Accounting: The introduction of the senior accounting officer and what it means for FDs

UK finance directors are facing one of the biggest changes
in compliance to hit their companies in decades. But you can’t hear so much as a
collective tut. The introduction of the concept of a ‘senior accounting officer’
or SAO is more than a corporate imposition; it is a personal threat to each and
every FD. So where are the voices raised in protest? So far, nowhere to be seen.
And that’s astonishing.

As this issue barely seems to have hit the radar, FDs may need reminding why
they should be up in arms. The 2009 Budget introduced requirements for the SAOs
of large companies and groups to report to the taxman on the adequacy of their
accounting systems for tax returns. And the real sit up-and-take notice bit? The
SAO will be personally responsible for complying with these new requirements.
And just to confirm the inevitable: a poll by PricewaterhouseCoopers indicates
that more than 80% of companies are naming their FDs their SAO.

The SAO sign-off measure came into effect for financial years starting on or
after the date of Royal Assent on 21 July 2009. At the moment, the regime only
applies to companies or groups with turnover of more than £200m or gross assets
of £2bn so big companies with a July year-end are already dealing with these
requirements. The majority of companies with December year-ends have little time
left to put their house in order. Under the rules, the SAO will have to provide
annual assurance to HM Revenue & Customs that appropriate tax accounting
policies and processes are in place and maintained.

The SAO regime is reminiscent of the US’s Sarbanes-Oxley Act, which also
forced companies to focus attention on risk and processes. However, while Sarbox
was greeted with howls of outrage and non-US companies threatening to quit the
US to avoid falling under its regime, SAO has been meet with equanimity.

Perhaps the calm is due to HMRC saying it will apply a light touch in the
first year of implementation. Even so, the SAO will still need to be able to
demonstrate that their company is taking reasonable steps to review the
appropriateness of the tax accounting arrangements in their business. Let’s put
this in a wider context: as recession bit, government tax revenues collapsed. It
desperately needs as much cash as it can lay its hands on, so squeezing big
corporates looks like as good a source as any and the SOA legislation looks like
an irresistible tool to make tax revenues flow.

Surprisingly, the PwC survey suggests that, among tax professionals, the SAO
is seen in a relatively positive light, with one-third saying it provides an
opportunity to drive improvements, such as reducing manual interventions. But
then, the tax guys aren’t likely to be the SAO, so might be quite happy to see
their FD boss squirming under the compliance spotlight.

The SAO regime covers different taxes and looks at the totality of processes
and systems used to support tax compliance. The tax named as having the biggest
risk was VAT, named by 54% of the survey, followed by corporation tax (22%) and
PAYE (19%).

Tax is notoriously difficult to get completely right and the interface
between it and the other part of a company’s financial systems is often held
together with little more than a few tired spreadsheets. Even so, the message
from UK plc is that the SAO sign-off will not be a major problem.

HMRC says it believes most groups are compliant but that there is a minority
of large companies that need encouragement to up their game. The rationale as
far as HMRC is concerned is that it wants senior management to take
responsibility for systems and processes that can calculate and file accurate
liabilities. It says there is an accountability gap in this area. Of particular
concern to the taxman are those grey areas of the paypacket: expenses, benefits,
short-term travel, secondees, entertaining, equity and termination. So as long
as FDs can confirm everything is OK with those issues then my concerns are
little more than journalistic hyperbole, even if the requirements are unlike
anything seen in UK tax law, imposing personal duties and potential penalties on
individual officers.

The only real positive that comes from this querulous piece of legislation is
that tax may become a topic of more frequent discussion in the boardroom. And if
that does happen, then it may act as a spur for companies to invest properly and
substantially in their tax systems, bringing about, in many cases, long overdue
transformation. Figures of spend of more than £50,000 seem to be the best guess
for most companies, according to a Deloitte survey. But 10% think it will cost
£250,000 or more to achieve compliance.

Maybe that figure needs to be set against the personal penalty for the SAO of
£5,000 in relation to each failure of duty for each year. That bill will be
covered by insurance: the cost to the FD’s personal reputation is not insurable.

Peter Williams is a chartered accountant and freelance journalist