What is “gravitas” and how does one develop it?


I think that “gravitas” means really the opposite of being a visibly light-hearted, humorous and happy-go-lucky person. Therefore you have to be able to switch the level of gravitas on and off, that’s the tricky bit. There are people who get noted for being able to make people laugh and sometimes, if they are not carefully, they become regarded as “clowns” who are not really to be taken seriously. On the other hand, too much of the opposite will mean you are seen as someone with gravitas, but maybe not someone with a great sense of humour, which could create distance in situations where you don’t want it.

A certain dignity in not being too open about one’s personal life is probably good – familiarity can breed contempt, and making sure that your use of humour is aimed at quality rather than quantity will do a lot to enable you to come off as someone with gravitas. Other than that it is something which grows with age, experience and the ability to show a certain classic style of speech, choice of language, dress and posture. But you can’t stand on your dignity the whole time. If you make a mistake and people laugh at you, better join in the joke rather than get offended or that will undermine gravitas quicker than anything else.

Certainly a serious demeanour going hand in hand with a genuine reputation for being ethical and having a flawless integrity, these are things which many of us aspire to and should aspire to. For many successful people, this is what they tend to have in common and for many this is what they will sum up as “gravitas”.

A former boss of mine suggested that I increase my level of gravitas in order to get on, he did not say how I should go about it, but I think to a degree I did it anyway. Now I am pleased to say I can still make people laugh, but I can just as easily get them to take an issue seriously. That’s what I wanted to achieve and that’s a target I recommend people to aim for whenever I hear them talking about gravitas.

What should the relationship of internal and external audit look like?


Not every organisation has both an external audit and internal audit. In some jurisdictions you can get companies that have internal audit but no external audit, while in most countries you get quite a prevalent external audit with far less incidence of internal audits. Russia is a prime example of the latter case.

External audits done under ISAs are supposed to plan and carry out work in order to have a reasonable expectation of detecting fraud and other irregularities, and certainly the expectation of users has traditionally been that external auditors are responsible for finding fraud.

I work both as external auditor and I also carry out internal audits for clients who don’t have their own departments or who do but still need to be beefed up locally by brought-in experts. Therefore I have no particular axe to grind, but I will say this – a lot seems to be expected of external auditors with relation to fraud without giving them the tools necessary to find instances of fraud.

Internal audit departments can, within reason (they cannot supercede data protection law or labour law, etc, or contravene people’s basic human rights when monitoring them) have whatever tools they like if they are within budget. I can just imagine what my clients would think if I as an external would start installing cameras, GPS trackers on company vehicles, doing spot checks for alcohol, lifestyle checks on managers, and all the other things that internals can do. And yet if you take the standards literally I have to do a job not far off that of a policeman as an external auditor.

All we are usually given as external auditors is a couple of generic questionnaires which we try to go through with the client’s management adapting it to the specifics of their business, then we have the duty and hopefully also the ability to map out and analyse the systems of the client, including the controls and to perform walk-through tests and seek to identify key controls. The way an external auditor assesses a key control and the way an internal auditor assesses a key control are also different in a number of ways, and how we define a key control for our respective purposes differs, and then the timing and frequency of checks on that control will differ. Many people who have worked only in external audit won’t know how or why they differ and therefore their ability to get the best from internal if it is even there will be in many cases limited.

Actually most of the fraud questionnaires in use are a good start because they are based in fact on the fraud triangle originally talked about by notable criminologist Donald Cressey back in the 1960s and 70s. This is the triangle of means, motivation and rationalisation or self-justification. It is based on the idea that if a person hasn’t got the opportunity to get around the system, doesn’t really need to and thinks it would be wrong to, then the chances of that person committing fraud are extremely remote. If on the other hand a person thinks that they know how to get away with it, need the money and also think they deserve to do it, then the fraudulent activity by that person is virtually certain. Various permutations of this give varying degrees of likelihood of fraud. The questions in fraud questionnaires would be good at helping to build a “fraud triangle” exercise in a given context, but only as long as the person doing it knows what they are doing both in theory and in practice. Often it is given to quite junior people to carry out and also very often in assessing audits I have seen that the answers don’t necessarily carry through to specific tests relevant to those answers, but instead increase general risk meaning that there is a likelihood that the sample sizes for other detailed substantive tests (by the way the weakest set of tests for detecting fraud) will be higher. And sometimes you are lucky to even get that much of a response.

Externals go on to make their control tests if they do recognise a key control (and on a worldwide scale I would hazard a guess that tests of controls are still done on only a small minority of audits, with most defaulting to the substantive route based really on lack of time or confidence with control work by the external audit team) and also the other big weapon they have in the arsenal is substantive analytical review. But SAR is only as good as the in-depth knowledge of the branch or business, so externals – especially those which are not branch specific as some Big Four externals are – don’t really have the sector knowledge that the internal audit team have and so their chance of noticing something that doesn’t stack up as they go through their analyses of ratios, or building of expectations and confronting to reality is not as good as that of the internal in many cases.

And then auditors finish every section by mopping up whatever needed assurance they could not derive from the earlier procedures by other substantive procedures based if done properly on a statistical sample, which is designed to get them from the assurance they got from less time-consuming procedures through to within their tolerable error (a function of risk and materiality from their perspective, which again differs from the internal auditor’s perspective which may not even be couched in money figures but in non-monetary terms). However the chances of getting at fraud looking through sampled accounting documents is miniscule, and here many external auditors do the bulk of their work.

So naturally if there is an internal audit team, an enlightened external auditor should be ver anxious to understand how they decided their work plan, what they did, and how many key controls have been checked thoroughly and how many risks are still open. If they want to give the organisation real value for money they will design tests that supplement, rather than duplicate the work of internal auditors.

Internal auditors will encourage this – they too will want to see that the organisation’s budget for external audit work goes on procedures that help to improve the risk heat map and the overall picture for the organisation. This call only be done when each side understands the other and “speaks their language”. Many internals have worked as external but not many are continually doing both types and therefore able to think through an assurance issue from both perspectives.

Plaxo as a personal CRM business tool


In these days of below-the-line marketing, everyone should have a personal social-media CRM independently to whatever CRM they have in their office. This reflects the blurring of the work and play areas of life which is one of the recognised aspects of Generations Y and Z, as well as a very natural result of the interactive technology most of our readers will be native to and working in every day of their lives.

Plaxo (www.plaxo.com) is an address book synchronising and back-up tool which has a number of interesting features such as the ability to access your contacts from the net, to import and export as CSV files, to send greetings cards to check duplicates and synchronise in a limited way with google applications, facebook and other social media.

The interface seems to offer a lot of benefits and certainly the ability to send greetings cards is a useful one. There are, however a whole series of issues and bugs and incomplete aspects to Plaxo which means that it can easily be superseded as the personal CRM of choice by any app maker able to sort out these issues more efficiently.

1) There’s no official Plaxo app on Android phones and so the synchronisation goes via Google Apps and is clunky. Whenever codeword security runs out, it seems to stop synchronising. Also the synchronising doesn’t seem to work well all the time and in my case telephone numbers have been moved from one person to another, which is very troublesome.

2) There are not really enough greetings cards and they are in too few languages.

3) Intelligent updating from the web of what our contacts are doing seems not to be working half the time. Occasionally the robot makes a half-hearted attempt to find and update people, but nowhere near what you’d expect for the annual fee.

4) Above about 3000 contacts and the site works slowly. It is unable to offer you a print out of the whole database at that size.

5) It often loses the pictures it has imported from facebook and doesn’t seem to be able to import any at all from Linked In. It cannot update calendars directly to Android, again only via Google apps.

6) It doesn’t deal properly with any scripts beyond basic Latin script, so it mangles names written even with Polish or Czech letters, leave alone Cyrillics or Chinese names.

7) The folders are a clunky interface, but even when you have done the work of putting contacts into the appropriate folders, they don’t carry through to the greetings cards area, so you cannot, for instance, make a folder of people who would receive, let’s say, and Eidh card or a more/less traditional Hannukah card and then easily access that folder from the greetings card area. Also send outs of more than about 200 cards per time tend to fail and need all that work to be done again.

These are my main Plaxo gripes. I am airing them in the hope that Plaxo will finally get their act together and repair their product before their remaining users find another app on the market among the choice which seems to be growing every day that does all the things that Plaxo is expected to do, but still fails to deliver.

 

 

 

 

The Money Value of Time


The National Audit Office building, built orig...
The National Audit Office building, built originally as the Imperial Airways Empire Terminal. The statue, “Speed Wings over the World” is by Eric Broadbent” (Photo credit: Wikipedia)

According to page 2 of today’s UK Financial Times, a UK National Audit Office report shows over 6.5m people waited more than 10 minutes to get their calls answered by HMRC, adding £33m to customer’s phone bills and wasting £103m of their time last year.

This snippet of information triggered a few things that I wanted to say to you this morning. The first of these is, that, despite the fact that it is obviously pretty dire that people need to wait so long to get their calls answered by the service they are paying taxes to fund in the first place, at least in the UK there is a body which is concerened at the loss of time and places a value, in monetary terms, on that loss of time by the customer.

Anyone who has spent any time either in government offices, or even banks or supermarkets in this part of the world will probably confirm that the idea that the customer’s time is valuable and should be respected is a rather alien concept. Not so long ago it was an utterly alien concept, but even today it is still a concept which they find rather hard to grasp.

Not as bad as China, though, from what I heard and also saw. People being expected to queue all day outside the Chinese consulate for their visa and then at the very moment that the scheduled closing time of the office came the shutters come down like with Kiosk Keith and that was that. The spare time of the employees was utterly sacrosanct, that of the customer not at all. This of course shows an elitist mentality, which can be found in almost all state sector offices to one or another degree anywhere in the world. Expect it and try somehow to deal with it.

Much less acceptable is the wasting of the customer’s time in business. If the customer is paying then they have a right to have their matters expedited and people who keep people waiting ought either to invest in more infrastructure to avoid it or to wonder if they are in the right business. Continue reading “The Money Value of Time”

Opinion Piece – Amazon and Google and the prickly question of UK Corporation Tax


Luxembourg
Luxembourg (Photo credit: epha)

This week has seen the issue of corporation tax paid – or rather not paid – in the UK come to the boil, after simmering for several weeks with the articles of various MPs from various parties in various newspapers. It has now made the front page news and there has been an open harangue on three companies, Starbucks, Google and Amazon in the Public Accounts Committee by a group of British MPs headed up by Margaret Hodge.

The argument of the Committee is that these are companies who have made a good deal of turnover in the UK but they haven’t paid any tax. The way in which this has occurred is that they haven’t shown much by way of profits in the UK. They are now being told by Mrs Hodge that she doesn’t believe that they have not made profits in the UK given so much turnover, she thinks that profits are being salted away to other countries, like Luxembourg or Holland, using various techniques such as management charges, royalty fees, transfer prices, etc.

There are of course laws which are set up to determine whether profits in the UK are being assessed fairly – there is transfer pricing legislation and the Inland Revenue are able to investigate whether Transfer Pricing has been used. However, in the end what Mrs Hodge’s argument has boiled down to is the fallacious “argument from incredulity” – she cannot believe that the businesses have not made bigger profits (she seems to be oblivious to the fact that there is a recession going on out there and has been for some time, and that companies in all sectors and of all sized are bankrolling losses), and since she cannot believe it, it cannot be true.

In the case of Amazon a particular point was made – in addition to the insulting of Amazon’s spokesman Mr Andrew Cecil by accusing him of “gross ignorance” – namely when he pointed out that of course Amazon has paid taxes, only not corporation tax, they have paid VAT and employment taxes and created jobs – Hodge said that this argument was irrelevant because also the corner bookshops which would have sold those books would have created those jobs (fictional employment was always beloved by the left) and that Amazon, by making offshore structures involving Luxembourg, were making those little corner bookstores less competitive.

The fact is, however, that Amazon is not competing with little bookstores – it’s the Internet, new technology, which is competing with physical bookstores, but anyone with any kind of memory ought to be able to remember how a few large stores like WHSmiths and Waterstones already managed to put the corner shop bookstores out of business long before the Internet came along. Also if you look at markets like Poland or the Czech Republic, where they have online stores for books but not so much by way of the colossal physical bookstores the way the UK has, there the corner bookstore is alive and well. So Mrs Hodge has absolutely the wrong villain in her sights if she wishes to defend the corner store bookshop. But if she really was interested in championing them, then where was her voice railing against expansions by Waterstones and Smiths ten to fifteen years ago, which transformed that industry then just as much as the internet does now? Where is her voice against the Net Book Agreement, which makes it very hard in the UK for small businesses to deal in new books against larger companies? Tax is important, but it is only a thin layer of icing on that particular rather thick cake.

She admitted also that she wasn’t accusing Amazon of being illegal, only of being “immoral”. I am sorry, but is Luxembourg not another EU state in good standing? Is it now “immoral” to use the EU structures that were offered to us as the bait for getting us to sign up to the Single Market in the first place? Well, if there is any immorality in all of this, I can’t see it on the part of the private businesses. I see immorality and utter hypocrisy in the way these MPs, elected members of a government, blame business for their own failures. Failure in so many years of our being in the EU to sort out some kind of harmonisation in income taxes and corporate income taxes meaning that people are able to doing interesting kinds of arbitrage between EU legislations both in terms of their personal taxes and corporate profits taxes. They have had so many years and so many terms of office to sort this matter out.

In fact the answer in Amazon’s case is ridiculously simple – the UK has held a zero rate of VAT for books in order not to penalise reading, but bookselling companies paid the same profits taxes as any other kind of company. That means that book VAT in the UK isn’t even propely harmonised with the rest of the EU. VAT cannot easily be evaded, and even Margaret Hodge couldn’t deny that Amazon paid VAT, merely dismissed it as irrelevant. So what the government can do to produce a more level playing field is to put the general rate of VAT on books and reduce the profits tax for companies all of whose income comes from the sale of books. This would force booksellers who are in a lot of different businesses to be just in books in order to profit from the reduction, and it would mean that it would be of less worry who used corporate income tax reducing techniques, as they would be spending time and money reducing a smaller imposition anyway, and therefore would be less likely to do it.

Schools could be enabled to reclaim the input VAT, the students of university colleges also, therefore the impact on education would be minimised.

I wonder whether anyone in Government will consider this solution, or work towards the harmonisation of EU member state corporation taxes which we all believed back in 1993 was likely to happen before the turn of the Millennium, or whether they will continue, like Margaret Hodge, to blast other people in the private sector for doing their jobs properly while government continues to neglect its own job with impunity.

 

 

 

 

 

 

 

The profit and loss account, and why it looks the way it does


All those of us who have studied double entry bookkeeping will remember their earliest lessons, in which we are told how the balances of the various accounts in the general ledger are taken to one of two statements at the end of the reporting period.  One of these is the balance sheet, which (we were told in lesson one) is like a family photo, a snapshot of your business at one particular point in time, and therefore is “na dzien”, and the other statement is the profit and loss account, which is a story of how the family developed and what happened to them between the last photo, and the current photo.  Put simply, a profit and loss account is the story of how you get from one balance sheet to another.  There are in fact other ways in which balance sheet items can change which don’t involve things passing through the profit and loss account, but international standards of accounting seem to prefer it when as much as possible going on between an opening and closing balance sheet for a reporting period (usually a year) is reflected to the maximum degree possible in the profit and loss account, or as it is now fashionably known, the statement of income and expenditure.

What I wanted to talk about in this article is to let us think I’m at about the order in which things appear in a typical profit and loss account.  This is worth doing as there are many different layouts for the balance sheet as you go around the world (the Americans have theirs, the British have theirs, the continental Europeans have theirs and each of the above look somewhat different) but there is a lot more uniformity as you go around the world in the order in which things are set out in the profit and loss account, or statement of income and expenditure.

Invariably the first thing that it deals with is the issue of turnover.  In most countries which have VAT, but by no means all, the turnover figure in published accounts is shown net of VAT.  That is how it is done in Poland and that is the way in which international standards would also have us do it.  Similarly the expenses, where VAT applies which can be reclaimed by the entity, are shown net.  (This of course is different to the balance sheet, where debtors and creditors are shown gross of VAT and the difference which you would have in the profit and loss account if those items were shown gross ends up in the VAT control account).

The first question that our profit and loss account seek to answer is whether the business is making a profit or loss regardless of how it is financed or tax.  It is also good to show items which are likely to be normal recurring items, and not one-off or extraordinary items in the first part of the profit and loss account.

Hence the top of most people’s profit and loss accounts as you go around the world deals with the question of ordinary sales income and the costs incurred to get to that sales income, giving a basic idea of profit.  Before you add in the cost of selling an administration, while you are still looking at a cost of goods sold or the cost of providing the services of is a service company, the profit figure achieved is known as gross profit.  Exactly what costs and what revenues make up that gross profit actually do differ quite significantly from one firm to another firm depending on the business, and the principles of management accounting have quite a lot to say in how we will classify the costs and revenues going into the gross profit line.

Once we’ve subtracted from the gross profit other operating costs such as the selling and administration costs, we come down to something called profit on ordinary operating activities.  After that it might be a good time to look at the extraordinary activities that happened which were still operational, or “other” activities which are not core, such as sales of fixed assets or unusual write downs, and this gives you the operating profit.

The next question that the profit and loss account will seek to answer is the cost of financing the business.  We are still well before the point at which tax is applied, as finance charges such as interest on business loans are usually tax allowable.  We look in this section of the profit and loss account at the interest received and take off the interest paid.  In Poland we have just about any foreign exchange differences also appearing in this section, where as in most western countries it would be considered correct to examine foreign exchange differences to see whether they really appeared on financing decisions or an operational decisions, and put them in the correct part of the profit and loss account depending on the answer to that question.  In Poland they are automatically considered to be part of the financing decision, which is not always true and therefore sometimes leads to misleading ratio analysis unless this is taken into account by the analyst.

At this point the profit and loss account will show us the profit on all the ordinary activities, and the next question that it starts to answer is what the tax is on that.  If a company is applying deferred tax, then the tax figure shown in the profit and loss account will be normalised tax on the profits to that point.  It takes account of timing differences between operational treatments of transactions and there tax treatments.  This means it probably won’t be the same as the figure on the tax return for the year.  The difference between the figure in the profit and loss account and the figure on the tax return for the year is usually going to be the amount added to or subtracted from the deferred tax assets and liabilities and the balance sheet.

In Poland that is usually the end of the line for the profit and loss account, however in some groups the profit and loss account goes on to answer the question ‘how about minority interest?’ which comes after the tax question because tax falls regardless of who the minorities are, and then questions about dividends are dealt with in the profit and loss account in many countries, but not generally so in Poland.

In order not to get confused the questions which the profit and loss account is trying to answer, it is important to observe the order of information, and also to consider whether an item is needed in order to help is to say the very important question of whether the underlying business is profitable or not, and the more the answer to that is yes, the higher up in the profit and loss account you should show it or expect to find it.

 

Quoracy.com supports the Unicef/Dulux “Own a Colour” campaign


"Quoracy Blue"

You may have noticed the change in background colour on this site from a Cambridge style light blue to a darker blue verging on regal purple – this is the colour with the hex code #260564 – my birthday in fact – and is now the property of quoracy, it is officially called “Quoracy Blue” and can be checked out by following this link to the Unicef/Dulux appeal “Own a Colour”, which is fighting malaria and other diseases affecting children in the poorer parts of the world.

We hope that other websites and wordpress places, youtube channels, etc, will buy their own colours and place them on their backgrounds, and support this cause. Get your favorite colour before someone else does!