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The secret of Generation Z A new era in ethical leadership A successful programme for internal auditing

Supporting digital transformation



In this issue Contributors


News and views


Members news


Meet the team


FRC publishes annual report as the transition to a new regulator progresses New and updated AIA Sanctions Handbook 2019


Internal auditing


A calendar for success Amy Hodgetts explains why your company needs a successful programme for internal auditing.


Human resources


The secret of Generation Z The millennials are here, and Generation Z is coming, say Elizabeth Jones and Lia Rodgers. What does that mean for our approach to management?

13 Business management



From student to fully qualified accountant It’s quite a journey, but AIA is here to support and guide you every step of the way.



A cultural transformation Jules Carman explains the importance of building a culture that supports digital transformation.

22 Ethics


A new era for ethics Exploring the new International Code of Ethics for Professional Accountants 2: Professional Accountants in Business and Ethical Leadership.




Editor Rachel Rutherford E: T: +44 (0)191 493 0281

International Accountant Staithes 3, The Watermark, Metro Riverside, Newcastle Upon Tyne NE11 9SN United Kingdom

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Global Business Complexity Index Emine Constantin explains the key trends influencing the global developments in accountancy and tax.

Leadership in small businesses Management consultant Nick Bettes considers the leadership behaviours which small business owners can employ to maximise their success. Editorial Information International Accountant, the bimonthly publication of the Association of International Accountants (AIA).

International tax

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AIA does not guarantee the accuracy of statements made by contributors or advertisers or accept responsibility for any views which they express in this publication. ISSN: 1465-5144 Š Copyright Association of International Accountants


Editor’s welcome

Contributors to this issue

Editor’s welcome


Nick Bettes is a management consultant, business coach and author who works with the owners of small businesses. Before setting up his own consultancy, he held senior positions in a number of larger businesses.  JULES CARMAN

Jules Carman is head of digital transformation for accountancy at Sage, the leader in business software. She is a member of the board of directors for the Information Technology Alliance.


embers and students will have noticed that the 2019/20 membership subscription has been applied to their account. Renewals were due by the 1 October and, if you have not already done so, I would urge members to submit their membership renewal as soon as possible to ensure that they remain compliant and continue to receive all associated member benefits. In recent months, AIA have continued our work with government, other professional bodies and regulators in the UK and European Union to ensure that we can prepare our members, and they in turn can prepare their clients and businesses for Brexit. There will be changes ahead, and there may also be many opportunities, but those businesses that operate within the EU or have an EU supply chain need to make appropriate assessments and preparations as soon as possible and should start by reading the guidance that we have circulated to members. AIA have also issued a new and updated Sanctions Handbook. The purpose of imposing sanctions is to


Rachel Rutherford Editor, IA

protect the public interest, uphold proper standards of conduct in the profession, correct and deter misconduct by members, and maintain the reputation of the profession in general and AIA more specifically. The Handbook has been updated to provide greater clarity on the decisionmaking process behind sanctions applied to members, expands the range of available sanctions and contains revised sanctions for breaches of the anti-money laundering regulations to reflect their serious nature. In this issue of International Accountant, we look at how accountants can embrace the digital transformation that is moving at speed across all aspects of the profession, examine the integral link between good leadership and business results, consider the critical role of internal auditing in optimising performance, and take an in depth look at how accountants are continuing to cope with local complexities in accounting and tax as global harmonisation fails to gather pace. We also have the second article, which follows on from the last issue, exploring the new International Code of Ethics for accountants – a must read for all finance professionals.


Emine Constantin an accounting and tax professional with more than 16 years’ experience. She joined TMF Group in 2002 and, prior to becoming Global Head of Accounting & Tax, oversaw the practice area for EMEA. AMY HODGETTS

Amy Hodgetts is a copywriter for Mediaworks, a digital marketing agency. A content writer and web content optimiser, Amy has a strong foundation in writing. ELIZABETH JONES

Elizabeth Jones has been a writer for over 13 years. Her career spans countless advertising agencies and global businesses, including Google, Skype and HSBC. LIA RODGERS

Lia Rodgers recently graduated from the University of Birmingham. For the last month, she has been interning at AccountancyManager. ISSUE 107 | AIAWORLDWIDE.COM



FRC publishes annual report as the transition to a new regulator progresses

The statistics behind cyberhacking

●● Enforcement resourcing up by 25% ●● Investor Advisory Panel established

The Financial Reporting Council (FRC) has published its annual report for 2018/19, setting out its progress against commitments to tackle poor quality audit work, boost enforcement resourcing and improve the quality of reporting. During the year, the FRC substantially revised the UK’s Corporate Governance Code and consulted on an overhaul of the UK Stewardship Code to ensure that both Codes are fit for purpose, better aligned and reflect today’s challenges. Work undertaken in 2018/19 also laid the foundations for the FRC’s transition to a new, more powerful regulator, following Sir John Kingman’s independent review. Key highlights for 2018/19 include: ●● increasing enforcement resourcing by 25%; ●● rolling out a revised UK Corporate Governance Code and consulting on an overhaul of the UK Stewardship Code; and ●● establishing the Investor Advisory Panel to complement the FRC’s existing stakeholder outreach activities with investors. Sir Win Bischoff, Chairman of the FRC, said: “Our latest annual report

Sir Win Bischoff, Chairman, Financial Reporting Council

reflects the FRC’s commitment to delivering high quality audit, corporate governance and financial reporting, which remain vital to the success of our market economy. To achieve this, we have boosted enforcement resources, maintained a priority on tackling poor quality audit work and raised the bar on corporate reporting. 2018/19 also led to an independent review of the FRC, which we fully supported, and has contributed to our eventual transition into a new regulatory body.” The FRC’s annual report was laid before Parliament on 5 September 2019.


Record money laundering fine issued by HMRC On 4 September, the fight against money laundering took a significant step forward, as HM Revenue and Customs announced a record fine of £7.8 million against a London high street foreign exchange bureau for breaching strict regulations, which could have left it at the mercy of criminals looking to wash dirty cash. AIAWORLDWIDE.COM | ISSUE 107

West London money transmitter Touma Foreign Exchange Ltd ignored anti-money laundering regulations and received a £7.8 million penalty. The company was fined by HMRC for a wide range of serious failures under the Money Laundering Regulations. Between June 2017 and September 2018, the business breached rules on: ●● risk assessments and associated record-keeping; ●● policies, controls and procedures; ●● fundamental customer due diligence measures; and ●● adequate staff training.

Nearly two-fifths of European businesses have knowingly fallen victim to a cyberattack in the last five years, with 64% admitting that they may have been hacked unknowingly, according to a new report by RSM, the leading middle market audit, tax and consulting network. This is compounded by a sense of apathy and acceptance, as 62% of respondents believe that hackers are more sophisticated than security software developers. The research, which was conducted for RSM by the European Business Awards, surveyed 597 business decision makers across 33 European countries, and suggests that employees are the weak link in many European businesses. Almost half (46%) of successful attacks targeted employees via emails, in a practice known as phishing, with 22% of businesses still providing no cybersecurity training to their staff. Despite the European General Data Protection Regulation (GDPR) requiring firms to report certain types of data breach within the first 72 hours of detection, 75% of hacks never become public knowledge, with just 23% of businesses choosing to inform the regulator following a breach. Although reputational damage is a key concern for respondents, genuine confusion appears to be driving the lack of transparency, with a third (34%) admitting that they do not understand the circumstances in which they would need to report a breach. 80% of European businesses report that digital transformation is a strategic priority for their growth. It is concerning to find that just 34% of businesses have a cybersecurity strategy in place which they believe will protect them from cybercrime, while 21% have no strategy at all. Despite this, middle market businesses remain resilient in the face of cyber risk, with 86% saying that the increased risk of cyberattacks has not dissuaded them from investing in digital transformation, and 29% of businesses seeing their revenue grow as a result of digital investments with cloud technology the biggest area of focus.



Hong Kong’s anti-money laundering work praised The Hong Kong government welcomed the international community’s recognition of Hong Kong’s efforts in combating money laundering and terrorist financing as the Financial Action Task Force published the Mutual Evaluation Report of Hong Kong. The report assessed the compliance and effectiveness of Hong Kong’s anti-money laundering and counter-terrorist financing regime against the international standards. It confirmed that Hong Kong has a strong legal foundation and effective system for combating money laundering and terrorist financing. The report noted that the system is particularly effective in the areas of risk identification, law enforcement, asset recovery, counterterrorist financing and international co‑operation. Hong Kong’s anti-money laundering and counter-terrorist financing regime is assessed to be compliant and effective overall, making it the first jurisdiction in the Asia-Pacific region to have achieved an overall compliant result in the current round of the evaluation. The task force and the AsiaPacific Group on Money Laundering jointly conduct mutual evaluations to assess member jurisdictions’ anti-money laundering and counterterrorist financing regimes against the international standards and publish reports on the outcomes.

Ireland announces Budget 2020 strategy ●● No-deal preparation is sensible ●● Avoid situations where decisions need to be reversed

The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe, secured government agreement to base the Budget 2020 on the assumption of a no-deal Brexit at the end of October. Three main factors influenced the government’s decision. Firstly, it is important to give certainty to businesses and citizens that the government is prepared for a no-deal Brexit and stands ready to support the economy in such a scenario. Second, it is important to safeguard the hard won progress of recent years in stabilising the public finances. Given the uncertainty regarding the timing and format that the UK’s exit will take, preparing for a no-deal scenario is the most sensible approach. The final factor is the need to avoid a situation in which decisions made in the Budget might need to be reversed in future. Assuming a no-deal Brexit ensures that the government has the necessary resources at its disposal to meet the impact of this exceptional challenge, whilst preserving the longerterm sustainability of the public finances. The Summer Economic Statement 2019 (SES), published in June, set out two scenarios: the first involved an orderly exit of the UK, while the second involved a disorderly exit. In both scenarios, the government committed

Julien warnand/epa-efe/shutterstock


Paschal Donohoe, Minister for Finance and Public Expenditure and Reform

to a budgetary package of €2.8 billion: €2.1 billion has already been precommitted to expenditure measures as outlined in the SES, leaving €0.7 billion for further allocation. The government highlighted in the SES that it would decide in September which scenario would form the basis for Budget 2020. Given the lack of clarity regarding the timing and format of the UK’s exit, and that the budget is just four weeks away, a decision was taken by the government that the budget would be formulated on the basis of a disorderly exit. The approach being adopted by the government to Budget 2020 involves a ‘twin-track’ approach, namely: ●● funding services and making progress on particular policy areas; and ●● supporting sectors and regions most exposed to Brexit-related disruption.


APEC steps up promotion of cross-border privacy rules APEC economies, data privacy regulators, and other stakeholders are exploring ways to bolster the Cross-Border Privacy Rules (CBPR) system. Endorsed by APEC leaders, the CBPR system establishes enforceable, binding commitments to safeguard consumers’ personal information and foster growth of the digital economy. Data protection is an increasingly important public policy issue, partly


due to the massive growth of the digital economy. Online retail activity continues to surge, growing more than 9% in 2017. Every year, consumers across APEC’s 21 economies purchase approximately $1 trillion in goods and services online – about half of global e-commerce. The CBPR system enables companies to certify compliance with the commonly agreed rules – 50 specific programme requirements

– based on the APEC Privacy Framework. CBPR expansion already includes eight APEC economies and three members have fully implemented the system with approved Accountability Agents. Economies appoint Accountability Agents to work closely with companies seeking certification and facilitate dispute resolutions with consumers. ISSUE 107 | AIAWORLDWIDE.COM

AIA News




Accounting and audit for a no deal Brexit AIA has been working hard with government, other professional bodies and regulators in the UK and European Union since 2016 to explore how Brexit will effect members and – just as importantly – their clients. During a recent meeting with the Department for Business, Energy and Industrial Strategy, AIA discussed the mutual recognition of professional qualifications across Europe and what Brexit means for the accountancy and audit professions. Mutual recognition and equivalence in an international financial framework are key to minimising disruption, facilitating trade and ensuring that members of professional bodies – and their firms – conducting business across borders face minimal barriers. To prepare for the challenges and opportunities presented by Britain exiting the European Union with or without a negotiated agreement, AIA members should regularly review the government’s guidance for the accountancy and audit sectors at accounting-if-theres-no-brexit-deal. AIAWORLDWIDE.COM | ISSUE 107

Transparency is vital for a robust and healthy economy. However, there is substantial evidence of companies registered with Companies House being used to facilitate money laundering through a combination of simple incorporation and inadequate due diligence. Despite recent improvements to the UK’s corporate transparency framework, legal entities are still vulnerable to abuse by money launderers. The Department for Business, Energy and Industrial Strategy (BEIS) has this month closed the Corporate Transparency and Register Reform consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities. These steps are part of a plan to mitigate the risk of corporate structures being used to launder the proceeds of corruption and organised crime, including where the structures are operated and controlled overseas The AIA has responded to the consultation published in May 2019 on behalf of our members and in the wider public interest. As a professional body supervisor under Schedule 1 of the Money Laundering Regulations 2017, we supervise and monitor accountants for compliance with the regulations and act where necessary to remove the benefits of non-compliance and deter future non-compliance. Overall, AIA argues that these reforms should work to improve transparency and strengthen the fight against fraud and money laundering. The reforms suggest a positive step forward towards improving the accuracy of the information held at Companies House and combating



AIA proposes transparency focused reforms

economic crime. There could, however, be additional burdens raised on businesses regarding identity verification and filing, which may increase costs both in terms of time and money. The proposed reforms are arguably the most significant since the UK company register was created in 1844 and therefore due consideration should be given to the timescales required to pass legislation that will include appropriate sanctions for individuals or companies failing to adhere to additional filing and verification regulations. The reforms will require significant amendment to the existing Companies Act 2006 and a radical overhaul of the current Companies House structure and practices. Substantial practical implications could be experienced by individuals with a responsibility for administering or filing on behalf of companies in the UK. AIA stresses that the proposed reforms should not place a prohibitive burden on users of Companies House that would affect both the cost and timing of processing documents, applications and registrations: a significant implementation period will be required. AIA considers that most of the changes proposed within the consultation are necessary to ensure that the UK further improves its reputation for corporate transparency and retains its global status as a trusted, transparent place to do business.




New and updated AIA sanctions Handbook 2019

AIA operates a range of sanctions imposed on members relating to the seriousness of misconduct, the level and history of non-compliance and the risk posed to the interests of the public and the integrity of AIA’s reputation. The AIA Sanctions Handbook is used by AIA disciplinary committees for all complaints and non-compliance referrals they consider. AIA operates an effective and proportionate enforcement policy,

applied in a fair and consistent manner. This new and updated guidance (effective from 19 September 2019) sets out the methodology followed by all committees involved in AIA’s disciplinary process, providing a structured approach to decision making and a transparent range of penalties and orders. In addition, it provides greater clarity on the decision making process



300 Businesses unite behind Northern Powerhouse AIA is a proud and active partner of the Northern Powerhouse, which brings together 300 businesses and organisations with a shared goal of boosting the northern economy by investing in skills, innovation, transport and culture. But what does this mean for the AIA and our members? Firstly, it means AIA is working directly with ministers and other Northern Powerhouse partners to influence government policy to ensure that it supports innovation and growth in the northern economy, alongside a thriving private sector and a highly skilled population. Working alongside other Northern Powerhouse partners, we advocate for business development and financial training capabilities to ensure that the Northern Powerhouse thrives on a solid foundation. Secondly, our members are trained business advisers, with specialist skills


behind sanctions applied to members, expands the range of available sanctions and contains revised sanctions for breaches of the anti-money laundering regulations to reflect their serious nature. The new dedicated section of AML sanctions, and specific breaches, highlights the importance of AIA’s work in the public interest to remove the benefits of non-compliance and deter future non-compliance using a broad range of enforcement tools and powers. Overall, the purpose of imposing sanctions is to: protect the public interest; uphold proper standards of conduct in the profession; correct and deter misconduct by members; and maintain the reputation of the profession in general and AIA more specifically. This means that the public can have confidence that AIA members are appropriately regulated for the work they carry out, with a robust disciplinary process backed up by an effective and transparent sanctions regime.

in the SME sector, and are well placed to spot and grasp the opportunities available to all businesses in the northern economy, whether those businesses are start-ups, expanding, exporting or evolving. AIA is committed to supporting businesses in the Northern Powerhouse on all stages of their growth journey, whether they work locally, nationally or globally and there is enormous potential in being a part of this collaborative effort of government and business. Active participation in the Northern Powerhouse strategy means access to a network of like-minded people, organisations and businesses that are backing business growth right across the north.

AIA subscriptions AIA membership subscriptions are due on 1 October. If you have not paid already, the quickest and easiest method is via your online account, My AIA. Alternatively, if you wish to upgrade your membership, obtain a practising certificate or speak to someone about your account, contact AIA on +44 191 493 0277 or email AIA has teamed up with GoCardless and is now able to accept Direct Debit payments for the disbursement of AIA fees. Direct Debit can be set up on an annual or advanced monthly payment basis. All payments are secure and fully protected by the Direct Debit guarantee. We are currently able to offer this service to members in Austria, Belgium, Finland, France, Germany, Ireland, Luxembourg, Netherlands, Spain, Sweden and the UK. To set up an annual Direct Debit, call on +44 191 493 0276. ISSUE 107 | AIAWORLDWIDE.COM


From student to fully qualified accountant It’s quite a journey, but AIA is here to support and guide you every step of the way.


hether you are a new accountancy student looking forward to attaining your professional accountancy qualification before taking on a career in the finance and accountancy sector, or a mature student looking forward to achieving your professional accountancy qualification so you can further enhance your current career opportunities, it is essential you fully understand what it will take to become a qualified international accountant.

Hard work Dedication Commitment Focus Resilience Adaptability Trustworthiness Motivation Professionalism

Achieve guides your learning and provides you with access to advice, support and feedback from a specialist team of e-tutors.” 8

These are just some of the attributes that will help you as you embark on achieving your goal of becoming a qualified accountant and joining the many thousands of other international accountants around the globe. So, as you look to the next exam session in May 2020, what will help to maximise your chances of success? Why not look through our top tips:

1. Enter the exams at the earliest opportunity and sit them

Always look to enter the exam sessions at the earliest possible opportunity, in order to maximise your study and revision time. We offer two exam sessions every year in May and November, so there are no excuses for not sitting! We provide lots of resources to help you study and give you an idea of how much studying you should be doing, and we strongly encourage you to practise past questions which can be found

within ‘MY AIA’. There is a vast array of resources on hand for you to utilise, so make sure that you set a realistic study plan in order to make full use of everything that is on offer to you. For further information go to: Alternatively, if you don’t want the added stress of working it all out for yourself, look at top tip number 2.

2. Utilise our interactive distance learning study programme

The programme is known as ‘Achieve’ and is designed in collaboration with leading publisher of study materials for professional exams BPP Learning Media. Achieve aims to alleviate unwanted study stress, whilst providing you with a suite of resources targeted to optimising the likelihood of exam success. Achieve guides your learning and provides you with access to advice, support and feedback from a specialist team of e-tutors, ensuring you consistently get the maximum benefit from your study. The programme also offers you mock exams with written feedback, tutor marked practice questions, free to attend webinars, a course e-book and more. ISSUE 107 | AIAWORLDWIDE.COM


All these tools will undoubtedly enhance your chances of exam success, and your personalised study planner will allow you to maintain that healthy work/life balance that you have only previously wished for in the lead up to your exams. Achieve also offers an exclusive interactive discussion forum, helping you to continually stay motivated by communicating with fellow students and accessing supplementary study information. AIA is so confident in the Achieve programme helping you to deliver the exam results you desire that we also offer the ‘AIA Pass Pledge’. This pledge states that if you fail your exam, we will offer you a free exam entry to re-sit the paper at the next exam session*. *In order to be eligible for the ‘AIA Pass Pledge’ you must submit your practice questions on time and achieve 45 marks or more in your mock exam. For further information on Achieve go to:

3. Keep sitting the exams at every session until you qualify

Whether you have passed or failed your previous exam session, you should always enter the next exam session. If you’ve passed, keep up your AIAWORLDWIDE.COM | ISSUE 107

positive momentum, as you are one step closer to your goal. If you failed, think of it like riding a bike. If you fall off, pick yourself up, dust yourself down, get back on and give it another go. It is essential that you don’t lose your enthusiasm; failing is a part of life and it makes us stronger and wiser.

4. Gain work experience and keep a record of it

There’s more to qualifying as an international accountant than sitting the exams, and you’re not fully qualified until you have also gained three years’ work experience, or what we call Initial Professional Development (IPD). You can gain your work experience before, during or after studying for the exams, but if you can it’s a good idea to be working in accountancy while you’re studying, as this will help you to apply what you’re learning in practice. For a complete overview on IPD go to: Follow these top tips and enjoy a smooth and highly rewarding journey to becoming a qualified international accountant. And always remember that we have a friendly Membership Services team on hand to assist you throughout... ●



Leadership in small business

Nick Bettes considers the leadership behaviours which small business owners can employ to maximise their success. Nick Bettes Nick Bettes Consulting

do kin /a to ho kp oc ist



ecent reports, including from the IoD ( and the House of Commons (, refer to the “long tail” of lowproductivity small businesses. The Bank of England estimates that this gap is depressing UK GDP (and the income of business owners) by £270bn ( This article argues that the main reason for low productivity is poor leadership. The owners of small businesses often have no formal management training and are unaware of the principles and advantages of good leadership. Many are also oblivious to the problem; the IoD reports that 80% of business owners rate themselves as average or above average managers, a result that has echoes of similar surveys about sex and driving. ISSUE 107 | AIAWORLDWIDE.COM


Depressingly, 37% of UK business owners are “too busy” to measure the productivity of their company ( In my experience, this ignorance of basic management concepts is widespread amongst the owners of small businesses in the UK. This article describes leadership behaviours that can help businesses to become more productive.

Small business productivity is a leadership problem

Suggested causes for poor productivity include difficulty in accessing finance, lack of innovation and sluggish adoption of technology. Since the opportunities to take advantage of these things are the same for all businesses, good or bad, the underlying cause must be some internal factor common to unproductive businesses. My advisory work with this type of business leads me to conclude that the root cause is simple; the quality of leadership. Whilst some of the papers referenced above identify poor leadership as a factor, they do not see it as the root cause; that is, the key to taking advantage of new technology, accessible finance and so on. AIAWORLDWIDE.COM | ISSUE 107

It is usual to differentiate between “leadership” and “management”; the former being the sexy business of vision, motivation and innovation, whilst the latter is the mundane task of organising things. My experience is that successful leaders are good at both. I have worked with visionaries who have never completed anything, whilst reducing their employees to charred embers. I have worked with business owners whose employees, whilst organised like the Brigade of Guards, had no clue where the organisation was going or why. “Leadership” in the rest of this article includes management.

What do effective leaders of small businesses do?

The short answer is: “Not much”. The slightly longer answer is: ●● They help employees to define the purpose of the organisation. ●● They help employees to decide how to achieve that purpose. ●● They help employees to become accountable for results. ●● They let go. ●● They share the rewards.

Author bio

Nick provides business coaching, consultancy and training, with a flexible, straightforward approach to helping business owners.


MANAGEMENT Two caveats: Firstly, this is presented as a finite linear sequence. In practice, the process is messy, iterative, fragmented and never ends. Secondly, no business owner of my acquaintance has ever “finished” this or become the leadership ninja implied. However, just embarking on this route will begin to transform the productivity of a business.

Help employees define the purpose of the organisation

One of my clients announced that he had “created a vision.” When I asked him if his staff had found it a useful exercise, he said: “Oh I haven’t got time to involve them – nor have they.” He had rather missed the point of the exercise – to engage the staff in creating an organisational purpose that they feel part of. Leaders create fun, non-threatening ways to involve staff in big business decisions. Leaders also recognise that if the purpose of the organisation is to be shared, then it can’t just be the owner’s purpose. She must give some of her vision up in order to make space for what her employees believe and want.

Help employees decide how to achieve the purpose

People will start to believe in the vision when it begins to turn into action. How is the business going to win? What is its competitive strategy or secret formula? What hurdles need to be overcome and what changes need to be made? This is usually called a strategy but, once again, the leader recognises that it is the process, and involving employees in that process, that matters, not the result. I could make a case for the actual strategy being almost irrelevant; if you have everyone wanting it to succeed and believing it will succeed – you will succeed. Good leaders are not precious about their strategy; they are precious about involving and developing their people. Success needs to be defined. Often, the start point will be financial outcomes, but these must be translated into measurements that are relevant to the strategy and a basis for action: how many sales, how quickly support calls are fixed, billing ratio, target delivery times and so on.

Help employees become accountable for results

Strategy is executed by people. Leaders find a way to transfer accountability for a business result to an employee who is willing and able (or has the potential) to take that responsibility. In almost all small businesses, roles are ill-defined or not defined at all. Measures of success (that is, desired outcomes) are not agreed or are so woolly that it is impossible to decide whether they have been achieved or not. Just clarifying these things will improve productivity. Leaders go beyond this to help employees to develop a sense of ownership for their results based on their contribution to the shared purpose.


People will start to believe in the vision when it begins to turn into action. How is the business going to win? What is its competitive strategy or secret formula?”

That sense of ownership is used by leaders to encourage employees to understand and document their processes, to develop quality controls and embark on continuous improvement.

Let go

Business owners have trained themselves and all their employees to believe that the owner must make all the decisions. They will often control administrative tasks such as invoicing in order to “avoid mistakes” or so they “know what is going on”. Their psychological need to do this is reinforced by a belief that employees “don’t care as much as me” or “don’t use common sense”. It is not difficult to see the self-fulfilling nature of this mindset. Leaders see it as their job to delegate everything, including decision making. They also understand that this doesn’t mean abandoning employees to their fate. They know delegation is a planned and controlled process designed to ensure success. Part of this process is capturing the way the current experts do things, through process documentation, checklists, training and coaching. Letting go requires management information – usually completely absent in small businesses where the owner manages by making every decision and checking every sheet of paper. Delegation needs data that supports performance reviews, decisions and management by exception.

Share the rewards

Effective leaders understand that money does not motivate people, but a perceived lack of fairness and recognition will demotivate them. If the organisation’s purpose is to be truly shared, then the benefits of achieving that purpose must also be shared. This does not mean that everyone gets paid the same as the owner (although there are examples of extraordinary generosity in high-performing businesses). It does mean that the financial benefit of more productive, accountable employees should be recognised.


The low productivity of many small businesses is costing the owners, their employees and the country billions of pounds each year. The main cause of this low productivity is poor leadership. Many business owners don’t recognise they have a problem, or don’t see their leadership as being a cause. The leaders of more productive businesses understand that their role is to get things done by others, by creating a shared purpose with accountable, motivated employees and then delegating as much as possible. Achieving this is an open-ended, iterative and sometimes messy process that requires sustained effort; however, just starting it can deliver immediate and tangible productivity benefits. ● ISSUE 107 | AIAWORLDWIDE.COM



The secret of Generation Z The millennials are here, and Generation Z is coming, say Elizabeth Jones and Lia Rodgers. What does that mean for our approach to management?


illennials make up almost 40% of today’s workforce. By 2025, they’re expected to dominate the employee population, occupying 75% of jobs (Fast Company, “Why millennials want to work for themselves” (2014)). But with the upper age of a “millennial” now at 38 (born in 1981), that shouldn’t be much of a shock. While the business world has been getting to grips


with millennials, the next generation – Generation Z – has just graduated. Scary isn’t it? That doesn’t mean we should throw out the millennial’s rulebook. They’ll still be in the workforce until at least the 2060s. But it does mean that all businesses, big and small, need to adapt to both generations – before the competition gets there first. But what do these “changes” look like? And why should practices and firms change



perfectly successful businesses to cater to these new generations?

Author bio

Elizabeth Jones has been a writer for over 13 years. Her career spans countless advertising agencies and global businesses located in London and Melbourne, including Google, Skype and HSBC.

Lia Rodgers recently graduated from the University of Birmingham and has spent the last month interning at AccountancyManager. At 21, Lia is an early example of Gen Z.

What do millennials and Generation Z want? Freedom and flexibility

Flexible hours. Flexible working locations. Today’s under 40s are much more concerned, and rightly so, with a work-life balance, or rather work-life integration or blend. These terms are becoming increasingly popular, as the boundaries between work life and personal life continue to blur. In this connected world, simply a laptop and a stable internet connection is enough to work remotely. But is it enough at your business? Or is your team office-bound?

“74% of millennials want flexible work schedules and 88% want ‘work-life’ integration.” Forbes: “What millennials want in the workplace (and why you should start giving it to them)” (2014)

Until now, remote working has been reserved for the freelancers of the world, with the rest of us tied to the server and filing cabinets. Now, thanks to the cloud, there’s a software or app for every industry – including accountancy – designed to keep everyone connected to the people, data, dates and documents they need. Where millennials might view “working from home” as a perk, for Generation Z it will be an expectation – with the line between work and life blurring into a smudge.

“[They] might start working on a document in the afternoon, open it on their phone on the subway ride home and pull it up again on their laptop while watching TV. They don’t have as much of a harsh delineation between work and home.” Quick facts Millennials (Generation Y) Born between 1981 and 1996 Between 23 and 38 years old in 2019 Children of baby boomers Remember dial-up internet Generation Z Born between 1997 and 2012 Between six and 22 years old in 2019 Children of Generation X Don’t remember a time before mobile technology Years and age ranges from Pew Research


Forbes: “Eight ways Generation Z will differ from millennials in the workplace” (2017).

Ongoing education and career progression

Many millennials were encouraged through university by their baby boomer parents, who may not have had the same opportunities. Next stop: massive student loan debts and a recession. Those in Generation Z are understandably more wary of the promises and pitfalls of higher education, opting in increasing numbers to go straight into the workforce with apprenticeships. This blend of learning and earning is expected

to continue throughout their careers. Remember this when you’re sifting through Generation Z CVs. A missing degree has more than likely been replaced by real-world experience.

“Advanced college degrees are less important [to Generation Z]. 64% of Generation Z are considering an advanced college degree, compared to 71% of millennials.” Business Insider: “Millennials are old news – here’s everything you should know about Generation Z” (2014)

Generation Z, in particular, is very familiar with an extremely fast pace of change; they understand the need for constant skill development to stay relevant. This can only be seen as a benefit for the businesses they choose to join. Along with striving to get more designatory letters after their names and staying abreast of accountancy law and regulations, they’ll be looking to upskill in new technologies and ideas – and share that knowledge with the wider team. Giving employees the time to continually learn and teach each other will be crucial in the coming years, as the world works to close the digital skills gap.

Convenience, speed and efficiency from technology

Both Generation Y and Generation Z aren’t just digitally savvy, they’re digital natives. Generation Y may have had the last of the brick-style mobile phones in their teens, but they witnessed the birth and rise of the internet and were the early adopters of iPhones, Google and Facebook. While Generation Y have learned to adapt to new technologies as they’ve emerged, for Generation Z the digital era has been in full swing since day one. At school, they saw interactive boards replace chalkboards, and computers replace textbooks first-hand. It’s no surprise that technology is the go to in every area of Generation Y and Z lives: ●● Communication: email, messaging, social media, video chat; ●● Entertainment: on-demand TV, movies and music, gaming; ●● Travel: searching for and booking holidays, Airbnb; ●● Dating: Tinder,, eHarmony; ●● Job searches: Reed, Indeed, LinkedIn; ●● Finance: online banking, Apple Pay, Google Pay; ●● Personal projects: Google Drive, Pinterest; ●● Learning: Ted Talks, YouTube; ●● Income from the gig economy: Uber/UberEats, Etsy; ISSUE 107 | AIAWORLDWIDE.COM


● Activity tracking: Apple Watch, MyFitnessPal; and ● Managing personal time: list apps, reminders, shared calendars. It’s only natural that these employees expect the same level of efficiency and convenience from technology at work. In a study of over 18,000 people across 19 countries (conducted by INSEAD Emerging Markets Institute, Universum, and the HEAD Foundation), over 70% of Generation X and Y professionals thought that employers’ digital capabilities are important. As technology becomes more intelligent, people expect it to do the easy or boring jobs for them – like data entry, reminders, tracking activities and automating repetitive tasks. For years, customer relationship management (CRM) and business management software has been helping companies to achieve consistency, avoid human error and provide a better client experience. Now, automation and integration are changing the game again. Forward-thinking businesses in every industry are jumping on the automation

bandwagon and for good reasons: time and money. In accountancy, you can now automate all client onboarding – sending out your letters of engagement, agent authorisations and professional clearance. You can populate business data into your system directly from Companies House and use HMRC deadlines to trigger reminders for your clients to pay their tax or provide data. You can even provide every member of the team with daily task lists, generated from deadlines. Automated systems and accountancy specific technology are now the ultimate pull for millennial accountants and the newly qualified Generation Zs. But these groundbreaking ways of reducing hours on repetitive tasks aren’t solely to attract and retain the “younger” generations. Streamlining your business with practice management software frees up every employee to give clients more face to face time, work on further training or grow the business.

Automated systems and accountancy specific technology are now the ultimate pull for millennial accountants and the newly qualified Generation Zs.”

Collaboration or competition?

This is where millennials and Generation Z are said to differ the most. Generation Y – on the whole – prefer collaboration, teamwork and open workspaces. Their younger counterparts are more independent and competitive and prefer their own space and projects.

“88% [of millennials] prefer a collaborative work-culture rather than a competitive one.” Forbes: “What millennials want in the workplace (and why you should start giving it to them)” (2014)

Rather than letting this divergence of needs confuse things, there are ways to plan for both. After all, no matter what generation we’re from, we fall somewhere on the independence/ collaboration spectrum. If different people like to work in different ways, simply give them the option. For “team workers”, offer them an open-plan space and easy ways to collaborate – whether the whole team is in the office or not. For the independent types, offer separate offices for hot-desking – and make sure you have full visibility of what they’re working on and when.


In summary…


Rather than yet another thing to consider, the influx of millennials and Generation Zs into your talent pool should be seen as an opportunity. Bring your office into the digital age and everyone will benefit from more efficiency and speed – your staff and clients alike. Could implementing the right technology be the catalyst you need to start offering more flexibility, collaboration and career progression to your future hires? ●



A new era for ethics? Exploring the new International Code of Ethics for Professional Accountants 2: Professional Accountants in Business and Ethical Leadership.


n the last issue of International Accountant, we started the conversation around the impact that the new International Code of Ethics for Professional Accountants (which was published last year and came into force in June 2019) may have in practice by exploring the changes and developments to the Conceptual Framework. But if you are working as an accountant in business, preparing reports and supporting your organisation, or if you are providing accountancy and assurance services to smaller entities not classed as public interest, what else do you need to know? And what practical steps might you need to be taking? This second article will explore the new provisions in the Code which envisage the role of the accountant as an ethical leader. This key section considers the role of the practising accounting as an ethical leader.

Section 200.5 A3

Professional accountants are expected to promote an ethical based culture in the organisation. This may include the introduction and oversight of: ● ethics education and training programmes; ● ethics and whistleblowing policies; and ● policies and procedures designed to prevent non-compliance with law and regulation. This may cause some raised eyebrows amongst those of you working in smaller companies. This requirement firmly places the role of ethical leadership within any organisation with the professionally qualified accountant. Whilst this may at first fill some of us with some trepidation – another set of meetings and documents to be responsible for – it could be considered to really enhance the role and position of the professional within the business.


Practical approaches

Gagnon and Gould (2019) published a very useful overview of the practical ways which one professional body in the Netherlands has found to support the ethical development of its practitioners. This starts with the clear rationale supporting the ethical practice for all accountants, saying: “Regardless of their job roles, professional accountants have a primary accountability to the public. In their ethical capacity, the more than 3 million professional accountants around the world play a critical role in building trust in business and the public sector. This means that throughout all activities, professional accountants must be anchored by their fundamental ethical principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.” ISSUE 107 | AIAWORLDWIDE.COM



Professional accountants are expected to promote an ethical-based culture in the workplace, enhancing the role of the professional within the business.”

This article emphasises that for accountants to be a key force in ensuring responsible business, they will find themselves standing up against improper ethical practice and dealing with ethical dilemmas. This may also come at some personal discomfort, as the practitioner may well disagree with a consensus and be looking at business decisions from a wider ethical perspective beyond just economic gain. All of this needs moral awareness, competence and courage – daunting but critical if accountants are to retain their professional standing in the business community and be able to influence practice for the better, rebuilding and retaining public trust in a meaningful way. If we add to this the idea that we will be taking a strong ethical leadership in any organisation, then the importance of support for practitioners becomes more essential. AIAWORLDWIDE.COM | ISSUE 107

Gagnon and Gould go on to observe that: “The biggest challenge is that moral courage usually comes at a price. In some situations, the price might appear too high, especially if it means resigning or facing personal threats. Alternatively, in some cases, a fundamental lack of ethical awareness and competence can lead to important ethical issues not being addressed, ultimately serving to compromise the reputation of the organisation and accountant.”

Withstanding pressure to breach ethics

These observations link naturally into Section 270 of the Code; namely, the Pressure to Breach Fundamental Principles.

Section R270.3

A professional accountant shall not: ● allow pressure from others to result in a breach


CODE OF ETHICS of compliance with the fundamental principles; or ● place pressure on others that the accountant knows, or has reason to believe, would result in the other individuals breaching the fundamental principles. The Code encourages accountants to evaluate the nature of the threat of such a breach by considering: ● the intent of the individual who is exerting the pressure and the nature and extent of the pressure; ● the application of laws, regulations and professional standards to the circumstances; ● the culture and leadership of the employing organisation, including the extent to which they reflect or emphasise the importance of ethical behaviour and the expectation that employees will act ethically. For example, a corporate culture that tolerates unethical behaviour might increase the likelihood that the pressure would result in a threat to compliance with the fundamental principles; and ● policies and procedures, if any, that the employing organisation has established, such as ethics or human resources policies that address pressure.

Factors supporting ethical practice

There is a clear expectation from IFAC that practising accountants should be acting in the public interest more widely than just providing accurate information.”

The Code then goes into some familiar detail regarding the appropriate responses to such a threat, including the need to document the facts, details of discussions with named individuals, the courses of actions considered, and the response ultimately adopted.

In terms of the Ethics Advocacy in 2019, IFAC has launched the following initiatives to support all accountants: ● a global advocacy campaign for the roll-out of the IESBA’s revised and restructured Code of Ethics in June; ● a deep dive into the global adoption and implementation support of the International Code of Ethics for Professional Accountants, which will utilise information and successful practices submitted by IFAC member organisations through their participation in IFAC’s Member Compliance Programme and related to fulfilling IFAC’s Statement of Member Obligations; and ● more information on the Gateway on the Royal NBA’s “Moral Intervision Model”, which can be used internationally to support accountants in business to address ethical dilemmas.

The wider public interest

Whilst much of this may be a reworking of the understanding that many of us have regarding our roles, there is a clear expectation from IFAC that practising accountants should be acting in the public interest more widely than just providing accurate information for decision making. We should be acting to promote ethical decision making in a wider context. These ideas are being actively enacted and developed by a number of professional bodies internationally. The Association of International Accountants (AIA) prides itself on the ethical standing of its membership but observes that this increased scrutiny on accountants as business leaders is raising the need of the membership for ethical support. The new professional qualification, which is currently under development, is leading the way with a dedicated professional module on ethics to allow the space for students to really consider the types of dilemmas that they may face in practice and how these might be resolved – and also to consider how to develop this critical attribute of moral courage. A recent meeting of the IFAC Professional Accountants in Business Committee considered what factors have helped or prevented members from doing the right thing.


Factors supporting ethical practice were identified as the tone coming from above (of both the organisation that the member worked for and the professional body that member belongs to), coupled with a strong organisational purpose and support from key individuals within the team. Character traits including “a strong moral compass and strong beliefs were also emphasised as important, to the point of resignation if faced with actions that belie one’s professional ethics or character”. Factors working against such ethical practice were agreed to be the actions and beliefs of the CFO, CEO or others at Board level. However, again character traits were believed to be important. This was articulated as: “A lack of personal confidence and conviction can prohibit accountants with a more limited sphere of influence within the organisation to exercise their ethics and integrity.” The IFAC Committee has recommended that support for accounting practitioners should cover four key areas: ● membership support; ● ethics education and training; ● effective disciplinary system in professional bodies; and ● ethics advocacy.

References: - International Ethics Standards Board for Accountants (2018) - Handbook of the International Code of Ethics for Professional Accountants (IFAC) - Gagnon S and Gould S (2019) Paying Professional Ethics more than Lip Service (

Within the AIA CPD portal are several courses which will help members in their developing roles – and the AIA would be interested to hear what support would be useful as this ethical agenda moves forwards. As part of the AIA’s ethical advocacy and support, we will be continuing with this miniseries on ethics in the magazine and in the next issue will be exploring the new imperatives for PAIB around Section 220 of the Code, which deals with ethical issues in preparing and presenting information. As well as discussing the new requirements, we will be suggesting some ideas for ensuring professional scepticism and judgement in these critical areas. ● ISSUE 107 | AIAWORLDWIDE.COM


A calendar for success


Amy Hodgetts explains why your company needs a successful programme for internal auditing.

ontinuous improvement is at the core of every successful business. It is the only way to ensure growth and evolution within a company, and the only way to highlight the routes is with an internal audit. Appointing and training a member of staff to perform regular audits is a smart way to keep progress goals constantly updated and in line with current processes.

Audits are vital for businesses to check whether: ● risks occur during these processes; ● processes are being followed; ● processes are still effective and relevant; and ● output is of a consistently high standard.

Amy Hodgetts Mediaworks

The frequency of these internal audits will differ depending on each department’s requirements.

Table 1: An internal auditing calendar Department



Feb Mar Apr May



Aug Sept




Dept. A Process 1


Process 2




Dept. B Process 1


Process 2



Scheduled Scheduled ISSUE 107 | AIAWORLDWIDE.COM

INTERNAL AUDITING How to plan an internal audit

To begin with, create a list of all the areas within your business that need, or would benefit from, an audit. This may include the following elements: ● IT and security ● human resources ● accounting: ❍ payroll process ❍ expenses process ● purchasing: ❍ purchase invoice process ❍ purchase order process ● sales: ❍ sales invoice process ❍ sales order process ❍ sales quote process ● manufacturing ❍ preparation of Item A ❍ production of Item A ❍ finish/quality control process ● shipping ❍ stock process ❍ shipping process.

Table 2: Non-compliance report Process


Process 1

Procedure completed in accordance to outline of Process 1. No risks found.

Process 2

Equipment used as part of Process 2 suffering notable wear and tear. Product quality affected by this.

Process 3

Data is stored accurately and safely in accordance to outline of Process 3. No risks found.

With your list in place, you can then set out the frequency of the audits. With this information, you can create an internal auditing calendar for the year.

Creating a calendar

Internal audits should not be treated as an optional process. Drawing up a calendar ensures that the audits will be completed on time and frequently. Your internal auditing calendar doesn’t need to be anything fancy. A simple template to follow is set out in Table 1: The internal auditing calendar. The calendar is a benefit to all departments. It allows you to alert the next department to be audited in advance, which is recommended so that they can prepare the correct documentation for you to review. It also gives the internal auditor a chance to locate the process documents, review how the process should be followed and write up relevant questions, before they observe it in action. The process for conducting a successful auditing programme is set put below.

Internal audits should not be treated as an optional process. Drawing up a calendar ensures the audits will be completed on time.”


auditor should then monitor the employee performing a given process, preferably in a natural scenario (i.e. the task needed doing that day). Asking the employee questions about the process they are performing will give the auditor insight as to whether or not the member of staff: ● is following the process properly; and ● understands the process and the risks it is designed to mitigate. Depending on the answers, the auditor can make a note of areas that may need refresher sessions, or aspects of the process that may not have aged well (such as inefficient practices compared to technology that has been brought into the workplace).

Write up

After the interview observation, the auditor will then write up their findings, as well as flagging up any areas of concern. Again, the report document can be as simple or as detailed as you require, as long as the findings are recorded. In the event of a process found to be non-compliant, the auditor will need to recommend further measures in an action plan. They may also need to raise a non-compliance report (see Table 2), depending on your company and its quality compliance measures and recognitions.

Creating an action plan

The action plan can then be put in place to iron out any shortcomings or risks the internal audit uncovered. This should include the findings, Amy Hodgetts is a copywriter for Mediaworks, the corrective action, who will take ownership Interview and observation a digital marketing agency, of implementing the corrective action, and the The auditor should review the process documents and a content writer and deadline for doing so. There should also be a and create questions based off the correct web content optimiser. follow-up date to ensure the corrective action has process. With questions in hand, the internal been applied (see Table 3). Internal auditing is a critical process for any business. Make sure the checks Table 3: Corrective action report are done regularly to maintain optimum performance. ● Finding Corrective NonOwner Deadline for Review

action compliance recommended report number

Process 2 Replace hydraulic NCR4 torque wrench power head. AIAWORLDWIDE.COM | ISSUE 107

Author bio




Sources: 01/01/19 internal-audit-process/ member/sectors/internal-audit/learn/ brief-guide.html




A cultural transformation

igital transformation. First it was a buzzword, then it was a trend, and now it’s a day to day reality. Accountants are now facing the imperative to move their operations onto digital systems, to reinvent the way they do things for the information age, and to provide more streamlined, data-driven and personalised client services. And it’s not a one-time deal – technology moves at the speed of sound, so as soon as you’re up and running in your new environment, guess what? You’ve got to keep moving forward. There are two ways of responding to that challenge: with fear, or with a resilient can-do attitude. The former isn’t very productive; the latter can help you to make a success of digital transformation. Going digital doesn’t have to be scary, if you take the most logical steps for your business.

Jules Carman explains the importance of building a culture that supports digital transformation. Jules Carman Head of Digital Transformation, Accountancy, Sage

Think people, not tech

So where should accountants begin? The answer is: with their people. Digital transformation projects mustn’t exist in a vacuum. They should tend to a purpose, aiming to solve a real-world problem or improve a real-world service in a way that benefits employees. If you do it backwards and try to foist tech onto people without considering their needs, the effect will be negative both for internal culture and for external client service. With that in mind, any transformation project needs to start with an in-depth cultural assessment. Who are you as a practice? What do your accountants value? What keeps them up at night? What are they willing to change, and what are they keen to retain? These issues will help practices to identify the “gaps” in their systems that should in turn guide digital transformation. Start with the “why”, not the “what”. We’ve all had the experience of having a new IT system land without any reference to what the direct benefit will be. If you don’t include people in the planning process and find out the answers to these questions, you’ll pay the price in the form of a lengthy education process helping employees to get up to speed and understand the value of new IT. For accountants, it’s not just about their own people, either. It’s about their clients, and your employees know what they need better than




anyone. Digital transformation projects need to be rooted in their needs. How is your new technology going to make their lives more fulfilling? That’s the goal. Here are the three key phases of an effective cultural assessment to help you achieve it.

1. Involve everybody

That means everybody, from senior management and HR, down to frontline teams. When you’re planning who to talk to, consider the wider impact of the technology you’re looking to implement. In an ideal world, your practice will be joined up and working as one, so don’t throw a new software into the mix without thinking how it’s going to impact other functions. Will finance have to change the way they chase

Digital transformation projects mustn’t exist in a vacuum. They should tend to a purpose, aiming to solve a realworld problem in a way that benefits employees.”

invoices? Will client-facing teams have to provide inductions for their customers to help them work with new processes? If you bring representatives from the various teams involved into a room together at the start of the process, you stand the best chance of picking up these chain-reaction points early. Not only that, but involving different business units helps them to develop a sense of ownership over the project which will in turn encourage them to commit to its success. Don’t only focus on the business unit closest to the project – treat your practice as a unified whole and ask for input from everyone.

2. What are their pressure points?

When conducting the consultation phase, avoid the temptation to come into the room with a ready-made proposal and effectively ask: “Any problems?” Give your employees a blank page to present their needs and concerns. What do their clients and customers want from them, and what do their stakeholders always ask for? How could technology help with those issues? You can’t always get what you want, but at the same time, the chances of anyone getting what they want are much lower if you don’t ask. The aim of this process is to uncover the unknown – the things that keep your team up at night (and the things that they never want to change) which the digital transformation lead might not be aware of. No-one can be fully aware of the situation in all parts of the business – the only way to find out is to ask.

3. Aim for a bespoke project, not a playbook

Author bio

Jules Carman has had an expansive career building growth strategies for leading technology organisations.


The consultation process can only be of any use, however, if the practice is committed to developing a bespoke project, rather than buying an off-the-shelf system. It’s no good finding out exactly what your staff and clients need if you’re then going to implement a pre-packaged system that doesn’t have the flexibility and adaptability required to meet those needs. Such systems are often cheaper in the short term, as they require less consultancy time, but it’s a false economy. An off-the-shelf system is much more likely to end up being a white elephant, whereas an agile, bespoke project runs much higher odds of meeting the needs of the practice and its clients. As a result, the final consideration of the consultation phase in a digital transformation project should involve an experienced partner that can help you to plan your project. In-house teams shouldn’t feel like they own the entire process from top to bottom. If they run their consultation phase properly, they should be able to bring a deep, nuanced understanding of the company’s needs to the table. The bottom line is that digital transformation should be led by people, not technology. Companies that work that way around will find the path to success is much smoother than it otherwise might be. ●



Global Business Complexity Index


Emine Constantin explains the key trends influencing the global developments in accountancy and tax

he TMF Group Global Business Complexity Index 2019 reveals that all jurisdictions are competing to attract multinational investment. Smaller jurisdictions are making great efforts to appeal to potential investors, while large established economies are trying to prevent companies being lured away by rivals. Across the globe, jurisdictions are trying to achieve two major accounting and tax objectives: ● Improving their reputation on the world stage by aligning with rigorous international standards; forming or joining trading blocs; and improving transparency and openness. ● Being easy to operate in: jurisdictions are eager to showcase fast, efficient processes and simple, easy to understand tax legislation. In accounting and tax, these objectives are influenced by four key trends: 1. Digitisation; 2. Harmonisation; 3. Changing relationships between authorities and businesses; and 4. Evolving tax policy.


Jurisdictions around the world are turning to technology to improve efficiency and


Jurisdictions worldwide are turning to technology to improve efficiency and transparency. Digitisation can enable faster and more accurate processing.”

transparency. Digitisation can enable faster and more accurate processing and reporting, reduce revenue leakages, ensure greater transparency and make business operations more efficient. The introduction of e-filing means that tax returns (e.g. CIT, VAT) can be submitted electronically, with supporting information and reports. E-matching processes allow data from various sources to be electronically assigned to taxpayers by tax authorities, while e-audit processes deliver more efficient data analysis – reducing fraud, error and misreporting. The use of digital channels is increasing everywhere but there is significant regional variation. In Europe, the Middle East and Africa (EMEA), it is compulsory to submit tax invoices electronically in only 28% of jurisdictions; however, in Asia-Pacific (APAC) countries, it is compulsory in 46% of jurisdictions. In the Americas, where large markets including Argentina and Brazil are leading the charge in electronic tax invoicing, it is a requirement in 67% of jurisdictions. Electronic tax requirements are often used as a tool to combat tax evasion. In many cases, economies which experience significant problems with tax declaration and collection have been swift to adopt such measures. However, digitisation is not a silver bullet. It can pose ISSUE 107 | AIAWORLDWIDE.COM


challenges, especially when new systems are implemented too fast and launched before they are ready. In Indonesia, for example, the Online Single Submission (OSS) reporting system, which aims to incorporate multiple elements of tax reporting into a single portal, has had significant teething troubles. The system has been tweaked continually whilst in operation, so its capabilities have changed unexpectedly from day to day. In some jurisdictions, resistance to change can make introducing new technology difficult. Japan, for example, is a highly traditional market which values paper-based transactions, and so it is not a digital trailblazer. Our analysis points to three likely developments: ●● The volume of returns will be reduced. In Poland, for example, VAT returns will be replaced with SAF-T – an international format for the exchange of accounting data. ●● E-assessment (for tax payments and transactions) and e-audits (computer-assisted audits using electronic records) will be widely adopted. ●● Data will drive digital development. Spanish and Australian tax authorities have started using AI and virtual assistants to help answer tax questions; India and Canada have implemented methods to pre-populate their goods and services tax and personal income tax forms respectively; and China has announced its intention to use blockchain technology for tax invoicing.


Globally, many jurisdictions are making moves to align with international standards and practices as they strive to achieve greater openness, transparency and consistency. Our research reveals that most jurisdictions have already implemented internationally driven legislation. This trend toward harmonisation will continue in accounting and tax. However, in just over half the jurisdictions we surveyed, it is still the norm to use local GAAP (Generally Accepted Accounting Practices), while only 28% of jurisdictions use IFRS (International Financial Reporting Standards). Yet, in many instances, GAAPs are very similar to IFRS. The EU recently launched two broad initiatives to promote harmonisation: ●● the EU Definitive VAT Regime: a system by which all countries in the union operate as a single member state; and ●● the Common Consolidated Corporate Tax Base (CCCTB): a framework which lays down AIAWORLDWIDE.COM | ISSUE 107

common rules for computing the tax base of multinational companies within the EU. Many jurisdictions are seeking to balance two sometimes conflicting goals. They aim to align their tax rates with international standards, so that companies perceive them as well developed, attractive economies. However, they also want to appeal to investors by offering competitive tax rates and incentives.

Authorities and businesses

As jurisdictions seek to attract multinational companies by creating business-friendly environments, tax authorities adjust the rules that govern business operations. Filing, penalties and audits are key tools used to boost efficiency and promote transparency.

The audit issue

Rigorous auditing of tax filings can increase the administrative burden for businesses. However, if the rules are clear and the process is smooth, audits can be effective in improving transparency without deterring multinational investment. Audits are compulsory for all businesses in only 17% of jurisdictions. This rises to 36% in APAC, where many jurisdictions, such as Thailand, are trying to stamp out corruption and fraud. In the UAE, companies must be audited before they can register for VAT. However, as this tax was only recently introduced, the unfamiliar requirements of the audit process have created short-term challenges for many businesses, leading to cases of incorrect filing and errors that have resulted in fines. In the long term, audits should create greater transparency and drive investment. Conversely, in the Americas, 25% of jurisdictions do not enforce audits for businesses of any size. However, multinationals with global commitments and operations often choose to audit in every country they operate in.

Penalty risk

Regardless of their approach to auditing, most jurisdictions enforce strict penalties on companies that do not comply with tax regulations. Enforcement of long-term suspensions is more common in EMEA and the Americas than in APAC. In Peru, for example, a company can face severe penalties and fines for incorrect submission of taxes and the directors of the company are legally responsible. In 67% of jurisdictions, companies are not allowed to extend the deadline for tax and statutory filings. However, one third of

Emine Constantin is an accounting and tax professional with more than 16 years’ experience. She joined TMF Group in 2002 and is now Global Head of Accounting and Tax.


INTERNATIONAL TAX jurisdictions operate a more flexible system. In Switzerland, companies are granted extensions if they prove they are otherwise compliant. In the UK, companies can extend tax filings and alter their account reference dates during their first year of operation. It is rare for a jurisdiction to give a company a second chance. In all jurisdictions, except the UAE, businesses can voluntarily correct a submitted tax return or payment, but 67% of jurisdictions will impose a fine for any mistakes. This rises to 86% in the Americas and falls to 69% in APAC and 55% in EMEA.

Live reporting

Looking ahead, the requirement to audit local accounts is likely to fade away as live reporting systems, which communicate transactions to tax authorities in real time or near real time, are introduced. Tax authorities will use data provided by companies to identify reporting errors and provide better guidance to businesses. However, if more guidance is provided, the penalties for noncompliance may become harsher.

Tax policies

We see many jurisdictions adjusting taxation to raise additional revenue, ‘nudge’ societal behaviours or create alignment with international norms. However, introducing and implementing new tax legislation is not always a simple process, especially in geographically large jurisdictions. In Argentina, for example, different types of tax are managed at different levels of government. Taxes on profit are levied by the municipalities and form a significant proportion of their income, whereas corporation tax and VAT are dealt with at the national level.

Adding value

VAT was introduced for the first time in France in 1950. Today, 167 countries around the globe apply the levy. Several of the remaining countries, including Qatar and Bahrain, are in the process of introducing it. By its nature, VAT is a flexible tool that contributes to higher revenue intakes and enables governments to regulate annual budgets and influence economic growth. This is evidenced in numerous OECD, IMF and domestic Central Bank financial and economic reports, which indicate that the introduction of new VAT regimes and the fluctuation of rates within existing regimes can lead to significant increases in tax-to-GDP ratios.

Taxes for health and the environment

New taxes designed to tackle social and environmental problems are becoming widespread. Some jurisdictions are levying taxes on harmful products such as sugary drinks, while environmental tax reforms are increasingly being introduced. For example, fuel is taxed for


its carbon content and tax incentives are used to encourage the purchase and use of cleaner vehicles.

Fighting tax fraud

Combating tax fraud is the responsibility of tax authorities which seek to reduce revenue losses and punish disreputable companies. Strategies include: ●● Increasing reporting obligations for taxpayers: Detailed reporting allows authorities to gather more information on companies operating within their jurisdiction and gives them a better chance of uncovering crimes – which helps to dissuade businesses from committing fraud. ●● Testing alternative VAT collection mechanisms: VAT is vulnerable to fraud because companies declare their own bills. Some jurisdictions are developing innovative approaches that free companies from having to declare VAT on all transactions. In the UK, the proposed Split Payment system would require one party in the transaction chain to pay VAT on a sale directly to the tax authorities and pay only the balance to the vendor. The Czech Republic will introduce the Generalised Reverse Charge Mechanism (GRCM) on domestic sales, so that VAT will no longer be charged on B2B transactions above a certain value. Purchasers will be responsible for VAT accounts in their own tax returns. ●● Enlisting digital platforms to collect VAT on online sales: Currently, only sellers are liable for payment of VAT on online sales in most jurisdictions. In future, reforms to the EU’s VAT regulations will make online platforms and sellers jointly liable. ●● Disruptive technology: Tax legislation has not kept up with technological innovation and there is ongoing debate about the taxation of new processes and products such as digital services and cryptocurrencies. There is no consensus on the latter, partly because there isn’t a common view on its classification – it is considered property in Australia and the US, private money in Germany, and foreign currency in Switzerland.

Looking ahead

Our research indicates that managing accounting and tax will continue to be a balancing act as jurisdictions strive towards alignment with international standards and greater transparency, while boosting efficiency and simplifying processes. These dual goals often trigger changes in the ways that companies and tax authorities interact, encompassing taxation, administration and auditing. Businesses need to keep on top of current and impending changes in the jurisdictions they operate in, although there is reason to hope that international standardisation will slow the pace of change over the coming years. ● ISSUE 107 | AIAWORLDWIDE.COM

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IFAC launches “future-fit” series to address changing role of accountants in business With a changin­g and uncertain business environment, CFOs and finance functions must evolve to sit at the heart of decision making within their organisations, according to a series launched by IFAC (the International Federation of Accountants). The series includes: ●● a vision for the CFO and finance function; ●● future-fit accounting roles for the next decade; and ●● an evaluation tool to help guide organisations in finance function transformation. With more demanding customers and societal expectations, achieving long-term value creation and success has never been more challenging for businesses. The CFO and finance function of today and tomorrow needs to provide information and analysis that supports decisions about all aspects of an organisation’s business model and value creation. As business partners, they need to communicate how value is created today, how it will be created in the future, and if profitability is sustainable. “The finance function cannot survive as a support or back-office

INTERNATIONAL IPSASB issues exposure draft to address accounting for public sector specific financial instruments The International Public Sector Accounting Standards Board (IPSASB) has released an Exposure Draft (ED), Public Sector Financial Instruments, Amendments to IPSAS 41, Financial Instruments, for comment. The ED provides guidance on how to account for a number of important categories of financial instruments that are unique to the public sector. The proposed new standard will augment existing guidance in IPSAS 41, Financial Instruments, and improves that standard’s requirements by introducing guidance on: AIAWORLDWIDE.COM | ISSUE 107

function and must do more than account for the balance sheet,” said Kevin Dancey, IFAC CEO. “As business models evolve and uncertainty increases, CFOs and their finance teams are uniquely situated to provide the information that powers decision making for long-term value creation.” To be at the heart of decision making, effective CFOs and finance functions must deliver: ●● actionable insights to support strategic and operational planning and decisions; ●● performance analysis to steer the organisation toward achieving objectives, targets and long-term profitability, as well as to ensure alignment between strategy, planning and delivery; ●● enterprise risk management to manage uncertainty, opportunities and risks in the context of business objectives and the external environment; ●● effective communication and storytelling on all aspects of an organisation’s business model and value creation; ●● trust and confidence in the governance of the organisation, and in the quality of data, ●● monetary gold; ●● currency in circulation; ●● IMF quota subscriptions; and ●● Special Drawing Rights. “The topics addressed in this Exposure Draft are unique to the public sector and have a significant impact on government finances,” said IPSASB Chair Ian Carruthers. “The final guidance will ensure users of IPSAS-based financial statements have the information they need about these important items for accountability and decision-making purposes.” To access the Exposure Draft and its summary At a Glance document, or to submit a comment, visit the IPSASB website, Comments on the consultation paper are requested by 31 December 2019. The IPSASB encourages IFAC members, associates and regional accountancy organisations to promote the

processes, systems and reporting through adequate control and security; and ●● integrity and professionalism to encourage ethical behaviour and decision making throughout an organisation to ensure sustainable value creation. It is incumbent upon various stakeholders – organisations, professional accountancy organisations (PAOs) and individuals – to help prepare future-fit accountants in business. For organisations, developing a finance function vision will help to identify the enablers of change and ensure that the finance function is fit-for-purpose to partner with the business. IFAC’s evaluation tool is intended to help boards and management teams to identify strengths and areas of improvement for their finance team. For PAOs, there are three priority areas to develop future-ready accountants in business: engaging accountants in business and their employers; advancing accountancy education; and promoting the value of the accounting profession. availability of this Consultation Paper to their members and employees.

IFAC issues comment letter on IAASB audit of less complex entities discussion paper IFAC submitted a comment letter to further highlight the importance of the issues covered in the IAASB’s Discussion Paper, Audits of Less Complex Entities. Notwithstanding significant efforts by many stakeholders, including the IAASB and IFAC, concerns remain about the application of International Standards on Auditing (ISAs) to less complex entities (LCEs). IFAC applauds the IAASB’s initiative to consider the situation holistically and chart the best way forward, and believes that these challenges will be best resolved through thoughtful and constructive input and


Technical engagement from the largest possible number of diverse global stakeholders. To access the Audits of Less Complex Entities discussion paper visit: bit. ly/2m4DdaZ. IFAC strongly encourages all stakeholders to respond directly to the Discussion Paper or to participate in IFAC’s Audits of Less Complex Entities Survey by 12 September 2019. The survey is available in English, French and Spanish.

Global ethics board proposes changes to promote role and mindset expectations The International Ethics Standards Board for Accountants (IESBA) proposes changes to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) to promote the role and mindset expected of all professional accountants. The Exposure Draft, Proposed Revisions to Promote the Role and Mindset Expected of Professional Accountants, puts forward changes that further strengthen the Code. The proposed revisions respond to stakeholder calls for the IESBA to explore whether and how the Code could contribute to strengthening the application of concepts underlying professional scepticism by all professional accountants. Among other matters, the proposals: ●● highlight professional accountants’ wide-ranging role in society and the relationship between compliance with the Code and a professional accountant’s responsibility to act in the public interest; ●● include enhancements to the robustness of the fundamental principles of integrity, objectivity and professional behaviour; ●● further strengthen the Code through requiring professional accountants to have an inquiring mind when applying the conceptual framework; and ●● highlight the importance of being aware of bias and having the right organisational culture. The proposals were developed in coordination with the International Auditing and Assurance Standards Board and the International Accounting Education Standards Board. The IESBA will host a webinar in September 2019 to provide an overview of the proposed revisions. Follow the


IESBA on Twitter (@Ethics Board) for updates on how to register for this event. The IESBA invites all stakeholders to comment on the Exposure Draft by visiting the Ethics Board’s website. Comments are requested by 31 October 2019.

IASB proposes amendments to IFRS standards to improve accounting policy disclosures The International Accounting Standards Board (Board) has published proposed narrow-scope amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements to help companies provide useful accounting policy disclosures to users of financial statements. IAS 1 requires companies to disclose their “significant” accounting policies. The Board is proposing to replace the reference to “significant” with a requirement to disclose “material” accounting policies to clarify the threshold for disclosing information. The proposals state that information about an accounting policy is material if, when considered together with other information included in a company’s financial statements, it can influence financial statement users’ decisions about the company. The Board is also proposing to add guidance to IAS 1 to help companies understand what makes an accounting policy material and to update IFRS Practice Statement 2 by adding further explanations and examples to help companies apply the concept of materiality in making decisions about accounting policy disclosures. The Board is asking stakeholders to comment on the proposed amendments and is particularly interested in comments on whether the examples proposed for inclusion in the Practice Statement are helpful. The Exposure Draft Disclosure of Accounting Policies is open for comment until 29 November 2019.

UK AND IRELAND FRC publishes draft response to proposed amendments to IFRS 17 The FRC has published a staff draft of its response to the IASB’s Exposure Draft ED/2019/4 Amendments to IFRS

17 (ED). The response outlines the FRC staff’s tentative conclusions on issues raised in this ED. It does not ask questions on the proposals or the staff draft, but would welcome stakeholders’ views to inform the FRC’s final response to the IASB’s ED. As part of the UK’s preparation to exit the European Union, the Department for Business, Energy and Industrial Strategy is in the process of setting up a new, independent body to adopt and endorse International Accounting Standards for use in the UK. The views expressed in the staff draft are not those of the new body and the new body will not be bound by this draft or any final response to the ED by the FRC. However, any input it receives from constituents will be made available for consideration by the new body.

ASIA PACIFIC ACRA issues Registrar’s Interpretations 1 OF 2019 Registrar’s Interpretations (RIs) provide ACRA’s interpretation of how specific provisions under the Companies Act and other business legislation are to be applied in practice. While such guidance is not legally binding, Registrar’s Interpretations help to provide practical guidance for non-contentious issues facing lawyers and corporate service providers without the need to clarify the law through litigation in court. In developing the RIs, ACRA works closely with respected practitioners through ACRA’s Institute of Corporate Law to ensure the business community and legal sector’s inputs are taken into consideration. You can access the interpretations at:

UNITED STATES Representatives of the Financial Accounting Standards Board and the Accounting Standards Board of Japan hold biannual meeting Representatives of the Financial Accounting Standards Board (FASB) and the Accounting Standards Board of Japan (ASBJ) met on 29-30 August 2019 in Norwalk, Connecticut. This meeting was the 26th in a series of biannual meetings between the FASB and the ASBJ to further the Boards’ cooperative ISSUE 107 | AIAWORLDWIDE.COM

Technical efforts to develop high-quality global accounting standards. At this meeting, representatives of the FASB and the ASBJ provided updates on their respective activities and discussed agenda items in which both Boards have interest, including the accounting for goodwill and intangibles, reference rate reform, accounting for leases, and financial performance reporting and disclosures. The FASB and the ASBJ plan to continue to exchange views. The next meeting is planned in the first quarter of 2020 in Tokyo. Russell G. Golden, Chairman of the FASB, stated, “We were pleased to welcome the ASBJ and Atsushi Kogasaka to Norwalk for Mr Kogasaka’s first joint meeting in his new role as ASBJ chair. Our discussions focused on the Boards’ agenda projects in progress, including global reference rate reform, and other activities intended to improve financial reporting for our respective stakeholders. We value our joint meetings with the ASBJ as important opportunities to learn from each other and collaboratively work toward the development of higher quality, more comparable standards across nations. We look forward to continuing these meetings for many years to come.” Atsushi Kogasaka, Chair of the ASBJ, stated, “This was our first meeting with the FASB since I became Chair of the ASBJ. We had productive discussions on the projects which have been attracting public attention internationally, such as the accounting for goodwill and reference rate reform. Under the current economic environment where corporate activities are developing internationally and sharing the common issues, having an opportunity to discuss with the FASB, which has technical expertise of high quality, was very meaningful and I believe the discussions will contribute to improving the quality of global accounting standards.”

FASB proposes effective date delay for all insurance companies applying standard on longduration contracts The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) that would grant all insurance companies that issue long-duration contracts, such as life insurance and annuities, additional time to apply a standard that addresses this area of financial reporting. AIAWORLDWIDE.COM | ISSUE 107

Stakeholders are encouraged to review and provide comment on the proposed ASU by 20 September 2019. On 15 August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The ASU made targeted amendments to improve, simplify and enhance the financial reporting requirements for long-duration contracts issued by insurance companies. Since that time, the FASB received an agenda request to delay its effective date by one year. In response, FASB members and staff conducted outreach with numerous insurance companies that issue and/or reinsure long-duration contracts to better understand their implementation challenges and progress. Furthermore, last week, the FASB issued a proposed ASU that describes a new FASB philosophy for determining how effective dates for major standards are staggered between larger public companies and all other entities. Under this philosophy, a major standard would first be effective for larger public companies; effective dates for all other public and private companies and organisations would be staggered at least two years later. Generally, it is expected that early application would continue to be permitted for all entities. The proposed ASU would amend the effective dates for the long-duration insurance standard as follows:

Long-duration insurance standard: how effective dates would change (chart assumes calender-year-end reporting) Public business entities (PBEs) Smaller SEC filers All others reporting other than companies smaller reporting and all other PBEs companies Jan 2021 Jan 2022

Jan 2021 Jan 2024

Jan 2022 Jan 2024

“Based on what we observed while monitoring implementation of the long-duration insurance standard – and consistent with our new philosophy to stagger effective dates between large publicly traded companies and all other companies and organisations – the FASB

has proposed to grant all insurance companies at least one additional year to apply the standard,” stated FASB Chairman Russell G. Golden. “We believe it will result in a higher quality implementation for all.”

FASB proposes guidance to assist in transition away from interbank offered rates to new reference rates The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) that would provide temporary optional guidance to ease the potential burden in accounting for, or recognising the effects of, reference rate reform on financial reporting. Stakeholders are asked to review and provide comment on the proposed ASU by 7 October 2019. “The FASB is committed to providing stakeholders with the guidance they need to ease the process of migrating away from LIBOR and other interbank offered rates to new reference rates,” said FASB Chairman Russell G. Golden. “The Board’s proposal will address operational challenges they have raised and ultimately help simplify the process while reducing related costs,” he added. Trillions of dollars in loans, derivatives and other financial contracts reference LIBOR, the benchmark interest rate banks use to make short-term loans to each other. With global capital markets expected to move away from LIBOR and other interbank offered rates toward rates that are more observable or transaction based and less susceptible to manipulation, the FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition. The Proposed ASU would provide optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships affected by reference rate reform. The guidance would apply only to contracts or hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The guidance is intended to help stakeholders during the global marketwide reference rate transition period. Therefore, the guidance would be in effect for a limited time. That is, the guidance would be effective upon issuance of final guidance and would not apply to contract modifications made


Technical and hedging relationships entered into or evaluated after 31 December 2022. The proposed ASU, including a “FASB in Focus” overview and information about how to submit comments, is available at

FASB seeks public comment on proposal to delay effective dates for private and certain public companies and organisations The FASB has issued a proposed Accounting Standards Update (ASU) that would grant private companies, not-for-profit organisations, and certain small public companies additional time to implement FASB standards on current expected credit losses (CECL), leases and hedging. Stakeholders are encouraged to review and provide comment on the proposed ASU by 16 September 2019. The proposed ASU extends and simplifies how effective dates for major standards are staggered between larger public companies and all other entities. Those other entities include private companies, smaller public companies, not-for-profit organisations and employee benefit plans. Under

this philosophy, a major standard would first be effective for larger public companies. For all other entities, the Board would consider requiring an effective date staggered at least two years later. It is expected that early application would continue to be permitted for all entities. “Based on what we’ve learned from our stakeholders, including the Private Company

Council and the Small Business Advisory Committee, private companies, notfor-profit organisations and some small public companies would benefit from additional time to apply major standards,” stated FASB Chairman Russell G. Golden. The Board proposes to amend the effective dates for CECL, leases and hedging as follows (chart assumes calendar-year end):

How effective dates would change Standard

SEC filers

All other public business entities (PBEs)

Private & all others


January 2019

January 2019

January 2020 January 2021


January 2019

January 2019*

January 2020 January 2021


January 2020 (except SRCs January 2023)

January 2021 January 2023

January 2021 January 2023

= no change in effective dates *also includes Employee Benefit Plans and Not-for-Profit Conduit Bond Obligors that file or furnish financial statements with or to the SEC

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