PwC in the South East

There must be no let - up on local government transformation

PwC — Tue, 18 Jun 2013 13:33:01 +0100

By Andy Ford, Partner, PwC

This month’s spending review announcement is widely expected to make grim reading for local government. Certainly, no one expects the efficiency and cost-saving climate to ease anytime soon.

But as we move through the current spending round and look to the future, two things are becoming clear. First, councils have since 2010 shown remarkable innovation and conviction in successfully making the sorts of savings and efficiency gains that would once have been thought nigh impossible.

As a result, local government has earned the right to a more mature relationship with central government. Ministers need to show trust and confidence in councils to make the savings being asked of them; there needs to be a more supportive, constructive relationship.

But the flip side is that this very success is potentially storing up a serious problem for the future.

Our research, published today - finds that virtually all local authority chief executives believe they will be able to achieve their planned savings targets for 2013/14, which is good news.

However, while a year ago a notable majority thought they’d largely be able to protect frontline services, now barely half feel confident this will be the case - the trend is clearly sharply downwards. As efficiency decisions become harder, frontline areas previously out of bounds are all up for debate - in practice, that means everything.

The problem is that local government has been so successful at making back office, administrative and support functions more efficient that, for most people, the majority of cuts have been invisible. Our research reveals that almost half of the public say they are as yet unaware or unaffected by local government cuts. But, of those who are, the majority are deeply unhappy about it.

The danger therefore is that as councils pursue a policy of ‘managed withdrawal’, and cuts progressively become more visible, we will see a widening disconnect between community and council.

People will increasingly lose confidence and trust in their councils and become less inclined to tolerate, say, higher council tax, so creating a vicious cycle.

As we look to 2015/16 we need to recognise there is still more that could be done when it comes to internal efficiency; local government has not completed this journey by any means.

But an equally pressing challenge will be how to keep local communities onside when the even bigger, painful decisions need to be made.

See the full Local State We're In report at http://www.pwc.co.uk/localgov2013

A version of this blog was first published in LGC.

Performance visibility...Wishful thinking?

PwC — Tue, 18 Jun 2013 13:23:20 +0100

Do you have the business insight you need to make the right decisions? Our analysis shows you how.

Its all wrapped up - Solent Deals Awards

PwC — Tue, 18 Jun 2013 13:17:10 +0100

The Solent Deals Awards returned to home turf on June 6 with a magnificent gala evening at St Mary’s Stadium in the heart of Southampton.

http://dealsawards.co.uk/solent/solent-deals-awards-winners-2013/

Congratulations to all the winners of the Solent Deal Awards 2013, we are delighted that the Deal of the Year (under £25m) and the Deal of the Year (over £25m) awards were won by two companies the Haystack Dryers and PIMS Environmental Services deal teams respectively. Both categories were deals advised on by the PwC deal team.

For more information on how we can help you, contact Phil Hinson, Director on 07740 894597 or philip.a.hinson@uk.pwc.com

60% of South East commuters curb lifestyle to fund transport costs

PwC — Fri, 14 Jun 2013 16:43:19 +0100

Beleaguered commuters across the UK are making lifestyle changes to fund spiralling transport costs, with the South East amongst the worst hit regions.

That’s according to a new consumer survey from advisors, PwC.

PwC’s Voice of the Consumer (VoC) survey published earlier this week, found that 60% of full-time workers in the South East have experienced increased travel-to-work costs over the past year with 29% telling researchers their travel costs had increased, ‘a great deal’.

Just less than a quarter of those in the region (24%) who have seen their transport costs increase cut back on long term savings and about one in three have cut back on eating out.

Commenting on the survey findings, PwC’s, Nick Smith, a specialist partner in our national Transport & Logistics team said:

“The findings of our research have highlighted that in this era of austerity, many people are having to make difficult choices across their essential spend and lifestyle choices - in particular around long term investments, leisure activities and groceries.

“Another interesting trend is a proportion of respondents are looking at relocating and or finding alternative transport modes to make the cost of travel cheaper.”

PwC commissioned a survey of 2,000 people across the UK regions and found that South East commuters have the highest travel costs amongst the eight UK regions, with average annual travel costs of £1,422, followed by Midlands (£1,376) and Northern Ireland (£1,301).

Percentage of people that have cut back on living essentials and luxuries
North	Midlands	South East	London	West	Wales	Scotland	Northern Ireland
53%	65%	50%	53%	52%	51%	61%	70%

Andrew Sentance, PwC’s Senior Economic Advisor, added:

“Transport costs have been rising for a number of years. Since 2009 the transport component of the Consumer Prices Index has risen on average by 5.4% a year, and is one of the areas where prices have risen the fastest over this period. This is nearly three times the 2% inflation target and way ahead of the modest wage increases employees are seeing in their pay-packets.

“For many people, travelling is an essential area of expenditure which is required to get to work and to maintain contact with family and friends. It is not surprising therefore, that this survey suggests that consumers have had to make cutbacks in other areas of spending to pay for higher travel costs."

The survey also examined people’s preferred transport modes for commuting, leisure and personal use across the country which will be released later this month.

For further information, please contact Nick Smith on nicholas.a.smith@uk.pwc.com

The future of UK GAAP: Your questions answered

PwC — Wed, 12 Jun 2013 09:25:43 +0100

The future of UK GAAP: Your questions answered

The future of UK GAAP: Your questions answered, tackles some of the questions that have arisen from two new accounting standards issued by the Financial Reporting Council (FRC) in November 2012. These are: FRS 100, 'Application of financial reporting requirements', and FRS 101, 'Reduced disclosure framework'. These standards will impact companies reporting in the UK and Republic of Ireland.

The publication provides answers to questions on:

The nature and scope of the changes
Significant accounting differences between the new UK GAAP and current UK GAAP
Why companies should consider adopting IFRS, or IFRS with reduced disclosures

The FRC is expected to issue FRS 102, 'The financial reporting standard applicable in the UK and Republic of Ireland' in the first quarter of 2013 - with an anticipation that early adoption will be available for accounting periods ending on or after 31 December 2012.

Download Future of UK GAAP - Your questions answered

Contact us to discuss how these accounting changes will affect your organisation and find out how we can help you convert to your chosen GAAP.

Contact details
Email: Fiona Kelsey
Tel: 020 721 22822

Effective internal audit in the financial services sector: Do you meet the rising bar?

PwC — Thu, 06 Jun 2013 16:10:09 +0100

The Prudential Regulatory Authority (PRA) – responsible for supervising banks, building societies, credit unions and investment firms and the Financial Conduct Authority (FCA) – a regulatory authority focused on customer protection and markets, have highlighted the importance of effective internal audit as a key element of the overall governance framework. This view has also been expressed by Andrew Bailey in a number of speeches and articles. The PRA and FCA want to be able to rely more on internal audit functions so the regulatory supervision process can be more focused on specific areas of concern. However, the PRA and FCA also recognise there is significant inconsistency in the effectiveness of internal audit across the financial services sector.

The Chartered Institute of Internal Auditors (CIIA) have been asked by the PRA and FCA to develop some additional guidance to support the effectiveness of internal audit in financial services. The consultation paper issued on 11 February provided the first sight of the proposed standards which once subjected to consultation will form the expectation against which the regulators will evaluate the effectiveness of internal audit in financial services.

Whilst the consultation period ended 12 April 2013, this note summarises the content of the consultation paper. It provides some brief considerations which can be used by organisations to help consider and evaluate the gaps between an organisation's current operations and the implications of the proposed changes in standards.

What is the draft guidance saying?

The draft guidance sets out recommendations designed to provide a benchmark for effective internal audit in financial services organisations in the UK. It will also apply to the UK operations of overseas institutions. It has been communicated as incremental guidance to existing standards, including IIA standards and the Basel paper (Basel Committee on Banking Supervision’s paper – The internal audit function in banks 2011).

The key messages from the guidance include:

The primary role of internal audit should be to help to protect the assets, reputation and sustainability of the organisation.
Scope of internal audit should be unrestricted, prioritised on a risk basis (including an all encompassing risk assessment), and should include:
Governance structures;
Strategic and management information presented to the Board;
Setting of, and adherence to, risk appetite;
Risk and control culture of the organisation;
Risks of poor customer outcomes, giving rise to conduct or reputational risk;
Capital and liquidity risks;
Key corporate events (internal audit’s involvement on a "real time" basis); and
Outcomes of processes.
- Reporting results – Internal audit should attend and issue reports to both the Audit and Risk Committees. At least annually they should report an assessment of the overall effectiveness of the governance, risk and control framework of the organisation as well as an analysis of themes and trends and the impact on the organisation’s risk profile.
- Interaction with risk management, compliance and finance – Internal audit should assess the adequacy and effectiveness of these functions and exercise informed judgement as to when to place reliance on their work (although the guidance did not set out integrated assurance recommendations.
- Independence and authority of internal audit:
- Head of Internal Audit should be at a senior enough level within the organisation to have the appropriate standing and authority to challenge the Executive.
- Internal audit should have the right to attend Executive Committee meetings (to gain an understanding of the business and provide perspectives on risk and control).
- Primary reporting line should be to the Chairman of the Board (although the Chairman can delegate this to the Audit Committee Chair or by exception to the Risk Committee Chair).
- Any secondary reporting lines should be to the CEO.
- Chairman of the Audit Committee should set objectives, appraise and recommend the remuneration for the Head of Internal Audit.
- Audit Committee should determine an appropriate interval to consider changing the Head of Internal Audit.
  - Resources – Head of Internal Audit should ensure the team has the skills and experience commensurate with the risks of the organisation and provide the Audit Committee with a regular assessment of skills and budget. The Board should confirm in the annual report that it is satisfied that internal audit has appropriate resources.
  - Quality assessment – Board or Audit Committee is responsible for evaluating the performance of the internal audit function but internal audit functions of sufficient size should also develop a quality assurance capability. In addition the Audit Committee should obtain an independent, external assessment at appropriate intervals (and this needs to include conformance with these recommendations) and it should be the Chairman of the Audit Committee who oversees and approves the independent assessor appointment.
  - Relationships with regulators – Head of Internal Audit and other senior managers in internal audit should have an open, constructive and co-operative relationship with regulators which supports sharing of information relevant to carrying out their respective responsibilities.
  - Wider considerations – The Board and senior management should set the right tone from the top to ensure support and acceptance of internal audit. The FRC should consider if additional guidance is needed in relation to the respective role and mandate of the Audit and Risk Committees and their interaction with internal audit.

How does this impact you?

In summary the key objective of the guidelines is to significantly change the stature and positioning of internal audit within the overall governance framework.

We expect this will lead to organisations thinking about:

The adequacy of the skills and experience of the Head of Internal Audit and the team;
What the role of internal audit is on the Executive Committee and the Head of Internal Audit’s standing within the organisation;
How internal audit works with other assurance providers within the three lines of defence;
A change in methodology, in particular, production of the Internal audit risk universe and corresponding audit needs assessment and resultant plan; and
The roles of the Audit and Risk Committees and the interaction these Committees have with internal audit.

What are the next steps?

Consultation was completed on 12 April 2013 and whilst, at the time of writing, the key changes are yet to be finalised and published, it is clear that the evolving guidance could have significant implications for the future role and operation of internal audit that organisations should be assessing now. This presents a natural point in time for organisations to take stock and review what they want from internal audit and how that differs to what they currently provide.

How PwC can help?

As a leading edge internal audit practitioner:

We are well placed to help organisations to perform a gap analysis and evaluate the impact of the guidelines
We can do this as a separate exercise or as part of a wider External Quality assessment (‘internal audit effectiveness review’)

For those organisations that have completed their assessment,

We can help with internal audit improvement plans, in particularly, helping with internal audit transformation, training, tools and methods or industry briefings.
We can provide internal audit co-sourcing models tailored to your requirements to fill resource gaps, provide access to specialist / technical input or to support / develop your in-house teams.
We offer a fully outsourced service, supported by leading edge methods and tool sets and access to a wide range of internal audit and SME specialists.

View the next article in our summer newsletter: Publication of the Financial Conduct Authority (FCA) Risk Outlook 2013: Getting on the front foot

Harry Oldreive Partner

Office Phone: 01895 52 2480

UK entertainment & media market will hit £65bn a year by 2017

PwC — Thu, 06 Jun 2013 16:04:27 +0100

Smartphones, tablet devices and high-speed Internet access is transforming the world of entertainment and media, according to PwC’s annual Global Entertainment and Media Outlook 2013-2017 (Outlook), published today [Wednesday 5 June 2013].

The Outlook says that the next five years will see an explosion in household and mobile broadband across the UK, accelerating growth in digital entertainment, mobile gaming and the emergence of ‘connected consumers’, who will be targets for a new wave of advertising.

The latest Outlook forecasts that while the UK’s entertainment and media market will grow by around 21% from £54bn to £65.5bn by 2017, the structure and characteristics of the market will undergo substantial change.

Empowering both advertising and market growth is spending on Internet access, which will grow over the period to £15 billion, driven by access on mobile devices more than doubling to £9bn by 2017.

The fastest growing areas will be internet advertising, internet access, out of home advertising, video games and TV advertising.

Commenting on the latest Global Entertainment and Media Outlook, Phil Stokes, head of UK entertainment & media at PwC, said:

“Across the world, consumers’ access to entertainment and media content and experiences is being driven to new heights by our ever increasing access to the internet and the explosive growth in ownership of smart devices.

“Entertainment and media businesses have raised their game in agility and customer understanding and we see that a constant digital innovation has become the new licence to operate.

“Digital technologies are pervasive and, as a consequence, we believe it’s wrong to say that companies need ‘a digital strategy’: companies need a business strategy that’s fit for the digital age.”

At the end of 2012, five out of ten people were not mobile Internet users and about two out of five households were not subscribed to pay-TV services. Bundling these services with fixed-broadband offers varying opportunities to the UK’s operators to grow revenues, increase ARPU and reduce churn, depending on their market position.

There is a small amount of growth left in the country’s fixed-broadband market. The number of subscriptions stood at 21.6mn at the end of 2012, equal to 77% of households, and will increase at a CAGR of 2.5% to reach 24.5mn by 2017. The UK’s mobile Internet and pay-TV markets, in contrast, are relatively underpenetrated.

PwC says that the period to 2017 will be characterised by a steady decline in purchasing of physical entertainment media like boxed video games, DVDs and music CDs. These were traditionally the market leaders accounting for around 88% of consumer entertainment spending in 2008, but have fallen to 73% today and, by 2017; physical purchases will represent just 53% of spending as consumers become more accustomed to purchasing and downloading digital media.

But as consumers become more mobile, the Outlook forecasts that advertisers will do likewise, increasing their investment in so-called out of home advertising (OOH). [Note: OOH is any type of advertising that reaches the consumer while he or she is outside the home, in contrast with broadcast, print and Internet advertising. OOH advertising is focused on marketing to consumers when they are in public places, in public (and private) transport, waiting areas and/or in specific commercial locations like retail and food outlets]

Currently the UK is the world’s fifth largest OOH market and the second largest in Europe after France, with 2012 revenues of £930m. The UK market is forecast to grow at around 6% annually and overtake France, reaching £1.24bn annually by 2017, becoming Europe’s largest single OOH market.

The UK video games market is also forecast to reflect the growth in mobile devices and broadband; the sector was worth £3bn in 2012 and the Outlook says this will continue to grow by 5.4% annually, to be worth £3.9bn annually by 2017.

TV advertising is also forecast to enjoy continued growth in the UK. The market was worth £3.7bn in 2012, with annual revenues forecast to grow by just under 5% to reach £4.7bn in 2017, with the UK set to be a global leader in online TV advertising behind the USA.

However, while the TV advertising market can expect steady growth, TV won’t be without its challenges as consumers begin to exploit broadband and new online offerings, shifting from ‘mass media’ to ‘my media’.

As media consumption becomes fragmented across multiple devices, from traditional television to smartphones and tablets, consumers will seek personalised experiences: their content on their chosen devices when they want it.

The Outlook says consumers are already beginning to abandon pay TV subscriptions, opting for the content they want via cheaper, Internet-based content services. A further manifestation of ‘my media’ is consumers’ growing use of the ‘second screen’, via smartphones and tablets; to comment on and share the experience of TV and other companion content with friends, often via social media.

The Outlook forecasts that big loser of the next five years will be print. Newspapers, business-to-business publishing and consumer magazines will show a net decline in revenues over the period and, by 2017, the annual value of subscription television revenues will have overtaken that of the newspaper industry.

Find out more at http://www.pwc.com/outlook

Half a million new savers: something to be proud of?

PwC — Fri, 31 May 2013 11:42:50 +0100

The Pensions Regulator's May 2013 auto-enrolment monthly progress report shows 509,000 eligible jobholders have been newly auto-enrolled into pension saving up to the end of April. That's about the same as the entire working age population of Britain's third biggest city, Leeds. So the long awaited sea change in retirement provision is now clearly upon us.

Is this something to be proud of? Most private sector workers are being auto-enrolled into defined contribution (DC) schemes. Here are some recent research insights into DC member behaviour:

1. Unchecked pots: A third of men and two fifths of women never check their DC pot.

2. Unhelpful terminology: Three fifths of Britons find pensions terminology complicated and confusing and a barrier to effective retirement planning.

3. Unclear targets: Less than a third of DC savers know what income they're aiming for, with two thirds preferring their employer to manage this for them.

Improved DC governance: One thing which can really help here is effective ongoing governance of DC schemes. Parliamentarians agree - a recent House of Commons Work and Pensions Select Committee (WPSC) report highlighted what we all know: most DC savers are ill-equipped to manage their own retirement planning, and DC governance needs to compensate.

It's awards season with the pensions industry again taking pride in its achievements. But perhaps in the DC world, we should only really feel proud once DC pensions are much better governed.

How will we know when we're there? Imagine members spontaneously feeding back that they understand their annual DC statements and have confidence in their DC saving. Now that would really be something to be proud of.

To discuss how to improve the governance of your DC pension scheme, please contact:

Richard Smith, 0118 938 3545, richard.w.smith@uk.pwc.com
Peter Woods, 0118 938 3533, peter.j.woods@uk.pwc.com

Momentum growing for better public accounting

PwC — Tue, 28 May 2013 12:10:59 +0100

Momentum growing for better public accounting

Governments around the world are increasingly taking steps to improve their accounting and achieve greater transparency amidst growing recognition that the accounting framework traditionally used by the public sector isn’t fit for the 21^st century.

A PwC survey covering 100 countries reveals that while only 24% of governments currently use ‘accrual accounting’, 37% plan to move to this form of accounting in the next five years, bringing the total adoption rate to 63% of governments surveyed and representing an increase of 142%.

The majority of governments today still rely on ‘cash accounting’, which has been the primary method used by the public sector for many years. This form of accounting – which is based on cash payments and receipts being recorded as they occur – fails to capture information on public sector assets and liabilities and therefore presents a very short-term view of public finances.

Andy Ford, Government and Public Services leader for the South East says: “It is important that governments – which regulate accounting in the private sector – lead by example and have a high standard in their accounting system. This is not the situation today, but we see great interest in seeking improvement.”

In accrual accounting, transactions and economic events are recorded and reported when they happen, regardless of when cash transactions occur – resulting in a comprehensive view of a government’s assets and liabilities, and of its financial performance and cashflows. IPSAS (International Public Sector Accounting Standards) are often taken as a reference point.

Adds Andy Ford : “There is a real need for more solidity and transparency in government reporting. Public sector financial statements should reflect the full economic impact of political decisions – and this can only be fully achieved by applying accrual accounting.”

“By doing this, governments demonstrate their commitment to achieving greater transparency and accountability, and also to producing better information for decision-making – which in turn should lead to the better use of public resources.”

The research shows that the biggest shift to accrual accounting is expected in developing countries. Among the non-OECD countries surveyed, 50% plan to transition to this form of accounting in the next five years, with Africa leading the way (11 shifting countries), followed by Asia (10 countries) and Latin America (8 countries).

When asked to state the main beneficiaries of accounting reforms, the governments surveyed primarily listed citizens (77%) and politicians (69%).

Says Jean-Louis Rouvet, PwC Global Public Finance & Accounting leader: “Financial information should be available to the citizens who, as taxpayers and service recipients, hold government accountable for the use of public resources and seek to evaluate their performance. Politicians also have a role to play. They need to understand the current position of government finances to understand the government’s financial capacity before making commitments for new programmes and services.”

The governments surveyed also indicated a desire to improve their finance function, reporting the following key areas for improvement: fixed asset management, cost accounting, performance management, and long-term planning and forecasting.

Concludes Jan Sturesson: “When we talk about accounting and management of public finances, we always come back to the same questions: do we create a legacy for the next generation or do we consume their legacy and put the prosperity of their future in danger? These are fundamental questions and I think we need to take a long-term view. An efficient and cost effective finance function is essential for the sound management of public finances.”

Contact details

Email: Andrew.M Ford@uk.pwc.com

Tel: +44 (0) 20 721 35239

Make a great deal better - Solent Deal Awards 6th June

PwC — Fri, 24 May 2013 16:57:42 +0100

Pwc Southampton are delighted to sponsor the Management Team of the Year at The Business Magazine Solent Deals Awards, June 6th, the key deals event for the corporate finance community in our region.

In the South East there were 650 deals through 2012 - probably nearer 700 in the qualifying period for these awards - and a significant number were in Solent and Hampshire region, evidenced by the fact the Awards received more than 200 nominations for this years competition.

For more information Solent Deals Awards

PwC in the South East

There must be no let - up on local government transformation

Performance visibility...Wishful thinking?

Its all wrapped up - Solent Deals Awards

60% of South East commuters curb lifestyle to fund transport costs

Percentage of people that have cut back on living essentials and luxuries

North

Midlands

South East

London

West

Wales

Scotland

Northern Ireland

53%

65%

50%

53%

52%

51%

61%

70%

The future of UK GAAP: Your questions answered

Effective internal audit in the financial services sector: Do you meet the rising bar?

UK entertainment & media market will hit £65bn a year by 2017

Half a million new savers: something to be proud of?

Momentum growing for better public accounting

Make a great deal better - Solent Deal Awards 6th June