By Ian Lavis,Praxity Global Alliance
The Praxity Global Conference 2016 demonstrated sharing international expertise has never been more important as firms face unprecedented challenges inthe digital age.
Futurologists would have us believe the digital revolution will gradually render humans – in particular auditors – surplus to requirements. Praxity’s 10th Global Conference demonstrated this couldn’t be further from the truth.
Far from surrendering to the inevitable march of technology, delegates at the recent Glen eagles conference in Scotland glimpsed a future where auditors, and accounting professionals in general, can continue to play a vital but very different role in global business.
The conference highlighted the big data revolution has become the smart data revolution, where the most successful firms will be the most agile and adaptable. To gain competitive advantage, member firms should embrace new technology,not by letting robots take over but by investing in people to monitor data systems and provide more creative, intuitive client solutions.
Challenging times call for creativity
Phil Verity, Deputy CEO, Mazars Group, said the changes taking place in the profession represent “one of the most challenging environments I can remember” while Matt Snow, CEO, Dixon Hughes Goodman, called on firms to engage employees differently and encourage them to be “more creative”.
Delegates were reminded that people and not machines will win new business, and that ethics and integrity will be as important as ever in the industry as it becomes more automated.
There was a timely call to protect accounting businesses against the very real and growing threat of cybercrime. There was also a warning that regulatory bodies and training associations need to keep up with the pace of change if firms are to become truly agile.
In his opening ‘State of the Nation’ address, Praxity Chairman and Chairman of Mazars South Africa,Hilton Saven said member firms needed to respond to seismic changes within the profession. He explained: “The new workforce with new skills and expectations; the new technology with all its plusses and minuses; and the different expectations of clients and investors, all lead to the need for us to adapt, and with confidence.”
He called for member firms to “work together, exchange views and provide feedback”, adding: “Member firms need to be able to offer innovative solutions or initiatives with confidence to clients so that everyone can optimise the opportunities these present.”
“Companies that innovate in the use of data significantly outperform their competitors in many, many ways.”
A taste of the future
The main theme of the conference was big data and delegates were given an extraordinary view of the future where humans become overseers of machines capable of processing vast amounts of information in seconds.
Gillian Docherty, CEO of The DataLab, which helps companies innovate using data analytics, said: “Companies that innovate in the use of data significantly outperform their competitors in many, many ways.” She explained that big data enabled firms to spot anomalies, diagnose what happened, predict future patterns and prescribe what to do.
Just how accounting firms can benefit from new technology was demonstrated by Gilly Lord, PwC’s Head of Audit Strategy and Transformation, who demonstrated how the automation of datais improving both the efficiency and quality of auditing.
She told delegates that end-to-end ERP systems and new software, which combines automated data integration, visualisation and analytics, enable auditors to process and check millions of transactions in an instant, thus enabling a more complete audit.
Auditors can breathe easy
The ability of artificial intelligence to spot anomalies in huge amounts of data, could be important in detecting fraud and widen the scope of corporate reporting. Gilly said: “Whoever develops the best artificial intelligence will have a massive competitive advantage,” but she added that auditors could “breathe easy” because the new technology is non-sentient and thus fully reliant on humans to provide algorithms.
This vision of the future places the auditor as an overseer of machines; an intuitive, ethical monitor ensuring artificial intelligence operates effectively. “Our role is going to change from checking the data to checking the algorithms.”
It’s not only the role of the auditor that needs to change, according to Professor Jamie Anderson who encouraged accountants at all levels to think and work more creatively as they adapt to the digital world.
He told delegates that people tend to frame problems from their own perspective, providing a narrow view of the world. Using a series of practical demonstrations, he explained how meta cognition – the awareness or analysis of one’s own thought processes – is key to developing new ways to solve problems where reflection and introspection replace assumptions and hierarchy.
This importance of recognising and developing human qualities in the digital age was a key focus of the conference. Anton Colella, Chief Executive of ICAS (The Institute of Chartered Accountants of Scotland), said that for all the merits of new technology, the accounting profession must put people above machines.
“The revolution we need to explore, and we ignore it at our peril, is the transformation of our people.”
Putting people first
“The futorologists predict the demise of the accounting profession. I have a very different view of the world,” Anton said. “The revolution we need to explore, and we ignore it at our peril, is the transformation of our people. The business model going forward is the commercialisation of wisdom.”
He said the accountancy profession was in danger of losing sight of its five ethical principles of: integrity; objectivity; professional competence and due care; confidentiality; and professional behaviour.
Anton added that “hundreds of thousands are coming into the profession and all they are doing is getting a qualification”. Urging Partners to spend more time with young employees to impart knowledge, tell stories and inspire people, he said the way forward was to invest in integrity, not just technology.
Calling for a sixth ethical principle of ‘moral courage’, he said the challenge was to “exemplify integrity” to create a revolution where businesses go to accountants for independent courage and wisdom.
Empathisers and data scientists
The need to focus on training and beliefs was echoed by lecturer and author Daniel Susskind, who told the conference young accounting professionals are often livid because the world they are entering is not what they trained for.
He said new roles will be created like empathisers and data scientists, and the emphasis will be on how to use technology to solve problems differently. He added: “There is a big burden on our training associations. It goes back to the things we are teaching our young people in schools. They need social and interpersonal skills, and communication skills.”
He stressed that one of the biggest changes that will take place is in the belief system of professional firms, arguing that firms need to ask themselves what they believe can be done more quickly, cheaply, differently or to a higher quality using machines, and what humans can do alongside this. The best way to prepare for the future, he concluded, was to invent it.
Collaboration is key
In a panel session immediately following the key presentations, Phil Verity, Deputy CE0, Mazars Group, said firms need to address the three t’s of technology, talent and transformation. He called on firms to be more open to stimulus and collaboration.
A more collaborative approach is already being tested. Matt Snow, CEO, Dixon Hughes Goodman, revealed that four Praxity member firms in the US had teamed up to create an ‘incubator’ to develop and test new technologies in the assurance space. “We are working together with a common goal that benefits our firms and our clients,” he said. “It’s being run completely differently from anything else we have done together.”
As firms meet the challenge of the digital age, it is clear that organisations will need to align themselves differently and adopt a more creative approach to delivering client services.
More value for member firms
Praxity has growninto the largest alliance of independent accountancy and consulting firms in the world. Member firms have a combined turnover of USD 4.5 billion, with 61% growth, just nine years since Praxity was formed.
In his opening address at Gleneagles, Praxity Chairman Hilton Saven outlined several new initiatives to add value to member firms and their clients including:
- A new think-tankto assist member firms to work together on an international basis.
- A new secondments website tool to help member firms manage staff numbers while helping employees to find secondments within the Alliance.
- More online content for member firmsto rebrand and redistribute to their clients.
- Country specific tax guides for every member firm to distribute to potential clients.This will assist with complex tax matters when doing business internationally.
IMF lifts global growth forecast for 2021, still sees ‘exceptional uncertainty’
By Andrea Shalal
WASHINGTON (Reuters) – The International Monetary Fund on Tuesday raised its forecast for global economic growth in 2021 and said the coronavirus-triggered downturn in 2020 would be nearly a full percentage point less severe than expected.
It said multiple vaccine approvals and the launch of vaccinations in some countries in December had boosted hopes of an eventual end to the pandemic that has now infected nearly 100 million people and claimed the lives of over 2.1 million globally.
But it warned that the world economy continued to face “exceptional uncertainty” and new waves of COVID-19 infections and variants posed risks, and global activity would remain well below pre-COVID projections made one year ago.
Close to 90 million people are likely to fall below the extreme poverty threshold during 2020-2021, with the pandemic wiping out progress made in reducing poverty over the past two decades. Large numbers of people remained unemployed and underemployed in many countries, including the United States.
In its latest World Economic Outlook, the IMF forecast a 2020 global contraction of 3.5%, an improvement of 0.9 percentage points from the 4.4% slump predicted in October, reflecting stronger-than-expected momentum in the second half of 2020.
It predicted global growth of 5.5% in 2021, an increase of 0.3 percentage points from the October forecast, citing expectations of a vaccine-powered uptick later in the year and added policy support in the United States, Japan and a few other large economies.
It said the U.S. economy – the largest in the world – was expected to grow by 5.1% in 2021, an upward revision of 2 percentage points attributed to carryover from strong momentum in the second half of 2020 and the benefit accruing from $900 billion in additional fiscal support approved in December.
The forecast would likely rise further if the U.S. Congress passes a $1.9 trillion relief package proposed by newly inaugurated President Joe Biden, economists say.
China’s economy is expected to expand by 8.1% in 2021 and 5.6% in 2022, compared with its October forecasts of 8.2% and 5.8%, respectively, while India’s economy is seen growing 11.5% in 2021, up 2.7 percentage points from the October forecast after a stronger-than-expected recovering in 2020.
The Fund said countries should continue to support their economies until activity normalized to limit persistent damage from the deep recession of the past year.
Low-income countries would need continued support through grants, low-interest loans and debt relief, and some countries may require debt restructuring, the IMF said.
(Reporting by Andrea Shalal; Editing by Shri Navaratnam)
Leon Black step downs as Apollo CEO after review of Epstein ties
By Mike Spector and Chibuike Oguh
NEW YORK (Reuters) – Leon Black said on Monday he would step down as chief executive at Apollo Global Management Inc, following an independent review of his ties to the late financier and convicted sex offender Jeffrey Epstein.
While Black, whose net worth is pegged by Forbes at $8.2 billion, will remain Apollo’s chairman, his decision to step down illustrates how doing business with Epstein weighed on the reputation of one of Wall Street’s most prominent investment firms. Black co-founded Apollo 31 years ago.
Apollo said it plans to change its corporate governance structure, doing away with shares with special voting rights that currently give Black and other co-founders effective control of the firm.
The independent review, conducted by law firm Dechert LLP, found Black was not involved in any way with Epstein’s criminal activities. Black paid Epstein $158 million for advice on tax and estate planning and related services between 2012 and 2017, according to the review.
Black, 69, said that although the review confirmed he did not engage in any wrongdoing, he “deeply” regretted his involvement with Epstein.
“I hope that the results of the review, and related enhancements … will reaffirm to you that Apollo is dedicated to the highest levels of transparency and governance,” Black wrote in a note to Apollo fund investors. He will step down as CEO no later than July 31.
Apollo co-founder Marc Rowan, 58, will take over as CEO.
Rowan has often kept a low-key profile compared with Apollo’s other co-founder, Joshua Harris, 56, and spearheaded many initiatives that turned Apollo into a credit investment giant, including the permanent capital base the firm enjoys through its ties to reinsurer Athene Holding Ltd.
The revelations of Black’s ties to Epstein took a toll on Apollo, which Black turned into one of the world’s largest private equity groups. Apollo executives had warned in October that some investors had paused their commitments to the buyout firm’s funds as they awaited the review’s findings.
Apollo shares are down 1% since the New York Times reported on Oct. 12 that Black paid at least $50 million to Epstein for advice and services, when most of his clients had deserted him.
Over the same period, shares of peers Blackstone Group Inc, KKR & Co Inc and Carlyle Group Inc are up 19%, 10% and 23%, respectively.
“We think a large number of (Apollo fund investors) took a ‘pause’, and we believe the outcome (of the review) and changes today will cause most of them to return to allocating to future Apollo funds,” Credit Suisse analysts wrote in a research note.
Apollo shares jumped 4% to $47.65 in after-hours trading on Monday.
“We continue to follow these events closely and will evaluate how Apollo addresses its issues,” the California State Teachers’ Retirement System, one of the largest U.S. public pension funds and an Apollo investor, said in a statement.
Epstein was found dead at age 66 in August 2019 in a Manhattan jail, while awaiting trial on sex trafficking charges for allegedly abusing dozens of underage girls in Manhattan and Florida from 2002 to 2005. New York City’s chief medical examiner ruled that the cause of death was suicide by hanging.
Black previously said he had paid millions of dollars to Epstein, but the exact size of his payments was revealed for the first time on Monday. Beyond the $158 million in payments, Black made two loans to Epstein totaling $30.5 million in early 2017.
Dechert said in its report that Black’s social ties with Epstein, who built his fortune by endearing himself to powerful figures in high society, went back to the mid-1990s.
Epstein won Black’s trust by resolving an estate tax issue for him in 2012 potentially worth at least $500 million, the report said. He ended up advising Black on various aspects of his personal financial affairs, from his family office and airplane to his yacht and artwork.
Black believed that Epstein provided advice over the years that conferred between $1 billion and $2 billion in value to him, according to the Dechert report. Black said in his note to investors that he had paid Epstein a fee equivalent to 5% of the value he generated on an after-tax basis, and not tied to hourly rates.
Black and Epstein’s relationship deteriorated after Epstein failed to repay $20 million of the loans and Black refused to pay tens of millions of dollars in fees that Epstein demanded, according to the Dechert report.
They severed ties in October 2018, according to the report. Black knew Epstein had been convicted in Florida a decade earlier for soliciting prostitution from a minor, the Dechert report said, but there was no evidence suggesting Black had knowledge of the other alleged crimes before they were publicly reported in late 2018, culminating in Epstein’s July 2019 arrest.
On Monday, Black pledged $200 million toward “initiatives that seek to achieve gender equality and protect and empower women,” as well as helping survivors of domestic violence, sexual assault and human trafficking.
Apollo said it would pursue a “one share, one vote” corporate governance structure that would do away with shares with special voting rights. It said the move could qualify it for listing on the S&P Global indices.
Apollo also said it would seek to give its board more authority to oversee its business, eroding the power of its executive committee led by Black.
The board will be expanded to include four new independent directors, including Avid Partners founder Pamela Joyner and physician and scientist Siddhartha Mukherjee, Apollo said. Apollo co-Presidents Scott Kleinman and James Zelter will join the board and take on increased responsibility running day-to-day operations.
Apollo had about $433 billion in assets under management as of the end of September.
(Reporting by Mike Spector and Chibuike Oguh; Additional reporting by Lawrence Delevigne and Jessica DiNapoli in New York; Editing by Sonya Hepinstall, Leslie Adler and Kim Coghill)
EU sees no cliff-edge ending for COVID fiscal stimulus
BRUSSELS (Reuters) – European governments will not need to abruptly end fiscal support for their economies after the pandemic, top officials said on Monday, noting that any withdrawal of stimulus would be carried out gradually and only once the economy has recovered.
Euro zone public debt rose sharply during 2020 and is likely to exceed 100% of GDP this year as governments borrow to help individuals and businesses survive lockdowns.
The higher debt raises concern about how to deal with it down the road and when to start cutting it again, since the EU last year suspended its rules limiting budget deficits and debt, known as the Stability and Growth Pact (SGP).
EU finance ministers are to discuss when to reintroduce any borrowing limits in the second quarter of this year.
“I believe it important that finance ministers debate and reach a common understanding on the appropriate fiscal stance by the summer. This can then serve as guidance for the preparation of their draft budgetary plans for 2022,” the chairman of the euro zone’s group of finance ministers, Paschal Donohoe, said on Monday.
“To avoid any misunderstanding, let me stress that this is not about an imminent withdrawal of fiscal stimulus,” he told the economic committee of the European Parliament.
“We all agree that our immediate priority is to shield our citizens, in particular younger cohorts and those most exposed to the crisis. There must be no cliff-edges,” he said.
Joao Leao, the finance minister of Portugal which holds the rotating presidency of the EU and therefore sets the agenda for EU finance ministers’ work until June, was equally cautious.
“We should not withdraw stimulus too early. We need to make sure the suspension clause for the SGP remains in force at least until we return to pre-crisis economic figures,” he told the committee. “We need to make sure jobs are maintained as well as the production capacity of companies.”
He said first cash from the EU’s 750 billion euro post-COVID economic recovery programme should reach the economy in the first half of the year.
“Real funding should be getting to the economy before the summer or in early part of the summer,” he said.
(Reporting by Jan Strupczewski; Editing by Giles Elgood)
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