A formidable collective of investment groups and corporates has proposed a set of new metrics for calculating the value of intangible assets. Published on 16 November, the measurements form the central pillar of the debut report from high-profile research venture the Embankment Project for Inclusive Capitalism (EPIC).
Founded by Lady Lynn Forester de Rothschild’s Coalition for Inclusive Capitalism, in partnership with Big Four auditor EY, EPIC spent 18 months devising new ways to gauge corporate value, at a time when intangibles are becoming ever more vital determinants. However, as The Treasurer pointed out in November last year, almost $44 trillion of global intangible value remains unaccounted for on corporate balance sheets.
EPIC’s report explains: “Today, it is not uncommon that as little as 20% of a company’s value is captured on its balance sheet – a staggering decline from about 83% in 1975. Meanwhile, the majority of a typical company’s real value is now reflected in intangible aspects of its business model – relating to things such as innovation, culture, trust and corporate governance – that are difficult to measure. This can result in differences in perspective between businesses and investors – and even more pressure for short-term returns.”
Business areas that EPIC’s metrics cover include: i) talent, ii) innovation, iii) society and the environment and iv) governance. Speaking to the Financial Times, Lady de Rothschild said that the metrics aimed to ensure that companies would not be “deluged with dozens of questions” about their societal and workforce provisions. She added: “An increasing number of portfolio managers want this information, but it comes in so many varieties. This is solving their problem as well.”
Among the firms that comprise EPIC’s membership are asset management groups Barings, Schroders, Vanguard and BlackRock, together with non-financial corporates such as BASF, Novartis, PepsiCo and Unilever. Click here to download the full report.
People with a knack for making sense of data are well placed to take pivotal roles in the finance teams of tomorrow, according to a new poll. In a survey of more than 670 CFOs on behalf of cloud software firm Workday, responses showed that, as finance becomes more of a business-partnership function, the need for data-analysis skills is growing – prompting the creation of new roles.
Data scientists proved to be the most valued emerging role across North America, Europe and the Asia-Pacific region, with statisticians and data-security professionals coming second and third respectively. In seventh place, roboticists – ie, people responsible for automation within finance – were reported as the least-important emerging role, but their presence nonetheless indicates the direction of travel within the finance function.
Quoted in Workday’s statement on the findings, IBM associate partner, finance transformation, Naved Qureshi said: “Companies are looking to use data in different ways and create new business models. Finance needs to transition into a much more digital and rapid service to support the business.” He added: “It’s going to be important to have some sort of data-science skills – or at least a general understanding. If you’re going to do cognitive automation for predictive analytics, you’re going to need some statistical skills… to interpret the data.”
Workday co-president and CFO Robynne Sisco said: “We need to be open about how technology changes impact the team. Some finance professionals may be concerned automation will make them replaceable. CFOs should drive strategies that clearly communicate to team members that by automating administrative parts of their jobs, they will not eliminate their roles, but instead will be given new and more interesting work that will help them develop and stay challenged.”
By the time you read this, the European Central Bank (ECB) will have brought its ambitious and wide-ranging bond-buying spree to an end. Begun in September 2014 as a two-track scheme – encompassing the covered bond purchasing programme (CBPP3) and asset-backed securities programme (ABSPP) – the initiative was extended the following year as a means of helping EU member states resolve an emerging debt crisis in the eurozone.
Under the scheme, the ECB snapped up around €60bn of sovereign and corporate bonds per month from EU banks, electronically boosting the institutions’ ECB reserves as a means of releasing new money. In parallel, the purchases helped to lower bonds’ interest yields, making them more affordable. However, in a 13 December press conference, ECB president Mario Draghi said that the quantitative easing (QE) programme would be halted at the end of 2018, in view of changing financial circumstances across the region.
“The risks surrounding the euro area growth outlook can still be assessed as broadly balanced,” Draghi noted. However, he explained, “the balance of risk is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.”
Draghi confirmed that the ECB would reinvest money from its €2.6 trillion cache of bonds as they mature.
As 2018 drew to a close, the UK Financial Reporting Council (FRC) published a revised version of its International Standard on Auditing (UK) 540, covering the disclosure of estimates in corporate financial reports. Due to come into effect on 15 December 2019, the new-look Standard aims to address more closely the risks of “material misstatement” that can arise from submitting estimates in parts of accounts for which precise figures are unclear.
In particular, the revisions amend the Standard’s overall objective, requiring auditors to consider whether estimates are ‘reasonable’ in the context of the applicable reporting framework – a more sensitive test than the previous version’s wording, ‘adequate’. Further enhancements reinforce the application of professional scepticism – for example: i) the use of wording to drive questioning or challenge management where appropriate; ii) a greater focus on identifying indicators of potential management bias; and iii) requiring the design and performance of further, non-biased audit procedures in cases where bias is detected. There are also enhanced documentation requirements.
FRC acting executive director of audit and actuarial regulation Mike Suffield said: “The UK strongly supports the development and adoption of high-quality global standards for corporate reporting and audit, enabling the UK to attract global investment. Changes to accounting standards have increased the significance of estimates in financial statements. The new standard provides a comprehensive, principles-based approach to delivering audits of estimates and related disclosures to a level that meets the needs of users and protects the public interest.”
Click here to read the full, revised text of ISA 540.
Global electronic payments network SWIFT has launched a pilot scheme to test out a new service that aims to make its flagship technology project even more cutting edge. Announced on 5 December, the integrated pre-validation tool bolsters the capabilities of SWIFT’s trailblazing global payments innovation (gpi) platform, which already supports more than half of the network’s traffic.
SWIFT explains that the goal of the 14-bank pilot “is to build the foundation of a new integrated and interactive service that will significantly improve efficiencies in the payments process and… ultimately be made available to all 10,000 banks across the SWIFT network.” It adds that the service will facilitate dynamic, real-time bank-to-bank interactions using APIs and predictive analytics to boost the predictability and efficiency of international payments. It will later be complemented with a post-payment investigation and reconciliation service that will allow for fast resolution of any remaining factors – typically arising from compliance or regulatory requirements – that could slow down the payments process.
SWIFT chief marketing officer Luc Meurant said: “SWIFT gpi has already created a fast and frictionless cross-border payment experience for many banks and corporates – but we know that there are still payments which can be sped up further by ensuring the correct information is provided at the start. By embedding this new capability in the same payment messaging channel, thousands of banks will benefit from the resulting efficiencies, thus boosting the financial services industry as a whole as we move toward universal implementation of gpi in 2020.”
Deutsche Bank, Germany, MD and global head of payments and collection products Christof Hofmann added: “We believe the gpi pre-validation service will add significant value to our clients, increasing the overall gpi client experience. Beneficiary account validation addresses an important pain point in cross-border payments – it will help increase STP ratios while reducing fraud and exception handling.”