Tuesday, 15 December 2009

Accounting for carbon

Today in Copenhagen government representatives from all over the world are trying to agree on how much carbon each country will be allowed to pump into the atmosphere in the coming years. At the Accounting and Bookkeeping College we hope that they will be able to put the interests of the planet above those of their government to ensure a sustainable future for us all.

At first sight there is very little in common between business bookkeeping and accounting for carbon outputs. The fundamental principle of double-entry bookkeeping, after all, demands that, for every transaction, we know where money, or value, comes from as well as where it goes to and when we have properly accounted for both then our books will balance. Carbon seems not to be like that and our carbon budget, in some cases, appears to be limited only by our financial resources, or money in other words. It seems we are unable even now to break this link so that wealthier nations want to use their money at Copenhagen to buy, as cheaply as possible, the opportunity to burn fossil fuels off poorer and less-developed neighbours.

If, however, we came to see carbon as a currency in its own right, and not one that could be cheaply exchanged for dollars or euros, then our whole approach to this emergency would change because every single person, business, organisation and population would have to take responsibility for staying in credit. Then we would all need to learn how to balance the books.

Friday, 27 November 2009

Overdraft Charges: Caveat Emptor

The UK Supreme Court decided on Wednesday 25 November that the Office of Fair Trading could not challenge bank overdraft charges as an unfair contract term. You can read the decision here.

In effect the court said, not that the charges were fair or unfair, but that they didn't have to be fair. English contract law has long held to the principle of 'caveat emptor' and will not intervene because a buyer has paid too much for something or a seller has sold too cheaply. So, if bank customers don't want to pay exorbitant bank charges they must not 'buy' an overdraft from an expensive bank.

We all need bank accounts these days so we can't avoid overdraft charges just by keeping our money under the mattress. The only way, then, is to make sure we don't go overdrawn. Keeping track of your funds, especially if you're running a business, is infinitely easier if you have learned bookkeeping which is exactly why the Accounting and Bookkeeping College is here.

Tuesday, 24 November 2009

Accounting Tragedy in Aylesbury

The Accounting and Bookkeeping College is located in Aylesbury. There has been very bad news in Aylesbury this week with the announcement from Lloyds Banking Group that the company will be closing its offices in the town with all the staff either moving elsewhere or becoming redundant.

This sad story goes back to the dramatic demise of Equitable Life. Equitable Life, after running into extreme difficulties, was taken over by HBOS which, in turn, is now part of Lloyds Banking Group. The sorry tale of Equitable Life was told by Lord Penrose in his 2004 report to the treasury. For anyone that read the report from outside the pensions and investments industry it may well have come as a surprise to learn that, although the accounts of the business were subject to an audit, the auditors were quite correct in delivering a clean audit report even though Equitable Life was doomed. The auditors of Equitable Life, and any other business providing insured pension investments, were only required to look at the assets on the company's balance sheet.  Apparently UK auditors do not have the competence to assess the liabilities of a pension provider. The liabilities, incidentally, are the amounts of the pensions that will ultimately be paid. Equitable Life's own actuaries, like all other pension providers, calculated how much would be payable to meet those pension obligations and, conveniently, always found that those liabilities were adequately covered by the assets. They weren't. Equitable Life had promised more than it could afford to pay. That has made the retirement of many thousands of pensioners a lot less comfortable than it should have been and has now cost 800 local jobs.

The Penrose report wasn't intended to be a lesson for ordinary accountants but perhaps it should be?

Company accounts need to be true and fair in all respects, assets as well as liabilities, or else they are useless.

Monday, 16 November 2009

Rogue Traders' Accounts

'The Office of Fair Trading says it has received a record number of complaints about rogue traders - builders who overcharge or do shoddy work.' - BBC News

There are many ways of avoiding being ripped off by rogue traders. Probably the best is to ask your friends and neighbours about the quality and value for money of work that they have had done and find the best contractors that way.

If, however, as a budding accountant you are thinking of employing a builder who hasn't done work for anyone you know, there is another way of checking. Ask for the limited company details of the builder in question. Of course they might not be trading as a limited company but, if they are, you can then visit the 'WebCheck' service at Companies House to see if they have kept their records up to date. If they haven't then it's likely that they are sloppy and untidy about other aspects of their business as well. As a further check you can download their accounts for a nominal fee. This should give you a good idea of the scale of the business and whether it's running profitably.

You might want to make this your standard practice for all the businesses that you trade with.

Thursday, 12 November 2009

Accounting for Electric Cars

Mitsubishi are anxious to promote their MiEV electric car and we applaud the green technology behind this little runaround.

However, the MiEV offers a good example of how even trained accountants should consider things in a holistic way.

The MiEV is extremely cheap to run at around 1p per mile for electricity compared with a comparably sized conventional car which would cost about 9p per mile for fuel depending on oil prices: a saving of 8p per mile! Don't get too excited, though, because a MiEV costs £30,000 to buy whereas a modest little hatchback would otherwise be about £10,000. How many miles, then, must the MiEV travel in order to pay back the extra outlay? The £20,000 difference in price is 2 million pence. The number of miles, therefore, is 2 million divided by eight pence, 250,000 miles.

That's a very long way in a little car.

Monday, 9 November 2009

Small business accounting

A study by Kingston University shows that almost half of small businesses have maintained their profitability.

At the Accounting and Bookkeeping College we are not at all surprised by this. Small businesses have always been adaptable and resourceful and, if they rely on anyone at all for funds, they are more likely to borrow from their owners than from the bank.

Small businesses are also highly likely to source skills that they need internally and bookkeeping is a task that frequently lands on the desk either of a proprietor of the business or someone who is very closely involved with its everday management. These very capable people are willing and able to tackle bookkeeping and recognise its crucial significance in running the business effectively. They may well, however, not have any proper training and this is where our ABC of Bookkeeping course may be one of the best investments that the owners can make in running a profitable business.

Friday, 6 November 2009

Accounting for Nuclear Power

During yesterday's House of Commons Questions and Answers session the Minister for Energy and Climate Change, David Kidney, made an unusually perceptive, for a government spokesman, observation on accounting for the costs of nuclear power. He said that the historic costs of building, operating and decommissioning earlier generations of nuclear power stations were indeed very high per unit of output but that the historic costs were not the same as those anticipated for a future generation of nuclear facilities and should not be used in planning for the United Kingdom's energy needs.

Historic costs are the bedrock of accurate accounts, a principle that should never have been abandoned to allow so-called mark-to-market accounting. However we should always remember the profound difference of purpose between accounts and projections in order to ensure that both our accounts and our projections are more honest, truthful and useful..

Wednesday, 4 November 2009

Accounting can be criminal

Bernard Madoff is rightly notorious for his $65bn 'Ponzi' investment fraud.

His accountant for 17 years, David Friehling, is less well known. He has has pleaded guilty to securities fraud, investment adviser fraud, making false statements to the US financial watchdog - the Securities and Exchange Commission - and breaking tax laws, BBC News today. Without that contribution Madoff would have found it impossible to sell his scheme to gullible investors. It seems likely that Friehling will receive less harsh treatment than his principal but can still expect a lengthy sentence.

Given the size of his crime that would be only fair.

Tuesday, 3 November 2009

Exams or no exams

On BBC News today, there are concerns over vocational courses that do not lead to formal examinations.

Bookkeeping, of course, is a vocational skill. It is also highly technical, though, and it makes perfect sense for students to demonstrate what they can do in writing. So most of the courses at the Accounting and Bookkeeping College lead to certified qualifications such as the Institute of Certified Bookkeepers Certificate of Manual Bookkeeping.

The Certificate of Manual Bookkeeping is ideal for accountants who want to prove to other people, such as employers, that they have bookkeeping skills. Many of our students, however, are simply anxious to learn bookkeeping so that they can run a business effectively and our ABC of Bookkeeping course is ideal for them.

Monday, 2 November 2009

Time to Begin

Although I never dreamt that I would feel the need to publish my thoughts on anything apart from an annual Christmas update about my family, I now find myself writing about the Accounting and Bookkeeping College.

This is not necessarily the most stimulating topic so I hope to link my news about developments at the college with my thoughts about financial issues and the need for our economic activity to reflect our concern about the environment.