Guidance and Demonstrably Practical Recommendations (GDPR)
If you've heard about GDPR you are probably fed up with the hype. If you've not heard of it then you are at risk of playing catch up.
GDPR really stands for the General Data Protection Regulation which comes into effect on 25 May 2018 and applies to all of us who are processing personal data.
If you're in practice then you almost certainly are processing personal data - whether for clients, staff, website visitors, prospects or influencers.
Processes and procedures
The size and nature of your practice will affect the processes and procedures you will need to put in place to evidence your compliance with GDPR.
We will only be able to show we are compliant (as is required by GDPR) if we prepare adequately ahead of the deadline.
Last year I was asked to raise awareness of the topic during the ICAEW autumn practice roadshows. That meant researching things so that I could highlight the key points. I made clear then, as I do here, that I don't claim to be an expert and I'm certainly not a lawyer.
Genuinely practical guidance
More recently I am aware that many people are offering summaries of the background to GDPR, of the legal position and are explaining in great detail how it will impact accountants and their clients. On the other hand, there hasn't been much in the way of genuinely practical guidance.
One key reason for the dearth of authoritative practical guidance for accountants has been that we are still waiting for formal guidance from the Information Commissioner's Office (ICO) on key topics. Until this is received some GDPR experts are advising extreme caution.
Four things we can all do
I'm hopeful the reality won't be quite as bad. In the meantime there are four things we can all do:
- Register as a data controller with the Information Commissioner's Office (www.ico.org.uk), if you've not already done so. It costs £35pa and is NOT a new obligation!
- Audit your systems and processes so you are clear about how you obtain, use and retain personal data. You need to be clear and to keep a record as to how you obtain all personal data you hold, where it is held, who has access to it, who you share it with, how long you retain it, how you keep it uptodate and how secure it is (in all the various places it can be accessed).
- If you have staff, brainstorm the issue with them as they will need to be aware of the new obligations too. They will need training in the obligations imposed by GDPR just as they need to understand their obligations under the anti-money laundering legislation.
- Start to plan what you will do to evidence your compliance with GDPR as of 25 May. I have created a list of the most common documents most firms of accountants will need to prepare. You can get a copy here
How to ensure your VAT clients provide happy returns
It’s a situation that's far from ideal for most accountants - preparing a VAT return from a bag of receipts, or trying to reconcile a client’s bank account only to find dozens of transactions that have no matching paperwork.
Chasing a client eats up precious time that could be spent on other work. And it can be stressful when you’re working to multiple deadlines, even causing longer-term issues when it comes to preparing financial statements.
So how do you get encourage clients to keep and provide good VAT records?
Be clear, be concise
Remember, clients will often engage an accountant to manage their affairs because they only have a loose understanding of accounting and the tax system - they rely on your expertise to help guide their business. This gives the accountant some room to let the client know how best to organise their VAT records.
Accountants all have preferred styles and methods and it’s important to communicate clearly with your client as to how you work best:
- Prepare a sheet of general VAT guidelines to hand out to your clients. All clients have their own internal bookkeeping systems but laying out concisely what documents you need and how best to organise them can help the client work their system to your needs too.
- If something isn’t working, let the client know. It could be your client’s sales are being recorded in a confusing way, or they pay suppliers by cheque and don’t keep a record of who they have paid. Whatever the issue, discuss it with the client early so it doesn’t become habitual and harder to change down the line.
- Keep discussing! Nothing is set in stone, your clients will often change areas of their businesses, find new revenue streams and new suppliers with different standards. Do a quick assessment of the VAT records provided each quarter, and let the client know how to best adapt their record keeping to changes in their business.
Explain the benefits
Even after trying to communicate how to best provide good VAT records, there isn’t always incentive for the client to do so – they’re paying you to handle this sort of thing after all!
Make sure your client knows why their records are important - they won’t want to pay more tax than necessary and VAT records often provide the cornerstone for a business’s entire accounting system.
Poor documentation can lead to lost VAT claims, problems in preparing end-of-year accounts, higher corporation tax bills and difficulty preparing regular management accounts for the client.
Finally, don’t be afraid to be open with the client when it comes to calculating your fees. Accounting fees are normally time-based and, by letting them know by eating up your time can lead to a higher fee, they will often become far more receptive to your recommendations.
By focusing on the benefits to the client, whether that’s in accounting fees, tax savings or reporting, you’ll find a greater willingness to provide you with proper records. They are in business to make money and they understand that you are too.
Making tax digital
As part of the government’s Making tax digital strategy, the VAT return process is the first area that HMRC is aiming to digitise in April 2019. Making tax digital aims to improve compliance by making VAT Returns more transparent via the requirement of digital records for VAT transactions and receipts.
While this may prove a challenge for some businesses, it should hopefully improve the quality of VAT records provided as digital images of invoices and receipts will be required via a paperwork solution such as Receipt Bank.
This will make it far easier for accountants to read records – saving yourself time – but should also be sold to the client as positive too! After all, finding space for six years-worth of VAT records can be a challenge and by encouraging your clients to go digital both of you can benefit from improved records and less paperwork to store!
You can find more on Making Tax Digital here.
Make sure clients have a peak perception of your accountancy firm
Before we visit the lessons of high-altitude mountaineering, let’s start by stating the blindingly obvious: Your client’s willingness to stay loyal to your accountancy firm, to continue paying you, to refer you and to buy more from you is determined by the perceived value they get from you and your firm.
This may be obvious. But value is a relative term. Value is determined by comparison with other purchases, or with possible purchases.
Comparisons with what exactly?
- Compare the value of annual accounts presented 6 months or more after the year end with… the value of quarterly reports a week or two after the quarter end.
- Compare an annual bookkeeping tidy-up of a desktop accounts file, involving lots of time-consuming, hassle-heavy queries, journals and searches for missing receipts and invoices with… weekly bookkeeping updates and minimum interruption before quarterly financial reports a few days after the quarter-end.
One service stands out, head and shoulders above the other. If the price for the two services is similar, the perceived value for the well-timed quarterly reporting will be much higher than for the ancient history of your annual accounts service.
Even if quarterly reporting is more expensive than annual reporting (and it should be), it could well be seen as being of higher value by most of your clients.
Quarterly reporting is an opportunity to earn more because you’re delivering more value.
But what is the definition of value?
At a recent QuickBooks conference in San Jose, California, Ron Baker (The Value Pricing guru and founder of Verasage) made a profound observation: “Value is not a number, it’s a feeling”
The stronger your client feels about the work you do with them, the greater the value they experience – as long as the feelings are positive of course!
So, what do you do to give your business-owner clients a more emotionally-packed experience because of the work you do together?
Quarterly reporting is an option
Quarterly reporting is one option for you and your firm and with Making Tax Digital just around the corner it’s an opportunity that’s coming like a train and one to grasp now.
Ignore, avoid or simply ‘wait-and-see’ what happens is not a good option. It’s not a good option if your competition is on the case. The Cairngorms prove that
“cannot
be bothered” is not an option!!!
Accountants can’t risk a “I can’t be bothered with MTD and quarterly reporting” approach – it could kill their firm.
Earlier in February I did a winter mountaineering course, three days with a professional high-altitude guide. I need to brush up on my ice axe, crampon and rope skills before I climb Mount Elbrus (Russia) in August – it’s 18,500 feet, 6 times the height of Snowdon in North Wales!
Our experienced mountain guide gave us some sage advice:
“At such altitude it’s too risky to think ‘you can’t be bothered’.”
You can’t be bothered to put on your high-altitude gloves,; Can’t be bothered to have a pee; Can’t be bothered to take off a layer so you don’t overheat, all usually result in a very dangerous, possibly life or limb threatening situation. Approach the unavoidable shift to MTD and quarterly reporting with a “can’t be bothered” approach and you risk the life and limb of your firm. For the accountancy profession MTD is not something to ignore but one to welcome.
Time to step up to higher-value
You and your firm need to make a decision about the level of (perceived) value you want to deliver to your clients. Your business owners’ expectations about quarterly reporting, monthly reporting, weekly reporting and even daily reporting is changing. Over the next 12-24 months your business owner clients are going to get more demanding. The UK government’s Making Tax Digital (MTD) initiative is making quarterly reporting non-negotiable.
What an opportunity you and your firm have!
But even without MTD, almost all your business clients have a mobile phone and a computer. Your clients already are, or will be, making more of the readily available cloud accounting products and apps. So, you either choose to be at the forefront of the adoption of cloud accounting and quarterly reporting, or behind it.And if you want to maintain or grow your fees, profits and capital value you’ll want to be at the forefront of this change. Providing well-timed data processing and quarterly reporting will be the bare minimum your clients will need and expect from you.
Clients resist higher prices
Chances are you’ll be doing more work and will need to charge higher fees. Chances are your clients will resist higher prices. So, it pays to share higher-value options for clients to compare with your new, but necessary, quarterly reporting service.
Have you yet thought seriously about improving the perceived value your clients experience?
Paul Shrimpling is presenting at Accountex on the research findings of his soon-to-be-published book – The Business Growth Accountant. You’ll hear in Paul’s presentation what other firms are doing to improve their value offering, and how you can do the same. Paul will talk about two small firms with 16 and 26 clients and average fees of £26000 and £35000. Clearly at this level of fee the clients perceive very high value. Check out Paul’s presentation and why not pre-order a copy of Paul’s book here www.paulshrimpling.com
How to avoid death by data protection!
They are the letters that concern anyone whose work, rest or play involves computers and information. Let's face it, that's most of us these days, especially in the field of accountancy (and I'm not talking about MTD!) They are G.D.P.R. And they are the general data protection regulations that come in play on 25 May 2018.
This area's anything but as dry and boring as it sounds. Controversy and confusion abound. So here's part one of Accounting Insight News's no-nonsense, hype-free guide through the GDPR maze: (But first a word of warning.... it's a guide, not legal gospel!)
The amount of digital info has increased rapidly and massively over the past 20 years. Existing rules governing how businesses and public organisations handle, process and generally look after this information were not up to the task in our new, more tech-drenched landscape.
Europe's new framework for data protection
So something had to give, rather like the guy who used to walk in front of the motorised vehicle waving a red flag to warn fellow road users. In a nutshell, the 1995 data protection directive (man with red flag) is being replaced by GDPR, Europe's new framework for data protection. We're entering the age of data brakes and traffic lights!
Oh, and, before we go down the Brexit road, the UK is introducing the data protection bill, which basically takes on board GDPR regardless of EU matters.
The regulations will be enforced in the UK by the Information Commissioner's Office, which is based in Cheshire and headed by Elizabeth Denham, who was appointed for a five-year term in 2016. Her job is to "increase the UK public's trust and confidence in what happens to their personal data".
Included in the GDPR legal package are:
- Fines for non-compliance with the regulations.
- Improved measures for data handling.
- Better rights for people wanting to get hold of the info that groups hold about them.
- Clear responsibility for organisations to obtain the consent of the people whose info they are using.
The nitty-gritty of GDPR
The ICO says that if you're presently subject to data protection laws then you'll also be subject to GDPR.
How you're affected by the law depends on whether you're a processor or controller of information. A "controller" decides how data is used, such as, say, for a marketing campaign or a sales pitch. The term "processor " covers everything else. That is you obtain, adapt and hold data on file or in the cloud but you don't call the shots.
Next up is personal and sensitive data. Personal means any info that can be used to ID a person, such as name or IP address. Sensitive means data that reveal things like sexual orientation, political views, medical history and the like.
As you would expect, most big data-driven companies are up to speed with GDPR. They've probably already complied with the requirement to employ a data protection officer, for instance.
But there are lots of smaller companies out there - accountants among them - that control and process a lot of personal and sensitive data. And they need to be smart. Simply, they need to make sure they know what data they have... on clients, for instance. They need to make sure they've got permission to use it in the way that they are. And they need to make sure its secure.
More GDPR legal stuff to be aware of...
Data breaches - destruction, loss, unauthorised disclosure - have to be reported to the ICO within three days of a hack. The breach has to be likely to affect people's rights or freedoms. So the conditions for reporting involve areas such as financial loss and confidentiality
Groups with 250-plus workers must set out why people's personal and sensitive info is being collected and processed.
And, in certain situations, firms must get consent to use a person's details. This process has to be explained clearly and there has to be a "positive opt-in" from the person being asked to do something.
GDPR gives people more power to get hold of information about themselves. And they won't have to pay for the privilege, as they do now. The business will also have to provide the details within a month. In most cases, people will have the right to an explanation of a decision that is made about them based on use of their data. They will also be able demand the deletion of personal info that is no longer required for the purpose it was collected.
Now for the really controversial bits of GDPR
In a word. Fines. If you don't process someone's data as per GDPR (and you get shopped or found out), then you could be fined. Heftily. The same goes for a data security breach going unreported.
The ICO has the power to dish out financial penalties of up to €10m or 2% of a firm's global turnover (whichever's bigger) for smaller offences. That figure goes up to €20m or 4% for more serious matters. That figure used to be £500,000.
Some words of wisdom and reassurance from the ICO
GDPR has resulted in a lot of scaremongering and the profiteers of doom have been out in good number. Denham has responded to some of the critics thus:
On fines: "This law is not about fines. It’s about putting the consumer and citizen first. We can’t lose sight of that. Focusing on big fines makes for great headlines, but thinking that GDPR is about crippling financial punishment misses the point. The ICO’s commitment to guiding, advising and educating organisations about how to comply with the law will not change under the GDPR. We have always preferred the carrot to the stick."
On consent: "For processing to be lawful under the GDPR, you need to identify a lawful basis before you start. Local authorities processing council tax information, banks sharing data for fraud protection purposes, insurance companies processing claims information. Each one of these examples uses a different lawful basis for processing personal information that isn’t consent. The new law provides five other ways of processing data that may be more appropriate than consent."
On GDPR in general: "GDPR is an evolutionary process for organisations – 25 May is the date the legislation takes effect but no business stands still. You will be expected to continue to identify and address emerging privacy and security risks in the weeks, months and years beyond May 2018. That said, there will be no ‘grace’ period – there has been two years to prepare and we will be regulating from this date."
Another thing is certain. We will be returning to this topic.
Tactics for hiring and educating accountants of the future
In the first part of this article, business development expert Rob Brown and Australian accountancy thought leader Trent McLaren. discussed how accountants need to focus on winning new business. Now, in the second part of the interview, they turn their attention to hiring and training.
Rob, who will be a keynote speaker at Accountex 2018, asked Trent: "Do you think there should be any change in the hiring policy for accounting firms, if they want to grow? Because we know that there are technically good accountants all over the place. But accountants who have that stuff, plus the ability to win work, they're gold, aren't they?"
Trent, who's the head of accounting at Practice Ignition, says: "Well, they are gold. I think there's a real shift. I know, we're talking about it a lot in Australia, but we find a lot of graduates coming out of university aren't equipped to use all the technology that we're talking about."
What should we be teaching?
Trent sees this as a potential problem. "None of the universities and education systems have quite caught on," he says. "Who knows what they should be teaching? Because there's nearly, what, 1,000 different accounting applications in the market. How does an education system know which ones it should be teaching?"
"So there's a whole big shift that needs to happen, just from educating grads coming in." He reckons accountants with coding skills and any type of IT wizardry will be hot preoperty. "Those people are fantastic," he says.
"Some of the best progressive firms I've seen have got a dedicated developer that works in-house, in the accounting firm. They will actually build the integrations from their cloud accounting software, into the applications they use during the day. It could be a point of sale, might be the website or whatever. tThey're helping their clients accurately get that data into their accounting system seamlessly, without having to import and export."
The non-financial matrix
"So, not only the tracking all of the financials accurately, more efficiently, automatically, they're also then starting to help them track any other type of number, the non-financial matrix that they should be tracking, to help them with their conversions of sales, and all those types of wonderful things."
Rob says: "I thought you were going to say, 'Plus the technical skills, they need the people skills', but you've gone the other way and said, 'We need technically good accountants that are also pretty good geeks'."
Trent adds: "Yeah. I would lean to it, because it's pretty easy to find to people that are ... I think it's relatively easy to find people who can speak well with clients. So if I wanted to set up a client facing team, or account managing team, or whatever, they're my communicators, but the people that are going to be extremely important to me are the ones that can seamlessly optimise all the work that's going on in those client falls with the technology, and that's the biggest gap.
"If you go to all the firms and say, 'Okay, who's responsible for all the tech going on in here?', you're pointing to Bob, who's been around for 20 years, who still loves his server in the back of the office, running on desktop practice management, Sage, or Iris, or whatever it may be. You don't wait till Bob retires, before you're actually how you progress anything technology-wise in your firm...
"So, get an IT-based developer that has a background in accounting, or whatever it may be, into your firm, and ask them to do the same task, whatever it is, and they will find an extremely creative way of getting that data into your ledger."
Watch out for Part 3 of this fascinating conversation between Rob and Trent. Coming soon!.
If you would like to listen to the full conversation click here. Or watch a video of the exchange here.
Weekly Insight: AI is the way forward for accounting
Written by Ian Moss. Welcome to Accountex North's Weekly Insight Number 3 and congratulations on reaching February, the end of another self-assessment-crazy January. But don't worry. There's plenty more fun on the horizon: Brexit rumbles on; the GDPR deadline looms; the spectre of automation/Artificial Intelligence hovers menacingly in the background.
On AI, I spotted this headline in Forbes. "Why Artificial Intelligence Is The Future of Accounting". This statement seemed to run counter to a lot of robot scare stories I've come across since taking up my role as Accountex editor three weeks ago.
The author of a new study, Jean Baptiste Su, VP and analyst at Atherton Research, reckons: "More than most other industries, accounting hasn’t seen much innovation since the creation of double-entry bookkeeping - a process of recording both profits and losses - and considered one of the greatest advances in the history of business and commerce. That was over 500 years ago!"
Opportunities and serious challenges
He adds: "We expect that by 2020, accounting tasks - but also tax, payroll, audits, banking - will be fully automated using AI-based technologies, which will disrupt the accounting industry in a way it never was for the last 500 years, bringing both huge opportunities and serious challenges." Sound familiar?
And it's at this point that I realised just how many of these AI articles come equipped with a familiar rider, too. It goes along the lines of... machine learning efficiency needs to improve to avoid errors ... in order that automation can fulfill its promise. When it does, it'll be OK because accountants can take on a more advisory role.
All this is bound to become clear. One day. What does seem pretty clear to me now, though, is that there is a massive difference between automation and intelligence... artificial or otherwise.
And this seems to be overlooked by many observers in the field.
A way to go on GDPR
About two-thirds of businesses worldwide are not ready for the arrival of General Data Protection Regulation, which, in case you didn't know, is on 25 May.
But worry not... that's the headline figure from an EY survey. In Europe that figure rises to nearly two-thirds of companies have compliance plans in place. That's good news, as far as it goes. But that still leaves a third with no strategy...
Called to account on diversity
Diversity and gender equality are big news in so many areas of society at the moment. (Unless, of course, you are the BBC, where there is "no evidence of gender bias".)
Meanwhile, big accountancy firms PwC (they carried out the BBC gender survey), KPMG and EY are among the top 100 inclusive employers, as ranked by LGBT charity Stonewall.
Fiona Wilkinson, ICAEW vice-president, says, “Diversity is a powerful force for good. We know that businesses benefit from strong diversity and inclusion policies and practices that help both attract the best talent as well as a diverse range of clients.
"I urge member firms to do more to promote equality and diversity in the workplace and, whatever their size, to consider applying to Stonewall’s Index.”
And finally...
Drum roll... Fanfare ... Party poppers! It's time to look at the top of Accountancy Age's Financial Power list for 2018. And at number one in the top 50 folk who'll have the biggest influence on accountancy this year is ... Brexit Secretary David Davis. Oh dear.
If you have any comments or content ideas for us here at Accountex, please let us know in the box below or drop me a line at [email protected]
What makes a truly ‘digital’ accounting firm?
Accountancy, like many other professions, is undergoing digital transformation – albeit in a staggered and variable manner. What was once considered a reasonably ‘safe’ trade, and a necessity for businesses with predictable revenue models, is now open to disruption from technology.
Digitally savvy firms can massively outdo inert firms in terms of both efficiency and quality of service – manual accounting actions can take twice as long as automated ones, are more likely to result in errors, and divert attention and energy away from more important, value-added tasks.
But digital firms enjoy more benefits than efficiency; they’re also more neatly attuned to changing customer expectations.
The millennial generation in particular expects more from accountants than number-crunching and spreadsheet-filling: yes, they want efficiency, but they also want advice, they want service, and – ultimately – they want a different mindset.
Commercial challenge
And the best employees want to work for companies with this mindset. With Making Tax Digital (MTD) just around the corner, accountants are faced with a stark legislative, operational, and commercial challenge.
But becoming a digital firm shouldn’t be seen as a matter of compliance – but a strategic necessity to be readily embraced.
If you run an accounting firm, it’s vital to strike a balance between human interaction and technology. You can’t use technology to automate all of your core duties – if you did, what would clients be paying for? So how can you add value in 2019, and beyond?
Business models and fee structure
A digital mindset is about technology – but it’s also about rethinking the way your firm operates. If you can streamline administrative tasks and data entry, then it’s necessary to double down on the other things you can offer, especially if you’re running a smaller outfit; firms with bigger clients are already emphasising value-added services.
So, look at your financial data and your business model, identify any potential problems, and come up with solutions wherever you can. Here, human input can be invaluable (at least until machine learning eventually steps into the breach): if you need to undertake more content marketing to improve your target audience’s awareness and trust, for example, you’ll know better than a computer. Using technology will give you the time to focus on these activities.
It’s also worth examining your fee structure: are you offering clients value for money? If not, think about what services or support you could provide that you currently aren’t.
A digital culture
It’s a less tangible thing than the other actions, but it’s still a necessity to create and cultivate a digital culture within your firm. Your working environment should align neatly with the personalities of your target audience. The aim should be to create a fun, dynamic, and agile workplace which offers clear recognition for all staff – and clear career progression.
That means filling the right skills gaps with any new hires – and it means enabling the right training opportunities to ensure current staff stay up to date. A digital culture is half about the technology, and half about being able to adapt, adjust, and move quickly.
Technology: current essentials and future considerations
Finally, and most obviously, a digital firm is one driven by technology. To grow your practice and increase your client roster, you need to be able to scale – and that means using the latest tools.
You need to think about your firm today, but also tomorrow, and in ten years’ time. Many firms will state that they have already started (or even finished) their digital transformation.
However, in reality, it’s an ongoing process – especially with innovations in artificial intelligence and machine learning not too far off in the future.
Streamlining processes
At present, cloud accounting software is essential in terms of streamlining existing processes and facilitating future scaling. It offers a clear, real-time overview of your client accounts, enables easy multi-user access, and runs entirely online – nothing to install, updates confirmed automatically, and everything backed up without any involvement from you.
It also mitigates upfront business costs, as maintenance, system administration costs, version upgrades, and server failures are all managed by the cloud service provider.
Many firms are already on the way to adopting digital cloud software; yours may be too. The technology is a critical part of this. But the individual tools are perhaps less important than how they fit together: if the elements of your software suite aren’t compatible, it will have an effect on overall performance.
Migrating to the cloud
Migrating to the cloud can’t be done off the cuff. For a full picture of financial health, it’s best to start with a core tool like Xero, and then select the apps that will suit your clients’ particular needs. These apps will specialise in inventory management, point of sales, job costing, CRM, expense management, and other key areas.
Soldo, for example, has recently launched a core integration with Xero that allows enriched business expense transaction data to appear seamlessly within the platform – as well as an open bank feed integration that leverages Xero Bank Feeds API, which allows transactions to sync daily and automatically.
Each complementary app means more control over potentially hidden costs such as staff expenses, as well as greater insights, and ultimately fewer errors – painting a better picture of financial health and the accountant’s overall competency.
A digital mindset needs to be expressed internally and externally: you should feel the benefits of technology within your firm, but your customers should also perceive you as a technologically-driven business – one that helps them embrace digital practices, too. This will improve your value as a business in the longer term.
What works for individual firms will vary; the key is to take the initiative. A truly digital business relies on a truly digital attitude. In 2019, don’t wait for the competition to overtake you – and take your firm into a bold, exciting, and technologically-empowered future.