SYMPATHIES to anyone struck by a sense of déjà vu at reading in these pages today that Ernst & Young, the accountancy firm, has big ambitions for consulting.
No apologies for telling you what you did not know — that E&Y wants to secure $2 billion (£1.3 billion) of annual revenues from consulting by 2010. However, E&Y’s intention to reoffer consulting services to corporates, as well as being flavour of the past couple of months, is also reminiscent of acccountants’ business tactics in the later part of the last century. Accountants grew fat on consultancy in the 1990s, but hived it off for fear of running into troublesome conflicts of interest.
History is not being repeated, though. For one thing, the business model has changed. Straight-talking accountants will admit frankly that the consulting services offered in the 1990s dealt in nothing more glorified than IT services. IT was, and remains, a valuable and lucrative business, but it borrowed little from the financial expertise at the centre of an accountant’s skills. This time, E&Y, and others, are making a different approach. Financial acumen will be at the centre of the consulting services offered beside audit, tax planning and the rest.
Which is all well and good. But there is a part of this story that has been pushed to one side in the rush to identify new, exciting adventures. It is that the core function of accountants is to prepare accounts. This may appear to be a run-of-the-mill function that gives a whole new meaning to the term “tedium”, but it is enormously important for businesses, as well as other organisations, to ensure that the accounts give an accurate portrayal of financial operations in a given period. It is important because it helps to ensure that money is earned, collected, saved and spent in a proper fashion. Accounts are also important because they encourage wholesome business practice.
Financial accounts need to be presented in a form that means they can be usefully read by ordinary mortals. This, sadly, is not the case at present. You need to have an advanced understanding of accountancy techniques overlaid with up-to-the-minute expertise in the latest regulatory missives to draw any sensible conclusions from even a bog standard set of accounts. It may be unrealistic to expect that accounts are drawn up in ways that allow them to be effortlessly understood all round. But they ought to say something to anyone who is numerate. Currently, they do not and it is a problem that should be adressed.
It would be unfair to suggest that this is E&Y’s responsibility. Nor it is right to assert that the accountancy profession should bear the burden alone. Regulators, investors and, critically, the corporations so inadequately portrayed by accounts must act. But unless accounts find a way to occupy a truly useful role, accountants may find their raison d’être undermined.
Doveish move
STEVE NICKELL, arch dove on the Bank of England Monetary Policy Committee, has been a lone voice urging lower interest rates for the past five months. Tomorrow, he will almost certainly make it six in a row, in his last vote on the MPC before he flies the coop.
But the doughty professor is set to be still more isolated among the hawks than before, with the committee likely to be in a modest flap, over households’ rising expectations of inflation. Yesterday’s triple whammy of buoyant figures from manufacturing, the high street and the housing market only bolstered the case for rates to stay on hold for the moment.
But if a cut is off the agenda for now, Professor Nickell may find himself vindicated before the year is out, for sadly there are big question marks over all three of these key sectors, as well as over the wider outlook.
In manufacturing, signs of revival are cheering but may have been exaggerated by a pre-Easter burst of activity. More importantly, the dollar’s deepening slide is driving the pound upwards, threatening to undercut exports yet again. The stronger housing market may be good news for homeowners, but with prices sky-high, and affordability stretched, how long this might last is also doubtful.
Crucially, though, it is the apparent pick-up in consumer demand, still the economy’s main motor, that is in greatest doubt. April’s strong CBI retail survey will have been flattered by a late Easter, while official data showed sales tumbling in the first quarter, prompting a sharp slowdown in the services sector. With yet higher taxes and energy bills now set to hit pockets hard, consumers are likely to remain reluctant to resume past high-spending habits. That is liable to be enough to limit growth, and put a lid on future inflation, leading to an eventual cut in borrowing costs. But don’t expect it any time soon.
Bookshop saga
IT IS A shame that Tim Waterstone’s plan to buy the bookshop chain that bears his name is falling by the wayside. He pledged to keep Waterstone’s independent and turn away from plans laid by HMV, the current owner, to merge it with Ottakar’s. It would be marvellous for writers, readers and publishers everywhere if the UK book market were big enough and strong enough to sustain two specialist bookshop chains.
As things stand, it looks as the thesis has foundered before it could be tested. Mr Waterstone says that the plan was kiboshed because of HMV intransigence. HMV asked Mr Waterstone to comply with certain bits of small print in order to proceed with the deal and this clearly undermined his keenness to pursue the buyout. It is hard to see why HMV would want to block Mr Waterstone, however. HMV might want to push harder on price, but its economic interests lie in exploring sale options.
Many will suspect that the plan failed to get off the ground because Mr Waterstone’s financial backers — led by an arm of the Lazard merchant bank — got cold feet.
The likely next move is that HMV dusts off its plan to merge Waterstone’s and Ottakar’s and create a single chain of specialist bookshops to take on the competitive challenges of supermarket and online rivals. Given the harshness of recent trading conditions, the pre-Christmas merger terms mooted may be revised in ways that displease investors in Ottakar’s.
The more intriguing and worrying test now, however, may be whether Britain can support one specialist bookshops chain, never mind two.
IT IS easy to ridicule the appointment of Anna Ford, a newsreader-cum-television personality, to the board of J Sainsbury. But to lampoon the decision on grounds that she lacks experience in retailing, or management, or finance is to miss the point. The pool of talent from which non-executive directors of UK companies are drawn is notoriously shallow. Meanwhile, UK companies must attend to concerns that are increasingly broad and deep. Adventurous thinking of the sort exemplified by Ms Ford’s appointment is to be applauded.
