Professional Magazine by Ahmed Al-Juboori

Professionals' Magazine

Supporting Iraqi Financial Sector Growth and Development :

Adoption and Implementation

of IFRS Standards.

EY's wirecard audit exposes potential fraud

be Positive

Supporting Iraqi Financial Sector Growth and Development : Adoption and Implementation of IFRS Standards

Reactions to UK chancellor's statement

Audit shakup a good 'first step'

+ financial

2021

Content's. FRC FINES KPMG £700,000 FOR POOR AUDIT BKR INTERNATIONAL APPOINTS NEW WORLDWIDE CHIEF

EXECUTIVE OFFICER Wirecard Drama of the Day: Germany’s Audit Cops Are Trying to Dig Up Some Dirt on EY SANCTIONS AGAINST KPMG

PWC HIT WITH TWO YEAR AUDIT BAN AFTER DECADE LONG FRAUD BATTLE IASB Decides on New Effective Date for IFRS 17 of January 1,

16 20 + strategy

22 24

The silver lining of the baltic banking crisis EY's wirecard audit exposes potential fraud

+ Finance Islamic

+ Quick News

Standards

Over a third of public bodies expect format disputes with the private sector when PFI contrats end

UK’S FRC: HIGH-QUALITY DISCLOSURES NEEDED TO REFLECT IMPACT OF COVID-19

Mentoring suport and the opportunity to detegate

AAOIFI makes all its standars accessible on its website on complimentary basis

AAOIFI Governance and Ethics board approves in principle the shari'ah decision making process exposure draft in its 19th meeting

IASB defers the effective date of amendments to IAS 1 AASB Proposes Modernization of Group Audits Standard in Support of Audit Quality

The Arab Monetary Fund and AAOIFI Join forces to Strengthen the Development of the Islamic Financial services Industry for the benefit of Arab Countries.

German Regulator Examines Auditor EY Over Wirecard Accounts IASB Issues Package of Narrow-scope Amendments to IFRS

36 26

2023

IFAC Releases the Fourth Installment of "Exploring the IESBA Code" Building a Coherent, Global Approach to Corporate Reporting

IASB Issues Amendment to IFRS Standard on Leases to Help Lessees Accounting for COVID-19-related Rent Concessions Application of IFRS 9 in the Light of the Coronavirus Uncertainty

AAOIFI issues standard on Waqf Goverance

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

BE POSITIVE.

2021

+ financial

During the past 50 years and even before it, when you meet anyone who works in human resources, he asks you to be positive and look at life with optimism, whatever the difficulties you face?

take it as a rule! It is a matter that may be difficult, because in our life we go through difficulties and even disasters. It is difficult to think in the midst of these difficulties and disasters, to think positively and smile? It's like putting your hand in hot boiling water and another person looking at you and saying to you, smile and think of life positively in the midst of how much frightening pain do you feel because of putting your hand in the hot boiling water? But surely the slogan "Smile and be positive so that you can go on with life" has become a slogan that everyone demands?

2020 and Covid-19 With the beginning of the frightening year 2020, the COVID 19 virus appeared on us in its heavy and frightening shadows and swept the world with all grace and no remaining country in the world did not take a decent share of this dreaded virus, and it attacked the most developed counwww.aljuboori.net

Mahdi Al-Juboori

tries in health systems such as Britain, Germany and the United States so that some doctors described the first wave That swept Britain and the daily frightening number of deaths, as something that did not happen even in World War II, all these deaths in one day and continuously. All pharmaceutical companies and global governments in the developed world have entered a race against time, no antidote to this horrific virus has been discovered, and everyone is still in the race until October, and it has not been issued for this day that we have reached a treatment or vaccine for this virus?

cause of their weak immunity, which consumed many years. As for other elderly people who were not hijacked by this dreaded virus, they are almost hiding, they fear even private visits with all the means of social distancing that Is it possible to follow? And I kidnapped a large number of health sector workers, including doctors and nurses, who were the first blocking wall and kidnapped the best of our youth who were opposite to the first case, who are still in their youth and the whole life opens its arms to them. Certainly, this virus visited all ages and all groups and filled the world with sad news.

This virus has invaded our Arab countries just as it has swept the whole world, and for some reason I do not know it, and I think that my colleagues working in the health sector in our Arab region do not know it either, because the number of deaths is much less, not comparable to the ones that struck the European Union, the United States, Brazil or other countries that have advanced to our countries. Arabic has a great distance in the health sector. This virus, while not being ferocious in our Arab region, but it was not a light-hearted visitor. Many elderly people were kidnapped be-

We must Remember to be Positive and Smile with all these pain and the large number of Victims that I am assured that no home in our Arab countries did not take its share of it ..

Remmember, If you are a father and your son has died and his son has children, then you should smile because his family no longer has anyone but you and they are looking at you to help them overcome this life. smile and be positive If your brother has passed away and left children, then you should smile because his family miss their father and they are looking for those who stand by them in this life path and they look at you .... smile and be positive If your friend passed away, his family will always remember your friendship with him, and they may remember this friend of yours, and they may need any support from you .... Smile and be positive If your father or mother died because of this virus, everyone in the house brothers or sons will look at you waiting for what you do to fill this void that the parents used to fill this void .... Smile and be positive Don't you think that we should smile and think positively ? Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

Growth and Development :

2021

Supporting Iraqi Financial Sector Adoption and Implementation of

IFRS Standards.

information harms the very foundations of an organization, undermining its strategic planning, health, and sustainability. As the country repositions itself on the path of economic growth and development, the IUAA is calling for clarification of the legal and regulatory framework and adoption of IFRS Standards as issued by the International Accounting Standards Board (Board).

- Ahmed Al-Juboori and Gabriella Kusz

Why IFRS Standards? Why Now?

Ahmed Al-Juboori

Gabriella Kusz

At the end of 2019, the national outlook for Iraq was optimistic. The country was emerging after four years of challenging economic conditions, GDP growth was positive, the non-oil sector was growing, and Iraq had been signatory to several key trade agreements with its neighbors. Overall, reconstruction efforts were proceeding at a reasonable pace and expectations were that this would continue. However, in early 2020, much of this positive progress ground to a halt. As countries around the world came to terms with the impact of the global pandemic, Iraq was faced with a dual health and economic crisis.

Insights from Supporting During COVID19

Businesses

As the country navigates the economic challeng-

www.aljuboori.net

es presented by the pandemic, the Iraqi Union of Accountants and Auditors (IUAA) has actively supported its members to provide business advisory, strategic planning, and accountancy services. IUAA members have assisted their clients in sectors including manufacturing, agricultural, healthcare, and others to respond to the crisis and contribute to the resilience of the Iraqi economy. Proximity to their clients, and the provision of direct, tailored support has given the IUAA a unique perspective when it comes to looking ahead and supporting businesses both during and post-COVID-19. While the pandemic has highlighted many issues of concern for the Iraqi private sector, in the opinion of the IUAA, chief amongst them is the fundamental weakness of the country’s current basis of financial reporting. Unreliable financial

IFRS Standards provide a high quality, internationally recognized set of accounting standards that enable the private sector to be transparent, accountable, and efficient. By enhancing the quality and the international comparability of financial information, IFRS Standards enable investors and other market participants to make informed economic decisions. Furthermore, IFRS Standards reduce the information gap between the providers of capital and the people to whom they have entrusted their money.Finally, IFRS Standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. For businesses, the use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs. The IUAA strongly believes that the use of IFRS Standards would not only help Iraqi companies align to global best practices and attract Foreign Direct Investment (FDI) but would also facilitate businesses’ presentation and assessment of their financial condition today as well as strategic planning of their businesses going forward.

IUAA Support for IFRS Standards

In support of their commitment to the economy, the IUAA has developed training programs and outreach on the subject of IFRS, engaged with regulators and legislators to raise awareness of the standards, and has been in active dialogue with the International Federation of Accountants (IFAC) to access resources and technical assistance. Furthermore, the IUAA will be entering into a collaborative agreement with the Institute of Chartered Accountants of England and Wales (ICAEW) to support the IUAA on its journey and developing a CPA roadmap for the country. Although this support will greatly advance accountancy in Iraq, the IUAA notes that the country’s current piecemeal regulations regarding the use of IFRS Standards and ambiguity regarding their adoption need to be addressed. IUAA recognizes that time, energy, and resources are needed to support client partners as they continue to face the challenges of COVID-19 and its economic and financial impacts. However, in addition to working through the challenges of today, the Iraqi financial sector must also address the underlying vulnerabilities of its financial reporting framework and ensure that the country and its enterprises are sufficiently prepared to meet the challenges of tomorrow. The adoption and implementation of IFRS Standards will facilitate this future-focus, helping the country regain its momentum and securing a brighter future for the Iraqi people.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

Changes included the temporary removal of stamp duty for properties under £500,000 ($629,550), the cutting of VAT in certain areas of the hospitality sector from 20% to 5%, and a range of incentives to encourage businesses to take on apprentices and trainees.

Shehab Al-Hitti

Below are some of the responses from the profession. The Chartered Institute of Management Accountants (CIMA) CEO – management accounting - Andrew Harding: “We welcome the Chancellor’s Financial Statement. Measures such as additional funding for traineeships, money to fund apprenticeships and support for young job seekers via the Kickstart scheme will be essential to aid short-term recovery. However, this statement does not go far enough to tackle the long-term challenges faced by the UK economy, which this crisis has only exacerbated (e.g. low productivity, high dependency on low-skill service sector jobs, regional imbalance, and weak social mobility).

“We have missed our first opportunity to help our economy back on a sustainable, sound footing. For example, the VAT cut on food, accommodation and attractions will only encourage relatively limited business and consumer spending in the immediate term. The Government needs a strategy to go further than it is has today and lay the groundwork to drive the long-term economic recovery it promised. This should include giving businesses and investors certainty on the tax and regulatory frameworks over the next two years to support inward investments, directing skills training towards jobs and sectors with real-wage growth potential, and designing appropriate measures to support SMEs and new startups. www.aljuboori.net

“Let’s hope the Chancellor

2021

REACTIONS TO UK CHANCELLOR’S STATEMENT

The UK chancellor Rishi Sunak announced a number of measures in parliament today [8 July] in an effort to help the UK economy recover from the Covid-19 pandemic.

doesn’t wait too long to address these challenges or we risk missing the boat to long-term economic recovery.” ACCA tax policy lead Jason Piper said: “Cutting VAT from 20% to 5% is an admirable attempt to stimulate demand. When combined with the eat out vouchers, we hope it will be effective in the short-term in achieving this aim. “The Chancellor’s restraint in not adjusting other areas such as payroll taxation will be welcomed by businesses already faced with adapting to the CJRS regime, although in the longer-term change may be needed and of course further furlough support would be welcomed. But even the current incentives will have an administrative impact, especially where not all elements of a given supply qualify for the reduced rate. “ACCA urges businesses, particularly those involved in accommodation and attractions, to familiarise themselves with the new guidance around VAT. We call on HMRC to be understanding around business capacity and forgiving of innocent errors on VAT as businesses acclimatise to the administrative complexity created by today’s announcement.” ICAEW CEO Michael Izza said: “After the enormous level of government financial support put in place in recent months to protect businesses and preserve jobs, the challenge the Chancellor

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

“Prior to the announcement, there had been speculation that there would be a general rate cut – which we have recently seen in an increasing number of countries. Given the limited impact the last cut to the VAT rate had in 2008, and that, under the terms of the withdrawal agreement with the EU, the maximum reduction would have been to 15%, it is not surprising that the Chancellor has restricted the measure. It does not of course rule out a further cut in the future if consumer spending needs further stimulus.

Michael Izza

“Mass unemployment would have a crippling effect on our economy and society and the Chancellor is right to make that his priority for now. However, at some stage the public finances must be restored, and action taken to reduce the huge debt the UK is carrying. The Chancellor must tackle this in the Budget later in the year, together with a comprehensive and sustainable strategy to bring on the long-term economic transformation we need to see over the next decade.

“There will doubtless be practical issues with implementing some of these measures, such as temporary cuts to VAT, and we will continto work closely with HMRC and other government departments to address these.”

Al-

varez & Marsal head of tax Marvin Rust said: “Businesses have been paralysed by the pandemic, yet the Government has not gone far enough in its efforts to breathe new life into the sectors worst hit. A VAT cut that only applies to the hospitality and tourism sectors ignores industries like retail and aviation that are crying out for additional help. These sectors have been shuttered for months and are struggling with cash flow, paying their rents and retaining employees. A cut to VAT and a national insurance holiday would have been a lifeline for these companies, but now they are forced to go without. “Despite the Government’s focus on jobs, without additional measures of support, many sectors will struggle to retain existing staff, let alone bring back all employees from furlough and recruit new colleagues – even with the state bonuses. Although the Chancellor talked about payment for the support over the medium term, he did not deliver the psychological assurance to consumers that there would be no tax rises in Income Tax or VAT in this Parliament.” PwC head of tax Marissa Thomas said: “The Treasury had seemingly been at pains to dampen expectations of tax cuts ahead of today’s statement but the Chancellor pulled some of the tax system levers to deliver a shot in the arm for the economy in the form of targeted reliefs on VAT and stamp duty. “While we will have to wait a few months until the Autumn Budget for a full picture of the UK’s post-Covid-19, post-EU exit tax system, today offered a clear indication of where the Chancellor’s priorities lie. Protecting jobs for the young is obviously top of the agenda. Disadvantaging young people now could cause permanent economic damage in the future, a concern the Chancellor has looked to address. “There are clearly some big decisions yet to be made. The tax system can be used as a mechanism to achieve the Government’s goals of ‘levelling up’ the economy, meeting its net zero targets and improving public services to redress the inequalities that have been further exposed by the pandemic. Looking forward, there will be an expectation on those who have benefitted the most from stimulus and support measures to play the biggest role in leading the recovery.

www.aljuboori.net

“There is no question that the next Budget will be one of the most important and significant in history.” EY head of indirect tax Jamie Ratcliffe said: “The Chancellor’s announcement is a welcome and targeted measure for the hospitality and leisure sector which has been impacted by COVID-19 and this VAT reduction from 20% to 5% is designed to help stimulate spending.

“Although this is a targeted response, implementation will be more complicated than it appears. There is a body of case law around when is food not food but catering, and already there is confusion among retail outlets over the categorisation of certain product offerings that contain both hot food and alcohol, for example the pie and a pint offer. The reduction in VAT will not apply to any alcoholic beverage, so outlets offering alcohol and food combinations will need to carry out product reviews immediately to be ready in time for next Wednesday. “Other businesses may be unwittingly caught by this – shops that have a restaurant; hospitals that provide catering and all businesses will need to determine if both purchases and supplies fall within the new reduced rate or not. “Based on experiences in 2008, the impact to business is much more than a simple change of rate in accounting systems. This will cut across the whole end-to-end VAT reporting cycle, processes, systems and data that businesses, however large or small, must adhere to. There will be many operational questions including how to treat pre-payments for accommodation and supplies that apply to the rate change.”

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

faced today was to engineer a soft landing for the economy when it is phased out – as it inevitably must be. He has made a good start, acting to rebuild confidence on one hand, while offering targeted and tailored help to companies to get them through to what we hope will be better times in 2021.

Jon Holt, head of audit at KPMG UK said: “It is clear however that operational separation of the UK’s audit firms is just the first step on the journey to restoring trust in UK plc. Along with the creation of a new, stronger regulator in ARGA, there must be an ambitious package of wider reforms across the corporate landscape. Including clarifying and enhancing the responsibilities of Boards, Directors and management in respect of corporate entity governance and the success or failure of the enterprise.” An EY statement declared that

Audit shake-up a good

step’

‘first

The Financial Reporting Council (FRC) has today made public their plans for the “operational separation” of audit practices, in what appears to be the biggest reform of the sector in decades. Deloitte, KPMG and EY called for operational separation to be the “first step” in audit reform. Stephen Griggs, deputy CEO and managing partner of audit and assurance at Deloitte said in a statement that the reforms “must also be considered alongside a wider package of reform, including in vital areas such as corporate reporting, the role of directors and the regulatory environment”.

www.aljuboori.net

Athraa Raheem

2021

+ financial

“these proposals alone will not deliver all the changes needed”. The reforms announced today have two key objectives. First, to improve audit quality and focus on delivering high-quality audits in the public interest. And second, to improve audit market resilience, ensuring that no subsidy exists between audit practice and the rest of a firm. The proposals laid out by the FRC aim to “ensure that audit remains an attractive and reputable profession and increase deserved confidence in audit” and include 22 principles which firms must abide by and have implementation plans ready by October 2020. The reforms must then be completed and implemented by June 2024. From June 2024, firms must ensure that profits distributed to audit partners do not “persistently exceed” the contribution to profits of audit practice. Audit partner remuneration should also be linked “above all” to audit quality. Firms must also protect auditors from potential influence from the other sections of a firm which could “divert their focus away from audit quality”. The news comes as audit quality has been thrust into the limelight once again after the Wirecard scandal, where EY signed off on the accounts of the German payments group between 2016 and 2018 before it was reported by the Financial Times that €1.9bn on the balance sheet “probably did not exist”. Wirecard then collapsed into insolvency, and a special audit by KPMG has found the company to be lossmaking for a number of years. Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

Bob Neate 14

IFIAR REPORT SEEKS FURTHER IMPROVEMENT IN AUDIT ENGAGEMENTS The International Forum of Independent Audit Regulators (IFIAR) has published its sixth inspection findings report, which surveyed its members’ findings from inspections of audit firms in 2017 and found improvements have been made, but deficiencies continue to remain a concern. The report focused on inspections conducted at 111 audit firms from Deloitte, EY, KPMG, PwC, BDO, and Grant Thornton from 2013 to 2017 on systems of quality control and individual audit engagements. The results found that 40% of audit engagements inspected had at least one finding, a decrease from 47% in 2014. The recurring deficiencies in the findings were experienced at different rates in jurisdictions. Despite the decrease the IFIAR report stated that the occurrence of findings remains too high. There were inspection findings in engagement performance, and independence and ethical requirements, but no definitive trends. Of the 918 audit engagements of listed public interest entities (PIEs)

FRC ANNOUNCES PRINCIPLES FOR AUDIT OPERATIONAL SEPARATION On 6 July, 2020 FRC announced its principles for operational separation of the audit practices of the Big Four firms The objectives of operational separation, which is world leading, are to ensure that audit practices are focused above all on delivery of high-quality audits in the public interest, and do not rely on persistent cross subsidy from the rest of the firm. Our desired outcomes include: • Audit practice governance prioritises audit quality and protects auditors from influences from the rest of the firm that could divert their focus away from audit quality; • The total amount of profits distributed to the partners in the audit practice does not persistently exceed the contribution to profits of the audit practice; • The culture of the audit practice prioritises high-quality audit by encouraging ethical behaviour, openness, teamwork, challenge and professional scepticism/judgement; and • Auditors act in the public interest and work for the benefit of shareholders of audited entities and wider society. These final principles follow extensive discussions with the audit firms. The FRC is now asking the Big 4 firms to agree to operational separation of their audit practices on this basis and to provide a transition timetable to complete implementation by 30 June 2024 at the latest. An implementation plan should be submitted to FRC by 23 October 2020. The FRC will then agree a transition timetable with each firm. Thereafter the FRC will publish annually an assessment of whether firms are delivering the objectives and outcomes of operational separation. FRC CEO, Sir Jon Thompson said, “Operational separation of audit practices is one element of the FRC’s strategy to improve the quality and effectiveness of corporate reporting and audit in the United Kingdom following the Kingman, CMA and Brydon reviews. Today the FRC has delivered a major step in the reform of the audit sector by setting principles for operational separation of audit practices from the rest of the firm. The FRC remains fully committed to the broad suite of reform measures on corporate reporting and audit reform and will introduce further aspects of the reform package over time.”

www.aljuboori.net

2021

While the rules do not yet apply to the so-called challenger audit firms, Mazars’ head of UK audit, Bob Neate said in a statement that they were a “welcome first step”. “Whilst we welcome this FRC initiative, operational separation of audit will not alone achieve the objectives of enhancing audit quality and building a truly competitive and resilient audit market… We continue to believe the proposals of the CMA, which recommended a package of joint audit, strengthening audit committee oversight and robust operational separation, is the best route to fully achieve these objectives,” he said. Fiona Baldwin, head of audit at Grant Thornton UK added that the firm welcomed the proposals as a “step in the right direction”. Meanwhile, ACCA UK’s executive director Maggie McGhee also welcomed the reforms and praised the FRC for acting “decisively”. Professor Chris Humphreys, University of Manchester, who served on Sir Donald Brydon’s advisory board said that the reforms were important commitments, but felt they raised more questions than answers. He claimed more had to be done than just “adjusting the mode of organisation”. “If society lacks confidence in a function that is supposed to be helping to build deserved confidence in companies, their directors and the information they publish, this is a problem that demands more than just adjusting the mode of organisation for that function. It requires an embracing of the type of conceptual reframing of audit proposed by Brydon. When the demands for ‘audit’ to serve the public interest and the wider society are becoming ever more prominent and visible, and are explicitly acknowledged by the FRC, audit reform must not treat the conceptual role of audit as static and fixed,” he said.

inspected, the highest findings were auditing of accounting estimates (29%) and internal control testing (17%). The report suggested that audit firms should focus on their policies, procedures, and implementing them, as deficiencies could impact audit engagements, monitoring and oversight. The IFIAR also highlighted initiatives with the inspected networks focusing on audit practice management, engagement with international standard setting boards on whether standard requirements are clear and enhance professional scepticism. South African Institute of Chartered Accountants (SAICA) welcomed the report, believing it provides a transparent and useful context for discussions about areas for improvement to achieve consistent high-quality audits. However, SAICA senior executive in assurance and practice Willie Botha said that the numerical findings should not be taken out of context, as they are entity-specific and audit-specific and the audit regulators apply a risk-based approach when selecting individual audit engagements for inspection. “Every audit firm should reflect on what these findings mean for its system of quality control and the conduct of its engagement partners and engagement teams in performing audits of financial statements. SAICA encourages all audit firms to use the IFIAR Report as a reference point to enhance audit quality,” added Botha. SAICA intends to use the report with other resources to inform their initiatives and support members, and encourages audit firms to reference the report to enhance audit quality. SAICA will continue proactive engagement with IFAR member the Independent Regulatory Board for Auditors (IRBA) and contributing to International Standard Setting Boards.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

The Silver Lining of the

2021

+ strategy

Baltic Banking Crisis . The continuing revelations as to the extent of money laundered through Baltic banking systems, most notably the dramatic accusations against Danske Bank (which are now pulling in Deutsche Bank as well) 16

were an unfortunate blow to the Baltic states’ reputations as dynamic and safe markets for foreign investments in Europe. However, substantial media scrutiny and the public and private sector response may actually result in a safer financial environment for investments and business operations in Estonia, Latvia and Lithuania as well as an improved EU structure to deal with money-laundering.

A Series of Money-Laundering Failures brings Global Scrutiny to the Baltics Danske Bank, the headlining financial institution at the heart of the massive $280 billion money-laundering investigation, has already pulled out of Russia and the Baltic States as a result of its misadventures in the region. Other banks, however, were also caught laundering funds from Russian, Ukrainian, Chinese and North Korean sources in the last few years, including Swedbank. Although the majority of the scandal has been laid at the feet of Estonian and Latvian banks and financial oversight bodies, Lithuania has not survived un-

www.aljuboori.net

Gabriella Kusz

scathed and ongoing investigations will likely expose additional breaches in finance laws and EU and U.S. sanctions regimes. While the scandal has put a dent into the business reputation of Estonia and Latvia, the resulting scrutiny and investigations are likely to improve transparency in the region and improve legal regimes and oversight structures for international business operations moving forward. The heightened focus on anti-money laundering (AML) tools has also spurred tech innovation, leading to the creation of critical private-sector expertise to help consumers and businesses identify and fight money-laundering activities.

Exposing the Weakness in EU Mechanisms The scandal exposed not just national-level problems, it highlighted an EU-wide gap in AML mechanisms. The decentralized nature of AML regulation and the lack of coordination amongst country regulators and oversight bodies across the EU provides opportunities for abuse. Lack of

formal channels of communication, inter-agency / regulator dialogue and cooperation weakens the overall ability of any one country to effectively share information, pool resources and fight trans-national financial criminal activity. Additionally, integral to the EU’s current challenges has been the deficiency in adoption vs. implementation. Larger EU states such as France and Germany traditionally maintain sufficient financial and human resources to not only transpose EU AML Directives into local legislation, but to ensure effective implementation. Scarcity of expertise, limited capacity and shortfalls in funding among smaller states such as Cyprus, the Baltic states and Malta, on the other hand, have hindered the effectiveness of resulting oversight processes and procedures to reduce money laundering. There is a growing recognition as to this weakness in the system, and a recent joint proposal from finance ministers of France, Germany, Italy, Latvia, the Netherlands, and Spain to create a centralized anti–money laundering (AML) supervisor with EU-wide authority may help to close this gap. Finally, the anonymous nature of cryptocurrency and digital assets have made them attractive to illicit users interested in perpetrating money laundering and terrorism financing. Their use in re-

cent cases has exposed the need throughout the EU for further innovations in their regulation and oversight to ensure transparency, accountability and legality of digital asset transactions. In response to these challenges, the EU has adopted the 5th Anti-Money Laundering Directive which is required to be transposed into local law by Member States by January 2020. Although transposition into local law is required by January 2020, the key to determining the success of this legislation will be dependent upon the resources and ability to implement. Strong centralized technical support, human and financial resources should be provided – especially to smaller Member States – as they work to locally adopt and transform these concepts into practice.

The Revelations have Spurred Innovation Concerns over money laundering have forced the government to take action (albeit rearguard in nature) but have also sparked concern from the business community, which is equally concerned about the stability of the national and regional financial system. Taavi Tamkivi, CEO of Salv, the Estonian AML-focused start-up funded by Transferwise and Skype employees, noted that al-

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

though the incidence of such AML cases in Estonia is disappointing, the fact that they were brought to light speaks to the Estonian commitment to transparency, accountability, and responsibility. Recent scandals have brought into the open the weaknesses in the Estonian system and instead of hiding these scandals or shirking responsibility, the Estonian government, regulators and private sector have come together to learn from these investigations, strengthen their systems and develop world-class systems of AML. Tamkivi went on to note that Know Your Customer (KYC) efforts and risk profiling of new clients are important but must be coupled with monitoring the millions of transactions flowing through financial institutions every day for suspicious behavior. 18

Additionally, data sharing between and amongst banks and the government is needed to ensure comprehensive understanding and communication of suspected criminal activity. The only way to undertake such intensive oversight is through innovations in technology. Tamkivi noted that “Estonia is known for its e-residency and digital-centric culture, so I’m confident we can find smarter ways to share and use the data we all have; protecting individuals, but catching more criminals. With the right technology, we can really solve it. Moving fast is the only way to keep up with the innovative organized criminals moving millions or billions around the world.”

Latvia rank 11th, 18th, and 19th respectively and all three rank highly on global lists for innovation, safety and quality of life. The business-friendly nature of the Baltic countries coupled with their attractive cost of living provide a natural advantage in attracting a wide variety of global businesses. In 2018, Lithuania, Estonia and Latvia each outperformed the estimated EU hourly labor costs for the EU-28.

Closing the Gaps in the System Estonia, Latvia, and Lithuania need to take quick and decisive action to prevent money-laundering in the future, as does the EU, which is facing similar problems in banking systems in Malta, Cyprus and other member states. But while the Danske Bank scandal is a black mark on the region, a robust response to these concerns by governments and innovative private companies such as Salv and others will ensure that the thriving Baltic market becomes an even more attractive location for foreign investment projects by reducing investor exposure and political risk concerns. As Taavi notes ‘…though many of the recent negative headlines came from Estonia, that may not necessarily be as bad as it first appears. Everyday Estonians are notorious for their commitment to transparency, and taking responsibility for mistakes. And, honestly, now that scandals are out in the open, we can all learn from the investigations. I wouldn’t even be surprised if, as a result, Estonia then grows some of the greatest AML experts in the region.”

Tamkivi went on to share an important aspect of the Baltic business environment which highlights the resiliency and affinity for innovation: “You can think of the Baltics nations, in many ways, as country-sized startups. We witnessed the mistakes and pitfalls of long-established nations from afar and, when we gained re-independence in the early 90s, we were able to start afresh. So, if you take a close look, you’ll find a dense web of fresh ideas and innovation woven into our structures. Sometimes, like Skype, TransferWise, and Bolt they do manage to kick off a profound change in the world.”

The Baltic Region Represents some of the Best Locations for Business Expansion in Europe The innovative atmosphere that gave rise to tech companies such as Skype and Transferwise, vaulted Vilnius into the position of number one startup city for tech in the world, helped to launch the NATO Cooperative Cyber Defence Centre of Excellence and has all three countries listed in the top 20 for innovation globally by the World Bank Group is an astounding opportunity for foreign investors. But the technology sector is not the only attraction to the Baltic economies. According to the World Bank Group “Doing Business” assessment of jurisdictions, Lithuania, Estonia and

www.aljuboori.net

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

After a series of audits by EY and a special audit by KPMG, nearly €1.9bn remains unaccounted for Nearly €1.9bn (£1.7bn) of cash has been found missing from the ac EY’s Wirecard audit exposes potential fraud After a series of audits by EY and a special audit by KPMG, nearly €1.9bn remains unaccounted for Nearly €1.9bn (£1.7bn) of cash has been found missing from the accounts of German payments firm Wirecard, EY audits have revealed. The discovery was announced on June 18, and the company has since withdrawn its 2019 and preliminary Q1 2020 financial results, adding that previous annual reports may have been impacted. Wirecard has admitted that

“there is a prevailing likelihood that the bank trust account balances in the amount of €1.9bn do not exist”

EY’s Wirecard audit exposes potential fraud. www.aljuboori.net

Suhaib Sinan

In reference to the missing funds, two banks allegedly named in Wirecard’s financial documents, the Institutes Banco de Oro (BDO Unibank) and Bank of the Philippine Islands (BPI), issued statements saying that Wirecard is not a client of their respective banks. “The international financial scandal used the names of two of the country’s biggest banks – BDO and BPI – in an attempt to cover the perpetrators’ track,” the governor of Bangko Sentral ng Pilipinas, Benjamin Diokno, said in a statement to journalists. He added that none of the missing funds ever entered the country’s financial system. However, a BPI assistant manager’s signature did appear on Wirecard-connected documents, reports CNN, and BDO alerted the central bank that a marketing officer had forged a bank certificate, according to Reuters. Neither of the banks currently face any losses connected to the situation, Diokno said in a Viber message cited by the Philippine government. However, Wirecard’s stocks have plunged and its credit rating was demoted to junk by Moody’s. Chief operating officer Jan Marsalek has been suspended from Wirecard’s management board, on a revocable basis, until June 30. Chief executive Markus Braun resigned on June 19 after Wirecard missed its annual results filing deadline and opened the door for €1.9bn in loans granted to the company to be terminated. In late May, Wirecard’s chief financial officer, Alexander von Knoop, told Accountancy Age that he expected “no major deviations of these very intensively audited financial statements from the reported preliminary figures.” Although EY caught the error, Dutch shareholder group VEB is pursuing compensation from the Big Four firm, saying: “EY has played a significant role in the whole Wirecard scandal, not only from its inability to detect the flaws in Wirecard’s escrow account in former years.” VEB also alleges that on May 3, investors were told by Braun that EY had no concerns signing off on their 2019 audit, wrongfooting the market. In response, an EY spokesperson said via email: “We have not been served this claim and cannot comment.” Germany’s financial regulator, BaFin, opened a market manipulation probe open against Wirecard in early June.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

Over a third of public bodies expect formal disputes with

In addition, many PFI contracts contain limitations over what information authorities can request from the SPV. Around 35 percent of survey respondents said they had insufficient access rights to monitor asset maintenance, and there is evidence that PFI investors and sub-contractors are not cooperating with authorities to provide information – a fifth of authorities that asked for information said requests were ignored or denied.

the private sector when PFI contracts end.

Eihab Al-Ani

From 2025 onwards, the bulk of private finance initiatives (PFI) will expire, resulting in infrastructure assets with a total capital value of £3.9bn returning to public sector ownership. The NAO’s latest report on managing the expiry of PFI finds that public authorities risk these assets being returned in an unsatisfactory condition and facing additional costs for repair and maintenance. The government announced in 2018 that it would no longer be using the PFI model for new infrastructure investment, but for decades these contracts have been used to set out a long-term agreement between the private and public sector to deliver infrastructure such as roads, hospitals and schools – there are currently over 700 PFI contracts in the UK. Our report drew on our survey of the public authorities managing PFI contracts, who are largely local bodies such as NHS trusts and local authorities. The results show that authorities face challenges understanding the condition of assets and more than a third expect formal disputes when contracts end. Although it is the responsibility of special purpose vehicles (SPV) – private finance companies set up to finance, build and operate PFI assets over the contract term – to maintain the assets and report to the authority, the authority still needs to monitor assets during the contract. www.aljuboori.net

Typically, an authority will have access to a financial model outlining all the forecast maintenance expenditure across the life of the contract. In addition, an SPV will usually provide the authority with an annual maintenance plan, which is the case in 70% of the contracts in our survey. However, these maintenance plans are not always supported with detailed expenditure data. Instead, authorities must rely on information contained in the SPV’s financial statements, which do not always provide enough detail on maintenance expenditure. Around 55 percent of

The SPV will usually build-up a dedicated fund, known as a sinking or lifecycle fund, to ensure there is enough money to fund planned maintenance. Each time an authority makes a usage payment, a proportion is set aside specifically to fund future maintenance. The SPV bears the risk of the lifecycle fund being insufficient to meet any replacement obligations, however, the SPV can keep any surpluses with the intention that this encourages efficiency. This gives SPVs an incentive to make sure assets are well maintained; if fewer unplanned replacements are required, there will be a larger surplus in the lifecycle fund at expiry which can be paid out to investors.

However, there is also a perverse incentive for SPVs to underinvest in assets – some authorities raised concerns that SPVs are ‘sweating’ the assets and making them last longer than originally planned, in order to increase investor returns.

2021

survey respondents recognise they need more knowledge of assets’ condition.

Once a contract has expired the SPV company will be closed. This means it may be difficult for the public sector to recover any payments from the SPV post-expiry, making it more important for authorities to resolve any disputes or recover any money owed before contracts expire. There is still time for government departments and authorities to address these challenges and avoid the cost of formal disputes, and additional repairs and maintenance when contracts end. Early preparations, and a collaborative approach between public and private stakeholders, can help to ensure a successful exit from PFI agreements. We recommend that government departments should encourage authorities to prepare for expiry as early as possible and develop a contract expiry plan that identifies all the critical tasks and obstacles. Departments and the Infrastructure and Projects Authority (IPA) should help build sector specific expertise, and a range of tools, including specialist advice and guidance documents for authorities to use. In addition, the IPA should assess the value to taxpayers of providing authorities with access to a centralised pool of internal resources, such as lawyers and surveyors, during negotiations. It should also develop a consistent approach to resolving legal disputes, and an investor strategy which manages the relationship with private sector stakeholders across all PFI contracts. Where necessary, departments should provide direct financial support to authorities to help fund dispute resolutions and hire additional staff. Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

EXTREMELY RARE BREED My aim now is to develop GAAS to offer support to the leadership of international networks and associations. I am already in discussions with other experienced CEOs who have stood down recently or are close to the end of their terms, and they have indicated an interest in joining GAAS when they are available to do so in order to broaden the resource and experience we have available.

Ayman Al-Juboori

IFAC has a specific definition of what constitutes a ‘network’. The market terms any grouping of firms that is not a network by the IFAC definition as an ‘association’. 24

Jon Lisby

Using the term ‘alliance’, GAAS will work with both networks and associations. In October 2017, I was diagnosed with leukaemia. I am happy to say that I was offered a stem cell transplant which gives the possibility of a cure. The preparation for the treatment was long and tough at times but all the signs look good now, and my recovery is going well as I wait for my immune systems to recover sufficiently for me to attend business meetings or to travel. Although I continued to work fully using email, telephone and Skype, even during six months in hospital isolation, the restrictions imposed made it impossible to continue in my role as CEO of Kreston International. In August 2018, we recruited my successor, Liza Robbins, formerly of Morrison KSi, and I remained with Kreston until the end of May so I could introduce Liza fully to Kreston International’s systems and global network, When I joined Kreston International in January 2006, it was unbranded, operating in 70 countries and generated aggregate fee revenues approaching $1bn. By the time I stepped down as CEO last year, Kreston had made the switch to a network, branding had been adopted by many of the approximately 200 member firms, and the firm was operating across 120 countries with global revenues in excess of $2.4bn.

www.aljuboori.net

2021

MENTORING SUPPORT AND THE OPPORTUNITY TO DELEGATE.

Think about this: CEOs of international alliances are an extremely rare breed! If you look at the marketplace – there are currently only around 25 such organisations of significant size, with fee revenues in excess of $600m. If you then exclude the Big 4 plus, say the next three, that leaves just 18 individuals leading the entire global mid-tier., These mid-tier alliances may be present in 100-plus countries with tens of thousands of professional and support staff in all the major markets. However, more often than not, there is just a small team of perhaps five or six in the London international office. These teams can certainly cover the ongoing alliance management – the multiple aspects of marketing, of multi-currency finance, arranging numerous conferences and special interest group meetings, and for accounting networks, running a globally co-ordinated quality monitoring and inspection programme.

CHALLENGING ROLE

The leader, the CEO, is ultimately responsible for all those head office functions and, on top of that, he or she needs to be out there, living much of their life in airports and hotels, travelling the world to handle the rest – the list of jobs is almost endless. Running a global operation is a really, really challenging role! Unless someone has been there, it is difficult to describe the pressures involved. I was fortunate in having had a long grounding in the profession before becoming an alliance CEO, having a deeply ingrained knowledge and experience of the industry and how professional practices operate. Many CEOs, however, enter the role from different backgrounds, perhaps general management, military service or sales. Coming from outside the profession can certainly bring the alliance the benefit of their broader experience and fresh approach, but it may be some time before they develop a real understanding of the business. When a CEO needs support, there are few options currently available. I believe, therefore, that many leaders of alliances will welcome the availability of mentoring support and the opportunity to delegate some of the aspects of these tasks to someone they know will really understand the issue, someone that has been there before., GAAS offers support to the leadership of international networks and associations in both the accounting and law sectors.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

AAOIFI makes all its standards accessible on its website on a complimentary basis. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) announces the availability of all sets of its standards online free of charge.

2021

+ Islamic Finance

them accessible to a wide range of stakeholders including regulators and other practitioners in the industry and thereby further assist in the implementation of AAOIFI standards globally.”

Muthanna Al-Juboori

The Arab Monetary Fund and AAOIFI Join forces to Strengthen the Development of

the Islamic Financial services Industry for the benefit of Arab Countries. The Arab Monetary Fund (AMF) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) signed a Memorandum of Understanding (MOU) to facilitate international cooperation between the two organizations to jointly undertake technical activities relating to the prudential, Shari’ah, accounting and governance standards as well as for promoting awareness of issues that are relevant or have an impact on the regulation and supervision of the Islamic financial services institutions, in addition to other areas of common interest between the two institutions. The MoU was signed by H.E. Dr. Abdulrahman A. Al Hamidy, Director General Chairman of the Board of the Arab Monetary Fund, and Mr. Omar Mustafa Ansari Secretary-General of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). By signing the MOU, it is hoped to enhance the collaboration in various fields of mutual interest such as training, capacity building, and promoting the development of a prudent and transparent Islamic financial services industry in the Arab region through introducing new or adopting existing international standards consistent with Shari’ah principles.

www.aljuboori.net

In the past, the AAOIFI Shari’ah standards were available online for free in English and Arabic. However, recently the Executive Committee of AAOIFI has accepted the proposal to make all standards including accounting, governance, auditing and ethics standards available online on a complimentary basis in Arabic and English languages. Availability of AAOIFI standards online will make it easier for the Islamic finance industry stakeholders to refer to and benefit from on a daily basis. The Islamic finance stakeholders are requested to refer to AAOIFI website to refer to the e-standards on a regular basis. AAOIFI will not take responsibility or approve other versions of the standards available on different social media platforms. Mr. Omar Mustafa Ansari, Secretary General of AAOIFI, stated “We are thankful to the Executive Committee of AAOIFI for approving our request of making the standards available online. He further added availability of standards online especially in the times of COVID-19 will make

27 The standards going forward will be made available on the website once they are issued while the translation of these standards will be uploaded as soon as they are approved by the relevant translation committees. As a leading standard-setter for the international Islamic finance industry, AAOIFI has issued a total of 117 standards and technical pronouncements –comprising 59 Shari’ah standards, 33 accounting standards, 8 auditing standards, 3 codes of ethics and 14 governance standards for the international Islamic finance industry. These standards are available in various languages; the Shari’ah standards are available in English, Arabic, French, Russian, Turkish, Urdu, the accounting, governance, auditing and ethics standards are available in English and Arabic. In addition, translation of these standards is on-going in Bengali and Mandrin.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the 19th meeting of its Governance and Ethics Board (AGEB / the board) recently via video conference. The meeting agenda covered two main topics which are discussing AGEB’s 2020 performance report and work plan for the term (2020 – 2023), as well as, continuing the discussion on the Shari’ah decision making process exposure draft. Mr. Farrukh Raza, Chairman of AGEB, opened the meeting and he expressed his appreciation to all the members for their commitment and continuous efforts despite their eventful work agendas and engagements. The board reviewed the performance report of 2020 and highlighted the key achievements parameters. These include the issuance of the statement on application of AAOIFI governance, ethics and auditing standards in view of the impacts of COVID-19 pandemic, as well as, holding 6 board meetings, 25 working groups’ meetings and 10 committees’ meetings. Also, the board initiated during the year several projects such as Shari’ah Compliance and Fiduciary Ratings for Instruments, Internal Shari’ah Audit Guidelines, and the Governance Standard on Alternative Benchmark Rate. The members also agreed on the plan for 2021 and prioritized the projects in line with the market needs. The members discussed the Shari’ah decision making (SDM) process exposure draft which aims to facilitate a greater level of harmonization and convergence in the area of SDM in Islamic financial institutions (IFIs). Standardization of practices in this area will provide clear-cut guidelines to the management and the Shari’ah compliance function department, enabling them to perform their jobs efficiently and effectively. The board approved in principle the exposure draft of the said standard and it will be issued to the market after completing the due process. The Chairman of the AGEB, Mr. Farrukh Raza, stated: “I believe that a robust SDM process is essential to boost the stakeholders’ confidence in the IFIs’ products and crucial in safeguarding the reputation of Islamic finance

www.aljuboori.net

2021

On this occasion, Mr. Omar Mustafa Ansari, the Secretary General, AAOIFI stated:

Omar Mustada

2021

AAOIFI Governance and Ethics Board approves in principle the Shari’ah decision making process exposure draft in its 19th meeting.

industry as a whole. Therefore, the board felt the need to develop an end-to-end control framework to govern and manage the issues in the process.”

“2020 has been a challenging year for the whole humanity in all aspects because of the global pandemic and I am grateful for the board and the relevant working group members for their time and contributions that led to remarkable achievements during such a difficult year. The members tireless efforts and continuous dedication will certainly serve the best interest of Islamic finance industry”

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

AAOIFI issues standard on

Waqf Governance. 30

The Governance and Ethics Board (AGEB / the board) of the Accounting and Auditing Organization for Islamic Financial institutions (AAOIFI) in its 17th meeting approved the issuance of its governance standard (GS 13) “Waqf Governance”. AAOIFI initiated the Waqf comprehensive project for revision and development of the Shari’ah, governance and financial accounting standards on the Waqf in 2017, in collaboration with Future Investments and the International Institute of Islamic Waqf (IIIW). The project has gone through extensive standard development process by a research and development team, and numerous experts and scholars remained involved during the project. The revised Shari’ah standard on Waqf was issued in March 2019 while the financial accounting standard on financial reporting by Waqf institutions (FAS 37) was issued by the AAOIFI Accounting Board in December 2020. Waqf Governance is the final component concluding this comprehensive project.

www.aljuboori.net

The Waqf has been one of the important organs in Muslim societies since beginning of Islamic era and has played a significant role in the social and economic development of the Muslim and wider communities, worldwide. The Waqf is entrusted with a great deal of fiduciary responsibilities and it is essential to safeguard the interests of the beneficiaries and curb any possibilities of corruption and malpractices. With the evolution of better governance structures and technological advancements influencing all spheres of socioeconomic lives, the board agreed that it was necessary to rethink the rules of governance for the Waqf to achieve the Waqf objectives in a more effective and efficient manner. The standard provides the core principles of governance (from both, corporate governance and Shari’ah perspective) as applicable to the Waqf. It covers various topics including but not limited to key responsibilities and principles for establishing terms of reference of different organs of the Waqf, policies and procedures, guidance on internal control, guidance on transparency and disclosures, etc.

The Chairman of the AGEB, Mr. Farrukh Raza, stated: “A lack of confidence is one of the main issues that the Waqf sector suffers from This would potentially have social and economic implications, adversely affecting the general community in which the Waqf operates as well as the entire Waqf sector”. He added: “I am confident that this standard will significantly help avoiding malpractices in the sector and help amplify the socioeconomic benefits it can produce”. He added: “We highly appreciate the efforts and time devoted by the board and working group in developing this standard despite their eventful work agendas and industry engagements” Mr. Anas AlDowayan, Chief executive officer of the International Institute for Islamic Waqf (IIIW) stated: “We have had the honor to work with our partner (AAOIFI) in developing the Waqf governance standard, in order to Farrukh Raza, organize the management of the Waqf and its assets in accordance with the best international practices and to fulfill the requirements of financial safety for the Waqf and the societal impact of the Waqf institution.” On this occasion, Mr. Omar Mustafa Ansari, the Secretary General, AAOIFI stated: “I would like to extend my sincere gratitude to both Future Investment and IIIW for their support and collaboration. Also, I would like to thank the board and working group members for their tireless efforts for improving the quality of the standard. Their extensive experience in Waqf sector has undoubtedly contributed to the development of a key governance standard that aims to promote and strengthen the core values of the Waqf and their governance practices, as well as enhance the public and stakeholders’ confidence in the Waqf”.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

QUICK NEWS

2021

The FRC has fined KPMG UK £700,000 and reprimanded KPMG UK’s former senior partner for Manchester, Nicola Quayle for a “failure to apply sufficient professional scepticism” in the audit of an unnamed company in the financial year 2015/16. The £700,000 fine was discounted to £450,000 for early settlement, while Quayle also saw her fine of £45,000 reduced to £29,250. Claudia Mortimore, deputy executive counsel to the FRC, said: “This is a measured and proportionate package of sanctions, which balances on the one hand the limited nature of the breaches, which did not call into question the truth or fairness of the financial statements, with the fact that auditors should have been on alert to pay particular attention to these types of complex supplier arrangements. Professional scepticism remains at the core of an auditor’s duty and the FRC will take appropriate action where it has been lacking, as in this case.” While the decision notice said that the FRC does not question the “truth or fairness of the company’sFY2016financialstatements,”theseriousnessofthebreacheswasaggravated by the fact that “both KPMG and Ms Quayle have poor recent regulatory records”. KPMG UK did say in a statement: “We regret that specific aspects of our audit of this company for the 2015/2016 financial year did not meet the required standards. “As the FRC makes clear, there is no question as to the truth and fairness of the financial statements. Audit quality is of paramount importance to our firm and we have updated our audit processes and procedures to address the areas of concern.”

BKR INTERNATIONAL APPOINTS NEW WORLDWIDE CHIEF EXECUTIVE OFFICER The BKR International Worldwide Board is proud to announce the appointment of BKR’s new Worldwide CEO, Tim Morris (London), effective from January 1, 2021. Tim will assume his responsibilities from Howard Rosen, who will be retiring at the end of 2020. Tim’s appointment comes as part of a planned leadership transition that the BKR International Worldwide Board has been working on for several years. Tim is the current Executive Director of BKR’s EMEA region. Prior to that, Tim was director ofconsultancyfirm,NJHMAssociatesLimited.Timhasavariedbackgroundintheinternational, diplomatic and private sectors, which has taken him around the world from New Zealand to Canada, Hong Kong to Malawi. He has lived and worked in Europe, Kuwait, Qatar and Bangladesh. Manuel Rangel, the Worldwide Chair of BKR International, comments “Tim brings a broad range of critical skills and attributes to this position. He has served as the EMEA Regional Executive Director for more than five years. He also acted as a mentor to the Asia-Pacific Region’s new Executive Director as he transitioned into his role and has been an active participant in the CEO and Regional Executive Directors’ annual meetings. He has a deep understanding of our industry, our member firms, and the challenges we face”. Tim Morris comments, “It’s a challenging time for organisations everywhere and we will certainly see some changes in the way that business is carried out. I’m particularly excited to be in this new role at this time and develop our Association for the benefit of members in what will become the new normal”.

www.aljuboori.net

Wirecard Drama of the Day: Germany’s Audit Cops Are Trying to Dig Up Some Dirt on EY The German body in charge of regulating auditors is examining the work of EY, the auditor that approved the books of collapsed payment services firm Wirecard, the German Economy Ministry said on Monday. TheministrysaidAuditors’Regulator(Apas)hadupgradedapreliminaryinvestigationthat had been running since October 2019, when the Financial Times first reported allegations of fraud at Wirecard, into a full formal regulatory inquiry. The ministry gave no further details. Handelsblatt newspaper, which first reported that the inquiry was underway, said the regulatorwasexaminingallauditsthatEYhadconductedofWirecard’saccountssince2015. The regulator has the power to check earlier submitted accounts and audits.

SANCTIONS AGAINST KPMG The Financial Reporting Council (FRC) has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed non-financial sanctions on KPMG in relation to the statutory audits of the financial statements of Foresight 4 VCT plc (“the Company”) for the 2012/2013, 2013/2014 and 2014/2015 financial years The following sanctions have been imposed: 1. A Reprimand; and 2. an order that KPMG monitor compliance with revised audit pro cedures on company capital and distributions, and report on this to the FRC’s Executive Counsel. KPMG admitted shortcomings in its audits of figures relating to the Company’s distributable reserves. These failings may have led to misstatements relating to distributable reserves in the Company’s financial statements, which were later restated in 2016 and 2018. Executive Counsel’s determination as to sanctions reflects that: 1. KPMG has taken steps to improve its audit procedures on distributions; 2. The breaches of Relevant Requirements were not intentional, dishonest, deliberate or reckless; 3. There is no suggestion that there were insufficient distributable reserves to cover distributions made by the Company; and 4. The misstated figures for the Company’s reserves did not affect the company’s profits or net asset value.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

FRC FINES KPMG £700,000 FOR POOR AUDIT

QUICK NEWS

2021

PWC HIT WITH TWO YEAR AUDIT BAN AFTER DECADE LONG FRAUD BATTLE WITH INDIAN CAPITAL MARKETS REGULATORTLE WITH INDIAN CAPITAL MARKETS REGULATOR The Securities Exchange Board of India (SEBI) has barred all PwC members and entities from issuing audit certificates to any listed company in India for two years. The ban is in relation to the Satyam Computer services scam from nine years ago where directors and employees had collaborated in overstating and falsifying account books and financial statements. The ban willl not impact audit assignments for the financial year 2017 – 2018. Price Waterhouse Bangalore and two former partners S Gopalakrishnan and Srinivas Talluri have been ordered to pay a disgorgement of Rs130.9m (USA $2.05m) for wrongful gains. The disgorgement included interest calculated at 12% per year from 7 January 2009 and must be paid within 45 days. Further, Gopalakrishnan and Talluri have been banned for three years from directly or indirectly issuing any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with SEBI. Previously, PwC had failed on two attempts in 2010 and 2017 to stop the SEBI investigation, firstly arguing that SEBI did not have the same jurisdiction as the Institute of Chartered Accountants of India (ICAI) but as ICAI supported SEBI’s authority the Bombay High Court ruled against PwC. The second attempt was a consent plea to settle the investigations but the Supreme Court gave SEBI extensions to their investigations. PwC stated that they were disappointed with the findings and the adjudication order. “We played no part and had no knowledge of the fraud that took place nearly a decade ago. As we have said since 2009, there has been no intentional wrong doing by our firms, nor have we seen any material evidence to the contrary. We believe that the order is also not in line with the directions of the Hon’ble Bombay High Court order of 2010 and so we are confident of getting a stay before this order becomes effective.” The 108-page order stated that the entire brand name had to be banned in order to effectively protect the securities market from fraudulent accounting practices perpetrated by an international firm. The PwC statement concluded: “We have however learnt the lessons of Satyam and invested heavily over the last nine years in building a robust and high quality audit practice, as also confirmed in 2015 by an independent monitor appointed by the US SEC and PCAOB.”

IASB defers the effective date of amendments to IAS 1 The International Accounting Standards Board (IASB) has proposed to defer by one year the effective date of Classification of Liabilities as Current or Non-current, which amends IAS 1 Presentation of Financial Statements. The IAS 1 amendments were issued in January 2020, effective for annual reporting periods beginning on or after January 1, 2022. However, in response to the COVID-19 pandemic, the Board is proposing to provide companies with more time to implement any classification changes resulting from the amendments by deferring the effective date by one year to annual reporting periods beginning on or after January 1, 2023. The Board is not proposing any changes to the original amendments other than the deferral of the effective date.

www.aljuboori.net

German Regulator Examines Auditor EY Over Wirecard Accounts The German body in charge of regulating auditors is examining the work of EY, the auditor that approved the books of collapsed payment services firm Wirecard, the German Economy Ministry said on Monday. The ministry said Auditors’ Regulator (Apas) had upgraded a preliminary investigation that had been running since October 2019, when the Financial Times first reported allegations of fraud at Wirecard, into a full formal regulatory inquiry. The ministry gave no further details. Handelsblatt newspaper, which first reported that the inquiry was underway, said the regulator was examining all audits that EY had conducted of Wirecard’s accounts since 2015. The regulator has the power to check earlier submitted accounts and audits. “A preliminary inquiry was launched in October 2019,” the ministry said in a statement. “In May 2020, after KPMG’s report came out, that was turned into a full regulatory inquiry, which is still underway.” EY, Wirecard’s auditor for more than a decade, said it was assisting the authorities with their investigations. “We too are interested in this matter being cleared up comprehensively, completely and quickly,” EY said in a statement. Munich-based Wirecard collapsed in June after EY refused to sign off on its 2019 accounts because it could not verify 1.9 billion euros ($2.2 billion) supposedly held abroad in escrow by third-party partners. The company subsequently filed for insolvency owing debts of 3.2 billion euros. Three former top managers have been arrested on suspicion of fraud and racketeering in Germany’s biggest accounting scandal.

IASB Issues Package of Narrow-scope Amendments to IFRS Standards The International Accounting Standards Board (IASB) has issued several small amendments to IFRS Standards. The package of amendments includes narrow-scope amendments to three Standards as well as the Board’s Annual Improvements, which are changes that clarify the wording or correct minor consequences, oversights or conflicts between requirements in the Standards. • Amendments to IFRS 3 Business Combinations update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. • Amendments to IAS 16 Property, Plant and Equipment prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related cost in profit or loss. • Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets specify which costs a company includes when assessing whether a contract will be loss-making. • Annual Improvements make minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 Leases All amendments are effective on January 1, 2022.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

QUICK NEWS

QUICK NEWS UK’S FRC: HIGH-QUALITY DISCLOSURES NEEDED TO REFLECT IMPACT OF COVID-19

IAASB Proposes Modernization of Group Audits Standard in Support of Audit Quality

The UK’s Financial Reporting Council’s (FRC) has completed its first thematic review of company reporting since the onset of the Covid-19 pandemic. The review found that although companies provided sufficient information to enable a user to understand the impact Covid-19 had on their performance and future prospects, some - particularly interim reports - would have benefited from more extensive disclosure. The thematic review, which used a sample of March interim and annual reports and accounts, includes guidance and better practice examples for companies currently preparing their annual and interim accounts. The FRC said that companies should remember to: • explain the significant judgements and estimates made in preparing their Accounts and provide meaningful sensitivity analysis or details of a range of possible outcomes to support any disclosed estimation uncertainty. • describe any significant judgements made in determining whether there is a material uncertainty about their ability to continue as a going concern. • ensure that assumptions used in determining whether the company is a going concern are compatible with assumptions used in other areas of the financial statements. • apply existing accounting policies for exceptional and other similar items to Covid-19 related income and expenditure consistently and should not split income and expenses between Covid-19 and non Covid-19 financial statement captions arbitrarily. • prepare interim reports that provide sufficient information to explain the impact that Covid-19 has had on their performance, position and future prospects. FRC executive director of supervision David Rule said: “The impact of the Covid-19 pandemic on businesses is pervasive but also differs across sectors, geographies and individual companies. “This review highlights how important it is for company reporting to explain not only how Covid-19 has affected company performance but also how it might affect a company’s future prospects. Drawing on examples, we provide further guidance and good practice recommendations to support both companies and users of company reporting during this challenging period.”

IAASB Proposes Modernization of Group Audits Standard in Support of Audit Quality, The International Auditing and Assurance Standards Board (IAASB) released the exposure draft of proposed International Standard on Auditing (ISA) 600 (Revised), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)s. Proposed ISA 600 (Revised) deals with special considerations for audits of group financial statements (group audits). Group audits are often more complex and challenging than single-entity audits because a group may have many entities or business units across multiple jurisdictions and component auditors may be involved. “This proposed standard is critically important as many of today’s audits are group audits, including audits of the largest and most complex organizations around the world,” said Tom Seidenstein, IAASB Chair. “The proposed revised standard addresses quality risk issues identified by audit regulators and benefits from the input of a wide range of stakeholders.” The proposed standard introduces an enhanced risk-based approach to planning and performing a group audit. This approach appropriately focuses the group engagement team’s attention and work effort on identifying and assessing the risks of material misstatement of the group financial statements, and designing and performing further audit procedures to respond to those assessed risks. The proposed standard recognizes that component auditors can be, and often are, involved in all phases of a group audit. In these circumstances, the proposed standard highlights the importance of the group engagement team’s involvement in the component auditor’s work. In addition, the proposed standard: • Clarifies the scope and applicability of the standard. • Emphasizes the importance of exercising professional skepticism throughout the group audit. • Clarifies and reinforces that all ISAs need to be applied in a group audit through establishing stronger linkages to the other ISAs, in particular to proposed ISA 220 (Revised), ISA 315 (Revised 2019) and ISA 330. • Reinforces the need for robust communication and interactions between the group engagement team, group engagement partner and component auditors. • Includes new guidance on testing common controls and controls related to centralized activities. • Includes enhanced guidance on how to address restrictions on access to people and information. • Enhances special considerations in other areas of a group audit, including materiality and documentation. In consideration of COVID-19’s impact, the IAASB is departing from the Board’s normal 120-day comment period for public consultations. Therefore, the exposure draft of proposed ISA 600 (Revised) is open for public comment until October 2, 2020. The IAASB invites all stakeholders to comment on the Exposure Draft via the IAASB’s website.

IASB Decides on New Effective Date for IFRS 17 of January 1, 2023 The International Accounting Standards Board (IASB) has completed its discussions on the amendments to IFRS 17 Insurance Contracts that were proposed for public consultation in June 2019. It has decided that the effective date of the Standard will be deferred to annual reporting periods beginning on or after January 1, 2023. The Board also decided to extend the exemption currently in place for some insurers regarding the application of IFRS 9 Financial Instruments to enable them to implement both IFRS 9 and IFRS 17 at the same time. The Board has in previous meetings confirmed that it will proceed with the proposals outlined in the June 2019 consultation document albeit with some minor modifications in response to feedback received. The Board also added some additional amendments, again in response to feedback on those proposals. Timely implementation of IFRS 17 is vital to improve the quality and comparability of accounting for insurance contracts. However, the Board’s decision to defer the effective date by two years from the original date to 2023 will enable insurers around the world to implement the new Standard at the same time, which the Board considers to be beneficial for investors, insurers and other stakeholders. The Board expects to issue the amendments to IFRS 17 in the second quarter of 2020.

www.aljuboori.net

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

QUICK NEWS

QUICK NEWS IFAC Releases the Fourth Installment of "Exploring the IESBA Code"

2021

An Informational Series to Promote the Code of Ethics IFAC released the latest installment of its Exploring the IESBA Code educational series: The Conceptual Framework–Step 3, Addressing Threats. Exploring the IESBA Code is a twelve-month series providing an in-depth look at the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code). Each installment focuses on a specific aspect of the Code using real-world situations in a manner that is relatable and practical. Readers will gain a better understanding of the thought process behind important aspects of the Code through storytelling and expert analysis from professionals involved in developing the standards. Previous installments of Exploring the IESBA Code looked at the Code’s five fundamental principles and key aspects of the conceptual framework, which is a specified approach that all professional accountants are required to use to identify, evaluate and address threats to compliance with those principles. Installment four focuses on addressing threats. A professional accountant can often come across complex or challenging situations that are not black and white. These challenging situations require ethical considerations, some of which are expressly dealt with in the Code. This unique and informational series was developed by IFAC in collaboration with the International Ethics Standards Board for Accountants (IESBA) to help explain how the Code assists in navigating some of these challenges.

Building a Coherent, Global Approach to Corporate Reporting IFAC published its response to Accountancy Europe’s consultation, Interconnected Standard Setting for Corporate Reporting, which addresses the evolution of standard setting to enhance corporate reporting at the global level. The current corporate reporting system needs to evolve quickly to deal with the challenge posed by a myriad of different jurisdictional requirements and an absence of widely agreed standards in various areas beyond financial reporting. The result is variable quality and lack of comparability, leading to greater cost and inefficient capital allocation for both companies and investors. As indicated in the IFAC point-of-view on enhancing corporate reporting, a global solution is needed to achieve relevant, reliable, and comparable narrative information and metrics. “The current reporting ecosystem does not best serve the interests of capital markets, companies or their stakeholders,” said IFAC CEO Kevin Dancey. “The options set out by Accountancy Europe to change the corporate reporting system are useful for furthering the dialogue toward a global and coherent solution. We look forward to continuing this conversation with key stakeholders.” In its response to the consultation, IFAC endorsed six recommendations to secure an integrated global reporting structure. These include development of a global approach to international standard-setting, a conceptual framework for corporate reporting, and an oversight structure. A global approach to these three elements— oversight, framework, and standards—is urgently needed in order to enhance corporate reporting. While this is a challenging time for investors, companies and capital markets, the competition for capital will become more challenging, and the demand for relevant and candid information about organizations will be needed to reliably inform decisions about capital allocation and investor and other stakeholder’s assessments of long-term value creation.

www.aljuboori.net

IASB Issues Amendment to IFRS Standard on Leases to Help Lessees Accounting for COVID-19-related Rent Concessions

TheInternationalAccountingStandardsBoard(IASB)hasissuedanamendmenttoIFRS16 LeasestomakeiteasierforlesseestoaccountforCOVID-19-relatedrentconcessionssuch as rent holidays and temporary rent reductions. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the covid-19 pandemicareleasemodificationsandallowslesseestoaccountforsuchrentconcessions asiftheywerenotleasemodifications.ItappliestoCOVID-19-relatedrentconcessionsthat reduce lease payments due on or before June 30, 2021. IFRS 16 specifies how lessees should account for changes in lease payments, including concessions. However, applying those requirements to a potentially large volume of COVID-19-related rent concessions could be practically difficult, especially in the light of the many challenges stakeholders face during the pandemic. This optional exemption gives timely relief to lessees and enables them to continue providing information about their leases that is useful to investors. The amendment does not affect lessors. The amendment is effective on June 1, 2020 but to ensure the relief is available when needed most, lessees can apply the amendment immediately in any financial statements—interim or annual—not yet authorised for issue. Hans Hoogervorst, Chair of the International Accounting Standards Board, said: ‘The amendment is designed to make it easier for lessees, especially those with a lot of lease contracts, to account for covid-19-related rent concessions while still providing useful information for investors.’ The Board has also proposed to update the IFRS Taxonomy to reflect the closure requirement included in this amendment.

Application of IFRS 9 in the Light of the Coronavirus Uncertainty A document responding to questions regarding the application of IFRS 9 Financial Instruments during this period of enhanced economic uncertainty arising from the covid-19 pandemic has been published. Access IFRS 9 and covid-19—accounting for expected credit losses. The document is prepared for educational purposes, highlighting requirements within the Standard that are relevant for companies considering how the pandemic affects their accounting for expected credit losses (ECL). It does not change, remove nor add to, the requirements in IFRS 9 Financial Instruments. It is intended to support the consistent and robust application of IFRS 9. IFRS 9 was developed in response to requests by the G20 and others to provide more forward-looking information about loan losses than the predecessor Standard and to give transparent and timely information about changes in credit risk. ThedocumentacknowledgesthatestimatingECLonfinancialinstrumentsischallenging in the current circumstances and highlights the importance of companies using all reasonable and supportable information available—historic, current and forward-looking to the extent possible—when determining whether lifetime losses should be recognized on loans and in measuring ECL. The document reinforces that IFRS 9 does not provide bright lines nor a mechanistic approachinaccountingforECLs.Accordingly,companiesmayneedtoadjusttheirapproaches to forecasting and determining when lifetime losses should be recognized to reflect the current environment. The IFRS Foundation and the International Accounting Standards Board continue to work in close cooperation with regulators and others regarding the application of IFRS 9, and the document encourages companies to consider guidance provided by prudential and securities regulators.

Iraq, Baghdad, Al-Karkh, Al-Hartheya, Kindi St., Al-Juboori Building

2021

QUICK NEWS

AL-JUBOORI & CO. Iraq - Baghdad - AL- Hartheya ,Kindi St. , Al- Juboori Building consulting@aljuboori.net