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 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.

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.