Leadership series. The increasingly strategic role of finance and accounting teams in the Middle East

Transcription

1 Leadership series The increasingly strategic role of finance and accounting teams in the Middle East

2 About ACCA ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. It offers business- relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. ACCA supports its 188,000 members and 480,000 students in 181 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 95 offices and cetres and more than 7,110 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accounancy continues to grow in reputation and influence. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. It believes that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. ACCA s core values are aligned to the needs of employers in all sectors and it ensures that, through its range of qualifications, it prepares accountants for business. ACCA seeks to open up the profession to people of all backgrounds and remove artificial barriers, innovating its qualifications and delivery to meet the diverse needs of trainee professionals and their employers. In June 2016 ACCA formed a strategic alliance with Chartered Accountants Australia and New Zealand (CA ANZ). The alliance represents the voice of 788,000 members and future professional accountants around the world, who share the commitment to uphold the highest ethical, professional and technical standards. More information is available at accaglobal.com/middle-east/en.html Author: Blaise Jenner is a Partner leading PwC s Accounting Structuring team in the Middle East region. Blaise has advised on the structuring and accounting for over 250 complex transactions, having a unique insight into the drivers and objectives of such transactions, and how accounting and finance functions can intersect with strategy setters. ACCA Middle East would like to thank Blaise Jenner, a Partner from PwC Middle East for his perspective, as shared in this insight. The Association of Chartered Certified Accountants Middle East

3 Perspective from PwC Middle East The region is changing The Middle East continues to be one of the world s most transformational regions, requiring investors and companies to constantly react and adapt. Much of this change is being driven by a series of megatrends. Of particular note, demographic and social change has driven both prosperity and instability in much of the Middle East, as explosive population growth has boosted economies, strained resources and raised the spectre of youth unemployment. This population growth has shifted the demographic profile of the region towards youth, and alongside the shift in global economic power, the Middle East is firmly in the middle of one of the world s fastest-growing markets. The shift in global economic power has also seen the KSA transition to International Financial Reporting Standards (IFRS), from its local accounting framework allowing comparability with global markets and accessibility to outside investors. All adopters of IFRS will also be affected by the introduction of a number of new standards, including those for revenue recognition (IFRS 15), leases (IFRS 16) and financial instruments (IFRS 9). These provide the most significant package of updates to IFRS for over 10 years and could materially impact assets, liabilities and net income of companies. The accounting and finance landscape is also undergoing change Organisations across the region are having to adapt. Both to the changes brought about by the megatrends, and to a number of additional drivers of change in the accounting and finance landscape. In a lower-for-longer oil price environment, governments are seeking alternative sources of income. One such source being additional taxation, with GCC countries set to see the introduction of VAT next year. Foreign investments are also being encouraged with privatisation initiatives such as those at the heart of the Kingdom of Saudi Arabia (KSA) Vision 2030 plan resulting in the partial sale or monetisation of government projects and assets. The region s significant demographic changes have also heightened the requirement to meet social and welfare needs delivering a pipeline of high profile and complex infrastructure projects across the region. Organisations across the region are having to adapt. Both to the changes brought about by the megatrends, and to a number of additional drivers of change in the accounting and finance landscape.

4 Firstly, they should ensure their accounting teams are appropriately involved in strategic discussions from day one the risk otherwise is that an implemented strategy triggers an unintended adverse accounting consequence. A greater need for collaboration between strategy setters and accounting and finance teams As a result of these drivers, the perhaps traditional view of the accounting and finance teams being solely a back office department within a company or group is being revisited. The evolving landscape creates a greater need for touch points between strategy setters and accounting and finance teams for example: As more tax enters the region it will be necessary upfront to consider tax and accounting efficient structures for investments and transactions in order to protect value and maximise investment returns this will be relevant for both local and cross border structures. Achieving a particular accounting outcome can often be critical to the success of a particular strategy for example: - In order to develop a marketable external transaction (i.e. IPO or M&A transaction) there is often a desire to maximize recognition of value on the balance sheet for example recording assets at fair value or crystallizing previously off balance sheet value. The ability to achieve this is driven by accounting structuring mechanisms; - The ability to avoid or achieve accounting consolidation of an investee can often be a deal breaker for investors in joint ownership structures. In order to achieve any such objective, it will be critical for accounting teams to be aligned with commercial and legal teams; and - Groups seeking to raise funds to execute strategies will often seek to avoid bringing more debt onto balance sheets, whether through structuring investments through joint ventures, or raising funding through non share equity instruments the ability to achieve each one of these is dependent on accounting structuring. Changes in IFRS accounting standards could run contrary to strategic objectives for example a group seeking to deleverage would need to understand the potential IFRS 16 impact of operating leases coming on balance sheet as debt for lessees. Aligning strategic and accounting objectives So, how can groups adapt to this and seek to ensure their strategic and accounting objectives are aligned? Firstly, they should ensure their accounting teams are appropriately involved in strategic discussions from day one the risk otherwise is that an implemented strategy triggers an unintended adverse accounting consequence. Secondly, organisations need to be aware of what is on the horizon strategy and accounting teams will need to consider the impact of potential future change. For example, what if more tax comes into the region? What if certain countries move away from the dollar peg? What strategies and solutions can be put in place to protect value in such scenarios? Last but not least, in a highly evolving landscape it s necessary to refresh and revisit assumptions and strategic approach on a recurring basis. In summary, accounting and finance teams should have an important voice and seat at the strategic table. This is not, however, to say that the accounting and finance function should always be the driver of an organisation s strategy in some instances other factors will predominantly drive success. But when such strategic success is partially dependent upon an accounting outcome, then the role of the accounting team should be acknowledged and factored in from day one.

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