ACCOUNTANCY FUTURES ACADEMY100 drivers of change for the globalaccountancy profession: appendixThis report was writen for ...
About ACCA                                                                THE ACCOUNTANCY FUTURES ACADEMYACCA (the Associa...
In this appendix to the main report, each of the 100 drivers are presented with ashort description as well as a time frame...
Appendix contentsA1: ECONOMY	                                                                     44   27. The workplace e...
A5: SCIENCE AND TECHNOLOGY	                                                98    A7: THE PRACTICE OF ACCOUNTING 	         ...
A1: Economy1. Stability of the global economic infrastructureDESCRIPTION                                                  ...
2. The level of economic growthDESCRIPTION                                                        IMPLICATIONS FOR/IMPACT ...
3. Public attitudes to pure capitalismDESCRIPTION                                                          Remuneration pa...
4. Consideration of alternative economic perspectivesDESCRIPTION                                                          ...
5. Total scale and distribution of global inequality and unmet needsDESCRIPTION                                           ...
6. Globalisation v protectionism in times of economic uncertaintyDESCRIPTION                                              ...
7. Standing of the US dollar as the global reserve currencyDESCRIPTION                                                    ...
8. Notions of value and currencyDESCRIPTION                                                     IMPLICATIONS FOR/IMPACT ON...
9. Broadening measurement of business value and progressDESCRIPTION                                                       ...
10. Impact of BRIC market development on global accountancy firmsDESCRIPTION                                              ...
11. Freedom of mobility for global labourDESCRIPTION                                                        IMPLICATIONS F...
12. Extent of mergers of international stock exchangesDESCRIPTION                                                        I...
13. Proportion of knowledge-creation activities as a share of the economyat the national and global levelDESCRIPTION      ...
14. Stability of national revenue basesDESCRIPTION                                                                      Fo...
15. Manageability of national and international debtDESCRIPTION                                                          I...
16. Level of investment required to maintain national physical infrastructureDESCRIPTION                                  ...
17. Number and impact of micro-businesses on the overall health ofthe economyDESCRIPTION                                  ...
A2: Politics and law18. Focus of global governance institutionsDESCRIPTION                                                ...
19. Rate of democratic transitionDESCRIPTION                                                       IMPLICATIONS FOR/IMPACT...
20. Level of international political volatilityDESCRIPTION                                                         IMPLICA...
21. Pace and extent of cultural globalisationDESCRIPTION                                                       IMPLICATION...
22. Governance and delivery of outsourced public servicesDESCRIPTION                                                      ...
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
Fast Future Study for ACCA - appendix - 100 Drivers of Change
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Fast Future Study for ACCA - appendix - 100 Drivers of Change

  1. 1. ACCOUNTANCY FUTURES ACADEMY100 drivers of change for the globalaccountancy profession: appendixThis report was writen for ACCA by Fast Future.
  2. 2. About ACCA THE ACCOUNTANCY FUTURES ACADEMYACCA (the Association of Chartered CertifiedAccountants) is the global body for professional The Accountancy Futures Academy contributes toaccountants. We aim to offer business-relevant, first-choice ACCA’s programme of research and insights withqualifications to people of application, ability and powerful visions of the future. It provides aambition around the world who seek a rewarding career platform to look forward, to tune into thein accountancy, finance and management. emerging trends and discussions in the global business and policy spheres and the latest reformsWe support our 154,000 members and 432,000 students facing the world of finance.throughout their careers, providing services through anetwork of 83 offices and centres. Our reputation is By looking to the future it helps the professiongrounded in over 100 years of providing world-class stay at the cutting edge. The Academy’s workaccounting and finance qualifications. We champion fosters fresh thinking and innovative discussions,opportunity, diversity and integrity, and our long identifies the barriers to and facilitators oftraditions are complemented by modern thinking, tomorrow’s successes, and identifies the potentialbacked by a diverse, global membership. By promoting strategies that will enable business and finance toour global standards, and supporting our members navigate the choppy waters that lie ahead.wherever they work, we aim to meet the current andfuture needs of international business. www.accaglobal.com/riAbout IMA®IMA® (Institute of Management Accountants), theassociation for accountants and financial professionals inbusiness, is one of the largest and most respectedassociations focused exclusively on advancing themanagement accounting profession. Globally, IMAsupports the profession through research, the CMA®(Certified Management Accountant) program, continuingeducation, networking, and advocacy of the highestethical business practices. IMA has a global network ofmore than 60,000 members in 120 countries and 200local chapter communities. IMA provides localizedservices through its offices in Montvale, N.J., USA;Zurich, Switzerland; Dubai, UAE; and Beijing, China.About Fast FutureFast Future Research is a global strategy, foresight researchand consulting firm that undertakes horizon scanning,scenario planning and in-depth studies on the future ofkey sectors. Recent studies have looked at the future ofairports, scenarios for Asia, the future narcotics landscape,emerging science and technology sectors, jobs of thefuture, demographic change, the meetings industry, traveland tourism and the future of HR. Fast Future works withclients in global businesses around the world to helpthem understand, anticipate and respond to the trends,forces and ideas that could shape the competitivelandscape over the next 5-20 years. Fast Future’s consultingdraws on a range of proven foresight, strategy andcreative processes to generate deep insight into achanging world. These insights are used to help clientsdevelop innovative strategies, create disruptive businessmodels and define practical actions to implement them.© The Association of Chartered Certified Accountants,September 20122010
  3. 3. In this appendix to the main report, each of the 100 drivers are presented with ashort description as well as a time frame for possible impact, stating when theexperts think it could affect at least 20% of the profession globally.For each driver, its possible implications for, or impact on, business andaccountancy and, in particular, the key questions and uncertainties for theaccountancy profession are identified. 100 Divers of Change for the Global Accountancy Profession, ACCA, September 2012 In this study, professionals working in and close to the accountancy profession identify 100 drivers of change shaping the landscape for businesses and profession accountants over the next decade. ACCOUNTANCY FUTURES ACADEMY 100 drivers of change for the global The potential impacts and 10 resulting imperatives are explored. accountancy profession Opportunities are identified for accountants to adopt a more strategic and trusted role. available from http://www.accaglobal.com/en/technical-activities/technical-library.html This report was writen for ACCA by Fast Future.
  4. 4. Appendix contentsA1: ECONOMY 44 27. The workplace expectations of Generations Y, Z and beyond 701. Stability of the global economic infrastructure 44 28. Level of female participation in the workforce 712. The level of economic growth 45 29. Cost and ease of access to higher education 723. Public attitudes to pure capitalism 46 30. Uptake of online learning models in education 734. Consideration of alternative economic perspectives 47 A4: BUSINESS 745. Total scale and distribution of global inequality and unmet needs 48 31. Capitalism next: future governing business and market paradigms 746. Globalisation v protectionism in times of economic uncertainty 49 32. Business leader responsiveness to change and disruption 757. Standing of the US dollar as the global reserve currency 50 33. Quality and availability of the global talent pool 768. Notions of value and currency 51 34. Influence of emerging financial centres 779. Broadening measurement of business value and progress 52 35. Choice of global business languages 7810. Impact of BRIC market development on global accountancy firms 53 36. Scale of global mergers and acquisitions (M&A) 7911. Freedom of mobility for global labour 54 37. Extent of foreign direct investment in developed and developing economies 8012. Extent of mergers of international stock exchanges 55 38. Scale of reverse innovation flow from emerging economies to the13. Proportion of knowledge-creation activities as a share of the economy industrialised world 81at the national and global level 56 39. Speed and duration of business cycles 8214. Stability of national revenue bases 57 40. Experimentation with and adoption of new business models 8315. Manageability of national and international debt 58 41. Crowdsourced funding for innovation: the consumer as investor 8416. Level of investment required to maintain national physical infrastructure 59 42. Level of complexity in business 8517. Number and impact of micro-businesses on the overall health of theeconomy 60 43. Adoption of integrated systems thinking to manage business complexity 86A2: POLITICS AND LAW 61 44. Living wills for businesses 8718. Focus of global governance institutions 61 45. Enterprise risk management capability 8819. Rate of democratic transition 62 46. Evolution of corporate governance regulation and practice 8920. Level of international political volatility 63 47. Extent of social entrepreneurship in social and business sectors 9021. Pace and extent of cultural globalisation 64 48. Scope and diversity of expectations of external stakeholders 9122. Governance and delivery of outsourced public services 65 49. Pressure to manage corporate reputation as part of business strategy 9223. Volume and complexity of legal regulation 66 50. Level of corporate commitment to social responsibility, investment, philanthropy and volunteer work 93A3: SOCIETY 67 51. Use of cash for financial transactions 9424. Scale and distribution of global population growth 67 52. Management of accountability and compliance within the firm 9525. Spread of cultural diversity in society and the workplace 68 53. The future role of intermediaries 9626. Workforce age structure 69 54. Emergence of new industry sectors and professions 9748
  5. 5. A5: SCIENCE AND TECHNOLOGY 98 A7: THE PRACTICE OF ACCOUNTING 12455. The digitisation of work 98 81. Defining the scope of the accountant’s role 12456. The use of personal technology in business 99 82. Size and complexity of the CFO’s remit 12557. Impact of the internet and personal technology upon attention spans, 83. Non-financial information and integrated reporting 126learning, and knowledge retention 100 84. Clarity in financial reporting and defining the audit function 12758. Business impact of social media 101 85. Balance between external financial accounting and internal59. Ease of internet access 102 managerial accounting 12860. Adoption of cloud computing by business 103 86. Internal audit management 12961. Creation and valuation of digital assets 104 87. Changing structures and business models for accounting firms 13062. Cybersecurity challenges for business 105 88. Opportunities arising from adoption of global regulation 13163. The future of digital publishing 106 89. Evolution of the global accounting supply chain 13264. Big data: the development and exploitation of large organisational 90. Adoption of globally accepted accounting standards 133databases 107 91. Impact of size-specific business regulation upon accounting practices 13465. Data mining and predictive analytics 108 92. Rate of adoption of XBRL as an accounting data standard 13566. ‘Intelligent’ accounting systems 109 93. Importance of intangible assets in company valuation 13667. Scale of business opportunities associated with augmented andvirtual reality 110 A8: THE ACCOUNTANCY PROFESSION 13768. New industries and production models 111 94. Societal expectations and definitions of accounting 13769. Advances in genetic science 112 95. Flexibility, suitability and cost of accountancy training 13870. The role of genetics in personalised health care 113 96. Accounting skills capacity in transitional economies 13971. Advancements in brain science 114 97. Level of entrepreneurial skills in the accountancy profession 14072. Impact of nanotechnology advances across business sectors 115 98. Public perception and attractiveness of the accountancy profession 14173. Impact of advances in robotic science across business sectors 116 99. Establishment and recognition of accountancy associations in developing markets 142A6: ENVIRONMENT, ENERGY AND RESOURCES 117 100. Impact of competition from entrants outside the profession on the74. Global climate change 117 provision of accounting services 14375. Global competition for limited natural resources 118 ENDNOTES 14476. Carbon tax and other environmental market mechanisms 11977. Level of trade in environmental finance markets 12078. Extent of eco-literacy, green practices, and ethical consumptionin business 12179. Developing materiality of biodiversity impacts on business 12280. Scale of take-up in alternative energy by business 123 100 DRIVERS OF CHANGE FOR THE GLOBAL APPENDIX CONTENTS 49 ACCOUNTANCY PROFESSION: APPENDIX
  6. 6. A1: Economy1. Stability of the global economic infrastructureDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe global economy, trade and financial flows are dependenton a complex underpinning infrastructure that comprises a Uncertainty will be a dominant paradigm for therange of key agreements, standards, systems, checks, decade ahead.balances and governance frameworks. The stability of thisinfrastructure has a direct bearing on global business Businesses will increasingly need to factor in the potential forconfidence, investment and spending. partial or total collapse of financial and trade infrastructures in their strategic and financial planning.Clear strains are already evident in the global financialsystem. For example, the sovereign debt challenges facing Businesses must consider how the risk of partial or totalmany European nations are putting pressure on the current infrastructure collapse would affect thinking on the choice ofoperating models of both the European Monetary Union and a company headquarters and financial jurisdiction.the wider European Union. Some analysts even predict thatthe very nature of capitalism itself may undergo more than Questions arise as to how the collapse of the global bankingone transformation in the next 10 to 15 years. system would affect organisations, the availability of credit and the accounting process.As a result of these pressures, much of the global governanceinfrastructure and its supporting systems and processes may IMPACT TIMEFRAMEneed to be redefined or completely transformed. This willrequire strong intergovernmental and multilateral 1–3 yearscooperation among countries in order to establish asustainable set of interconnected systems that can support KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORthe global economy through its transition over the next 10 to ACCOUNTANTS20 years. What would widespread government-imposed austerity measures mean for accountants, especially those in the public sector? Would the accountancy profession need to grow to handle the necessary cuts in public spending or would its numbers be significantly reduced as part of those cuts? What financial mitigation strategies should and could be adopted to cope with the potential collapse of the Eurozone? What advice might the accountancy profession have to offer to governments and global regulators on the design of the future global economic system? How can the profession show leadership during times of economic instability?50
  7. 7. 2. The level of economic growthDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe level of economic growth is a critical driver in anyeconomy. Growth expectations influence business A prolonged period of negligible or non-existent growthconfidence, consumer spending, government planning and could force governments and businesses to rethinkbudgeting, and management of the micro and macro fundamentally their strategies and economic models andeconomy. Economists’ views vary on both the likely level of would almost certainly lead to major disruption in thegrowth over the coming years, and even whether growth economic and financial system.remains a realistic and viable option in a turbulent world.While the majority of economists continue to forecast some If growth slows even more or remains sluggish, thelevel of growth, an emerging view is that constant economic importance of accountancy may increase, as accountantsgrowth can no longer be assumed, and we may have to think could be expected to help maximise the financial outputabout and prepare for a world with zero or negative growth. achieved from a dwindling supply of resources.The Economist Intelligence Unit (EIU) predicts that the Lower levels of economic growth could lead to a closer focusEurozone as a whole will return to growth in 2013, with an on the exploration of emerging markets and virtualaverage annual growth in real GDP of around 0.8% between world opportunities.2012 and 2016.1 Meanwhile, the US and the UK are predictedto see average real annual GDP growth of around 2.1% and Firms might need to adapt their business models to reflect1.1% respectively over the same period.2 The EIU also predicts new pricing models, eg small margins spread over a largethat the BRIC economies (Brazil, Russia, India and China) will number of clients.continue to enjoy comparatively rapid growth rates, withChina and India projected to grow on average by 8.1% and Countries may have to adopt new national aims and7.9% in real GDP annually between 2012 and 2016.3 performance indicators that replace traditional governmental goals of economic growth.Conventional wisdom and assumptions on the prospects ofgrowth are increasingly being challenged. A radical long-term IMPACT TIMEFRAMEeconomic view, taken by economists such as RichardHeinberg, is that we could be about to witness the end of 4–5 yearseconomic growth as we have known it.4 Heinberg and othersargue that increasing stresses on the supply of key finite KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORenergy resources, such as oil and natural gas, combined with ACCOUNTANTSrising prices, will constrain the potential for continued globaleconomic expansion. Heinberg predicts that, in this resource- What role can accountants play in helping businesses ‘futureconstrained world, economic growth will become a zero-sum proof’ themselves against volatile, uneven or persistentlygame, where growth for some will be achieved only at the low growth?expense of other regions, nations, or businesses.5 Are accountants developing the skills required to respond toThe challenge for policymakers and economists is learning a range of economic and market scenarios and modellinghow to plan for possible scenarios ranging from continued their financial impacts?growth through to a future where progress is still made, butwithin a zero or negative growth economic model.6 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 51 ACCOUNTANCY PROFESSION: APPENDIX
  8. 8. 3. Public attitudes to pure capitalismDESCRIPTION Remuneration packages may come under close public scrutiny and audit procedures will be subject to heightenedIn the wake of the global financial crisis (GFC), attitudes to media interest.capitalism and the capitalist system appear to have becomemore polarised, particularly as regards the Anglo-American There is potential for a tighter regulatory environment andmodel of capitalism. Some have argued that while the system transaction taxes (ie Tobin Tax).has its flaws, it is still functioning effectively and is the bestmechanism for driving growth and wealth distribution. Others Attention will be paid to ‘footloose’ firms, the level of localbelieve that the system is in need of a fundamental rethink to taxes paid by global businesses and the motivation forprevent future crises and ensure a better deal for the poorest relocation decisions.in society. A potentially growing trend is a move away from the maximisationThose arguing the need for total reform point to continuing of shareholder value as the key business objective towards apublic antagonism towards financial services and to focus on wider stakeholders’ interests, even in countries thatdevelopments, such as the occupation of public spaces from have traditionally been shareholder focused.Wall Street to London, as clear indicators of the level ofdismay at the global economic system. They contend that Disillusionment with the current form of capitalism couldthe current system has not addressed global poverty, and has result in the revitalisation and reformulation of alternativeindeed served to exacerbate social inequality, increased economic models based on some hybrid of communist orenvironmental risks and created enormous public socialist principles.budget deficits. IMPACT TIMEFRAMEPublic opposition to the current model of capitalism has ledto social unrest in some countries, and a loss of support for 1–3 yearsstrongly pro-business governments in other cases. Theseworldwide concerns about income disparity created by KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORunfettered capitalism and deregulation have led to growing ACCOUNTANTScalls for ‘solutions that serve the 99%’. What impact will public concerns have on expectations ofThe challenge facing many developed-economy governments, corporate reporting?in particular, is how to balance the demands for reform from How can accountants be equipped to advise companies andthe voting public, with the need to attract and encourage the governments on more balanced policies that address theprivate sector wealth-creators who can help drive growth and concerns of multiple stakeholders and reduceeconomic recovery. income disparity?IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE What role will the accountancy profession play in ensuringACCOUNTANCY PROFESSION that key performance indicators for state services are met? Will country policies on business regulation and personalNot only may standards of behaviour become stricter but, in taxation influence accountants’ decisions on where to work?the ‘show me’ world of tomorrow, business could also beexpected to demonstrate it is meeting public expectations by How can accountants distance themselves from the publicreporting to the world on its actual behaviour, eg on carbon criticism faced by other key players in the capitalist system?footprint, diversity and actual taxes paid. Can accountants develop measurement systems that are capable of valuing softer factors beyond money?Concepts such as justice and fairness could be included inthe reporting expectations being placed on business. Will accountants be able to operate in systems that deal with estimates of abstract concepts rather than the hard mattersCriticism levelled at business leaders, and finance in of cash and P&L?particular, could create a hostile social environmentfor accountants. Can accountants leverage their reputation as ‘trusted measurers’ on behalf of society?52
  9. 9. 4. Consideration of alternative economic perspectivesDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe financial crisis has offered a chance for nations to explorenew economic perspectives and models traditionally A serious examination of alternative economic perspectivesneglected by mainstream economic thought. A serious by firms and nations could lead to a period of economicexamination of these perspectives could help reformulate the experimentation, whereby new business and working modelsglobal economic system along more environmentally could be trialled.sustainable and equitable lines, and prevent the reoccurrenceof further financial collapses. Accountants could play an important role in a closed-loop economic model, by keeping track of an organisation’s assetsOne such perspective is Collapsonomics, which is the study and ensuring that all forms of waste are recycled.of economic and state systems at the edge of their normalsocial and economic function. The study of systems on the IMPACT TIMEFRAMEverge of or in collapse could help economists andpolicymakers to construct preventative measures to avoid the 1–3 yearsdestructive feedback loops and vicious cycles that can lead tocollapse.7 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR ACCOUNTANTSAn alternative perspective is Closed Loop Economics, whichtakes its inspiration from biological systems in which nutrients How can accountants make use of the ideas generated byare used in a circular system, so that all waste is reinvested.8 A alternative economic perspectives to provide innovativecircular economy would aim for the elimination of all waste strategic financial advice?through the superior design of materials, products, systemsand, within this, business models.9 What might be the impact of an increasing overlap with science and mathematics on the practice and studyThe disquiet with most economists’ failure to predict the of accountancy?financial crisis and the wide range of divergent views abouthow best to reignite the global economy could lead to What new, alternative economic perspectives could begrowing calls for other sciences to contribute to the field. generated from sources beyond accountancy?For example, mathematicians, biologists and physicists allstudy complex systems and algorithms whose behaviour mayoffer better insights into the behaviour of markets andeconomies than traditional economic tools. 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 53 ACCOUNTANCY PROFESSION: APPENDIX
  10. 10. 5. Total scale and distribution of global inequality and unmet needsDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONIn its 2012 report on global risks, the World Economic Forumcited ‘severe income inequality,’ as the primary threat facing Polarisation of consumer markets into luxury and budgetthe world in the next ten years.10 The OECD notes that there is sectors is becoming a distinct possibility in many countries.a growing body of research that indicates that higher incomeinequality within countries correlates with higher Social and political stability of key markets could becomeunemployment, higher crime rates, lower average health, increasingly important factors in analysts’ assessment of aweaker property rights, limited access to public services, firm’s prospects.lower social mobility, more social unrest, and less trust withinand across the society, leading to more fragile democracies.11 Margins within many industry sectors may be constrained, resulting in consolidation.The Gini coefficient, a measure of the concentration of wealthwithin an economy and thus of inequality, is set to rise in IMPACT TIMEFRAMEmany major economies. A coefficient of 1.00 (100%)represents absolute inequality whereby one person owns all 4–5 yearsthe wealth and 0 represents absolute equality. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORSouth Korea is the only rich country that has succeeded in ACCOUNTANTSreducing inequality during the last two decades. Oxfamreports that of the emerging economies only Brazil, Argentina How might social and political instability be factored into riskand Mexico have done so, though their overall level of assessments of enterprises?inequality remains high.12 How might accountants address the unmet needs of thoseForecasts from Euromonitor suggest that between 2011 and outside the mainstream?2020, Pakistan will see the highest relative increase in its Ginicoefficient, rising from 0.389 to 0.417 as a result of a high How might global inequality ultimately affect the markets inpoverty rate and a growing rural-urban divide. Other which global financial services players choose to operate?countries projected to see significant increases inincome inequalities include Norway, South Korea, India,Canada and the UK.The UK’s Gini co-efficient is projected to rise from 0.337 in2011 to 0.35 by 2020. Despite robust economic growth,China’s Gini coefficient is forecast to reach 0.521 by 2020, upfrom 0.516 in 2011. Meanwhile, income distribution in LatinAmerican countries, including Brazil and Mexico, is expectedto continue improving.1354
  11. 11. 6. Globalisation v protectionism in times of economic uncertaintyDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONMarket-driven mechanisms and globalisation are seen to haveopened up the world to businesses and brought increased Uncertain economic futures create both opportunities andprosperity and well-being to the world at large. These challenges for domestic firms.enablers have improved the overall living standards of manydeveloping nations by increasing economic growth. This ‘free A change in a host nation’s attitudes towards foreign firmsglobal market’ has also enabled the efficient and effective could lead to a tightening of regulations around investmentuse and allocation of resources to achieve enhanced requirements and repatriation of profits.economic outcomes. Regular country-risk assessment will become an increasingFaced with continued economic uncertainty, countries are priority if protectionist tendencies increase.experiencing more intense competition among themselvesfor resources, investment, talent and export markets. There Continuous changes in the speed and scale of fiscalare signs that these competitive pressures could force regulation and legislation will affect accounting processes,countries to look inwards and put the short-term concerns financing approaches, the complexity of reportingand needs of their domestic populations ahead of those of arrangements and the required skill-sets.the global economy. Could this spell an end to globalisationor might there be further integration? While globalisation and IMPACT TIMEFRAMEfree trade agreements proliferated at a time of growth,protectionism is no longer a taboo subject in the circles of 1–3 yearspower. This comes at a time of increasing criticism of freetrade, and concerns over individual nations’ exposure to KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORunstable global economic conditions. ACCOUNTANTSSome countries outside the Euro-American nexus have How effective are accountants’ mechanisms for spottingalready displayed signs of adopting increasingly protectionist potential changes to attitudes or legislation that couldmeasures by, for example, restricting export supply to push directly affect the ability to trade in particular markets?up the global prices for certain commodities. Already, Russiahas announced a limit on its oil exports and a cessation of Could accountancy firms, if asked to help sustain Westerngrain exports and China is limiting exports of rare earth protectionism, face a backlash and restrictions if they attemptresources and access to its oil.14 to operate in other global markets? How might increased protectionism affect the internationalisation of business and trade and the accountants working in these fields? 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 55 ACCOUNTANCY PROFESSION: APPENDIX
  12. 12. 7. Standing of the US dollar as the global reserve currencyDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONA critical enabler of global trade is the notion of a strongglobal reserve currency, used as the basis for international Uncertainty surrounding the dominant global currency couldpricing of a wide range of commodities, goods and services. create difficulties in the valuation of goods and services.The reserve currency is held widely by nations andcorporations as part of their foreign reserves. The US dollar Multinational businesses will increasingly have to considerhas served this purpose since the Second World War. accounting in multiple strong global currencies.In the wake of global financial turbulence and continued Valuable non-renewable resources (particularly oil) and othereconomic uncertainty in the US, the role of the US dollar as commodities could increasingly be priced in other currenciesthe global reserve currency is increasingly being called into such as the yuan rather than the US dollar.question. The shift in global financial power to the East isalready being reflected in the broadening range of global Businesses will face uncertainty over the stability ofcurrencies being held by countries around the world. exchange rates.Some analysts suggest that the commitment in China to Currency hedging will become an increasingly fine art andliberalise its capital and current accounts will accelerate high-risk activity, as markets anticipate potential shifts awaydemand for yuan globally and could lead the yuan to become from the US dollar to other reserve currencies.a major reserve currency in the next decade. Others suggestthat a successor to the current euro – with fewer but stronger IMPACT TIMEFRAMEmembers – could overtake the US dollar to become theworld’s most widely held reserve currency over the next 4–5 years10 years. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORThere is a risk that any individual currency aiming to serve as a ACCOUNTANTSglobal reserve currency could be susceptible to volatility andspeculative attacks, and be unduly influenced by the policies Would multinational firms move to publishing their accountsof the country whose currency serves as the in multiple currencies if the US dollar’s standing as a globalsuper-sovereign reserve. reserve currency were challenged by currencies such as the euro or yuan?The International Monetary Fund (IMF) is considering creatinga list of currencies that could serve collectively as a reserve. Would a move to adopt the yuan as a global reserve currencyThis could avoid the pitfalls of a single reserve by diversifying lead more firms to publish their accounts in yuan underthe currencies that can be drawn upon, ensuring no single Chinese accounting standards?currency dominates globally.56
  13. 13. 8. Notions of value and currencyDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe effective functioning of national and global tradingsystems requires commonly accepted notions of value and Demand for new measurement systems may emerge if moneycurrency that perform as a universal mechanism through is no longer the sole common denominator or measurement unit.which goods and services can be bought and sold. In anelectronic world, the future of money as a token of exchange P2P and business-to-business platforms that eliminate themay alter radically. Concepts of what constitutes money may intermediary role could lead to far less dependency on banks.change as well as what is valued, how it is measured and whatwill be important to individuals, communities, businesses, There could be a rise in small and micro-business start-upsand governments. trading in different forms of currency – such firms might be rated as ‘high risk’ using traditional assessment techniques.Examples of transformations of the conceptual notion ofmoney, debt and currency and new modes of value can be Changing paradigms around who is creditworthy and a movefound in a number of existing and proposed exchange towards ‘inclusion led’ finance and banking may bring manysystems, for example: more people into higher economic strata, which could be good for business and trade generally.• the proliferation of virtual currencies, such QQ in China, which can increasingly be used to purchase goods and Value circulating in the system without being recorded as services in the physical world auditable currency could create massive complexity for tax regulators and revenue collection agencies.• local (sub national) currencies – essentially tradable vouchers designed to encourage spending in the local New adaptive tax systems could emerge that would be able economy, eg the Brixton and Lewes pounds15 to account for these new modes of value exchange and extract some form of tax payment back to the state.• time banking, built on reciprocal exchange of services and ‘time’ rather than currency IMPACT TIMEFRAME• peer-to-peer (P2P) credit networks, where individuals who 10+ years trust each other transact using mutual credit accounting, rather than money KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR ACCOUNTANTS• the emergence of ‘guarantee societies’ managing a two-way system of community credit (lifting from and How will the finance function account for such non-financial adapting the micro credit model, where pools of users transactions and the resulting assets and liabilities mediate between the lenders and borrowers) for business?• trading units, ie tokens redeemable in energy resources How could accountants use their experience and insight to that are not connected to income or production innovate systems even further to create new non-financial mediums of exchange?• hybrid forms of gift and market economies – a society where the process of giving away valuable goods and Will the range of skills required by accountants need to services without explicit agreement for immediate or expand even further to reflect the demand for expertise in future rewards, mixes with the traditional supply and these ‘money 3.0’ paradigms and new methods of exchange? demand price-based system of the market economy. 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 57 ACCOUNTANCY PROFESSION: APPENDIX
  14. 14. 9. Broadening measurement of business value and progressDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONHow we assess value, progress and performance for businessis increasingly influenced by the range of measures being How might the reporting requirements on global businessadopted for country comparisons. This range of comparative evolve to take account of wider societal measuresnational measures is expanding rapidly to take account of of progress?non-financial measures of development encompassingeverything from innovation to happiness. As the scope of Will the challenge of presenting this broader more integratedglobal businesses become more far-reaching, there is a picture of performance – including non-tangible measuresgrowing view that multinationals should be measured on like resilience and talent – be seen as the role of thesimilar indicators to nations and cities. finance function?Institutions such as the UN, the IMF, the World Bank and a Could this present competitive opportunities forrange of other bodies now compare countries, regions and organisations that successfully demonstrate positivecities on an increasingly holistic set of measures. These measures in employee happiness or environmentalcomparative indicators range from broad economic measures performance – making them more attractive to stakeholders,such as GDP growth and unemployment through to factors as investors and customers?diverse as health, innovation, entrepreneurship, trust,resilience, talent, happiness, sustainability, and environmental Could businesses that lag behind on the implementation ofperformance. and performance against these ‘new measures’ be subject to increased taxes and compromised reputations?An example of these broader measures of progress that hasreached the mainstream is the UN Human Development IMPACT TIMEFRAMEIndex (HDI),16 which measures development progress bycombining indicators of life expectancy, educational 4–5 yearsattainment and income into this composite measure. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR ACCOUNTANTS How will such changes affect the fundamental role of accountants in business? How will financial and non-financial information be presented and weighted in annual accounts? Will non-financial data be perceived as being of lower importance? What are the training implications if accountants are to be prepared effectively to take on this far broader reporting role?58
  15. 15. 10. Impact of BRIC market development on global accountancy firmsDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe global economy is re-balancing. Traditional markets andzones of economic and political power are experiencing Western accountancy firms must ensure that they develop theconsiderable turbulence, while new centres of influence are appropriate cultural awareness of business practices, serviceemerging. This shifting landscape will continue to create both delivery expectations and knowledge of the regulatoryopportunities and challenges for global accountancy firms. context to compete effectively in BRIC countries.The BRIC economies are becoming increasingly important as Economies such as China and India have significantmarkets in their own right and as sources of future differences in corporate culture and client expectations withcompetition for the traditionally dominant economies. These regard to the conduct of commercial activity and the deliverynations, and India and China in particular, represent the of business services. Western accountancy firms are likely tofastest-growing among the emerging large economies need to adapt their practices and employ local or hybrid staffglobally. They are becoming increasingly similar, in terms of who are better able to meet these expectations ineconomic power, to the older industrial economies with which BRIC economies.they are now competing. For example, in 2012, Brazilovertook the UK to become the sixth-largest global economy New global accountancy firms may emerge from the BRICin GDP terms.17 economies (although they may not choose to compete in all major global markets).As the 21st century proceeds, growing economic power willbe reflected in the increased significance of domestic BRIC IMPACT TIMEFRAMEfirms and the markets they create for services such asaccountancy. The BRIC nations are also nurturing domestic 6–10 yearsaccountancy firms that will compete increasingly at the globalscale with those from more established economies. These KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORdevelopments will create significant drivers of change in the ACCOUNTANTScompetition for global market share. How might the nature and expectations of accountancyOf particular interest is the potential for established service provision change in emerging markets?multinationals from mature economies to start to transfer partor all of their business to accounting firms from the BRIC In an increasingly crowded global marketplace, what is theeconomies – as is happening in other sectors such as scope for internationalisation of accountancy firms?information and communication technology (ICT). Thegrowing importance of emerging economy firms and What are the market penetration prospects in closed orbusiness practices may also bring about cultural change in highly regulated environments such as China?how accountancy firms in the G8i economies deliver servicesto clients. What will be the level of competition from domestic firms in emerging markets? How can accounting firms secure and retain sufficient local talent and expertise in these rapidly expanding markets?i. The G8 member countries are Canada, France, Germany, Italy, Japan, UK,US, and Russia. 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 59 ACCOUNTANCY PROFESSION: APPENDIX
  16. 16. 11. Freedom of mobility for global labourDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONSince the 1960s in particular, cheap transport, globalisation ofbusiness and a rise in the number of economic migrants have National employment legislation may make it increasinglymade labour mobility the widespread norm. Many argue that difficult to offer better terms to expatriate workers.inward migration is and will remain a key driver of innovationand growth. Nonetheless, questions are now arising about More restricted mobility could lead to major shifts in howthe future global sustainability of widespread migration in a global firms recruit and develop staff.harsher and potentially more protectionist economic climate. How will the rise and fall of labour mobility affect xenophobiaWith global financial uncertainty and rising unemployment for or even nationalistic and extremist views on and thenationals in many markets, there is, in some countries, protection of non-national workforces?increasing pressure to protect local jobs from foreignworkers. Labour market migrants are not always finding a IMPACT TIMEFRAMEwarm welcome for their skills and energies. Those workingremotely for national organisations may currently be more 4–5 yearsprotected but labour laws in some countries are resisting theincreased level of labour mobility even at the highest KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORskill levels. ACCOUNTANTSThe operating model of many global businesses relies on a Will global firms increasingly be expected to report and behigh degree of global labour mobility to allow talent to be evaluated on the geographic distribution and global mobilitydeployed where it is most required. This constant global of their top talent?rotation of talent also helps develop and sustain commonworking practices, standards and culture within these How might accounting practices in global companies bemultinational firms. A shift from a globalised to nationalised affected if accounting staff cannot move freelylabour market could have severe implications for many firms. between countries?60
  17. 17. 12. Extent of mergers of international stock exchangesDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONStock exchange mergers have been more common since2007.18 The current wave of mergers between securities Mergers could bring potentially significant realignment ofexchanges was driven by opportunities arising from new financial centres.technologies and regulatory reforms affecting derivativeinstruments in European and American markets. For example, The influence of a given nation’s regulatory environmentIntercontinental Exchange purchased the Britain-based could spread via mergers of capital markets.Climate Exchange PLC for US$597 million in 2010.19 The world’s capital markets could potentially consolidate intoFollowing the GFC, regulators began forcing derivatives three or four major world centres.trading onto exchanges, and since the volume of derivativesoutstanding is a large multiple of world GDP, the revenues IMPACT TIMEFRAMEavailable became substantial. The other driver behind thedesire to merge has been the emergence of computerised 1–3 yearshigh-frequency trading. To meet traders’ demands for fasterand more complex deal matching, securities exchanges are KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORconstantly required to invest large sums of capital to establish ACCOUNTANTSand upgrade sophisticated information systems platforms.Cost pressures and potential economies of scale are Could consolidation among capital markets lead tocontributing to the attractiveness of stock exchange mergers. standardised transaction accounting practices across regions?While the attractions are significant, major barriers exist todriving through these mega-mergers. For example, in 2010, Is a standardised market the best way of inducingSingapore Exchange Ltd agreed to a US$8.3 billion takeover transparency and visibility? How could such transparencyof Australia’s ASX Ltd in an attempt to create Asia’s fourth- benefit accountants?largest stock exchange – this was subsequently rejected. Might accountancy firms similarly cluster around aSimilarly, the proposed €6.8 billion tie-up between Deutsche consolidated global capital market structure (ie in three orBörse and NYSE Euronext would have been the largest-ever four mega-centres)?merger between international financial exchanges. Themerger has been blocked by the European Commission onanti-competition grounds.21 Despite these merger attempts,the drivers supporting further consolidation and integrationof the world’s capital markets remain intact. 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 61 ACCOUNTANCY PROFESSION: APPENDIX
  18. 18. 13. Proportion of knowledge-creation activities as a share of the economyat the national and global levelDESCRIPTION relatively small pool of highly skilled professionals. Hence, while businesses in these sectors are attractive from aConventional wisdom in industrial policy has been that wealth-creation perspective, they do not help address theinnovation is a key driver of economic growth and growing challenge of achieving full employment withindevelopment. The growth of the so-called ‘knowledge-based an economy.industries’ has been seen as a critical enabler of innovation.The knowledge economy can be broadly defined as a shift in IMPLICATIONS FOR/IMPACT ON BUSINESS AND THEinvestment priorities towards the creation and exploitation of ACCOUNTANCY PROFESSIONknowledge and intangible assets such as R&D, software,design, development and human and organisational capital. What technology infrastructures should businesses invest inNations across both the mature and emerging markets are so as to promote and enhance knowledge creation, sharingputting the knowledge based industries at the heart of their and innovation for competitive advantages?future plans and economic development strategies. There may be a risk of creating an overqualified andTechnological development and globalisation are seen to act underused workforce with a rapid expansion of higheras accelerators to the growth of the knowledge economy. education that is not matched by an increase in knowledgeCheap and pervasive ICT and widespread education to work opportunities.graduate level and beyond are also identified as definingcharacteristics of a knowledge-based economy. Conversely, the skills developed in education may not be those required in the growth of the knowledge economy.The link between the knowledge economy and job creation isan important one. A study from the Work Foundation reports As the effect of location is less important, opportunities andthat the number of knowledge workers in the UK and other challenges may emerge for business with the increasingOECD countries has been growing for the past 25 years.22 The internationalisation of knowledge work.study also indicates that the knowledge-intensive industrieshave been major creators of new jobs in European economies IMPACT TIMEFRAMEfor the past two decades. The Work Foundation’s reportshowed that between 1979 and 2010, employment in 1–12 monthsknowledge-intensive services in the UK increased by 93%.23 Incontrast, the total employment across the UK economy went KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORup by only 13% over the same period, indicating a sharp ACCOUNTANTSincrease in the total proportion employed in knowledge-creation activities. Do current practices and standards for measuring and valuing intangible assets match up to the needs of theThere are important geographic issues to consider here, as knowledge economy?knowledge work can be highly mobile. A British example ofthis problem is that markedly less private-sector knowledge What role does the profession have to play in ensuring thatwork is being conducted outside the south east of the UK, there is effective government policy on knowledgewith many cities in the north of the country being left creation activities?behind.24 Furthermore, the phenomenon known as the ‘braindrain’ might have negative consequences for the economies How can accountants demonstrate ‘in traditional terms’ thethat made the original investment in the education of value of investing in knowledge-enhancing activities?knowledge workers. ‘Brain drain’ is a risk that faces bothdeveloping and developed countries.One of the big concerns emerging around the knowledge-based industries of tomorrow is that they are not creating thesame number of jobs as the declining sectors that they arereplacing. Many of these new information age and ‘biologicalera’ businesses rely on a high degree of automation and a62
  19. 19. 14. Stability of national revenue basesDESCRIPTION For countries with unstable economic bases, a priority is to establish a diversified tax structure that reduces dependencyThe stability of national revenue bases is considered a on any one source of revenue.prerequisite for the economic well-being of countries as itaffects governments’ ability to provide public services. IMPLICATIONS FOR/IMPACT ON BUSINESS AND THEResearch from the University of Kentucky (2008) suggests that ACCOUNTANCY PROFESSIONthe stability of a nation’s revenues depends on the level ofeconomic development and the robustness of its tax In countries with an unstable economic base andsystems.25 The challenge globally is to ensure that sufficiently underdeveloped tax systems, there is a risk that an undue taxdiverse revenue sources and robust collection mechanisms burden may be placed on the corporate sector, as it is easierare in place to enable sustainable growth and development to assess and collect taxes from businesses than from otherof emerging economies. parts of the economy.Generally, government revenues are derived from direct In countries with unstable revenue bases, there may betaxes paid by households (mainly personal income tax) and increased risk of sudden and dramatic changes in revenuecorporations; and indirect taxes, social contributions and policy and taxation rates – particularly for foreign firms.revenues from state owned assets and enterprises.26 In OECDmember countries, taxes other than social contributions have IMPACT TIMEFRAMEgenerally increased over the past decade and represent thelargest share of government revenues.27 For OECD member 1–12 monthsstates, grants and other income revenues such as fees andsales of natural resources represent between 10% and 15% of KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORtotal revenues. By generating revenues from multiple sources, ACCOUNTANTSgovernments can distribute the burden across differentgroups of citizens and sectors of the economy. How should the relative stability of a nation’s revenue base be factored into country risk assessments?A major concern for many economies is the scale of theso-called black or shadow economy. This comprises a largely What role can accountants play in crafting effective taxcash-based, illegal, unlicensed and untaxed set of activities systems for developing countries to help ensure the stabilityranging from trade in counterfeit goods to narcotics, of revenue bases?prostitution and human trafficking. The total value of illicittrade in what is believed to be, in effect, the world’s fastest-growing economy is now estimated at US$10 trillion globally– making it the second largest global economy after the US.28The OECD projects that, up to two-thirds of the world’sworkers will inhabit the shadow economy, or ‘System D’ii by2020.29ii. Robert Neuwirth in his article the ‘The Shadow Superpower’ <http://www.foreignpolicy.com/articles/2011/10/28/black_market_global_economy>explains that ‘System D is a slang phrase pirated from French-speaking Africaand the Caribbean. The French have a word that they often use to describeparticularly effective and motivated people. They call them débrouillards. Tosay a man is a débrouillard is to tell people how resourceful and ingenious heis. The former French colonies have sculpted this word to their own social andeconomic reality. They say that inventive, self-starting, entrepreneurialmerchants who are doing business on their own, without registering or beingregulated by the bureaucracy and, for the most part, without paying taxes, arepart of ‘l’economie de la débrouillardise’ or, sweetened for street use,‘Systeme D’. This essentially translates as the ingenuity economy, the economyof improvisation and self-reliance, the do-it-yourself, or DIY, economy.’ 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 63 ACCOUNTANCY PROFESSION: APPENDIX
  20. 20. 15. Manageability of national and international debtDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe manageability of national and international debt isimportant for macroeconomic stability, business confidence If fiscal consolidation fails to reduce debt to GDP ratios, theand future economic development prospects. Levels of debt interest burden could rise to a point that affectspublic debt also have important ramifications for citizen sovereign creditworthiness.well-being, unemployment levels and the provision of socialwelfare services. Globally, the economic outlook is In the countries with the highest debt to GDP ratios, how willincreasingly influenced by the views of policymakers, central budgetary consolidation and structural reforms affectbankers and financial institutions on the sustainability of business and financial markets?sovereign debt – particularly among Eurozone nations. What might be the subsequent knock-on effects if publicThe OECD reports that government debt as a percentage of debt issues overwhelm capital markets and suppress privateGDP in 2012 is 97% for the UK, 103.6% in the US, 102% in sector lending?France, 128.1% in Italy and 181.2% in Greece.30 The total for allOECD countries is 105% in 2012, and is predicted to rise to IMPACT TIMEFRAME108% in 2013.31 Deutsche Bank’s own baseline scenario, whichassumes gradual fiscal consolidations, projects that public 1–12 monthsdebt in the developed market economies will rise to around126% of GDP in 2020, up from roughly 104% in 2010.32 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORDeutsche Bank also warns that if policy action for managing ACCOUNTANTSand reducing the levels of public debt is not successful, itcould feasibly rise to well above 150% of GDP in the OECD What mitigating strategies are being put in place to addressdeveloped market economies by 2020.33 potential default by highly indebted countries?Dealing with potentially rising levels of sovereign debt is likely What planning is in place to deal with the potential collapseto dominate the global economic agenda for a decade or of the Eurozone in the event that one of its majormore. The challenges faced by highly indebted countries in economies defaults?servicing increasingly high interest rates on their debt raisethe prospect of further expensive bailouts and a growing riskof debt default. The concern is that default by a major playersuch as Spain could lead to a ‘domino effect’, with marketslosing faith in other highly indebted nations – resulting in amajor global economic collapse or a serious downturn.64
  21. 21. 16. Level of investment required to maintain national physical infrastructureDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONPhysical infrastructure forms the economic backbone of alleconomies. The quality and resilience of a national Are the market conditions appropriate to attract privateinfrastructure has a direct influence on the growth, finance to provide equity capital for large complexcompetitiveness and attractiveness to inward investment of a infrastructure projects?nation’s economy. The standard of economic infrastructure,encompassing water, waste, transport, energy and What new opportunities arise for the private sector with acommunications, affects the quality of life for citizens as well possible expansion of public-private partnerships foras the ability to meet objectives and commitments regarding infrastructure investment?sustainability and reducing carbon emissions. Will direct foreign government or private investment inGlobally, increased levels of investment will be required to domestic national infrastructure projects disadvantagemaintain and modernise existing infrastructure and meet the national firms?new challenges arising from population growth, economicdevelopment and sustainability challenges. The funding of IMPACT TIMEFRAMEmajor infrastructure investments is becoming a majorproblem for governments in an uncertain global economy. To 1–12 monthsput the requirement in context, the OECD estimates that totalcumulative world infrastructure investment requirements from KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR2011–30 will be in the region of US$200 trillion.34 ACCOUNTANTSFor the UK, data from HM Treasury shows that investment in What specifics in accounting and business expertise will beUK infrastructure was £150 billion over the five-year period required to navigate the sometimes complex combinations ofbetween 2005 and 2010.35 The demand for future investment partnerships across sectors that increasingly will be used toin the UK’s economic infrastructure is estimated to be in the finance infrastructure development?range of £40 billion to £50 billion or more a year until 2030.HM Treasury suggests this scale of investment required is How will the regulatory and policy frameworks of privatesignificantly above historic levels. procurement affect the operating context for the financing and auditing of large long-term infrastructure investments?A growing number of competing priorities for public funds, anegative economic outlook and the credit crisis means thatgovernments are under pressure to be creative in raising themoney for infrastructure needs. Governments worldwide arelooking at a range of proven and innovative new financingmodels and a portfolio of hybrid approaches. These are likelyto include a variable range of public–private partnerships(PPP), private finance initiatives (PFI),36 flotations, communityfunding models, total privatisations andsecuritisation models. 100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 65 ACCOUNTANCY PROFESSION: APPENDIX
  22. 22. 17. Number and impact of micro-businesses on the overall health ofthe economyDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONMicro-businesses are an increasingly important part of theeconomy because they diversify national employment risk, Inuit’s The Future of Financial Services 2020 Report predictscan be started relatively quickly and are often in key intense competition to serve smaller businesses – leading toknowledge-based industry sectors. The standard EU lower margins.41definition of a micro-business, and the one also accepted bythe UK government, is a company employing fewer than ten Inuit also suggests that the small business sector will continuepeople and with a turnover of less than €2 million (£1.6 million; to expand driven by growth of personal (one person) andUS$2.4 million). Under this definition, 95% of UK companies micro- businesses (fewer than five employees). This will createqualify as micro-businesses.37 opportunities for financial institutions that can serve these small firms efficiently.With high rates of structural unemployment in many OECDeconomies, the argument that the number of micro- Increasingly, the internet is enabling micro-businesses to bebusinesses will increase seems compelling. During 2010, global from day one – creating a different set of supportAmericans started an average of 565,000 businesses a requirements than for those serving purely domestic markets.month.38 Whether out of necessity, choice or strategy, theconfluence of technology and globalisation is enabling a IMPACT TIMEFRAMEwhole new generation of global micro-business. Estimatessuggest that 40% of the US workforce could comprise 4–5 yearscontract workers by 2020,39 highlighting the increasing allureof starting a micro-business and hiring out your labour to a KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORrange of firms. While the focus is typically on firms in the ACCOUNTANTSknowledge economy, many micro-businesses are in sectors asdiverse as catering, construction and personal services. How can accountants provide a customised, value-adding service for micro-businesses?Analysis from Booz & Company predicts that, by 2020,870 million women who have not previously participated in How can accountants adapt to potentiallythe mainstream economy will gain employment or start their decreasing margins?own business. Most of these are expected to come fromemerging economies, while roughly 42 million are forecast to What business model could be adopted to serve largecome from North America, Western Europe and Japan.40 The numbers of micro-business clients efficiently?challenge for governments is creating the right policies,support infrastructure and incentives to encourage thegrowth of micro-businesses.66
  23. 23. A2: Politics and law18. Focus of global governance institutionsDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONA network of governance institutions operating at theinternational level largely took shape during the first half of Businesses will need to pay increasing attention to thethe 20th century to regulate economic, political and social policies and attitudes of a growing range of regionaldynamics and foster international collaboration. Questions groupings when looking at regional and country strategiesare now being raised over how well these institutions can and risk assessments.govern and steer the emerging world order and respond tothe pace of global change. Western-dominated institutions that set global economic standards could see control gradually transfer to the East, orInstitutions such as the World Bank, IMF, World Trade find themselves marginalised by entirely newOrganization (WTO) and the UN could face intensifying international organisations.pressure to adapt their structures to the reality of thechanging world. These organisations were created in a Could Western countries accepting bailouts from newerprevious era when a different set of rules existed, set by the global institutions following Eastern economic standards beWest, and they still largely reflect a global order that existed forced to remodel their economies using Easternimmediately after the Second World War. With economic economic practices?power increasingly shifting eastwards, many parts of theworld now look to China, in particular, for direction Emphasis on national economic measurements based onand support. intangible financial and monetary markets could lessen in favour of tangible goods and services market measurements.Global institutions are evolving at a relatively slow pace inresponse to a changing global landscape, with more diverse The face and nature of globalisation could change, with Chinacentres of political and economic power and influence. An and India advancing (and possibly protecting) domesticexample of this is the continuing UN negotiations in respect knowledge industries, while helping them to export theirto granting a permanent Security Council seat to India. offerings globally.The G20 grouping has become an increasingly prominent IMPACT TIMEFRAMEforum for bringing together leading developed anddeveloping nations. There is, however, still a belief among 10+ yearsdeveloping nations – such as the G77 grouping – in particularthat they need a stronger voice in the wider set of global KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORgovernance institutions. ACCOUNTANTSWhile existing institutions are proving themselves slow or What would the implications be of greater influence of thereluctant to change, the argument that the number of developing economies on global accounting standards?micro-businesses will increase seems compelling and othergroupings are emerging and becoming more influential. For Could accounting talent follow the shift of globalexample, the Shanghai Co-operation Organization, the Gulf governance eastwards?Cooperation Council, and the Association of Southeast AsianNations (ASEAN) have all assumed increasing prominence inthe last decade. There is concern in some quarters that therecould be a dilution of value and influence of the Westernnations as developing economies seek to pursue their ownagendas in these newer regional groupings. 100 DRIVERS OF CHANGE FOR THE GLOBAL A2: POLITICS AND LAW 67 ACCOUNTANCY PROFESSION: APPENDIX
  24. 24. 19. Rate of democratic transitionDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe rate of democratic transition can be important tobusinesses for many reasons. Political changes may open up Firms may find public sector contracts being reviewed orthe economy, attract foreign investment, create business cancelled if regime change brings in a government that wantsopportunities and drive the growth of domestic segments to distance itself from the commercial dealings of itsbut swift changes in power can be violent and disruptive – predecessor and start with a clean sheet.causing economic downturns and depressing consumer andbusiness activity. Changes may also create political and Regime change may create fresh opportunities foreconomic instability, or bring changes in legislation that are foreign business.unfavourable to business, all of which contribute to anuncertain business climate. If China entered a period of swift political reform that reduced domestic growth, this could have global economicThe consequences of swift changes in political power have repercussions.been demonstrated in Egypt since 2010. Within 12 months ofthe initial social and political citizen protests, ex-President IMPACT TIMEFRAMEMubarak was ousted in 2011 and replaced by a militaryjunta.42 For Egypt, high GDP growth rates are essential for 1–3 yearstackling the youth unemployment and poverty issues thatunderpinned much of the original unrest. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR ACCOUNTANTSIn practice, according to the IMF, the impact of the transitionon the Egyptian economy has been largely negative. Annual What risk assessments have been conducted to assess theGDP growth in Egypt slowed to 1.8% during 2011, and is potential business and financial impact of regime change inexpected to average 1.5% in 2012. This contrasts with growth each core market?rates of 7.2% in 2008, 4.6% in 2009 and 5.1% in 2010.43Double‑digit inflation is also expected as a result of the Newly democratised nations may seek to impose higherpolitical instability.44 standards of financial transparency as part of electoral promises for greater openness across the economy.The question arises as to what the social and economicimpact might be of rapid political transition in China? Who How can accounting professionals prepare to take advantagemight be the resulting winners and losers in any new of the opportunities offered by rapid regime change?governance model that emerges?68
  25. 25. 20. Level of international political volatilityDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe level of political volatility caused by popular uprisings orthe actions of hostile nations and terrorists groups can pose a Increasing tensions in the Middle East, such as over Iran’sthreat to both the physical and economic integrity of a state. disputed nuclear programme, could result in a spike in oilFluctuations in political volatility and concerns over terrorist prices and drastically increase business costs.activity can affect inward investment and spending in acountry, as well as reducing the confidence of global Increasing political volatility could result in a negative cyclefinancial markets. whereby businesses withdraw, worsening economic conditions, and exacerbating popular unrest.Statistics from the Center for Systemic Peace show a dramatic60% decrease in the levels of both interstate and societal New opportunities could arise once stability returns towarfare in 2011 compared with their peak in 1991.45 volatile states.Nevertheless, during 2011 there were still 24 states directlyaffected by 32 continuing wars, compared with 27 wars at the IMPACT TIMEFRAMEend of 2002. Of these 24 states, more than half (13) wereaffected by protracted wars that have persisted for over ten 1–12 monthsyears.46 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORIncreases in instability can destroy a state’s infrastructure and ACCOUNTANTSdeter businesses from operating and investing, thus seriouslyaffecting the state’s economic performance. For example, What role can accountants play in constructing resilienceconsider the economic impact of the Arab Spring, when plans for firms to deal with potential political volatility in thepopular uprising led to the overthrow of the ruling powers of markets in which they operate?Tunisia, Egypt, Yemen and Libya. Data from the political riskconsultancy Geopolicity indicates that the economic impact What resilience plans do large accountancy firms have inof the unrest resulted in a combined cost of over US$55 billion place for their own operations in relation to potentialfor the countries involved.47 These states saw an estimated political volatility?US$20.6 billion wiped off their GDP and public finances wereeroded by a further US$35.3 billion as revenues slumped andcosts rose.48The actions of states deemed ‘rogue’ can have a widerregional and even global impact. Reuters highlighted seriouseconomic repercussions following increased tensions in theKorean peninsula, in the aftermath of the North’s shelling ofthe South in 2010. South Korea’s finances are reported tohave weakened amid chaos in regional stock markets that sawthe value of both the Korean won and Japanese yen tumble.49 100 DRIVERS OF CHANGE FOR THE GLOBAL A2: POLITICS AND LAW 69 ACCOUNTANCY PROFESSION: APPENDIX
  26. 26. 21. Pace and extent of cultural globalisationDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThere is a growing set of voices challenging the notion thatcultural globalisation is an unstoppable force. To date, If governments respond in such a way to draw up legislationglobalisation in the economic and political spheres has been that better reflects cultural traditions, will this negativelyparalleled by cultural globalisation. This has seen the affect the convenience of free trade and present increasingdissemination and adoption of predominantly Western cultural barriers to international actors?values-based norms, especially in business. The dynamics ofcultural globalisation are tightly interwoven with economic Whether or not Europe as a whole is consolidating isglobalisation, which until now has flowed outwards from the questionable – the harmonisation of business values,main economic powers of Europe and the US. Historically, however, presents both opportunities and risks. Similareconomic liberalisation and increased cooperation have harmonisation may be going on elsewhere.generally assisted the process of inter-regional culturalharmonisation. Talent flows may increasingly be influenced by shifting sites of power within cultural globalisation.In the coming decade, changes in the global economy couldaffect the directional flow of cultural influence. The response IMPACT TIMEFRAMEto the GFC shows that some countries are moving back toculturally protectionist attitudes. The goal is to distance and 1–3 yearsprotect themselves from the value systems and behavioursthat helped cause the collapse. In line with this, the changes KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FORin the global economy also affect labour mobility and social ACCOUNTANTSdynamics, which bring both opportunities and risks. Are‘Western’ cultures influencing ‘Eastern’ cultures? Is there How will differentiation or further harmonisation affect globalequal respect for the other or does it present an intensifying accountancy educational programmes?power play? What barriers will cultural differentiation present for the accountancy function in global enterprise? What can global professional accountancy associations do to help the profession make sense of cultural differentiation and harmonisation in different parts of the world?70
  27. 27. 22. Governance and delivery of outsourced public servicesDESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE ACCOUNTANCY PROFESSIONThe way in which public services are managed, funded,supplied and consumed is changing fundamentally, in line Changing roles for governments in the specification,with the financial struggles that nations face. In order to meet monitoring and delivery of services to the public will affecthigher demands with smaller public funds, it is likely that 21st regulatory procedures for businesses taking over these rolescentury public services will look radically different in the – placing greater emphasis on the accountancyfuture and from what was seen in the 20th century. profession function.Public sector provision is being moved to the private sector, Tougher regulation and acceptance of international standardsparticularly in the West, where, for example, the UK is could become the norm.experiencing its biggest public service budget shortfall for ageneration. Public-private partnerships are becoming more Questions about where the UK will look, towards America orattractive and, in some cases, necessary. Public services are Europe, will affect consensus over a more socially focusedlooking to the private sector not just for money but also for business culture.creativity and innovation in the design and deliveryof services. There is a need for a fair playing field so that business can compete for government tenders with the third sector andQuestions are arising around governance and risk, eg how are public–private partnerships, and provide services with thepublic governance agendas going to be defined and same supply costs as those organisations.enforced with an increasing number of public services beingboth specified and delivered by the private sector? What are There is a need for immaculate accounting practices in orderthe potential risks where the private sector creates the rules to stimulate investor confidence and ensure the flow of fundsby which it operates, for example as it has done in towards efficient delivery of public services.financial markets? IMPACT TIMEFRAMEWhat are the opportunities for leveraging the efficiency,creativity and knowledge that the private sector can offer? 4–5 years KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR ACCOUNTANTS Accountants are now placed in a position that requires balancing the bottom line on public service delivery – will a new type of accounting emerge as a result? Rewards for accountants in social enterprises or public- private partnerships could lag behind those of the corporate sector – what might this mean for talent attraction and retention? 100 DRIVERS OF CHANGE FOR THE GLOBAL A2: POLITICS AND LAW 71 ACCOUNTANCY PROFESSION: APPENDIX

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