The Accountant - Draft

AUTUMN 2015 | theaccountant.ORG.mt

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AUTUMN 2015 THEACCOUNTANT.ORG.mt

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Feature The Accounting Directive Transposed into The Companies ACT and GAPSME p.42

LIFESTYLE Spotlight On... Hilary Galea Lauri

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SMPs The Institute and the SMP

FEATURE From Bolt-On to Built-In p.64

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feature EC Proposal for a Standard VAT Return

newspaper post

students Noticeboard

THE ACCOUNTANT

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AUTUMN 2015 | theaccountant.ORG.mt

CONTENTS SUMMER 2015 | theaccountant.ORG.mt

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PRESIDENT’S ADDRESS

news

Malta’s Financial Services Industry: What next?

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MIA NEWS p.10

LOCAL UPDATE COVER

GLOBAL NEWS

ALLOWANCE ANNUAL STOCK YEAR LOSS

MARKET

DISTRIBUTION

COMPOUND DIVIDENDS

DEAL TIME ADVISORY

ADVISORY

INFORMATION TECHNOLOGY

LABOUR MARKET

REPORTS

AUTOMOTIVE

EARNINGS HEALTH DOLLAR TRADE LAW

YEN DIGITAL ECONOMY GAMING INDUSTRY

AML

SUCCESIVE PARTNERS STRUCTURE ABILITY CONTRACTS

DATE

POLICY

BANKING

TURNOVER

EXCHANGE RATES

EXPORTS

BARRIERS TO ENTRY

TREATIES

DEBT

BROKERAGE

INFLATION

PAYMENT KPMG’S TOURISM FINANCIAL RETURN ON INVESTMENT SERVICES CONFERENCE 2015 COMPLIANCE

AFFAIRS

GROWTH

RECESSION

WORK

INTEREST

SEGMENTATION VALUE SECURITY

PERIOD

GOVERNMENT AUDIT

ECONOMY

COST RISK CORPORATE SERVICES DATA FUTURE

ACCOUNTING SUMMARY

RISK MALTA COMPLIANCE

Issued Quaterly The Accountant is published by on behalf of The Malta Institute of Accountants

STRENGTHEN

COMMITTED MORTGAGES

DIRECTION

JOBS

INTERNET

CONSULTING BALANCES

FUTURE SALARIES

MANAGEMENT

FEATURES p.12

THE ACCOUNTING DIRECTIVE TRANSPOSED INTO THe companies act and gapsme

by Mark Abela p.20

eu action plan on corporate taxation: where do we stand?

by Daniel Debono p.28

EDITOR Mark Abela mabela@miamalta.org DESIGN Neil Martin neil@stevesandco.com Sales Manager Margaret Brincat margaret@mbrpublications.net

TAXABLE

REPORTS ANALYTICS EDUCATION

START-UPS

CAREERS EQUITY

CONSUMER

Hilton Hotel Conference Centre St Julians - Malta

PURCHASE

KPMG’s Biennial Financial Services Conference

ENVIRONMENT

FUTURE EMPLOYMENT CURRENCY SUM REPORT INSURANCE PLANNING MONEY STERLING FOREIGN

TRANSACTIONS

COST

DEFICIT

IMMIGRATION FUNDS

TRAINING

TAX PROFITS BANKNOTES MEASUREMENT

SELL CRISIS ADVISORY

ACQUISITION

ITEMS

1 December 2015

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from bolt-on to built-in

by Robert Ancilleri p.35

risk management and the finance professional

by Dominic Fisher p.49

COnverting an llc into a cooperative - part 1

by Peter J. Baldacchino & Joanne Borg p.53

All correspondence, articles for publication and enquiries are to be addressed to: The Editor MIA Services Limited Level 1, Tower Business Centre Tower Street, Swatar BKR 4013 Malta Tel: +356 2258 1900 Fax: +356 2132 3906 mabela@miamalta.org

ADVERTISING INQUIRIES Margaret Brincat (+356) 9940 6743 margaret@mbrpublications.net

ec proposal for a standard vat return

by Josef Mercieca

SMPs p.25

The Institute and the SMP

by William Spiteri Bailey

TECHNICAL p.56

ifac, iasb, fee, eu updates

lifestyle p.42

spotlight on... hilary galea lauri

by Hilary Galea Lauri p.46

Medical - changes and mental wellbeing

by Valentina Abela

Register now at: www.kpmg.com.mt © 2015 KPMG, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

All rights reserved.

The Institute does not necessarily concur with the views expressed in the articles published in this journal. Articles are published without responsibility on the part of the publishers or authors for loss occasioned in any person acting or refraining from action as a result of any view expressed therein. “The Accountant” can now be accessed from the website at www.theaccountant.org.mt

STUDENTS p.62

A former ACCA student’s experience

by Magnolia Tabone p.64

studentS’ notice board

PRESIDENT’s AddrESS

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THE ACCOUNTANT

THE ACCOUNTANT

PRESIDENT’S ADDRESS

AUTUMN 2015 | theaccountant.ORG.mt

AUTUMN 2015 | theaccountant.ORG.mt

PRESIDENT’s AddrESS Franco Azzopardi, mia president

“Congratulations...Thank you for joining...and make us proud!” The reply that came back was invariably, “Thank you,… I will!”

This was the whispered short conversation between myself and each and every graduate I shook hands with during the 15th October graduation ceremony and presentation of their certificate of membership with MIA, our Institute. Our membership increases by just shy of another 10% growth.

Our responsibility increases towards a larger number of Accountants who expect to see value in being Members of the Institute where they can intermediate knowledge and experience, and where they know they find support and confidence.

Now for some updates on the work done by the executive team led by the CEO, and by the voluntary Officers, Council members and members of the various working groups.

We have again taken a lead role in the amendments to the Companies Act to reflect the changes to the requirements of the accounting reporting. The General Accounting Principles for Small and Medium-sized Entities (GAPSME) Legal Notice issued on 28 August 2015 was the first published legal document to transpose the provisions in the EC Directive applicable to small and medium-sized entities.

This will be followed by the Bill to amend the Companies

I feel you would be interested to know also that out of all the new graduates, more than 60% of students whose performance even landed them an ACCA global placing, studied through the Institute’s wholly owned professional learning academy. We are proud to say and at the same time applaud our academy for indeed delivering yet again its brand promise, ‘AIM’, or focus higher. It is good to note that ‘AIM Professional Academy’ is a Premier Member of the BPP Global Network (Europe’s leader in professional training).

A snippet from my speech before the ceremony, in front of a record audience of close to 700 people, reads as follows.

“We are proud of the results obtained and of the quality of the available courses on the island; our country is endowed with a huge human potential and this keeps making us proud, both locally and overseas, year after year. As our nation’s economy flexes its muscles further, the role of Accountants is pivotal for our continued economic growth and competitiveness,” This message was built around the question “Where would Malta be today without the crucial role the accountancy profession has played in the country’s economic success?” I think you would all agree that Malta would have had a different hue, economically, had our Institute and my predecessor Presidents and Council members not been visionaries and forceful drivers of change. We should all be proud of this legacy and we should all hold high our Institute’s banner.

This brings me to a connected point. Even if the supply of Accountants is steady, demand seems to outpace it causing some concern in terms of satisfying the demand. Our counter reaction has been to import talent both from Europe and rest of the world. The process to do so is an administrative burden. The usual economic forces come into play with the consequential viral inflation of payroll costs, which may eventually threaten our competitiveness. But this means there is also a huge opportunity and a lot of upside. The Institute will continue to encourage more students to take up Accountancy as their career of choice, by reaching deeper and further within the Millennial circles. At the moment we are working on a communications and marketing strategy. I am confident that this will increase our success rate in the contest for talent.

The strong competitive advantage we have, compared to our competitors, is that Accountancy is the language that business

to users of financial information that through our bond with international standard setters since several decades, the local reporting system is based on a strong and internationally comparable set of standards, and our role in the continuous education and technical support we give to our members ensures the highest quality of those reports and statements.

The direct positive contribution of this is that the international competitiveness of enterprises is strengthened, and also that capital flows and financing becomes more accessible and at competitive costs. The Institute has played a critical role in the design-and-build of the robust corporate reporting infrastructure, including the essential legal and regulatory frameworks, and the development of the human capacity based on the highest ethical behaviour. I strongly believe that the Institute, and its Members and sponsoring firms, have earned a lot of credit for the optimal economic performance we are boast of. We need to communicate better the value we bring to business, government, regulators and the populace in general.

speaks. It is a significant asset to have even if one may wish to venture into entrepreneurship. A majority of Fortune 500 CEO’s have a finance background. It is an undisputed advantage also in the boardroom. My own experience as the CEO of a fast-paced service company hitting close to a €30m top line, and also as a board member of various regulated entities, is an extremely positive one. I personally feel that the Accountancy Profession adds immensely to my capacity, competence and confidence in myself, and this stems mainly from my past training and experience in the profession. We need to use such statistics and stories to enlighten bright students towards the Institute.

High quality accounting, financial reporting, auditing and advice, play an important role in improving economic performance. Our Institute has contributed significantly in capacity building towards high calibre professionals who are premier players and who in turn improve transparency, thus facilitating the mobilisation of domestic and international investment, creating a sound investment environment and fostering investor confidence. We give the peace of mind

Act that will be published shortly. GAPSME as well as the amended Companies Act are the result of decisions taken by a transposition working group made up of a wide range of stakeholders from the public and private sectors that was led by the Accountancy Board. The Malta Institute of Accountants was a key contributor in the design phase and drafting of GAPSME and the amendments to the Companies Act. I here need to thank our CEO Mark Abela, our Secretary Fabio Axisa and also Bernard Scicluna, an ex-President of the Institute, for their collective effort with the Accountancy Board, in bringing this project to a close within tight deadlines. We shall be giving you updates and information sessions as part of our CPE programme soon.

We have also progressed in the Legal Bill with the significant support of the Managing Partners of the Big4. I was personally present in all meetings representing the Institute and keeping the Council in synch at all times. I believe that we are close to a closure on this project as well especially since we all joined in an orchestrated effort to find acceptable compromises with representatives of the legal profession who are attempting to put some structure to their own profession. I think that this initiative should be seen positively as further reinforcing the robustness of our national offering and economic fabric that is in turn squarely based on our sound reputation of the professions.

I end this address by auguring you all the very best for the coming Festive Season. I look forward to giving the Institute that visibility and respect that it merits among the different circles of stakeholders, and this because we all deserve it!

IS YOUR FUTURE!

Would you like to further your studies and become an Accountant?

ACCA is delighted to continue its working relationship under the joint examination scheme with The Malta Institute of Accountants Professional Joint Scheme student entry route criteria: • 3 O ’levels including Mathematics and English language from A-C • 2 A ‘levels with pass grade from A-E (Accounting is not compulsory)

Another major selling point for Accountancy is that it is now so entrenched in our everyday lives, that it is a profession that endures and also grows further, even in economic downturns.

It is a profession that supports the harmonisation of reporting requirements and hence provides Accountants with a flexible international mobility. Accountants are and will remain in demand, both in developed and still developing economies.

Foundations in Accountancy Qualification (FIA Student): Students with no formal academic qualifications can register to take exams at any level within Foundations in Accountancy.

Students without minimum entry requirements are obliged to obtain the Diploma in Accounting and Business within the FIA Qualification in order to be transferred to the ACCA/MIA qualification. Students may claim exemption from the F1, F2 and F3 papers of the ACCA Qualification after having completed the Diploma in Accounting and Business.

For more information please visit the FIA section on the ACCA website at: www.accaglobal.com/students/fia/

For further information kindly contact Ms. Magnolia Tabone on 22581900

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Level 1, Tower Business Centre, Tower Street, Swatar, BKR 4013.

NEWS

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THE ACCOUNTANT

THE ACCOUNTANT

NEWS

AUTUMN 2015 | theaccountant.ORG.mt

SUMMER 2015 | theaccountant.ORG.mt

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MIA NEWS MIA GRADUATION CEREMONY The MIA held its fifth annual graduation ceremony on 15 October 2015. The event was hosted at the Attard Parish Hall and 211 graduates were invited to attend the graduation ceremony – 115 completed their studies through ACCA whereas 96 completed their studies through the University of Malta. All graduates have joined the Institute as Associate Members in the past year.

The Republic of Malta’s President Emeritus, Dr George Abela, was the guest of honour for the evening and around 700 people attended for the event since the new graduates were accompanied by their parents and close relatives. A reception followed in the serene surroundings of the exterior courtyard.

In his address, newly appointed MIA President Franco Azzopardi congratulated the graduates for their academic achievement and augured them a successful career. The President stressed the importance of the Maltese Finance Sector, which stands more or less on par with Malta’s manufacturing industry, generating some 14% of the GDP and employing 10,000 people. “Where would Malta be today without the crucial role that the Accountancy Profession has played in creating the very fabric of the economic success and the lifestyle, which we all enjoy today?” he said.

“With over 2,500 members and counting, MIA (or the ‘Institute’ as it often referred to) is one of the fastest growing professional bodies in Malta; since 1995 its graduates have increased by 500% and membership has risen by over 400%”, concluded Mr Azzopardi.

In his key note speech, President Emeritus Dr George Abela focused on the importance of ethics in the Accountancy profession, highlighting the need to measure success not only in terms of values such as the GDP, but also the Accountant’s ethical conduct.

“Accountants must be weary of falling into the trap of placing money ahead of one’s values and ethics”, stressed Dr Abela.

After these interventions, Ms. Caroline Cassar Reynaud, Head of Talent and Communications, Deloitte Malta presented the Mark de Giorgio Award (sponsored by Deloitte) to Mr Stephan Strijbosch for excellence achieved in auditing.

MIA CEO, Mark Abela then welcomed all the graduates as Members of the Institute and invited them on stage where they were presented with their MIA membership certificate.

Join The Best

The ceremony was concluded with the distribution of awards to those graduates and students who excelled in either their subject or throughout their overall studies during the last twelve months.

Typically we are looking for qualified Accountants, Economists & Financial Services professionals, ideally having a sound knowledge of IFRS and a minimum of 2 years work experience.

Career Opportunities

The following is the full list of MIA-ACCA’s top performing students:

Award

Session

Mary Rose Bonnici Andrew Tabone Ian Cutajar Carol Debattista Peter Bajada Steve Bilocca Christian Vella Noelle Cauchi Glorienne Xuereb Stephan Strijbosch

F5 - Performance Management F5 - Performance Management F7 - Financial Reporting F7 - Financial Reporting F7 - Financial Reporting P2 - Corporate Reporting P2 - Corporate Reporting P2 - Corporate Reporting P3 - Business Analysis P7 - Advanced Audit & Assurance, International Variant Overall Overall Overall Overall Overall Overall

Dec 2014 June 2015 Dec 2014 Dec 2014 June 2015 Dec 2014 Dec 2014 June 2015 Dec 2014 Dec 2014

1st 1st 1st 1st 1st 1st 1st 1st 1st 1st

9th 3rd 10th 10th 6th 9th 9th 10th 8th 7th

Dec 2014 Dec 2014 Dec 2014 June 2015 June 2015 June 2015

1st 2nd 3rd 1st 2nd 3rd

42nd 61st 67th 39th 42nd 73rd

Aaron John Meli Yana Borda Matthew Borg Steve Bilocca Glorienne Xuereb Byron Dalli

WORLDWIDE Ranking

NEW MIA STAFF The Institute is pleased to announce the engagement of four new members of staff.

Ms Michelle Spiteri Bailey joined the MIA as Technical Manager on 3 September. Michelle studied Accountancy at the University of Malta and completed her B.A. (Hons) Accountancy. She continued her studies and completed a MBA degree in Finance from the University of Leicester in 2006. She also obtained a specialised Diploma in Shipping Economics and Operations from the Cambridge Academy of Transport in 2010. Michelle has been working as an Auditor for 16 years and for the last 9 years worked as an audit manager with Deloitte, Malta. Michelle started her PhD at the School of Management, University of Leicester in April,

EY is a global leader in assurance, tax,transaction and advisory services, employing 190,000 people in 150 countries.

In view of our steady growth over the past years and our vision to expand our business even further, we are constantly on the look-out for the best people to join us and establish a career with the fastest growing financial firm in Malta. © 2015 EYGM Limited. All Rights Reserved.

Student’s Name

Maltese Ranking

Required skills To fit with the EY mindset one needs to be a dynamic, proactive and committed individual, with a flexible approach and strong team player.

Joining a global firm like ours also implies a readiness to travel and work overseas, at times for extended periods.

Our HR Manager, Michael Mifsud, will take care of your application and we guarantee strict confidentiality.

Email: michael.mifsud@mt.ey.com

NEWS

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THE ACCOUNTANT

THE ACCOUNTANT

NEWS

AUTUMN 2015 | theaccountant.ORG.mt

SUMMER 2015 | theaccountant.ORG.mt

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APS Achieve loAnS for ProfeSSionAl quAlificAtionS 2013 and her PhD research focuses on trust, audit quality and professional scepticism. She is also presently a visiting lecturer at the University of Malta.

The MIA will ensure the continuous provision of high level of service to Members and Students through the outstanding work which is performed by its Staff.

Ms Rachelle Dalli joined the MIA on 5 October as Technical Officer. Rachelle is a Certified Public Accountant and holds a Practicing Certificate in Auditing. Rachelle has obtained a Bachelor of Accountancy Degree from the University of Malta. Prior to joining the Institute, Rachelle has worked as Auditor for a number of years with RSM Malta and Deloitte collecting over eight years’ experience in auditing a wide range of clients operating in various industries including remote gaming companies, public authorities, insurance agencies, travel agencies, non-profit organisations, telecommunications companies, companies within the property industry, investment funds, investment service providers and banks. Rachelle replaces Ms Ritianne Cassar who resigned earlier this year.

MIA WINTER OFFICE HOURS

NEW MIA MEMBERS

your career in the direction you’ve been dreaming of. APS Achieve aims at minimising your financial

Ms Shana Soar joined the MIA on 31 August as Front Office Secretary. Shana was previously employed as an Office Administrator with Remax, Real Estate Specialists. Shana replaces Ms Kirsten Micallef who resigned earlier this year.

MIA upgrades Mr. Christian Gauci Ms. Clara Desira Ms. Amy Camilleri Ms. Pamela Gatt Ms. Charmaine Pace Scerri Mr. Ian Callus

get in touch with us and find out how easily your dream can turn into a rewarding reality.

Ms Natasha Falzon joined the MIA on 14 October as Front Office Secretary. Natasha was previously employed as an Executive Secretary in the Hospitality industry. Natasha replaces Ms Sarah Zerafa who resigned earlier this year.

Earlier this year Former Technical Director, Mr Mark Abela was appointed Chief Executive Officer with effect from 1 July and Ms Jacqueline Mamo joined the MIA Finance Team as an Accounts Assistant.

The Institute switched to its winter schedule as from 1 October 2015. During this period, the hours applicable to administration and technical staff are Mondays to Fridays: 8.00 to 17:00.

This notwithstanding, the front office is open Mondays – Thursdays: 8:00 – 18:00. On Fridays, the front office is open from 8:00 – 17:00.

These hours will apply until 30 June.

leArn, Achieve, Perform & eArn. Upgrading your academic profile requires foresight and determination. Wisdom will ultimately drive burden to focus on your studies and achieve career progression. Plan your future carefully, then

Apply online on apsbank.com.mt/achieve

psbank facebook.com/a

Reinstatements Mr Mark Tabone was reinstated as FIA

2122 6644

apsbank.com.mt

APS Bank is licensed by the Malta Financial Services Authority.

values you can bank on

news

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news AUTUMN 2015 | theaccountant.ORG.mt

AUTUMN 2015 | theaccountant.ORG.mt

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LOCAL UPDATE

RSM Malta has announced that Ms Maria Micallef will be the new Managing Partner of the firm

THE GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES (GAPSME) REGULATIONS PUBLISHED ON 28 AUGUST 2015 The GAPSME have been recently published and will replace the General Accounting Principles for Smaller Entities (GAPSE) currently in force. The GAPSME legal notice was published on 28 August 2015 to reflect the requirements of the new EC Directive 2013/34/EU. GAPSME present a straightforward financial reporting framework with limited disclosures to reflect what is required by the accounting directive. The GAPSME Regulations are applicable for financial reporting periods commencing on or after 1 January 2016. For more information see indepth article on page 12.

THE COLLECTION OF CONTRIBUTIONS TOWARDS THE MATERNITY FUND HAS COME INTO FORCE By means of L.N. 257/2015 (Trust and Trustees Act CAP.331) and L.N. 258/2015 (Social Security Act CAP.318), the collection of contributions towards the Maternity Fund has come into force. The Inland Revenue Department has been entrusted with the collection of such contributions. To this effect a new version of the FS5 form has been released. A circular outlining the mechanism and applicable rates is

available on the IRD official website.

Furthermore, the public is being informed that updated versions of the FS7 and FS3 documents will be uploaded in due course.

The Ministry for Social Dialogue, Consumer Affairs and Civil Liberties has issued an Outline Policy regarding the matter. This Policy also clarifies, by providing examples of different scenarios, whether the paying of such contribution is exempt or not.

MFSA CONSULTS ON REGULATIONS TO BE ISSUED UNDER THE INSURANCE BUSINESS ACT Further to the consultation document issued by the MFSA last December highlighting the main changes to be carried out to the Insurance Business Act (Cap.403) in order to transpose Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast), (the “Solvency II Directive”), the MFSA has issued for consultation a number of proposed regulations to be issued under the proposed amended Act. As part of the transposition exercise of the Solvency II Directive, the MFSA is currently amending the subsidiary legislation issued under the Insurance Business Act (Cap.403) to align it with the requirements, as well as the terminology of the Solvency II Directive. It is also being proposed to issue a number of new regulations

transposing specific provisions of the Solvency II Directive.

For this purpose, the MFSA has issued a Consultation Document, and published the draft regulations.

GUIDELINES FOR THE VAT TREATMENT OF ROAD ASSISTANCE SERVICES This document explains changes in the VAT treatment of road assistance services, which came into effect on 17 July 2015. Following these changes, not all road assistance services are subject to VAT. The EU VAT Directive (Council Directive 2006/112/EC) provides that Member States shall exempt insurance and re-insurance transactions, including related services performed by insurance brokers and insurance agents. Following a ruling by the EU Court of Justice, such services also include road assistance services provided by a body who undertakes to provide such services, in return for a fixed subscription, should the risk of breakdown or accident covered by that body materialise.

Therefore road assistance services rendered by service providers in the case of a breakdown or accident and which are offered on a subscription basis must, for VAT purposes, be considered as exempt supplies of insurance services without the right of deduction of input VAT. On the other hand, where such services are provided on an ad hoc basis for a

Nexia BT partners Karl Cini & Anita Aloisio with the International Advisory of the Year 2015 Award

separate consideration (i.e. not as part of a membership/subscription package), then the services would be taxable at the standard rate of VAT with the right of deduction of input VAT. EXEMPTION OF WHITE GOODS AND ELECTRONIC PRODUCTS FROM THE PAYMENT OF ECOCONTRIBUTION By virtue of legal notice 260 of 2015 Eco-Contribution Act (Amendment of First Schedule) Regulations, 2015 and with effect from 1 September 2015 products listed under the ‘heading’ of white goods and electronic products are now exempt from the payment of eco-contribution. Operators in this sector were required to join a waste recycling scheme by 30 June 2015 or provide a plan on how they intend to abide by the WEEE (Waste Electrical and Electronic Equipment) Directive NEW MANAGING PARTNER AT RSM MALTA RSM Malta has announced that Ms Maria Micallef will be the new Managing Partner of the firm, succeeding Mr Deo Scerri, founder and outgoing Managing Partner, who retires at the end of this year. Ms Micallef is one of the founding partners of RSM Malta and is currently the partner in charge of advisory and risk management services in the firm.

Maria has extensive experience in servicing local and international

clients across a wide range of industry sectors including remote gaming, energy, hospitality, communications and manufacturing. Maria is a Certified Public Accountant and holds a B.A. Hons Accountancy degree. She is a fellow and past President of the Malta Institute of Accountants (20132015), a Member of the US Institute of Internal Auditors and a Member of the Association of Certified Fraud Examiners. Maria is currently a Council Member of the Institute of Accountants and a Member of the Institute’s Education Committee. She also represents the Institute on the Accountancy Board (ACB) and on the ACB’s Audit Transposition working group.

Commenting on his retirement from the firm, outgoing Managing Partner Deo Scerri said, “Over the last ten years, RSM Malta has grown extensively and developed into a leading mid-tier firm for audit, tax and consulting services and I have no doubt that the firm will continue to prosper and flourish in the years to come. I have full confidence that Maria and the firm’s partners will continue building strong collaborative relationships based on a genuine understanding of client needs, strategy and aspirations.”

“I thank Deo for his sterling contribution in building and developing RSM Malta into what it is today. The partners, directors and staff will cherish his values of mutual respect and collaboration and we will together

strive to continue empowering our clients every step of the way to maximise their potential,” said incoming Managing Partner Maria Micallef.

NEXIA WINS INTERNATIONAL ADVISORY FIRM OF THE YEAR 2015 Maltese firm Nexia BT was declared title winner of the International Advisory Firm of the Year 2015 in the single firm category at the International Accountancy Bulletin (IAB) 2015 Awards night. The event was held in London on the 1st October 2015.

The award recognises excellence in the accounting profession and the presentation ceremony featured some of the most prominent people in the industry from the accounting world.

IAB is highly regarded as a trusted source for leading accounting news by the world’s foremost accounting specialists.

In receiving the award, Anita Aloisio, Nexia BT’s partner responsible for the Advisory Services stated that this is yet another milestone in the firm’s history and another step in the right direction. It honours the professional work of the Nexia BT staff and rewards the hard work put in by the staff. This title reaffirms the partners’ commitment towards the ongoing professional development of its staff and is ultimately an honour not just for the firm and its staff but also for the entire profession in Malta.

FEATURE

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LOCAL UPDATE

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AUTUMN 2015 | theaccountant.ORG.mt

Mark Abela Mark Abela is a Certified Public Accountant and is presently the Malta Institute of Accountants’ CEO and a visiting lecturer at the University of Malta. Prior to joining the MIA in 2012 as the Technical Director, Mark enjoyed work experiences in audit and assurance with PWC, in financial management with the Maltese Ministry of Finance, in IFRS advisory with the European Financial Reporting and Advisory Group (EFRAG) in Brussels and in Enterprise Risk Services with Deloitte Malta. Mark holds a Bachelor’s degree in Accountancy and a Masters Degree in Financial Services from the University of Malta.

FEATURE

The Accounting Directive Transposed into the Companies Act and GAPSME Introduction The Single Accounting Directive (the Directive), published in 2013, repeals the 4th and 7th Council Directives, replacing them with a single new Directive. The Directive also contains requirements applicable to medium-sized and large entities and Public Interest Entities (PIEs).

The publication of LN 289 of 2015 (GAPSME LN) brought to an end a long process that transposed the provisions in the Accounting Directive applicable to small and mediumsized entities into Law. Indeed, the 2015 General Accounting Principles for Small and Medium-Sized Entities (GAPSME) Legal Notice of 28 August 2015 was the first legal document to be published, which together with the Companies Act amendments will transpose into Maltese Law the requirements of the new EC Directive 2013/34/EU (the Accounting Directive).

Table 1 - Entity thresholds

Directive 2013/34/EU In Millions of € Balance Sheet Total Net Turnover Average number of employees

Small €

Medium €

Large €

< 4 million < 8 million

< 20 million < 40 million

> 20 million > 40 million

< 50

< 250

> 250

The Directive foresees maximum harmonisation as far as thresholds and accounting obligations of small companies (as defined in the Directive) are concerned. There would also be an increase in the company size thresholds for small and medium-sized companies, and these thresholds are now harmonised across the EU (See table 1 above).

The primary objective of the Directive is to simplify the preparation of financial statements, reduce the burden on

small companies and improve the comparability of financial statements prepared by medium-sized and large companies and PIEs by reducing the number of Member State Options (MSO). The minimum note disclosures applicable to all entities are the following: • • • • • •

Accounting policies.

Disclosures for financial instruments measured at fair value.

Guarantees, commitments, contingencies and arrangements not recognised in the balance sheet.

Long term and secured debts.

Post balance sheet items.

Related party transactions.

The Transposition exercise In view of the 90 or so MSOs in the Directive, the Institute started considering and discussing the impact of the EC’s proposals on the Profession as early as 2012. MIA Council set up an ad hoc working group that was tasked with developing the Institute’s position on the accounting proposals. The Institute also engaged extensively with SMPs, through its technical department and the SMP Committee.

The Accounting Directive Transposition working group set up under the auspices of the Accountancy Board (‘ACB TWG’) met regularly over the past year to advise the Board on the options available in the Directive for different size categories of undertakings and groups as well as PIEs and by the end of 2014, the Group had concluded its discussions and adopted a common position on the Member State Options available to Malta. The position adopted on these MSO have now become the basis for the new company law and financial reporting framework in Malta.

In view of these wide ranging effects, besides representatives of the Accountancy profession, the ACB TWG included representatives of a wide range of stakeholders from the private and the public sectors (see table 2).

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FEATURE

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FEATURE

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AUTUMN 2015 | theaccountant.ORG.mt

Table 2 - Transposition working group members

Entity

Entity

Representative

Accountancy Board

Charles Rapa (Chair), Bernard Scicluna, Simon Flynn, Dr Ivan Sammut

Malta Institute of Accountants

Mark Abela (Secretary), Fabio Axisa, Hilary Galea Lauri

MFSA

Joseph Caruana, Angele Grech

National Statistics Authority

Carlos Camenzuli, Joseph Bonello

Commissioner of Revenue

Shawn Agius, Victor Bugeja

Ministry of Economy

Dr Nadine Sant, Manuel Castagna

Malta Bankers Association

Robert Ancilleri

University of Malta

Peter J. Baldacchino, Monique Micallef

The Differences The main changes of substance in respect of the general financial reporting principles, compared to the current provisions are set out in table 3 below: Entity

Recognition, measurement, presentation and disclosure in financial statements should be subject to materiality constraints.

Definition of Net Turnover

Article 3(12) permits MS to require the inclusion of income from other sources into the figure of net turnover for undertakings where the notion of net turnover is not relevant.

Substance over form

General principle of Substance over form becomes mandatory.

Formation expenses

Removed as a category of asset.

Provisions

New requirement that the amount recognised in respect of a provision should correspond to the undertaking’s best estimate of the liability or future expenditure.

Stocks

LIFO method of valuation is not permitted any more for stocks and fungible items.

Ordinary and extraordinary items

The previous distinction between ordinary and extraordinary items within the profit and loss account has been removed.

Additional disclosures

Medium-sized entities are given the option and large entities and PIEs are required to disclose information in their annual financial statements which is additional to that required by the Directive.

Valuation of fixed assets

All entities are permitted to measure PP&E at revalued amounts

Valuation of financial instruments and other assets at fair value

Large and medium-sized entities applying IFRS are permitted to measure financial instruments in accordance with the current IAS 39 requirements. Small entities are only allowed to apply these requirements to measure held for trading and derivatives.

All entities are permitted to measure Investment property at fair value.

Valuation of asset/liabilities qualifying as a hedge items in conformity with hedge accounting system

Such measurement is permitted In respect of any assets and liabilities which qualify as hedged items under a fair value hedge accounting system, or identified portions of such assets or liabilities, at the specific amount required under that system.

Valuation of financial instruments in conformity with IAS

Such measurement is permitted to the extent of the current IAS 39 possibilities.

Recognition of change in the value of financial asset available for sale

Permitted to the extent allowed by IFRS. A change in the value of an available for sale financial asset, other than a derivative financial instrument, is to be included directly in a fair value reserve.

Goodwill / development costs amortisation

In exceptional cases where the useful life of goodwill and development costs cannot be reliably estimated, such assets shall be written off within a 10 year period.

Research and development cost

Where national law authorises the inclusion of costs of development under ‘Assets’ and the costs of development have not been completely written off, no distribution of profits shall take place unless the amount of the reserves available for distribution and profits brought forward is at least equal to that of the costs not written off.

Representative

Additional disclosures

Medium-sized entities are given the option and large entities and PIEs are required to disclose information in their annual financial statements which is additional to that required by the Directive.

Abridged balance sheets for small undertakings

Small entities will no longer be permitted to draw up abridged accounts.

Exemptions for small entities

Exempted from preparing management reports; Exempted from preparing cash flow statements; Exempted from publishing management reports and profit and loss accounts

Exemptions from consolidation

Financial holding company exemption removed.

Merger accounting

Malta will permit this methodology in line with what is required under IFRSs.

JVs

Proportional consolidation for a joint venture holding will not be permitted.

Application of the equity accounting method for the first time

At this point the associated entity is shown in the consolidated balance sheet at an amount corresponding to the proportion of the associated undertaking’s capital and reserves represented by the participating interest in that associated entity.

Associates

Revaluation of associated undertaking’s assets and liabilities is required in line with the current IFRS practice.

Representative

Materiality

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Only medium and large entities and PIEs are required to prepare a cash flow statement. This could be detrimental to small entities’ creditors if they base their risk and credit assessment on this statement.

The notes to the financial statements of small entities have also been shortened and cannot exceed those disclosures that are set out in the Directive with the exception of certain medium-sized entity disclosures that can also be applied to small entities if the Member State so chooses. Malta has decided to take up this Member State option. Malta will also exempt small undertakings from obligation to draw up a management report [1].

GAPSME In view of the new prescriptive accounting rules for small entities set out in the Directive and the fact that the 2009 General Accounting Principles for Smaller Entities (‘GAPSE’) were largely aligned with those for medium-sized entities arising out of the then applicable 4th (78/660/EEC) and 7th (83/349/EEC) Council Directives, the 2009 GAPSE had to be amended to reflect the new GAAP set out in the Directive applicable to small and medium-sized entities.

The 2015 General Accounting Principles for Small and Medium-sized Entities (GAPSME) [2] is based on the maximum harmonisation regime for small entities set out in the Directive. It also reflects those additional GAAP requirements applicable to medium-sized entities that choose to apply GAPSME. The Institute’s representatives were key contributors in the design phase of the newly published GAPSME LN, investing a significant amount of committee and technical staff time.

GAPSME presents a simplified financial reporting framework for small entities with limited disclosures to reflect what is required by the Directive. Consequently the financial statements of these entities will be shorter. Amongst others, small entities are not required to prepare a statement of changes in equity or a cash flow statement and are exempted from the preparation of the management report or directors’

report. Small groups are also exempt from the preparation of consolidated financial statements.

The changes to GAPSE are not that extensive as one would expect. Indeed in the most part the requirements of the Directive are limited to presentation and disclosure such that the fundamental recognition and measurement principles previously set out in GAPSE are, in the large part, still applicable.

Similar to the Directive, GAPSME follows the building block approach that sets out the disclosure requirements applicable to all entities (based on the small entity disclosures) and then identifies the additional disclosures applicable to mediumsized entities.

The Directive removes the previously applicable MSO in the 4th Directive that allowed Member States to require IRFS financial statements for small entities. With the new Directive this MSO has been removed and Member States cannot impose additional requirements on small entities that go beyond those in the Directive. Since the Directive GAAP requirements have been transposed into GAPSME then Malta can only require small entities to prepare their financial statements in accordance with GAPSE. This notwithstanding, an entity choice remains and for financial reporting periods commencing on or after 1st January 2016, small entities could also prepare financial statements in accordance with IFRS as adopted by the EU if the Board of Directors of a company or, in the case of an entity other than a company, its governing body, has passed a resolution to this effect.

Interaction between the IAS Regulation and the Accounting Directive Medium-sized entities are given the option and large entities and PIEs are required to disclose information in their annual financial statements which is additional to that required by the Directive and that arise from the application of the IAS Regulation to the financial statements of these entities.

The IAS Regulation (EC No 1606/2002) sets out the legal

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context and provides the legal basis for the application of IFRS in the EU. This Regulation requires the application of IFRSs as adopted by the EU (‘adopted IFRSs’) for the consolidated financial statements of European companies whose securities trade in a regulated securities markets as defined in Article 4 of that Regulation. In addition, Article 5 allows Member States to permit or require (i) the companies referred to in Article 4 to prepare their annual accounts, and (ii) companies other than those referred to in Article 4 to prepare their annual and/or consolidated accounts, in conformity with IFRS adopted under the IAS Regulation. Malta is one of the countries that have extended the application of adopted IFRS to all limited liability companies registered in Malta [3] except for entities that are permitted to, and apply GAPSE. Recital 3 of the IAS Regulation clarifies that the aim of the IAS Regulation is “to supplement the legal framework applicable to publicly traded companies”. To do so, the IAS Regulation introduces derogations to the common regime set by the Accounting Directives, in that it provides more specific rules regarding individual or consolidated accounts than the Accounting Directives and thus represent lex specialis in comparison with the Accounting Directives, which are considered as lex posteriori. This pattern applies when either Article 4 or Article 5 of the IAS Regulation applies [4].

The new Accounting Directive further clarifies in a Recital that its provisions should apply only to the extent that they are not inconsistent with, or contradicted by provisions specified elsewhere for the financial reporting of certain types of undertakings. The new Accounting Directive would therefore not restrict or hinder a company’s compliance with (or choice under) adopted IFRS further to the IAS Regulation. The Commission services analysis of November 2003 [5] indicated a similar interpretation with respect to the current Fourth and Seventh Directives [6].

Once a company was within the Seventh Directive and was listed, it is also automatically captured by the IAS Regulation.

In Malta’s case, every company falls in scope of the IAS Regulation because Malta took up the Member State option in Article 5 of the Regulation.

Companies Act At the same time that the MIA GAPSE Redraft working group was busy discussing and transposing the changes necessary to transpose the Directive’s GAAP requirements applicable to small and medium-sized entities, the Companies Act, 1995 was also being amended. Together with the Registrar of Companies and the Accountancy Board, the MIA through its Members and Staff was central to the design of the Bill

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amending the Companies Act. Changes to the main legislative body of the Act include the following: •

The provisions applicable to small entities in Article 185.

•

Removal of the possibility of abridged accounts for small entities.

•

The removal of the financial holding company exemption.

•

Changes to the profits available for distribution rules.

•

The merger of the current 3rd and 4th Schedules (merged into one schedule).

•

Changes to the 6th schedule about the management report.

•

The introduction of country by country reporting provisions.

The new 3rd Schedule of the Act will contain additional GAAP requirements in the Accounting Directive that are not in IFRS both as regards individual as well as consolidated financial statements. These requirements would have to be applied even if IFRSs are applied and for individual accounts include: •

Average number of employees during the financial year, broken down by categories.

•

Existence of any participation certificates, convertible debentures, warrants, options or similar securities or rights, with an indication of their number and the rights they confer.

•

The Name, the head or registered office and the legal form of each of the undertakings of which the undertaking is a member having unlimited liability.

•

Name and registered office of the undertaking which draws up the consolidated financial statements of the smallest or largest body of undertakings of which the undertaking forms part as a subsidiary undertaking.

•

Place where copies of the consolidated financial statements may be obtained.

•

Nature and business purpose of the undertaking’s arrangements that are not included in the balance sheet

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ACCOUNTING and the financial impact on the undertaking of those arrangements, provided that the risks or benefits arising from such arrangements are material and in so far as the disclosure of such risks or benefits is necessary for the purposes of assessing the financial position of the undertaking.

•

Total fees for the financial year charged by each statutory auditor or audit firm for the statutory audit of the annual financial statements, and the total fees charged by each statutory auditor or audit firm for other assurance services, for tax advisory services and for other non-audit services.

Non-IFRS requirements for consolidated accounts include: •

An undertaking which draws up consolidated financial statements shall apply the same measurement bases as are applied in its annual financial statements.

•

In disclosing the amounts of emoluments and advances and credits granted to members of the board only amounts granted by the parent undertakings to board members of the parent undertaking shall be disclosed.

•

The notes to the consolidated financial statements shall set out the following information in relation to undertakings included in the consolidation:

•

The names and registered offices of those undertakings.

•

The proportion of the capital held in those undertakings, other than the parent undertaking, by the undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings.

•

The names and registered offices of associated undertakings included in the consolidation and the proportion of their capital held by undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings.

In addition to the above disclosures, consolidated financial statements also need to include those additional disclosure requirement not in IFRS that apply for individual financial statements.

Conclusion When developing the 2009 GAPSE, the Profession acknowledged the fact that the ultimate success of GAPSE will depend on the extent to which users, preparers, and their auditors believe that it would meet their needs. The MIA believes that there are a number of reasons why the take up

of GAPSE was not as one would have aspired for. One of these was that banks and regulators continued to require IFRS accounts as they were not sufficiently aware of GAPSE.

AUDIT

ADVISORY

Like the MIA did recently in a bid to improve the 2009 GAPSE take up, when it had organised a series of meetings with the major Maltese banks to explain in some detail the information that would be readily available in a set of GAPSE financial statements, it would need to organise follow-up meetings to explain the new requirements of GAPSME.

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TAX

The Institute expects the take up of GAPSME to increase when compared to the current take up of GAPSE, because of two main reasons: 1. The financial reporting obligations of small entities have been simplified significantly, which according to the European Commission should lead to a reduction in the administrative burden of these entities.

TAX

2. Following entry into force [7], small entities (see table 1) do not have an option at the Member State level that allows them to choose between GAPSME and IFRS as adopted by the EU as was previously the case and these entities account for the larger part of the companies registered in Malta (97% or circa 19,000).

Medium-sized entities (see table 1) will still be allowed to avail themselves of the Member State option to choose between the GAPSME reporting framework and IFRS. Large entities and Public Interest Entities are required to adhere with IFRS as adopted by the EU. The application of these frameworks following the coming into force of the Accounting Directive would still be in line with the way that Malta has applied the IAS Regulation as was discussed in the previous section.

In conclusion, the MIA expects to play a key role in educating its Members by publishing official guidance and other explanatory information on its portal and in its publications.

This information will be supplemented by a concerted training initiative in a bid to smoothen the transition process from the old GAPSE to the new GAPSME. References [1] - provided the notes include information on acquisition of own shares [2] - L.N. 289 of 2015 [3] - Regulation 3(1) of SL 281.02 Accountancy Profession (Accounting and Auditing Standards) [4] - Commission Services’ Working Paper, MARKT/F3/JPR/VDC/ga, Brussels, 06 June 2013 [5] - http://ec.europa.eu/internal_market/accounting/docs/ias/200311-comments/ ias-200311-comments_en.pdf [6] - Commission Services’ Working Paper, MARKT/F3/JPR/VDC/ga, Brussels, 06 June 2013 [7] - The provisions within the 2013 Directive will first apply to financial statements for financial years commencing on or after the 1 January 2016.

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FEATURE

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Daniel Debono Daniel Debono is the EU Affairs Manager at the Malta Business Bureau. The MBB is the EU-business advisory and support office for the Malta Chamber of Commerce, Enterprise and Industry, and the Malta Hotels and Restaurants Association. Based in Belgium, Daniel heads the MBB’s Brussels representation office. He can be contacted on ddebono@mbb.org.mt

EU action PLAN on corporate taxation: where do we stand?

The EU Action Plan for Fair and Efficient Corporate Taxation In June 2015, the Commission published an ‘Action Plan for Fair and Efficient Corporate Taxation in the EU’. It claims that we still operate a corporate tax system that was conceived in the aftermath of the first world war when multinationals were mostly industrial and selling tangible products.

Technology and communications in recent decades re-shaped the global economy, revolutionised production processes and created high value services. Businesses are no longer constrained within territories, but have spread operations cross-border and particularly online. As a result, the source of taxation where profits are made is no longer simple to apply.

Furthermore the Commission argues that while the European Single Market has helped businesses access larger crossborder markets, they have to face legal uncertainties due to the different jurisdictional tax regimes. On the other hand it claims that SMEs operating within one member state are at a competitive disadvantage because they do not have the facility to shift profits to jurisdictions where corporate tax is more advantageous.

Finally the Commission also observed that the current corporate tax system has created a stiff competition between EU member states, which has systematically driven down corporate tax rates and broadened tax bases; but ultimately despite the stability, total corporate tax revenue has not increased over the last twenty years or so.

For these reasons, the Commission believes that with the

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FEATURE Corporate tax is a highly controversial topic at EU level. This is a very important factor on which cross-border operating businesses decide in which country to set-up shop or otherwise. This is why EU member states are very sensitive to any European Commission proposal that challenges the status quo in this area, because it will most surely affect their revenues and the economy in general.

FOR SOME, THE NEED TO GROW JUST KEEPS GROWING.

proposed Action Plan it will re-establish the link between corporate tax and where economic activity takes place, ensures that member states correctly value corporate activity within their jurisdiction, creates a competitive and growthfriendly corporate tax in the EU, and creates a strong EU approach vis-à-vis external jurisdictions.

The Action Plan outlines five key areas that give an indication to the Commission’s work plan in this area for the coming years. These are (i) the reinvigorated proposal for a CCCTB, (ii) ensuring that effective taxation is paid where profits are generated, (iii) introduce measures for a better tax environment for businesses, (iv) achieve further progress on tax transparency, and (v) strengthen EU tools for coordination in the area of taxation.

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There is no doubt that the CCCTB proposal within the Action Plan remains central to the European project for corporate taxation. Nevertheless, this is not new to the EU legislative process. In 2011, the Barroso II Commission had put forward a proposal for a Directive that was accepted by the European Parliament, but strongly challenged at the European Council.

The objectives of a CCCTB are to have a common tax base, which is a standard way of computing corporate tax returns in the EU. The consolidation refers to the distribution of profits of multinationals operating within the EU – based on a formula taking into account labour, assets and sales – which would decide what share of corporate tax is paid in each jurisdiction where the company has a presence.

Having regard to the difficulties at Council level to agree on the consolidation aspect, the Commission has already announced that in its legislative proposal to be published next year, it will take a two-step approach. First it will look to obtain consensus on a common tax base, and then open discussions on the more controversial consolidation formula. Then, in contrast to the 2011 proposal, the Commission is expected to suggest a mandatory CCCTB for cross-border businesses instead of leaving it optional for companies to decide.

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Under huge pressure by the larger EU member states, the Commission is looking to better link profits to where the value is generated in order to secure effective taxation. In this regard, it is closely following developments of the OECD ‘Base Erosion and Profit Sharing’ project in order to improve the EU transfer pricing frameworks.

To provide a better tax environment for businesses, the Commission will allow the offsetting of losses of cross-border companies in order to pay corporate tax solely on net profits.

Furthermore, it will look to improve double taxation dispute resolution mechanisms.

Fiscal policy as an instrument for growth The primary purpose of fiscal policy is to collect revenue for the state, but also an instrument to address economic imbalances with other countries. By way of example, economic conditions of Malta and Cyprus vary greatly from those of France and Germany. For this reason, fiscal policy is used by countries to stimulate growth when they suffer from permanent disadvantages such as smallness and remote location for instance.

From a policy point of view, corporate tax should not be looked at in isolation. This is not the only factor on which companies base their decision to set-up in a country or otherwise. Many other considerations come to play. Political stability, skills available in the labour market, social security contributions and consumption taxes, are other important factors just to mention a few. This shows how the Commission’s focus to address one element from a whole chain of factors that influence business decisions takes-off on the wrong footing.

Focusing more on the logic behind its determination to intervene on corporate tax, the Commission argues for a common tax base in order to remove the legal uncertainties of 28 different regimes for SMEs that wish to expand operations cross-border. This, it says, while still allowing a healthy tax competition between member states. Here again, the reasons provided by the Commission are very unclear, particularly when the tax base is in fact one important factor on which countries compete. If by competition the Commission intends for this to be solely based on tax rates, in practice this is no competition at all.

Over time, every country developed an economy with own characteristics due to the nature of trade that takes place within it and with third countries. Based on this premise, particular features are introduced within the tax base to reflect the business activities in a more efficient manner.

However, the common tax base as proposed by the European Commission will remove this flexibility and as a result will first restrict intra-EU competition, and secondly EU member states risk finding themselves in a disadvantage when competing with non-EU tax regimes in the global economy, particularly

AUTUMN 2015 | theaccountant.ORG.mt

with neighbouring countries in Africa and Asia. This will therefore end in a double competition blow particularly for EU smaller and peripheral countries, which have developed a very competitive tax regime to make up for their permanent disadvantages.

On justifying the proposed common tax base as a victory for SMEs wishing to do business cross-border by removing legal uncertainties, there is the risk of making the issue sound bigger than it actually is. In reality, the Commission calculates that only 25% of SMEs engage in cross-border trade, and therefore the rate of SMEs that actually set-up in more than one EU member state is surely smaller. Even in the case of those companies that do have cross-border presence, at most this would be limited to a few countries. It is surely not the case that all cross-border companies operate in 28 different jurisdictions. With this in mind, one questions whether the purpose of the Commission’s one-size fits all approach is actually to address real concerns of SMEs.

C

M

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CM

The Commission also argues that a common tax base will address the abuse by some multinationals that appear to pay very little tax in relation to their income. In reality, there is no empirical evidence that this is an EU-wide corporate practice as much as the Commission makes it appear. Therefore once again, a one-size fits all approach should not be the solution for a number of companies that abuse the system.

On the other hand, the Commission needs also provide sound evidence on how CCCTB will result in more tax paid by corporates. Furthermore, SME’s should retain the flexibility of reaping the benefits provided by other EU jurisdictions, if the tax regime in their home country is considered to be inefficient.

For this reason, the Commission needs to be careful that by harmonising the tax base, does not result in rewarding inefficiency.

For small and peripheral EU states, a mandatory CCCTB will have huge repercussions on the economy. It is no secret that many of these have developed a very competitive tax regime, which has contributed towards the growth and consolidation of various industries. With no flexibility to take up the current advantages of such tax regimes, one wonders whether these countries that already suffer from permanent disadvantages will remain attractive for so many companies to establish a presence there. Has the Commission quantified what the effect will be on small and peripheral EU countries’ economic growth, employment and investment as a result of CCCTB? The debate on corporate tax shows that the future growth of small EU member states and the European Commission’s ambitions are at crossroads. While further integration to facilitate business environment for growth and investment through the European Single Market is encouraged, one has to be careful that other aspects of integration do not benefit some EU member states at the detriment of others.

MY

CY

CMY

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FUND & CORPORATE SERVICES

FEATURE

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SMPS

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Small & Medium Sized Practioners (SMP) have come a long way since the time when they felt that the MIA was not their Institute as they did not feel a sense of belonging to it.

•

Establishes an efficient network.

It all started in 2002, when a group of SMPs founded the Small Practitioners Association. Soon after the Institute constituted the Small & Medium Sized Practitioners Advisory Committee (SMPAC) as a Council Committee chaired by Ben Scicluna whose role was to voice the SMP’s perspective.

•

Establishes the interests of SMPs on EU and national level.

•

Establishes a way how these interests can be represented by fee.

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Provides advice and expertise on national SMP developments to FEE.

•

Presents FEE’s SMP work in the respective countries to smps (in Malta this being done through the Malta SMP forum).

•

Gives feedback on the SMP’s perspective to other FEE committees.

The SMPAC was and still is a very active committee and has over the years been involved in various MIA initiatives making it one of the most active Institute committees. Meetings are always very well attended with members coming from all the different facets of the SMP Community. A milestone for the SMPAC is the organisation of the annual SMP Forum which has been running for the past four years. The SMP Forum caters for a full day seminar with insights and topics that appeal to the SMPs. In 2012, the SMPAC also organised an EU subsidised trip to various institutions in Brussels for SMPs; an initiative which the SMPAC is working on to repeat for another group of SMPs in 2016.

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The SMPs have, for a good number of years, had a number of representatives on the MIA Council and also formed part of the MIA Executive Committee. Having been the Chairperson of the SMPAC for a number of years and representing the SMP’s on the MIA Council, I was in 2012 asked to form part of the FEE SMP Forum, which meets two to three times a year in Brussels and comprises the FEE member organisations like the MIA within the 28 European Member States together with representatives of ACCA and ICEAW. During the meetings, representatives from the European Institutions provide the members with insights and feedback to various initiatives that would have been taken. Through its members, the FEE SMP Forum:•

Identifies matters and projects of relevance to SMPs.

•

Provides and promotes the SMP perspective in FEE projects.

This forum and the information generated and received is very beneficial for the Maltese SMP. It helps him/her feel European, be European and share with other European SMP’s the difficulties being faced. The FEE SMP Committee issues a number of publications to inform SMPs around Europe what is happening. I invite you to have a look at the FEE SME/SMP library on: http://www.fee.be/library.html?category=44.

In 2015, I started representing the Institute on IFAC’s SMP Committee as a technical Advisor to Giancarlo Attolini, the Italian member and Chair of the Committee. The SMP Committee is comprised of 18 members from all over the globe, including a chair and deputy chair. The members on this committee represent a broad range of geographies and professional backgrounds. Apart from meeting two to three times a year, conference calls are organised on a regular basis to provide timely input relevant to SMPs, to the Standard Setting Boards.

As a strategic advisory body of professional accountants, the SMP Committee supports IFAC’s work in three main activity areas namely:-

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1. Development of tools and resources: In order to assist SMPs best serve their SME clients, the committee has developed guidance, tools and resources. These include the two comprehensive implementation guides (ISA and ISQC 1 guides), and a practice management guide for SMPs. The committee also collaborates with IFAC member organisations to share support materials that member bodies can use to support their SMP members.

2. Timely input to policy, regulation, and international standards: The committee actively participates in IFAC’s regulatory dialogue on matters of relevance to SMPs/ SMEs. The committee also regularly provides input on international standards, including those on auditing, assurance, quality control, ethics, and accounting, at all stages of their development to help ensure their relevance and proportionality to SMEs and SMPs, and to moderate the pace of change.

3. Promoting the visibility and recognition of SMPs:

p.27

Committee members, IFAC Leadership, and staff promote SMPs by speaking at different fora. In addition, the Committee issues news releases, articles and maintains online resources and tools.

There is a large amount of online resources specifically aimed to assist SMPs in their work. I refer you to the link: http://www. ifac.org/about-ifac/small-and-medium-practices and also to a very resourceful portal, The IFAC Global Knowledge Gateway which has a wealth of information that may be referred to: http://www.ifac.org/global-knowledge-gateway. Finally I would like to invite all SMPs to take part in the 2015 IFAC Global SMP survey on http://ifac.global-smp-survey-2015-ad.sgizmo. com/s3/ In conclusion, I believe that we cannot but agree that the Institute has over the years empowered and will continue to help SMPs in Malta become more professional, ethical, at par with their European and Global piers, and better equipped to face the challenging times ahead.

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Shireburn Software launch cloud based payroll Local software house Shireburn Software has this week launched Shireburn Indigo Payroll, a cloud-based payroll and leave management solution, designed to further automate and simplify the payroll process. The solution is entirely developed and supported by Shireburn and hosted on the Microsoft Cloud.

Shireburn Indigo is Shireburn’s latest wave of business solutions, with Shireburn Indigo Payroll being the first addition to their current portfolio.

While the leading on premise Shireburn Payroll & HR System (SPS), will continue to be supported and sold, Shireburn is now also offering the web based Shireburn Indigo Payroll for those companies who wish to move to the cloud.

Shireburn Indigo Payroll will allow greater levels of productivity and convenience, giving its users the flexibility to work from virtually anywhere and anytime.

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Businesses are adapting to this, and Shireburn is once again creating a wave of business solutions to help our clients transition from one technology to another should they wish to do so. Our mission remains that of using technology to support the growth of our clients, and Shireburn Indigo is a testimony to this,” said Mr John de Giorgio, Managing Director of Shireburn Software. www.shireburn.com/indigo

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FEATURE

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AUTUMN 2015 | theaccountant.ORG.mt

Robert Ancilleri Chief Accounting Officer at HSBC Bank Malta p.l.c. and member of the MIA Financial Services and PAIB Committees.

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FEATURE From Bolt-On to Built-In

Managing Risk as an Integral Part of Managing an Organisation Introduction In May 2015, the International Federation of Accountants (IFAC), published another document in a series of IFAC Resources on Risk Management dealing with how the management of risk has to be an integral part of the management of an organisation. The document is entitled From Bolt-On to Built-In. It lays down principles and provides guidance with a view to ensure that organisations do not end up having standalone or poorly implemented risk management functions, or internal control that more often than not, leads to higher costs and sub-optimal performance.

The scope of this article is not to reproduce the document itself but to have a closer look at the salient principles and at concrete ways of how risk management is embedded in the way organisations are managed and decisions are taken.

Risk management in the local context – common flaws In the local context, a distinction has to be made between organisations which are highly-regulated, public interest entities and all the other entities including those small and medium-sized.

Highly-regulated, public interest entities are governed by regulations to conduct their business with good governance and sound control frameworks. In general, these organisations have fully-fledged risk management functions seeking to address in some way or another the inherent risks of the business they carry out. Many are led to believe that, having a risk management function that identifies, measures and controls the risks undertaken is tantamount to having an integrated way of managing risks. However, this might still not be enough to ensure that the risk management function is helping to achieve objectives set, is driven from top down, is well-integrated in everything that an organisation does and focused on the creation of value.

In all other entities, the challenge of having risk management integrated as part of the business the organisation undertakes

is much bigger. Locally, a number of businesses have grown and became successful by developing a ‘secret recipe’ to make a killing in their industry. These same businesses have become leaders in their sector and continuously strive to develop new ideas that are not easily conceived by others.

The threat here is that unless these same businesses embrace the management of risk in the management of their operations, they risk being overtaken by followers in their industry, which although are not proactive in developing ideas, they manage to do a better job in integrating risk management in their operations and setting up something that is tailored to the needs of their organisation.

The size or sector an organisation is operating in, should not determine whether a formal framework for the management of risk is set up. Some organisations have not yet established such a framework, nor integrated it into their overall system of management. In these cases, organisations may rely on ad-hoc crisis management that attempts to recover the status quo after an event. Others have some sort of framework, but it may be plagued by serious flaws. Both instances may result in missed benefits or larger than necessary detrimental consequences. This requires deep thinking to avoid falling into the trap of being fast, reactive and opaque.

Think of the terrorist attack of September 11, 2001: had the risk been reasonably conceivable on September 10, it would not have happened. If such a possibility was given thoughtful consideration, fighter planes would have circled the sky above the twin towers, airplanes would have had locked bulletproof doors, and the attack would not have taken place. Something else might have taken place. Whatever one comes to know may become inconsequential if your ‘enemy’ knows that you know it.

Locally, Public Accountants in Business (PAIBs) play a very important role in this, given that as various surveys have demonstrated, the majority of PAIBs end up occupying senior management roles in organisations with responsibilities that are far wider than just financial control and reporting. This offers PAIBs an opportunity to be catalysts in ensuring that risk management is truly integrated in everything an organisation

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THE ACCOUNTANT

AUTUMN 2015 | theaccountant.ORG.mt

does, from the strategic thinking and setting of objectives to the decisions taken at an operational level.

The table below draws a comparison of what is locally observed to constitute bad practice, i.e. poorly integrated and ineffective risk management and good practice. bad practice

GOOD practice

Compliance-only mentality

Address the compliance and performance aspects of risk management

Risk as only negative

Effective risk management that exploits opportunities and take on additional risk while staying in control

Internal control that is overly focused on external financial reporting

Controls that address all material organisational risk to help achieve objectives, create value, and avoid loss

Risk management as a separate function or process

Line managers that manage risk in their everyday roles and responsibilities

Risk management as objective in itself

Risk management to help achieve objectives

Auditor / staff driven

Driven from top down, supported by exemplary behaviour

Rules based

Performance and principles based

Off-the-shelf systems

Tailored to the organisation

Focused on loss minimisation only

Also focused on the creation of value

Mainly hard controls

Recognising influence of culture and attitude

Imposed

Implemented through management of change

Stand-alone / “bolt-on”

Integrated / “built-in”

Static, out-of-date

Dynamic, evolving

Seen as a cost

Seen as a sound investment

As a PAIB working in the banking industry, I cannot not comment on the current state of play in the sector with respect to this. The recent past has showed that stability and absence of crises encourage risk taking (at times to the point of crossing a street blindfolded), complacency, and lowered awareness of the possibility of problems. Then a crisis occurs, resulting in people being shell-shocked and scared of investing their resources. Governments and regulating bodies try to restore order by taking measures, more often than not translating into a ‘tsunami’ of regulation. Institutions, no matter how big or small, often fall into the trap of adopting a compliance-only mentality in the absence of having an effective risk management function that not only addresses compliance as one of the aspects of risk management but seeks to exploit opportunities and take on more risks in a controlled environment that helps achieve objectives and create value. That is the big challenge that I believe, local credit and financial institutions are currently continuously facing.

Effectively integrating the management of risk Key to ensuring effective and integrated management of risk is the employment of a properly formed risk management framework as an integral part of the organisation’s management system. It is not always easy to get directors and top management, and sometimes even risk committees and risk management functionaries, to consistently implement a framework and processes that ensures risk is managed effectively. And in cases where they do so, the attention to risk may weaken over time, particularly when crucial people rotate in or out of their function. This is not an easy task but not impossible to achieve either, and once the management of risks is taken seriously as part of the key processes and operations of an organisation, people find it easier to embrace the culture and thought process associated with it.

Organisations should primarily focus on setting and achieving their objectives to create sustainable value and growth

FEATURE AUTUMN SUMMER 2015 | theaccountant.ORG.mt

This enhances the capability of managing surprises and disruptions along the way. The management of risk in pursuit of these objectives should be an inseparable and integral part of all these activities. This requires people within organisations to make predictions and judgement for the same organisation to be adequately prepared when facing surprises. Organisations should empower people not to withhold judgement - opinions are the stuff of life. They should not try to avoid predictions. What they should avoid is unnecessary dependence on large-scale harmful predictions, such as listening to economic forecasters or predictors in social science. They need to make their own forecast. The most successful businesses are precisely those that know how to work around inherent unpredictably and even exploit it.

Risk should always be identified, assessed, treated, reported, monitored, and reviewed This is to be done in relation to the objectives an organisation wants to achieve, while giving consideration to the organisation’s ever changing internal and external context. We live in a world that moves forward by large incremental random changes; these present themselves in crises and disasters, natural and man-made like terrorism and wars. All this brings about a great deal of uncertainty. The management of the risks emanating from these changes in trying to create sustainable value is key if any organisation, big or small, is to survive in today’s environment.

Risk management needs to be tailored to the organisation Because effective risk management is inextricably linked with the organisation’s strategy and operations, it follows that the approach to risk management is as individual as that organisation. And just as the organisation’s strategy should be tailored to its specific organisational circumstances, so should its risk management. It should take into consideration factors such as size, structure, business model and the environment in its entirety. Application of risk management in smaller

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Monitoring, reviewing and learning It is crucial to track progress and actions and provide management oversight. We need to monitor the previously identified major sources of uncertainty and assess the environment for new sources of uncertainty with a view to understand the implications of any changes on what we are trying to achieve and on our overall objectives. We need to learn from what has been achieved or more importantly from what has not been achieved. This should be disseminated across the organisation. The learnings should be codified and captured in policies and procedures and cycled into management processes.

Organisations need to remain sufficiently agile to make the changes needed to create and preserve value

organisations can be less formal and less structured – even though smaller organisations also need all elements of good risk management to be properly integrated.

Those responsible for setting and achieving the organisation’s objectives should also be responsible for effectively managing the related risk Good risk management is, in this sense, everybody’s responsibility in the organisation as everyone is, in one way or another, responsible for ensuring the organisation achieves its objectives. For example, one of the illnesses that banks were afflicted with before the crisis was the way bonuses were awarded. It was as if making “incentive” bonuses manage a nuclear plant – or your financial risks. Clearly, people within organisations being awarded such bonuses could not manage the risks to help achieve the objectives. Such people cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses did not accommodate the hidden risks of blow-ups.

Decisions should be informed by an appropriate assessment of risk Sustainable organisational success stems from informed and structured decision making. It needs to consider risk from both external and internal sources as organisations and their objectives are affected by many factors, often outside their direct control. Boards often forget about the basics of sound decision making, including adequate risk assessment. This also sets a bad example for the rest of the organisation.

A clear signal would be transmitted that leadership is not committed to high quality principles and policies and substandard practices are tolerated. What it takes is to ask the following questions and undertake these basic steps: 1. Understand what to achieve. What will it involve?

2. How is this related to the organisation’s overall objectives? How is this to be measured?

3. Who is to be involved? (both from inside and outside of the organisation) 4. What are the uncertainties? What are their implications for the overall objectives?

5. Determine the criteria to use to gauge whether the decision is correct in the light of the overall objectives.

6. Decide how we will make the decision – the process and steps. What will be considered and what will be irrelevant?

High-quality information is crucial to good decision making as it reduces uncertainty. In this respect, what is key is the access to timely, reliable data on which to base the decision, as well as the technical resource/expertise to analyse data and turn them into useful information, including a note on any limitations in the data or analysis. More often than not, reaching a decision requires the use of professional judgement as data might not be enough or provides contradictory answers. As referred to earlier, the right, qualified, experienced and suitably trained people should be empowered to exercise judgement.

As part of the process to reduce uncertainty, it is important to consider the following: 1. Key assumptions and presumptions about the decision and the outcomes need to be clear and agreed upon.

2. Clear identification of factors that might either prevent or enhance the achievement of the outcomes we require.

3. Recent performance in the area under discussion. Are existing controls effective to enable the achievement of the organisation’s objectives?

4. What lessons are there to be learnt from results of recent reviews that are pertinent to what is trying to be achieved?

Effective management of risk is equally important to all managerial steps following the decision-making process Once a decision has been made, changes in internal and external circumstances – or additional information becomes available - will require follow-up steps to actually achieve the desired outcomes. Inevitably, risk changes as well and the effects of these changes need to be taken into account.

More controls will probably have to be implemented to limit uncertainty associated with the outcomes that are to be achieved. It is equally important that, the outcomes of the decision-making and planning processes are recorded and communicated and that, everyone involved knows what he or she is responsible for.

Over the long term, it is not the strongest of the species that survives or the most intelligent, but the one most adaptable to change. The recent past has taught us a lesson. Evolution in economic life helps those with the maximum amount of hidden risks become the biggest or perceived as the strongest at least. Nothing should ever be allowed to become too big to fail. We should be obsessed with having organisations that embrace change and craft their strategies and actions with a view to exploit the changing circumstances and the associated risks.

Conclusion The world we live in is a dynamical system. In such a system, where trajectories in a way depend on one another, the ability to project into the future is not just reduced, but is subjected

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to a fundamental limitation. We as human beings limit our ability to see into the future, making our predictions a very complicated reflection of the past. Through an effective and integrated risk management system, the consequential effect of such a limitation is reduced but can never be eliminated.

A single person within an organisation, say, the central planner, cannot aggregate knowledge; many important pieces of information will be missing. However, if an organisation manages to breathe a culture where it is able to integrate into its functioning all the relevant multiple pieces of information, the decision-making process, with a continuous assessment of the risks involved, becomes second nature.

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Fast forward your Career Dominic Fisher Dominic is a senior manager in Deloitte Malta’s Enterprise Risk Services practice, Chartered Accountant and Vice-President of the Malta Association of Risk Management (MARM).

FEATURE

Risk Management and the Finance Professional MARM’s New Board The 2015/7 MARM Board (L-R) Dr Robert M Cachia, Sharon Cilia Tortell, Mark Zammit, IanEdward Stafrace, Ingrid Azzopardi, Dr Simon Grima, Dominic Fisher, Andre Farrugia.

The first in a series of articles for the Accountant, which introduces the Association and takes a look at the importance of risk management for accountants.

For the past 25 years, MGI Malta has been delivering

We are constantly looking for people who enjoy

Introducing MARM

an inclusive, specialised and friendly service to its

working within a specialised team in a forward-

Part of a Wider Risk Family

clients in the accountancy, assurance, tax, gaming

looking organisation servicing a diverse portfolio of

and business consulting fields.

mostly foreign clients.

MARM is affiliated to the Federation of European Risk Management Associations (FERMA) which brings together 22 national risk management associations in 20 European countries. FERMA has more than 4,300 individual Members representing a wide range of business sectors from major industrial and commercial companies to financial institutions and local Government bodies. These Members play crucial and varied roles for their organisations with respect to the management and treatment of complex risks and insurance issues. The role of a typical corporate risk manager might include enterprise risk management activities, risk awareness training, organising international insurance programmes and assisting senior management to understanding the risks and opportunities associated with potential corporate strategies.

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Three of MARM’s Committee Members, and a number of Maltese insurance and finance practitioners recently attended the FERMA annual conference in Venice, Italy, with over 1,500 risk management experts from across Europe. At this conference a new risk qualification (RIMAP) was launched in collaboration with the Pan-Asia Risk and Insurance Management Association (PARIMA) with the aim of providing risk management professionals with a certification to provide

recognition for attained standards. Next year in October 2016 Malta will, for the first time, host FERMA’s biennial risk management seminar, which will take place at the Hilton Hotel in Saint Julian’s.

An Overview of MARM MARM has been representing the risk management profession in Malta since 2011. It has as its objectives to promote, advance and encourage the knowledge of, and use of risk management within the private and public sectors in the Maltese Islands through the exchange of experience, knowledge and advice among its individual members, corporate members and professional associations on all matters of a professional, technical and organisational nature.

Ian-Edward Stafrace, who is Chief Risk Officer at the insurer Atlas PCC, is the newly elected President, taking over from Dr Simon Grima, who heads the Risk Management and Insurance Departments in the Faculty of Economics, Management & Accountancy at the University of Malta.

MARM plans to continue to raise the profile of risk management in Malta through events in collaboration with other professional associations and with increased Member engagement and networking opportunities for all those interested to learn more on how to better manage uncertainties, threats and opportunities. Within the association there is a particular focus on students and young risk managers with a view to building their skill-set and preparing them for future risk leadership roles.

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MARM will continue its efforts in the area of risk education and raising awareness of the Profession. Acknowledgment was given to MARM’s past achievements with the University of Malta where risk management is featuring in an increasing number of courses.

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Gabriella Gafa, Assurance Auditor, PKF Malta, ACCA, Banking & Finance (Hons), MITC, Insurance Diploma

An Increasingly Essential Skill

With these thoughts in mind, MARM hosted a series of events this Summer, which included presentations from Maltese-based and international risk management experts and workshops amongst local practitioners on how risk management can be practically embedded into any organisation’s management processes. Attendees were drawn from numerous sectors across the public and private sector.

Other 2015 events at which MARM will host or be represented at include an event on FX risk, an event organised by the EU looking at the opportunities and challenges for the finance sector arising from climate change and an event on risks related to outsourcing business operations to third parties.

Examples of insurance risk areas, risk exposure and testing Internal audit

External audit

Risk Area

Risk

Test

Claims handling

Inconsistency of claims handling

Risk Management

Information of Risk Management’s Department is not readily available to all employees

- Review written policies and procedures to address claims handling including investigations, acceptance and rejection of liability, subrogation and recovery efforts - Enquire employees regarding their knowledge of such policy - Perform a walkthrough test of such procedure

Technical provisions

Incorrect calculation of technical provisions

- Review actuary’s report - Assess adequacy of assumptions and independence and objectivity of the actuary - Reperform calculation calculation and enquire regarding any variances

Investments

Over/ Under statement of valuation

- Audit valuation reports from investment managers and question valuation sources. Confirm valuation to other sources such as Bloomberg - Review certificates of investments - Review security ratings

- Perform an IT audit on the risk management information system ensuring ease of tracking of accidents and claims; adequate data filtering by claims type and payment data

Gabriella Gafa, Assurance Auditor, PKF Malta, ACCA, Banking & Finance (Hons), MITC, Insurance Diploma

Introduction The Solvency II directive seeks to ensure transparency to stakeholders by increasing disclosure requirements. Insurers and reinsurers are now required to report on their extent of solvency and their financial condition. This directive mandates operators to have an effective and permanent internal audit function.

The European Insurance and Occupational Pensions Authority (EIOPA) insists that the external audit function could be a powerful tool in ensuring adequate disclosures as the external auditors adopt the balance sheet approach focusing specifically on own funds and capital requirements. This implies that through the audit report the auditor would express an opinion on the true and fairness of the financial statements including adherence to Solvency II. In this respect one may take the opportunity to perform an IT audit to validate internal models used for the purpose of calculating regulatory capital.

Risk Management and Internal Control In Malta, the importance of the risk manager role continues to grow, driven in part by the success of certain sectors which use specialised risk managers extensively, such as the funds industry, but also a function of the raised expectations of the regulator and other stakeholders and an increased awareness of the contribution that risk managers can play in organisations facing a dynamic market and regulatory environment.

Interestingly, the ranks of risk management professionals tend to be drawn from two distinct traditions. On the one hand you have Accountancy professionals whose training helps put risk into a commercial context and familiarises them with the internal controls approach to risk. On the other hand you have risk professionals drawn from mathematical or engineering backgrounds (think rocket scientists) whose understanding of risk is grounded in the numbers. A challenge for us Accountants is how to learn from both traditions to combine judgment with objectivity to achieve effective risk control.

Internal and External Audit Function for Insurers and Insurance Intermediaries The internal audit function otherwise known as the ‘third line of defence’ seeks to provide independent assurance that an organisation’s governance, risk management and internal control processes are operating effectively. Reports in this respect are communicated to the audit committee and to the administrative, management or supervisory body which decides upon the actions which need to be taken and shall ensure these are carried out.

As per Article 44 of the Solvency II Directive, risk assessment should at least focus on the following areas: - Underwriting; - Reserving; - Asset liability management; - Investments; - Liquidity and concentration risks; - Operational risks; - Reinsurance and other risk mitigation; and - Internal modelling.

There should be close liaison between the internal and external auditors. In certain cases the external auditor relies on the internal audit function and reviews their reports. When undertaking an external audit, analytical procedures are performed and these are important throughout the whole of the audit process that is, planning stage, during the course of audit and completion stage. This involves assessing risks, benchmarking and comparing against previous period figures and budgeted amounts and computing ratios such as the ultimate loss ratio; reinsurance dependence ratio; return on insurance ratio; combined ratio and return on capital employed.

Should you wish to find out more about organisation, check us out at http://marm.org.mt/. If you would like more details about anything related to MARM or if there are any aspects of risk management which you would like us to address in future issues of the Accountant, please email secretary@marm.org.mt.

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New horizons in Insurance audits

Accountancy & Risk

Whether your role is as an external Auditor or as a part of Finance Team, risk management skills have always been a useful discipline for Accountants in the workplace. It is becoming an increasingly essential part of the Accountant’s professional toolkit.

Indeed, in May of this year the International Federation of Accountants (IFAC) published a paper entitled ‘From Bolt On To Built In’ - Managing Risk as an Integral Part of Managing an Organisation. The financial crisis taught us that the critical question for the risk management profession, and indeed those within organisations with risk management responsibilities, is how to influence management to manage risk effectively throughout the extended organisation.

AUTUMN 2015 | theaccountant.ORG.mt

For more information visit www.pkfmalta.com, call on 21 484 373 / 21 493 041 or email info@pkfmalta.com

In auditing balance sheet items, during their audit fieldwork external auditors would aim to audit the existence, rights and obligations, completeness and valuation and allocation of assets and liabilities.

Claims and Reserving Reserving is a means of estimating future liability so as to be able to disclose it otherwise transfer it. The liability is brought about due to unsettled claims or claims not yet incurred and includes also unearned premia. In estimating such liability actuaries typically perform forecasts using historic results whereby their data modelling would seek to include components such as major losses, reinsurance recoveries and other specific knowledge about the market.

Examples of audit work performed on reserves include: - Ensuring potential data risk areas have been addressed; - Checking actuary has used correct data; - Reperforming calculations of reinsurance recoveries; - Identifying prudence of reserves and sensitivity; and - Comparing with previous years.

Conclusion As may be noticed, the regulatory regime within the insurance industry is aimed at ensuring that market players, maintain sufficient capital to be able to absorb hefty losses. Currently insurers are in the process of rethinking their business processes to adequately adhere to the Solvency II requirements. Pillar III disclosures would entail acquiring information from various sources and should include both qualitative as well as quantitative reporting. Such reporting requirement would prove to be even more complex for insurance group companies when consolidated financial statements would be prepared.

Although the implementation of Solvency II might prove challenging, we have to appreciate the importance of this harmonsied, sound and robust framework. Its main aim is to promote comparability, transparency and competitiveness by assessing the risks of each insurance company.

References 1. EIOPA - Need for high quality public disclosure: Solvency II’s report on solvency and financial condition and the potential role of external audit- 2015 2. Chartered Institute of Internal Auditors- Sector specific standards and guidance - 2015 3. PKF Little John - A Guide to Internal Audit, Meeting the Requirements of Solvency II 4. City of Sarasota- Risk Management Liability Claims Administration -2010 5. MFSA- The System of Governance- 2012

GLOBAL NEWS

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GLOBAL NEWS

IFAC, IASB, FEE, EU and other Updates

IFAC LAUNCHES THE 2015 IFAC GLOBAL SMP SURVEY

sustainable strategy and business model.

IFAC launched the 2015 Global SMP survey for practitioners operating in or as a small- or medium-sized practice (SMP).

This annual survey consists of a 10 minute survey giving an opportunity to all countries to contribute towards the global insights. It provides insights into the challenges and opportunities facing SMPs around the world, and helps IFAC and its member organisations survey their SMP constituents.

It clarifies how professional accountants can make a difference and includes references to some of the many resources and tools available to help develop knowledge and skillsets.

The 2015 IFAC Global SMP survey is available at https://www. ifac.org/about-ifac/small-and-medium-practices

IASB RELEASES - HOW DOES THE IASB WORK IN THE PUBLIC INTEREST: THE IFRS FOUNDATION AND THE IASB

IFAC EXPLAINS HOW ACCOUNTANTS CONTRIBUTE TO MEETING ORGANISATIONS’ SUSTAINABILITY CHALLENGE

In this new publication, entitled Working in the public interest: the IFRS Foundation and the IASB, Hans Hoogervorst, Chairman of the International Accounting Standards Board (IASB), and Michel Prada, Chairman of the IFRS Foundation Trustees, which oversees the IASB, set out how acting in the public interest is at the core of the standard-setter’s activities.

To support accountants in developing a greater awareness of how they can help their organisations address issues of sustainability and more fully incorporate these issues into business decisions, the International Federation of Accountants (IFAC) released Accounting for Sustainability.

From Sustainability to Business Resilience.

The briefing highlights the important role accountants can, and must, play in embracing sustainability challenges and ensuring that the organisations they serve are resilient by linking these challenges to a broader business agenda and strategy.

“Businesses are resilient when they are able to create and continue to deliver value to stakeholders, which involves considering both the risks and opportunities presented by sustainability issues, including environmental and social aspects, that ultimately affect financial performance and value creation,” according to IFAC President Olivia Kirtley.

“Accountants working in the public and private sectors have a significant role to play in supporting and making the decisions that guide an organisation’s ability to be resilient.”

The briefing examines the link between sustainability and business resilience, how integrating sustainability leads to better performance, and the key elements of developing a

The document is available at https://www.ifac.org/publicationsresources/accounting-sustainability-sustainability-businessresilience

The publication describes the organisation’s public interest focus by concentrating on three main topics: •

The audience of IFRS, which includes a discussion of who the audience of IFRS is, stating that the public at large is a stakeholder in the standard-setter’s work; that investors are the primary audience but that financial reporting is also a vital source of information for the regulatory community;

•

The characteristics of IFRS, explaining that accounting standards aim to portray economic reality as faithfully and neutrally as possible, rather than shape it, and why this sometimes leads to heated debate as people’s views on what is economic reality and how best to present it differ; and

•

Governance, finance and accountability giving an explanation of the organisation’s three-tier structure, governance and funding, describing the checks and balances in place to ensure independence of the IASB and how the ultimate oversight of the organisation lies

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BOV FEATURE p.41 4 SME

GLOBAL NEWS

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AUTUMN 2015 | theaccountant.ORG.mt

with capital market authorities through the Monitoring Board.

The publication can be found at http://www.ifrs.org/Pages/ default.aspx FEE PRESS RELEASE – EUROPEAN ACCOUNTANTS FOR MORE INTEGRATED EU CAPITAL MARKETS On 30 September 2015 the Federation of European Accountants (FEE) issued a press release strongly supporting the European Commission’s efforts to create deeper and stronger capital markets. Professional accountants, in their diverse capacities, bring the indispensable trust, transparency and comparability that capital markets need and they advise SMEs on financing opportunities.

As the umbrella organisation for the accountancy profession, FEE intends to inform this policy process independently. The proposals in the Action Plan released on the 30 September align with FEE’s commitment to increase European companies’ access to finance and making the financial system more resilient. FEE will especially contribute expertise and practical knowledge on the following proposals:

AUTUMN 2015 | theaccountant.ORG.mt

continues with the second information paper on compliance audit, an independent examination on assessing whether the activities of public sector entities are in accordance with the relevant laws, regulations and authorities that govern such entities.

Compliance with authorities is an essential element of public sector governance. Auditor reporting on compliance helps make public sector organisations accountable to government, taxpayers and the public at large; it may also provide accountability for funds granted to entities which are outside of, or which operate in partnership with the public sector.

The project is part of FEE’s ongoing contributions to improving public sector financial management. This has become especially relevant since the financial and fiscal crisis have decreased the trust of citizens who push public sector organisations to deliver value for money. With this pressure the demand grows for assurance services that enhance the information on which government or public management base their decisions. The European accountancy profession can play a role in making this information more transparent and reliable. With “Getting involved in public sector assurance” FEE starts exchanging best practices to this end.

•

Modernise the Prospectus Directive with a proportionate regime for SMEs to draw up prospectus and access capital markets;

The information paper is available at http://www.fee.be/library/ list/42-public-sector/1530-compliance-audit-in-the-publicsector.html

•

Examine ways to address debt-equity bias as part of the broader work on tax policy;

ACCA FINDS THAT DIVERSITY IN SERVICE OFFERINGS IS KEY SUCCESS FOR SMPs

•

Review regulatory barriers to small companies for admission to trading on public markets;

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Set up an advisory capacity and structure to facilitate companies’ access to raise capital on public markets;

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Explore with the IASB (International Accounting Standards Board) the possibility of developing a voluntary tailormade accounting solution for companies admitted to trading on SME Growth Markets; and

A survey was conducted by ACCA, with support from the Institute of Singapore Chartered Accountants (ISCA); Corpul Expertilor Contabli se Contabililor Autorizati din Romania (CECCAR); Malaysian Institute of Accountants (MIA); Chinese Institute of Certified Public Accountants (CICPA); and Vietnam Association of Chartered Public Accountants (VACPA).

•

Examine the governance and financing of European Supervisory Authorities

FEE stated that better Regulation, both at European and national level, will be essential in integrating capital markets.

Legislation should be simpler, without overlaps, and should not pose extra burdens on stakeholders. European SMEs should be at the centre of these efforts.

FEE ISSUES AN INFORMATION PAPER ON THE COMPLIANCE AUDIT IN THE PUBLIC SECTOR After the first information paper on the performance audit, FEE’s project “Getting involved in public sector assurance”

The survey looks at the value-added services to SMEs (small and medium-sized enterprises) by professional accountants through the responses of professionals who work in practice in the UK, Ireland, Singapore, Hong Kong, China, Romania, Iran, Malaysia and Vietnam who were surveyed about their business models.

This ACCA survey provides a unique insight into how the SMP business model is changing to adapt to a new reality. Entitled ‘The Global SMP business model: understanding a changing profession’, it presents a detailed map of the sector’s service offering, its growth prospects and the source and value of its diverse skills.

The results of the survey are available at http://www. accaglobal.com/content/dam/ACCA_Global/Technical/sm b/ the-global-smp-business-business-model.pdf

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Issued by Bank of Valletta p.l.c. 58, Zachary Street, Valletta VLT 1130 - Malta

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A mere end-to-end will hold no fears for you.

Set forth on your path with confidence!

spotlight on...

Hilary Galea Lauri

ARTICLE BY: Hilary Galea Lauri

CYCLING 1,600KM FOR A CHARITABLE CAUSE

from London to Paris which I completed in just over 2 days.

Hilary Galea-Lauri is an Audit Partner at KPMG. He is a Council Member of the Malta Institute of Accountants and is the Chairman of the MIA Accounting Committee

As 2015 rolled in, the prospect of cycling the length of Great Britain on my now (priceless) Cannondale Synapse, started to haunt me again and early in the year, I began looking into the logistics behind that trip. Before long, I was enrolled to commence my ride on the 1 September. The days and months started to fly by and, again, there I was unable to keep up with the demanding training schedule due to the many conflicting calls on my time. I knew then that I had to condition my mind to persevere against all odds and, if push comes to shove, it will have to boil down to mind-over-matter, being a firm believer that willpower can overcome physical obstacles. And so it was.

It started with a thought one fine morning as I got up at my usual 5am time - why not a physical challenge beyond the norm, one which would see me push my boundaries in endurance and – at the same time - raise funds for the many needs of the beneficiaries of Inspire Foundation?

That thought quickly matured into a dream and before I knew it I was researching a long-distance cycle trip, stumbling on the iconic ride from Land’s End to John o’ Groats, which is the traversal of the whole length of the Island of Great Britain between its two extremities - in the southwest and northeast - covering some 1,600 kilometers in under 12 days.

That was early in 2014 without yet owning a road bike, which unfortunately did not arrive in time for me to clock the miles in preparation for the event later that year. However true to my no-quitter approach to a challenge, I settled for a shorter ride

Ahead of my adventure, I recall myself saying that 50% of the challenge was getting myself to the start – clearing as much of what I had to do before the trip and prioritizing between multiple demands on my time was a huge challenge in itself!

Planning my nutrition before and during the trip was another challenge. I read around the subject and found vastly

conflicting views. In the end, I was guided by a well-balanced diet combining carbohydrates (about 60%), protein (about 15%) and fat (about 25%), with carbohydrates providing the main source of energy, and, of course, plenty of fluids.

Besides rising to the challenge, this trip was also a means of exploring the length and breadth of Britain - a way to get off the beaten track at a slower pace to really experience the country at close quarters. Driving it would bypass the most interesting bits and I didn’t have time to walk it, but cycling it gave me just about the right balance of completing it in a manageable time and being able to appreciate the journey.

I’ve only taken up cycling in any serious way in the recent past so I still have a lot to learn. My muscles are used to mediumto-long distance running, trekking up mountains or resistance training, but cycling gives a rather different workout that my

body is now getting used to – a form of cross-training and easing off from just pounding the roads.

I would not be true to myself if I said that the journey was a breeze which I completed in my own stride. It was tough – the toughest physical challenge I’ve ever done since summiting Mount Kilimanjaro in Africa in 2007 – and it didn’t help that I travelled over to the UK only partly recovered from an elbow injury. There’s no denying that the pain of a sore arm pulling on my bike’s handlebar, especially as I climbed some seemingly endless hills and the discomfort of being cold or wet, were tough at the time. Not to mention the headwinds and the hail I had to embrace as I cycled further into Scotland through to the finish in John o’ Groats. In a nutshell it was hard work, having endured exhaustion, battled lactic acid, burn and a boil or two in uncomfortable places. But they are all

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relatively easily forgotten and it was definitely worth it for the overall experience.

Besides crossing the finish line, one of the most notable moments I experienced was the Shap Fell climb over a distance of 16 kilometres with a height gain of 370 metres, a height altitude of 420 meters and a maximum gradient of 8%. The feeling at the summit was exuberant, especially as I then looked ahead at the (scary) descent – one I then enjoyed tremendously.

In writing this article, I cannot fail to mention some of the most scenic places I was so lucky to set my eyes on, particularly when riding through Cornwall in the southwest of England and the Highlands in Scotland. Some of which are really only accessible when off the beaten track, no words can adequately describe them.

And then the people I came to meet. Those I was honoured to ride with were simply amazing, all with their own stories and purpose. Helping each other out when coming across a fellow rider in difficulty – typically changing a tube or a chain (that happened to me too!) – was one aspect which resulted from bonding with each other after the day when we would meet up to exchange stories and experiences. On the other hand, the locals I met enriched my experience as I conversed with them on history and traditions. Highland cattle and other animals

AUTUMN 2015 | theaccountant.ORG.mt

(such as bulls) wandering loosely across the moorlands provided interesting encounters when it came to deciding who had the right of way - they did, of course, slowing me down on the ride but affording me the time to capture them through my lenses!

What I’m now left with is a sense of achievement and the wonderful memories of places, sounds, smells and people.

There are many other places I want to visit and this trip has just whetted my appetite for tougher and more enduring challenges, so watch this space.

My advice to people thinking of cycling end-to-end is to not underestimate the time and effort the trip will take. You need to bear in mind that this is a commitment that goes far beyond just the time it takes to cycle end-to-end. And if you are not the resilient type, go for something within your reach – a fit and able body will not land you where the mind does not travel.

Finally, the response to the parallel challenge I set for myself in raising EUR 5,000 (subsequently raised to EUR 10,000) for Inspire Foundation was just overwhelming, with the figure currently standing in excess of EUR 13,000. People (including many unknown to me) have been incredibly kind and generous in donating money. That, in itself, was also part of the motivation which had me pedalling away.

Issue 12 – August 2015

Issue 12 – August 2015

Issue 12 – August 2015

Issue 12 – August 2015

FOCUS Promoting Creativity, FOCUS BreakingPromoting New Grounds Creativity, Breaking New Grounds Interview with Rafael Carrascosa, Interview MD of the with Insignia RafaelGroup Carrascosa, of Companies MD of the - p.10 Insignia Group of Companies - p.10

COVER STORY COVER STORY

SPECIAL FEATURE

Celebrating SPECIAL Malta’s Best FEATURE Entrepreneurs Celebrating of theMalta’s Year Awards Best Entrepreneurs of the Year Awards Leadership, Professionalism &Leadership, Dedication Professionalism & Dedication We feature this year’s main protagonists We feature - p.25 this year’s main protagonists - p.25 Interview with Julia Chatard, Executive Interview with Julia Chatard, Executive FOCUS Promoting Creativity, FOCUS BreakingPromoting New Grounds Creativity, Breaking New Grounds FEATURE The Business of Ecocide FEATURE The Business of Ecocide with FXDD - p.06 Director with FXDD - p.06 Interview with Rafael Carrascosa, Interview MD of the with Insignia RafaelGroup Carrascosa, of Companies MD of the - p.10 Insignia Group of Director Companies - p.10 Melanie Vella interviews highly acclaimed MelanieBritish Vella interviews lawyer Polly highly Higgins acclaimed - p.56 British lawyer Polly Higgins - p.56 SPECIAL FEATURE Celebrating SPECIAL Malta’s Best FEATURE Entrepreneurs Celebrating of theMalta’s Year Awards Best Entrepreneurs of the Year Awards Newspaper Post Newspaper Post Leadership, Professionalism &Leadership, Dedication Professionalism & Dedication We feature this year’s main protagonists We feature - p.25 this year’s main protagonists - p.25

COVER STORY COVER STORY

Interview with Julia Chatard, Executive Interview with Julia Chatard, Executive Director with FXDD - p.06

FEATURE

The Business of Ecocide FEATURE The Business of Ecocide Director with FXDD - p.06 Melanie Vella interviews highly acclaimed MelanieBritish Vella interviews lawyer Polly highly Higgins acclaimed - p.56 British lawyer Polly Higgins - p.56

Newspaper Post

Newspaper Post

MBR Publications Limited MBR Publications Limited

MBR Publications Limited MBR Publications Limited

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MEDICAL

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MEDICAL

AUTUMN 2015 | theaccountant.ORG.mt

AUTUMN 2015 | theaccountant.ORG.mt

VALENTINA ABELA Valentina is a Community Pharmacist graduated in 2006 with a background in Medical Representation and Generic Pharmaceutical Quality Assurance with a particular interest in environment and health.

MEDICAL Changes and mental wellbeing Change is never easy to get used to. A change in routine or season can affect our mental wellbeing. Autumn and winter are characterised by busier schedules, and that yearly feeling of the “winter blues”. Shorter days make you feel you haven’t done enough before the day ends and keeping a balance between work and life is a challenge. It’s normal to have some days when you feel down but if you feel down for weeks and you can’t get motivated to do activities you normally enjoy, see your doctor. This is especially important if your sleep patterns and appetite have changed or if you feel hopeless, think about suicide, or turn to alcohol for comfort or relaxation. For some people this could be more than just winter blues, it could be a condition called Seasonal Affective Disorder.

Don’t be sad!

Seasonal Affective Disorder (SAD) is a type of depression that’s related to changes in seasons. For most people with SAD, symptoms start in the autumn and continue into the winter months due to the reduced levels of sunlight, sapping your energy and making you feel moody. Reduced sunlight can cause a drop in serotonin, a brain chemical that affects mood that may trigger depression. The change in season can also disrupt the balance of the body’s level of melatonin, which plays a role in sleep patterns and mood. Less often, SAD causes depression in the spring or early summer.

On the other hand, Adjustment Disorder is a short-term condition that occurs when a person has great difficulty coping with, or adjusting to, a particular source of stress, such as a major life change, loss, or event. The type of stress that can trigger an adjustment disorder/stress response syndrome varies depending on the person but are always related to a major event in one’s life.

Symptoms of seasonal affective disorder and adjustment disorder are similar and include the following: less energy, trouble concentrating, fatigue, greater appetite (or less in summer SAD), change in sleep patterns, anxiety (nervousness), withdrawal or isolation from people and social

activities, Increase in the use of alcohol or other drugs. Many people feeling like this are not prepared and do not realise that there is a seasonal pattern. Most of the time people affected do not seek medical advice and might resort to multivitamins at the least. Is this the right thing to do? First of all trying to strike a balance is very important, take steps to keep your mood and motivation steady throughout the year. Sleep is important as it has a positive effect on mood and performance as explained further on and whilst supplements can help they might not be enough.

While certain vitamins and minerals do help relieve fatigue multivitamins are designed for those who struggle eating healthily and to support an active lifestyle. One of the biggest problems with multivitamins is that people presume they are a good supplement for a healthy, balanced diet. They’re not.

A good diet is always the best way to achieve overall good health. One might not require a full spectrum of vitamins as a supplement.

Studies show that a lack of certain dietary nutrients contribute to the development of mental disorders. Notably, essential vitamins, minerals, and omega-3 fatty acids are often deficient in the general population according to studies based in America and other developed countries; and are exceptionally deficient in patients suffering from mental disorders. It has been shown that daily supplements of vital nutrients often effectively reduce patients’ symptoms.

Nutrients of particular importance for mental wellbeing Iron > Mild iron deficiency might go unnoticed as the symptoms of fatigue appear when deficiency is severe.

Women are more prone to iron deficiency, they need lots of iron to make up for the loss of minerals during monthly menstruation. With a recommended daily intake of 18 milligrams, a multi-vitamin containing iron could be beneficial.

Men should be careful not to get an overload in iron, resulting in vitamin toxicity.

Omegas-3 fatty acids > The importance of omega-3 fatty acids for physical health is now well recognised and there is increasing evidence that omega-3 fatty acids may also be important to mental health. The two main omega-3 fatty acids in fish oil, eicosapentaenoic acid (EPA) and docosahexaenoic acid (DHA) have important biological functions in the CNS. DHA is a major structural component of neuronal membranes, and changing the fatty acid composition of neuronal membranes leads to functional changes in the activity of receptors and other proteins embedded in the membrane phospholipid. EPA has important physiological functions that can affect neuronal activity. Epidemiological studies indicate an association between depression and low dietary intake of omega-3 fatty acids.

Potassium > Lack of potassium can lead to difficulty staying asleep throughout the night as an electrolyte, potassium is a positive charged ion that must maintain a certain concentration in order to carry out its functions, which includes interacting with sodium to help control nerve impulse transmission, muscle contraction and heart function. In fact, maintaining the proper ratio of potassium to sodium is an important factor for optimal health. It’s generally recommended that you take in five times more potassium than sodium, but because most diets are so rich in high-sodium processed foods, most people get double the amount of sodium compared to potassium from their diet. Potassium is found mostly in fruits and vegetables.

Magnesium is deficient in our diets. It is effective against stress, depression, anxiety and fatigue.

Vitamin B6 b12 are also beneficial to the nervous system.

Ginkgo > Ginkgo is a herb used for memory disorders including Alzheimer’s disease and for thinking disorders related to depression. It is also used for conditions that seem to be due to reduced blood flow in the brain, especially in older people. These conditions include memory loss, headache,

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ringing in the ears, vertigo, difficulty concentrating, mood disturbances, and hearing disorders. Some people use it for other problems related to poor blood flow in the body, including leg pain when walking (claudication), and Raynaud’s syndrome (a painful response to cold, especially in the fingers and toes).

Ginseng > Ginseng is a herb from Chinese medicine that can improve mood, boost physical endurance, fight fatigue and has many other uses. Because ginseng may affect blood sugar levels, people taking drugs for diabetes should not use ginseng without talking to their doctor first. Ginseng can interact with Warfarin. Do not take ginseng without consulting your doctor or pharmacist if you take any medications.

Caffeine may amplify ginseng’s stimulant effects. To avoid side effects from ginseng, it is suggested that ginseng shouldn’t be used for more than three months. After a break you can begin taking it again for another few weeks or months.

Sleep The way you feel while you’re awake depends in part on what happens while you’re sleeping. During sleep, your body is working to support healthy brain function and maintain your physical health. In children and teens, sleep also helps support growth and development. Children and teens who are sleep deficient may feel angry and impulsive, have mood swings, feel sad or depressed, or lack motivation.

Sleep helps your brain work properly. While you’re sleeping, your brain is preparing for the next day. It’s forming new pathways to help you learn and remember information. Studies show that a good night’s sleep improves learning. Whether you’re learning math, how to play the piano, or how to drive a car, sleep helps enhance your learning and problem-solving skills. Sleep also helps you pay attention, make decisions, and be creative. Studies also show that sleep deficiency alters activity in some parts of the brain. If you’re sleep deficient,

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FEATURE

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PETER J BALDACCHINO Peter J Baldacchino is Head and Senior Lecturer at the Department of Accountancy, University of Malta as well as Rector’s Delegate-Financial Affairs. He is a Chartered Certified Accountant and research postgraduate of Loughborough Business School.

His publications in refereed journals have a small-state perspective and mostly focus on auditing, financial strategy, corporate governance and co-operatives. He an Accountancy Board member, and chairman of its QAOC. Furthermore, he has extensive director and consultancy experience, currently holding positions as Director of the University Group of companies and the Central Bank of Malta as well as a member of the Cooperative Monitoring Board. peter.j.baldacchino@um.edu.mt

JOANNE BORG Joanne Borg obtained a First Class degree in Bachelor of Commerce and graduated with a Master in Accountancy from the University of Malta in November 2014. She is an associate of the Malta Institute of Accountants. Joanne holds the position of a senior advisor in the Specialist Advisory Services Department at Nexia BT, with the main areas of specialisation being corporate finance, cost and management accounting, as well as business and succession planning. Prior to joining Nexia BT in 2014, Joanne enjoyed a work experience as a student intern in Advisory at KPMG Malta. In addition, Joanne has been awarded the Department of Accountancy award for the best dissertation in the subject area.

feature

CONVERTING AN LLC INTO A CO-OPERATIVE PART 1: BACKGROUND AND ANALYSIS INTRODUCTION

you may have trouble making decisions, solving problems, controlling your emotions and behaviour, and coping with change. Sleep deficiency also has been linked to depression, suicide, and risk-taking behavior.

Sleep is regulated by melatonin. Scientists found that if you live by the sun’s schedule, you are more likely to go to bed at least an hour earlier, wake up an hour earlier, and be less groggy, because your internal clock and external reality are more in sync. The sun adjusts your clock to what may be its natural state, undoing the influence of light bulbs. Camping could help you reset an internal clock gone haywire from modern living.

Since humans evolved in the glow of firelight, the yellow, orange and red wavelengths don’t suppress melatonin production the way white and blue wavelengths do. If you want to protect your melatonin cycle, when the sun goes down, you would shift to a low wattage bulb with yellow, orange, or red light. Turning on a light in the middle of the night, even for a short moment, such as when you get up to go to the bathroom, will disrupt your melatonin production and interfere with your sleep.

Ideally, it is best to increase melatonin levels naturally with exposure to bright sunlight in the daytime (along with full spectrum fluorescent bulbs in the winter) and absolute

complete darkness at night. If that isn’t possible, you may want to consider a melatonin supplement.

SAD is more common than one would think but it can be managed. Being aware is the first step towards its management. Next is knowing one’s challenges and planning how to overcome them.

All references used in this article are available upon request from the author.

This article is not intended to replace a one-on-one relationship with a qualified health care professional and is not intended as medical advice. It is intended as a sharing of knowledge and information.

In certain instances, businesses may decide to convert into co-operatives, subsequent to consideration that such an alternative legal structure may be a more viable path to their entity. Nonetheless, such conversions have as yet been a rare occurrence in Malta, rendering them less prevalent and ubiquitous. This emanates from a lack of awareness and understanding, as, in theory, this route can be taken up by any business which puts its efforts towards such a conversion, although various technical elements would need to be addressed throughout the process.

The objectives of this article, which builds on a 2014 MAccty dissertation, are to provide useful insights on the rationale for and the difficulties encountered in carrying out such conversions, to evaluate the corporate governance and the financial implications of such a change, and to propose a viable regulatory framework for implementing such conversions. The methodology for this research consisted of semi-structured interviews with nine accountants and four lawyers, all proficient in the co-operatives’ field, as well as eight co-operative experts competent in the accountancy field. The statistical program Minitab Version 17 was used to calculate the mean, standard deviation, lower bound and upper bound using a 95% confidence interval for the mean, for each question and for each group combination, while the oneway Anova test was used to calculate the p-value.

Converting an existing company into a co-operative raises the question of what a co-operative actually is. A co-operative is defined by the International Co-operative Alliance as an “autonomous association of persons [being its members]

united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise”. This is distinct from a Commercial Partnership (CP) which is defined as “a contract whereby two or more persons place a thing in common with a view of sharing the benefit which may be derived from the exercise of one or more acts of trade” Cremona (1984).

Unlike limited liability companies (LLCs), co-operatives are directed by seven principles: voluntary and open membership; democratic member control; member economic participation; autonomy and independence; education, training and information; co-operation among co-operatives and concern for the community.

WHY MUTUALISATION? The process whereby a shareholder-owned company is converted into a co-operative (also called mutual organization) is termed mutualisation. As stated by Chris Banks, Chair of the Public Chairs’ Forum in the UK, the challenges which companies face may instigate them to review the various aspects of their business and come up with a different ownership structure. Nevertheless, if such a need does arise, such companies would ultimately discover that to date, there is no easy and clear regulatory procedure to affect such conversions.

Mutualisations may empower and instigate staff to work in a more efficient and effective way, whilst encouraging them to focus even more on the success of the organisation in order to share in its success (Banks, 2011). Additionally, direct ownership in an entity gives the members a greater sense of personal ownership and a more meaningful voice

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in the governance of the organisation. In turn, the feeling of ownership may lead to a greater sense of commitment towards the entity, leading to greater productivity, effort and innovation (Michie and Maura, 1999).

This is in turn beneficial as numerous studies indicate a direct and positive correlation between high levels of employee participation and increased performance and production.

Research repeatedly shows that firms with employee ownership and active staff involvement can outperform more conventional forms of business with outside shareholders, and be better places to work in (Field Fisher Waterhouse, 2011).

THE REGULATORY AND FINANCIAL ASPECTS The Code of Principles of Good Corporate Governance falls short of focusing on the corporate governance needed in co-operatives, as such entities need more supervision due to the application of democracy. Nonetheless, the Companies Act (CA) and the Co-operative Societies Act (CSA) lay down a number of mandatory positions which are essential in promoting good corporate governance, these mainly being the Board of Directors (BOD) and shareholders in a company, and the Committee of Management (COM) and members in a co-operative.

In pursuance of the German model presented by Hans Munkner in the seventies, the original CSA (1978) required Maltese co-operatives to operate a two-tier structure where the COM and the supervisory board are present, side-by-side.

Nevertheless, in Malta, the role of the supervisory board has been continuously questioned because in practice, members forming part of the co-operative tend to come from the same particular sector and therefore rarely possess the breadth of adequate management knowledge to man both the COM and the supervisory board. In fact, in the updated CSA (2001), such supervisory board was made optional.

Inevitably, moving on from the idea of mutualisation to practice involves extensive work. Clearly, there are certain legal requirements which such entities have to abide by during the mutualisation process. The rules listed in the CA on conversions of CPs and the regulatory procedures relating to mergers do not facilitate mutualisation as they are not specifically intended for the conversion of an LLC to a co-operative. Moreover, with reference to the merger rules which are again listed in the CA, it would be too difficult to operate a hybrid entity primarily because the structure of the co-operative differs from that of an LLC and generally is more complex. With respect to the dissolution and start-up

regulatory procedures listed in the CA, it was found that such a process would be timely, costly and disruptive. By having a conversion process in force, the money, time and legal procedures would be simplified, as the company would remain a legal person during such a process.

For any type of business, securing affordable capital is the fundamental principle in aiding success. Upon affecting mutualisation, the LLC should determine how the capital and funding for the new infrastructure should be generated, whilst changes would also have to occur in terms of the equity of the entity. The equity of a co-operative differs from that of an LLC because shares in the former cannot be freely transferred and their value is not market based. In fact, repayment of shares is at par value and any appreciation in share value is not reflected in share prices. In addition, the ownership structure of co-operatives is widely dispersed among various members, thus preventing any concentration of ownership whilst ensuring that decisions are not taken by the largest shareholders but by all members, in their general interest (Pellervo Confederation of Finnish Co-operatives, 2000). Because surpluses are distributed to the members in proportion to business volume there is little, if any, advantage in holding more equity. As one would expect, in contrast to shares in an LLC, there is normally no market for co-operative stock.

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Invest in your future.

ANALYSIS 1 THE ROSE-TINTED GLASSES VIEWPOINT - THE RATIONALE FOR MUTUALISATION Passing the Green Light: Going beyond the Capital – The majority of respondents believed there is a direct correlation between employee participation and increased performance and participation. The primary reason for this is that, as illustrated in Figure 1, in a co-operative the user and the social aspects are given prominence, unlike in a company where the focus is on the financial and capital aspects. Sustaining this view, in a co-operative, members are rewarded according to their work contribution as the returns are distributed according to each member’s turnover. Conversely in a company returns are distributed according to the amount of shares. In view of this, co-operative members would strive to collaborate and generate as much turnover as possible rather than struggle to increase their respective shareholding, as holding a large number of shares would not necessarily result in higher returns.

Mutualisation may also result in a better response to the needs of the individual members, provided that the primary intention of such members in having their company converted to a co-

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www.ksimalta.com Figure 1: The economic and social dimensions of co-operatives

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A member of KS International

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operative is that of genuinely achieving the seven co-operative principles and not for obtaining ulterior advantages such as tax savings.

THE BLACK LOOK - THE DIFFICULTIES ENCOUNTERED UPON MUTUALISATION Every Cloud has a Silver Lining: Foregoing Speed for more Valuable Options – The majority of the respondents believed that although it is true that the co-operative model presents a bigger challenge than an LLC in terms of prolonged decision-making, it does not mean that such difficulty cannot be overcome by the right members who are willing to make the co-operative model work. In fact, as one interviewee contended, “If you want to go quickly, go alone; if you want to go far, go together” suggesting that in a co-operative model, one may need to sacrifice speed for more valuable alternatives.

Desiring Control over Democracy? – Respondents pointed out that the one-member one-vote principle may also result in unwillingness by the large LLC shareholders to convert to a co-operative. In such cases, being used to having control, such shareholders may, in turn, not want to be outbid by other members upon converting to a co-operative. However, there are ways of tackling the resistance, often understandable, of such shareholders. For instance, one may consider converting part of their shares into bonds, at reasonable rates of interest or rendering some of their share capital redeemable by its replacement into say, long-term preference shares or bonus shares and certificates Feeling Browned Off: Incentive to Disinvest? – The current CSA states that “any moneys remaining after dissolution or

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liquidation of a co-operative... shall not be divided among the members... but shall be deposited into the Co-operative Societies Liquidation Account”. After a period of five years, such sums are transferred to the CCF (Government of Malta, 2001, Art. 104). In view of this ‘asset lock’ concept, interviewees agreed that co-operative members may be inclined to distribute all the profits made in each year. Such member inclination to have funds distributed may persist despite the tax exemption incentive that the government allows to co-operatives which is only applicable as long as surpluses are retained within the co-operative. One may therefore contend that the legal and fiscal frameworks are inconsistent, with the result that co-operative members do not have sufficient incentive to invest, but rather, an incentive to disinvest.

Indeed, this ‘asset lock’ concept probably originates from the social perspective of co-operatives, which may emphasize that any undistributed funds and assets are not to be taken up by the co-operative members but left for future generations. In other words, members are primarily entitled to benefit from the entity as long as they are members. Nevertheless, in order to seriously promote conversions, should not consideration be given to amending the regulatory framework in this regard?

To be concluded in the next issue For detailed references, please refer to authors or, for most quoted sources, to the University of Malta MAccty dissertation “The Conversion of the LLC into a Co-operative and its Implications: A Maltese Analysis” May 2014 available at the University of Malta library.

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Josef Mercieca Josef Mercieca is a Senior Tax Manager at BDO Malta. Josef holds a first degree in Accounting.

Josef is a member of the Malta Institute of Accountants (MIA) and the Malta Institute of Management (MIM) and has delivered presentations and training on topics relating to VAT, tax and corporate restructuring. He is an ACCA lecturer for Advanced Taxation (P6) course.

FEATURE EC proposal for a standard VAT return On the 23rd October 2013, EU Commissioner Šemeta, announced the conclusion of a three year long exercise which culminated in a proposal to amend Council Directive 2006/112/ EC as regards to an EU wide standard VAT return which Member States are required to enact in domestic legislation by the 31st December 2016.

At the moment, businesses operating in different EU countries have to face a complex medley of information requirements, procedures and deadlines imposed by each EU Member State on its own, just to declare the VAT that they owe. Some Member States require monthly declarations, others demand quarterly ones and some also require an additional annual summary return. The format and length of the return also varies considerably; for example the number of boxes to be completed in the return ranges from as few as six in Ireland, to 45 in Malta (excluding the signatory and payment details) – and even up to a monstrosity of 586 boxes in Italy.

Prior to the finalisation of the Proposal, the Commission carried out a public consultation and impact assessment (commenced in December 2010), during which the Commission considered a number of options to tackle the lack of harmonisation and the administrative burden which this brings with it. The five courses of action listed below were analysed in terms of their impact on both the businesses and the national VAT authorities: 1. Benchmark (that is only assess the current situation).

2. Compulsory standard EU VAT declaration.

3. Standard VAT declaration optional for all business.

4. Standard VAT declaration optional for those businesses submitting VAT returns in more than one Member State.

5. Compulsory standard VAT declaration with limited flexibility for Member States to determine the information from a standardised list.

Option 5 was selected because in terms of the cost benefit analysis carried out, it maximises the burden reduction for businesses while limiting the cost and facilitating the control of VAT returns by the Member States. The standard VAT return being proposed aims to eliminate the lack of harmonisation problems, by replacing the 28 different national systems with a simple and uniform EU approach where the information reported in the VAT return and the timelines to do so will be standardised across the EU. This should lead to a situation where there will be little difference between filing a VAT return in the Member State of establishment and filing one in another EU country.

The Proposal requires that the standard VAT return should have a limited set of mandatory information (Table 1), whilst allowing Member States to require further information from taxable persons which is pre-established in a standardised list of additional information (Table 2). In order to provide transparency and to facilitate business compliance when a Member State requires such additional information, this should be notified to the VAT committee.

Table 1 - Mandatory information Mandatory Information

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1.

2.

3.

4.

The tax that has become chargeable – Output VAT. The tax for which deduction is made – Input VAT. The net amount of VAT payable or refundable.

The total value, exclusive of VAT, of the transactions for which the tax has become chargeable, including the value of any exempt transactions.

5. The total value, exclusive of VAT, of the transactions for which deduction is made.

6. The total value of ICSs and ICAs for tax periods but only up to 31 December 2019 (ICSs and ICAs of goods can be established through EU sales lists and thus do not need to be included in the standard VAT return). This extension is provided so as to allow Member States to adjust their systems for the compilation of statistics concerning supplies and acquisitions of goods within the EU.

FEATURE

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FEATURE

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Table 2 - Standardised list of additional information Additional Information which MS may request [1] Other information re Sales: 1. Net amount + VAT on supplies of goods & services made for each rate.

2. ICSs even for tax periods after 31/12/2019.

3. The total (net) value, of supplies of services, (other than services that are exempt in the MS where the transaction is taxable), where the recipient is liable to pay the tax pursuant to Art 196 (B2B services).

4. The total (net) value, of supplies of goods/services not covered in point (3) for which the recipient is liable to pay the tax.

5. The total value of the exports of goods.

6. The total value of any exempt without credit supplies.

7. The tax on: i) Intra-Community acquisitions of goods and transactions treated as such. ii) Supplies of goods/services received for which the recipient is liable to pay the VAT; (Reverse Charge Mechanism). iii) The importation of goods where the Member State applies the Onward Supply Relief provisions.

In addition to the suggested contents in the standard VAT return, the Proposal will also require a standard cross-EU monthly VAT period for all businesses, except for micro enterprises (which have a turnover of less than â&#x201A;Ź2 million), which should submit standard VAT returns on a quarterly basis. It should still be possible for Member States to extend this period for up to one year in order to reduce the administrative burden. In this respect, the proposed changes should have no impact on the VAT return periods currently used by operators in Malta. The Proposal also requires a common minimum deadline for submitting the standard VAT return, which is set at the end of the month following the tax period. However, Member States would still be provided the flexibility to extend the payment date by a further month to avoid increasing burdens on business. The payment deadlines will also be harmonised because the coexistence of different payment deadlines would (partially) remove the benefits of the proposed standard VAT return. Therefore any VAT due

Other information re Purchases: 1. Net amount + VAT of supplies of goods & services received for each rate.

2. ICAs even for tax periods after 31/12/2019.

3. The tax on ICAs of goods, or transactions treated as such.

4. The tax and the (net) value of supplies of goods/ services received for which the recipient is liable to pay the tax pursuant to Art. 199 or 199a (Reverse Charge Mechanism).

5. The tax and the (net) value of supplies of services received, (other than services that are exempted from VAT in the MS where the transaction is taxable), where the recipient is liable to pay the tax pursuant to Art. 196.

6. The tax and the (net) value of supplies of goods/ services not covered by points (c) and (d) for which the recipient is liable to pay the tax.

7. The tax and the (net) value of the importation of goods.

8. Any adjustment of deductions as covered by Art. 184 (Capital Goods Scheme). in a particular VAT period should be paid when submitting the standard VAT return or in any event at the expiry of the deadline by which the standard VAT return must be submitted.

Member States are also encouraged to promote electronic filing of the VAT return.

Member States which at the moment require an annual summarising VAT return will have to dispense with such a requirement. The Proposal also suggests that common rules for the correction of VAT returns are necessary to achieve the desired level of standardisation, although Member States should be allowed to determine their own correction period as these periods are closely linked to national audit procedures.

Although the lack of agreement between the EU Member States will probably postpone the eventual implementation of the proposal, the concept itself indicates what the EU VAT fora could have in store in the not so distance future.

Table 3 - Summary of Impact of the Proposal on the Maltese VAT return Proposed Change Standard VAT return

Effect on the Maltese VAT return and system The proposed standard return (with the permissible additional information requests) is very close to the Malta Article 10 VAT return, with the exception of the additional boxes which Malta has for capital goods and excess credits brought forward.

It is yet unknown whether Malta will be allowed to maintain a separate (electronic) return for persons registered in terms of Article 12 , but it is not excluded that the standard VAT return would apply also for Article 12 registered persons (with inapplicable boxes being blocked).

At the moment persons registered in terms of Article 11 VAT Act submit a simplified VAT return. Article 272 of the Directive as amended will allow Member States to exempt enterprises from filing a VAT return if the exemption for small undertakings applies to them, but does not provide for the possibility of filing a different simplified version.

Reporting frequency

The Proposal will require returns filing every month, extended to a quarterly filing basis for micro enterprises (turnover less than â&#x201A;Ź2 million). This is in line with the current reporting frequency for Maltese enterprises but may require large (by Maltese standards) enterprises to switch to a monthly VAT return.

Filing and payment frequency

The Proposal requires the standard VAT return to be submitted (with payment) by the end of the month following the period end, which Member States may extend by a further month. Thus the VAT return and payment are both due at a minimum of one month and a maximum of two months after the end of the VAT return period, which is in line with the current forty five days post period end deadline currently applicable in Malta.

Electronic filing

The Proposal requires Member States to allow electronic filing of the VAT return (including the possibility to use electronic file transfers), which is already possible and encouraged by the Maltese VAT Department.

[1] All the references to Articles in this table refer to the applicable article in Council Directive 2006/112/EC

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TECHNICAL

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FEATURE

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TECHNICAL NEWS IFAC, IASB, FEE, EU UPDATES

substantially amending an existing standard.

IASB ISSUES ITS WORKPLAN FOR 2016-2020 The International Accounting Standards Board (IASB) has issued its work plan 2016-2020 and invites for comment until 31 December 2015. The current work plan covers the time period until 2020 and is split into different categories, reflecting the different stages of the standard setting process: 1. Research projects: The IASB research programme aims to analyse possible problems based on evidence on the nature and extent of the perceived shortcomings and assessing potential ways to improve financial reporting.

The main output of such research programmes are discussion and research papers, which eventually aid the IASB to decide whether they should start a standardslevel project (see below).

2. Standard setting projects: Developing a new standard or

3. Maintenance and implementation projects: Making minor amendments to existing standards, issuing formal interpretations, and post-implementation reviews.

Additionally, the IASB also included two other categories which include cross-cutting projects that are so significant that they justify separate mention (the Conceptual Framework and the Disclosure Initiative).

Research projects The research programme is a portfolio of projects of varying breath, scope and complexity at various stages. Most of the projects now on the research programme were added in response to the feedback received in the 2011-2012 Agenda Consultation.

Table 1 – IASB research programme (31 July 2015) PROJECT STAGE

PROJECT

Assessment stage

Definition of a business, Discount rates, Goodwill and Impairment, Income taxes, Pollutant pricing mechanisms (formerly Emissions Trading Schemes), Post-employment benefits (including Pensions), Primary financial statements (formerly Performance Reporting) Provisions, contingent liabilities and contingent assets, Share-based Payment

Development stage

Business combinations under common control, Disclosure Initiative- Principles of Disclosure, Dynamic risk management, Equity Method, Financial instruments with characteristics of equity

Inactive

Extractive activities / Intangible assets / Research and Development Foreign currency translation High inflation

Standards-level and other major projects The IASB has several types of major projects: (a) Projects on the Standards-level programme to develop new Standards or substantially amend an existing Standard (ie excluding maintenance and implementation projects); (b) Major research projects that have reached a stage at which the staff require significant input from the IAASB; (c) The project on the Conceptual Framework; and (d) The Disclosure Initiative.

Due process stage Upcoming Standards Published Exposure Draft Upcoming Exposure Drafts Published Discussion Papers Upcoming Discussion Paper

Project Insurance Contracts Leases Conceptual Framework Disclosure Initiative – Changes in Accounting Policies and Estimates Disclosure Initiative – Materiality Practice Statement Dynamic Risk Management Rate-regulated Activities Disclosure Initiative – Principles of Disclosure

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technical

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THE ACCOUNTANT

FEATURE

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During the period covered by this Agenda Consultation (mid2016 to mid-2020): 1. The upcoming Standards-level projects (referred to above) are likely to be completed in the first part of that period.

2. The IASB will need to provide a degree of post-issuance support for completed projects, particularly major projects.

3. The major research projects currently in the development phase (and any standard-setting projects that result) are likely to require significant resources throughout the whole period.

4. The IASB will need to start the next review of the IFRS for SMEs. In May 2015, the IASB published an ED on the Conceptual Framework. The IASB plans to complete the project by the end of 2015.

In 2013 the IASB started work on a Disclosure Initiative, a broad-based initiative to explore how disclosures in IFRS financial reporting can be improved. The Disclosure Initiative is made up of a number of implementation and research projects, including: 1. A research project on the Principles of Disclosure (a Discussion Paper is expected around the end of 2015).

2. A proposal to improve some of the disclosure requirement of IAS 7 Statement of Cash Flows (the IASB is currently assessing comments received on the proposal).

3. A proposal to issue a Practice Statement on materiality (Exposure Draft expected in the fourth quarter of 2015).

4. A proposal to amend IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to clarify the distinction between a change in an accounting policy and a change in an accounting estimate (Exposure Draft expected in the first quarter of 2016); 5. A review of disclosures in existing IFRS to identify targeted improvements and to develop a drafting guide.

6. Amendments made in 2014 to IAS1 Presentation of Financial Statements.

Maintenance and implementation projects As at 31 July 2015 the IASB had on its maintenance and implementation agenda 13 projects to develop Interpretations, annual improvements or other narrow-scope amendments.

Most of those projects are likely to be completed before the period covered by this Agenda Consultation, but new projects are likely to replace them.

Since publishing the 2012 Feedback Statement, the IASB has issued 15 annual improvements, or other narrow-scope amendments, and Interpretations relating to 21 Standards. In addition, the Interpretations Committee has issued 54 agenda decisions (ie decisions not to take an issue onto its work plan), many of which include education guidance.

IASB PROPOSES AMENDMENTS AND DEFERS EFFECTIVE DATE OF THE REVENUE STANDARD On 11 September the IASB issued an amendment to the

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revenue Standard, IFRS 15 Revenue from Contracts with Customers, formalising the deferral of the effective date by one year to 2018. The publication of the amendment, Effective Date of IFRS 15, follows from the IASB’s decision in July to defer the effective date from 1 January 2017 to 1 January 2018, having considered the feedback to its consultation.

Companies applying IFRS continue to have the option to apply the Standard early.

The main reason for the amendment is that the IASB is currently consulting on some proposed clarifications to the Standard. These proposals follow discussions within the Revenue Transition Resource Group (TRG). The TRG was established by the IASB and the US Financial Accounting Standards Board (FASB) after the Standard was issued in May 2014 to support companies in its implementation. The Exposure Draft (ED) proposes to clarify: •

How to identify the performance obligations in a contract;

•

How to determine whether a party involved in a transaction is the principal (responsible for arranging for the goods or services) or the agent (responsible for arranging for the goods or services provided to the customer); and

•

How to determine whether a licence provides the customer with a right to access or a right to use the entity’s intellectual property.

•

In addition, two reliefs are proposed to aid the transition to the new revenue standard.

Consultation on the proposed clarifications ends on 28 October 2015. The IASB expects to complete its discussions on the clarifications in the light of the feedback received by the end of 2015, after which any final amendments to the Standard will be issued.

IASB PROPOSES TO POSTPONE ACCOUNTING CHANGES FOR ASSOCIATES AND JOINT VENTURES UNTIL COMPLETION OF BROADER VIEW On the 10 August 2015, the IASB published for public consultation a proposal to postpone the date when entities must change some aspects of how they account for transactions between investors and associates or joint ventures.

The proposed postponement would apply to changes introduced by the IASB in 2014 through narrow-scope amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures.

Those changes affect how an entity should determine any gain or loss it recognises when assets are sold or contributed between the entity and an associate or joint venture in which it invests. The changes do not affect other aspects of how entities account for their investments in associates and joint ventures.

The proposed postponement would remove the current requirement to make these particular changes by 2016.

Instead, entities could wait until after the IASB has carried out a planned broader review that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.

The consultation was open for comment until 9 October 2015.

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FEATURE

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IFAC PUBLISHES A GUIDE TO COMPILATION ENGAGEMENTS The Guide helps practitioners in conducting compilation engagements in accordance with the International Standard on Related Services (ISRS) 4410 (Revised) Compilation Engagements. Practitioners can use the Guide as an introduction to compilation engagements, to deepen their prior understanding and knowledge, as a day-to-day reference guide, or as the basis for training modules.

A compilation engagement, which is used in the preparation and presentation of annual historical financial statements, can be tailored to meet the unique needs of the entity. The Guide to Compilation Engagements is intended to help practitioners understand the value of a compilation engagement, and assist them in complying with the international standards, thus broadening their service offerings and strengthening their practices.

IAASB PROPOSES CHANGES TO REPORTING ON SUMMARY FINANCIAL STATEMENTS The International Auditing and Assurance Standards Board (IAASB) proposed changes to reporting on summary financial statements. The exposure draft for International Standard on Auditing (ISA) 810, Engagements to Report on Summary Financial Statements, deals with the auditor’s responsibilities relating to an engagement to report on summary financial statements derived from financial statements audited in accordance with ISAs by that same auditor.

The IAASB is proposing limited conforming amendments to ISA 810 as a result of the issuance of its new and revised auditor reporting standards, which address auditor reporting on general-purpose financial statements. The proposed changes to ISA 810 “represent a balanced approach considering the objective of an engagement to report on summary financial statements and the report that is required to be issued,” IAASB Chairman Arnold Schilder said in a news release.

“The board’s approach also recognises that the manner in which summary financial statements are prepared and

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presented may vary on a national basis depending on the criteria used, and therefore national auditing standard-setters may further tailor ISA 810 in their jurisdictions,” IAASB Technical Director Kathleen Healy said in the release. “The board is therefore particularly interested in hearing from stakeholders in those jurisdictions where ISA 810 reports are frequently issued, to understand whether its proposed changes will be capable of being implemented and would be expected to benefit users of these reports.”

Comments are due by 2 November 2015 in order to align the effective dates of the revised ISA and the new and revised Auditor Reporting standards (for audits of financial statements for periods ending on or after 15 December 2015).

IAASB PROPOSES LIMITED CHANGES TO AUDITING STANDARDS IN RESPONSE TO THE IESBA PROJECT ADDRESSING NON-COMPLIANCE WITH LAWS AND REGULATIONS The IAASB released an Exposure Draft (ED) “Proposed Amendments to the IAASB’s International Standards— Responding to Non-Compliance or Suspected NonCompliance with Laws and Regulations”, (open for comment until 21 October 2015) to propose limited amendments to the IAASB’s International Standards in response to the International Ethics Standards Board for Accountants (IESBA’s) May 2015 Re-Exposure Draft, Responding to NonCompliance with Laws and Regulations.

The focus of the ED is proposed amendments to International Standard on Auditing (ISA) 250, Consideration of Laws and Regulations in an Audit of Financial Statements, with less extensive changes proposed to seven other standards. The amendments, which are limited in nature, do not explicitly duplicate in detail all the specific requirements in the IESBA Code of Ethics for Professional Accountants (the Code), as this allows for flexibility when ethical codes other than the Code are applied. Rather, the IAASB’s proposals seek to acknowledge the enhancements that will be made by the IESBA in the Code and clarify and emphasise key aspects of the IESBA’s proposals in the IAASB’s International Standards.

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STUDENTS

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STUDENTS

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prepared by the day of the exam. The most challenging part was during my last year when I started working on a full time basis. Striking a balance between work, lectures, studying and quality time with family and friends is not easy but with effective time management, planning and support from my parents, I managed to achieve this.

STUDENTS A former ACCA student’s experience

TA. Completing ACCA was ………?

SB. Completing ACCA was a difficult but gratifying experience. I received my final two results on first August.

Results were expected to come out from 1 AM onwards.

I remember that I had arrived home at around half past midnight. I received my results at 1:15 AM – forty five minutes of anxiety. My mobile rang and when I checked my inbox, I saw that it was a message from ACCA. I stopped for a minute and then opened the message. That was the moment when I realised that I had actually made it; this is what all the studying and exams had led to. Without a shred of doubt, it was a tough journey but it was definitely worth it.

BY MAGNOLIA TABONE MIA EDUCATION CO-Ordinator

Steve Bilocca is a tax associate at PricewaterhouseCoopers (PwC) Malta. He is a fresh graduate from October 2015, having completed his ACCA exams in two and a half years through PwC’s ACCA full time study programme. He is now ACCA/MIA qualified. Steve has placed first in Malta and thirty ninth worldwide throughout his overall studies. During his study journey Steve has also placed first in Malta and first worldwide in the ACCA Audit and Assurance paper during the December 2013 ACCA/MIA examination session. He is also a football and music enthusiast.

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to build a successful career.

TA. What are your career aspirations?

SB. : I like to take things one step at a time. At the moment, I’m concentrating on my work in tax at PwC. Tax is a very dynamic area as it is constantly changing. My aim is to learn as much as possible and continue to grow in the tax line of service. Other than that, I’ll see what the future holds in store for me.

TA. Any advice you may wish to share with the readers?

SB. Always believe in yourself! It is only natural to make mistakes. Always do your best and learn from your mistakes.

With hard work and faith in your abilities, there is nothing that you cannot accomplish!

TA. ACCA and your working career?

SB. I believe that work experience has a positive impact on ACCA exams. This is because knowledge gained on the job could be used to answer a particular question during an ACCA exam. For instance, experience gained when working on an audit assignment could come in handy when answering an audit question in an ACCA exam. On the other hand, knowledge obtained from studying ACCA will obviously be extremely useful on the job. The ACCA Qualification adopts a holistic approach which provides the required knowledge, proficiency and integrity to enable an ACCA-qualified person

In this article, Steve Bilocca tells us about his academic experience and professional aspirations.

TA. What influenced you to opt for the Accountancy Profession?

SB. At secondary school, I had to choose two subjects to study. I loved calculations and numbers and for this reason, I chose Accounting together with Economics. I immediately took a liking to both subjects. It was for this reason that I chose to study these two subjects at Advanced level. As I sought for advice from experienced professionals, I became aware of the opportunities available within the Accountancy Profession and I continued to study accounting up to ACCA. TA. Why did you opt for ACCA? SB. Up to sixth form, I always had in mind that I would attend university to further my studies in Accountancy following sixth form. In March 2012, PwC organised a talk at De La Salle College (the sixth form which I attended) to explain the benefits of joining PwC’s ACCA full time study programme.

AIM Professional Academy had been invited to join PwC for the talk. At that time, I was unsure as to which route I should opt for. However, after obtaining advice and due to the reasons described below, I opted for ACCA. ACCA is a highly regarded and internationally-recognised professional body. In addition, the ACCA Qualification focuses on Accountancy whilst incorporating relevant areas from other subjects. This allows a student to obtain the required academic knowledge, as a result of which he or she would be more versatile at work.

Another factor was that the ACCA Qualification also provides flexibility – it offers flexible study options, enabling studies to be planned around one’s needs. One can opt to do exams at a fast pace (possibly being completed within two to three years) or one may also opt to take a slower approach to fit one’s needs. Moreover, I highly rated the fact that I would be

part of a small class where the lecturer could give specific attention to each individual student as per PwC’s ACCA programme.

TA. Tell us some more about your learning experience.

SB. Anyone sitting for ACCA exams will say that ACCA is not easy and in my opinion, this is true – ACCA is a challenge.

ACCA exams were not like any other exam which I had attempted before. ACCA is a professional qualification meaning that knowing the content from the syllabus is sometimes not enough. Being able to apply what you know during the exam is key. This requires one to understand the concept in depth in order to achieve this. I used to ask a lot of questions during lectures to ensure that I have understood the detail in any particular concept so that I would be able to apply it correctly to any given scenario in an exam. I believe that this was extremely important.

I always made it a point to start studying for my exams from when we start the first lectures so that I would be fully

setting up harder targets. aiming ever higher.

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STUDENTS

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ACCA QUALIFICATION - MALTA FEES

STUDENTS’ NOTICE BOARD

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PRICE

Registration and subscription fees

IMPORTANT DATES

Initial registration A one-time fee that students must pay when registering with ACCA.

£79

Re-registration ACCA students who fail to pay fees when due will have their names removed from the ACCA register and must pay a re-registration fee (plus any unpaid fees) to be reinstated as a student.

£79

Annual subscription An annual subscription fee is due each year to keep your student status active.

£83

Exemption fees An exemption fee is charged for each ACCA exam you are awarded exemption from.

Knowledge exams Papers, F1, F2 and F3. The fee is chargeable per exemption awarded.

£71

Skills exams Papers F4, F5, F6, F7, F8 and F9. The fee is chargeable per exemption awarded.

£90

Exam fees An exam entry fee must be paid for each exam you enter.

Knowledge exams Papers F1, F2 and F3. The fee is chargeable per exam.

2015 MIA Graduation Ceremony Keep on top of exam and subscription fee deadlines with these key dates from the ACCA calendar.

From 2016 ACCA will be running four exam sessions a year at all exam centres in March, June, September and December.

This means students have even greater flexibility and choice when planning their studies and ACCA’s new exam planner tool will help them do just that: http://www.accaglobal.com/gb/en/student/exam-entry-andadministration/enter-an-exam/exam-planner.html The new exam calendar provides students with more opportunities to: •

Spread their workload and maximise the chances of success

•

Structure their studies so they can take additional exams over a calendar year and move faster on their journey to membership

•

Take any potential resits sooner and progress through the exams quicker

The ACCA new exam entry system will also allow students to enter for two exam sessions at once, so they can always take advantage of the cheapest exam fees.

•

December session: 1 Oct - 31 December

These sessions are in line with the exemption closing dates.

Papers must be taken in line with the following module order, however students can attempt the papers within each module in any order: • Knowledge (F1-F3) – available by computer-based exam (CBE) or paper-based format in selected markets • Skills (F4-F9) – all available by paper-based format with F4 English and F4 Global also available by CBE • Professional (Essentials P1-P3 and Options P4-P7) – available by paper-based format

£72 £76 £231

Skills exams Papers F4, F5, F6, F7, F8 and F9. The fee is chargeable per exam.

ACCA believe outstanding exam achievement deserves recognition.

March 2016 Early entry March 2016 Standard entry March 2016 Late entry

£90 £96 £252

Students who achieve 85% or above for papers in the Knowledge module (F1–F3) will be issued with a Certificate of Achievement in recognition of their success.

June 2016 Early entry June 2016 Standard entry June 2016 Late entry

£93 £98 £257

Cash prizes sponsored by major employers and educational institutions will be awarded to candidates attaining the highest mark worldwide for individual papers under the Skills module of the Fundamentals and Professional levels.

Professional exams Papers P1-P7. The fee is chargeable per exam.

PRIZEWINNERS

As ACCA move to four exam sessions a year, they will have four exam cycles a year.

The above awards will only be given to those candidates who achieve the highest marks on their first attempt.

Students will still be allowed to take a maximum of 4 exams during each exam cycle across a maximum of 8 distinct exams over the course of a calendar year.

Prize-winning students will normally be notified about three weeks after the publication of results (please note there will be no prizewinners for the September 2015 session). In countries where ACCA has offices, branches and student societies, or Joint Examination Scheme arrangements with the national accountancy body, additional local prizes may be awarded. In addition, a number of prizes are awarded from trust funds.

For the four sessions in 2016 and all future sessions they’ll be: • March session: 1 Jan - 31 March • June session: 1 April - 30 Jun • September session: 1 July - 30 September

June 2016 Early entry June 2016 Standard entry June 2016 Late entry

£90 £96 £252

EXAM PROGRESSION RULES

The exam cycles for 2015 are: • June 2015: 1 Feb - 24 July • September 2015: 25 July - 30 September • December 2015: 1 October - 31 December

£71 £76 £231

December 2015 Early entry December 2015 Standard entry December 2015 Late entry

Medals will be awarded to candidates who have attained the highest aggregate marks worldwide for papers in the Professional level – Essentials and Options module papers (P1–P7) – upon achieving affiliate status.

Exam Cycles

December 2015 Early entry December 2015 Standard entry December 2015 Late entry

December 2015 Early entry December 2015 Standard entry December 2015 Late entry

£104 £112 £268

March 2016 Early entry March 2016 Standard entry March 2016 Late entry

£104 £112 £268

June 2016 Early entry June 2016 Standard entry June 2016 Late entry

£110 £116 £277

CLOSING DATES FOR EXAM ENTRY

IMPORTANT NOTE Should you attempt an examination by CBE prior to your official First Examination Session Date then this paper will not be eligible for prize winner status.

Early Exam Entry Standard Exam Entry Late Exam Entry

December Exams

March Exams

June Exams

31 August 26 October 2 November

9 November 1 February 8 February

15 February 2 May 9 May

STUDENTS

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STUDENTS

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CLOSING DATES FOR EXAM ENTRY Monday 7 December

F2 Management Accounting P7 Advanced Audit and Assurance

F8 Audit and Assurance

Tuesday 8 December

F7 Financial Reporting

P2 Corporate Reporting

Wednesday 9 December

F5 Performance Management P5 Advanced Performance Management

P1 Governance, Risk and Ethics

Thursday 10 December

F3 Financial Accounting P3 Business Analysis

F6 Taxation P6 Advanced Taxation

Friday 11 December

F1 Accountant in Business F9 Financial Management

F4 Corporate and Business Law P4 Advanced Financial Management

TIME LIMITS - IMPORTANT UPDATE ACCA is introducing important changes to the time limit allowed to students for completing the exam component of the ACCA Qualification. Under the current rules, students are removed from the register if they have not completed the exams within 10 years of their initial registration date.

Why is this changing?

ACCA have listened to feedback from employers and students and are making the changes as a result of this.

The current 10 year rule does not take into consideration that ACCA students can start at different levels of the exams.

Depending on prior qualifications and exemptions awarded, students are allowed – irrespective of what level they start the exams – 10 years to complete the exams. This means some students have 10 years to complete the five exams at Professional level if they have completed a relevant and accredited accounting and finance degree and some students have 10 years to complete 14 exams if they are starting with the minimum entry requirements and have no exemptions.

ACCA wants to be fair and provide the same opportunities to all students.

In addition, employers say that a time limit is important. They value up-to-date knowledge and want reassurances that ACCA trainees and members have knowledge which is current and relevant to the workplace. Prompt completion of the exams demonstrates a commitment to becoming a professional accountant. You may also find many employers will have their own company policies for completing the exams within a certain time limit.

Students will have seven years to pass the exams at Professional level (P1, P2 and P3 and two of the options paper P4-P7). If a student does not pass all the Professional level exams within seven years, they will lose any passes that were achieved more than seven years ago and will need to retake.

The seven year time limit starts when a student passes their first Professional level exam.

We’re up for the challenge Are you?

When will the new time limit rule take effect?

All current students on the register will have been given a last exam session date which is 10 years from when they initially registered. Under the new rules, if students have not completed the exams by their last session date they will not be removed from the register. However, they will lose any passes they may have achieved at the Professional level if they passed them more than seven years ago so these exams will have to be retaken. All Professional Level exams must be passed within a 7 year period.

If a student is currently doing the Professional level, has passed his/her first Professional level examination prior to 2011 and does not anticipate completing the Professional level prior/within their last exam session date please email ACCA at students@accaglobal.com

“We believe in the Deloitte experience.

Our people matter to us and I believe that Deloitte matters to them.”

Malcolm Booker CEO, Deloitte Malta

Deloitte Malta is a multidisciplinary firm which offers a wide range of professional services.

With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings together world-class capabilities and high quality service to clients.

Deloitte has the largest international tax practice in Malta, a dedicated financial services industry group, an experienced audit practice, and a financial advisory arm, all servicing a vast range of national and international organisations.

With a total revenue of €21 million and a 20% growth in revenues, Deloitte Malta posted the highest growth rate amongst the Big 4 in Malta for the year ending December 2014. The firm continues to put talent at the heart of its agenda by making significant investments in order to continue to ensure that its people are trained and developed so as to enable them to reach their full potential and to assist them in achieving their professional aspirations.

New students registering with ACCA

Deloitte Malta is always seeking to recruit talented and motivated individuals to join its evergrowing team of professionals. The opportunities that the firm offers have strong careerbuilding potential. If you’re ready to take the next step and join a dynamic and motivated team, apply online by visiting:

The new seven year time rule at Professional level will apply to any new students registering with ACCA who are given March 2016 as their first eligible exam session.

www.deloitte.com/mt/joinus

What are the changes to the time limit for taking exams?

Under the current rules, students are removed from the register if they have not completed the exams within 10 years of their initial registration date.

Under the new rules a seven year time limit will be introduced at the Professional level. Therefore, there are no time limits for passing the Foundation level exams as part of Foundations in Accountancy or for taking exams F1-F9 at the Fundamentals level of the ACCA Qualification. However, ACCA strongly recommend students to take exams on a regular basis as this increases the chances of success.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/mt/about for a more detailed description of DTTL and its member firms.

Deloitte Malta refers to a civil partnership, constituted between limited liability companies, and its affiliated operating entities; Deloitte Services Limited, Deloitte Technology Solutions Limited and Deloitte Audit Limited. The latter is authorised to provide audit services in Malta in terms of the Accountancy Profession Act. A list of the corporate partners, as well as the principals authorised to sign reports on behalf of the firm, is available at www.deloitte.com/mt/about.

Cassar Torregiani & Associates is a firm of advocates warranted to practise law in Malta and is exclusively authorised to provide legal services in Malta under the Deloitte brand.

Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 220,000 professionals are committed to making an impact that matters. © 2015. For information, contact Deloitte Malta.

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www.pwc.com/mt AUTUMN 2015 | theaccountant.ORG.mt

The recipe for success What would you like to grow?

We focus on three things: assurance, tax and advisory services. But we don’t think ‘off-the-shelf’ products and services are always the way to go. How we use our knowledge and experience depends on what you want to achieve. So we’ll start by getting to know you. You do the talking, we’ll do the listening. What you tell us will shape how we use our network of 208,000 people around the world– and their connections, contacts and expertise – to help you create the value you’re looking for. © 2015 PricewaterhouseCoopers. All rights reserved. PwC refers to the Malta member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity.

Please see www.pwc.com/structure for further details.