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Wednesday, 5th August 2020
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Accountants must plan for economic slowdown Back  
The future is always uncertain but at the beginning of 2001 there was a lot of confidence about and there was still a lot of belief in the Celtic Tiger economy. Jerome Kennedy looks back with the benefit of hindsight and finds 2001 really has been a roller coaster year.
In the first few months there was a lot of promise and expectation that the Celtic Tiger would shrug off the issues that were troubling the major world economies and would continue to grow for a further 2/3 years, albeit at a more modest pace. There was considerable momentum in the economy, a lot of the positive factors that created the Celtic Tiger phenomenon were still there and concerns were mostly about the risk of overheating in the economy, the erosion of our competitiveness by excessive cost increases and how would we overcome the infrastructure deficit. In addition the accounting profession was preparing for regulatory changes affecting companies, financial institutions and the profession; and preparing for the euro.

The first shock to our economic comfort zone was the foot and mouth epidemic in the UK, which caused considerable loss and disruption to our agriculture sector and the necessary and successful curtailment of movements of people and animals had a significant impact on our tourism and leisure sector. We also began to see increasing warning signals from the global technology sector which went from steep upward curve to a downward spiral. Then the terrible events of September 11 have accelerated the slowdown of major economies into recession and changed all economic predictions. This is a tough and challenging business environment for our clients and in turn for the accounting profession.

We also face significant change in the regulatory environment for Irish business. Debates on corporate governance and the role of auditors have been ongoing over the last few years. These have increased the awareness of the respective roles of directors, the audit committee and internal audit in contributing to an effective and efficient corporate governance environment. These discussions and the work of the Audit Review Group have also had the effect of increasing the understanding of the role of the external auditor and the exacting standards that apply to the carrying out of external audits. So there is much to welcome in the clarification of responsibilities that can be seen in the early statements of the new director of corporate enforcement and his clear intent to improve the quality of governance in Ireland. The establishment of the Company Law Review Group is the start of a structure that can improve and clarify the legal framework for business. There is of course a need for balance in setting the legal framework for regulation and in its implementation. Over regulation will impose onerous and costly obligations for existing businesses and could reduce the attraction of Ireland as a location for inward investment. Over regulation can also cause restrictions on the ability of accounting firms to provide the range of services that are so essential to the skill base that is required to meet the needs of clients and also to ensure the breadth of experience and opportunity that is so vital to attract and retain talented people.

The increase in regulation imposes significant duties on external auditors. There is a duty on auditors to report indictable offences under company law to the director of corporate enforcement. The practical working of this new requirement will unfold over the next year. More changes are expected in the draft legislation implementing the review group on auditing recommendations. It is anticipated that this will include a duty to report suspected fraud direct to the gardai.

Much depends on how these various legislative and regulatory changes are implemented. There is an underlying concern that the current proposals will change the role of external auditor from that of serving shareholders and the broader public interest by enhancing transparent and effective reporting on financial and governance issues to that of directly serving the law enforcement authorities. This route could take Irelandā€šs auditors away from best international practice into the role of whistle blower, which ultimately is incompatible with fulfilling our primary public interest role of ensuring that businesses make timely and balanced reports to the marketplace.

New currency
2002 will see the introduction of euro notes and coins. This new currency, which will be used on a daily basis by over 300 million people, represents a huge step forward in European integration. The future of the European Union will depend on the success or failure of the currency. Most of the preparation for the changeover has already been done through 2001 with business readying themselves for all the detailed logistical steps to ensure they can continue to trade. It has been a significant area of activity for the accounting firms with client service teams backed by dedicated euro groups working to find solutions to the practical difficulties involved.

The journey to closer European integration has been ongoing for over 50 years but has not captured the attention of individual Europeans to the extent that one single currency will undoubtedly do. The transition to notes and coins is likely to happen in a planned way with a limited amount of disruption and fuss. By mid 2002 we will all be familiar with the euro notes and coins and speaking positively about all of the advantages. The remaining piece of the jigsaw and quite an important one for businesses in Ireland is the question of Britain and sterling joining the euro. Hopefully a successful Euro in 2002 will convince Britain and other countries of the advantages in joining and the increasing marginalisation if they do not join.

The accounting profession has successfully managed through a lot of changes in recent years. However events of 2001 have increased the pace of change and present new and different challenges. After a number of years tackling the demands and pressures created by a rapidly expanding economy we must now plan for economic slowdown and a continuation of the roller coaster ride.

The economic slowdown gives the leading firms some time to pause and reflect on what our clients still want and what their future requirements might be. Clients are becoming more self sufficient for a lot of their financial information. They are looking to their professional advisors for higher-level value added input across a broader range of specialist skills. They expect us to advise them on their roller coaster journey. Planning for growth in shareholder value, managing exposure to or exiting from underperforming businesses, making acquisitions in an uncertain economic environment; these activities are still ongoing and client senior management are looking to their professional advisers to have the knowledge and skills to advise on these matters. The accounting profession has invested in recent years in the development of existing services to meet the needs of the new millennium and also in the development of new services and the recruitment of specialists and is well positioned to meet the demands of our clients as they prepare for the 2002 roller coaster.

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