International Accountant 104 by Association of International Accountants

INTERNATIONAL

ACCOUNTANT

MARCH/APRIL 2019

ISSUE 104

Brexit: how to prepare from a VAT perspective Anti-money laundering for SMEs The triennial review of FRS 102

Making the most of technology and digitalisation

CONTENTS

In this issue Contributors 2 Meet the team

News and views

AIA news

Making Tax Digital for VAT goes live

Spring Statement

Calm amidst the chaos Rhiannon Kinghall Were (Macfarlanes) provides an overview of the Chancellor’s Spring Statement.

Technology 24 The way forward Jarno Van Hurne (Exact Business Solutions) and Olaf Riedel (EY) share their views on how technology and digitalisation can enhance the profession.

AIA backs anti-money laundering “Flag It Up” campaign

Achieve 8 Achieve your accounting goals Receive an individual study planner tailored to meet your needs.

Brexit 18 Turn the unknown into an opportunity Rob Janering (Accordance VAT) advises on how you can prepare for and manage the Brexit process from a VAT perspective.

Planning 26 Future proof your firm Jennifer Warawa (Sage) explains how accountancy firms can take practical steps to future proof their businesses.

Reporting standards

The triennial review of FRS 102 When FRS 102 was introduced in March 2013, a note was made to review it three years later, providing an opportunity to review the other FRS regimes.

Regulation 21

Anti-money laundering for SMEs David Redfern (DSR Tax Claims Ltd) asks what a small business or sole trader can do in order to ensure they are compliant with anti-money laundering regulations.

Editorial Information International Accountant, the bimonthly publication of the Association of International Accountants (AIA).

Editor Rachel Rutherford E: editor@aiaworldwide.com T: +44 (0)191 493 0281

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

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Dates for your diary Upcoming events

Technical 29 Global updates

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Editor’s welcome

Contributors to this issue

Editor’s welcome

RHIANNON KINGHALL WERE

Rhiannon Kinghall Were is the Head of Tax Policy at Macfarlanes LLP. She provides support on a wide range of tax policy issues, monitoring and advising on the implications for business as they arise from proposals through to enacted legislation. She was previously the Principal Tax Policy Adviser at the CBI, responsible for policy development of domestic tax issues affecting UK businesses. ROB JANERING

t the time of writing, there are a lot of unknown factors that could have a big influence on the accountancy profession, and indeed wider afield, such as the terms that will dictate how Brexit will occur or the impact of the increase of digitalisation as a result of the introduction of Making Tax Digital. No matter what your opinion is on either of these matters, there is little for any of us to do but prepare for the changes ahead. At this point, it is impossible to tell what format the UK’s departure from the European Union will take - whether we end with no deal, a hard Brexit or a Norway-style arrangement. Whichever format is selected in the end, however, a definitive separation with the European VAT Directive will occur as a result of Brexit. Accountants and businesses must consider the significant changes that will inevitably occur to VAT operations for those businesses that trade internationally. This will affect goods and services, exports and imports, registrations and fiscal representation, and legal jurisdiction. All these areas will need careful reconsideration after Brexit. In

Rachel Rutherford Editor, IA

this issue, Rob Janering considers how you can best prepare for and manage the Brexit process from a VAT perspective. See page 18 for his advice. We also look at the wider effect of digitalisation on accountants and how you can embrace new technologies to streamline your work, improve efficiencies and data security, and take advantage of the new opportunities that come with advances in technology. Jarno Van Hurne believes that we should “stop the busy work and go digital”, while Olaf Riedel explores the opportunities in his piece on auditors, bitcoin and the need for mutual trust. See page 24. Within the AIA news pages, we give an overview the work we have done with government regarding the formation of the new audit regulator, the Audit, Reporting and Governance Authority (ARGA), as well as extending the AIA’s existing Home Office recognition. We have also been supporting initiatives relating to combating financial crime, working closely with the government to help raise awareness of the “Flag It Up” campaign designed to raise awareness of the warning signs of money laundering. This issue has a summary of the Spring Statement and for UK readers a copy of the AIA Tax Facts card.

Rob Janering is Associate Director at Accordance VAT. He is an experienced VAT consultant with over 10 years working in indirect tax. He works within the consulting team providing cross-border supply advice, detailed reviews on existing and new business activities and practical solutions to clients’ businesses. DAVID REDFERN

David Redfern is the founder of DSR Tax Claims and one of the UK’s leading experts on taxation legislation. A self-confessed workaholic, he describes his hobbies as work, work, work! He is passionate about helping small business owners to develop tangible and profitable businesses. JENNIFER WARAWA

Jennifer Warawa is Executive VP of Partners, Accountants and Alliances at The Sage Group. She has been responsible for leading Sage’s portfolio of accounting products, including launching core cloud accounting technology. She is based in Sage’s Atlanta, Georgia office in the US. Before working with Sage, Jennifer owned an accounting and consulting firm in Kelowna, Canada. She is also an active foster parent. ISSUE 104 | AIAWORLDWIDE.COM

News TECHNOLOGY

WHISTLE-BLOWER REPORTS

Making Tax Digital for VAT goes live

Whistleblower reports to the FCA rise 24% in a year

●● Need to keep digital records ●● Software must be MTD compatible

Making Tax Digital (MTD) for VAT came into force on 1 April 2019. For VAT periods from 1 April 2019, most businesses above the VAT threshold will need to keep their records digitally and submit their VAT return using MTD compatible software. HMRC has written to every business that will be mandated with information on what they should do and how. Accountants or other tax representatives will already be aware of MTD and will advise businesses on how and when they need to make changes to be ready for the new service. Those already using software will simply need to ensure it is MTD compatible, and then sign up to the new service and authorise their software for MTD. Most businesses above the VAT threshold have to start keeping their records digitally and sending their VAT return to HMRC direct from their software for VAT periods starting on or after 1 April. HMRC recognises that businesses will require time to become familiar with the new requirements of MTD. HMRC has been clear that during the first year

HMRC’s Making Tax Digital advice

of mandation, it will take a light touch approach to digital record keeping and filing penalties where businesses are doing their best to comply with the law. But this does not mean a blanket “no penalties promise”. No business will be forced to go digital for their VAT returns if they are unable to. Anyone who is already exempt from online filing of VAT will remain so under MTD, and there is further provision for those who cannot adapt to the new service due to age, disability, location or religion to apply for an exemption. Those businesses that are registered for VAT but which are below the VAT threshold are also not required to use the MTD service; however, they can choose to do so.

MALAYSIA

Malaysian government urges banks to increase lending The Malaysian Finance Minister, Lim Guan Eng, has urged banks to relax their lending criteria to reduce the difficulties faced by individuals and businesses to secure financing. Speaking at the Invest Malaysia forum he said: “Banks should be more flexible in their lending arrangements. We get many complaints about banks being very conservative in lending, although they recorded huge profits last year with some of them posting their largest profits ever. We don’t have windfall taxes for banks, so it is time for you to start lending unless you would prefer them.” AIAWORLDWIDE.COM | ISSUE 104

Lim also confirmed that government has started to pay businesses in Malaysia the goods and services tax and income tax refund arrears, previously unpaid by the previous government, and that process should be completed by October 2019. He said: “Under the previous government, the GST refunds were not paid for about two years, while some income tax refunds have been delayed much longer. It is a moral and legal imperative that we must return the money to the people, when the money does not belong to the government.”

Reports of market manipulation have more than doubled to 41 in 2018; anti-money laundering reports are up by 46% to 35; and cyber security reports are up by 139% to 67. The total number of whistle-blower reports to the Financial Conduct Authority (FCA) has risen 24% in the last year to 1,755 in 2018, up from 1,420 in 2017, says BDO LLP, the accountancy and business advisory firm. BDO says that there was a 105% increase in the number of whistle-blower reports that relate to allegations of market manipulation, up from 20 in 2017. The increase in whistle-blower reports in this area will be a concern. Financial services firms have been trying hard to stamp out any risk of market rigging or collusion following the high-profile Libor and forex rigging scandals that broke in 2013 and resulted in heavy fines for a number of banks. Other areas of the financial services industry have also seen significant increases in whistle-blower reports. These areas for concern include: ●● Anti-money laundering: Reports have increased by 46% to 35 in 2018 from 24 reports the year before; ●● Data security: Reports have increased by 139% to 67 in 2018, up from 28 reports the year before; ●● Mis-selling of financial products: This is up by 46% to 54 in 2018 from 37 reports the year before; and ●● “Treating Customers Fairly”: This has increased by 232% to 246 in 2018 from 74 reports the year before. BDO says that part of the increase in whistle-blower reports is coming from the financial services industry itself, which is encouraging as it suggests the industry is making a far better success of self-policing.

News CHINA

InBrief FBS fines UBS AG £27.6 million UBS AG (UBS) has been fined £27,599,400 by the Financial Conduct Authority (FCA) for failings relating to 135.8 million transaction reports between November 2007 and May 2017. Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said: “Firms must have proper systems and controls to identify what transactions they have carried out, on what markets, at what price, in what quantity and with whom. If firms cannot report their transactions accurately, fundamental risks arise, including the risk that market abuse may be hidden.” Effective market oversight relies on the complete, accurate and timely reporting of transactions. This information helps the FCA to effectively supervise firms and markets. In particular, transaction reports help the FCA to identify potential instances of market abuse and to combat financial crime. UBS failed to ensure that it provided complete and accurate information in relation to approximately 86.67 million reportable transactions. The company also erroneously reported 49.1 million transactions to the FCA, which were not, in fact, reportable. Altogether, over a period of nine and a half years, UBS made 135.8 million errors in its transaction reporting, breaching FCA rules. The FCA also found that UBS failed to take reasonable care to organise and control its affairs responsibly and effectively in respect of its transaction reporting. These failings related to: ●● aspects of UBS’s change management processes; ●● UBS’s maintenance of the reference data used in its reporting; and ●● how it tested whether all the transactions it reported to the FCA were accurate and complete. UBS agreed to resolve the case and so qualified for a 30% discount in the overall penalty. Without this discount, the FCA would have imposed a financial penalty of £39,427,795.

China’s 2019 tax cuts mean smaller government budgets ●● China to reduce government spending ●● Taxes and fees to be cut by RMB 2 trillion

Premier Li Keqiang said government at all levels should reduce its general spending to adhere to tight budgets amid tax and fee cuts. The government announced that taxes and fees would be cut this year by nearly RMB 2 trillion, to lower the burden on businesses affected by an economic growth slowdown. At a press conference after the National People’s Congress (NPC), it was reported that in addition to cutting government spending, official funds will receive RMB 1 trillion by collecting profits from some state-owned financial institutions and state-owned enterprises administered by the central government, and by taking back idle fiscal funds that should have been used. China’s budget deficit this year is expected to reach RMB 2.76 trillion,

Premier Li Keqiang

representing around 2.8% of the country’s GDP, according to this year’s government work report.

EQUALITY

Female representation in the City is rising Over 800,000 employees in the UK are now covered by the Women in Finance Charter, as more than 30 new companies signed up to the government’s plan to tackle gender inequality in financial services. Vitality, Skipton Building Society and Commerzbank AG are just some of the new firms signed up to the Charter, taking the total number of businesses signed up to over 330. The Women in Finance Charter Annual Review also shows that female representation in senior management at

firms that have signed up to the charter is rising, with 86% of signatories having either increased or maintained the proportion of women in the top jobs. The Review also shows that the Charter is holding firms to their promise, with 87% of signatories on track or already having met their ambitious targets. ISSUE 104 | AIAWORLDWIDE.COM

News ANTI-TRUST RULES

EU fines Google €1.49 billion for abusive practices in online advertising ●● Google breached EU anti-trust rules ●● Illegal misuse of its dominant position

The European Union has fined Google €1.49 billion for breaching EU anti-trust rules. Google has abused its market dominance by imposing a number of restrictive clauses in contracts with third-party websites which prevented Google’s rivals from placing their search adverts on these websites. EU Commissioner Margrethe Vestager, in charge of competition policy, commented that: “The Commission has fined Google €1.49 billion for illegal misuse of its dominant position in the market for the brokering of online search adverts. “Google has cemented its dominance in online search adverts and shielded itself from competitive pressure by imposing anti-competitive contractual restrictions on third-party websites. This

EU Commissioner for Competition Margrethe Vestager, from Denmark, speaks at a news conference on the concurrence case with Google online search advertising

is illegal under EU anti-trust rules. The misconduct lasted over 10 years and denied other companies the possibility

EUROPEAN UNION

HONG KONG

EU fails to agree digital tax plans

Finance ministers in the EU have been unable to agree proposals for a digital services tax. According to the European Council, progress has been made since ministers last discussed the issue in December. Negotiations have focused on a compromise text proposed by France and Germany, which would limit the scheme to digital advertising services. However, the Council said that: “Despite the broad support from a large AIAWORLDWIDE.COM | ISSUE 104

to compete on the merits and to innovate – and consumers the benefits of competition.”

number of member states on this text, some delegations maintain reservations either on some specific aspects of the proposal or more fundamental objections.” The original proposal, put forward by the European Commission, was for a temporary 3% excise tax on turnover from certain online activities. In December, Austria, then holding the Council presidency, proposed an amended scheme that would target revenues from the supply of digital services where users contribute to the process of value creation. France and Germany separately recommended that the tax base focus on advertisement. The Council said that the current Romanian presidency will now “conduct work on the EU position in international discussions on digital tax, in particular in view of the OECD’s report on the issue, due by mid-2020”.

MPF tax deductions The Hong Kong government has welcomed the passage of a bill which implements tax deductions for annuity premiums and Mandatory Provident Fund (MPF) voluntary contributions. The new ordinance gives effect to tax deductions proposed in the 2018-19 Budget. From 2019-20, taxpayers are entitled to tax deductions under salaries tax and personal assessment for their premiums paid to qualifying deferred annuities and contributions made to tax deductible MPF voluntary contribution accounts. The maximum tax-deductible limit is $60,000 each year per taxpayer. The Financial Services and the Treasury Bureau said the tax deductions can encourage the working population to make early retirement savings to cope with the financial risk arising from longevity.

AIA

NEWS MONEY LAUNDERING

ONLINE ACCOUNTING

AIA signs up to Xero Equivalency Certification AIA has signed a memorandum of understanding with Xero to partake in its Equivalency Certification programme to provide budding accountants and bookkeepers in the UK with the online accounting skills to succeed in the digital age. Research shows that 83% of practitioners believe that understanding technology is now as important to their job as understanding the practice of accountancy. But 35% do not think there is currently enough training to ensure that UK advisors can keep up with the pace of digital change and upcoming legislation, such as HMRC’s Making Tax Digital. The Equivalency Certification provides a solid grounding in cloud accounting. Previously only available to Xero’s accounting and bookkeeping partners, it has now been updated to suit the requirements of any industry professional and is available to AIA members. The course consists of: ●● A pack of e-learning courses: an eight hour, wide ranging introduction to cloud technology. ●● Cloud fundamentals: covers issues such as banking and projects, and the benefits of cloud software. ●● Introduction to Xero technology: learn how to set up and run Xero on a day-to-day basis, use the Dashboard and create reports. Further information is available at www.aiaworldwide.com.

AIA backs anti-money laundering campaign

The Association of International Accountants (AIA) is working closely with the UK government to help raise the awareness of the “Flag It Up” campaign aimed at accountants and other professionals in the finance, legal and property sectors. The “Flag It Up” campaign is designed to raise awareness of the warning signs of money laundering, as well as the correct due diligence processes to undertake, and ultimately to help professionals to protect themselves and their firms. Anti-money laundering (AML) is one of the top priorities for the accountancy sector in 2019, as money laundering continues to pose one of the biggest threats to the industry. According to a recent poll taken on behalf of the “Flag It Up” campaign, 95% of accountants are concerned about the possibility of being unwittingly involved in money laundering and becoming a target for criminals to exploit. In addition, 23% of accountants polled said they had cause for concern towards a client or prospect at least once in the last year. Overall, the poll

reveals that respondents strongly believe in the importance of AML legislation and processes to prevent criminal activity. Commenting on the campaign, AIA Director of Operations David Potts said: “Even the most experienced accountants must remain vigilant when it comes to AML compliance and regulation. The ‘Flag It Up’ campaign is a great initiative to help accountants understand and reiterate where necessary the importance of identifying suspicious activity and to give them advice on what to do next. “AIA would urge accountants, both AIA members and non-members, to look out for Red Flags throughout their work. If you are suspicious of any activities, then you have the responsibility to alert the National Crime Agency immediately via the suspicious activity report (SAR) process.” If you would like more information on the “Flag It Up” campaign, or you need to know more about AML, then visit https://flagitup.campaign.gov.uk or contact AIA directly. ISSUE 104 | AIAWORLDWIDE.COM

AIA News REGULATOR

Government backs the formation of a new accounting watchdog directly; and ●● have a new, diverse board and strong leadership to change the culture and rebuild respect of those it regulates.

James Veysey/REX/Shutterstock

The Secretary of State for Business, Energy and Industrial Strategy (BEIS) Greg Clark MP announced a new enhanced regulator to transform the audit and accounting sector in response to a comprehensive Independent Review of the Financial Reporting Council (FRC), which will be led by Sir John Kingman, the chairman of Legal & General. Greg Clark said: “This new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them.” As per the review’s recommendations, the FRC will be replaced with a new regulator to be called the Audit, Reporting and Governance Authority. The new regulator will have a new mandate, new leadership and stronger powers set down in law with recruitment for a new Chair and Deputy Chair launching immediately. The new regulator will for the first time: ●● be a statutory body with powers such as those to make direct changes to accounts and more comprehensive, visible reviews for greater transparency; ●● have strategic direction and duties to protect the interests of customers and the public by setting high standards of statutory audit, corporate reporting

The Secretary of State for Business, Energy and Industrial Strategy (BEIS) Greg Clark MP

and corporate governance; ●● regulate the biggest audit firms

HOME OFFICE

PARTNERS

New AIA partners with GDPR specialists AIA is delighted to announce two new strategic partnership with industry leading General Data Protection Regulation (GDPR) specialists: The Data Support Agency, and dynamic merchant services provider, CutPay. The partnership with CutPay provides AIA members and their clients with preferential rates and heavily discounted card processing facilities; typically up to 40% off. The collaboration with The Data Support Agency will provide AIA members with a cost effective, solutions driven approach for the AIAWORLDWIDE.COM | ISSUE 104

An initial consultation on Kingman’s recommendations has been published and AIA will, in continuance of its involvement in this process, be submitting a response. Until the new regulator is in place, the government is going to begin working with the FRC to implement 48 of the 83 recommendations to address the shortcomings identified in the review, such as lack of transparency and weak enforcement activity. FRC Chair Sir Win Bischoff said: “We believe the speedy implementation of the recommendations can help increase public confidence in audit in the UK. We will move forward to implement the agreed proposals as soon as possible.” AIA chief executive Philip Turnbull said: “The outcome of the Kingman Review has wide-reaching conclusions for the audit environment in the UK and we are pleased that the government has acted decisively to introduce much-needed reform. AIA looks forward to continuing to work with the government and new Audit, Reporting and Governance Authority to implement the conclusions of the independent review.”

implementation and maintenance of best practice around their own data compliance, which in turn will ensure their clients can be assured that their own data is being well maintained.

AIA extends Home Office recognition AIA requested confirmation of its recognition within Home Office guidance and can confirm that within the wider Tier 1 rules, AIA is consistently listed as a suitable body for the provision of accountancy evidence across routes that require such evidence (Tier 1 Entrepreneur visa and Tier 1 Investor visa). Tier 1 Exceptional Talent visa does not have a specific list of suitable bodies, but the Home Office has confirmed that AIA members who hold a current practising certificate are also eligible to provide an accountant’s report.

ACHIEVE

Achieve your accounting goals

Receive an individual study planner tailored to meet your needs.

tudying for professional exams is a serious undertaking, which frequently comes at a time in your life when you are trying to maintain a healthy balance between your home life and work commitments. Simply wishing to pass your professional exams will clearly not get you very far… To make the process easier, AIA, in collaboration with leading publisher of study materials for professional exams BPP Learning Media, developed “Achieve” – an interactive distance learning programme designed specifically for AIA students. The Achieve programme is designed to alleviate the stresses of study planning by providing you with the resources to optimise your chances of exam success in the most flexible and affordable manner.

A goal without a plan is just a wish”.

- Antoine de Saint-Exupéry, writer and pioneering aviator

Achieve guides your learning and provides you with access to feedback, advice and support from a specialist team of e-tutors, ensuring you consistently get the maximum benefit from your study. In addition, the programme also offers mock exams with written feedback, tutor marked practice questions, free to attend webinars, a course e-book and more. Choose to enrol onto the Achieve programme and you will take the first step on the road to planning for your own exam success. Upon enrolling you will receive an individual study planner tailored to meet your needs (an example can be seen opposite). Each individual study plan is designed to help you effectively plan your study and revision time, allowing time for practice questions and a mock exam. Follow your personal study planner and we are so confident that Achieve will help you pass, we ISSUE 104 | AIAWORLDWIDE.COM

ACHIEVE will offer you the “AIA Pass Pledge”. The pledge states that if you fail your exam, we will offer you a free exam entry to resit the paper at the next exam session*. Now is the perfect time to enrol onto the Achieve programme, and achieve the success you desire in the upcoming November exams. ● For further information, contact the AIA Study Support Team by emailing: achieve@aiaworldwide.com. *In order to be eligible for the “AIA Pass Pledge” you must submit your practice questions on time and achieve 45 marks or more in your mock exam.

Achieve really helped me to pass my exams. I followed the personal study planner recommended by Achieve and completed all the assignments assigned by them. The feedback from the e-tutor for my practice questions and mock exam helped me understand my weaknesses and subsequently improved my answering skill.”

- Phan Siew Foong, AIA student

Example of a personal study planner Paper 10 – Business Management Use this schedule and your exam timetable to plan the dates on which you will complete each Study Period. Each Study Period should take approximately two and a half hours to complete. Study Period

Topic

Due Date

The organisation of work and the role of management

1 May

Effective leadership

10 May

Strategic planning and management 16 May by objectives

Internal analysis

25 May

Environmental analysis

2 June

Organisation structure

6 June

Organisation culture

12 June

Practice Questions 1 – issued 22 June. 8 9

Strategic human resources management

20 June

Employee appraisal, development and training

26 June

Make sure you have returned Practice Questions 1 by 29 June. 10

Motivation and managing diversity

3 July

Interpersonal and communication skills

13 July

Checkpoint 1

Study Period

Topic

Due Date

Individuals, groups and teams

18 July

Marketing

27 July

Production

4 August

Practice Questions 2 – issued 17 August 15

Budget planning and control

8 August

Organisation information and requirements

15 August

The impact of IT on work practices

21 August

Make sure you have returned Practice Questions 2 by 24 August. 18

Management control

28 August

Implementing change

5 September

Ethical considerations

13 September

International trade and globalisation

21 September

Global strategy

25 September

Make sure you have returned Practice Questions 3 (issued 5 October) by 12 October.. Mock Exam is issued on 20 October. Make sure it is returned by 27 October. Checkpoint 2

AIAWORLDWIDE.COM | ISSUE 104

REPORTING STANDARDS

The triennial review of FRS 102 When FRS 102 was introduced in March 2013, a note was made to review it three years later, providing an opportunity to review the other FRS regimes.

he first formal review of the practicalities of the financial reporting standard applicable in the UK and Republic of Ireland has provided the opportunity to ensure that it is fit for purpose and (still) helps to address the needs of stakeholders. In this note, we remind you of the differing regimes under which entities must financially report and we explore what has been amended in the formal review.

Reporting frameworks: a reminder

Company law recognises two ﬁnancial reporting frameworks. Publicly listed companies are required to apply the “International Financial Reporting Standards (IFRS) financial reporting framework”; and non-quoted companies have a choice between adopting the IFRS financial reporting framework or “the UK and Ireland GAAP (generally accepted accounting practice) framework”. By adopting UK and Ireland GAAP, entities have the potential of adopting three regimes:

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REPORTING STANDARDS

●● FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, which is the most comprehensive regime; ●● FRS 101 Reduced Disclosure Framework; and ●● FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. Each regime has differing levels of financial reporting requirements. FRS 105 for microentities is the least complex, while FRS 102 is for larger entities, and then there are the IFRS for public listings. The characteristics of an entity, which requires the consideration of turnover, balance sheet and type of entity, will ultimately dictate into which regime it will sit.

FRS 102

The FRS 102 regime comprises a single standard which was based upon the same principles as the IFRS. When it was issued in March 2013, the Financial Reporting Council (FRC) replaced over

AIAWORLDWIDE.COM | ISSUE 104

70 accounting standards, confining guidance to one single reference point. The other FRS regimes (FRS 101 and FRS 105) represent a lesser version than the overarching FRS 102 but this helps consistency across differing sizes of entity.Two distinct characteristics existed within the initial version of FRS 102.

Choice

Where many standards in the IFRS offered choice (e.g. the choice between the Revaluation Method and the Historic Cost method offered by IAS 16 Property, Plant and Equipment), FRS 102 initially provided no choice, favouring exemptions where applicable. This might be useful for some businesses, by reducing the time spent weighing up options, but challenging for others, by preventing a method which may be more pragmatic. The existence of exemptions often resulted in inconsistencies across similar types of entity.

REPORTING STANDARDS Reduced disclosure

Less disclosure meant less time spent during the year-end reporting process and less of a need to disclose potentially commercially sensitive information that individual International Accounting Standards require.

Triennial review 2017

At the point of FRS 102’s introduction, a diary note was made to review it three years later. By reviewing FRS 102, there existed the natural opportunity to review the other FRS regimes, an important efficiency to maintain consistency within financial reporting. In the FRC’s first “Triennial” review of this standard, stakeholder feedback was sought, reviewed and various amendments in the form of incremental improvements and clarifications were made. In December 2017, a revision to FRS 102 was subsequently published, mainly to clarify points of understanding and improve legibility in the original version. There was an effective date of accounting periods beginning on or after 1 January 2019, therefore applicable now. The main improvements resulting from the triennial review are summarised below.

Cost and benefit of information

The review acknowledged that the provision of information is costly and there should be a trade between the expenditure needed to provide all information and the level of information that is actually useful for stakeholders. At what point does the user suffer information overload, which may ultimately detract from the message the financial reporting is designed to provide? The result was to provide users with sufficient, cost-effective, information which is proportionate to the size and complexity of the reportable entity. This is a pragmatic direction and resulted in the introduction of choices and the removal of exemptions, introduced to harmonise accounting treatments within similar entities. Although by the FRC’s own admission, many of the amendments are editorial, the main elements are set out below: ●● Where an entity rents an investment property to a group company, there is the choice to measure the investment property at depreciated cost or at fair value. This removes the need for an entity to incur (external) valuation costs which would reduce profitability. ●● The ability for an entity to exempt itself from having to fair value its investment in an associate or joint venture has been removed in favour of the cost model, which is now the only option. ●● A widened description of a “basic” financial instrument allows previously non-basic financial instruments to be included so as to be measured at amortised cost. ●● The previous need to recognise all intangible assets acquired in a business combination separately from goodwill has been refined, which will likely result in fewer intangible assets being recognised. As the FRC states:

At what point do we suffer information overload, detracting from the message of the financial report?

“FRS 102 requires goodwill to be amortised over its useful life, which is consistent with the accounting treatment of intangible assets. Therefore, the impetus to separate intangible assets from goodwill is less than it may be under IFRS, where goodwill is not amortised.” Recognition is now only required where the intangible assets recognition criteria are met; arise from contractual or other legal rights; and are separable. If additional intangibles assets are to be accounted for, this policy is to be applied to all intangible assets in the same class, and consistently to all business combinations. ●● Accounting for gift aid payments by subsidiaries to their charitable parents has been amended, allowing the tax effects of payments to be taken into account at the reporting date when it is probable the gift aid payment will be made in the following nine months. ●● An amendment in the definition of a ﬁnancial institution, by removal of references to the generation of “wealth” and management of “risk”, will reduce the number of such entities. Whether by design or accident, the review has appeared to make financial reporting rules more pragmatic and focuses on what a stakeholder requires from a set of financial statements. The result of the review included various cosmetic amendments to the other overlapping standards, the other regimes, to ensure consistency. The FRC website continues to provide useful references documents but the above hopefully highlights that there has been a review and some of the minor resulting changes. ●

IFRS reporting regimes FRS 100 Application of Financial Reporting Requirements This sets out the overall framework for financial reporting requirements for UK and Republic of Ireland entities. FRS 101 Reduced Disclosure Framework This sets out an optional reduced disclosure framework. FRS 103 Insurance Contracts This is not necessarily just for insurance companies but also those entities that have issued insurance contracts. FRS 104 Interim Financial Reporting This is not an accounting standard, and does not impose an obligation on entities to produce interim financial reports. However, it is intended for use in the preparation of interim reports by entities that apply FRS 102 when preparing their annual financial statements. FRS 105 The Financial Reporting Standard This is applicable to the Micro-entities Regime. The standard is based upon FRS 102 and is designed to apply to the financial statements of companies, limited liability partnerships and qualifying partnerships that qualify for, and choose to apply, the micro-entities regime.

ISSUE 104 | AIAWORLDWIDE.COM

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Spring Statement 2019

ISSUE 104 | AIAWORLDWIDE.COM

Spring Statement 2019

Calm amidst the chaos Rhiannon Kinghall Were provides an overview of the Chancellor’s Spring Statement. Rhiannon Kinghall Were Head of Tax Policy, Macfarlanes LLP

nder normal circumstances, the Spring Statement is the time for early-stage consultations or calls for evidence ahead of the Autumn Budget and not a time to make significant tax or spending announcements unless the economic circumstances require it. This new approach, coupled with the amount of work the government has had to contend with since article 50 was triggered, means the Chancellor kept to his policy making commitments. It was always going to be difficult for this Spring Statement to project a vision for the future, but some may have heard the faint ring of a general election starting gun – talk of a “brighter future” with policies on housing and the environment were an attempt to appeal to a younger generation. One of the decisions the chancellor had to make was whether to spend the tax windfall today or to keep it as an insurance policy. Prudently, he has opted for the latter, saving the “deal dividend” for a rainy (or sunny) day. That might come sooner than expected. An emergency summer Budget is not beyond the realms of possibility if a decision is made on the UK’s withdrawal from the EU or there is a general election – both events would require a Chancellor to re-evaluate the UK’s economic position. In the meantime, here’s a summary of the publications and announcements that caught my eye.

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Tax avoidance and evasion

Author bio

Rhiannon Kinghall Were is the Head of Tax Policy at Macfarlanes LLP. She was previously the Principal Tax Policy Adviser at the CBI, where she was responsible for leading the policy development of domestic tax issues affecting businesses operating in the UK.

A few papers were published on tax avoidance, evasion and non-compliance. The No Safe Havens 2019 strategy sets out new objectives for HMRC to help in its collection of the correct amount of tax. The policy paper “Tackling tax avoidance, evasion and other forms of non-compliance” explained the government’s achievement in this space rather than announce any new reforms. Annex A lists over 150 measures taken to tackle tax avoidance, evasion and non-compliance since June 2010 bringing in some £200bn extra tax. Whilst many in the tax profession know HMRC has not been idle in this field, the sheer length of the list is a good reminder of the work undertaken to date and highlights that HMRC’s continued efforts are paying dividends. One of the consequences of this volume of activity is the awareness that businesses have of these measures. The research paper “Evaluation of corporate behaviour change in response to the corporate criminal offences” brings to light some stark findings. Of the 1,000 or so businesses surveyed, only a quarter had heard of the Criminal Finances Act 2017, although larger businesses were more aware (58%) than small businesses (26%). When prompted about what this new measure entails, knowledge amongst respondents did not materially change; only 27% of businesses were aware (again, larger businesses and those in finance and insurance were most likely to report that they knew what the changes meant). This demonstrates the work needed by

Spring Statement 2019 (MTD) for any new taxes or businesses in 2020. Despite these delays, taxpayers should not read this as any dent in the government’s ambitions. MTD is an important tool in the government’s strategy to tackle tax avoidance, evasion and non-compliance. The government has set out a number of consultations or calls for evidence that we can expect in the coming months.

the government and the profession to ensure taxpayers are able to keep up with the volume of change, and businesses will want to address this knowledge gap before it is too late.

Taxing the digital economy

As the EU pulled the plug on its digital services tax and the OECD convened most of the international tax fraternity in Paris to discuss taxing the digital economy, the Chancellor confirmed that the UK was pressing ahead with the introduction of its new digital services tax. We can expect the responses to the recent UK consultation to be published in the coming months. The wider development here is that the government has identified the need to adapt the regulatory environment as well as the tax system to ensure the digital economy works for everyone in society.

One of the decisions the Chancellor had to make was whether to spend the tax windfall today or to keep it as an insurance policy. ”

Stamp duty on shares consideration: A summary of responses from the recent consultation on aligning the consideration rules for stamp duty and stamp duty reserve tax and the introduction of a market value rule for transfers of unlisted shares between connected parties is due to be published. The conclusions will be interesting for those involved in share transfers, with any changes expected in Finance Bill 2020. VAT partial exemption and capital goods scheme: Following recommendations from the OTS, there will be a call for evidence on the simplification and improvement of the partial exemption regime and capital goods scheme. In 2017, the OTS proposed a number of measures to simplify the VAT regime, specifically to increase the de minimis limits of these regimes, and to improve the process of making and agreeing special method applications.

Capital allowances: non-residential structures and building allowance

Making tax digital

The modernisation and digitalisation of the administration of tax begins in earnest next month for VAT. However, the government has said that it will not mandate Making Tax Digital

VAT and Isle of Man: The government will publish its findings of the review it has undertaken of VAT administration in the Isle of Man. The review was undertaken at the invitation of the Isle of Man in light of Paradise Papers allegations into the VAT administration on the importation of aircraft and yachts.

Britain’s Chancellor of the Exchequer Philip Hammond leaves his official residence at 11 Downing Street to deliver his Spring Statement at Parliament in London, Britain, 13 March 2019.

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Draft legislation was published for this new capital allowance, first announced at Budget 2018. The introduction of this relief has been a longstanding request from business since the abolition of the industrial buildings allowance. An introductory note to the draft legislation explains how some of the elements have evolved since Budget day on issues such as disuse, demolition and leases.

Insurance premium tax review: The review will focus on the operational aspects to identify ways that the tax can operate more fairly and efficiently. In recent years, the government has used insurance premium tax (IPT) as a “cash cow” with a series of increases in the rate, so a review into its effectiveness will no doubt be welcome.

Matt Dunham/AP/REX/Shutterstock

Offshore receipts from intangible property: Draft guidance will be published to set out the practical application of these rules (brought in Finance Act 2019) that are designed to bring amounts received in low tax jurisdictions into the UK tax net to the extent they are related to the sale of UK goods and services.

Employment allowance: Draft regulations will be published to restrict the annual employers NIC employment allowance to those with an employers’ NIC bill below £100,000. GAAR amendments: A technical note and minor legislative changes will be published to ensure the rules work as intended. ● This article was first published in Tax Journal (www.taxjournal.com). ISSUE 104 | AIAWORLDWIDE.COM

BREXIT

Turn the unknown into an opportunity Rob Janering advises on how you can prepare for and manage the Brexit process from a VAT perspective.

K politics and business are changing at a rate of knots. At the time of writing, the UK’s future relationship with the EU is unclear, and the shape of our future VAT landscape is yet to be determined. What we do know is that a no deal, hard Brexit or Norway style arrangement all point towards a definitive rupture with the European VAT Directive. Indeed, whichever permutation of a deal (or no deal) is settled on, we anticipate that there will be significant changes to VAT operations for businesses that trade internationally. Our analysis shows that hardly any aspect of cross-border VAT will remain unchanged. Goods and services, exports and

imports, registrations and fiscal representation, and legal jurisdiction: all must be reconsidered from a VAT perspective after Brexit.

An unprecedented opportunity

For accountants working in or supporting businesses that trade internationally, this lack of clarity is difficult to manage. So too is the relative certainty that any change which occurs to trading frameworks will create winners and losers. But with this uncertainty comes an unprecedented opportunity. In the normal scheme of things, change occurs in a slow and evolutionary manner. Brexit – for all its possible pitfalls – gives accountants the potential to fast track change, to review their

ISSUE 104 | AIAWORLDWIDE.COM

istockphoto/theasis

Rob Janering Associate Director, Accordance VAT

BREXIT

processes and procedures, and to get their houses in order. Of course, few UK businesses have a detailed working knowledge of differing VAT regulations across the EU. Nevertheless, the EU will be the UK’s largest export market for the foreseeable future. The UK may be leaving the EU, but it is not leaving Europe; and it is vital that UK businesses continue to feel at home trading there. Accountants will have to consider their clients’ business structures carefully, considering what relationships they have either now or in the future with Europe. Whether those clients are involved in large scale distribution or multi-channel retail, industrial manufacturing or app development, they will have to deal with complexity in the VAT environment. VAT, a tax on consumers gathered by businesses, is a highly important source of revenue for governments across the EU. With digitalisation increasing apace, changes and reforms to VAT are frequent and material. Brexit, with its implications for supply chains, is another challenge to face. Our clients want to be good tax citizens; and they want to be able to continue to expand in Europe: we help them achieve those goals as efficiently as possible.

Be prepared

No one can predict the future, but everyone involved in a business can take the requisite steps to ensure they are prepared. We recently conducted research which found that three quarters (75%) of businesses had not started preparing for Brexit. This is an astounding figure. The biggest shake up to British politics and society could be but weeks away, and there are many businesses desperately ill equipped to manage it. When it comes to managing regulatory changes and their impact on cash flow and the movement of goods, it will be financial teams bearing the burden. There is a clear imperative to better manage the uncertain waters of post-Brexit Britain. Those UK companies that are in full preparation mode are considering a range of scenarios. How the reverse charge procedure would operate after Brexit is a concern for many. Others, particularly e-commerce retailers selling directly to consumers in other EU member states, are understandably worried about fiscal registration obligations in the event of a no deal Brexit. A fiscal representative is a local entity that can act on behalf of non-EU suppliers (as UK businesses would immediately become in the event of no deal). Currently, the UK follows MARD (the EU’s Mutual Assistance Recovery Directive). Once the UK is out of the EU, it will be much harder for EU tax authorities to collect any outstanding VAT from UK firms; and some will want additional protection in the form of a fiscal representative. AIAWORLDWIDE.COM | ISSUE 104

Fiscal representation

Author bio

Rob Janering is Associate Director at Accordance VAT. He works within the consulting team providing cross-border supply advice, detailed reviews on existing and new business activities and practical solutions to clients’ businesses.

In some countries, the fiscal representative may take on joint and several liability for any VAT debts due; in others, the fiscal representative would instead provide a registered address for the tax authority to visit or correspond with as required. Remaining EU member states have different rules about fiscal representation, and may apply those rules inconsistently. Belgium is understood to want to enforce the law fully the day after a no deal; others are less clear, but there is the potential for commercial and legal jeopardy. Whether or not there is a no deal, fiscal representation will be an issue after Brexit. The principles behind fiscal representation are generally worth thinking about by advisers. As international tax authorities come to rely more on consumption tax revenues, but sellers of goods and services become more geographically and technologically dispersed, issues of VAT responsibility and liability become more acute. The ongoing attempt to make Amazon liable for all of its marketplace sellers’ VAT is the classic example; but all those wanting to be seen as good tax citizens will need to keep abreast of developments in this area.

Key areas for planning

Indeed, we argue that effective organisation won’t just help minimise disruption but could bring great potential benefits. There are several key areas in which accountants must plan to ensure successful internal functioning and the continuation of a smooth and profitable relationships with clients. One such area is around contract legalities. Following the UK’s departure from the EU, it is likely that rules around VAT accounting treatment will change. Whilst this could cause some internal difficulties, it offers a chance to implement best practice. We have always held firm to the idea that it is preferable to state in contracts that all prices agreed, or consideration payable, is exclusive of VAT; and that if VAT is due, it will be additional. Furthermore, in the event of a hard Brexit it is important to clearly outline the responsibilities of the parties with particular focus on transport to establish who has the VAT obligation. Brexit should not change this approach – if anything, it should cement this as a working practice. With ever increasing doubts about the regulatory framework and thus how VAT will apply, it is more important than ever to ensure that agreed prices are protected. Additionally, this provision could help in the management and recognition of compliance obligations and with whom they sit.

Supply chains

Businesses trading across Europe or accountants with clients operating cross-border are likely to

BREXIT

have questions about the production and export of goods post-Brexit. For businesses that are making supplies in which goods are moved across the EU, an essential first step is to review supply chains. Any review, external or internal, should encompass how the goods move, where ownership of them changes, and which party is responsible for transportation, as well confirming the status of each party involved. Confirmation on status should include whether they are VAT registered and if so where, among other considerations. Once a full-scale review of this nature is completed, a series of comparisons can be developed. These should compare the VAT treatment currently applied to goods or services against VAT treatment under the series of potential Brexit arrangements. Whilst this level of theoretical analysis may seem time consuming, understanding the implications and preparing accordingly is an essential step towards future proofing.

A full and complete picture

It is perhaps not possible to stress enough the

Brexit – for all its potential pitfalls – gives accountants the potential to fast track change, to review processes and procedures, and to get their houses in order.”

importance of adequate preparation. Planning ahead will ensure not just smooth internal operations, but the ability to offer the best possible service to clients. The greater the understanding you hold of a client’s financial position, or indeed the full picture of your own organisation’s position, the more support you are able to offer. Having a full and complete picture of activities, financial positioning and the role of VAT within this will allow you to identify issues or opportunities in advance. It’s also essential to consider partnerships. A network of partners or associate firms who can assist with specialised projects or issues that may go beyond the bounds of the tools, time or expertise held by an organisation, gives all parties involved both greater certainty and a greater range of options. With Brexit continuing to cause disruption to normal working life, accountants across the board need to plan for all contingencies. Doing so will ensure not just business as usual, but an ability to stay ahead of the game, make the most of the changes we face, and reap the rewards that Brexit could offer. ●

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REGULATION

Anti-money laundering for SMEs David Redfern asks how small businesses can ensure they are compliant with anti-money laundering regulations. David Redfern Managing Director, DSR Tax Claims Ltd

overnment efforts to stamp out money laundering are gathering pace, with recent HMRC action focusing on estate agents who were suspected of trading without being registered, as money laundering regulations require. HMRCâ&#x20AC;&#x2122;s recent action landed Countrywide Estate Agents with a ÂŁ215,000 fine for failing to comply with antimoney laundering regulations. But how can small businesses or sole traders protect themselves if they run a business which could be vulnerable to criminal activity? Legislation against money laundering was strengthened with the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which placed additional emphasis on

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REGULATION

performing due diligence on potential clients. It isn’t only businesses within the accountancy sector which can be vulnerable to being targeted by criminals for money laundering activities. Businesses which operate within the estate agency, property and legal sectors are also at risk of facilitating the laundering of the proceeds of crime and funding terrorist activity. Whereas larger firms tend to have more rigorous procedures in place, often shared throughout an organisation, small businesses and sole traders are particularly vulnerable due to their size and potential for their anti-money laundering procedures to be less vigorous. Unfortunately, ignorance of the law is very rarely a valid defence.

What is money laundering?

But what does money laundering actually mean? For many, it is a vague term which doesn’t mean a great deal outside of the financial pages or gangster movies. Money laundering involves concealing, converting or disguising the proceeds or crime, or assisting others to do so, including funds which are used to finance terrorist activity. The use of legitimate businesses to facilitate this is a significant element of allowing money from illegal sources to re-enter the economy. Certain businesses, such as those within the financial and property sectors, have a legal requirement to comply with money laundering regulations. As the 50 estate agencies recently targeted by HMRC have seen, it can be costly if they are discovered to be non-compliant.

Certain businesses have a legal requirement to comply with money laundering regulations. It can be costly if they are discovered to be non-compliant.”

Ensure you are compliant

So what can a small business or sole trader do in order to ensure they are compliant with antimoney laundering regulations? The crucial first step is creating an antimoney laundering policy so your business has a documented framework for identifying the potential within the business for money laundering activities to take place. A solid antimoney laundering procedure is a key requirement for your business and a good starting position in order to protect your business. Until such a procedure is in place, your business could potentially be at risk of high-risk clients slipping through the net. Your procedure should include designating a dedicated person to be responsible for maintaining and updating your anti-money laundering policy, a thorough risk assessment for your firm and your potential clients, and training for all affected personnel, as well as a solid policy of due diligence towards your potential clients. There are a number of key questions to ask about your business when creating an anti-money laundering procedure: ●● Where is the potential risk to your firm?

●● Where are the holes in your due diligence that could allow a high-risk client to slip under the radar? Designating a member of your organisation to be responsible for maintaining and upholding your anti-money laundering procedure is an important first step to protecting your business – even if, in the case of sole traders, that person is you.

A comprehensive risk assessment

Following on from the creation of your anti-money laundering procedure, a comprehensive risk assessment of the small business or sole trader’s activities is the next step. Identifying the areas where your business is vulnerable to those who would wish to launder illegal proceeds is essential in protecting against them. ISSUE 104 | AIAWORLDWIDE.COM

REGULATION

a PEP with a large sum of unexplained income should ring warning bells. One area in which many small businesses can fall down is performing adequate due diligence on clients, sometimes due to lack of resources. But for some small businesses and sole traders, a lack of other potential clients can often be an incentive to look the other way.

Flag It Up campaign

There are a number of areas where your business could be at risk. For example, does your company deal with clients from high-risk jurisdictions? Do you deal with clients who could be described as politically exposed persons (PEPs)? Are you likely to come into contact with clients with sources of income which they cannot explain? Identifying the areas where your business might be at risk is a crucial step in ensuring your business is secure. With regard to politically exposed persons, regulations use this term to refer to individuals who have been entrusted with a prominent public position, making them more vulnerable than most to the possibility they could be involved in activities such as bribery or embezzlement. This doesn’t mean all elected officials will be involved in money laundering but AIAWORLDWIDE.COM | ISSUE 104

Author bio

David Redfern is the founder of DSR Tax Claims and one of the UK’s leading experts on taxation legislation. He is passionate about helping small business owners to develop tangible and profitable businesses.

However, the 2017 legislation makes it clear that each business has a legal responsibility to make sure that its clients are who they say they are. This includes clients which are companies or organisations, as well as individual clients. The onus is on your business to ensure that rigorous identity checks have been performed on your clientele and potential clientele. This includes making sure you know where their income comes from – a client or business with unidentified sources of income should be a red flag. If you have any knowledge or suspicion that their income is criminal in origin or will be used to finance terrorist activity, you are bound by law to report your suspicions to the National Crime Agency. In October last year, the National Crime Agency launched its Flag It Up campaign, aimed at the accountancy, property and legal sectors, to increase awareness of money laundering and what businesses within these sectors need to do in order to report any suspicious activity. Because the term “suspicious activity” can be fuzzy, it can be helpful to ask whether you have any unanswered questions regarding the source of your client’s income and funds. Perhaps your client requests that you make financial transfers without any apparent business relationship underpinning them. Maybe your client has made a request of you that is out of character, or wants you to make financial arrangements on their behalf that just don’t make commercial sense. It is important to note that you don’t have to have solid proof of illegal activity, nor are you expected to investigate further. If you have a sense of misgiving or mistrust that something is not quite right about your client’s financial activities, you have a duty to report this to the National Crime Agency.

Action against non-compliance

As the recent HMRC action against estate agencies shows, businesses will face action when they are shown not to be compliant with money laundering regulations, even where there is no evidence that they have actually been involved in money laundering. Developing a rigorous anti-money laundering policy for your business is a strong step towards protecting yourself against both criminal activity and HMRC investigation. ●

The way forward

istockphoto/metamorworks

TECHNOLOGY

Jarno Van Hurne and Olaf Riedel share their views on how technology and digitalisation can enhance the profession. Jarno Van Hurne: Stop the busy work and go digital

Jarno van Hurne

is Global Product Marketing Director for Exact Business Solutions. With his team, he is responsible for the development of Exact’s global solutions based on market and customer needs.

he accountancy profession needs to change, believes Jarno Van Hurne. With technology, accountants can offer expertise and customised services while streamlining many day-to-day tasks, but they must start on this path today. Today’s accountants are still engaging in manual tasks, Jarno recognises, namely by contracting out their services to companies to do or check the books and offer advice. But he asks the question: “What happens when these hours disappear?” He strongly believes that we’ll see accounting evolve into a type of background service, and that this will happen sooner rather than later: “You will see accountancy firms embracing the digital and getting rid of manual accounting in the next two years.” But this change clearly brings an opportunity in Jarno’s view: “A set of value-added consultancy services will be the growth area: helping clients to understand their figures, providing guidance to help them make better business decisions and, of course, doing the checks and balances.”

Tomorrow’s ‘Accountant Superhero’ will add value

Continuing this current trend, Jarno sees the “accountant superhero” 10 years from now as the external CFO for SMEs, offering a broader spectrum of value added, affordable advisory services. “They will provide advice and guidance from their reading and interpretation of the automatically inputted data, helping clients to make better business decisions in the areas of tax, financing, and mergers and acquisitions, as well as investments. This advice will be enriched by the accountant’s knowledge and understanding of the whole sector drawn from overseeing multiple companies.”

An evolving business needs evolving skills

So which new skills will tomorrow’s accountant superhero need? Jarno highlights three essential areas that he believes accountants have to strengthen with training: 1. Explaining and interpreting data: Really make sense of the numbers. We should not simply say “your revenue is X”, but explain what this means, and use our interpretation to describe the client’s ideal growth path. Accountants should not just describe, but also predict. ISSUE 104 | AIAWORLDWIDE.COM

TECHNOLOGY

Value added consultancy services will grow: helping clients to understand their figures, providing guidance, and doing the checks and balances.”

2. Interpersonal skills: Unlike working in your office and then submitting a report to the client, we will have to truly engage with the client, be a true business partner. This requires collaboration, discussion and indeed also influencing. 3. Industry knowledge: Knowledge of the client’s industry, trends and challenges and how changes might impact those, and knowledge about key processes in specific industries, are essential to truly become a business advisor.

Practical steps towards creating new value

Which specific aspects of digitalisation can accountants start using today to unlock the opportunity it represents? Well, Jarno sees three really promising, actionable developments: 1. Real time invoicing: Clients send invoices and also share them with their accountant automatically. This data gets processed without any manual intervention. 2. Real time banking: We still have a lot of manual interventions before a bank payment gets made, e.g. inputting, checking and matching. This manual work can be made real time and is already being done in some areas. 3. Machine learning: If we have all our data digitally then we can start working with it, using machine learning to automatically mine the data for us, something that is ever more widely being used today. If you’re looking to make digitalisation work for you, Jarno’s advice is clear: “Start with digitalisation, specifically automation. Start small but start now.”

Olaf Riedel: Auditors, bitcoin and the need for mutual trust

Olaf Riedel

leads EY’s technology, media and entertainment, and telecommunications market segment in Germany, Switzerland and Austria (GSA). He primarily advises international clients on the implementation of major transformation projects.

mbracing digitalisation will strengthen your business and grow your analytical skills, believes Olaf Riedel. But it will also mean managing an ethical and regulatory maze. He has no doubt about the potential benefits on the horizon: “Do I see opportunities coming from digitalisation over the coming decade? Absolutely, yes!” Olaf cites bitcoin and its current drawbacks to show a potential opportunity for the audit profession: “The number of bitcoins is limited, so it’s hard to create them. In parallel, a transaction takes a lot of time.” Bitcoin uses the blockchain to validate its transactions. Blockchain is a distributed ledger technology and, for a transaction to be validated,

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it needs to update in all of the ledgers across the network of bitcoin users.

So where is the opportunity in this?

Olaf explains that there could be another way to arrange blockchains: “Just imagine, if the blockchain was held by a number of companies, rather than distributed over PCs that are connected to the internet. Someone would have to make sure the companies use the right means that establish mutual trust. Auditors can do this, making sure the network of companies works ethically and honestly with the blockchain.”

And are we ready?

Olaf is convinced such roles will be available for auditors, assuming they have developed the right skill sets, through newly evolved university and post-professional courses: 1. Analytical skills: specifically the more technical aspects such as understanding data, “currently sorely lacking in the audit profession”; 2. Business understanding: industry knowledge, “ever-improving but still a way to go”; and 3. Communication skills: in terms of dealing with different specialists, including tax and IT experts – “this skill needs to evolve rapidly”. He sees an issue to overcome for the accountancy and audit profession when it comes to attracting and retaining people with these “new” skills. Currently our firms are probably not the most attractive to professionals with these skills. And if we are acquiring these new skills, how will we make sure we retain them?

What about ethics and regulation?

Capturing the benefits of digitalisation also means considering some challenging ethical and regulatory questions. “The ethical question is not simple to answer,” according to Olaf, “so we’ll likely still see a human taking the final decision for a number of years to come.” “If you apply machine learning, then with every decision the machine learns something new. So, the machine can come to a different decision in the very same situation as last time,” even if from an ethical standpoint the correct decision is clear. He concludes with a warning and a call to action: “I’m not sure that regulators will currently pave the way that we are going regarding new services. From a regulatory standpoint, the results that lead to a decision need to be reproducible. So, we need to find a way to reproduce the same results each time with machine learning.” ● These interviews were originally published by Accountancy Europe and further interviews in the digitalisation series can be found at www.accountancyeurope.eu.

planning

Future proof your firm Jennifer Warawa explains how accountancy firms can take practical steps to future proof their businesses. Jennifer Warawa Executive VP of Partners, Accountants and Alliances, Sage

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planning

rom building a brand that will attract new business and talent, to plugging the skills gap and keeping pace with the biggest technological revolution the profession has ever seen, there is currently a huge amount for accountants to manage. Add in the breadth of competition that accountants are now facing and it becomes clear that the industry is ripe for disruption. Accounting firms are left questioning what these changes mean for them, how to respond to increasingly complex client demands, and how to future proof their business. While it’s impossible to predict exactly what accounting firms will encounter next, there are practical steps that firms can follow to ensure they become indispensable rather than redundant. 1. Adopt a technology first mindset With the right technology in place, firms can free employees from some of their administrative burdens in order to dedicate more time to building strong client relationships and updating services to meet with customer demands. Firms should review their key processes and identify how they could be improved by technology. If employees are spending too much time reconciling client accounts, it may be worth investing in a solution to automate this task. Once any inefficiencies have been identified, firms should spend time researching the different technologies on offer, evaluating service providers and exploring potential solutions through free trials and pilot programmes, to ensure they are educated on the options available to them. The final step to putting technology front and centre is identifying someone within the firm who has the relevant expertise to take responsibility for digital innovation. Team leaders will be able to offer advice on who may be suitable for the role or if an outside hire is required. 2. Invest in people It’s the people that will ultimately determine the future success of any company, so they need to be equipped with the knowledge to take their firms to the next level. To grow and retain talent, they have to be prepared to invest in the development of their workforce. Before implementing a formal programme, team leaders have to understand the workforce they are investing in. Developing a Culture Assessment Plan can help to collect feedback from employees on the areas that need to be improved, the issues that are most important to them and where investment should be focused. Going through this process will help firms to be efficient with their investments and cultivate a culture that supports long term personal growth. Insights can then be used to offer regular training through education providers like AVADO in areas such as SOX and CASS compliance. AIAWORLDWIDE.COM | ISSUE 104

The key thing for accounting firms to remember is that although the disruption in the profession may seem daunting, it also presents a huge number of opportunities.”

3. Make client experiences a priority While bookkeeping and number crunching will always play a role in what accountants do, the client experience is what sets leading firms apart. Start by moving away from traditional “billing by the hour” and instead enable clients to select the level of services they want to receive. Services related to “management accounting” and “management support” should be made central to any firm’s offering. This consists of preparing and interpreting accounting information such as forecasting and budgeting, along with analysing strategic options, benchmarking performance against the wider industry and carrying out risk audits.

Author bio

4. Carve out a niche and excel in it With competition in the accounting profession a key concern, firms must find a way to differentiate themselves in order to help foster new client acquisition and drive long term profitability. As a starting point, firms have to gain a better understanding of their business landscape by breaking it down into three components: marketplace, clients and competition. Going through this process will help firms to identify where the potential opportunities for differentiation may lie. They could then decide to specialise in a particular industry, such as healthcare, hospitality or government, or use recruiters to help them hire someone with skills in a specific area of technology to build a new service. If they choose the latter, firms should establish team leaders to take ownership of the project and build a team of people that have the skills and passion for the new service. Whatever route firms decide to take, giving clients a compelling reason to select them will help ensure future success. Ultimately, the key thing for accounting firms to remember is that although the disruption in the profession may seem daunting, it also presents a huge number of opportunities. By embracing the challenge and following the practical steps outlined above, firms will be able to adapt to today’s shifting landscape and make themselves indispensable to the future of accountancy. ●

Events FACE TO FACE

WWW.AIAWORLDWIDE.COM/EVENTS

UK 2 April 2019 Ethical Accounting Conference AC Hotel by Marriott, Salford Quays, Manchester 9.00 to 4.00 4 April 2019 Ethical Accounting Conference The University of London, The Garden Halls, 1 Cartwright Gardens, London 9.00 to 4.00 Join AIA and guest speakers for our Ethical Accounting Conference for updates on ethical behaviours in business and accounting, ethical dilemmas when dealing with clients’ most valuable assets and corporate governance. We will also provide key updates for the most talked about topic in the finance industry, Making Tax Digital (MTD), and how it will affect you as accountants.

Ireland 16 April 2019 Forensic Accounting Seminar Accounting Aid, 26 Orchard Cherry Road, Bromley 18.00 to 20.30 1-2 May 2019 Accountex ExCel London AIA will be exhibiting on stand 500. Please feel free to visit and meet the team. 21 May 2019 Brexit The University of London, The Garden Halls, 1 Cartwright Gardens, London 18.00 to 20.30 23 May 2019 Brexit AC Hotel by Marriott, Salford Quays, Manchester 18.00 to 20.30

11 June 2019 AML and VAT Conference Camden Court Hotel, Dublin 10.00 to 14.30 Join guest speakers Alan Moore and Geraldine O’Dwyer for updates on key VAT issues that are likely to impact on businesses and an overview on recent developments on AML compliance and inspections (see below). 13 September 2019 Audit & Accounting Standards Conference Camden Court Hotel, Dublin 10.00 to 14.30

WEBINARS

21 June 2019 Charity Accounts 11.30 to 12.30

AML and VAT Conference internal audit in both the private and public sector. She currently works for the Department of Justice and Equality as an authorised officer of the anti-money laundering compliance unit.

11 June 2019 Camden Court Hotel, Dublin 10:00 to 14:30 VAT Update: Alan Moore In this update, Alan will cover key VAT update topic areas which are likely to impact on business. Alan is a Chartered Tax Adviser, with over 40 years’ experience in taxation, including 11 as a Revenue auditor. Formerly he was a consultant to the Office of the Revenue Commissioners on the drafting of the Taxes Consolidation Act 1997 and a former council member of the Irish Tax Institute. Currently, he is a non-executive director of Carma Technology Limited, in addition to being widely known for his feature articles in The Sunday Business Post. AML: Geraldine O’Dwyer In the afternoon conference session, qualified accountant Geraldine O’Dwyer will cover the following key topics:

●● overview of legislative basis; ●● recent developments; ●● inspecting for AML compliance – expectations; and ●● suspicious transaction/activity reports. Geraldine has worked for many years in financial accounting and

Additional benefits In addition to highly informative and interactive presentations, delegates will also benefit from: ●● the opportunity to ask speakers direct questions and receive expert advice; ●● networking opportunities with peers; ●● 5 CPD units and a certificate of attendance; and ●● lunch and refreshments provided. Book now Book your place at this event at www.aiaworldwide.com/events, or call us on +44 (191) 493 0282, quoting the reference below! £85.00 | AIA members (CPD775) £95.00 | Non-members (CPD776) ISSUE 104 | AIAWORLDWIDE.COM

Technical INTERNATIONAL

IPSASB to sharpen focus on public financial management and benefits of IPSAS adoption At a time of increasing momentum for IPSAS adoption and implementation globally, the International Public Sector Accounting Standards Board (IPSASB) has published its Strategy and Work Plan 2019-2023: “Delivering Global Standards. Inspiring Implementation”, which will shape the board’s work and priorities for the next five years. To ensure it delivers in the public interest, the IPSASB’s strategic objective is strengthening public financial management (PFM) globally through increasing adoption of accrualbased IPSAS. It will be delivered through two main areas of activity, both of which have a public interest focus: ●● developing and maintaining IPSAS and other high quality financial reporting guidance for the public sector; and ●● raising awareness of IPSAS and the benefits of accrual adoption. “Governments depend on the trust of their citizens and their national and international stakeholders in order to deliver their goals efficiently and effectively. The regular publication of

INTERNATIONAL Global consultation on quality management for firms and engagements now open The International Auditing and Assurance Standards Board (IAASB) seeks public comment by 1 July 2019 on three inter-related standards that address quality management. The proposals bring important changes to the way professional accountancy firms are expected to manage quality – for audits, reviews and other assurance and related services engagements. The proposed standards include a new proactive risk-based approach to effective quality management systems within firms that establish the foundation for consistent engagement quality. The new approach improves the scalability of the standards because it AIAWORLDWIDE.COM | ISSUE 104

high quality accrual-based financial reports helps strengthen public financial management, and is a fundamental ingredient in maintaining that trust,” said IPSASB chair Ian Carruthers. “IPSAS-based information provides a comprehensive and comparable picture of a public sector entity’s financial performance and position. IPSAS adoption and implementation therefore represent fundamental steps for governments to take, not only to increase transparency and accountability to their citizens and stakeholders, but also to inform effective decision making, so contributing to fiscal stability and sustainability. “Our new Strategy and Work Plan is intended both to support and to help inspire governments and other public sector organisations making that journey,” Carruthers added. The IPSASB will implement its Strategy and Work Plan 2019-2023 through two streams: Delivering global standards by: ●● setting standards on public sector specific issues;

●● maintaining IFRS alignment; and ●● developing guidance to meet users’ broader financial reporting needs.

promotes a system tailored to the nature and circumstances of the firm and its engagements. The IAASB proposals are intended to improve engagement quality through: ●● modernising the standards for an evolving and increasingly complex environment, including addressing the impact of technology, networks and use of external service providers; ●● increasing firm leadership responsibilities and accountability, and improving firm governance; ●● more rigorous monitoring of quality management systems and remediating deficiencies; ●● enhancing the engagement partner’s responsibility for audit engagement leadership and audit quality; and ●● addressing the robustness of engagement quality reviews, including engagement selection, documentation and performance.

adjust how they manage quality, the IAASB has also developed draft guidance and tools, such as examples and FAQs.

Given the significance of the changes and the need for firms to

Inspiring their implementation by: ●● promoting IPSAS adoption and implementation; and ●● advocating the benefits of accrual in strengthening PFM. The board’s top standard-setting priorities through 2023 include completing its current public sector specific projects, notably revenue, leases, public sector measurement, heritage and infrastructure, as well as making progress with its new public sector specific projects, including natural resources. The International Public Sector Financial Accountability Index projects that in five years, 65% of countries will report on the accrual basis. The IPSASB seeks to capitalise on this growth by working with key stakeholders to promote IPSAS adoption and implementation and the benefits of accrual information in strengthening public financial management.

Exposure Drafts

●● Overall Explanatory Memorandum, The IAASB’s Exposure Drafts for Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews; ●● Proposed International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (previously ISQC 1); ●● Proposed International Standard on Quality Management 2, Engagement Quality Reviews; and ●● Proposed International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements.

Technical Comments on the Exposure Drafts are requested by 1 July 2019.

IAASB future strategy and work plan consultation now open The evolving environment in which the International Auditing and Assurance Standards Board (IAASB) operates demands a strategy that reflects, among others, changing technology, a dynamic small and medium sized entity landscape, and emerging reporting needs. This is the opportunity for global stakeholders to shape the board’s strategy by commenting on the proposed draft. In the Proposed Strategy for 2020– 2023 and Work Plan for 2020–2021, the IAASB puts forth a way forward that it believes meets stakeholders’ evolving needs, and is in the public interest. Enhancing our processes, including using technology and appropriate resourcing, are included in the strategy and are crucial to success. These enhancements will also maximise the impact of our activities, thereby enabling more timely responses to global trends and needs. The work plan highlights the board’s commitment to completing significant projects currently underway, while balancing the needs of different stakeholders. Feedback on this consultation and on the IAASB’s strategic direction is requested by 4 June 2019 from all interested stakeholders.

New education standard focuses on professional development The International Accounting Education Standards Board (IAESB) has released the revised International Education Standard (IES) 7, Continuing Professional Development. The standard clarifies the principles and requirements on how professional accountancy organisations measure, monitor and enforce their continuing professional development systems. IES 7 (Revised) makes clear that all professional accountants must develop and maintain professional competence to perform their role. “The transformative impact of new and emerging technologies, changing business models and the dynamic environment in which we operate place new demands on the global accountancy profession,” according to Anne-Marie Vitale, IAESB Chair.

“Continuing professional development is fundamental to addressing and advancing the learning and development that enable professional accountants to provide high-quality services to their clients. These revisions will help enhance the consistency, quality and relevancy of professional accountants.” The revised IES 7 places greater emphasis on learning and development needed for professional accountants’ roles and responsibilities rather than focusing on a minimum number of hours. Significant revisions include: ●● requiring professional accountants to record relevant continuing professional development (CPD); ●● clarifying the output-based measurement approach, which requires professional accountants to demonstrate competence; ●● clarifying the input-based measurement approach, which requires professional accountants to demonstrate competence by completing a specified amount of learning and development; ●● promoting the use of a CPD framework to provide an example structure and guidance to help professional accountants identify, undertake and record relevant development; and ●● providing CPD measurement approaches with examples of related verifiable evidence to improve adoption. Released concurrently alongside the new standard are support materials that will assist professional accountancy organisations to understand and apply the requirements and support all stakeholders, including educational organisations, employers, regulators and government authorities. IES 7 (Revised) becomes effective on 1 January 2020.

UK AND IRELAND FRC issues position paper: next steps for development of ethical and auditing standards The FRC has issued a position paper which sets out how ethical and auditing standards will be developed to respond better to the needs of users of audited financial information, following the recent call for feedback. The paper sets out the issues that will be developed to support a public consultation on the text of revised standards over the

summer. It also sets out how the FRC’s work on the standards responds to certain recommendations made by Sir John Kingman in his independent review of the FRC, how proposals are being developed to support the Competition and Market Authority’s Market Study of the UK Statutory Audit Market; and how revisions made to the international Code of Ethics will be incorporated into the FRC Ethical Standard. The position paper also draws the attention of public interest entity auditors to changes that will take place to UK law in the event that the UK exits the European Union with no deal or transitional period at 11pm on 29 March 2019. An appendix to the paper shows the most important implications of this, which audit firms will need to address. The FRC will also be writing to the Heads of Audit for all UK PIE audit firms, and to the professional accountancy bodies to draw attention to this. The most immediate issues will be a change to the definition of a public interest entity and implications for the provision of certain non-audit services which will be prohibited on a global basis rather than just within the European Union.

FRC consults on stronger going concern standard for auditors The Financial Reporting Council (FRC) proposes to increase the work required of auditors when assessing whether an entity is a going concern. The consultation on important revisions to International Standard on Auditing (ISA) (UK) 570 Going Concern follows concerns about the quality and rigour of audit and well publicised corporate failures where the auditor’s report failed to highlight concerns about the prospects of entities which collapsed shortly after, as well as findings from recent FRC enforcement cases. Requirements on UK auditors will be significantly stronger than those required by international standards. The FRC proposes: ●● auditors make greater effort to more robustly challenge management’s assessment of going concern, thoroughly test the adequacy of the supporting evidence, evaluate the risk of management bias and make greater use of the viability statement; ●● improved transparency with a new reporting requirement for the auditor to provide a conclusion on whether management’s assessment is appropriate, and to set out the work ISSUE 104 | AIAWORLDWIDE.COM

Technical they have done in this respect; and ●● a stand back requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern. The Exposure Draft and Consultation are available on the FRC website. The consultation period closes at 5pm on 14 June 2019. Mike Suffield, the FRC’s Acting Executive Director of Audit and Actuarial Regulation said: “Recent corporate failures and the FRC’s own enforcement work has shown the existing Going Concern Standard needs to be strengthened. If the UK is to attract high quality global investment, investors have to have confidence in audited financial statements and the prospects of businesses. Our proposals will significantly expand the work required of auditors – however, we believe this to be an important investment in the quality of the work that underpins what is a cornerstone of audit. This revised standard has been designed to better meet the needs of users and protects the public interest.”

Consultation into improvements to the reporting of intangibles launched Possible improvements to the reporting of factors that are important to a business’s generation of value are discussed in a consultation launched by the Financial Reporting Council (FRC). There are frequent calls to reform the accounting for intangible assets, partly in response to the move to a knowledgebased economy. This paper considers the case for radical change to the accounting for intangible assets and the likelihood of such change being made in the near future. It suggests that: ●● relevant and useful information could be provided without the need to recognise more intangible assets in companies’ balance sheets; ●● such information could cover a range of factors, broader than the definition of intangible assets in accounting standards, that are relevant to the generation of value; ●● improvements could be made on a voluntary basis within current reporting frameworks (such as the strategic report); and ●● participants in the reporting supply chain could collaborate to bring AIAWORLDWIDE.COM | ISSUE 104

about improvements. Paul George, Executive Director for Corporate Governance and Reporting at the FRC, said: “It is unrealistic to expect the value of a business to be fully represented in its balance sheet; there is always likely to be a gap between the balance sheet total and the market capitalisation of a company. The paper suggests several ideas for expanding the information provided, both quantitative and qualitative, to improve users’ assessment of corporate value.” The deadline for responses to the consultation is 30 April 2019.

IAASA publishes ISA (Ireland) 540 (Revised December) 2018 and consultation feedback paper IAASA has published ISA (Ireland) 540 (Revised December 2018) Auditing Accounting Estimates and Related Disclosures and related conforming amendments to other ISAs (Ireland). In August 2018, IAASA published its consultation on the Proposal to Revise ISA (Ireland) 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures (Consultation Paper). The consultation was to obtain the views of stakeholders with regard to IAASA’s proposal to issue a revised version of ISA (Ireland) 540 to reflect recent revisions to the standards on auditing issued by the International Auditing and Assurance Standards Board (IAASB). IAASA has noted the points raised in the responses to its consultation and has published a feedback paper available from the IAASA website, as is the revised ISA (Ireland) 540 (Revised December 2018) Auditing Accounting Estimates and Related Disclosures.

ASIA PACIFIC MASB clarifies definition of “business” and definition of “material” The Malaysian Accounting Standards Board (Board) has issued: a. Definition of a Business (Amendments to MFRS 3 Business Combinations); and b. Definition of Material (Amendments to MFRS 101 Presentation of Financial Statements and Amendments to MFRS 108 Accounting Policies, Changes in

Accounting Estimates and Errors). The amendments are word for word Definition of a Business (Amendments to IFRS 3 Business Combinations) and Definition of Material (Amendments to IAS 1 Presentation of Financial Statements and Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors) respectively issued by the International Accounting Standards Board.

Definition of a “business”

The amendments clarify the definition of a business with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The distinction is important because an acquirer does not recognise goodwill in an asset acquisition. The amendments, amongst others, clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The amendments also add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. Companies are required to apply the amended definition of a business to transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020. Earlier application is permitted.

Definition of “material”

The amendments refine the definition by including “obscuring information” in the definition of material to respond to concerns that the effect of including immaterial information should not reduce the understandability of a company’s financial statements. The prior definition focuses only on information that cannot be omitted (material information) and does not also consider the effect of including immaterial information. Other refinements to the definition include incorporating some existing wording in MFRS 101 and the Conceptual Framework for Financial Reporting. Consequently, the amendments align the definition of material across MFRS standards and other publications. Companies are required to apply the amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted.

Technical MASB expands its role in MFRS application and implementation The Malaysian Accounting Standards Board (MASB) has announced the establishment of the MFRS Application and Implementation Committee (MAIC). MAIC is entrusted to look into issues where there are existing and potential divergent practices, as well as facilitating consistent application and implementation of the Malaysian Financial Reporting Standards (MFRS) for the benefit of capital market. The MASB’s work programme and involvement in the application and implementation of MFRS mirror that of the International Accounting Standards Board (IASB) and its interpretative body, IFRS Interpretations Committee, which works with the IASB in supporting the application and implementation of IFRS Standards. MAIC will be chaired by a MASB board member (either current or former) and its members will be drawn from the accounting firms, commerce and industry and a representative from the Malaysian Institute of Accountants (MIA). Representatives from the regulators and professional bodies are appointed as observers to the Committee. Recommendations of MAIC are submitted to the MASB Board, which will decide on the appropriate course of action. The MASB expresses its deep gratitude to the Financial Reporting Standards Implementation Committee of MIA for the effort done in supporting the implementation of MFRS prior to the establishment of MAIC.

Financial Reporting Practice Guidance 1 of 2019: Areas of Review Focus for FY2018 Financial Statements under the Financial Reporting Surveillance Programme administered by ACRA To assist directors in reviewing their company’s upcoming financial statements, ACRA has issued Practice Guidance No. 1 of 2019, which highlights five financial reporting areas that may require more attention by directors before approving the companies’ FY2018 Financial Statements. The key area for this year is the adoption of significant new accounting standards on revenue and financial instruments. Specific changes that may have more widespread impact were highlighted for directors’

consideration. Other areas include impairment assessment and valuation, major transactions, statement of cash flows and disclosures of significant judgements and estimates. The Practice Guidance is available for download fromwww.acra.gov.sg.

UNITED STATES SEC accepts 2019 GAAP Financial Reporting Taxonomy and SEC Reporting Taxonomy The Financial Accounting Standards Board (FASB) has announced that the US Securities and Exchange Commission (SEC) has accepted the 2019 GAAP Financial Reporting Taxonomy. The board also announced that the SEC has accepted the 2019 SEC Reporting Taxonomy (SRT). The 2019 GAAP Financial Reporting Taxonomy contains updates for accounting standards and other recommended improvements. For the 2019 Taxonomy Updates, some elements included in the 2018 GAAP Financial Reporting Taxonomy have been relocated to the 2019 SRT. The SRT elements from the 2018 Taxonomy correspond to the SEC’s authoritative literature in which the underlying recognition and measurement are not specified by GAAP. The taxonomies and their related release notes are available on the FASB’s XBRL pages and through the following links: 2019 GAAP Financial Reporting Taxonomy, and 2019 SRT. Questions about using the Taxonomies and creating and submitting XBRL tagged interactive data files in compliance with SEC rules should be directed to the SEC. SEC contact details and guidance are available at the SEC’s portal on XBRL. Those interested in learning more about the 2019 GAAP Financial Reporting Taxonomy and the 2019 SEC Reporting Taxonomy are invited to participate in a live CPE webcast entitled IN FOCUS: 2019 GAAP and SEC Reporting Taxonomy Improvements and SEC Update. Offered free of charge, the webcast takes place on 4 April 2019 from 1pm to 2.15pm EDL. Participants in the live broadcast will be eligible for up to 1.5 hours of CPE credit. (Please note that CPE credit is not available for group viewing of the live broadcast.) To register or to learn more about the webcast, log on to www.fasb.org.

FASB improves accounting for episodic television series The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that helps organisations align their accounting for production costs for films and episodic content produced for television and streaming services. In recent years, the entertainment industry experienced a significant change in production and distribution models. For example, online streaming services have introduced subscriptionbased revenue models. However, current accounting guidance provides organisations in the entertainment industry with differing capitalisation requirements for content production: ●● For films, production costs are capitalised. ●● For episodic content (for example, a TV series that airs a new episode each week), production costs are capitalised subject to a constraint based on contracted revenues in the initial and secondary markets. “Stakeholders told us that the current capitalisation guidance doesn’t enable organisations that use subscriptionbased revenue models to provide relevant information to investors,” said FASB Chairman Russell G. Golden. “The new standard converges the guidance for films and the guidance for episodic content. This better reflects the economics of an episodic television series and improves the information provided to investors about the various types of produced and licensed content.” The standard addresses when an organisation should assess films and license agreements for program material for impairment at the film-group level. The amendments in the standard also: ●● amend presentation requirements; ●● require that an organisation provide new disclosures about content that is either produced or licensed; and ●● address cash flow classification for license agreements. For public companies, the standard is effective for fiscal years beginning after 15 December 2019, and interim periods within those fiscal years. For all other organisations, the standard is effective for fiscal years beginning after 15 December 2020, and interim periods within those fiscal years. Early adoption is permitted. ISSUE 104 | AIAWORLDWIDE.COM

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