Family Business

With David Pring

Welcome

Welcome to KPMG Family Business feature articles. If you would like to discuss these articles or how KPMG can help with your business please feel free to contact me on 9455 9996 or davidpring@kpmg.com.au

AI needs accuracy, humanity and integrity

 ZOE WILLIS  JON STONE

AI is reshaping the competitive landscape across all sectors of the economy, helping organisations make better predictions and more informed decisions, while lowering operating costs, facilitating productivity gains and driving new business models.

AI is helping us address some of humanity’s most complex problems yet, our recent research with UQ shows that trust in AI is currently low in Australia – almost half of us are unwilling to share our information with an AI system and 4o percent don’t trust its decisions or recommendations.

Trust underpins the acceptance and use of AI. To build public confi dence, AI should be developed and employed in an ethical and trustworthy manner while considering its impacts on people across its whole life cycle. Without public trust its full potential will not be realised.

Trust, however, is a two-way process and there are inherent risks in the development and use of AI. AI can undermine human rights, such as privacy and autonomy by facilitating mass surveillance programs, including facial recognition. AI could also precipitate technological unemployment.

But it can also have positive outcomes. In the fi ght against COVID-19, AI is assisting by simulating and predicting spread patt erns to inform government responses, enhancing diagnosis and helping detect mutations in the virus. So how does an organisation go about achieving trustworthy AI? How can we navigate the risks and impacts to people from AI systems?

We believe trustworthy AI is underpinned by three key components.

Ability

AI systems are fi t-for-purpose and perform reliably to produce accurate output as intended.

Humanity

AI systems are designed to achieve positive outcomes for end-users and other stakeholders, and at a minimum, do not cause harm or detract from human well-being.

Integrity

AI systems adhere to commonly accepted ethical principles and values (e.g. fairness, transparency of data collected and how it is used), uphold human rights (e.g. privacy), and comply with applicable laws and regulations.

Th ese work together in a virtuous circle of lived experiences to gain and reinforce a person’s trust in the system. When people believe an AI system adheres to these components, they are more likely to trust the system. Th e priority is to ensure that any AI system being designed, procured or implemented is aligned with the organisation’s strategy, core purpose and values.

Th ese concepts, humanity and integrity are not what we normally associate with something so ‘technical’ as AI, but AI systems are only a refl ection of the way they are developed and ‘controlled’. And it is humans that build AI not robots.

Data underpins all AI systems. If an AI system is built on incomplete, biased or otherwise fl awed data, the mistakes will likely be replicated at scale in its outputs.

Such trust failures can be prevented by following best practice in assessing the quality and traceability of the data used to build AI.

Data is vital to developing AI systems, but it can’t work in isolation if we are to build trustworthy systems. Digital empowerment and literacy will be critical to future-proof our society and fully embrace the potential of AI.

AI needs to be understood by all the stakeholders making decisions, so they’re comfortable that end consumers will receive the right outcomes. We need to collaborate with technical experts to develop guidelines and policies on how to open the ‘black box’ and make these systems and their logic understandable to all stakeholders. Transparency and understanding will assist to grow trust in what is oft en seen as unfathomable.

Having the right intent is not enough. We need to have the right governance and the right conduct to ensure AI systems don’t let us down.

In the end it is the organisations that adopt an integrated, cross-disciplinary approach to achieving trustworthy AI who will be positioned to manage reputational risk, lead the responsible stewardship of this technology and realise its benefi ts faster.

Our latest report gives practical help for developing trustworthy AI; to read the full report, visit KPMG.com.au

First published by Zoe Willis, Partner and National Leader, Data & RegTech, KPMG Australia and Jon Stone Partner, Artificial Intelligence and Cognitive, KPMG Australia on KPMG.com.au

Dr Brendan Rynne, KPMG Chief Economist, comments on today’s RBA announcement

AS expected, the RBA kept its settings unchanged, and we do not anticipate any movement in the near future. The RBA has set out to do all it can to boost economic activity and with business investment still weak, it will keep on its current course.

Th e RBA surprised some last year by seemingly using up all its monetary policy ammunition by November. In our view, it had no other option and although the eff ectiveness of Quantitative Easing is still playing out it was essential for business confi dence that the RBA was seen to be using all the tools at its disposal to support the economy.

It must be remembered that the RBA has been playing a dual game of implementing monetary policy to ensure domestic demand recovers from this pandemic-induced recession, while at the same time looking to ensure Australia’s currency remains competitive, thereby ensuring our exports continue to be attractively priced. It has used QE for both these defensive and competitive monetary policy plays.

Australia has a fl exible exchange rate so controlling the exchange rate is not something that policy makers can do easily for any period of time.

Th e RBA has already indicated it is likely to implement another round of QE in 2021 and, if necessary, could target purchases further along the curve to put downward pressure on 5- and 10-yr government bond rates, which may help with the competitiveness of the Australian dollar.

Th e fact that the RBA has fl agged further QE activities suggests it considers QE ammunition has been, and will continue to be, eff ective in supporting the economy. In fact, the RBA has pulled in ‘reserve ammunition’, which many in the market didn’t think it had based on its traditional playbook, including the further easing of the cash rate to 0.1%. Th e Bank has shown a preparedness to use unconventional monetary policy and adopt measures we haven’t previously seen it use.

In using unconventional measures it is important that the RBA is alert to unconventional outcomes. While conventional infl ation metrics remain largely contained, infl ation was higher than expected in December and the RBA will need to watchful that this was due to temporary factors rather than the long-hibernating infl ation genie stirring from its slumber.

It would also be particularly prudent for the RBA to remain alert to the consequences of asset price infl ation, which we are now seeing in the housing market. Th e issue is that rising assets prices will further exacerbate the diff erence between the ‘haves’ and ‘have-not’s in society.

Th ose with assets going into the pandemic will see their wealth rise with the tide; those that didn’t will see the gap widen.

Policymakers are in a diffi cult position. If QE is distorting asset prices, including housing, then introducing another distortion to address this may simply kick the can further down the road.

What can be done? Ensuring lending standards are maintained to protect borrowers from over-extending themselves – including maintaining serviceability stringency and enforcing loan to-value ratio limits – can help minimise the chances of an asset price bubble. Also, fi scal policy sett ings around tax, such as capital gains and negative gearing – are also mechanisms that could be strengthened to dampen the att ractiveness of housing investment (relative to other investments).

Dr Brendan Rynne.

First published by Dr Brendan Rynne, Chief Economist, KPMG Australia on KPMG Newsroom on 2 February 2021.

Payment Times Reporting – Are you ready?

AUSTRALIA’S Payment Times Reporting Scheme commenced 1 January 2021. This will impact many large Australian businesses and some government entities.

Th e Payment Times Reporting Act 2020 requires reporting entities to report on their payment terms and times with small suppliers in publicly available reports.

Th ere is a new Government website for the Payment Times Reporting Scheme (PTRS) which holds the rules and latest guidance material for reporting entities to view. See our summary of the PTR rules (PDF 93KB).

The key elements to understand Who must report?

By now, more than 4,000 large business groups will have received an early invitation to self-register for PTR or will have subsequently gone to the PTR website to investigate registration processes.

However, if you have missed this or think you might have recently met the requirements to report, we have covered the basic tests to satisfy the PTR regime and report.

A ‘constitutionally covered entity’ becomes a reporting entity at the start of its income tax year if it: • carries on an enterprise in Australia • satisfies a ‘total income’ threshold for the most recent income tax year, and • is not a registered charity with the Australian Charities and Not-forprofits Commission.

Alternatively, if an entity gives appropriate notice to the Regulator, it may elect into the regime.

When will you need to report?

Reporting entities will need to report on a bi-annual basis dependent upon their year-end for tax purposes, they will then have 3 months to upload their report to the Payment Times Reporting Regulator via an online portal.

For most Australian businesses with a 30 June tax year end, they will need to look to its income for the year ended 30 June 2020 to see if it has a PTR obligation and the fi rst reporting window will be from 1 January 2021 to 30 June 2021, with a fi rst reporting deadline of 30 September 2021.

Who is a small business supplier?

An entity will be identifi ed as a small business in the Payment Times Small Business Identifi cation Tool (coming in December 2020) if it carries on an enterprise in Australia and its annual turnover was less than $10m for the most recent income year.

Th e way we understand the SBI Tool will work is: • A reporting entity will need to upload their supplier data into the

SBI Tool. • Based on your suppliers’ ABN numbers, the SBI tool will flag which of your suppliers’ ABNs were not matched in the SBI Tool (because the Tool will seek to identify medium and large businesses) and are therefore small business.

What are the content and information requirements?

Th e new Scheme will require reporting entities to prepare and disclose a wide range of information in relation to their payment practices to those suppliers identifi ed as small business suppliers.

In addition to factual information about the RE, the recent release of the Rules and Guidance Material provides further information required for the Payment Times Report and includes: • % by total value, of all procurement by the Reporting Entity (RE) in the reporting period (RP) that

was from Small Business Suppliers (SBSs) • Standard Payment Periods (SPPs) on offer, or if none, most commonly used with SBSs (inc. longest & shortest SPPs at the start of the

RP) plus any changes during RP.

Rules now define SPPs • % by total number & value, of certain SB Invoices (SBIs) paid by RE in RP within various date ranges after issue • details of how SBIs are to be received/paid by the RE and details of any fees payable by a SB to participate in a RE’s procurement process • whether the RE has any SB Supply

Chain Finance Arrangements in

RP (if so, further details including: various % disclosures of SB invoices paid under SBSCFAs; any commissions/benefits received from 3rd party SBSCFA providers and whether SBs were required to agree to use SBSCFAs to participate in a RE’s procurement process or for

SB invoices to be paid) • additional info to provide context to disclosures in PT report.

Once submitt ed, this information will then be lodged on a public Payment Times Reporting Register which will make this information readily available for the public to access free of charge.

What are the potential penalties and fines?

Th e newly appointed Payment Times Regulator has signifi cant powers to monitor, investigate, appoint external auditors and impose infringement penalties up to 0.6 percent of annual income.

Penalties will not come into eff ect for the fi rst 12 months and the Regulator will spend this time working with reporting entities to educate them about reporting.

Public reporting and the media

Th e relationship between large retailers and their small suppliers has featured in numerous Australian newspaper headlines in recent years and we saw this increase from May 2020 when Payment Times Reporting was fi rst tabled in the House of Representatives.

Previous reporting was presumably based upon information obtained from suppliers, however, once reporting goes live from 1 July, we anticipate this to increase signifi cantly as the media will have access to payment metrics on reporting entities.

Common issues to address prior to your first reporting window

• Data quality and accuracy for supplier ABNs. • Inability to tag small suppliers in

ERP systems. • Failure to capture invoice receipt date. • Inability to produce reports.

How our clients are setting themselves up for success

Payments Times Reporting is here, and businesses need to think about what they need to do now. However, with these changes comes the inevitability of impacts further down the line including, how businesses structure entities in their ERP, manage their data and working capital moving forward.

Th rough our work with clients, we have found knowing how to navigate these changes and sett ing yourself up for success can be complex. We have been supporting clients through the complexities of Payment Times Reporting to help them understand what’s expected, prepare for the changes and ensure they comply into the future.

For more information visit KPMG.com.au