gary & naomi swartz - Accountancy SA

JUNE 2018

GARY & NAOMI SWARTZ EQUIPPING THE FUTURE CA(SA) FOCUS ON

BREAKING THE CYCLE OF STRESS GLOBALISATION

HAS CREATED WEALTH BUT FOR WHOM? AI PREDICTIONS 8 INSIGHTS REVEALED

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accountancysa.co.za

June 2018

IN THIS ISSUE

CONTENTS JUNE 2018

THIS MONTH’S FOCUS:

THE

GLOBAL ERA

UPFRONT 6

UPDATES Environmental, local, economic and political news updates

FEATURES 12

BREAK THE CYCLE OF STRESS AND DISTRACTION Learn to do this by using your emotional Intelligence

14

2018 AI PREDICTIONS 8 Insights to shape business strategy

18

NEGLECTING THE ERA OF KNOWLEDGE WORKERS Businesses don’t get how much time, money and talent they’re wasting every day

20

INTERNATIONAL PROFILE From the Great Wall to the City of Bridges

ADVICE 38

VIEWPOINT

40

RETIREMENT STRATEGY OPTIONS

47 WHAT’S YOUR WHY? 49

SHORT-TERMISM IS SHORT-SIGHTED

RECOMMEND

28 THE REAL VILLAIN BEHIND OUR NEW GILDED AGE 30 ADAPTING TO THE NEW GLOBALISATION 32 GLOBALISATION HAS CREATED WEALTH – BUT FOR WHOM? 34 FIRMS OF THE FUTURE: BUILDING ADVISORY SERVICES

50

CPD: National Minimum Wage Bill and domestic workers’ minimum wage

52

CPD: Update on IAASB Project: Emerging forms of external reporting assurance

54

CPD: Turning a blind eye to NOCLAR is no longer an option

INTEGRITAX 58

TAX PROTECTIONISM IN A DIGITAL GLOBAL ECONOMY

62

TEETHING ISSUES IN COUNTRY BY COUNTRY REPORTING FILING

64

UNDERSTATEMENT PENALTIES: COURT ADDRESSES THE ‘PREJUDICE’ REQUIREMENT

INDULGE

ON THE COVER Gary and Naomi Swartz speak about the future CA(SA). Gary’s new institute aims to ease the equipping learners with the latest teaching tools and technologies. PAGE 8

June 2018

68

INDULGE: Travel

72

INDULGE: Lifestyle

accountancysa.org.za

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EDITORIAL THE FUTURE IS HERE You probably read an article every week about how artificial intelligence (AI) and machine learning will change the future of work. IT seems to be front and centre with business leaders wondering about the right direction to take. First, there was virtual reality (VR), technology generated by a computer that simulates a real-life environment or situation. It lets the user feel like they are experiencing the simulated reality first hand by mainly stimulating their vision or hearing. Augmented reality (AR), on the other hand, is a technology that uses your existing environment and layers it with elements to make it more meaningful through the ability to interact with it. So, according to PwC, while VR creates a simulated immersive work, AR adds new layers of information to what is real. And many industries have discovered ways to use AR to their advantage outside the traditional use in the world of gaming. AR can offer just-in-time information for workers in maintenance, marketing, customer support, and other sectors. The PwC article about AR (http://usblogs.pwc.com/emerging-technology/ briefing-augmented-reality/) states that in manufacturing, AR enables workers to identify ways to enhance product design more easily. In retail, it helps employees engage with customers more efficiently, and thus ensuring they're happy. AR-enabled smart glasses help warehouse workers more precisely fulfil individual orders. Airline manufacturers use AR to assemble parts faster and with more accuracy. Electrical workers can make repairs quicker and more efficiently. At a recent Singularity University chapter hosted by PPS in Johannesburg, AI and exponential technologies were the primary focus of the two-day summit. Some of the developments are mind-blowing and will change the way do business within the next few years. Last year alone AI attracted $12 billion of venture capitalist investments, and it is clear that this is only the beginning of the discovery into the usefulness of AI applications. And in our cover story this month with Gary and Naomi Swartz they agree that AI and machine learning are changing the way of work. Critical thinking demands skills like problem-solving, analysis, creative thinking, interpretation, evaluation and reasoning. These will be increasing in demand as the world embrace more exponential technologies. Many fear that these new technologies will take over our jobs. Research done by Gartner shows that AI will automate 1,8 million people out of work by 2020, butwhile job losses generate the most interest, this is only part of the story. Closer analysis shows they also predicted that AI will create 2,3 million jobs by 2020, driving a net gain of 500 000 new jobs. So, the question is no longer whether AI will change the workplace and the world we live it – the question you should be asking is how you can successfully use AI in a way that enables your employees to become more efficient and productive.

EDITOR Gerinda Engelbrecht ART DIRECTOR Ashley van der Merwe ASSISTANT EDITOR Lynn Grala PUBLICATIONS ADMINISTRATOR Mpho Netshivhambe COPY EDITOR Sarie Moolman ILLUSTRATOR | WEBSITE EDITOR Liézel Els SOCIAL MEDIA James Sibia WEBSITE ADMINISTRATORS André van der Merwe and Marcelle Blignaut

PUBLISHER Willi Coates ADDRESS 17 Fricker Road, Illovo, Sandton, 2196 TEL Local 08610 SAICA (72422) International +27 11 621 6660 FAX +27 11 622 3321 EMAIL [email protected]

ADVERTISING SALES MANAGER Matt Knight Cell +27 71 785 7205 Email [email protected] ADVERTISING SALES Michelle Baker Cell +27 73 137 1231 Email [email protected]

SUBSCIPTIONS Email [email protected] ANNUAL SUBSCIPTIONS Digital R560

From next month we will start to publish articles on all new developments that are made in this space to ensure you are kept up to date.

GERINDA ENGELBRECHT EDITOR

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June 2018

WWW.ACCOUNTANCYSA.ORG.ZA

WHAT’S HAPPENING ON OUR WEBSITE THIS MONTH? FIRSTRAND BAGS MMI’S RISING STAR MARY VILAKAZI CA(SA)

ALTRON APPOINTS TIM JACOBS CA(SA) ACTING GROUP CFO

https://bit.ly/2oAb2iw

https://bit.ly/2Fpfhas

NEW @ SAICA

FINANCIAL REPORTING STANDARDS

ACCOUNTABILITY

SAICA's new and improved website

The business impact of the new financial reporting standards

Accountability in the Accounting Profession and SAICA’s role

www.saica.co.za

https://bit.ly/2rhwEBD

https://bit.ly/2rhk6cO

FIND YOUR FAVOURITE EXPERTS ONLINE

BUSINESS ADVISOR Kevin Phillips CA(SA) http://bit.ly/KP_06_18

June 2018

PUBLIC SPEAKING TRAINER Dineshrie Pillay CA(SA) http://bit.ly/DP_06_18

WEALTH ADVISOR Mike Lledo CA(SA) http://bit.ly/ML_06_18

PERSONAL FINANCE ADVISOR Giselle Willows CA(SA) http://bit.ly/GW_06_18

LEARNING & DEVELOPMENT PROFESSIONAL Paolo Giuricich CA(SA) http://bit.ly/PG_06_18


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UPFRONT | UPDATES

IRBA TO REVEAL NAMES OF ‘CORRUPT’ AUDITORS The Independent Regulatory Board for Auditors (IRBA) will stop hiding the names of auditors and auditing companies found guilty of contravening its professional standards, code

of conduct and the law. From July 2018, the body, which regulates 4 000 local auditors, will start naming some of the auditors it finds guilty of contraventions.

OBAMA TO DELIVER THE 2018 NELSON MANDELA LECTURE

R7,3 TRILLION

WHAT SOUTH AFRICAN HOUSEHOLDS’

NET WEALTH INCREASED TO IN THE FOURTH QUARTER OF 2017

The 2018 Nelson Mandela Annual Lecture is to be delivered by former US president Barack Obama in Johannesburg on 17 July, the day before what would have been Mandela’s 100th birthday. The theme will be ‘Renewing the Mandela Legacy and Promoting Active Citizenship in a Changing World’.

A BIG ‘FIRST’ FOR BMW SA In May, BMW proudly shipped more than 100 units of BMW X3 models to European markets. Tim Abbott, CEO of BMW Group South Africa and Sub-Saharan Africa, described the shipment as ‘a big moment for us at BMW Group SA’. This huge achievement has been the product of a R6,1 billion investment for production of the new-generation BMW X3 − one of the biggest investments in the local automotive sector.

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R24,6 MILLION

THE BASE SALARY THAT

CHIEF

EXECUTIVES OF THE TOP 10 COMPANIES LISTED ON THE JSE EARN,

ACCORDING TO A PWC REPORT

June 2018

UPFRONT | UPDATES

GOLDEN CASTS OF MANDELA’S HANDS SOLD FOR $10 MILLION – IN BITCOIN Canadian cryptocurrency exchange firm Arbitrade recently bought four casts from ex-South African businessman Malcolm Duncan who relocated to Canada. He bought the casts from mining group Harmony Gold in 2002 for approximately R390 000. It has taken him over a decade to find a buyer. The golden casts of Mandela's hand, palm and fist each weighs around 9 kg.

R27 BILLION LOSS DUE TO ILLICIT CIGARETTE MARKET At least a quarter of the cigarette market in South Africa is illicit and the fiscus has reportedly lost more than R27 billion in unpaid taxes on tobacco products between 2010 and 2016. With this trend continuing, Tobacco Institute of Southern Africa chairman Francois van der Merwe has appeared before Parliament along with other presenters to address the question of the illicit tobacco trade. The illicit trade not only affects manufacturers but also threatens the sustainability of tobacco farmers.

IRBA: FIVE INVESTIGATORS FOR 150 CASES The Independent Regulatory Board for Auditors (IRBA) admitted to Parliament that it has resource constraints, with only five investigators taking on 150 cases to probe conduct in the auditing profession. IRBA CEO Bernard Agulhas said IRBA has spoken to Parliament and National Treasury about accessing more resources to build investigative capacity.

June 2018

R138 BILLION MUNICIPAL DEBT BURDEN Municipalities are owed more than R138 billion by government departments, businesses and households. Treasury will be releasing its annual report on the state of local government finances and financial management soon, said Finance Minister Nhlanhla Nene to Parliament. According to the 2016/17 report, a total of 95 municipalities are in financial distress with some unable to pay creditors and water and electricity. Nene warned city managers in April that some South African cities are on the brink of collapse if financial management challenges are not addressed.


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ARTIFICIAL INTELLIGENCE AND MACHINE LEARNING ARE CHANGING THE WORLD OF WORK,’ SAYS GARY. ‘CRITICAL THINKING DEMANDS SKILLS LIKE PROBLEMSOLVING, ANALYSIS, CREATIVE THINKING, INTERPRETATION, EVALUATION, AND REASONING. THESE WILL BE INCREASINGLY IN DEMAND AS THE WORLD TRANSITIONS TO AN “IDEAS ECONOMY”

EQUIPPING CAs(SA)

FOR THE NEW WORLD OF WORK It’s no secret that CTA is a tough qualification. Now, a new institute aims to ease the journey through a combination of top academics equipped with the latest teaching tools and technologies Words Monique Verduyn – Photos André van der Merwe

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June 2018

COVER STORY | EQUIPPING CAs(SA)

He’s an Iron Man athlete; she has purple hair and tattoos. At first glance, they appear to be the archetypal odd couple. But what Gary and Naomi Swartz share is a passion for accounting – that’s what brought them together when they first met in 1997, when they were both doing their articles at Deloitte. In 2005, they completed their master’s degrees and graduated on the same day. It’s their shared commitment to the ongoing development of the accounting profession that led Gary to rethink his academic career and explore a new way of teaching. He left Wits University after 13 years of involvement in the Certificate in the Theory of Accounting (CTA) programme, where he was the division head for the Management Accounting and Finance discipline. For four years, he also acted as the CTA programme co-ordinator, and then as the overall Bachelor of Accounting Science co-ordinator at the university. ‘Accounting will get you a seat at the table in any business, but there’s no question that the path to becoming a CA(SA) is a difficult one,’ says Gary. ‘In 2014, my colleague Thiruven Naidoo and I were discussing how tough the CTA qualification is, and how challenging it is for many students. That’s what led us to make the move and create a private institution, the Institute of Accounting Science (IAS), which focuses solely on teaching the CTA programme, employs some of the top academic minds in the country, and uses the latest teaching tools and technologies. Our aim is to create the best CTA programme in South Africa, and Naomi has supported this initiative every step of the way.’

June 2018

buy into the philosophy, and we are all both lecturers and consultants who are active in our areas of specialisation. As trainers, we have worked directly with newly qualified CAs(SA) in the corporate environment and we have tested the education tools we are using in the real world. This is critical, because, as a former dean once told me when I asked permission to take on a consulting job, “if commerce does not want you, we won’t want you either”, she says.

TEACHING PEOPLE HOW TO THINK The advantages of a private institute are compelling. They tend to be smaller and quieter, focus exclusively on learning, and offer more one-on-one time with lecturers. The other key drawcard is that it’s easier to implement the kind of educational technology that will equip students to cope with the demands of the fourth industrial revolution. It’s Gary’s and Naomi’s firm belief that education must equip students with the ability to assimilate new concepts and ideas quickly. The modern workplace, he says, is one where employees occupy multiple roles that require higher levels of critical thinking − a key focus of the curriculum at IAS. ‘Artificial intelligence and machine learning are changing the world of work,’ he says. ‘Critical thinking demands skills like problem-solving, analysis, creative thinking, interpretation, evaluation, and reasoning. These will be increasingly in demand as the world transitions to an “ideas economy”.’

Naomi, who is part of the IAS team, is also the audit quality and risk director at Mazars Gauteng, which she joined in 2016. Previously a lecturer in financial accounting at Wits, she joined PKF in 2007 as the professional standards manager. She was involved with all aspects of quality control, professional standards and compliance and risk management, eventually being appointed as the national compliance director for Grant Thornton in 2013. It’s this expertise that she brings to IAS as a lecturer.

There are several definitions of critical thinking, but it’s really all about asking the right questions to help you assess the meaning of claims and arguments. It involves stepping back from a situation and seeing all the angles before making judgements or taking decisions, identifying the key points, analysing the sources of information and weighing up different types of evidence. To be a true critical thinker means being creative, reflective and adaptable. It enables you to evaluate arguments to see how they stand up and filtering for yourself what resonates.

IAS has been specific about choosing its academic staff. ‘Together, our team has more than 100 years’ experience in teaching the CTA programme. We all

‘This approach has always been part of the profession, but it’s becoming more important, especially as we move towards CA2025, a project that accountancysa.org.za

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COVER STORY | EQUIPPING CAs(SA)

is researching the competencies that CAs(SA) will need to demonstrate in the workplace of the future,’ Gary adds. ‘The procedural and technical components of the profession remain extremely important but as the world evolves, so too must the profession.’ Accounting for sustainability is another area of focus at IAS, taking into account the activities that have a direct impact on society, environment, and economic performance of an organisation, and equipping students to analyse the entire footprint of a company and the impact it has on the planet. Beyond reporting, he says, today’s students need to develop the ability to make judgements and recommendations, and to give advice − to create something new, rather than just producing figures. Technology and automation will take care of the reports while CAs(SA) focus more on the bigger picture. ‘To enable critical thinking, we make everything contextual − theory must always be married to what is happening in the real world if you want to allow for greater understanding,’ Gary says. ‘If, for example, we are looking at mergers and acquisitions, we find current examples and use those as the basis of our discussion. This type of approach ensures that our future CAs(SA) will add value for their clients by applying their knowledge more profoundly to the issues at hand and contributing more positively to society.’ Four years in the making, IAS had its first student intake at the beginning of this year when its doors officially opened. An early success story is that of a female student who is doing her articles and studying on a flexible hours basis. ‘She had attempted the CTA a number of times before and failed,’ Gary says. ‘Now, she is not only passing well, but her employer maintains that her approach has changed completely since starting at IAS because she is learning to think and engage more fully with concepts. That’s the best kind of feedback for us as a new institute.’ Ask him what it was like to go up against established universities and he will tell you it wasn’t easy. He and his team did a roadshow, visiting firms and asking them what they wanted from academic institutions. The reply was unanimous:

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greater work readiness on the part of their graduates. Gary listened, and this is one of the ways that IAS is striving to differentiate itself from its 100-year-old competitors. ‘We are getting it right by providing the latest and best technology available. We use a number of different presentation tools that allow students to explore everything the most granular details to the biggest picture. On top of that, we offer streaming video lectures, whiteboard animations, and many other technologies that facilitate learning and adoption of new tech. At first, we had students saying, “what do mean there are no printed notes?”. Now they all know how to use technology to do annotations. They do their tutorials in Excel. By the time they graduate, they will be more than ready for the world of work.’

INSTILLING ETHICAL BEHAVIOUR With several auditing firms recently mired in controversy, the instilling of ethical behaviour is an important aspect of the syllabus. Ethnicity, culture, religion and gender all have a role to play in the individual’s understanding and application of ethics, says Naomi, citing an interesting case. ‘Qualifying is hard work. Different students respond differently to the pressures and demands made on them. Something that comes up regularly is the notion of perceived intimidation, something that is experienced by individuals who are struggling. I tackle this with them by homing in on the differences between intimidation and tough love. If you want to succeed, you have to make a commitment to dealing with constrictive criticism and putting in the hours.’ At Mazars, the company has developed a ‘Mazars Compass’, basically outlining a set of behaviours which result in certain outcomes. Whenever anyone, from cleaners to management, is unsure about something, they refer to compass. ‘The best way to translate ethics for the CA(SA) is to embed ethics in everything,’ Naomi continues. ‘If Rio Tinto buys BHP Billiton, who will be hurt by the transaction? Are there people who will be the unwilling casualties of the merger? Is this the right thing

‘WHEN YOU TACKLE CLIENT FINANCES, YOU ALSO MANAGE THEIR EMOTIONS,’ SAYS NAOMI. ‘IT’S IMPORTANT TO HAVE A LEVEL OF EMOTIONAL INTELLIGENCE THAT MAKES IT EASIER TO UNDERSTAND THE MOTIVES AND PERSONALITIES OF YOUR CLIENTS. IMAGINE HOW VALUABLE THE UNDERSTANDING OF BODY LANGUAGE COULD BE FOR A CA(SA)’ to do from an ethical perspective? We encourage the student to think about these questions as a human being rather than a CA(SA). We take an integrated approach that has ethics at its core.’ Naomi’s background in financial accounting is augmented by her in-depth knowledge quality control and legal issues, as well as her keen interest in psychology and how it applies to the world of accounting. ‘I can come in and discuss real-world issues, current events and examples with the students. My experience on the legal side also enables me to offer the “reasonable person” perspective to discussions around ethics and quality control.’ Her interest in the application of cognitive psychology to the profession is justified, given the tarnished reputation of auditors right now. ‘When you tackle client finances, you also manage their emotions. It’s important to have a level of emotional intelligence that makes it easier to understand the motives and personalities of your clients. Imagine how valuable the understanding of body language could be for a CA(SA).’ Recognising that the fourth industrial revolution is well under way, IAS has positioned itself to meet the challenges that lie ahead. Specialised knowledge, combined with the ability to research, communicate and solve problems will ensure that its graduates are globally relevant and able to make a positive difference no matter where their profession takes them.

June 2018

ONGOING LEARNING WILL ENSURE RELEVANCE INTO THE FUTURE BOTH GARY AND NAOMI STRESS THE IMPORTANCE OF CONTINUING PROFESSIONAL DEVELOPMENT. QUALIFYING AS A CA(SA) IS JUST THE BEGINNING OF THE JOURNEY. THE CA2025 ENVIRONMENT IS ONE IN WHICH THE INDIVIDUAL NEVER STOPS LEARNING. AND IT DOESN’T HAVE TO BE FORMAL – YOU CAN SKILL UP BY WATCHING YOUTUBE VIDEOS, TAKING ONLINE COURSES, OR EVEN JUST UPPING YOUR READING. WHAT’S VITAL IS TO EXPLORE AS BROADLY AS YOU CAN IN ORDER TO REMAIN RELEVANT. THIS IS ESPECIALLY IMPORTANT AS THE ROLE OF THE CA(SA) EVOLVES FROM ACCOUNTANT TO BUSINESS ADVISOR.

View a personal interview with Gary and Naomi by clicking the video link icon

June 2018


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FEATURE | STRESS AND DISTRACTION

BREAK THE CYCLE OF

STRESS AND DISTRACTION

THERE ARE THINGS WE CAN DO TO BREAK THE CYCLE OF STRESS AND DISTRACTION. ONE OF THEM IS USING YOUR EMOTIONAL INTELLIGENCE (EI) TO MANAGE YOUR STRESS Words Kandi Wiens

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Being able to focus helps us succeed. Whether it’s focusing inward and attuning ourselves to our intuitions and values, or outward and navigating the world around us, honing our attention is a valuable asset.

because they use their emotional intelligence (EI) to manage their stress. Start by using your self-awareness to help you notice several things: •

Why you feel stressed or anxious. Write down each thing in your life and at work causing you anxiety. Categorise items into things you have the ability to change and things you don’t. For the stressors in the latter category, you will need to figure out how to change your attitude toward them.

•

How you lose your ability to focus. By paying attention to the patterns

When we can’t focus at work because of distractions, it may lead us to feel stressed about not being productive, which then causes us to focus less, further feeding the cycle. Unfortunately, most of us don’t notice our focus declining until we become completely overwhelmed. One of the reasons why some people get burned out and others don’t is

June 2018

FEATURE | STRESS AND DISTRACTION

that lead to your lack of focus, you can begin to develop your ability to dismiss distractions and stay with your original point of attention. •

•

How you feel when you can’t focus. Does it make you anxious when you can’t recall information when you need it or find the right words for an email? These can be clues that your inability to concentrate is causing even more stress. When you lose your ability to focus. If you’re worrying about something while driving 65 mph with a car full of kids, you’re putting yourself and others in real danger. This can be a wake-up call to bring your attention back to what you’re doing and make a decision to think about your concerns later.

Once you’ve increased your awareness of how and when you lose your focus, use these strategies to stay focused. •

Do a digital detox. In its 2017 Stress in America survey, the American Psychological Association found that people who check their emails, texts and social media on a constant basis experience more stress than those who don’t. Periodically unplugging

or limiting your digital access can be great for your mental health. •

Rest your brain. Lack of sleep can negatively affect our decisions because it impairs our ability to accurately assess a situation, plan accordingly and behave appropriately. Committing to the recommended seven to eight hours of sleep each night is worth it.

•

Practise mindfulness. Mindfulness is key to emotional resilience, which is a key contributor in our ability to quickly recover from stress. You don’t have to be a serious yogi to practise mindfulness. There are simple methods for everyday people.

•

Shift your focus to others. If you pay more attention to other people’s feelings, and show concern for them, you can not only take your mind off of your own stress but also reap the benefits of knowing that you’re doing something meaningful for someone you care about.

Too many people feel like they need to work harder when they struggle to focus. But this strategy is likely to backfire. Instead, pay attention to the causes of your stress and inability

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AUTHOR l Kandi Wiens is a faculty member at the University of Pennsylvania Graduate School of Education in the PennCLO Executive Doctoral Program and the Penn Master’s in Medical Education Program.

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FEATURE | ARTIFICIAL INTELLIGENCE

2018 AI PREDICTIONS

8

INSIGHTS

TO SHAPE BUSINESS STRATEGY

ARTIFICIAL INTELLIGENCE (AI) IS REMARKABLY COMPLEX AND ADVANCING QUICKLY. IT’S DOING FAR MORE IN SOME AREAS, AND FAR LESS IN OTHERS, THAN ANYONE WOULD HAVE GUESSED A DECADE AGO

It’s impossible for anyone today to give a precise vision of how the next ten − much less five − years will unfold in the field of AI. That’s not to say that it’s impossible to make broad predictions about AI’s impact in the coming years and decades. Our aim here is different: to make specific predictions about AI trends for the next 12 months, then draw out key implications for business, government, and society as a whole. We’re confident in making near team forecasts because these nascent trends are already under way, though they aren’t yet attracting the attention they deserve.

1 AI WILL IMPACT EMPLOYERS BEFORE IT IMPACTS EMPLOYMENT Words Alistair Hofert

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We see a more complex picture coming into focus, with AI encouraging a gradual

evolution in the job market that − with the right preparation − will be positive. New jobs will offset those lost. People will still work, but they’ll work more efficiently with the help of AI. Most people have heard that AI beat the world’s greatest grandmaster in chess. But not everyone knows what can usually beat an AI chess master: a ‘centaur’, or human and AI playing chess as a team. The human receives advice from an AI partner but is also free to override it, and it’s the established process between the two that is the real key to success. This unparalleled combination will become the new normal in the workforce of the future. Most organisations like to set boundaries by putting specific teams in charge of certain domains or projects and assigning a budget accordingly. But AI requires multidisciplinary teams to come together to solve a problem. Afterward, team members then move

June 2018

FEATURE | ARTIFICIAL INTELLIGENCE

on to other challenges but continue to monitor and perfect the first. With AI, as with many other digital technologies, organisations and educational institutions will have to think less about job titles, and more about tasks, skills, and mindset. That means embracing new ways of working.

2 AI WILL COME DOWN TO EARTH − AND GET TO WORK Executives think that AI will be crucial for their success: 72% believe it will be the business advantage of the future. The question is: What can it do for me today? And the answer is here. The value of AI in 2018: it lies not in creating entire new industries (that’s for the next decade) but rather in empowering current employees to add more value to existing enterprises. That empowerment is coming in three main ways: •

Automating processes too complex for older technologies

•

Identifying trends in historical data to create business value

•

Providing forward-looking intelligence to strengthen human decisions

AI system could, for example, identify the bank’s most profitable clients and offer suggestions on how to find and win more clients like them. But to do that, the system needs access to the various divisions’ and departments’ data in standardised, bias-free form. It’s rarely a good idea to start with a decision to clean up data. It’s almost always better to start with a business case and then evaluate options for how to achieve success in that specific case.

4 FUNCTIONAL SPECIALISTS, NOT TECHIES, WILL DECIDE THE AI TALENT RACE

3 AI WILL HELP ANSWER THE BIG QUESTION ABOUT DATA

As AI spreads into more specific areas, it will require knowledge and skill sets that data scientists and AI specialists usually lack.

Many companies haven’t seen the payoff from their big data investments. There was a disconnect. Business and tech executives thought they could do a lot more with their data, but the learning curve was steep, tools were immature, and they faced considerable organisational challenges.

Consider a team of computer scientists creating an AI application to support asset management decisions. The AI specialists probably aren’t experts on the markets. They’ll need economists, analysts, and traders working at their side to identify where the AI can best support the human asset manager, help design and train the AI to provide that support, and be willing and able to use the AI effectively.

Many kinds of AI, such as supervised machine learning and deep learning, need an enormous amount of data that is standardised, labelled, and ‘cleansed’ of bias and anomalies. Consider a typical bank. Its various divisions (such as retail, credit card, and brokerage) have their own sets of client data. In each division, the different departments (such as marketing, account creation, and customer service) also have their own data in their own formats. An

June 2018

Enterprises that intend to take full advantage of AI shouldn’t just bid for the most brilliant computer scientists. If they want to get AI up and running quickly, they should move to provide functional specialists with AI literacy. Larger organisations should prioritise by determining where AI is likely to disrupt operations first and start upskilling there.

5 CYBERATTACKS WILL BE MORE POWERFUL BECAUSE OF AI − BUT SO WILL CYBER-DEFENCE What’s one job where AI has already shown superiority over human beings? Hacking. Machine learning, for example, can easily enable a malicious actor to follow your behaviour on social media, then customise phishing tweets or emails − just for you. A human hacker can’t do the job nearly as well or as quickly. Intelligent malware and ransomware that learns as it spreads, machine intelligence coordinating global cyberattacks, advanced data analytics to customise attacks − unfortunately, it’s all on its way to your organisation soon. AI itself, if not well-protected, gives rise to new vulnerabilities. Malicious actors could, for example, inject biased data into algorithms’ training sets. In other parts of the enterprise, many organisations may choose to go slow on AI, but in cybersecurity there’s no holding back: attackers will use AI, so defenders will have to use it too. If an organisation’s IT department or cybersecurity provider isn’t already using AI, it has to start thinking immediately about AI’s short- and long-term security applications.

6 OPENING AI’S BLACK BOX WILL BECOME A PRIORITY In the past, for example, to teach an AI program chess or another game, scientists had to feed it data from as many past games as they could find. Now they simply provide the AI with the


15

FEATURE | ARTIFICAL INTELLIGENCE

game’s rules. In a few hours it figures out on its own how to beat the world’s greatest grandmasters. Instead of playing chess, an AI program with the right rules can ‘play’ at corporate strategy, consumer retention, or designing a new product. What happens when AI-powered software turns down a mortgage application for reasons that the bank can’t explain? What if AI flags a certain category of individual at airport security with no apparent justification? How about when an AI trader, for mysterious reasons, makes a leveraged bet on the stock market?

automation will increase vulnerability and disruption to the way they do business. Odds are good that if we asked government officials, the response would be similar. Leaders will soon have to answer tough questions about AI. It may be community groups and voters worried about bias. It may be clients fearful about reliability. Or it may be boards of directors concerned about risk management, ROI, and the brand.

Industrial Revolution, the IEEE, AI Now, The Partnership on AI, Future of Life, AI for Good, and DeepMind, among other groups, have all released sets of principles that look at the big picture: how to maximise AI’s benefits for humanity and limit its risks. AUTHOR l Alistair Hofert, PwC Cognitive and Intelligent Automation Lead.

We’re not alone in this belief. The World Economic Forum’s Center for the Fourth

Users may not trust AI if they can’t understand how it works. Leaders may not invest in AI if they can’t see evidence of how it made its decisions. So, AI running on black boxes may meet a wave of distrust that limits its use. We expect organisations to face growing pressure from end users and regulators to deploy AI that is explainable, transparent, and provable. That may require vendors to share some secrets. It may also require users of deep learning and other advanced AI to deploy new techniques that can explain previously incomprehensible AI.

7 NATIONS WILL SPAR OVER AI AI is going to be big: $15,7 trillion big by 2030, according to our research. The AI pie is so big that besides individual companies, countries are working on strategies to claim the biggest possible slice. National competition for AI will never cease − there’s too much money at stake. But we do expect growing opportunities, facilitated by the UN, the World Economic Forum, and other multilateral organisations, for countries to collaborate on AI research in areas of international concern.

8 PRESSURE FOR RESPONSIBLE AI WON’T BE ON TECHNOLOGY COMPANIES ALONE Seventy-seven per cent of CEOs in a 2017 PwC survey said AI and

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FEATURE | KNOWLEDGE WORKERS

NEGLECTING THE ERA OF KNOWLEDGE WORKERS

the true power of what these powerful devices can offer.

OVER THE PAST 40 YEARS, OUR WORKFORCE HAS TRANSCENDED FROM DOING LABOUR WITH THEIR HANDS TO WORKING WITH THEIR BRAINS. WE HAVEN’T GOT THE SLIGHTEST CLUE WHAT KNOWLEDGE WORK IS AND THAT’S AN ENORMOUS PROBLEM

Words Martijn Aslander

The majority of today’s workforce is knowledge workers and for the past 25 years, they have been using computers to do their work. Today, it has extended to tablets and smartphones. Unfortunately, in most cases, they are just fooling around, trying to make sense of all the possibilities of these devices and the software and incorporate it into their workflows. As a matter of fact, most of these people are using their computers as a modern typewriter, using only a small portion of

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It's bizarre that training and developing digital skills is nowhere on the strategic agenda of HR, management teams and board members. If the biggest cost in any organisation is salaries, it’s strange that they don’t get how much time, money and talent they’re wasting every day. I think there’s a bigger issue than just neglecting digital skills. It’s my belief that all organisational models and insights were developed in a time when people worked with their hands. In that case, working 9−5 makes sense, also changing time for money, still the dominant payment system worldwide. But if you work with your head most of the time, it doesn’t make sense. We just never really considered that working with your brain is something totally different and needs a different approach. Research shows that one third of the people are more sharp, keen and awake at 8 pm than at 8 am. What a total waste of human energy and talent to force them to join the traffic jams, deploying your most valuable assets − your people − and a time that they are the least productive. Roughly 25% of our energy is being consumed by our brains. So, from a biochemical point of view, it would be wise to figure out how to deal smartly.

brain can’t function anymore and that the willpower muscle is depleted by wrongfully using the energy reserves of the brain. Most of the time this happens because superiors had no idea that forcing employees to do their jobs in a specific way instead of trusting them to find their own approach, literally costs a lot of brainpower. What about the impact of interruptions? When someone is in deep concentration, focusing on a matter and is interrupted, it causes immediate concentration problems. It will take at least eight minutes to regain the same amount of focus and concentration. Insights like these are really being taken into consideration when it comes to managing organisations. As a knowledge worker, we can’t work for eight straight hours a day. We can pretend we do and we’re all doing it, but we are fooling ourselves. If you want your organisation to be ready for the upcoming disruptive ages, I think the best thing you can do is take knowledge work and its circumstances very serious.

AUTHOR l Martijn Aslander is a globally renowned thought leader, public speaker and executive sparring partner.

In case of matters of the mind, the mind is supposed to juggle with snippets of knowledge, information and ideas. Processing that data mentally to solve problems, creating opportunities and going after big challenges. A lot of people have burn-out problems. Burn-out means that the

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INFORM | INTERNATIONAL PROFILE

FROM THE GREAT WALL

TO THE CITY GREAT WALL OF BRIDGES AFTER LIVING IN BEIJING IN CHINA FOR SIX YEARS, MARTIN PITTORINO MOVED TO PITTSBURGH, PENNSYLVANIA, IN THE USA. PITTSBURGH IS RENOWNED FOR ITS ARCHITECTURE AND ITS ASTOUNDING 446 BRIDGES – MORE THAN ANY OTHER CITY IN THE WORLD, INCLUDING VENICE. MARTIN LOVES THE FACT THAT THE US IS A DIVERSE MELTING POT WITH MANY DIFFERENT NATIONALITIES FROM EVERY CORNER OF THE WORLD LIVING THERE. ‘IT’S EASY TO MEET AND GET TO KNOW PEOPLE FROM DIFFERENT CULTURES AND BACKGROUNDS AND THE US PROVIDES A FAIRLY GOOD STANDARD OF LIVING,’ HE SAYS. 20


People working in the USA are often employed at will, meaning that they are not protected from dismissal by their contracts. Although this can be worrisome, Martin believes this flexibility helps to create many work opportunities in the USA (the unemployment rate is only around 4%). He tells us more. How long have you been living in the US? I’ve been living in Pittsburgh, Pennsylvania, for three years. What is your current role at Komatsu Limited (formerly Joy Global)? I work for Komatsu Mining Corporation as the Vice-president Finance for the Underground Mining Division. How has your CA(SA) qualification benefited your career? The CA(SA) is well respected and internationally recognised. The qualification has opened many doors. In the US, a CPA (certified public accountant) is the credential that accountants typically earn. However, a CA(SA) is comparable and well recognised by multinational corporations. How has international experience enriched your life and career? For those who are fortunate to have the opportunity, I would certainly recommend an international assignment. It is a rewarding and enriching experience, opens your mind to new perspectives and expands your abilities, especially when working across different cultures and environments. Motivating and influencing an internationally diverse team to excel and exceed expectations is a skill that develops and improves as one is exposed to new experiences and complex challenges. Describe yourself as a person. I’m a creative thinker and influencer. I like to

explore alternative solutions to complex problems and have an open mind about what will work best. Integrity, authenticity, humour and an unwavering resolve are what defines me and I’m always looking for opportunities that can help me learn and grow at work and in my everyday life. What are some of the challenges you have encountered? One needs to quickly adapt to a new environment … new foods, driving on the right-hand side of the road, filling your own tank at the petrol station, and ensuring Americans understand when you speak (there are no ‘robots’ in America; they’re called ‘traffic lights’). Also, driving in the snow for the first time was an interesting challenge. Is there a community of South Africans in the USA? There are some 10 000 South Africans living in the USA and there are various active support communities for South Africans who have emigrated here or work in the USA. What do people do to relax and enjoy their free time? Americans enjoy watching TV and sports. People also enjoy travelling within the USA to get away … there are so many choices. Some ski in Colorado in winter, some go hunting or fishing in the season or go down to the beaches in California or Florida to unwind and relax in the sun. What do you miss most about South Africa? Family, friends, boerewors and biltong, and the culture of South African people. Is there a short, interesting story you’d like to share? I find myself constantly impressed and amazed at the perseverance and strength of people I encounter throughout my global travels. During a recent trip to

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INFORM | INTERNATIONAL PROFILE

India, I had the opportunity to visit the Hope Kolkata Foundation. The programme works with teenage girls who have been orphaned, abused, abandoned or trafficked. Meeting and listening to the inspirational stories of individuals who have overcome significant hardships puts life and its challenges into perspective. What does a South African earn in the USA? A newly qualified CA(SA) will earn about $50 000 − $65 000 per year, but with a few years’ experience once can earn well in excess of $150 000 per year. How does the income tax system work? Taxes are fairly complicated in the USA. The Federal Tax Act contains over 6 000 pages. The USA has separate federal, state and local government taxes, and the rules differ from state to state. For example, in

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Pennsylvania there is no sales tax on clothing and there are seven states with no state income tax. I would recommend that you get a good tax advisor to help complete your tax returns. What is the cost of living: rent, food, electricity, water, fuel, entertainment, etc? Also, what do big-ticket items like houses and cars cost on average? Life in the USA is relatively pricey. The most expensive cities include San Francisco, New York, Boston and Los Angeles. Driving is fairly cheap, however − a new BMW 3 series costs around $34 000 (R442 000). The amount you pay in rent is a big factor in your overall cost of living. San Francisco and New York have some of the most expensive rents in the world and the average monthly rent is over $3 000 (R39 000) for a one-bedroom

apartment. The average family home can easily set you back more than $250 000 (R3 250 000) if you buy. Education can also be expensive, depending on the institution you choose to attend. A live-in housekeeper is very expensive and could cost anywhere between $30 000 and $60 000 per year (R390 000 and R780 000) depending on the number of tasks assigned. Based on these factors, can a South African go to the USA to save money or is it difficult because of the cost of living? Despite the average savings rate being under 5% in the USA, it is definitely possible to save money by being disciplined, looking for deals, and buying the quality items you need at the best price.


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INFORM | PROFILE

LECTURER LECTURER BY CHANCE ‘Accounting made sense, it was logical. Mrs Sebastian told us that accounting was the language of business and she was going to teach us that language; my other classmates had French and German, but I had accounting, the “language of business”. For a teenager who liked money, that was pretty awesome,’ Nolo admits. Nolo remembers attending her aunt’s graduation at Unisa when she was in Grade 8. Her aunt was receiving her BCom degree and it was the first time Nolo conceptualised the idea of being an accountant. She still has vivid memories of how excited they all were, and her grandfather was so proud.

ONE OF THE PEOPLE MANGAKANE LEHLOGONOLO (NOLO) PUDUDU CREDITS FOR HER CHOICE OF BECOMING A CA(SA) IS HER GRADE 8 ACCOUNTING TEACHER, MRS SEBASTIAN. ‘SHE WAS ABSOLUTELY AMAZING. THE WAY SHE SPOKE ABOUT ACCOUNTING, THE WAY SHE WAS SO PASSIONATE ABOUT IT, I KNEW THAT THIS WAS WHAT I WANTED TO DO!’ 22


But the road to becoming a CA(SA) was not going to be easy or even short. Nolo completed her degree in 2004 and her CTA in 2005 with Unisa. She wrote and passed QE1 (currently ITC) in 2006. She passed QE2 (currently APC) in 2008 at her second attempt and qualified as a CA(SA) in 2009 while serving her articles at PwC. A few months after qualifying, an opportunity opened for Nolo to work at the University of Pretoria lecturing financial accounting for second-year students on the non-CA(SA) stream. ‘Initially, I thought I would return to the corporate world after two or three years, but before I knew it, I was in academia, and I was home,’ she says with a smile. In 2016 she joined Unisa where she lectures financial reporting to CTA students. Mpho Netshivhambe asks her more about her nine-year journey as a lecturer. Why did you choose the academic route? It wasn’t always my intention to go the academic route. My dream,

and goal, was to be a partner at PwC. However, a few months after qualifying, I started getting this constant nagging feeling that I needed something else. I wouldn’t say I wanted more, I just think that at the time, I needed something different. Then the opportunity arose for me to work at the University of Pretoria. Initially, I thought I would return to the corporate world after two or three years, but before I knew it I was in academia, and I was home. Did you always have the desire to be a lecturer? No, I didn’t. Which is really funny, because it’s so much a part of who I am now. What are the challenges facing CAs(SA) in the academic environment? I think there are the obvious challenges, that which the public sees. We have the relevant #FeesMustFall movement and the consequences thereof, the biggest challenge being how to finance our education system. I think we are still going to feel the budgetary pressures in the near future. Another challenge, a very important one, is how we prepare our students for the future. The primary method of teaching that we are using today is the same used to teach me almost 15 years ago. But we are preparing our students for a different world, and a rapidly changing one at that. I think the best way to prepare our students is to cultivate critical thinking and lifelong learning. Which areas should the departments of Basic and Higher Education focus on to ensure that our education system becomes one of the best in the world? I think we need to get our foundation right, starting at the basic education level. We also need to realise that any policy that is implemented

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needs to be supported by the labour force, and therefore it requires buyin from the unions. With higher education, I think the biggest challenge is capacity: we need to improve our skills set, have more PhD candidates and therefore more established researchers. That’s when knowledge creation takes place, and that’s how we come up with better ways of doing things. I think we also need to take advantage of what we can achieve using technology. When implemented correctly, technology can lead to massive scalability at an affordable level; and that’s what we need in this country when it comes to education. What do you enjoy most about your job? First, the students. I love teaching, it energises me, and I think it’s a privilege to stand in front students and impart knowledge. Then there’s academic freedom, the research. What are some of your highlights so far? Obviously, qualifying as a CA(SA) ... In 2010, while doing my master’s at the University of Pretoria, I was a recipient of the SAVUSA Skills Programme, which provided me with an opportunity to study at the Vrije Universiteit Amsterdam for three months. The reason I’m still in academia today has a lot to do with that visit. I got to see what a life in academia can be like, and I fell in love with it. As a young researcher, getting published is a daunting process, so publishing my first peer-reviewed article in the Journal of Economic and Management Sciences was quite exciting. What is your view on how AI will change the CA marketplace in general in the future? There are a lot of human efforts that AI will replace, which can threaten the CA market, but this can also force us to step outside of the mundane repetitive tasks and rather apply ourselves to solving problems computers cannot solve. AI will give the CA more time; how they use that time will determine how successful they become. What are your thoughts on the current curriculum and how CAs(SA) will have to adapt to this change? The current curriculum definitely needs to be changed − unfortunately,

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at the moment we do not have the capabilities to keep up with the pace at which the world is changing. We will need to incorporate modules in digital technology. We also need modules that will sensitise students to Do you have any ambition to join the corporate world in future? I used to have, but not anymore. I think I can serve my community better in academia. However, I do believe that later, once I’ve progressed in my research career, I’ll be able to provide value to the corporate world as a consultant, while working in academia. What drives you? I’m driven by the people who came before me: my ancestors, my grandparents, my parents. I stand on their backs, on the

foundation that they laid for me. So, I have a responsibility to do the same for my generation and for those who will come after me. If you were not a lecturer, what would you be doing? I’d be a theoretical physicist, just like Sheldon Cooper, but smarter and with better social skills. In three words, how do you describe your experience as a lecturer? Humbling. Growth. Gratitude. Tell us a bit about your family? I’ve been married for six years to the best husband in the world, and we also happen to be parents to the coolest five-year-old boy. I hit the jackpot.


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INFORM | PROFILE

WOMAN KINDA WOMAN

A TELL IT LIKE IT IS When Janine started her master’s in 2015, she became even more intrigued with the topic and decided to do her mini-dissertation in this area. She’s a passionate lecturer as well the leader on a collaborative research project which focuses on the value of integrated reporting. What is your current job title and name of the company you’re working for? Senior Lecturer in the Department of Accounting Sciences at Nelson Mandela University. I am currently a member of an IRBA task group developing guidance for practitioners around the assurance of sustainability information.

WHEN JANINE CHRISTIAN JOINED NELSON MANDELA UNIVERSITY IN 2012, SHE WAS ASSIGNED THE CORPORATE GOVERNANCE MODULE, WHICH INCLUDED SUSTAINABILITY AS A TOPIC. THE NOTION OF BUSINESSES BEING CORPORATE CITIZENS WITH RIGHTS AND RESPONSIBILITIES FASCINATED HER AND SHE AVIDLY BEGAN READING UP ON THE TOPIC 24


How has being a CA(SA) assisted you in your role? The accounting and auditing profession is at the forefront of developing guidance in this area. CAs(SA) have the responsibility to not only assist with the preparation of these reports, but also have a vital role to play in determining how to measure and assure the sustainability information that companies must report on. Being a CA(SA) allows me to be a part of and add value to the process of developing frameworks and guidance for the preparation and assurance of sustainability and integrated reports. What drives your passion to focus on sustainability / integrated reporting? Taking responsibility is one my core values. The move towards preparing sustainability and integrated reports is an indication that organisations are acknowledging their impact on societies and the environment. By preparing a more balanced report, organisations disclose not only the positives but also what they are doing to decrease their negative social and environmental

impact. To me, that is a step in the right direction. Can you briefly share a key finding in the research you have conducted? My research was focused on environmentally sensitive companies listed on the JSE in 2014. The results showed that the amount of environmental disclosure is driven by the type of report that management decides to prepare and the target audience of these reports. The environmental disclosures in integrated reports are thus focused on financial stakeholders, the reports contain more monetary disclosures and the tone of the disclosures is more balanced. Sustainability reports contain more information than integrated reports as they aim to provide the environmental information required by all other stakeholders. The tone of the disclosures within sustainability reports is also more positive as the focus of the report is to manage the perceptions of its stakeholders and ensure continued access to resources. Which words do you live by? The first Bible verse I memorised as a child is Philippians 4:13, ‘For I can do everything through Christ who gives me strength.’ This verse still inspires me every day. What is the greatest challenge you’ve experienced and how did you overcome it? Being reticent when I’m in a meeting or the company of people I revere. To be honest, I have not fully overcome it yet, but I make sure that I am always thoroughly prepared for meetings and ready to make a valuable contribution to the discussion. Best piece of advice you ever received? Change the things you can control and do not let the things you

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INFORM | PROFILE

cannot change control you. What would you say to a CA(SA) wanting to work in this area? Guidance, frameworks and assurance in this area are still in their infancy compared to financial reporting, making it a very interesting and exciting space to be part of. Its growth and development has already and will continue to open up exponential research and other opportunities, which you will be part of. As with any emerging area there are challenges, but these do not outweigh the benefits you will reap. Which difference do you want to see in Africa in five years’ time? Business leaders in both the public and private sector to lead their organisations ethically and taking responsibility for the consequences of their decision-

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making. In South Africa, specifically, I would like to see all organisations taking a more active role in decreasing the inequalities in society and in increasing the quality of the education system as well as accessibility to higher education institutions. Describe yourself in three words. Gogetter, passionate, benevolent. What do you do to relax? I am an adrenaline junky, so relaxing for me is doing something that involves physical activity, like running, cycling, hiking and adventure sports. On the flip side, I’m also a couch potato, so sometimes relaxing means knitting, reading or watching a series the entire weekend. I guess it depends on my mood. How do you balance your career and family? By not losing sight of what is important. Women are under much

pressure to be awesome in all spheres of life, so it is important to know how to prioritise. It is essential to have good time management skills, know how to delegate and, most important of all, know when to say no. I always go the extra mile in my professional life but not at the expense of my personal relationships, and it really helps that I have a very supporting husband. What message would you like to give your students or future CAs(SA)? You can achieve anything you set your mind to, but you must be willing to work hard and make certain sacrifices. Failing is not the end of the road; it is an opportunity to reassess your journey and devise a different strategy to achieve your goals.


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ANNUAL GENERAL MEETING

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SAICA AGM MEETING NOTICE: 26 JUNE 2018 The annual general meeting of members of the South African Institute of Chartered Accountants (SAICA) will be held at the SAICA head offices, 17 Fricker Road, Illovo, Johannesburg, Gauteng Date: 26 June 2018 Time: 9:00 Due and proper notice of the aforementioned meeting will be provided via the following means: 1) Electronic email – if you are registered on our database as a member capable of accepting communication from SAICA in this manner; and 2) SAICA website – www.saica.co.za Registration and proxy voting via SAICA’s e-voting platform will open during the month of June 2018 – more details to be communicated in the next issue of ASA on dates and time. In order to use the e-voting facility, members must register and cast their proxy e-votes and follow the onscreen prompts which will be detailed in the e-voting guidelines. There will be no paper-based proxy-voting option, and all proxy voting will be conducted through the e-voting system. On the day, voting will be made available on the e-voting solution during the AGM proceedings on 26 June 2018. Should you require assistance in accessing the e-voting platform, please contact the SAICA call-centre for assistance at 0861 072 422 or +27 (11) 621 6600, or email [email protected] Issued by: Welsh Gwaza Company secretary SAICA

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June 2018

FOCUS | GLOBALISATION

THE

GLOBAL ERA

People around the globe are more connected to each other than ever before. Information, communication, and money are being exchanged at lightning speed. Goods and services produced in one part of the world are increasingly available in all parts of the world. It’s incredible the way the global economy has recovered from the 2008 financial crisis and is now larger than ever. However, there are some serious social issues to consider. Experts in this feature discuss the pros and cons of our global economic future

Illustration Liézel Els

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THE REAL VILLAIN BEHIND OUR NEW

IDEA IN BRIEF

IN THE PAST TWO DECADES, GROWTH RATES IN THE UNITED STATES HAVE FALLEN TO HALF OF WHAT THEY WERE IN THE MIDDLE OF THE 20TH CENTURY. THE SHARE OF INCOME ACCRUING TO THE TOP 1% HAS NEARLY DOUBLED SINCE THE 1970s, WHILE THE SHARE OF INCOME GOING TO ALL WORKERS HAS FALLEN BY NEARLY 10%. THESE ARE THE MARKS OF OUR NEW GILDED AGE

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It’s not globalisation or automation but the lopsided monopoly power that favours corporations Words Eric Posner and Glen Weyl Illustration Liézel Els

The comedian Chris Rock once said, ‘If poor people knew how rich rich people are, there would be riots in the streets.’ Populist revolts throughout the world may not count as street riots, but they do reflect disenchantment with not just our government but also liberal democracy itself. In the past two decades, growth rates in the United States have fallen to half of what they were in the middle of the 20th century. The share of income accruing to the top 1% has nearly doubled since the 1970s, while the share of income going to all workers has fallen by nearly 10%. These are the marks of our new Gilded Age. It’s tempting to blame impersonal market forces such as globalisation and automation for widening inequality. But the true villain would be familiar to anyone who lived through the previous one: market (that is, monopoly) power. The great monopolies of that period − Rockefeller’s Standard Oil, the sugar trust, the financial and railroad interests − used their power to corrupt the economy and politics. Market power both reduces growth and increases inequality. Recognising this, leaders

put into place antitrust and worker protection laws. Today, market power takes new forms, but the solution is the same: antimonopoly laws and laws protecting workers but updated for the problems of the 21st century. The era of ‘supply-side economics’ championed by Ronald Reagan and Margaret Thatcher − which called for tax cuts, deregulation and narrow antitrust enforcement − explains a lot of our current predicament. The key assumption of that era was that markets work best when the government focuses exclusively on enforcing contract and property rights. This theory turned out to be wrong − not because it celebrates the market but because it misunderstands it. Two centuries earlier, Adam Smith pointed out that the easiest way for businesses to earn profits is not by slashing costs and innovating but by agreeing among themselves not to compete − to exert market power to raise prices or lower wages. This sort of agreement is now illegal, but businesses have nevertheless

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found new and creative ways to achieve monopoly profits, while antitrust enforcers have fallen behind. First, in the 1970s people began trusting their money with institutional investors like BlackRock and Vanguard, which operate mutual funds that buy shares of all the major corporations. Because the institutional investors bought corporate shares incrementally over a long period of time, hardly anyone noticed when they obtained the biggest stakes of competing firms. For example, BlackRock and Vanguard are among the biggest owners of all the airlines, which means they benefit when the airlines raise prices. An important new series of economic studies suggest that as the institutional investors obtain greater market share, consumers pay higher prices and companies invest less. Second, a growing body of research indicates that corporations have increased their profits by obtaining power over labour markets. Larger employers can underpay workers simply because workers can find few other employers that are willing to hire them. Faced with reduced wages, some workers quit or go on welfare, fuelling the increasingly low labour force participation and rising deficits we see today. One example: Several years ago, many farm equipment manufacturers merged, creating a handful of giant companies like John Deere. This, in turn, led to a smaller number of farm equipment dealerships in many places. With fewer places to work, farm equipment mechanics had to either accept lower wages or find work in other fields. Businesses have found other ways to extend their market power. The sandwich maker Jimmy John’s notoriously used covenants not to compete to block its workers from quitting to work for a competitor − which most likely held down wages. Antitrust authorities have focused on mergers and what they might mean for consumer prices but have ignored the possibility that they might push down the wages of workers. Third, the rise of the internet has bestowed enormous market power on the tech titans − Google, Facebook − that rely on networks to connect users. Yet again, antitrust enforcers have not

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stopped these new robber barons from buying up their nascent competitors. Facebook swallowed Instagram and WhatsApp; Google swallowed DoubleClick and Waze. This has allowed these firms to achieve near-monopolies over new services based on user data, such as training machine learning and artificial intelligence systems. As a result, antitrust authorities allowed the creation of the world’s most powerful oligopoly and the rampant exploitation of user data. According to one study, the power of firms to raise prices above the competitive level or cut wages below it increased more than threefold from 1980 to 2014. To revive economic growth and restore equality, we need to update the solutions first developed a century ago. Then, the focus was on breaking up monopolies, prohibiting cartels and blocking mergers. These laws helped advance broadly shared prosperity, but owners of capital devised strategies to evade them. These strategies must be addressed with new regulatory approaches. Institutional investors need to be blocked from further expansion and forced to restructure. They should be allowed to own shares of no more than one company per industry or to own no more than a small portion of every company − say, 1% − if they want to remain fully diversified. Antitrust authorities should target firms that use mergers to seize control of labour markets. Farm equipment dealers in a town should be allowed to merge only if mechanics and other employees will have a range of employment options after the merger. It is possible that some of the country’s biggest employers, like Amazon, the Compass Group food service company and Walmart, need to be broken up. And regulators need to get more aggressive with tech monopolies and stop them from absorbing innovative rivals. Facebook’s market power is what makes scandals like Cambridge Analytica possible. Senator Lindsey Graham nailed it with a question that Mark Zuckerberg could not answer: ‘If I buy a Ford, and it doesn’t work well, and I don’t like it, I can buy a Chevy. If

GROWTH RATES IN THE UNITED STATES HAVE FALLEN TO HALF OF WHAT THEY WERE IN THE MIDDLE OF THE 20TH CENTURY

I’m upset with Facebook, what’s the equivalent product that I can go sign up for?’ We also need a renewed public awareness of the dangers of monopolies to ensure that in the future antitrust enforcers feel the pressure to keep up with the ever-changing faces of monopoly power. While Democrats have recently tried to revive the spirit of the antimonopoly movements of the Gilded Age, this is an issue on which both parties might find common ground today − just as they did in the era of the trust-busting Republican President Teddy Roosevelt. No one should defend monopoly power. AUTHORS l Eric Posner, a professor at the University of Chicago Law School, and Glen Weyl, a visiting scholar in economics and law at Yale and a researcher at Microsoft (for which he does not speak). They are also the authors of Radical markets: uprooting capitalism and democracy for a just society.

© 2018 THE NEW YORK TIMES


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ADAPTING

TO THE NEW GLOBALISATION

New trade policies must be based on a clear-eyed understanding of how globalisation is evolving, not on a backward-looking vision based on the last 30 years, write Laura Tyson and Susan Lund Words Laura Tyson and Susan Lund Illustration Liézel Els

IDEA IN BRIEF MOST OF THE ADVANCED ECONOMIES, INCLUDING THE US, HAVE NOT ADEQUATELY RESPONDED TO THE NEEDS OF THE COMMUNITIES AND INDIVIDUALS LEFT BEHIND BY GLOBALISATION. ADDRESSING THESE NEEDS IS NOW OF PARAMOUNT IMPORTANCE

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Around the world, countries are rethinking the terms of engagement in global trade. This is not all bad; in fact, acknowledgement of globalisation’s disruptive effects on millions of advanced-economy workers is long overdue. But new trade policies must be based on a clear-eyed understanding of how globalisation is evolving, not on a backward-looking vision based on the last 30 years. Globalisation has done the world a lot of good. Research from the McKinsey Global Institute shows that, thanks to global flows of goods, services, finance, data, and people, world GDP is more than 10% higher – some $7,8 trillion in 2014 alone – than it would have been had economies remained closed. More interconnected countries capture the largest share of this added value. For example, the United States, which ranks third among 195 countries on MGI’s Connectedness Index, has done rather well. Emergingmarket economies have also reaped

major gains, using export-oriented industrialisation as a springboard for rapid growth. Yet, even as globalisation has narrowed inequality among countries, it has aggravated income inequality within them. From 1998 to 2008, the middle class in advanced economies experienced no income growth, while incomes soared by nearly 70% for those at the top of the global income distribution. Top earners in the US, accounting for half of the global top 1%, reaped a significant share of globalisation’s benefits. To be sure, this isn’t all, or even mostly, a result of globalisation. The main culprit is technological change that automates routine manual and cognitive tasks, while increasing demand (and wages) for highly skilled workers. But import competition and labour arbitrage from emerging economies have also played a role. Perhaps more important, they have proved more salient targets of voters’ fear and resentment.

June 2018


None of this is to say that globalisation is in retreat. Rather, it is becoming a more digital phenomenon. Just 15 years ago, cross-border digital flows were almost non-existent; today, they have a larger impact on global economic growth than traditional flows of traded goods. The volume of cross-border data flows has soared 45-fold since 2005 and is expected to grow another ninefold over the next five years. Users worldwide can stream Beyoncé’s latest single immediately upon its release. A manufacturer in South Carolina can use the e-commerce platform Alibaba to buy components from a Chinese supplier. A young girl in Kenya can learn math through Khan Academy. Eighty per cent of students taking Coursera’s online courses live outside the US. This new form of digital globalization is more knowledge-intensive than capital- or labour-intensive. It requires broadband connections, rather than shipping lanes. It reduces barriers to entry, strengthens competition, and changes the rules governing how business is done.

Indeed, in the industries and regions hit hardest by import competition, years of simmering discontent have now boiled over, fuelling support for populists promising to roll back globalisation. But, as the advanced economies reformulate trade policy, it is critical that they understand that globalisation was already undergoing a major structural transformation. Since the global financial crisis, crossborder capital flows have plummeted, with banks pulling back in response to new regulation. From 1990 to 2007, global trade grew twice as fast as global GDP; since 2010, GDP growth has outpaced that of trade. Both cyclical and secular forces are behind the trade slowdown. Investment has been anaemic for years. China’s growth has slowed – a secular trend that is unlikely to be reversed. And the expansion of global supply chains seems to have reached the frontier of efficiency. In short, slower global trade is likely to be the new normal.

June 2018

Consider export activities, which once seemed out of reach for small businesses lacking the resources to scout out international prospects or navigate cross-border paperwork. Now, digital platforms like Alibaba and Amazon enable even small-scale entrepreneurs to connect directly with customers and suppliers around the world, transforming themselves into ‘micro multinationals’. Facebook estimates that 50 million small businesses are on its platform, up from 25 million in 2013; 30% of these companies’ Facebook fans, on average, are from other countries. While digital technologies open the door for small companies and individuals to participate in the global economy, there is no guarantee that sufficient numbers will walk through it. That will require policies that help them take advantage of new global market opportunities. The US has pulled out of the TransPacific Partnership (TPP) deal, but many of the issues it addressed still require global rules. Data localisation requirements and protectionism are on the rise, and data privacy and cybersecurity are pressing concerns. In the

absence of the TPP, it will be critical to find some other vehicle for establishing new principles for digital trade in the 21st century, with a greater emphasis on intellectual property protection, cross-border data flows, and trade-in services. At the same time, advanced economies must help workers acquire the skills needed to fill high-quality jobs in the digital economy. Lifelong learning cannot just be a slogan; it must become a reality. Mid-career retraining must be made available not only to those who have lost their jobs to foreign competition, but also to those facing disruption from the continuing march of automation. Training programmes should be able to impart new skills in a matter of months, not years, and they should be complemented by programmes that support workers’ incomes during retraining, and that help them relocate for more productive work. Most of the advanced economies, including the US, have not adequately responded to the needs of the communities and individuals left behind by globalisation. Addressing these needs is now of paramount importance. Effective responses will require policies that help people adapt to the present and take advantage of future opportunities in the next phase of digital globalisation.

AUTHORS l Laura Tyson, a former chair of the US President's Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, a senior adviser at the Rock Creek Group, and a member of the World Economic Forum Global Agenda Council on Gender Parity. Susan Lund is a partner with the McKinsey Global Institute. This article originally ran in Project Syndicate.

© 2018 McKinsey Global Institute


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GLOBALISATION

HAS CREATED WEALTH – BUT FOR WHOM?

Even as the world economy has boomed over the last 40 years, growth within countries has been less and less equally shared. This is a social issue, of course, but at its core, it’s an economic one Words Rana Foroohar Illustration Liézel Els

IDEA IN BRIEF FIXING THE SYSTEM REQUIRES RETHINKING A TAX CODE THAT SUBSIDISES DEBT OVER EQUITY, REFORMING HOUSING AND RETIREMENT POLICY, CURBING THE MONEY CULTURE RIFE IN OUR POLITICAL SYSTEM, AND RESTRUCTURING CORPORATE INCENTIVES ... FOR BETTER LONGTERM DECISION-MAKING

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Nothing resonates in the public consciousness unless it chimes with people’s felt experience. So, it was quite telling a couple of years back when Thomas Piketty’s Capital in the 21st century became the best-selling book ever for Harvard University Press. Why did a nearly 700-page tome by a French academic become a mass market hit? Because it went some way towards explaining why, even though the global economy has recovered from the 2008 financial crisis and is now larger than it’s ever been, many of us feel so uneasy about our economic future. Globalisation has created growth, no doubt. But what kind of growth? And for whom? Is all growth the same? I would argue no. The key economic issue in many countries, including the US, where it has been the meta-theme of the 2016 election cycle, is the fact that even as the world economy has

boomed over the last 40 years, growth within countries has been less and less equally shared. This is a social issue, of course, but at its core, it’s an economic one – there is strong academic evidence to suggest that in this paradigm, economic growth itself – not to mention market stability – is eventually undermined. You need a stable political system and a sense that all boats will eventually rise for markets to function properly. The question is what to do about the current growth paradigm. Much of the conversation on this score has focused on the divide between Wall Street and Main Street, and in particular, how to curb the financiers that the public seems to loathe. Each presidential candidate in the US has their prescription – Bernie Sanders wants to break up the big banks, Donald Trump says tax the hedge funders, Hillary Clinton wants to work within

June 2018


working properly – and the result is slower growth, and higher inequality, which can culminate in the sort of social unrest that we’ve seen over the last eight years in many parts of the world. We are at a tipping point right now, as I write in my book Makers and takers: the rise of finance and the fall of American business (Crown). The killer stat – only around 15 % of all the money washing around the markets these days makes it onto Main Street. The rest stays within the closed loop of finance itself, in assets that are traded among the wealthy (be they stocks, bonds, or real estate). Many of these assets are ‘securitised’ multiple times as they are traded – like the exploding CDOs that brought down the financial system in 2008. And the trading happens faster than you can think, with 80% of it being done by high-frequency algorithms designed to take short-term profits for the top 25% of the population that owns most of those assets being traded. Thanks to technology and globalisation, which have enriched the markets and made them run ever faster, the spin cycle of wealth moving to the top of society, and away from productive uses on Main Street, goes faster, and faster.

the existing Dodd-Frank financial reform system and take on shadow banking, too. All of them are missing the point. The problems within our economy go away beyond ‘too big to fail’ banks, hedge fund billionaires, or offshore accounts of the sort illuminated by the Panama Papers. In fact, each of these things is a small part of a much, much, deeper problem, which is that the capital markets themselves are broken. They aren’t doing their job as Adam Smith envisioned it, and until they do, the economic growth that we create will remain unequally shared, and our economy will remain fragile. The job of finance is to take our savings and funnel it into productive new enterprises, which create jobs and wealth and ultimately, economic growth. Without a healthy capital markets system, capitalism itself stops

June 2018

The result is a global economy that gets bigger, but in a virtual way – the capital market system enriches itself far more than anyone or anything else. The financial sector (including everything from banks, to hedge funds to mutual funds to insurance to trading houses) represents 7% of the economy, and creates 4% of all US jobs, but takes 30% of all private sector profits. While a healthy financial system is crucial for growth, research shows that when finance gets that big, it starts to suck the economic air out of the room – and in fact, the slower growth effect starts happening when the sector is half the size it is today in the US. This is in part a monopoly power effect – in the US, for example, finance and Big Pharma swap places each year as the top corporate donors to Washington – which creates a system in which more and more rules of the game are titled to favour the financial system. For 40 years now, across both Republican and Democratic administrations, the rules of our economic game have been changing

WITHOUT A HEALTHY CAPITAL MARKETS SYSTEM, CAPITALISM ITSELF STOPS WORKING PROPERLY – AND THE RESULT IS SLOWER GROWTH, AND HIGHER INEQUALITY ... in small ways that have resulted in a system of capitalism that is exactly the opposite of what Adam Smith would have wanted – business is serving finance, rather than the other way around. The result is the longest and slowest recovery of the post-war era. What happens now is the question. Fixing the system requires more than easy political solutions like curbing banker pay or breaking up ‘too big to fail’ banks (though both may be legitimate policy choices). It requires rethinking a tax code that subsidises debt over equity, reforming housing and retirement policy, curbing the money culture rife in our political system, and restructuring corporate incentives and governance to better support longterm decision-making. Good growth is growth that benefits more than just a few. The alternative, increasing social instability and market fragility, could well undermine what growth we have.

AUTHOR l Rana Foroohar, Assistant Managing Editor and Columnist, Time Magazine.

THE VIEWS EXPRESSED IN THIS ARTICLE ARE THOSE OF THE AUTHOR ALONE AND NOT THE WORLD ECONOMIC FORUM. COPYRIGHT WORLD ECONOMIC FORUM: REPRINTED WITH PERMISSION

© 2018 World Economic Forum


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FIRMS OF THE FUTURE

BUILDING ADVISORY SERVICES

Building advisory and consultancy services can be an amazing journey for staff, partners and clients. But it is important for SMPs to take some time out to reflect on the firm’s strategy Words Johnny Yong and Mats Olsson Illustration Liézel Els

There is currently a general consensus that SMPs need to re-evaluate the services that they are providing, which may involve an eventual change to their current business model. Hence, it could be necessary for SMPs to shift their mindset and seriously consider building on their traditional compliance services with business advisory services focusing on foresight and other predictive analysis. Interestingly, 45% of respondents to the 2016 Global SMP Survey seemed to support this direction by stating that they anticipated revenue to increase in 2017 for advisory and consulting services – the highest out of all four service lines. It was 44% for accounting, compilation and other non-assurance/ related services; 42% for tax; and 38% for audit and assurance services.

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IFAC’s literature review on ‘The Role of SMPs in Providing Business Support to SMEs − New Evidence’ explored both the supply and demand for business support from small- and medium-sized entities (SMEs) and highlights the associated potential for future revenue growth from the provision of business advisory services. Research indicates that, irrespective of jurisdiction, accountants, and especially SMPs, continue to be the preferred advisors to SMEs. SMPs have an in-depth knowledge and understanding of their SME clients and are therefore well positioned to provide a range of other services. They also have a unique advantage because of their interactions which are often long term and centred on personal relationships that are based on trust and reliable communication.

83% of the 2016 SMP Survey respondents stated that they already provided some form of business advisory and consulting services. The most commonly offered services included: •

48% provide corporate advisory (financing, mergers, due diligence, valuations, legal)

•

46% offer management accounting (planning, performance, risk management, and internal control)

•

30% advise on human resources policies and procedures/ employment regulations (hiring and firing, employee contracts, sick pay, remuneration structures), and

June 2018


IDEA IN BRIEF

•

29% support business development (strategy, marketing, benchmarking, budgeting)

The IFAC SMP Committee has recently focused on how SMPs can build business advisory and consultancy services. During a recent SMPC meeting, representatives from around the world shared their own experiences with a view to better prepare firms that are ready to diversify into advisory and consulting service.

WHAT SERVICES DO SMEs REQUIRE IN THE FUTURE? Future-oriented services such as budgeting, cash flow planning, determining market pricing on products and services offered

June 2018

by SMEs and a business ‘healthcheck’ are likely to be highly sought after. Furthermore, a firm that can house all compliance and advisory and consulting services in a single location, or hub, will be in demand as the SMEs will not have to move around to get the full range of services that they need. Hence, the attraction of services being provided through the cloud cannot be overstated. With SMEs operating on a more global basis than ever before and relying increasingly on computing power, SMPs that can operate across multiple languages and cultures and provide IT consulting and cybersecurity services will be important business partners to their clients.

SMPs NEED TO RE-EVALUATE THE SERVICES THEY ARE PROVIDING. DEVELOPING A STRATEGIC BUSINESS PLAN WITH THE NECCESSARY BUYIN FROM STAFF AND PARTNERS IS PARAMOUNT. IT IS CRITICAL TO HAVE A CLEAR VISION FOR THE FUTURE AND A ROADMAP FOR HOW TO GET THERE accountancysa.org.za

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HOW CAN SMPs REMAIN RELEVANT TO TOMORROW’S SMEs? Niche market The traditional SMP firm model may need to change. Specialisation in a niche market offering could be a way forward. This could be a field where the firm has a high degree of industry and/ or technical understanding. It should be large enough to justify the expenditure on marketing and if necessary obtaining specialist knowledge. Focusing on developing specialisms may also open up new client opportunities as other firms may want specialist expertise. Networks Firms should consider how they approach collaboration, networking and alliances with other professionals and practices. SMPs may have a limited ability to provide a full range of services. It is therefore important to become part of a high-quality referral network, formal or otherwise informal. Some SMPs are already very active users of a trusted referral network. Successful firms have developed networks and cooperate with other accountants and other professionals such as lawyers, corporate financial advisers, chartered secretaries, qualified valuers, etc. Joining a network, association or alliance could also be explored. In the 2015 IFAC Global SMP Survey, 28% were members of a network (11%), association (10%), or alliance (7%). An additional 24% indicated their practice was considering joining one. Key benefits indicated included broadening client service offerings, retaining clients expanding in size and/ or operations and strong networking opportunities. There is also a need to look at the value proposition as part of the transition into offering of advisory and consulting services. Leveraging technology As SMEs become more and more connected in the digital age, so too must firms evolve. Leveraging technology to manage costs and offer

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new services will need to be a priority. Investment in these areas has to be planned and executed. Automation should result in more time being available for data analysis, insights and proactive ‘real-time’ value-added services. Trusted business advisor SMPs need to remain relevant by understanding and listening to their clients’ needs, then utilising their broad experience and expertise to help them accomplish their goals. The accountant’s role (as adviser, mentor, and coach) is to work as a ‘business partner’. This new role requires flexibility and an understanding of the context and cultural environment of the client. Practitioners will need to create an even more regular and ongoing communication with their clients and build the relationships. Talent management Staff’s skill sets will need to be refreshed. Employees are expected to be more outward facing with strong communication skills and could require training on how to deliver valuable business insights. The traditional recruitment routes may no longer be efficient or viable as the skills required are rapidly changing. Hence, new ways to attract talent will be needed. A Gateway article ‘Searching for Stars: Youth & Talent Management’ explores this further.

HOW CAN THE FIRMS INITIATE CHANGE? As part of the process to initiate change, SMPs must first evaluate their existing client’s profile. For example, are they expanding and, thus, need more support? Secondly, existing clients can be asked to rate their satisfaction on the firm’s past performance. This feedback enables the firm to know what areas they are doing well and what could be their inherent strength. In undertaking client profiling, coupled with internal insights, some past services that were delivered for free may eventually be billable as advisory in the future. The key here is to be confident that these services actually add value to the client.

THE TRADITIONAL SMP FIRM MODEL MAY NEED TO CHANGE. SPECIALISATION IN A NICHE MARKET OFFERING COULD BE A WAY FORWARD. THIS COULD BE A FIELD WHERE THE FIRM HAS A HIGH DEGREE OF INDUSTRY AND/ OR TECHNICAL UNDERSTANDING SMPs need to focus on branding and communicating both to existing and new clients the full range of services that can be provided. One mechanism is to utilise the firms’ social media presence. This can help with promotion and the dissemination of information to clients, as well as attracting talent. A previous article, ‘Transforming Challenges into Opportunities: Competition’, also highlighted seven tips to help practitioners lay the groundwork for a business advisory practice.

CONCLUSION Developing a strategic business plan with the necessary buy-in from staff and partners is paramount. It is critical to have a clear vision for the future and a roadmap for how to get there. AUTHORS l Johnny Yong, Technical Manager, Global Accountancy Profession Support, IFAC, and Mats Olsson, Partner, Adrian & Partners AB.

THIS ARTICLE ORIGINALLY APPEARED ON THE IFAC GLOBAL KNOWLEDGE GATEWAY. COPYRIGHT APRIL 2018 BY THE INTERNATIONAL FEDERATION OF ACCOUNTANTS (IFAC). ALL RIGHTS RESERVED. USED WITH PERMISSION OF IFAC

June 2018

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ADVICE | VIEWPOINTS

SAILING THE DIGITAL SEA That the world is a much smaller place thanks to the Internet and digital communication technology has probably not escaped anyone’s notice. But are you truly harnessing this to do your business better, and to grow beyond South Africa’s borders? Business Advisor

KEVIN PHILLIPS CA(SA) Kevin Phillips is CEO of IDU Group

Thanks to advances in cloud computing, and the Software-as-a-Service (SaaS) model, you can pick and choose from a myriad of vendors offering a range of services, not only the ones who have (quite expensively) set up shop locally who may or may not have the exact solution you require. The difference is a bit like that between going down to your local mall, or shopping via Alibaba – except with instant delivery via the cloud. Indeed, some of the services you access online may be the collaboration, video conferencing and chat tools that enable your team to work better together, wherever they are. Think of these tools as FaceTime for business! You’ll know I am a big fan of involving those at the coalface of your organisation in the budgeting process, and cloud-based collaboration is a great way to get this right. But what about support for these web products? Interestingly enough, this can also improve, thanks to the providers’ use of many of the same online chat and collaboration tools, giving you instant and secure access to the exact experts who can solve your problem. And in here lies possibly the area of greatest interest for the SME to mid-market company in South Africa looking to expand.

IN SUMMARY Gone are the merchant vessels of yesteryear circumnavigating the globe by sea to sell your products. Today the Internet creates an even more extensive marketplace at the click of a button. To me, this presents three clear benefits for South African companies. Accessing best-of-breed, up-to-date and fit-for-purpose technology for your organisation is one of them; working more closely with your team, wherever they are, is another; and finally, growing your business beyond South Africa’s borders in a low-risk, low -cost incremental way.

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Today globalising your business does not mean that you have to open an office on the other side of the world, employ a range of staff and train them to do what you and your team can do here. This is costly and has been the root cause of many great plans coming to nought as the start-up and initial day-today operational costs overseas sink the dreams before they have a chance to flourish. The cloud-based communication and collaboration services that are now available are the key to you expanding your business outside South Africa. Online video conferencing tools have replaced many face-to-face meetings, and collaboration software is keeping everyone on the same page. This reduces travel costs and all but eliminates otherwise dead travel time, is less invasive for clients, and means you can keep face-to-face meetings for when they really matter. I can’t promise it will be plain sailing at the outset, as there is always a degree of resistance to the digital world and the lack of a physical presence of a company from the organisations still invested in the 20th century, but the tide is turning. So, weather the choppy water as you leave the harbour, look out to the widened horizon, and ride the globalisation wave.

June 2018

ADVICE | VIEWPOINTS

TOASTING AT

SPECIAL EVENTS At special occasions, I observe how most people happily record the event on their mobile devices and few volunteer to conduct a toast. It seems that most people either lack the skill of toasting or feel embarrassed by the formality of doing so. Public Speaking Trainer

DINESHRIE PILLAY CA(SA) WHY SHOULD YOU TOAST?

Business Owner and Public Speaking Trainer

Toasting is a formal expression of goodwill and appreciation. It serves to unify the group and to publicly acknowledge a person or event. A basic human need is a sense of belonging, which requires reinforcement. A verbal toast followed by the synchronous consumption of beverage can be likened to a reinforcement ritual. Toasting is also a sensory experience that makes a special occasion more memorable: you taste the drink; you feel the emotion; you see people around you; you hear the clinking of glass, the words of the toast, and the applause afterwards; and you touch people when you shake hands or hug them. When you say ‘Cheers’, an individual sensory experience becomes a group participation and acknowledgment. Individual thought becomes unified.

WHEN SHOULD YOU TOAST? A toast is an opportunity to add meaning and significance to an event. It can be done at any gathering including: promotions, birthdays, anniversaries, weddings, reunions, house-warmings, engagements, and going-away parties. Toasting is a way of spreading prosperity; it’s a way to share a moment to reflect, appreciate and uplift.

FIVE STEPS ON PREPARING A TOAST First, a toast is a speech. It needs to have an opening, body and conclusion. It should fit the occasion in both mood and language. If it’s an informal gathering, toasts can be lighter in tone. Refer to the occasion and to the person being honoured – offer some thought or perspective on the event. Second, personalise the toast for the recipient or for the occasion. This could include personal stories and appropriate quotes. The toast is not about you – focus on someone else or something else. Third, be careful with humour – do not try to be funny, as this distracts from the objective of the toast. Don’t embarrass anyone. Be sensitive to your audience and the occasion. Fourth, keep your toast short – two minutes maximum. Practise your delivery. The best toasts are sincere and heartfelt. The message is lost if you are reading from a script. Fifth, once you are done with your toast, ask the audience to raise their glasses – any beverage will do: alcoholic drinks, tea, water, coffee and juice.

June 2018

CHEERS! One ‘proposes’ a toast, you don’t ‘make’ a toast. Once done, the group accepts the toast after they raise their glasses and repeat your last lines – for example ‘To success and happiness’. Avoid drinking alcohol before you deliver your toast. You have a responsibility to perform with grace, tact, and clear purpose of mind. Start by saying, ‘I wish to propose a toast’ to get the attention of the audience. For very formal events, ask the guests to stand as you toast together. Lead the group into applause once everyone has completed the group toast.


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ADVICE | VIEWPOINTS

GLOBAL

VERSUS LOCAL

Wealth Advisor

MIKE LLEDO CA(SA) Mike Lledo is an Independent Financial Services Consultant

According to the 2016 Money Project, there are 60 major stock exchanges in the world with a total value of $69 trillion. 93% of global stock value is represented by three continents – and Africa isn’t one of them (1,5% of global share). 16 exchanges account for 87% of global market capitalisation.

WHY GLOBAL? ‘Eggs in one basket’ The standard argument is that the JSE represents less than 1% of the global universe and South Africa contributes to less than 1% of global GDP. Therefore, one needs to diversify risk across different economies, industries, consumer markets and currencies, among other factors. Some statistics show that the Top 5 JSE companies represented over 38% of the ALSI market cap and over 60% of the earnings in the Top 40 index are offshore. So, whatever the statistics are − and we have seen some interesting changes in the last year − the reality is the concentration of risk is very high even if earnings are diversified.

IN SUMMARY Don’t get lost in the statistics but consider the big picture. What do we want our investments to do? Are they short, medium or long term such as retirement? How much risk and volatility can we then afford? If we add currency risk to the mix, is it merely political sentiment or is this part of potential foreign currency obligations or protection against global inflation? Don’t let the choice become overwhelming and paralysing. Is diversification of risk and seeking better opportunities your overarching strategy?

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Currency hedge. The conventional wisdom is that the rand will devalue against ‘hard’ currencies by some 6% a year. In recent years we have seen the rand seesawing between being one of the strongest performing currencies in the world to one of the weakest. Just 20 years ago it was R5 to the US dollar, and 30 years ago, R2 to the dollar. While most asset managers today avoid short-term predictions on currencies, the long-term view is that there will be consistent depreciation, based on economic fundamentals. Opportunities. The universe of economies, companies and investment solutions has grown significantly, with far easier access for South Africans. Do we want to invest in an economy growing at under 1% or over 7% like a China? Chinese consumers can afford to spend having a household-debt to GDP ratio of 40% − half that of the US consumer. Does one want a market place of a billion or a few million? We have some 400 listed companies versus 50 000 plus worldwide, depending on definitions and statistics. We have some 1 500 unit trusts in South Africa, with 10 of them holding a quarter of the assets. The US alone has some 9 500 mutual funds. While choice brings its own set of complications, not diversifying may be even more dangerous. Political risk. Whether it’s our own stresses at home, Brexit, Trump, or whatever, there will always be shocks. Surprisingly, in the longer term markets are not as concerned with these events as we think that they may be.

June 2018

ADVICE | VIEWPOINTS

WHY WE ARE NOT

SAVING Why are we not saving enough for our retirement? I say ‘we’ because, according to National Treasury, 94% of the population isn’t. I think that is a big enough majority to use the collective ‘we’. Therefore, listen up!

Personal Finance Advisor

GIZELLE WILLOWS PhD, CA(SA) is an Associate Professor at the University of Cape Town

Yes, I know the stats do not account for societal means that might still assist us, such as our children looking after us when we retire or informal savings vehicles, but let us look at this introspectively for a moment. Behaviourally, as humans, we tend to distort information and struggle (or make excuses) in our decision-making, particularly when it comes to our savings decisions. Admit it. We do! For one, we tend to select the default option. The problem with this is that if our retirement fund has a conservative default option and a low default savings rate, this will lower our accumulation of wealth in the long run. It is not enough to assume that the default is the most appropriate option for you. Secondly, our emotions strongly influence our decisions. Seeing as though we make decisions all the time, this emphasises the importance of understanding what influences our decision-making. Some theories point to us undermining the importance of self-control. And this is magnified by our procrastination. Furthermore, we exhibit time-inconsistent behaviour whereby we weight current consumption more heavily. In other words, it is ‘easier’ to say we will not eat any chocolate tomorrow, but more difficult to say we will not eat any right now when it is right in front of us. The thoughtful weighting of costs and benefits that defines rational economic decision-making bears little resemblance to the behaviour we display when influenced by immediate emotions. Our emotions (I’d really like that chocolate) generally trumps rational decision making (I’m not hungry and I don’t want to eat any sugar). We are such simple creatures, aren’t we? And finally, we are overly sensitive when it comes to our current income. Therefore, we struggle to increase our savings when it entails sacrificing a reduction in our take-home pay. While all income increases our absolute wealth, decisions regarding consumption are more dependent on our perception of our change in wealth. And then to add fuel to the fire, amidst the many emotions we are dealing with, let us not forget that if we do not possess a basic understanding of financial concepts, we are making it even more difficult to positively influence our financial behaviour. Goodness! How are we then supposed to get this right? Please note that the author of this article is not a certified financial advisor in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Accountancy SA and the author cannot be held liable for any loss (including indirect and consequential loss) arising from your reliance on the opinions given in this article. Should you nevertheless elect to rely on this article, you do so at your own risk and agree to indemnify Accountancy SA and the author from any loss or damage that you may suffer as a result.

June 2018

THE LOW-DOWN Are you more inclined to spend money when it is received in the form of a bonus rather than when it’s a rebate of sorts? The former is a positive departure from the status quo, whereas the latter is a return to the status quo. If you remember some of my earlier articles, you might recall that a significant property of the value function is known as loss aversion. This shows that the same value is easier to forgo when it is labelled as a discount (that is, a gain) than to accept when labelled as a surcharge (that is, a loss).


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ADVICE | VIEWPOINTS

GLOBALISED

ORGANISATION DEVELOPMENT Learning and organisation development (OD) advisor

PAOLO GIURICICH CA(SA) is founder and owner of Smart EQ

EFFECTIVE OD An effective organisation development practitioner can demonstrate the following immersive competencies:

Holistic understanding of organisation functioning and its context

Role modelling the core values and ethics that shape organisation development work

Deep technical knowledge and experience in applied behavioural sciences The confidence and understanding to intervene in multiple layers of the client systems’ simultaneously through a process consultation approach Demonstrate deep self-awareness and self-confidence to be able to ‘meet’ the organisation system How do you see your leadership skills changing as you progress in your career as a CA(SA)?

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The global economy has necessitated working across cultures and navigating the complexities of diversity. Leaders often focus on endless ‘tasks’ and neglect the ‘process’ of achieving those tasks. Organisation development practitioners are skilled in assisting leaders to attend to ‘process’.

I have always been fascinated by the way humans relate, especially in the organisational context. Early in my career, I believed that the only way to succeed was to become a master of the task. As we were reminded to balance this with relationships building, I often wondered, what this meant and chose to simply rather ‘work hard’ while maintaining collegial distance. Fast forward 10 years and I had ‘proved’ myself. Progressing in my career, I realised the need to relate better to the people and understand multiple cultures and diversity. My personal journey opened me up to multiple spaces where deep interactions could flourish. The possibilities for learning and understanding multiple viewpoints was immersive. Fast forward a further 10 years and the leadership expectations of me are to be able to bring people together and create the space for teams and organisations to relate better. The expectation of my ability to perform actual tasks is diminished, most people my junior can perform these tasks much better than I can. My need to make meaning of my experiences resulted in me completing an immersive programme to consolidate my understanding of the field of organisation development. In doing so, I have found new keys to unlock potential for myself and those around me. The field of Organisation Development and Applied Behavioural Sciences was pioneered by critical thinkers, and especially Kurt Lewin. Lewin theorised essential pillars of the field which includes action research theory, group dynamics’ theory, and change theories. In the US, in the 1950s critical thinkers started to extend the context of personal psychology into the organisational realm and the discipline started to take shape. The central definition of organisation development is to improve the functioning of individuals, teams and the total organisation through a lens of applied behavioural science principles and theories. My ability to ‘relate’ to people and build enduring relationships is one of my key skills for success. This ultimately unlocks my potential to work globally and across culturally diverse contexts. As I grow my skill set beyond my CA(SA) and into an organisation development practitioner, I am convinced more than anything, that these combined skill sets are vital for assisting global organisations to grow and create fulfilling spaces for people to flourish.

June 2018

June 2018


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ADVICE | RETIREMENT

RETIREMENT STRATEGY OPTIONS

Matt Knight (MK) from SAICA spoke to Carrick Wealth Director of Corporate and Client Solutions Anthony Palmer CA(SA) and Sion Gelgor CA(SA), Wealth Specialist at Carrick, about retirement planning in South Africa and offshore and asked them, first, about saving money

HOPE IS A FALSE PLAN. THE REALITY IS THAT WE ARE ALL RETIRING LATER, LIVING LONGER, AND THAT OLD AGE – WHICH COMES KNOCKING FAR SOONER THAN WE EXPECT – BRINGS WITH IT EXTREMELY HIGH MEDICAL EXPENSES THAT COULD STRETCH YOUR SAVINGS TO BREAKING POINT

44


INTERVIEWER

INTERVIEWEE

Matt Knight

Anthony Palmer CA(SA)

Project Director for Commercial Delivery and Business Development, SAICA

Director of Corporate and Client Solutions, Carrick Wealth

June 2018

ADVICE | RETIREMENT

IMAGE FROM LEFT TO RIGHT: Sion Gelgor CA(SA), Wealth Specialist, Carrick Wealth Peter Bruce, Editor-in-Chief, BDFM Publishers Karima Brown, Radio702 Anthony Palmer, CA(SA), Director of Corporate and Client Solutions, Carrick Wealth Christiaan Vorster CA(SA), Regional Executive, SAICA Southern Region

HOPE OR PLAN? We all dream about the perfect retirement plan: plenty of time to do what we love and sufficient resources to never stress about finances or meeting unexpected expenses. But what are you doing to make sure you realise your dream retirement? A surprising number of people don’t have a plan. They rely on hope. Hope that everything in South Africa will be OK. Hope that the cost of living will not keep escalating, and hope that the businesses they are building or the companies that they work for are going to provide. Hope is a false plan. The reality is that we are all retiring later, living longer, and that old age – which comes knocking far sooner than we expect – brings with it extremely high medical expenses that could stretch your savings to breaking point.

June 2018

THE PLANNING OPTION

asset protection, access, succession planning, and diversification.

Anthony Palmer (AP): Saving your money is great but is simply not enough. Life happens and leaving your assets exposed is often not the best idea. This is all the more relevant when investing internationally as investments in your own name often need an international will and winding up of an estate takes up a lot of time, energy and costs. What you should be aiming for is a pot of long-term savings to set aside for your retirement, but which are also protected from creditors, from your own entrepreneurial conquests, and from impulse purchases. Money doesn’t buy happiness. But it does make you comfortable and free you from financial anxiety.

AP: Absolutely. Then you need to look at your pension scheme. Due to exchange control relaxation you now have the luxury to save within a South African pension as well as an international pension.

Matt Knight (MK): How does someone shift from a savings to a planning mentality?

MK: Obviously, you have to factor in the local political and economic environment as well.

AP: Get professional advice from a business that understands wealth management, savings plans, the simple power of compound interest, and the destructive power of inflation. Too often, people are caught up in the ‘now’ and at some point their hope slips into fear, and that inevitably leads to inaction. That’s why your retirement must be a plan, not a hope.

SG: Of course. Fortunately, South Africa has a new political leader and the people have renewed faith in the country. However, there are still significant issues that affect our daily lives and create uncertainty about the future. These issues will take a long time to rectify and make a strong case for having an increased portion of your wealth offshore.

MK: Where does one begin?

AP: I think people recognise that it makes sense to increase the percentage of their international savings. These international savings need to be truly independent of South Africa, meaning that you can make withdrawals outside of South Africa and do not have to invest in South African assets.

AP: Well, first, you need to actually start. If you don’t start you will never, ever get ahead of the game. Start by understanding your expenses, then be disciplined and systematically reduce them. Go to war on that daily designer cup of coffee, that weekly dinner, the lavish vacations, and those ‘what the hell’ moments when you splurge on some or other extravagance. You will be amazed at how much you can save when you apply your mind and apply a healthy dose of discipline. MK: So, now you’re saving money. What’s the next step? Sion Gelgor (SG): You need to invest your retirement savings into the markets, because over the long term that is where you will get the most growth. This is an area that can be daunting as there are a multitude of investments and ownership structures to choose from. Tax efficiency becomes an important factor as well as costs,

MK: This could get confusing for many people. SG: Your options need to be evaluated with all the facts at hand and decisions need to be made. You need to ask yourself: what percentage of assets should you keep in South Africa and how much should you tuck away overseas? There is no right or wrong answer and it varies, depending on your personal circumstances.

MK: Such as? AP: There are a number of ownership structures to consider but an increasingly popular solution is an international pension. It is important to note that this does not replace your existing South African pension but is rather a supplementary pension that can be built up in hard currency and in assets that are not available locally. Managed by expert fund managers with secure, diversified investments spread around stable markets internationally, it will provide peace of mind and a good retirement option. If you decide to save for retirement in an International Pension, you need to decide whether


45

ADVICE | RETIREMENT

it is through an individual pension or a corporate pension.

AP: There are many, but the most important are:

MK: What does this mean for the retiree and what does it entail?

•

Flexible contributions, meaning that you are not committed to regular payments.

•

Diverse selection of underlying investments across asset classes, currencies, geographies, and industries.

•

Gross rollup, meaning that while the assets are in the pension they grow gross of any income tax and capital gains tax.

•

The pension is governed by international pension law and provides protection from creditors in highly regulated and stable jurisdictions.

•

The pension first repays capital, then capital gains, and lastly income.

•

Upon death there is a seamless succession to beneficiaries with no probate, no capital gains tax, no foreign will requirements, and no executor fees.

•

The first R1 million of employer contributions per annum fall outside of your estate and do not attract estate duty.

SG: An individual international pension is established with you as the member and contributions are made from aftertax discretionary money, already in your name. An international corporate pension is established between your company and an international pension administrator, with separate pensions established for each member under the corporate umbrella. Contributions to this corporate pension are made by your company and/or yourself. AP: Keep in mind that international corporate pensions have been around since the 1970s and are globally recognised as robust vehicles for retirement planning. However, relatively few South Africans make use of them. For example, people in politically and economically stable Australia have invested on average 60% of their pension assets outside of Australia, yet for South Africans the figure is only 7%. MK: Should everyone consider an international pension option? AP: It depends. The new international corporate pension product is specifically suitable for executives and top management who have disposable earnings in excess of R350 000 per year. This is the maximum local pension contribution allowed that qualifies for a tax deduction. It makes complete sense to utilise the tax benefits up to R350 000, but for any additional savings an international pension should be used. MK: Why are South African pension schemes not using this product? SG: South African pension funds can only invest up to 30% of their portfolio offshore. But even this is not truly an offshore investment, but rather an asset swap because the investment must ultimately come back to South Africa. So, by using asset swaps, there is no hedging against political risk in South Africa. MK: Can you list some of the highlights of an international corporate pension?

46


into a dynamic retirement plan. After all, one’s retirement years should be a time of enjoyment and peace of mind. INFO l Anthony Palmer CA(SA) [[email protected]] Sion Gelgor CA(SA) [sion.gelgor@ carrick-wealth.com].

MK: Can you take your local pension and move it offshore? SG: Unfortunately, the answer to this is no but options now exist to start a long-term retirement plan outside of South Africa and the sooner you begin, the better. The benefits of saving internationally in a robust pension are clear. Given the limits and prescriptions regarding local pensions mentioned above, a good solution would be to taper down local pension contributions and start building an offshore retirement investment as soon as possible. This will ensure that you have sufficient international savings by the time you retire.

INTERVIEWEE Sion Gelgor CA(SA) Wealth Specialist, Carrick Wealth

MK: And your final word of advice? AP: The right thing to do is to increase your knowledge of the various options available by gaining expert advice on diversification, offshore investment, and international pensions. In other words, abandon hope and rather enter

June 2018

ADVICE | THOUGHT LEADERSHIP

WHAT’S

YOUR

In an increasingly saturated and changing marketplace, your brand needs to shine brightly in order to stand out, says Simon Grainger Words Simon Grainger

As a marketing consultant working with businesses across industries for several years, I cannot stress enough the importance of having a clearly articulated understanding of your brand purpose. In my view, knowing why you do what you do can assist in differentiating and sustaining your business. Is your accounting practice standing out from the crowd, and do you know your ‘why’? If you haven’t seen Simon Sinek’s TEDx talk entitled ‘How Great leaders inspire action’ or read his Book Start with why, I highly recommend you do so. For context, Sinek is an author, speaker, and strategist who offers a simple yet effective framework to build your brand. Sinek’s philosophy centres on the Golden Circle principle, which comprises three interlinked questions, namely Why?, What? and How?. While these questions may seem obvious,

June 2018

the sequencing is where the real power and value lies. The first tier that Sinek stresses is that businesses, non-profits, and even individuals need to articulate their ‘Why?’. Why refers to your brand’s cause, belief, or purpose. The question ‘why’, in my view, isn’t always the easiest one to answer, and in my experience, requires a great deal of reflection. A great example Sinek shares, is Sir Martin Luther King’s ‘I have a dream’ speech. In his speech, King emphasised his belief of racial equality by reiterating ‘I have a dream’. As Sinek points out, King was not communicating a mission statement but rather a belief shared by the audience listening to him. He goes on to state: ‘People don’t buy what you do, they buy why you do it.’ To apply this thinking to your accounting

practice, consider the following questions:

1D O YOU HAVE A CLEAR SENSE OF WHAT YOUR ‘WHY’ IS? ARE YOU MERELY A COMPANY THAT OFFERS ACCOUNTING SERVICES OR IS THERE A DEEPER PURPOSE UNDERPINNING YOUR BRAND? Think about the reason you started your business – what was the driving force behind your decision. Think about the things you wanted to do, achieve, and embody – what was the belief you wanted to uphold? Some businesses want to


47

ADVICE | RETIREMENT

challenge the status quo, others want to create meaningful value, and some feel a deep desire to make certain services for accessible or consumer-friendly.

2 IS YOUR BRAND PURPOSE COMMUNICATED AND LIVED THROUGH THE ACTIONS OF YOUR STAFF? Would someone interacting with your team members walk away with an understanding of the purpose of your brand? Do your staff live up to the ideals and values you hold core to your business? This doesn’t happen by osmosis, and there is a great deal of intentional, internal brand-building that needs to happen.

3 DOES YOUR WHY SUPPORT AND GUIDE YOUR MARKETING ACTIVITIES? IF NOT, REVISIT THIS BRAND FUNDAMENTAL.

find discrepancies, now is a great time to address them. It’s important to realise that you do not have to be ‘everything to everyone’ and that, as an accounting practice, it is your prerogative to determine the service stack that you make available to your clients.

2 DO YOU COMMUNICATE THIS CLEARLY TO YOUR INTENDED TARGET MARKET? In this vein, I suggest conducting a brand audit (review of all your marketing and communication material) to ensure what you provide is consistently communicated across key, consumer-facing touch points. Touch point examples include: your business card, your website, your social media profiles, and brochures (to name a few). The last tier in Sinek’s Golden Circle is ‘How’. How refers to your method(s), systems, and processes that support the mechanics behind executing your product and/or service.

In essence, everything you do should be guided by your core purpose, belief, or cause. It should be reiterated and demonstrated in every single piece of communication, and in all the various touch-points your consumer has with your brand.

1 ARE YOU AND YOUR STAFF CLEAR ON THE METHODOLOGY OR PROCESSES IN YOUR ORGANISATION?

The second tier, Sinek explains, relates to ‘What.’ ‘What’ speaks to the specifics of your offering. In an accounting context, this could range from things like payroll, management accounts, to preparation of annual financial statements, and auditing (to name a few).

Here, having clear and accessible documentation is hugely beneficial. You may want to consider how you train new staff on your organisationspecific methodology/process, as having everyone operating in the same ‘flow’ or manner can make a big difference.

1 IN THIS REGARD, DO YOU HAVE A CRYSTALLISED UNDERSTANDING OF THE SERVICES YOU PROVIDE? Take a minute now to jot them down, and then review your list against your advertised/ communicated list of services. If you

48


business. Knowing your current state enables you to make the necessary adjustments to ensure that your brand is poised for success. As brands, we tend to stress the ‘what’ and ‘how’ aspects in our marketing, bombarding consumers with features and processes to boost sales and increase market share. This strategy, unfortunately, isn’t sustainable. While the notion of having a clear brand purpose is by no means a new concept, Sinek’s Golden Circle promotes a reengineering and review of how we go about building our brands from the inside-out. By articulating your ‘why’ and placing this philosophy at the core of your brand, you strengthen your cause, attract the right staff who subscribe to your beliefs, and cement your relationship with your core audience. This creates brand equity and an unwavering customer loyalty that no competitive marketing can intercept. So ... what’s your why? AUTHOR l Simon Grainger, Founder and Marketing Consultant at BrandBright Consultancy. He consults, lectures, writes, and gives regular industry talks on his favourite subject in the world: marketing.

2 DO YOU EMPHASISE WHAT AND HOW MORE THAN WHY, OR DO YOU FOLLOW THE PROPOSED SEQUENCE THAT SINEK OUTLINES? This one might take a bit more reflection but is well worth understanding in relation to your

June 2018

ADVICE | THOUGHT LEADERSHIP

SHORT-TERMISM IS SHORT-SIGHTED

The solution to overcoming short-termism is going to sound a little obvious: build long-termism into your business Words FR (Rhys) Robinson

You might have seen a variation of the Stanford marshmallow experiments at some point. Originally performed in 1960, the premise was simple: children were given a choice between one treat immediately (usually a marshmallow), or two treats (two marshmallows) after 15 minutes. A minority of children opted to eat the first marshmallow immediately, while most chose to delay gratification. However, only a little over a third of the children managed to wait the full time for the second marshmallow. This is a neat demonstration of the human condition. Often, we start out with the best intentions but give in to the desire for instant gratification at the expense of long-term gain. We may do this for many reasons. For example, the 2016 EY Poland Report ‘Short-termism in business: causes, mechanisms and consequences’ notes that public companies are particularly prone to short-termist behaviour because of the pressure they face from shareholders to deliver immediate results. EY lists some of the factors that contribute to this pressure as new technologies, reduced trading times and transaction costs, increased market volatility, media coverage, and the increasing role of institutional investors. EY suggests that the results of shorttermism winning out over long-term value creation are shortened CEO tenure, the neglect of investment activity and the neglect of human capital. A Harvard Business School working paper ‘Short-termism, investor clientele,

June 2018

and firm risk’ found that ‘short-term companies attracted short-term investors (bringing with them a whole new set of performance pressures on executives) and that the financial and strategic performance of these companies was more volatile − and riskier − than that of the long-termers’. Obviously, we can’t ignore the short term. Imagine if a CEO told investors not to worry about the share price tanking because it’s just a short-term issue! The point I’m making is that it’s important to find a balance. We can’t compromise long-term value by focusing exclusively on short-term growth. While much has been written about the ‘tangible’ short-termism numbers (obsessing over quarterly results and share prices), I think it’s just as important (if not more so) to focus on the ‘intangibles’ – people and culture. If your company becomes mired in short-termism, you will end up with a culture where people will do whatever is necessary to get a quick result, even if it’s unethical or unwise. You will build a culture where people jump ship quickly if they can’t see immediate change, rather than being willing to journey together towards a long-term goal. You will forget to invest in your people because you’ll only be interested in what they can do for you now, and not how you can build their capacity to support and encourage future growth.

THE SOLUTION?

•

Set long-term goals and measure and track them. This doesn’t just relate to things like return on money spent – it also relates to developing your people and the impact your business can make in your community and beyond.

•

Build a culture where a balanced approach is valued − where targeting long-term value creation is incentivised and planning for the future is just part of what you do together.

•

Communicate your long-term vision and goals with all your stakeholders, as well as your plans for achieving them, rather than only sharing short-term targets, projects and decisions. If your people – both internal and external audiences (such as partners, suppliers and investors) – are part of your longterm plans, they are more likely to buy-in to what you’re doing and commit to taking the journey with you.

As Jack Welch once said, ‘Any jerk can have short-term earnings. You squeeze, squeeze, squeeze, and the company sinks five years later.’ Let’s not build companies and our country like that. Let’s rather build to last – our businesses, our economy and our people. AUTHOR l FR (Rhys) Robinson PhD is Executive Director, Infinitus Reporting Solutions (Pty) Ltd.

Build long-termism into your business:


49

RECOMMEND | MINIMUM WAGE BILL

30 MIN

NATIONAL MINIMUM WAGE BILL

NATIONAL

AND DOMESTIC WORKERS’ MINIMUM WAGE

‘The payment of a national minimum wage cannot be waived and the national minimum wage takes precedence over any contrary provision in any contract, collective agreement or law, except a law amending this Act.’ Words Viola Sigauke

NATIONAL MINIMUM WAGE BILL The Basic Conditions of Employment Act (BCEA) permits the Minister of Labour to set minimum terms and conditions of employment, including minimum wages. They are in place in areas of economic activity where labour has been deemed vulnerable. Since the establishment of the Employment Conditions Commission (ECC), eleven sectoral determinations governing vulnerable workers in different sectors of the economy have been established.1 These are: Forestry, Agriculture, Contract Cleaning, Children in the Performance of Advertising, Artistic and Cultural Activities (under 15 years of age), Taxi Operators, Civil Engineering, Learnerships, Private Security, Domestic Workers, Wholesale and Retail, and Hospitality. If a sector or area is not considered vulnerable, there are no minimum wages,

50


although some employees in that sector or area may be paid very low wages. The Cabinet approved the National Minimum Wage Bill during its fortnightly meeting on 1 November 2017. In February 2018 representatives of government, business, the community sector and two of the three labour federations represented at the National Economic Development and Labour Council (Nedlac) signed the national minimum wage agreement. According to this, workers will receive a minimum of R20 per hour, which translates into a monthly wage of about R3 500 for a 40hour week, and about R3 900 for those who work 45 hours a week. In addition to the National Minimum Wage Bill, Cabinet also approved the Basic Conditions of Employment Amendment Bill and a Labour Relations Amendment Bill. The three pieces of draft legislation were published in the

Government Gazette on 10 of November 2017. Cabinet initially said in a statement that the National Minimum Wage Bill was due to come into effect on 1 May 2018. The Minister of Labour has since announced that the implementation date might not be attainable due to further public consultation required and the completion of the legislative process. There are a few exceptions to the national minimum wage: •

The minimum wage for farm workers will be 90% of R20 per hour (R18 per hour).

•

The minimum wage for domestic workers will be 75% of R20 per hour (R15 per hour).

•

The minimum wage for workers on an Extended Public Works Programme (EPWP) will be 55% of R20 per hour (R11 per hour).

The wage for learnership agreements are set out in Schedule 2 of the National

June 2018

RECOMMEND | MINIMUM WAGE BILL

MINIMUM WAGES FOR DOMESTIC WORKERS WHO WORK MORE THAN 27 ORDINARY HOURS A WEEK Hourly 2017

Weekly

Monthly

2018

2017

2018

2017

2018

Area A R12,42

R13,05

R559,09

R587,40

R2 422,54

R2 545,22

Area B R11,31

R11,89

R508,93

R534,91

R2 205,16. R2 317,75

MINIMUM WAGES FOR DOMESTIC WORKERS WHO WORK 27 ORDINARY HOURS PER WEEK OR LESS Hourly 2017

Weekly

2018

2017

2018

2017

2018

Area A R14,54

R15,28

R392,59

R412,60

R1 701,06

R1 787,80

Area B R13,35

R14,03

R360,54

R378,83

R1 562,21

R1 641,48

nannies, and domestic drivers, is governed by sectoral determination 7. The determination sets minimum wages, working hours, number of leave days, and termination rules. With effect from 1 January 2018 domestic wages for the period 1 January 2018 to 30 November 2018 has increased as follows compared to 1 December 2016 to 30 November 2017:

Minimum Wage Bill. Workers who have concluded learnership agreements will also be entitled to allowances, depending on their qualifications, ranging from R301,01 to R1 755,84 per week. The national minimum wage is calculated as being the aforementioned amounts excluding any payment made to enable an employee to work including transport, equipment, food or accommodation allowance, any payment in kind, which includes board or accommodation, gratuities including bonuses, tips or gifts and any other prescribed category of payment.

BASIC CONDITIONS OF EMPLOYMENT ACT 75 OF 1997 Domestic worker wages amendment with effect from 1 January 2018 The employment of domestic workers which includes housekeepers, gardeners,

June 2018

Monthly

Wages are prescribed for two areas, A and B. Municipal boundaries have been used to distinguish between the two areas. (See the wage tables above for clarification on the various areas.)

Midvaal, Mngeni, Mogale, Mosselbaai, Msunduzi, Mtubatuba, Nama Khoi, Nelson Mandela, Nokeng tsa Taemane, Oudtshoorn, Overstrand, Plettenbergbaai, Potchefstroom, Randfontein, Richtersveld, Saldanha Bay, Sol Plaatjie, Stellenbosch, Swartland, Swellendam, Theewaterskloof, Umdoni, uMhlathuze and Witzenberg Area B The rest of South Africa AUTHOR l Viola Sigauke is a Project Manager: Reporting at SAICA.

The National Minimum Wage Bill has indicated certain temporary exemptions from the R20 minimum wage, which includes a minimum wage for domestic workers of R15 per hour which will be effective from the effective date of the National Minimum Wage Bill.

WAGE TABLES Area A The following municipalities: Bergrivier, Breederivier, Buffalo City, Cape Agulhas, Cederberg, City of Cape Town, City of Johannesburg, City of Tshwane, Drakenstein, Ekurhuleni, Emalahleni, Emfuleni, Ethekwini Unicity, Gamagara, George, Hibiscus Coast, Karoo Hoogland, Kgatelopele, Khara Hais, Knysna, Kungwini, Kouga, Langeberg, Lesedi, Makana, Mangaung, Matzikama, Metsimaholo, Middelburg,

NOTE 1D evelopment Policy Research Unit, Addressing the plight of vulnerable workers: the role of sectoral determinations, prepared for the Department of Labour, http://www. labour.gov.za/DOL/downloads/ documents/useful-documents/ basic-conditions-of-employment/ The%20role%20of%20Sectoral%20 Determinations.pdf.


51

RECOMMEND | IAASB

30 MIN

UPDATE ON IAASB PROJECT:

EMERGING FORMS OF EXTERNAL REPORTING ASSURANCE.

After a board meeting held in December 2017, the International Auditing and Assurance Standards Board (IAASB) issued a feedback statement to inform stakeholders of the key messages received in response to their outreach activities relating to emerging forms of external reporting (EER). This article provides an overview of the feedback statement Words Hayley Barker Hoogwerf

With the view that the reporting of historical financial information alone does not provide investors, shareholders and other stakeholders with a broad picture or holistic information about the reporting entity that these users may be looking for, EER continues to evolve. Along with the increased demand for more holistic reporting came the call for action to support credibility and trust in EER reports. The IAASB responded to these calls for action and in August 2016, they issued the discussion paper: Supporting Credibility and Trust in Emerging Forms of External Reporting: Ten Key Challenges for Assurance Engagements.1 The purpose of the discussion paper was to inform stakeholders of the principal findings from the initial research and outreach activities undertaken on the global developments around EER frameworks and professional services being rendered in relation to EER. The IAASB also intended using the responses received from the discussion paper in determining how to meaningfully progress this project. In January 2018, the IAASB issued a feedback statement: Supporting Credibility and Trust in Emerging Forms of External Reporting: Ten Key Challenges for Assurance Engagements2 to inform stakeholders of the key messages received in response to the discussion paper and the path ahead for this project. The IAASB indicated that the sharing of this information is an important part of

52


the process in provoking further thought and discussion around EER.

A GENERAL OVERVIEW OF RESPONSES RECEIVED Key messages received from respondents where there was a majority consensus included the following: • Although current demand for assurance on EER is limited, this is likely to increase as EER evolves. • The use of ISA 720 (Revised)3 in enhancing trust and creditability of EER when included in an entity’s annual report is not sufficient and creates an expectation gap. • Overall agreement with and additional insight into the IAASB’s understanding of (also refer to Overview of responses to specific questions below): o The four factors that enhance credibility and trust o The professional services and other external inputs provided or called for, to support the credibility of EER reports, and o The ten key challenges • The IAASB’s proposal to develop guidance in applying the existing international assurance standards rather than developing new standards, with the following key messages:

o Guidance on the ten key challenges would be helpful. o The focus should be on guidance for the application of ISAE 3000 (Revised)4 rather than international standards for other types of engagements, although there was some support for the latter. o Caution that any guidance developed should not suppress innovation in EER and related assurance engagements. o The highest priority key challenges were the suitability of criteria; materiality; and form of the assurance report. o ISAE 34105 is not widely used and there was little support for further subject-matter specific assurance standards at this point, with some respondents indicating support for this in future. • The IAASB should continue to provide thought leadership on assurance issues and continue to coordinate its efforts with a wide range of other relevant stakeholders.

OVERVIEW OF RESPONSES TO SPECIFIC QUESTIONS The discussion paper included nine specific questions on areas for the IAASB to consider in determining the way

June 2018

RECOMMEND | IAASB

forward. In many instances, responses to these specific questions were covered in the general overview of responses received. A summary of the responses to the remaining questions is as follows:

•

Question 1: Factors that enhance credibility and trust

Other types of professional services identified by respondents were as follows:

There was general consensus with the four key factors that enhance credibility and trust as identified in the discussion paper with additional insight provided on each of these factors, including the following:6

• Benchmarking,7 for example where a professional benchmarks one EER report against another report that is considered to be best practice for a particular business sector.

•

•

•

Factor 1 – A sound reporting framework: Key attributes of a sound reporting framework include transparency, the ability to drive consistency across time and between entities, and the need for the framework to be generally accepted. Factor 2 – Strong governance: The competence and accountability of preparers of EER reports are important to create credibility and trust, and entities should have appropriate and reliable information and IT systems. Factor 3 – Consistent wider information: Ensuring the completeness of EER reports would also contribute towards achieving consistency between various sources of information available, enhancing the credibility of the reporting.

• Factor 4 – External professional services and other reports: While regulatory involvement may increase trust in reports issued by professional services providers, practitioners’ competence, objectivity and independence are central to trust. A possible additional factor relating to external user experience and education was identified in that there may be a need to educate users of EER reports, particularly to improve understanding of the different levels of assurance that can be obtained by external professional services and therefore reduce the expectation gap. Question 2: Professional services that enhance credibility and trust The discussion paper identified the following professional services covered by the IAASB’s International Standards that are most relevant to EER: •

Reasonable assurance engagement

June 2018

Limited assurance engagement

• Agreed-upon procedures engagement, and •

Compilation engagement

• Expert opinions,8 which involve the evaluation of a matter, based on the expertise and experience of a professional accountant in circumstances in which the prerequisites of an assurance engagement either cannot be met or are not cost effective. • Hybrid engagements,9 which can comprise an agreed-upon procedures type engagement being supplemented with additional assurance procedures, and • Presentation type engagements,10 here the presentation engagement is mainly used to help small and medium-sized enterprises (SMEs) prepare their financial statements while providing a certain form of assurance on the latter. This engagement is specific to France. Question 7: Ten key challenges in relation to EER assurance engagements The ten key challenges identified in the discussion paper were as follows: 1 Determining the scope of an EER assurance engagement can be complex 2 Evaluating the suitability of criteria in a consistent manner 3 Addressing materiality for diverse information with little guidance in EER frameworks 4 Building assertions for subject-matter information of a diverse nature 5 Lack of maturity in governance and internal control over EER reporting processes

9 Obtaining the competence necessary to perform the engagement, and 10 Communicating effectively in the assurance report There was overall consensus with the IAASB’s analysis of the 10 key challenges and that guidance on these challenges would be helpful.

THE WAY FORWARD In line with the proposals advanced by the respondents to the discussion paper, the IAASB plans to progress this project in the following areas: • Develop non-authoritative guidance in applying the IAASB assurance standards to EER, specifically ISAE 3000 (Revised) • Continue to provide thought leadership on assurance issues in relation to EER • Co-ordinate the work of the project with related initiatives of other relevant international organisations In January 2018, the IAASB issued a project proposal: Guidance on Key Challenges in Assurance Engagements over EER,11 which outlines their way forward in this area. In terms of the project proposal, the IAASB intends to develop non-authoritative guidance that addresses the ten key challenges. This project will be tackled in two phases with the first phase intended to result in the issue of an exposure draft of non-authoritative guidance addressing the key challenges allocated to this phase. In March 2018, a project advisory panel consisting of 23 individuals was established to assist the IAASB in the development of this non-authoritative guidance. Based on the timeline contained in the project proposal, the exposure draft relating to phase 1 of this project is expected to be issued in December 2018. AUTHOR l Hayley Barker Hoogwerf, Project Director: Assurance at SAICA

6 Obtaining assurance with respect to narrative information 7 Obtaining assurance with respect to future-oriented information 8 Exercising professional scepticism and professional judgement

NOTE Click for full article including all notes


53

RECOMMEND | NOCLAR

TURNING A BLIND EYE

TO NOCLAR

NOCLAR

IS NO LONGER AN OPTION

The new standard Responding to Non-Compliance with Laws and Regulations has been adopted by various professional bodies in South Africa, including SAICA, SAIPA and the IRBA. What are the implications for SAICA members? Words Adiebah Moruck

It has now been almost a year since the new standard Responding to NonCompliance with Laws and Regulations, released by the International Ethics Standards Board for Accountants (IESBA), has become effective. Although relatively new, the standard is already increasing awareness amongst professional accountants in business, as well as in practice, to consider their role in combating fraud and non-compliance with laws and regulations (NOCLAR). The SAICA Code of Professional Conduct doesn’t place additional responsibilities on the professional accountant in business (PAIB) to identify NOCLAR but provides a response framework which sets out their responsibilities and the steps that should be taken when becoming aware of NOCLAR or suspected NOCLAR. It remains the responsibility of management and those charged with governance (TCWG) to ensure compliance with the relevant laws and regulations, but the inclusion of this section in the code allows the PA to

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play a significant role in the fight against fraud and corruption. As the profession adapts to the new requirements of section 360 in the code, which specifically focuses on professional accountants in business, the most common question asked is: ‘Should I be reporting this NOCLAR to an appropriate authority?’ Here it is important to note that the code doesn’t automatically require you to report the NOCLAR or suspected NOCLAR when becoming aware of it, but instead requires you to follow the response framework set out in the code. The code differentiates between PAIB’s and senior PAIB’s and their and their responsibilities and the appropriate response framework that should be followed, depending on the category of PAIB you fall into. The response framework requires both the PAIB and the senior PAIB to determine whether the NOCLAR falls within the scope of the code. If the matter falls within the scope of the code, you have to consider whether

specific legislation imposes a reporting obligation or whether there are any laws or regulations that precludes reporting the matter. The next step would be to obtain an understanding of the matter, taking into account the nature of the act and the circumstances in which it occurred, the application of the relevant laws and regulations to the circumstance, and the potential impact of the noncompliance. The main objective of the code is to promote a culture where the right people are doing the right thing (in other words, management or TCWG). You are therefore required to discuss the matter with the appropriate level of management to determine how the matter should be addressed. Many organisations have established internal policies and procedures that should be followed when suspected or identified NOCLAR should be reported. If there are protocols in place, the PAIB should consider this when determining how to respond to the NOCLAR and

June 2018

RECOMMEND | NOCLAR

whether this mechanism would satisfy the requirement to discuss with the appropriate level of management. After discussions are held with the proper level of management, the PAIB should ensure that the organisation appropriately responds to the NOCLAR and that timely action is taken to rectify or remediate the effects of the suspected or identified NOCLAR. Because senior PAIB’s are often directors, prescribed officers or senior employees who are able to exert significant influence over and make decisions regarding the employing organization, there is an enhanced responsibility on them to take appropriate action to respond to the NOCLAR. This is where the code differentiates between PAIB’s and senior PAIB’s. As a senior PAIB, if you are not satisfied with the response by management or TCWG, you would need to determine whether the act could result in serious adverse consequences and whether further action is required

June 2018

in the public interest. One of the factors to consider is whether the NOCLAR results in substantial financial or nonfinancial harm to the entity, investors, creditors, employees or the general public. The code provides examples of a list of actions, but it is not intended to be a complete list.

•

Further action could include, among others:

The code is very clear that professional accountants in business must comply with the law and should not take any action or fail to act contrary to the law. As a PAIB you have to apply knowledge, expertise and professional judgement when dealing with instances of non-compliance and if considered necessary, we encourage you to consult internally, obtain legal advice or consult on a confidential basis with a regulator or professional body.

•

Disclosing the matter to management of the parent entity when the organisation is a member of a group

•

Disclosing the matter to the external auditor if this is pursuant to your duty or legal obligation to provide all information necessary to enable the auditor to perform the audit

•

Reporting the matter to an appropriate authority even when there is no legal or regulatory requirement to do so, and without being limited by the ethical duty of confidentiality, or

Resigning from the employing organisation

Reporting the matter to an appropriate authority would only occur at the end of the process if the senior PAIB is not satisfied that appropriate steps have been taken to rectify, remediate or mitigate the non-compliance.

AUTHOR l Adiebah Moruck, Senior Manager Quality and Risk Management at Mazars.


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An AGA(SA) has the skills to drive accounting excellence and performance in any company. Hire an AGA(SA) today. An organisation’s performance is highly determined by the calibre of people it employs. As a recruiter, you want a professional with the underlying skills and technical competencies which will enable them to measure and enhance value within your organisation. An AGA(SA) is SAICA’s general accounting designation. To be recognised as an AGA(SA), one must have a SAICA accredited BCom Acc degree with articles and completed SAICA training. An AGA(SA) has the expertise to drive financial and operational excellence and serve as a bridge between operational and strategic management functions.

Hire an AGA(SA) today and accelerate your company’s value and progress. Hire an AGA (SA) today and take your organisation to the next level.

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Associate General Accountant (SA) Accelerating progress and value.

June 2018

JUNE 2018

GLOBALISATION

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UNDERSTATEMENT PENALTIES COURT ADDRESSES THE ‘PREJUDICE’ REQUIREMENT

June 2018


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THE CONCEPT OF GLOBALISATION OR INTERCONNECTEDNESS IS NOT NEW, AND HISTORY IS FULL OF DESCRIPTIONS OF PEOPLE TRYING TO CREATE IT − BE IT ALEXANDER THE GREAT, THE ROMAN EMPIRE, MARCO POLO OR GENGHIS KHAN. AS WITH ALL THINGS IN BALANCE, THE ANTAGONIST TO GLOBALISATION IS PROTECTIONISM ‘Globalisation’ is the process of interaction and integration among different people, companies and countries, realising an interconnectedness of the world through people, ideas, culture and trade. In 2000, the IMF identified four aspects of globalisation, namely trade and transactions, capital and investment movements, migration and movement of people, and the dissemination of

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knowledge. To achieve such interaction and integration, barriers that separate and divide people, companies and countries on the aspects of trade, capital movement, people movement and knowledge need to be removed or reduced. Such barriers can be political, cultural or structural. Trade has always been a central driver of globalisation and the speed at which trade can be done through the movement and sharing of the four basic aspects has increased the desire to achieve more globalisation. The speed of effecting such interconnectedness has always been a limiting factor, though an exponentially increasing one as societies modernise. For example, in 1492 Columbus took 10 weeks to cross the Atlantic, by 1938 it took just 25 hours from Berlin to New York, and today it takes a mere nine hours (Concorde did it in under three hours). Just as with physical goods and services, digital goods and services have experienced an exponential increase, though at even greater speeds and achieving a much broader level of interconnectedness. In 1992 dial-up Internet at 28 kbit/s became commercially available and it would have taken 83 hours to download a 1 GB file. By 2005 the speed of ADSL, as an improved technology, had increased to 1 mbit/s and download time reduced to 2,5 hours, and today an 80 mbits/s fibre line will download such file in under two minutes. Similarly, in 1995 16 million people used the Internet (0,4% of the global population), by 2003 it was 603 million, and in 2017 this was 4,1 billion people (54% of world population). This global expansion could not have happened without globalisation and has unlocked trillions in economic trade and value. So, if globalisation is good for producing economic value and the digital economy expands it exponentially, why is everybody not happy?

June 2018

GLOBALISATION

AUTHOR | PIETER FABER IS SENIOR EXECUTIVE: TAX AND LEGISLATION AT SAICA

PROTECTIONISM: BRINGING A BALANCE OR JUSTIFYING UNILATERISM? Globalisation through the ages has never had it all its own way, from the Romans preventing growing grapes beyond the Alps to WWI where economic ties were cut and interbank and trade collapsed. In the latter, it was replaced with a divide in concepts of liberal world economies and those of statism, protectionism and nationalism as alternatives. Carla Strikwerda concludes on a similar statement by noting that the lesson of this story for the 21st century is to check the dangers inherent in a multipolar world, where globalisation produces both economic growth and social tensions. Though it seems to remain consensus that free trade has always as a gross sum produced more value, how that value is distributed between countries, companies and people and the fairness thereof is a different question, invariably leading to tension and disgruntlement between countries, companies and people.

June 2018

To continue to encourage free trade and regulate this tension created by it, various bi-lateral and multi-lateral agreements have been in place in the last century. The latest was the creation of the World Trade Organisation in 1995, which was intended as the de facto overseer to ensure that everyone plays nicely in the global trade playground and that a balance is maintained. So, what is protectionism and where does it fit in if the WTO encourages free trade? ‘Protectionism’ can be defined as a policy of protecting domestic industries against foreign competition by means of restrictions. The most common of these are taxes and tariffs. However, since the 2008 economic downturn, protectionism has also taken on a new role, directly protecting the fiscal base of countries and not just their domestic industries. Digital goods and services have created their own unique challenges, as they have circumvented the traditional rules of physical resources, brick and mortar, and people

to provide and deliver such good and services. They also don’t require huge conglomerates to be global giants (consider Supercell, Shutterstock and WhatsApp), though they may invariably end up in one. So why is this? A recent discussion with Dr Brian Keegan of the Irish Institute of Chartered Accountants and a colleague on the Global Accounting Alliance Tax Directors Group shed some light on this as he remarked, ‘What is important to have control over, has changed.’ For hundreds of years controlling prime resources was everything, be it the spice routes to the East or the mines in Africa. This was followed by industrialisation and control of manufacturing in the 20th century with corporate giants from Japan, Germany, China and the USA dominating as they had control of the IP, skills, tooling and logistics (that is, transport and distribution). The next change, according to Keegan, will be controlling consumption markets. For the digital economy, it does not matter where the primary


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enterprises (MNEs) to greatly reduce the taxes they pay, sometimes close to zero. Gaps and mismatches in tax rules can make profits “disappear” for tax purposes or allow the shifting of profits to no- or low-tax locations where they have little or no economic activity. This activity is referred to as base erosion and profit shifting (BEPS). Moreover, the growing importance of the service component of the economy, and of digital products and services that often can be delivered over the Internet, has made BEPS much easier.’

resources are controlled or where the goods or services are created, as manufacturing can easily be duplicated due to availability of knowledge and people’s ability to reskill. Thus a properly programmed robot can weld and solder as well as a highly trained third-generation artisan. Where you can sell these goods and services is more important, especially where a business has access to an instant global market from the basement in their mother’s house. Congested markets in ageing developed countries versus capacious markets in fairly youthful developing countries thus become an important discussion point for future fiscal policy. This change of ‘what is important to control’ has created a dilemma for fiscal authorities, as taxation of neither primary resources nor domestic industry is the ‘be all’ it used to be, nor will it be in future. Countries lack control of the digital trade market and, even worse, it may no longer even be desirable to control or protect local industry which cannot produce digital products that sell to the global integrated market, as they will not produce income and taxes. Then came the 2007 global financial crisis, the worst global economic disaster since the Great Depression of the 1930s, and not only was value destroyed, but fiscal collections also plummeted. A new plan was needed to ensure a cut of the fiscal pie in this new digital economy.

BEPS: FUEL TO THE PROTECTIONISM FIRE? Base erosion and profit shifting (BEPS) has been seen as such a great risk for individual countries’ fiscal health, given the decrease in economies and taxes, that a special project led by Mr Pascal Saint Amans was launched by the OECD in 2012 to address these leakages in a global and changing economy. According to the OECD, the problem to be addressed − as set out in its 2013 BEPS policy brief − was as follows: ‘Globalisation has opened up opportunities for multinational

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In a 2015 visit to South Africa, Mr Amans reaffirmed what was already stated in the 2013 policy brief, namely that the problem of BEPS was, in a nutshell, countries’ inability to align tax policy and rules so that there are no gaps in cross-border tax design. The reason that the various fisci were not getting their slice of the pie was in effect of their own making. He also warned of unilateral action by countries which could result in double tax and a negative impact on investment, growth and employment. So how did the OECD approach the digital economy? BEPS Action Plan 1 dealt with the digital economy and made the following observations: •

The digital economy is becoming the economy itself.

•

The digital economy does not create unique BEPS challenges; it merely exacerbates them.

•

Direct taxes on the digital economy are difficult under current rules due to challenges created by persons having a presence in a particular economy without creating a nexus determining value attribution and characterisation of income.

•

A central problem to emerge seems that the traditional direct tax rules of ‘giving taxing rights to where profits are booked’ do not work in the digital economy but ‘giving taxing rights where the money has been earned’ does. Addressing this challenge has created much controversy with countries like France, which are seeking to ringfence this approach to the digital economy by introducing a digital tax on tech companies’ turnover from these countries. The USA opposed this discriminatory approach and rather seeks a total overhaul of the current taxing rights principles, possibly even on the money earned basis, but including all economic activities. This proposal in turn creates a dilemma for Germany who, unlike many of its EU brethren, has a strong export economy with profits booked in Germany but earned elsewhere. Other direct tax unilateral actions include the UK and Australia’s diverted profit tax (aka ‘Google Tax’), which seeks to allow revenue services to redetermine a transaction. It would then be allowed to apply a penal direct tax rate where companies do either business in the country without creating a tax presence or where such companies together with connected parties create a structure to secure a tax benefit that is deemed to have no commercial substance (spot any similarities to South Africa’s impermissible tax avoidance arrangement legislation?). The USA has not ignored its perspective on the digital economy, which is that it wants a slice of the pie earned elsewhere but by its tax residents. Its 2018 tax reforms contained many proposals, the three main ones being: •

Base erosion anti-abuse tax (BEAT): This is essentially a comparative between actual tax paid and a notional tax amount determined after excluding certain foreign connected persons transactions at a specified rate (BEAT tax). If your BEAT tax is higher than your normal tax, BEAT tax is levied.

•

Mandatory repatriation tax: Untaxed and unrepatriated profits and earnings (since 1986) will be

Indirect taxes have similar challenges but include further collection challenges.

However, while increasing the size of the pie was one thing, dividing the pie slices between countries, companies and people was another challenge altogether. This is where unilaterism and protectionism kicked in.

June 2018

GLOBALISATION

AUTHOR | PIETER FABER IS SENIOR EXECUTIVE: TAX AND LEGISLATION AT SAICA

subject to a once-off tax, incentivising tech companies like Google and Apple to bring profits to the USA. •

Global intangible low-taxed income (GILTI) and foreign derived intangible income (FDII): This is a stick and carrot approach whereby a tax will be levied on the undistributed profits of US-owned foreign CFCs on intangibles (the stick for externalising intangibles) and also allow a deduction for FDII brought back (the carrot).

Many of the above unilateral measures may even find their way to the WTO to determine whether the protectionist measures are fair in the spirit of free trade or overly ambitious and protectionist. Challenges have also arisen in respect of indirect taxes. Countries like South Africa, Russia and New Zealand have sought to avoid the direct tax challenges by imposing indirect taxes (VAT), but that has brought about its own challenges in respect of scope (in other words, what are the transactions that can be taxed), determining where the money is earned (place of consumption), and who the person that consumed is in relation to the country that has taxing rights, especially where intermediaries like Amazon Store and eBay are involved. In 2016 Australia amended its law and now uses direct tax residency as a proxy for such place of consumption test. South Africa has gone even further, proposing new regulations using either residency, payment from a local bank, or any local recipient address as proxy for place of consumption.

THE OTHER DIGITAL SPANNERS IN THE WHEELS Digital trade and transactions are not the only aspects of globalisation that have attracted fiscal interests and concern. In relation to investment and capital, cryptocurrencies are also providing some challenges as to who is investing and how they can be identified and what is the value at a given point in time, given the spectacular volatility of these instruments. People mobility and machines create further challenges for countries to determine who their tax residents are and whether they can keep them. Also, as more work is automated, who will be taxed and on what in future? The same applies to knowledge and Artificial Intelligence. For example, if call centre and technical skills are transferred to a recipient by an AI in a computer somewhere, how do I tax this and who should I tax if we don’t know who owns the AI? Not knowing who and what to tax has already been a problem with personal information data extracted by Google and Facebook by

June 2018

barter payment through ‘free products’ and on selling to advertisers etc in other jurisdictions.

CONCLUSION The integration of culture, trade and people is happening so fast that it seems unstoppable. Or has the Trump victory and Brexit vote shown us it is not? In 1845 Frédéric Bastiat said, ‘When goods don't cross borders, soldiers will,’ and history has taught us that though protectionism may correct some of globalisation’s wrongs, it never stops it, even if it requires the ugliness of war. Slicing up the pie between countries fairly is only the first step; slicing up the pie fairly between people, both in and across borders, is becoming even more critical. If you believe globalisation is inevitable − like many do − governments and fiscal authorities globally will have to rethink how they fund themselves and maintain their economies and, most important, societal harmony. It seems companies and governments have focused on moving to controlling consumption and markets within their borders, but once borders and citizens become redundant concepts, so will the current approaches.


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15 MIN

IT IS WORTH CONSIDERING THE TEETHING ISSUES INVOLVED IN COMPLETING THE CBC01 FORM, MASTER FILE AND LOCAL FILE RETURNS, AND TO PREPARE FOR SIMILAR SUBMISSION REQUIREMENTS IN FUTURE Globalisation is a reality, resulting in national markets and economies integrating and operating on a worldwide scale. This has allowed multinational enterprises (MNEs) to choose where to operate and where to pay (or not pay) tax. The Organisation for Economic Cooperation and Development (OECD) realised around 2012 that in order to curb the complex tax compliance risks, which arose as a result of globalisation (such as transfer pricing manipulation and crossborder structuring), greater transparency and an automatic exchange of information between tax administrations was required. This resulted in the creation of Country by Country (CbC) reporting. South Africa has adopted the OECD’s Action Plan 13 on base erosion and profit shifting (BEPS), which includes CbC reporting and in terms of which MNEs are required to report on their operations in every country in which they operate. South Africa introduced the domestic legal framework of CbC reporting, master file and local file returns effective for years of assessment of MNEs commencing on/after 1 January 2016. Given that the first filing date for CbC reporting, master file and local file returns was 28 February 2018, after an extension had been given by the South African Revenue Service (SARS), the filing of such returns remains new and untested. The introduction of such filing was sure to create some teething issues given the new terrain and system to be introduced. SARS has released an external guide on ‘How to complete and submit your country by country information’, which is useful in understanding the compliance obligations. It provides screen grabs and explanations on how to complete and submit the CBC01 form. 62


It also clarifies how to submit the master and local file returns. The person submitting the return should therefore first acquaint him- or herself with this guide before embarking on completing the submission.

MANUAL CAPTURING IS TIME CONSUMING The CbC01 form meets the OECD’s requirements, but its layout is different from that of the OECD’s model template since it follows the South Africanbased returns developed on eFiling. The CbC01 form submission requires manual capturing, although it is available on eFiling. This is regrettable considering the digitalisation drive, and the person submitting should therefore be prepared for a time-consuming exercise.

GENERIC SYSTEM ANOMALIES Currently, errors occur when the SARS eFiling page is opened in the Google Chrome browser. It is therefore advisable to use Internet Explorer. As the information is loaded onto the CbC01 form, the size of the return increases. This affects the load times of each field in the CBC01 form that needs to be captured, as well as the saving of the return. Extremely long load times occur when saving the return, especially once the list of constituent entities grows beyond 20.

SPECIFIC SYSTEM ANOMALIES WHEN CAPTURING THE REPORTING ENTITY When ‘Net Revenue’ is captured, the system initially did not allow one to input negative revenues as reported by certain jurisdictions. SARS has taken note of this anomaly and has subsequently updated the system to allow for such negative values to be captured.

SPECIFIC SYSTEM ANOMALIES WHEN CAPTURING CONSTITUENT ENTITIES The tax reference number of each constituent entity needs to be captured, but the field only provides for a maximum of 11 characters. If the constituent entity tax reference number comprises more than 11 characters, the numbers will be cut off.

June 2018

GLOBALISATION

AUTHOR | MADELEIN GROBLER IS PROJECT MANAGER: TAX LEGISLATION AT SAICA

The ‘Incorp Country Code’ needs to be selected to note where the constituent entity is incorporated. Abbreviations are used for the incorporation country code list, which makes navigation more challenging. The data also does not pull through when the constituent entity form is re-opened, in other words the field remains blank.

In the event that the main business activity of the consistent entity is not pre-populated, the ‘Other’ option should be selected from the pre-populated list. Subsequent to this selection a free text field of ‘Other Business Activity Information’ should be completed with a brief description of the constituent entity’s business activities.

The ‘Number of Constituent Entities in the Tax Jurisdiction’ field should in theory pre-populate as each constituent entity’s details are captured. The system however sometimes defaults to one, even though more constituent entities have been captured.

Unfortunately, the jurisdictions names are not pre-populated, which results in frustration as the jurisdiction name needs to be selected from the lists − alternatively, typed out − in four fields. Similarly, the ‘Trading Name’ does not default to replicate the ‘Registered Name’ field, which results in duplication of efforts to capture.

Furthermore, the list of constituent entities that have been captured is not necessarily showcased, which results in recapturing the constituent entities a number of times until it appears on the list. The deletion of a constituent entity in a tax jurisdiction that has been incorrectly captured also creates an anomaly in the sense that only the latest loaded entity can be deleted. Hence if one would like to delete/eliminate the 10th captured constituent entity of a total of 20, one would need to delete constituent entity numbers 11−20 in order to delete the 10th captured constituent entity. The information of the jurisdiction is therefore lost.

The CbC01 form requires that the ‘Main Business Activity’ of the constituent entity should be selected from the prepopulated list incorporated into the form. The pre-populated list does however not always avail itself.

June 2018

Some of the teething issues have thankfully been resolved as SARS has updated the system on a weekly basis since its launch. The continued and constructive improvement of the system is commendable. SAICA believes that a collaborative approach is best suited in seeking actual solutions, so if you experience any practical difficulties with the CbC01 form, master file and local file returns completion and submission, you can contact us at [email protected].


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45 MIN

WHETHER IT 14247 PROVIDES ANY CLARITY OR GUIDANCE AS TO WHAT PREJUDICE SARS OR THE FISCUS SEPARATELY MUST SUFFER BEFORE AN UNDERSTATEMENT PENALTY (USP) CAN BE IMPOSED MAY BE THE SUBJECT OF MUCH FUTURE DEBATE

In IT 14247 of 18 August 2017, the Income Tax Court (the Court) clarifies when SARS or the fiscus has suffered a prejudice that requires the imposition of an understatement penalty in terms of Chapter 16 of the Tax Administration Act 28 of 2011 (TAA). To impose an understatement penalty (USP) in terms of Chapter 16 of the TAA, an understatement must have occurred, which is defined as SARS or the fiscus having suffered a prejudice as a result of the five listed matters. Though a ‘substantial understatement’ has monetary thresholds, there is no express requirement that the prejudice should be financial in nature, although many tax specialists have insisted that unquantifiable or non-financial prejudices would be nonsensical. The exact scope of this provision is still to be tested, but the Court in this matter has given some insights into specifically how the fiscus, as opposed to SARS, suffers a prejudice. This case is an appeal by the taxpayer against the imposition of understatement penalties on both income tax and VAT in terms of section 222(1) of the TAA and the nature of the discretion of the Court to increase the USP rate. The main issues centre on the meaning of ‘prejudice to SARS or the fiscus’ and the exercise of power by the Court.

THE CASE IN SUMMARY The facts and arguments The taxpayer, an investment company, rendered financial advisory services to Black Economic Empowerment (BEE) entities and was paid R25 million for these services, which were stated as being inclusive of VAT. Although the company had submitted nil returns for income tax for the 2011 to 2014 years of assessment, it had paid provisional tax amounting to R13 777 347,74 for the same period, which resulted in a credit balance in the company’s income tax account. On enquiry from SARS, the company’s sole director could not explain the origins of the provisional tax payments, insisting that the company was not trading. On further enquiry, SARS was provided with tax computations of the amount by a representative of the taxpayer. The company did not register for VAT and also failed to submit VAT returns despite clear evidence of carrying

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on an enterprise, although it was charging VAT for the consultancy services rendered. SARS subsequently issued VAT assessments against the company, which the taxpayer did not object to. The VAT assessments reduced the income tax assessments by an equal amount and the overall tax liability therefore did not change. SARS submitted that the company had claimed a refund of R13 777 347,74, which represented the amount paid in provisional tax. The company did not dispute these assessments. SARS also imposed USP of 100% on the income tax and 100% on the VAT liability. SARS concluded that the taxpayer’s behaviour constituted ‘gross negligence’. While the company did not dispute that its returns contained ‘an omission’ or ‘an incorrect statement’ for income tax purposes or that it was ‘in default in rendering the return’, it contended that the ‘omission’ and ‘default’ did not result in any ‘prejudice to SARS or the fiscus’ and lodged an objection on this basis against the imposition of the penalties. SARS amended the relevant conclusion on the applicable behaviours for USP and reduced the penalty to 25% for income tax and to 50% for VAT. SARS concluded that since it had been in possession of the company’s funds throughout, the USP on income tax should be imposed on the basis of ‘failure to take reasonable care’. For VAT purposes, SARS characterised the company’s behaviour as ‘no reasonable grounds for the tax position taken’.

June 2018

GLOBALISATION

AUTHOR | CHRISTEL VAN WYK IS PROJECT DIRECTOR: TAX AT SAICA

The taxpayer still felt aggrieved, maintaining its argument that SARS suffered no prejudice given that SARS had always controlled the money subject to refund. The taxpayer appealed to the Court to set aside the USP in its totality and SARS crossappealed that the penalties levied were too lenient and should be increased as the Court was obliged, in the exercise of its powers under section 129(3) of the TAA, to hear the matter de novo and to therefore increase the penalty to the highest applicable amount. This section provides that in the case of an appeal against USP imposed by SARS, the Court must decide the matter on the basis that the burden of proof (that is, of proving the facts on which it relies for imposing an USP) is upon SARS and may reduce, confirm or increase the USP. SARS contended that prejudice existed in the form of a loss of opportunity cost and additional use of SARS resources as a result of the company not submitting VAT returns and misstatements of taxable income earned. The taxpayer, without providing supporting evidence or explaining its previous confirmation that it did not trade, now submitted that the nil returns were rendered without its knowledge or authority via e-filing and that it was therefore merely in default of rendering the returns. The judgment In addressing the taxpayer’s main argument of prejudice, the Court accepted SARS’s uncontroverted evidence and argument that the taxpayer’s provisional tax refund amount (which was in the possession of SARS at all times) could not form part of the budgetary process, as it was held by SARS for the benefit of the

June 2018

taxpayer. As such, SARS suffered a prejudice in the form of opportunity costs occasioned by the delayed recovery, thus resulting in unnecessary resource allocation due to the omission. The Court also concludes that, in fact, the interest accruing on the refund on the provisional tax payment was for the benefit of the taxpayer. The Court therefore concluded that SARS discharged its onus of proving an ‘understatement’ by the taxpayer of its income tax and VAT as contemplated in section 221 of the TAA and considered the next question, namely whether SARS should impose a penalty on the understatement, and if so, the quantum thereof. The Court next had to determine the highest applicable penalty. In explaining the purpose of penalties, the Court noted and agreed with cited case law, that penalties are there to ensure accurate and honest returns and that its


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quantum is not directly dependent on the taxpayer’s income but the size of his default. The Court held that not submitting returns and rendering nil returns have the same outcome in determining the amount of the shortfall on which USP is calculated. The question before the Court was whether the 25% and 50% percentage USP would apply for income tax and VAT respectively so as to render the ‘highest applicable understatement penalty percentage per the table in section 223’. It was held that since the taxpayer made understatements in its tax returns, it follows that it ‘must pay … the understatement penalty’ and that SARS is obliged to levy ‘the highest applicable understatement penalty percentage in accordance with the table in section 223’. It was further held that the highest applicable understatement penalty percentage per the table in section 223 is that of ‘gross negligence’ of a standard type, for which 100% of the shortfall applies. The Court cited case law dealing with the concept of ‘gross negligence’ and concluded that the conduct amounted to ‘gross negligence’ and that the USP is therefore 100% of the shortfall, being the amount of the assessed taxes in each tax year. In increasing the USP to 100% for VAT and income tax, the Court held that a failure to register for VAT and to submit VAT returns while charging for VAT constitutes behaviour much more serious than ‘no reasonable grounds taken for a tax position’ and concluded that such behaviour ought properly to be characterised as ‘gross negligence’ of a standard type. Without examining the merits in detail, the Court agreed with SARS that the USP imposed on both the income tax and VAT were unduly lenient and given the gross negligent character of the company’s understatement, the highest applicable understatement penalty is 100% for both the income tax and the VAT understatement. The Court dismissed the appeal, effectively replacing the 25% USP on income tax with 100% USP and replacing the 50% USP on VAT with 100% of the VAT. No cost order was made. Analysing the outcome It should be apparent from the outset that the taxpayer was fortunate that the Court only imposed 100% USP for gross negligence as, on the evidence, or rather lack thereof, the taxpayer’s actions could quite easily be characterised as intentional tax evasion and its subsequent objections and appeals nothing less than obstructive behaviour. In fact, this case represents a lesson in knowing when to accept SARS’s good graces but also raises concern as to dealing effectively with the scourge of tax evasion when apparent. This case raises a number of interesting questions: •

Whether the Court correctly exercised its powers in terms of section 129(3)

•

How the structure of the refund provisions works, and

•

The running of interest for the benefit of the taxpayer

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Exercise of powers by the Court During the introduction and oral evidence, it was submitted by SARS that the Court should exercise its discretion to increase the penalties to 100%. Nowhere does the Court indicate that this submission is incorrect in relation to its powers in terms of section 129(3) of the TAA. This section states that the Court must decide the appeal against the USP on the facts, given the burden of proof on SARS and then may reduce, confirm or increase the penalty. The word ‘may’ is defined in the Merriam-Webster Online Dictionary as follows (underlining ours): 1b: h ave permission to < you may go now >

−

used nearly interchangeably with can

…

2: u sed in auxiliary function to express … purpose or expectation … or choice < the angler may catch them with a dip net, or he may cast a large, bare treble hook > In Vacation Exchanges International (Pty) Ltd vs CSARS 71 SATC 249 at 258 the Court held that in the determination of meaning of the word ‘may’, the Court has to consider the following: •

Language of the statute

•

Its general scope

•

Purpose and objects

This approach also accords with the rules of interpretation provided in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA). In CIR v King 14 SATC 184 at 193 the Court makes the following statement as to the word ‘may’ in a tax Act: ‘It could surely not have been the intention of the Legislature that the Commissioner should be given a discretion, when he has been satisfied that the transaction falls within sec 90, in one case to say “I will use my powers under the section” and yet in respect of another possible identical transaction he should be able to say “I will not use these powers.” To allow this would be to make it possible for discrimination to be exercised between different persons.’ The tax court is created by statute hence, unlike other courts, its authority can be limited, which is recognised in section 129 as limiting itself to prescribing authority to the tax court. It is submitted that a similar absurdity as in the King case would result if a tax court in terms of section 129(3) of the TAA could find that the facts indicate a much more grievous USP behaviour existed, but that it had a discretion to retain the SARS determination or even reduce the penalty. The intention and purpose of the relevant section could surely only be met if the court was compelled to amend the penalty based on its conclusion on the facts and the extent to which SARS met the burden of proof imposed on it for a particular behaviour with

June 2018

GLOBALISATION

AUTHOR | CHRISTEL VAN WYK IS PROJECT DIRECTOR: TAX AT SAICA

the penalty automatically flowing from this conclusion. ‘May’ in this context seems again to be problematic as invariably it means ‘must’. The Court should ostensibly also have followed a more principle-based approach, dealing with the specific behaviour of the company as evidenced from the facts. It is submitted that the Court should have expanded its rationale for finding that SARS discharged its burden of proof as to the various relevant behaviours and provide its own rationale for holding that the highest behaviour constituted gross negligence and not something more or something less. That is, the role of the Court is to independently re-determine the USP behaviour from the facts presented and not merely condone or reject SARS’s conclusion thereon. Had it done so, it may have concluded tax evasion rather than gross negligence. It is submitted that the Court’s conclusion that nil returns and failure to submit lead to the same outcome is incorrect as without explanation of the nil returns submitted, it shows intent to evade whereas not submitting would at least just be gross negligence. The matter of prejudice and the structure of the TAA relating to refunds The Court seems to conclude on the existence of two prejudices, namely an opportunity cost and a resource allocation, though it does not seem to deal with each separately. The Court finds the following on these prejudices, namely:

tax but requires a final determination of liability and determination of compliance of the refund with section 190 of the TAA. It could then invariably, depending on the facts, be calculated from a time prior to final determination. Factually it was clear that SARS never made such a determination as to the refund as it immediately questioned the authenticity of the returns submitted. It therefore never made a final determination of the liability (that is, corporate tax is not self-assessment, it is administrative assessment by SARS) and it also never concluded that an amount was properly refundable in terms of the law. Accordingly, there was never a debt to the taxpayer on which interest could be calculated.

•

Delayed recovery of taxes due to SARS and thus loss of opportunity to use

CONCLUSION

•

Inability to use funds or include in budgetary process where such funds are standing incorrectly to the credit of the taxpayer, notwithstanding its possession, and

•

Accruing of interest for the benefit of the taxpayer while in SARS’s possession

Though the Court did not expressly state that prejudice should equate to financial prejudice, it did not seem to try and explore prejudices that did not have a financial impact. It did however seem to seek quite far for such financial prejudices.

The payment of provisional tax does not create provisional rights of repayment, that is, it is not held for the benefit of the taxpayer to set off against future liabilities like a deposit. Provisional tax by definition in section 1 of the TAA constitutes a tax in its own right as monies imposed by a tax Act. The obligation determined in the Fourth Schedule to the Income Tax Act 58 of 1962 and obligation to pay it as a tax is absolute and not ‘provisional’ as would seemingly be indicated by the Court. Therefore, no automatic prohibition to use such tax by the fiscus exists (not by SARS).1 The next question is whether the refund and obligation to pay was created merely by submission of the nil returns. Looking at the structure of the TAA insofar that it deals with refunds, section 190 provides prospectively that SARS must pay a refund if a person is entitled to a refund of an amount properly refundable and if so reflected in an assessment. SARS need not authorise a refund until conclusion of a verification, inspection or audit is finalised. The obligation to pay operates as a future obligation once the requirements have been met as ‘provisional tax’ constitutes an absolute liability. The submission of return with a liability less than the provisional tax paid therefore does not constitute an unconditional obligation on the part of SARS. Section 191 further provides that if a company has an outstanding tax debt, in this case the VAT liability due in terms of the VAT assessments issued by SARS, it may be set off against the refund properly determined. On the basis that there was no unconditional liability for SARS to pay the refund, it cannot be that there was prejudice to SARS in respect of the income tax refund on account, as it was not due and was not held for the benefit of the taxpayer as concluded by the Court. Accruing of interest and the structure of TAA relating to refunds The Court makes a curious finding that in substantiating the opportunity cost, the interest on the funds paid as provisional tax accrued for the benefit of the taxpayer. Factually the money held in deposit at a bank would rather earn interest for the benefit of SARS. Interest does not in terms of section 89quat of the Income Tax Act 58 of 1962 or section 187 of the TAA run automatically from date of payment of provisional

June 2018

It is submitted that the Court must take into account the proper construct of the TAA and consider the nature of the relationship between SARS and the taxpayer. It is furthermore important that the Court, in exercising its powers in terms of section 129(3), provides its own rationale independently for concluding that the relevant behaviour should be based on the facts and should not merely conclude on what SARS has submitted as the appropriate behaviour and whether sufficient evidence exists for such submission.

NOTE 1 It should be noted that SARS is not entitled to use the tax monies it collects on behalf of the state as it is subject to the Exchequer Act 66 of 1975 in terms of section 23 of the SARS Act 34 of 1997. SARS funds are only those as per section 24 of the SARS Act, which are mainly appropriations from Parliament.


67

INDULGE | TRAVEL

VIBRANT VIENNA

TOURING THE RINGSTRASSE

VIENNA IS A CITY FULL OF SURPRISES – WITH THE LEGACY SHAPED BY ILLUSTRIOUS RESIDENTS LIKE MOZART, BEETHOVEN AND SIGMUND FREUD. KNOWN IN PARTICULAR FOR ITS BEAUTIFUL IMPERIAL PALACE, THIS CITY SHOULD DEFINITELY BE ON YOUR BUCKET LIST 68


As L'Estrange Fawcett, a film theorist, wrote in his 1928 book The world of film: ‘Vienna is suited like no other city in Europe to develop into a European Hollywood.’ Vienna will charm you from the moment you arrive and it’s a city that you can visit many times as there’s a seemingly never-ending array of things to do during the various seasons. Experts say that this seductive city with its mix of wonderful cafés, bars, shops and street markets is culturally and musically one of the richest in the world. Here are some of the top experiences according to www.telegraph.co.uk:

This boulevard encircles the historical centre like a bracelet and is decorated with the finest architectural gems of Vienna. This is the perfect tour for first-time visitors to orient themselves. Did you know that it once was a small walled town which then evolved into a powerful Empire and today a modern green city? During this tour, be sure to pop into the Museum of Fine Arts and take a stroll over the lush lawns of Heroes’ Gate that leads to the Hofburg Palace.

MAGNIFICENT ST STEPHEN'S CATHEDRAL One of the highlights of a visit to Vienna has to be the colourful mosaic roof of June 2018

INDULGE | TRAVEL

Main photo: The magnificent St Stephen's Cathedral Above: Imperial Palace Left: The giant ferris wheel Below: One of the Spanish Riding School's Lipizzaners

the cathedral that is made from around 230 000 glazed tiles – and for the best view of it (and of the city) you have to go to the North Tower's viewing platform. Or you can just visit the Lameé rooftop bar and enjoy some of the best views of the city.

IMPERIAL PALACE The 600-year-old Hofburg is the former principal imperial palace in the centre of the city. Built in the 13th century and expanded in the centuries since, the palace has been the seat of power of the Habsburg dynasty rulers and today the official residence and workplace of the President of Austria. This former Habsburg residence today houses a mixture of museums and June 2018

ministries, a chapel and a library. The most unexpected site is the exercise room of Empress Sisi, a 19th-century fitness pioneer: her wooden gymnastics rings still hang from a palatial door frame and visitors can also marvel at her old wall bars.

LIPIZZANER PERFORMANCE This is something Vienna is famous for … the Spanish Riding School has for more than four hundred years been training these graceful white horses (Lipizzaners) in the classical Renaissance riding tradition that earned the establishment the coveted Unesco Cultural Heritage status. Balletic morning exercises and more elaborate performances take place in splendid accountancysa.org.za

69

The vibrant Lamée rooftop bar

baroque settings, to classical music and under glittering chandeliers. Be sure to check performance times and dates before you go.

RIDE THE GIANT FERRIS WHEEL A slow whirl on this charmingly old-fashioned ferris wheel is a must for traditionalists and adventure seekers alike. Built by British engineers over 100 years ago, the Riesenrad has received a couple of facelifts, including an electronic one to brighten up the night sky.

WHERE TO STAY

station is just a few steps away. The hotel is also set in a magnificent historical building, so it blends in perfectly with the environment. At Bloom, the hotel’s two-storey café, bar and bistro, you can enjoy Austrian interpretations of innovative delicacies. The specialities are prepared using organic products and served with their wonderful wines. With 23 luxurious rooms and nine spectacular suites, the hotel conjures up intimacy and discretion paired with comfortable ease and finesse. All the rooms all decorated in the same old Hollywood style. You can look forward to an intimate and personal experience when you stay here. And the best news is that all the suites each have unique views of St Stephen's Cathedral.

When visiting a historical city like Vienna, it’s always a good idea to stay somewhere close to the city centre – this way you're just steps away from all the beautiful attractions and you experience the true vibe of the city. Hotel Lamée is probably the best-located hotel in Vienna for exactly this. You can sit on the balcony outside your room and have the best view of St Stephens Cathedral. It takes about 300 steps to reach the highest viewpoint of the cathedral's tower, so those not that enthusiastic about all those steps can enjoy the view from your room – or even better – from the Lamée rooftop bar with a cocktail. The rooftop bar also has the best views of the historical centre – and what better way to enjoy it than with a glass of owner Martin Lenikus’ own brand of eco-friendly wines in your hand. Be ready to travel back to an enchanting era when you visit this wonderful hotel. You will enjoy typical Viennese charm set in 1930s Hollywood glamour. It is close to Graben and Kohlmarkt, the most luxury shopping areas of the city, and the Schwedenplatz underground 70


Room with a view June 2018

Café Bloom with a wonderful view of the street

Here you can taste innovative delicacies

The hotel is located on a busy corner. Its large glass doors open up to all the wonderful treats of Vienna, and you are steps away from experiencing the best of Vienna. From the breezy rooftop garden, views of the old town and the spires of St Stephen’s Cathedral – it all will add to your wonderful experience. And for the environmentally conscious – Hotel Lamée is a low-energy building type A and have processes in place to ensure they stay unique among the hotels in the centre of Vienna. For more information visit: https://www.hotellamee.com/

St Stephen’s Cathedral June 2018


71

INDULGE: LIFESTYLE

A SURPRISINGLY GOOD DEAL

It was my first time using a Hisense cellphone, so I was a bit skeptical about what to expect from the HISENSE INFINTIY F24 Smartphone which was released in South Africa recently. I was impressed by how thin the phone was and it has a very stylish finish. I also found working with the phone’s general portals like inserting earphones, sim card, volume and the switch button easily.

The phone is easy to use and at a cost of R3200, it is affordable and will definitely meet your expectations. So whether work is interrupting family time, with Hisense F24 you can easily multitask. Reviewed by Mpho Netshivambe, publications administrator

Although I needed few hours to master the functionality of the new Hisense F24, in no time at all had I already set-up the most needed profiles. Once that was done, I actually realised that it was much easier to use this phone than I initially thought. Finding my way around obviously meant the ability to access my emails on the go and I can gladly confirm that, I did just that without fail. Empowered by Android 7.0 Nougat, this phone gives you access to applications that allow you to plan your work schedule at your fingertips. From managing your calendar, receiving emails and download attachments, you have no excuse for not responding to that important email or proposal. The 15 cm IPS Display Screen makes reading or viewing these documents relatively easy. For (aspiring) photographers, this is the ideal phone for you, as it offers 13MP Camera with LED flash. This makes capturing memories in video or pictures exceptional. The camera might let you down a bit when used during the night or when you do not have sufficient lighting, but otherwise it works very well. One of the features that surprisingly stood out was the voice recorder. It was very useful and the recording quality when played back was impressive. It really came in handy when I needed to master my presentations. 72


June 2018

PERFECT FOR

FATHERS

The Shiraz vineyards of Zandvliet are planted mainly in the direction of the prevailing winds, on the gentle slopes of the foothills south of the Cogmans river flowing through the estate. The clayey soils are limestone-rich contributing salty, mineral characters and elegance to the wine. Zandvliet Shiraz, because of some of these attributes, remains one of South Africa’s favourite red table wines. The wine introduces you to a ripe complex nose showing flavours of plums, blackcurrants and pepper with hints of dark chocolate and mixed spice. These deep flavours follow through to a seamless, supple, complex palate with added hints of dark chocolate. And it pairs perfectly with a rich meaty dish or stew - so now you know how to treat the special man in your life this Fathersday.

WIN WITH ZANDVLIET One lucky reader stands the chance to win a 5 liter Zandvliet Estate Shiraz worth R950 just in time for Fathersday. Please send an email with Zandvliet in the subject line with your name, surname and address to [email protected] before 10 June.

DISCOVER SA’S NATURAL BEAUTY Mountain bikers of all ages and skills are heading towards the Nelspruit area to experience SA’s newest and most breathtaking trails. The area around Nelspruit and White River is one of the most stunning areas in South Africa. Home to some of the country’s unique natural wonders, such as the Blyde River Canyon and the Kruger National Park, it is a paradise for nature lovers - and now for sports enthusiasts as well. Officially launched in February by the MTO Group, the area is also home to the White River MTB Trails. Located across MTO’s forestry lands, among rolling hills, the trail has already been attracting local and international attention for its stunning beauty, relaxing atmosphere and incredible trails. The trail consists of over 40 kilometers of loops, from which numerous single-track trails snake off and back on again. These have been handpicked with care. Turner is part of a group of local mountain bikers who have been exploring the areas for years, discovering new areas and potential tracks. This was done unofficially, yet when MTO learned of their adventures, it didn’t shut them down. Instead it teamed up to formalise the tracks. Permits are required to access the trail: these can be bought at the Pull Scar offices in White River, by calling 0860 MTO MTO (686 686), or soon online at www.mtotrails.co.za.

June 2018


73

E M PLOY ER

AT(SA), A TRUSTED NAME IN ACCOUNTING, FINANCE AND BUSINESS PRACTICE. WHO WE ARE Accounting Technician, South Africa (AT(SA)) is a leading, trusted professional body dedicated to the education, development, regulation and support of accounting technicians in South Africa. In association with South African Institute of Chartered Accountants (SAICA), we represent confident, skilled accounting technicians who are committed and empowered to deliver and uphold the high professional standards and ethics that the profession demands. AT(SA) is locally delivered through a vast network of leading training providers across the country, each carefully selected to provide best-in-class training and globally relevant content.

OUR PURPOSE Accounting, finance and business skills are vital for our economy to thrive. However, there’s limited access to credible, quality accounting, finance and business education, making it difficult for ordinary people to build a sustainable careerin the field. We develop and empower skilled and qualified accounting technicians into the economy.

OUR MISSION Our mission is to make accounting, finance and business skills accessible to everyone and raise the standard of learning and development in finance and accounting. 74


June 2018

Leaders in recruitment since 1982

Finance

FINANCIAL MANAGER - AA

R800K - R700K. Are you a team player wanting the next step in your career? Looking for a driven CA (SA) or completed CIMA with 3-4 years post articles, preferably with top tier firm exposed to manufacturing, retail or FMCG environments. Experience must include: monthly financial reporting, year-end, risk management, internal control, staff management and ad hoc projects. Advanced Excel and strong technical accounting skills ess. [email protected]

FINANCIAL MANAGER Market related. Full financial function of main operating company and several smaller companies. CA(SA) with at least 2 yrs financial accounting work exp. Sound technical knowledge, up to date with latest financial accounting standards and best practices. Strong Sage / Pastel and Excel skills ess. Form part of a high growth private equity group with an innovative culture. [email protected]

FINANCIAL ACCOUNTANT R450K - R400K. B.Com / B.Com Hons with articles and commercial exp to join an entrepreneurial group. Maintain accounts receivable, fixed assets, payroll journals, monthly balance sheet recons, VAT and other ad hoc tasks. Suited to a team player who is deadline driven, willing to work hard and is comfortable with change. Highly computer literate on Excel with Sage Live / Pastel Partner exp essential. [email protected]

Banking

SENIOR MANAGER – BALANCE SHEET MANAGEMENT R1.8M neg. Highly competitive salary + bonus. CA(SA) with 6-10 yrs relevant exp plus strong analytical and interpersonal skills for leading banking group. Take ownership of several divisional balance sheets, ensuring their integrity while performing monthly variance analysis and identifying possible areas of concern with suggestions of remedial action. Perform capital and regulatory control reporting while guiding and mentoring team members. Network at exec level. [email protected]

Banking

FINANCIAL CONTROLLER GLOBAL MARKETS – AA PREF R850K - R750K neg + bonus. Prestigious investment bank requires CA(SA) with 3-5 yrs treasury reporting exp. Be part of a dynamic team responsible for ensuring the timeous preparation of several key global market reports. Guide systems development, optimise reporting processes and deliver commentary on the income statement / balance sheet and capital. Definite career advancement opportunities. [email protected]

SENIOR FINANCIAL MANAGER – AA R1.4M - R1.2M. This senior FM role requires CA(SA) with min 5 yrs senior financial management exp from ideally a trading / logistics environment. Hands-on CA(SA) who can provide strong support to the FD regarding all financial matters. Well-known trading company. Growing business offering excellent opportunities. [email protected]

Tax

TAX SPECIALIST – AA ONLY

Recent CAs CORPORATE FINANCE ANALYST Market Related. Independent advisory firm seeks impressive CA(SA) with 0-2 yrs post qualifying exp to support associates / principals with the implementation of transactions. Assist with research, due diligence, financial modelling, valuations, reviewing of agreements, drafting of presentations etc. Outstanding academic record. Opportunity to enter a front office role with a forward-thinking company. [email protected]

ASSOCIATE: CORPORATE FINANCE – AA ONLY R650K – R600K. Recent CA(SA) / CFA candidate with an excellent academic track record required to support senior team members with origination, structuring and implementation of mergers and acquisitions, private equity, BEE and capital raising transactions. Unsurpassed opportunity to learn the full spectrum of deal making from a team of industry specialists who pride themselves in teamwork, quality and excellence. [email protected]

Auditing / Advisory

SNR INTERNAL AUDIT MANAGER - FIN SERVICES - AA ONLY

R1.2M - R1M + bonus. CA(SA) with ideally M.Com Tax for key appointment. Join influential organisation. Be involved in regional and local tax affairs involving tax governance, strategy, planning and advisory and lobbying. Assertive, effective leader, with at least 6 yrs corporate tax exp able to write opinions, run training sessions and manage relationships with SARS and various stakeholders. [email protected]

R1.4M - R1.250M. This multi-faceted audit executive appointment will suit sharp, business oriented, strategically focused internal audit specialist from a banking / financial services background. CA(SA) with at least 7 yrs internal audit management exp. Work closely with executive management team in order to provide thought leadership and input into the development of the audit strategy and audit [email protected]

CORPORATE FINANCE INTERNS – 2 POSITIONS - AA ONLY

R700K - R650K. CA(SA) / B.Sc / B.Com / Eng with proven exp in FMCG required for a well-known FMCG company. Provide direct support to the branch manager to help drive sales and operational excellence. Maintain customer pricing, contracts and pricelists and extract and analyse sales data, monitoring and reporting. Suited to an individual with an engaging personality, who is enthusiastic, persistent and hardworking. [email protected]

Recent CAs

DATA ANALYTICS MANAGER: FMCG

Newly qualified CA(SA) to consider a highly stimulating 6-months corporate finance internship commencing June / July 2018 with a dynamic team. Incumbents must have excellent academic grades, be highly articulate with a strong interest in corporate finance. Leading corporate finance advisory firm. [email protected]

For all our positions please visit our website: www.thepc.co.za | 011-244-5380

RECRUITMENT: CLASSIFIEDS LEGISLATION REQUIRES YOUR VAT REGISTRATION NUMBER FOR INVOICING PURPOSES. FOR CLASSIFIED ADVERTISEMENT INFORMATION: CONTACT US ON TEL: 011 621 6696. ALL ADVERTISEMENTS TO BE SUBMITTED TO E-MAIL: [email protected]

PARTPARTNERSHIPS & PRACTICES WE BUY Accounting, auditing and tax practices or blocks of fees. Contact Pieter at 0823320646 or [email protected] if you are interested in selling. June 2018


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