International Accountant 119 by Association of International Accountants

INTERNATIONAL

ACCOUNTANT SEPTEMBER/OCTOBER 2021 ISSUE 119

The blue economy and the role of natural capital Attractive destinations: Chinese investment in Europe Business stabilisation: addressing the imbalance sheet The Quantum Workforce: the temporary labour market explosion

CONTENTS

In this issue Contributors 2

Meet the team

News and views

AIA news

Making Tax Digital for Income Tax will now be introduced in April 2024 AIA launches a new qualification in business finance

Students 8 AIA’s new Professional Qualification AIA Chief Examiner Emeritus Professor Philip Shrives answers your questions about the AIA’s new professional qualification. Why was it updated? How has it changed? And what improvements does offer to students?

Business stabilisation

How to address the imbalance sheet The consequence of loan scheme initiatives provided by the UK government since the outset of the Covid-19 pandemic has ultimately led to a substantial increase in the level of liabilities on the balance sheets of UK corporates. Martin Gray (Kroll) considers how businesses can restructure the balance sheet to minimise the damage caused by the disruption of Covid-19.

China 20 Chinese investment in Europe For Chinese investors, Europe presents a number of attractive destinations to set up operations or acquire new target entities, as well as markets with which to trade. Hui Gao (TMF Group) sets out key information for those considering some of the most attractive markets.

12 Labour market

Data management

The importance of agility Raymon van Viegen (Visma | Onguard) examines how data is the crucial component to agile financial forecasting and asks how can organisations best plan ahead by using financial data as the crucial component of the planning puzzle.

MTD for Income Tax

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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Time to get ready What should your landlord clients know about Making Tax Digital for Income Tax? With significant changes scheduled in the coming years, they should at least know a few basic facts, so they can start to prepare and minimise impact.

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

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The Quantum Workforce There has been an explosion in the temporary labour market, which has grown by 25% over the last two decades and by 5% over the last 12 months alone. John Whelan (My Digital) asks how businesses can manage the temporary labour market as the nature of work changes.

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Blue economy

Dates for your diary

How finance is catching the blue wave Carolin Leeshaa (KPMG Australia) examines how natural capital is a new finance context for the ocean and the blue economy. While the world’s attention has been caught by the direct terrestrial implications of the green agenda, the “blue economy” has not been prioritised to date. Upcoming events

Technical 28 Global updates

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Editor’s welcome

Contributors to this issue

Editor’s welcome

MARTIN GRAY

Martin Gray is a managing director in the Restructuring Advisory practice, based in the Manchester office. He has over 11 years of financial and business advisory experience and specialises in providing restructuring and turnaround advice to corporates, creditors, sponsors and other key stakeholders. JOHN WHELAN

IA has long promoted the benefits of recognised, high quality, professional qualifications, which – alongside AIA’s robust membership requirements and disciplinary framework – add additional reassurance and protection to the businesses that rely on accountancy services. Central to this is the AIA professional qualification, which has now been independently assessed by the UK National Information Centre (UK ENIC, formerly NARIC) for global qualifications and skills, to ensure that it remains at the appropriately high specification. AIA commissioned the independent evaluation and benchmarking of the updated AIA Professional Qualification, in relation to the Regulated Qualifications Framework (RQF). The overall aim of this benchmarking exercise was to facilitate wider understanding of the comparable educational levels of all three levels of the programme and the AIA International Accountant (IA) designation. UK ENIC concluded that the AIA professional qualification was comparable to a UK Master’s degree or a postgraduate diploma (RQF Level 7),

Rachel Rutherford Editor, IA

which provides external assurance of the high standards at which AIA members operate. You can read more about the AIA’s new professional qualification on page 8 where the AIA’s Chief Examiner explains what has changed and why. Whilst many of us may feel that we are cautiously emerging from the threat of Covid-19, the longer term impact on businesses and finances is still unknown. In this issue, we consider two important issues for businesses in the months ahead: the use of various Covid-19 financial support and its impact on the balance sheet; and the accuracy of financial forecasting in a year that has seen so many unexpected variables. Also in this issue, we also take a look at the ‘blue economy’ and the pivotal role of the oceans in stimulating socioeconomic development as part of a wider transition towards a green global economy. Hui Gao takes a look at a number of key European markets to examine what makes them appealing to investors, while also highlighting some factors or regulations to be aware of. And John Whelan looks at the impact of Covid-19 on the labour market and how businesses can work with the growing trend towards temporary work over the traditional nine to five office hours.

John Whelan is an Experienced CEO with a demonstrated history of working in the accounting industry. An accountant turned software developer, he has been a specialist in the taxation of temporary workers for the last 2 decades and is the co-founder of My Digital CAROLIN LEESHAA

Carolin Leeshaa is the Director, Head of Social & Sustainable Finance at KPMG Australia. Carolin has been at the forefront of global social and sustainable finance, impact investing and environmental markets for over 20 years. HUI GAO

Having previously worked as a risk analyst and accountant in both Asia and Europe, Hui Gao now holds the position of Head of China Desk, International Markets at TMF Group. RAYMON VAN VIEGEN

Raymon Van Viegen is the Chief Financial Officer at Visma | Onguard. An experienced CFO with a demonstrated history of working in the computer software industry, he is skilled in management, risk management, payroll, auditing and finance. ISSUE 119 | AIAWORLDWIDE.COM

News NIC

Making Tax Digital For Income Tax will now be introduced in April 2024 Businesses will have an extra year to prepare for the digitalisation of income tax, HMRC has announced. Recognising the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic, and having listened to stakeholder feedback, the government will introduce Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024. A later start for MTD for ITSA gives those required to join more time to prepare and for HMRC to deliver a robust service, with additional time for customer testing in the pilot. Forming part of the government’s ambition to become one of the most digitally advanced tax authorities in the world, MTD is the first phase of HMRC’s move towards a modern, digital tax service fit for the 21st century. It supports businesses through their digitalisation journey and provides a

digital service that many have come to expect in their everyday lives. Lucy Frazer, Financial Secretary to the Treasury, said: “The digital tax system we are building will be more efficient, make it easier for customers to get tax right, and bring wider benefits in increased productivity. But we recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so.” MTD for Income Tax will now be mandated for businesses and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024. General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future. Eligible businesses and landlords will have the opportunity to gain the benefits of MTD early by signing up to

Lucy Frazer

the pilot, which is already underway and will be gradually expanded during the 2022/23 tax year, ready for larger scale testing in 2023/24. HMRC will continue to work in close partnership with business and accountancy representative bodies and software developers to ensure taxpayers are well supported as they adopt MTD for ITSA.

HONG KONG

Hong Kong ranked third in the latest Global Financial Centres Index (GFCI) Report, up by one place from the last index, the Hong Kong government said. The GFCI Report, which assessed 116 financial hubs, was published by Z/Yen from the UK and the China Development Institute from Shenzhen. In a statement, the government said Hong Kong’s ranking is an unequivocal affirmation of its status and strengths as a leading global financial centre. It noted that Hong Kong has remained among the top in various areas of competitiveness, including human capital, infrastructure, financial sector development, and reputational and general. The government pointed out that Hong Kong’s financial markets have been functioning in an orderly manner, despite the fact that persistent AIAWORLDWIDE.COM | ISSUE 119

uncertainties stemming from the Covid-19 pandemic and heightened geopolitical tensions continued to affect major financial centres’ overall ratings. It added that the National 14th FiveYear Plan expresses staunch support for Hong Kong to strengthen its functions as a global offshore renminbi business hub, an international management centre and risk management centre, as well as to deepen and widen mutual access between the financial markets of Hong Kong and the mainland. The government explained that it will continue to capitalise on the city’s unique advantages, enhance its role as the gateway between the mainland and international markets and proactively integrate into the country’s overall development. This included leveraging the vast opportunities presented by the

Hong Kong’s financial ranking rises

Guangdong-Hong Kong-Macao Greater Bay Area, Qianhai’s development and the Belt & Road Initiative. The government stressed that it will spare no effort to ensure the smooth implementation of the Cross-boundary Wealth Management Connect in the bay area and southbound trading under Bond Connect.

News

European Commission urges 19 member states to implement EU digital and media laws The European Commission has taken legal action against 19 member states failing to deliver the benefits of EU digital legislation in the area of audio-visual media and telecommunications. These member states are required to transpose into their national laws two new sets of rules, without further delay: the Audio-Visual Media Services Directive (AVMSD) and the European Electronic Communications Code, and inform the Commission about this transposition. Both Directives are crucial for the EU’s digital transition, after having been commonly agreed by member states, and had to be transposed by the end of 2020. The AVMSD aims to ensure a fair single market for broadcast services that keeps up with technological developments. To this end, the Directive was revised in 2018 to create a regulatory framework fit for the digital age, leading to a safer, fairer and more diverse audio-visual landscape. It coordinates EU‑wide legislation on all audio-visual media, including both traditional TV broadcasters and on-demand video services, and lays down essential protection measures with regard to content shared on video-sharing platforms. Due to the delayed transposition, citizens and businesses in Czechia, Estonia, Ireland, Spain, Croatia, Italy, Cyprus, Slovenia and Slovakia may not be able to rely on all the provisions of the AVMSD. The European Electronic Communications Code modernises EU telecoms rules, making them fit for the digital era. Due to the delayed transposition, consumers and businesses in Estonia, Spain, Croatia, Ireland, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia and Sweden may not benefit from rules.

ARTIFICIAL INTELIGENCE

More efforts needed to boost trust in AI in the financial sector, says OECD

DIGITAL

Governments, financial regulators and firms should step up their efforts to work together to address the challenges of developing and deploying trustworthy artificial intelligence (AI) in the financial sector, according to a new OECD report. The OECD Business and Finance Outlook 2021 says that investment in AI finance is on the rise. The financial and insurance sector has consistently been within the top 10 industries in terms of the amount of venture capital investments in AI start-ups, investing over $4 billion worldwide in 2020. Almost 65% of venture capital investments in the sector went to American AI start-ups. As AI applications become increasingly integrated into business and finance, the use of trustworthy AI will become increasingly important for ensuring trustworthy financial markets, says the report. AI has the potential to facilitate transactions, enhance market efficiency, reinforce financial stability, promote greater financial inclusion and improve customer experience. But AI also raises unique challenges to privacy, autonomy, transparency and accountability, which are particularly complex in the financial sector, according to the Outlook.

Critically, increasingly complex AI algorithms that are difficult, or even impossible, to explain could amplify existing risks in financial markets or give rise to new risks. Transparency, fairness, data governance and accountability are key to managing risk as determinants of trustworthy AI. Failing to foster these qualities in AI systems could lead to the introduction of biases generating discriminatory and unfair results, market convergence and herding behaviour or the concentration of markets by dominant players, which can all undermine market integrity and stability. Existing financial regulations may fall short of addressing systemic risks presented by wide-scale adoption of AI‑based FinTech by financial firms, says the report. These conditions have led to a critical juncture for the deployment of AI applications in business and finance, according to the Outlook. Financial regulators are grappling with whether and how to adapt existing rules, or create new ones, to keep pace with technological advances in AI applications, while striking the right balance between managing risks and supporting innovation. ISSUE 119 | AIAWORLDWIDE.COM

News EQUALITY

Gender equality must be at the heart of the UK’s green and fair recovery, according to a new PwC report that underlines the extent to which women’s career progression and opportunities continue to be disproportionately hampered by the pandemic. The research based on a survey of 4,000 people in the UK outlines how women are more likely than men to feel the pandemic has damaged their career prospects, as well as highlighting a lack of awareness in relation to the job opportunities presented by the growing green economy. The report, “Targeting Gender Equality”, sets out five recommendations that require close collaboration among employers and Government. These include: ● Gender equality should be a specific focus within green economy plans: 63% of survey respondents supported investment in green jobs but just one fifth (20%) of women believe they have the skills they need to work in a green job, compared to nearly one third (31%) of men. Only 21% of women say they are aware of the opportunities for green jobs. ● Legislative measures to support women in work: Targeted careers support for women to access traditional male-dominated industries and more affordable childcare and shared parental leave were among the interventions that people felt were most likely to level up gender opportunities.

● Embedding equal opportunities in hybrid working models: Three quarters of women want more flexibility on working hours from their employer and greater support on returning from maternity leave. ● Measures to boost the confidence of women who are out of work: Nearly one in four (38%) unemployed women say the pandemic has worsened their access to employment opportunities compared to 23% of unemployed men. Around one third (32%) of unemployed women say a lack of confidence is the primary barrier for returning to work. ● Greater investment in careers advice services at school: Only one in four (27%) women say the careers advice they received at school helped inform their career decisions. Rachel Taylor, Economic and Business Affairs Leader at PwC, said: “The pandemic has exposed and exacerbated what were already deep-rooted gender inequalities in the labour market. This research points to a lack of confidence among women who find themselves out of work, and comparatively fewer opportunities for young women starting out on their careers. This is compounded by the physical and mental health burden faced by many of the women surveyed. “We must address these inequalities and this should be front of mind when planning the recovery. With the

UK’s recovery plans must address gender inequality

continuing momentum of the green revolution and the resulting emergence of new industries, policy-makers and businesses must work side-by-side in bringing about a level playing field which will allow women to play a leading role in shaping the future.” The research shows that women aged between 18 and 24 are more likely to report their job security has got worse (23%) than men of the same age (17%). One in five women with children under 18 say that the pandemic has had a negative impact on their career progression, with 16% of male parents reporting the same. Women are also more likely to report worsened health, both mental and physical. Young women – those aged between 18 and 24 – are among the most affected, with almost half (43%) saying their mental wellbeing worsened during the pandemic compared to just under one third (31%) of men of the same age.

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AIA News

AIA AWARD

Professor John Blake Award winner announced

AIA is delighted to announce that the Professor John Blake Award for outstanding achievement has been awarded to Ms Kuo-Hsin Lo, following the results of the May 2021 exam session. The John Blake Award is presented twice per year to the student achieving the best results in the International Financial Reporting Standards (IFRS) at Professional Level 2. Receiving the award, Ms Lo said: “Thank you so much for this humbling award. “In my current role, it is crucial that I learn IFRS and how to apply them in practice. Studying with AIA has helped me to fully understand the meaning behind each standard, which in turn has allowed me to apply theory into practice more easily and improve my professional skills to daily work.” AIA Qualifications Manager, Jane Steele added: “Congratulations from everyone at AIA to Ms Lo for this achievement. We wish Ms Lo the best of luck with her remaining AIA examinations and future career.”

SOCIAL MEDIA

Let’s connect! We use social media to connect with our members, students and other stakeholders. Join us on your favourite social media channels to find the latest news, events, insights and offers from AIA. Facebook: @AIAworldwide LinkedIn: @Association_of_ International_Accountants Twitter: @AIA1928

NEWS QUALIFICATIONS

AIA launches a new qualification in business finance Commercial awareness and an understanding of business and finance are some of the most sought after skills by employers. The AIA Certificate in Business Finance for Professionals is an exciting new qualification which enables candidates to develop specialist knowledge and expertise in the core components of business finance, boost their employability, advance their knowledge and gain a recognised qualification. With no formal entry requirements, the new qualification is open to all, including school leavers, undergraduates and career changers, and is suitable for those starting out in business, anyone wishing to expand their business analysis skills or those working in finance, who have yet to obtain a qualification. The qualification consists of four components, which are tested via a single online multiple choice exam: ● Financial Management; ● Business Management;

● Management Accounting; and ● Corporate Governance and Audit. The qualification is available 100% online through AIA’s interactive learning platform, AIA Achieve Academy, which allows students greater flexibility in developing their learning around work or other commitments.

Benefits

● Gain business and finance knowledge; ● Obtain practical work transferable skills; ● Boost your career prospects; ● A globally recognised qualification; ● Certification and designatory letters Cert (BFP); ● World-class study materials; ● Supported flexible learning; and ● Online multiple choice exam. Find out more about the qualification at: www.aiaworldwide.com/cbfp

DISCIPLINARY

AIA Disciplinary Committee Outcomes 21 July 2021 Disciplinary Committee Outcomes: ● Mr Seth Okai (UK) was excluded from membership for breach of Bye-Law 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution. ● Mr Mohammad Nazeem Busawon (UK) was excluded from membership for breach of Bye-Law 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution.

● Mr Godfred K Frimpong (UK) was excluded from membership for breach of Bye-Law 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution. ● Mr Amit Mohan (UK) was excluded from membership for breach of Bye-Law 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution. ● Mr John Finbarr Gahan (ROI) was excluded from membership for breach of Bye-Law 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution. ISSUE 119 | AIAWORLDWIDE.COM

AIA News EVENT

MEMBERSHIP

AIA hosts virtual event on “How to be an Ethical Accountant” The AIA virtual event “How to be an Ethical Accountant” provided practical advice and actionable insights on ethical considerations for accountants. Over 500 accountants registered for the event, presented by Professor Chris Cowton from the Institute of Business Ethics. Chris expertly navigated delegates through the professional ethics landscape, discussing current trends and challenges in ethics such as: ● Why do ethics matter? ● What are professional ethics? ● What are the challenges to being ethical? ● How can we make ethical decisions? ● How can we promote ethical behaviour in our organisations? ● What might an ethical accountant look like? Introducing the topic, Professor Chris Cowton said: “In times of turbulence and complexity such as we are experiencing,

AIA subscription renewals

it is even more important to have a ‘true north’ to navigate by. A strong ethical compass can help us steer the right course – but we need to know how to use it. That’s not always easy.” Ethical compliance is key to maintaining public confidence in the accountancy profession and forms an integral part of the AIA’s membership requirements. Members can purchase the webinar recording from the AIA Shop. For more information about ethics in the accounting profession or to use the IBE “Just say no” toolkit, visit the AIA’s Professional Ethics for Accountants resources.

All AIA membership subscriptions are due by 1 October. Complete your renewal online today to maintain access to your membership benefits: ● Visit www.aiaworldwide.com/ my-aia ● Login using your AIA membership number ● Click the “My AIA” button ● Click “Account Details” ● Follow the steps to complete your renewal ● Declare your CPD (members only) Your renewal should be completed by the deadline to ensure you continue to receive access to your AIA membership benefits.

CHARITY WORK

Support the AIA Educational & Benevolent Trust with Amazon Smile The AIA Educational & Benevolent Trust has two main purposes: to provide funding to support educational development in the accountancy profession; and to make a meaningful difference to AIA members who have fallen on tough times. The Trust is registered with the Charity Commission for England and Wales, registration number 1118333. The income for the Trust comes almost exclusively from donations from AIA members.

Amazon Smile

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the standard Amazon site. The only difference is, when you shop on Amazon Smile, the Amazon Smile Foundation will donate 0.5% of the cost of all eligible products to the AIA Educational & Benevolent Trust.

How much does Amazon Smile donate?

Amazon automatically donates 0.5% of the purchase price of eligible products to your chosen charity when you shop on smile.amazon.co.uk. The good news is that shopping with Amazon Smile doesn’t cost you, or your chosen charity, any extra.

How do I get Amazon smile? To sign up for Amazon Smile, visit www.smile.amazon.co.uk. If you already have an Amazon

account, you can begin shopping instantly. To get started, simply visit www.smile.amazon.co.uk. Log in to your Amazon account and search AIA Educational & Benevolent Trust in the “pick your own charity” search bar. Select AIA Educational & Benevolent Trust. You’ll receive an email from Amazon and you’re ready to shop. Shop as you normally would, knowing that each purchase you make also makes a difference to those that need the support of the AIA Educational & Benevolent Trust. We recommend bookmarking the site so as to ensure that all purchases are made through the charity.

STUDENTS

AIA’s new Professional Qualification AIA Chief Examiner Emeritus Professor Philip Shrives answers your questions about the AIA’s new professional qualification.

1. What was the purpose of updating the professional qualification?

Accountants often want to do other things (beside accounting) within the company or organisation they work for. They want to be a decision maker, be a strategist, be involved in recruitment and so on. These things are vitally important, and the accountant absolutely should be involved, but that shouldn’t be their primary role. If the accountant isn’t doing the accounting, then who is? At the AIA, we have designed the qualification to provide solid skills for the accountant. Society needs accountants to have a thorough grounding in accounting to provide reliable figures which those managing the business or investing in the business can trust and rely on. The stock markets and the public interest require those figures to represent what they purport to represent. We understand that accountants have a wider role, but at the end of the day it’s about accounting and we wanted to provide a modern qualification that addresses some of the key issues within our world. Although some will push the business mindset, for me accounting competence and ethical and professional behaviour are critically important. Accountants must understand accounting and not be continually distracted by other activities within the business. Of course, they must appreciate what is happening within the business because it can impact on the performance and sustainability. We know from

the recent pandemic how easy it is to up-end our world. No risk management, it seems, has prepared us for Covid-19. One of my favourite parts of the world is Florida. I love the sun, beaches and amazing tropical plants. Recently there have been two big issues there (in addition, of course, to Covid-19): the tropical storm/ Category 1 hurricane Elsa; and the very sad collapse of Champlain Towers South apartment block in Surfside, Miami. What has this to do with accountants? Let’s take the latter to begin with. It’s clear that the collapse of this building is probably not caused by one thing alone; it seems more likely that it is caused by a number of things coming together. Its sister building, designed and built by the same experts, is still standing and people are living in it as I write this. It is useful to consider what the accountant’s role might have been in this disaster and then think what role accountants should play in protecting the world against future disasters like these. If the figures – including forecasts that relate to design costs, construction costs and maintenance costs – are not reliable and complete, ISSUE 119 | AIAWORLDWIDE.COM

STUDENTS

AIAWORLDWIDE.COM | ISSUE 119

thinking about the implications of climate change in terms of values of assets, new liabilities and related disclosures. Sustainability affects us all. When we design syllabi, it is our job to ensure that it is fit for purpose and reflects issues that are relevant to the modern world. Accountants have an important place in addressing those issues and considering the implications for businesses.

2. How was the PQ qualification changed?

A series of meetings was set up under the leadership of Professor Stuart Turley from the University of Manchester. We also involved various accounting, auditing and taxation experts from a number of other universities, including Durham, Edinburgh, Newcastle, Northumbria and Ulster, as well as other experts and people from the profession. Different specialists looked at the different subject streams and considered how the qualification should be integrated. We agonised about what to include in the syllabi, what the learning outcomes might be at each point and how best to assess not just each subject but the qualification as a whole.

©Getty images/iStockphoto

then the decisions made will be impacted and maybe the lives of people living in those and other buildings will be at risk. Global warming and climate change are critical risks that we all face, and accountants need to be involved in these areas because they impact on the financial sustainability of the business. When the temperature of the sea increases, it increases the risk of hurricanes. The hurricane season in the Caribbean and Florida appears to have begun around five days earlier this year than in previous years. As well as increased rain and wind (including associated tornados), storm surge and forest fires are a real concern. You might have heard that temperatures in some parts of Canada were recently approaching 50 degrees Celsius. A small village north east of Vancouver was in the news. What you may not know is that a day or so later that town was completely destroyed by fire. Nearly every building was destroyed. The Task Force on Climate-Related Financial Disclosures (TCFD) reported a few years ago and currently has two documents out for consultation. Accountants and auditors need to be involved in

STUDENTS

An exciting key development relates to the new Achieve Academy programme, where students are provided with tailored support.

In addition, a number of staff and members of the AIA attended these meetings. Colleagues from the FRC also attended and challenged us on some of the changes we were considering. These discussions are absolutely vital when considering changes and working out how best to improve the content of our syllabi. We didn’t always agree as to what should be included and what shouldn’t be, but we endeavoured to design a qualification which was up to date, relevant and importantly also protected the public interest.

3. What was the rationale for the updated Professional Qualification?

We strongly believe in continuous improvement. To some extent we can do this by incrementally improving our syllabi and we will continue to do this. But there comes a point where we need to consider more radical and more fundamental changes as the world of finance and accounting has changed. We wanted the new qualification to compare well with other professional bodies and international standards. In particular, we were mindful of pronouncements issued by such bodies as the International Federation of Accountants (IFAC) and the individual standards setting boards within IFAC; for example, those to do with auditing, ethics and education. Many of the issues which society faces today have an impact on accounting and auditing – not just climate change but also technology changes, corporate governance and issues relating to cyber security. We wanted our syllabi to reflect and address those issues.

4. Can you provide an overview of the qualification?

The qualification structure has been streamlined, reducing the number of exams from 16 to 10 for those taking the pure accountancy route; and from 17 to 11 for those wishing to additional qualify as a statutory auditor, making it quicker to qualify, more accessible and affordable. The Foundation Unit examines four key subjects for finance professionals (Financial Accounting, Management Accounting, Corporate Governance & Audit, and Business Management) and is assessed through a single multiple choice online exam. Professional Level 1 builds upon the knowledge gained at the Foundation Unit in five papers: ● Financial Accounting and Reporting 1; ● Principles of Governance and Audit; ● Management Accounting; ● Business Law for Accountants; and ● Taxation (UK and international versions). At Professional Level 2, there are five papers, where candidates critically examine: ● Financial Accounting and Reporting 2; ● Developments in Assurance and Accountability (Islamic option is available); ● Business and Financial Management; ● Ethics and Professional Practice; and ● Multi-disciplinary Case Study.

For those on the accountancy route there are optional papers at this level and students can choose to study either Developments in Assurance and Accountability or Business and Financial Management. The new qualification provides professionals with skills and knowledge they can apply directly to their daily roles and tasks, as well as a greater emphasis on professional ethics through the inclusion of a standalone paper at Professional Level 2. The new qualification is also fully accessible, with students able to choose whether to study entirely online with AIA Achieve Academy (see below), or through a combination of online and face-to-face teaching.

5. What are cognitive levels of attainment and what do they mean to me? There are three different levels which form a progressive pattern: ● Level 1: ‘Knowledge and Comprehension’ covers the basic concepts and ideas behind the different subject areas. ● Level 2: ‘Application and Analysis’ refers to the need to apply knowledge to different circumstances and situations. It’s important that we can apply what we have learnt in the first level to different and varied situations. ● Level 3: ‘Synthesis and Evaluation’ relates to bringing together the early stages to enable you to make decisions and judgement based on what you have learnt and applied.

The latter two levels are most important to the qualification particularly as you progress through the syllabus and the different assessments.

6. How is the new qualification better than the previous version?

It’s up to date with much greater focus on governance and risk and the role accountants play in the modern business. We have reviewed assessment methods to make the qualification more accessible. We have moved right away from rote learning towards more application analysis and synthesis, reflecting the world of work the modern accountant faces. An exciting key development relates to the new Achieve Academy programme, where students are also provided with tailored support. AIA Achieve Academy is a fully integrated online learning platform designed in conjunction with BPP Learning Media. The courses provide students with a structured programme of study for all papers within the AIA Professional Qualification. We have been particularly mindful of the need to offer equal opportunity enabling access to new applicants and maintain this for students who have different requirements, as well as eliminating arbitrary and unnecessary barriers to learning. As time goes on, we will be continually reviewing and updating our syllabi via the moderation process, with academics at meetings and in discussion with AIA executive and members. ● ISSUE 119 | AIAWORLDWIDE.COM

DATA MANAGEMENT

The importance of agility Raymon van Viegen examines how data is the crucial component to agile financial forecasting. Raymon van Viegen CFO, Visma | Onguard

he Covid-19 pandemic has had a deep-reaching impact on economies throughout the globe. With businesses falling by the wayside left, right and centre, organisations have been understandably cautious of making investments. Many have simply switched to survival mode. With so many unexpected variables, accurate financial forecasting has never been more difficult. Businesses have been forced to switch their strategy at a moment’s notice. Therefore, having an inbuilt agility to financial forecasting has been vital for businesses wanting to ensure they have the necessary resilience for navigating the years to come. Legacy systems have simply not been able to cope. So how can organisations best plan ahead by using financial data as the crucial component of the planning puzzle?

Data has an expiration date

Many companies are unable to convert their various sources of data into valuable information and insights. 12

Companies are collecting more information than ever before. Nevertheless, many are unable to convert the various sources of data into valuable information and insights. Data-driven organisations are those that have been able to unlock their data and make a positive difference on their bottom line. Simple one-year financial projections used to be the norm. However, now many businesses require their teams to forecast up to three years ahead to provide stability for the future. Moreover, the uncertainty of the pandemic has required a rethink. While a longer-term projection is still beneficial, this needs to be supplemented by the ability to adjust as and when mitigating forces come to the fore. There is a need for agility. The ability to make tweaks “on the fly” is now imperative. It means organisations can negotiate new contracts with customers and suppliers to hopefully counteract any negative consequences of the decrease in trading due to the pandemic.

During periods of economic uncertainty, such as the one we are in right now, financial forecasting and the role it plays within the wider business receives greater scrutiny from the board. It is not a time for mistakes. Leaders want robust financial information to drive their decision making. To ensure accuracy, the importance of accessing real-time data and actionable data for financial planning cannot be understated. More than ever before, data has an expiration date. Such is the pace of change today, that data that is even a few weeks old may no longer provide an accurate picture required for effective planning.

Connected systems

To have access to the relevant data required in a timely manner, organisations must ensure that internal systems are connected across departments, with a common understanding of what drives future forecasting. This is not the time for siloed data. The good news is that with hybrid approaches to working likely continuing for some time, emphasis has already been placed on the need to digitise data within a central repository in many companies. There is, of course, still work to be done. Connected data leads to a connected business. It can help to manage risks better, optimise working capital and communicate more personally with your customers at a time when customer loyalty has never been more tested. ISSUE 119 | AIAWORLDWIDE.COM

DATA MANAGEMENT drive the vast majority of financial forecasting in the future, expect to see the human element still playing a crucial role. Yet humans will continue to buy from humans and technology remains weak at nuance. A perfect example is the unique role that humans play in the accounts receivable process. While data can give a real-time picture of a customer’s outstanding payment situation, a trained finance professional is far more adept at making an informed decision based on personal circumstances. Similarly, human experience can provide unique insights and valuable contributions as to how the financial industry will change or develop in the coming years, which data cannot provide on its own. What is clear, is that the role of the finance professional will need to develop a fresh set of skills in order to compete, with a fresh focus on skill sets such as data literacy and analytics. Gartner research shows that a lack of skills in data literacy – for example – can cost a company as much as 1% of revenue.

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Driving forward decision making

Technology that enables better management and visibility of financial data is key to ensure that businesses have access to more accurate performance figures to define their forecasting models. From risk management, e-invoicing and automatic payment processing to debtor management and dispute management. Technology can provide chief financial officers with everything they need to be able to continue along their path of digital transformation. As digitisation moves forward, the potential of artificial intelligence (AI) fed by accurate data from across the business could in future help organisations better plan for possible future crises. Nonetheless, it is clear that this is still a developing area and one that many businesses remain reticent of – rightly or wrongly.

How to ensure future success

The need for nuance

Whilst technology undoubtably has an important role to play, it is crucial for organisations to remember not to rely on it alone to ensure agile forecasting. The human element remains key. After all, it is about taking a collaborative approach and leveraging all available talent and technology instead of gatekeeping the knowledge between senior leaders. Plus, it is important that organisations learn from various industry experts and feed insights from outside of the organisation into their financial forecasts. While it is likely that we will see technology-powered data insight AIAWORLDWIDE.COM | ISSUE 119

Some companies are rapidly expanding, while others are seeing their financial reserves evaporate and struggle to make ends meet. One thing for certain is that the pandemic has shrouded businesses in uncertainty. So much so that even loyal customers and successful large organisations are unsure of whether they’ll be able to pay their bills on time. When it comes to the order-to-cash process, extra vigilance is required due to the greater need for control and flexibility, particularly for close customer contact. During periods of economic uncertainty, leaders are looking for robust financial information more than ever to drive their decision making. Whilst insights from accurate data and a human expertise play a vital part in effective financial forecasting, enhancements are starting to arrive from the advent of new technology too. It is time to let the latest technologies in AI, APIs and data work for you in order to maintain long-term customer relationships and ensure good cash flow within your company.

Author bio

Raymon van Viegen is CFO at Visma | Onguard with a demonstrated history of working in the computer software industry.

What organisations need to keep in mind, however, is the potential for external factors that can’t be planned for. Here, a business which has factored in the need for agility will stand out. To ensure this level of agility, organisations need to automate repetitive processes and ensure employees’ roles are focused on the key decision-making areas of the business. Through implementing the right technology, organisations can have the tools they need to give them insight to set up effective and efficient processes. This allows them to focus on more personalised communication with the customer so that they can provide them with the best possible customer experience to foster loyalty. Making small but incremental changes can help ensure success. These improvements can lead to increased agility throughout every department in the business, removing the need for large-scale changes that can prove disruptive to financial forecasting. ●

BUSINESS STABILISATION

How to address the imbalance sheet  Martin Gray considers how businesses can restructure the balance sheet to minimise the damage caused by the disruption of Covid-19.

Martin Gray Managing Director, Restructuring Advisory, Kroll

The future for many UK businesses still looks uncertain, despite the succession of government loan schemes. 14

ver the past year in the UK, a wide range of corporates have been supported by a stream of government enforced initiatives designed to stabilise businesses during the height of the Covid-19 pandemic. Much of the support available has been through various debt products which the government introduced to give businesses the best chances of survival during such unprecedented times. These included: ● Coronavirus Business Interruption Loan Scheme (CBILS): This allowed businesses to access financial support up to £5 million. The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months. ● Coronavirus Large Business Interruption Loan Scheme (CLBILS): This allowed businesses to access financial support with a group turnover of more than £45 million. The scheme helps medium and large businesses to access loans and other kinds of finance up to £200 million. ● Bounce Back Loan Scheme (BBLS): The biggest advantage of the BBLS was that it didn’t require repayments during the first 12 months but allowed businesses to access financial help quickly during the pandemic. The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000.

All of these government backed financial sources were made available to eligible businesses through to March 2021 with new applications and Top Up applications closing in the same month.

Minimising the damage

These products were specifically designed to minimise the damage caused by the significant disruption to business during the pandemic and reduce risks felt by the subsequent government enforced lockdowns. Of course, these government initiatives may have had an impact on the growth of the UK economy as a whole, which has slowly increased since the beginning of 2021 and the easing of general restrictions. For example, according to the Office for National Statistics, by early August 2021 the percentage of UK businesses trading rose to 89% from 71% in January 2021. In addition, temporary and permanent changes in legislation over the last 12 months have sought to provide directors and corporates with additional financial protective measures, which in turn have prevented a significant level of insolvencies from occurring. As well as being able to access government loan schemes, many businesses also took advantage of the furlough scheme, which enabled employers to retain staffing levels and thus allow a return to work for employees post pandemic. This also meant that businesses could reduce the risk of redundancies and stand an overall better chance of survival. ISSUE 119 | AIAWORLDWIDE.COM

BUSINESS STABILISATION

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that businesses maintain regular and honest communication with their key stakeholders to ensure that they all remain informed and supportive of the direction being taken. No matter where the road eventually takes them. Perhaps more so than ever, it is imperative that directors of corporates proactively plan for the challenges ahead as they navigate their way out the other side of the Covid-19 pandemic. Focused thinking, strategic planning and an understanding may well be the keys to a profitable and brighter future. As they move forward it will be important to consider the make-up of their balance sheet, how it has evolved over the past 12 months and what actions need to be taken to address that imbalance now and in the future.  In most circumstances, the amount of current liabilities has disproportionately increased to a point where the level of support from these stakeholders has been maximised, along with the expectation that this would actually begin to unwind within a relatively short period of time. However, realistically this may not be possible for most corporates depending on the sector, liquidity status and profitability levels.

An increase in liabilities

The consequence of loan scheme initiatives provided by the UK government since the outset of the Covid-19 pandemic has ultimately led to a substantial increase in the level of liabilities on the balance sheets of UK corporates. This necessary liquidity has largely been obtained through extending credit lines with HMRC, suppliers, landlords and increased bank borrowing. All these liabilities must be repaid by businesses, which was expected. However, the repayments are required over a relatively short period of time. Perhaps what’s worse is that this comes at a point when there remains an inherent level of uncertainty over the outlook of the market – even in areas seeing the most growth.  The future for many UK businesses still looks uncertain, despite the succession of UK government loan schemes. The edge had been taken off the pandemic for businesses through these loans, but the sheets remain unbalanced. With inflation high and 1 in 50 business still reporting that they expect to make some of their workforce redundant over the next three months as we move into the last quarter of 2021, the forecast for UK corporates still looks uncertain.

An uncertain road

There is no question, communication – both internal and external – still remains key in today’s economic climate for UK corporates. It is critical AIAWORLDWIDE.COM | ISSUE 119

Author bio

Martin Gray is a managing director in the Restructuring Advisory practice at Kroll.

Restructuring the balance sheet

Therefore, where necessary, directors should consider the options available to restructure the balance sheet to become more aligned to the cash flow needs of the business. This may include reducing or even normalising their current liabilities with a more manageable longer-term debt solution, should lockdowns happen again in the future. This means they will be able to stand stronger and face future challenges with greater foresight and understanding, even if it means considering traditional sources of finance and/or a recapitalisation through equity means. In certain circumstances, neither of these options may be available or deemed suitable, and that may well have been in the past. Not all businesses will find themselves in the same boat, post pandemic. Some may find that the road to recovery is steeper than others, foreseeing tighter future budgets as a result of schemes ending. As a consequence, the government has introduced a new Recovery Loan Scheme which is designed to help businesses of any size as they grow and recover from the disruption of the pandemic. This is a government backed loan scheme supporting borrowing of up to £10 million for individual businesses and up to £30 million across a group. The use of these proceeds can include cash flow management, growth and investment.  We therefore thoroughly recommend that directors complete a comprehensive and critical assessment of their business and forecast to ensure timely and appropriate action is taken where needed to create a stable and manageable platform not only to financially support their businesses and assets but, more importantly, to safeguard the longevity of their business for a brighter future. ●

LABOUR MARKET

The Quantum Workforce John Whelan asks how businesses can manage the temporary labour market as the nature of work changes

ince the beginning of the pandemic, permanent employment has been on the wane as businesses have tried their best to survive the challenging economic landscape. Although the economy has now reopened and is slowly recovering, the Office for National Statistics has reported just a 1% increase in full-time, permanent employment over the last 12 months. Workforces might have shrunk in size but for businesses that are busy once again, gaps are forming and help is needed – especially as the nationwide “pingdemic” forced vital staff to isolate themselves at home, furthering the need for extra labour, particularly in the hospitality, retail and leisure sectors. However, the lack of permanent roles has led to an explosion in the temporary labour market, which has grown by 25% over the last two decades and

Cracking down on fraud and legislation

As the temporary workforce continues to grow, so does the demand for companies which can pay salaries to and taxes on behalf of temporary workers. Luckily, a layer of companies between

©Getty images/iStockphoto

John Whelan CEO, My Digital

by 5% over the last 12 months alone. This flexible market has opened its arms to many former full-time workers following the pandemic, with the latest labour market overview report showing that over a third of the temporary workforce (34%) have turned to temporary employment as they couldn’t find permanent work. Contractors are no longer limited to traditional industries like construction. This type of work has accelerated across IT, healthcare, retail and logistics, among others. These workers are specialists who have a specific skill set which can be delivered on demand and, as demonstrated by the last year, flexibility is the key to the future of work. However, as more people turn to temporary work over the traditional nine to five office hours, the systems used to manage this flexible workforce aren’t made to deal with everchanging pay rates, hours and different tax requirements. They are slow and cumbersome – the opposite of the fast-paced labour market.

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LABOUR MARKET the business that needs the work completed and the contractor supplying skills have sprung up. Recruiters, professional employer organisations (PEOs), umbrella companies and other payroll intermediaries offer solutions to this. However, a shadow has been cast over these businesses in the form of fraud. Mini-umbrella company fraud is a problem that continues to be troublesome for both HMRC and temporary workers amid the surge in the market. The Trades Union Congress (TUC) has recently called for the government to ban the use of umbrella companies entirely, due to fraudulent behaviour of the unaccredited portion of the market, such as abusing workers’ rights and committing fraud. The blame for this often falls on inadequate regulation; however, mini-umbrella companies are unlike normal umbrella companies. These companies are set up specifically to enable tax avoidance, creating a long and complex supply chain, making it easier to hide the fraud from HMRC. The UK government is trying to keep up with this fast-paced labour market and keep control over activity with legislation. Reforms have been made to IR35 regulations to provide clarity for off‑payroll working and HMRC has issued guidance for working via an umbrella company to help identify fraud in the supply chain. HMRC notes that this type of fraud can result in the loss of employment rights, which is harmful to temporary workers who make a living through flexible work and also the businesses that rely on contractors to help with business needs. On the other hand, industry accreditation bodies like the Freelancer & Contractor Services Association (FCSA) continuously push for greater transparency and champion compliance in the temporary labour market. This is a big moment for the temporary labour market, which has often been overlooked. This vital part of the UK labour market is finally getting the recognition and protection it deserves.

The importance of cash flow and compliance

Compliant cash flow is what matters the most to many companies and contractors. But, keeping on the right side of compliance issues in the supply chain is complex and making regulation difficult for finance teams to control. The growing supply chain, from end-client to temporary worker, means the need for transparency and compliance is crucial to ensure salaries can be paid, pension benefits are accrued and regular taxes and returns are submitted. There is a need for real-time information, from ID checks to timesheets. Without the right technology, these manual processes and overload of information require a lot of office manpower and time to complete.

Transforming for the Quantum Workforce With so many people moving from the traditional PAYE model to a more dynamic form of payment and taxation for labour, technology needs to step AIAWORLDWIDE.COM | ISSUE 119

up. Otherwise, companies risk being left behind and competitors can easily snap up business. Accounting systems need to be able to process thousands of payments on a monthly, weekly and daily basis to suit the needs of the temporary worker and business. Outdated on-premise systems are simply not up to the task. However, there is an innovative solution in the form of Quantum Employment Design (QED). This technology is designed for the temporary labour market and can deal with the smallest element of employment – minutes on a timesheet. This empowers companies to create their own flexible workforces depending on business needs, whether they require a contractor for an hour, a day or a whole week. These workers make up the Quantum Workforce. They can lend their skills on a flexible basis, opening up the possibility of a perfect work/ life balance, where they are able to decide their own working hours. This is exactly what is being demanded by many working professionals who have embraced flexible working arrangements since the beginning of the pandemic. Most importantly, QED understands and adapts to process change, which might take an in-house team time to learn and implement. It provides Quantum workers with an enhanced onboarding experience while integrating with systems, such as customer relationship manager (CRM) platforms, to create a seamless payroll process. It also automates timesheets, invoices, payslips and tax remittances – abolishing manual, time-consuming, paper-based processes. With upcoming legislative changes, such as those to IR35, QED provides protection against disruption and can be deployed anywhere workers need to be enrolled, paid and taxed. It provides the transparency and compliance needed to manage today’s Quantum Workforce – which is inevitably due to welcome more workers as furlough comes to an end in September and businesses are unable to take full-time workers back. By keeping business workings in one unified space, companies can have a better understanding of what’s happening in the supply chain and avoid being victims to mini-umbrella company fraud. This is crucial while the fight against this type of fraud rages on.

Businesses must break away from outdated systems and use modern, cloud-based technology to enable them in the future of work.

Technology to fuel the future of work

Today’s labour market needs an integrated system that can deal with the fluctuating needs of temporary workers and the companies which need the work completed. Flexibility is now an important factor in all working environments, after a prolonged period of working from home for many and the lack of permanent jobs, and this is something that the temporary working environment provides. However, businesses must break away from outdated systems and use modern, cloud-based technology to enable them in the future of work. QED is leading the way in accounting and taxation and transforming the management of the temporary labour market. ●

Author bio

John Whelan is CEO of My Digital and a specialist in the taxation of temporary workers.

MTD FOR INCOME TAX

Time to get ready What should your landlord clients know about Making Tax Digital for Income Tax?

ow much do your landlord clients know about Making Tax Digital (MTD)? Chances are, they may know little or nothing. But with significant changes scheduled in the coming years, they should at least know a few basic facts, so they can start to prepare and minimise impact. You can play a key role in ensuring that they get the information and advice they need, of course, while pointing them in the direction of sources of further support and guidance. In this article, we will cover how Making Tax Digital will change record keeping and reporting for landlords; when Making Tax Digital for Income Tax will be introduced; and how landlords can voluntarily join Making Tax Digital for Income Tax now.

Why is MTD being introduced?

Landlords with annual business or property income of more than £10,000 must follow Making Tax Digital for Income Tax rules from the accounting period starting 6 April 2023. 18

As you’ll no doubt already be aware, Making Tax Digital is an ambitious government initiative that will transform how people, businesses and their accountants/bookkeepers report data to HMRC. According to the government, Making Tax Digital seeks to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD compatible software and apps will help to prevent avoidable tax mistakes (estimated to have cost more than £9.9 billion in lost tax revenue in 2017/18 alone).

How will Making Tax Digital for Income Tax change things?

When introduced, landlords (and/or their agents) will need to use Making Tax Digital compatible software to maintain digital records of the landlord’s income and expenses. Making Tax Digital compliant software will summarise figures, which must be submitted online via the landlord’s HMRC digital account (they’ll get up to a month after every quarter-end to do so). Landlords will also be able to see how much tax they owe, based on the information

supplied, so they can better budget for paying their tax bill, which could help many. At the end of the tax year, the landlord will need to finalise their business income and submit a final declaration, confirming that the updates they’ve provided are accurate, with any accounting adjustments made. Then, they’ll soon receive their tax bill. They must submit their final declaration and pay the tax they owe by 31 January the following tax year.

When will MTD for Income Tax be introduced?

Landlords with annual business or property income of more than £10,000 must follow Making Tax Digital for Income Tax rules from the accounting period starting on or after 6 April 2023. They’ll still need to send HMRC a Self Assessment tax return for the tax year before they signed up for Making Tax Digital for Income Tax. But after that – no more annual Self Assessment tax returns and all the hassle and panic that can go with them. For those already using accounting software, HMRC recommends asking the provider whether they plan to make their software Making Tax Digital compatible. Government website GOV.UK already lists Making Tax Digital for Income Tax ISSUE 119 | AIAWORLDWIDE.COM

MTD FOR INCOME TAX ● accounting period; ● accounting type (e.g. cash or standard accounting); and ● the Government Gateway user ID and password you use when you file your Self Assessment return. If you don’t have a user ID, you can create one when signing up. If your landlord client needs to report income from other sources (e.g. wages from working for someone else), they cannot sign up voluntarily. If you maintain you landlord client’s financial records and complete their tax returns, you can sign them up for Making Tax Digital for Income Tax. Obviously, you’ll need all of the above information to hand if they ask you to sign them up.

What if a landlord has more than one property for rent or let?

As you’d expect, they’ll only need to report their earnings and expenses via Making Tax Digital once for all of their properties together, they don’t need a digital account for each property.

©Getty images/iStockphoto

What about co-ownership?

compatible software. Those still using a paperbased record-keeping system will need to start using a Making Tac Digital compatible digital solution.

MTD for Income Tax pilot scheme

Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop Making Tax Digital for Income Tax. Your landlord clients may be able to sign up voluntarily for Making Tax Digital for Income Tax if: ● they’re a UK resident; ● they’re registered for Self Assessment as a landlord; and ● their returns and payments are up to date. They can sign up now for their current or next accounting period. It could be a good way to get used to Making Tax Digital requirements and make sure they have the right software/systems in place. Landlords can sign themselves up to the Making Tax Digital for Income Tax pilot scheme via government website GOV.UK. They’ll be asked for their: ● name; ● email address; ● National Insurance number; AIAWORLDWIDE.COM | ISSUE 119

If a property is owned by a business partnership of which the landlord is a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner. Quarterly summary information concerning share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts. Individual tax liability will then be calculated. Where property is jointly held, for example, a husband and wife own a property for rent or let, each person who has received income must report it separately, after registering for Making Tax Digital.

More information for landlords

Your landlord clients can head to government website GOV.UK for HMRC guidance on Making Tax Digital for Income Tax. HMRC has also created videos about Making Tax Digital for Income Tax and landlords can view a recorded webinar on Making Tax Digital for Income Tax. ●

About GoSimpleTax

GoSimpleTax is a secure cloud-based solution and is officially recognised by HMRC. Our software includes partnership, non-resident and previous year returns, has an easy-to-use interface and submits direct to HMRC. GoSimpleTax are ready for MTD and the software shows the tax liability in real time with a simple dashboard allowing you to switch between clients easily. AIA members receive a 25% discount on GoSimpleTax. To receive your discount code sign up at www.gosimpletax.com/tax-aia (For example, 100 client submissions are £187.50 inc. using discount.)

CHINA

Chinese investment in Europe Hui Gao sets out key information for Chinese investors considering some of the most attractive markets Hui Gao Head of China Desk, International Markets, TMF Group

or Chinese investors, Europe presents a number of attractive destinations to set up operations or acquire new target entities, as well as markets with which to trade. But while many countries in the continent offer developed economies, political stability and lucrative sectors and industries, there are also some jurisdictional idiosyncrasies, regulatory nuances or barriers to entry to be aware of. Global investment activity understandably slowed down with the outbreak of the Covid-19 pandemic, as the focus for many businesses shifted to dealing with, or in some cases surviving, this unprecedented situation. However, the situation is now changing for the better. As countries make progress with vaccination rollout programmes and life for many starts to return to something closer to normality, the outlook for the world economy, and consequently for businesses and investors, is becoming a lot more positive. This is certainly true in China, where major economic indicators such as consumption and investment are looking increasingly robust, following a period of global uncertainty. With this in mind, businesses will once again start to shift their focus to exploring new expansion and investment opportunities, including overseas. In particular, Europe will be a region of interest for Chinese investors, offering opportunities in a broad range of sectors and industries. The EU is one of China’s biggest trading partners and the EU-China 2020 Strategic Agenda for Cooperation is seen as central to long-term bilateral relations and improving investment conditions. We take a look at a number of key European markets to examine what makes them appealing to investors, while also highlighting some factors or regulations to be aware of.

France

France is a popular destination for foreign direct investment and is considered one of the “big three” European recipients of foreign direct investment (FDI) from China, alongside Germany and the UK. In 2020, Chinese investment accounted for more business activity in France compared to involvement from all other Asian economies. At present, Chinese investment in France totals something in the region of €8.5 billion in FDI stocks, with interests held in approximately 900 French companies, responsible for over 50,000 employees. In terms of numbers of projects, investors from China have been most active of late in the transport, storage and IT services sectors, followed by automotive and equipment manufacturing. The electrical and computer equipment industries have also seen recent activity. Investing and doing business in France is not without its complexities, however. There are onerous accounting and tax processes in place, while local language requirements for compliance reporting and France’s human resources environment are considered protective and employee-centric. Investors need to be aware of how to manage these compliance obstacles which contribute to France’s ranking as the second most complex place to do business in this year’s Global Business Complexity Index.

The Netherlands

The Netherlands is a country that has interested Chinese investors significantly in recent times; the cumulative value of Chinese FDI here totals some €10.3 billion over the past two decades. This may not come as a surprise given the jurisdiction’s historical reputation as a business-friendly environment. ISSUE 119 | AIAWORLDWIDE.COM

CHINA

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CHINA

While the Netherlands has been traditionally viewed as an ideal environment for foreign enterprises to establish operations, it has recently implemented an Ultimate Beneficial Owner register. This jurisdiction remains a good location for operational companies, with relatively convenient conditions for incorporation. For example, a number of Chinese companies active in the automotive industry have set up here in the last year. While the Netherlands has been traditionally viewed as an ideal environment for foreign enterprises to establish operations, it has recently implemented an Ultimate Beneficial Owner (UBO) register which investors will need to comply with. In addition, new minimum substance requirements came into force earlier this year, which Chinese corporates will have to pay attention to. That being said, this jurisdiction still ranks among the ten least complex in the world to do business, being ranked in 70th place in this year’s Global Business Complexity Index.

Luxembourg

Best known for its attractive regime for funds and holding structures, Luxembourg has traditionally been viewed as an entry point to the rest of Europe for Chinese businesses. However, it has recently seen a decline in Chinese inbound FDI as a consequence of the global pandemic. With a slowdown in global M&A impacting holding structures, Chinese companies have remained conservative here over the past year. That being said, Goldman Sachs has commented that the number of M&A deals in the preparation stage in Europe has exceeded the number of projects at the same stage following the 2008 financial crisis. With the introduction of the new substance requirement in the Netherlands, Luxembourg will be a more preferential destination for M&A transactions structuring. In addition to holding structures and M&A activity, Chinese financial institutions have previously held an interest in Luxembourg. Brexit has also had a knock-on impact for activities here, in that Chinese financial institutions and payment companies with hubs in the UK no longer hold valid licences to transact freely with neighbouring European Union counterparts, such as Luxembourg. Being the principal financial centre in Europe, the Luxembourg government values being perceived as a leader in green finance. Some green financial products have been successfully explored by Chinese financial institutions in Luxembourg.

Germany

Germany is one of the “big three” European economies, along with France and the UK, that historically receives a significant proportion of Chinese investment into the continent. This continued to be the case in 2020, with Germany proving to be the greatest recipient of Chinese FDI, receiving more than half of all capital invested in Europe. Recognised in some quarters as an unofficial indicator of the health of its economy, the automotive industry in Germany remains strong, and is of particular interest to Chinese parties as an investment opportunity. Similarly, e-commerce is a popular sector which has seen a spate of incorporations by Chinese players over the past year. However, this previously positive picture may change in the near future. The German government intends to tighten the rules on foreign direct investment control, which is something that Chinese investors will need to pay attention to as it could prove challenging for their planned activities.

United Kingdom Author bio

Hui Gao is Head of China Desk, International Markets at TMF Group.

CHINA itself in a position where it needs to reach out independently to trading partners to strike deals and reach new bilateral agreements. At the same time, Chinese companies also need to reconsider their access to the EU, and also back to China, via their UK entities which may need to be relocated to a new jurisdiction within the EU, such as some of those discussed here.

Republic of Ireland

The United Kingdom has historically been one of Europe’s biggest net beneficiaries of Chinese FDI, but this status has been challenged by its recent departure from the European Union. Figures for Chinese FDI across both 2019 and 2020 demonstrate this, with investment here dropping by 77%. This can be explained in part by post-Brexit licence complications for financial institutions that had previously used the UK as a base of operations within the EU. In spite of the reduced FDI here, Chinese investment in the UK remains significant with the country being the third greatest recipient of Chinese investment in 2020, notably in the form of major M&A deals. Efforts are also being made to restore the UK’s attractiveness to outside investors. The UK government is seeking to distinguish the country as a haven for green investment in Europe, in a bid to set itself apart from its European neighbours. The UK’s post-Brexit situation could also lead to favourable terms for Chinese investors in the near future. By leaving the EU, the UK finds AIAWORLDWIDE.COM | ISSUE 119

The Republic of Ireland has long been an attractive location for investment within Europe, offering a competitive tax regime that entices corporates to set up shop. This country is recognised as one of the most straightforward jurisdictions in which to do business, ranking in 74th place in TMF Group’s Global Business Complexity Index 2021. Following Brexit, the Republic of Ireland is now also becoming an increasingly popular choice for businesses and investors seeking to establish a base of operations for financial activities within the EU, of for those in need of an English-speaking jurisdiction within the bloc. For Chinese investors, sectors of particular interest include aviation finance and aircraft leasing. Capital markets are also an investment mainstay in the Republic of Ireland, with a longestablished industry offering a wealth of local knowledge and talent. As a member state of the EU, the Republic of Ireland has adopted many compliance initiatives in accordance with European Union directives. Of note for overseas investors are rules around base erosion and profit shifting, as well as legislation around anti-money laundering (AML), which will require vigilance in order to remain compliant.

Taking steps in a new market

Chinese investors seeking to take advantage of opportunities in Europe will need to be mindful of the need to navigate the jurisdictional complexities of establishing operations, of traversing language barriers to fulfil reporting requirements, and dealing with local cultural and regulatory nuances. Investors who have identified opportunities in new countries could stand to benefit greatly from enlisting help to ensure that their cross-border investments go smoothly. Securing the support of a services provider who has a presence in the target country is always a sensible option, to avoid falling foul of unfamiliar, local compliance requirements. Outsourcing certain functions, or taking a unified approach in more than one jurisdiction with an international provider, can help to eliminate the complexities around local rules and requirements, as well as effectively removing language barriers and allowing you to navigate cultural differences. ● This article was originally published by TMF Group, a leading provider of professional and financial services in more than 80 countries, at www.tmf-group.com

BLUE ECONOMY

Carolin Leeshaa examines how natural capital is a new finance context for the ocean and the blue economy Carolin Leeshaa Head of Social and Sustainable Finance, KPMG Australia

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ll around the world, countries are looking to transition to a “green” economy that is low in carbon, socially inclusive and resource efficient. In its simplest form, “green” has become short for a sustainable social, environmental and economic future. While the world’s attention has been caught by the direct terrestrial implications of the green agenda, the “blue economy” has not been prioritised to date. The “green” economy should include the sustainable use of oceanic resources, but the pivotal role of the oceans in limiting temperature rises and stimulating socioeconomic development has been comparatively absent from the transition towards a green global economy. The “blue economy” is central to the green ecosystem: oceans influence all natural cycles and are also directly or indirectly involved with all economic sectors. Oceans produce up to 80% of the oxygen we breathe, while nearly 40% of the world’s population depend on marine and coastal biodiversity for their livelihoods. For these reasons, the “blue” component of the “green” transition to a more sustainable global economy cannot be overlooked. In addition to being crucial for regulating the climate and weather by absorbing much of the anthropogenic global carbon dioxide as our biggest natural carbon sink, our ocean provides habitats for important species and critical marine ecosystems that are indispensable for biodiversity. Our ocean is also vital to the world’s economy. It is a source of food, energy, raw materials and jobs for millions of people. Analysis by the Organisation for Economic Co-operation and Development (OECD) projected that the global ocean economy could double in size to $3 trillion of global gross value in 2030. Yet, our ocean is still largely treated as a public good, not as a valuable oceanic natural asset that could cease to be in supply if not properly managed. To date, existing markets do not value the flow of the many services (often called ecosystem services) the ocean provides. We have a distinct opportunity to transform our capital markets and the core operations and supply chains of the real economy in a way that recognises and internalises these externalities in investment and business decisions. Science is telling us that the ocean’s health is under stress and depleting at an alarming rate (see the Ocean Health Index at bit.ly/3E56d6e). Sadly, ocean temperatures are warming and sea levels are rising. Ocean acidification and shifting ocean currents are leading to biodiversity and habitat loss. Unprecedented coral reef bleaching and changes in migration patterns of icon species, such as whales and salmon, as well as a higher frequency of severe ocean weather events, are all too common symptoms of the fading resilience of our ocean. Often, this is further aggravated by land-based pollution, in particular agricultural run‑off, chemicals and (micro) plastics, as well as by overfishing and depleted fish stocks in many parts of the world. AIAWORLDWIDE.COM | ISSUE 119

BLUE ECONOMY The vast potential for finance to drive ocean-friendly business practices

A healthy economy depends on a healthy ocean. The manner of economic growth increasingly matters. Over 68% of global GDP is already covered by a net zero target. Some of the world’s largest companies are setting the bar even higher with restorative strategies, pledging to become “carbon negative” and “resource positive”. Sustainable finance offers an approach to reframe what we value when we invest. Safeguarding our ocean’s health often requires significant adaptation of business practices across global supply chains. This comes with significant costs. Just as the public recognition of our ocean as a unique natural asset is growing, so do the calls for global capital markets to redirect private funding towards ocean positive outcomes. It is also a powerful lever to both public and private investors to contribute nature-based solutions toward the global decarbonisation agenda. Whilst the market is still nascent, there is reason to be optimistic. Over the past few years, there has been a wave of “ocean-friendly” financing solutions. Whilst the ticket sizes are often still small, the variety of emerging “blue finance” models have been growing steadily. Similarly, the emergence of environmental marketbased incentive mechanisms for conservation management activities of our oceans, coastal and marine ecosystems have the potential to create an entirely new playing field and are now needed more than ever to sustain and safeguard our oceans natural ability as a blue carbon sink. The sustainable valorisation and management of oceanic natural asset will require an even greater degree of collaboration than the green agenda across states, and between the private and public sectors. This goes beyond traditional maritime industries, to real-economy terrestrial sectors that are reliant, or impacting on our oceans through their value chains – but perhaps don’t realise it yet. Bringing these new market-based platforms to life at the level of scale required will require strong intermediaries with convening power across sectors, deal/transaction structuring know how and the independence to verify impact integrity and instil investor confidence. Digital technologies such as artificial intelligence, big data, blockchain and geo-spatial mapping of biological ecosystems will be a key enabler to scale the next wave of “blue” financing instruments and demonstrate measurable, positive environmental outcomes to ESG investors.

A rising regulatory tide lifts all boats

The United Nations’ Sustainable Blue Economy Finance Principles are already underpinning and shaping banks, insurers and investors’ ability to better align their investment, underwriting and lending activities to mainstream sustainability of ocean-based sectors and promote the implementation of the UN Sustainable Development Goal (SDG) 14, Life Below

Author bio

Carolin Leeshaa is Head of Social and Sustainable Finance, KPMG Australia and has worked in global social and sustainable finance for over 20 years.

BLUE ECONOMY

A healthy economy depends on a healthy ocean. The manner of economic growth matters. Water. Similarly, over 20 financial institutions (representing 50% of the global ship finance portfolio) have signed up to the Poseidon Principles to integrate climate considerations into lending decisions to promote international shipping decarbonisation. Institutional asset owners like Norway’s sovereign wealth fund have also offered specific guidance towards investee companies which sets out their expectations on ocean sustainability. The fund wants the boards of companies that depend, use or affect the oceans to work on reducing the pollution their businesses creates. With the establishment of global initiatives like the Taskforce on Nature-related Financial Disclosures (TNFD), we expect that corporations will receive significantly more scrutiny around their naturerelated risk performance from financial investors, lenders and insurance underwriters.

How finance is catching the blue wave Blue Bonds: a deeper blue for Green Bonds

Blue Bonds are an emerging subset of the well‑established global $1.7 trillion Green, Social and Sustainability Bond market landscape, drawing on similar ‘use-of-proceeds’ principles. Certifiable standards and taxonomies issued by the Climate Bonds Initiative are offering relevant guidance for eligible projects in marine renewable energy and water infrastructure, specifically coastal conservation and restoration activities. Another conceptual approach frequently sees “Blue Bonds” funding earmarked for marinerelated activities such as sustainable fisheries and aquaculture, sustainable tourism, green shipping and ports, renewable marine energy, climate change adaptation and mitigation, waste management or coastal protection and marine conservation. On the social side, blue activities relate well to employment generation through small and medium sized finance and food security.

Debt for nature swaps

In 2018, the Seychelles issued the first sovereign Blue Bond worth $15 million to fund the implementation of a sustainable fisheries management plan to develop semi-industrial and artisanal fisheries. The World Bank provided a repayment guarantee for one third of the principal, while the UN’s Global Environmental Facility (GEF) offered a concessional loan to help cover the coupon payments. With the support of private funders, the country then converted $21.6 million of national debt under the world’s first “debt for conservation” swap aimed at ocean

conservation and climate resiliency. This created the second largest marine protected area in the West Indian Ocean, alongside the development of a marine management plan and a permanent endowment to sustain climate adaptation and marine conservation activities.

Blue Natural Capital Markets: Blue Carbon According to the Blue Carbon Initiative, carbon sequestration from coastal ecosystems like mangroves, tidal marshes and seagrass meadow projects (referred to as “blue carbon”) have the capacity to store more carbon per unit area than terrestrial forests and are beginning to be recognised as a nature based solution in the global decarbonisation agenda. Despite this potential, only a few countries currently include these ecosystems in national greenhouse gas (GHG) inventories and Nationally Determined Contributions (NDC) commitments under the Paris Agreement. Whilst there are some pilots projects taking place, standards for blue carbon have not yet been fully developed, although the recently formed International Partnership for Blue Carbon has developed guidance for international and national policy making, including the financing of blue carbon projects. Although blue carbon is still quite novel, by virtue of having the capacity to be translated into a standardised economic unit akin terrestrial carbon, it has the potential to act as the future yardstick for positive ocean outcomes in environmental markets.

Queensland Government’s Reef Credit Scheme

The Reef Credit Scheme has been developed by GreenCollar, an Australian environmental market developer and investor in partnership with landholders, the Queensland government and natural resource management organisations. It represents a very tangible and innovative market-based solution which offers a new way to improve the quality of catchment water entering the Great Barrier Reef, the world’s largest coral reef and both an Australian and international icon. Each “reef credit” is a tradable unit representing a quantifiable volume of nutrient, pesticide and sediment prevented from entering the Great Barrier Reef catchment. The monetary value of these credits incentivises hundreds of landowners and managers such as sugar cane farmers and graziers located in Queensland’s Great Barrier Reef catchment to integrate sustainable land management practices into their existing operations, rewarding them with an additional diversified income stream. Each “reef credit” provides a measurable, audited water quality outcome, tracked against internationally recognised targets. Private buyers include government and philanthropists, as well as private sector investors like HSBC, who is looking to utilise this nature-based solution to contribute to the financial institution’s own corporate environmental net-zero climate adaptation commitments. ● ISSUE 119 | AIAWORLDWIDE.COM

Events UPCOMING WEBINARS

Irish Budget 2022 18 October 2021, Time: 10.30 – 11.30 Speaker: Jim Kelly This will look at what businesses need to be aware of in a, hopefully, post‑Covid recovering economy. The session will provide members with an awareness of any new taxation provisions introduced in Budget 2022; and an understanding of topical tax issues and how they will affect us and our clients into 2022. IFRS: Current key issues 19 October 2021, 10.30 – 11.30 Speaker: David Potts This session will look at: ● the current state of play with IFRS: the IFRS and IFRIC currently in force and the most recent changes and new Standards issued; ● an update on key IFRS projects and changes required for 2021 year ends and beyond; and ● an update on IFRS reporting implications arising from Covid, including the treatment of lease rentals.

of debt funding. Banks and other lending institutions have seen massive lending in the last 18 months. High Street banks have lent more in that period than they did in the previous five years! Have the rules and protocols in relation to lending changed, or is it even more important now to provide a clear and compelling case when applying for funding? The session will also provide delegates with an understanding of the types of finance solutions available and how to present an application for funding in the current market.

The webinar will leave delegates feeling more in control of the IFRS reporting process and knowing where to find additional guidance if needed. The global pandemic has brought about many challenges, not least in the world

How has the accounting and finance profession changed in the last 12 months? 28 October 2021, 10.30 – 11.30 Speakers: Victoria Strange GAAPweb, the UK’s leading finance and accounting job board, explores the key

CPD on demand Have you missed out on AIA’s recent CPD Webinars? Our on demand content is delivered by industry experts and leading professionals, giving you the flexibility to learn and develop your skills where and when suits you best. Each webinar is worth one verifiable CPD unit and can be purchased through the AIA shop.

The following content is available now: ● Self-assessment for landlords; ● Finance Act 2021; ● Covid and the implications for information security; ● Helping employers navigate postpandemic working practices; ● Appointing an insolvency practitioner;

issues facing the accounting and finance profession from our latest Audience Insight Report. Delegates will gain an understanding of how the Covid-19 pandemic has impacted various aspects of the profession, including salaries and bonuses. Delegates will also gain an understanding of how the events of 2020 influenced the job market and will be offered tips and advice on skills to develop in order to excel in their job applications. Autumn Budget 2021 1 November 2021, 10.30 – 11.30 Speakers: Tim Keeley This will be the third budget to be announced by Chancellor Rishi Sunak and the measures that he will take to tackle the public finances in the wake of the Covid pandemic are eagerly awaited. The government’s spending plans are to be set out in the Spending Review on 27 October, alongside an Autumn Budget. The Spending Review will cover a three year period and will set the government’s resource and capital budgets for 2022/23 to 2024/25. Visit www.aiaworldwide.com/events for more information and registration

● IORPS II: Retirement planning and investment considerations; ● Sole trader vs limited company; ● The secrets to a successful funding application; ● Audit development: Ireland; ● Risk management; and ● How to be an ethical accountant. Login to your AIA online account and choose “Shop” from the My AIA menu.

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Technical INTERNATIONAL

IFAC urges stakeholders to prepare now for global sustainability standards The International Federation of Accountants (IFAC) has published a framework for implementing global sustainability standards at the local level, focusing on the building blocks approach published in May 2021. IFAC believes that jurisdictions must begin examining how global standards that the International Sustainability Standards Board (ISSB) intends to develop, starting with climate, can fit together with sustainability-related reporting requirements set at the jurisdictional level. “As work to establish the ISSB advances, PAOs, firms and professional accountants in business

INTERNATIONAL New publication from CPA Canada, ICAS AND IFAC explores ethics in an era of complexity and digital change As the world becomes more complex, maintaining ethical standards becomes both more challenging and increasingly important. To help guide financial professionals, the Chartered Professional Accountants of Canada (CPA Canada), the Institute of Chartered Accountants of Scotland (ICAS), and the International Federation of Accountants (IFAC) have released “Complexity and the professional accountant: Practical guidance for ethical decision-making”, the first in a series of four thought leadership pieces. “We’re on a journey to reimagine the future of the accounting profession,” said Charles-Antoine St-Jean, president and CEO, CPA Canada. “Digital disruption and shifting societal expectations are redefining the role of professional accountants around the world. “Our collective response to these opportunities, challenges and ethical implications will impact our ability to remain trusted leaders, on the forefront of change. This paper, and those to follow, contribute to important

should be engaging now with their policymakers to consider what mechanisms may need to be established to make forthcoming reporting requirements effective in their jurisdiction,” said IFAC CEO Kevin Dancey. “IFAC’s framework sets out various pathways for local implementation of the IFRS initiative that can all lead to the global and harmonised corporate reporting system we need for investors, capital markets and stakeholders at large.” IOSCO’s Sustainability-related Issuer Disclosures report proposes a timeline for the ongoing work of the IFRS Foundation – with the

ISSB climate standard expected to be completed by June 2022. Jurisdictions that begin engaging with policymakers now will be able to capitalise on the forthcoming standards – and therefore serve the public interest – as soon as they are finalised. IFAC urges its member organisations to continue their support for the IFRS initiative, to engage now with local policymakers, and to provide feedback on the framework for making global sustainability standards local. Read more about IFAC’s support for global sustainability-related standards at www.ifac.org.

conversations as we adapt and help shape the future.” This publication by CPA Canada builds on a collaborative exploratory paper and global roundtable event, called Ethical Leadership in an Era of Complexity and Digital Change, held in conjunction with ICAS and IFAC. The first of the series addresses key themes presented in the exploratory work, leveraging the event discussions and recommendations, to offer practical guidance for accountants, accounting organisations, educators and employers. “Ethical leadership is crucial to the future success of the accountancy profession, and the global financial system as a whole,” said Kevin Dancey, CEO of IFAC. “As a profession, it is our core ethical foundation, coupled with our skills and competencies, that enable us to navigate the opportunities and challenges of the digital age, while maintaining our public interest responsibility.” The development of “Complexity and the professional accountant: Practical guidance for ethical decision-making” was also informed by the ongoing work of the Technology Working Group of the International Ethics Standards Board for Accountants (IESBA) and the diverse views of stakeholders gathered through its extensive outreach. “The accounting profession needs to continually evolve to address changing stakeholder needs, while

continuing to meet its public interest responsibility,” notes Bruce Cartwright CA, ICAS CEO. He added: “The only certainty is that there will be more regular advancements in technology. It is therefore imperative that we properly consider the associated ethical implications of technology and help shape the future.” “Complexity and the professional accountant: Practical guidance for ethical decision-making”, along with the collaborative exploratory paper and a summary of the February 2021 event, including an on-demand recording and additional resources, are all available on the IFAC Knowledge Gateway (see bit.ly/3tIdzrq). The upcoming papers in the series will cover the following interconnected but distinct topics: ● Technology is a double-edged sword; ● Identifying and mitigating bias and misinformation/disinformation; and ● Mindset and enabling skills.

Tax changes should be targeted to help Covid recovery and boost the fight against the climate crisis in G20 countries Tax incentives should be used to enable positive global outcomes, such as economic recovery from the ISSUE 119 | AIAWORLDWIDE.COM

Technical pandemic and averting climate crisis, according to a new joint report released by the Association of Chartered Certified Accountants (ACCA), Chartered Accountants Australia and New Zealand (CA ANZ), and the International Federation of Accountants (IFAC). A survey of 8,000 people across the G20 countries and New Zealand concluded that two-thirds (66%) were strongly in favour of using the tax systems to help individuals and small businesses to recover following the effects of Covid-19. Respondents were also very much in favour of similar tax breaks to support efforts to tackle “global megatrends”, such as the fight against climate crisis, and efforts to support retirement savings, with 66% believing these would be appropriate incentives. Perhaps surprisingly, the survey discovered that support had fallen in 15 of the 20 countries for international collaboration on tax. This is despite the fact that 2021 has seen historic advances in international tax cooperation, including agreement by G7 countries to enforce a minimum rate of 15% corporation tax. The Public Trust in Tax study, which was carried out in the first quarter of 2021, follows two previous reports on the subject in 2017 and 2019. Other key findings included insight on whether taxpayers in different countries felt they were paying a “reasonable amount of tax”. Overall, most respondents were likely to agree that their tax rates were reasonable across all pay grades. However, fewer than one in four respondents across the G20 countries stated that high income individuals paid a reasonable amount of tax in their country. And while 33% believed that local companies were likely to be paying a reasonable amount of tax, in seven countries multinational corporations were thought to be paying too little tax. Despite this suspicion, 49% of people overall were in favour of using tax incentives to attract multinational business. There was also a fall from 44% to 39% in the number supporting requirements to make multinational companies publish detailed tax information, although the vast majority still support MNCs sharing all their information with local tax authorities. The survey also uncovered varying levels of trust in global tax authorities and the players in the tax system. Trust in government tax authorities AIAWORLDWIDE.COM | ISSUE 119

is polarised, with 43% saying they have trust or a high level of trust in the tax authorities, but 22% saying they distrust them. Overall, trust in government tax bodies has slightly increased. The survey also asked questions about the trust people in various countries placed in their media and social media on the issue of tax. Social media was the least trusted source, distrusted by more than 40% and traditional media fared little better, scoring over 30% for distrust. Total trust in social media was highest in India and China, but lowest in New Zealand and France. These results were mirrored for traditional media, with India and China placing the most faith in their tax coverage and France registering the most distrust. Russian media was also distrusted by 54%. “The relationship between taxpayers and governments, and between businesses, society and tax systems, will be fundamental to the shape of the economies that support us all, over the coming years,” said report author Jason Piper, head of taxation for ACCA. “Public trust is central to tax morale, which is the tendency for individuals and businesses to pay their tax voluntarily and without intervention by tax authorities.” Anecdotally, many respondents stressed the importance of financial education from an early age, so that people understand the purpose of tax. “Alongside the uncertainty of the pandemic, this year has also seen historic advances in international tax cooperation, with political agreements at the G7, G20 and OECD Inclusive Framework that began not long before this series of reports,” said Ainslie van Onselen, chief executive of CA ANZ. “Tax policies to help address challenges such as climate change and ageing populations are no longer issues on the horizon, it’s here and now.”

UK AND IRELAND FRC publishes review findings on streamlined energy and carbon reporting The Financial Reporting Council (FRC) has published the findings of its review of the reporting on emissions, energy consumption and related matters under the new Streamlined

Energy and Carbon Reporting (SECR) rules which came into effect from 1 April 2019. The FRC’s review considered how a sample of companies and limited liability partnerships (LLPs) had complied with the new SECR requirements, identified examples of emerging good practice and outlined its expectations for future reporting. While the sample of reports largely complied with the minimum statutory disclosure requirements for emissions and energy consumption, more needs to be done to make these disclosures understandable and relevant for users. In particular, entities need to explain more clearly how information is calculated, which operations and emissions are included in their reported numbers and the level of thirdparty assurance obtained over the information. They also need to consider how to integrate these disclosures with other narrative reporting on climate change, especially any emission-reduction targets. The FRC’s Executive Director of Regulatory Standards, Mark Babington said: “Addressing the urgent impact of climate change requires clear and transparent reporting so that investors and users of accounts can make informed decisions. “While it is encouraging that examples of good practice have emerged, companies need to do more to make disclosures understandable and relevant for users. “Looking ahead, companies should carefully consider the findings of our review with a view to providing high quality information about current emissions, in the context of increasing focus on emission-reduction commitments and strategies.”

FRC lists successful signatories to the UK Stewardship Code The Financial Reporting Council (FRC) has published a list of successful signatories to the UK Stewardship Code, which sets high standards of stewardship for those investing money on behalf of UK savers and pensioners. The successful applicants better demonstrated their commitment to stewardship – which is very important as we emerge from the pandemic and address significant environmental and social challenges by investing for a sustainable future.

Technical Following a rigorous review process which considered organisations’ investment styles, sizes and types, two-thirds of all applications (125) made the list, representing £20 trillion of assets under management. The FRC received 189 applications from 147 asset managers, 28 asset owners, including applications from pension funds and insurers, and 14 service providers, including data and information providers and investment consultants. The FRC was pleased to see investors better integrating stewardship, and environmental, social and governance (ESG) factors into their investment decision making, reporting on asset classes other than listed equity and identifying the outcomes of their efforts. There was also some strong reporting on underpinning governance activities. The organisations that did not make the list commonly did not address all the Principles or sufficiently evidence their approach, instead relying too heavily on policy statements. Other areas of weakness included reporting on the approaches to review and assurance, and monitoring service providers. The FRC would also like to see more focus on identifying areas for improvement. Unsuccessful applicants are encouraged to consider the individual feedback provided along with the upcoming annual review of reporting to be published in November. Unsuccessful applicants can reapply in future application windows. The next opportunities are 31 October 2021 and 30 April 2022. To remain signatories, organisations will need to continue to improve their reporting as market practice and expectations evolve. Sir Jon Thompson, FRC CEO, said: “Congratulations to all those who have become signatories to the UK Stewardship Code, which is recognised globally as a best-practice benchmark in investment stewardship. The publication of this list delivers on the recommendations of The Kingman Review in respect of stewardship and demonstrates our continued commitment to serve the public interest as we transform to becoming a new regulator. “We are proud of our robust approach to assessment and encourage those who have been unsuccessful to reflect on our feedback and apply again in future.”

FRC announces proposals to significantly strengthen the UK’s Audit Firm Governance Code The Financial Reporting Council (FRC) has announced a consultation on proposals to update and significantly strengthen the Audit Firm Governance Code in support of the FRC’s objectives to promote high-quality audit and audit market resilience. The Code applies to the Big Four and to other firms auditing FTSE 350 companies. Going forward, it will also apply to firms that audit significant numbers of other types of public interest entities. With operational separation of audit practices at the largest audit firms, audit firm governance is at a turning point. These proposals will embed a continued focus on the public interest and audit quality across the UK’s largest audit firms. While the Big Four firms have responded positively to operational separation, monitoring work by the FRC has found there is scope to further strengthen oversight and governance. The proposals strengthen the Audit Firm Governance Code in key areas of accountability and firm resilience. The revisions enhance and clarify the role played by partnership boards in holding management to account and separate the roles of board chair and senior partner/chief executive. They introduce criteria for board composition and reinforce the position of independent non-executives within audit firms. The proposals also emphasise the importance of longterm sustainability, people, culture and employee engagement, in line with the UK Corporate Governance Code. FRC Executive Director of Regulatory Standards, Mark Babington said: “Audit firms play a critical role in providing assurance to investors and other users of company reports to ensure their integrity and reliability. Well governed audit firms that act in the public interest are more likely to deliver high-quality audit on a consistent basis. “Audit firms which have applied the Audit Firm Governance Code have used it as a catalyst for introducing both external challenge into their operations and for improved levels of oversight. These proposals will provide a springboard for further progress in improving audit quality and market resilience.” The consultation is available on the FRC website and is open until 18 November 2021.

Guidelines for the recognised accountancy bodies when performing investigation and disciplinary functions IAASA has recently finalised guidelines for the recognised accountancy bodies which apply when they perform investigation and disciplinary functions in respect of their accountant and auditor members. The effective date of these guidelines is 1 January 2022. The provision of accounting and auditing services to clients places accountants in a special position of trust. Clients, shareholders and other stakeholders rely on the output of accountants to make economic decisions, to administer assets and to assist them in meeting their compliance obligations. Where an accountant fails to maintain the standards reasonably expected of them, they should be subject to timely, proportionate and effective actions. The operation of an investigation and disciplinary function is a key mechanism used by a recognised accountancy body to hold its members to account. The four recognised accountancy bodies in Ireland are ACCA, Chartered Accountants Ireland, CPA Ireland and ICAS. They operate their investigation and disciplinary functions in accordance with procedures approved by IAASA, relevant provisions of the Companies Act 2014 and IAASA’s guidelines. A copy of “Guidelines for the Recognised Accountancy Bodies when Performing Investigation and Disciplinary Functions” is available on IAASA’s website.

IAASA sets out some key considerations for companies when preparing their 2021 financial statements IAASA, Ireland’s accounting enforcer, has published its annual Observations paper highlighting some significant topics that those charged with governance should consider when preparing their financial statements for 2021. IAASA’s paper highlights key areas that warrant close scrutiny by those preparing, approving and auditing 2021 financial statements in the upcoming reporting season: ● Covid-19; ● impairments; ● fair values; ● alternative performance measures; ISSUE 119 | AIAWORLDWIDE.COM

Technical and ● climate change. Against the backdrop of an uncertain economic landscape, IAASA expects companies to provide entity specific and comprehensive disclosures that enable the users of their financial reports to understand: ● the impact that these events have had on their financial performance, financial position, cash flows and risks; ● the sources of estimation uncertainty and changes in the key assumptions underpinning assets, liabilities, income, expenses and cash flows; ● the actions taken to respond to Brexit, the pandemic and climate change; and ● the expected impact on future financial performance, financial position, cash flows, and risks. This 2021 Observations paper is addressed primarily to the preparers, approvers and auditors of financial statements. However, IAASA believes that it may also be beneficial to the users of financial statements and may assist them in understanding the significant judgements made by companies in preparing their financial statements. The paper seeks to highlight matters users may wish to be aware of and focus on when reviewing 2021 financial statements. IAASA’s financial reporting review remit extends only to companies with securities admitted to trading on a regulated market (principally the Main Market of Euronext Dublin), the topics identified in the 2021 Observations paper could usefully be taken into consideration by a much wider range of companies with the aim of producing high quality financial reports more generally and increasing the transparency and usefulness of financial statements for users.

Application for revocation of the recognition of the Institute of Chartered Accountants of Scotland The Institute of Chartered Accountants of Scotland (ICAS) has applied to IAASA to have its recognition revoked in December 2021. IAASA is now seeking submissions from interested parties by 30 November 2021. If ICAS’ recognition were to be revoked, it would mean that ICAS would no longer AIAWORLDWIDE.COM | ISSUE 119

be able to approve statutory auditors in Ireland. It also means that ICAS members in Ireland would no longer be regulated by IAASA. If you wish to make a submission in relation to this, please email your submission to info@iaasa.ie before 5pm on 30 November 2021. As the offices remain closed due to Covid-19, IAASA requests that you submit only by email as post is not monitored regularly.

EUROPE ESMA sees risk of market corrections in uneven recovery The European Securities and Markets Authority (ESMA), the EU securities markets regulator, has publisheed its second Trends, Risks and Vulnerabilities (TRV) Report of 2021. The report highlights the continued rise in valuations across asset classes in an environment of economic recovery and low interest rates, the increased risk taking of investors and the materialisation of event risks such as GameStop, Archegos and Greensill. ESMA continues to see elevated risks and fragile fundamentals, with an outlook for continued high risk and uncertainty over the sustainability of corporate and public debt, as well as rising inflation expectations. Current market trends need to show their resilience over an extended period of time to allow for a more positive risk assessment. The extent to which these risks will materialise will critically depend on market expectations on the continuation of monetary and fiscal policy support, as well as on the pace of the economic recovery and on inflation expectations. Increased risk-taking behaviour Investor confidence has increased, linked to rising asset valuation and strong performance of retail investor instruments. A surge in retail trading since the onset of the Covid-19 pandemic has been driven by a range of factors, including innovation. New online and mobile trading platforms offer convenient, easy-touse investment services, and zerocommission business models and gamified features may further attract consumers. These features can prompt investor protection concerns, as does the rise of trading encouraged by social media and online message boards.

Also, rising valuations across classes, massive price swings in crypto assets and event-driven risks observed amid elevated trading volumes raise questions about increased risktaking behaviour and possible market exuberance. Cloud outsourcing, credit ratings, green bonds: new evidence on key market developments In addition to its risk monitoring, ESMA provides four in-depth articles looking at financial stability risks of cloud outsourcing, credit rating agencies and green bonds: ● Cloud outsourcing and financial stability risks: The article analyses the growing use of cloud service providers by financial institutions and how the concentration of those providers can create financial stability risks in case of outage. ● Covid-19 and credit ratings: The analysis investigates how credit ratings evolved during the exceptional period of early 2020, exploiting ESMA’s RADAR database. ● Market for small credit rating agencies in the EU: Using SupTech-related techniques and the CRAR database, the article assesses the network of CRAs and the concentration in the CRA market. ● Environmental impact and liquidity of green bonds: In this article, ESMA investigates the CO2 emissions of green bond issuers, and then compares the liquidity of green and conventional corporate bonds.

ASIA China Accounting Standards Committee deepens international accounting cooperation The China Accounting Standards Committee of the Ministry of Finance organised a symposium to discuss deepening international cooperation in the accounting field and actively participate in the formulation of international accounting standards. Representatives working within international accounting standards, as well as representatives from the Department of International Economic Relations and Accounting Department of the Ministry of Finance, attended the meeting. Comrade Sun Zhi, director of the Accounting Standards Committee,

Technical attended the meeting and delivered a speech. The meeting discussed the importance of deepening international exchanges and cooperation in the field of accounting and their links to ideology, as well as how the Accounting Standards Committee can make good use of international exchange platforms, and promote international accounting exchanges and cooperation through existing international accounting standards and multi-bilateral channels. To develop this plan further, the Accounting Standards Committee will strengthen communication and contact with expert representatives, actively provide professional technical support for expert representatives to participate in the international accounting standards mechanism, and further enhance the ability of expert representatives to perform their duties. There was also a discussion on how to enhance the theoretical system of international accounting standards through research, collaboration and by strengthening the training of international high-end accounting talents, especially corporate talents. At the symposium, relevant representatives actively spoke. The meeting was pragmatic and efficient, which further consolidated consensus and clarified the direction of efforts, which will effectively promote the development of international exchanges and cooperation.

ACRA bars registered filing agent for multiple AML/CFT breaches The Accounting and Corporate Regulatory Authority (ACRA) has cancelled the registration of a registered filing agent (RFA), MEA Business Consultancy Pte Ltd (MBC) for multiple breaches of anti-money laundering and countering the financing of terrorism (AML/CFT) regulations. This is the first time an RFA’s registration had been cancelled due to serious AML/CFT breaches. ACRA’s inspection into MBC revealed that it had committed 29 severe AML/CFT breaches including: ● Failure to inquire on the existence of any beneficial owner; ● Failure to document the details of risk assessment when performing diligence measures; ● Failure to conduct ongoing monitoring of every business relationship with a client; and

● Failure to establish and maintain appropriate and risk-sensitive internal policies, procedures and controls (IPPCs) to prevent activities related to money laundering and the financing of terrorism. In view of the multiple severe AML/ CFT breaches, ACRA had cancelled the RFA registration for MBC for a period of two years from 8 March 2021 to 7 March 2023. RFAs should take their AML/CFT obligations seriously. Those found to have committed any breach could face severe sanctions of financial penalties of up to $25,000 per breach and have their registration suspended or cancelled. The names of RFAs whose registration have been suspended or cancelled will be published on BizFile+ portal and ACRA’s website.

UNITED STATES FASB proposes improvements to fair value guidance for equity securities The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) that would improve financial reporting for investors and other financial statement users by increasing comparability of financial information across reporting entities that have investments in equity securities measured at fair value that are subject to contractual restrictions preventing the sale of those securities. Stakeholders are encouraged to review and provide comment on the proposed ASU by 14 November 2021. Topic 820, Fair Value Measurement, states that when measuring the fair value of an asset or a liability, a reporting entity should consider the characteristics of the asset or liability, including restrictions on the sale of the asset or liability, if a market participant also would take those characteristics into account. Key to that determination is the unit of account for the asset or liability being measured at fair value. Some stakeholders noted that Topic 820 contains conflicting guidance on what the unit of account is when measuring the fair value of an equity security. This has resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should

be considered in measuring that equity security’s fair value. To address this, the amendments in the proposed ASU would clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The proposed ASU is available at www.fasb.org.

FASB issues 2021 Investor Outreach Report The Financial Accounting Standards Board (FASB) has issued its 2021 Investor Outreach Report. The document is now available through the FASB investor web portal at www.fasb.org/investors. “Investor perspectives are critical to the Board’s ability to develop effective standards, so we undertake a number of initiatives to proactively engage this stakeholder group in our standardsetting process,” noted FASB Chair Richard R. Jones. “The report explains our investor outreach programme, activities over the last year, how we’ll continue to build on those initiatives to enhance our investor outreach efforts, and, perhaps most importantly, how investors can share their views with us.” The report highlights the expansive investor outreach completed by the FASB staff over the last year, including engaging in more than 430 investor interactions. Substantially all those interactions were the result of FASBinitiated outreach aimed at soliciting a wide range of investor perspectives, including buy-side portfolio managers and analysts, sell-side analysts, accounting analysts (both buy-side and sell-side), credit rating agency analysts and managers, individual investors, and private company lenders and other capital providers (e.g., venture capital/ private equity). The issuance of the Investor Outreach Report coincides with the launch of FASB’s enhanced investor web portal, a “one-stop shop” that provides easy-to-access information on projects of interest to investors, investor-focused educational videos on specific standards, and how investors can share their views on all FASB activities. The FASB Investor Outreach Report and the FASB investor web portal are available at www.fasb.org. ISSUE 119 | AIAWORLDWIDE.COM

International Accountant 119

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