Football Creditors Rule is unfair

The Premier League and Football League in England both operate the so-called 'football creditors rule'. This rule has the effect of bringing what the league describes as football creditors, including other clubs, the manager and the players, to the front of the queue for payment when a football club becomes insolvent. It is a topical concern at the moment because of a spate of clubs going bust this summer including Southend, which is in court to answer a winding up petition for the third time in a year, and Portsmouth, the first Premiership club to go into administration.

The FA and the Football League attempt to justify their preference for football creditors by saying that they are trying to avoid a domino effect whereby the unpaid debts of one club, transfer moneys for instance, bring down another club and so on. There is some truth in this but football is by no means the only business where this is a likely scenario. Small builders are in constant danger of being let down by their debtors whilst, at the other end of the scale, one bank failure could bring down a whole banking house of cards. Why should there be one rule for football clubs and another rule for the rest of us?

The fact is that there is no such rule in law and HMRC, an unlikely hero in business, has brought a writ against the Premier League to prevent the Football Creditors Rule from being put into effect in the case of Portsmouth. Apparently the HMRC view is that the rule is 'unlawful'. It is bad enough when international sporting bodies such as FIFA and the IOC set themselves up as being above the law, and tax laws in particular, but it would be a disgrace if domestic associations could abuse their control of high profile sports to do the same.

The real injustice, of course, is that the main football creditor is usually the wages of the players. In the Premiership the payrolls are spectacularly out of proportion to ordinary life. Can anyone justify making those astronomical sums a special case whilst the taxes that the clubs and their players owe to the rest of us go unpaid?

No accounts, no mortgage

The FSA began its review of the mortgage market in the UK in 2005 and has now published its latest report on 'Responsible lending'. It recommends that anyone applying for a mortgage in future must be able to prove their income which will mean that self-employed people will need to produce accounts if they want to buy a home.

The alarming thing for anyone who is interested in the property market is the proportion of mortgages that have been self-certified; 45% over the period from 2005 - 2010 peaking at over 50% in 2008 and still at 43% in the first quarter of this year. If the FSA's proposals have the effect of excluding over 40% of buyers from the property market then we may see another drop in house prices as predicted by RICS for more immediate reasons.

The potential effect on the property market seems to be of less concern to the FSA than the need to ensure that there really is some substance behind the assessments that mortgage lenders carry out on borrowers. The report states that the sources of evidence for the assessment should be in writing, from an independent source and should be for a period long enough to cover fluctuations in income "and we would certainly not expect indirect evidence, such as providing headed paper or business cards, to be taken as verification of income". It may be possible that an annotated series of bank statements would meet these criteria but many borrowers will find that the only persuasive evidence will be properly prepared accounts, especially as the FSA report specifically excludes 'declarations of affordability' even if they are signed by an accountant. By inference the FSA is recommending that HMRC extends the pilot scheme which it ran last year that allowed lenders to check the details of a mortgage application against HMRC's own information. Anxious to close all loopholes the FSA also insists that 'fast-track' mortgage applications should have income verification.

The FSA believes that "it is possible for everyone to provide evidence of their income". There may be an element of judgement in that statement whereby 'everyone' actually means 'everyone who should be trusted with a mortgage' but it is true that everybody can learn to keep proper books of account if they do a simple course in bookkeeping like those available from the Accounting and Bookkeeping College.

Accounting for failure of Bradford & Bingley

The BBC and other parts of the news media (including Accountancy Age!) have reported that the shareholders of Bradford & Bingley will receive no compensation for the forced nationalisation of the failed bank but they have made no attempt to account for the difference between the shareholders' claim and the assessed value of the business.

Fortunately for us, the information behind these somewhat limited news reports is readily available in the form of the Assessment Notice from the independent valuer, Peter Clokey. Like many other official insolvency documents this not only describes what the financial outcome is likely to be for the creditors and shareholders but also tells the story of how the business failed so catastrophically.

Bradford & Bingley had a tier 1 capital ratio (the key measure of financial security for a bank) of 7.6% in June 2008 and equity of £1.144bn. Both the ratio and the total capital had fallen during the preceding year due to trading losses but the capital ratio compared favourably with other UK banks and it would take many years of losses to use up more than a billion pounds of shareholders' funds. As such Bradford & Bingley shouldn't have been an early casualty of the September 2008 financial meltdown. Unfortunately, although it hadn't traded as recklessly as Northern Rock, for instance, it had been expanding and had financed that expansion by borrowing on the money market moving away from retail deposits as its main source of finance. The directors had assumed that money market funds would be available indefinitely and had no contingency plans. When interbank lending suddenly dried up in 2008 Bradford & Bingley was forced to resort to the Bank of England's Special Liquidity Scheme (SLS) borrowing £4.9bn from the UK taxpayer by 16 September 2008. The Bank of England restricted participation in the SLS to institutions that had the very highest borrowing credentials but the ratings agencies, Moody's and Fitch, had identified Bradford & Bingley as a bank that would need help to survive and were in the process of downgrading its credit rating. Unable to borrow from the money market or the Bank of England, Bradford & Bingley stood on the edge and, when retail depositors began to withdraw their savings, could no longer satisfy the FSA's funding conditions for taking deposits so, on Saturday 27 September, the FSA told the bank to close its doors on Monday morning.

The options open to the directors that weekend were administration or "a transfer of Bradford & Bingley into public ownership or the brokering of a deal with one or more third parties to sell all or part of Bradford & Bingley". The solicitors went ahead, drafted the administration papers and put the appropriate people on notice for Monday morning. Before Monday morning part of Bradford & Bingley, the deposit business part, was sold to Abbey but only with billions of pounds of support from HM Treasury. There had never been any other interested parties when banks around the world were rushing to shelter their precious cash resources.

In the end an administration was not the best option for the creditors and shareholders of Bradford & Bingley. The bank had sold its soul in the months leading up to September 2008. If Bradford & Bingley went into administration many of its debts, including the SLS funds, would need to be settled immediately and for the bank in administration to borrow money instantly on the open market would be prohibitively expensive. So expensive that it would absorb all the shareholders' funds leaving them with nothing. Public ownership hasn't proved any more rewarding for the shareholders but it was better than the alternative which would have been chaos.

Driving the Economy

It may be property prices that drive the UK economy but one of the most reliable indicators of British economic confidence has always been the level of car sales. It seems that UK consumers immediately shelve their plans to buy a new car whenever the outlook seems less than rosy and can't wait to start driving new wheels when things start to look up.

Recognising this phenomenon makes last week's announcement from the Business Secretary, Vince Cable, that the government will no longer be providing financial support to the car industry seem especially inauspicious. This comes after the end of the car scrappage scheme which did so much to sustain the car industry in its darkest hour.

Yet that confidence sometimes takes on a life of its own as it did last month when, according to the Society of Motor Manufacturers and Traders, car sales were significantly higher than in June 2009 even without the scrappage subsidy. No doubt a number of different factors affected car sales in June but the overall picture must be one of increasing rather than declining confidence.

Does the effect work the other way, we wonder? If we buy more cars do we then admire our fancy new motor whilst thinking that things must be on the up? Perhaps we do, in which case we can expect even more buoyant consumer figures to come, at least until VAT rises next January.

Mortgage advisers to be personally accountable

The FSA has announced changes to the way it regulates mortgage lenders including a move to make mortgage advisers personally accountable for the advice they give as part of the FSA’s commitment to intensive and intrusive supervision to ensure firms treat their customers fairly.

The FSA is particularly concerned about the practice of  'sale and rent back'. Property owners who are struggling with their mortgage can remain in their home by selling in this way but there is evidence that some companies are taking advantage of people in financial distress to acquire their homes and evict them shortly afterwards. The FSA is imposing superficial changes on the way that these offers are marketed but by imposing security of tenure for five years for customers entering into 'sale and rent back' deals it should succeed in deterring the more unscrupulous firms from seeking to capitalise on financial misery.

Similarly the FSA is trying to address the potential trap of mortgage arrears. Again there are a number of procedural changes for the mortgage lenders including mandatory recording of phone calls and the requirement for mortgage advisers to be 'fit and proper persons' but it is an accounting change that will make all the difference: "payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges".  It goes without saying that borrowers who are in arrears are having difficulty in meeting their monthly payment. The current accounting treatment that allocates payments firstly to arrears gives distressed borrowers a big extra burden, often insurmountable, in trying to bring their mortgage back under control. The change means that they will no longer face this additional handicap. Going further, the FSA is now insisting that lenders cannot impose a momnthly arrears charge at all when an agreement is in place with the customer to repay the outstanding amount. This will also make a real difference to borrowers struggling to cope.

Last year, 2009, was the worst for reposessions since 1995 so the FSA is tightening up numerous untidy practices in the mortgage lending business. It is the accounting change to mortgage arrears, though, and the security of tenure for 'sale and rent back' customers that will make the real difference.

Accounting for the games: the Olympic ideal

Visit the website for the 2012 Olympics in London and you won't be surprised to see a great deal of advertising for the sponsors of the games, and precious little sign of Olympic ideals, but continue further to the page where you will be able to buy tickets and you may be shocked to find that you can only pay by debit or credit card if you have a Visa account.

Apparently this arrangement is not exclusive because anyone who, for instance, only has a  Mastercard account can buy a prepaid Visa card. No doubt Visa already has very precise statistics showing what proportion of the money on prepaid cards is never actually used and Visa could use this additional profit to provide some extra sponsorship for the games but it hardly seems fair on the hapless spectator. The flimsy excuse, then, that other forms of payment are available, even if they are both more expensive and less convenient, allows the Olympics to pretend that this is not against the fundamental principle of avoiding any kind of discrimination.

We understand that the Office of Fair Trading is looking at the legality of this move to exclude competition from other card issuers but there can be very little hope that they will be allowed to upset the apple cart. Expectations of the European Commission may be higher, though, since they intervened to force the World Cup in Germany 2006 to accept cards other than just Mastercard despite a similar exclusivity deal.

However, there is an Olympic principle that seems to be in even greater jeopardy: To oppose any political or commercial abuse of sport and athletes. This statement is now the last reference to the amateur principles that used to be the foundations of the Olympic movement. The idea of competing for the sake of sport rather than for gain was a worthy one even if the IOC could not sustain it against the intense pressures of commercial sponsorship of athletes. This unnecessary and blatantly anti-competitive step whereby Visa becomes the only card accepted at the 2012 Olympics makes it obvious that the whole event is no longer the world's greatest sporting event: it has become the world's biggest travelling circus.

Accounting for banks: a new broom

George Osborne, the new Conservative Chancellor of the Exchequer, has moved very rapidly to reform financial regulation in the UK.

There can be little doubt that the old system has failed. As he prepares to deliver his emergency budget George Osborne must be very aware of the vast sums of money the previous government sank into Northern Rock, HBoS and RBS. The chancellor is set to embark on emergency measures to ensure that he is able to borrow the money that his government needs without spiralling into a debt crisis so he must be determined to avoid additional borrowing just to prop up failed banks.

It is to be hoped, though, that Mr Osborne is not being too hasty. There are lessons to be learned not just from looking at the history of our own rather ineffectual FSA but from other countries as well. The new government's plan is to replace the FSA with a Prudential Regulation Authority as part of the Bank of England along with a Financial Policy Committee. This will give the UK exactly the same arrangement as Ireland where the Central Bank and Financial Services Authority failed even more disastrously than the British regulators. Even the CBFSAI's own report cannot hide from the fact that it was, in effect, useless.

Nevertheless there is some reason to be hopeful. A fresh start was needed by the FSA, after all. Since Gordon Brown gave the Bank of England's Monetary Policy Committee control over interest rates it has shown good sense and some independence from political control. We might hope that the FPC and PRA follow that precedent. The climate in which the Bank of England does its business, though, is still set by the Chancellor. We will see later on today whether he is willing to put the lid belatedly on Britain's property price inflation that is its own particular contribution to worldwide financial instability.

The Irish banks are called to account

The Central Bank & Financial Services Authority of Ireland has published its report on the banking crisis that has almost overwhelmed the Irish economy. Their account does not make happy reading. Of course the CBFSA is itself implicated in the story of the mismanagement of the Irish economy so this cannot be seen as an entirely independent report but it still makes interesting reading.

One central conclusion of the report is that the macro-economic predictions of the Central Bank and, therefore, the government were hopelessly and utterly wrong before, during and even after the credit crunch began in 2007. What now appears to have been a speculative bubble economy based almost entirely on construction still managed to convince Irish economists of its fundamental soundness even when it was clear that cash funding from the banks was about to dry up. It would be reassuring to imagine that Irish economists were especially incompetent but the CBFSAI, anxious to deny this charge, can point to a 'higher' authority, the Financial Sector Assessment Program of the IMF. As late as 2006 an update for the the FSAP on Irish financial stability could be described as 'relatively glowing'. Apparently the OECD was equally up beat. Ireland had no need to employ its own economists as it could rely on international ones to be equally inept.

Mind you, Ireland did need its own regulators to directly oversee the lending activities and financial prudence of its banks. The account of their work is just as dismal as that of the economists. The report criticizes their methods, which were anything but 'hands-on', and accuses them of getting too close to the banks that they were supposed to be monitoring. Apparently the pay was too low to attract able, experienced staff who could earn far more working for the banks themselves. The regulator struggled on with 'no more than two [staff] per major firm'. Perhaps the shortage of human resources wouldn't have been so bad if their efforts had been probing and incisive but the report is forced to admit that there was not sufficient "intrusiveness and assertiveness" and that 'these might have partly constituted what is described in the literature as "regulatory capture"'.

There is good news, though, in the report's conclusion that 'there is no
evidence or hint of corrupt regulatory forbearance'. There is plenty of evidence of malpractice in at least one of Ireland's major banks and it is a relief to learn that the Central Bank was not guilty of the same but small comfort since the result could hardly have been any worse. Instead, a theme emerges that the regulators, like everyone around them, either could not believe that the Irish economy had no clothes or were not willing to 'spoil the party'.

So finally the blame rests, perhaps rightly, with the Irish bankers, politicians, property speculators and everyone else who believed that they could get rich quick.

Equitable accountants

Last week the Accountants' Joint Disciplinary Appeal Tribunal released its verdict on the role of Ernst & Young as auditors of Equitable Life. The charges were of 'professional incompetence' in carrying out the audit of Equitable Life's accounts for 1998, 1999 and 2000 and of 'a lack of objectivity and independence'.  These proceedings were on appeal from the Joint Disciplinary Tribunal decision of October 2008. The Tribunal had found Ernst & Young 'guilty' on both charges but this judgement was not published pending the appeal.

It is to be hoped that the verdict of the Appeal Tribunal is final. Equitable Life's collapse can be dated to 2000 when the House of Lords issued its devastating judgement against the life assurance company and ten years is a very long time for this to be hanging over all concerned. Both the original Tribunal and the Appeal Tribunal have had to consider evidence not just about the highly complex nature of accounting for mutuals but also what should be best practice for the extremely specialist job of their auditors. To give some idea of the difficulty of resolving this matter one has to bear in mind that the demise of Equitable Life followed three entirely different court decisions in the same case and that none of those decisions followed the unequivocal legal advice that Equitable Life's directors had received. The Joint Disciplinary Scheme has worked thoroughly, painstakingly and, crucially, with enormous professional expertise to reach its verdict and it is very hard to see how justice could be better served by any other process.

With the benefit of hindsight the evidence is damning; Ernst & Young issued successive clear audit reports on accounts that effectively ignored the whole problem of guaranteed annuities even after the Court of Appeal had ruled, at least partially, against Equitable Life. At best the audit staff appear complacent and one might almost describe them as useless. However, in amongst the vast sea of evidence from reports, memoranda, audit working papers, emails and witness statements there was virtually no tangible material that suggested that Ernst & Young was ever guilty of a lack of objectivity and audit independence. So the original tribunal upheld this 'charge' against the auditors on the basis that the failings in the audit process were so severe that they must have come about because the auditors were too close to the company and its directors.

That one of the large firms of accountants, with all its systems and procedures, could still be guilty of a lack of objectivity and independence regarding a major audit client was an appalling indictment. Not as shameful, perhaps, as the revelations about a shredding orgy at Arthur Andersen when Enron imploded but still highly, perhaps fatally, damaging for Ernst & Young. However, the more favourable decision on appeal has removed the element of guilt by implication leaving us with an account, albeit long and highly technical, of an audit that was feeble and inept but not corrupt. Many accountants, including the Accounting and Bookkeeping College, will share the relief of Ernst & Young and especially Paul McNamara, the audit partner, that justice has finally been done.

The joint account

A few years ago Mark married Eva. They celebrated their wedding in fine style and settled down to make a beautiful home for themselves. Mark, trusting and adoring set up a joint bank account and gold credit card in their new married name. Even at the wedding reception some of their closest friends, however, had serious doubts about the marriage and whether they were really compatible. They all agreed with the happy couple, though, that they could never, ever get a divorce.

Mark is a mature man, very sensible, even a little bit boring. He has a good business that generates enough income to pay the school fees and health insurance. He can even save some money for their retirement. Mark has never spent beyond his means so he doesn't have to borrow money. His business, although very steady and professionally organised, needs a good deal of working capital so he has negotiated an overdraft with the bank manager, Ms Wong, who he sees regularly. She regards him as her ideal customer and has made it clear that she would be delighted to lend more.

Eva is much younger and very beautiful. She is the cherished daughter of an aristocratic Mediterranean family. Mark was her only lover but she naturally inspires complete devotion. Eva is a self-employed travel agent, or "vacation consultant" as she describes herself. Her career has never been truly profitable and recently it has been increasingly difficult to find work. She isn't at all interested in keeping proper accounts so she scarcely realises that she spends far more than she earns. A couple of years ago Eva became obsessed with the housing boom and gambled unsuccessfully in property.

During the first decade of their marriage Mark has tried very gently to steer Eva towards a way of life more like his own with careful budgeting and such like. She has listened patiently and has tried hard not to upset him. Rather than ask him to arrange an overdraft on their bank account she has been financing her lifestyle on the gold card. The credit card company automatically takes the minimum payment each month from their bank account so that doesn't look too bad.

Not long ago Eva reached the credit limit on the gold card. You couldn't really blame her because the credit card company had actually lowered the limit following a shift in their commercial policy.  She promptly arranged a handful of storecards. Mark had warned her several times about storecards and the astronomical interest rates that they charge but it was either that or she would have had to give up all the expensive activities that she treasured.

When Mark found out he was utterly exasperated. Now he had to make a very delicate decision: should he pay off Eva's storecards so that she wouldn't be liable for any more of their punitive interest or should he step back and leave her to her own financial mess? Reluctantly he decided to take action.

Although it wasn't the time for their regular meeting, Mark made an appointment to see Ms Wong. She was charming and sympathetic, as ever, but couldn't altogether hide her surprise at the amount Mark was asking to borrow for "personal" reasons. She agreed the loan but at a significantly higher rate than she had been offering up until now. After he had left her office, still evidently unhappy at finding himself in this situation, Ms Wong placed a warning note on the bank's personal file for Mark and Eva.

To be continued.....

Money for nothing

Asked what happened to the money he had earned, George Best famously said, "I spent a lot of money on booze, birds and fast cars. The rest I just squandered."

Michael Carroll, a man of fewer talents than George Best, is in the news today because he wants his job as a dustbin man back. He won a £9.7M fortune in 2002 on the National Lottery and now all the money has gone and there are strong similarities in the way that it was spent. There is the sense with both the footballer and the "lotto lout" that they have lost track of where all their cash went. Mr Carroll at least has enough insight to be able to identify part of the problem in saying that, as a nineteen year-old, he didn't have the temperament to be able to look after millions of pounds. He also admits to spending a spectacular amount on drugs. George Best died from all the drink.

The moral lesson is clear: money doesn't buy happiness. The practical lesson is even more tedious: it pays to know how you are spending your money. It is not surprising to find that the chaotic personal life of someone like Michael Carroll does not for careful checking of day-to-day expenditure. It is more disappointing to realise that there are businesses that cannot keep track of payments. Their owners have as much chance of success as Mr Carroll has of getting his old job back.

Don't be a loser. Make sure somebody in your business has the basic bookkeeping skills to look after the money. An accounting course from the Accounting and Bookkeeping College could save you a fortune.

Equitable Accounting

The new UK government, unkindly called the Lib-Con coalition, has started work already. Amongst its first measures, aside from reducing the salaries of ministers by 5%, has been the announcement that the members of Equitable Life are to receive compensation as recommended by the Parliamentary Ombudsman. Equitable Life, before its takeover by Halifax Building Society (subsequently HBOS and then the Lloyds Banking Group) had its headquarters in Aylesbury as does the Accounting and Bookkeeping College.

The members of Equitable Life were certainly misled. Each year the directors declared dividends for the with-profits members that were outstanding by the standards of the pensions industry. Very few alarm bells rang until Equitable Life lost a court case brought by a group of investors who believed they were entitled to guaranteed annuity payments. When Equitable Life had sold these annuity contracts its actuaries had seriously miscalculated how expensive the obligations would be. Suddenly it was clear that there wasn't unlimited cash in the pot and the members would have to go short. So little cash, in fact, that Equitable Life was effectively bust.

Throughout this story there was precious little evidence of supervision by the financial authorities. Initially some aggrieved members were looking to the auditors, Ernst & Young, for not sounding the alarm. Auditors had taken the blame for previous corporate fiascos like Enron and seemed like a promising source of funds for the aggrieved. Ernst & Young, however, had a cast iron defence: the convention in the financial services industry, which they were bound to follow, was that the auditors should only examine the assets of the business because auditors are not actuaries and they would not be able to form a worthwhile opinion on the liabilities which, in this case, would be the amount due to be paid out in pensions. Ernst & Young had duly tested Equitable Life's assets and found the figures in the accounts to be true and fair. The directors' error had been in understating the liabilities.

As ever, this one-sided form of accounting could not tell the whole truth or, in this case, anything like the truth. An absence of regulation can only be the responsibility of the regulatory authorities, if any, so the members of Equitable Life resorted to parliament and the Financial Services Authority. The Parliamentary Ombudsman has correctly ruled in their favour. The country will carry the cost, or at least some of it, of this failure.

Too big to pay tax

Leona Helmsley, the 'Queen of Mean', said, "Only the little people pay taxes." She was thinking about individuals, herself particularly, but her philosophy clearly now applies to unaccountable international organisations.

Take FIFA, for example. FIFA sets eight conditions that all countries must accept who wish to bid for the World Cup. FIFA then hides behind a confidentiality clause to prevent these stipulations from becoming public knowledge. Fortunately the Dutch government has effectively exposed FIFA's position in the form of a draft letter to Fifa President Sepp Blatter. The letter refers to 'Guarantee no. 3' which grants FIFA a tax exemption that "shall encompass all revenues, profits, income, expenses, costs, investments and any and all kind of payments" and, in case that doesn't cover everyone as well as everything, apparently "FIFA will notify on an ongoing basis the Tax authorities ..... about the individuals and legal entities which shall be entitled to the exemptions under this Guarantee."

It seems that South Africa this summer will be able to charge a sales tax, which would be VAT in the EU, on ticket sales but ticket revenue is tiny by comparison with the vast sums that will accrue to FIFA from broadcasting rights and sponsorship. Governments around the world are so anxious to bring the great event to their country that they will submit to this kind of extortion.

At the Accounting and Bookkeeping College we enjoy World Cup football but we are committed to promoting open and honest accounting. So for us the final insult to be added to the various injuries from Guarantee no.3 is that any "declaration or reporting obligation of [FIFA] shall also be waived (in particular, but not limited to the filing of Tax returns, audited accounts, etc.)".

Accountancy in a new Government

After yesterday's election in the UK very little is settled but it is clear that we will have a new government because the Labour Party no longer has a majority in the House of Commons. The result that we at the Accounting and Bookkeeping College are delighted with is that very many more people turned out to vote reversing the trend of previous elections.

Apparently all parties agree, to a greater or lesser extent, that the priority for the new administration will be to ensure financial stability through careful and prudent management of the economy. Margaret Thatcher famously likened herself running the British economy to a housewife managing a family's purse. Mrs Thatcher was over-simplifying the case in order to appeal to the electorate, housewives presumably, but it would be fair to make the comparison with a business. Like countries, many businesses borrow money to finance their activities and rely on the continuing availability of loans to avoid going bust. Banks will continue to provide facilities as long as there is a profitable return on their balance of risk and reward. Apart from looking at the borrower's track record of repaying loans in the past, the lender's best source of information about a customer is their accounts and cashflow projections.

The United Kingdom doesn't produce financial statements in quite the same form as a business but in both cases it should be possible to tell whether funds are being generated to meet liabilities. Our next Prime Minister and Chancellor of the Exchequer will need to be adept at producing persuasive figures for the bond markets that finance our national debt. Similarly, every business with an overdraft needs to maintain accurate accounts to show the bank manager. If the new government fails to convince its creditors we could face a crisis of Greek proportions. If your business is equally unconvincing then it will join the record numbers that are facing insolvency.

Accountancy for Democracy

It almost goes without saying that we should be delighted to have the opportunity to vote in the UK today. That is even true in the Buckingham constituency where the Accounting and Bookkeeping College is based which has neither Labour Party nor Liberal Democrat candidates at this election because of the British parliamentary convention that other parties do not stand against the Speaker of the House of Commons.

There are too many good reasons for voting to list them in this blog and, in an authentic democracy, I can think of no good reasons for not voting. Some people, though, are choosing not to vote because they don't approve of any of the parties. That sort of disapproval has greatly increased since we found out last year what MPs were claiming in expenses. Disappointing though it was to learn about moats, duck houses and mortgage claims on non-existent second homes, we should reflect that we get the politicians that we deserve and we will never deserve any better if we don't vote. Other potential voters sometimes despair and conclude that the same scoundrels and crooks will always be elected because their vote is only one amongst thousands in their constituency and millions across the country.

There is a kind of analogy, though, with double-entry bookkeeping. When we choose to use credits and debits for our accounts, and many totalitarian regimes would probably prefer that we didn't, we are making a commitment to record for every transaction where the movement of value is coming from and where it is going. At first sight voting seems much more one-sided because every effort is made to ensure that nobody knows who cast each vote leaving only an anonymous record to be counted which seems to reinforce the sense that a single vote is a drop lost in an enormous ocean.  That may be the bigger picture, and it may be the reason behind the difference between opinion polls and election results, but it isn't true of the individual voter. Each one of us can have the satisfaction when we vote that we not only had a preference about who should represent us but that we took part and actively registered that choice: the vote went to the candidate of our choice but the mandate came from us.

Unless we vote we don't have a democracy and, in the end, Winston Churchill was right, "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."

Do first time buyers need an accountancy course?

You would expect the Accounting and Bookkeeping College to be in favour of financial training and we were indeed excited to hear about the suggestion from Malcolm Hurlston of the Consumer Credit Counselling Service that first-time home buyers should only have access to a mortgage "after study and an exam". A mortgage is a huge financial burden that can eventually overwhelm an ill-advised borrower.

Nobody is pleased to see individuals fall into bankruptcy so it is tempting to adopt any policy that might prevent this. It is not surprising that the people most likely to suffer from debt problems are those who take on 110% or 120% mortgages and a good course might teach people that these financial products are not as desirable as they seem. On the other hand Sue Anderson, of the Council of Mortgage Lenders, points out that people find themselves in mortgage arrears generally after an unexpected life event such as redundancy. Perhaps she has missed the point of training which would, we hope, teach students to anticipate life's ups and downs?

Even so it is not tempting to endorse Malcolm Hurlston's proposition because there are at least two other flaws in our economy that we ought to address before we start to hand out 'home ownership certificates'. Firstly, for every borrower that takes a mortgage which is larger than they can manage there is also a lender. Banks and building societies lose money when their customer defaults and, if it happens too often as in the case of Northern Rock, will eventually go bust themselves. We all agree that some sort of supervision of financial institutions is necessary and it could be that, instead of looking at more complex forms of analysis of banks, our FSA ought simply to outlaw nonsensical products like 100% mortgages.

Secondly, we need to be much more sensible in our view of the value of houses. It is time that politicians and others stopped using expressions like 'property ladder' with its implication that, once you own a home, your net worth will continue increasing automatically until your children inherit. The results of this delusion can be seen in Ireland where developers built thousands of useless homes or the USA where mortgages sold to the illiterate and unemployed could be packaged as AAA assets because they were backed by a home as security.

When society finally learns its own financial lessons it will be time to start trying to teach consumers.

Accountancy students might prefer Facebook

Apparently the verb to 'google' was officially added to the Oxford English Dictionary in 2006. The dictionary isn't the fastest off the mark to recognise new social phenomena and, as yet, there is no equivalent verb 'to facebook'.

A long time ago the biggest name in computing was IBM and 'nobody ever got fired for buying IBM'. More recently office applications like WordPerfect and Lotus 123 (accountants were especially keen on Lotus) were kings of the heap until along came Microsoft Office. Now there is the possibility that mighty Google is losing ground. The challenger is Facebook.

Facebook is not only rapidly becoming the most popular website in the world but it also has a crucial advantage over Google because its users have to login. This means that, in theory at any rate, Facebook could collect information about the web resources that its members like and make connections between that data and the equivalent data for each Facebook user in that person's, usually very extensive, social network. So, for instance, if a Facebook user makes it clear that they like a website promoting, say, a certain fashionable clothing brand then Facebook could target advertising for that brand to all that user's Facebook friends. Google has made a fortune in targeted advertising but Facebook might be about to take it to a new level.

If data protection rules and privacy concerns do not prevent Facebook from achieving this goal it should be good news for online service providers, especially those that already make connections between their customers. Elearning students with the Accounting and Bookkeeping College, for instance, already benefit from the online forums that are part of each course and allow them to discuss accountancy matters with each other as well as with their tutor. Accountancy is not always regarded as the most sociable career but social networking might have a lot to offer the accountant in training.

Brain training on an accounting course

Many scientific investigations rely on quite small numbers of volunteers for their data. Not so when the BBC is carrying out the investigation as in the corporation's research into the effectiveness of so-called 'brain training' software programmes. We should not be surprised to learn that the BBC found no evidence that the benefits of playing brain training games transfer to other brain skills.

We might think, then, that such exercises are worthless especially given Dr Adrian Owen's comment that, "Brain training is only as good as spending six weeks using the internet. There is no meaningful difference." We would be wrong, though, to be completely dismissive. The Internet, after all, is not only the source of much of our information including news, blogs, maps etc, but also provides a great deal of stimulation as we click from RSS feed to blog to tweet to personal home page. Using the Internet has become a highly skilled activity in its own right that we develop by practice in exactly the same way as a brain training game.

The usefulness of the Internet goes well beyond the opportunity for us to show our dexterity in using a multitude of online resources. There are numerous wonderful free courses that actually enable you to learn a particular skill. The free online bookkeeping taster course from the Accounting and Bookkeeping College is a prime example of how you can learn something highly worthwhile, basic accountancy in this case, whilst also keeping you brain in training: so much better than paying for a toy application on a games console.

Accountants report on football future

Hull City have two more games to play in the Premiership but, after losing to Sunderland at home on Saturday, all hope has gone of remaining in the top flight.

At this point the Hull supporters might be forgiven for wishing that the club had, like Portsmouth, already gone into administration. After all, the points deduction that a club suffers on entering an insolvency process does not matter when relegation is certain. Now there is the fear that Hull City will not not be solvent next season in the Championship and, on being forced into administration, will find that the points deduction opens up the drop to League One.

Unusually, Hull City's auditors, Deloittes, have already predicted an equally disastrous financial outcome by issuing a qualified auditors' report on the company's most recent set of accounts. Deloittes could see that even if the club achieved its goal of remaining in the Premiership its debts were unsustainable: if Hull failed to avoid relegation that would only make the situation worse. For many businesses a qualified auditors' report leads directly to insolvency because the company's bankers and other creditors no longer have any reason to believe that there is a future for the enterprise. Football, apparently, somehow finds this less inevitable and even now Hull's chairman, Adam Pearson, believes that the club can avoid administration. This is a remarkable case of double-think because Mr Pearson also knows that the club's bill for players is far too high, writing in a match programme "Just under £6m spent on agents' fees in two years and the deal breakdown and size of agent payments is abhorrent. A wage bill of just under £40m when the club turnover is £50m in the Premier League. These figures, added to the significant transfer fees owed, clearly show that the maths don't add up."

Like Portsmouth, the hope is that the club can sell its better players to bring down its debts and that sale will certainly go ahead. Look at that qualified report, though, and it's clear that Deloittes have anticipated that even after the club replaces its Premiership personnel the accounts will never 'add up'.

Accounting for football failure

We can see now the full extent of Portsmouth Football Club's indebtedness and, at £119M, it is quite staggering. Although Portsmouth fans are able to look forward to their team's appearance in the FA Cup final on 15 May there is no cause for optimism about the future of the club.

It seems as though the company's administrator, Andrew Andronikou, has successfully taken control of the catastrophic situation that he found on his appointment. He must also be somewhat relieved to think that the administration process, with the benefit of the cup final appearance, will not have squandered cash in the spectacular fashion exposed by the club's trading figures leading up to his appointment. He shouldn't get carried away, though. Portsmouth FC, in administration, has had the luxury of being able to play football without having to buy new players. The amortised cost of players' contracts, aside from wages, in the last five years before administration has been over £70M.

Almost everyone seems determined to secure the best possible outcome for the club and its creditors in the form of a Company Voluntary Arrangement (CVA). There is good reason for this. If the club cannot reach an agreement with its creditors, including the taxman who is owed at least £17M, then the only option for the administrator is to put the company into liquidation. If that were to happen then all the players' registrations would revert either to the Premier League or the Football League. This would be a disaster for the creditors as the players' contracts are valued by Mr Andronikou at £30M on a going-concern basis. Apart from selling players the club has almost no other way of returning funds to its creditors.

So what would happen in a CVA? Firstly Andrew Andronikou would be appointed as 'Joint Supervisor' with control over all the company's business. That sounds simple but it isn't. His report to creditors includes the trading figures for the last five years. These reveal spectacular and increasing losses totalling £58M. That is quite some trend that Mr Andronikou would have to buck. Yet, as an able accountant, Portsmouth's would-be supervisor might wonder whether the accounts do not tell the full story of the losses at Fratton Park. Football finances are extraordinarily obscure, with some owners running their clubs as an expensive hobby whilst others milk them as cash cows, but the basic bookkeeping equation still holds true, 'Liabilities = Losses + Assets' (Accounting and Bookkeeping College free taster course). The statement of affairs for Portsmouth FC can only find assets with a book value of less than £40M leaving a further loss, not accounted for, of £20M.

History doesn't provide any encouragement. Portsmouth FC is following in the footsteps of Leeds United, amongst others. The accounts at Elland Road didn't look as bad as they do at Fratton Park as Leeds tumbled out of the Premiership after a couple of seasons of over-spending. So Leeds with its enormous football reputation and hordes of fans was a more attractive prospect for a buyer but still only managed to secure a very shaky deal with Ken Bates before dropping further into League One. Perhaps, after considering the fate of Leeds United, Mr Andronikou ought to consider the story of Wimbledon which went from the top flight to oblivion?

It isn't part of the administrator's brief to secure footballing success for Portsmouth only to try and keep the club alive in some form and return the maximum amount of cash to the creditors. At first sight those two objectives seem to be neatly aligned but the accounts revealed in the administrator's report look very bad indeed. The CVA, approved by the Premier League and the Football League, is the sensible way out of administration but, once the players are sold, the way out of the CVA, in the absence of an indulgent new owner, may be abrupt and terminal.

For richer, for poorer

Today's news from the Office for National Statistics is that inflation in March had risen to 3.4%.

The Governor of the Bank of England, Mervyn King, has said that he expects this rise and that other pressures will bring the inflation rate down in time. This analysis seems more than cautiously optimistic but Mr King does not want to contribute to the looming possibility of stagflation by appearing to predict runaway inflation. His prediction is beginning to sound unrealistic because inflation tends to create its own spiralling effect and, now that we have a significant upward trend, the likeliest outcome is that inflation will drive itself higher. Many wage settlements will automatically reflect the increase in the Consumer Prices Index and retailers and manufacturers who are paying more for stock and materials do not have the margins to allow them to hold prices in check. The combination of price inflation with low interest rates may cause sterling to fall even lower. That, in turn, will mean that imports, particularly oil, will be more expensive and prices will rise still further.

The British, however, have always considered rising prices to be a good thing. We call it the "property ladder" and we are delighted when house prices seem to be going up and equally miserable when they seem to be falling. There is some justification for this. The "profits" we make on the increased value of our homes may be an illusion because we are destined to exchange each property for another that is equally over-priced but, as inflation marches onwards, we find that the real value of the mortgage that finances our home ownership diminishes year on year. If the whole process goes into reverse then thousands of people in the UK rapidly descend into "negative equity" because their mortage represents such a high proprtion of the puchase price of their house. So, in practice, inflation makes us richer. No wonder Mervyn King is content to allow prices to rise.

Yet that isn't the whole story. A few people in Britain have savings. They ought to be very unhappy to find that, even if they spend none of the interest on their accounts, their savings are rapidly losing value. There are also some poor souls whose wages are not rising with inflation. They, along with those living on savings, are rapidly getting poorer.

So, ironically, the national economic medicine that we are swallowing at the moment is rewarding anyone who has borrowed a great deal or is guaranteed a pay increase, regardless of performance, that corresponds to inflation but punishing all other workers and savers. It may be that there is no alternative to the Bank of England's monetary policy right now but are we really ready to lay the foundations of a sound economy for the future?

God's work

Last year Lloyd Blankfein, Goldman Sachs' chair and chief executive, stated that the bank does "God's work". We think that the bank, like most businesses, exists to make money, not to serve God. If a bank's profitable activities are a worthy service to the community then so much the better.

In the case of Goldman Sachs, however, the US Securities and Exchange Commission is alleging the most disgraceful fraud. The SEC is unhappy about Goldman Sachs' role in devising and selling a collateralised debt obligation (CDO) by the name of Abacus 2007-ACI. It is way beyond the scope of this blog to try and describe how this CDO functioned. For that we refer you to Robert Peston's excellent blog post on BBC News.

At best Abacus2007-ACI was invented as a way of making a handsome profit for Goldman Sachs' hedge fund client at the expense of another bank, ABN Amro in this case. At worst this was a criminal deception. The difference lies only in the highly technical rules governing the marketing and sale of such financial instruments. Either way we would prefer to think that God did not have a hand in this.

The most disappointing aspect of this whole tawdry business is that ABN was bought by Royal Bank of Scotland which, in turn, is now substantially owned by British taxpayers like the Accounting and Bookkeeping College and most of its students. If the money that was lost on Abacus2007-ACI was now returned to the British people then that would truly be God's work.

Justice in the world of accountancy

We wrote with indignation some time ago about Sean FitzPatrick's wilful mismanagement of Anglo Irish Bank in 'The buck starts here'. Today we come to another similar case closer to home with the announcement from the FSA of punitive fines for two former directors of Northern Rock, David Baker and Richard Barclay.

Perhaps the former directors of Northern Rock ought to be relieved that they were not working in the Republic of Ireland where Sean Fitzpatrick is facing more serious proceedings than an investigation by the FSA. After all, the effect of what they did in distorting the accounts was much the same in both cases. Even so there are key differences that probably justify the different treatments.

First and foremost, there seems to be no suggestion that Baker and Barclay made any financial gain personally from their actions. They seem to have been more interested in covering up the dire state of Northern Rock's finances so as to keep the show on the road. Fitzpatrick, on the other hand, seems to have treated Anglo Irish Bank as his own treasure chest.

The second crucial difference is in the nature of the deception. Fitzpatrick admits to changing the accounts of the bank so that loans from other banks appeared as if they were deposits from customers: a complete misrepresentation of the historical facts. At Northern Rock, though, the directors failed to include a proper estimate of impaired loans. There is no doubt that they did know better and that is why they are culpable now but there isn't quite the sense of deliberate deception that is evident at Anglo Irish Bank.

We are pleased that Baker and Barclay have received more than a slap on the wrist as we suspect that in years gone by their misbehaviour would have effectively escaped notice. If this case helps to ensure that accountants in the UK prepare accounts that are honest and truthful, so much the better.

Today's important news for accountants

In a world where we are all connected over the Internet it has long been clear that traditional double-entry bookkeeping that you might learn from the Accounting and Bookkeeping College is no longer secure enough for online applications.

It seems that intelligent algorithms devised by Internet hackers can deduce the other side of most accounting entries which would normally appear single-sided in a typical web form. Putting these two pieces of double-entry  information together can give the hacker access to a small  part of a trader's accounts. Accountants and bookkeepers are increasingly concerned about the extent of that access and whether it might include more sensitive items such as bank and credit card accounts. Given the spread of financial information on the web there would seem to be no limit to where that accounting information could end up.

Today's answer to this alarming possibility is "triple-entry" bookkeeping. Accountants using this new method create an entirely random third entry in their books of account alongside the authentic double-entry transactions that are generated for each sale, purchase or other accounting movement. The random entry is effectively impossible for hackers to guess even using the strongest algorithms available today. The trader's books are, to all intents and purposes, scrambled in the process.

This technique is extremely new as it has to be to keep ahead of the Internet security 'arms race'. We will be watching very closely to see how rapidly it catches on.

Do It Yourself

After the televised debate last night between the would-be chancellors in the next parliament it is clear that all parties are committed to cutting public expenditure. The current rate of government spending is, after all, unsustainable. Whether they are reluctant to publish detailed plans for fear of losing votes amongst those who will inevitably lose their jobs or whether, as we suspect, they simply don't know where they can save the vast sums needed to balance the books, none of the parties is giving us much detail as to where those cuts will fall.
One unfortunate area of public spending, however, already knows that its budget has been slashed, the further education sector. Long considered to be the 'Cinderella' of the education system, the further education colleges are expecting a £200 million cut this year. We are inclined to agree with the Assistant Chief Executive of the Association of Colleges, Julian Gravatt, who says, "We are calling on the Chancellor to help protect these courses and the students they serve. We know that the Treasury is under significant pressure to further curtail public spending but cutting courses that are so essential to our recovery is a false economy." We are not hopeful that the cuts will be reversed, though.
The remedy according to the Department for Business Innovation and Skills is to 'cut funding to lower priority courses' and 'to aim for the largest simplification of the skills landscape for many years'. That way, apparently, colleges will be able to deliver more worthwhile training for less money. In the process the DBIS is hoping that more vocational training will be paid for by the students themselves and their employers. It is easy to see how this might be more efficient but we cannot imagine that it will lead to more skills training.
For most adults what the government is effectively saying is that you should 'do it yourself' when it comes to training for work. Perhaps this is a reflection of the fact that there are good courses available from training providers such as the Accounting & Bookkeeping College like our course for the Institute of Certified Bookkeepers' Certificate.

A debt to the past

At the Accounting & Bookkeeping College we are delighted to learn that some effort is being made to preserve Bletchley Park, not a million miles away from here. Culture Secretary Ben Bradshaw has announced £250,000 funding for Bletchley Park museum.

The work of Alan Turing and others at Bletchley Park helped bring computers into the modern world and is rightly celebrated. Computers have transformed our lives, not least in the field of bookkeeping and accounts so that we no longer live in a world of Bob Cratchits scratching figures into soul-destroying ledgers. Now that the hard labour has been relieved anyone can maintain good business accounts as long as they have learned the skill of double-entry bookkeeping.

The wartime devotion of the staff at Bletchley Park was dedicated to the field of codes and ciphers. As computers and the Internet have become such an important part of our lives encryption has been a vital enabling technology. As long as you don't present your username and password details to anyone else you can safely buy, sell and do all your banking on the Internet. Many businesses rely mainly or entirely on online sales that would not be possible otherwise.

So lets not forget that we owe a real debt to the war effort at Bletchley Park both technologically and financially.

Budget Miracle

Alistair Darling's budget on Wednesday was extraordinary and deserves great praise. In one remarkable sentence he said that he had 'no further announcements on VAT, on income tax, or National Insurance rates.' I wonder when we will next hear a budget statement as bold as that?

Apart from an increase in duty on cider, the tax change that has attracted the most attention is the revised threshold for stamp duty for first time buyers of property. There is an explanation of all the complexities of the 'Stamp Duty Land Tax', as it is properly called, on the HM Revenue & Customs website. The Conservatives are busy right now looking for the 'devil in the detail' of this budget. I think, though, that the flaw in this particular tax is staring us in the face. Let's go back to how stamp duty is described by HMRC, 'Stamp Duty Land Tax (SDLT) is generally payable on the purchase or transfer of property or land'. Why is it the purchaser who has to pay this tax? Why not the seller? I am not well enough informed to have the answer but I do believe that our economic recovery, rather than the Chancellor's political objectives, would be better served by a switch from purchaser to seller.

Let me explain. There is an obvious difference between property owners when they come to sell and first-time buyers. The owners already have a valuable asset and, in most cases, a part of the value of that property will have come about through house price inflation. First-time buyers, on the other hand, only have their cash deposit. That deposit is the key to entering the property market and, for many people, it is painfully difficult to amass enough savings especially when banks are prudently demanding much larger deposits as security for their mortgages. Stamp Duty comes directly out of those scarce cash resources of the buyer. The same tax payable by the seller rather than the buyer would bring as much revenue in to the Exchequer but would allow our young people more readily to reach the 'first rung'. There might be other unforeseen and unintended consequences of such a change but I think that one possibility would be that banks and building societies would be less inclined to re-possess properties because, in effect, it would be the lender that ended up with the bill for stamp duty.

You can learn about how taxes work, if not why, with a course from the Accounting and Bookkeeping College.

The buck starts here

There was something rotten in the Anglo Irish Bank otherwise it wouldn't have made a £3.7bn loss in the six months to March 2009. When large organisations fail it is reasonable to say that the responsibility ultimately, if not directly, lies with the chief executive: the buck stops here, in other words. In the case of the Anglo Irish Bank, however, it may well be more the case that the responsibility for its extraordinary banking failure starts at the top rather than ends there.

Sean FitzPatrick resigned as chairman of the bank in December 2008. He has apparently admitted concealing millions of euros of personal loans that he and others received from the bank. Last week Mr FitzPatrick told the bank he could not repay 70m euros. Those losses are a tiny fraction of the bank's total result but they came about from very much the same cause which was that Anglo Irish was lending to borrowers, in this case the bank's chairman, who then gambled the bank's money on the explosive bubble in the Irish property market. Concealing the loans was dishonest but lending to property speculators was just extremely bad banking. If I was an Anglo Irish shareholder, which now includes every citizen of the Republic of Ireland, I would want this particularly unsuccessful banker to pay with a pound of his flesh.

As if this wasn't bad enough the BBC report further alleges the recording of a huge loan from another bank as a customer deposit. As an accountant this to me was the greatest crime of all. Sean FitzPatrick and his staff believed, or at least hoped, that their lending would be profitable. When they deliberately misrepresented a transaction in the books, on the other hand, they destroyed the credibility of those accounts altogether and all subsequent dealings with the bank were based on a lie. And, make no mistake, company accounts may be written in a language that not everyone understands but the difference between truth and a lie an be as clear in bookkeeping as it is in any other form of communication.

Learn how to maintain accounts that are truthful and accurate with an online course from the Accounting and Bookkeeping College.

The Price of Learning

As the country in which we live increasingly feels the pinch it seems certain to ask us to pay more for our education. The Policy Exchange, for instance, recommends higher fees overall and a free market for universities to charge what they think the market will bear. You can read its recommendations here.
Apart from charging higher fees it is also inevitable that our higher education institutions will try and and save on the cost of teaching students and they are right to do so. There is no longer any good reason to think that the best way of teaching a class is by placing a lecturer at the front of a hall. Online courses are becoming a key part of the whole education system and will become increasingly important. Any university or college which does not deliver a large part of its courses online will find that it can no longer compete.

Fortunately accounting and bookkeeping are almost the ideal subjects to study by distance learning in general and online learning in particular. Find out more about courses at the Accounting and Bookkeeping College. You might find that they cost less than you think.

First law of economics isn't taught on an accounting course

Sometimes, just sometimes, the madness of the commodity markets briefly makes sense.

The price of crude oil has seen some of the more dramatic moments of market insanity in recent years soaring up to absurd heights to help trigger the international recession then plummeting in panic as it became clear that there was more than enough oil to fuel the worl for the time being. At both extremes the exaggerated price was not the inevitable collision of worldwide supply and demand but rather the behaviour of commodity buyers artificially creating and then removing demand as they expected their colleagues to be even more excitable than they themselves.

Now, though, OPEC is talking sense, "The risk is you see a lot of oil in the market and no one is buying it. Then the price will come down."

Something very similar happened to money, more specifically lending, in what has come to be known as the 'credit crunch'.  This was in a financial market that some believed was so perfect that it couldn't fail.

How long will it be before the oil market or the financial markets fail again?

At the Accounting and Bookkeping College we aim to teach you how to measure and record movements of money. We can't, however, show you how to speculate successfully. whether it be in oil or financial derivatives or even property, because speculation is a skill that requires intuition rather than sense.

A happy new VAT rate

Naturally at the college we would like to wish you a happy new year.

Some acountants, however, have started the new year anything but happy about the revised rate of VAT which went back up to 17.5% on 1 January. It isn't so much the increase in the rate that will be causing dismay but rather the changes that will be required in the financial reporting systems of all UK businesses.

There are two main reasons why accountants in Britain should be ashamed to make a fuss about this. Firstly, we have known that the VAT rate was going back up ever since Alistair Darling reduced the rate as an emergency measure in 2008. Secondly. and more importantly, this ought not to be a difficult change to make. All mainstream accounting packages as far as I know, like the 'Sage 50' range, have the option to set the VAT rate throughout the entire package and changing the rate is done in moments.

What I suspect, however, and what I have seen in practice, is that a great deal of financial reporting is carried out outside of the bookkeeping process that is handled by each business' accounting packages. There are accountants up and down the country slavishly updating spreadsheets every week or month. Their worksheets have cells all over them where the calculation essentially multiplies the contents of another cell by 15% and every one of those cells now has to be changed to multiply by 17.5%. That this change is such a nightmare and so prone to error is yet another demonstration of how unfit for purpose many of these lovingly assembled spreadsheets are.

The fundamental mistake that all too many accountants fall into is to see bookkeeping as a preliminary function that takes place before the real work of the accountant gets done. Accurate and effective double-entry bookkeeping should be the main concern of every accountant. Intelligently designed and well-maintained books can not only be the historical records of a business but also the cost accounts, management accounts and financial statements. Not only that but they can also directly inform and update the budgeting process to complete the set of financial reports. So let the change of VAT rate be a lesson to you and get the beautifully accurate bookkeeping that goes into your accounting package to do the work.