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INTERNATIONAL

Global transparency and exchange of tax information

Significant progress on transparency and the exchange of tax information is being made across the world, according to the OECD’s Global Forum. In its ‘Peer Review of the Automatic Exchange of Financial Account Information 2022’ report, the organisation notes that jurisdictions are automatically exchanging information on 111 million accounts, and are ensuring that financial institutions comply with their legal obligations.

The report contains the first peer reviews with ‘effectiveness ratings’ for the 99 countries and jurisdictions that committed to starting Automatic Exchange of Information (AEOI) in 2017 or 2018. It shows that virtually all jurisdictions have put in place the necessary legal frameworks and successfully started exchanges, and are exchanging information without significant timing or technical issues.

Two-thirds of the jurisdictions ensuring financial institutions are reporting accurate information have been given ‘On Track’ ratings. A further 15 jurisdictions are found to have put in place credible compliance frameworks. The need for further implementation actions led these jurisdictions to be rated as ‘Partially Compliant’. And 19 jurisdictions have been found to have fundamental deficiencies in their frameworks; they have not yet completed the development of their operational frameworks to verify financial institutions’ compliance. They were rated ‘Non-Compliant’.

‘The Global Forum continues to shape the tax transparency landscape,’ said OECD Secretary-General Mathias Cormann. ‘Widening access to financial account information for tax administrations helps ensure everyone pays their fair share of tax, and boosting revenue mobilisation worldwide, particularly for developing countries.’

In 2022, countries automatically exchanged information on 111 million financial accounts worldwide, covering total assets of €11 trillion. Over €114 billion in additional tax revenues have been identified through voluntary disclosure programmes, offshore tax investigations and related measures since 2009.

‘The Global Forum is working to guarantee that all its members are supported to implement the tax transparency standards, and to use them to fight tax evasion and mobilise domestic resources,’ said Maria Jose Garde, Chair of the Global Forum. ‘No jurisdiction can be left behind. This has defined the spirit in which our 165 members work together to keep advancing tax transparency, and it shall continue to be the case.’

CARBON AUDITING

FRC report on good environment for auditing

The Financial Reporting Council (FRC) has published a report on what makes a good environment to stimulate auditor scepticism and challenge. The report also provides examples of good practice from the FRC’s ongoing supervision work.

A critical attribute of an auditor’s mindset and behaviour is exercising professional scepticism and challenge when performing audits. The most significant quality issues identified by the FRC over a number of years involve the inconsistent application of professional scepticism and challenge, resulting in the poor application of professional judgement.

It concludes that four elements are essential to a good environment for scepticism and challenge: the learning environment, the culture and operating model of the audit firm, and the wider ecosystem. An audit firm needs to encourage good practice through a culture that promotes scepticism and challenge, and enable auditors to apply these behaviours in the day-to-day audit work through the firm’s operating model and processes.

The report can be found at: bit.ly/3VnEncZ

Calls for a new carbon accounting standard

Specific accounting standards are urgently needed for new asset types such as certified carbon offset credits, says a new report from Imperial College Business School.

The report, ‘Financial accounting for carbon finance: a new standard for a new paradigm’, shows how emerging global carbon markets and new investable assets make the need for new accounting regulations more pressing in the fight against climate change.

The new accounting standards will also be a major step towards achieving transparency, the researchers said. Despite the lack of clarity around accounting standards, in 2021 global carbon markets grew to a record $851 billion. Accounting standards – particularly around carbon credits – are now widely considered crucial to scaling up carbon markets and achieving net zero by 2050.

To achieve change report author Dr Raul Rosales said there needs to be a rethink on the definition of carbon offsets. Rather than being classed as intangible assets or inventories, carbon offsets should be considered as investable assets used as part of a bank’s offering to corporate clients for ‘offsetting’ and ‘hedging’ purposes.