Being in at the start of a second now seems to have happened. The Green New Deal has gone viral, and those who have been promoting the US version have now confirmed that it is based directly on the work of the Green New Deal Group here in the UK. I was a member from the outset. Ann Pettifor gets the credit for taking it across the pond.
So what now? I celebrated this development yesterday by beginning the funding application process for what I hope to be my next idea, which is the Corporate Accountability Network (CAN). I have no idea of that will succeed as yet, although it already has some key supporters. And the issue could not be clearer. The CAN will
- Challenge the current framework of accounting standard setting in the UK because it is designed solely for users of financial capital markets;
- Suggest an alternative framework for setting accounting standards in the UK that takes into account the needs of all the stakeholders of UK based businesses;
- Suggest the likely range of such standards that will be required;
- Propose at least two new accounting standards in its first two years, one of which will have the intention of making the accounts of smaller companies comprehensible to those who manage, own and work for them, which is not the case at present;
- Seek support from businesses, professional groups and institutes, NGO and other circles for the proposals being made and establish a network to deliver change;
- Propose changes to UK company law to improve the availability of accounting data in this country.
This may actually understate my ambition for its first two years of existence, but who knows? These things never work out as planned and unlike both TJN and the GND I am not, as yet, working with a formidable networker who has committed themselves to this idea. So I'm looking for the next John Christensen or Colin Hines. Candidates please step forward.
But as I am making clear to funders, the timing for this idea could not be better:
It's not just that accountancy is failing badly at present, although it is. The demand for better data from corporations is also growing; the expectation that companies account better locally is also increasing, and with a downturn likely the appetite for risk avoidance is high, especially amongst investors, many of whose needs are also not met by current accounting standards.
1. Investors and the suppliers of capital to companies;
2. Those with whom, the company trades;
3. Employees;
4. Regulators;
5. Tax authorities;
6. Civil society, with all its varying interests.
The appeal of the CAN to all of these groups should be obvious.
Corporations, from large to small, and right across the globe fail to tell us what they are doing and yet expect to enjoy the extraordinary privilege of limited liability, which is (and was proven to be in 2008) a massive risk for all of us. The least they can do is tell us what they're doing in terms we can all understand. And since we do not know which ones are really creating the risk, I do mean all, without exception need to be reporting in full, and on public record.
I do mean that I want their accounts to be comprehensible. It is absurd that much corporate reporting is now no better than gobbledygook to most users, and that is especially true of the directors and owners of smaller companies who have absurd standards imposed upon them, and are expected to sign accounts that they have little way of knowing are right.
It's as absurd that all current accounting data is prepared for the use of participants in financial markets when the vast majority of the entities that have to comply with these singular rules (because there is room for only one set of standards) do not play any role in those markets. That is true of the vast majority (let's call it 95% plus) of smaller companies. It's also entirely true of whole countries, like the UK, and public interest bodies, like UK hospitals, that also are required to account on this basis, wholly inappropriately.
So, the potential users of reformed accounting standards, and therefore supporters for reform, are out there in the UK and beyond.
Of course most are unaware of that as yet.
But that was also true of tax justice.
And it was just as true for the Green New Deal until quite recently.
It took seven years for tax justice to really come out of the wilderness, and more than a decade to have its agenda taken seriously.
The Green New Deal has run to an almost identical time scale.
And just for the record, I first began exploring the ideas that got me to modern monetary theory in 2000. That too took a long time to make progress in this country.
I am guessing the Corporate Accountability Network will follow this pattern. That's the time it takes to create change.
Who knows? This may be my last big project (although I rather hope not). But I am seriously hoping it gets the backing it needs to get going. The Big 4 firms of accountants and the professional bodies that they effectively control have for too long been delivering accounting nonsense to users who know they deserve better, and feel to great and lesser degree ripped off by the nonsense they do get. We can, and must do better than that. That's the aim. And it feels good to be going back to my roots.
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Surely the key to achieving the aspirations of CAN must start with a change in company law to require directors to have a duty of care to the six classes of stakeholders you have identified:
1. Investors and the suppliers of capital to companies;
2. Those with whom, the company trades;
3. Employees;
4. Regulators;
5. Tax authorities;
6. Civil society, with all its varying interests.
Only then will accountants have something to measure companies against.
I wish you post-haste with your endeavour.
Agreed….
What do you think needs to be different in Small Company accounts? I run one so we have 2 people and about £200,000 turnover pa. We use Sage and I really only worry about the P&L, so basically what the customers owe us versus what we owe to suppliers and then whether there will be enough left over to cover the very small wages we get, and pay things like the quarterly VAT bill. We would not bother with a formal set of accounts if we didn’t have to have those by law since from our point of view it is a bit of a pointless exercise – nobody is that interested in them and I just leave our very efficient accountant (a one man band in Larne, Northern Ireland) to get on with it. It is usually a bit of a mystery to me as to how he gets from what I see in Sage to the Balance Sheet in the formal accounts or the HMRC corporation tax return, but I guess that is perhaps what you are talking about. I have no objection to filing the full accounts at Companies House, indeed I think there is a good case for the Swedish model of all tax returns being public. What does somewhat annoy us is that the £4500 Corporation Tax bill we had for 2017/18 is apparently the same as paid by Facebook UK, which is surely totally wrong somewhere.
The only time I had put my foot down was over Intellectual Property. We don’t have any vehicles, property, expensive equipment other than a couple of plotters, etc. So we would always show up with essentially no assets. Yet our business in entirely based on the map database we have developed and our ownership of the copyright / artwork files for our very large range of maps and data products. So I insisted these be capitalised in terms of the costs of creating them and then depreciated over 25 years. Essentially so long as we keep updating everything there is actually no reason why the databases and copyrights should ever lose their value. Our original accountant wanted to write everything off after three years which would have left all the IP and data as valueless in the accounts and more importantly made it look like there were no assets if you were ever to want to sell up.
And you think you are typical?
What do you mean by that? Are you suggesting we are or are not typical of a Micro Company? Personally I would say we are quite typical from speaking to people who also run small companies. Anyway, you didn’t attempt to answer my question of what you think should be different in Small Company statutory accounts. It is a genuine question because I don’t think they tell you very much as they are and I would like to know what you think should be in there, simply because I can then decide if that would be useful to us. For large PLCs I think the accounts I get sent as a shareholder these days are doorstop size and almost entirely useless. Compare with what you were sent in the 1980s which was maybe 10% of the number of pages. In my opinion what you need is an informative statement from the CEO of what the company has done, what it plans to do, with the why and how. Then a financial report that actually reflects the full and real position of the company, plus confidence that the auditor is independent, not in the pocket of the Directors, and has in so far as possible checked for fraud, etc and verified that the accounts are a fair reflection. Most of the rest of what you get now is bureaucratic box ticking and arse covering that I suspect almost nobody actually reads. Large companies need some way of holding the Directors to account, which does not exist at the moment in the UK. E.g. compulsory votes on Directors salaries each year, maybe with shareholders asked a standard minus 3%, no change or plus 3% salary question on top of the average of what all employees are getting. That would stop Directors giving themselves 10% while the rest get 2%.
I will come back to this
It’s been a long week
Warmest congratulations and encouragement Richard. I have forwarded your CAN initiative message to 306 in the networks I alert to good news and serious challenges to our deeply flawed systems.
Please take time to visit http://www.icuk.life/ and perhaps respond to Michael Mulvey, copying to me. Yours in gratitude for your energy and open mind.
Peter
Thanks Peter
I will try to get back to you
Excellent and fully supportive. I discovered that the US 20-F reports that are made up seperately extremely useful when analysis GEC Marconis accounts compared to the voluminous UK reports.
They are structured with a narrative tale of what companies were bought along the way with a useful sales profit cash flow depreciation capex and generated for each section.
I could easily calculated the Warren Buffett “owners earnings” see the turkeys, cash cows, stars etc and have an understandable story to link back to how it got where it now was. I am sure it’s how takeovers are analysed.
Seperately filed with the stock exchange the document would be very useful to many users.
This would Keep the annual report freer and text and updated figures added to the file on each year.
I suggested it 15 years back and the idea disappeared into the swamp of vested interests the cloak and mystery of accounts by auditors being seen as more attractive than the transparency and illumination the document provided.
Would that be an idea you would be seeking Richard?
It had not occurred to me
Send me more….