Vote at The ICAEW AGM

Don't forget to vote at this year’s ICAEW Annual and Special Meetings.

These will be held on Tuesday 7 June 2016, at 11:00 BST, at Chartered Accountants’ Hall, London.

As ever executive remuneration, the shortfall on the pension fund and FRC Conduct Committee Provision all warrant some attention.

ICAEW Members Disconnected From ICAEW

Unsurprisingly of those members of the ICAEW that could be bothered to vote, a significant percentage (almost 20%) voted against an increase in the annual subscriptions.

Accountancy Age reports that of the nearly 8,000 members that voted, 19.8% voted against an increase.

The ICAEW has over 138,000 members worldwide, the turnout of less than 6% is a disgrace and shows an alarming disconnect between the bunker in Moorgate and the membership who live and work in the real world.

Based on the low turnout and (relatively) high vote against an increase in subscriptions, the ICAEW will have its work cut out for it if it is forced to fill the £40M black hole in the pension scheme by increasing subscriptions again!

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).

Pension Deficit

In 2009 I wrote about the ICAEW's defined benefit pension scheme:

"The ICAEW have finally realised that the current arrangement, whereby subscriptions are increased each year to fund the pension black hole, is unsustainable. Therefore the ICAEW is going to cancel the final salary (defined benefit) pension scheme (closed to new members since 2000) next year (ie 2010)."

I noted then that the scheme had a £19M deficit.

Today Accountancy Age reports that 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.

Fit for purpose

Peter Hargreaves has written this excellent piece in Accountancy Age.

I need add nothing more:

"During 2009 this magazine printed a profile of myself in which I stated that I was many things, not least chief executive of a public company. The thing of which I was most proud was being a chartered accountant. Indeed that is how I describe myself on my passport.

Something has perplexed me over the years. I hear accountants moaning about the profligacy of the Institute and fees but don't complain to the president. Accountants are supposed to be frugal and look after both their and their clients' money. It is a disgrace when the ICAEW doesn't set an example and show similar prudence.

The accounts of the ICAEW reveal several interesting facts. 600 people are employed on an average salary of £45,000 per annum. Most commercial organisations are moving to defined contribution pensions but they still have a defined benefit scheme. I am surprised how much the chief executive pays himself for presiding over this overstaffed bureaucracy (in 2008 £425,000 plus the final salary scheme).

The ICAEW it appears has acquiesced to a few cranks who feel the Institute should provide the unnecessary. Information on the economy, which most members never read, is probably done better elsewhere, not least by the four major firms of chartered accountants in this country. The Institute should have a limited role and chartered accountants wherever they may be should attempt to restrain the excesses. They should be confined to:

* maintenance of the register of members;

* examination of potential new chartered accountants;

* maintenance of professional standards and discipline of the occasional member that errs;

* communication to chartered accountants on accounting standards and other relevant factors which chartered accountants require in their job in industry or in their profession;

* advice on how to charge for their services.

I see no advantage to the members in England and Wales in having a Singapore office and various other offices throughout the world. I would have thought a hundred staff maximum could do the job that is required. Perhaps a member might care to stand for the council on the manifesto that 80% of what the Institute produces is superfluous. Failing that, perhaps members who don’t like the profligacy will write and express their dissatisfaction. I have written and expressed my dissatisfaction but I am just one chartered accountant. The latest accounts show there are now 133,000 members. Even if they paid half the fees they pay at the moment that is considerably more than a well run institute would need to provide more than what is required.

what not to do

'The institute only asks people what they want. I've told [chief executive] Michael Izza you ought to ask: 'What do you not want?' They provide lots of things because a few people ask for something. They produce lots of stuff most don't actually want – they should really find out a consensus of things. They should also work at improving the image of the accountant. That's what the institute should do. Accountants are not valued.'
Peter Hargreaves, July 2009.

Peter Hargreaves is chief executive of Hargreaves Lansdown"

ICAEW Axes Defined Benefit Pension Scheme

In June 2006 I wrote:

"Given the ever increasing pension black hole in the ICAEW accounts (it has grown by £4M over the last year), it is hardly surprising that the ICAEW has asked to raise subscriptions this year by 4% (which, despite their denials, is above inflation).

The triannual actuarial review will be carried out later this year and, as sure as eggs are eggs, we can assume that the black hole will have increased.

The astute amongst you will realise that the ICAEW will therefore be again coming cap in hand to its members, to ask for another inflation busting subscription increase in 2008.

Given these never ending increases in staff costs, why did the ICAEW hire 125 more people in 2006?

Do they regard the membership as a docile compliant cash cow which can be milked to death?"

The ICAEW have finally realised that the current arrangement, whereby subscriptions are increased each year to fund the pension black hole, is unsustainable. Therefore the ICAEW is going to cancel the final salary (defined benefit) pension scheme (closed to new members since 2000) next year.

Accountancy Age quote an ICAEW spokesman:

"A spokesperson for the ICAEW said that the fund had become too costly in its current form and that the volatility of the market made it difficult to determine the amount of funding needed.

We will honour the commitments we have already made to those people in the scheme, and are committed to funding the deficit that exists."

The scheme currently has a £19M deficit.

I don't fully understand "we will honour the commitments we have already made to those people in the scheme".

Given that the scheme has been closed to new members since 2000, the closure implies that those currently in the scheme will have to move to a defined contribution scheme.

On the assumption that is the case, how can the ICAEW "honour commitments to those already in the scheme"?

U Turn If You Want To, Ken's Not For Turning

Today's Accountancy Age has a piece entitled "Long-term critics u-turn in institute cold war".

The article notes that I have stated, in an earlier article, that the ICAEW had "accepted the argument" that mergers would dilute the ICAEW brand.

I have no quibbles with that, and indeed am pleased that the AA article notes that I am unhappy about the size of council and "pension black hole".

I would also emphasise that wrt council, the Victorian nonsense of nationally unknown candidates being "elected" on a local basis, and candidates needing to be nominated, needs to be addressed.

The Victorian trading association model is no longer applicable!

However, I would tactfully like to remind Accountancy Age that the ICAEW (by accepting the argument made on this site for the last two years, that the ACA/FCA brand is superior) has in fact made a U turn, not I!

The AA heading is misleading.

Pension Black Hole

Given the ever increasing pension black hole in the ICAEW accounts (it has grown by £4M over the last year), it is hardly surprising that the ICAEW has asked to raise subscriptions this year by 4% (which, despite their denials, is above inflation).

The triannual actuarial review will be carried out later this year and, as sure as eggs are eggs, we can assume that the black hole will have increased.

The astute amongst you will realise that the ICAEW will therefore be again coming cap in hand to its members, to ask for another inflation busting subscription increase in 2008.

Given these never ending increases in staff costs, why did the ICAEW hire 125 more people in 2006?

Do they regard the membership as a docile compliant cash cow which can be milked to death?