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ABD LN - 18/11/09

Welcome to the AB Direct e-bulletin, bringing you new s and technical updates selected from thousands of sources w orldw ide. Brought to you in association w ith LexisNexis, the w eekly bulletin uses more than 4,000 subscription-based sources as well as the latest from news services and standard-setters across the globe. You can also keep track of CPD events and link to our latest CPD-verifiable articles. ACCA addresses t he challenges of t he global economy - learn more at


18 November 2009




Obama creates task force to fight financial crime Re ute rs

EU delays adoption of accounting rule changes

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Warren Buffett: the financial panic is over Re ute rs

Contact Us » HMRC launches new Charter HMR C

Pensions reform is a 'burden'

Thin Cap GLO rule goes against HMRC Accounta ncy

Divided and overruled? The Eco nom ist




ABD LN - 18/11/09 One third of global businesses actively seeking M&A targets in next 12 months Ernst & Y oung

Rise in auditor reports of irregularities Busine ss Day (So uth Africa )

A sda loses 18-month flapjack VA T dispute with the taxman Accounta ncy Ag e

FRC urges caution on KPMG audit mix Accounta ncy Ag e

Deloitte hits back after Woolworths' former board blames firm for failing CityAM

TECHNICAL IA SB completes first phase of financial instruments accounting reform IASB

A cSB on track for adding IFRS to handbook CA Maga zine

National Insurance and PA YE Service (NPS) - tax agents and advisers’ issues HMR C

Corporation Tax Online - prepare your software HMR C

A SB proposes A mendment to FRS 25 - Classification of Rights Issues FRC

FRC highlights current challenges for audit committees and users of actuarial information FRC

Progress Report on FRC review of matters raised in Inspectors' Report on Phoenix Venture Holdings/MG Rover

FRC responds to Treasury Select Committee Report on Banking Crisis FRC

Corporate insolvency market faces fair trade probe Accounta ncy Ag e

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ABD LN - 18/11/09 Accounting and Business CPD: Companies A ct 2006

Accounting and Business CPD: Revenue recognition

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ACCA Direct Debit: the most efficient way to pay your annual subscription

A CCA roundtable considers climate change agenda

A CCA speaks up on the lack of public trust in private and public sectors

Excellence in enterprise support AC CA/SFEDI C O NSULTAT IO N EVENT, 30 Nove m be r, Lo ndo n Influe nce future standa rds and re cog nitio n for profe ssional d e ve lop m e nt

Centernet Supervisory Board appoints A CCA member as president Te le com .p ape r

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ABD LN - 18/11/09

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UPDATE 3-Obama creates task force to ‌

UPDATE 3-Obama creates task force to fight financial crime | Reuters * Mortgage fraud, Wall Street crimes targeted * Attorney general to chair task force * Task force replaces Bush-era one set up in 2002 (Adds details from news conference, reaction) By James Vicini and Jeremy Pelofsky WASHINGTON, Nov 17 (Reuters) - The Obama administration created a new task force on Tuesday to crack down on financial fraud, an increasingly important political issue after a spike in mortgage scams and big Wall Street trading scandals. President Barack Obama signed an executive order directing the task force, led by the Justice Department, to investigate and prosecute financial crimes connected to the past year's financial crisis and to try to deter future fraud. The stakes are high for the administration, particularly with a weak economy, anger about huge Wall Street bonuses and outrage that securities regulators missed one of the biggest frauds in U.S. history involving Bernard Madoff, who bilked investors of as much as $65 billion in a decades-long scheme. "We will be relentless in our investigation of corporate and financial wrongdoing and we will not hesitate to bring charges, where appropriate, for criminal misconduct on the part of businesses and business executives," U.S. Attorney General Eric Holder told a news conference. The administration has long pledged to be more aggressive in fighting financial crime, but has faced a few setbacks like Madoff and losing a high-profile case against two hedge fund managers accused of fraud in the early days of the crisis. The task force replaced a similar one established by the Bush administration in 2002 after corporate scandals like the collapse of Enron Corp, the giant energy trader. Asked how this one would be different, Holder said the "breadth" of the task force, with a wide range of federal government agencies coordinating action among themselves and with state and local law enforcement authorities. The task force also includes the Treasury and Housing and Urban Development departments and the Securities and Exchange Commission, among other government agencies. It will hold its first meeting in the next 30 days. TIME TO PUT PIECES TOGETHER Asked why the administration which took office in January had not created the task force earlier as the financial crisis has ebbed, Holder said, "It took a great deal of time to put all the pieces together." Robert Mintz, a former U.S. prosecutor who now does white-collar criminal defense work, said, "The‌/idUSN171651620091117

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UPDATE 3-Obama creates task force to …

formation of this new task force is likely more than mere symbolism, but it may take some time before we see any tangible results." "While this is clearly a reaction to the public's continued frustration with Wall Street, in the past we have seen a real impact from these types of task forces when they are targeted at specific types of crime," he said. Continued...

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Warren Buffett: The financial panic is ov‌

Warren Buffett: The financial panic is over | U.S. | Reuters By Jonathan Stempel and Clare Baldwin NEW YORK (Reuters) - Warren Buffett, perhaps the world's most admired investor, said on Thursday the financial panic that gripped the globe last year is a thing of the past, even as the U.S. economy's struggles persist. "The financial panic is behind us," the world's second-richest person said at Columbia University's business school. "Our economy was sputtering, still is sputtering some." Buffett, 79, nevertheless said there is greater opportunity for investments inside the United States than outside, noting that the U.S. economy is far larger than any other. He appeared at Columbia with Microsoft Corp founder Bill Gates, the world's richest person and a Buffett friend and bridge partner. Last month, preliminary government data showed the U.S. economy expanded in the third quarter, the first three-month period of growth since the second quarter of 2008. Nonetheless, the U.S. unemployment rate last month reached 10.2 percent, the first double-digit reading in 26 years. Buffett last week made a big bet on the U.S. economy when his Berkshire Hathaway Inc agreed to pay about $26.4 billion for the 77 percent of railroad company Burlington Northern Santa Fe Corp that it did not already own. "There will be more people in this country, 10, 20, 30 years from now," Buffett said. "They'll be moving more and more goods back and forth to each other and the most environmentally friendly and cost-efficient way of doing that is railroads." Buffett said rail transport uses one-third less fuel and pollutes the air less than trucks, and that one train can supplant about 280 trucks. Gates, who is also a Berkshire director, said other sectors might also boost the economy over the long term, including information technology, energy and medicine. Separately, Buffett advised the U.S. government not to coddle companies that need bailouts to survive or preserve capital. "More sticks are called for," he said. Buffett gave Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Timothy Geithner "high marks" for how they managed the financial crisis. The billionaire has praised Bernanke in the past, while mocking Geithner's stress tests for banks.‌/idUSTRE5AB4V920091113

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Warren Buffett: The financial panic is ov…

CNBC television was a host for the Columbia event. (Reporting by Clare Baldwin and Jonathan Stempel; Editing by Tim Dobbyn and Bernard Orr)

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News : NDS

News : NDS Under the Charter, HMRC gives a commitment to: respect you; help and support you to get things right; treat you as honest; treat you even-handedly; be professional and act with integrity; tackle people who deliberately break the rules and challenge those who bend the rules; protect your information and respect your privacy; accept that someone else can represent you; and do all it can to keep the cost of dealing with HMRC as low as possible. In return, HMRC expects you to be honest, respect its staff, and take care to get things right. The Charter also provides pointers to further information on your rights, where you can get help and support, and HMRC’s role. Welcoming the Charter, Financial Secretary to the Treasury Stephen Timms said: “The Government is committed to making the tax system as useable and accessible as possible, for individuals, businesses and all the other organisations who interact with HMRC. The new Charter will go a long way to helping achieve that goal.” In a podcast launched today to help publicise the Charter, HMRC Permanent Secretary for Tax Dave Hartnett says: “The Charter’s key aim is to improve the relationship between HMRC and our customers, and we obviously have a crucial role in making that possible. But we can’t do it all on our own. Both parties have a part to play, and that’s why the Charter sets out people’s rights and their responsibilities.”

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Accountancy Magazine

Accountancy Magazine HM Revenue & Customs is unlikely to be happy with the judgment delivered by Mr Justice Henderson in what has been dubbed the class action Thin Cap GLO case. The case concerned five multinationals that had lent money to their UK subsidiaries, which HMRC deemed to be excessive. In his judgment today, one of the longest in a tax case in the High Court, he held that UK law should not apply where lending was for overriding commercial reasons, and that it should be for HMRC to demonstrate that the lending was not commercial. In this case he held that Lafarge, Volvo and Siemens succeeded in principle in their claims. The European Court of Justice had previously decided that the UK’s law prior to the Finance Act 2004, which restricted interest deduction where these exceeded arms-length amounts, went further than needed to protect the UK tax base. As a result, the case was remitted to the UK for the national court to consider the UK provisions in detail. Bill Dodwell, head of tax policy at Deloitte, said: ‘HMRC will not be happy with this result. The judge has held that there were commercial reasons for lending in all cases, even though several companies had previously agreed to disallow part of their interest claims. Inevitably the case will go to the Court of Appeal and possibly the Supreme Court.’

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19/11/2009 / Entrepreneurship - Pensions ref… / Entrepreneurship - Pensions reform is a ‘burden’ By Jonathan Moules Published: November 13 2009 18:01 | Last updated: November 13 2009 18:01 Small businesses will be saddled with extra costs and red tape because of new workplace pension rules, the UK’s main accountancy body has warned. Major pension reforms are due to be introduced in 2012, under the Pensions Act 2008. The Department of Work and Pensions this month completed its third consultation on the changes. The Association of Chartered Certified Accountants (Acca) is concerned that small businesses in particular will face substantial extra burdens from the proposals. John Davies, head of business law at Acca, said there was a danger that employers would downgrade the quality of pension schemes because the proposals would allow them to change their practices to the minimum allowed by the law. The government estimates that 5m-9m people will join or save more in workplace pension schemes as a result of the reforms. Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from and redistribute by email or post to the web.

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19/11/2009 / Companies / Banks - EU delays … / Companies / Banks - EU delays adoption of accounting rule changes Brussels has delayed the introduction in the European Union of a radical overhaul of accounting rules for banks and insurers which on Thursday came into force across most of the rest of the world outside the US. The move follows a deep split between European financial institutions over the new rules on the way they value assets in their accounts. Analysts say some French, German and Italian banks with large investment banking activities would be hit disproportionately by the changes, forcing them to book losses on large holdings of derivatives. But the decision by the European Commission to delay the changes within Europe has angered other banks in the region who fear they will be put at a disadvantage to international peers. The International Accounting Standards Board earlier published its overhaul of rules on “fair value” accounting, where assets are marked to market prices. Supporters say this makes accounts more transparent, but critics believe it exacerbated the financial crisis by forcing banks to take losses on assets when markets fell. IASB said it had fast-tracked the changes in response to calls by the Group of 20 nations to introduce them by the end of the year. However, the European Commission said it would not adopt the changes until it had carried out an in-depth analysis. It would consider adoption in the new year. The decision means that European banks and insurers will not be able to use the new rules for their 2009 accounts while companies in more than 80 countries outside the EU will be able to do so. The postponement comes at a time when the commission itself is in caretaker mode. Diplomats in Brussels say France is interested in the internal market commissioner’s job in the next commission, which is set to start operating early next year. Charlie McCreevy, current commissioner for the internal market, has been overseeing talks over the rule changes. Douglas Flint, HSBC’s chief financial officer, had told the commission a delay could place European companies “at a competitive disadvantage”. In a letter to Mr McCreevy dated November 10, he said the changes were required to address an urgent need to improve the accounting of financial instruments in response to the financial crisis. Accountants said the reforms would provide greater clarity in determining which bank assets must be marked to market and which can be valued according to so-called amortised cost accounting, which smooths out market volatility. The IASB proposed that if an asset earned predictable cash flow such as a loan, then it could be valued by amortised cost accounting. If it delivered an unpredictable return, such as a share portfolio or derivative, then it had to be marked to market. However, commission officials believe the overhaul did not limit the use of fair value…/25434302-cfcf-11de-a36d-001…

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19/11/2009 / Companies / Banks - EU delays …

accounting enough. A decision by the German financial industry to back postponement of the standard until next year was decisive in the Brussels decision, people familiar with the situation said.

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BODY: Accountants grapple with the fallout over "marking to market" ACCOUNTING has become political. Fair-value rules, which require assets to be marked to market prices, are blamed by some for exaggerating banks' losses. Although it will take years to establish whether banks' accounts have painted too bleak a picture, the rows are already in full swing. Confidence in "efficient" market prices has been hammered, as has the principle that accounts are designed mainly for investors. The public has a big interest in banks' books now, too. "There are competing paradigms about what financial statements are for," says John Hepp of Grant Thornton, an accountancy firm. The International Accounting Standards Board (IASB), which sets rules for most countries apart from America, has made tactical concessions to avoid the nightmare scenario of banks and politicians writing the rules themselves. On November 12th it issued new rules for financial assets that will be optional from this year and mandatory from 2013. Loans, or securities similar to loans, will be held at the price banks paid for them, provided the bit of the firm that owns them is not engaged in trading. Everything else will be held at fair value. Most observers, including the IASB, reckon this will cut the proportion of assets held at fair value, which is about 50% for big European firms. Critically, for those who believe most firms try to warm up, if not fully cook, their books, the notes to the accounts will disclose all assets at fair value. The IASB also proposes a rejig of how bad debts are recognised. Instead of booking losses as things go sour, they will be spread over the life of a loan, although the draft rules do not go as far as Spain's system of "generic provisions" which leads to more reserves being built up in good times than in bad, smoothing profits even more. The IASB also wants to end the practice of banks marking the price of their own debt to market, though details are not agreed. The IASB has made big concessions. Yet it is the European Commission which decides if the European Union adopts the standard-setter's new rules. The G20 has called for independent, global standards, that "reaffirm?the framework of fair value", but a few countries, notably France, are hostile. In a letter to Sir David Tweedie, the IASB's chairman, the commission said the rules "may not yet have struck the right balance". The IASB will probably plough on and hope the commission backs down. The IASB's position has been weakened by differences with the Financial Accounting Standards Board (FASB), which sets rules in America and which wants to merge eventually with the IASB (although a recent survey found only 24% of American finance executives supported this goal). The FASB has yet to produce proposals on financial assets and is more wedded to a fair-value regime. It also faces a proposal in Congress that could allow America's new systemic-risk regulator to suspend the rules. Strength comes from unity—without it, accounting risks becoming just another tool for governments to attempt to manage the economic cycle.

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One third of global businesses actively se…

One third of global businesses actively seeking M&A targets in next 12 months - Ernst & Young - United Kingdom Majority believe tough financing challenges will remain for at least three years LONDON, 12 NOVEMBER 2009 – There is a growing sense of anticipation about the global M&A environment with 33% of businesses likely or highly likely to acquire other companies in the next 12 months, according to a new study of almost 500 senior executives around the world by Ernst & Young’s Transaction Advisory Services. In fact, 25% expect to do so in the next six months. The study, entitled Why capital matters – building competitive advantage in uncertain times, is underpinned by the first in a regular series of surveys called the Capital confidence barometer, which was conducted in October. The survey finds that despite recognizing the opportunity for transactions, 62% of businesses feel their ability to act is restricted by various factors, including the lack of available financing. Jon Hughes, UK&I Managing Partner of Ernst & Young’s Transaction Advisory Services group, says: “In the coming months, there is likely to be an increase in M&A activity as companies dispose non-core, underperforming or distressed assets. Those in a position to buy will have the opportunity to capture market share and grow revenues in ways that were impossible two years ago. “Buying will not be an option for all. Capital is no longer cheap nor is it readily available. The tough new realities will force some executives to seriously consider a strategic review. Many companies have responded to the recession with short-term measures around cash and costs. Sensible though these were, they are largely temporary, buying breathing space. To thrive, companies need to be resilient and they also need to adapt quickly. That means being able to compete strongly for new funding options in a time of scarce capital, strengthening their core operations and having the ability to make opportunistic decisions.” The survey found strengthening core operations is the primary transaction driver, with 64% considering acquisitions for this reason and 50% of executives are looking to acquire to enter new geographic markets — nearly half list the US as the most attractive developed market destination, while emerging markets were dominated by India (30%) and China (27%). Sixty-three per cent of respondents are expecting to see acceleration of industry consolidation in the next 12 months, while 61% expect the downturn to reveal the emergence of a few industry winners best able to exploit acquisition opportunities. Adapting to uncertainty While M&A confidence is up, a strong note of caution is also reflected in the survey with 70% of companies expecting the downturn in the broader economy to persist beyond the next 12 months. Of those, 40% believe it will continue for more than two years. Furthermore, 53% of respondents believe that financing conditions will not return to mid-2007 levels for at least…/TAS---09-11-12---one-third

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One third of global businesses actively se…

another three years with 19% believing it will be over five years or it may never return to this level. Dougald Middleton, partner and Head of Capital & Debt Advisory at Ernst & Young comments: “In 2010 finance will continue to be very difficult to secure. New options will need to be explored – from joint ventures to IPOs. In this complex and uncertain environment a strong capital agenda will be central to boardroom planning and strategy. Boards need new capabilities around performance reporting, forecasting and strategic decision modeling around capital that will, over time, become normal business practice. Leading businesses recognize that amid the new risks there is also opportunity – resilience must be enhanced alongside the ability to respond quickly as the market changes.” Driving the capital agenda While valuation uncertainty, insufficient financing, investor caution and board scrutiny are cited as current obstacles to doing deals, raising capital is recognized as a critical factor, with 46% prepared to consider alternative deal structures that depend less on debt. Middleton adds: “We are already seeing leading boards drive a more focused, disciplined and rigorous management of their capital. Different options will suit different needs — whether it’s operational restructuring, divesting or acquiring opportunistically, but doing nothing and trying to ride out the storm is not a strategy for success.” Survival of the quickest In an environment where further distress will drive short notice accelerated timetables – readiness to act is critical for success. Forty-five per cent of executives expect an increase in distressed assets coming to market yet two thirds are not confident in their ability to act quickly. Only 36% say they are ready to act quickly should the right opportunity present itself. “Boards will now need to juggle new demands in this environment. They will have to maintain investor confidence, win the competition for scarce capital, adapt to changing market conditions and exploit opportunities for growth. The winners will avoid the temptation of inertia and have the confidence to use their capital at a time when rapid decision-making could make the crucial difference between success and failure elsewhere,” says Hughes. “The market will divide into those who quickly adapt and thrive and those who play by the old rules for these very new market conditions. A nimble response is needed, no matter the size of the organization – much like time and tide, market share waits for no-one.”

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BODY: Rise in auditor reports of irregularities SANCHIA TEMKIN Professional Services Editor THE Independent Regulatory Board for Auditors (Irba) has received 857 reports of alleged irregularities and contraventions of accounting regulations by South African companies since April 1, with four months still to go in this financial year. This is fast approaching the number notified in the previous financial year of April last year to March this year. Bernard Agulhas, CEO of Irba, said yesterday: "We believe the rise in reportable irregularities is indicative of the fact that auditors have become increasingly aware of the consequences of not reporting, but could also be the result of an increase in white-collar crime." Agulhas said this was good news as far as reporting was concerned, because reportable irregularities were part of larger initiatives to eradicate commercial crime. "Hopefully it's bad news for white-collar criminals," he said. Auditors who fail to report an irregularity run the risk of a 10-year jail sentence. Unlike in the past, firing the auditor to make the problem go away is not an option, and directors must respond to auditors' information properly. Agulhas said: "One of our recurring queries from auditors is whether or not they may notify clients if they find a reportable irregularity." He said the guidance issued by Irba was clear. Firstly, the auditor needed to consider whether it was a potential reportable irregularity. If so, they had to discuss it with the client's management before sending a report to Irba. The auditor then has 30 days in which to confirm to Irba whether it was, in fact, a reportable irregularity. If not, Agulhas said, Irba closed the file. However, if it did turn out to be an irregularity, the matter was reported to the relevant regulator. "It would be useful if the other regulators provided regular feedback to Irba on the actions they had taken when we report a reportable irregularity to them," he said, "and Irba continues to encourage regulators to monitor and report progress with any investigations they may institute as a result of reportable irregularities reported to them." Irba issued a guide to assist auditors to get more clarity on important matters such as who has the responsibility to report, when an irregularity is reportable, the process to be followed, interpretations of what constitutes management, and the effect on the audit report.‌

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Asda loses 18-month flapjack VAT disput…

Asda loses 18-month flapjack VAT dispute with the taxman - Accountancy Age The issue of whether products can be zero-rated for VAT purposes has always been fought tooth and nail by businesses and the taxman. There have been battles over smoothies, teacakes (M&S’ victory was worth £3.5m) Jaffa Cakes and now flapjacks have hit the courts. Gill called for a level playing field to be established: “It’s difficult to see in some of the other products [that have gained VAT exemptions] how it is so different, but the judges were very fair nonetheless.” The flapjacks case arose after former professional wrestler turned entrepreneur Chris Thompson developed Crohn’s disease, which saw him suffer rapid weight loss. He devised the idea of high energy seed-stacked flapjacks and made a successful pitch to business tycoon Peter Jones in an Asda “Dragons’ Den”-style competition. This led to the flapjacks hitting the shelves of the supermarket giant but the taxman took issue with the product’s exemption from VAT, HMRC claiming it was “confectionary” not a “cake”. Asda argued the product was to be a “Seed Stacked flapjack”, a traditional “oat flapjack but with added seeds for health and digestive benefits”. HMRC argued that “the difference between flapjacks and cereal bars has narrowed due to the development of cereal bars and their current proliferation on the market.” Tax judges ruled the flapjack was a cereal bar, which led to the standard rating, but CioT’s policy chief also called for the kinks in law to be ironed out. “36 years after the introduction of something that was supposed to simplify tax we’re still talking about the difference between a cake and a biscuit,” Whiting added. IN OUR VIEW In the wider scheme of things, the decision shows businesses and entrepreneurs face a climate of uncertainty because the rulings are arbitrary as every product has its own unique list of ingredients, which may or may not match the criteria needed to win an exemption.

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FRC urges caution on KPMG audit mix - …

FRC urges caution on KPMG audit mix Accountancy Age Last week the FRC urged companies to use caution when considering the arrangement while it investigates whether they are in line with ethical standards. A statement said: “Paul Boyle, chief executive of the FRC, said companies should be ‘cautious’ not least because it could prove to be inconvenient and/or costly to change such arrangements should [the FRC change] the Ethical Standards”. The news came in a week when Kevin Chidwick, FD of FTSE 100 car insurer Admiral Group, told Accountancy Age he would consider using the service. In the past KPMG itself said it was receiving interest in the package. Debate began on the issue in July when Rentokil, announced a switch from long-term auditor PricewaterhouseCoopers to KPMG, which promised to significantly reduce audit costs by extending the external audit work to areas commonly performed by internal auditors. The arrangement raised eyebrows among the Big Four, with some concerned it could be skirting ethical guidelines. Audit standards warn against two threats when an external auditor undertakes internal audit work. The first, known as the self-review threat, warns against an auditor reviewing its own work. The second, known as the management threat, warns against internal auditors, performing a management role.

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Deloitte hits back after Woolworths’ form…

Deloitte hits back after Woolworths’ former board blames firm for failing - City AM Monday, 16th November 2009 RETAIL City accountancy firm Deloitte yesterday hit back at claims from Woolworths’ former directors holding it responsible for the high street retailer’s demise. Woolworths’ former chairman Richard North, and former chief executive Steve Johnson complained that Deloitte’s dual role as both adviser to Woolworths and administrator to the business when it collapsed last November constitutes a potential conflict of interest. North and Jones have argued that Deloitte decided not to back an emergency rescue plan by Woolworths’ management team, which would have saved the majority of the business, due to its interest in the higher fees it would pocket as administrator. Deloitte has made £3.8m in fees after the 99-year-old pick ‘n’ mix chain collapsed in what became the most high-profile retail casualty of the downturn. Close to 30,000 jobs were lost, and 800 stores shut – 70 per cent of which remain empty one year on. But Deloitte has rejected any claim that any of its decisions were based on its fees. It said: “Woolworths failed because it was losing money and had no cash. It was the directors themselves, not the banks, who appointed Deloitte as administrators, based on the realisation that the company had run out of money and could not continue trading on a solvent basis. Deloitte added: “We are never driven by the fees available but simply by the pure economics of the options for the creditors.”

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IASB completes first phase of financial ins…

IASB completes first phase of financial instruments accounting reform The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity – an objective endorsed by the Group of 20 leaders (G20) and other stakeholders internationally. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39. Thus IFRS 9 improves comparability and makes financial statements easier to understand for investors and other users. The IASB has received broad support for its approach. This became evident during the unprecedented global scale of consultation and outreach activity it undertook in order to refine proposals contained within the exposure draft published in July 2009. Round table discussions were held in Asia, Europe and the United States. Interactive webcasts, each attracting thousands of registered participants, have been held, often on a weekly basis. In addition, more than a hundred meetings have been held with interested parties around the world during the past four months. The views expressed to the IASB during its consultations resulted in the proposals being modified to address concerns raised and to improve the standard. For example, IFRS 9 requires the business model of an entity to be assessed first to avoid the need to consider the contractual cash flow characteristics of every individual asset. It requires reclassification of assets if the business model of an entity changes. The IASB changed the accounting that was proposed for structured credit-linked investments and for purchases of distressed debt. The IASB also addressed concerns expressed about the problems created by the mismatch in timings between the mandatory effective date of IFRS 9 and the likely effective date of a new standard on insurance contracts. Furthermore, in response to suggestions made by some respondents, the IASB decided not to finalise requirements for financial liabilities in IFRS 9. The IASB has begun the process of giving further consideration to the classification and measurement of financial liabilities and it expects to issue final requirements during 2010. A feedback statement providing comprehensive details of how the IASB has responded to comments received through the consultation process is available for download by clicking here. The effective date for mandatory adoption of IFRS 9 Financial Instruments is 1 January 2013. Consistent with requests by the G20 leaders and others, early adoption is permitted for 2009 year-end financial statements. Commenting on IFRS 9, Sir David Tweedie, Chairman of the IASB, said: We have delivered on our commitment to the G20 and stakeholders internationally to provide an improved financial instrument standard for the classification and measurement of financial assets for use in 2009. Benefiting from unprecedented levels of consultation with stakeholders around the world, the IASB has made significant changes in its initial proposals to improve the standard,…/IASB+completes+first+phase…

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IASB completes first phase of financial ins…

provide enhanced transparency and respond to stakeholder concerns. IFRS 9 Financial Instruments is available for eIFRS subscribers from today. Printed copies will be available shortly, at £15 plus shipping, from the IASC Foundation Publications Department. Those wishing to subscribe to eIFRSs should visit the IASB online shop or contact: IASC Foundation Publications Department, 30 Cannon Street, London EC4M 6XH, United Kingdom. Tel: +44 (0)20 7332 2730 Fax +44 (0)20 7332 2749 Email: Web: Press enquiries

For press enquiries, please contact: Mark Byatt, Director of Corporate Communications, IASB Telephone: +44 (0)20 7246 6472 Email: Sonja Horn, Communications Adviser, IASB, Telephone: +44 (0)20 7246 6463 Email: Technical enquiries

For technical enquiries, please contact: Gavin Francis, Director of Capital Markets, IASB Telephone: +44 (0)20 7246 6901 Email: Sue Lloyd, Senior Technical Consultant, IASB Telephone: +44 (0)20 7246 6454 Email: Liz Figgie, Senior Project Manager, IASB Telephone: +44 (0)20 7246 6925 Email:

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BODY: ABSTRACT Beginning in 2011, International Financial Reporting Standards (IFRS) will replace the standards currently in the CICA Handbook -- Accounting, as Canadian GAAP for publicly accountable enterprises (PAE). While PAEs are busy preparing for this change, the Accounting Standards Board has been taking the necessary steps to ensure that IFRS is available for use in Canada when needed. Once the IFRSs now in force have been added to the Handbook, they will require updating to reflect changes made by the International Accounting Standards Board. FULL TEXT Beginning in 2011, international financial reporting standards (IFRS) will replace the standards currently in the CICA Handbook - Accounting, as Canadian GAAP for publicly accountable enterprises. While PAEs are busy preparing for this change, the Accounting Standards Board (AcSB) has been taking the necessary steps to ensure that IFRS is available for use in Canada when needed. Because of the many references in Canadian legislation to Canadian GAAP and the Handbook, the AcSB cannot simply tell Canadians to report in accordance with IFRS. Instead, the board must incorporate IFRS into the Handbook. First, it must expose IFRS for public comment in Canada, as is normal due process for proposed Handbook changes. The AcSB began the process of exposing IFRS in spring 2008. Rather than expose the standards individually, it grouped them in a series of omnibus IFRS exposure drafts. The first two exposure drafts were issued in April 2008 and March 2009. Each exposed the IFRSs included in the most recent bound volume of IFRSs from the International Accounting Standards Board (IASB), and asked if there is any reason why a particular standard would not work in Canada. It addressed other issues, including the definition of a PAE, and presented a draft of new introductory material for the Handbook once it contains IFRS. Based on the comments received, the AcSB continues with its plans to incorporate IFRS into the Handbookby the end of 2009. The third and final omnibus exposure draft, Adopting IFRSs in Canada, III, was issued early this fall. Comments are requested by November 15, 2009. Once the IFRSs now in force have been added to the Handbook, they will require updating to reflect changes made by the I ASB. This will be done on a real-time basis by exposing the IASB's proposals individually as they are published. The AcSB has already issued separate exposure drafts of some recent IASB proposals because of the nature or importance of their subject matter. Keep informed by subscribing to website updates or by viewing Exposure Drafts at

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HM Revenue & Customs: National Insura…

HM Revenue & Customs: National Insurance and PAYE Service (NPS) - tax agents and advisers’ issues HM Revenue & Customs (HMRC) is committed to delivering an improved service to its Pay As You Earn (PAYE) customers who rely on them to ensure that they’re paying the right amount of tax and National Insurance, at the right time. A new system for processing PAYE, the National Insurance and PAYE Service (NPS), which has one single record for each individual customer containing all their PAYE details, is helping make this happen. As a result, in the majority of cases, a customer’s question can be answered at the first point of contact with HMRC. This means that most customers will only have to make one phone call to HMRC to have all of their tax and National Insurance issues resolved, saving them time and expense. The new system is being introduced in three phases. The first upgrade in June 2009 was successfully delivered on schedule. This was the biggest change to PAYE processing in 25 years and further upgrades in November 2009 and April 2010 will build on the changes that have already been implemented. NPS is working well. HMRC is, however, aware of some specific issues that might affect tax agents and advisers following its introduction. They want to let you know what action they’re taking, or what you need to do to put things right. System issues that may affect tax agents and advisers

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HM Revenue & Customs: Corporation Ta…

HM Revenue & Customs: Corporation Tax Online - prepare your software From 1 April 2011, for any accounting period ending after 31 March 2010, all Company Tax Returns must be filed online with accompanying accounts and computations in Inline eXtensible Business Reporting Language (iXBRL) format. In preparation for this, HM Revenue & Customs (HMRC) is updating their Corporation Tax Online service on 23 November 2009. Although the main features of the online service will remain the same, many existing filing software products that enable you to file your Company Tax Return online will no longer be accepted by HMRC systems from this date. To file online on or after 23 November 2009, you need to make sure that your software incorporates the latest upgrade; otherwise it might not work properly. You should check with your software supplier if you haven’t already done so. The current HMRC Corporation Tax online return form will also be withdrawn and replaced with updated software on 23 November 2009. If you plan to use the online return before then, HMRC recommend you do so by 18 November 2009. If you have any data saved on the current HMRC online return you must make sure that you save it onto your own computer before 19 November 2009. You won’t be able to access your data through the HMRC Corporation Tax online filing service after that date. More about Corporation Tax Online and online filing requirements

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Accounting Standards Board - Press Noti…

Accounting Standards Board - Press Notices The Accounting Standards Board (ASB) has today published a Financial Reporting Exposure Draft (FRED) proposing an amendment to FRS 25 (IAS 32) ‘Financial Instruments: Presentation‘. The proposed amendment requires a rights issue involving the exchange of a fixed number of an entity’s own equity instruments for a fixed amount of cash denominated in a foreign currency to be classified as an equity instrument. The proposed amendment follows the issue of ‘Classification of Rights Issues – Amendment to IAS 32’ published by the International Accounting Standards Board (IASB) in October 2009. The IASB amendment was issued in response to a practical problem highlighted as a result of the global financial crisis. During the crisis there has been an increase in the number of entities using rights issues to raise capital. If these rights issues are denominated in a foreign currency, then under the current rules in FRS 25 they are classified as derivative liabilities. The proposals state that if a fixed number of rights, options or warrants are issued pro rata to an entity’s existing shareholders for a fixed amount of foreign currency, these should be classified as equity regardless of the currency in which the exercise price is denominated. The rationale is that the proposed amendment better reflects the substance of the rights issue, which is a transaction with shareholders in their capacity as owners. The FRED proposes parallel amendments to FRS 25 with the objective of ensuring that FRS 25 remains fully converged with IAS 32. The comment period for the FRED closes on 15 December 2009.

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Financial Reporting Council - Press Notices

Financial Reporting Council - Press Notices The Financial Reporting Council (FRC), the United Kingdom’s independent regulator responsible for promoting confidence in corporate reporting and governance, has published two documents highlighting the challenges being faced by audit committees and users of actuarial information arising from the difficult economic conditions. The current economic outlook appears to be less depressed than this time last year. However, significant economic risks remain and will present challenges for many during the 2009/10 reporting season. Past experience shows that insolvencies have increased after the technical end of recessions as companies run out of working capital. Such conditions mean that the next twelve months are likely to be particularly difficult for directors, trustees and management and increase the risk that annual reports and accounts misreport facts and circumstances and contain unidentified errors and omissions. The current year questions for audit committees focus upon the risks that arise as companies change their business models to help manage through the effects of a significant recession. Such changes often involve modifying the terms of trade including arrangements with pension funds. The existence of such changes may call into question whether accounting policies remain appropriate, whether internal control systems capture all of the relevant data in a reliable way and whether assumptions used in models for accounting and actuarial purposes are appropriate in the circumstances. The current year questions for users of actuarial information are particularly relevant to the governing bodies of insurers and pension schemes, but may also be useful for scheme sponsors, auditors and audit committees. The questions focus on the risks surrounding the business model, how those risks are managed, on understanding the key assumptions and cash flows underlying discounted values and on the quality controls on actuarial work. Ian Wright, Director of Corporate Reporting of the FRC said: “Many companies and pension schemes did sterling work last year to make sure that all material issues were captured properly and reported in an appropriate way in their financial reports. Whilst there are some positive economic signs we must be even more alert to the risk of error and omission at this time given the risk of a rise in insolvencies over the next few months”. Louise Pryor, Director, Actuarial Standards of the FRC said: “The last year has demonstrated how critical it is to understand risk and uncertainty when making significant and complex financial decisions. Trustees, directors and others who base their decisions on actuarial information need to be sure that they and their actuaries have a shared understanding of the relevant risks”.

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Financial Reporting Council - Press Notices

Financial Reporting Council - Press Notices On 11 September Lord Mandelson, Secretary of State for Business, Innovation and Skills announced that he had asked the FRC to consider various matters raised in the report of the inspectors appointed under the Companies Act to investigate the affairs of Phoenix Venture Holdings Limited, MG Rover Group Limited and 33 other companies. The FRC has written to the Department for Business, Innovation and Skills with a report of the progress on its review. The main points made in the report include: The investigation by the Accountancy and Actuarial Discipline Board into the conduct of Deloitte & Touche LLP as auditors and advisers to the MG Rover Group, which was initiated in August 2005, continues and is taking into consideration the information contained in the inspectors’ report. The results of the investigation, which may take several more months to complete, will be announced in due course. The Accounting Standards Board is considering whether to enhance the disclosure requirements relating to transactions with group companies in UK Financial Reporting Standard 8 (“Related Party Transactions”) and to going concern in UK Financial Reporting Standard 18 (“Accounting Policies”). If the Board concludes that any changes are warranted it will consult publicly. The Auditing Practices Board is considering whether to amend auditing standards to require more informative audit reports. If the Board concludes that any changes are warranted it will consult publicly. The Auditing Practices Board is considering the implications of the matters covered in the inspectors’ report for the review which is already underway of the extent to which it is appropriate for auditors to provide non-audit services to their audit clients. The FRC has also drawn to the attention of the Government that the Regulations made under the Companies Act 2006 do not include a requirement for disclosure by a company of fees paid to its auditors by the directors of the company or entities controlled by them. It is at least arguable that readers of financial statements would have an interest in those amounts in addition to the amounts paid directly by the company and its subsidiaries. The content of these Regulations is a matter for the Government and the FRC has recommended that they be reviewed after the results of the APB consultation on non-audit services are known.

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Financial Reporting Council - Press Notices

Financial Reporting Council - Press Notices The Financial Reporting Council (‘FRC’) has written to Mr John McFall, Chairman of the House of Commons Treasury Committee to inform the Committee of the steps which it has taken in connection with the Committee’s Ninth report of Session 2009-09 “Banking Crisis: reforming corporate governance and pay in the City”. The report contains a number of recommendations which are either expressly addressed to the Financial Reporting Council or one of its operating bodies or deals with matters which are within our responsibilities. Paul Boyle, FRC Chief Executive, said: “The Treasury Committee made a number of significant recommendations in relation to corporate governance, corporate reporting and auditing. We welcome their interest in our work and we hope that publication of our response to the Committee’s Report will be helpful to our stakeholders in understanding the steps we have taken or are taking in relation to the matters within the scope of the FRC’s responsibilities.” The main points made in the letter to Mr McFall include: During its current review of the Combined Code on corporate governance the FRC has been working closely with Sir David Walker who has been reviewing the corporate governance of banks and other financial institutions (‘BOFIs’). The FRC has sought views as to the extent to which Sir David’s draft recommendations for BOFIs should be incorporated into the Code. The FRC has work underway in relation to a number of the issues raised by the Committee on the work of auditors. Specifically the Auditing Practices Board has initiated a consultation on the provision by auditors of non-audit services to their audit clients. The FRC is also continuing its work on mitigating the risks posed by the degree of concentration in the audit market. The FRC has also completed or initiated work dealing with a number of the Committee’s recommendations on corporate reporting. The FRC has recently finalised update Guidance for Directors on Going Concern and Liquidity Risk and earlier this year it launched a discussion paper (“Louder Than Words”) on the complexity and relevance of corporate reports. A review of narrative reporting recently published by the Accounting Standards Board highlighted the importance of companies articulating clearly their business models.

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Corporate insolvency market faces fair tr…

Corporate insolvency market faces fair trade probe - Accountancy Age It follows recent concerns raised by the government and Insolvency Service over the way insolvency practitioners are appointed. The study will collect and analyse data from accountancy firms, law practices, government, regulators and trade bodies, with the OFT planning to release its findings at the end of 2010, unless it is necessary to conduct a second stage. Clive Maxwell, OFT senior director of services, said: “We want to identify any potential problems within the corporate insolvency market to ensure that firms and practitioners are competing freely and that the market is working well for the end consumers. Efficient insolvency services are an important component of a modern market economy.” Listed accountancy company Tenon welcomed the announcement, stating that it supported “our long held belief that a competitive and transparent market within the insolvency industry is in the best interests of all stakeholders, including practitioners, creditors and the public”.

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Companies Act 2006 | Publications | Mem‌

Companies Act 2006 | Publications | Members | ACCA By Barinder Chadha, Glenn Collins

Studying this technical article and answering the related questions can count towards your verifiable CPD if you are following the unit route to CPD and the content is relevant to your learning and development needs. One hour of learning equates to one hour of CPD. We'd suggest that you use this as a guide when allocating yourself CPD units. The Companies Act 2006 is described as the largest act to pass through Parliament. With over 1,300 sections, it has been a long journey from its royal assent in November 2006, with parts and sections coming into force at various times. There are a number of changes that came into force on 1 October 2009; however, the most significant changes are listed below: Registrars powers, Single Alternative Inspection Location (SAIL) and document retention; Form changes; Incorporation; Change of constitution; Change of company name; Directors' service addresses; Administrative restoration; Voluntary dissolution; and Share capital/statement of capital. It is important that existing companies review their articles and consider if amendments are needed. Some of the changes introduced by the Act will not be reflected in the existing articles and do not apply automatically. The changes to consider are electronic communication, authorised share capital, objects clauses, meetings, the requirement of a secretary and directors' conduct. There is an extension to the registrars' powers to include the form and manner in which a company delivers its documents. In addition, the registrar can decide what documents are needed and has scope for electronic delivery of documents. This falls in line with the impending changes to the filing platform that will be accepted for company filing. Companies House will require filing to be submitted using the filing platform Inline eXtensible Business Reporting Language (iXBRL) from summer 2010.‌/3262636

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There are certain documents to which these new powers do not extend: Incorporation documents; Change of company name; Re-registration; Becoming or ceasing to be a community interest company; Reduction of share capital; Change of registered office; Registration of a charge; and Dissolution. The Act also introduces changes to arrangements when inspecting company registers. A company may need to hold as many as 13 registers, which must be held at either the registered office or at the Single Alternative Inspection Location (SAIL). If a company wishes to set up a SAIL address, it must notify Companies House and state which registers will be held at this address. The previous requirement for the registrar to retain paper documents has reduced from 10 to three years, after which the documents are destroyed, providing the information contained in them is copied. For dissolved companies, the registrar retains the documents for two years after dissolution and then may direct the documents to the Public Record Office.

Form changes There has been, and will be, a rationalising process of the forms that a company needs to submit. Up to 1 October there were approximately 200 forms a company could submit. These have been, and will be, brought up to date, deleted and/or replaced where necessary. In certain areas the number of forms will increase; for example, the director and secretary forms 288a, 288b and 288c are being replaced by four appointment (AP01, AP02, AP03 and AP04), two termination (TM01 and TM02) and four change of details (CH01, CH02, CH03 and CH04). It is worth checking when filing that the form is still applicable, as it is likely to have been updated. Links are available at chnical

Incorporation A key feature of the new Companies Act was to simplify the administrative burden that companies faced. For example: no requirement to hold an annual or general meeting; all shares being fully paid up; removal of directors' retirement clauses; the concept of single member companies; simplified directors' decision-making; and removal of authorised share capital. In line with this overall philosophy, the incorporation procedures will make it easier to set up and run a company. The new procedure for incorporating a company will start with the submission of Form IN01, together with the memorandum of association; articles of association; and correct fee. The memorandum of association may conjure up images of a lengthy, legalistically written document of the past, mainly due to the objects clause. The new document will, in effect, be a form-filling exercise. The new document 322/5 / 40‌/3262636


Companies Act 2006 | Publications | Mem‌

no longer requires an objects clause, as a company's objects are unrestricted. There may be situations where the company's objects are to be restricted; for example, for charitable companies, community interest companies or joint ventures. There may also be other instances where companies may wish to restrict actions; for example, having the option of conference call board meetings may not be suitable for every company. The memorandum must be in the prescribed form and authenticated by each subscriber of shares. The details must include: The company's proposed name; Whether the company's registered office is to be situated in England and Wales (or in Wales), Scotland or Northern Ireland; Whether the liability of the members of the company is to be limited, and if so whether it is to be limited by shares or by guarantee; Whether the company is to be a private or public company; In the case of a company that is to have a share capital, a statement of capital and initial shareholdings; In the case of a company that is to be limited by guarantee, a statement of guarantee; A statement of the company's proposed officers; A statement of the intended address of the company's registered office; and A copy of any proposed articles of association. For details on the form and content of the memorandum of association, please view schedule 1 and 2 of The Companies (Registration) Regulations 2008 (SI 3014) at From 1 October, the new model articles have superseded table A as the default for companies. They have sensibly not been drafted as a one-size fits all in the mould of the old table A. The three model articles available are for a private company limited by shares; a private company limited by guarantee; and a public company. The model articles can be found at

Changes of constitution Companies Act 2006 introduced the concept of entrenchment. Entrenchment provisions can be detailed in the articles of association and established restrictions. Theses can be included before or after the company's formation. Where there are changes to the constitution of a company, changes need to be informed. Changes include: The presence and removal of such provisions of entrenchment; When the company amends its articles and these contain provisions for entrenchment; and When the company's constitution is amended by court order or by enactment.

Company name change The process of changing a company's name will now be simpler. There are four methods to change the name: By resolution; By conditional resolution; By resolution from the directors; or‌/3262636

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By means provided in the company's articles. Since October 2008, a company's name could be changed via the Company Names Tribunal, usually preceded by a complaint. This is administered by the Patent Office. More information is available at The treatment of names has also been changed. The rule concerning similar names, often described as the 'same as' rule, the definition of 'same as' is now stricter. When looking at the 'same as' rule, names such as 'GB', 'services' and 'com' are ignored. Companies that belong, or are intending to belong, to a group are allowed to use similar names. In these cases, written consent must be given.

Directors' service addresses From 1 October 2009, all company directors must provide their usual residential address, together with a service address for each directorship held. The different treatment between the two types of address is that the serviced address will be in the public domain, with the residential address protected. The serviced address is one where documents can be delivered to and can, for example, be the company's address or the registered office, therefore preventing PO box and DX number addresses. The residential address will be kept private and will only be available to regulatory authorities such as the police, HMRC and perhaps credit reference agencies.

Administrative restoration This is in respect of company restoration, which was previously only the domain of the courts. The court role will remain, however. This will be supplemented in a limited number of circumstances with administrative restoration. This can be used when: The company was carrying on business, or in operation, at the time of dissolution; The company has been struck off under section 1000 or 1001 of the Companies Act 2006; The application is made within a period of six years after the date of dissolution; The application is made by a former director or former secretary of the company; The Crown has signified consent, a bona vacantia issue; The company has delivered all the necessary documents to bring the company up to date; ie, all outstanding documents at the time of dissolution and any due during the period of dissolution. From 1 October 2009, voluntary dissolution will be available to plcs.

Share capital The requirement for an authorised share capital will disappear for 1 October 2009, but the available capital to issue will still remain for existing companies formed prior to 1 October that have not made the amendment. It will also not need to be stated on the memorandum of association. In addition, there is significant relaxing of the rules governing the ability to issue private company shares, where only class of shares are in issue. Reserve capital is also abolished from 1 October 2009. The relaxing on share capital falls in line with the relaxing on reduction of share capital, acquisition of own shares,‌/3262636

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financial assistance and the simplification of share class rights. Companies incorporating on or after 1 October 2009 will have to complete a statement of capital and initial shareholdings. This information is again repeated on the annual return submitted on or after 1 October 2009, and on the following forms referring to: Allotment of shares; Notice of consolidation, subdivision of shares or reconversion of stock into shares or redemption of redeemable shares; Redenomination of shares; Reduction of capital as a result of redenomination; Cancellation or repurchased shares, or (for plcs) immediate cancellation of shares repurchased into treasury; Subsequent cancellation of shares held in treasury by a plc; and Cancellation of shares held by or for a plc in accordance with Section 662 of Companies Act 2006. Barinder Chadha is a technical adviser at ACCA and Glenn Collins is ACCA UK's head of advisory services View the multiple choice questions

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Revenue recognition | Publications | Mem‌

Revenue recognition | Publications | Members | ACCA By Graham Holt

Studying this technical article and answering the related questions can count towards your verifiable CPD if you are following the unit route to CPD and the content is relevant to your learning and development needs. One hour of learning equates to one hour of CPD. We'd suggest that you use this as a guide when allocating yourself CPD units. The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) recently published a discussion paper setting out a joint approach for the recognition of revenue. Revenue-recognition requirements in US GAAP differ from those in International Financial Reporting Standards (IFRSs) and both are considered in need of improvement. A major cause of complexity appears to be the overabundance of FASB revenue-recognition rules in comparison with the IASB standards. Many of the standards are industry-specific and some can produce conflicting results for similar transactions. The number of FASB's revenue-recognition rules has grown to more than 100 standards, plus rule exceptions addressing over 20 different industries. Although IFRS contain fewer standards on revenue recognition, its standards have conflicting principles, and can be difficult to understand and apply beyond simple transactions. Both bodies of standards have led to diversity in practical application and a skewing of economic reality. The boards' objective is to develop a single revenue model that can be applied consistently, regardless of industry. Under the proposed standard a company would recognise revenue when it satisfies a performance obligation by transferring goods and services to a customer as contractually agreed. This principle is similar to many existing requirements and the boards expect that most transactions would remain unaffected. Revenue recognition is an area susceptible to a range of errors and possibly fraud. The proposed model applies to contracts with customers. The discussion paper defines a contract as 'an agreement between two or more parties that creates enforceable obligations'. A customer is defined as 'a party that has contracted with an entity to obtain an asset (such as a good or service) that represents an output of the entity's ordinary activities.' Agreements do not have to be in writing to be a contract. In principle the model could apply to all contracts, but there is uncertainty about whether it is appropriate for some financial instruments; insurance contracts; and leasing contracts. In a contract, an entity receives consideration (rights) from, and promises to transfer assets (performance obligations) to, a customer. Under the proposed model, the rights and obligations give rise to a net contract position and revenue is recognised when a contract asset increases or a contract liability decreases as an entity satisfies its performance obligations.‌/3262643

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The key change from the current model is that revenue will be based on the changes in contract assets and liabilities. All contracts (with the possible exception of the above) would be analysed into contract assets and contract liabilities. Revenue would only be recognised when either the net contract liability is reduced or the net contract asset has increased, both as a result of the entity discharging its contract liabilities by performance. Revenue should only be recognised on the fulfilment of a performance obligation under a contract. The transfer of control evidences fulfilment.

Example 1 Entity A agrees to sell Entity B a product for £30,000, which is 'the transaction price'. Entity A has an obligation (and therefore a liability) to provide a product worth £30,000 and a right to receive payment (and an asset of £30,000). The net position is zero. The position changes when Entity A completes the sale and has no further obligation. Entity A still has an asset of £30,000 (the money due from the customer), but no further obligation and therefore a liability of zero. The net position in the contract as a result of the satisfaction of the performance obligation is now an asset of £30,000, and so the business would recognise £30,000 revenue.

Challenges and changes The focus on the transfer of assets via control may change many existing revenue models. Current revenue standards consider other criteria, such as when risks and rewards are transferred to the customer, or when collectability is reasonably assured. The proposed model could have a considerable impact on the timing of revenue recognition if control of an asset transfers at a different time than the transfer of risks and rewards. Collectability could potentially impact the measurement of the contractual rights, but may not by itself preclude revenue recognition. In some cases, the transfer of control of an asset coincides with the transfer of risks and rewards of owning an asset, but in other cases it may not. This proposal may present challenges for companies that do not determine the satisfaction of a performance obligation by evaluating the transfer of control of assets to customers. It is difficult to assess whether the paper contains sufficient information about how control would be determined in practice to decide whether the principles can be applied consistently to complex transactions such that their substance is articulated. The paper considers control to pass only when the goods or services are delivered to the customer, but it is arguable that, for bespoke and customised items, the specification and output of these items may be controlled from the outset by the customer, and so the customer is able to restrict the control the supplier has over the asset. Transfer of control may be difficult to determine even in many quite simple service contracts, and it is apparent entities can interpret the notion of control in very different ways. Although this seems conceptually straightforward and follows the IASB's framework 'balance sheet' approach. Entities are going to have to identify what performance obligations have to be satisfied (the delivery of either a good or a service) and allocate a value to each. Additionally, construction contracts, which are currently covered by IAS 11, Construction contracts, fall within the scope of this project. Thus, it will be important to identify when performance has been satisfied, as it could take place over a period of time, or at the very end of a project.…/3262643

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Revenue recognition | Publications | Mem…

The IASB acknowledges that there are several areas where further consideration is required. This includes the measurement of contract assets, how much someone is going to pay the entity to satisfy the obligations, the impact of any changes to contractual terms, how revenue will be presented, and a decision on whether and how the fair value of certain performance obligations should be measured. Revenue for construction contracts would be recognised during construction, only if the customer controls the item as it is constructed. This could lead to revenue being recognised later than at present. However, if construction activities continuously transfer assets to a customer, then the proposed model would not significantly change the present IFRS-based practice of recognising revenue for construction-type contracts during the construction phase. The timing of revenue recognition could be close to current practice, or considerably different, depending on the application of the key concepts, such as when an asset is transferred and when the customer has control of the asset. Guidance on the transfer of control needs to be provided in order to make the principles operational. A single, contract-based revenue-recognition model will always allow entities to manage the timing of revenues by the changing of the contract terms, but strict application of legal form of the contract will result in differing treatments, depending on the laws of different countries. Performance obligations must be identified and separated. For example, a warranty, or a guarantee, or a right of return may be identified as separate performance obligations. A sale with a warranty involves two distinct performance obligations. First, there is the sale of the goods specified in the contract. Second, there is the obligation to do whatever the warranty specifies. The criteria in existing standards will no longer be relevant. Companies will separate the performance obligations in a contract whenever a company transfers the promised assets to a customer at different times. The transaction price will be allocated to separate performance obligations. Current practices of accruing warranty costs at the time of revenue recognition may be eliminated. Instead, a warranty may be considered a performance obligation to which a portion of the total consideration will have to be allocated and then recognised as revenue when the warranty obligation is satisfied. The satisfaction of the warranty obligation may not necessarily occur evenly over the contract life. Rights of return are accounted for using an estimated failed sale model where, if certain conditions are met, revenue is reduced to reflect estimated returns. The boards are uncertain as to whether rights of return should be treated as either a performance obligation or a failed sale.

Example 2 An entity sells an item with a warranty for £20,000. If it sold the item and the warranty separately it would cost £18,000 for the goods and £3,000 for the warranty. The overall transaction price of £20,000 would be allocated prorata to the two distinct obligations. The sale of goods element would be £17,143, and the amount allocated to the warranty element would be £2,857. The business would recognise revenue of £17,143 on the sale of the goods and recognise revenue of £2.857 relating to the warranty over its life.

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Revenue recognition | Publications | Mem‌

The boards have proposed a single revenue recognition model that can be applied consistently across a range of industries and geographical regions. The boards will review the comments received on this discussion paper and modify or confirm their preliminary views. They will then use the views to develop for public comment an exposure draft of a comprehensive standard on revenue recognition. Graham Holt, ACCA examiner and principal lecturer in accounting and finance, Manchester Metropolitan University Business School View the multiple choice questions

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