?

The report highlights that the banks economic performance was “driven above all by the development of interest rates in the Eurozone”.

Interest rates fell across the Eurozone in 2012 and the Vatican has nearly €3 billion in trading securities, most of which are government and index bonds. As interest rates have fallen in Europe, the value of the bonds they hold has increased.

A simple example to illustrate the increase in the value of their bonds as interest rates have fallen would be if they held a bond with a nominal value of €100,000 with a fixed interest rate of 4% they would be guaranteed to receive €4,000 of interest. If the market interest rate subsequently fell to 2% they would still be entitled to receive the fixed €4,000 of interest. The fact that interest rates are now only 2% means that the bond would have a market value of €200,000 (i.e. to get €4,000 of interest at a 2% rate you would need to invest €200,000)

As a result of the fall in interest rates the value of the Vatican’s fixed income holdings is up by in excess of €50 million.

The report also reveals the bank had €41 million in gold, coins and other precious metals, a stake in an Italian real estate company and it received two inheritance properties worth approximately €2 million.

If you’re interested in looking at the full report, here is a copy of the Vatican Bank’s published accounts.

Does it matter if the swimmers are naked or not?

Published on: 28 Oct 2013

During the summer holidays at university I was lucky enough to have a temporary job as a life guard at the local swimming pool. Thankfully there were no emergencies and the most exciting thing that happened was when a locker became jammed.

businessman-in-poolI graduated from university and now I’m an accountant. My job now involves looking at figures on spreadsheets rather than figures in the pool.

In Austria, the management of Vienna’s public swimming pools carried out a survey and found that bathers were consuming on average 5,000 litres of chlorinated pool water a day.

5,000 litres of water a day is a significant amount of water. Looking at this from a finance point of view this in turn means that this is a significant amount of cost in replacing the water. In addition, the authorities have to spend £20 per day to replace the chlorine that disappears with the water.

How come so much water is being lost? Surely the swimmers are not drinking the water and it would take an awful lot of splashing to lose that amount of water.

The answer is that apparently a lot of water gets removed from the pool via the material of the swim wear. When a person wearing Boardshorts for example leaves the pool 2.5 litres of chlorinated water is trapped in the material and is removed from the pool.

So, picture the scene. You’re an accountant at a sports complex and are attending a meeting to discuss cost saving initiatives for the year ahead.

Given the above findings then would a cost saving solution be to suggest that swimwear should be banned?

Now whilst this would save the cost of chlorinated water being replaced I think the number of swimmers would decline dramatically.

Importantly though I think they would save on the cost of your salary as you probably wouldn’t be in the job for much longer after that suggestion.

London cab drivers, “the knowledge” and mixed costs…

Published on: 24 Oct 2013

I think that London taxi drivers are brilliant. There’s never a dull moment and if you want a conversation you’ll certainly get one when you’re in a black cab. To be honest, half the time if you don’t want a conversation you’ll still get one.

london-taxiLondon cab drivers have to pass rigorous tests before they are licensed to drive a black cab. “The knowledge” is a term used for the exams that the drivers have to pass and ensures that they know their way around the streets of London without having to refer to satnav systems or maps.

My own personal view though is that “the knowledge” also refers to the fact that the drivers generally have a strong opinion on most things and seem to know everything about everything! To be fair I was quite impressed with the driver of the cab I was in last night. When he found out that I taught finance he went on to point out that the taxi fare I was about to pay him was classified as a “mixed cost” as it was partly a fixed cost (the minimum fare) and partly variable (the charge per mile traveled).

I’ll give him credit where it’s due as he was absolutely right. Fortunately for him though the journey came to an end before I could test him on other costing methods…

The Starbucks experience

Published on: 22 Oct 2013

I’m currently sat in a Starbucks coffee shop enjoying a nice coffee and making use of their wifi. It’s got me thinking about the Starbucks phenomena and what strategy they have adopted in terms of growing their business.

CoffeeIt’s an interesting approach and whilst it undoubtedly has been very successful there are commentators that would argue that Starbucks is caught between various approaches.

There are numerous areas of the syllabus which we can link with Starbucks.

To the man on the street, when Starbucks first opened it was different and arguably felt like a very “differentiated approach” (Porter’s generic strategies) to drinking coffee. It served great coffee in a relaxed atmosphere. Good music was played and it felt like a special treat to drink coffee in a select coffee shop.

Their growth plans largely involved a classic market expansion whereby they expanded an existing product into new markets. There are now over 15,000 stores in nearly 50 countries.

They have however had some problems. Last year, they announced that they would close 300 underperforming stores in addition to the 600 closures they announced the year before.

Some people have argued that the expansion of Starbucks resulted in it feeling less “special” and as a result consumers were less willing to pay a premium price for what many felt was a standard product. Was it a case of over-expansion? One memorable headline in the US magazine “The Onion” joked that “New Starbucks Opens in Rest Room of Existing Starbucks”!

Whatever the outcome of their strategy, one thing for sure is that their coffee is nice but not quite as nice as their muffins!

Ernst & Young ladies – are they good looking enough?

Published on: 08 Oct 2013

It just doesn’t matter how good-looking you are, if you work for Ernst & Young then you will never win this beauty competition.

So there I was spending a pleasant evening looking at the eligibility rules for people who want to enter Miss Texas, or to maybe clarify that a bit, the rules for those ladies that want to enter the Miss Texas USA beauty competition.

Now whilst this may be a prestigious beauty pageant where the winner could go on to become Miss USA and if all goes well then Miss Universe, what exactly does this have to do with finance and business? Or to be more precise, what has this got to do with Ernst & Young?

Well, if you look in the rules and regulations and look past the items which neatly ignore certain discrimination issues such as “must never have given birth to a child” and “must be a naturally born female” there is the phrase “No contestant or any member of their immediate family can be employed by ….  Ernst & Young, or any of its subsidiaries”.

There you go. It doesn’t matter if you’re the most beautiful lady in the world (or should I say most beautiful “naturally born female”), if you work for EY you’re just not going to win Miss Texas USA.

So, any ideas why EY ladies are not eligible to enter?

It’s nothing sinister and in fact it’s all very ethical. It’s down to the fact that EY are the official vote counters for the contest and to avoid any potential accusation of anything underhand such as deliberate miscounting, EY staff cannot enter the competition.

Looking on the bright side for EY staff though there must be some pretty happy gentlemen who have been selected to work on the Miss Texas USA account.

The Captain was sober, the First Mate was drunk. Was that true? Was that fair?

Published on: 02 Oct 2013

I’ve been a qualified accountant for a fair few years now.

sailorI had the pleasure of bumping into my first auditing lecturer last week. It was at a business mixer event and even though it was a long time since we last saw each other he really hadn’t changed that much.

We got talking and I reminded him of something that he told me that I’ve remembered ever since and to me is a great way of explaining what is meant by “True and Fair”. Those of you that have studied financial reporting papers will be aware of the importance of “True and Fair” in connection with financial statements.

In summary, financial statements should provide what is generally understood as a true and fair view of the reporting entity’s financial position, performance and changes in financial position.

I always remember my lecturer telling me the story of the ship’s captain that was having a problem with his first mate who was always drunk. In the end the captain wrote an official entry in the captains log saying “Today, the first mate was drunk.”

The first mate was upset about this and the next time he took charge of the ship when the captain was asleep, he wrote in the log that “Today, the captain was sober”. This of course implied that on other days the captain wasn’t sober as he was drunk.

Now, the statement “today, the captain was sober” was clearly true but I’ll leave it up to you to decide whether or not it was fair!

The ExP Group