International Accountant 114 by Association of International Accountants

INTERNATIONAL

ACCOUNTANT NOVEMBER/DECEMBER 2020

Using AI to tackle public sector fraud Brexit: whatâ&#x20AC;&#x2122;s next for the self-employed? Building diversity and inclusion in accountancy firms

A guide for landlords

ISSUE 114

CONTENTS

In this issue Contributors 2 Meet the team

News and views

AIA news

AEAN signs RPEC in historic milestone AIA launches online exams

end soon, it’s crucial that self-employed individuals are aware of what to do and how Brexit can affect their business. Richard Hepburn (Gorilla Accounting) takes a closer look at how Brexit will affect the self-employed.

are ongoing and it is still unclear whether a deal will be reached. Alex Smith (Accordance) considers the impact of Brexit on UK businesses, and the delay to the VAT e-commerce package.

President 8 AIA introduces its new President AIA is pleased to announce the appointment of Shahram Moallemi as President.

10 Diversity 17 Seize the moment Natasha Frangos (haysmacintyre) examines how accountancy firms can make the pandemic an opportunity to build diversity and inclusion amongst their workforce.

Students

Self assessment

Current issues in auditing: student guidance This article provides support to students with their preparation for the examination sitting in May 2021. It is of continued concern that students do not appear to be adequately prepared in this area.

A guide for landlords If you have clients that make money from renting out property, HMRC considers them to be a landlord. GoSimple Tax explains the steps that landlords will need to take when completing the Self Assessment.

14 Public sector fraud

Providing transparency with AI In public sector auditing, both accountability and transparency are essential. Rachel Kirkham (MindBridge) examines how artificial intelligence can identify and rectify potential problems.

Brexit 14 What’s next for the self-employed? With the transitional period coming to an

Brexit 22 Prepare your supply chain Negotiations between the UK and EU

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

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

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Professional standards

Dates for your diary

Preparing for a Desktop Monitoring Review The AIA Compliance Team answer your Frequently Asked Questions about what to expect from a Desktop Monitoring Review. Upcoming events

Technical 30 Global updates

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Editor’s welcome

Contributors to this issue

Editor’s welcome

RICHARD HEPBURN

Richard Hepburn is operations manager at Gorilla Accounting. Richard has a client focused approach and his experience in the contractor accounting sector gives Richard a strong background to advise on the accounting needs of contractors and their limited companies. ALEX SMITH

n response to the coronavirus pandemic and to minimise disruption for AIA students on the professional qualification pathway, AIA has fast-tracked its online exams programme and, as I write, the first cohort of students have successfully taken their AIA exams online at home or in another approved location. This innovative development represents just one of many ways in which AIA has adapted its operations to maintain student and membership services throughout the world and we wish all students good luck as they continue on their journey to becoming qualified accountants. AIA has also launched a new online guidance and insights resource to provide members with in-depth technical content in one easy to access space. The knowledge hub allows members to stay up to date with the latest developments in: Accounting and Auditing Standards, Tax, Charities, Ethics, Anti-money Laundering, Public Practice and AIA Membership. The hub includes exclusive content for members including articles, toolkits, signposting, guidance and information and will be updated on a regular basis. It is online now via MyAIA.

Rachel Rutherford Editor, IA

In this issue, we examine how accountancy firms can make the pandemic an opportunity to build diversity and inclusion amongst their workforce, including a Q&A with Natasha Frangos (see page 17). Natasha was recently named as “Woman of the Year” in Accountancy and Finance Awards 2020 for her work in driving diversity and positive change in the accountancy sector. Elsewhere, we take a closer look at how Brexit will affect the work of accountants. Richard Hepburn examines the impact that Brexit will have on the self-employed (see page 14). And while negotiations between the UK and the EU are currently ongoing and it is unclear whether a deal will be reached, Alex Smith considers the impact of Brexit on UK businesses, and the delay to the VAT e-commerce package (see page 22). Rachel Kirkham examines how artificial intelligence can help with public sector auditing (see page 20) and GoSimple Tax explains the self assessment steps for landlords renting out property (see page 24). For members in practice, the AIA Compliance Team answer your Frequently Asked Questions about what to expect from a Desktop Monitoring Review (see page 26).

Alex Smith is the Director of Consulting Services at Sovos Accordance. He specialises in providing cross border advice, delivering analyses, reports and contract reviews regarding VAT/ GST systems within the EU and beyond. Alex supports a large number of businesses both from a consulting perspective and also by overseeing businesses VAT compliance obligations. NATASHA FRANGOS

Natasha Frangos is head of Head of Corporate and Creative, Media and Technology (CMT) at accountancy firm haysmacintyre. Natasha has been honoured as one of Brummell Magazine’s 30 Inspirational Women Champions of Diversity and she was recognised as “Woman of the Year” at Women in Accountancy and Finance Awards 2020 for her work in driving diversity in the accountancy sector. RACHEL KIRKHAM

Rachel Kirkham is Director of AI Solutions at MindBridge, responsible for the delivery of tailored solutions and services for the European market. Prior to joining MindBridge, Rachel was the Head of Data Analytics Research at the UK National Audit Office. For over 12 years, Rachel has bridged the gap between deep data analytics and complex market requirements. ISSUE 114 | AIAWORLDWIDE.COM

News ASEAN

TAX BREAK

ASEAN hits historic milestone with signing of RCEP

Government extends £1 million tax break to stimulate investment in UK manufacturing

Leaders of ASEAN member states, Australia, China, Japan, Republic of Korea and New Zealand have signed a Regional Comprehensive Economic Partnership (RCEP) Agreement. The RCEP marks ASEAN’s biggest free trade pact to date, covering a market of 2.2 billion people with a combined size of $26.2 trillion or 30% of the world’s GDP. “The signing of the RCEP Agreement is a historic event as it underpins ASEAN’s role in leading a multilateral trade agreement of this magnitude, despite global and regional challenges and eight years of negotiations,” said Dato Lim Jock Hoi, Secretary-General of ASEAN. “RCEP will give a much-needed boost for a swift and robust recovery for businesses and peoples in our region, particularly during the current Covid-19 pandemic crisis,” he added. The deal will improve market access with tariffs and quotas eliminated in over 65% of goods traded and make business

predictable with common rules of origin and transparent regulations, upon entry into force. This will encourage firms to invest more in the region, including building supply chains and services, and to generate jobs. The Agreement has 20 Chapters, 17 Annexes and 54 schedules of commitments covering market access, rules and disciplines, and economic and technical cooperation.

SECURITY

SEC awards whistleblower over $900,000 The Securities and Exchange Commission has announced an award of over $900,000 to a whistleblower who identified securities law violations occurring overseas. The whistleblower’s timely and important information resulted in a significant expansion of an ongoing investigation. “This award underscores the significance of the SEC whistleblower programme’s global reach,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “The agency has received whistleblower tips from individuals in 130 countries. Overseas whistleblowers are in a unique position to help identify wrongdoing occurring abroad that may otherwise be hard to detect.” The SEC has awarded more than $721 million to 114 individuals since AIAWORLDWIDE.COM | ISSUE

issuing its first award in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely and credible information that leads to a successful enforcement action. Awards can range from 10% to 30% of the money collected when the monetary sanctions exceed $1 million. As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity.

A £1 million tax break to stimulate investment in UK manufacturing, to support business confidence, is to be extended, HM Treasury has announced. Businesses, including manufacturing firms, can continue to claim up to £1 million in sameyear tax relief through the annual investment allowance (AIA) for capital investments in plant and machinery assets until 1 January 2022. The extension of the temporary £1 million cap was originally due to revert to £200,000 on 1 January 2021. This move is intended to boost confidence as companies look to weather the pandemic and plan for the future. Financial secretary to the Treasury Jesse Norman said: “It is vital that we support businesses through the difficult months ahead. Extending the AIA’s £1 million cap will give businesses the confidence they need to invest into next year, whilst benefiting the wider economy too.”

News COMPANY ACCOUNTS

Don’t leave it until the last minute: Companies House issues advice to businesses Companies across the UK are being urged not to leave filing their annual accounts until the last minute and consider going paperless, as the disruption caused by coronavirus continues to affect people’s lives, businesses and the economy. Companies House’s online filing service – which is available 24 hours a day, seven days a week – can take as little as 15 minutes and has inbuilt checks to help directors avoid mistakes. Accounts filed on paper are six times more likely to be rejected than accounts submitted electronically (7.5% compared to just 1.2% respectively). Paper accounts submitted too close to the 31 December 2020 deadline, which are then rejected, risk not having enough time to be corrected, re-submitted and manually checked. This type of late accounts will incur an automatic late filing penalty; however, if the late delivery of accounts was directly caused by the coronavirus outbreak, it will treat penalty appeals sympathetically. In line with government guidance and restrictions surrounding coronavirus, there is currently a reduced number of staff working at Companies House offices. The processing of accounts filed on paper for the 2019/20 financial year is, as a result, expected to take significantly longer this year. Companies House Chief Executive Louise Smyth says: “By asking companies to submit their accounts early and preferably online, we are trying to ensure that they experience peace of mind during the busy end of year filing period. In common with so many organisations in these unprecedented times, we currently have a reduced number of people in our offices due to the ongoing coronavirus crisis and the government guidance and restrictions surrounding the pandemic. As a consequence of that, it’s going to take longer than it normally would to process accounts that are filed on paper, which need to be manually checked.”

IRELAND

Ireland publishes Finance Action Plan 2020 The Minister of State with responsibility for financial services, credit unions and insurance, Sean Fleming TD, has welcomed approval from government to publish the Ireland for Finance 2020 Action Plan. This is the first Action Plan launched under the new programme for government, which committed to complete the Ireland for Finance Strategy. Minister Fleming will lead the strategy which aims to develop Ireland as a top tier international location for specialist financial services. The 2020 Action Plan captures the important work that took place throughout the year to date by stakeholders from across the public and private sector. Speaking about the plan, Minister Fleming said: “Much good progress has been made on important measures for International Financial Services during the year and this is reflected in the resilience the sector has shown in the face of the pandemic. Our attention must now turn to the future and how we can maximise the potential of the industry in the national economic recovery.” In the five years to the end of 2019, the International Financial Services sector in Ireland created 11,600 jobs, exceeding the target of 10,000 net new jobs bringing the number directly

Sean Fleming

employed to 46,600. Over 30% of these direct jobs are in the regions outside Dublin. The Ireland for Finance strategy has a goal of protecting and growing these jobs in firms that are supported by the enterprise agencies, IDA and Enterprise Ireland. Minister Fleming is now looking ahead to 2021. “I believe that our energies must be focused on developing our Action Plan for 2021. This plan will have to take account of the challenges of COVID-19, Brexit readiness, and how the international financial services sector can assist Ireland in its national economic recovery.”

SCOTLAND

Scottish National Investment Bank Opens The Scottish National Investment Bank has officially opened for business with the completion of its first major investment. It is the UK’s first missionled development bank and it is being capitalised by the Scottish Government with £2 billion over ten years. The bank’s proposed missions will focus on supporting Scotland’s transition to net zero, extending equality of opportunity through improving places, and harnessing innovation to enable Scotland to flourish. It will provide patient capital – a form of long term investment – for businesses and projects in Scotland, and catalyse further private sector investment.

A £12.5 million investment in Glasgow-based laser and quantum technology company M Squared will support the company’s further growth in Scotland and speaks to the bank’s proposed core missions. Scottish National Investment Bank Chair Willie Watt said: “This is a key milestone for the Scottish National Investment Bank. Our launch enables us to make mission-led, strategic, patient investments in businesses and projects that can deliver benefits for the people of Scotland. I am excited about the role the Bank will play in supporting and enabling growth in the Scottish economy.” ISSUE | AIAWORLDWIDE.COM

AIA News

AIA

NEWS EXAMS

SUBSCRIPTIONS

AIA membership subscriptions AIA Membership subscriptions are now overdue. If you haven’t paid for the 2020/21 subscription year, please do so immediately via MyAIA to maintain your membership status and benefits. MEMBERS

Disciplinary Meeting The outcomes of the Disciplinary Meeting held on 28 August 2020 are set out below: ● Mr Christopher Samuel Hines Lawrence (UK): Mr Lawrence was excluded from membership of the Association following breaches of ByeLaw 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution. ● Mr Ali Arif (UK): Mr Arif was excluded from membership of the Association following breaches of Article 5.1,Bye-Law 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution. ● Mr Lee Taylor (UK): Mr Taylor was excluded from membership of the Association following breaches of Article 5.1,Bye-Law 8.1(c) and Public Practice Regulations 12.1 and 12.2 of the AIA Constitution.

AIA launches online exams To minimise the disruption caused by the coronavirus pandemic and ensure that AIA students can continue their journey towards becoming a qualified accountant, AIA has launched an online exam platform which will allow students to take their exams at home or in another location in circumstances where centre based exam sittings are interrupted. From November 2020, all AIA professional exams will examined by computer-based testing. The online assessment is a cloud-based platform that allows students to undertake exams within a controlled environment from the comfort and safety of their own home, whilst maintaining compliance with AIA’s exam regulations through checks, monitoring and supervision. AIA is working with learning partners across the world to ensure that the new computer-based assessment is robustly tested. In the lead up to the exams, AIA will be offering students additional guidance and support to ensure that they are proficient with the

programme and have all the required information to succeed. The innovative platform not only allows AIA exams to proceed, but also offers many benefits to students, including being able to undertake exams in a familiar and comfortable environment and the use of standardised and recognisable formatting which is easier to structure, read and assess. AIA Head of Membership Services, Christine Harbottle said: “AIA has fasttracked its provision of computer based assessment so that all AIA students will be able to undertake their professional exams online from November 2020, enabling students to progress in their careers and work towards becoming professionally qualified accountants.” Exam entry is open for the November exams and students should register as soon as possible for the exams and familiarise themselves with the Online Exams Advice. Should you have any queries, contact the AIA Exams Team at exams@aiaworldwide.com.

WEBINARS

AIA webinars 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: ● Improve Your Cybersecurity in Three Steps ● Building a Sustainable Practice ● Selling a Business during a Pandemic ● Positive Alternatives to Business Closure

ISSUE 114 | AIAWORLDWIDE.COM

AIA News ANTI-MONEY LAUNDERING

AIA calls for exemption to economic crime levy for small businesses © Gettyimages/istockphoto

In its response to HM Treasury’s Economic Crime Levy consultation, the AIA has argued that small businesses falling under anti-money laundering (AML) regulations should be granted an automatic exemption to contributing to the government’s proposed levy. Economic crime represents a significant and ever-changing threat to the United Kingdom that has a harmful impact on the economy, competitiveness, citizens and institutions. In 2020, the government announced its intention to introduce an economic crime levy and consulted on how it could be proportionate and effective. The consultation notes that the levy is proposed to help realise the public and private sectors’ shared ambition to improve the United Kingdom’s response to economic crime. The levy aims to raise approximately £100 million per year from entities regulated for AML purposes and support reforms to the sustainable resourcing of economic crime, as outlined in the 2019 Economic Crime Plan. AIA supports measures to fund the prevention and detection of economic crime and highlights the strong and robust approach that a public-private partnership can have in achieving these goals. Insofar as the government should be implementing an economic crime levy, AIA would argue strongly that a threshold should be implemented which AIAWORLDWIDE.COM | ISSUE 114

exempts small businesses from any burden of payment and would support that threshold being set at £10.2 million revenue in line with the small business regime. AIA does not agree that small businesses which operate below the

threshold should be subject to a smaller flat fee. In determining the impact of money laundering, the government should consider whether the revenue gathered from small firms (which may in the majority of cases be sole practitioners or micro-businesses) can offset the additional administrative burden placed upon these smaller firms. In addition, the government should be looking to avoid imposing additional administrative burden on small business. Therefore, AIA would not advocate small business or firms being mandated to make a nil declaration and instead believes that they should not be required to make any additional declaration. AIA has worked constructively with HM Treasury to strengthen the UK’s AML regime and will continue to support its members to tackle economic crime. AIA Director of Operations, David Potts said: “Whilst AIA supports measures to tackle economic crime, we consider that imposing a levy on small and medium sized practices represents a disproportionate funding model and imposes an inefficient administrative burden.”

AIA supports inaugural Northern Asian Powerlist 2020 AIA was proud to support the inaugural Northern Asian Powerlist 2020, which showcases the remarkable contribution made by the Asian community across a range of sectors, including business, politics, technology, social change and culture within the Northern Powerhouse. Like AIA and its network of trusted business advisers, the Northern Asian Powerlist provides a voice for business on a regional, national and international level supporting the ambitious objectives of the government’s Northern Powerhouse strategy. As a Northern Powerhouse Partner, AIA engages with businesses, civic leaders and others about how

entrepreneurship, innovation, diversity and talent development are all improving quality of life and economy in the North. Recognising the achievements of the Asian community and highlighting the wider economic, cultural and social impact they have plays an important role in bringing investment in skills, innovation, transport and culture to the region and encourages the next generation. AIA chief executive, Philip Turnbull, judging the Politics and Diplomacy category (won by the Chancellor of the Exchequer, The Rt Hon Rishi Sunak MP) said: “It was an honour to be part of the first Northern Asian Powerlist and celebrate the contribution British Asians are having in communities across the North of England.”

PRESIDENT

AIA introduces its new President AIA is pleased to announce the appointment of Shahram Moallemi as President.

IA is pleased to announce the appointment of Shahram Moallemi as President, who was elected on 12 November and will take over the role from Les Bradley. Shahram is based in the United Kingdom and runs his own accountancy practice, which provides a range of services and guidance to businesses throughout the UK, as well as specialist sector advice to those in media and entertainment, professional sports and health care. He joined AIA in 2002 and has been vocal about the benefits of professional membership and the role it plays in protecting the public interest by setting standards through qualifications, continuing professional development and accountability, as well as the production of best practice and skills guidance. As President, he will be responsible for overseeing the governance of AIA and promoting the Association throughout the world. Shahram was elected to the AIA Council in 2011 and serves on the AIA Finance Committee, Applications Committee and Qualifications Committee.

Shahram Moallemi

A message from Shahram Moallemi I am honoured to have been elected as President of Association of International Accountants; this is a not only a privilege, but also a big responsibility, especially in such uncertain times. I have tremendous respect of the task before me, and I will give my best to serve the AIA, to help achieve its goals, and to promote the AIA for the benefit of its members globally. One of the greatest strengths of the Association of International Accountants is the scope and diversity within our membership who work in a wide variety of sectors, countries and businesses and successfully contribute to and support the global economy. I take over this role at a time of significant change and disruption to businesses all over the world. For the AIA, this means we must rapidly adapt and use new technologies to continue to deliver world class training and qualifications, as well as respond to the changing needs of our members.

To this end, I will continue the work started by my predecessor, Les Bradley, who has overseen the new syllabus review and fast tracked the provision of online learning and exams. I would like to take this opportunity on behalf of the Council to thank him for all his hard work and acknowledge the great progress he made for our Association in extending the AIA’s qualification pathways through relationships with other professional bodies and developing the AIA’s global reputation. As a guideline to my tenure as President, I’d like to stress the importance of being an open and inclusive membership organisation that is dynamically engaged with its communities. For me, this means facing today’s challenges with a common goal of improving, extending and developing the accountancy profession and leading the AIA as a progressive and outward-looking organisation. Thank you to all. ISSUE 114 | AIAWORLDWIDE.COM

PRESIDENT

Outgoing President: Les Bradley

Les Bradley

On his appointment, Shahram, said: “I am delighted to be elected as AIA President and look forward to using my experience to represent the AIA, members, students and the wider accountancy profession. I begin my tenure during a challenging time during which we have, and will continue, to evolve at pace using new technologies and our own expertise to transform professional education in the finance sector. “AIA will continue to support all members working throughout the spectrum of the profession and throughout the world, as they continue to play a vital role in business development.” Other appointments ratified at the AIA Council Meeting, held virtually on 12 November 2020 were:Philip Ford was re-elected as Vice President; and Linda Richards was elected as Vice President. ●

PLAN THE RIGHT STRATEGY FOR YOUR CLIENT

After seven years as AIA President, the time has come for me to step down and pass on the honour and responsibilities to my colleague and Vice President, Shahram Moallemi. I wish him well and will give him all the support I can in pursuing our ambitions for the future development of the Association. My drive and vision for the AIA is inspired by stories from members. On this journey, I have been to China, Hong Kong, Taiwan, Singapore, Australia, Malaysia and Ireland and I have been delighted to hear from many, many accountants whose successful careers began with undertaking the AIA professional qualification. I have also listened carefully to what our members need from the AIA to support their work and career development and this feedback has been the catalyst for the work the Association has undertaken in recent years to develop AIA recognition and value in membership services. Obviously I have not worked alone, but have enjoyed the loyal support of Council, committee members and the secretariat and, by working together as a team, we have achieved many of our strategic goals. Together, we share a determined desire to strengthen and grow the AIA brand around the world and we recognise that in order to achieve this we must collaborate with partners on new opportunities and communicate clearly the value of the AIA qualification within the accountancy profession and its contribution to protecting the public interest. During my time as President, I have been fortunate to have travelled the world meeting with members, students, associations, governments, businesses and universities to support our founding principle of being a truly international body of accountants. Thank you to everyone who has supported me and I look forward to continuing to support the Association for many years to come.

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STUDENTS

Current issues in auditing: student guidance This article provides support to students with their preparation for the examination sitting in May 2021.

s highlighted to students in the last study guidance articles, within the syllabus for Paper 15 Professional Practice (Auditing) is section 15.5 Current and Professional Issues and Pronouncements. It states in this section of the syllabus that “candidates are expected to keep abreast with the latest developments in professional issues, decisions of legal cases, changes in legislation and issuance of audit and accounting pronouncements that will affect processes, strategies and legal implications of audit assignments and evaluation services and the profession”. This article is being written to support students with their preparation for the examination sitting in May 2021 which will be the final sitting of this paper. As you will appreciate, 2020 was a turbulent time for many businesses as the consequences of the ongoing economic and social challenges caused by the Covid-19 pandemic made themselves felt. It is against this background of economic uncertainty that this final paper has been set and you should be prepared to consider the commercial impact of these times on any risk assessment you explore. For the final time, I re-emphasise to students that the current issues topic is weighted at 20% and is therefore as important as topic 15.1 Regulatory Issues and Professional Practices, and only 5% less important than 15.2 Statutory Audit and other evaluation and 15.3 Audit Strategy and Process. It is therefore of continued concern to the examiner that students do not appear to be adequately prepared in this area. Following the performance on the November 2019 paper, the examiner continues to feel that candidates are expecting this topic to be examined as a discrete question which they can choose to avoid, rather

than as a requirement to contextualise other aspects of the syllabus around the emergent concerns for the profession in a more embedded manner. May I assure you all – this is not the case! To this end, the AIA has produced the following support for candidates preparing for the May 2021 sitting of Paper 15, highlighting a number of emerging issues which they should ensure familiarity with. This article is not intended to be exhaustive but should signpost candidates towards their wider professional reading and towards auditing standards and issues in practice which they might engage in more deeply. Students should also be familiar with the specific more advanced areas of auditing practice that are only examined on Paper 15. The last sitting again exposed limited understanding of both the audit of segmental reports and the audit of related party transactions. A diligent review of the detailed syllabus for Paper 15 should highlight these specific technical concerns. In order to be adequately prepared in this area. you should go over the syllabus and identify the specific accounting standards that are highlighted and ensure that you understand the accounting issues within them. ISSUE 114 | AIAWORLDWIDE.COM

STUDENTS

AIAWORLDWIDE.COM | ISSUE 114

The impact of Covid-19 on reporting and audit

The extent of the impact of the Covid-19 pandemic on global and domestic business activity cannot be overstated. The implications for corporate reporting and therefore for audit are pervasive and require a considerable commercial awareness. There is a lot of guidance available from the International Federation of Accountants to support both accounts preparers and auditors at this time. The key resource which students may find helpful is: bit.ly/2Ix4b6e. This explores the impact of the pandemic on professional judgment and scepticism, audit planning and risk assessment, audit evidence, auditing accounting estimates, going concern, auditor reporting and subsequent events. I have outlined some of the issues in this article but for more exhaustive discussion, engagement with this resource is recommended. For discussion of the auditors’ response to moving to remote audit working, IFAC has detailed some helpful advice at bit.ly/3eRT7gh.

Always these topics represent the audit of an accounting estimate and therefore you should be applying the ideas of ISA 540 Audit of Accounting Estimates, reflecting the move by IFAC to embed increased professional scepticism and evidence of management challenge in the work done. Students are also reminded that Paper 15 is 90% application rather than knowledge recall and that their answers must reflect this. To this end, the examiner advises students to ensure that they understand the key issues in accounting standards and auditing standards, codes, etc. and then apply this to the question diligently. Reiterating the question does not score marks and merely stating the theory without application also results in a very low mark. The examiners’ main observation on the performance of most papers in prior sittings concerned the lack of depth that students brought to their answers. Where students did have a grasp of the issues under consideration, they often failed to develop the discussion to show their application to the case in the question.

STUDENTS Key accounting standards

The most significant changes to accounting standards in recent days relate to both IFRS 16 Leases and IFRS 15 Revenue Recognition, as they create significant new accounting judgments around the lease classification and revenue, and creates additional subjectivity in both aspects of accounting. As new standards which are more complex and often not compatible with previous practice, the risk of error in application and the possibility for management bias being reflected in the estimates is significant. Both standards have also required additional disclosure which needs to be balanced and meaningful to enable users of the financial statements to understand the impact of assumptions on the figures. IFRS 16 is now mandatory and students should be familiar with the treatment required. One key area which is causing concern to the IASB relates to the treatment of onerous contracts. In May 2020, IAS 37 was amended to clarify that the “costs of fulfilling a contract” comprise both: ● the incremental costs; e.g. direct labour and materials; and ● an allocation of other direct costs; e.g. an allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract. There are also concerns around IAS37 Provisions, Contingent Liabilities and Contingent Assets, which were recognised by the initiation of a project in early 2020 to explore: ● aligning the liability definition and requirements for identifying liabilities in IAS 37 with the Conceptual Framework for Financial Reporting; ● clarifying which costs to include in the measure of a provision; and ● specifying whether the rate at which an entity discounts a provision should reflect the entity’s own credit risk. Although the outcome of these deliberations is far from clear as yet, this does identify the issues inherent in the treatment of provisions in corporate reports, and hence the level of risk in their audit currently. This is likely to be of concern for auditors. For IFRS 16 Leases, students should be aware of the reclassification of leases from operating leases recognised in the income statement to finance leases recognised in the statement of financial position with the resultant non-current asset recognition and consequent depreciation. This raises a number of subjective areas for the audit; namely, the valuation and impairment of non-current assets (already recognised as a challenging area of high subjectivity) and the valuation of the lease and the recognition of its costs through the income statement. Students are advised to ensure that they understand the key issues in IFRS 16 so they are able to explore how they would audit the resulting figures.

One key area which is causing concern to the IASB relates to the treatment of onerous contracts.

IFRS 3 Review and impact on goodwill testing and impairment

Following the review of IFRS3 Business Combinations in 2015, the IASB has been reviewing four significant areas of concern within this accounting area: ● the effectiveness and complexity of testing goodwill and impairment; ● the issues around accounting for goodwill subsequent to its initial recognition; ● the identification and fair value measurement of intangible assets; and ● the information regarding the subsequent performance of the acquiree. These issues relate to areas of concern to auditors where professional judgement is key. The Discussion Paper was published on 19 March 2020 and the findings are outwith the syllabus for the final two sittings of Paper 15. However, a familiarity with the problems raised in the debate do represent an area that students should be familiar with. Therefore, students should focus some attention around why accounting in these areas is problematic; and how the auditor may find it difficult to find persuasive evidence to support the assertions of directors.

Other core issues: auditing standards

Paper 15 represents the culmination of your audit knowledge and asks you to demonstrate that you can apply this in practice to complex business areas. One key issue that arises in students’ work is a lack of application of more basic and fundamental audit processes to these complex areas. The auditing standards which students need to ensure they are familiar with and can apply to these types of questions include: ISSUE 114 | AIAWORLDWIDE.COM

STUDENTS

ISA 540 Audit of Accounting Estimates

As paper 15 is considering complex accounting issues in practice, by default every paper will require students to explore and apply how audit of such accounting estimates will be carried out and evidenced. The standard has been subject to recent debate – most specifically, around the issue of professional scepticism and management challenge – and how auditors show evidence of such in their consideration of the estimates. These issues are explored in more depth further in the next issue of International Accountant.

ISA 560 Subsequent Events

Under ISA 560, we must make enquiries of both the management and those charged with governance regarding the issue that is a subsequent event; and understand that this may mean that the consequences of the event cast doubt on either the going concern assumption or the valuation of any key assets. We must also extend discussions to gain external confirmation from other relevant professionals who may be involved with and understand the likely outcome and impact on relevant values – this could include surveyors, solicitors and actuaries, for example.

ISA 570 Going Concern

As Paper 15 contains a case study based upon a real company, the issues you are facing around the audit will naturally encompass an assessment of risk. The questions may ask you to consider the risk in terms of business risk and inherent risk, and to explore the ideas of ISA 315 in a complex area. They may also involve a formal consideration of the going concern issues or may involve applying issues of risk in the external environment to the valuation of such AIAWORLDWIDE.COM | ISSUE 114

assets as inventory or goodwill or other tangible non‑current assets, to name but a few. In terms of the understanding of risk, this must require a consideration of the impact of the global Covid-19 pandemic, which has caused such turmoil – and may continue to do so for a while yet. Therefore, in the risk assessment for any case study company, you must consider to what extent their sales and supply chains have been affected by the restrictions imposed as the world responded to the virus; and how much resilience they have in terms of financial headroom to weather the impact on their activities. You should therefore familiarise yourself a little with the differing responses by international governments to support their economies through the crisis, so as to have a sense of where activity may be especially exposed to problems. There will be very few businesses, beyond perhaps healthcare and food sales, where sales activity will not have been adversely affected. However, even in these sectors there has been considerable disruption in supply! Therefore, you should ensure that you are very familiar with the ideas in the appendix to ISA 570 Going Concern regarding indications of going concern problems.

ISA 701 Communicating Key Audit Matters

Paper 15 is heavily based around a case study or real life scenario, acting as an intermediary between more traditional exam papers and the multidisciplinary case study.

Audit reporting is a core and key component of Paper 15 – 10% of the syllabus is devoted to issues around this reporting. Students are therefore advised to ensure that they understand the way in which audit reports should be modified (including the use of the emphasis of matter paragraph) in light of likely issues arising due to the pressures on business from Covid-19. ISA 701 requires auditors to discuss the key audit matters in their report as a mechanism for improving communication of audit with stakeholders. Students should ensure that they understand the requirements of ISA 701 and can apply these to discussing high risk issues arising within the audit.

ISA 710 Comparative Information – Corresponding Figures and Comparative Financial Statements

Paper 15 is heavily based around a case study or real life scenario, acting as an intermediary between more traditional exam papers and the multi-disciplinary case study. As we are exploring the life of the audit and the audit practice, one key area for consideration is around gaining new audit clients, as well as maintaining these clients. This involves the interface between a number of core auditing standards and there is some evidence that students are forgetting about some of these basic ideas in responding to complex problems. Where this is the first year of the audit, the issues arise around the responsibility for the comparative figures and the impact of these on any audit report modifications. Paper 15 explores your understanding of the practice of auditing – both at the client level and also within the firm. ●

BREXIT

What’s next for the self-employed? Richard Hepburn takes a closer look at how Brexit will affect the self-employed in the months and years to come. Richard Hepburn Operations Manager, Gorilla Accounting

t’s not just Covid-19 worrying contractors and freelancers at the moment, but also Brexit – whether or not they have clients in mainland Europe. While the UK left the EU on 31 January 2020, it entered a transitional period until 31 December 2020 in which EU law is still applicable. So, with the transitional period coming to an end soon, it’s crucial that self-employed individuals are aware of what to do and how Brexit can affect their business.

VAT taxation after Brexit

One of the things that contractors will have to consider is VAT. Not all businesses have to register for VAT and pay this tax, only those with an annual turnover above the current threshold of £85,000 (for the current tax year of 2020/21). If your business has an annual turnover below

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BREXIT Intellectual property changes

Brexit will affect businesses that have to file intellectual property applications. The EU has harmonised intellectual property law across members states, including the UK, meaning that freelancers and contractors will need to know their rights and what will change after Brexit, especially if we leave without a deal. The UK will have to create new trademarks, which will likely be comparable to the existing EU trademarks, including filing dates. If there’s a no-deal Brexit, freelancers and contractors will have to give a UK address when applying for a UK trademark, while any address in the EEA is still enough at the moment. If you’re a UK business owner living in the EU, you will likely not see any changes, since your EU trademark will still be valid in member states. However, self-employed individuals may face some loss of protection after the nation leaves the EU. This is because the UK and the EU will no longer have reciprocal protection – something that can be covered in a trade deal. If there is no trade deal, many businesses may see their rights affected, such as database rights. The EU has also implemented the Digital Copyright Directive, which the UK is unlikely to adopt; the government will not be part of the new Unitary Patent either.

this figure, you don’t have to register for VAT, although you can do so voluntarily. After Brexit, it’s likely that the UK will leave the EU VAT area as well. This will have an impact on businesses that trade goods with countries within the European Union, and there will have to be changes to the way VAT works for freelancers and contractors in the UK and in the EU. In the event of a no-deal exit, the selfemployed will not be able to access the EU VAT refund system, which will certainly add to the admin business owners already have to do. It may also change how much tax they’ll have to pay. It’s also possible that freelancers will have to pay VAT in each country they operate in. The way VAT works will also change depending on whether you are providing physical or digital services or products. After all, if you own a business in the UK and sell digital products to EU consumers, you were able to use the Mini One-Stop Shop (MOSS) scheme set up by the EU. This allowed you to submit only one VAT document (which had information from different member countries) in just one EU country. Since the UK will become a third country, you will probably be unable to use MOSS.

Working with international clients

Another thing to take into account is how providing services and products to EU and non-EU countries will look after Brexit. In many cases, business accreditation is necessary across EU member states; therefore, after Brexit selfemployed individuals in the UK may need to get separate accreditation if they want to continue working with international clients. And while many companies in the EU have chosen to work with UK freelancers and contractors, they did so while the UK was still part of the EU, as this meant less admin and frictionless trade. However, now that the transition period is ending, EU businesses may not want to hire UK workers if the process becomes too difficult or if it entails time-consuming paperwork. Still, it’s worth remembering that, even though EU companies may not want to invest in permanent hires at the moment, the same can’t be said of contracting. Contractors and freelancers can be hired on a project basis, so it’s easier to engage their services – and safer, considering the current uncertainty. So even though there may be some issues for the self-employed when it comes to supplying products and services to the EU, there may also be plenty of opportunities.

Employment law after Brexit

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Because many EU employment laws and regulations have been implemented by the UK, there may be some changes after Brexit. However, the UK government has said it has no intention of making changes to the existing

Author bio

Richard Hepburn is Operations Manager at Gorilla Accounting with experience in the contractor accounting sector.

BREXIT

The UK government is being urged to support the self-employed with financial vouchers designed to ease the transition after 31 December.

workers’ rights, which can help to put some contractors and freelancers at ease. However, employment law cases will no longer be referred from UK courts and tribunals to the European Court of Justice. For UK freelancers and contractors in the EU, this is a simpler matter, as employment law will remain the same after 31 December. If you’re a self-employed EU citizen working in the UK, more information or other requirements may be needed after Brexit, but details have not been decided yet.

Freedom of movement is ending

While UK freelancers and contractors can still move freely to and from EU countries, this will end after 31 December. If you’re a UK contractor or freelancer working solely in the UK, you won’t be affected by this. Still, if you have to travel to the EU for work, you may need a visa in the future, although this is still not decided. If you want to move to the EU after the transition period has ended, you will need to check what is required for the specific country you’re interested in. This includes not only immigration laws but also rules around sole trading and owning a limited company.

Financial vouchers for the self-employed?

The UK government is being urged to support the self-employed with financial vouchers designed to ease the transition after 31 December. Despite the fact that the end of the transition period is close, there is still no trade deal in place, which is leaving many contractors and freelancers in the dark. Understandably, they’re concerned over what will change for them once the new year rolls around, which is why the Federation of Small Businesses (FSB) is requesting “transition vouchers” to help them. These vouchers would give self-employed individuals a pre-determined amount of money to spend on training, technology and expertise. After all, according to FSB’s Chairman, Mike Cherry, “The economy is in a very different place today compared to the last time we were told to prepare for a no-deal outcome. Small firms don’t have the time or money to get across new bureaucracy or stockpile.” Contractors and freelancers are unaware of what may happen once the UK leaves the single market and customs union for good because there is no clear direction. It’s crucial that the government clarifies what needs to be done going forward and what post-Brexit trading will look like.

How can you prepare for Brexit?

Unfortunately, because no one knows for sure what will happen after the transition period, it’s impossible to say exactly what businesses need to do in order to thrive in a post-Brexit economy. This doesn’t mean there isn’t anything you can do. On the contrary, you may want to look into some or all of the following:

If you’re a UK-only business, you don’t need to worry about this. However, if you trade with clients in the EU (or with non-EU countries), you will have to register for an Economic Operator and Registration Identification Number (EORI). This will allow you to move goods between the UK and the EU, so start looking into this now as there may be a high volume of applications soon. This is free, which is good news for selfemployed individuals, especially those starting out, as it means you don’t have to account for it in your budget. It’s also a quick process, so it won’t take up a lot of your time.

Check government guidance

Be sure to check the government’s guides and information on what will happen after the transition period. This guidance should be able to answer some questions regarding anything from workers’ rights to IT systems in the event of a no-deal Brexit.

Diversify your work

Having several revenue sources is always important for freelancers and contractors, and this will be no exception after Brexit. This can help you to make up for any losses that can occur, so consider all your skills and think about what else you can start doing.

Make sure you can get paid

One of the major challenges ahead for selfemployed individuals who work with international clients is getting paid. So ensure that you have a system in place to receive payment and that this matches the new rules created by Brexit in order to remain compliant.

Do you receive personal data from the EU/EEA?

If you receive personal data from the EU, you’ll want to make sure you stay compliant with the latest legislation. For example, according to the government, from 1 January 2021, businesses should have Standard Contractual Clauses (SCCs) with EU counterparts if they want to legally receive personal data from users in the EU.

Keep other issues in mind

While getting ready for Brexit can take up a lot of time, contractors and freelancers shouldn’t lose sight of other key challenges, such as the upcoming IR35 reform. You will still need to comply with UK regulations, so make time to continue doing all the admin required for UK businesses, whether you’re a sole trader or limited company owner. Brexit will impact the many freelancers and contractors that set up their businesses in the UK, but this doesn’t mean everything will be negative. There will still be new opportunities to take advantage of, so make sure you’re as ready as possible for when the transition period comes to an end. ● ISSUE 114 | AIAWORLDWIDE.COM

DIVERSITY ÂŠGetty images/iStockphoto

Seize the moment Natasha Frangos Partner and Head of Corporate, haysmacintyre

Natasha Frangos examines how accountancy firms can make the pandemic an opportunity to build diversity and inclusion amongst their workforce. AIAWORLDWIDE.COM | ISSUE 114

hen it comes to diversity and inclusion in accountancy, unfortunately the statistics speak for themselves. A 2019 survey of the top 100 UK accountancy firms confirmed that the profession is still overwhelmingly male, with men comprising

DIVERSITY

Question and answers with Natasha Frangos Natasha Frangos is head of Head of Corporate and Creative, Media and Technology (CMT) at accountancy firm haysmacintyre. After a varied and successful career, Natasha has been honoured as one of Brummell Magazine’s 30 Inspirational Women Champions of Diversity and was recently recognised as “Woman of the Year” at Women in Accountancy and Finance Awards 2020 for her work in driving diversity and positive change in the accountancy sector.

What made you choose to enter the accountancy profession?

You could say that accountancy is in my roots. My father was an accountant with his own practice that he built by himself, so I grew up around it and, in a way, I understood what life in the profession is like. Originally, I had planned on studying languages at university, but I’d always been keen on maths and economics, so soon switched my degree to accounting and finance. The rest is history!

Tell us about your career at haysmacintyre.

I was so determined to make it to my interview for haysmacintyre on time, that I commandeered a motorbike to make it through traffic in the City! My resolve paid off, and within the hour I was offered the job. I trained and qualified with haysmacintyre, and after nine years at the firm, became a partner in 2009. I now sit on the Management Board, as Head of Corporate.

How has the landscape changed for women in accountancy?

Unbelievably, as I was starting out in my career, women had only just started to be allowed to wear trousers in the office; and when I made partner, there had only been a couple of women before me who were in their thirties and had children. Since then, we have come on quite a way. The sector as a whole has taken important steps to improve gender diversity. At haysmacintyre, for example, we have diversity clauses in the partnership agreement and we can now boast an industry-leading 27% female partnership (many of whom are young women with children). All of our female partners, past and present, have helped to drive the firm to where we are now, and our male counterparts’ recognition and support has also proved invaluable throughout. Diversity as a whole in accountancy has evolved considerably over time; but there’s still much more to be done. The Black Lives Matter movement is helping to accelerate that motion, and I believe it’s vital we expand the theme of diversity to consider all angles: disability, ethnicity, gender, neurotypicality, sexuality or any other factor that might mean the current system disadvantages, overlooks or excludes someone.

What advice would you give to women starting out in accountancy now?

You may experience people telling you not to go for something, because you’re a woman. Don’t let that voice take over. Feedback is important, but only if it will help to push you outside your comfort zone – if you don’t, you won’t be able to learn and develop to your full potential. You have incredible opportunities ahead of you – by all means acknowledge and listen to any critique, but don’t allow it to hold you back.

an average of 82% of UK partners within the top 100 firms. The same survey found that over half of the top 100 firms didn’t have a single UK partner from a BAME background, a staggering statistic when compared to the 13.8% of the UK that identified as from a BAME background in 2018. “Diversity and inclusion” is more than just a buzzword; it is a systematic challenge that we need to overcome as a society, and as a profession. There have been encouraging, substantive steps so far by many firms, but set against the upheaval caused by the pandemic, we must ensure that we don’t lose traction.

The impact of Covid-19

When the Black Lives Matter movement increased in momentum in the spring of 2020, it shone a hard and cold spotlight on the scope of diversity issues society is yet to address – one focused on systemic racism across Western society, but that also illuminated broader inclusion issues that we cannot afford to ignore, not only within society as a whole, but within our own profession too. However, the upheaval of the current pandemic risks us forgetting these important lessons, as businesses are understandably preoccupied with surviving the increasing disruption. Even while the disruption continues, we cannot afford to forget that underrepresentation, discrimination and disadvantage in the workplace will require continual effort to combat. The pandemic has also brought its own diversity and inclusion issues to the table. For many, the revolution in home working and shift from the usual nine-to-five weekday routine has shaken loose conceived notions of the workplace. It has forced business leaders to consider new working routes and question the norm in a way that can only benefit efforts to modernise a historically white, male profession. For others, remote working exacerbates existing problems; for example, women working from home often take on a higher proportion of childcare responsibilities and domestic chores than men, regardless of the demands of their job. Because the current level of remote working across society is unprecedented, many employers might not yet have realised this issue. The effects of the pandemic have also had a disproportionate impact on people from ethnic minority backgrounds in the UK, leading the CIPD to recommend that “it’s essential that people professionals and organisations engage with the issues and take steps necessary to address the inequality that ethnic minority employees are facing as a result of COVID-19” (see bit.ly/2JISdHt).

Benefits of diversity

Beyond the new factors of the pandemic, in a practical sense tearing down the unfair barriers to female and BAME professionals, partners and voices in our industry holds inarguable benefits ISSUE 114 | AIAWORLDWIDE.COM

DIVERSITY on a business level. The equation is simple: -the more diverse the professionals within a business, the broader the range of views on offer, the more information that is available to inform a decision, and the more likely that this decision reflects the true nature of wider society and not an isolated bubble representing only one perspective. Equally, how much talent and skill does the industry deter without even knowing? A business that is welcoming to a diverse range of employees and that makes real efforts to improve inclusion across the organisation will attract and retain talented professionals that other businesses might overlook or, worse, discourage. But it’s not enough to argue that increasing diversity and inclusion across the profession is necessary; to most, this is already self-evident. How can accountancy firms make the necessary changes, create the meaningful initiatives and effect real change?

Achieving change

The key is to listen. Embed into the business a culture where all voices are valued and platforms exist for them to be heard. As an example, following the Black Lives Matter movement raising awareness this spring, a number of our colleagues at haysmacintyre created a forum to speak freely on how their own experiences reflected the stories in the news, and ask the necessary questions on where we could improve as a business and as a society. The firm has already progressed a long way: when I first joined the profession there was no need for maternity clauses in the partnership agreement, as none of the partners were women who were yet to have their family. Now haysmacintyre is setting the standard in the industry with 27% of the partners being female and 46% of our entire firm being female. There is still plenty to do but we have come this far because we commit to listening, and forward progress is not an excuse to stop. That is why it was fantastic to see an organic, grassroots effort from our teams to create a space to listen and acknowledge the seismic forces in society that the BLM movement was highlighting. It was not a formal arrangement implemented by the Board, but a group of our professionals who wanted to start a conversation, coming together to share very personal stories and thoughts, and trusting that their voices would be both heard and respected. As a result, we have now created a formalised committee for discussing diversity and inclusion issues – with membership from every level of the business – to nurture this space and ensure it has the support of the firm to make changes where we need them. The aim is to increase inclusivity regardless of ethnicity, gender, neurotypicality, disability, sexuality or any other factor. We recognised that we needed a space dedicated to listening, to continue our existing AIAWORLDWIDE.COM | ISSUE 114

Tearing down the unfair barriers to female and BAME professionals, partners and voices in our industry holds inarguable benefits on a business level.

momentum and learn where we can implement new ideas. To mark the latest step in our diversity and inclusion journey, the firm hosted an unconscious bias training last month to build awareness and promote conscious decision making and take proactive steps to reduce bias in the workplace.

Looking forwards

Many other firms in the sector will have similar initiatives and arrangements, and these will be the engines that drive real change. Listening to the experiences of groups currently underrepresented in business leadership allows firms to focus effort where changes are needed most, but also highlights where flexibility is needed to suit individual experiences. For example, flexible benefits programmes can have a huge effect by adapting benefits to suit employees’ individual needs, rather than imposing a rigid programme that might not suit everyone. Maternity policies are another area that has come a long way since I began as an accountant. Developing effective, flexible maternity policies across all levels, including the partnership, is key to levelling the playing field between female and male professionals, as is implementing paternity policies in recognition of the fact that fathers want to move away from the stereotypical view that childcare lies primarily with mothers. When a firm asks its team to share their experiences and concerns, in the trust that they will be listened to, there is an inherent agreement to take action on the basis of this knowledge. The firm’s part of the “bargain”, in essence, is to take on the responsibility for effecting change once it becomes aware of an issue. Anything less is simply paying lip service and is a disservice to the amazing individuals in the profession who are making change. 2020 will have changed the business models and cultures of businesses across the globe, so we must make sure that we take this chance to further integrate the precepts of diversity and inclusion into our profession, rather than letting them fall by the wayside. Listen, support, make changes where they are needed. Build a stronger business with a range of ideas at the same time as building a better business with an inclusive culture. ●

Author bio

Natasha Frangos is head of Head of Corporate and Creative, Media and Technology (CMT) at accountancy firm haysmacintyre. She has been a partner since 2009.

PUBLIC SECTOR FRAUD

Providing transparency with AI Rachel Kirkham examines how artificial intelligence can identify and rectify potential problems and to ensure public funds Rachel Kirkham Director of AI Solutions, MindBridge

hen it comes to audits in the public sector, both accountability and transparency are essential. Not only is the public sector under increasing scrutiny to provide assurance that finances are being managed appropriately, but it is also vital to be able to give early warnings of financial pressures or failures. Right now, given the huge value of funds flowing from the public purse into the hands of individuals and companies due to Covid-19 measures, renewed focus on audit is essential to ensure that these funds are used for the purposes intended by parliament.

Crime wave

The National Crime Agency has repeatedly warned that criminals are seeking to capitalise on the Covid-19 crisis. The latest warnings suggest that coronavirus-related fraud could end up costing the taxpayer £4 billion. From the rise in company registrations associated with bounce back loan fraud to the (now extended) job retention scheme (furlough) misuse, what plans are in place for government departments to identify the scale of fraud and error and then recoup lost funds? There is no doubt that the speed with which these schemes were initially deployed, when the public sector was also dealing with a fundamental shift in service delivery, created both opportunities for fraud and risk of systematic error. But more than six months on, while the pandemic is still creating economic challenges, the peak of the financial crisis has far from passed. In addition to the extended furlough scheme, ongoing financial

support for businesses and individuals remains important. It is now essential to learn lessons in order to both target fraudulent activity and, critically, to minimise the potential loss of public funds in the future – whether that’s to prepare for a third lockdown, a recession or any other government grant. Timing is everything. The government has an opportunity to review the performance from the events of this year and strengthen internal controls to ensure that further use of public funds is appropriate. Technology should play a critical role in detecting and preventing future fraud and error.

Intelligence-led audit

If the public sector is to move beyond the current estimates of fraudulent activity and gain real insight into both the true level of fraud and the primary areas to address, an intelligent data-led approach will be critical. The use of artificial intelligence (AI) in public sector IT systems can be used to detect errors, fraud or mismanagement of funds, and to enable the process changes required to prevent further issues. HMRC is leading the way, using its extensive experience in identifying and tackling tax fraud to address the misuse of furlough – an approach that has led to many companies making use of the amnesty to repay erroneous claims. Other public sector bodies, especially smaller local authorities, are less likely to have the skills or resources in place to undertake the required analysis. If public money is to be both recouped and safeguarded in the future, it is likely that a central government initiative will be required to ensure not only that this technology is being used, but also that it is being used to its full potential. ISSUE 114 | AIAWORLDWIDE.COM

PUBLIC SECTOR FRAUD Building a digital footprint

Data resources are key. The government holds a vast amount of data that, when combined with other sources of data that contribute to an organisation’s digital footprint, could be used to verify facts and ensure the correct funds are being granted to the right organisations. Data from sources such as social media profiles and activity, to website traffic and content updates, can be used to corroborate the trading status of an organisation, and therefore if it is eligible to receive the possible funding. This data must be used ethically, responsibly and appropriately – after all, the government has a duty to safeguard taxpayer money and ensure that it is being used in line with its intended purpose. This can be achieved by having the right processes in place and using the right technology to ensure that no fraudulent claims are able to slip through the net. By using large pools of available data and combining it with intelligent and advanced predictive analytics and machine learning technology, the government will be able to identify true anomalies: detecting whether a digital footprint has been organically grown or whether a company’s website was set up just days before claiming the funding, with no activity since.

Author bio

Rachel Kirkham is Director of AI Solutions at MindBridge, responsible for the delivery of tailored solutions and services.

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©Getty images/iStockphoto

Taking control

In addition to identifying fraud, this insight can also feed back into claims processes, providing public sector bodies with a chance to move away from retrospective review and towards the use of predictive analytics to improve control. With an understanding of the key indicators of fraud, the application process can automatically raise an alert when a claim looks unusual, minimising the risk of such claims being processed. While many public sector bodies may still feel overwhelmed, it is essential to take these steps quickly. Even at a time of crisis, good processes are important. Failing to learn from the mistakes made in the first “round” of the furlough scheme will simply compound the problem and lead to greater misuse of public funds as the scheme now continues. No one can be certain as to how long the current lockdown in England and other parts of the UK will continue, or how often in the future the furlough, or other funding initiatives, will need to be introduced. The public sector, businesses and individuals therefore need to learn how to operate in this environment. This requires the right people to spend time looking at the data, identifying problems and putting in place new controls. With an AI-led approach, these individuals will learn lessons about what worked and what didn’t work in this unprecedented release of public funds. And they will gain invaluable insight into the identification of fraud – something that will provide ongoing benefits for all public sector bodies. ●

BREXIT

Prepare your supply chain Alex Smith considers the impact of Brexit on UK businesses, and the delay to the VAT e-commerce package. Alex Smith Director of Consulting Services, Accordance

ith just over a month to go, negotiations between the UK and EU are ongoing and it is still unclear whether a deal will be reached and, if so, what it may be. The UK left the EU on 31 January 2020 and is in a transition period until 31 December 2020. During this period, the UK effectively remains in the EU’s customs union and single market and continues to follow EU rules. With no extension in sight, a no-deal Brexit is certainly possible. This would have several ramifications for those who trade with the EU. Regardless of whether a deal is agreed or our exit occurs on World Trade Organisation terms, there will be substantial, and in many cases immediate, VAT implications. Add to this the delay in implementing the VAT e-commerce package to 1 July 2021 and within a relatively short period UK businesses will have two new sets of rules for VAT reporting in 2021. This article covers some of the key points businesses should factor into their supply chain planning for 2021.

Treatment of goods and services from 1 January 2021

The treatment of goods moving between Great Britain and the EU will change significantly from 1 January 2021. Reference here is to Great Britain and not the UK because the Northern Ireland Protocol means Northern Ireland will be treated differently. Whilst not explored in this article, it is essential that businesses that trade with Northern Ireland are fully aware of the implications post-Brexit with HMRC releasing further information on accounting for VAT on goods moving between Great Britain and Northern Ireland from 1 January 2021. The concept of dispatches and acquisitions will no longer apply to GB-EU trade, replaced instead by exports and imports. Though zero rating for exports exist if relevant conditions are met, crucially imports

are liable to import VAT and potentially customs duty. To mitigate this, some member states allow import VAT to be accounted for on VAT returns – known as postponed accounting. On B2B transactions, it is essential to determine who will act as the importer of record; for example, contracts with delivery duty paid (DDP) delivery terms should be examined to confirm whether a VAT registration is required. For B2C sales, the distance selling regime will no longer apply to UK businesses shipping goods from GB. If the business remains the importer of record, it must continue to be VAT registered in that country; and if it sells to countries where it was previously below the threshold an immediate registration would be required. If the customer acts as importer of record in its own country, then no VAT registration would be needed but other commercial implications should be considered, along with any impact on sales. Many freight forwarders have offered solutions to this, but all should be carefully considered to the individual business needs. For the treatment of services, businesses can breathe a tentative sigh of relief as significant changes are unlikely. The UK looks set to continue to apply VAT place of supply rules in line with the VAT Directive, in part to avoid instances of double or no taxation. However, businesses should consider the impact of being registered in the EU and the UK on an ongoing basis. Also, the UK mini one-stop shop (MOSS) for supplies of telecommunications, broadcasting and electronic services (TBES) will no longer be available, meaning a MOSS registration for another member state is needed. Where new EU registrations are required, in many countries fiscal representation will be necessary and they are often jointly liable for the VAT. Often additional compliance, including guarantees, is required for this set up. ISSUE 114 | AIAWORLDWIDE.COM

BREXIT Businesses engaging in GB-EU trade of goods must review their supply chain and be fully aware of the implications post 1 January 2021. It may be possible to make changes to the supply chain to mitigate any negative impact by changing contractual relationships and considering the flow of goods, but these steps should be done quickly to be effective.

VAT e-commerce package Treatment of B2C goods and services after 1 July 2021

The EU will introduce new rules that extend the MOSS currently available for VAT accounting on B2C sales of TBES. Known as the one-stop shop (OSS), with effect from 1 July 2021 (previously 1 January 2021), this will be extended to: ● all supplies of B2C services where the VAT is due in a member state other than that in which the supplier is established; and ● intra-EU B2C supplies of goods. The current distance selling thresholds will be abolished and a new €10,000 limit applied to all intra-EU supplies of B2C TBES services plus intraEU distance sales of goods. When the threshold is exceeded, VAT will be due in the member state of delivery, irrespective of the level of sales in that country. This threshold is for EU established businesses, so will not apply to UK businesses. The VAT due can be accounted for via a single VAT return which will be submitted in the member state of Identification. The member state of identification is the country in which the business is registered for OSS. If there is a business establishment in the EU, it will be in that country. If there is no business establishment in the EU, the business can choose which member state in which to be registered. For services supplied by non-EU businesses, the non-union OSS scheme should be used. It should be noted that use of the OSS is not compulsory, with the alternative being registration in all member states where VAT is due.

Author bio

Alex Smith has worked as a member of the consulting team at Sovos Accordance since 2012.

Goods dispatched from within the EU (Union scheme)

If goods are dispatched from a place within the EU such as a warehouse, it will be treated as distance selling in the same way as now. Once the threshold, if available, is exceeded, VAT is due in the member state of delivery. The consequences of this are that the OSS will be available to all sales of goods, irrespective of their value. As such, VAT will be accounted for in the member state of identification at the rate in place in the member state of consumption – this is the country where the VAT is due. The VAT due will be paid to the member state of identification and an OSS return submitted in this country as well.

Goods dispatched from outside the EU (Import OSS)

If goods are dispatched from the UK and the UK is not treated as a member state at the time of delivery, the sale will not fall under the distance

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selling regime. The treatment that will apply will depend upon whether the goods have an intrinsic value of above or below €150. An import scheme will be created covering distance sales of goods imported from third countries or territories to customers in the EU up to an intrinsic value of €150. This is like the system being implemented in the UK from 1 January 2021. The introduction of the import scheme goes hand in hand with the abolition of the current VAT exemption for goods in small consignments of a value of up to €22. Where the goods are above €150, it will not be possible to account for VAT under the IOSS and a full customs declarations must be made.

Marketplaces

There is also a change where a taxable person facilitates distance sales of goods imported from third territories or third countries in consignments with an intrinsic value of less than €150, through the use of an electronic interface such as a marketplace, platform, portal or similar means. This relates to situations where goods are sold via a platform such as Amazon. In such cases, the platform shall be deemed to have received and supplied those goods in their own right. In this respect, it is irrelevant whether the goods are supplied by EU or non-EU suppliers. The marketplace rules also apply when a non-EU seller supplies goods via a marketplace where the goods are already located in the EU at the time of sale. The new VAT rules apply from 1 July 2021. Member states have until then to transpose the new rules of the VAT Directive which is already in place into their national legislation. The current view is that there could be further delays to the introduction of OSS as both the Netherlands and Germany have concerns about it being ready for the July 2021 start date when approving the initial six month delay. However, at a recent webinar attended by EU Commission officials, the opinion was expressed there would be no further delays, and businesses in those member states not ready for the changes would be disadvantaged.

The impact on UK businesses

UK businesses will need to adapt to new rules throughout the year. Between 1 January and 1 July 2021, or later if the e-commerce package is postponed, businesses must comply with one set of new rules and should immediately consider who will be the importer of record. Businesses, particularly in the B2C sector, may find themselves required to register in every member state, even though under the current distance selling rules they may only be VAT registered in a few. After the e-commerce package is implemented, UK businesses can make use of the e-commerce package changes. However, the six month delay creates a major issue for the first part of 2021 and may mean that additional registrations are needed, as well as appointing a fiscal representative, for a relatively short period of time. It is therefore essential that businesses ensure they plan their supply chain with all the upcoming changes in mind. ●

SELF ASSESSMENT

A guide for landlords GoSimple Tax explains the steps that landlords will need to take when completing the Self Assessment.

What tax do landlords need to pay?

As you are aware, landlords must pay income tax on any profits made from their rental property. The amount of tax depends on your client’s total taxable income. At present, the standard personal allowance is £12,500, meaning that clients do not have to start paying tax until they earn £12,501. However, your clients do not get a personal allowance on taxable income exceeding £125,000. If your clients pay income tax at the basic rate (that is, your taxable income is between

f you have clients that make money from renting out property to others, HMRC considers them as a landlord, even if they don’t think they are. As such, your client will need to fill in an annual Self Assessment tax return form (which tells HMRC how much income tax they will owe on their earnings) and submit it before the 31 January deadline. There are several ways to make this process easier and this article acts as a guide to Self Assessment tax returns for landlords.

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SELF ASSESSMENT £12,501 and £50,000), they will have to pay 20% of it in tax, while higher rate taxpayers with income between £50,001 and £150,000 will have to pay 40%. If clients earn more than £150,000 per tax year, they will have to pay income tax at the additional rate of 45%. Please bear in mind that tax laws change and it is important that you keep abreast of these.

Are there any other allowances?

Back in 2017, the government announced a new property allowance for property income. This is a tax exemption of up to £1,000 per tax year for landlords and individuals with income from land or property. If your client’s income from property rental is between £1,000 and £2,500, you or they must contact HMRC. Your client must also report it on a Self Assessment tax return if their income from property rental is: ● between £2,500 and £9,999 after allowable expenses; and ● £10,000 or more before allowable expenses.

Changes to mortgage interest tax relief

Since April 2017, tax relief for mortgage interest and finance costs for higher rate taxpayers have gradually been phased out through a 25% yearon-year reduction for four years. This means that, by 2021, landlords will get tax relief on these costs at the basic rate of 20%. In 2021, 100% of your client’s mortgage interest payments will be covered by this new 20% tax relief.

Key dates throughout the tax year

There are key dates you will already be aware of throughout the tax year for your self-employed clients. Your landlord clients follow these dates too and we recap them below. To submit your clients Self Assessment tax return, they must be registered with HMRC by the 5 October following the end of the tax year. If they have rental income in the tax year ending 5 April 2020, for example, they will need to register as a landlord with HMRC by 5 October 2020. The deadline for your client’s online tax return would then be midnight on 31 January 2021. If they would rather file a paper tax return, it must be sent it to HMRC by midnight on 31 October 2020. Your client would then pay any tax they owe on 31 January 2021 – regardless of the method used to file. HMRC will charge an automatic £100 fine if your clients fail to file their Self Assessment tax return on time. They will have to pay more if it is later and will also be charged interest on any late payments to HMRC. You can calculate your clients estimated penalty for late Self Assessment tax returns and payments at www.gov.uk/estimateself-assessment-penalties. Your clients may also need to make an advance payment towards their next Self Assessment tax bill (known as a payment on account) on 31 January. They may also need to make a second payment on account on 31 July. That being said, it is important to note that due to Covid-19, your clients could defer AIAWORLDWIDE.COM | ISSUE 114

Your client can spread the payments due in January 2021 over 12 months if they are registered in the UK for the Self Assessment tax return. their second payment on account for the 2019/20 tax year to 31 January 2021 if they are registered in the UK for the Self Assessment tax return, and are finding it difficult to make their second payment by 31 July 2020 due to the consequences of coronavirus. Additionally, your clients can spread the payments due in January 2021 over 12 months, as long as the amount due is less than £30,000. However, HMRC will charge them interest if they use this facility. To avoid harm to their revenue stream in the long run, clients should plan their finances with you ahead of time.

Allowable expenses for landlords

As you will be aware, a landlord can deduct allowable expenses from their rental income once they work out their taxable rental profit. Your client’s allowable expenses must be wholly and exclusively for the purpose of their rental property business. In other words, if an expense was not incurred for the property, they cannot deduct the cost from their rental income. There are several types of expenses that can be deducted, including: ● water rates, gas, electricity and council tax; ● general maintenance and repairs to the property though improvements are not included; ● insurance, including contents, policies for buildings and public liability; and ● cost of services that are part of the rental agreement, such as cleaners and gardeners. If your client uses their own car to visit and manage the property, they can also claim a flat rate of 45p per mile for the first 10,000 miles in the tax year. This rate is not affected by the number of vehicles used. In order to take advantage of these allowable expenses, your client must keep accurate records so that they can submit evidence of them should HMRC ask for it. This is yet another reason why getting organised ahead of time is so crucial. If your client keeps their Self Assessment tax return updated in real time (i.e. they update it with their income and expenditure information as soon as they receive it), then your clients have more time to look back over their receipts and determine whether they are allowable expenses. Done right, the Self Assessment tax return process can be simple, and it can also enable your clients to make tax savings. ●

PROFESSIONAL STANDARDS

Preparing for a Desktop Monitoring Review The AIA Compliance Team answer your Frequently Asked Questions about what to expect from a Desktop Monitoring Review.

s a membership body for professional accountants, AIAÂ works in the public interest to ensure that our members engaged in public practice are appropriately regulated for the work that they carry out. Fundamental to this work is monitoring the compliance of Members in Practice with the Money Laundering Regulations (MLR) in the United Kingdom and Republic of Ireland alongside our own Public Practice Regulations. The Covid-19 pandemic has meant that onsite monitoring visits have been suspended; however, leveraging technology means that in-depth Desktop Monitoring Reviews can continue as normal. Receiving notification that you have been selected for a Desktop Monitoring Review (DMR) can be daunting and the Compliance Team often receive emails and calls from members asking what the review means, why they have been selected and how to prepare for the DMR. This article answers some of the most frequently asked questions regarding DMRs and includes information on DMR selection, the process and outcomes.

Why has my practice been selected?

As a Professional Body Supervisor (PBS), AIA is required to establish the risk of its members being used for money laundering and to work to actively uncover money laundering activity by adopting a risk-based approach (RBA) to supervising its member population. This approach is not unique to AIA, and it is being applied by all UK Professional Accountancy Bodies listed under Schedule 1 of the current MLR. If you are an AIA supervised member, information from various sources is analysed to calculate the level of risk allocated to your practice. However, receiving a DMR does not necessarily mean that your practice is viewed as higher risk. ISSUE 114 | AIAWORLDWIDE.COM

PROFESSIONAL STANDARDS

The short answer is no; participation in the review process is mandatory and is enforceable under both the MLR and requirements of the AIA Constitution. Postponement of a review will be granted on the grounds of a pre-booked holiday, bereavement, moving premises or of ill health (supported by a medical certificate). You should contact the Compliance Team as soon as you receive your DMR notification.

What should I expect if I’m selected for a Desktop Monitoring Review?

In advance of your review, you will receive an email from AIA’s Compliance Team notifying you of your selection and asking you to complete an attached AIAWORLDWIDE.COM | ISSUE 114

Pre-Monitoring Questionnaire and Information Request. The request will specify a date by which this information should be returned, usually 10 working days from the date of notification. Please complete the questionnaire as directed and include any documents or evidence requested.

Why do I have to send information to AIA before my review?

The information you provide is combined with pre-existing information on your record to create a background brief for the Quality Assurance Adviser undertaking the review. This process helps to speed up your monitoring review and ensures that we can make best use of the time available and help you derive the greatest benefit from the review.

Can I refuse to participate?

PROFESSIONAL STANDARDS

AIA will contact you with a date and time for your DMR, the name of the Quality Assurance Adviser undertaking the review and details for joining the online meeting. You should confirm your attendance. I’m worried about security and the confidentiality of the information I’m being asked to send.

We can assure you that information gathered during monitoring is treated as sensitive, private and confidential, and used for no other purpose than the monitoring of your practice. It is stored and filed securely. Contacting us on the email address compliance@aiaiworldwide.com for all correspondence relating to your review will restrict access to information to members of the Compliance Team. AIA Quality Assurance Advisers are bound by confidentiality agreements. Refer to the Privacy Policy on AIA’s website for details of how we manage your personal data.

I have submitted the requested information. What happens now?

AIA will contact you with a date and time for your DMR, the name of the Quality Assurance Adviser undertaking the review and details for joining the online meeting. You should accept the invitation to the meeting and confirm your attendance. If you are unable to participate online, you should confirm a telephone number we can use and the adviser will conduct a telephone review. The Compliance Team is on hand to answer all questions relating to accessing the online meeting platform in advance of your review.

What can I do to prepare for the review? The review examines the extent to which work undertaken by your practice is within its current authorisation and level of competence, your understanding of the risks associated with the services you offer and your obligations under MLR. To find out more on how the MLR impact on your accountancy practice, you should refer to the guidance and support AIA provides online by logging in to MyAIA. Information includes Anti-Money Laundering Guidance for the Accountancy Sector (AMLGAS) created by accountancy supervisory bodies, checklists, help sheets, webinar recordings, templates and the Members in Practice Handbook. Where possible, you should be able to provide information on:

● practice accounts for the previous two financial years and the current accounting period; ● business bank account records and bank statements, including client bank accounts; ● your client database and access to client files; ● your practice continuity agreement; and ● practice AML policies/procedures, risk assessments, client due diligence records and suspicious activity report records.

How long will the review take?

You should usually allow approximately 90 minutes for a DMR to take place.

What will happen on the day?

You should join the online meeting via the link provided five minutes in advance of the time of your review, waiting in the lobby until invited to participate. If you are receiving a telephone review, the Quality Assurance Adviser will call you at the previously agreed time. The Quality Assurance Adviser will conduct the review, asking questions that follow a set format, but which allow flexibility in terms of pursuing areas of particular interest and answering any questions you may have. Please remember that the monitoring review is designed to provide you with an opportunity to obtain independent, impartial advice on practising issues and your compliance, and is not designed to find fault with your practice. At the end of the review, the Quality Assurance Adviser will summarise the main points raised during the review and confirm any actions requested during your discussions.

What happens following the review?

You will be emailed with a report of the review findings covering all issues raised during your closing evaluation and outlining your level of compliance, alongside any recommendations. At the end of each section, you are provided with space to enter your own comments. When you are satisfied with your response, please sign the report and return it to AIA, following the instructions within the findings report. Your practice is deemed compliant when all the recommendations made by the Quality Assurance Adviser have been met. Successful completion of a DMR is acknowledged by the issue of a certificate and noted on your record.

How much does this cost?

There is no charge for the monitoring review or certificate. For any queries relating to the DMR or other compliance issues, please contact AIA’s Compliance Team: Tel: 0191 493 0277 Email: compliance@aiaworldwide.com. ● ISSUE 114 | AIAWORLDWIDE.COM

Events

CPD ON DEMAND 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: ● Improve your cybersecurity in three steps ● Building a sustainable practice

● Selling a business during a pandemic ● Top tips when using the cloud to manage documents ● Positive alternative to business closure ● Charity accounts: making a difference Login to your AIA online account and choose ‘Shop’ from the MyAIA menu.

UPCOMING WEBINARS

Your role in supporting clients through financial crisis or insolvency Speaker: Richard Simms 16 December 2020 Covering the latest insolvency developments and insights on business’s ability to stay solvent amid a financial and economic crisis, including: ● the impact of Covid-19 on business operations; ● how to know when a company is insolvent; and ● what your client’s options are during a financial crisis. IR35 in the private sector – an initial assessment Speaker: Paul Mason 8 January 2021 The IR35 changes to the private sector will be in force from 6 April 2021. If clients haven’t prepared, there is still time, but not much and the impacts and ramifications for end clients, agencies,

contractors and practitioners will be severe if they are not prepared. This session will look to answer the queries that are often raised about the responsibilities (and potential liabilities) of the end client decision-maker, those of the agency fee payer, small companies exemption, outsourcing, contractor clients engaged by overseas clients and generally how contractors will be impacted by this huge change. Payroll update: coronavirus and beyond Speaker: Lora Murphy 12 January 2021 Payroll update: coronavirus and beyond will cover: ● latest coronavirus measures: Job Retention Bonus, Job Support Scheme – Open and Closed, Coronavirus-related SSP; and ● getting ready for a new tax year: any updates we have at the point

NAVIGATE THE COMPLEXITY OF TAX

of presenting on new rates for tax year 2021/22, off-payroll working, Scottish Student Loan plan four, changes to CIS, the new employer NICs holiday for businesses hiring veterans. Working from home: Does it work for accountants? Speaker: Victoria Strange 3 February 2021 During this webinar we will examine both the benefits and challenges of remote working, and address how attitudes towards working from home have changed among finance professionals, including advice for those working remotely during the Covid-19 outbreak, and guidance, tools and tips for staying engaged with colleagues and clients. Visit www.aiaworldwide.com/events for more information and registration.

Tolley®Guidance Find solutions quickly, understand how to apply them and avoid undue risks. Tolley®Guidance gives you direct access to critical, comprehensive and up-to-date tax information that you can rely on.

RELX (UK) Limited, trading as LexisNexis®. Registered office 1-3 Strand London WC2N 5JR. Registered in England number 2746621. VAT Registered No. GB 730 8595 20. LexisNexis and the Knowledge Burst logo are registered trademarks of RELX Inc. © 2019 LexisNexis SA-0719-077. The information in this document is current as of July 2019 and is subject to change without notice.

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Technical INTERNATIONAL

IFAC applauds IFRS consultation on Sustainability Standards Board IFAC, the global voice of the accounting profession, applauds the IFRS Foundation Trustees in issuing their consultation paper on Sustainability Reporting. This marks a critical step on the path towards a global solution to sustainability reporting, called for earlier this month by IFAC in its “Enhancing corporate reporting: the way forward” roadmap. IFAC believes that the demand is urgent and real – from investors, policymakers and other stakeholders – for a sustainability reporting system that delivers consistent, comparable, reliable and assurable

information. The IFRS Foundation is optimally positioned to establish a new sustainability standards board that leverages the expertise and disclosure requirements of existing leading initiatives. Under the IFRS umbrella, the work of this new board can connect with the investor focus of the IASB, while also collaborating with respect to reporting requirements designed to address broader stakeholder interests. IFAC CEO Kevin Dancey said: “The IFRS Foundation – with its backing by public authorities, independence and globally respected governance and due process – is the appropriate home

for a new sustainability standards board. The open letter to IOSCO from the five leading global ESG reporting organisations lends further support to the legitimacy of a new sustainability board and I strongly encourage their continued collaborative effort. “Now is the time for professional accounting organisations around the world to lend their expertise and support as the IFRS Foundation Trustees consider this important challenge. IFAC looks forward to engaging with our members and other key stakeholders in formulating a full supportive response to the consultation.”

INTERNATIONAL

The IFRS Foundation proposes changes to the IFRS Taxonomy 2020 to support high-quality tagging of primary financial statements

Submissions are being invited that provide evidence to help inform the standard setting activities of the International Accounting Standards Board. Papers must be submitted by 31 March 2021.

New IFAC white paper explores Accountancy Skills Evolution ahead of virtual global summit As the global accountancy profession began adapting to the Covid-19 pandemic and its consequences, IFAC (the International Federation of Accountants) convened a series of roundtable discussions to understand the implications of the pandemic for professional accountants and leaders, and how their experiences will affect the future of accountancy and accountancy skills. IFAC published a summary of these findings, “Accountancy skills evolution: impact of Covid-19 and the path forward”. This white paper outlines the key themes our stakeholders shared, including accelerated ways of working, impact of technology, practices that align to new societal demands, and the right balance of skills, which collectively illustrate a roadmap for the professional accountant. The roundtable discussions and emerging themes also influenced the structure and content of the upcoming virtual global summit, The Anticipatory Accountant: Global Trends Transforming Learning and Development. The summit, which features world renowned futurist Daniel Burrus and special guest Tom Hood, continues these conversations and focuses on three broad themes: technology, the environment and society.

The IFRS Foundation has published IFRS Taxonomy 2020 – Proposed Update 4 General Improvements and Common Practice – Presentation of information in primary financial statements. The proposals aim to support the high-quality tagging of information presented in primary financial statements and include: ● new elements reflecting common reporting practice; for example, new line items for disclosures related to earnings per share and the transition to new IFRS Standards; and ● new and amended labels to clarify the accounting meaning and intended use of some existing elements. The deadline for submitting comments is 5 January 2021.

Call for papers: 2021 IASB Research Forum The IFRS Foundation is now – together with the journal partner Accounting and Finance – calling for papers for the 2021 IASB Research Forum, which is due to be held on 1 November and 2 November 2021. It is expected to take place in the Asia Oceania region, or virtually if travel is not permitted.

UK AND IRELAND FRC publishes major local audit inspection results The Financial Reporting Council (FRC) has published its inspection findings into the quality of major local audits in England for the financial year ended 31 March 2019. This is the first such report published by the FRC. Of the 271 major local audits in the FRC’s inspection scope, the FRC reviewed 15 audits across the seven largest audit firms, covering both the financial statement opinion and the Value for Money arrangements conclusion work. For the financial statement opinion, two audits reviewed by the FRC required significant improvements and seven required improvements. None of the Value for Money conclusions reviewed required more than limited improvement. Some firms are still not consistently achieving the necessary level of audit quality and therefore need to make further progress. For two firms, Grant Thornton and Mazars, the level of audit quality requires significant improvement, and those firms should perform a detailed root ISSUE 114 | AIAWORLDWIDE.COM

Technical cause analysis of the issues the FRC has identified and put in place an audit quality action plan across local audits to address the FRC’s findings. The key areas of concern requiring action by some audit firms were the valuation of property (including investment property), sufficiency of audit procedures over the occurrence and completeness of expenditure, the response to fraud risks, the impairment of receivables, valuation of pension assets and the effectiveness of the engagement quality control review. The FRC’s Executive Director of Supervision, David Rule said: “High quality local audit is essential to providing local taxpayers and the wider public with an independent, impartial view of a local body’s financial statements and controls. The high percentage of major local audits requiring improvements is unacceptable. “We are pleased to report that all Value for Money conclusions reviewed were assessed as requiring no more than limited improvement and we observed areas of good practice in the audit work of some firms. “We recognise the challenges in the major local audit sector and will be working with stakeholders on the Redmond review recommendations.”

FRC Statement on non-financial reporting frameworks Climate change is one of the defining issues of our time and, by its nature, material to companies’ long-term success. Boards have a responsibility to consider their impact on the environment and the likely consequences of any business decisions in the long term. The FRC’s 2020 review of climaterelated considerations in corporate reporting and auditing found that boards and companies, auditors, professional associations, regulators and standardsetters need to do more.

Development of non-financial reporting

The FRC supports global standards for non-financial reporting as the longterm vision, and welcomes, alongside UK financial regulators and government departments, the recent consultation issued by the IFRS Foundation trustees. However, reaching international agreement on any new standard setter, funding its operation, and allowing it to develop an appropriate conceptual framework and standards will take some time. AIAWORLDWIDE.COM | ISSUE 114

In order to meet the ambition of UK stakeholders to improve the quantity and quality of climate-related and wider environmental, social and governance reporting, the FRC believes that some of the existing frameworks can act as steps in supporting the market to move more quickly to meet the information needs of investors and other capital providers. The FRC therefore encourages UK public interest entities voluntarily to report against the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 recommended disclosures and, with reference to their sector, using the Sustainability Accounting Standards Board (SASB) metrics. The FRC encourages companies to report on these areas within their next reporting cycle, where possible, and disclosure should be considered in the context of the existing strategic reporting framework in the UK. Over the short to medium term, the FRC will consider how best to help companies to achieve reporting under TCFD and SASB that meets the needs of investors. Our ongoing work will take account of these issues; for example, our work may include: ● increasing the focus on climate change considerations in our ongoing Corporate Reporting Review, and Audit Quality Review monitoring work where relevant; ● undertaking a review of reporting under the Streamlined Energy and Carbon Reporting regulations in 2021; ● assessing professional associations’ approaches to climate change, including in their regulatory and curriculum-setting functions; ● incorporating monitoring of climaterelated reporting into our annual UK Stewardship Code and UK Corporate Governance Code monitoring and consider whether climate-related amendments are appropriate within future revisions of these Codes, the Guidance on the Strategic Report and associated guidance; ● investigating developing investor expectations and better practice reporting under TCFD and SASB, plus engage internationally on the developing approach to reporting frameworks and standards; ● highlighting areas of the financial statements of UK GAAP reporters where climate change could be a consideration; and ● undertaking a project considering the role of assurance, and responsibilities of audit committees in this area. Encouraging reporting under TCFD and SASB is a step towards enhancing

reporting. Investors are not, however, the only stakeholder with an interest in climate-related reporting. As set out in the FRC’s recent thought leadership paper on the Future of Corporate Reporting, we propose the development of a future reporting model that meets the needs of a wider set of stakeholders. We envisage this system being digitally enabled. We welcome the work of a number of the framework and standard-setters in indicating, via their Statement of Intent, how existing frameworks may be able to come together to achieve a reporting framework that meets the needs of both investors and a wider set of stakeholders.

Time to raise the bar on climate change reporting An FRC review concludes that corporate reporting needs to improve to meet the expectations of investors and other users on the urgent issue of climate change. FRC supports the introduction of global standards on non-financial reporting, but, as an interim step, encourages public interest entities to report against the Task Force on Climate-related Financial Disclosures’ recommended disclosures and the Sustainability Accounting Standards Board metrics for their sector. Climate change is a defining issue of our time affecting us all. While for some companies the challenge may be further on the horizon, climate change must be integrated into decision making now if it is to be tackled in an orderly way, according to the FRC’s review. To move forward, a reporting framework is needed. The FRC supports the introduction of global standards on non-financial reporting and will engage with organisations working to achieve that goal. In the meantime, the FRC encourages UK public interest entities to report against the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 recommended disclosures and, with reference to their sector, using the Sustainability Accounting Standards Board (SASB) metrics. The FRC’s review reflects the important role boards, companies, auditors, professional associations and investors play in considering and responding to climate-related issues; each has the capacity to act as a driver of change. The FRC’s review sets out key findings, expectations and next steps. The review’s key outcomes are that: ● Evidence of climate considerations influencing business models and company strategy is limited.

Technical ● Some companies have set strategic goals such as “net zero”, but it is unclear from their reporting how progress towards these goals will be achieved, monitored or assured. ● An increasing number of companies provide narrative reporting on climaterelated issues. While minimum legal reporting requirements are often met, users are calling for additional disclosure to inform their decision making. ● Consideration and disclosure of climate change matters in the financial statements lags behind narrative reporting. The review identified areas of potential non-compliance with the requirements of International Financial Reporting Standards. ● The quality of support, training and review provided to audit practices on climate change varies considerably across firms. ● Audits reviewed indicated that auditors need to improve consideration of climate-related risks when planning and executing their audits. ● UK professional bodies and audit regulators in the Crown Dependencies are responding to climate change, but approaches differ in terms of substance and granularity. ● Investors support the TCFD framework, but also expect to see disclosures regarding the financial implications of climate change. Investors are themselves facing a changing regulatory environment.

to provide useful information to the users of those accounts. IAASA conducted a desktop examination of the half-yearly financial reports of 20 equity issuers and the annual financial statements of one equity issuer all with 2020 reporting dates to assess the impact of Covid-19 on those companies and to evaluate the disclosures made regarding Covid-19. IAASA expects that issuers’ 2020 annual and future half-yearly financial reports will provide enhanced disclosures of the impact of the Covid-19 pandemic. In doing so, issuers should ensure that the following disclosures are clearly provided to aid users’ understanding of the financial statements: ● the effects of the pandemic on the financial performance, financial position, cash flows and risks; ● the critical judgments, sources of estimation uncertainty, sensitivities to and changes in the assumptions underpinning assets, liabilities, income, expenses and cash flows; ● the actions taken to mitigate the impact of the pandemic; and ● the future prospects for the issuer and changes, if any, to the issuer’s strategy for dealing with the pandemic.

Sir Jonathan Thompson, Chief Executive of the FRC, said: “Users of corporate reports expect more from companies, auditors, regulators and standard setters in terms of climate change reporting. While this review highlights some bright spots of better practice in both corporate reporting and auditing, we also found that more needs to be done. I know that this is a difficult time to ask for more, but now is the time for all of us to raise the bar.”

IAASA has published its ISA 701 Thematic Review. This thematic review explores how a sample of auditors of public-interest entities complied with the requirements of International Standard on Auditing (Ireland) 701, Communicating Key Audit Matters in the Independent Auditor’s Report (ISA 701). Key observations in the thematic review include some of the characteristics of the more informative auditor’s reports, which are: ● detailed, specific descriptions of the nature of the risks, how the matter was addressed and key observations; ● the inclusion of key observations in the body of the KAM; ● specific reporting on how materiality was applied, including thresholds such as performance materiality and the threshold for reporting unadjusted differences. Also, details of qualitative considerations relating to the evaluation of materiality; and ● specific, granular details of how the scope was influenced by each

IAASA calls on companies to provide high quality, company specific disclosures of the impact of Covid-19 IAASA, Ireland’s accounting enforcer, has published an Information Note highlighting the accounting treatment applied by companies impacted by Covid-19. IAASA is calling on companies to redouble their efforts to provide high quality, company specific disclosures of the impact of Covid-19 in their accounts so as

The Information Note is available on the IAASA website.

IAASA has published its ISA 701 Thematic Review

KAM and how it was influenced by materiality. This may include coverage obtained over certain accounts and, in the cases of group audits, the nature of involvement in the work of the component auditor. The Authority recommends that audit firms move towards increased levels of specificity in the auditor’s report, and that they consider the characteristics of the most informative auditor’s reports described above.

EUROPE European accounting enforcers outline common enforcement priorities regarding companies’ 2020 financial statements The European Securities and Markets Authority (ESMA) has published its annual priorities statement titled “European common enforcement priorities for 2020 annual financial reports”. That statement sets out the topics which European accounting enforcers believe those charged with governance should particularly consider when preparing, reviewing and auditing International Financial Reporting Standards (IFRS) financial statements for the year ending 31 December 2020. ESMA and national accounting enforcers, including IAASA, will pay attention to these topics when examining companies’ financial reports in 2020. The ESMA common enforcement priorities related to IFRS financial statements for 2020 year-ends, set out in Section 1 of the Statement, relate to: ● IAS 1 Presentation of Financial Statements; ● IAS 36 Impairment of Assets; ● IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures; and ● IFRS 16 Leases. The ESMA common enforcement priorities related to non-financial information for the 2020 year-ends are set out in Section 2 of the Statement and are: ● impact of Covid-19 on non-financial matters; ● social and employee matters; ● business model and value creation; and ● risk relating to climate change. Section 3 of the ESMA Statement sets out brief considerations on the application of the ESMA Guidelines on Alternative ISSUE 114 | AIAWORLDWIDE.COM

Technical Performance Measures (APM) in relation to Covid-19. In setting these 2020 priorities, ESMA and European accounting enforcers have identified the need to provide transparency regarding COVID-19 which, due to its pervasive nature, is expected to affect many areas of 2020 annual financial reports published by companies.

ASIA PACIFIC MASB publishes Interest Rate Benchmark Reform – Phase 2 (Amendments to MFRS 9, MFRS 139, MFRS 7, MFRS 4 AND MFRS 16) The Malaysian Accounting Standards Board (MASB) has issued Interest Rate Benchmark Reform – Phase 2 (Amendments to MFRS 9, MFRS 139, MFRS 7, MFRS 4 and MFRS 16). The Amendments is word-for-word Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) issued by the International Accounting Standards Board (IASB). The “Notice of Issuance” can be downloaded from the MASB website. The Interest Rate Benchmark Reform – Phase 2 amends some specific requirements in MFRS 9 Financial Instruments, MFRS 139 Financial Instruments: Recognition and Measurement, MFRS 7 Financial Instruments: Disclosures, MFRS 4 Insurance Contracts and MFRS 16 Leases; with respect to issues that affect financial reporting during the reform of an interest rate benchmark. The Amendments provides a practical expedient whereby a company would not derecognise or adjust the carrying amount of financial instruments for modifications required by interest rate benchmark reform, but would instead update the effective interest rate to reflect the change in the interest rate benchmark. On hedging relationship, entities would be required to amend the formal designation of a hedging relationship to reflect the modifications and/or changes made to the hedged item and/or hedging instruments as a result of the reform. However, the modification does not constitute discontinuation of the hedging relationship or the designation of a new hedging relationship. The Amendments shall apply for annual reporting periods beginning on or after 1 January 2021, retrospectively in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates AIAWORLDWIDE.COM | ISSUE 114

and Errors, without the need to restate comparative information. Restatement of prior periods is permitted if, and only if, it is possible without the use of hindsight. Earlier application is permitted.

AMERICA FASB issues standard that delays long-duration insurance guidance and eases early adoption provisions The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that will help insurance companies adversely affected by the Covid-19 pandemic by giving them an additional year to implement Accounting Standards Update No. 201812, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI). For insurers that do not need the extra time, the ASU makes it easier and more cost-effective to maintain their current timelines and early adopt LDTI. “The new ASU has two purposes: first, to ensure a high-quality implementation of LDTI guidance by permitting insurance companies impacted by the pandemic to take an additional year to apply the standard,” stated FASB Vice Chairman James L. Kroeker. “And second, to reduce cost and complexity for insurance companies that remain on track to make a successful transition to the standard by the current effective date.” To facilitate early application and encourage accelerated delivery of better information to investors, the ASU allows insurance companies to restate only one previous period, rather than two, if they choose to early adopt LDTI. For insurance companies that need extra time, the ASU permits them to delay implementation by one year as follows: ● For SEC filers, excluding smaller reporting companies as defined by the SEC, LDTI is effective for fiscal years beginning after 15 December 2022, and interim periods within those fiscal years. ● For all other entities, LDTI is effective for fiscal years beginning after 15 December 2024, and interim periods within fiscal years beginning after 15 December 2025. The ASU, along with other documents the FASB has issued to support stakeholders during the pandemic, is available through the Covid-19 web portal at www.fasb.org.

FASB issues proposal to clarify scope of recent reference rate reform guidance The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that would clarify the scope of the FASB’s recent reference rate reform guidance. Stakeholders are asked to review and provide input on the proposed ASU by 13 November 2020. Trillions of dollars in loans, derivatives and other financial contracts reference the London Interbank Offered Rate (LIBOR), the benchmark interest rate banks use to make short-term loans to each other. With global capital markets expected to move away from LIBOR, the FASB took on a project to help ease the potential accounting burden. As a result of that project, in March 2020 the FASB issued Accounting Standards Update No. 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Topic 848 provides temporary, optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. Since then, stakeholders have raised questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Stakeholders indicated that the modification, commonly referred to as the “discounting transition,” may have accounting implications. These stakeholders raised concerns about the need to reassess previous accounting determinations related to those contracts and about the hedge accounting consequences of the discounting transition. The amendments in this proposed ASU would clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. Amendments in this proposed ASU to the expedients and exceptions in Topic 848 are included to capture the incremental consequences of the proposed scope refinement and to tailor the existing guidance to derivative instruments affected by the discounting transition. The proposed ASU, including information on how to submit comments, is available at www.fasb.org.