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A quick lesson on blockchain for accountants: Part 1 – currency

downloadI have been meaning to write something on blockchain for quite a while now. So, in this post and the next few, I will write what I hope are some simple lessons which will give you an appreciation of blockchain. To do this, I want to go back to some basics first and here I will remind you what a currency is. For these posts, I will use the example of a blockchain being used in cryptocurrencies, but there may be many other uses as time goes on.

So what is a currency? We probably all think we know what it is, it is the money in our pockets. That is a fair starting point, but we need to big a little deeper.  In accounting – see for example the IASB’s Conceptual framework – there are several measurement bases: current cost, historic cost, present value, realisable value. The conceptual framework of the IASB defines measurement “as the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement”.  Monetary means in money, and money can be defined as a current medium of exchange – hence the word currency.  So, for accounting, this means we measure assets, liabilities, incomes and expenses in currency – a dollar, a euro, a pound.  So why not in bitcoin, or litecoin or ethereum? Are these not currencies?

To answer these questions, let me divulge for a moment. When I was in secondary school, I studied “Business Studies”. From this, I remember something which used to be printed on all the Irish pound notes before we had the Euro, the term legal tender. I also recalled that all pound notes were legal tender, and a certain amount of coinage. Legal tender means that the currency is acceptable as a means of settling a debt. In Irish law, before the introduction of the Euro, a 1969 law set out that all notes and some coinage were legal tender e.g. a debt of £20 could be paid in coins of 10 pence or greater. The concept still applies to the Euro notes, and in other currencies too. However, being legal tender only means something is an acceptable means of payment, it does not have to be accepted in general.  Thus, cheques, credit cards, PayPal, ApplePay, and guess what you got it, cryptocurrencies, do not have to be accepted as a form of payment. Having said that, typically banknotes are issued by a country’s central bank and are nearly always accepted.

So, if something is not legal tender, then there is a chance they may not be accepted as a method of payment (i.e. settlement of a debt). At this stage you are thinking, but if credit cards etc are not legal tender why are they so widely accepted? The answer lies in the fact that the banks who issue the cards and process payments are doing so typically in a currency recognised as legal tender.

Let me pose a question now. If you went to a typical shop in a town or city, and you had some cryptocurrency, maybe bitcoin, in an electronic wallet would you be able to pay for a coffee? The answer is generally no, but there are some online and other retailers who will accept payment in bitcoin. So it is probably fair to say that as bitcoin is not generally accepted (yet), it is not a currency. And, as far as I am aware, no cryptocurrency is yet legal tender. For accountants, this means that we are not yet measuring in cryptocurrency, and no accounting reports will be prepared in bitcoin for example. Thus in accounting terms, any cryptocurrency a business may have is treated as an asset in the financial statements – typically a current asset, like a normal bank or cash account. Of course, cryptocurrency values seem to be rather unstable, but this is not something I cover here.

Now that you know what a currency is, Part 2 of this series of posts will explore how bitcoin payments are processed.


Marginal costs of a coffee?


Image from wikipedia

The common cost of a cup of coffee debate raises  questions like 1) why does it cost €3 for a cup of hot water with some coffee; 2) why do some places give free refills? Where I work, if you want a cup of hot water it costs about 80c. So why does a cup of coffee or a cup of water cost so much. I will give you my view for what is it worth.

A colleague pointed to an article on The Guardian Food and Drink blog recently which posed a question “Is £2 a fair price for a cup of hot water and lemon”. The article describes a review of a coffee shop on TripAdvisor where a customer complained about the price. The manager duly drafted a long and detailed reply, justifying the cost. The justification included everything from the staff member cutting a slice of the lemon, walking in and out of the kitchen and so on – you can read it all at the above link. He argued the cost might be even more than £2.

So what is my view? The manager is right if you include all costs (i.e. full costing). But here is another way to think about this. The waiter, chef, light, rent, cups, equipment, decor etc have all been paid for and are sunk costs. Thinking about it this way, the extra cost of the coffee/tea/water & lemon or whatever else is simply the water and ingredients. Thus, a cup could be sold for a few cent and still make a profit on that one cup as long as the costs are covered. Of course to do this all the time would probably not make business sense, but sometimes if a business has already covered all its costs (or wants to minimise losses) it can engage in such marginal cost thinking – take GroupOn vouchers as an example. Such thinking about pricing and costs is not of course supported by financial reporting, which encourages us to think only in full cost terms. But going back to our coffee shop, if a waiter costs €/$/£10 per hour to employ, then this cost will not change regardless of whether (s)he serves 1 cup or 20 cups in an hour. Lowering prices might bring more people in, and they might buy more than just a cup of coffee – but to do this the manager needs to be aware of the nature of costs and make an informed decision.

The costs of sitting in traffic?

download (2)We all know what it is like to sit in traffic, but ever wondering how much money is wasted through lost time? An article from The Economist gives a good picture. Some research conducted by  the Centre for Economics and Business Research and INRIX  looked at costs of traffic jams in three ways – 1) reduced productivity, 2) higher transport costs and 3) carbon costs of fumes. Their cost estimates across four countries comes to some $200 billion. Quite a sum I think you will agree. I wonder how much of this cost relates to lost labour time – or in other words what is the opportunity cost to firms of having staff delayed in traffic. Of course, you could think of this from the view of the worker too – the opportunity cost might be at least some extra time in bed instead of the morning rush hour.

Flat rate taxi fares, Hailo – reducing taxi costs?

I recently got a flat rate taxi fare from an airport in Europe – a bit of an adventure, the guy was really moving it. And the rate was of course cheaper than normal taxi fare which at airports are usually more expensive . So then I started to think about apps like Hailo (and the latest one Uber). Can these reduce taxi costs and in turn give us cheaper fares. Well I guess so. I don’t know for sure, but I would assume using Hailo is cheaper than “renting” a radio and a customer base from a taxi firm. If I’m right, will these reduced costs be passed on?



An interesting view on assets and income…



Here is a good post from which looks at a lady seeking a partner from an interesting view. It is worth a read, trust me

The Science May Be Settled, But the Economics Isn’t

A re-blog this week. This is a great post from the Freakonomics blog on the climate change debate – or fact perhaps more correctly. It makes interesting reading.

The Science May Be Settled, But the Economics Isn’t.

Management accountant’s travelogue – part 3 – to toll or not to toll?

List of numbered roads in the British Isles

(Photo credit: Wikipedia)

As I drove through France and Spain on my holiday, I thought about the tolls one must pay (on most) motorways. I was thinking how do they set the prices of these tolls? Of course, public infrastructure like motorways is often now financed by a combination of public and private investment.  Regardless of the investment type, can you imagine how tricky it is to pitch a price for a motorway toll. If it’s too high, less will use it (M6 Toll in the UK) and costs take much longer to be recouped. Set it too cheap and it floods with traffic, which in turn eventually results in less users, and that equals less money. Should the price be set with future investment and on-going maintenance in mind. Should it be a social good with a very low price – but then where will the money come from for re-investment? Lots of questions here, but I hope you can see a lot of management accounting is behind these decisions. I would imagine getting the initial price correct is the toughest part. Nowadays though, I am sure there are plenty of modelling tools to help toll operators and governments.

Management accountant’s travelogue- part 2 – merendero

View of Otxarkoaga district (Bilbao) from a pi...

While in Northern Spain – Asturias to be exact – we were invited one evening to a meal at a merendero.  From my limited knowledge of Spanish, this translates loosely to a picnic area. What we in fact had was a lovely tapas evening in a restaurant with a merendero  attached. I have written before about business being child-friendly, or not as is often the case.  The merendero concept is so simple; a lot of picnic tables, some play areas/equipment, a simple ordering system where you collect you food. And, all this at minimum cost to the restaurant I would imagine – at least in fixed costs. On the revenue side, the turnover of the restaurant is probably increased quite a bit as 1) more parents come and 2) future customer (the kids) are secured. In the particular merendero we visited, there were at least 100 places outside for people to eat and drink – a sizeable increase in volume without equally high costs. If only the Irish weather were good enough to do this! But, I’m sure a clever restaurant owner could take some of the idea and increase their business success (and revenues).

Management accountant’s travelogue- part 1 – free ferry trips

English: Holyhead ferry port Irish Ferries' Ul...

(Photo credit: Wikipedia)

Sorry about the somewhat cheesy title ! This summer, I spent about 3 weeks on a driving holiday in France and Spain. I love driving to Europe – no airports, luggage limit is a much as you can carry in your car, and you can stop when you want where you want. I drove just over 3,000 miles and stayed in some beautiful places. During my journey, the old business brain was not completely switched off so I’d like to share some things I noticed and thought about.  Of course, they will be related to management accounting one way or another.

The first thing I noticed was that the ferry trip to France gave us a free trip to the UK. A free something is nothing new – you can lots of examples of free products, two for three deals etc. in books like Freakonomics and Undercover Economist. The deal was simply I got a free trip in a car ferry to the UK for a car and 2 adults once I completed my trip to Europe. On my return, I phoned and all went perfect. I had to pay a small amount for the kids, but we got the dates we wanted. So how much is this promotion costing the ferry company. I guess there are two ways of looking at it:

1) it costs them the lost revenue from two other paying passengers with a car – so a sort of opportunity cost

2) it costs nil, and in fact increases contribution.

Which one would you use if you were making the decision/reporting to management ? I’d go with the second view, especially in off-season. The ferry in question hardly ever leaves the Irish Sea – going back and forward to the UK three times every 24 hours, all year round. In off-season, the boat is not full – but the costs of running it are the same – both fixed and variable costs. Thus, any extra monies I spend – buying food for example – reduces the fixed costs burden. If I were to think about this free trip in full cost terms, I would probably not offer it to passengers as the fixed cost are unlikely to be covered. This would be the wrong decision in my view, as anything that contributes to the bottom line is better that nothing, or suffering the fixed costs regardless.

Tune in over the coming weeks for some more holiday stories.

Ireland’s low corporate tax rate – good or bad?

English: Tax rates around the world: VAT rate/...

(Photo credit: Wikipedia)

I wrote this post  as a guest post for my fellow blogger Mark Holtzman (see

Many of you are probably familiar with Ireland’s low rate of corporation tax – 12.5%. It has been the subject of many articles and much criticism over the years and in recent times – articles including companies such as Google and Facebook and terms such as “the Dutch sandwich”. So, for the benefit of anyone outside Ireland, let me try to explain a few things and give my opinion for what it is worth. By the way, I am no tax expert.

Ireland is a small island with little or no natural resources – except our scenery and Guinness perhaps. As a result,  we have never had any serious indigenous manufacturing. Thus, at some point in the 1970’s a 10% corporate tax rate on manufacturing was introduced. All other businesses paid a higher rate, which I think was 33%. I remember learning tax in college and with this difference in rates, some companies stretched the definition of manufacturing. There was one case I recall which involved determining whether or not banana ripening was manufacturing. The courts ruled in was and since then, is the largest banana exporter in Europe. It’s true, and no banana republic jokes ! The outcome of this case resulted in a large infrastructure being developed in the country for banana ripening.

Now, our corporate tax rate is 12.5 % for all business. So we cannot say Ireland is a tax haven – as all companies are treated the same. But it is fair to say we are a low tax economy. Our European neighbours (Germany in particular) complain, and there are many reports on large US companies avoiding US taxes by being based in Ireland or using Ireland’s low tax rates to transfer profits through Ireland. So is this good or bad? Well, there is no correct answer to this, and of course the answer depends on your perspective. From my perspective as an Irish person and accountant, it is good – jobs are created, more taxes are brought in than if the rate were higher for example. The German government don’t seem to like our low tax rate – their rate is higher apparently – and there are rumblings to have a more common Europe wide tax rate.

But are low tax rates good? Perhaps they can be. Last year when our government was preparing its budget one economist showed that and 11% rate of value-added tax (like a sales tax) would yield the budget deficit. The current VAT rates are 23%, 13.5%, 9% and 0%. – depending on the type of good or service. If all this was replaced with a single 11% rate, an annual additional intake of €1.5 billion would occur assuming demand was stable. Another idea on low tax rates is that if the rate is lower, more people will pay – or put it another way, less will avoid it. In the 1980’s our income tax rate topped 60%. Small business in particular hid money in off-shore accounts. By the early 1990’s, the top rate had decreased to 48% (now 41%). The tax authorities had a tax amnesty, whereby heavy penalties and interest were waived on the off-shore monies. This, and the lower tax rate, brought many thousands of people into the tax net. And as the tax rate has stayed lower than previous times, these businesses have by and large stayed in the tax net and the black economy is less than previous.

A final point when comparing tax rates is what do we mean by tax. For example, all businesses in Ireland pay very expensive rates to the local council/municipal authority. In other countries, this is much less. For example, certain German states keep their local taxes low to attract investment. So before comparing headlines tax rates, we have to ask are we comparing apples with apples. As any management accounting student knows, we cannot compare figures which are not comparable as a basis for decision-making.

I hope you find these thoughts useful. I have included some links below which may be relevant.

That’ll be €1500. Can I pay in cash? Sorry sir, no.


Cash (Photo credit:

During the summer, I was on holiday in Sud Tirol (it’s Italy, but the culture is more Austrian). We were led to our room, shown around and then asked how will we pay when we leave. The reason for the question was that a law introduced as part of Italy’s austerity measured prevents cash payments in excess of €1,000. Now, I never carry much cash, but I was thinking what an odd law. Is it to stop tax evasion? Apparently so. I read around a bit and found that Spain also has a similar law. And apparently the Italian’s actually wanted to implement the law with a lower amount.

Now, as an accountant I completely understand the issue of tax evasion, cash deals and the black economy. But where is this headed? When I done Business Studies in secondary school, I remember being thought the concept of legal tender. Pre the Euro, the Irish Punt notes were legal tender for settlement of any amount and apparently this may be still so (see here re Euro legal tender). If cash cannot be used at all,  what happens when the banking systems fail? Don’t anybody tell me they can’t/won’t; see my post soon on Ulster Banks’ systems failures this summer. And if I were to get a bit political, are we perhaps in the future to trust the very banks that brought the world a financial crisis to manage all transactions. Yeah, I’m being a bit over the top perhaps, but I completely disagree with strict cash controls. There must be other ways to make businesses more tax compliant e.g. focused audits, serious penalties.

Cleaner transport (and cost savings?)

Back in February this year I wrote a short post about how Tesco were increasing their use of rail travel to reduce CO2 emissions.  It was a good example of how to change your business to both deliver cost savings and be more environmentally friendly. In the February 2012 edition of CIMA’s Financial Management (pp 26.30), there is a great article written by Ben Schiller which provides a number of examples of firms which are seeking ways to reduce transport costs and CO2 emissions. One quote from the article sums up the problems around transport costs “many ships operating today were built to run on $150 a tonne bunker fuel, not a price four times that”.  Of course, it is not only ships but all forms of transport which are  facing these price increases, such as road haulage and even company cars (for example, when I bought my first diesel car just over 3 years ago, diesel was 99 cent per litre at my local station, now it’s over €1.50). As a result of these increasing costs, we can see more sleek looking fuel-efficient trucks for example on our motorways.

I found Ben Schiller’s article really great less for some examples we might know about – chip fat being converted to biodiesel, electric vehicles – but more for some  real examples from firms we all probably know well. The first way firms can save on transport costs (and green up) is to bring production closer to the market – L’Oreal for example have brought some of their supply chain in-house, by producing thinks like packaging on-site.  A second way, is to change the modes of transport.  For example, both Philips and Tesco use canals to transport bulky product. Phillips use barges to transport goods to Rotterdam port, while Tesco ship wine between Liverpool and Manchester. In Spain, SEAT rebuilt a short rail line to Barcelona port, carrying 80,000 cars annually using 2 trains a day.  Even large shipping companies like Maersk are doing things like “slow-steaming ” (or sailing slower) to reduce CO2 emissions and fuel costs.

There are more examples in the article itself.  You can read an online summary here.

Driverless cars?

Not my normal topic, but have a read of this news piece on the BBC

Now driverless cars have been around for a while, but what will Google do, pop up ads to make money as you drive by somewhere ??

Can social data change markets?

In recent years, we have heard so much about the (financial) markets, their reactions, lack of confidence and so on. I often feel like asking who or what exactly is “the markets” and will they ever just leave us alone. The economist Adam Smith used the analogy of the invisible hand, a self correction mechanism the markets may have. More recently Chandler alone of the visible hand – the firm – which could be influenced and changes perhaps easier than something like an invisible market hand.

I’m no economist, but I do find this stuff interesting. Especially nowadays when you think if the amount of information a firm could have – social data for example. I read an article in a Forbes blog last year some time, which suggested the prevalence and increasing availability of social data might be the invisible hand that could change markets, or at least help us to understand the markets. Seems like an interesting thought – click here to read the post.

Peer-to-peer lending – a source of finance for small business?

I read an interesting article in the November 2011 issue of Financial Management, CIMA’s monthly journal. The topic was peer-to-peer finance, which was something I had only heard a little about.  Given the combination currently of low deposit interest rates and high lending rates for small business, peer networks have formed and are seemingly growing fast. The basic idea is relatively simple: some business have cash surpluses and others need finance – but not at 19% (which was a rate quoted to one business mentioned in the article). Those with spare cash can group together and lend to those that need it. The risk may be lower for the provider of finance as only a small amount can be contributed, and for the borrower the rate is lower (8.9% in the case of the business the bank wanted 19% from). Two peer-to-peer lending networks are mentioned in the article – Thincats and Funding Circle. In effect such networks are like mini-money markets. They do, of course, undetake some credit checks and crediting rating, but for small business this seems to be a very sensible way to bring borrowers and lenders together.

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