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Year of the FD

What are the biggest challenges you face this year?[QQ] David Grigson: Maintaining cost discipline as the top line returns to growth, Sarbanes-Oxley section 404 compliance, reducing process complexity and speeding up decision-making.

Nigel Hall, fomer FD, Arcadia: To maintain the excellent work-life balance achieved in 2004.

Robert McDonald, Group FD Punch Taverns: Growing a business in a sea of new regulation – be this political interference, accounting changes or corporate governance.

Ian McHoul, group FD, Reuters: Managing the balance between real value-creation and the increasing burden of regulation, which I do understand, but which nonetheless reduces time available for value-creation.

Philip Moore, group FD, Friends Provident: For the financial services industry our biggest challenge is regaining the trust of our customers. For the finance team it is the introduction of new accounting, reporting and regulatory rules, and educating the market on how to interpret these accurately.

Richard Pennycook, group FD, RAC: As a service business, our challenge is to deliver ever better service levels, at lower cost to the customer.

Paul White, finance director, UKAEA: To ensure the finance function continues to add real value to the business.

Do you expect the first results published under IFRS to cause chaos and confusion, or will we see a smooth transition to the new standards? If confusion, where will the problems lie?

Grigson: I expect a smooth transition. If confusion, the cause will be a failure in communication.

Hall: I expect corporates to adopt the new standards successfully and report on schedule. The problems will all lie in the interpretation of the results reported under IFRS and there will be a number of over-the-top reactions from analysts and market commentators as they view companies through a new perspective. Naturally, they will forget that nothing has changed economically.

McDonald: I think accountants will worry about the impact of changes and some commentators and sensational journalists will react to this. However, I think most City analysts will simply look for cash numbers and convert wherever possible to this basis, and most investors will follow this lead, causing little impact to the markets.

McHoul: I expect a high level of uncertainty, principally over general philosophy; ie, transaction-based accounting has been replaced by an asset/liability valuation-based view of earnings and the idea of historical cost has been replaced by the concept of fair value. And, of course, IAS 39 will cause total chaos.

Moore: Some uncertainties, but the efforts devoted to education between now and then will go a long way to mitigate these. Even with the best-laid plans it is wise to plan for the unexpected. On balance, we will see a smooth transition. Is there a parallel with Y2K? Unfortunately for insurance companies, the readers of our accounts will be little, if any, wiser about our businesses under IFRS when compared with current UK GAAP. In some areas (IAS 27 and IAS 39), the picture will be more confusing.

Pennycook: The key challenge will be to ensure that costs of capital for listed companies do not rise during a 12-24 month period of confusion. The implementation of IFRS is the accounting equivalent of decimalisation. The problems will be in educating operational management to understand the new language and metrics, and smoothing the transition for investors and analysts when there will be a mix of old and new financial models in existence.

White: Chaos and confusion. It is already difficult to identify the changes required, and where the UK profession doesn’t agree about the standards it only adds to the confusion. I have decided to purchase the IFRS Bound Volume, but am told I also need International GAAP 2005. Oh, and it is only £125 plus postage and packaging.

The FTSE-100 was 4,750 at the end of 2004, up from 4,500 at the beginning of the year. What do you think its value will be at the end of 2005?

Grigson: 5,000

Hall: 4,750

McDonald: 4,900

McHoul: 5,300

Moore: There are a few imponderables here, such as consumer spending, the US dollar, the UK election, oil prices and interest rates to name but a few. If current relatively benign conditions hold (and no outrages), steady progress will mean the FTSE at about 5,000.

Pennycook: 5,250

White: I haven’t a clue. If I could predict this with any accuracy, I would be living a life of luxury on the winnings.

t advice do you have for FDs in 2005?

Grigson: Don’t let complexity become the cancer that kills your business.

Hall: Try to secure a non-executive directorship to give yourself a new perspective on how other corporates tackle the issues you face in your current organisation.

McDonald: Despite the regulatory distractions, focus on the business and, when possible, keep investing.

McHoul: Focus on the basics, not the accounting. If sales are increasing, cash costs are reducing and cash generation is improving, the business is in pretty good shape.

Moore: Keep focused on the big picture – our role is to add value to shareholders and other key stakeholders. Don’t forget this under the weight of regulatory and accounting change.

Pennycook: Develop the team around you and really foster the talent you have. Take some chances on good people.

White: Don’t get in your chief executive’s face and don’t be a crutch either (they are unstable and can be kicked over). You should be a key player in a winning team that is always moving forward to face new challenges, like IFRS, for example.

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