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Why technical competence isn’t enough in the real world

ShaunArticle written by Shaun Parsons.

In 2014, the Assessment of Professional Competence replaces both the Public Practice Examination (PPE) and the Financial Management examination on the path to qualifying as a CA(SA). When a new CA(SA) enters the market, that market expects him or her to be not only on top of the technical content that has been the focus of his or her academic studies, but also to possess the professional skills necessary to make a meaningful contribution to the future success of a prospective employer.

But, why is professional competence so important, and what distinguishes professional competence from technical competence? In trying to come up with an example to address these questions, I am reminded of one of my final client interactions, prior to returning to academia. The facts were as follows:

A client phoned me for advice. His company was approaching the end of the lease on its head office building. It had received an offer from a property company to be an anchor tenant in a new office development. To sweeten the deal, the property company was willing to pay the moving costs of my client, as well as to offer an initial rent-free period. There would be costs involved if the lease was terminated in the first few years, but my client considered this a remote possibility. On top of it all, the total rent over the contract period would be lower than if the existing lease were renewed.

My client was particularly excited about this offer, because a controlling stake in the company had recently sold to a new owner, and it was particularly important that the company now achieve its profit target in the coming year. The opportunity to recognise zero rent expense initially would significantly increase the chances of that. What did I think?

Carefully, I spoke him through the accounting consequences of the offer. Both the value of the moving costs and the rent-free period would have to be initially recognised as a liability, I explained. The credit for the cancellation costs would have to be released over the period that the penalty applied, while the rent-free period would have to be smoothed over the duration of the lease. Far from recognising no rent expense in the first year, the expense in the first year would be higher than at any other time under the lease!

My answer was technically correct and clearly explained. I was quite pleased with my response. My client, however, was disappointed. If the deal wasn’t cheaper in year one, then he wouldn’t take it. Why were our experiences of that interaction so different?

While my answer demonstrated my technical competence, it failed to demonstrate similar standards of professional competence. It was not that the accounting was unimportant, but it was only a part of the picture. We also needed to talk about what the right decision was for the company, which should be based on the cost over the lease period, not timing issues under IFRS. It might also have been worth exploring how having no rent to pay in the first year would positively impact the company’s liquidity, and how the timing of tax deductions would not follow the accounting treatment, meaning that there would be no tax deduction in the first year.

Finally, we might have concluded that, in this instance at least, pursuing the new owner’s performance measure was at odds with the best interest of the company, and how it would be advisable to negotiate a modified measure with its holding company that would better align the two, rather than to pass up this opportunity.

In reality, the issues were a little more complex, and hopefully I was a little less narrow-minded than it serves my purposes here to suggest. Still, hopefully this story illustrates the difference between technical and professional competence. In the real world, technical competence alone will not be sufficient to be the outstanding business professional to which the CA(SA) aspires. The market will judge us primarily by our professional competence.