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.
Thursday 29 April 2010
Wednesday 28 April 2010
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.
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.
Tuesday 27 April 2010
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'.
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'.
Wednesday 21 April 2010
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.
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.
Tuesday 20 April 2010
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?
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?
Friday 16 April 2010
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.
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.
Wednesday 14 April 2010
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.
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.
Thursday 1 April 2010
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.
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.
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