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IE AB IE.AB ACCOUNTING AND BUSINESS 09/2012

CPD

IS THE PRICE RIGHT? HOW CFOS CAN HELP LIFT PROFITS

UNJUST ENRICHMENT LEGISLATING FOR A COMPLEX TOPIC

GLOBAL ECONOMIC SURVEY THE NEW GLOOM BEYOND THE BOILERPLATE THE VALUE OF AUDITORS’ REPORTS INSOLVENCY BILL TAKES SHAPE THE IMPACT ON PRACTITIONERS

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ACCOUNTING AND BUSINESS IRELAND 09/2012

RESTORING REPUTATION THE TAOISEACH TALKS TO AB

IXBRL

THE IRISH REVIEW PENSIONS UPDATE THE PACE OF CHANGE CONTINUES CONVERGENCE RIP GETTING THE US ON BOARD CRIME FIGHT ACCOUNTANTS IN THE FRONTLINE

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Editor’s choice

In this month’s issue of AB Ireland, taoiseach Enda Kenny talks about Ireland’s road to recovery, with a particular emphasis on the reform of our banking and financial services sectors. I’ve highlighted some articles you shouldn’t miss below

PRIME NUMBERS On 9 March 2011, Enda Kenny fulfilled a long-held ambition by becoming Ireland’s 13th taoiseach, taking the reins of state at arguably the lowest point in modern Irish history. The fact that the taoiseach’s fortunes have ebbed and flowed since then can hardly be surprising, but his government can, at the very least, claim to have shored up confidence in the body politic at a critical juncture in our credibility as a nation and an economy. In the course of an extensive interview in this month’s AB Ireland, the taoiseach highlights, among other things, the significance of 2013, when Ireland will again hold the presidency of the EU and, coincidentally, celebrate the 40th anniversary of joining the then EEC in 1973. This six-month stint at the presidency will also lead the government to the likely half-way point of its term of office. For an administration that can claim some considerable successes in addressing Ireland’s burgeoning debt burden, the next year presents an unparalleled opportunity to recover Ireland’s once cherished position of poster boy of Europe. A positive role in finally addressing the wider eurozone crisis would be a huge coup in its own right while also, in turn, supporting the possibility of a fully-fledged export-based recovery, allowing Ireland’s fortunes to take a sharp turn for the better. Let’s hope 13 remains the taoiseach’s lucky number. Donal Nugent, donal.nugent@accaglobal.com

PRIME TIME Taoiseach Enda Kenny talks about Ireland’s journey to restore its credibility internationally Page 12

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IRISH PULSE Falling business confidence in Ireland follows the pattern elsewhere as ACCA’s Manos Schizas reports Page 18

INSOLVENCY HOPE CRIME FIGHTERS Tom Murray, Practitioners have president of ACCA an increased role Ireland, on the in the crackdown significance of on money theRESEARCH new Personal AND INSIGHTS laundering and APP tax Insolvency Our free Bill iPad app explores evasion crucial trends Page and24 issues for business. Page Download 26 it via www.accaglobal.com/ri_app or search for ‘ACCA Insights’ in the iTunes App Store. See page 65 for more information.

UNJUST RICHES A recent Seanad debate on unjust enrichment was the first to take BIG place, at this level, in AMBITIONS? Ireland or UK Page For 40 your next move, check out www.accacareers. com/ireland

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AB IRELAND EDITION CONTENTS SEPTEMBER 2012 VOLUME 3 ISSUE 9 Ireland editor Donal Nugent donal.nugent@accaglobal.com +353 (0)1 289 3305 Editor-in-chief Chris Quick chris.quick@accaglobal.com +44 (0) 20 7059 5966 Design manager Jackie Dollar jackie.dollar@accaglobal.com +44 (0) 20 7059 5620 Designers Robert Mills, Barry Sheehan Production manager Ciaran Brougham ciaran.brougham@accaglobal.com +353 (0) 1 289 3305 Advertising John Sheehan john.sheehan@accaglobal.com +353 (0) 1 289 3305 Bryan Beasley bryan.beasley@accaglobal.com +353 (0) 1 289 3305 London advertising James Fraser jfraser@educate-direct.com +44(0)20 7902 1224 Head of publishing Adam Williams adam.williams@accaglobal.com +44 (0) 20 7059 5601 Printing RV International Pictures Corbis ACCA President Dean Westcott FCCA Deputy president Barry Cooper FCCA Vice-president Martin Turner FCCA Chief executive Helen Brand OBE ACCA Ireland President Tom Murray FCCA Deputy president Diarmuid O’Donovan FCCA Vice-president Anne Keogh FCCA Head - ACCA Ireland Liz Hughes Tel +353 (0)1 447 5678 Fax +353 (0)1 496 3615 info@accaglobal.com Accounting and Business is published by ACCA 10 times per year. All views expressed within the title are those of the contributors. The Council of ACCA and the publishers do not guarantee the accuracy of statements by contributors or advertisers, or accept responsibility for any statement that they may express in this publication. The publication of an advertisement does not imply endorsement by ACCA of a product or service. Copyright ACCA 2012

Accounting and Business. No part of this publication may be reproduced, stored or distributed without the express written permission of ACCA. Accounting and Business Ireland is published by IFP Media, 31 Deansgrange Road, Blackrock, Co Dublin, Ireland +353 (0)1 289 3305 www.ifpmedia.com

12 Restoring Ireland’s reputation Taoiseach Enda Kenny on reputation, regulation and Ireland’s return to the financial markets

ACCA Ireland 9 Leeson Park Dublin 6 tel: +353 (0)1 447 5678 www.accaglobal.com/ireland

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Features

Audit period July 2009 to June 2010 138,255

18 Global economic conditions survey Manos Schizas reports on the gloomy mood of financial professionals

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Worldwide

There are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab

Regulars BRIEFING 06 News in pictures A different view of recent headlines 08 News in graphics We show a story as well as tell it using innovative graphs 10 News round-up A digest of all the latest news and developments

VIEWPOINT 20 You are our lifeblood Dean Westcott reflects on his year in office 21 Convergence RIP Jane Fuller on (not) getting the US on board 22 Beyond the boilerplate Robert Bruce on the value of auditors’ reports 24 Insolvency Bill takes shape Tom Murray reflects on the new Bill

TECHNICAL

YOUR CAREER

34 Technically speaking Aidan Clifford rounds up the changes accountants need to be aware of

59 The secret of getting the best

36 NI notes Changes and updates of relevance to Northern Ireland practitioners 37 Tax diary Some important tax deadlines ahead

60 Diary

Your sector

38 Tax changes – a round-up Updates from the Irish Taxation Institute

25 PRACTICE

40 Unjust enrichment Maurice O’Brien takes a fresh look at the topic

25 The view from Laura Galeckaite ACCA

43 Pensions update An update on pensions from a variety of perspectives

26 Accountants in crime-fight frontline John Davies on the global crackdown on money laundering

52 iXBRL The Irish implementation process under review 55 Accounting solutions Advice from PwC experts

29 CORPORATE

56 CPD More questions than answers

29 The view from Dermot Carey FCCA 30 Is the price right? How CFOs can help lift profits 33 Beyond compliance PwC’s Alison Thomas continues her series

CPD

Accounting and Business is a rich source of CPD. If you read it to keep yourself up to date, it will contribute to your non-verifiable CPD. If you read an article, learn something new and apply that learning in some way, it will contribute to your verifiable CPD. Each month, we also publish an article or two with related questions to answer. If they are relevant to your development needs, they can also contribute to your verifiable CPD. One hour of learning equates to one unit of CPD. For more, go to www.accaglobal.com/members/cpd

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ACCA NEWS 60 Diary 61 Approved employer 62 Seeing Africa in a new light 65 News

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News in pictures

01

Bray’s Katie Taylor celebrates winning a gold medal, with her coach and father, Pete Taylor, and technical coach Zaur Antia, after beating Russia’s Sofya Ochigava in the women’s 60kg boxing final during the London 2012 Olympic Games

02

Oil exploration company Providence says an oil field off the Cork coast may contains over 1bn barrels of oil

03

Element Power announces it will develop a 36-megawatt wind farm at Monaincha, Co. Tipperary

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04

A musical based on the rise and fall of Anglo Irish Bank launches in Dublin

05

Rory McIlroy celebrates after winning the 94th PGA Championship

06

The RDS hosts the 139th Dublin Horse Show in August

07

The 30th Olympiad in London officially closes in spectacular style, with a dazzling show of music, effects and pyrotechnics, bringing to an end a hugely successful Olympic Games

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News in graphics

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PREPARING TO TAKE OFF? PwC’s 2012 CEO Pulse Survey found change to be the name of the game as Irish companies continue to address significant challenges and actively target opportunities in international markets Outlook for the Irish economy for the next 12 months

Outlook for own business for the next 12 months

58% no change

43% no change

44% no change

22% favourable

41% favourable

39% favourable

20% unfavourable

16% unfavourable

17% unfavourable

2012

2011

2012

Top factors critical for the stabilisation and recovery of Ireland’s economy - all respondents Continued action to reduce public expenditure

56%

46%

Availability of bank finance

see the lack of demand/reducing revenues as a barrier to growth

45%

Continued certainty on probusiness and low tax economy

44%

Stability and growth in EU markets

42%

Stimulating consumer demand

40%

42%

Improving our national competitiveness

will grow employment levels in 2012/13

33%

Significant job creation

32% 0%

20%

40%

60%

80%

59% will grow revenues

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9 INTERNAL AUDIT UNDER SCRUTINY

With risk, control and compliance becoming increasingly important in today’s global marketplace, Ernst & Young’s survey of 695 chief audit executives and C-suite executives in The Future of Internal Audit is Now reveals that 80% of organisations acknowledge that their internal audit function has room for improvement.

KEY:

RLAND 1 SWITZE 2 SWEDEN 3 SINGAPORE ND 4 FINLA 5 UK

6 NETHERLANDS ARK 7 DENM G 8 HONG KON 9 IRELAND 10 US

Compliance

19%

Financial

15%

Technology

13%

Operational

14%

Regulatory Strategic

18%

21%

35%

49%

KEY:

LEADING THE WAY

For the second year running, Switzerland, Sweden and Singapore are leading the way in overall innovation performance, according to the Global Innovation Index 2012 (GII). Published by INSEAD and the World Intellectual Property Organization, the index ranks 141 countries and economies based on their innovation capabilities and results.

% 5 6

Centralised: in one location

% 16

Decentralised: by business unit Hybrid structure

STEADY FOCUS

The survey suggests that internal audit will continue to focus on a mix of business and IT reviews, with an increased emphasis on strategic and operational risks. Internal audit risk assessments, regulatory requirements and enterprise risk assessments remain the top three drivers of the audit plan.

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FINDING THE RIGHT FIT

There is no one-size-fits-all structure for internal audit, the survey also found. While almost half of respondents described functions that were centralised, the remainder worked under other models. Ultimately, says the report, structure must reflect organisational needs.

A MATTER OF PRINCIPLE

Almost two-thirds (65%) of mining companies surveyed by Mazars are working towards compliance with the UN’s 31 Guiding Principles on Business and Human Rights, adopted last year. Further, 94% of respondents agreed that mining firms should be responsible for compliance within both their own organisations and among contractors.

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News round-up

BUILDING DECLINES FURTHER

The rate of decline in the building industry increased again in July, with activity falling and job losses increasing. The Construction Purchasing Managers’ Index (PMI), which is published monthly by Ulster Bank, points to overall building activity falling sharply. The PMI for July was 42.2, as compared to 42.5 for June, with civil engineering projects taking the biggest hit.

€1BN R&D SPEND

Kerry Group has announced it will invest almost €1bn over the next five years in food innovation, which it describes as the blueprint for future profits. It has also hinted that it may set up one of its innovation hubs in Ireland. As the group announced a trading profit of €241m for the first half of this year, chief executive Stan McCarthy FCCA said that ‘technology is how we can make margin and, from a business perspective, we’re very positively disposed towards Ireland in terms of the talent that exists within many of the academic institutions here’.

IIRC REVEALS TIMELINE

The outline framework for integrated reporting has been published by the International Integrated Reporting Council. A prototype framework will be released before the end of 2012, with a draft framework circulated for comment by the middle of next year. Paul Druckman, IIRC chief executive officer, said: ‘Integrated reporting is a market-led initiative, driven by business and investor needs to gain greater insights into how a company’s strategy creates and preserves value over the short, medium and long term. “Integration”, embedding value-relevant financial and nonfinancial information into strategic decision-making and a company’s reporting cycle, is gaining momentum in corporate reporting globally.’ It is intended to elicit from organisations information relating to their strategies, governance, performance and prospects.

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CRH PROFITS UP

Building materials group CRH reported pre-tax profits of €117m for the first half of 2012, representing a 23% increase on the same time last year. Overall revenues for the period rose by 5% to €8.6bn, with favourable currency movements and strong sales in its American division contributing to this. CRH said its Irish operations continue to face very challenging market conditions. The company, which employs 79,000 people, is maintaining its dividend per share at 18.5c per share.

SWISS ACQUISITION

Swiss bank Julius Bär has announced it will set up in Ireland following the acquisition of Bank of America Merrill Lynch’s Dublin-based wealthmanagement operation as part of an overall global deal worth $880m. The deal will involve more than $84bn in managed assets and some 2,000 employees transferring to the company. In addition to Ireland, the bank will be operational in several new markets, including Luxembourg, Spain and India.

SMALL FIRM SALARIES

Employees in small firms in Ireland earn approximately €30,000 annually and work between 37 to 39 hours a week, with 21 days holiday a year. In all, 38% of workers in small firms earn between €25,000 and €35,000. That’s according to the Small Firms Association’s annual survey on pay. The survey involved 1,345 small companies in manufacturing, distribution, retail and services, employing over 31,000 people in total. The survey showed that just 9% of employees earn more than €45,000 while 22% earn up to €25,000.

CARE JOBS

Homecare provider Bluebird Care is to create 510 new jobs in Ireland over the next six months. The company previously announced 175 of these jobs in July 2012, with the focus on Donegal, Leitrim, Mayo, Sligo and Wicklow. Counties Cavan, Monaghan and Louth are the major focus for the new positions, which are largely in the area of care assistants and support workers. Originally set up in Ireland in 2007 with one office, Bluebird now has 18 offices and employs nearly 800 people. It’s one of a number of HSE-approved home care providers.

RESTAURANT GROWS

Irish restaurant group Jo’Burger has announced it will open three or four new restaurants in 2013, creating 120 jobs. Since 2011, employee numbers have grown from 15 to 115 in the group, which has two branches of Jo’Burger in Dublin, in Rathmines and Castle Market, off South William Street, as well as a number of other restaurants, including the ‘pop-up’ restaurant Crackbird.

CIDER SALES FALL

Lower than expected summer sales of the Magners cider brand in the UK have led to a downgrade in the profit outlook for brand owners C&C. Nielsen sales data in the British off-trade market recorded a 28% decline in sales of the Irish cider brand, with year-to-date volumes down by 38%. Overall, off-trade sales of cider in Britain fell 10.6% in

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July. There was, however, better news in the on-trade/pub market with Nielsen data showing a 6% rise in year-on-year sales of the product in British pubs in June.

RIHANNA SUES ACCOUNTANT

The singer Rihanna and her tour agency business Tourihanna are suing US accounting firm Berdon LLP for losses of tens of millions of pounds. Rihanna claims the firm took 22% of her tour earnings under a contract that exploited her youth and naivety. She claims that arrangements such as the firm taking a percentage of tour earnings were not standard practice and earned them more than three times her own share. The lawsuit claims that Tourihanna ‘suffered significant losses due to the defendants’ financial mismanagement and other acts and omissions’. It also claims that the firm mishandled her tax liabilities and failed to properly monitor her song royalties. Ronald Storch, a partner at the New York and Long Island-based Berdon firm, said: ‘This lawsuit is meritless and we will staunchly defend ourselves against it.’

EURO GUARANTEES ‘TOO COSTLY’ The Dutch government has been warned by the country’s audit office that its financial guarantees stand at €465bn – much of it issued on the debt of other eurozone states. Guarantees have also been issued on credit arrangements for the country’s exporters, on homeowners’ mortgages and for savings accounts. The auditors argue there is a risk to state finances as guarantees represent over 75% of national income, up from 42% five years ago. The audit office said the Dutch parliament was not being given regular updates on the risk exposure.

AUDIT REFORM SUFFERS BLOW

The European Commission has failed to produce evidence to justify its proposals for audit reform, according to the European Parliament’s impact assessment unit. It said adequate arguments had not been presented for the mandatory rotation of auditors or the separation of audit and non-audit services to public interest entities, and proof had not been provided that restricted audit competition had led to impaired audit quality or higher costs. The Commission may now need to present a stronger case if parliament’s legal affairs committee is to endorse the proposal.

IASB AND SEC FALL OUT

A serious rift has opened between the International Accounting Standards Board and the US Securities and Exchange Commission (SEC) following the publication of the SEC’s staff report on implementation of International Financial Reporting Standards (IFRS). The report argued in favour of the continued reliance on national standard-setting. It pointed out that gaps remain in coverage with IFRS. The report added that most participants in US capital markets did not support the outright adoption of

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IFRS. Michel Prada, chairman of the Trustees of the IFRS Foundation, said he regretted the absence in the report of an action plan for IFRS adoption.

AFRICA URGED TO EMBRACE PPPs Public-private partnerships (PPPs) should be at the forefront of economic development in Africa, former African Development Bank (ADB) president John Agyekum Kufuor has argued. ‘The opportunities that would issue from the institutionalisation and practice of the concept of public-private partnerships as the cornerstone of Africa’s development will be legendary,’ he said. ‘The continent abounds in practically all the raw materials required for the sustained industrial, agrarian and economic transformation of its peoples.’ He called on the ADB to work with the private sector to enable PPPs to develop, having in the past worked almost exclusively with governments and public bodies.

US STATES MASK DEFICITS

US state governments have manipulated their accounts to mask the size of their fiscal deficits,

according to an independent analysis of California, New York, New Jersey, Texas, Illinois and Virginia conducted by former Federal Reserve chairman Paul Volcker and former New York lieutenant governor Richard Ravitch. States entered into contracts designed to misrepresent their financial position, held back pension fund contributions, and allowed infrastructure to decay, the report claimed. Accounting standards just adopted by the US Government Accounting Standards Board are expected to increase states’ pension deficits.

PwC TAKES LEAD

PwC is again the world’s largest audit firm, taking the top spot from Deloitte after the two firms grew global revenues last year by 10% and 8% respectively. According to the Accountancy Age Top 35 league table, PwC’s revenues in the year ending June 2011 grew to $29.2bn, whereas Deloitte’s rose to $28.8bn. Ernst & Young was third, with revenues of $22.9bn, with KPMG just behind at $22.7bn.

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Interview

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RESTORING IRELAND’S REPUTATION Taoiseach Enda Kenny talks to AB Ireland about reputation, regulation and Ireland’s return to the financial markets Q Ireland went from being the successful poster boy of Europe to being one of its most troubled economies. How have you gone about repairing Ireland’s reputation? A Last year, when my government came into office, I made it one of our top priorities to restore the good name of Ireland as a place of business and of investment. In this regard, the progress already made by Ireland in repairing our damaged economy is well recognised internationally. Visits to and from President Obama and Vice President Xi Jinping have highlighted the renewed faith and belief in Ireland from world leaders. This is reflected in the significant progress in returning our economy to growth and in reforming our banking system. Step by step, we are bringing our public finances under control through our

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fiscal consolidation programme. At the same time, my government has brought a strong and determined focus to the agenda for growth and jobs. As a result, Ireland’s recent performance has separated us from many other European economies. We’re expecting a second year of economic growth, driven by exports. Our balance of payments is now positive. Employment grew during the last quarter in 2011, the first quarterly growth since 2007. Since my election, I have been conveying a clear message in all my international engagements: that now is the time to invest in – and benefit from – Ireland’s recovery. The Irish economy is growing again, our public finances are under control and the government is using its strong political mandate to build upon this to deliver long term, sustainable growth.

Q Much of the collapse of the Irish economy can be traced to poor banking decisions and poor regulation. How has the government addressed these related issues? A The regulatory failures of the financial crisis have been the subject of extensive and objective analysis. The reports from Professor Patrick Honohan; Messrs Regling and Watson; the Nyberg Commission; and the Moriarty Tribunal point out the problems to be addressed: poor supervision, an overly-deferential attitude by regulators, poor assessment of risks and a lack of follow-through on enforcement, all played a part in the financial crisis. New proposed legislation draws on the lessons from that experience. A new Central Bank Bill involves a careful overhaul of the statutory basis for the

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Central Bank’s regulatory powers. The Bill brings clarity to the Central Bank’s ability to set requirements. It provides for good information flows and objective analysis to support regulatory supervision. Where things go off course, there is provision for prudential intervention and corrective action. Where the law is broken, there are effective and dissuasive, yet proportionate, sanctions. There are also provisions dealing with restitution and costs after the fact. There is a public consultation process currently open on further proposals for inclusion in the Bill. Of course, legislation alone will not be enough to address the failures of the past. In recent years, the level of regulatory activity has intensified with increases in staff numbers and skill levels at the Central Bank. On-site inspections and review meetings have also increased. The Central Bank has published an Enforcement Strategy for 2011-2012 setting out its strategic approach to enforcement for the benefit of consumers and the integrity of the Irish financial services sector as a whole. The Central Bank has also taken a number of measures under its new approach to banking supervision such as the re-organisation of its internal banking supervision structures and by investing heavily in training all supervisory staff.

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Q What lessons do you think finance professionals need to learn from the current economic difficulties in Ireland and beyond? A Everyone involved in financial services needs to consider how best to enhance its risk management function – there is a real need to monitor and plan for the worse-case scenario. The crisis made clear that, without contingency planning, organisations – both government and private sector – are not in a position to act quickly and effectively to address problems that arise. An important change – which is being looked at, for example, in the context of remuneration – is to ensure that the time horizon for decisions is sufficiently long. The crisis has shown us that short-term results can be deceiving in terms of an organisation’s actual financial position. A final point to consider is how company accounts can provide the best information to investors and regulators. The Central Bank here has published guidelines for the covered banks to follow in the development and application of their impairment provisioning frameworks. Q Is there a need for greater attention internationally to professional ethics, especially in the financial services arena? A It is important that all professionals

act in an ethically appropriate manner – it is clear that a focus on profit to the exclusion of all else has not led to positive results for either individual companies or for the economy as a whole. The fitness and probity regime being rolled out by the Central Bank for the financial sector will seek to address some of these issues. A broader focus is required, which should, of course, include an ethical approach to doing business. This is not just limited to financial services, but should be the norm across the corporate world. Q Poor financial planning and excessively optimistic outlooks by major financial institutions played their part in our current difficulties. How can we prevent that happening again? A We can certainly point to a combination of factors that were responsible. First, it is now very apparent to all that the long period of financial prosperity enjoyed by Ireland lulled bank management into a false sense of security. This was not just a failing seen in Ireland of course – managers of large financial institutions all over the world generally forgot how to price risk effectively. Second, banks placed over reliance on their complex financial models and drew excessive comfort from what these were saying

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while common sense took a back seat. Third, we now know that there were mistakes made in the accounting and regulatory areas which prompted and enabled banks to hold less provisions and capital in reserve. Significant changes in the way banks are run and regulated have been implemented both in Ireland and across Europe and more are on the way to ensure that all of these failings are not repeated. For instance, more conservative provisioning guidelines have been implemented by our Central Banks while, at a European level, banks will no longer be able to ‘game’ their capital requirements through manipulating the value of their risk weighted assets as a new simpler leverage metric is in prospect. Q Has your government taken any significant initiatives to make the Irish economy more competitive? A Addressing the loss of competitiveness in the economy has been one of our government’s top priorities since taking office. There have been some recent improvements in the competitiveness worth pointing out. For example, our unit labour costs have reduced, the productivity of the Irish labour force is over one third higher than the EU average, our consumer prices fell in 2009-10 and have only grown at a comparatively low rate in

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2011-12, and we have seen our energy costs coming more in line with the EU average costs. As part of the Action Plan for Jobs 2012 published earlier this year, the government is looking at those costs it can influence, either directly in charges imposed on businesses, or indirectly in dealing with bureaucracy and other administrative burdens. This includes legislating to reform our wage-setting mechanisms; freezing, or where possible, reducing charges levied by government on business; and promoting supports to business for energy efficiency and cost reduction measures. I have repeatedly stated my intention to make Ireland the ‘best small country to do business in’ by 2016. That is why the measures we are progressing in strategies such as the Action Plan for Jobs are so important to help us to improve our competitiveness, and ensure that there is a job available for everyone who is seeking work. Q Some European countries are now starting to reduce their corporation tax rate to bring it closer to the Irish rate. Do you see this trend as a threat to Foreign Direct Investment (FDI) in Ireland in the future? A We have found that the one thing the business community prizes above all is certainty. Ireland’s long-term

commitment to the 12.5% rate, which has broad political consensus in Ireland as well as general public support, means that this rate is now regarded as part of ‘brand Ireland’ throughout the business world. The competitive rate is underpinned by transparent and easy-to-use corporation tax rules. However, the 12.5% rate is only one part of a wider policy mix in the taxation area such as a rapidly expanding tax treaty network; R&D supports; intellectual property tax regime; a special assignee relief programme (SARP); holding company regime; and an efficient tax administration system. Q Despite Ireland’s economic difficulties, the pipeline of new FDI projects seems to be strong. How do you account for this success? A Last year saw a strong performance in the levels of FDI won by Ireland, with over 13,000 new jobs created across the 148 Investments secured. The IDA has a strong pipeline of investments and, as of mid 2012, there were at least 23 announcements by IDA companies with the potential to create significant employment. Government policy is to build on the strength of our existing markets and diversify into new ones. Ministerial-led trade missions are an integral part of this process and work to develop and expand Ireland’s

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The CV 1975

First elected as TD in Co. Mayo, following the death of his father.

1994

Appointed minister for tourism and trade.

2002

Becomes leader of Fine Gael, succeeding Michael Noonan.

2011

Becomes taoiseach and leader of Fine Gael/Labour coalition.

exports to existing and new markets abroad. In all, 19 ministerial-led trade missions are planned this year to destinations such as China, the US, India, UK, Russia, France, Brazil, Italy, Canada, South Africa, Turkey, Finland, Sweden and the Gulf States. On a global scale, Ireland scores extremely well in many of the key areas of importance to investors. For example, the IMD World Competitiveness Yearbook 2011 ranks Ireland first in the world for corporate taxes, first for business legislation for foreign investors and first for the availability of skilled labour. We have been working to target high growth areas to develop clusters of activity and expertise for many leading industries. This approach encourages other companies in these sectors to seriously consider Ireland as a location for European operations. Q Earlier this year, the Vice President of China Xi Jinping visited Ireland. Are you confident this evolving relationship will yield economic benefits for Ireland?

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A My visit to China in March, coming so soon after the successful visit to Ireland of Vice President Xi Jinping, was a great opportunity to take our relationship with China to a new level. My key objective, during both visits, was to develop stronger relations with China at the highest political level and to promote Ireland both as a source of world-class products and services and as a location for Chinese investment. I highlighted Ireland’s potential as a gateway to the European market of over 500m people and our many strengths, such as our young, welleducated workforce and our strong capacity for entrepreneurship and innovation. I also stressed the potential for increased investment and economic cooperation in key sectors such as education, financial services, culture, tourism, life sciences, cleantech and agri food. A number of significant Memorandums of Understanding were signed during both visits and I witnessed the signing of more than €35m worth of contracts and commitments while in China. The culmination of my visit was the conclusion of a Strategic Partnership Agreement, which sets out a framework to ensure mutually beneficial cooperation between Ireland and China in a number of important trade and investment areas. Following the recent State visits, there have been a number of follow-on ministerial visits from both governments. This is developing a closer understanding between our countries. Q You recently launched a scheme call Succeed in Ireland aimed at attracting

smaller and emerging firms to Ireland. How will it work? A Succeed in Ireland is a programme which provides direct incentives to members of the diaspora and others across the world to create jobs in Ireland. The aim is to target international companies and business people, who would otherwise not be reached by the state enterprise agencies, to consider locating economic activity in Ireland, thereby creating new employment opportunities. The Succeed in Ireland initiative, as part of the Government’s Action Plan for Jobs, will incentivise people around the world to be our eyes and ears on the global stage and help deliver new jobs and investment. This is an innovative scheme that offers a new channel to reach thousands of small-to-medium enterprises and spread the word about Ireland’s strong reputation as a location for business. Q. Has the government any specific plans for the shared-services sector, which is seen by many as a major success story for Ireland? A In July 2011, I launched the Strategy for the International Financial Services Industry in Ireland 2011-2016. The strategy recognises that the future growth of the IFSC will depend to a significant extent on non balance-sheet sources, and envisages that ‘Ireland will prioritise its growth as a global provider of vital shared services for international firms’. Across areas including technical, legal, accounting, advisory, administration and asset management functions, firms can build on the depth of existing expertise in the servicing of both external clients and parent groups

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17

The basics: 1922

to promote Ireland as a centre of excellence in this arena. Ireland consistently ranks among the world’s leading locations for shared services for a number of reasons: * The availability of a highly-skilled, multilingual employees across a range of disciplines such as accounting, technology and healthcare; * The competitive operating environment that exists in Ireland today; * The mature infrastructure that Ireland offers in technology, roads, air access and utilities; * Low corporate tax, which naturally supports the development of strategic centralised activities in Ireland; and, * The track record of major multinationals in Ireland that have, over the past 20 years, built a cluster of multi-functional, multi-jurisdictional and multilingual activities, providing comfort that a new shared services activity has a high probability of success. Business process outsourcing is just one element of shared services that is growing in Ireland. Companies such as Accenture, Arvato, Capita, ServiceSource, Stream and Capgemini (Sogeti) have quickly built up substantial presences in Ireland to support their international growth. Q Similarly, what specific plans does the government have for the funds sector? A The funds industry is an important area of growth within the IFSC Strategy. Ireland has built a strong reputation as a centre of excellence for the funds

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industry, with a strong base in the administration, custody and servicing of investment funds. Government has played a strategic role in supporting the emergence of this thriving funds industry, through the development of the legal, regulatory and fiscal environment. And we believe there is significant potential for further industry growth and a solid grounding to broaden industry activity and position Ireland as an asset management hub. During 2010, the assets administered by the funds industry in Ireland increased by over 30%. I am pleased to note that the strong growth of the funds industry is continuing, with the assets of Irish domiciled funds growing by 10% in 2011, passing the €1tr mark for the first time. Q Next year, Ireland takes on the presidency of the European Union. What will be your priorities for this period? A Growth, jobs and enterprise is what Ireland and Europe need to focus on. This will be the seventh occasion that Ireland has held the presidency, which will coincide with the 40th anniversary of Ireland’s accession to the European Union in 1973. The Irish government wishes to focus its presidency on advancing issues that will benefit all citizens of the EU. In this, our main objective will be to ensure that the presidency contributes to addressing the key challenge facing the EU today, by promoting sustainable and inclusive growth and jobs. Issues relating to economic governance, fiscal consolidation and financial regulation are also likely to figure prominently on the Irish EU agenda.

W.T. Cosgrave appointed as Ireland’s first effective prime minister.

1937

Office of Taoiseach is established under the Irish Constitution.

1959

Éamon de Valera, Ireland’s longest serving taoiseach, leaves office.

1992

Albert Reynolds, the shortest-serving taoiseach takes office, resigning two years later.

2011

Enda Kenny becomes Ireland’s 13th taoiseach.

The Multiannual Financial Framework (MFF) will also remain an important element on the Irish programme as we seek to resolve any outstanding issues. The MFF sets out the EU’s budget from 2014 to 2020, and has linkages to areas of major importance, including the Common Agriculture Policy and Common Fisheries Policy, and the budgets for programmes including cohesion funding and Horizon 2020, the EU new research and innovation programme. We are also looking forward to making progress on a range of other issues in areas including the Single Market, promoting increased trade with other major trade blocs, and promoting measures aimed at supporting and boosting the SME sector, the digital agenda, energy efficiency and green growth.

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18

Taking the pulse of the global economy With business confidence now collapsing in Asia Pacific too, ACCA’s Manos Schizas reports on the gloomy mood of financial professionals Over 2,700 finance professionals took our Global Economic Conditions Survey for the second quarter of 2012. The news was definitely not good. As we had warned at the time, some of the apparent recovery in early 2012 was down to very transient sentiment that has since dissipated. But as much of the gain in confidence was down to improved fundamentals, optimism has not completely vanished. Then again, the global fundamentals have also deteriorated: liquidity and demand have tightened around the world, investment has taken a hit and, despite excess capacity, inflation has not fallen. More businesses failed in the second quarter of 2012 than in the first, although employment was reasonably resilient. Overall, the global economy is about as fragile as it’s ever been since the ‘green shoots’ of early 2009, with the developed OECD economies probably shrinking. The Americas, the Middle East and Africa continue to lead global recovery, as they have for the last nine months. The US is in fact looking decidedly healthy, with investment still growing and both demand and liquidity remaining relatively strong. However,

*THE VIEW FROM IRELAND

Business confidence has fallen in Ireland in the second quarter of 2012: about one in six (17%) respondents reported increased confidence, down from 25% in the previous quarter. Although respondents in Ireland suffered a loss of confidence in line with that of the global ACCA/IMA sample, Ireland remains above the Western European average, and Ireland was the only well-represented market in the ACCA/IMA sample in which respondents reported an easing of the pressure on liquidity and demand. Unfortunately, according to respondents’ reports, only a little of this is, as yet, translating into a thaw in investment or employment, although finance professionals seem to believe there are more profitable opportunities available to their organisations now than in previous quarters. On balance, the Irish sample still believe their government should continue to rein in spending over the next five years but support for austerity has fallen substantially in the two previous quarters.

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there is a worrying slowdown in China, where both confidence and investment are falling despite an expansion in business opportunities. China’s slowdown, while not yet the ‘hard landing’ many fear, is very bad news not only for ACCA members in the country but also for China’s truly global supply chain, mainly suppliers in Africa and South Asia. Nor are regions that run a persistent trade deficit with China going to benefit. The EU, for example, has about

THE GLOBAL ECONOMY IS AS FRAGILE AS IT’S BEEN SINCE THE ‘GREEN SHOOTS’ OF EARLY 2009 €120bn of exports to China at stake, and since a lot of that is made up of high-tech industrial inputs, Europe’s exports to China are more incomeelastic than China’s exports to Europe. Encouragingly, though, accountants around the world continue to see opportunities for their businesses – more of them, in fact, even in troubled regions such as Europe. Fiscal policy remains a conundrum. Attitudes have continued to move against austerity as global growth continues to disappoint, yet, in the opinion of local accountants, some of the governments the world is counting on for stimulus may already be living beyond their means. US-based accountants are particularly hawkish, warning of a dangerous level of overspending; then again, so are their colleagues in China. In short, the global economy is still weak and could yet endure many more false starts. The most important lesson from the reversal may well be that relief should not be mistaken for recovery: finance professionals should trust the evidence of their own eyes above the hype. More at www.accaglobal.com/access

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19 THE ACCA/IMA GLOBAL ECONOMIC CONDITIONS SURVEY – HOW TO TAKE PART The views of ACCA members receive widespread media coverage. The Q1 2012 survey was quoted in the press around the world more than 200 times.

So why not have your say in our next quarterly survey? Simply look for the link in AB Direct or watch out for the email invitation.

The survey is undertaken by ACCA in association with IMA (the Institute of Management Accountants), with respondents coming from both bodies.

TAKING THE GLOBAL TEMPERATURE

CHINESE SLOWDOWN

Breaking down the ACCA Confidence Index geographically reveals some striking variations, with members in Africa still showing most confidence.

In China, business confidence is plunging and capital spending is heading still lower.

75 50 25 0

AFRICA –1 MIDDLE EAST –3 AMERICAS –7 MAINLAND CHINA –19 IRELAND –22 EAST EUROPE –25 WEST EUROPE –25 UK –26 PAKISTAN –30 SINGAPORE –31 MALAYSIA –38 HONG KONG –63

0 -10 -20 -30 -40 -50 -60 -70 -80

Q4 2009

Q1 2010

Q2 2010

Q3 2010

-13

THE DANGER DOWNPOINT The ACCA Confidence Index correlates strongly with economic growth globally. A reading of below -13 suggests the economies of the developed world are contracting and the global economy is slowing to a halt.

Q4 Q1 2010 2011

Q2 2011

-25 -50 -75 Confidence

KEY: =Q1 2012

Capital spending

=Q2 2012

30 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80 Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 Q2 2011 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

THE ACCA CONFIDENCE INDEX

Business confidence has gone further into decline. The graphics show the percentage of respondents saying they have gained business confidence, minus those who have lost it.

AB_Sept_2012.indd 19

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20 You are our lifeblood

[

In his final column, ACCA president Dean Westcott reflects on his year in office and applauds the commitment of members

As this is my last column as president, l wanted to take this opportunity to say what an absolute privilege it has been to serve in ACCA’s highest elected office. It has given me an outstanding opportunity to see at first hand what a truly global organisation ACCA is. It is also clear, from the meetings and events in which I have taken part around the world, that ACCA has a great deal of influence in the global accountancy and financial community. What has also been striking is the number of ACCA members who are working in the most senior positions in organisations in all sectors. I have been fortunate to have met with chief executives of leading organisations, as well as government ministers, all of whom are ACCA members and – at the pinnacle of their careers – still recognise the value of membership. The year has clearly demonstrated to me that ACCA is nothing without its membership. I recently spoke in Malaysia about my journey to ACCA’s presidency, and a point that I made then, and that I want to reiterate now, is that members are the lifeblood of our organisation. The work you do, in providing excellent services and advice to the public, to corporate business, to small and mediumsized enterprises and to organisations in the public sector, helps to build our reputation. But it is also critical to have a membership that is engaged and involved in ACCA’s work. My own involvement began with local networks and I want to urge you to think about how you might devote some time to helping our great organisation go from strength to strength. I have been asked what the highlight of my presidential year has been. While that’s a tough question to answer, I would have to put the recent Council meeting in Kenya at the top of the list. This enabled me and my Council colleagues to see the outstanding work that is being undertaken by ACCA and its members in East Africa, and also allowed us to engage with a wide range of stakeholders in this very important region for ACCA. I want to thank everyone who made this event such a great success, along with the countless colleagues and members of ACCA’s staff team who have made the past 12 months so memorable for me. Dean Westcott is CFO of West Essex Clinical Commissioning Group, UK

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Comment

21

Convergence RIP [

A decade on, US adoption of IFRS has still not become reality. As the Securities and Exchange Commission continues to drag its heels, what will it take to get the US on board, asks Jane Fuller

The only surprise about the unwillingness of Securities and Exchange Commission (SEC) staff to recommend US adoption of International Financial Reporting Standards (IFRS) is that anyone is surprised. Annoyed, yes – especially at the London headquarters of the IFRS Foundation and the International Accounting Standards Board (IASB). But when the deadline passed at the end of last year, the pattern of US foot-dragging was clearly established. The best excuses are that the US already has a decent set of standards and that the SEC’s priority has been to write rules implementing the DoddFrank Act. It is also understandable that nothing that smacks of giving up national powers will be contemplated in the run-up to a presidential election. But if patriotic pride in US generally accepted accounting principles (GAAP) remains a significant factor, the main concern for anyone (including the G20) who believes in global standards is that the US will never fully opt in. As with previous SEC documents, this 137-page mixture of a few genuine concerns and lots of nit-picking is a comprehensive source of reasons to say ‘no’. So, 10 years after the IASB and its US counterpart, the Financial Accounting Standards Board (FASB), agreed to converge standards, that process is at an end. As I wrote a year ago, the least that is needed is for US companies to be given the option of using IFRS, as foreign ones listed there already do. In the absence of even that step, the dilution of US influence over IFRS has rightly accelerated. The least controversial aspect of this is that other national standard-setters are doing more work with and for the IASB. Much more sensitive is whether IFRS-US convergence turns into divergence. It has already happened

AB_Sept_2012.indd 21

with the offsetting of assets and liabilities, which will leave bank balance sheets under IFRS up to 40% larger than under US GAAP. The latest disagreement is over impairment, or the way provisioning for loans can move from an ‘incurred’ to an ‘expected’ loss model. While FASB portrays this as a delay for further consultation, Hans Hoogervorst, IASB chairman, has apparently expressed exasperation that after three years,

there is still no answer. Even on leasing, where the IASB compromised to enable an agreement, further cavilling by the FASB could lead the IASB to revert to plan A. This would remove the recently proposed property-lease option for straight-line amortisation. What if the US never plumps for incorporation of IFRS into its GAAP? Well, after 10 years and the input of many Americans, the standards are not far apart. Projects supposedly nearing conclusion – revenue recognition, leasing, insurance and financial instruments – would narrow the gap to a crack. SEC criticisms with more legs include the need for the IFRS interpretations committee, IFRIC, to be more proactive, which is at last happening, and for the organisation to secure its funding. The SEC reckons that fewer than 30 countries that use IFRS contribute. This is disputed, but even on IASB estimates there are a few dozen free riders. That must be addressed. The most stubborn difference is a cultural one between the US’s preference for detailed and prescriptive rules, drilling down into different sectors, and the IASB’s more principlesbased approach (although it certainly cannot be accused of eschewing detail). This is captured in the SEC’s vision of an endorsement process that would retain the FASB’s ability ‘to add to or modify the IASB standard’. To avoid encouraging centrifugal forces, in the European Union for instance, the US can no longer both retain national power to set standards and be a leading player in the international movement. Jane Fuller is former financial editor of the Financial Times and codirector of the Centre for the Study of Financial Innovation

24/08/2012 10:03

22

Comment

Beyond the boilerplate [

Moves to improve the effectiveness and value of auditors’ reports have come up against some traditional challenges, including the all-important question, what are they for? says Robert Bruce

So far the auditors have had a relatively good post-global financial crisis. But there is a growing mood globally that the value they provide is not as clear or as obvious as it should be. ‘The issue of how you get some colour into financial statements is coming up all around the world,’ says Steve Maslin, chair of Grant Thornton’s Partnership Oversight Board and a member of ACCA’s Accountants for Business Global Forum. Auditors’ reports are seen as boilerplate, formal, and less than informative. ‘We need to make sure you have something which allows users to understand the risk areas and the judgment areas,’ adds Maslin. The slogan should be something like ‘beyond the boilerplate’. As a young journalist, one of my first interviews was with the finance director of a Scottish supermarket group. I asked about the value of the auditor’s report. ‘Well,’ he responded, ‘I give them a

AB_Sept_2012.indd 22

full page in the accounts every year and hope that one day they will take up the challenge.’ And that is at the heart of the problem. These days even the boilerplate takes several pages. The fundamental reassurance is there. But the detail, and the value it could provide, is not. It is these worries that underpin the consultation paper which has been issued by the International Auditing and Assurance Standards Board (IAASB), Improving the Auditor’s Report. It sets out a global agenda for change and wants comments on the ideas by early October this year. It makes clear the need to leave the boilerplate behind, but also recognises the problems. ‘It is notable that the

call for change initially came primarily from institutional investors and financial analysts looking to auditors to help in navigating increasingly complex financial statements and point out the areas on which the auditor’s work was focused – particularly on the most subjective matters within the financial statements,’ it says. And it is that word ‘subjective’ which has auditors reaching for their stomach settlers. The difficulty with subjective information is where it comes from and whose responsibility it is. ‘The big challenge,’ suggests Richard Sexton, deputy global assurance leader at PwC, is: ‘What is it for? Is it to allow auditors to comment on what they have done, or what has come out of the audit, or what has come out of the company?’ All these different information streams muddy the waters, and the responsibilities. And Sexton is firm on the idea that ‘we should not be the original source of information about the company’. The IAASB suggests that this problem can be overcome by changing the emphasis of the information the auditors could provide. ‘Some users have indicated,’ the consultation document says, ‘that there would be considerable value in the auditor highlighting disclosures about the areas in the financial statements the auditor believes are the most important.’ ‘This,’ it continues, ‘would provide a “roadmap” to help users better navigate complex financial reports and focus them on matters likely to be important to help their decision-making.’ One fundamental area, highlighted by events during the financial crisis, is that of going concern, the auditor’s judgment on the ability of a company to keep afloat over the next year or so. The IAASB paper provides great detail on this and the influential

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23

*ALL SORTS OF INFORMATION: THE IAASB’S ARGUMENT FOR REFORM The statement by IAASB chairman Arnold Schilder, which opens the consultation paper on improving the auditor’s report, makes the issues clear. ‘A cornerstone of the auditor’s report is the auditor’s opinion, which is either a “clean” (unmodified), or modified opinion with an explanation of the basis for such. This model has many virtues and has been long-standing in many jurisdictions, in some cases for decades,’ he says. But then comes the caveat. ‘More than ever before,’ he says, ‘users of audited financial statements are calling

report produced for the UK’s Financial Reporting Council by one-time KPMG global chairman, Lord Sharman, showed how it could be done. It would certainly cheer the investment community. ‘There is a greater interest in matters of emphasis, as evidenced by the Sharman report on going concern, says Guy Jubb, global head of governance and stewardship at Standard Life Investments. ‘For example, it would be helpful to investors to have the benefit of knowing about matters where the auditors believe the assumptions made, while reasonable, proved difficult to verify. It is about providing signposts to help shareholders understand the accounts.’ And while the IAASB paper suggests there would be problems over auditors ‘disclosing entity-specific information that has not been disclosed by management’, the recommendations about going concern have already gained support. Some of the IAASB proposals could, suggests Maslin, ‘be brought in quickly’, and in particular the going concern proposals. ‘It would,’ says Sue Almond, technical director at

AB_Sept_2012.indd 23

for more pertinent information for their decision-making in today’s global business environment with increasingly complex financial reporting requirements. The global financial crisis has also spurred users to want to know more about individual audits and to gain further insights into the audited entity and its financial statements. And, while the auditor’s opinion is valued, many perceive that the auditor’s report could be more informative.’ Schilder’s conclusion is inescapable. ‘Change, therefore, is essential,’ he says.

ACCA, ‘make explicit what is implicit.’ But the wider shores of explaining judgment are more complex. ‘The market struggles with anything other than a clean audit report,’ says Sexton. ‘If we are going to draw attention to things, they need to be seen as signposts, not criticism.’ This is a difficulty with the culture of auditor relationships with the investment community. Traditionally if auditors tell you something out of the ordinary, it will be perceived as a bad thing they are trying to warn you about. We are in the world of unintended consequences. ‘People will interpret things as a problem rather than thinking we are just drawing attention to important things,’ says Sexton. A way needs to be found to let the auditors, as my Scottish FD wished, provide more. But when people ask where the auditors are, the auditors tend to pull up the drawbridge of their statutory duties, shelter behind it, and provide no further information. The reasoning behind the IAASB thinking is that around the world the public doesn’t understand this. The

expectation gap is just as wide as it ever was. Hugh Shields, who has worked in these areas for many years, says that ‘by broadening out the auditor’s report it requires the auditors to have more skin in the game. And that’s a good thing.’ Almond adds: ‘Investor roundtables are very clear that the audit report is not hitting what people are looking for. The next step is consultation. The real challenge is finding out what the users want. Auditors will be all over it, but investors are harder to pin down and get views from. The challenge is to engage with the right people’ The task ahead is for those negotiating the progress of the IAASB paper to try and steer it towards something which enables auditors to provide much more information, both in quantity and in value, without the whole initiative levelling down into something which is no better than the current boilerplate. Investors and auditors have a huge amount of work to do. Robert Bruce is a commentator and journalist

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24

Comment

Insolvency Bill takes shape [

Tom Murray, president of ACCA Ireland, on the significance of the new Personal Insolvency Bill to both accountants and their clients

The long awaited new Personal Insolvency Bill 2012 was published by the government on 29 June 2012. The new Bill proposes many reforms to personal bankruptcy legislation and, it should be noted, features some variations to the Heads of Bill published in January 2012. It is expected that the Bill will be passed into law later this year. To date, both debtors and creditors have been operating in a vacuum, without a formal process where both parties can be obliged to engage in a meaningful manner. For the clients of accountants, the Bill, while not perfect, brings about procedures and frameworks to facilitate consensual solutions between all parties to an individual’s financial difficulties.

Provisions The Bill has made significant provision to identify and distinguish between the ‘can’t pays’ and the ‘won’t pays’ and this will give comfort to creditors as they enter the process. For example, there are offenses detailed such as giving false information and fraudulent disposals of assets. Importantly though, for a lot of potential clients, there are provisions for protection of the principle private home, and these will give comfort to the many who are concerned that their homes are exposed. In particular, the Personal Insolvency Arrangement (PIA) procedure cannot provide for the sale of the PPR, unless the costs associated with the property are disproportionately high. For accountants, there is the possibility of a new income stream acting as a personal insolvency practitioner (PIP). However, with this prospect comes associated

AB_Sept_2012.indd 24

costs. Under the Act, there will be a requirement in respect of each insolvency practitioner to hold an indemnity bond of at least €600,000 and a compensation fund of €9m is envisaged for the compensation of debtors and creditors who suffer a loss due to the theft and misappropriation of their funds. For us accountants, a positive aspect of this regulation is the fact that a recognised professional will have to be approved to prepare a Debt Settlement Arrangement (DSA) or PIA, which will reduce the potential for a number of unqualified and unsuitable persons entering the industry offering low-cost personal insolvency services.

False economies This final provision is particularly to be welcomed as there have been examples with corporate insolvencies where individuals have taken appointments with little or no experience, thinking that insolvency assignments are always straightforward - only to soon realise that they may not be. In these circumstances, where individuals took on appointments based on price, it can very quickly transpire to be a false economy and end up costing the practitioners and creditors dearly. Crucially for the sector, the new Bill provides for the regulation of PIPs. However, there has been no decision made at time of going to print as to how this will be introduced. However, such regulation will provide protection to the debtors and their creditors against any malpractice on the PIPs behalf and is to be strongly welcomed. Tom Murray is president of ACCA Ireland. Email tom.murray@frielstafford.ie

24/08/2012 10:04

Practice

The view from: Dublin: Laura Galeckaite ACCA, financial accountant Q What business lessons have you learned? A Clear goals are important or, as the old wisdom goes, ‘failing to plan is planning to fail’. And I don’t mean numbers only. Planning makes you think about your goals: their value, the various ways of achieving them and appreciating the expectations of different stakeholders involved. Knowing your options and your exact position also helps you to be prepared for the unexpected. Trade-offs in the short to medium term may be required in achieving long-term success. Q What tips would you pass on to others? A Set your goals, believe in achieving them and stick to them. Flexibility is also important in the current volatile climate, so you may have to re-arrange priorities or ways of achieving the desired outcomes, but the final destination must be clear in your mind (I personally value visual reminders). I find this brings clarity to decision making and makes me focus on the important parts of the task. And don’t forget to celebrate success, no matter how small. Q Tell us about the Oxford Brookes MBA you are currently pursuing? A This has been a truly enriching experience so far; not only through the vast amount of business topics and study cases covered during online seminars, but also through meeting people from very different backgrounds. In June, I attended a workshop in Oxford and there were just over 20 of us. When people started naming their home locations, we

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25

26 Accountants in crimefight frontline 29 The view from Dermot Carey and is the price right?

pretty much covered the whole world! So, imagine the different cultural experiences and the range of discussions that followed. Q What value does ACCA bring to your work? A The technical and industry updates from ACCA are valuable and timely. It’s a continuous learning curve with endless cross-networking opportunities. I also find that ACCA adds credibility to my name and the work I do. This allows for its members to stand out from the crowd of finance professionals as ACCA gives a very solid foundation.

Dublin

*FAST FACTS *

Daily commute 15 minute DART and 30 minute walk

*

Favourite holiday destination Rimini, Italy

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Favourite restaurant Moloughney’s, Clontarf

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Must-watch TV The Good Wife

WE WANT YOUR VIEW If you’d like to feature on this page get in touch at donal.nugent@accaglobal.com

24/08/2012 10:04

26

Practice

Accountants in crime-fight frontline Revised global recommendations give practitioners an increased role in the crackdown on money laundering, terrorism financing and tax evasion, says ACCA’s John Davies One of the very tangible ways in which practising accountants serve the public interest is as gatekeepers in relation to financial crime. Many accountants have by now come to accept that the regulatory obligations they have in this area are not only unavoidable but even helpful; first because they reinforce the status of accountants within society as responsible and trusted intermediaries, and second because the obligations act as an active deterrent to clients or prospective clients who might otherwise try to involve their professional advisers in their own criminal activities.

the economic downturn affecting Europe and North America, KPMG found a steady rise in the incidence of fraud and concluded that 80% of business fraud is committed by employees and managers, often taking advantage of weak controls and defective processes of detection. Bribery and corruption is another area of crime thought to be exacerbated by a harsh economic climate. Despite the well-publicised case of Siemens, which was forced to pay a record $1.34bn in fines by courts in Germany and the US for a series of bribery offences, a survey published in May 2012 by Ernst & Young found that

issued by the Financial Action Task Force (FATF), the global body charged with monitoring trends in financial crime and with developing anti-money laundering and counter-terrorism financing (AML/CTF) measures. The latest set of recommendations, only the third revision since they first appeared, in 1990, imposes significant new expectations on governments to address emerging macro factors, including countering the proliferation of weapons of mass destruction and carrying out national risk assessment procedures to lay the foundation for focused remedial measures. The revised recommendations incorporate a number of changes which stand to have a direct effect on practitioners and their work, as follows.

WHENEVER A PRACTITIONER SUSPECTS THAT A PARTY HAS CONSCIOUSLY COMMITTED A TAX CRIME, THAT WILL BECOME A REPORTABLE MATTER

Client due diligence

The world at the moment is a dangerous and unstable place on many fronts. The international community still faces serious threats from terrorism and the spread of weapons of mass destruction. The depressed state of the global economy is also imposing highly competitive pressures on individuals and businesses alike, and very often the pressures on both are liable to interact. KPMG’s latest UK fraud survey suggests that recorded fraud in 2011 exceeded £3.5bn in total, with fraud by company management up by 74%. Even in Australia, which has escaped

There is only a minor change made to what for most practitioners is the key area of client due diligence (CDD) – namely, the standard range of circumstances in which CDD procedures must be performed and the steps that need to be carried out in those circumstances. Formerly, parties were required by FATF only to obtain information on the purpose and intended nature of a business relationship. The new wording commits regulated parties expressly to understand its purpose and intended nature. The revised wording makes it more explicit that the point of the exercise is

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a staggering 54% of UK executives would not rule out engaging in unscrupulous or illegal behaviour, such as misstating financial statements or providing personal gifts or cash to secure business; the number of respondents prepared to offer bribes had almost doubled in two years. This is despite the introduction in the UK of legislation that exposes companies to criminal penalties if any of their employees, subsidiaries or intermediaries offer or pay bribes. This developing context has now been reflected in the latest version of the authoritative recommendations

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27

not solely to ask for information about the client’s intentions but also to understand those intentions; it also implies that the amount of information to be asked for should be in proportion to what the nature and purpose of the relationship is understood to be.

Politically exposed persons The recommendations already cover politically exposed persons (PEPs) to the extent that they come from a different jurisdiction than the one in which the practitioner operates. So, for example, a senior politician or military figure from a foreign country (who is a prospective customer or a beneficial owner) should be regarded as a PEP and so subject to ‘enhanced’ due diligence (EDD). The revised recommendations strengthen the PEP provisions with a new reference to domestic PEPs. Practitioners must now take ‘reasonable measures’ to determine whether a prospective domestic customer or beneficial owner is a domestic PEP (or a person entrusted with a prominent function by an international organisation). Where the prospective relationship is considered higher risk, practitioners are required to apply the EDD measures. Revised recommendation 12 provides that the measures to be taken for both foreign and domestic PEPs should be extended to family members and close associates of the PEP concerned. This includes gaining senior management approval for dealing with

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them, carrying out reasonable inquiries to establish the source of their wealth, and undertaking enhanced ongoing monitoring of the relationship.

Groups Networks of professional firms are covered by a new recommendation to implement group-wide programmes against money laundering and terrorist financing. These should include policies and procedures for sharing information within the group for AML/CFT purposes. Group-wide arrangements could prove particularly advantageous in terms of placing reliance on CDD information acquired by third parties. Where a group as a whole adopts policies which follow the FATF recommendations, and where compliance with them is supervised at the group level by a competent authority, group companies should be allowed to rely on information provided by other group companies. Where such arrangements are put in place, national authorities may also decide that no special weight should be placed on the risk associated with the country in which the provider of information is based (another new element of the revised recommendations).

Extension of scope of the recommendations Some countries, such as the UK, already apply AML/CTF controls to tax offences but this has not until now been required under the FATF

War on two fronts: the soldier at this checkpoint in Sana’a, Yemen, provides a very visible anti-terrorist measure, but accountants will also play an important role as gatekeepers of FATF’s system to create a hostile environment for terrorist financing recommendations. The revised recommendations require individual countries to extend the scope of their AML/CTF measures to cover tax offences in respect of both direct and indirect taxes. It will be up to each country to decide whether to apply a threshold of materiality to this but, essentially, it means that whenever a practitioner suspects that a party has consciously committed a tax crime, then that will become, prima facie, a reportable matter. In those countries where tax offences do not currently form part of the national AML/CTF regime, this change is likely to have a significant impact on accountants. The FATF recommendations do not have regulatory force automatically, but need to be adopted formally by national authorities and regulatory bodies. The process of doing this is already well underway. In Europe a fourth directive on money laundering is currently being drafted as a priority measure, so members in public practice should be prepared for changes to their gate-keeping responsibilities in the near future. John Davies, head of technical, ACCA

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ACCA’s Accounting for the future is a worldwide event exploring the role finance professionals will play in building a stronger and sustainable global economy. ACCA champions the connected accountant and over five days we will harness the latest technology to bring together finance professionals from around the world to share and learn from their peers. Our experts will share with you the latest insights on how businesses and the corporate sector need to adapt to meet the future needs of stakeholders, regulators, the economy and the environment.

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Corporate

The view from: Dublin: Dermot Carey FCCA, finance manager, Early Education and Childcare, Pobal Q What lessons have you learned about business? A Communication in 2012 does not begin and end with an email, tweet or text. A solid conversation by phone or face to face may take a bit more of your time but is more effective at preventing or resolving problems. A conversation can save time in the long run and maintain good business relationships. Listen to your client, agree protocols for response times to queries and agree realistic deadlines for the completion of work. Q What tips would you pass on to others? A Have an open door policy with your colleagues. Show your colleagues respect by encouraging them to be open with you. Sometimes you may not like what you hear but sometimes you need to hear it. Having an open door policy allows people the space to suggest new ideas, take ownership of projects and creates the channel that allows shared learning and trust. Join Toastmasters to improve your public speaking and leadership skills. It has allowed me to take a different but very interesting career path. Q What do you see as your key challenges for the year ahead? A We are currently involved in planning and rolling out a significant change management process. It will naturally present its own opportunities and challenges. Doing more with less has been a reality for some time. Sustaining that, we are driving changes in how we do things and pushing new horizons

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30 Is the price right? and beyond compliance 25 The view from Laura Galeckaite and accountants in crime-fight frontline

all the time. Change is a constant and agility is critical. Q Tell us about Pobal? A Pobal is a not-for-profit company with charitable status. It is an intermediary that works on behalf of government to support communities and local agencies toward achieving social inclusion, reconciliation and equality. Pobal manages 17 programmes on behalf of six government departments and EU bodies. Our work involves us in areas such as early education and childcare, local and community development, peace and reconciliation, community services, equality, employment programmes and rural transport.

Dublin

*FAST FACTS *

Commute time One hour each way

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Favourite getaway in Ireland Kilkenny City

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Currently reading Successful Customer Service by Pauline Rowson

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Business role model Anita Roddick

WE WANT YOUR VIEW If you’d like to feature on this page get in touch at donal.nugent@accaglobal.com

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Is the price right?

An A-Z of pricing jargon

There’s an awful lot more you can do with pricing than just adding a fixed percentage to your costs, and the resulting lift to profits can come courtesy of the CFO Bundle: a basic product is priced together with extras which add value (as well as margin) to the offer and make simple cost comparison with competitive products more difficult. Example: a washing machine plus a year’s warranty plus a year’s supply of soap powder.

Here is an encouraging tale for any CFO who is close to despair because of the impact that falling prices are having on company margins. An engineering company with business in Britain and Italy discovered that the profit margin on its UK projects was around 30% but could be as much as 70% on its Italian work. Managers at the company puzzled over the difference, then explored how projects in each country were priced.

Captive product: a low price is charged for the core product and a high price for the supplies to run it. Example: computer printer (core) and its refill cartridges (captive).

They found that in the UK, the management team used traditional cost plus pricing, working out how much the project would cost, and then adding 30% to the price. But when the Italians were asked to quote on a project they went into a huddle and considered the value of the project

Like so many other areas of management, pricing has its own jargon. Here are some of the buzzwords and modern practices in pricing

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from the client’s point of view, then came up with a price based on what experience and instinct told them the customer would be prepared to pay. ‘Getting pricing right is a mixture of science and art,’ says Alastair Dryburgh, a consultant and pricing specialist. ‘An accountant is going to be pretty comfortable with numbers, which is the science part, but is going

to have to engage with the art, which is more subjective and uncertain.’ Yet, for many companies in a wide range of industries, there has never been a more urgent time to tackle pricing. Too many companies are seeing margins eroded in the face of rising costs, especially of commodities. Craig Zawada, a former McKinsey consultant who is now senior vicepresident in charge of ‘pricing excellence’ at pricing software company Pros, says the price volatility of a basket of 25 commodities has increased by 42% in the past 10 years compared with the 30-year period from 1980 to 2009. ‘This creates a whole lot of challenges for CFOs because you have to be more nimble with your own prices,’ he says. He adds that many companies simply don’t have enough information about the movement of costs and market prices to make reliable margin calls. ‘Reports come in too late to make decisions – and that ultimately affects margins.’ Too many companies can get caught in a vicious cycle of shrinking volume and falling margins, warns Allan Gasson, a partner in Deloitte’s strategy practice. ‘A decline in volume means that the overhead cost increases,’ he points out. ‘Therefore if the price per unit stays the same, the overhead is not likely to be recovered and the business could start to make losses.’ The trouble is that raising prices may drive away some customers, which just makes the problem worse. The answer to this dilemma is to have much more knowledge about the price sensitivity of different classes of customer. ‘In particular, companies need to have in-depth knowledge of which segments are price-sensitive and attribute high value to the product quality and service that you’re

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providing,’ says Gasson. ‘These customers need to be nurtured.’ The trouble is that many companies simply don’t have the business processes or support systems to collect that kind of information, according to Pol Vanaerde, president of the European Pricing Platform, a knowledge-sharing network for pricing decision-makers. He says that decisions about prices are often taken in a fragmented way in different parts of a company. ‘Decisions are split over countries, regions or sales channels,’ he explains.

Three levels of maturity Vanaerde says that CFOs who want world-class control of their pricing strategy need to move themselves through three levels of maturity. At the first level, they will start to take control of the transactions. That means finding out who is setting what prices – and when and where they’re doing it. ‘It’s about finding what prices you have in which channels for what customers,’ he says. ‘It’s the first step in stopping margin leakages.’ With that in place, it’s time to move to the second level of pricing maturity: when the finance team starts to understand in more depth the forces behind price setting. ‘It’s about getting more insight into different market segments and their elasticity of demand,’ he says. ‘With this kind of information, you can start to improve the effectiveness of your pricing. For example, you will probably switch an important part of your portfolio from cost-based to value-based pricing and you may differentiate prices between different segments.’ As the company gets more experience at understanding the detail of its pricing, it can move to the third level of maturity, where it starts to

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optimise profits. ‘That will involve not only thinking about setting prices but about changing the whole business model,’ explains Vanaerde. ‘For example, maybe you will switch from selling your product to leasing it.’ CFOs who still have any doubts about focusing more on prices should consider a finding from a McKinsey study, says Zawada, co-author of The Price Advantage. This showed that a 1% increase in price can yield up to an 8% increase in profit. The problem is that as the recession sent many companies into a tailspin, too many CFOs became fatalistic about the impact they could have on prices. ‘You’re never going to be in a position to change the laws of economics, but your aim should be to do better than you would otherwise have done,’ Zawada says. He points out that many companies have unrealised opportunities to raise prices for some of their customers. He cites a car rental company that found some of its customers were willing to pay more for the service they received. ‘But it takes a lot of hard work to find these opportunities,’ he says. Leveraging them depends on having good up-to-date information on how different customer segments are performing and where opportunities to nudge prices upwards may exist. The internet has introduced a new element in price-setting, but it can be a double-edged weapon. ‘Your own prices are readily available to competitors, but you can also see theirs,’ Zawada points out. This provides opportunities for creative pricing. He mentions an electrical distributor trading in a highly price-competitive market where its normal margin was no more than 1.5%. Each day it looked to see which

Cost-based pricing: the cost of making and delivering the product is calculated, then a fixed percentage added for profit. Widely used but widely criticised by pricing gurus. Economy pricing: the lowest possible cost for the market. Aimed at the consumer who doesn’t want to spend more. Think Ryanair.

BEST PRICE

EDLP: an acronym that stands for every day low pricing, a concept pioneered by Asda. The sales pitch is that the supplier is keeping prices low by checking rivals’ offerings regularly and matching them.

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Corporate

standard products were not currently available on competitors’ websites and raised its prices on those products by an average of 5–6%. ‘That slight change had a big impact on profitability,’ Zawada says. And although there may be general downward pressure on prices, there are also opportunities to push prices up, notes Dryburgh, author of Everything You Know about Business is Wrong. He recalls the company that developed a premium brand of dishwasher tablet while its rivals were focusing on economy products. The premium tablets with a higher margin boosted the company’s profits, even though it was a depressed market. ‘People are prepared to pay more for genuinely superior products,’ Dryburgh says. He says markets are becoming polarised between economy and premium products. The danger, from a pricing perspective, may be getting caught in no-man’s land in the middle.

Knee-jerk no-no Yet while it is possible to seek out opportunities to raise prices on some products for some customers, in many markets there is widespread discounting, which has its own range of pricing dangers. For example, when a competitor discounts a product or service, there is a danger of responding with a ‘knee-jerk reaction’, says Mona Bitar, a partner in KPMG’s operations strategy group. The decision may also be muddled by the increasing complexity of supplier offers and rebates. ‘Too often promotional decisions are made on gut instinct rather than facts,’ Bitar warns. ‘In the past, many retailers have used promotions to increase sales volume ahead of incremental revenue and profit generation,’ she says. ‘Taking time to understand the true price elasticity of product categories through structured pricing experiments will help you to understand how margin and volume will react to promotional pricing.’ Andrew Jupp, a director at accountancy and investment

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Optional product: the basic product (a car, say) is priced, then the extras (alloy wheels, etc) added on. Penetration pricing: products offered at a low price to get consumers to try it. Example: introductory offer on magazine subscriptions. Premium pricing: the ability to charge a high price because of the quality or uniqueness of the product. Example: tickets for a music star’s one-off concert. Price pointing: charging £9.95 instead of £10, for example. Product line: the same product in a range of sizes or variants for people who want to spend more or less. Promotional pricing: a price which incorporates a special offer such as ‘buy one, get one free’. Skimming: charging a very high price based on the fact that there is no competitive product, such as the latest version of a high-tech product which represents a musthave’ for geeks. Value pricing: a price is set that delivers real value for customers with little money to spend. Example: ‘value meals’ at McDonald’s.

management group Smith & Williamson, notes that discounts serve two purposes – to reward loyalty and generate new business. ‘There needs to be a clear policy on discounting, and salespeople need to make a judgment call as to whether offering a discount is likely to retain an existing customer or attract a new one.’ Zawada advises trying to get something in return when negotiating a discount. He cites the case of an office equipment supplier which negotiated less frequent delivery and guaranteed order levels on a group of core products in return for a discount. ‘Those two things contributed about 30% of the profitability of a customer contract and were quite easy to negotiate in,’ he says. ‘The customers wanted to claim victory on the discount and weren’t so concerned about the terms and conditions that accompanied it.’ So in the present febrile economic environment, where does pricing policy go from here? ‘Finance has an important role to play in starting the change towards more effective pricing,’ says Vanaerde. ‘The CFO challenge is to translate data into information that can be used by sales and marketing professionals to take pricing decisions.’ Expect more variable approaches to pricing in the future, says Dryburgh. ‘Recessions are always good times for innovators because the status quo is challenged,’ he points out. Look for more opportunities to push prices up, advises Zawada. ‘Most companies have more pricing power than they realise, but they have to find that power through better data and tracking and develop the process to take decisions more quickly,’ he says. Peter Bartram, journalist

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Beyond compliance PwC’s Alison Thomas continues her series on how to improve corporate reporting by mapping out the first steps you can take towards issuing investor-friendly statements The journey from mere compliance to fully integrated financial reporting is complex and likely to be different for every company. There are a number of areas to consider: Do your financial statements communicate effectively with the capital markets or are they compliance-focused? Could your financial reviews be better linked to strategy and become an integral part of communicating performance? Could your annual reports, investor presentations and other corporate communications become better integrated and converted into an interactive information source for investors? So how can you take action today? Perhaps the easiest first step is to focus on ensuring your financial statements communicate your key messages effectively by taking some simple actions to improve the quality of your communications with the capital markets. Why the easiest step? Because most of these practical steps require very little management time and often virtually no incremental cost.

* * *

Quality not quantity Investors often tell us they don’t want simply more information in annual reports but more effective information. They want to see pertinent, material information that helps them make their investment decisions. Investors tell us there are several notes in the financial statements that can leave them unable to see the wood for the trees. Share-based payments, pensions, financial instruments and hedging notes are the most commonly cited examples. So have a think about what information investors actually need about your company, including in the notes to the financial statements. For

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example, hedging notes could be made more useful through simple disclosures that focus more clearly on what has been hedged and how. Investors need to understand what exposure you are hedging, at what price, in which currency and for how long. They are trying to understand to what extent gains and losses were affected by derivative profits or losses, and how much profit came from maturing hedges versus marked-to-market gains and losses.

Clear communication We are seeing an increasing number of companies making great strides in improving the commentary in their financial statements. There is, for example, a growing trend towards integrating the financial review into the financial statements, bringing key information and analysis together. In a similar vein, we have noted a number of entities experimenting with the way they present their accounting policies – both by making it easier to understand how the policy relates to their business and by placing the policies alongside the relevant notes. Companies are becoming more inventive with their financial statements structures – for example, grouping notes into ‘core’ and ‘other’ – which is another way of signalling management’s focus to the investor that can be very valuable. These are just a few ideas. When I look at company accounts, I start with my checklist of items that investors commonly cite as being

frustrating. However, this is an area where common sense goes a long way. If an investor can’t work out the economic reality from the accounting disclosures, then it’s time to revisit your disclosure.

Where are you on your journey? All companies should think about how they can improve their communications with the capital markets. Whether you are taking the first steps along your journey, have specific areas in your financial statements or narrative to improve, or are ready to move to a more integrated approach across all your financial communications, you can make improvements. Alison Thomas is a corporate reporting specialist at PwC. To receive ‘Investor views’ highlighting the financial reporting areas of most interest to investors and how to improve those disclosures, email ‘Subscribe to Investor views’ to corporatereporting@uk.pwc.com

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Technically speaking [

ACCA’s Aidan Clifford rounds up some of the changes Irish accountants should be aware of

IN THIS ARTICLE: In this article: * 01 Changes to anti-money laundering requirements. * 02 Investor annulment fails. * 03 Panel reports on going concern. * 04 Insolvency licensing in Ireland – clarification. * 05 Company size criteria * 06 Annual leave - NI * 07 Investment qualification

Aidan Clifford FCCA, advisory services manager, aidan.clifford@accaglobal.com

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01 NEW AML LAW

The Department of Justice has published the draft heads of a new anti-money laundering Bill: the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2012. The Bill has been produced to tighten up aspects of the 2010 Act that were ineffective. Proposed changes include: * Inclusion of wire transfers of funds of €1,000 or more in the Act and customer due-diligence measures will also apply to beneficial owners of such funds; * The monetary threshold is reduced from €15,000 to €2,000 for private members’ gaming clubs for the application of customer due diligence measures; * When a designated person is carrying out a service or transaction with a non-EU Member State, it will no longer be able to merely rely on the list of countries currently designated under Section 31 but must also carry out its own assessment of the risks of money laundering or terrorist financing; and, * The amendment Bill will make it clearer that senior management approval must be obtained when an existing customer becomes a Politically Exposed Person (PEP) residing outside the state. It also clarifies that enhanced monitoring must be undertaken in the case of PEPs. The Bill will also require designated persons to apply enhanced customer due-diligence measures where a customer, business relationship, etc., presents a higher risk of money laundering or terrorist financing. The list of specific policies and procedures designated persons are required to have in place will

also be refined by the Bill so as to emphasise the importance of issues such as keeping customer due diligence documentation up to date. The Bill will also provide for the appointment of a compliance officer/money laundering reporting officer by designated persons.

02 ANNULMENT FAIL

A number of amateur and part-time property investors attempted to annul mortgages over Residential Investment Properties (RIPs) by challenging banks under the Consumer Credit Act. Some RIP investors were claiming that because they were not afforded the protection of the Consumer Credit Act (cooling off, risk warnings, etc.) and were incorrectly treated as professional investors, they should be entitled to hand back the keys of the RIP and walk away from any negative equity. This is notwithstanding that they would all have still taken out the loan if the full provisions of the Consumer Credit Act were applied. An article on www.mckr.ie summarises a judgment in AIB PLC v Higgins & Others [2010] IEHC 219. The critical line in the judgment was ‘that only a contract concluded for the purpose of satisfying an individual’s own needs in terms of private consumption come under the terms....’ (of the Consumer Credit Act). The judgment means that a PAYE worker cannot claim that his RIP mortgages were entitled to the protection of the Consumer Credit Act and they cannot walk away from them because the Act was not applied.

03 SHARMAN PANEL

The final report on the topic of ‘Going Concern and Liquidity Risks: Lessons for companies and auditors’ published by the Sharman Panel has been issued. The panel’s key recommendations are that:

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* The primary purpose of the going concern assessment and reporting should be to reinforce responsible behaviour in the management of going concern risks; and, * The going concern considerations made by directors and reviewed by auditors should cover both solvency and of liquidity and that these should be considered over the cycle, taking an appropriately prudent view of future prospects. Sharman also suggested that FRC should: * Seek to clarify and harmonise the differing definitions of going concern; * Review its guidance for directors to ensure that the going concern assessment is integrated with business planning and risk management; focusing, as appropriate, on both solvency and liquidity risks (including risks to the entity’s business model or capital adequacy) that could threaten the entity’s survival through the cycle; and includes stress tests of liquidity and solvency; * Integrate going concern reporting with its effective company stewardship proposals; and, * Enhance the role of the auditor by seeking an explicit statement in the auditor’s report about whether the auditor has anything to add to or emphasise in relation to the narrative disclosures made by the directors about the robustness of the process of assessing going concern and its outcome. The panel also looked at whether a special going concern disclosure regime is required for banks and concluded that this should not be necessary. Further details can be found at www.frc.org.uk

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04 INSOLVENCY LICENSING

The new Companies Consolidation and Reform Bill (due 2013) may require licensing of insolvency practitioners when it is passed. As of now, an ACCA member wishing to take an insolvency appointment for an Irish company is required to have a practicing certificate (either audit or non audit) but is not required to have an insolvency licence. All UK insolvency appointments require licensing. If you are an ACCA member and have an insolvency appointment, your work in respect of this assignment is already reviewed as part of a normal monitoring visit; but it is not reviewed to the depth that, for example, would be done in the UK, where insolvency is a regulated activity. At the time of writing, it appears likely that the licensing and monitoring of personal insolvency practitioners (PIPs) in the new personal insolvency legislation will be done by the Central Bank rather than the accountancy bodies themselves. Apart from the normal ethical considerations, nothing in the ACCA rule book currently would bar a member from doing this type of work, either regulated by ACCA or by some sort of state insolvency service. ACCA members may have a role in advising clients on the implications of formal or informal personal insolvency or creditor arrangements and this will be governed by the general rules of professional conduct.

05 COMPANY SIZE CRITERIA

The European Union (Accounts) Regulations 2012, Statutory Instrument No. 304 of 2012, has increased the balance sheet total and turnover thresholds for small company abridged accounts filing and for audit exemption. The balance sheet figure is amended to €4.4m and the turnover figure to €8.8m; the employee numbers remain

at 50. Both changes are effective immediately. The abridged accounts filing continues to be ‘two out of three’ and audit exemption is ‘three out of three’.

06 ANNUAL LEAVE - NI

The case of Anderson and others v Resource (UK) Ltd considered the rights of employees to statutory leave. The company informed the claimants ‘that they would not be getting their 28day entitlement to annual leave as they had received double pay for working specific public or bank holidays’. The case states that the ‘respondent knew that the reduction in leave meant that the basic entitlement to 28 days’ leave would be reduced’. The Northern Ireland industrial tribunal found this to be a breach of the right to a minimum of 28 days’ annual leave. In a unanimous decision, the tribunal awarded compensation for breach of their right to annual leave. The industrial tribunal case references are 1553/11, 1572/11, 1428/11 and 1555/11 and refer to William Anderson, Alistair Campbell, Stephen Whitley v Resource (UK) Ltd.

07 INVESTMENT QUALIFICATION

The Minimum Competency Code 2011 (MCC) applies to accountants that advise and arrange investment products for their clients as part of their ACCA investment business licence. One requirement of the MCC is that the person providing the advice has a minimum qualification such as the QFA. However, the Central Bank has recently confirmed that accountants that limit their investment business to referring the business to another qualified and authorised adviser do not fall within the scope of the MCC and will not need to have passed the QFA (or similar qualification).

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Northern Ireland tax notes The tax return campaign The tax return campaign doesn’t have long to run as outstanding returns, together with any outstanding amounts due, need to be submitted to HM Revenue & Customs (HMRC) by 2 October 2012. This campaign, rather than being aimed at an industryspecific group, is aimed at higher-rate taxpayers, helping them to bring their tax affairs up to date. The main target is employed or self-employed higher-rate taxpayers, who should have returned other forms of income, such as bank interest or dividends and accordingly paid higher rate tax through self-assessment, but who have not done so. It applies for tax years up to and including 2009–10. The campaign targets both taxpayers who have been asked to submit returns and those who have not. It is interesting to note that the scheme applies to non-submission of returns already issued to the taxpayer for submission. This is a new feature. Previous campaigns targeted offshore investments, medical professionals, private tutors and coaches, plumbers, electricians, VAT defaulters and online traders. According to HMRC, these campaigns have, so far, yielded nearly £510m from voluntary disclosures and over £120m from non-compliance follow-up from a large number of civil interventions, including over 18,000 completed investigations. HMRC has also said that there are criminal cases underway. You can read more about the advantages of disclosure, the consequences of nondisclosure and details on previous HMRC campaigns at www2.accaglobal. com/tax

Consultations There are a number of consultations closing in September and October. One of note is the Proposed Changes to ESC A19. Extra-statutory concessions apply where an equitable solution is required

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to correct a gap in tax law. In other words, they apply where the strict application of the law would produce an inequitable result. One of the more popular concessions is A19 which applies where HMRC has received information from a taxpayer and failed to act on it within a reasonable time. In such a case, the outstanding tax would be written off. HMRC has issued a consultation document seeking to: * Introduce the concept of ‘taxpayer responsibilities’ in respect of claims against the recovery of underpaid income tax in line with the HMRC charter. * Remove reference to capital gains tax (CGT), on the basis that the requirement for individuals to self-assess for CGT makes the concession redundant. Current consultations can be found at http://tinyurl.com/cjrvf9x You can send your comments on any of the above to advisory@ uk.accaglobal.com

Finance Act and CPD The Finance Bill received Royal Assent in July. There were a few amendments to the bill during its progress and there are some areas that impact taxpayers in their day-to-day work. A Finance Act 2012 CPD article is available at www.accaglobal.com/ab_tech It explores the 229 sections and 39 schedules contained within the act. It revisits the enterprise initiatives, including 50% tax relief from the Seed Enterprise Investment Scheme (SEIS), looks at research and development (R&D) and focuses on the clawback of child benefit via tax coding changes triggered when net income exceeds £50,000. Some of the main schedules covered are: * Schedule 1: High income child benefit charge when net income exceeds £50,000. * Schedule 3: Relief for expenditure on R&D. * Schedule 6: SEIS income tax relief

in respect of amounts subscribed by individuals for shares in companies carrying on a new business. * Schedule 7: Enterprise investment scheme. * Schedule 8: Venture capital schemes amended. * Schedules 30 to 32: Climate change levy. * Schedule 35: Stamp duty land tax – higher rate for certain transactions. * Schedule 38: Tax agents; dishonest conduct. Sets out the process for establishing whether someone has engaged in dishonest conduct, gives power to HMRC to obtain relevant documents, sets out sanctions and penalties for engaging in dishonest conduct and the appeals process. You can find Finance Act 2012 guides, including guides to SEIS and other enterprise initiatives at www2. accaglobal.com/tax Real time information HMRC has stated that it has agreed to allow ‘new PAYE schemes, which are set up after November 2012 [and] existing employers who, in 2012–13, either become clients of pilot software providers, bureaux or agents or whose provider etc makes pilot software available for Real Time Information (RTI) to start sending PAYE information in real time from November 2012 as part of the pilot’. The note goes on to say that ‘new PAYE schemes, set up from November 2012, should start submitting RTI from the time they register the scheme where the employer/pension provider uses RTIenabled software or HMRC’s Basic PAYE Tools. This will enable them to start operating PAYE in real time from the outset rather than having to operate the current PAYE system for the first few months they are in business, only to then change to reporting in real time in April 2013’. Glenn Collins, head of technical advisory, ACCA UK

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37 Tax diary SEPTEMBER 2012 General 14 PAYE P30 monthly return and payment for August 2012. (ROS extension to 23 September 2012). 14 PSWT F30 monthly return and payment for August 2012. (ROS extension to 23 September 2012). 19 VAT Bi-monthly VAT3 return and payment for the period July/ August 2012. (ROS extension to 23 September 2012). 19 VAT Four-monthly VAT3 return and payment for the period MayAugust 2012. (ROS extension to 23 September 2012).

21 Corporation Tax Preliminary tax for accounting periods ending 31 October 2012. (ROS extension to 23 September).

14 PSWT F30 monthly return and payment for September 2012. (ROS extension to 23 October 2012).

31 Income Tax Preliminary tax (inclusive of Universal Social Charge) for the tax year 2012. (ROS extension to 15 November 2012).

21 Corporation Tax First installment of preliminary tax for ‘large’ companies for accounting periods ending 31 March 2013. (ROS extension to 23 September).

Companies 14 Dividend Withholding Tax Return and payment of DWT for distributions in September 2012.

31 Capital Gains Tax Return for the tax year 2011. (ROS extension to 15 November 2012 for ROS filers).

30 Form 46G – Return of Third Party Information Form 46G for accounting periods ended 31 December 2011.

21 Corporation Tax Return and final payment for accounting periods ended 31 January 2012. (ROS extension to 23 October).

OCTOBER 2012 General 5 Mandatory reporting Where applicable, quarterly return of client lists for period to 30 September 2012.

Companies 14 Dividend Withholding Tax Return and payment of DWT for distributions in August 2012.

14 PAYE P30 monthly return and payment for September 2012. (ROS extension to 23 October 2012).

21 Corporation Tax Return and final payment for accounting periods ended 31 December 2011. (ROS extension to 23 September).

14 PAYE P30 return and payment for the calendar quarter ending 30 September 2012. (ROS extension to 23 October 2012).

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21 Corporation Tax Preliminary tax for accounting periods ending 30 November 2012. (ROS extension to 23 October). 21 Corporation Tax First installment of preliminary tax for ‘large’ companies for accounting periods ending 30 April 2013. (ROS extension to 23 October). 31 Form 46G – Return of Third Party Information Form 46G for accounting periods ended 31 January 2012 Individuals 31 Income Tax Return and payment of income tax for 2011. (ROS extension to 15 November 2012).

31 Domicile Levy Return and payment of €200,000 Domicile Levy for 2011. 31 Capital Acquisitions Tax Return and payment of Capital Acquisitions Tax for gifts and inheritances taken in the 12-month period ending 31 August 2012. (ROS extension to 15 November 2012).

Information supplied by the Irish Tax Institute Disclaimer: This is a calendar of the main tax compliance deadlines but is not intended to be an exhaustive list. While every effort has been made to ensure the accuracy of this information, the Irish Tax Institute does not accept any responsibility for loss or damage occasioned by any person acting, or refraining from acting, as a result of this material.

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Tax – an update In this article: 01 Government consults on tax issues surrounding receiverships. 02 Impact of high earners’ restriction for 2010 revealed. 03 iXBRL accounts filing goes live in November. 04 PRSI on share options. 05 Stamp duty self-assessment. 06 IMF recommendations.

01 Consultation on tax and receiverships There has been a considerable increase in recent times in the level of personal and corporate receiverships in Ireland. Figures from InsolvencyJournal.ie at the end of July 2012 show that the total number of receiverships so far this year has exceeded 240, compared to 284 for all of 2011. The increased activity in this area has created a focus on certain issues and complications in the direct taxes and VAT treatment of receivership scenarios. This prompted the Department of Finance and Revenue to issue a joint consultation document in early July, The Tax Implications of Appointing a Receiver. The paper noted that many of the difficulties currently being experienced are linked to the inability of the lender or receiver to obtain all of the information needed to compute the various tax liabilities in the manner required by the existing legislation. A number of alternative proposals are presented in the paper for addressing the difficulties currently being encountered with respect to both direct taxes and VAT. Interested parties were invited to provide feedback by 4 September. Specific questions for consultation are also posed, and alternative suggestions sought. Following the consultation process, a submission will be made to the minister for finance, with a view to making the necessary legislative amendments in Finance Bill 2013.

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02 High-earners’ restriction Revenue has published a report analysing the high-earners’ restriction in respect of the 2010 tax year, the fourth tax year for which the restriction has operated. The report shows that the objective of achieving an effective rate of tax of approximately 30% for individuals with an adjusted income of €400,000 or more was achieved in 2010. The changes, introduced to the restriction for 2010, have meant that 1,544 individuals were within its ambit for that year, up from 452 in 2009. The additional tax yield from the measure in 2010 was over €80m, compared with €38.8m in 2009. The restriction works by limiting the total amount of certain income tax reliefs that a high-income individual can use to reduce his or her tax liability in any one tax year. The 2010 report showed that reliefs related to investment in hotel and holiday cottage projects were the most common reliefs claimed by the individuals subject to the relief.

03 iXBRL goes live In a Tax Briefing issued at the end of July, Revenue confirmed that filing of company financial statements in iXBRL format will be available on an optional basis from 23 November 2012. The filing of financial statements in

iXBRL will become mandatory over time, beginning in October 2013 for companies dealt with by Revenue’s Large Cases Division (LCD). iXBRL is a language that allows the presentation of financial information in a format that is readable by both computers and humans. This is achieved by attaching XBRL ‘tags’ to data contained in the soft-copy version of a normal document. ROS is being updated to include new screens that will allow taxpayers and agents to submit accounts in iXBRL. It is not essential that the financial statements be filed at the same time as the Form CT1 – Revenue has confirmed that they may be uploaded either before, after, or simultaneously with the filing of the Form CT1. Filing of financial statements in iXBRL, via ROS, will be mandatory for LCD cases filing corporation tax returns on or after 1 October 2013 in respect of accounting periods ending on or after 31 December 2012. In addition, from 1 January 2013, taxpayers such as sole traders filing income tax returns will be able, although not obliged, to submit their financial statements in iXBRL format via ROS. Taxpayers choosing this option will be entitled to omit the current ‘accounts menu’ data required as part of their return.

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04 PRSI on share options From 1 July 2012, employees and former employees are obliged to account for employee PRSI, in addition to tax and Universal Social Charge, on share option gains in their Relevant Tax on Share Options (RTSO1) returns. Since 1 January 2012, employee PRSI has been payable on all share option gains. However, employers have withheld PRSI through the payroll. Section 9 of the Social Welfare and Pensions Act 2012 transferred responsibility for accounting for the PRSI to the employee. A Commencement Order (Social Welfare and Pensions Act 2012 (Sections 9 and 16) (Commencement) Order 2012) signed by the Minister for Social Protection designated 1 July 2012 as the commencement date for this change in practice.

to apply to instruments executed before that date. The Regulations are available on the Revenue website.

06 IMF recommendations Following its most recent visit to Ireland, the IMF made a number of comments and recommendations to government in terms of its approach to achieving sustainable economic recovery. These included the following: * A base-broadening approach to raising revenue would mitigate adverse growth effects. * Income tax reliefs could be better targeted to low-income taxpayers, and options to broaden the PRSI base could be examined. * Better targeting of the child

benefit, medical card spending, the household benefits package and the expenditure on non means-tested pensions could generate significant savings while protecting the poor. The IMF approved of the planned introduction of a value-based property tax in 2013, which it said would provide a progressive and stable source of revenue. In response to the comments regarding means testing of benefits, minister Noonan noted in an interview that the IMF recommendation is only advice and not a requirement to be included in December’s budget. Cora O’Brien is director of technical services, Irish Taxation Institute. Email cobrien@taxinstitute.ie

05 Stamp duty self-assessment Finance Act 2012 introduced changes to stamp duty to place it on a selfassessment basis. A Ministerial Order signed in July determined that the commencement date for stamp duty self-assessment is 7 July 2012. The Revenue Commissioners also published Regulations (the Stamp Duty (E-Stamping of Instruments and Self Assessment) Regulations 2012) setting out the rules for the e-stamping of instruments executed on or after 7 July 2012, in accordance with selfassessment legislation. It is important to note that the self-assessment provisions only apply to instruments executed on or after 7 July 2012. The existing stamp duty provisions continue

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A fresh look at unjust enrichment A recent Private Members Bill brought the topic of unjust enrichment to the centre of a debate in Seanad Eireann. Senator Rónán Mullen tabled the Business Undertakings (Disclosure of Overpayments) Bill 2012, which sought to create a statutory duty to disclose overpayments received in the course of trade and to facilitate their return. The Bill drew considerable interest and it was the first time that such a measure was proposed in statute law in Ireland or the UK. Senator Mullen pointed to the reality of trade overpayments and the present lack of any regulation in the area. The Bill’s proposals would make notification to the payee mandatory and expressly prohibit concealment of overpayments. The measure drew broad support from opposition parties and independents but was defeated when put to a vote. The government argued against a legislative route for several reasons, including the wish not to impose additional regulatory burdens unless absolutely necessary. Although the dynamics of the Irish system means that few private members bills become law, the questions raised in such a process can find resonance beyond the parliamentary environment. This could well prove the case with the subject matter of the Bill. Despite disagreement between the government and the Bill’s backers on the best method of dealing with the issue, and the minister’s reservations on the scale of the problem, both sides referred to the issue of unjust enrichment and the existing remedies available in common law. It is a well established principle that the return of amounts paid by mistake can be sought by means of a claim for restitution for unjust enrichment for

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what the law terms ‘monies had and received’. It is also clear that the statute of limitations will only apply from the time the mistake was discovered or ought with reasonable diligence to have been discovered. Although enforceable obligations in the legal sense only exist once a claim has been upheld in the courts, such a claim is always a possibility and is potentially open-ended in terms of time frame. Given that retained overpayments constitute unjust enrichment, can their presence or prevalence be ignored by the accounting profession? Reasons for taking a proactive approach to the issue might include the following: * Integrity of accounting results. If overpayments are unilaterally transferred to P & L, potential liabilities are hidden and profits are inflated. A true and fair view can hardly be said to exist in such a case. * SOX implications. These could arise if directors certify the adequacy of internal controls while profits or liabilities are incorrectly stated as a result of unwarranted reclassification of monies received in error. * Responsibility to the wider community. If one accepts the principle that unjust enrichment follows from retained overpayments, persuasive arguments are appropriate in favour of a more ethical treatment either by audit clients or others to whom the accounting professional provides advice or services. In the UK, the Auditing Practices Board has addressed retained overpayments in their Practice Note on Money Laundering (PN 12) of September 2010. In Appendix 1 they state the auditor considers whether

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the retention of the overpayments might amount to theft by the audit client from the customer. If so, the client will be in possession of the proceeds of its crimes, a money laundering offence. The ACCA strongly agreed with this point in its submission at the consultation stage of the APB document, adding that ‘the guidance should be extended to deal with a further possibility – where overpayments are not credited to the profit and loss account, but are just carried forward as a credit balance’. Points such as these may mark a

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progression of views within the accountancy profession on overpayments, since it might previously be held that a ‘true and fair view’ could exist even when such transfers had occurred. Such a view had been articulated in the UK Tax Tribunal case Pertemps Recruitment v HMRC in March 2010. The Irish Institute of Credit Management issued Guidance Notes on the Treatment of Trade Overpayments in April 2011. In their introduction, they point to the fact that ‘business revolves around mutual goodwill and sustainable relationships, which can be readily compromised by any opportunistic approach to erroneous receipts and overpayments... Overpayments are a prime example of transactions where the utmost probity is demanded’. It is a good reference point, since unethical behaviour is hardly a way to entice customers! The

IICM Guidance offers practical recommendations on key principles to be adhered to in identifying such payments and dealing with them correctly. The emphasis is on working with the customer to agree refund or offset, which, in effect, makes the problem less likely to reoccur and strengthens relationships. The guidance also contains prohibition of concealment of overpayments or using their proceeds to offset losses of the trade or business. In the United States, unclaimed property law governs a wide range of intangible personal property. It includes credit balance, customer’s overpayment, refund, credit memorandum … unidentified remittance among the assets listed as intangible personal property which is subject to the Federal Unclaimed Property Act 1995. These assets cannot be disposed of unilaterally by

recipients but must be reunited with those to whom they are entitled or transferred to the relevant state treasury at the expiration of a dormancy period, typically of three years. Some states allow particular B2B exemptions, but even these can be limited as there is a duty of repatriation to the state of domicile of the payee, which may not have a corresponding exemption. The principles of the US unclaimed property law have much in common with the dormant accounts legislation in Ireland and the UK. The value of such legislation is intrinsic not only to the potential owners of unclaimed sums but to the state as a source of working capital. In the US the operation of the law has generated asset recovery specialism in the larger accounting firms as property registered with state reclaim funds is capable of being recovered in perpetuity. State auditors probe not only the debtor’s ledger of any companies inspected but actively seek to reconstruct balances that may have been written off to profits before the end of the dormancy period. Enhanced ethical awareness will best drive a culture change that resists the opportunity to exploit a long overlooked credit balance or one where the business relationship has gone end of life. Improvement in mechanisms to prevent overpaying or neglect to avail of credits due remains a challenge for business and accounting software and administration practices generally. However, other initiatives will also help reduce the incidence, such as firm mutual arrangements concerning overpayments. The IICM recommends including their guidance notes in terms and conditions, which would be beneficial. The contribution of the accountancy profession by means of a policy document on overpayments would add a further authoritative dimension to the discussions that are formulating around this topic. Maurice O’Brien is author of The Irish Institute of Credit Management’s Guidance Notes on Trade Overpayments and has over 25 years’ experience in the credit function. Email mobrienmiicm@hotmail.com

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Pensions: an update Oliver O’Connor predicts more change on the horizon for the pensions industry In October 2008, Warren Buffett noted at the annual Berkshire Hathaway Annual General Meeting that investors ‘should be greedy when others are fearful and fearful when others are greedy’. In simple terms, timing is everything! This is particularly relevant to those with pension funds, either personal or corporate.

Landscape of flux As we know, the Irish pension arena is in a constant state of flux. There have been significant changes implemented in the pensions landscape over the past few years that have been to the detriment of the pension investor, including the reduction in the maximum fund and also the significant reduction in the level of earnings on which pension contributions can be made. In Budget 2012, as outlined last December, there were some less publicised changes, including the abolishing of the 50% relief for employer PRSI and the increase in the level of imputed distribution on approved retirement funds with a value of over €2m. When the Commission on Taxation issued its report to much media analysis and commentary in 2009, pensions were not given overly significant attention. However, in subsequent budgets and finance acts, the majority of the recommendations regarding pensions have been seen to come to pass. The major remaining

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adjustment that has not been addressed is the differential between those that receive tax relief at 41% for their pension contributions and those that receive such relief at the standard rate. While the ‘matching’ system was ultimately advocated, there have been no significant announcements as to a relief rate adjustment being imposed in 2013. As with other areas of the economy, anecdotal evidence from financial advisers/life companies at present would indicate that there is relatively little ‘new’ money being invested into pension policies and, therefore, the consequent ‘cost’ (by way of tax relief given) on the economy is much less than would have been anticipated when the Commission on Taxation was reporting. While the level of contributions may rise during the tax filing season of October and November, it is unlikely to be prohibitively high and, therefore, any change to the rate is likely to survive for another year at least.

economy struggling with a crisis of confidence, they do not know what the next month, or number of months, may bring and, for that reason, are reluctant to invest until they are convinced beyond doubt that the funds will not be required. Unfortunately, that decision is becoming more and more difficult to make as a variety of international and domestic issues conspire against overall economic confidence. In the last six weeks alone there has been the heightened fears for Spain at a European level and, domestically, there has been an issue with a major bank whereby customers did not know whether their bank balances were as they anticipated or not. With issues such as these to contend with as they run their business, it is little wonder that pension provision is down the priority list. Couple this with the fact that overall stock markets are more than a little unsettled and the flight from risk and investing becomes easy to understand!

Reluctance

Opportunity

One of the primary reasons that clients are so reluctant to invest in their pension funds at present is that when they do commit to the pension provision, the money is effectively locked away until age 60 at the earliest (with some exceptions). For those that are running businesses this is a very big commitment to make as, with an

So what can be done or where do the opportunities lie? Without wishing to get into the pros and cons of any particular investment strategy, suffice it to say that there are opportunities within the pension arena that would have benefits to both the pension investor and the economy as a whole. First among these would be the

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creation of a system that would allow trading businesses receive investment from Irish pension funds (individual and collective) and, therefore, give a badly needed injection of capital to the companies/businesses, while also becoming a viable investment alternative for these pension funds. There is an old Irish proverb ‘is ar scáth a chéile, a mharann na daoine’ which, loosely translated, means that by working together people will survive. It is quite apt in this circumstance as there is a severe funding gap for most Irish businesses at present and, at the same time, there are billions in pension funds which are not invested in the markets (due to fear of investment loss) but could be applied (with some form of guaranteed return) to trading businesses. While there would be the obvious regulatory oversight required

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to manage this process, it should not be of such a burden as to take away the overall impetus of such a project. I am aware that there have been a number of delegations advocating a system as outlined here in the recent past and only time will tell whether they have been listened to or whether the fear of such a significant change has curtailed the enthusiasm for such a project.

Predictions It is most unlikely that there will be dramatic changes in the pension landscape over the coming year in Ireland. Most of the main provisions of the Commission on Taxation report relating to pensions have now been addressed and, therefore, the obvious inequalities (such as the access to the approved retirement fund option) have

now been corrected. While the dilemma of what to do with the vast holes in defined benefit pension schemes remains, arguably, the greater issue remaining now is what to do with those pension funds that are not investing at the present time and how these could be utilised to improve the overall Irish economy. The ‘sovereign bond’ may be the first step on the road to allowing pension funds invest in a material way in Irish business, but only time will tell whether this comes to pass. It would appear to be a ‘win-win’ situation and were it to come to pass in the next year it would certainly prove to be a major positive change for the pensions industry. Oliver O’Connor is director, Grant Thornton Financial Counselling. Email oliver.oconnor@ie.gt.com

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The pensions reviewer Paul Kenny on the role he plays as pensions ombudsman The pensions ombudsman investigates and decides upon certain complaints and disputes from individuals about their occupational pension schemes, personal retirement savings accounts (PRSAs) and certain trust retirement annuity contracts (RACs). When the investigation is finished, my role, as the pensions ombudsman, is

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to issue a legally binding decision in a final determination, which is then sent to all parties to the complaint. The services of the Office of the Pensions Ombudsman are free and are available to everyone. However, the pensions ombudsman cannot investigate complaints or disputes about state (social welfare) pensions.

Determinations The Office of the Pensions Ombudsman determinations are binding on all parties, subject only to appeal to the High Court. They may be enforced by order of the Circuit Court. Before a complaint or dispute can be investigated, it must be submitted to a process within the scheme, called

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Internal Disputes Resolution (IDR). The purpose of this is to try to solve the problem internally, if possible. Scheme trustees are supposed to give members information about this process and how it works. Individuals are not bound by the outcome, and can take their complaint to the office if they are still not happy. Once a complaint is received, it is assessed and a decision made as to whether to accept it for investigation or to continue the examination with a view to achieving a mediated settlement. Mediation is the preferred route, as this generally results in a more satisfactory outcome for all concerned. If an investigation does begin, the respondents are notified, papers are copied to all concerned and the investigators in the

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Office of the Pensions Ombudsman begin to follow up the available evidence.

Indications It may sometimes happen that we can’t investigate a complaint – perhaps because it’s too late (there are certain time limits); or it may be for another authority such as the Pensions Board or the financial services ombudsman. If so, we will help to get it to the right place. If an investigation is to conclude in a formal determination, the pensions ombudsman may give a ‘preliminary view’, an indication of the likely outcome. I then invite the parties to present any further evidence or make any submissions to a final

determination. A complaint to the Office of the Pensions Ombudsman represents a failure of complaints handling elsewhere in the system. In many cases, I have been able to prevent submissions to the office from escalating into a full-blown investigation by alerting the appropriate people early.

Attention Communication and awareness-raising are an important part of what we do. Poor communication lies behind many complaints. Attention to that – and the use of simple English – goes a long way towards prevention. Retirement can be an anxious and often stressful time and it is a time when people require clear communication and comprehensive information. In times of economic

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difficulties, it is essential that people have an independent and non-adversarial service of redress accessible to them, should they experience problems with their pensions. Visit www.pensionsombudsman.ie for further information. Paul Kenny is the pensions ombudsman. Email paul.kenny@pensionsombudsman.ie

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IFG LAUNCHES BEST-OF-BREED PENSION PORTFOLIO IFG SAYS ITS NEW ACTIVE LIFESTYLE PORTFOLIO BEATS IRISH PENSION MANAGERS BY 42% IFG Corporate Pensions recently launched a global best-ofbreed active manager pension portfolio that is set to deliver where the majority of domestic Irish active fund managers have failed on a consistent basis. The new IFG Active Lifestyling portfolio boasts genuine global high performance, net of all fees, and is supported with a unique optimal asset allocation system that is unrivaled on the Irish market.

for a high-performing active managed option, that is why we developed our new Active Lifestyling offering. We examined the performance of the average Irish-managed fund over the past five years, and compared it with what would have been achieved by the IFG Active Lifestyling offering. Net of all fees, the Active Lifestyling portfolio outperformed the average Irish manager by 42% over just five years*.’

Best managers

Robust performance

Due to the continued underperformance of active managers in the domestic market, IFG Corporate Pensions set out to source the best global managers in each asset class to populate its asset allocation model for a high-performing new portfolio. IFG has partnered with Jefferies, world leaders in investment manager research, employing 150 investment professionals across the globe to identify the ‘best in class’ international active fund managers. The result is a pensions solution that far outperforms the performance of Irish fund managers over the past five years.

A gap in the market Speaking at the launch on 13 August, Samantha McConnell, chief investment officer of IFG (pictured) said: ‘The small relative size of the Irish pension market and the small average size of pension schemes here, particularly in the definedcontribution market, has meant that members have not been able to access world-class managers. The overall investment performance of the majority of active pension asset managers in Ireland has directly impacted the sector as a whole and has led to an undermining in consumer confidence in the pensions industry. We strongly believe there is now a gap in the market

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In 2009, IFG created a best-of-breed passive lifestyling pension investment option that has enjoyed strong uptake with its corporate clients and has shown robust performance since its inception. To support their lifestyling models, IFG has partnered with Barrie & Hibbert, who provide a world-class stochastic risk-modelling solution to create the optimal asset allocation throughout the working life of an individual. These pension solutions firmly addresses the consistent underperformance by the Irish active managers and represent a key differentiator for IFG. ‘To achieve the best performance, you need the best managers in each asset category coupled with the ideal asset allocation given your age and appetite for risk, so we simply identified the world’s best in each area and hired them – seems pretty straightforward doesn’t it?’ McConnell concluded. *IFG based the comparison on the 10-year balanced portfolio (member aged 55, with 10 years to retirement and balanced attitude to risk), which has a similar asset allocation to the average managed fund in Ireland.

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Financially independent at retirement? David Malone provides an update from the Pensions Board To get an approximate idea of how much a person should be saving to meet their expectations in retirement, run the pension calculators on www. pensionsboard.ie Our consumer market research shows that the majority of people, seven out of 10, say that the current state pension of €230.30 per week wouldn’t meet all their needs in retirement.

Pensions at work By law, an employer must provide all employees with access to a personal retirement savings account (PRSA) where there is no company pension scheme or where there is a company scheme but not all members can fully access it. There is no obligation on the employer to contribute to the PRSA. In addition, employees are legally entitled to information about their employer’s pension scheme or a personal retirement savings account (PRSA). A pension is an important benefit for employees and can play an important part in the approach to recruiting, rewarding and retaining the right staff.

State pension age

pension (transition) before 1 January 2014 you remain entitled to it for the duration of your claim (one year). State pension age will increase to 67 in 2021 and to 68 in 2028.

The Pensions Board The Pensions Board is responsible for the regulation of occupational pension schemes and PRSAs. The position of Irish pensions remains serious. Current economic circumstances mean that pension savers and sponsoring employers have great difficulty in making the contributions necessary to make good the investment losses incurred in recent years and to meet the ever increasing costs of providing retirement benefits, whether through defined benefit or defined contribution arrangements. The Pensions Board is responsible for the regulation of occupational pension schemes and PRSAs. In order to ensure that its regulatory practices are efficient the Pensions Board’s supervisory approach is based on a hierarchy of risk priorities as follows: 1. Scheme or PRSA assets

or contributions being misappropriated. 2. Benefit entitlements being calculated incorrectly. 3. Defined benefit schemes being funded inadequately. 4. Inappropriate investment of pension assets. 5. Insufficient information provided to members. The board assesses levels of compliance based on the above priorities through a process of direct engagement with regulated entities and their administration providers.

Further information To find out further information about your pension options log onto the Pensions Board website www. pensionsboard.ie Also log onto to the National Consumer Agency website www.nca.ie for information on consumer rights and personal finance.

David Malone is head of information, The Pensions Board. Email dmalone@pensionsboard.ie

It is also important to be aware that new legislation has been introduced that will gradually increase the qualifying age for the state pension. Under the Social Welfare and Pensions Act 2011, the state pension (transition) at aged 65 years will no longer be paid from 1 January 2014. This means that there will then be a standard state pension age of 66 years for everyone. If you have qualified for the state

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Implementing iXBRL in Ireland Diarmuid O’Tuama and Michael Blair on the implementation of electronic filing of financial statements and tax computations with Revenue using iXBRL iXBRL stands for eXtensible Business Reporting Language. This is a language that allows accounting and tax data to be presented in a format that can be understood and analysed by computer. iXBRL allows tax authorities to make better use of the data they receive from tax return filings. Data can be extracted directly from financial statements and tax computations for analysis, e.g. to run a cross check on profit margins in a certain sector. iXBRL is also of benefit to businesses as an analysis and comparison tool. The use of iXBRL is growing around the world and has been adopted by many countries in accordance with their International Financial Reporting Standards (IFRS). By using the iXBRL reporting format, financial information is presented in a format that is both human readable and machine readable. Electronically readable ‘tags’ are embedded in the soft copy document to achieve this result. The ‘tagging’ of the data in the accounts and tax computations must be done manually, however, some accounting software providers are developing software that includes iXBRL tagging functionality in their product. This would allow the iXBRL version of a set of financial statements and tax computation to be generated automatically. It is Revenue’s view that the use of such software would facilitate a seamless move to iXBRL for taxpayers and agents who use these accounting packages, however the experience of taxpayers and accountancy firms in the UK may contradict this.

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Preparing for iXBRL Legislation that came into force in the UK on 1 January 2010 meant that with effect from 1 April 2011, it was compulsory for companies in the UK to file their corporation tax returns online using iXBRL for financial statements and computations. The enactment of this legislation in the UK caused some apprehension among the accounting community with many accountants concerned about the financial burden of preparing for iXBRL. Digita, which is part of the Thomson Reuters Tax & Accounting business, surveyed attendees at an HMRC event in London, which attracted more than 500 people who wished to learn more about iXBRL. Half of accountants who were quizzed estimated that the cost of preparing for iXBRL would exceed £10,000! The anticipated costs were not only down to implementing procedures to incorporate this additional requirement of filing a corporation tax return and to training staff on the tagging requirements but, for many firms who prepare financial statements on Microsoft Word or Excel, they would be required to purchase new software in order to prepare an iXBRL document. This was the case for many reputable and well-established accountancy practices throughout the UK. The cost of this additional labour requirement would have to be relayed on the client and many clients were facing estimated accountancy fees of £1,000 for tagging service alone. One key advantage of the latest UK accounts and tax software packages is that the system should

be able to automatically allocate tags to the relevant information within the financial statements, thereby removing the requirement for an individual to go through the accounts and tax computations to allocate relevant tags. This should ultimately help curtail the cost of preparation and submission of a company corporation tax return.

Learning curve Despite the availability of software with ability to prepare iXBRL compliant financial statements on a ‘one click’ approach, there has been a steep learning curve for those who began iXBRL online filing in April 2011. Numerous calls were logged with software support as accountants and tax advisers got to grips with terms such as ‘hypercubes’ and ‘departmental specific business logic’ from failed submission reports, as corporation tax returns failed to pass through the government gateway on filing. HMRC has relaxed the tagging requirements for a transitional ‘soft landing’ period, allowing submission of tax returns where iXBRL tagging has been completed to a standard that would reasonably be expected. This has allowed firms to iron out the kinks in their filing process and establish an efficient filing procedure with staff who know how to correct issues as and when they arise.

Timeline In Ireland, it is Revenue’s plan that all taxpayers will eventually have to submit their financial statements and tax computations using iXBRL. They

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are proposing the following timeline for implementation of iXBRL filing: * An option to file financial statements through iXBRL on a voluntary basis from November 2012 for corporation tax filers. * An option to file financial statements through iXBRL on a voluntary basis from January 2013 for sole traders. * A mandatory requirement for large cases division (LCD) taxpayers to file financial statements through iXBRL from October 2013. * A phased roll-out of iXBRL filing of financial statements for other taxpayers commencing October 2014. * A mandatory approach to filing of

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tax computations using iXBRL to follow the above. In addition, plans to use iXBRL are currently being considered by the Companies Registration Office (CRO) but, to date, no specific timeline has been determined.

Experience Business Reporting Ireland Ltd is a company that was formed to promote the development and adoption of iXBRL in Ireland. This company and Revenue are currently holding roadshows in various locations around the country to advise tax filers of what exactly is involved in filing accounts in iXBRL with Revenue. We will see over the next year if we experience the same

problems and costs in Ireland that were encountered initially in the UK, or whether the software providers, after their experiences in the UK, will have perfected their conversion software. We will also have to wait and see if Revenue introduces any transitional arrangements to allow flexibility for taxpayers in the initial stages. Only time will tell. Diarmuid O’Tuama is a tax manager with RSM Farrell Grant Sparks. Email Diarmuid.otuama@rsmfgs.ie Michael Blair is a tax partner with RSM McClure Watters in Northern Ireland. Email Michael.blair@rsmmcw.com

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Accounting solutions In this month’s column, PwC authors answer technical questions on accounting for recharge payments, and supplier finance arrangements

Q

ABC plc has granted rights over its listed shares directly to employees of its subsidiaries in exchange for employee services. ABC plc received a recharge payment from the subsidiaries, which is based on the IFRS 2 grant date fair value. How should ABC plc entity and the subsidiaries account for the recharge? IFRS 2, Share-based Payments, makes it clear that the accounting requirements for group share-based payment schemes apply regardless of whether a recharge arrangement is in place or not. So, initially you need to consider the accounting for the share-based payment award and then subsequently consider the recharge. In the individual subsidiary accounts, the share-based payment arrangement is accounted for as an equity-settled award, as the parent company (ABC plc) has the obligation to settle the award. The related credit to equity reflects the capital contribution received from the parent. In ABC plc’s individual entity accounts, there is an increase to the investment in the subsidiary to reflect the capital contribution and a credit to equity. IFRS 2 does not address the accounting for recharges; however, an illustrative example included in the IFRIC exposure draft D17 did consider the issue. In our view, because the recharge is directly linked to the sharebased payment charge, the recharge should follow the capital contribution in the individual financial statements of the subsidiaries’ and of ABC plc’s individual entity accounts. Any excess recharge above the value of the capital contribution is treated as a distribution. Accounting for the capital contribution and for the recharge are two separate transactions and should be disclosed

A

A

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gross in the financial statements, rather than offset. Accounting for a payment that is not directly linked to the award would result in an expense being recognised in the income statement for the amount recharged, in addition to the expense for the share-based payment.

Q

ABC Ltd and its suppliers enter a finance arrangement with a bank. ABC’s existing payment terms policy is to pay invoices after 90 days. The bank will pay ABC’s suppliers the invoice amount less a fee before the due date. ABC will pay the bank the full amount of the invoices on the original due date. Does ABC need to derecognise its original liability and recognise a liability for an amount owed to the bank?

IAS 39, Financial Instruments: Recognition and Measurement, states that a liability should be derecognised if it is extinguished (that is, the obligation is discharged, cancelled or expired) or when its terms are substantially modified. If ABC has been legally released from its obligation to pay its suppliers, this would lead to an extinguishment. In other cases, quantitative and qualitative factors should be considered. Although IAS 39 paragraph AG62 prescribes the use of a quantitative 10% test (the discounted present value of the new and the old liability differs by more than 10%), this threshold is not usually met. Qualitative factors could include (but are not limited to): What was the purpose of entering into the arrangement? Will the arrangement affect the timing of ABC’s cashflows? Does ABC make additional interest payments? Indicators of extinguishment could be: the arrangement is to improve ABC’s working capital; ABC selects which suppliers should be part of the scheme; ABC agrees to pay interest to the bank for any late payments. If the trade payable is derecognised, a new liability to the bank should be presented as bank financing or another suitable heading. If the liability continues to be recognised, ABC may consider presenting the trade payables, subject to supplier finance arrangements, in a separate line item in order to faithfully represent the effect of the transaction. This month’s solutions were compiled by Michelle Millar, Harivadan Patel and Iain Selfridge of PwC’s Accounting Consulting Services

PwC’s Illustrative IFRS corporate consolidated financial statements for 2012 year ends is due out this month. Copies are available to order from www.ifrspublications.co.uk

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Technical GET VERIFIABLE CPD UNITS

Answer questions about this article online Studying this article and answering the questions can count towards your verifiable CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

More questions than answers The publication of non-binding Q&A guidance for users of the International Financial Reporting Standard for SMEs has raised eyebrows in some quarters, says Graham Holt

The SME Implementation Group (SMEIG) is a forum that considers implementation questions raised by users of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). It has published implementation guidance as a series of questions and answers. This article will detail the final published questions and answers to date.

Parent entities In some countries, parent entities prepare separate financial statements as well as consolidated financial statements. The first SMEIG Q&A was whether a parent entity, which is required to present consolidated financial statements in accordance with full International Financial Reporting Standards (IFRS), can present its separate financial statements in accordance with the IFRS for SMEs. The IFRS for SMEs is intended for non-publicly accountable entities that publish general-purpose financial statements for external users. If a parent entity does not itself have public accountability, it can present its separate financial statements in accordance with the IFRS for SMEs even if it presents its consolidated financial statements in accordance with full IFRS. The parent may use the IFRS for SMEs in its separate financial statements on the basis of its own public accountability without considering other group entities.

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A parent entity has public accountability where its own debt or equity instruments are traded in a public market (or it is in the process of issuing such instruments for trading in a public market) or it holds assets in a fiduciary capacity for a ‘broad group of outsiders’ as part of its main business. If a publicly accountable entity applies the IFRS for SMEs in its financial statements, it cannot describe those financial statements as complying with the IFRS for SMEs. However, a subsidiary that is part of a group that uses full IFRS is not prevented from using the IFRS for SMEs in its own financial statements as long as it does not have public accountability.

Public accountability The IFRS for SMEs identifies banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks as examples of the type of entity that ‘typically’ holds assets in a fiduciary capacity for ‘a broad group of outsiders’ as part of its main business. The second SMEIG Q&A was whether all those types of entities could automatically be assumed to have public accountability. There is no simple answer here, as judgment will be required to assess whether entities have public accountability. Part of the definition of public accountability relates to the ability of external parties that make economic decisions to demand reports

tailored for their particular information needs. Typically, depositors in banks, holders of shares in mutual funds, etc, are not in a position to demand such reports, so the entity is presumed to have public accountability even if it holds the assets for only a short time. ‘Broad group’ implies that the involvement of only a few individuals would mean that the entity would not be considered publicly accountable. However, there is no simple rule on what constitutes a broad group and so judgment will again be necessary.

Trading in a public market The third SMEIG Q&A continued with the theme of public accountability by considering how broadly ‘traded in a public market’ should be interpreted. Did it refer only to regulated markets or did it also cover other markets such as growth share markets and overthe-counter markets? ‘Public market’ is defined in the IFRS for SMEs as ‘a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets’. The definition includes all markets that bring together those capitalseeking investors that are not involved in managing the entity. The market must be accessible by a ‘broad group’ of investors. If the exchange is simply between parties involved in managing the entity, the market is not public. Advertising by a shareholder does not, by itself, create a public market; neither does the availability of a

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TO GET THE QUESTIONS GO TO www.accaglobal.com/cpd/ financialreporting

Helen Brand Chief executive ACCA

A PARENT ENTITY MAY USE THE IFRS FOR SMEs IN ITS SEPARATE FINANCIAL STATEMENTS ON THE BASIS OF ITS OWN PUBLIC ACCOUNTABILITY published price mean that an entity’s debt or equity instruments are traded in a public market. There is no definition of ‘public’ in the IFRS for SMEs but it is usually considered to mean affecting a community as a whole; as set out above, it could be open to a broad group of outsiders, even if trading is infrequent.

Exemptions There are a number of exemptions in the IFRS for SMEs on the basis of ‘undue cost or effort’ or because the requirement is ‘impracticable’. The ‘impracticable’ exemption applies where an entity cannot apply it after making every reasonable effort to do so. However, ‘undue cost or effort’ is not defined and SMEIG was asked to explain the term. It involves a consideration of how users’ economic decisions could be affected by the non-availability of information and so requires judgment. ‘Undue cost or effort’ is specifically applied for some requirements but not all. Where ‘undue cost or effort’ is used in conjunction with ‘impracticable’, the application of the standard should be as if ‘undue cost or effort’ had been used on its own. The definition of ‘impracticable’ in

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the IFRS for SMEs is the same as under full IFRS and refers to effort and not cost. The inclusion of ‘undue cost or effort’ for certain requirements in the IFRS for SMEs is intended to point out that cost is a consideration. The International Accounting Standards Board (IASB) feels that a requirement would result in ‘undue cost or effort’ where the cost or the employee effort would be excessive in comparison with the benefits gained by users of the SME’s financial statements from having that information.

Which IFRS? Often a jurisdiction will require that a certain recognition and measurement policy is followed that is dealt with in full IFRS and not specifically covered by the IFRS for SMEs. The question then arises as to whether the SME in that jurisdiction can state compliance with the IFRS for SMEs. In the absence of specific requirements in the IFRS for SMEs, management must use its judgment in adopting a reliable and relevant accounting policy. The IFRS for SMEs sets out the following hierarchy to help decide the appropriate accounting policy to use: A) the requirements and guidance in the IFRS for SMEs dealing with

Dean Westcott President ACCA

Register and watch Helen and Dean answer your questions ACCA Engage 10 September 2012

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Technical

SOME BELIEVE NON-BINDING GUIDANCE IS INCONSISTENT WITH THE OBJECTIVE OF A SINGLE, STABLE, STANDALONE STANDARD FOR SMEs similar and related issues; and B) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses and the pervasive principles in the standard. The IFRS for SMEs also states that management may also consider the requirements and guidance in full IFRS that deal with similar issues providing that they do not conflict. This requirement does not allow a free choice to apply full IFRS requirements when there is a specific requirement existing in the IFRS for SMEs. If the IFRS for SMEs contains different guidance to full IFRS, the entity will not be able to state compliance with the IFRS for SMEs unless the effect is immaterial.

IAS 39 vs IFRS 9 A related question has arisen with IAS 39, Financial Instruments: Recognition and Measurement. The IFRS for SMEs gives an entity the option of applying the recognition and measurement provisions of IAS 39 to all of its financial instruments instead of following the SME standard. The question arises as to whether an entity can choose to apply the provisions of IFRS 9, Financial Instruments. The IFRS for SMEs refers specifically to IAS 39

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and thus SMEs are not permitted to apply IFRS 9. The reason for this is that the use of IFRS 9 by SMEs would require a change to the IFRS for SMEs. The IASB intends to undertake a thorough review of the IFRS for SMEs and at that time it will also consider new and amended IFRSs that have been issued since the IFRS for SMEs was published, including the requirements of IFRS 9. The review is expected to be completed in 2014, so changes to the IFRS for SMEs would most probably be effective at a similar time to the effective date of IFRS 9. If an SME follows the recognition and measurement principles of IAS 39, there is a requirement that exchange differences arising on translation of a monetary item that forms part of a reporting entity’s net investment in a subsidiary should be recognised initially in other comprehensive income and be reported as a component of equity. The standard prohibits those cumulative exchange differences from being recognised in profit or loss on disposal of that net investment. Similarly, exchange differences arising on translation of a foreign subsidiary should be recognised in other comprehensive income but the standard does not mention recycling to

profit or loss on disposal. The question arose as to whether the cumulative exchange differences arising on translation are prohibited from being recognised in profit or loss on disposal of the subsidiary. The IASB has decided to prohibit all cumulative exchange differences recognised in other comprehensive income from being reclassified to profit or loss on disposal of the subsidiary. This requirement is a difference from full IFRS, and was drafted in order to eliminate the burden for SMEs of tracking the exchange differences after initial recognition.

Inconsistency The provision of non-mandatory implementation guidance by the IASB on the IFRS for SMEs has not been without critics. Some believe it is inconsistent with the objective of having a single, stable, standalone standard for SMEs. The IASB has recognised that providing less guidance than for full IFRS makes for greater diversity in practice on issues that were not addressed. By trying to remedy this, with non-binding questions and answers, it could be seen as calling into question the basic design of the standard and diluting the power of a single standard. Graham Holt is an examiner for ACCA, and associate dean and head of the accounting, finance and economics department at Manchester Metropolitan University Business School

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Careers

59

The secret to getting the best CPD Make sure you leave enough time to reflect on the learning you’ve done and fit it into a bigger development plan. Here are some tips We all know CPD is about learning and how that learning supports your career. But over the years we’ve noticed that not enough of our members reflect on the learning that they’ve done or try to fit it into a bigger development plan. Understandably, it is difficult to reflect on your CPD if you only think about learning towards the end of the year with the aim to gain the verifiable CPD units you need for your declaration. Courses are sold out in minutes and e-learning opportunities relevant to your career might not be available just at that time – not the best experience when all you’re trying to do is develop professionally.

Relevance, relevance, relevance If you’re an accountant and you want to develop in that role in the future, doing an evening course in oil painting will sadly not count towards your CPD. It might be a great experience, but unless you can prove it has contributed towards your career, you will not be able to use it towards your CPD. An online refresher in managing people can be very useful if you’re involved in managing teams or you manage your own practice; however, it’s hard to prove relevance if, for example, you’re just at the start of your career and your role does not involve any management. Relevance is the cornerstone of ACCA’s CPD policy, yet many members experience delays in their CPD review because they fail to demonstrate the relevance of their CPD activities to their current job or future career. If you work in a relevant role, your CPD will probably be mostly about maintaining technical ability and keeping abreast of industry developments. However, don’t forget your other professional skills. A course in

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presentation skills is just as relevant as a Microsoft Excel course if you have to deliver presentations for work. If you are not currently working in a relevant role and have moved away from accounting and finance, you can still gain CPD if you can demonstrate relevance to your current role. It’s important to note that members in practice continue to maintain competence in their areas of technical specialism and obtain an appropriate proportion of CPD in those areas.

Opportunities to learn Once you fully understand that it is relevance that counts, you can begin to think more imaginatively about how to obtain CPD as there’s a good chance that you are already doing much learning in your day-to-day work.

Day-to-day CPD Let’s take for example report writing. Was the subject matter new? Did you conduct any type of research (speak with colleagues, business experts or engage in internet research) to do the

report. All this can count towards your CPD as it is in essence new learning that is relevant to your career. Provide evidence – the report itself is evidence; additionally, the research notes can be produced, a diary printout or copy showing the time for research blocked off, or a colleague can corroborate that the learning took place. Check the examples of CPD evidence at www.accaglobal.com/cpd/evidence

What’s the secret of great CPD? Plan in advance! Where do you want to be this time next year in your career? What is the relevant learning that can get you there? To determine relevance, ask yourself: 1 Was the learning activity relevant to your career? 2 Can you explain how you will apply the learning in the workplace? 3 Can you provide evidence that you undertook the learning activity? If you can answer with yes to all three questions, then one hour of learning equals one verifiable unit of CPD.

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Careers Diary

BELFAST

DUBLIN

Activity Based Costing – From Manufacturing to Services 27 September 18.00 – 20.00 Ulster Members’ Network John Doris, Meridian Business Advisors Radisson Blu Two CPD units

Public Sector Seminar in association with the IPA September Public Sector Forum Various Speakers Venue TBC

Business Leaders’ Forum Breakfast 4 October 07.30 – 9.00 Business Leaders’ Forum Nigel Robbins, UTV Media Merchant Hotel, Belfast Two CPD units

CORK US GAAP Update 14 September 09.30 – 16.30 Corporate Sector Chris Nobes, University of London Clarion, Lapps Quay Seven CPD units Enterprise Schemes and Grants 25 September 18.00 – 20.00 Munster/Connaught Members’ Network Carol Grogan, Camplex Ltd Clarion, Lapps Quay Two CPD units Trends In Technology 11 October 18.00 – 20.00 Munster/Connaught Members Network Damien Mulley, Mulley Communications Clarion, Lapps Quay Two CPD units

Managing the Over-Geared Business 11 September 18.15 – 20.15 Leinster Members’ Network Mick McAteer, Grant Thornton Radisson Blu Royal, Golden Lane Two CPD units The new FRS: the replacement for UK/Irish GAAP 13 September 09.30 – 16.30 Corporate Sector Chris Nobes, University of London Radisson Blu Royal, Golden Lane Seven CPD units The Future of The Funds Industry 19 September 16.00 – 20.00 Financial Services Network Gibson Hotel, Point Village Various Speakers Four CPD units Tax Compliance and Topical Updates for the Corporate Office 20 September 09.30 – 16.30 Corporate Sector Paul Murphy, MJ Kelly & Co Gibson Hotel, Point Village Seven CPD units

BOOK ONLINE AT http://irelandbookings.accaglobal.com/

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The Future of Pensions – How to Plan and Invest for Retirement 26 September 18.15 – 20.15 Leinster Members’ Network Conail Flynn, Grant Thornton & Shane Gill, Key Capital Private Gibson Hotel, Point Village Two CPD units Business Breakfast 27 September 07.30 – 9.00 Business Leaders’ Forum Brendan Burgess, askaboutmoney.com Westbury Hotel, Dublin 2 Two CPD units Employee Rights and Employer Duties 3 October 18.15 – 20.15 Leinster Members’ Network Ronan Cosgrove, BL Hilton Hotel, Charlemont Place Two CPD units Compliance for Financial Services 10 October 18.00 – 20.00 Financial Services Network Clarion Hotel, IFSC Kevin O’Doherty, Compliance Ireland Two CPD units Cashflow Management and Debt Collection 11 October 09.30 – 16.30 Corporate Sector Tom Murray, Friel Stafford Corporate Recovery Gibson Hotel, Point Village Seven CPD units

DUNDALK People, Problems and Productivity – The top HR Issues and how to deal with them 20 September 18.00 – 20.00 Leinster Members’ Network Terry Harmer, NLC Training Crowne Plaza Two CPD units

GALWAY Enterprise Schemes and Grants 6 September 18.00 – 20.00 Munster/Connaught Members’ Network Carol Grogan, Camplex Ltd Menlo Park Hotel Two CPD units Best Practice in Cash Management 25 September 18.00 – 19.00 Munster/Connaught Members’ Network Paul Hogan & Niall McCarthy, AIB Menlo Park Hotel One CPD Unit

LIMERICK Practitioners’ Conference 3 29 September 09.30 – 16.30 Practitioners’ Network Carlton Castletroy Park Hotel Various Speakers Seven CPD units Trends in Technology 3 October 18.00 – 20.00 Munster/Connaught Members’ Network Damien Mulley, Mulley Communications Clarion, Steamboat Quay Two CPD units

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ACCA Approved Employer

SLIGO Bankruptcy 4 September 18.00 – 20.00 Munster/Connaught Members’ Network Tom Murray, Friel Stafford Corporate Recovery The Glasshouse Two CPD units HR Tips and Management Skills 9 October 18.00 – 20.00 Munster/Connaught Members Network Chris McDonagh, CMD Training The Glasshouse Two CPD units

TRALEE Members’ Evening 2 October 18.00 – 20.00 Munster/Connaught Members’ Network Various Speakers Institute of Technology Tralee Two CPD units

WATERFORD Employment Law 5 September 18.00 – 20.00 Munster/Connaught Members’ Network Deirdre McHugh, 353 Management & Legal Training Services Tower Hotel Two CPD units Activity Based Costing – From Manufacturing to Services 10 October 18.00 – 20.00 Munster/Connaught Members Network John Doris, Meridian Business Advisors Tower Hotel Two CPD units

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The view from:

Dublin: Barbara Mangan, human resources manager, LHM Casey McGrath Q Tell us about your role in LHM Casey McGrath? A As the human resources manager in LHM Casey McGrath, I am responsible for aligning HR activities, including organisational development, with the overall goals of the practice. Within this role, I also provide HR advisory services to a number of external clients. In the current economic climate, more and more clients are seeking independent advice with regard to the legislative and practical HR challenges they are faced with in their business. Q What are your key business challenges in the year ahead? A Sourcing talented graduates and experienced professionals with the skills and capabilities needed to support our strategic development will continue to be a key business challenge in the year ahead. Q How do you plan to overcome them? A We are continuing to develop our online and social media capabilities to not only raise awareness of developments within the firm but also to highlight opportunities in terms of recruitment and the sourcing of candidates. Creating a challenging and rewarding work environment has not only allowed us to attract experienced professionals but also provided tremendous opportunities for staff to develop their career from within the firm. Providing such an environment and resulting opportunities is a fundamental part of our growth strategy. Q How does the ACCA Approved Employer Programme help you achieve your goals? A Being a Platinum accredited practice has always been a significant factor in our ability to attract talented graduates and experienced professional staff. For any candidate seeking a role in practice, regardless of their experience or qualifications, a firm with Platinum accreditation will clearly demonstrate to candidates the attitude, practical training and support provided by the firm, which is essential throughout their ACCA careers.

Dublin

*FAST FACTS *

Commute time A 45-minute walk

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Holidays this year Paris

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Currently reading Steve Jobs by Walter Isaacson

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Favourite restaurant L’Ecrivain

WE WANT YOUR VIEW If you’d like to feature on this page get in touch at donal.nugent@accaglobal.com

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ACCA news

SEEING AFRICA IN A NEW LIGHT At the biennial ACCA Council meeting held this year in Kenya, members discovered a continent that is open for business and ready to usher in a golden era ACCA’s 36-strong Council came to East Africa in June to discuss opportunities and challenges for the accountancy profession. The biennial meeting in Nairobi, Kenya, followed by separate visits to meetings in Ethiopia, Tanzania and Uganda, reflected Council’s desire for a clearer understanding of the rapid economic and business developments in Africa. ‘The only way to do this is to be here and to be here now,’ said ACCA president Dean Westcott at the gala dinner in Nairobi. ‘This way we can see first-hand how professional accountants working here create public value. And by public value, we mean working in the public interest, promoting responsible and ethical business, and supporting enhanced global economic performance.’ ACCA chief executive Helen Brand said: ‘As our governing body, Council is elected and consists of voluntary members who possess a global outlook that can only benefit further by meeting together in Kenya.’ The chief guest at the gala dinner was Dr James Mwangi, chief executive of Equity Bank in Nairobi. Mwangi made headlines recently when he was awarded the title of Ernst & Young World Entrepreneur of the Year 2012. As finance director and then chief

IEBC commissioner Albert Bwire, ACCA president Dean Westcott, ACCA deputy president Barry Cooper, and Uchumi Supermarkets CEO Jonathan Ciano (left to right) executive of Equity Bank, Mwangi grew the business from a small microfinance house that was ‘technically insolvent’ into Kenya’s largest bank. It is now a listed company and responsible for more than half of all bank accounts in Kenya.

Jamil Ampomah, ACCA director of sub-Saharan Africa

*AB AFRICA: SPECIAL EDITION

To mark the Council meeting in Africa, ACCA’s monthly magazine Accounting and Business published an Africa Special Edition. It is packed with interesting articles, which were highlighted by ACCA president Dean Westcott in his speech at the gala dinner. ‘It is a riveting read that’s challenged my thinking on a number of issues,’ he said. The editors include Alvin Chikamba, head of policy for sub-Saharan Africa at ACCA. It also includes a view from Japheth Katto FCCA, CEO of the Ugandan Capital Markets Authority and board member of the International Federation of Accountants. You can read the Special Edition at www.accaglobal.com/ab

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Also among the gala dinner guests were Rosemary Gituma and Abdulwahid Aboo, council members of the Institute of Certified Public Accounts of Kenya (ICPAK), as well as Vickson Ncube, CEO of the Pan African Federation of Accountants. ACCA has a long history of working in partnership in Africa, said Westcott, with learning providers, ICPAK, KCA University and Strathmore University. With the opening of new offices and a growing number of members, ACCA’s presence has increased rapidly in Africa. Member numbers stand at nearly 10,000 for sub-Saharan Africa, and some 82,000 students. ‘This growth could not have been achieved without the partnerships and alliances we have forged here,’ Westcott added. Members across Africa are supported by a team of full-time staff based in 11 African countries, from Botswana to Zimbabwe, and ACCA’s many partners. Africa’s businesses are becoming increasingly important international trade partners and its markets are increasingly attractive as an international trade proposition, said Westcott. ‘This is why professional accountants have a significant role to play in capacity building in Africa.’

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Referring to the report Making Capital Markets Work in Emerging and Frontier Economies (see box), Westcott drew guests’ attention to the Uganda Capital Markets Authority’s financial literacy work. The body is running a programme to train journalists in financial issues and how to report on capital markets without jeopardising or compromising their professional standards or journalistic independence, he said. ‘As ACCA members have told me, it is time for ACCA and the business world globally to see Africa in a new light. The continent’s economy is growing strongly and its prospects are bright, but it also faces significant challenges.’ As well as new member ceremonies, an employers’ roundtable was held in Ethiopia on the theme of ‘the role of finance professionals in an emerging economy’. There was also an event in Tanzania to launch the two reports on capital markets, while Uganda was the location for an event to discuss the issues relating to effective financial management and transparency. Jamil Ampomah, ACCA director of sub-Saharan Africa, said: ‘It is important Council members from all over the world come to Africa and understand the issues their Council colleagues face here on this continent.’ ‘We will be taking our learning, our understanding and the expertise gained while we have been here back to our own countries,’ said Westcott, ‘to spread the word that Africa is open for business and this is a golden era for Africa.’ Lesley Bolton, international editor

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Above: James Mwangi, Equity Bank chief executive Above right: Westcott on set with NTV host Dan Mwangi Right: Helen Brand, ACCA chief executive Far right: Alvin Chikamba, ACCA head of policy for sub-Saharan Africa

*CAPITAL MARKETS REPORTS UNVEILED

Two reports – The Rise of Capital Markets in Emerging and Frontier Economies and Making Capital Markets Work in Emerging and Frontier Economies – were launched during ACCA Council’s visit to East Africa. The Rise of Capital Markets reviews the academic literature on the development of capital markets, while Making Capital Markets Work is a collection of first-hand accounts and case studies from senior managers and professionals who are spearheading market development. Speaking at the press conference in Uganda, ACCA president Dean Westcott said: ‘Capital markets play an important role in promoting robust economic activity. Emerging capital markets are clearly an increasingly important source of finance to business. Broadening participation in company ownership, especially where the needs of minority shareholders are concerned, requires clear corporate governance, a responsiveness to the many needs of investors, consideration of independent representation on the company board, and transparency of decisionmaking in the interests of all investors and wider stakeholders.’ ACCA believes that capacity building around financial systems is essential. It allows capital markets to enable the most promising businesses – both large and small – to source funds more cheaply and reliably than would otherwise be possible. But in order to do this, these businesses need access to reliable financial information, which in turn depends on the skills and competences of professional accountants. Westcott concluded: ‘Our reports show that the perceived strength of accounting and auditing standards is a leading indicator of the health of capital markets and a strong predictor of their ability to drive economic growth.’ Both reports can be viewed at www.accaglobal.com/access

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Beep192x260.indd Beep 210x293.indd 1 SIMI 1

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22/03/2012 13:50 21/05/2012 15:35:43

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ACCA news

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FREE APP PROFILES RISK

ACCA has launched an iPad app that explores crucial trends and issues for business, economies and the accountancy profession. You can find it at www.accaglobal.com/insightsapp or by searching for ‘ACCA Insights’ in the iTunes App Store. It includes video interviews and podcasts from leading experts, interactive infographics and ACCA research findings. The first edition of the app also looks at how accountants in a wide range of roles contribute to managing risk. ACCA has also introduced a new Student Planner app, available free at the iTunes App Store.

COOPER SCOOPS HONOUR

ACCA deputy president Professor Barry Cooper FCCA has been awarded life membership of the Accounting and Finance Association of Australia and New Zealand (AFAANZ), the organisation that represents all accounting and finance academics in Australia and New Zealand. The prestigious award was made for his outstanding and exceptional contribution to AFAANZ, of which he has been both treasurer and Australian president. His work included the re-engineering of the body’s finances. Cooper is head of the School of Accounting, Economics and Finance at Deakin University in Geelong, Australia.

CAST YOUR VOTE AT ACCA AGM

ACCA’s 107th annual general meeting (AGM) will take place on Thursday 20 September at 13.00 BST (12.00 GMT). The annual report and AGM papers can be accessed online at www. accaglobal.com/agm As usual, all members have the option of voting online. You will have been provided with your voting codes electronically or with the AGM papers posted to you. Visit www.accaglobal.com/vote to cast your vote.

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CORPORATE GOVERNANCE

The Executive Committee of ACCA Ireland has undertaken a major review of corporate governance arrangements over the past number of months. The purpose of the review was to ensure that ACCA Ireland follows the highest standards of governance as set by Council and to promote higher levels of engagement with members in Ireland. Following this review, the Executive Committee endorsed the new Constitution and recommended its adoption by members. At a Special General Meeting held in Dublin on 16 August, members voted to adopt a new Constitution with immediate effect. The key changes in the new constitution are as follows: * Separate Members’ Networks in Munster and Connaught * New Members’ Network for the Business Leaders’ Forum * Maximum term of nine years’ service on Panels and Ireland Committee * Title ‘ACCA Ireland Committee’ to replace ‘Executive Committee’ * Title ‘ACCA Ireland Chairman’ to replace ‘President’ in 2015 Nominations for the nine places on each panel will be sought in October and elections will be held in November. The new panels will meet in January/ February 2013 with the new committee meeting for the first time in March 2013. If you are interested in standing for any of the panels, please signal your interest now by contacting Luke Brockie, head of Members’ Services at 01 49 88 903 or luke.brockie@accaglobal.com

ACCOUNTING FOR THE FUTURE

ACCA is holding a worldwide event next month exploring the role finance professionals will play in developing a more sustainable global economy. Members joining the online interactive event, to be held from 8 to 12 October, will be given access to the latest research in accounting and finance. They will also be able to watch, hear and question experts who will be sharing the latest insights on how businesses need to adapt to meet the future needs of stakeholders, regulators, the economy and the environment. Registration is straightforward and will allow access to a variety of sessions that will develop knowledge and contribute towards CPD. www.accaglobal.com/accountingforthefuture

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ACCA news (Left to right) Liz Hughes, head of ACCA Ireland, Cian McComb and Jitka Pechancova

Inside ACCA 65 ACCA News 62 Africa is open for business

IRISH STUDENTS TOP OF THE WORLD

Cian McComb working for Ernst & Young, a distance learning student of BPP, came first in the world of 23,316 students in Paper P1 - Governance, Risk and Ethics. Jitka Pechancova, a student of Griffith College Limerick, came first in the world in Foundations in Accountancy (FiA) paper, Foundations in Financial Management. In all, 2,594 students sat this paper. Commenting on their success, Liz Hughes, head of ACCA Ireland, said that ‘for any student, coming first in the world is a massive achievement and having two students from Ireland coming first in the world in their respective exams is exceptional and a testament to the hard work put in by both Cian and Jitka. It highlights the high standard of teaching, quality of courses and the calibre of student we have here in Ireland’.

61 ACCA Approved employer Q&A

SUSTAINABILITY AND

CAPITALISM INVESTOR ENGAGEMENT

STANDARDS FOR BUSINESS

ACCOUNTANCY FUTURES

ACCOUNTING FOR THE FUTURE

08-12 OCTOBER 2012

I EDITION 05 I 2012

ONE WEEK, GLOBAL, LIVE AND ON-DEMAND ACCA’s Accounting for the future is a worldwide event exploring the role finance professionals will play in building a stronger and sustainable global economy. ACCA champions the connected accountant, and over fi ve days we will harness the latest technology to bring together finance professionals from around the world to share and learn from their peers. Our experts will share the latest insights on how businesses and the corporate sector need to adapt to meet the future needs of stakeholders, regulators, the economy and the environment. The event will be brought to you via live webinars and on-demand sessions and you can participate in events taking place around the world. To register, and for further information, visit www.accaglobal.com/accountin gforthefuture Topics to be covered include:

*sustainability *investor engagement *corporate reporting *risk management *valuation

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29 Lincoln’s Inn Fields

1

CORPORATE REPORTING

RISK MANAGEMENT

ACCOUNTANCY FUTU RES

CRITICAL ISSUES FOR

TOMORROW’S PROFESSION

I EDITION 05 I 2012

RIO CALLING

GLOBAL BUSINESS AND

THE SUSTAINABILITY LANDSCAP E

IFRS

START ON THE SHOP

RESEARCH AND INSIGHTS

FLOOR

IPAD APP

ACCA’s Research and Insights iPad app gives you access to the findings of the risk management survey of our members and explores what integrated risk management looks like in practice. You can download our iPad app for free via www.accaglobal.com/ri_app, or just search for ‘ACCA Insights’ in the iTunes App Store.

London WC2A 3EE United Kingdom +44 (0)20 7059 5000 www.accaglobal.c om

PLUS: AL GORE I SIR RICHARD BRANSON I YVO DE BOER CLIMATE CHANGE AND I VIETNAM’S FINANCE THE ARCTIC I FINANCE MINISTER I AFRICA I TRANSFORMATION I THE IFRS AND THE TOWER OF BABEL I THE FUTURE BUSINESS OF SPORT I OF TAX I EXECUTIVE PAY I CHINA I INDIA I TURKEY

11/06/2012 11:48

The latest edition of ACCA’s Accountancy Futures journal, looking at current and future issues affecting business and the accountancy profession, is now available at www. accaglobal.com/ futuresjournal

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Evolving links with China Joyce Huang (right) ACCA Chengdu office, China, is pictured with Liz Hughes, head of ACCA Ireland, and Andrew O’Callaghan, PwC Irish China Practice, as ACCA Ireland welcomed a delegation of 22 programme directors, professors and lecturers from 13 of the top Chinese universities that, collectively boast a student population of 363,000. The Chinese delegation was visiting Ireland as part of a study trip, which is to allow ACCA’s tuition providers in Ireland - BPP, Dublin Business School, Griffith College and Independent Colleges - to showcase their teaching methods and share their knowledge and experience of teaching both Irish and international students. The visit opens up the potential for Irish lecturers to travel to China to work with local lecturers and students.

24/08/2012 10:13

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22/08/2012 15:18:11 23/08/2012 14:06

THE MAGAZINE FOR BUSINESS AND FINANCE PROFESSIONALS

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IE AB IE.AB ACCOUNTING AND BUSINESS 09/2012

CPD

IS THE PRICE RIGHT? HOW CFOS CAN HELP LIFT PROFITS

UNJUST ENRICHMENT LEGISLATING FOR A COMPLEX TOPIC

GLOBAL ECONOMIC SURVEY THE NEW GLOOM BEYOND THE BOILERPLATE THE VALUE OF AUDITORS’ REPORTS INSOLVENCY BILL TAKES SHAPE THE IMPACT ON PRACTITIONERS

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ACCOUNTING AND BUSINESS IRELAND 09/2012

RESTORING REPUTATION THE TAOISEACH TALKS TO AB

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23/08/2012 14:06


AB IE (Irish edition) – September 2012