Category Archive:
Posted by Commie B on May 24, 2010 at 10:29 pm
Consumer, taxpayer, same difference. If you live in the UK (especially London), you’re constantly getting (mind the language, please) f#cked. I’ve been meaning to write about this for a while – ever since this recession story made headlines – ever since Lehamn Brothers and Woolworths went out of business, but I’ve got my own battles to fight.
Long since my reading about Fair Tax in the United States, I have been a fan of the Fair Tax Proposal. Fair Tax essentially states that you only pay tax when you buy something. This is great for the consumer; it means you spend carefully. Suppliers are motivated to provide better products and services or you could go international and the government has reason to support businesses – the former only makes money if the latter are doing well.
Although I’m not saying that the theory of fair taxation is a flawless one – it has yet to be put to test – the democratic economic system (or whatever the hell you want to call it – it’s certainly not capitalist), followed by primarily most of Europe or the UK, is nothing short of hedonism.
Most of the so called developed world, and Europe today is the leading continent with that title along with our American friends (as eastern nations witness the dark ages), financially and emotionally violate their citizens. Now I haven’t lived in other parts of Europe, so I will stop alleging that they are categorical cheats. However, it saddens me to say that the British Government, the parliament, the bureaucracy – they all function with this one motive – screw the middle man – many of these middle men are so silly they don’t realize they’re getting screwed over in the process. I am sure you all are already familiar with this and if you aren’t, well, maybe this will explain why neither the liberals nor the conservatives of Britain stuck to their principles come election time. They are all out to get you. That is their greater purpose.
OK, so I will build the entire argument on a £3,000 per month pre-tax earning. Let’s say you earned that amount this month. Now, we’ll assume that you’re not one of those compromising residents of London who’s decided to live in shared accommodation. If that’s what you aspire for, you’re most likely happy being ravaged. Some of us have a little more ambition than that.
Out of this £3000 you will end up paying over 30% in PAYE and National Insurance. Many will actually pay more than this. The small business gets penalized grossly for hiring British employees – the government’s first step to ruin the economy and promote outsourcing to the Indias and Pakistans of the world. So, back to our simple mathematics, you are now left with £2100 (if you missed it, that’s £900 for the government). Don’t know about others, but my council tax is about 5% of what I earn pre taxation. That’s another £150 gone. Now, let’s talk about VAT. Almost everything has VAT, with an exception to some of the basics. Say you spend £600 on taxable groceries. Out of this, you’ve paid 17.5% VAT. This means you’ve paid another £105 to the government. This means that so far you’ve been robbed of £1155 (that’s £900 in payroll taxes, £150 in council tax and £105 in VAT on basic household items). Now, if you have a car, you are spending another £15 a month on road tax. If you live in London, you most likely also need a monthly ticket for the tube. Now there’s no tax on the train tickets, but you don’t exactly have a choice but to buy this. It is the price you pay for living in London – pay for a seat on the tube you will hardly ever get. It’s generally called overselling and is punishable under the law (in a fair and just system) but on the London Underground it’s called ‘moving right down into the carriage’. What a load of crap – pay £150 a month to COMPROMISE on the tube. If you live in your own flat or house on that salary, you’re probably living in zone 4+. So that’s another £135 for the train pass. It goes to TFL which is a puppet of the government, so the money essentially goes in the political basket – God knows they don’t fix the trains or the tracks. Wait, we all know that.
Let’s do a recap. How much money has the government taken from you so far, between travel, groceries, national insurance and payroll tax? £1,305 out of £3,000. That’s 43.5%. Can you believe that? Pure tax or overhead for living in the UK. You get absolutely nothing out of this money. For every £100 you earn, you literally have to give £43.50 away. Now I know we’ll have those fascists out their who will claim that the UK is the ‘leading’ European country because Germany’s taxes are in the 50% range or Scandinavia is 55%. Well, let me tell you something: who gives a shit. We’re talking about the UK and London, so let’s stick to the topic at hand.
If you can manage to do much other than paying rent and buying a movie ticket or fuel for your car from the remaining 56.5% of f the money you have left, you’re probably living in shared accommodation. But read on, you’re still getting screwed.
So the fact that you don’t have much money left to spend is just the beginning of how you, the British consumer, faces the shaft. You have credit cards, a car payment, or mortgage, don’t you?
The government takes your money and invests with banks, pays ridiculous salaries to MPs, bureaucrats and council employees – many of which are hired to make sure you get threatened and penalized if you don’t pay these taxes. That’s what happens with your council tax pounds and that’s what has happened with the billions in rescue funding for banks.
So, what do the banks do with this money? They gamble and loan. The money the government takes from you and gives to the banks is EITHER loaned back to you for your mortgage, car, or in the form of a credit card or is loaned back to businesses (who may be your employer) for a hefty interest charge.
In the event that you are loaned the money, basically, the government has taken your money, put it through this ‘system’ of taxation and loaned it back to you with interest you will pay to the bank, who will then fund the election campaign with part of that money or loan the interest back to your employer who will then again deduct tax from your salary and pay it back to the government again, creating wealth from your poverty inducing 43.5%. Exciting, isn’t it. So you are not only paying 43.5%, but when you get that 43.5% back as a loan, you again pay your credit card or loan interest, in many cases up to 20% plus, back to the bank. So, in essence, you paid 43.5% + 20% of this 43.5%. So your 43.5% is actually costing you over 52%. It’s either this or some twisted denomination thereof.
Let me make this simple and clear. The government takes literally over HALF of the money that you earn. They then piss this money way on gambling, election campaigins and sham programs that have to do with community improvement or whatever rubbish they can come up with (I wish they actually implemented any of these!). In many instances, the government will give your tax money to the bank, who will then give this cash to another international bank, which will then loan the money out, at, say 20% and give your bank 10%. Your bank is making 10%, but they don’t actually have any of this cash. Hell, they’ve even take the money you’ve put in your savings account and gambled that away -all with the consent of the government. It may very well be that your bank has taken all of your money and loaned it to your friends in the form of credit cards. Because your friends are law abiding citizens, they default on the card payments - so not only is your bank unable to pay you the .8% interest it promised you in exchange for the 28% it was charging your friends, it doesn’t even have the original amount. So when you go back to claim the 50% of your salary that you had claim too, the bank collapses. Enter recession and turmoil. It’s also called horse shit.
Guess what happens next? 43.5% of your next pay cheque will go towards stablizing the bank. I don’t know about you, but from where I’m standing, you’re kind of, sort of screwed!
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Posted by Commie B on March 8, 2010 at 12:02 am
I have previously written articles on small business accounting software: http://www.asifism.com/accounting-finance/small-business-accounting-software-quickbooks-vs-sage-vs-peachtree-vs-microsoft-office-accounting-%e2%80%93-part-two/ and http://www.asifism.com/news-about-this-site-and-me/accounting-quickbooks-sage-peachtree-or-microsoft-office-accounting-part-one/.
These articles primarily discussed desktop based accounting software: they pitched quickbooks against sage and microsoft accounting. Clearly, many small business owners and accountants alike preferred microsoft accounting and quickbooks to sage (which sane person wouldn’t, right?). However, in light of the small business accounting market not being so profitable, microsoft has deserted the small business community, handing over the management and future development for microsoft accounting to partners (mamut software) in the UK. We had been using microsoft accounting to manage everything, including payroll, so it was a bit of a pain when microsoft chose to ditch the not so cash rich software over ‘some’ of us dedicated customers (or partners, as we’re both).
Now, as an application development company ourselves, we have been integrating with some of the new breeds of accounting software. Since we are now based in the UK, you may see that this article is restricted in its coverage of the US market, but then, I am afraid that was bound to happen at some point. Two of the most successful SaaS (Software as a Service) generation accounting applications in the UK market today are Kashlow and Xero.
The History
I have personally used both, although the pleasure of integrating other software applications with an accounting system has been restricted to Kashflow, and I must say, that it was quite an easy task to do so. Their API is pretty comprehensive and if they don’t have a particular function, they’ll create one really quickly if you need it, unless you’re asking for something too complex. Nonetheless, Kashflow’s customer service is pretty good, with management getting involved actively across discussion boards in the UK to help answer any questions or queries. The owner of Kashflow is one Duane Jackson, a poster child for the Prince’s Trust. Long story short, Duane went from being a not so ideal citizen to building a £10 million company in 5 years or so, with a little help from the Prince’s Trust and one of the UK’s prized lords.
Xero, on the other hand, is a software that originated in New Zealand and has now grown internationally across the UK. We now use Xero as our defacto accounting system, and that is for one of several reasons. The fact that Xero is not UK based doesn’t cause any damage to the actual application; they have an API, integrate with similar products and other applications just like Kashflow and the software complies equally well with UK law. But it is in Xero’s roots that it is the 2nd most successful accounting SaaS in the UK. Their management and sales teams are not as active on UK small business forums, whereas Kashflow, I imagine, picks up quite a bit of business from them. Nonetheless, Xero is a British Telecom recommended product (BT is pathetic, so their opinion only carries political weight, nothing that actually matters) and is also recommended in partnership with some of the bookkeeping franchises across the UK.
The Techie Stuff
I run a software development company in London and our primary area of expertise is SaaS. It is quite clear (well, at least it is to me), that Xero has been developed by far more capable developers than Kashflow has. Kashflow is build on Microsoft asp, which I am quite against. It’s older technology, although it’s just as functional. Their use of URL cloaking, etc. is limited (which is not a technical drawback) and their interface is very CSS and HTML as opposed to AJAX driven. Now I’m personally against using Jquery and AJAX for functions that are simpler to use with simple HTML. For example, ajax tabs with a submit button on them are plain wreckless because the interface does not work according to generally understood internet behaviour. However, I think Kashflow lacks the use of AJAX even where it would be appropriare. In my personal opinion, I find it a much more soothing experience to use Xero than Kashflow. Xero generally runs faster too (it did for me) and I think it is, from an overall standpoint, a much more thought our application than, perhaps, Kashflow. However, this is probably my tech bias talking and has absolutely nothing to do with the use of the software if you’re an accountant as you’re most likely used to the scum of the earth (also known as Sage) – but I don’t practice accounting anymore (and I’m about a million times happier)!
The Interface
I’ve already covered this above (although the only thing I should’ve said in the techie stuff was AJAX, .Net and ASP). I like the general layout, colours, look and feel of Xero much better than that of Kashflow. They’re both free to try out, so knock yourself out and disagree with me all you want (and see if I care!).
The functionality
This, in my experience, is the same in both Xero and Kashflow. They both have simiar irritating flaws just like Quickbooks, Microsoft Accounting, Peachtree, MYOB and Sage do. There’s no IDEAL way to match off a receivable against a payble without doing credit notes (there really should be, it’s a damn simple journal entry). However, both applications are promising in the arena. A common contacts database which can both become customers and suppliers is a good start, so a secnario where you could simply write off a receivable from the same person against their payable with a single click is fast approaching! One of my favourties with web applications is the flexibility you have of customising your invoices, receipts, etc. within the application and sending them off to customers with PayPal integrated. Both Kashflow and Xero do this beautifully (although more customisation can never hurt), but it saves us from drafting pretty looking invoices on letterheads before sending them out. We can be greener, although British customers tend to ignore email invoices!
Pricing and Cost
Well, I honestly think Kasflow wins here: fair and square. They offer a FULL service demo for 2 months, and then they charge £179 (I think so) a year. That’s not bad, considering you don’t have to worry about upgrades, etc., and everything is always backed up.
Xero, on the other hand, gives you a FREE demo for upto 5 invoices (without a time limit). That’s enough to help you get a feel of the software, after which you have to pick from what i think is a restrictive, almost non workable £12 per month option. In most instances, you’ll have to go with the £19 a month option, which makes it about 30% or so more expensive than Kashflow, but it means you can split the payment out on a monthly basis.
I think Kashflow definitely wins on a pricing model.
Integration with 3rd party applications
Really, both companies have pretty robust APIs and they integrate with virtually all the same applications. I think Kashflow is more aggressive with finding businesses in the UK to integrate with, but if you need to integrate with a custom application, I would think they are both equally good.
So, why did we choose Xero?
OK, this is it. Really, almost all accounting software is the same and other than some of the cosmetic stuff and user interface, they all accomplish the same task. Here is why we chose Xero. I’m involved in one too many businesses, much to the point where this blog has become second priority lately and it has taken me over 3 weeks to complete this article (and it is still mighty hurried). So, as with all businessmen that have growing businesses, you delegate. That’s what I wanted to do with our accounting function, and as an accountant myself (in my past life), I struggled with handing over full control to a third party accountant or bookkeeper. I wanted somebody else to do all the gruntwork, but I still wanted to login and see that things were being done the way I wanted to so the GL reflects what it should for tax and funding purposes. I’m not suggesting that Kashflow can’t do this, but with Kashflow, if I hired a third party bookkeeper, I would have to share my password with him / her. Now I’ve already got 30 passwords (as I’m sure you do) and I like to conslidate them from time to time, so I didn’t want to remember another one for our accounting system. With Kashflow, I would have to. With Xero, I didn’t.
To cut the confusion: Xero allows for multiple users with varied permissions while Kashflow has JUST ONE username/password per company account, so if you’re the owner and hire an external bookkeeper or accountant, you all need to share the same login credentials. To me, that’s what sealed the deal with Xero. I can revoke someone’s access at the touch of a button or limit them to just seeing or using a certain part of the accounting system.
There’s a whole lot more to discuss, but really, I must get down to business. Thanks for tuning in, folks.
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Posted by Commie B on May 20, 2009 at 11:09 am
As most businesses start to make the transition from a one man show to becoming a growing enterprise, owners are faced with the difficult but crucial task of identifying information systems and processes, a major part of which today is procuring the right software and hardware. Even all large corporations are consistently faced with this task of improving the systems, redefining processes and procuring the correct hardware and software to either support the growth of the business or deliver efficiency in times of downsizing.
So what really should you consider when investing in systems? There’s a plethora of factors you will need to consider, and most of them will be driven by your organization, its structure, your employees, the culture and above all, your budget. With the technology world making leaps of progress every year and business and corporate strategy evolving with time (especially given the economic crisis of today), it can be difficult for executives and business owners to choose between what is available to them in the current marketplace. Business technology is evolving to bring more flexibility, better functionality and higher return on investment to most businesses, but getting this right means more than just going with a big name brand.
First and foremost is the illusion that businesses have about technology: it will solve their problems. It won’t. What technology will do is make available to you tools which when used properly will solve your business problems. However, the idea that spending money will result in problems going away is simply false. Getting the right technology that supports your business will certainly do this, and such technology does not necessarily need to be expensive or backed by a big-name brand.
When businesses starting thinking about procuring ERP or enterprise class solutions they often turn to the likes of Oracle, JD Edwards (now Oracle), SAP or Microsoft for answers. Whilst this is not a bad thing (given the experience these companies have with developing such software), it’s not the most efficient or effective way of going about getting a comprehensive information system. Since these companies develop solutions that are generic in nature and applicable to all businesses, they need customization that will tailor the solution to your business. What happens when business invest thousands of pounds in such software is that they expect it to start producing results from day one, an error that many major corporations today are guilty of. What you must essentially realize is that buying an off the shelf solution in this category with a powerful brand behind it will cost you an arm and a leg and will require further customization, time and money before it will start doing what it is supposed to do.
Add to this the cost of remote functionality and licensing, and you may very well be paying a lot more than your vendor originally told you it will cost. It’s all part of the game of selling technology solutions: everyone is trying to sell you their product and will undermine any other cost you may incur in getting the entire solution. You can avoid this by planning ahead. So whether you’re a business owner, an IT manager or a CIO, here are some helpful tips.
Do you really need the ‘best’ solution in the market?
Most businesses make technology and information systems decisions based on the intel they get about their competitors. Especially in times like these, many think that if a competitor is doing well it’s most likely because of their technology. That’s not always true. You should never simply invest in or buy a product or service because your competitor uses it. Neither should you make a technology investment because it is the ‘latest and greatest’ in the market.
Each business operates in a unique way with its own culture and model, and each business decision requires thinking along those lines. It is this business model that, along with what the requirements of your particular project are, should drive your technology decision.
Getting the Numbers Right
When calculating costs for a particular technology or information solution, you need to split it up between the 6 phases of the Systems Development Lifecycle. So, in essence, you need to budget the cost of:
- Planning – Must use external help for this to get a better view of the situation and your business.
- Analysis – External help over here is a must. It will help a third party clearly interpret what you need, thereby making the requirements of the entire project or solution clear.
- Design – Contrary to the popular belief that you won’t need this if you buy an off the shelf solution, you will always need this. Software does not design a system or vice versa.
- Development – For most complex pieces of software that you procure, the will need some customized development. So don’t forget to budget for this whether you’re costing.
- Implementation – You always need a contingency plan. What if implementation does not go right? What can go wrong and how will you tackle the situation. Not planning for this can be very expensive.
- Maintenance – You’ve heard that prevention is better than the cure. Well, it’s true of systems and software. Reactive maintenance is very expensive. If you’re proactive and stay on top of this, you’ll save millions in the years to come.
I’m not going to get into the details of each one of these phases, but it is absolutely imperative that businesses seek some external help or consultancy whilst involved in the first 2 phases. The reason for external involvement is necessitated by the fact that an external view to your problem can greatly aid in creating a better solution or coming up with a better proposition for business or particular situation. Planning and Analysis is imperative and this is essentially what will drive the other four phases and, in essence, the cost of the entire product or solution.
I’ll discuss a brief example of the typical defect a service-based company will make in its cost planning for procuring and implementing a new software system. For the sake of simplicity, let’s assume that this business needs a comprehensive financial management system along with project management and CRM functions to get a complete solution which can help manage projects from start to finish.
The options available to such a business are Microsoft Dynamics, Oracle, Quickbooks Enterprise or SAP. None of these solutions are cheap. Quickbooks is probably the most low-cost solution here, with annual licensing fees for 10 employees topping US $ 12,000. For each additional user you will end up paying an extra annual. Unfortunately, the same goes for Microsoft Dynamics, Oracle to SAP. Then, you’ll need to customize the interface and processes within each system to suit your business model, hire staff to manage the servers and user licensing and for maintenance. Add to the $12k additional cost for CRM and Project management modules (which may or may not work to your requirements and may or may not be available depending on which solution you choose) and you’re fast looking at an annual bill of US $50,000 a year plus initial costs and fees for deployment and any other updates and upgrades as they become available. Basically, at every point in time, you will need to spend money: whether it’s adding an extra user, adding an update for a bug fix or getting an update.
So, in this example, even though the numbers may not be fully accurate, you’re looking at a cost of around US $50,000 a year with a growing business, not US $12,000. Plus, if you are company that requires its employees to work remotely, you’ll need to pay licensing fees for Citrix or GoToMyPC, which can add up in thousands pretty quickly for multiple users.
Think Web 2.0
The world of systems and software is changing. Leading businesses and technology professionals need to think in innovative ways to bring new solutions into their business that cut cost, increase productivity and make their businesses more competitive.
With the advent of web 2.0, businesses that do smart, intelligent thinking can avoid the cost of paying for a brand name, user licensing, or extensive server management costs. From a business standpoint, it would be great to not be penalized for growing your business by having to pay extra for each license every time you hire a new employee, or drop $10,000 every time you need an additional module or add-on to your software.
If you’ve run through your planning and analysis properly, you could spend your annual licensing and maintenance fee just once (that’s right, ONLY once) and get exactly what you need, with remote access from anywhere at any time, anywhere. You won’t have to customize this. It will be built to specification. It’s also documented and you own it, so you can add as many users you want, make whatever changes you want and get internal staff to help improve or add functions at their regular salary as opposed to paying an Oracle or Microsoft certified consultant over $1,000 per day.
That’s right. When you move into the realm of complex systems and business management enterprise class software, customized web 2.0 solutions can be a cheaper and more effective option for many businesses. They’re better suited to the business model and can save businesses hundreds of thousands of dollars in the years to come. Best of all, open-source web 2.0 technology is scalable and can grow with your business. Server and hosting costs will be minimal in most cases compared to other solutions, simply because, if built right, web 2.0 software should require nothing more than what your browser needs.
That’s right, you could run your entire business from a web browser. It is the way all software is headed, so you need to consider this.
Think Open Source
I work for a firm that’s been a Microsoft Partner for years. Microsoft products are generally very dependable and they offer great support and unparalleled documentation, but they have their place. Open source software is becoming effective and powerful, and with the pool of technological talent out there and investment in open-source technologies by some of the world’s largest private equity firms, it comes as no surprise that open source software can very well support enterprise-class functions today. Whether you are a small or large business and depending on your business model, you can save thousands in licensing fees by simply using OpenOffice and Mozilla Thunderbird. Microsoft Office has its place, its user base and its functionality, but this is a cost many businesses can save with the right consulting and implementation.
Make your Own Decision
With the economy taking a plummet, sales teams across the globe have become far more aggressive than before. Businesses are fudging statistics and some are outright lying to get your business, so there’s all the more reason for you to do your homework, consult a business technology consultant and make your own carefully considered decision as opposed to believing what sales consultants tell you.
However, technology is useful if its timely and effective; so you do need to move fast.
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Posted by Asif on March 30, 2009 at 10:29 pm
I have long been a critic of British Education. Of course, long is a relative term and here long refers to the last 15 months. My basic education is British. My University education is American. My professional experience is split between the United States, Dubai and the United Kingdom.
I’ve said it from day 1: American education is by far the best. Why? Because the US education system does not focus on students learning concepts or memorizing answers to questions. It is a system that does not focus on and is not centred around academic knowledge alone. American education gives you the tools you need to succeed in life, in business, and on the job. In this context, I am referring to American education at the University Level, better known as the Undergradute and Graduate programs at universities across the United States.
British University education, well, clearly sucks. With Metro highlighting the launch of a Masters Degree in Facebook today, London has reached a new high in the quality of pathetic intellect and wasteful education; education that represents nothing but a mere high-class insult to the likes of Charles Dickens, William Shakespeare, Oscar Wilde and others from the Golden Age of British education. That said, I understand why the general level of British University education is so low.
The entire system is politicized and is a victim of bureaucracy. Having a University degree means absolutely nothing when you go and look for a job; academic fraud and cheating is at an all time high, and professors boast about their out-dated, memory ridden testing styles that are supposed to prep their students for the 21st century. Specifically speaking, when it comes to business education, more specifically, accounting education, British degrees are about as useful as a second rate high school diploma from China.
How do I know, you ask? Well, I must say with some sadness, I’m an accountant. I’m an accountant educated and experienced in the US, who now has the pleasure of coming to the UK and having to go through the bureaucratic system of so-called professional education, which is, from a learning standpoint, garbage. British degrees in accounting are useless because whether you have one or not, you can sit through a 3 year course with ACCA, CIMA or ICAEW and become a so-called qualified accountant. So then, why would you want a British degree? If qualified and educated means having a certificate, why is a degree needed? Precisely! That is the stance that Universities in the United Kingdom have also taken. They have totally eliminated the need to learn and enhance one’s skillset from the curriculum; have turned a blind eye to the widespread academic fraud and are simply there to collect money from students.
Enter professional education bodies. Then you have the likes of CIMA, ACCA and ICAEW, who have stooped to the level of every other governmental institution. Britain is a currently that is hard-coded with the problems that make the third world nations of the world today, well, third world. Bureaucracy is at the heart of such disasters, Britain is fast headed that way. With institutes and certificates for everything, from trash management to facilities management to the auctioneers association to the certified breathing association, the English have developed a certification for virtually everything. The result of such widespread certification is that anyone who pays a fee and memorizes a bog-standard exam can go ahead and get one of these, which makes him/her qualified for a job. However, what most of these certificate holders or degree holders know is of little relevance to their jobs. That’s if they know much at all.
A little off topic, but Britain apparently came up with a workplace homicide act in 2007. Is it just me, or does parliament have too much time developing crap laws that accomplish absolutely nothing. Take today’s news: Jacqui Smith’s husband charged 10 quid worth of pornography to the government and half the nation lost it. What are these people, silly? You are worried about 10 pounds when Members of Parliament in England have come up with a second house allowance and other ridiculous benefits that allow them to claim hundreds of thousands of pounds legally every year? Again, is it just me, or is the education of British universities and institutions like CIMA clearly reflective in the populations reaction such news?
So, let’s get to CIMA. Why am I picking on CIMA? Management Accounting has always been a subject of great interest for me. Ever since I took my first accounting course in 1998 (that’s right!), I knew I wouldn’t be going into public accounting. I, therefore, very clearly understand the mission, purpose, goals, aims, objectives and benefits of management accounting. Accountants, in general, are supposed to be trustworthy: that’s why they can notarize, attest documents, etc. Generally, people are supposed to trust accountants. Of course, the likes of Arthur Anderson and KPMG have made headway in damaging the reputation of accountants; probably rightly so.
You see, accounting bodies should never stoop to the level of crappy standard that universities have. However, like every other bureaucratic branch in industry and government, everyone wants to make their own mafia and claim that they have it right, when they have nothing, except for a bunch of illiterate, pathetic, politically connected lobbyists. I’m sorry, did I say CIMA? That goes for all of them: CIMA, ACCA and ICAEW.
Now, since I am settled in the good old United Kingdom, I figured I might as well take a shot at one of these Certifications since according to everyone else who is a ‘qualified’ accountant in the UK, degree education is useless. Not that I really care about what others think, but in the UK bring qualified or certified is necessary, because the level of truth telling is so low that people will generally not believe much of what you tell them on your CV, but they will all buy into the lie of what these ‘professional’ institutions tell them. In essence, it’s an idiot proof system designed by insecure accountants who know they are idiots, and is pushed by a further qualified brand of idiiots. See how it works? Dumb patting dumber on the back and issuing dumber with a certification that makes dumber dumb.
Well, I’ve been reading up on some CIMA course materials and some of the content published by CIMA and their partners is, well, plain wrong. CIMA, for instance, claims that they offer education that no university offers, thereby offering enhanced professional education which makes it equal to an MBA. I’m sorry, but who the fuck is CIMA kidding? CIMA education is not extravagant, and if you have a degree from any half decent US University, there is nothing new for you to learn here, except for maybe a couple of concepts at the Strategic Level, none of which will be relevant to you in your job.
CIMA examiners and instructors ALSO claim that when grading papers, they are looking for students to use ‘keywords’ in their answers, rather than explain or justify the argument they are making or decision they are supporting. That equates to memorizing and is, well, what you’re supposed to require in 6th and 7th grade, not at a professional level. Not only that, CIMA openly claims that management accountants are not supposed to be systems experts, but must have apt knowledge of systems to understand the ramifications of and be involved in decisions made in companies regarding information systems. Well, if you’re not experts, the wise thing to do is to stay the fuck out of it. Not only does CIMA promote this unhealthy atmosphere in business, but partner Systems Institutes which are also victims of bureaucracy promote their specialty, and neither really give you any practical education, stirring a recipe for disaster. It’s this kind of education that causes the Ministry of Defence to wrongly pay several hundred thousand soldiers. Bad accountants who claim to know it all because they’re certified, and bad systems experts who claim to understand it all because an IS is apparently the be all and end all. It is this kind education that has, over the years, ensured that the UK will never become the leading economy, in terms customer service, innovation or process efficiency.
I don’t have a beef with CIMA, per se. CIMA is an average accounting certification that will not teach the seasoned, experienced graduate (from a decent country and a decent university) anything new. What you need to pass CIMA is to learn how to tackle their exams. What you need to understand while preparing and practicing for CIMA exams is that many CIMA examiners are not CIMA qualified themselves, which makes for even more of a make belief ‘good’ education and curriculum.
My only problem with CIMA lies in some of the ridiculously incorrect content that is part of their course. CIMA examines some aspects of information systems design that are plain wrong. Not only that, they go on to test some of these CIMA-developed concepts and terminologies, and instructors and examiners who have absolutely no clue about what they are talking about get to grade you on this stuff. As proof, I have a book that is supposed to contain questions and answers from past CIMA exams, and some of the answers have a long explanation of what the examiner is looking for. The answer ends with the phrase ‘powerful software solution’ followed by the examiners comments in parenthesis ‘whatever that means!’ That, ladies and gentlemen, is the quality of education being offered to you by a professional institute that claims to offer some of the most sophisticated business education in the country today.
It is no wonder then, that banks are collapsing and businesses are functioning on non-existent cash. Here’s a hot tip: go nail your educational institutions and education providers, who’ve been teaching wrong information with outdated syllabi that do not give the typical British graduate or certificate holder any ambition or tools to build a career with. What you are stuck with is: get your degree, get your certificate, grow old and get a pay increase with age. That is the path to staying twenty years behind the rest of the world in everything. That is path to killing creativity and promoting uncooth bureaucracy.
Oh wait, I almost forgot. Welcome to Britain. And I don’t hate it; it’s great! It’s just that many of the people are not with it, and that’s highly representative of the population of the planet. It is for the same reason that Americans elected and re-elected George Bush that the British keep following into the footsteps of such brain-dead, mind-numbing bureaucracy with every passing year. I have 100 pounds waiting for someone who can correctly tell me what that reason is.
Go on, have at it. What have you got to lose?
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Posted by Commie B on November 15, 2008 at 9:54 pm
Taxation has always been a source of concern in the US. Income tax in particular has caused more controversy than any other type of tax levied in the history of the country. From the time the country was formed in 1776, from Alexander Hamilton’s Federalist No. 21 explaining why taxing states and individuals on the revenue they earned was by no means justifiable, people have come up with arguments against the now current system of taxation.
For a good 124 years, the US functioned with a system of taxation very similar to the proposed FairTax[1]. For the last 100 years or so, however, the country has functioned fairly well with the current income tax system too. In fact, the US has excelled in world politics and economics in the last 100 years far more than it did in the first 124 years. It has become the global economic, political and military leader during the last century. Some might argue that the revenue the government earns (via income tax) has nothing to do with it; the mere fact that the country matured over time might be enough to explain US dominance in the world today. However, for the government, or Congress, who benefit from the income tax system, the maturity is hardly relevant justification to weaken the position of the income tax system.
The FairTax plan proposes to replace the federal income tax, including capital gains taxes, all payroll taxes, the estate gift tax, and corporate and self employment taxes, with a single stage, 23 percent federal sales tax on the sale of all new goods and services at the final point of purchase. No family or individual will pay taxes on basic necessities, because of generous rebates built into the FairTax plan. Such rebates make the FairTax much more progressive than the current income tax system, refunding all taxes paid on consumption expenditures up to the poverty level for families of various sizes[2]. The FairTax is revenue neutral, that is, the 23 percent is calculated based on the expected change in consumer spending due to the change to FairTax while keeping governmental revenue the same as it is under the income tax system.
Support for FairTax has grown to a peak recently, with more than 20 members of the Congress co-sponsoring the plan introduced by Rep. John Linder of Georgia[3]. People in favour of switching to a Fair Tax have given numerous arguments against the Income Tax System that the Fair Tax solves for them. However, they all suffer from the same fallacy. From the very first argument given by Alexander Hamilton in Federalist No. 21 to any argument you can find in support of the Fair Tax today, anyone has yet to mention the advantages or benefits to Congress or the US government. Supporters of the FairTax in the enthusiasm and rush of excitement based on the advantages that FairTax will bring to them have evidently forgotten who makes the decision.
Given that in the purest form of democracy Congress and the government are supposed to do what the people that elected them want, we must understand that bureaucracy and corruption of politics make sure that none of the purities of democracy come into play. That being said, we must understand that Congress’ most powerful resource for raising revenue on a relatively short notice as well as controlling the public is the Income Tax[4]. Now, keeping in mind these factors, if we were to look at any of the arguments in favour of Fair Taxation, they give Congress no reason whatsoever to switch from the Income Tax to the Fair Tax.
The only reasonable situation under which the Congress or US government would even consider thinking of the FairTax would be when they are told exactly what they gain from it. If it is to their advantage to switch to the Fair Tax system, then there is a reasonable chance that they will do it. Think of the United States of America as a big corporation and think of the Congress as upper level management. When someone proposes something to management, they must tell them what good it will do to them. If it is to their benefit, they declare it as being beneficial to the corporation. If it is not to their benefit, the proposal hits the recycle bin. Whether a decision based on such management criterion is ethical or unethical is a different argument; the unfortunate fact of the matter is that this is how the system works. We have seen that in the business world recently (with Enron and MCI Inc.) and unfortunately the US government leads with example. The stakeholders, or in this case the general public, do not have much of a say in how anything works. Just as the shareholders do, the public elects the government and the Congress and is then at their mercy.
Having established that, we now need to see what Congress gains from the FairTax. Every year, the IRS spends millions of dollars on tax audits under the Taxpayer Compliance Measurement Program (TCMP), trying to make sure that people pay the amount of taxes they owe. The problem arises due to the extremely complex income tax system. Majority of the population is not aware of whether they should file a tax return and if they should, how they are to fill out the complicated form(s) that makes the lives of even the most qualified accountants and tax professionals miserable. In 1997, the General Accounting Office, in a tax gap report said:
“The TCMP (Taxpayer Compliance Measurement Program) data showed that an estimated 33 million of the 42 million taxpayers (82 percent) were not assessed a fraud negligence penalty, suggesting that much of their noncompliance was unintentional.”
This merely shows that the income tax system has become too complicated for people who cannot afford accountants. Research shows that even the expertise of the latter no more guarantees correct tax calculation. In the annual Money magazine surveys 50 accountants prepare a hypothetical middle class couple’s tax return and come up with at least 45 different answers each year. This is a major indication that the tax system is too complex for even the tax professional.
Due to such complexity, the IRS has to spend money auditing innocent individuals who are unaware of their tax liability. In most cases, whether penalties are assessed or not, the money spent on the audit is not recovered by the amount of tax these people end up paying. As mentioned above, 82 percent of the people’s inability to pay tax was due to their lack of knowledge about the income tax system.
The FairTax will not only make the life of the IRS simpler, but it will also mean that they do not have to spend as much money on audits as they do under the income tax system. Under the FairTax, even if we assumed that every business in America was a retailer and required to file a tax return, no more than 19 million businesses would be required to file returns compared to over 154 million returns (of all types) filed today[5]. This would mean a reduction in the amount paperwork filed to and processed by the IRS, literally hundreds and thousands of dollars in all the excessive paper that floats around (despite the IRS’ valiant efforts to encourage people to file online).
Alongside, if every business in the country were to be audited, the IRS only has to audit 19 million businesses, there by reducing amount of audits conducted by almost 55%[6]. As of 1997, the IRS spent over$ 4.5 billion on tax audits. Under the FairTax this figure would also be reduced by 55%, thereby making it $2.025 billion (in 1997). Also, since fewer returns would have to be processed, the IRS would not require half the staff it requires now. In 1997, the IRS spent a whopping $ 1.78 billion on the management of the organization itself. These costs could be cut substantially under the FairTax (due to fewer returns needing processing), giving the Congress billions of dollars to play with[7].
However, the issue of ethics comes to mind the IRS has to lay off employees. Such employees would now become part of the private sector, thereby, again saving the government money in the form of wages, pensions etc. Also, because under the FairTax, what you earn will be what you take home. Americans will be able to save more and invest more. The FairTax will, therefore, dramatically increase investment levels compared to levels that would have been achieved under the current income tax system[8]. This means that the US economy would grow, thereby producing more jobs in the private sector, creating employment for the then ex-IRS employees. Although such a transition would take time, the long term effects would benefit the Congress, at the same time helping the economy grow.
A major source of concern expressed in papers in favour of the FairTax has been the excessive amount of money spent by the private sector in complying with the IRS code. Arthur Hall, a tax Foundation economist, estimated compliance costs at $ 225 billion for the year 1996[9]. Compliance costs have become such a massive number not because that’s what it takes to follow the tax code but because due to its complexity, “holes” and problems have been created that even the IRS and writers of the IRS code are not aware of. Money is spent on locating these holes and exploiting them to minimize the tax liability of people. If the tax code were simpler, there wouldn’t be as many holes or chances of exploitation or what can sometimes be classified as unintended errors by the tax professionals themselves who proudly discover such problems in the tax code (for an hourly fee that most heart surgeons charge during surgery), thus meaning that the IRS would not have to audit people who were trying to work their way around the tax code.
The FairTax makes compliance with itself relatively simpler. A flat national retail sales tax would eliminate so much of the trouble caused by the variable income rates in the income tax system. Moreover, the simplicity of such a system would not leave much room for exploitation of the tax code, thereby reducing the amount of money wasted in the economy on compliance with the tax code (and by the IRS to assure such compliance) and making it available for the private sector to invest in and help grow the economy.
There is, however, one problem that has been brought up in discussions that is thought of to be prevalent even under the FairTax system. As of today, there are millions of businesses out there that misrepresent the amount of sales tax they owe to the government / charge to their customers. The 23 percent proposed FairTax rate has been calculated keeping in mind based the sales tax that is actually reported by such businesses. In my experience as a business owner, and as knowing others who own small businesses, about 30% of the sales are not reported[10]. This means that most businesses are actually not reporting 30% of the sales tax that they owe to the government. Opposition to the FairTax argues that the FairTax will in no way improve such misreporting of the FairTax. However, I beg to differ on that.
The amount of money the IRS spends on making individuals (not businesses) comply with the tax code is phenomenal[11]. Let’s assume that of the 154 million current tax payers, if 19 million are actually businesses that need to charge and report sales tax, there are 135 million individual income tax payers. Under the FairTax, the billions of dollars saved on making these people comply with the tax code would be saved. Since there are now only 19 million taxpayers, it is very possible for the IRS or any other tax implementing authority to track every business and all the sales via an information system that centrally holds and stores all the sales data from these businesses. This, again, will not only mean more control for the IRS over the taxpayers (which should be heavenly for Congress), but after an initial investment it would mean an extensive amount of revenue generation.
With the current technology, it is possible and very feasible for the IRS to host a database (or to outsource it to someone) whereby they keep track of Point of Sale (POS) terminals in every store. This would mean that every registered, legal business (at least retail) can only use sale terminals that are sold or authorized by the IRS, i.e., linked to their database so that they can keep track of every sale. This would greatly reduce, if not eliminate misreporting of sales tax dollars. Better yet, even if the IRS will conduct and audit of all 19 million business annually, they can make sure that these businesses are not using any unauthorized terminals. Auditing costs for the 19 million businesses stay the same as under the income tax system (saving the money spent on the other 23 million audits as per the General Accounting Office report); the question now remains of the investment required to design such a system. As mentioned earlier, the IRS would only spend about $ 2.025 billion on Tax Law enforcement with the 19 million businesses. That leaves them with another $2.5 billion as of 1996. This investment alone from 1996 should be enough to cover the cost of building such an information system.
Better yet, if the IRS out sources the productions of POS systems to manufacturers who already produce them, they can be made compatible with the new system with minor hardware and software changes. This could also include a business opportunity for the government where they could produce and sell such units; thereby generating more revenue for itself. 19 million is a traceable number; 154 million, however, is probably not. Also, this would only be a one time investment with relatively small maintenance costs in preceding years and if it is done right, a manufacturing business that would more than cover all such costs.
Lastly, a benefit to Congress; be it more political than practical, nevertheless, will exist with the acceptance and implementation of the FairTax. Today, the US claims to be the closest thing to a pure Capitalist economy in the world. One of the major determinants of a capitalist or market economy is generally consumer’s ability to use the items in demand according to his/her ability to pay for such items. Based on that very principle, consumers should be taxed on their ability to pay for consumption of goods in the economy, rather than their investment in the economy. The current income tax system, however, does not do that. Whether people use the money to reinvest it into something or to actually spend it on an end product, under the income tax system they are charged income tax on it. No matter how steeply the tax on income is graduated, it does not necessarily make an income tax progressive over the course of one’s lifetime[12].
Innocence on part of the American public, but if they were to see how the income tax system (in the American economy) violates the very basics of the (capitalist) system it claims to be best representative of, they would express such severe dissatisfaction that would make the life of Congress rather miserable (as most would think they deserve). The FairTax solves this problem just like it does the others. As suggested in a paper on http://www.fairtax.org titled “Fairness and Federal Tax Reform,” the author writes that:
“…the FairTax, far more than an income tax, is based on a taxpayer’s ability to pay precisely because it is based upon consumption. Whether or not a taxpayer can consume for personal enjoyment is a more accurate litmus test for whether or not that taxpayer has the ability to pay (for consumption of goods and services produced by/in the economy). When taxpayers do not consume for personal enjoyment, but have income, they must be saving or investing those resources. When taxpayers save and invest, they contribute to public welfare (and they should not be taxed on contributions to public welfare).”
The income tax system is known to be in violation of the US Constitution in its purest form. Although such a violation of the US Constitution does not concern the international community, the US claim to be a highly capitalistic and free society can come under some scrutiny due to the income tax system. In its purest form, the income tax system is no different from the roots of communism, which gives the governing authority the ability to control the population, take their money and distribute it as they see fit. Upon reflection of the income tax system, the US could be blamed for practicing the very idea that it has opposed over the last century; which caused it to aid other enemies of Communist Russia in its destruction. If light were shed on such issues on the international community, it could arise some very serious questions as to the validity of the political dominance (without any military intervention) of the United States in the world today. It is, therefore, to the benefit of the United States government to move away from the income tax system before the international community receives a “wake-up call.” Although such political ramifications are not the topic of this paper, their mention merely shows the advantage of switching to the FairTax (which is the goal of the paper).
True as it is, there is no guarantee as to the accuracy of the numbers proposed by the evaluators and supporters of the FairTax. However, the numbers available for 1996 and 1997 show that switching to the FairTax will not only increase the available cash to the US government, but with the predicted growth of the economy due to the increase in consumer spending, tax revenue will also increase over the years.
I believe that switching to the FairTax brings more than financial advantages to the Congress and the US government. It will validate many claims that the US makes in the international world about being fair, just and providing a free environment for its people. More than that, it might give Congress the respect and willingness to comply that it would like from the population. In that scenario, they do not need the control and power that income tax system (in the opinion of most free citizens) unnecessarily gives them.
I wrote this paper in my junior year at university. I still believe that fair tax is probably the fairest and best way to go with today. Living in the UK, you really learn to appreciate the US tax system, fair or not, it certainly is a blessing compared to this country. In the UK, the government takes approximately 57.5% of your disposable income in the form of PAYE, National Insurance and VAT. There are other additional taxes and payments that are imposed on UK residents, with the net tax for some totaling about 65% of gross income earned. Is it just me, or does that reflect on the lack of the British people to protest? You decide!
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Works Cited
[1] Origins of the Income Tax. Research and Support. Americans for FairTaxation http://www.fairtax.org/origins.asp.
[2] The FairTax and the Federal Revenue Income Tax: A Comparative Analysis. Americans for FairTaxation. http://www.fairtax.org. For further information plese see, “The FairTax Plan,” Americans for Fair Taxation.
[3] Picket, Joseph. Slay the Withholding Beast. June 5, 2003. http://www.cfif.org/htdocs/freedomline/current/guest_commentary/fairtax.htm
[4] For more information refer Dr. Scott Butterfield and his cynical lectures on Income Tax. College of Business, University of Colorado at Colorado Springs.
[5] See SOI Bulletin, Winter 1998-1999, table 12, p. 210. Note: Sole Proprietorships with less than $ 2,500 in annual receipts excluded since the de minimus rules in the FairTax would not require most of them to file returns.
[6] (42million -19 million) / 42 million x 100 as per the General Accounting Office Data.
[7] FY 1997 IRS Budger Request. IRS Fact Sheet # FS-96-06. IRS News Releases. February 03, 1996. http://www.unclefed.com/Tax-News/1996/Nrfs96-06.html. © 2002, National Tax Services, Inc.
[8] Jorgenson, Dale W. Ph.D. The Economic Impact of Taxing Consumption. Harvard University, Testimony before the Ways and Means Committee, March 27, 1996.
[8] Jorgenson, Dale W. Ph.D. The Economic Impact of Fundamental Tax Reform. Testimony before the House Ways and Means Committee, June 6, 1995.
[8] Jorgenson, Dale W. Ph.D. The Economic Impact of the National Retail Sales Tax. Harvard University, November, 1996.
[9] Federal Tax Compliance Costs Climb to $225 Billion. Tax Features, Tax Foundation, March 1996. See also, Match 20, 1996, Dr. Hall’s testimony before the House Ways and Means Committee.
[10] Personal Experience, it does not get any more authentic than this.
[11] The exact figure would be some part of the $ 4 billion spent; however, there is not enough information available to compute it.
[12]Kahn, Joseph. Examining a Change to a National Retail Sales Tax Regime: Impact on Households. Decisions and Ethics Center, Stanford University, unpublished draft position paper, November 1996.
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Posted by Commie B on November 12, 2008 at 1:43 am
I completed my first set of US GAAP compliant Financial Statements in 2001, filing my first complete set of payroll, sales, and corporate income taxes that year for a client. Over the years, I’ve worked for a variety of clients on a variety of accounting related projects, and I can tell you one thing I’ve learnt from my experience: the goals of financial and management reporting are opposite, and they are in many ways victims of language and ‘political correctness,’ or incorrectness, as the case may be.
Say what you must, the truth is that the goal of businesses and management accounting or financial planning and analysis is to maximize profits. For most businesses, most SMEs especially, the goal is to minimize profits. If you’re taught at university, school or professional accounting training that the the ultimate goal is to maximize profits, well, then, you’re being taught wrong. More likely, you’ve also the heard the statement about watching out for the stakeholder. Well, sometimes it is in the stakeholder’s favour to not show a profit. It’s all about perspective. For many small businesses, a profit means a hefty tax. A loss means money well spent on your needs and not on paying money to the government.
The fact that financial and management reporting can actually point to opposite things as being beneficial for a business is representative of how misleading accounting and finance terminology and theory can be. Just take management reporting, and you can read and write books on the difference between a budget and a forecast. Some have decided, for better or for worse, which is which. But for those of us who are more open minded, there are questions that lurk around this discussion that really don’t have an answer.
I once told a student that if after qualifying as a licensed accountant, if he could tell me whether a forecast drove a budget or a budget drives a forecast, he can consider his CIMA qualification to be a useful one. But I can tell you, the chap has no chance of convincing me which should come first. Some say that a forecast is simply an extension of past activity, while a budget is a defined plan of what the business plans to accomplish, spend, and do within a specified time. But what really drives this budget? Isn’t it supposed to be a sales forecast? Or a forecast is based on the plan of what you can be expected to produce in a certain year. Would you like to expect sales based on production capacity, or would you like to drive production based on expected sales? No CIMA, ACCA, CPA, ACA, CMA, CFM or CFA qualification will discuss any of this, because the true, always right, never wrong answer to this question is “it depends.”
It depends on what? Well, on whatever you want. The preference, thought and management style of the management of a specific company drives the creation of budgets and forecasts, and there’s really no ‘right’ way to do this. Yes, there are certain accepted formats to prepare a budget and a forecast, but let’s face it, the integrity of a document such as a forecast or a budget, which really has a subjective head or a subjective foot, is total speculation. Think of it as a vicious circle. Once you’ve decided which comes first, either the budget or the forecast, each item has to be revised based on actual performance compared to both budgets and forecasts, resulting in what is termed as a flexible budget. So, not only can a budget drive a forecast, but a forecast drive a budget, and each figure can change, with the change be driven by actual activity.
Make sense? Fear not. The point of this article is not to explain budgeting or formatting. Accounting, despite what many say, is an extremely inconsistent field, and no amount of experience can make just anything right. There is no necessarily right process, especially not for all user groups or all audiences, hence the variations in the kinds of accounting you see today: financial, management, environmental, forensic and systems to name a few. The trick is to understand your business, and realize whether working on a budget driven from forecast model (a more of a just in time operations management approach) is better than the conventional “let’s churn out as much as we can” ideology, which can be very costly unless you have someone along the likes the Walmart or Carrefoure to forecast the unloading of your budgeted production.
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Posted by Commie B on November 4, 2008 at 10:44 pm
I’ve written articles before discussing the basics of chartered and certified accountancy, mentioning names of certifications and institutes that issue the certifying licenses, but I’ve never really discussed what the primary difference is between the UK and US certification model.
It is interesting to note that this same difference is also reflective of the general educational ideology of both countries, and pours into the business and corporate culture. That said, it is safe to say that public accounting certifications in both countries, the Chartered Accountancy (ACA) licensed by the Institute of Chartered Accountants in England and Wales (ICAEW) in the UK and the Certified Public Accountant (CPA), licensed by the American Institute of Certified Public Accountants (AICPA) in the US, follow a rather similar pattern. They start with pretty basic level papers and work their way upto technical financial accounting with the ultimate goal of preparing you for conducting audits, and work experience is a requirement before you can even sit for some of the papers.
However, when it comes to management accounting certifications for industry, there is a massive difference in the way the two countries market and manage the qualifications. In the UK, CIMA, ACCA, AAT etc. are all guaged toward accounting and non accounting college majors / graduates alike. They start with the basic, classic, outdated financial and cost accounting concepts, and work their way up to fancy financial and management reporting. The early papers are a waste of time for students who are accounting majors in university, the these certifications don’t give it any value. There are no experience or educational requirements before you can sit for the exam. The exams are driven to help you memorize concepts, rather than understand and apply them. The study material is not very practical in approach, and as a whole, the quality of business relevant financial education you get from these certifications in the UK may not really be that good. However, they are still considered vital to the stamped-paper, bureaucratically obsessed, paper-pushing UK market.
In the US, however, the standard is different. Take the Institute of Management Accountants, for instance. They offer to Financial Management Certifications: the Certified Management Accountant (CMA) and the Certified Financial Manager (CFM). Both Certifications require accounting degrees (like the CPA) or several years of experience in the accounting industry. The reason: Management Accounting Certifications are not geared toward non-accounting majors. The content is technical, and the idea is to further train accountants help enhance their knowledge and application of management accounting concepts and financial accounting regulations. With that in mind, the IMA does not flood you with waste of time, silly, O’Level based accounting papers that discuss the basics of debits and credits. For both Certifications, the IMA has a total of 6 papers you need to pass. However, and this is where the primary difference flows through into corporate America, you need 78% to pass IMA exams, whereas you need only 50% to pass CIMA papers? Why? Well, it would seem like CIMA is just trying to churn out accountants; people who can do the basics of accounting. IMA, on the other hand, is aiming for financial managers: accountants who understand the ramifications of various financial and management accounting principles.
I, personally, have been disappointed with the content of CIMA in the UK. You walk away with very little, and the education is highly impractical for business purposes. IMA, on the other hand, focused on know what you did well, and the exams were based more on your understanding and application of concepts, rules, and regulations rather than committing concepts and definitions to memory. I would say the IMA definitely offers better knowledge in less time and challenges you more to succeed while providing more practical and corporate education. CIMA content desperately needs an overhaul given the state of the business world in the 21st century.
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Posted by Commie B on September 14, 2008 at 9:44 pm
With the global economy slowing down, gas/petrol prices at a new high, and unemployment keeping up with the rate of inflation, businesses are starting to feel the burden of the consumer’s reduced ability to spend. With slumping sales and shying margins, businesses are starting to scale back on what now seems like careless expenditure, which before seemed like tax savings. Funny how a trend in the global economy can put a different spin on the temperament of spending by management on ridiculous items in big business, but then corporate world is full of, well, stupid activity.
With these trends in the economy and businesses, companies are pressuing Finance and Accounting Departments produce more useful, effective, and balanced numbers, that not only help the company look healthy to external parties, but keeps motivation up for the workforce and other direct stakeholders. Pressure mounting on Corporate Finance means that accountants now have to make more more of an effort to make sure the numbers are accurate and look like what management wants to see. That, is where it all becomes hairy.
With pressure mounting in Accounting Departments in Corporations across the United States and Europe, Corporate Finance Departments are increasingly using fancy accounting measures to try and make the situation look optimistic. Controllers and Finance Managers across the globe want to see low DSOs and high DPOs; the trend to track cash flow and cash efficiencies becomes commonplace; revenue recognition guidelines cross over into the gray area, and the hiring and spending on items that were once treated as as an expense are now looked at from the perspective of investments and assets. Such is the nature of finance management: it is driven and managed to please the boards, CEOs, CFOs, stockholders and investors.
But perhaps the greatest affect of Corporate Finance is one that is hardly ever discussed or talked about. In times of slowing global economies, the position of many accountans and finance managers in large corporation becomes a political one, and many will, and have to, for the sake of protecting their careers, venture over a gray area, where reports and numbers are produced that show NOT what the business is doing, but showing what management wants to see the business doing. In effect, this means that numbers are either fudged or presented inaccurately simply for the sake of keeping jobs or moving up the ladder. Let’s be honest: about 80% of all people in the Corporate World go up the ladder not because they know what the hell they’re doing, but because they try and please the boss, whether it’s for the better or the worse of the business itself.
That’s where the problem ultimately lies. It is in these times of recession that Coporate Finance can specifically point out the areas where the business can improve, where efficiency is not acceptable, where improvement is possible, and what things need to be like to maintaining increasing margins and growing sales. But instead of using the intelligence of accounting and finance, many businesses kill this one chance of harnessing the power of Corporate Finance, and kill it with their need to look good in front of a Board of Directors or Shareholders, which eventually kills the business. For this, amongst other things, it is imperative that Corporate Finance and Accounting Departments across Corporations stay focused and produce reports that accurately measure the position of their businesses, so they actually have a chance of riding out the recession, rather than looking to gain a promotion in a business that will shut down in the next five years.
Of course, Financial Planning and Analysis is not an area that many accountants excel in, which is why many may make the mistake of not looking past the next five years.
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Posted by Commie B on July 29, 2008 at 10:42 pm
It is very common for people, even accountants, who haven’t been in the industry long enough, to ask what the difference is between a certified and a chartered accountant. In addition, the question that follows is that is it really useful to hire a certified or a chartered accountant for business, or is it just a waste of money? Well, the answer to the latter, in a nutshell, would be Scott Butterfield’s all fitting answer: it depends. I’ll discuss it in detail later in this article; but first, let’s get to the certified versus chartered.
Really, the difference between certified and chartered is what the dictionary says. However, the difference between certified and chartered accountants, is, well, irrelevant. If you didn’t already know, here’s another interesting one for you: there’s also a group out there called the Association of Chartered Certified Accountants (ACCA). So, one accountant here is both chartered and certified.
I often hear Chartered Accountants picking on all other certified accounts, including FCAs, ACCAs, IMAs and CMAs etc., but there’s really no reason to be doing that. East of the United States, with an exception to Australia, the equivalent of a Chartered Accountant is a Certified Public Accountant. Therefore, the term Certified Public Accountant in the US is equivalent to the term Chartered Accountant in the UK and other countries that follow the UK convention. So, what is a CPA or a CA? Well, basically, if you’re either of these, you can conduct audits, and primarily audits for public, .i.e., stock exchange listed, companies. In a nutshell, that is the difference. Passing the CPA or CA exam is no evidence of an accountant’s technical ability or understanding of management accounting, tax accounting, or financial accounting. For what it is worth, I have met non-certified, non chartered accountants with more accounting acumen than CPAs and CAs alike.
Other ‘Certified’ or ‘Chartered’ Accounting Designations, such as the CIMA, IMA, CMA etc. are management accounting designations, i.e., they prepare you more for operational and managing the business kind of accounting rather than the audit kind, which naturally makes them more, shall I say, interesting, challenging, creative, and less dull (if there is any such thing in accounting). Note, once again, that ultimately, a certification is a piece of paper, and you can get horrible qualified accountants too.
In many ways, accounting is a field like law. Just because one holds a license or a certificate, doesn’t mean one makes for a good accountant. Some lawyers are just plain good, and if you’re familiar with the legal system, good trial lawyers don’t really require any knowledge of the law; good public speaking skills here are essential.
Similarly, good accounting, and hence good accountants, is/are not measured by certificates or qualifications. What’s important in the case of a good accountant is the ability to translate numbers, debits, credits into money making business, and vice versa. There aren’t a whole a lot of accountants who can successfully do this, because a thorough understanding of business is required to become a good accountant. I say this, quite simply, because as is the case with public accountants (CPAs and CAs), their primary job is compliance with the law regarding financial reporting, which basically means you have to be able to read and follow instructions. Anyone can do that. It is the application of basic accounting principles across complex business models that can drive growth that separates an ‘accountant’ from a, erm…someone who just has a certified piece of paper.
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Posted by Commie B on May 9, 2008 at 10:03 am
Bank Reconciliations aren’t something that most management/senior accountants do anymore. They’re more of a check to make sure if everything adds up for compliance, and as important as it is to have to your bank account reconciled with your books, many businesses fail to do that.
I’ve had clients who haven’t done bank reconciliations for years, and truth be told, if you do it after five years, you will practically have to go back the five years to resolve the differences / problems. It’s one of those things which can unnecessarily spin out of control in a short amount of time, so it’s good to do bank reconciliations regularly, and know where your money is, before the gap between your business’ financial statements and your bank account widens.
So, the idea behind a bank reconciliation is basically to reconcile the balance in the Bank Account in your books/GL with your bank statement. Why would you need any such reconciliations? Well, for several reasons:
- At the end of every month, there will be checks (if you’re American) and cheques (if you’re British) that you have received, and booked in your GL, and even deposited in the account, but they have not yet cleared and, therefore, do not show up on your bank statement. The result of this is that your bank statement will understate your bank balance by the amount posted to the GL and not posted to the bank statement.
- Similarly, at the end of every month, there will be cheques/checks that you have sent out to your vendors, but they have not yet cashed or deposited those cheques at their end. The result, your bank statement will be overstated, whereas your GL will be understated compared to the bank statement.
- Bank charges. These are very typical of first world banks. Charges for check books, debit cards, remittances, wire transfers, cheque processing, etc. etc. You do not get an invoice for such transactions (or any others that are deducted from your account via a standing order), and you, therefore, need to book these to your GL when you see them on your bank statement (given that they are valid and that the bank is not ripping you off and somebody’s not having a party with your money that you’re not aware of).
- Compliance. Try and get an audit done without a bank reconciliation; it’s not going to happen. Even small businesses, who may occassiaonally require a financial audit of their books and financial statements for lenders, etc. will need bank reconiliations.
So, what exactly is a bank reconciliation? The goal with a bank reconciliation (or a bank reconciliation sheet, used to complete a bank reconciliation) is to show both the bank and GL transactions, and bridge the gap between the two numbers. At the end of completing such a reconciliation, you will come up with a reconciled balance, which will show entries that appear on the GL but not on the bank statement and vice versa. What you will need to do now is book all those entries which appear on the bank statement but not on the GL in your books. The result of this booking should give your bank account in the GL the same balance as the one on the bank reconciliation sheet.
To make your life easier, I’ve compiled a spreadsheet (which you can download at the end of this article), using which, coupled with the following instructions, you can easily complete a bank reconciliation.
What you need?
1. Bank Statement for the period being reconciled
2. Your Bank Account printout from your GL listing all transactions posted to the bank account in questions
3. The Bank Reconcliation spreadsheet (available for download at the end of this article)
Here’s what you need to do:
Compare the bank statement and the GL printout line by line in chronological order. Your GL printout should be in chronological order just like your bank statement, but if it is not, simply export it into excel and do a Data > Sort by the appropriate column.
So, you go through both the bank statement and GL line by line. Cross out items (identical items / entries) that appear both on the GL and the bank statement. Leave blank, highlight / mark or make note of items / entries that appear on the GL and not on the bank statement and vice versa.
Now you enter these items in the appropriate area in the spreadsheet. If you have more line items to enter than the spread sheet has, you can simply add more rows and adjust the summation formula accordingly. No complex formulas have been used in the making of this spreadsheet.
That’s it, if you’ve entered the right numbers in the right places against the right entries, your bank reconcliation will balance, and you just make the appropriate entries in your GL, entries for items that appear in the bank statement and do not appear in the GL.
Sounds simple enough? It is.
Any problems. Feel free to post them as comments.
Click here to download the Bank Reconciliation Spreadsheet.
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