Gilding The Lilly

Five days ago I wrote about my surprise that Michael Izza had not commented on the potential £40M pension deficit in the ICAEW's 2011 accounts:

"for reasons that are unclear he does not say a word about the pension deficit of £40M that completely undermines that finances of the ICAEW, and is the tail that is wagging the dog of the ICAEW's drive for new members via its international "strategy".

How very odd that he doesn't mention it? "

It seems that I am not alone in believing that such a significant potential shortfall deserved more prominence. Kevin Reed is also of that view:

"MAKING FINANCIAL REPORTING more relevant and easier for to stakeholders to understand has been a long-running issue. 

Let's face it - when things go wrong there will always stakeholders up in arms as to why they'd not been able to predict such a terrible moment by reading the accounting runes. Conversely, there will be some clever sausage that looks in hindsight at the statements and figures to highlight that the problem's been clear all along.

As a non-accountant of the most severe kind - but as a journo with an interest in these issues - a couple of areas within the latest annual reviews from ICAEW and CIMA left me slightly perplexed.

Firstly, the ICAEW's pension scheme financial position has been valued by actuaries as in deficit of £40.1m at 31 December 2011, compared with the triennial valuation measured in 2010 at a deficit of £19.9m. This has the potential of forcing the ICAEW to stump up another £5m and review its pension funding plan. A fall in gilt yields is the main culprit behind the deficit's degradation.
Having traipsed up and down the pension schemes numbers - which spread across four pages - I admit to originally missing out the figure, which was included within the narrative section of the notes.

The deficit is mentioned twice within the institute's financial statements - in the review pages and again in its notes to financial statements. The ICAEW's summary of its position, the review, is online where the deficit is again flagged up.

The ICAEW told me that it is satisfied about the coverage afforded to the deficit, and its potential ramifications, within its year-end statements. Note the ‘potential', as the valuation itself was a ‘desktop' valuation, or estimate.

While I don't pretend to be able to pull out the institute's various pension scheme calculations through its statements of financial position (or balance sheet as I'd know it), particularly as ICAEW stakeholders are - let's face it - accountants, it still irks.

As a journo I'm not owed anything by the ICAEW. But maybe in the context of its members, and its role in making reporting as clear as possible, perhaps such an important ‘number' deserved more pronounced presentation.

And while on the topic, it also seems strange that CIMA feels it can't specifically reveal chief executive Charles Tilley's pay packet.

CIMA's annual review 2011 reveals its water consumption (3,400 cubic meters), but not the salaries of its senior management.

Some details are contained within the financial statements, but these are anonymous. We know that the highest paid executive's dosh has moved from the £210k-£220k bracket to £220k-£230k between 2010 and 2011. Is that Tilley? Dunno, assume so. Has ‘his' pay gone up from £220k to £220.1k, or £210k to £230k? A 100 quid or twenty grand? Dunno.

The average CIMA staff salary (wages + NI) fell to £33,349 from £36,224, with total staff numbers up to 426 from 369.

And of course, you're dying to know, the ICAEW does state their executives' pay. Chief Michael Izza earned a total of £477,000 - £372,000 in salary and £105,000 in ‘deferred variable pay', or performance-related pay."

My thanks to Kevin Reed for his Tweet following my publication of this article:

"Kevin Reed ‏@Goonerreed

Hat tip to Ken for flagging up the #icaew pensions data in 1st instance. Will add to my copy"

What About The Pension Deficit Michael?

Michael Izza (CEO of the ICAEW) has just published a brief review of the 2011 ICAEW results, entitled "2011: A Year of Growth for ICAEW".

He says:

"We have just published the ICAEW Annual Review for 2011, and as you will see the headlines are positive. Member and student numbers are up and income has grown, despite a tough economic backdrop in many parts of the world."

Yet for reasons that are unclear he does not say a word about the pension deficit of £40M that completely undermines that finances of the ICAEW, and is the tail that is wagging the dog of the ICAEW's drive for new members via its international "strategy".

How very odd that he doesn't mention it?

ICAEW Results - Pension Deficit Drains ICAEW Lifeblood

In May 2011 I wrote the following about the ICAEW's results:

" the defined benefits pension scheme, which was closed on 30 June 2010, is expected to show a £22.6M deficit as of 31 March 2010 following the completion of an actuarial valuation.

It seems that funding contributions of £6M a year for three years, followed by £3.5M a year, will be made until the deficit is eliminated.

It is reasonable to assume that the long suffering members of the ICAEW will be expected to pay increased subscriptions to cover these funding contributions. "

One year on, and the pension deficit continues to drain the lifeblood of the ICAEW.

In fact the pension deficit (based on a December 2011 desktop review) has worsened to £40.1M:

"at which level a trigger event is recognised on the covenant agreement.  The situation is being monitored to determine whether this represents a temporary event and discussions are continuing with the trustee. This review will not be concluded until after the date of signing of these financial statements. At that date our estimate of scheme funding was 82.5%, at which level we would expect the trigger event to be deemed temporary.

If the red trigger event is not deemed to be temporary and the covenant agreement is enforced, an additional funding contribution of £5.0m to the scheme would be required and the funding plan reviewed as to duration and size of payments; the current covenant agreement would also end. Such a contribution does not have a direct impact on the income statement and no provision has been made within current liabilities owing to the uncertainty of the temporary event."

Be warned, by the sound of it there may be a major increase in subscriptions.

However, much like local councils, it seems that the ICAEW has found a way to boost its finances (other than just by increasing the annual subs); namely by levying fines. The retained surplus after tax for the year was £4.1m (2010: £1.8m), after receipt of £2.4m of one-off fines and recoveries of past costs from the Accountancy and Actuarial Discipline Board (AADB).

Cameron Lambastes Accountants Again! - ICAS Weighs In

I am pleased to see than Anton Colella (CEO of ICAS) is also less than impressed with Cameron's comments about accountants:

""People want to know that we’re not just a bunch of accountants trying to turn around the British economy as if it were a failing company, but that we’re resolutely on their side as we do,” said Prime Minister David Cameron earlier this week. It’s an unhappy irony that, in making an appealing point, Mr Cameron should malign an entire group of hard-working professionals.

ICAS represents over 19,000 world-class business-women and business-men. Now that’s just a – big – bunch of chartered accountants (CAs).

But it’s also a bunch of dedicated and passionate professionals, working to serve clients and investors in the public interest.

It’s a bunch of business leaders, who head up some of the biggest companies in the country, in public practice and in a myriad of business roles, providing employment, innovation and tax revenue.

It’s a bunch of volunteers, who provide their expertise to a range of charities across the UK and abroad with organisations like Accounting for Development, an organisation which matches CAs with organisations in developing nations.

I am sure Mr Cameron didn’t really intend to denigrate accountants. However, the notion of accountants as uncaring bean-counters is at odds with my experience of enthusiastic, hard-working CAs, whose energy and insights and will be key drivers of the UK economy’s recovery.

Prudence is a watch-word for accountants; in reporting, in auditing, in projecting. Prudent phrasing, in this case, might have helped avoid one group of people feeling as though Mr Cameron was not resolutely on their side."

The drip drip of negative comments about accountants, tax efficient schemes, tax avoidance etc, that are coming from Osborne and Cameron, are deliberately designed to play to people's prejudices about the profession and about those involved in the "dark arts" of financial advice.

It undermines the brand value of accountancy as a profession. We should not simply roll over passively, like some pitiful Victorian clerk, and let the politicians use our profession for their own political ends.

As I said a couple of days ago, an open joint letter from the UK's leading accounting bodies is required.

Plus members of the profession should tweet @Number10gov to tell Cameron to stop this nonsense, and make #accountinggate a trending topic.

Cameron Lambastes Accountants Again!

I see that Cameron is lambasting accountants again:

" David Cameron has warned that the Coalition risks being seen as a “bunch of accountants” unless it “focuses on what matters” in the wake of last week’s dismal local election results."

It looks like the letter from Michael Izza was not enough.

As I wrote a few days ago:

"Izza should not be too surprised at the barracking about tax avoidance and accountants from Cameron, Osborne and their ilk. Their background means that their financial affairs are handled by trusts and (ironically) accountants. They have no real world interaction with HMRC or the "mundane" daily matters of the finance that the rest of us have."

Maybe an open joint letter from the UK's leading accounting bodies is required, or maybe Cameron's accountant should simply go on strike?

I have Tweeted @Number10gov to tell him to stop this nonsense, I suggest fellow members do the same and make #accountinggate a trending topic.

ICAEW International Constituencies

Accountancy Age reports that the council of the Institute of Chartered Accountants in England and Wales (ICAEW) has voted (without any form of irony) for the establishment of international constituencies for direct election to the council.

This of course means that the designation "in England and Wales" is now irrelevant and misleading.

Constituencies will be set up in regions and countries where there are at least 2,000 ICAEW members, on the basis of one council member per 2,000 ICAEW members.

As a result, constituencies will be set up in mainland Europe (one member), Hong Kong (one member), North America and the Caribbean (two members) and Oceania (one member) with a view to setting up further constituencies in Africa, China, the Middle East and South East Asia in the future once those areas hold enough members.

Needless to say budget allocations of members' subscriptions, because of this change, will at some stage be reapportioned.

Given that this is such a fundamental change to the ICAEW I am surprised that it was not put to the vote of the members.

I assume that the outdated Victorian trade association rule that states that members who wish to stand for election can only be nominated by 10 members within their region will remain?

Will the ICAEW in the future at least notify members within a region that someone wishes to be nominated, or will they still block that as they did when I tried to stand in 2007?

Izza Vents His Spleen

Fed up with the low level ongoing anti accounting barracking from the Bullindgdon set at the heart of government, Michale Izza (CEO of The ICAEW) has vented his spleen.

In a letter to Cameron, Izza says that, while such remarks may be tongue-in-cheek, they undermine the significant contribution that the profession makes to the UK economy.

Izza should not be too surprised at the barracking about tax avoidance and accountants from Cameron, Osborne and their ilk. Their background means that their financial affairs are handled by trusts and (ironically) accountants. They have no real world interaction with HMRC or the "mundane" daily matters of the finance that the rest of us have.

Georgie Porgie and Cameron need to be reminded of the wise words of Lord Templeman in 1992:

"There is no morality in a tax and no illegality or immorality in a tax avoidance scheme."