International Accountant 108 by Association of International Accountants

INTERNATIONAL

ACCOUNTANT NOVEMBER/DECEMBER 2019

A stronger code of ethics Help to stamp out money laundering The tailored approach to consulting services

Technology to streamline your business

ISSUE 108

CONTENTS

In this issue Contributors 2

Meet the team

News and views

AIA news

FSB launches Back to Business manifesto AIA to adopt revised constution

Technology 22 Money laundering Achieve 10 Natasa’s student journey To illustrate the wide ranging benefits on offer to students when they enrol onto the AIA interactive distance learning programme, Achieve, we catch up with one of our current students, Natasa Parouti, who is already taking full advantage of the programme.

Suspicious minds David Potts (AIA) asks how you can help to stamp out money laundering by submitting a Suspicious Activity Report to alert law enforcement if client activity is suspicious and might indicate money laundering or terrorist financing.

Six technical solutions As many as 65% of small and medium sized businesses are losing time and money through failing to adopt technology and use it to its full potential. Find out about six technical solutions that can streamline your business processes.

Students 12 Exam skills Practising skills such as exam technique, time management and planning can help you to do even better in the exam room.

Consulting services

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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+44 (0)191 493 0277 www.aiaworldwide.com

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The tailored approach Mark Smith (Innovation Incentives) debates the merits of specialist consultancies vs the ‘Big Four when it comes to personalising your consulting services.

Subscribe to International Accountant subscriptions@aiaworldwide.com

Code of ethics

Dates for your diary

A stronger code Stephen Chan (BDO Hong Kong) onsiders the key areas of focus for auditors, following the enhanced the Conceptual Framework in IFAC’s 2018 Code of Ethics. Upcoming events

Technical 28 Global updates

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AIA does not guarantee the accuracy of statements made by contributors or advertisers or accept responsibility for any views which they express in this publication. ISSN: 1465-5144 © Copyright Association of International Accountants

Editor’s welcome

Contributors to this issue

Editor’s welcome

STEPHEN CHAN

Stephen Chan is a director at BDO Hong Kong. He is the company’s Head of Risk and Chairman of the Risk Management Committee. Stephen has a strong technical and regulatory background. He was the Executive Director and Technical Director of the Hong Kong Institute of Certified Public Accountants (HKICPA) for over ten years, before joining BDO. MARK SMITH

Rachel Rutherford Editor, IA

s I write, the UK is gearing up for a general election on 12 December that will determine the future of our trading relationships. That is not all, however – the outcome and make up of any new government will also see wide-ranging economic policies implemented and change the business landscape. For many, this election is primarily about Brexit. As a result, how finance professionals will undertake to guide businesses, both large and small, through this still uncertain time is a central issue. Throughout this period, AIA has continued to work with government, regulators and stakeholders to ensure that its members have access to the latest advice and guidance. We will continue to represent the public interest to ensure we do all we can to minimise any potential disruption that is caused by these developments. Likewise, we will continue to ensure that our members are kept fully abreast of any resulting changes in taxation, technology and legislation, enabling them to guide businesses as they plan ahead in an undoubtedly changeable period.

In this issue, we consider the role of accountants and how they can help to stamp out money laundering by submitting a Suspicious Activity Report to alert law enforcement if client activity is suspicious and might indicate money laundering or terrorist financing (see page 16). We also consider six technical solutions that can streamline business processes, increase revenues and improve efficiency within the SME sector – including making the best use of project management tools and the cloud, and learning how to use your time most efficiently (see page 22). Elsewhere, Mark Smith debates the merits of specialist consultancies vs the ‘Big Four when it comes to personalising consulting services (see page 20). We also continue to review the new Code of Ethics for accountants, as Stephen Chan looks in particular at the key areas of focus for auditors (see page 24). There is also a student article, written by AIA examiners, that provides invaluable advice on practising skills such as exam technique, time management and answer planning – and how to apply these skills – to help students to do even better in the exam room (see page 12).

Mark Smith is Partner of Innovation Incentives at Ayming UK & Ireland. He joined Ayming in 2018 and leads the growing Innovation practice, which primarily focuses on R&D Tax and Grants. After qualifying as an accountant he joined the KPMG R&D team, which was a natural fit for his skills and interests. After spending five years in the North West office focusing on R&D in the nuclear and SME manufacturing sectors, he moved to the London office where he initially worked on chemical, manufacturing and energy clients. DAVID POTTS

David Potts is director of operations at the AIA, and is responsible for maintaining AIA’s international recognition and implementing the professional body’s regulatory strategies and annual review cycle. CONOR MCARDLE

Conor McArdle has degrees in English and Journalism and has worked at Opus Energy for three years, producing business-boosting advice for Opus Energy’s small business customers through the Brighter Business platform. ISSUE 108 | AIAWORLDWIDE.COM

News SMES

FRAUD

Small firms launch Back to Business manifesto as polling day looms

HMRC tips on avoiding Self Assessment tax scams

Mike Cherry, FSB National Chairman

UK’s largest business group outlines recommendations for the next government as new analysis reveals the role of small firms in communities. With a general election looming, the Federation of Small Businesses (FSB), which represents small firms and the self-employed, has launched its Back to Business 2019 manifesto. Fresh analysis from the group shows that there are typically 7,000 sole traders in every UK constituency, part of a wider community of more than 25,000 people who work in smaller businesses. As many high streets across the country continue to struggle, FSB is asking the next government to fundamentally reform business rates by enhancing and making permanent the retail discount – which entitles small shops in England to a third off their rates bills – and removing more small businesses from the system altogether. The small business group is also calling on the government to reduce the burden of employer’s NICs, which effectively serve as a “jobs tax”, by uprating the employment allowance. Doing so would, as in years past, ensure AIAWORLDWIDE.COM | ISSUE 108

that no small business employing four people on the National Living Wage pays employer’s NICs. Elsewhere, FSB is reiterating the need to implement the measures it has previously secured which are aimed at ending a £2.5bn late payment crisis that destroys 50,000 businesses a year. They include: ●● holding boards accountable for poor supply chain treatment by making the audit committee of every large business responsible for payment practices; ●● properly empowering a swiftly appointed Small Business Commissioner; and ●● banning late payers from all public sector procurement opportunities. FSB National Chairman Mike Cherry said: “For the last three years, the interminable uncertainty around Brexit has dragged focus, attention and imagination away from the task of helping the UK’s 5.8 million small businesses to survive, grow and enhance our communities. It’s time to get back to business.”

HMRC is giving information to customers to help them avoid scams ahead of the Self Assessment deadline. HMRC is warning millions of Self Assessment customers to be aware of fraudsters in the run up to the 31 January deadline. Over the last year, HMRC received nearly 900,000 reports from the public about suspicious HMRC contact – phone calls, texts or emails. More than 100,000 of these were phone scams, while over 620,000 reports from the public were about bogus tax rebates. Some of the most common techniques fraudsters use include phoning taxpayers offering a fake tax refund, or pretending to be HMRC by texting or emailing a link which will take customers to a false page, where their bank details and money will be stolen. Fraudsters are also known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

News TECHNOLOGY

EY has launched an innovative, on-demand tax service to help individuals complete their UK Self Assessment tax returns. EY TaxChat connects individuals with EY tax professionals in an easy-touse digital environment, via app or online, making the process faster, easier and cost-efficient. 11.5 million UK taxpayers were required to complete Self Assessment in 2019, according to HMRC. However, EY research shows that many worry about getting something wrong if they do it themselves (33%) and think it complicated and time consuming (15%). A further 12% also said they can’t afford an accountant’s services. EY TaxChat connects any individual who needs to complete a UK tax return with an EY adviser through a digital platform. Once they’ve downloaded the app or visited EY TaxChat online, they’ll be asked to answer a few simple questions about their tax affairs and will receive a personalised fee quote. If they accept, they’ll be guided through the Self Assessment process by an EY adviser; the chat function allowing them to connect directly with their adviser at any time. Individuals can provide the necessary tax information by uploading documents, taking pictures

EY launches the UK’s first “TaxChat”

The service is available to any individual required to file a UK tax return. However, it is most useful for those who would like to spend less time working on or worrying about tax and would value support from a tax professional.

with their mobile device or by keying in details directly. The EY adviser will prepare the tax return and, once it is ready for review, the individual can make payment before approving their tax return for filing with HMRC.

WHISTLEBLOWERS

The US Securities and Exchange Commission (SEC) has released the annual report from its Office of Enforcement confirming the critical role the Dodd-Frank Act whistleblower reward programme is playing in protecting investors from fraud. According to the report, the Enforcement Division confirmed that: ●● The SEC whistleblower law is very successful and “whistleblowers have made meaningful contributions to significant cases”. ●● The whistleblower programme has resulted in “high-quality SEC enforcement actions” and led to more than $2bn in financial remedies. ●● The Commission has recognised the importance of whistleblower tips.

SEC enforcement report praises whistleblowers

●● The SEC has paid whistleblowers approximately $387m in rewards. “Job well done,” according to SEC whistleblower attorney Stephen M. Kohn. “The enforcement report confirms what

we have long known: whistleblowers are the key to detecting frauds. Without whistleblower-insiders, the vast majority of frauds would go undetected, and investors would lose billions of dollars to those given by criminal greed.” Mr. Kohn has represented corporate whistleblowers for over 35 years and worked with Congress in drafting the Dodd-Frank Act whistleblower protections. “The SEC has confirmed that a well-placed whistleblower is the ‘goose that lays the golden egg’. The SEC programme has been highly successful, and we hope that the new regulations under consideration by the Commission will build on this substantial progress,” Kohn said. ISSUE 108 | AIAWORLDWIDE.COM

News MONEY LAUNDERING

Westpac bank accused of breaking anti-money laundering laws

AUSTRAC, Australia’s anti moneylaundering and terrorism financing regulator, has applied to the Federal Court of Australia for civil penalty orders against Westpac Banking Corporation. The civil penalty orders relate to systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). AUSTRAC alleges Westpac contravened the AML/CTF Act on over 23 million occasions. AUSTRAC Chief Executive Officer, Nicole Rose, says that AUSTRAC’s decision to commence civil penalty proceedings was made following a detailed investigation into Westpac’s non-compliance. It is alleged that Westpac’s oversight of the banking and designated services provided through its correspondent banking relationships was deficient. Westpac’s oversight of its AML/CTF Program, intended to identify, mitigate and manage the money laundering and terrorism financing risks of its designated services, was also deficient. These failures in oversight resulted in serious and systemic non-compliance with the AML/CTF Act. Westpac failed to appropriately assess and monitor the ongoing money AIAWORLDWIDE.COM | ISSUE 108

laundering and terrorism financing risks associated with the movement of money into and out of Australia through correspondent banking relationships. Westpac has allowed correspondent banks to access its banking environment and the Australian Payments System without conducting appropriate due diligence on those correspondent banks and without appropriate risk assessments and controls on the products and channels offered as part of that relationship. It did not report over 19.5 million International Funds Transfer Instructions (IFTIs) to AUSTRAC over nearly five years for transfers both into and out of Australia. The late incoming IFTIs received from four correspondent banks alone represent over 72% of all incoming IFTIs received by Westpac in the period November 2013 to September 2018 and amounts to over $11bn dollars. IFTIs are a key source of information from the financial services sector that provides vital information into AUSTRAC’s financial intelligence to protect Australia’s financial system and the community from harm. The bank also failed to pass on information about the source of funds to

other banks in the transfer chain. This conduct deprived the other banks of information they needed to understand the source of funds to manage their own AML/CTF risks. It also failed to keep records relating to the origin of some of these international funds transfers. Finally, it failed to carry out appropriate customer due diligence on transactions to the Philippines and South East Asia that have known financial indicators relating to potential child exploitation risks. Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessments. “These AML/CTF laws are in place to protect Australia’s financial system, businesses and the community from criminal exploitation,” said Rose. “Serious and systemic non-compliance leaves our financial system open to being exploited by criminals. “The failure to pass on information about IFTIs to AUSTRAC undermines the integrity of Australia’s financial system and hinders AUSTRAC’s ability to track down the origins of financial transactions, when required to support police investigations.”

AIA

NEWS CONSTITUTION

AIA members vote to adopt revised constitution RECRUITMENT

AIA committee member recruitment

istockphoto/theasis

AIA is looking for accountants in practice and lay members of other professions to join the teams helping to ensure that our members always conduct their businesses in a professional manner and act in the best interest of the general public. The combination of accountants and lay members on our committees helps to maintain a balanced view.

What does it involve?

As a member of one of the disciplinary committees, you play an integral part in supporting AIA in maintaining the highest professional standards and ethical conduct expected of a professional accountant. Successful applicants may be in receipt of information of a sensitive nature and must therefore be able to sign a confidentiality agreement and adhere to AIA’s strict Equality and Diversity policy. Meetings are held on an ad hoc basis and can be either in person, or by video conference. Emailed correspondence may also be used. Membership of the Disciplinary Committees is non-remunerated although reasonable expenses will be paid.

Next step

To express an interest in becoming part of the process, please send your CV and any questions you might have to council@aiaworldwide.com.

AIA members voted to adopt a revised constitution at a general meeting on 5 November 2019. The new constitution came into effect on 6 November 2019. The overall coverage of the Constitution has not been significantly altered; i.e. AIA’s membership requirements, qualification standards, and obligations for members to adhere to AIA’s rules, regulations and Code of Ethics remain in place. The new Constitution continues to have the following structure: ●● Memorandum of Association; ●● Articles of Association; ●● bye-laws; ●● regulations, and ●● Code of Ethics. Members are reminded that they are bound by the AIA Constitution (including the Code of Ethics) and should familiarise themselves with the updated edition, which is available on the AIA website

at https://www.aiaworldwide.com/ Constitution2019. The most significant changes are the adoption of the new Code of Ethics, the introduction of the AIA Regulatory Oversight Committee and changes relating to the maximum term that a member can hold office as a member of the Council. Any disciplinary cases ongoing at the time of implementation of the new Constitution will be continued under the previous AIA Constitutional Documents (as revoked on 6 November 2019). Upon adoption of the revised constitution, AIA President, Les Bradley, commented: “These amendments strengthen AIA’s corporate governance and build upon the current regulations. With changes to the Code of Ethics introducing new requirements for accountants, I would encourage all members to review the revised documents to ensure their compliance.” ISSUE 108 | AIAWORLDWIDE.COM

AIA News PARTNERSHIP REGULATORY OVERSIGHT

The newly comprised AIA Regulatory Oversight Committee

AIA Regulatory Oversight Committee holds inaugural meeting The newly comprised AIA Regulatory Oversight Committee (ROC) held its first meeting on 6 November 2019 at the headquarters of the Commonwealth Secretariat in London. Reporting to the AIA Council, the ROC’s role provides an additional level of independent scrutiny to ensure AIA continues to meet its regulatory requirements as a supervisory body under Schedule 1 of the Money Laundering Regulations 2017. Chaired by Council member George Josephakis, the ROC comprises industry experts in the fields of law enforcement and investigation, academic research, litigation and regulation and risk assessment. Members of the ROC include Professor Jackie Harvey, who is currently working on a Department for International Development (DFID) funded project on beneficial ownership; former head of Northumbria Police Economic Crime Unit and Asset Recovery Team, Phil Butler; and competition and regulatory law specialist, Stephen Tupper. AIA Director of Operations David Potts said: “AIA takes its regulatory obligations seriously and we have brought together an expert group of independent professionals to ensure we continue to meet our requirements. “An extra layer of independent scrutiny provides added assurance and drawing on the broad experience of a range of industry professionals helps bring in new thinking from outside AIA.” AIAWORLDWIDE.COM | ISSUE 108

AIA to partner with AccountingWEB Live AIA is pleased to be announced as an AccountingWEB Live partner to help curate its content programme. The event, due to be held on 2-3 December 2020, is the UK’s newest accounting exhibition, blending inspiring, practical content with cutting edge technology showcases and a fully CPDaccredited educational programme. “We are delighted to announce a partnership with the AIA,” said Tom Dunkerley, CEO at Sift. “We want to help solve the real business, client, employee and career challenges which our community is facing now, and highlight the ones just over the horizon so they can continue to thrive. Working with the AIA will ensure we deliver on that promise. “As a professional membership association, we hear first-hand the desire from accountants to enhance their professional development with high quality, thought provoking and innovative content,” said Carl Jepson, Marketing Manager, AIA. “Having worked closely with AccountingWEB for many years, we know they deliver this week in, week

out, so it is with great excitement that we partner with them as they launch AccountingWEB Live, an event which promises to focus on and deliver high quality content and practical advice to its audience.” Keynote speakers, panel sessions, practical workshops and CPD seminars will be just some of the types of content that is available at AccountingWEB Live. A full content programme detailing speakers, topics and a call for papers will be announced over the coming months. For further information regarding the event, go to: www.accountingweblive.co.uk.

DISCIPLINARY COMMITTEE

Disciplinary Committee outcomes The AIA Disciplinary Committee sat on the 24 July 2019. The following members were excluded from membership under Section 9 of the Association of International Accountants Public Practice Regulations 2018: Emmanual O Johnson

UK (London)

Arulkumaran Kandasamy

UK (Harrow)

Odeniyi Oluborode Anthony Mill

UK (Manchester) UK (Kent)

AIA News GRADUATION

The tenth anniversary of AIA-CACFO’s co-operation celebrated at AIA graduation

On 16 November 2019, successful candidates gathered to celebrate their achievement in becoming AIA members. Held in Beijing, the graduation ceremony recognised the achievements of candidates who have successfully completed their qualifications. The graduation ceremony was attended by AIA President Les Bradley, AIA Chief Executive Philip Turnbull, AIA Director of Operations David Potts and honoured guests representing the Chinese Association of Chief Financial Officers (CACFO) Chairperson Madam Liu Hongwei and Secretary Pan Xiaojiang, and the British Embassy in Beijing Danny Pan. Les Bradley said that AIA’s original mission, begun over 90 years ago, remains the same: to create world class accountants. He encouraged the recent graduates to take full advantage of the benefits provided to them by holding an AIA qualification and celebrated the hard work and success achieved by every individual. Highlighting the tenth anniversary of AIA’s cooperation with CACFO, AIA’s President paid tribute to the foresight and hard work of its chairperson Madam Liu, saying: “Together we have worked in partnership to strengthen international accounting in China and provide a deeper and more meaningful experience for our members, and I am grateful to welcome her here today to share in today’s special celebration.” Madam Liu stressed the importance of exchange and cooperation and

noted that AIA and CACFO had agreed to further and strengthen their cooperation and develop management accounting with Chinese characteristics. Madam Liu further urged the new AIA members to fulfil the concept proposed by President Xi of becoming part of the Chinese dream and supporting the One Belt One Road initiative. Philip Turnbull celebrated the success of the graduates and welcomed them to an inclusive family of International Accountants with heartfelt

congratulations, saying that obtaining a qualification was a difficult task and members have had to show commitment and hard work. He noted that AIA promotes professionalism, adopting of international accounting standards and ethical behaviour. Special awards of recognition were presented to the Top 10 Graduates and awards for Leading International Accounting Professionals to Chen Liangyong and Wang Haiqing. An award for Outstanding Contribution was presented to Ma Yuping. ISSUE 108 | AIAWORLDWIDE.COM

ACHIEVE

Natasa’s student journey Read about Natasa’s AIA student journey with Achieve.

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operates within the shipping and investments sector. During the interview, Natasa provides her candid opinion on AIA, Achieve and the ongoing challenges associated with studying for a professional qualification whilst balancing a busy and successful professional and personal life.

For further information contact the AIA Study Support Team by emailing achieve@aiaworldwide.com.

We know you are very busy, so thank you for taking this time out of your schedule. First and foremost, what initially attracted you to study with the AIA? To set the scene, I made the decision to join AIA in 2012. At this point in time, I was already a qualified accountant in Cyprus with

ithin International Accountant, we often discuss the wide ranging benefits on offer to students when they enrol onto the AIA interactive distance learning programme, Achieve. However, we fully appreciate that it is very easy to just talk about all the wonderful benefits, so within this edition we have sat down with one of our current students, Natasa Parouti, who is already taking full advantage of the programme to get her thoughts. Natasa is currently based in Cyprus, working as an Accounts Officer for Seatankers Management Co. Ltd, which

ISSUE 108 | AIAWORLDWIDE.COM

ACHIEVE 15 years of work experience. I was looking to join a globally recognised accountancy body which would allow me the opportunity to further my education with a master’s level qualification in accountancy. The AIA clearly ticked this box and in addition they offered me like for like exemptions, so I did not have to go through the process of resitting papers which I had already attained within my previous accountancy qualification.

Why did you choose to use the Achieve Programme and how has it helped?

Studying for such a high level qualification without support and guidance can be very difficult, especially when you are trying to balance study with your ongoing career. It therefore made logical sense to enrol onto the Achieve programme and benefit from the wide range of resources it has to offer. Choosing to enrol on Achieve has been an inspired decision. The structured study programme, alongside frequent past paper exercises, has made me more motivated than ever and pushed me to be more efficient in my studies.

I made the decision to join AIA in 2012, when I was already a qualified accountant in Cyprus with 15 years of work experience. I was looking to join a globally recognised accountancy body which would allow me to further my education with a master’s level qualification in accountancy. The AIA offered me like for like exemptions, so I did not have to resit papers which I had already attained.” Natasa Parouti

confidence. I knew I had the ability to undertake such a level of qualification, but successfully studying the professional exams has definitely increased my confidence levels. This in turn has yielded a greater respect from work colleagues and managers alike.

What advice would you give to other students thinking about joining AIA and studying on Achieve?

How long have you been studying with the AIA?

Stop procrastinating and start your AIA journey as soon as possible. I am based in Cyprus, and my personal experience so far is that there is no better accountancy body to choose. If you follow the programme provided by Achieve, you will enhance your chances of exam success.

I joined AIA as a student in 2012, but for professional and personal reasons I have only been able to invest the adequate amount of time to my studies in the past three or four years. My plan from this point onwards has been to take and pass one paper each year. I am pleased to say this plan is working well. I am now onto my final paper, which I hope to pass next year.

What is the most challenging task or project within your current role?

And finally, how has the AIA professional accountancy qualification helped you to get to your current position in your career?

There are many challenging tasks on any given day, but I would say for me the most challenging would be preparing management accounts and VAT submissions. There are many factors to consider within the task and it is essential to always have attention to detail, so no mistakes are made.

I wouldn’t say it has helped me to get my current position, but I am 100% confident that it will assist me as I look for promotion opportunities once I have successfully passed the final paper. The reason I feel so confident about this is because I now have a far better understanding of reporting and can provide valued opinion on a range of accounting topics.

How has the AIA professional accountancy qualification/membership helped you with this?

Without the knowledge and experience I have gained during my recent studies with AIA, I don’t feel that I would have had the confidence to tackle these challenging tasks. I now also have the added incentive of promotion opportunities once I complete my professional accountancy qualification with AIA. This incentive has certainly increased my motivation levels.

More generally, how does the AIA professional accountancy qualification/ membership assist you in your daily role and responsibilities? As I touched on in the previous question, the most important factor for me has been selfAIAWORLDWIDE.COM | ISSUE 108

Thank you Natasa for your insights and thoughts into the AIA and the Achieve programme.

Interview

Natasa Parouti is an Accounts Officer for Seatankers Management Co, based in Cyprus, and is enrolled on AIA’s Achieve programme.

If you are currently a student struggling with exams, perhaps Natasa’s story will inspire you to try a new approach. Enrol onto the Achieve programme today and start your preparations for the upcoming May 2020 exams in earnest. Remember that the sooner you enrol, the sooner you can start reaping the benefits of the AIA Achieve programme. For further information, contact the AIA Study Support Team by emailing: achieve@aiaworldwide.com. ●

STUDENTS

Exam skills Practising skills such as exam technique, time management and planning can help you to do even better in the exam room.

xam success is as much to do with good exam technique as it is to do with good technical knowledge. This article focuses on the time management and planning aspects of approaching narrative questions. This article is written with the Financial Accounting 3 (Paper 13) in mind, but many of the issues discussed are generic and will therefore apply to all papers at all levels.

Narrative answers

Candidates at all levels should always read any exam advice provided by AIA based upon Examiner’s Reports – and the sooner candidates do this in their revision process the better. The Exams Advice is published in the “Document Library” of the website and can be accessed by all candidates. Most exam papers contain questions requiring a mixture of narrative and calculations in the answers. The narrative requirement appears to present the most difficulty to candidates, so the advice outlines a suggested exam strategy that candidates can employ when faced with a question requiring this form of answer. Papers vary in terms of the proportion of the marks given for an essay, or for a discussion or for the provision of advice. Therefore, you should make sure you know the approximate percentage of the marks that each paper gives for questions requiring narrative answers. For example, approximately 30% of Paper 13’s marks will be for a narrative answer. If you ignore this requirement and concentrate your exam time on those questions requiring only calculations, you are effectively trying to gain 50% (the pass mark) by attempting only 70% of the paper. This has the effect of increasing the required pass mark to 71.4%. If you do this, you are making your passing of the exam much more difficult.

Make sure you know the approximate percentage of the marks that each paper gives for questions requiring narrative answers.” ISSUE 108 | AIAWORLDWIDE.COM

STUDENTS

Writing to go here n-caption Photography to go here n-caption

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Time management

When writing narrative answers, you must exercise some control, be self-disciplined and resist the temptation to begin writing immediately. Over enthusiasm to “get something down on paper” often results in rambling, irrelevant and incoherent answers which gain few, if any, marks. Certainly not enough to pass. AIAWORLDWIDE.COM | ISSUE 108

The starting point, as with any answer to any question on any paper, is to calculate how much time to spend on the answer. This is very simple. The available time is 180 minutes and there are 100 marks available. Each mark should therefore take no more than 1.8 minutes (180/100) to achieve. So, if you are faced with a question worth five marks, you should spend no more than nine minutes (5 x 1.8) trying to answer it. In addition, where a requirement is broken down into a number of sub-requirements, calculate the amount of time you need spend on each separate requirement. Don’t forget that the 1.8 minutes per mark includes planning time. It is therefore a good idea to write down the finishing time per requirement on your question paper to ensure that you do not overrun. Once you have allocated your time, make sure that you are ruthless with your time allocation. Do not be tempted to over-run on your time allocation at the expense of another question. It is well known that the first few marks of any question are the easiest to gain, whereas the last

STUDENTS few marks are the most difficult. So, say you have 15 minutes left in an exam and have one question yet to attempt. It is far wiser to spend that time trying to answer a new question – and possibly picking up some of the “easy” marks – than it is to spend the time trying to finish another question and gaining few if any of the “hard” marks. Timed question practice is the key to success. As you are moving closer to the real exam, build up the amount of timed question practice in your revision schedule to develop this key examination skill.

Planning

Once you have calculated the time to spend on a question (as above), the first one or two minutes should be spent planning your answer. There should be four steps to this as follows: 1. Read the scenario slowly and carefully. Try to think “What is the question really about?” Write the heading “Essay Plan” on a sheet of paper. This shows the examiner that this is part of your workings and that you have tried to be professional and rigorous in your approach to your answer. Also, if you run out of time and don’t complete step four below, it shows the examiner the areas you would have discussed had you not run out of time. This can only be of benefit to your mark. Underneath the heading “Essay plan”, write down every issue you can think of relating to the topic and the scenario. Each issue should be described in only one or two words or phrases and no more. Some people write these issues down in a circle whilst others produce a simple list. You can do this in any form you find most useful. 2. Read the question and scenario again and: a. delete from your plan any issues you think are irrelevant to your answer; b. link together any issues which may be similar; and c. add any new issues, if you can think of any, to your plan. 3. Look at your plan and number the issues in the order you will write about them in your answer. 4. Begin writing your answer by discussing each point in turn. Read the command word in the question. If the question asks for a report, make your answer look like a report. If the question asks for advice to be given to, say, directors then produce a heading which states “Advice to directors of…” The aim of producing such a structured approach is to demonstrate to the examiner that you have the requisite skills to act as a professional accountant. The above strategy has two distinct advantages. When writing, you can concentrate solely on the issue you are writing about. Your mind won’t be wandering and trying to think about what you’re going to write next (which often results in rambling, irrelevant and incoherent answers). In addition, your answer will be concise, will stick to the point and, as a result, is more likely to get you good marks.

During your revision periods you should repeatedly practise the first three steps shown above. Use narrative questions from past exam papers and check that your plans are on the right track by comparing them with the examiner’s model answers. However, at this point an important issue arises. Some candidates may believe that they have to produce an answer which is exactly the same as the examiner’s model answer. This is NOT the case. To pass the exam, you do not have to produce the same points as the examiner, although the points do, of course, have to be relevant to the topic and to the scenario in the question. As you are self-reviewing your answer, work on the basis that there will be one mark available for each relevant well-developed point that you have made as a guide to how well you have performed.

Conclusion

Do not ignore the narrative sections of exam questions, since it is very difficult to pass by focusing on the numbers alone. As you become more comfortable with the technical aspects of your studies, start to develop your exam technique skills, through time question practice and answer planning. That way you will be better equipped to put these skills into practice in the real exam. ● ISSUE 108 | AIAWORLDWIDE.COM

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RELX (UK) Limited, trading as LexisNexis®. Registered office 1-3 Strand London WC2N 5JR. Registered in England number 2746621. VAT Registered No. GB 730 8595 20. LexisNexis and the Knowledge Burst logo are registered trademarks of RELX Inc. © 2019 LexisNexis. SA-0519-060. The information in this document is current as of June 2019 and is subject to change without notice.

MONEY LAUNDERING

Suspicious minds David Potts asks how you can harness your suspicious mind to stamp out money laundering. David Potts Director of Operations, AIA

oney laundering is the process by which the profits of illegal activities are disguised and made to appear legitimate. The National Crime Agency estimates that the scale of money laundering impacting the UK annually is in the hundreds of billions of pounds. The impact of money laundering is devastating, but money laundering is not only a crime itself; money laundering is a key enabler of other serious crimes such as modern slavery, drugs trafficking, fraud, corruption and even terrorism. A high quality SAR can provide a critical intelligence resource for law enforcement and be instrumental in identifying money launderers, sex offenders, fraud victims, murder suspects, missing persons, people traffickers, fugitives and terrorist financing. It’s crucial to remember that investigations are often based on multiple SARs, and your report could be the missing piece of the puzzle. Visit www.aiaworldwide.com/anti-moneylaundering-supervision for more information on the red flags of money laundering and your obligations as an AIA member under the Money Laundering Regulations 2017.

SARs overview What is a SAR?

A SAR is a Suspicious Activity Report, a piece of information which alerts law enforcement that certain client/customer activity is in some way suspicious and might indicate money laundering or terrorist financing.

Reason for suspicion

When do I submit a SAR?

As soon as you “know” or “suspect” that a person is engaged in money laundering or dealing in criminal property, you must submit a SAR.

Do I have to submit a SAR?

If you don’t submit a SAR, you may commit an offence if you have “knowledge” or “suspicion” of money laundering activity or criminal activity or do something to assist another in dealing with it. Submitting a SAR provides a defence against committing a money laundering offence.

May I inform a client/customer that I have made a report?

You must not say anything to your client/ customer which leads to an investigation being prejudiced. Once you have submitted your SAR, you should remember your obligations not to

If you suspect that money laundering may be taking place, you are legally obligated under the Money Laundering Regulations 2017 to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA).”

Submitting a SAR provides law enforcement with valuable information on potential criminality. It also protects you, your organisation and UK financial institutions from the risk of laundering the proceeds of crime. By submitting a SAR to the NCA, you will be complying with any potential obligations you have under the Proceeds of Crime Act (POCA) 2002.

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MONEY LAUNDERING make any disclosures which might constitute an offence of tipping off. This comes under POCA 2002 s 333A or the Terrorism Act (TACT) 2000 s 21D. The NCA does not provide or approve standard wording for you to use in such circumstances. It is therefore necessary that you give careful consideration as to how you will handle your relationship with the subject once you have submitted the SAR. This is particularly true if the subject is a client or customer of your business.

What is obtaining a defence against money laundering or terrorist property in relation to SARs?

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Persons and businesses generally, and not just those in the regulated sectors, may avail themselves of a defence against a principal money laundering or terrorist financing offences for a specified future activity that they believe may involve the proceeds of crime. The NCA can provide a reporter with a defence to those offences, and the relevant power is contained in POCA 2002 s 335 (seeking “appropriate consent”) and TACT 2000 s 21ZA (seeking “prior consent”). A reporter can submit a SAR, setting out their suspicion about the activity or the individual, the actual activity for which they seek a defence and details of the proceeds of crime. The legislation gives the NCA seven working days to respond to the reporter, and if the decision is to provide a defence, then the reporter will receive an email with a letter informing them of the decision. Where the NCA decides to refuse the reporter a defence, the activity must not proceed for a further 31 calendar days; or, if earlier, until further notified by the NCA. When the NCA has made a decision to refuse, the reporter will be telephoned with the decision and receive an email with a letter informing them of the decision. Further information is available in a separate document published on the NCA website entitled “Requesting a Defence Under POCA or TACT”. This provides information on the process to be followed and what to expect if you wish to apply to the NCA for a defence.

MONEY LAUNDERING Submitting SARs Who do I send SARs to?

Send SARs directly to the NCA using the SAR Online system. The NCA’s electronic SAR Online system will allow you to submit SARs in a secure and efficient manner and to receive a prompt acknowledgement. The SAR Online system is accessible through a link on the NCA website (www.nationalcrimeagency.org.uk).

Author bio

David Potts is the Director of Operations at the Association of International Accountants (AIA).

How do I register with SAR Online?

You will require a unique email address in order to register for this service, and you can register by internet at the above address. You will be supplied with a password by email. When your account has been activated, you will be able to login, complete and submit SARs. (See bit.ly/2pkBwsc for more information.)

SARs Reform Programme

To ensure that the UK can address its economic crime threats, it is vital that the capabilities of the public and private sectors remain robust and fit for purpose. However, the ever-changing and multifaceted nature of the economic crime threat increases this challenge. The Financial Action Task Force’s Mutual Evaluation Review (MER) of the UK in 2018 (see bit.ly/2JAU3am) recognised that the SARs regime delivers significant outcomes against economic and wider crime, including terrorist financing and money laundering investigations and asset recovery results. Considering the scale of the threat faced by the UK, it is paramount that this system works as effectively as possible to produce the high quality financial intelligence necessary to detect and disrupt economic crimes. The Financial Action Task Force’s MER recommended that the UK reform the SARs regime and the UK Financial Intelligence Unit (FIU) as a priority. The UK government’s Economic Crime Plan (bit.ly/2pmJ9OR), published in July 2019, highlighted an objective to strengthen the capabilities of law enforcement, the justice system and private sector to detect, deter and disrupt economic crime. SAR intelligence was the foundation of a money laundering charge and assisted in identifying the conduit of funds of a company owned by the subject to other accounts held by the subject which were then drawn in cash to the extent of approximately £2 million. The main subject was convicted of numerous offences and received a prison sentence. Confiscation proceedings are underway.

A subject had opened multiple current accounts in quick succession and was using these to launder funds on behalf of others. SARs identified the criminality and caused an investigation to commence. Subsequent enquiries have identified that the subject has used false instruments in order to open some of the accounts identified. Enquiries are ongoing.

As part of this ambition, it was recognised that the system surrounding the reporting of suspicious activity required significant enhancement. Innovative solutions are necessary to make use of the vast quantities of data and information now available to the public and private sectors. The SARs regime is a critical aspect of the UK’s system for combating economic crime: the SARs Transformation Programme, led by the Home Office, aims to fundamentally reform the SARs operating model and deliver a regime with much better IT, enhanced feedback and a reformed UKFIU. Overall, the government is committed to making the environment as difficult as possible for criminals to operate, while allowing business and society to prosper. AIA has been working with this process to ensure that the UK has a good understanding of the current collective capabilities for combating economic crime so that together we can develop and deploy the right capabilities at the right time. It is a key priority to ensure that the technologies that enable the transaction processes and suspicious activity reporting mechanisms are convenient enough for customers and reporters to use, agile enough to identify economic crime and robust enough to prevent it before it has taken place.

Further information and guidance

You can find further information on how to submit a SAR on the NCA’s website and download guidance for submitting quality SARs. Log in to the secure AIA members area to access documents and advice including: ●● AML Guidance for the Accountancy Sector; ●● Member in Practice Handbook; and ●● AML templates and guidance. ● ISSUE 108 | AIAWORLDWIDE.COM

CONSULTING SERVICES

The tailored approach Mark Smith debates the merits of specialist consultancies vs the ‘Big Four’ Mark Smith Partner, Ayming

ur lives are becoming more personalised. Whether it’s streamlining our online banking experience, improving our healthcare, or even just refining our Netflix recommendations, personalisation is at the heart of transforming our daily lives. People have come to expect tailored service. But whilst we may be benefiting from it individually, big businesses are only just starting to wake up to the opportunities presented to them by personalisation. And nowhere is that truer than with consulting services. Since the early 2000s, the “Big Four” have enjoyed near total dominance in the sector, with the vast majority of the FTSE 250 still serviced by these companies in one capacity or another, whether that be auditing or consulting. It’s true the “Big Four” are predominantly seen as a safe option for a decent service and can provide the full suite of consultancy offerings that a large company might need. But now a perfect storm of contributing factors means that the dominance of the old guard is being challenged, with new opportunities emerging for disruptor consulting firms where once there were barriers to entry.

Public concern

Firstly, there’s an image problem. In recent years, the “Big Four” have been roped into a series of corporate scandals. The genesis of these incidents goes back to ENRON in 2001. More recently, KPMG came under fire after Carillion – a huge multinational construction and facilities management provider – collapsed in early 2018. In the aftermath, in a move to regain public trust, KPMG stopped providing consulting services to its audit clients. And, with this, EY and PwC soon followed suit. However, this wasn’t a case of “problem solved”. Just last month, PwC had to pay a £6.4 million fine to US regulators after improper auditing conduct, and Deloitte partners faced a tribunal in the UK for similar reasons. These scandals continue to crop up, and do no favours for the collective reputations of these firms.

In response, the UK’s Competition and Markets Authority (CMA) released a study into the state of audit among the “Big Four”. The watchdog concluded that many audits were below regulatory standards and outlined some suggestions on how to make the market more transparent, including halting profit sharing between audit and consultancy. Equally, the Financial Conduct Authority (FCA) has waded in a number of times, raising similar concerns. To add to this, diversity is another area where the “Big Four” have come under the spotlight. Gender pay gaps in these firms are substantial, and it’s high up on the public and political agenda as a problem. Two former KPMG partners recently set up a new firm that vows to “allow minorities and women who walked out of the market to feel like they want to work in it”. The diverse culture and pay parity they’re offering is also threatening to take staff away from the “Big Four”. There is a cultural shift taking place and employees do not necessarily look for the same things they did 20 years ago. Flexible management approaches and social culture will go far in attracting and retaining talent. Whichever way you look at it, it’s clear the status quo is being challenged and there is a growing discourse for breaking up the “Big Four” to allow for a more competitive marketplace.

New market dynamics

While there are potential challenges from the CMA and FCA, other factors are also at play. ISSUE 108 | AIAWORLDWIDE.COM

CONSULTING SERVICES The challengers

People have come to expect tailored service. But whilst we may be benefiting from it individually, big businesses are only just starting to wake up to the opportunities.”

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So, how do smaller specialist firms compete against the “Big Four”? Although they can’t provide a large company with the full suite of auditing and consulting services, there is no doubt that they can provide services that the bigger firms can’t. Consultants at these firms delve deeper into their area of expertise and discover what it is that their clients really want and need. In the modern landscape, this presents an opportunity as specialised firms can offer focused expertise in their specific sectors or areas of business. For example, in the case of R&D tax credits, businesses need to ensure they are applying for credit on all costs relating to R&D. Hidden costs are often overlooked but a specialist consultancy will be better equipped to ensure that applications have the maximum possible impact. Smaller firms also have the benefit of agility. As a rule of thumb, they are likely to perform quicker and to offer more innovative solutions because they have a close-knit expert team which knows the job inside out. Similarly, as they are smaller, these consultancies also have fewer hoops to jump through internally, meaning they can often move quicker and offer more creative, innovative solutions for their clients. Fundamentally there is less hierarchy, so business decisions can be made swiftly. People trust the services of the “Big Four”, but as more scandals come to light, it seems inevitable that alternative options will become more appealing, challenging the notion of the industry’s household names being the best.

Looking ahead

Consumers are demanding more personalised services across the board. In banking, for example, challenger banks like Monzo, which takes individual data to advise on how best to save money, is growing its share of the retail banking market. Similarly, in retail, online services such as Thread offer each shopper a personal stylist to pick out the best item. It’s a new age of bespoke services and is increasingly expected by customers. It’s the same with consulting services. There are now more consultancies out there focusing on particular fields which are challenging the status quo. All the while, the “Big Four” have been distracted by their recent scandals and the ensuing regulatory scrutiny, so are only now waking up to this threat. The “Big Four” do have their own specialist teams, but the sheer size of these organisations means they lack agility; they can’t match the focused expertise of specialist consultancies. To add to this, the “Big Four” offer a broad range of services and, as a result, they look to upsell to clients and support a business in several ways. Simply put, they can often act as “Jacks of all trades” as opposed to masters of one. AIAWORLDWIDE.COM | ISSUE 108

Author bio

Mark Smith is a partner of Innovation Incentives at Ayming UK & Ireland. He previously worked as a director at KPMG.

All this does not necessarily mean that the success of the “Big Four” will diminish. Recently, regulations have come into place which demand that businesses rotate their accountancy firms on a semi-regular basis in an effort to challenge the traditional dominance of the “Big Four” and ensure that compliant work continues in the marketplace. But that’s only a small step and, despite wider calls to break up this oligopoly, a full break up seems unlikely. As it stands, the “Big Four” will likely continue to grow but their success will be checked by specialist consultancies offering a better service for a more specific need. In the age of personalisation, specialist consulting firms are in demand as clients begin to see the benefits of working with consultants who understand their business and their goals, whilst also providing a more attentive, bespoke experience. The “Big Four” are, by their nature, not going to be the best at everything they do and specialist providers offer something they can’t. What the “Big Four” lack is the focus to offer true personalised, specialist advice; they dominate in terms of reach, but not in scope. Change is afoot and, as is the case in so many industries at the moment, “evolve or die” is the motto that larger consultancies ignore at their peril. ●

TECHNOLOGY

Six technical solutions Conor McArdle sets out six technical solutions that can enhance your SME.

Conor McArdle Opus Energy

ecent studies have shown that as many as 65% of small and medium sized businesses are losing time and money through failing to adopt technology and use it to its full potential. Although the large majority of SMEs use the internet for business purposes, including online banking and emailing customers, many of these owners have admitted to not possessing basic digital skills and knowledge beyond this. This is despite a proven correlation between digital skills and a high business turnover. So why wouldn’t an SME want to adopt a few simple tools to help streamline their business processes? Here are six tech solutions for helping business owners save both time and money.

1. Get a project management tool

Being able to stay on top of your workload is important, but when you’re juggling 20 different tasks, it’s easy to lose track of where you are.

There are lots of handy online tools to help you manage projects more efficiently. For example, the project management tools Trello and Asana both use the Kanban methodology, a production-line style approach which enables you to see what work you need to complete and when, balancing demands with available capacity and improving the handling of bottlenecks. This can help you stick to deadlines, keep your priorities organised and ensure nothing gets forgotten or dropped.

2. Make the most of the cloud

It’s been argued that the one of the biggest impacts on businesses over the last few years has been the introduction of cloud technology, but not everyone is reaping the benefits yet. In the past, people would use programs on their computers or building servers to do their work, but cloud-based software allows you to access the same programs through the internet. As long as you have an internet connection,

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TECHNOLOGY and that of your team, whether that be in your specific sector or more general business updates. In an ideal world, we would attend all of the seminars, meetings and training events possible, but these can be costly and time consuming. However, self-paced training and online business training programs, which are often free, are the ideal way to expand your know-how from your own office. There are various business training resources that will cover everything and anything you need to research and educate yourself on, so get familiar with these tools and pick the right options for you and your team. Don’t forget podcasts either; they can be a great source of entertainment, but they are also a viable tool for education, and you can listen at any time, even on the commute.

4. Share your calendar with everyone

Finding a time that works for you and a supplier, a new client or even a lunch date with friends can often be an exercise of email tennis, with dates and times suggested back and forth over email for weeks before anything is set in stone. Using online calendars will allow others check your availability for meetings. This not only takes the management of your calendar out of your hands but will save everyone a lot of admin time and hassle.

5. Digitalise your invoices

3. Train yourself and your employees online

As a small business owner, it’s vital to continue to develop and expand your own knowledge

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6. Track every second of your time

Whether or not you bill customers and clients by the hour, there is much to be gained from keeping track of where you and your team’s time goes each day. This not only ensures you bill those who pay by the hour, but helps you spot where you can be more time efficient, and which tasks are taking up too much of your time. Like bookkeeping tools, there are many of these time-tracking tools available so be sure to select one which will integrate easiest into your day to day activity.

Author bio

Conor McArdle works at Opus Energy for three years, producing business-boosting advice for Opus Energy’s small business customers.

you can complete your work anywhere, and whenever it suits you. Cloud software like Office 365 allows multiple users to simultaneously collaborate on the same document, without creating multiple versions. Users can see changes in real time, including who has made what changes, which saves time as you don’t have to wait for other people to finish editing before you can start. At the same time, it’s easier to protect sensitive information and prevent data loss with cloud-based software. For example, Office 365 has advanced security features to safeguard your data. From encrypted emails to mobile device management and threat intelligence, you can be confident that your data and intellectual property is well protected.

When it comes to getting paid, the easiest way to track and log your finances is online. There are currently several companies offering similar invoicing services, so businesses need to do their research to ensure that the chosen system will complement their working methods and will be adaptable to their business. In fact, a digitalised and streamlined online invoicing service may be an appropriate alternative for your business that allows you to manage your billing process more quickly and more proficiently.

It might not be possible to adopt all of these solutions for your business, and some may not be relevant. But for businesses, time is a great commodity; freeing some time and saving money can go a long way to building a more lucrative and sustainable business. ●

CODE OF ETHICS

A stronger code

Stephen Chan considers the key areas of focus for auditors, following the enhanced the Conceptual Framework in IFAC’s 2018 Code of Ethics.

FAC issued a completely rewritten, revamped and restructured International Code of Ethics for Professional Accountants (including International Independence Standards) of the International Ethics Standards Board for Accountants (IESBA), in April 2018. The revised Code (2018 Code) has become effective from 15 June 2019.

Fundamental Principles and Conceptual Framework

The 2018 Code retains the existing Fundamental Principles: ●● integrity; ●● objectivity; ●● professional competence and due care;

●● confidentiality; and ●● professional behavior. It also retains the existing categories of threats to these Fundamental Principles: selfreview, self-interest, advocacy, familiarity and intimidation threats. The overarching requirements for accountants to apply the Conceptual Framework to comply with the Fundamental Principles and, where applicable, be independent are unchanged. However, the 2018 Code has enhanced the Conceptual Framework with extensive revisions to “safeguards” throughout the 2018 Code that are better aligned to “threats” (see Diagram 1).

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Stephen Chan BDO Hong Kong

CODE OF ETHICS Key changes

The 2018 Code contains five key changes for auditors: 1. a new separate independence section; 2. strengthened independence requirements; 3. strengthened provisions relating to the offering and accepting of inducements; 4. new materials to emphasise the importance of understanding facts and circumstances when exercising professional judgment; and 5. new materials to explain how compliance with the Fundamental Principles supports the exercise of professional skepticism.

Diagram 1: An Enhanced Conceptual Framework Confidentiality

Objectivity

professional Behavior

Integrity

THE CONCEPTUAL FRAMEWORK

Professional Competence and Due Care

Independence

1. New separate independence section

and acts in f

informed th le and rid p nab art o s a yt re es e h t t e

cicumstance

AIAWORLDWIDE.COM | ISSUE 108

Evaluating Threats

Long association of audit personnel and rotation requirements IFAC has previously issued the enhanced independence provisions relating to long association of audit personnel, which contain a number of substantive improvements, including a strengthened partner rotation regime for audits of PIEs. The 2018 Code has improved these long association provisions with clearer requirements and safeguards and fortified provisions. However, these revisions do not change the substance of the long association provisions.

Identifying Threats

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Recruitment services The 2018 Code establishes a new description of recruiting services and clarifies the types of recruiting services that accountancy and audit firms and network firms are prohibited from providing to their audit clients. One of these prohibitions relates to searching for or seeking out candidates and undertaking reference checks of prospective candidates for directors or officers of the entity, and for senior management in a position to exert significant influence over the affairs of the clients, which is now extended to all entities. It no longer applies to only audits of public interest entities (PIEs), unlike the old Code.

Addressing Threats

2. Strengthened independence requirements

professional judg em rcise e x en E t

new infor lert for ma in a tio n ma an Re d

The 2018 Code consistently reminds accountants to be independent when performing audit, review or other assurance services. The independence rules always have been part of the Code, but they have now been moved to a new section, International Independence Standards, which is divided into two subsections: ●● independence when performing financial statement audits and reviews (Part 4A); and ●● independence when performing all other assurance services (Part 4B). There are also new and improved provisions helping accountants to apply the Conceptual Framework when dealing with threats to independence in various contexts (see Diagram 2 for the new structure of the 2018 Code).

The new cooling-off period is five years for engagement partners, three years for engagement quality control reviewers, and two years for all other key audit partners (see Diagram 3 for an overview of the cooling-off periods).

The 2018 Code consistently reminds accountants to be independent when performing audit, review or other assurance services.”

3. Strengthened provisions relating to offering and accepting of inducements

The new Code clarifies the meaning of inducements and introduces a more robust and comprehensive framework, which clearly delineates the boundaries of acceptable inducements and guides the behaviours of accountants in all situations involving inducements. The 2018 Code introduces a new intent test that prohibits the offering or accepting of inducements where there is actual or perceived intent to improperly influence the behaviour of the recipient or of another individual.

CODE OF ETHICS Diagram 2: New structure of the 2018 Code

PART 1

Complying with the Code, Fundamental Principles and Conceptual Framework (Sections 100 to 199)

PART 2

Professional Accountants in Business (PAIBs)

PART 3

(All Professional Accountants)

Professional Accountants in Public Practice (PAPPs)

(Sections 200 to 299)

(Sections 300 to 399)

(Part 2 is also applicable to individual PAPPs when performing professional activities pursuant to their relationship with the firm)

PARTS 4A & 4B

International Independence Standards

Part 4A—Independence for Audits & Reviews

(Sections 400 to 899)

Part 4B—Independence for Assurance Engagements Other then Audit & Review Engagements

(Sections 900 to 999)

GLOSSARY

(All Professional Accountants)

Diagram 3: Cooling-off periods 5-year cooling-off for engagement partner

Prohibition on acting as client relationship partner during cooling off

3-year cooling-off for EQC reviewer

Additional restrictions on permissible activities during cooling-off

Technical consultations during cooling off prohibited

Strengthened general provisions

4. New materials to emphasise the importance of understanding facts and circumstances when exercising professional judgment

The 2018 Code highlights the importance of professional judgment in identifying, evaluating and addressing threats in order to make informed decisions, and to obtain an understanding of specific facts and circumstances, including the nature and scope of the professional activity or service; and the interest and relationship involved. New materials have been added to the 2018 Code to help accountants better understand what to consider in exercising professional judgment. For example, the 2018 Code explains that among other matters, exercising professional judgement involves a consideration of whether: ●● there is reason to be concerned that potentially relevant information might be missing from the facts and circumstances known to the accountant; ●● there is an inconsistency between the known facts and circumstances and the accountant’s expectations;

The 2018 Code provides new materials on exercising professional skepticism.” ●● the accountant’s expertise and experience are sufficient to reach a conclusion; ●● there is a need to consult with others with relevant expertise or experience; ●● the information provides a reasonable basis on which to reach a conclusion; ●● the accountant’s own preconception or bias might be affecting the exercise of professional judgment; and ●● there might be other reasonable conclusions that could be reached from the available information. The new materials relating to professional judgment are intended to make more explicit procedures that accountants should already be doing under the old Code, and it is expected that individuals will be able to exercise professional judgment in a more consistent manner.

5. New materials to explain how compliance supports the exercise of professional skepticism

Author bio

Stephen Chan is a director of BDO Hong Kong, and is Head of Risk and Chairman of the Risk Management Committee.

The 2018 Code provides new materials on exercising professional skepticism, which applies only in the context of performing audits of financial statements, and illustrate how an accountant’s compliance with the Fundamental Principles supports the exercise of professional skepticism. The views expressed in this article represent the personal views of the author only, and are a highlevel summary of the requirements for reference and discussion purposes only. They are not meant or intended to be a professional or legal advice. ● ISSUE 108 | AIAWORLDWIDE.COM

Events FACE TO FACE WWW.AIAWORLDWIDE.COM/EVENTS

We are busy finalising details of our CPD events for 2020, but please make a note of the following dates and full details will be published on the AIA website and in future issues of International Accountant. See http://www.aiaworldwide.com/events for further details.

LONDON 4 February 2020 Seminar 21 April 2020 Conference 19 May 2020 Seminar 8 September 2020 Conference 3 November 2020 Seminar

MANCHESTER 6 February 2020 Seminar

23 April 2020 Conference 21 May 2020 Seminar 10 September 2020 Conference 5 November 2020 Seminar

DUBLIN 10 March 2020 Conference 9 June 2020 Conference 3 September 2020 Conference

8 December 2020 Conference Dublin Venue: Camden Court Hotel, Camden Street Lower, St Kevin’s, Dublin

CONTINUING PROFESSIONAL DEVELOPMENT Here is a guide to the AIA’s requirements for CPD, who these apply to and what you have to do to comply with our annual requirements. As we start a new membership period, it is useful to remind all members what the AIA’s Continuing Professional Requirements are. Like many professionals, as an AIA member you are required to complete Continuing Professional Development (CPD) throughout your career. Who has to do CPD? All AIA Associate, Fellow and Academic members are required to complete CPD on an annual basis. If you’re fully retired and undertake no accountancy work, you will be exempt from the CPD requirements, but you should contact AIA Membership Services to confirm your status. How does CPD benefit you? CPD is an investment that you make in yourself. It’s a way of planning your development that links learning AIAWORLDWIDE.COM | ISSUE 108

directly to practice. CPD can help you keep your skills and knowledge up to date and ensures the professional standard of your qualification is maintained. CPD can boost your confidence, strengthen your professional credibility and help you to become more creative in tackling new challenges. What do you have to do? To meet our CPD requirements you must: ●● complete at least 20 units of verifiable CPD each year; ●● complete at least 120 units of CPD over a rolling three-year period; ●● keep your online CPD record up to date; ●● complete your annual CPD declaration on 1 October every year; and ●● keep evidence supporting your CPD record for each rolling three-year period (in case you’re selected for a review). Acceptable evidence in support of your CPD Record can include:

●● course outlines and teaching materials; ●● attendance record, registration forms, or confirmation of registration forms; ●● independent assessments that a learning activity has occurred; ●● confirmation by an instructor, mentor or tutor of participation; and ●● confirmation by an employer of participation in an in-house programme. Our approach to CPD is in line with IES 7, the International Education Standard for CPD, set by the International Federation of Accountants (IFAC). Help and support You can find more in-depth information about our CPD requirements and how to approach your CPD planning in our CPD Guide, which can be downloaded from the Related Documents panel. If you have any questions or any concerns about your CPD, please contact Membership Services.

Technical INTERNATIONAL

Enhancing corporate reporting to meet the needs of investors and other stakeholders The International Integrated Reporting Council’s meeting, hosted by IFAC, comes at a seminal moment for corporate reporting. To be accountable to their stakeholders, organisations need to provide a clear and concise picture of their ability to create sustainable value over time. At the same time, rapid change and disruption, driven by climate change and technology, are forcing businesses to reconsider their approach to value creation and reporting. Over the past decade, the corporate reporting landscape has become a mosaic of mandatory and voluntary disclosures under various

standards and frameworks. The result is complexity and reporting that fails to meet the needs of investors and other stakeholders. Convergence towards relevant, reliable and comparable narrative information and metrics is desperately needed. Integrated reporting meets today’s expectations for corporate accountability and transparency. IFAC’s partnership with the International Integrated Reporting Council aims to support organisations in developing reporting and thinking that properly considers long-term opportunities and risks. To address the future of reporting, and the role accountants must play in

it, IFAC has published its Point of View on enhancing corporate reporting. Also published on the Gateway is an article from IFAC CEO Kevin Dancey and IIRC Interim CEO Charles Tilley, which highlights the evolving role of CFOs and finance teams in accounting for value creation. IFAC is determined to support this evolution through an integrated value creation agenda. Accountants have a key role to play in this future and must work to drive corporate reporting that meets the demands of the present and the future. This is an enormous opportunity that the profession must seize now.

INTERNATIONAL

assurance and investigation and discipline. ●● 76% of IFAC member organisations have some level of authority in adopting international standards and best practices.

leaders from government, academia and business, is required to extend the adoption success story by creating the right conditions for implementation. “International standards have come a long way since 2000 when there was little to no global adoption. While there is always more to be done, IFAC member organisations play a vital role in ensuring the successful implementation of international accountancy standards, which ultimately help drive sustainable economic growth and financial market stability in their respective jurisdictions,” said Dancey.

New report highlights accountancy profession as key driver of progress in adoption of international standards In celebration of World Standards Day, IFAC (International Federation of Accountants) has released a new report detailing how and where international accountancy standards – which focus on audit and assurance, ethics, education, and private and public sector accounting – are being adopted and implemented globally. The report, which includes data from the more than 170 professional accountancy organisations that comprise IFAC’s membership, shows strong and sustained support for both the adoption and implementation of international standards, especially in areas where IFAC member organisations are involved in the process from start to finish. The International Standards: 2019 Global Status Report reveals: ●● More than 90% of jurisdictions examined use International Standards on Auditing, International Financial Reporting Standards, and the International Code of Ethics for Professional Accountants. ●● More than 80% of jurisdictions examined have monitoring and enforcement mechanisms for quality

IFAC member organisations are instrumental in ensuring high quality standards’ implementation through advocacy, raising awareness, technical support, translation, training and enforcement. The report also shines a light on the important and often untold story of how standards are adopted and implemented – a process that can be as complex as developing a standard. “Since there are no international laws requiring nations to adopt and implement international standards, support from IFAC’s member organisations for these dual objectives is critically important to progress,” according to IFAC’s CEO Kevin Dancey. “This new report reinforces the impact of standards in driving transparency and creating a common language for high quality financial information.” According to the new report, there is a positive trend in international standards’ usage where IFAC member organisations have at least some authority in the standard setting and regulatory environment. However, additional multi-stakeholder support from international policymakers and regulatory organisations, as well as

IFAC launches “future-fit” series to address changing role of accountants in business With a changing and uncertain business environment, chief financial officers (CFOs) and finance functions must evolve to sit at the heart of decision making within their organisations, according to a series launched by IFAC (the International Federation of Accountants). The series includes: ●● a vision for the CFO and finance function; ●● future-fit accounting roles for the next decade; and ●● an evaluation tool to help guide organisations in finance function transformation. ISSUE 108 | AIAWORLDWIDE.COM

Technical With more demanding customers and societal expectations, achieving long-term value creation and success has never been more challenging for businesses. The CFO and finance function of today and tomorrow needs to provide information and analysis that supports decisions about all aspects of an organisation’s business model and value creation. As business partners, they need to communicate how value is created today, how it will be created in the future, and if profitability is sustainable. “The finance function cannot survive as a support or back-office function and must do more than account for the balance sheet,” said Kevin Dancey, IFAC CEO. “As business models evolve and uncertainty increases, CFOs and their finance teams are uniquely situated to provide the information that powers decision making for long-term value creation.” To be at the heart of decision making, effective CFOs and finance functions must deliver: ●● actionable insights to support strategic and operational planning and decisions; ●● performance analysis to steer the organisation toward achieving objectives, targets, and long-term profitability, as well as to ensure alignment between strategy, planning and delivery; ●● enterprise risk management to manage uncertainty, opportunities and risks in the context of business objectives and the external environment; ●● effective communication and storytelling on all aspects of an organisation’s business model and value creation; ●● trust and confidence in the governance of the organisation, and in the quality of data, processes, systems and reporting through adequate control and security; and ●● integrity and professionalism to encourage ethical behaviour and decision making throughout an organisation to ensure sustainable value creation. It is incumbent upon various stakeholders – organisations, professional accountancy organisations (PAOs) and individuals – to help prepare future-fit accountants in business. For organisations, developing a finance function vision will help to identify the enablers of change and AIAWORLDWIDE.COM | ISSUE 108

ensure that the finance function is fit-for-purpose to partner with the business. IFAC’s evaluation tool is meant to help boards and management teams to identify strengths and areas of improvement for their finance team. For PAOs, there are three priority areas to develop future-ready accountants in business: engaging accountants in business and their employers; advancing accountancy education; and promoting the value of the accounting profession.

UK AND IRELAND FRC expects companies to expand discussion of new leasing standard in annual reports and accounts Companies applying the new standard on lease accounting need to provide more information on its effects, according to a new report by the Financial Reporting Council (FRC). The FRC has reviewed the interim reports of 20 companies applying International Financial Reporting Standard 16 (IFRS) “Leases” for the first time. The FRC found a number of examples of better practices, which tended to be those disclosures that were tailored to the company’s circumstances and provided more than the minimum requirements. As required by IFRS, companies are expected to provide more information in their annual reports and accounts to help stakeholders better understand the effect of the new standard. This should include: ●● information about key accounting judgments made; for example, on the identification of lease, or on assessing their length; ●● clearer explanations of the specific transition choices made; ●● a detailed reconciliation between the operating lease commitment under the previous standard and the new lease liability, with clear explanations for reconciling items; and ●● where companies use alternative performance measures to help users of the accounts to understand the effect, these measures should be properly labelled, reconciled and explained, and not give more prominence than the IFRS measures.

Auditors need to improve their challenge of management urgently Audit quality is still not consistently reaching the necessary high standards expected, according to the Financial Reporting Council’s (FRC) “Developments in Audit” report, particularly when challenging management and performing routine procedures such as revenue recognition. High quality audit is essential to ensure confidence in financial reporting by UK companies. The FRC is working with audit firms to ensure that quality improves and will hold firms to account where remedial action is not taken to an appropriate level or on a sufficiently timely basis. AQR inspection reports show that auditors continue to struggle most with challenging management sufficiently, especially in more judgemental areas, such as long-term contracts, goodwill impairment or the valuation of financial instruments. The inherent uncertainty and high potential financial impact of these issues mean the importance of robust, specific and independent challenge is vital. Other shortcomings were identified in more routine audit procedures – notably in relation to revenue recognition, which is typically a key metric considered by users of financial statements. The FRC’s executive director of supervision David Rule said: “At a time when the whole audit market faces reform, we expect audit firms to make audit quality their number one priority and to have effective programmes of work to deliver consistently high standards. “Inconsistent quality erodes confidence in the profession, which can lead to diminished trust in business. Stakeholders and investors rightly demand high quality work on all audits. While we see many examples of high quality audit, our inspectors are still identifying too many audits which require significant improvements. Inspections show that challenge of management is a particular area of concern on which audit firms need to focus. The FRC will continue to scrutinise these efforts and hold firms to account for their delivery.” This year’s Developments in Audit also spotlights the FRC’s assessment of auditors’ work on internal controls. The FRC found too many auditors were not properly identifying relevant controls

Technical in areas of significant risk or were not adapting their audit approaches sufficiently when controls were found to be deficient. The FRC review also highlights that when a poor quality audit is identified, audit firms’ current root-cause analysis and response procedures may not have been designed, executed or acted upon sufficiently to facilitate a systematic improvement in audit quality. A closer analysis of inspection results also revealed: ●● year-on-year familiarity with audited entities can lead to the same audit approach being followed even when changes in the business or trading environment demand a different strategy; ●● too often, audit teams appear prepared to accept what management tells them rather than questioning its plausibility and drawing on specialists to form their own view; and ●● audit teams too regularly accept unrealistic deadlines resulting in inadequate work. Sir John Kingman’s independent review of the FRC recommended the publishing of summary versions of individual audit quality inspection reports, including gradings. The FRC intends to pilot publishing these reports with the consent of companies and audit firms, starting with the 2020/21 inspection cycle. Over the past two inspection cycles, the FRC’s Audit Quality Review team has referred 17 audits for potential enforcement action and investigations have been opened in ten of those cases. And in the past year, the FRC’s wider enforcement activity has seen a near trebling of fines from £15.5m in 2017/18 to £42.9m in 2018/19, and a far greater use and range of nonfinancial sanctions, rising from 11 in 2017/18 to 38 in 2018/2019.

Call for participants: disclosure of business models, strategy and the longer term The Financial Reporting Lab (the Lab) is inviting investors and companies to participate in a new project on the disclosure of business models, strategy and the longer term. The context for the project Investors and other stakeholders are increasingly looking for information

from companies about how they will evolve, adapt and respond over the longer term to changes in the external business environment. Changes range from the large scale disruption that might be caused by climate change to short and medium term changes driven by political, technological or social factors. The Lab’s recent reports on climate-related disclosures, viability statements and risk reporting show that companies often struggle to communicate a clear longer term narrative which reconciles the multiple time horizons companies use. To support companies in better meeting the needs of investors and stakeholders, the Lab is launching a series of projects focused around integrating longer-term time horizons into reporting. The Horizons project will cover critical interconnected reporting topics and form a body of practical guidance for companies. The first reporting topic will be disclosures on business models, strategy and the longer term. The project will consider what users want from business model and strategy disclosures and how companies might best communicate the longer term. The scope of the project will develop, considering the contribution from those that participate. However, it is likely to: ●● explore how companies develop, monitor and communicate their business model and strategy; ●● examine how companies include a longer-term focus in their reporting; ●● consider how companies communicate uncertainty in their disclosures; ●● analyse how investors use this information in their decision making process and identify whether emerging reporting meets investor needs; ●● discuss which areas of reporting are most challenging for companies; ●● consider the extent to which UK companies can learn lessons from emerging international reporting practice; and ●● highlight best practice in current company reporting. Participation The Lab invites investors and companies to nominate their interest in participating in this first topic of the Horizons project by emailing FinancialReportingLab@frc.org.uk. The opportunities for participation will develop but typically consist of a

combination of individual meetings of an hour and round table meetings of two hours. Participants will be kept updated on the progress of the project throughout and are encouraged to comment on drafts of the report. While early engagement in the project is encouraged, the Lab expects the peak period of participation for companies will be April to July 2020, with a final report likely to be published in autumn 2020.

FRC sets out expectations for corporate reporting to improve trust in business The Financial Reporting Council (FRC) has called for improvements to corporate reporting in an open letter to all audit committee chairs and finance directors. The letter reflects findings from the FRC’s Annual Review of Corporate Reporting 2018/19 and the scope for companies to improve their reporting to address matters of increasing concern to investors and enhance public trust in business. The FRC expects companies to improve the quality reporting of forward-looking information, the potential impact of emerging risks on future business strategy, the carrying value of assets and the recognition of liabilities. Failure to report on these crucial areas undermines trust in business and can lead to the conclusion that management is either unaware of their potential impact, is being opaque, or is not managing them effectively. In times of uncertainty, investors and other stakeholders expect greater transparency of the risks to which companies are exposed and the actions they are taking to mitigate the impact of those uncertainties. The FRC expects companies to think beyond the period covered by their viability statement and identify those keys risks that challenge their business models in the medium to longer term and have a particular focus on environmental issues. The FRC welcomes some improvement in key disclosures of critical judgements and estimates, and alternative performance measures (APMs) as reflected in companies’ strategic reports. It will continue to press companies which do not clearly report the specific judgements they have taken or which do not present APMs clearly in accordance with best practice. ISSUE 108 | AIAWORLDWIDE.COM

Technical The FRC reviewed 207 annual and interim reports for its 2018/19 monitoring activity and conducted three substantive thematic reviews on significant reporting issues, including two new reporting standards. Boards are urged to act on the findings when preparing their year-end reports and accounts. Paul George, executive director of corporate governance and reporting at the FRC, said: “Investors and the general public rightly expect financial reports to be fair, balanced and understandable. This is particularly important in periods of uncertainty where heightened transparency is expected. “High quality reporting by companies, including candid disclosure of the risks they face, supports trust in business.”

Revised and strengthened UK stewardship code sets new world leading benchmark The Financial Reporting Council (FRC) has launched a substantial and ambitious revision to the UK Stewardship Code. The new Code substantially raises expectations for how money is invested on behalf of UK savers and pensioners. In particular, the new Code establishes a clear benchmark for stewardship as the responsible allocation, management and oversight of capital to create long term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society. The new Code is a vital part of the comprehensive revision of the UK’s world leading corporate governance framework that began with the introduction of the new UK Corporate Governance Code in January 2019. The new Code focuses on protecting the interests of UK savers and pensioners by ensuring that their money is managed responsibly with a new emphasis on creating long term value and on considering beneficiary and client needs. It directly addresses the issues raised by Sir John Kingman’s independent review of the FRC in respect of the previous Code. Key changes in the new Code include: ●● An extended focus that includes asset owners, such as pension funds and insurance companies, and service providers as well as asset managers: This will help to align the AIAWORLDWIDE.COM | ISSUE 108

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approach of the whole investment community in the interest of endinvestors and beneficiaries. A requirement to report annually on stewardship activity and its outcome: Signatories’ reports will show what has actually been done in the previous year, and what the outcome was, including their engagement with the assets they invest in, their voting records and how they have protected and enhanced the value of their investments. This greater transparency will allow clients to see how their interests are being served. Signatories will be expected to take environmental, social and governance factors, including climate change, into account and to ensure their investment decisions are aligned with the needs of their clients. Signatories are now expected to explain how they have exercised stewardship across asset classes beyond listed equity, such as fixed income, private equity and infrastructure, and in investments outside the UK. Signatories are required to explain their organisation’s purpose, investment beliefs, strategy and culture and how these enable them to practise stewardship. They are also expected to show how they are demonstrating this commitment through appropriate governance, resourcing and staff incentives.

As well as looking after investments in their portfolios, investors and the service providers that support them play an important role as guardians of financial markets. The new Code also expects signatories to work together with regulators and industry bodies to identify and respond to the risk of market and systemic failure. The new Code will enhance the UK’s position as a destination for long term, sustainable investment and promotes transparency and integrity in business, bringing with it wider benefits for the economy, the environment and society. The new Code, which takes effect on 1 January 2020, builds on the success of the previous Code but sets a substantially higher standard, reflecting the changing expectations of investors and the significant developments in sustainable and responsible investment and stewardship since the Code was last revised in 2012.

Business secretary Andrea Leadsom said: “The government is committed to making the UK the best place in the world to work and grow a business. “This Code is an important piece of work by the Financial Reporting Council under its new leadership. It recognises the essential role of effective stewardship in supporting stronger corporate governance, diversity and social environmental priorities. I urge asset managers and owners to lead by example and sign up.” The FRC’s chair Simon Dingemans said: “This new Stewardship Code marks a step-change in the expectations for investors, their advisors, and how they manage investments for their savers and pensioners. It is an ambitious revision that strengthens the UK’s standards of governance, transparency and clear reporting. We are looking for widespread adoption by the investment community, reinforcing the attractiveness of the UK as a place to do business and delivering real benefits to the economy, the environment and society more broadly.” The FRC’s chief executive Sir Jon Thompson said: “I encourage institutional investors, asset managers and their service providers to sign up to the new Code and demonstrate that they are operating across their businesses to these high standards of stewardship. The FRC will be holding signatories to account by regular review of adoption of the new Code and the quality of the reporting against its principles. Asset owners and beneficiaries will then be able to see if those investing on their behalf are doing so in accordance with their needs and views. They will also be able to see the impact of their managers’ decisions, particularly in relation to environmental, social and governance issues, including climate change.”

IAASA issues consultation paper on proposal to issue Companies Act 2014 s 934 regulations IAASA has issued a consultation paper seeking views with regard to IAASA’s proposal to issue Companies Act 2014 (Procedures Governing the Conduct of Section 934 Investigations) Regulations 2019 (“s 934 Regulations”). The Consultation Paper and draft s 934 Regulations are available on the IAASA website.

Technical IAASA was established by the Companies (Auditing and Accounting) Act 2003 (‘the 2003 Act’). Section 24 of that Act provided that IAASA had the power to conduct investigations into possible breaches of the standards of a prescribed accountancy body (PAB) by a member. IAASA issued Regulations setting out the procedures to be followed in conducting investigations under s 24. The new Companies Act 2014 consolidated Irish company legislation into a single Act. In 2018, the Companies Act 2014 was amended by the Companies (Statutory Audits) Act 2018. The amendments included a number of substantive changes to the provisions relating to the conduct of investigations by IAASA under s 934 (previously s 24 of the 2003 Act), as set out in s 4 of the Consultation Paper. The proposed Regulations have been drafted to reflect the provisions of the Companies Act 2014, as amended, and to amend the operation of the s 934 investigation process to improve its effectiveness and to enable investigations to be conducted and concluded in a more efficient manner. IAASA welcomes comments and views from stakeholders and interested parties by 5pm on 13 December 2019.

IAASA publishes review on the IFRS 16 Leases disclosures within the 2019 half-yearly financial reports IAASA, Ireland’s accounting enforcer, has published an Information Note highlighting the findings of a desktop review on the IFRS 16 Leases disclosures in the 2019 half-yearly financial reports. The purpose of this Information Note is to provide readers with: ●● an analysis of the nature, extent and impact of the information disclosed by issuers in relation to the transition to IFRS 16 Leases in their 2019 half-yearly financial reports; and ●● a comparison of the actual transitional impact of IFRS 16 as disclosed in the half-yearly financial statements with the estimated impact disclosed by the issuers in their prior year annual financial statements. IFRS 16 is required to be applied to annual reporting periods beginning

on or after 1 January 2019. As such, the 2019 half-yearly financial reports are the first financial statements that issuers had to prepare and publish in which mandatory IFRS 16 information was required, including the impact of transition. Overall, IAASA found that issuers provided high quality disclosures regarding their accounting policy for leases and the financial impact of the adoption of the new accounting standard. The most significant impact for issuers’ reported results arising from transitioning to IFRS 16 is that leases previously defined as operating leases under IAS 17 and treated as “offbalance sheet” are now required to be recognised in the Statement of Financial Position as a “right of use” asset and a related lease liability.

ASIA PACIFIC MASB published “interest rate benchmark reform” The Malaysian Accounting Standards Board (Board) has issued Interest Rate Benchmark Reform (Amendments to MFRS 9 Financial Instruments, MFRS 139 Financial Instruments: Recognition and Measurement and MFRS 7 Financial Instruments: Disclosures). The amendments are word-forword Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) issued by the International Accounting Standards Board. About the pronouncement The Interest Rate Benchmark Reform (Amendments to MFRS 9 Financial Instruments, MFRS 139 Financial Instruments: Recognition and Measurement and MFRS 7 Financial Instruments: Disclosures) amends some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform. In applying the amendments, companies would continue to apply those hedge accounting requirements assuming that the interest rate benchmark associated with the hedged item, hedged risk and/or hedging instrument are based is not altered as a result of the interest rate benchmark reform. In addition, the proposed amendments require companies

to provide additional information to investors about their hedging relationships, as investors have been directly affected by these uncertainties in the past. Applying the amendments, companies are not required to apply the MFRS 139 retrospective assessment, but continue to apply hedge accounting to a hedging relationship for which effectiveness is outside of the 80% to 125% range during the period of uncertainty arising from the reform. The amendments shall apply to financial statements of annual periods beginning on or after 1 January 2020. Earlier application is permitted.

Singapore: renewal of certificate of registration by public accountants for 2020 Public accountants who wish to renew their certificate of registration for 2020 are to submit their application for renewal via BizFile+ (www.bizfile.gov. sg), ACRA’s online filing system, from 1 to 31 December 2019 (both dates inclusive).

UNITED STATES FASB delays certain effective dates for credit losses, leases, hedging and long-duration insurance standards The Financial Accounting Standards Board (FASB) has issued two Accounting Standards Updates (ASUs) that finalise various effective date delays for standards on current expected credit losses (CECL), leases, hedging, and long-duration insurance contracts. ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, finalises various effective date delays for private companies, notfor-profit organisations, and certain smaller reporting companies applying the credit losses (CECL), leases and hedging standards. ASU No. 2019-09, Financial Services – Insurance (Topic 944): Effective Date, finalises insurance standard effective date delays for all insurance companies that issue long-duration contracts, such as life insurance and annuities. ISSUE 108 | AIAWORLDWIDE.COM

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