Eric van Deursen is a senior audit manager at KPMG Amstelveen. He writes about his amazing time as an audit manager at KPMG in São Paulo, Brazil. Van Deursen was the main contact of the Dutch Desk of KMPG in São Paulo. In this article he describes the differences and (unexpected) similarities of accountancy between Brazil and the Netherlands. São Paulo has been a challenge and adventure to him as well as instructive and frustrating. November 2011 to November 2013, KPMG gave me the fantastic opportunity to work in São Paulo, Brazil. Two years long working as audit manager at KPMG in São Paulo is challenging, adventurous, very instructive and sometimes extremely frustrating. It is totally different than in the Netherlands, in every possible way. In this article I will try to outline what the largest differences are in terms of accountancy in Brazil and what is (unexpectedly) is the same. Before I dive into the depth, I’ll first provide a brief introduction. My name is Eric van Deursen, senior audit manager at KPMG Amstelveen. Before I went to Brazil, I was part of the Holding & Finance team, a department in which the holdings- and finance international structures are checked. In Brazil, my clients were mostly parts of Dutch (listed) companies and I was the first contact for the Dutch Desk KPMG in São Paulo. Now I’m back for a few months in the Netherlands and again working in the Holding & Finance department. Obviously, since my return, my focus has mainly been on Brazilian companies in the Netherlands. I am also part of our Brazil Desk. Furthermore, I would want to add that the differences and similarities I will depict in this article are mainly differences and similarities I have experienced in my second year in São Paulo. Someone who has worked in Rio or any other city in Brazil will have a totally different experience. The differences between the cities and regions in Brazil are as a matter of fact enormous. Yet many people who were allowed to work in Brazil for a while will undoubtedly recognize themselves in many points. The Language Barrier In the Netherlands, I was used to doing my job in English. We are in the Netherlands quite accustomed that almost everyone speaks English, especially in the business environment. My department in the Netherlands contains about half of expats, who could get along fine by just being able to say ‘good morning’ or ‘enjoy your meal’ in Dutch. In São Paulo, this was another case. Or rather, totally different. Hardly anyone speaks English and without speaking Portuguese you cannot actually do your job. Within my teams no one spoke English and the partners I worked for, this varied. This was also the case for the customer. The senior management speaks mostly English, but certainly not in the workplace. In the beginning, working in Brazil was therefore very difficult, especially with a professional competence as a professional accountant. With a good study discipline and much needed exercise during the hours I could eventually, after three or four months, carry on with my job in Portuguese. How I met my deadlines in the first months still remains a big question. Because every expat KPMG São Paulo had to do his work in Portuguese, this was also the main language at meetings or lunches with only expats. It is remarkable that you are unable to continue speaking English with each other. The Culture Shock On just this subject, I could probably write a whole new article. So let me limit myself to the most remarkable differences. Parties and Churrascos Brazilians invite you very easily for a party or a barbecue (churrasco). A party or barbecue can be thrown for no reason and it’s all initiated a day or few days in advance. Generally speaking, the more people are invited, the more fun it is. This meant that from the first weekend I was there, I was invited by colleagues and it was a great opportunity for me to gain new contacts. Talk about the difference at my return in the Netherlands! See the last section for the reverse culture shock. Kissing and Hugging In the Netherlands, we give our customers a hand while greeting and colleagues greet in the morning with a ‘hi’ or ‘good morning’. You might give a female colleague a kiss when it’s her birthday. The difference in Brazil is quite large. Female colleagues are greeted with a kiss every morning and it is very normal to also greet female clients this way. Men greet each other with a hug (abraço) where you can absolutely touch each other’s shoulder or abdomen. Something I would only do with my best friends in the Netherlands. This ritual also takes place at the end of the day, by the way. When you’re the first to leave the office or the client, you’d better take extra ten minutes. Coffee Break My first day at the office in São Paulo, I thought I would be polite by asking my colleagues if they wanted a cup of coffee or tea. In the Netherlands I was after all quite used to it that everyone gets coffee once a day for all colleagues. When I posed this question to my colleagues in São Paulo, everyone stood up for a twenty-minute coffee break (cafézinho). It is perfectly normal in Brazil just to take two to three times daily coffee break and talk with colleagues about football, weekends and other topics. Hierarchy Although Brazilians seem informal, hierarchy is extremely important. Disagreeing with your boss is not an option. As a critical accountant from the Netherlands this was a very difficult aspect of Brazilian culture for me. In the Netherlands we focus less on hierarchy and it is most important in accountancy that you continue to critically evaluate each other’s work. Where my teams finally managed to appreciate my approach without hierarchy (trainee is just as important as the partner), the senior partners
The European banking union should be more European integrated
Against – Pieter Lakeman The European banking union has no positive effect on the economy in the Euro zone All banks located in the Member States of the European Monetary Union will soon be under joint supervision. This supervision will be exercised by the European Central Bank. The board of the ECB comprises representatives of national central banks, some of who had seriously failed in their national surveillance in the period prior to the credit crisis. Initially, the aim of the European banking union was to prevent Member States from paying big amounts to keep banks afloat. The banks from the euro group will soon be subjected to a stress test to see whether they are financially sound. An unqualified audit report apparently does not ring a bell at the ECB. The requirements and assumptions of the stress tests are not public just like previously carried out stress tests. Some approved banks failed short after this previous stress test though. The new test would be heavier than the last test. If the banks do not satisfy the 4.5% capital requirement, Member States are requested to offset the deficit before the banking union will come into force. Even when banks do not pass the test, the reserves have to be increased to the level of 4.5%. Depositing afterwards is replaced by depositing in advance. Which funds will save distressed banks afterwards? First, the European Stability Mechanism (ESM). That was initially founded as a permanent funding program for the salvation of Member States of the European Union who were in difficulty and would contain €500 billion, which would be provided initially by the Member States themselves. In 2012 it was decided that also banks could borrow money from this funding program. With that, the initial purpose of the banking union was left behind. It was also decided to allocate €60 billion from the ESM to recapitalize banks with equity shortage. How do these proposals affect credit granting? At first glance you might think that the funding of the banking can be easier and fractionally cheaper. Yet that is not likely, because lower interest rates than 0.5% or 1% at the ECB are not conceivable. More important, it seems that through the support guarantees at European level, the mutual trust of banks recovers. This effect will be small though because the mutual trust of banks almost returned to its old level in 2014 (it dropped after the collapse of Lehman Brothers in 2008). The main consequence of the introduction of the European banking union will be that the behaviour of bank managers (often referred to as bankers) will be riskier. After all, with the new financial cushion banks bear less risk of bankruptcy and respective managers also bear less risk on personal liabilities. The positive effect of the European banking union must be located in the more flexible or easier granting of loans to firms. However, banks will not do that. They did not do that when they could borrow at 0.5% of 1% at the ECB either. Nonetheless, more money will be invested in riskier activities and perhaps this will be an incentive for the creation of new bubbles. Both of these phenomena, however, do not lead to real economic growth. By establishing the banking union, at least in the form as it is now grown, granting loans to firms will not increase. Economic growth will therefore not increase. In favour – Harry Geels Banking union? Yes, but only if Europe has to become one. There were many complaints about the deal Europe made with Cyprus – especially by the Cypriots themselves and by the (foreign) savers there – the foundation of the chosen solution was not right: not just the investors in the banks but also the larger savers (those with more than €100.000 savings) should help pay. The Cyprus precedent makes perfectly clear that saving is not save and that in fact we already have a banking union. Saving is much riskier than many of us realize. It is not so much different from lending money to a risky business. Indeed, banking activities as they occur at most banks, are similar to those of hedge funds: they both work with leverage. The reason why saving is still regarded as generally save, has to do with the deposit guarantee scheme, which protects savings up to a certain amount. Banks would have to arrange this with each other (after all this guarantee scheme leads to cheap savings banks could benefit from). After SNS and Cyprus, however, we know that the taxpayer and not the banks bears the deposit guarantee scheme. To keep Cyprus and the (downsized) banking sector alive through money coming from the emergency fund (hence, taxpayers money) de facto means having an European banking union. Namely, one of the main characteristics of a banking union is a common deposit guarantee scheme. In Europe, the banking crisis and Cyprus were the starting point of the theory that a banking union should form an integral and key part of the euro system. Just as it should be the case for a political and fiscal union, according to the politics. With some tricks (democratic principles are regularly thrown overboard) Europe as a super state is launched. Otherwise the Euro as a ‘one size fits all’-currency can not survive, according to the politics. The European unification is inextricable linked to the survival of the Euro. That unification includes a banking union, where the banks vouch for all European savers up to a certain amount too. Note that a banking union is not, or only slightly, necessary if we would organize the Euro system in a different way, for example with The Matheo Solutions (TMS), a euro solution that because of a lack of space can not be covered here unfortunately. If the undemocratic moves towards further European integration and political union will continue, the question how the banking union must be regulated remains. In my view, a banking union includes a separation of
Big data analytics in audit
The application of big data in auditing is a hot topic (see, for example, Accountant 2013, “Large audit firms are investing heavily in big data”). In this article, I want to give a vision on what big data means in this context and how to position it in auditing. The definition of big data is pretty hard to give. Earlier this year, one of my master students, Bas Jansen, made an inventory of over 20 publicly available definitions of big data. Some highlights were: “If your personal laptop can handle the data on an Excel spreadsheet, it is not big.” (Siraj Dato, 2014), “If you know what questions to ask of your transactional cash register data, which fits nicely into a relational database, you probably don’t have a big data problem. If you’re storing this same data and also an array of weather, social and other data to try to find trends that might impact sales, you probably do.” (Matt Asay, 2013), “Big data refers to things you do on a large scale that are not possible on a small scale. (…) Big data is about correlation, not causation. It’s the what, not the how.” (Mayer-Schönberger & Cukier, 2013). IBM uses four Vs to characterize big data: Volume, Velocity, Variety and Veracity, where the latter refers to the uncertainty of data. My own preferred, very short definition that I used in an article in the Accountant, reads: “Explorative analysis of literally large data sets from heterogeneous sources”. Positioning big data analytics in auditing is even harder, because the variety of powerful applications of big data analytics in auditing is huge and unstructured. The International Standards on Auditing (ISAs) are not of much help here, since the ISAs are strolling behind big data developments at a considerable distance. ISA 520 on Analytical Procedures even states that an auditor should limit himself to confirmative analysis. The variety in big data definitions may be large, but the explorative nature is an element that most definitions have in common. The final attainment levels for the auditing curriculum as set by the Commissie Eindtermen Accountantsopleidingen (CEA) do not give much guidance in this context either. The CEA has positioned data analysis under Mathematics & Statistics as one of the auxiliary specialties in Section 3.4.6.4. The Chi-squared test is the most technical term in this section. The good news for auditors who are afraid of statistics is that this test should only be understood at Level 1, the most superficial of the three levels. My colleagues Barbara Majoor and Jan Wille and myself have recently introduced the Push-left principle to structure the use of big data analytics in auditing (MAB, 2013). In short, we state that the biggest challenge that auditors face is that they should replace some existing Evidence Gathering Activities (EGAs) by data analytical techniques instead of adding these techniques as nice-to-haves. Adding means that no budgets are reserved for data analytics, that the auditor is not forced to derive audit comfort from data analytics, and, consequently, that auditing will not exploit the big data opportunity. However, given the current state of ISAs we understand that auditors are afraid to skip EGAs that make their audits ISA compliant in favor of EGAs that are – to put it mildly – not encouraged by ISA. To face this challenge, we state that an auditor should strive for three objectives when applying big data. First, big data analytics should control audit risk in a quantitative manner. In May 2013, four weeks before Hans Blokdijk died, the Limperg Institute organized a symposium to honor him as “(pro)motor of statistical auditing”. In his final speech he claimed: “It is inevitable that auditors will be forced to quantify their audit risk by means of statistics.” If data to be audited can be reconciled against a reference data source that is electronically available, all misstatements can be reported. This means that – potentially after corrections – audit risk, which is the risk that the auditor misses material misstatements, is zero. In case that such electronic reference sources are not available, statistical models may be used to quantify audit risk in a statistically sound manner. Secondly, big data analytics should help to improve the audit process. More and more in- and external data can be made available in electronic form. Not considering the option to utilize this data in audits cannot guarantee the efficiency of audits to be optimal. Necessary condition for this claim to hold is that whenever data analytics are utilized, these should replace a control activity that would have been applied without data analytics. This also holds for the situation that the auditee already uses data analytics as part of his internal control framework. Within an ISA based audit approach, it should be first investigated whether comfort can be gained from reviewing these data analytics. Finally, big data analytics should create insights to improve the auditee’s business. Next to the primary goal of any audit approach – giving assurance on financial statements, using data analytics to create insights for the auditee to improve his own business is the secondary goal. In practice it often happens that auditor’s data analytics are transferred to the auditee to become part of the auditee’s internal framework. If auditors would force themselves to use big data analytics that meet all these three objectives in every audit, I am sure that the audit profession will give itself a boost in relevance for society and “emerge as a new kind of professional, the data scientist, who combines the skills of software programmer, statistician and storyteller/artist to extract the nuggets of gold hidden under mountains of data.” (The Economist, 2011).
Interview Jeroen Jansen
Can you tell us something about your career? In 1980 I started working at Triodos Bank, although I did not have the intention to start a career in banking, as I wanted to start with a study in Journalism. After some time, however, I felt more and more comfortable at Triodos Bank. Back then, Triodos Bank was innovative and its central statement was, and still is: you make your own choices of where to put your money in. This also applies to ASN Bank. You can choose for yourself what you will do and what you will not do. At Triodos Bank I experienced (and I still experience) that there is a quick win with regard to Corporate Social Responsibility (CSR). You do not have to change everything fundamentally, start with sending money into a direction that is in favour of your desirable goal. After I had worked for approximately ten years at Triodos Bank, I switched to Hollandse Koopmansbank. There, I founded a department of Ethical Research, where our aim was to map companies on the way that they deal with climate, CSR and such things. We built a system that makes clear what the environment is worth in money. One of our clients at Hollandse Koopmansbank was ASN Bank. ASN Bank was a sympathetic, but very small savings bank at that time. In 1993 we had the first worldwide investing equity fund that was publicly listed. It was the first in its category, so there were many prejudices. Eventually, there was a good thought about what the criteria should be for companies. It has been fundamental to what we now call “sustainability and research” within the ASN Bank. In 1997, the Hollandse Koopmansbankas founded after the merger of Reaal and SNS Bank, the current name is SNS Asset Management. Then I worked for SNS Asset Management, where I was responsible for marketing, was account manager for social institutions and steered the research department. Thereafter, I was advisor to the Board of Directors for one year in the year 2000. Then I was asked to work for the ASN Bank in the position of assistant manager and in 2005 I became statutory director together with Ewoud Goudswaard. This is my personal story about how I became employee of ASN Bank; I have worked there now already thirteen years but in fact already from 1995. To what extent do sustainable investments contribute to a sustainable world? That was exactly why ASN Bank set up a publicly listed fund. In addition to saving, there are many companies where you could buy obligations or stocks. Our aim was to found a fund where we could select companies not only based on their performance, management skills and financial forecasts, but also based on their social policy and ambitions . The ASN Equity Fund is an example of this. More funds of this kind have been founded by now, and choosing to invest in such a fund or depositing your money in the founding company shows that you find it important that investments contribute to a sustainable future. The ASN Equity Fund also invests in rather big companies like DSM, but with the Microloan Fund we invest in small, local entrepreneurs in developing countries. With the money they get from our fund they can improve their circumstances. The Small and Midcap fund invests in companies that are in between these two extremes. We follow these companies critically and give them advice on how they can undertake steps to become a sustainable company. We try to reach this goal of making companies sustainable by pursuing several different ways, which will eventually lead to a more sustainable world. If we do not have the belief or idea that it could help what we are doing, then we would not run this policy. And it does not matter to what extent sustainable investments contribute to a sustainable world; the most important thing is that it contributes anyway! What are the criteria for sustainability? Sustainability contains three pillars: climate, people and biodiversity. From this pillars, follow several sector specific policies and criteria to load this criteria. It is an extensive set and the trick is to make sure that the criteria are effective and enforceable. Eventually, customers are asking for your opinion and you should give a clear statement. Within sustainable investing it is important to be clear about your statement. Besides, we try to look at what activities will be done and which will not. The constant factor is that you always take profit potential into consideration. We also always look to social relevance of the product or service. ASN Bank excludes companies from the arms industry or companies that make use of child labour. We perform extensive research to be sure that these things do not occur with the help of our funds. When a customer deposits 100 Euros in a bank account with us, he will get 1.6% interest, but this is not earned in for example a leather company where children work. Most of the social institutions cannot guarantee this, contrary to ASN Bank. In my opinion is ASN Bank is a precursor in making their promises true. ASN Bank has several durable investment funds, could you describe these shortly? ASN Bank has seven different investment funds. All these funds stand for sustainability. The stocks and obligations in the ASN Sustainable Equity Fund, ASN Sustainable Mix fund and ASN Sustainable Obligation are thoroughly selected on the sustainability criteria. In addition, we have ASN Environment & Water Fund, which contains stocks from sustainable companies worldwide that are active in environment and water technology. ASN Sustainable Small & Midcap Fund contains stock from small and medium sized European companies selected on sustainability. Projects that include sustainable buildings, green energy and nature belong to the ASN Green Project Fund. Finally, we have the ASN-Novib Microcredit Fund, which includes microfinance institutions that provide small credits to people in developing countries. Given your function as marketing director, in