Ethics & Qualifications in Accounting: Tom Clendon

You're listening to the Accounting Influences Podcast. This is your access to world-class accounting leaders, global influencers and thought leaders. Discover what makes accounting firms great and accounting professionals world-class. Sponsored by Advanced Track, helping you as an accountant confidently choose between outsourcing and off-suring. Hey, my name is Brian and welcome to this week's episode of the Talent in Accounting Podcasts. We are on behalf of our Accounting Influences Broadcast Network. We have a number of shows. This is where we deep dive on the profession. What it takes to be good in this game. I've thrilled to have me today. Tom, Clenden, good day to you, sir. Thank you for inviting me. Tom, you've got an interesting background in the accounting world. Just give us a little flavor of that and we'll deep dive into some of the things you're really good at and you love talking about. Okay. So I've operated in the training space for 30 years around exam-based training, making sure that the people coming into the profession know their debt is in credits, know their financial reporting standards. When I started out teaching, there was a blackboard in the room and the new technology was OHP. And obviously things have moved on massively since then. I was a director of a training company called Caplan, which some of you may be familiar with. I've worked overseas and I've worked very closely with my own professional body, the ACCA in developing and delivering training programs. And I'm now exclusively online doing what I do. I love accounting qualifications changed over the years. Tom, if at all, they have changed. They have changed. And I think they have evolved. They've needed to evolve though, haven't they? Oh, they have needed to evolve and they have adapted because the world of education and the work, the work that the accountant is doing has changed. So for example, exams are all online. Students are doing the exams on a computer. They can even do the exams at home remotely on a computer. So that's been a major change. If we look at the qualifications themselves, not just how people take them, but the content of them. We are in crazy terms and the the economics operating now, the world we live in, we post COVID. It's not the same world. So doing debits and credits and balance sheets and everything else, the technical side of that. Obviously that stays the same, but there are a whole of the dimensions now to qualifications. Are there other should be? Well, yes and yes and no Rob. I mean, you know, when I qualified, obviously the CPD, so members keep up to date. But when I qualified, I was doing numbers. I was in my final accounting exam, I was putting together a set of accounts. Now that is simply not tested at the final level anymore. You're given a pre populated spreadsheet, you're given the accounts. And then it's like, well, what does that mean? What, what if we change that judgment? What if that accounting policy is slightly different? Can you manipulate the numbers very slightly? But more importantly, can you explain it to another stakeholder? And you articulate the significance of an impairment loss on goodwill. What does that mean to cash flow? What does it mean to the gearing? And so the way that the accounting qualification at the final level has evolved, it's become much more judgmental. We're going to talk about that and the ethics and the stuff that you do. So to your point of things have changed, giving people take an examinations, a final set of accounts, that's appropriate because we can do that at the push of a button now. We can do that with chat GPT and artificial intelligence. So it's no good teaching an accountant to balance things. That's already done. So you're right. It's what happens beyond that, isn't it? It is. And in an exam scenario, it's a very cartoon world. Right. And it's, it's a lot of people are attracted into the profession because they like numbers and because they like certainty, you know. And we live in an uncertain world and professional skills and they, they, you know, the accounting qualification is trying to test these professional judgment skills. And we have more open-ended questions that students are having to prepare for because the role because that's what they're doing in their real world. You're right. XL is there. It's a press of a button, isn't it? And if we look at the rule of an accountant now, we hear this phrase trusted advisor a lot. And we know particularly in public practice that accountants are have traditionally been hired to look historically at what's happened. Recently, business clients to navigate the murky waters of life now, they're asking the countenance to hold their hand and say, help me navigate the future. So accountants do need to be able to talk about the numbers and that bounces back to qualifications that we need to be rigorously testing and educating them on that so that they can do it in the field. So, you know, in my arc of, of a career, there have been more and more regulations come in. And, you know, a few years ago, we saw integrated reporting and integrated reporting is all about that soft communication is all about communicating risks communicating strategy. Not this is the amount of profit I've made, which is a very kind of naive, you know, hygiene factor that's not enough users need more than this is the profit that I've made they need to understand the risks they need to understand the future. And sustainability reporting, you know, that's come into play, you know, so students doing their exams need to be aware of, you know, of the impact of climate change and how that can potentially affect the business. When you look at what accountants traditionally have been good at collecting data, summarizing data and reporting and therefore it's natural that accountants have got involved in climate change in in understanding the carbon emissions and an understanding the impact because that does need to be communication investors. It's not a simple case of winners and losers every business is to a greater or lesser extent affected by this and it's how they communicate that and if they don't communicate that then they will lose, you know, the market to take. Well, depends on communication. I'm really glad you mentioned that word, but let's just define a couple of terms, Tom and your world people watching the video right now will see IFRS lecturer and expert and SBR. So just define these terms a little bit, we're an international podcast, so this applies everywhere. IFRS stands for international financial reporting standards and these are the, this was incorporated by the EU and is widely used across Africa across Asia and is adopted within Europe as well. So companies worldwide are preparing their financial statements using the same regulatory system and that is principles based that is great for users because it's compared because it's comparability. Unfortunately, the United States of America, I heard that I mentioned now, I was counting it off to see what the North America was in there. Unfortunately, the United States of America have a more legalistic approach and have a more nationalistic approach. So they looked to reconcile they they accept listings of companies prepared under IFRS, but there's then a reconciliation between, you know, IFRS gap and and US gap. And so, you know, they have a different way of valuing it. They don't like re-valuing assets, for example, they have a different basis of deferred tax, etc. SBR is my one little narrow obsession is the exam paper that I am most regularly using. So that has less. What's that stand for Tom strategic business reporting. Yeah, that's the name there. It used to be called a FA advanced financial accounting. Right. And that in itself that name that branding or that rebranding or basically the final level accounting paper to me sort of demonstrates how things have evolved. We're about reporting in a strategic way about the results, not just we're not just being counted in other words. And this SBR area speaks to ethics and judgments and making wise decisions, doesn't it, based on the data that you're looking at, talk to us a little bit more about that. Yeah, I mean, ethics is something that is infused throughout the whole syllabus and across. So you'll get ethics in in the audit exam, you'll get ethics in the accounting exam ethics is not something that we need to think of as a separate asset of life. It is it is integral to the world of the accountant because we're using judgment. Therefore you have to be competent. Therefore you have to be detached. You have to be ethical. So, you know, the professional bodies have woken up to the importance of ethics because it is important, you know. We've all got newspapers and online wherever we look in audits and the scrutiny and this firm's got this wrong and this firm's been fined and there must be people wise and then you and I, making what they feel are the right decisions and getting it wrong. So it's not easy. No, it's no, it's not easy, but some of these people are making these decisions and get them wrong. I paid an awful lot of money. They should be getting it right more often than they do in my humble opinion, you know, I agree. Why are they getting it wrong? Because we're human, you know, because the regulatory system is not perfect. Can we let the robots do it then, Tom, if it is human error that we're talking about, if we give it to a computer, it will come out right, surely. It will come out correct, but whether it will come out right, whether it will be the truth is is a totally separate matter. I'm not an early adopter of AI. I'm not cutting edge there. And I'm a member of the British public here, and I think I'm slightly cynical. And I don't fear for my job. I don't fear for the accountants job. Maybe the bookkeepers job. But the bookkeepers job kind of went a long time ago with Excel. I see it as a tool. I could be wrong. It's an interesting development. It's very obviously hot at the moment over the last few months. And let's see how it plays out. Give us some examples of the kind of questions that would come up in the strategic business report in section of a qualification time. So, so what the examining what the examining is trying to do at the final level is to replicate the role of of a manager or a senior senior accountant in the accounts preparation and the discussion. With the auditors. So it might be along the lines of, you know, my factory has burnt down. As a result of the fire, the ground is being polluted. And we've got an insurance claim that we've got to make to reclaim the damage done to the factory. Explain and discuss the accounting implications of this. Now, there may or may not be some numbers involved in that discussion. And what the student is trying to do or the qualifying account and he's trying to do is to think to relate their theory. They learned about impairment. So they've learned that when an asset is impaired, you know, the carrying value exceeds the recoverable amount, they write it. Well, they've got to realize the factory has burned down. And the answer is not this is the definition of impairment. What the client wants to know is that under is for you to recognize this is situation where impairment arises. And how the impairment process works damage the environment because of your activities. Are you obliged to clear it up legally. Have you created a constructive obligation. Should we be accounting for that? Is there a disclosure to be made? And then the insurance claim again is another bit of I say 37 is there a contingent asset that we're looking to recognize here. So students tend to learn in silos and to be honest, it's easier to teach in silos, learn this rule, learn this rule, learn this standard. But the reality is that life is complex. And the reality is that the person, the client or the situation is is is not asking you what is the definition of impairment. When do you make a provision because you can look that up on Google, if we are to be that trusted advisor, it's that's recognizing what the situation is relating it to the theory mixing it all up and giving the right answer, giving the giving the right advice and explaining consequences on profit, explaining the consequences on the balance sheet, explaining the consequences on cash flow. Well, I'm a qualified scuba diver and I took my rescue diving qualification in the Philippines and the last scenario, the last part of the examination, the qualification was that I had to I was on a boat. We're about a mile offshore. And I had to go to a corner of the boat and my examiners would create a situation on this boat and I had to kind of open my eyes, turn around and I didn't know what I was going to face as a matter of fact, with this one, I face somebody that was having an epileptic seizure and they're under the water. And I had to coordinate other people on the boat and think on my feet like that, but you don't know what you're going into and presumably in your role, you have to prepare students and accounting professionals to walk into a situation where they have no idea what's coming up, but they've got to be ready for any scenario. That's true and I sort of students can panic about that and I comfort them and the exams are always not optional. So you have to do every question in the exam. It's mandatory, everything. Yeah, yeah, everything's mandatory because that's where it is at work. Yeah, you know, it is a work mandatory. I sort of comfort my students sometimes by saying you only have to get 50%. Okay. So if there were two people having an epileptic fit, you would have only had to say one of them wrong. There was only one having to fit at the time. And ironically, I have epilepsy myself now and I take my education every day after a brain hemorrhage and strokes. It's I know a little bit more about it, but you're absolutely right to say that it just takes a navigate and accountants as a breed and not comfortable with uncertainty and the unknown. They like binary, don't they? They're like right and wrong, black and white. Yeah, the profession does does does does attract that and the examination process, the way that we assess competence, the way that we assess their academic achievement is in a is in a relatively stair aisle and traditional way of a time pressured exam where they have to get 50%. So, you know, there are other, there are other models that could be adopted where you give them an infinite amount of time and you have open book and the staff Africans do that and the Hong Kong allow open book so that so that trying to move away from that road learning. I've been involved in some education in in universities and you know the undergraduates these days have a very rich form of assessment. They will do presentations. It's not just about doing multiple choice exams or essays or account. It's everything and what you said there about the accountant being part of a team that the accountants being you know communicating and and understanding what's going on. That's that's something in future I would I really would like to see more coming out in in the examination process somehow some collaborative work. Yeah, I used to be a maths teacher and one of the things as I'm teaching algebra would I would get from the children is why am I learning this isn't ever going to serve me in real life. This is not relevant and I can see a scenario Tom in your world where an accountant would say why am I doing this ethics stuff because if it happens in real life, I'll just go to one of the partners. I'll just go to someone in charge. I'll just go to my boss. I'll just go to my team and I don't need to make this decision on myself. It's not all on me. Is that realistic. Yeah, it is realistic, but it might be the partner who's the one who's the problem. I think I think you know, I think it's true that the majority of people who train as accountants and qualifies accountants don't actually practice as accountants. How do you mean? Well, they can go into teaching, they can go into banking, they can work in the charity sector, any organization where money is flowing through they've got a set of management skills. So not everyone becomes a partner at PWC not everyone is involved in day to day the accounts preparation, but it's a badge isn't it? And I think if you're going to earn that badge and have the right to call yourself a qualified accountant, you do need to have had a general skill set and then you go and specialise in whatever you do. Like the medical profession, you know, they they qualifies a doctor and then some become GPs and some become surgeons and you know some become housemen or whatever. I'm thinking about the support that students get as they go through the qualifications. I'm a part qualified accountant. So I started a degree out past my first year and I have a diploma in accounting, but I never went on to take my qualifications for a few reasons. When we look at the talent problem these days and maybe there are less people coming into the account in profession. We found that accounting firms are grabbing hold of the talent early even grabbing them in high school. And then we went in the mail in university and started to sponsor them developer relationship with them support them through the qualifications examinations. Obviously the the regulatory bodies professional associations that you represent say with the ACC they will have a role, but firms themselves are getting more involved in helping them pass these exams. Do you know much about that? I mean it varies from qualification to qualification. So so organizations like the ICAW are very practice orientated the big firms dominate and they will recruit you know that the deloids and the KPMG's and the PWCs of this world will recruit hundreds, you know will recruit cohorts and take them through and support them and they have. You know very high pass rates, but the the failure rate is is is you basically you lose your job, you know it's a high pressure environment and they're able to select so they're able to to to choose very able and motivated individuals to go into the to go into the profession because they're going to invest a lot of time and money in those individuals. So they have a vested interest in that. So that's one sort of business model if you like of training accountants, ACCA take a different approach they are much more international they are much more open entry you can study to do ACCA even if you're not currently employed. So that you can self finance yourself so that's a different ethos ACCA often represents for many people a second chance a a T is a different model again at the association of accounting technicians they're not necessarily interested in training someone to be a finance director but more the controller understanding the systems better so it is a more a pure accounting. So it's pitched to a slightly different level yeah and the American Institute of certified public accountants they really through their state stomach it's a statewide. Yes I mean yes it's I think it's similar to the Singapore model where where the universities are most of the teaching and most of the qualification is done at the university level in conjunction with I think I think I'm writing saying I've never actually I've taught I've taught accounting and accountancy and over 30 different countries but not in the US of A because of their different regulatory system and I think it's because they concentrate it in the universities and actually the and actually the qualifying exams that the C-P. the American CPA have, I think they're all multiple choice. I mean, they were ahead of themselves in terms of making it go online, but it is effectively multiple choice. Well, you're not saying by any means I that the CPA qualification is much easier and less rigorous than the chartered account, the qualification. No, no, I'm not able to make that judgment. It's a different way of understanding. And the other thing, Rob, of course, although I'm involved in getting them through the exams, yeah, educating them in that way, if anyone is to ever call themselves a member of fully qualified accountants, they also have to do work experience. They have to be signed off in the workplace. So there is that dual aspect. An ACCA even has a third requirement, which is to pass a very specific ethics module. So they have the exams, the experience, and the ethics. So any ACCA member has any, any account in qualification, body will always have that exam and work experience hand in hand, and that's signed off in the workplace. I'm just thinking that as a qualified teacher, I had a probation period, which I guess would be that experience of, okay, you've got your qualification, you've got a piece of paper. Almost like a driving test, you pass, you drive in test, and that's when you really start learning, isn't it? When you're in the car with nobody else. We are continuing to learn. I'm thinking of the Ernst & Young situation, where the firm perhaps lent a little bit too much help to the students they were pushing to pass these exams. Tell us a little bit about that story, Tom, as you saw it unfold. That was the American. That was in America where they were sharing on WhatsApp the answers to the MCQ questions. So they were all coming up with the right answer. Yeah, shocking. A clear breakdown of culture, a clear breakdown of the only thing that matters is the result. It's not the only thing that, it's how you pass the exam, not whether you pass the exam, because if you cheat and pass the exam, you've not, it doesn't matter. So yeah, a shocking breakdown. A shocking breakdown. What excites you most about the accounting profession, Tom? You've been in it a long while, you've served it well. We're in challenging times. We know that 75% of people that lead accounting firms, the baby boomers, the 45, 50 plus people, they're leaving over the next few years, is there enough for the younger generation coming in? I'm asking you a multifaceted question here. I like what I do because I'm helping individuals at an early stage in their career to shape them and to try and infuse with them. So education, as you know, is an ever-changing thing, because different students have different brains, approach problems in different ways. And as we talked about, the accounting qualification has evolved. So I think what I've got is why I'm excited, I'm still excited, and I'm still passionate about it, because there's a core of things which remain the same, you know? So I've got some stability in my life, but also there's all this breathing and interactive and development within the individuals and with the way the accounting qualification is evolving, that is stimulating. Because I think if it was just the same, it would get very dull. But it's not, I'm dealing with people, I'm dealing with real things and helping them. A couple of questions to finish on. What advice would you give to young professionals out there that are going through qualifications or even considering at a career in accounting? I'm thinking of that quote by Martin Rutzer that said, "You've got to do it by yourself, but you can't do it alone." And as clever as they are, and these people are super smart, there are people like you around to help them, professional bodies may be firms. What advice would you give to them in stepping into a career in accounting, getting through the rigorous exam procedure in one piece and having a successful career? Well, again, you've packed a lot of questions in there. I like that quote. My dad taught me to drive so that he could fall asleep next to me with a learning plates on. But I still then needed three or four driving lessons because I had to pass a test. So the bright people still need a little bit of direction because there's the hoops to go through. What advice would I give to someone starting out? Yeah, say yes. Be prepared to learn. Be prepared to be humble. Be prepared to get it wrong. You learn from your mistakes. There's another cliche, you know? But it's a true cliche, you know? So have an open mind. Understand that the job that you're doing and the responsibilities that you have now are going to be different in 10 years time. Are going to be different in 20 years time. And yes, the generation coming through, place a greater emphasis, I think, quite rightly on mental health and work-life balance. And it's important that, and I think that's important. And that's something I've learned from engaging with younger people. You know, it's not important, but we're not dealing with life and death. And, finally, what would you say to the leaders, the managers, the people that are already qualified, they're in public account. And maybe even in some kind of financial or financial account in rural and industry, what advice would you give to them to nurture and mentor and bring through this new generation to support them in NERGEN. And you spoke there of mental wellness and well-being. There's a, we have a responsibility, don't we, to nurture the profession and be a force for good? We do. And just the mere fact that you're asking that question, people should be asking that question of themselves. And by asking that question, the answer will come out, because they're going to listen. They're going to care. They're going to support. It's a, it's an enlightened self-interest. You know, if you can nurture an employee and support an employee and help an employee, they're going to be a, not just a better person, but they're going to be a better employee. So it's a, it's a, it's a win. It should be a win-win. Some claim that that's been my life's impact so much for you, time and your interest. Sponsored by Advanced Track, helping you as an accountant confidently choose between outsourcing and off-suring.