Episode 5: Big Questions for Accounting - with Mac McKenzie-Smart of Smart Accounting and Tax Solutions

Andrew (Mac) McKenzie-Smart gives some interesting and (to me at least) revealing answers to my big questions for accounting.

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Transcript

Kirsten Gibbs: [00:00:00] 

Welcome to the pioneer accountants podcast, where pioneering accountants answer big questions about accounting and I introduce people they should know. 

I'm Kirsten Gibbs and I help accountants to build an autonomous practice, a practice they can step up with or away from whenever they want without killing themselves or their business in the process.

Today. I'm talking to Mac McKenzie-Smart from Smart Accounting and Tax Solutions. LLP. Okay. 

So I met Mac through the ICAEW Croydon president, Tom Ahmad, at a lunch in Moorgate place, which is a very nice place to have lunch, actually, if you ever get the chance. Mac is a tax advisor. He's a former president of the Croydon, ICAEW and he currently chairs the tax discussion groups in Croydon and Bromley, which hopefully he will explain more about later. He's also former chairman of the CIOT/ATT national branch network.

And he's managing partner of Smart Accounting and Tax Solutions based in Oxted in Surrey, a very pretty place to have an office. 

Hi Mac. 

Mac McKenzie-Smart: [00:01:14] 

Hi, Kirsten. It's good to have an opportunity to sort of discuss these sorts of areas. I think there are quite important decisions and discussion of things in their own right. And, interesting to sort of go through this process with you. 

Kirsten Gibbs: [00:01:27] 

Brilliant. Okay. Well, yes, I agree they're important things and actually, it's very interesting to talk about them with people like you. So I'm going to dive straight in.

 What is accounting for? 

Mac McKenzie-Smart: [00:01:40] 

Well, the straightforward thing is it splits, I think into three major areas, it's it's for tax purposes. Very often people are using accounts to decide, calculate how much they're paying to the UK Exchequer for tax. So that then goes on to provide the wonderful services that we get from the national health services and all the rest of it. And that's most people I think really are very much focused on, on their tax returns, their tax compliance.

And certainly for most of my career its been. Those three letter, words of tax has been involved in, in, in the majority of it, but there are also other things that accounting is used for things like investment decisions. I've got clients that are looking to, to get monies into them, investments that are, you know, from banks, i.e. debt finance, but also equity finance as well, and I'm also a finance director for a fund management business that manages, a substantial amount of money for, for other people in their pension funds and the like. 

The final thing is that it's for performance management internally and externally because it records how well you're doing against, in your internal peers and, externally against other firms or businesses in an area that, you're, you're operating within.

Kirsten Gibbs: [00:02:59] 

Okay. That's pretty comprehensive. So, is that, you know, tax investments, performance management, is that what it should be for? 

Mac McKenzie-Smart: [00:03:09] 

Well, as, as we discussed earlier, it comes down to sort of how you, you're viewing what accounting is. I mean, basically it's a historical record of, of transactions and activities, plus a feed forward of how those decisions that have been taken in a business will affect that business or activity or that person's individual finances going forward.

So, in terms of the question what it should be for, well it really is actually, that's what it does. This is how it always has been. This is how it's going to be. Whether that's the right thing for it to be useful and whether we focus far too much as individuals on, on tax and keeping taxes low; on investments and looking to maximize the amount of gains; and in terms of performance and management, whether we're looking at recording that on a short term or a long term basis is actually quite a, a, a wider question than just the sorts of decisions and areas that we as accountants usually get involved in. Whether that's right that, we should only be focused on these in a fairly narrow manner is, is obviously something that maybe the future will change.

Kirsten Gibbs: [00:04:19] 

And actually it's up to us, it's up to us as the users of accounting to decide that. But it means that if you want to, I guess what it means is if your definition of performance is different from somebody else's, then your accountant will help you measure it. 

Mac McKenzie-Smart: [00:04:36] 

Yes, almost certainly will do so, you know, accountants are basically people who are very often, highly, numerate, fairly literate, although that's a variable feast, able to assist and assimilate and if they're asked to record and, come up with performance indicators, they will come up with ways that they can measure stuff, as best they can. And that doesnt necessarily follow that its just an internal measurement or yardstick it can be also benchmarking and looking how things are going against others.

Kirsten Gibbs: [00:05:14] 

Right, OK. So what else do you think Accounting could be for?

Mac McKenzie-Smart: [00:05:14] This is, where we're looking at, going away from the old, what would have been the old SWOT analysis, the strengths, weaknesses opportunities, and threats for our business, which very much an accountant in the past will have helped to do, into being on a, on a wider public service environment or marketing or PR type areas, which are, are a little bit more softer and woolier. 

looking to say, actually, if we start distinguishing our business away from our peers, by saying, we are not going to focus on how much we charge compared to everyone else on a, "earnings per" basis, but actually say, look, buy into our values here, we will go out and buy stuff that is more expensive because we are not going to be going to transfer stuff across from third world countries on slave wages. We're going to be reinvesting and looking to support economies and people. 

One of the wonderful things for me in one of my presidential years in ICAEW was being there with Paul Aplin and making a wonderful service that the ICAEW communities do in looking to develop and improve accountancy around the world, by providing accounting training to places like Uganda, Vietnam and the like. And the idea of them being able to provide support and help and improve financial literacy over in those sorts of countries, I think can only make for a stronger world economy.

And hopefully the sort of stuff we're going through at the moment will then start to, be addressed that, by, by basically areas that were currently struggling may be able to be improved, because they have a, more of a coherent, accounting function there. 

Kirsten Gibbs: [00:06:58] 

Brilliant. That's brilliant. So do you think then that accounting can help to solve some of the really big problems that we face across the world today? You know, climate crisis, inequality, even coronavirus. 

Mac McKenzie-Smart: [00:07:12] 

In a word. No, because accountancy, as I just said before is all about, the recording of transactions. It's all about how we measure performance. It's about, calculating taxes and calculating and making investment decisions. 

So accounting in itself, I don't think can can actually solve the problems of today, itself as a, as a function. However, what it does is it provides the framework where hopefully people have the ability to calculate their taxes correctly and pay them. And have the opportunity to make investment decisions that are informed. That can then go to be strengthening the world economy, by making certain, that people spend money in the right way to invest in the right companies and therefore not to support businesses that sadly are not viable or have problems. 

Kirsten Gibbs: [00:08:06] 

Right. 

Mac McKenzie-Smart: [00:08:06] 

And then to actually measure how successful those investment decisions are, as part of it. So, in terms of whether accounting can solve problems, no, it can't, but actually improving accounting abilities, improving financial literacy certainly can do so.

I don't think it will ever conquer inequality because that is a fundamental inherent, thing that exists. And that goes well beyond, the sort of realms of stuff that accountants can do.

But if we are focused on things like dealing with climate crisis and, and tax revenues that are more framed towards, dealing with these issues, then I'm certain that that accountancy can help towards providing the solutions in that respect, because you know, if taxes are spent wisely, if companies able to distinguish themselves because of their support, to minimize the amount of impact on the climate, on their, in their business. Then, then of course it will help. 

And finally, of course, with, with the coronavirus lockdown that we're going through at the moment, accountants themselves will undoubtedly be helping a lot of businesses to survive this by providing them with the business plans, the advice and the associated information to enable them to claim the right grants, to get the right business loans and to get them to help support, to, to focus on the right areas. 

But accounting itself is, is a means to an end. Accountants, of course, being hopefully people who have a high degree of financial literacy and professional and business knowledge. Yes. I think that's quite a positive, positive that we can do to help any of these areas. Should we choose to do so. 

Kirsten Gibbs: [00:09:52] 

Yes

Mac McKenzie-Smart: [00:09:52] 

That's the other challenge I think, is to try and get as a pool of people, us to, to work towards, more of a collective good than not. And one accountant who was fairly senior within the ICAEW turned around and told me that, a function of being an accountant, as far as he was concerned, was to represent the wealthy and to minimize their taxes. Well, I don't think that's in any way the right attitude or ethos that anybody should have as a guiding principle, certainly in my business career, that's not my, my one. And I think, there was a queue of people looking to flatten him because it was just an abhorrent thing to say to anybody.

And certainly it's not something that any of the professional accountant bodies would ever dream of putting anywhere near any of their marketing or any of their presidents. They would never, any of us say that. And it's one of the things that the Chartered Institute of Tax is very proud of is the fact that it set up the low income tax reform group.

Which they support quite heavily to provide people who have low incomes with a means of getting good quality tax information and to make representations on behalf of people who really would otherwise not have a voice within the world to do so. 

I mentioned earlier in this about the ICAEW arms as well, that also do similar sorts of things across the world.

And I think it's something that is little known, is how much a force for good our professional accountancy bodies are out there for not just the big businesses. 

Kirsten Gibbs: [00:11:22] 

Yeah, so that leads very nicely into my next question. And almost kind of partly answers it, which is can accounting help make the world a better place? And what you're telling me is they actually already are in lots of ways. Of course they are. 

Mac McKenzie-Smart: [00:11:37] 

Of course, and that's the right thing. And any responsible organization would want to help and provide the support, not just for, for those that are its members, but also to, to try and - I mean, the Chartered Institute of Tax is a charity and it has as part of its charitable aims, which is, the fact that it exists to try and improve, the, the tax legislation on an apolitical basis. And it has, yes, it does lobbying but it only lobbies to try and, and make things work better for us all, rather than working for, for any segment or sector of the economy or any area. As a charity, they are very, very keen to ensure that you know, that things work. HMRC should be rightly plauded for things it does well, and that it should be assisted to try and get things right when it has problems and difficulties. And I know the, the ICAEW works on a similar basis as well, the Tax Faculty and the Chartered Institute of Tax are phenomenal bodies for good in this country, and it's one of the things I'm very proud of being a member of both organizations. 

Kirsten Gibbs: [00:12:47] 

Excellent. So that's very interesting because you've just told me a whole load of stuff that I did not know about accounting and accountants and, it strikes me that, you know, we, as a general public, we kind of still have a bit of a perception of accountants that is, you know, they're boring, you know what was it, John Major traditionally supposedly ran away from the circus to become an accountant, which is the opposite way round of what we would expect. But do you see that perception changing? 

Mac McKenzie-Smart: [00:13:23] 

I think probably not because, I mean, there's always going to be the old Monty Python sketch out there. And, and John Major's only the latest example of that. 

Accountants are always going to be seen as being responsible financial people who, within an organization will basically turn around and say, no, you can't afford that. Because frankly, the, the, you know, people, need those sorts of safe hands on the tiller in, in businesses, they need safe hands on the tiller in charities. And there will always be people who are naturally more siding towards those sorts of help and support and understanding. 

And those are others out there who are going to be very much focused on wanting to spend the money to do it. And unfortunately, when you're looking at resource allocation and stuff like that, it's very easy to go and say, Oh, well, I want without realizing, can I afford?

And one of the big challenges generally is the level of financial literacy and understanding people have of their own organizations or businesses is, can be quite, poor. 

Kirsten Gibbs: [00:14:33] 

Yeah. 

Mac McKenzie-Smart: [00:14:34] 

And there will be a naturally in any large organization, those that are tending to be more pragmatic realists with, with looking at how things are, and there are those who will always be optimists and who will look to do to do, a lot of things cause they can see that there's a benefit to do so. And trying to rein some of these people in is sometimes challenging to do. Because they, they only see opportunities. They won't necessarily see the, the threats that, that causes by the decisions they take. And, the role of an accountant in, in all of this is to understand the impact on this for the financial future of, of a business, or certainly the way I see it, a good accountant, gets involved in looking at the past decisions that have been taken and where a business stands to try and help frame that discussion and decisions to ensure that the best possible outcomes are achieved. 

Kirsten Gibbs: [00:15:30] 

Yeah. Yes. So, yeah, that really nicely echoes other conversations I've had, which is it's all about, you know, understanding where you are and how you got there so that you can even better understand what options you have in the future, and which are the best ones to take. 

So it's about information, isn't it? It's about, it's about doing things with intention, with information instead of by accident and just hoping for the best. 

Mac McKenzie-Smart: [00:16:04] 

Yeah. I mean, obviously as as many accountants will have done, you go through, you know, a lot of personality type testing and checking to see where, what you do and how, how you make decisions and the various sorts of bits and pieces like that. And it doesn't necessarily follow that, as a, as a breed us accountants are all the same. 

Kirsten Gibbs: [00:16:24] 

No, of course not.

Mac McKenzie-Smart: [00:16:26] 

Because we are actually a wide ranging, pool of people with different skills and abilities.

Some more good at the detail, some less good at the detail. Some very good at the people areas, some very focused on tasks, others who are very good at just smoothing the waters over and bringing people together, and, and, in networks and the groups. And all of those skills are, are very vital in an organization, and its the balance of those skills that makes it succesful.

Kirsten Gibbs: [00:16:55] 

Yeah. Okay. So how could we sum up this conversation, do you think? What's the best way? Because I think we can say, yeah, accountants, they can, and they do make the world a better place, but we can't leave it all to them. It's not fair to do that. We need to decide what we want using all the information we have at our fingertips. And our accountants really are kind of our best friends in doing that because they're the people who can help us assemble all that information and interpret it in a sensible way. 

Mac McKenzie-Smart: [00:17:38] 

We're very fortunate. Very often we're seen as people, people can trust. We come off often with understanding, obviously people's tax returns of finances and business. We then also help to frame the decisions they take, and we're very often the first point of call when things are going badly. 

But unfortunately, one of the big challenges we have with clients. We can tell them how we want it to be done. We can tell them when we want it done. How, how it should be pulled together. Reality is. People choose not to do it. It's their choice. We can't do it. 

Kirsten Gibbs: [00:18:10] 

That seems a nice place to round off. Thank you so much, Mac, that has been really fascinating and very enjoyable. Thank you. 

Mac McKenzie-Smart: [00:18:18] 

It's very interesting to sort of air my views like this and have a good conversation. 

Kirsten Gibbs: [00:18:23] 

Okay. Well, on that note, I think we ought to stop. Thanks again. 

Cheers. Bye. 

Mac McKenzie-Smart: [00:18:30] Bye bye. 

Kirsten Gibbs: [00:18:31] 

Thank you for listening to the pioneer accountants podcast. 

Where pioneering accountants answer big questions about accounting with me, Kirsten Gibbs. If you're a pioneering accountant and you'd like to be part of this podcast, just head over to my website, www.gibbsandpartners.com and send me a message. I look forward to hearing from you.