Estimado socio, Nuestro producto eGlobal INCP presenta noticias internacionales relevantes para la profesión a nivel global. Todos los artículos son difundidos en su idioma de origen; para filtrar por interés hemos traducido los títulos pero al leerlos en su totalidad los encontrará ya sea en inglés o en español. Para garantizar la recepción de estos correos en su bandeja de entrada, favor agregar este correo electrónico (comunicaciones@incp. org.co) en su lista de correos deseados.
Contable FASB presiona para mejorar las revelaciones de medición del valor razonable Como parte de su actual proyecto de marco para revelaciones, el Consejo de Normas de Contabilidad Financiera de los Estados Unidos (FASB, por sus siglas en inglés) emitió el 3 de diciembre de 2015 una Propuesta de Actualización de Normas de Contabilidad que modificaría los requisitos para la medición del valor razonable y permitiría a las organizaciones determinar su materialidad. […]
IASB se dispone a consultar las medidas temporales relacionadas con las fechas de entrada en vigencia de la NIIF 9 y la nueva norma de contratos de seguros El Consejo de Normas Internacionales de Contabilidad (IASB, por sus siglas en inglés) afirma que realizará una consulta sobre un conjunto de medidas temporales que buscan enfrentar preocupaciones relacionadas con aspectos de la implementación de la Norma de instrumentos financieros antes de la entrada en vigencia de la Norma de contratos de seguros. La Norma de instrumentos financieros [...]
PCC decide eliminar la fecha de entrada en vigencia de 4 normas de contabilidad
IFAC y ANAN exaltan las reformas a la información financiera en el sector público de Nigeria
El Consejo de Empresas Privadas de Estados Unidos (PCC, por sus siglas en inglés) votó el 4 de diciembre de 2015 por eliminar las fechas de entrada en vigencia de 4 Actualizaciones de Normas de Contabilidad (ASU, por sus siglas en inglés) emitidas en el 2014. De esta manera, las empresas privadas podrían abstenerse de realizar una evaluación de conveniencia la primera vez que escojan las alternativas [...]
La Federación Internacional de Contadores (IFAC, por sus siglas en inglés) y la Asociación Nacional de Contadores de Nigeria (ANAN, por sus siglas en inglés) han elogiado las reformas del país frente a la información financiera del sector público. De acuerdo con los organismos, este desarrollo puede consagrar un régimen de responsabilidad fiscal, transparencia y [...]
China busca reforzar sus vínculos con las reglas globales de contabilidad
La calidad de la información financiera es un desafío cada vez mayor
China afirma estar comprometida con un único conjunto global de reglas. China tendrá una mayor participación en la creación de las NIIF. Los movimientos de China fijan la atención en el uso de las NIIF en Estados Unidos. China analizará la manera en que sus compañías internacionales podrían utilizar más las normas de contabilidad trasnacionales para informar mejor a los inversionistas, afirman autoridades chinas [...]
La información financiera es cada vez más compleja, y para muchas compañías es un desafío cumplir con los requisitos de revelación de las normas a la vez que proporcionan a los lectores información significativa y comprensible. Como resultado, los consejos están buscando maneras innovadoras de comunicar los mensajes más importantes [...]
La SEC considera apoyar el uso complementario de las NIIF
Las compañías malasias adoptarán las normas internacionales de información financiera para el 2018
La presidente de la Comisión de Valores de EE.UU. (SEC, por sus siglas en inglés), afirmó que el organismo está considerando una recomendación de su director de contabilidad, James Schnurr, que posibilitaría a las empresas estadounidenses utilizar las Normas Internacionales de Información Financiera como complemento a los Principios de Contabilidad Generalmente Aceptados de Estados Unidos [...]
La compañías malasias están listas para adoptar las normas globales de contabilidad para el 2018, de acuerdo con el Consejo de Normas de Contabilidad de Malasia (MASB, por sus siglas en inglés). Su presidente, Mohamed Raslan Abdul Rahman afirma que la transición se está llevando a cabo en tres etapas. También asegura que la primera ola de cambios se dio en enero de 2012, cuando las entidades públicas [...]
Auditoría Evaluar el impacto de la rotación de auditoría en la calidad y el costo
Crear un ambiente optimizado para la calidad de la auditoría
Aumentar la confianza en la auditoría
La auditoría interna es una función estratégica
Probablemente es justo decir que la mayoría de los Directores Financieros no estaban muy emocionados en un principio con las propuestas para exigir la licitación y la rotación de los servicios de auditoría para sus Sociedades Anónimas: si bien reconocían el hecho de que una sociedad anónima que hubiera utilizado la misma firma de auditoría por mucho tiempo (algunas más de 100 años) podría ser [...]
El ámbito de negocios alrededor del globo se encuentra en constante cambio y se hace más complejo prácticamente cada día. Los auditores se enfrentan a un desafío impuesto por los reguladores y otras partes interesadas para que demuestren que pueden seguir el ritmo de esos cambios a la vez que mantienen un alto nivel de calidad [...]
La confianza en la auditoría es la base de la confianza en los mercados de capital del Reino Unido. El Reglamento y la Directiva sobre Auditoría de la Unión Europea, diseñados para aumentar la confianza en toda Europa, entran en vigencia el 17 de junio del 2016. Al implementarlos en el Reino Unido, el gobierno planea establecer al Consejo de Información Financiera (FRC) como [...]
Es una herramienta de diagnóstico poderosa para comprender la solidez organizacional, en todas sus manifestaciones. En estos tiempos, prácticamente todos los dominios se encuentran en estado de transformación. Siendo ese el caso, existe la necesidad de reexaminar —y de ser necesario reinventar— la relevancia de cada área en cuestión. Esto aplica al tema [...]
RSE
Ética
Cómo afecta la responsabilidad social empresarial el valor de una compañía
Por qué los empleadores deberían utilizar la RSE para liderar una estrategia de beneficios — Reino Unido
Manejar cuestiones éticas en los negocios
Los inversionistas anónimos adoptan la ética
Si bien probablemente no exista una fórmula perfecta para convertir directamente la inversión en responsabilidad social en rendimientos financieros efectivos, generalmente se puede esperar un incremento en las ventas, la rentabilidad y el valor. Esta provocadora pregunta me la hizo recientemente el propietario de un negocio interesado en establecer [...]
Utilizar una estrategia de Responsabilidad Social Empresarial para guiar un programa de beneficios puede apoyar las metas corporativas. Los planes conservadores para exigir una licencia de voluntariado han sido recibidos de diferentes maneras. Dairy Crest está utilizando beneficios de salud y bienestar para ayudar a asegurar su cadena de suministro. Voluntariamente o no, todos los negocios en el Reino Unido necesitan tener [...]
En los negocios, como en la vida, siempre habrá diferencias en la interpretación y la aplicación de los principios éticos. Lo que para algunos puede ser una práctica normal, para otros puede estar fuera de los límites. Sin embargo, como sociedad, tenemos reglas que seguir para protegernos a todos. Recientemente, me he encontrado con situaciones donde la ética ha sido [...]
Más de la mitad de los fondos soberanos más grandes del mundo y un tercio de los fondos pensionales más grandes de Estados Unidos han hecho público un código de ética para su personal. De acuerdo con la publicación anual Public Fund Investment Policies 2015, producida por la Escuela Moritz de Leyes de la Universidad de Ohio, un código de ética ayuda [...]
Cómo afecta la responsabilidad social la contratación y la retención
5 maneras tangibles en que la RSE puede tener un impacto en su negocio
La “inversión ética” se convierte en la plataforma de los activistas para las campañas corporativas
Las compañías líderes en iniciativas sociales también mejoran su imagen como empleadores, y en últimas su capacidad para contratar empleados. La responsabilidad social empresarial (RSE) ya no es una opción para las compañías indias de cierto tamaño: es un requisito legal. En abril de 2014, la muy discutida Ley de Compañías [...]
La Responsabilidad Social Empresarial (RSE) de una compañía está inevitablemente vinculada a la percepción de su marca. Durante la conferencia de Mercadeo y Relaciones Públicas de Asia 2015, Shweta Shukla, directora de comunicaciones y asuntos gubernamentales de Kimberly Clark para el Asia Pacífico, presentó un estudio de caso sobre la manera en que una compañía puede [...]
La “inversión ética” se está haciendo más popular en Australia, dado que activistas están enfocándose en las corporaciones para presionar por cambios en temas tales como solicitantes de asilo y minería, afirman analistas. Investigaciones muestran que la demanda de inversión en compañías consideradas “éticas” está creciendo, de acuerdo con las cifras más recientes [...]
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FASB makes push to improve fair value measurement disclosures As part of its ongoing disclosure framework project, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update on Dec. 3 that would modify disclosure requirements for fair value measurements and allow organizations to determine their materiality. The proposal would remove, modify, or add nine disclosures in Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The FASB makes clear that the proposed amendments language fosters “the use of discretion by entities that reinforces that an entity can assess disclosures on the basis of whether they are material, thereby improving the effectiveness of the notes to financial statements.” However, it’s worth noting the latest proposal incorporates the option to exclude immaterial information that also was stated in the exposure draft, Notes to Financial Statements (Topic 235), Assessing Whether Disclosures Are Material, which was issued in September. Topic 235 intends to promote the appropriate use of discretion by organizations when deciding which disclosures should be considered material in their particular circumstances.
But the FASB mentions that those specific amendments are subject to reconsideration after the Topic 235 comment period closes on Dec. 8. The amendments proposed by the FASB on Dec. 3 would affect all organizations that are required to make disclosures under existing US GAAP about recurring or nonrecurring fair value measurements. The board wants feedback on the application of the proposal to private companies, employee benefit plans, and not-for-profit organizations. Comments are due by Feb. 29, 2016. Instructions on how to submit comments are included in the exposure draft. • The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. • The policy for timing of transfers between levels. • The valuation policies and procedures for Level 3 fair value measurements. • For private companies, the change in unrealized gains and losses for the period included in earnings (or changes in net assets) on recurring Level
3 fair value measurements held at the end of the reporting period.
Topic 820 but would not apply to private companies:
The following three disclosures would be modified:
• The changes in unrealized gains and losses for the period included in other comprehensive income and earnings (or changes in net assets) for recurring level 1, level 2, and level 3 fair value measurements held at the end of the reporting period, disaggregated by level of the fair value hierarchy.
• Private companies would no longer be required to reconcile the opening balances to the closing balances of recurring Level 3 fair value measurements. However, private companies would be required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities. • For investments in certain entities that calculate net asset value, require disclosure of the timing of liquidation of an investee’s assets and the date when restrictions from redemption will lapse only if the investee has communicated the timing to the entity or announced the timing publicly. • Clarify the measurement uncertainty disclosure to communicate information about the uncertainty in measurement as of the reporting date rather than information about sensitivity to changes in the future. These two disclosures would be added to
• For Level 3 fair value measurements, the range, weighted average, and time period used to develop significant unobservable inputs. The FASB indicates that the amendments would take effect on changes in unrealized gains and losses, and range, weighted average, and time period used to develop level 3 significant unobservable inputs would be required only for the most recent interim or annual period presented in the initial fiscal year of adoption. The other proposed amendments would apply retrospectively to all periods presented. The actual effective date will be established after the board considers feedback on the proposal. Source: Accounting Web - By Terry Sheridan
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PCC votes to remove effective dates from 4 accounting standards The Private Company Council (PCC) voted on Dec. 4, 2015, to remove the effective dates from four Accounting Standards Updates (ASUs) that were issued in 2014.
siness Combination, which allows a private company to elect an accounting alternative for the recognition of certain intangible assets acquired in a business combination. In this alternative, a private company would no longer recognize the following separate from goodwill: customer-related intangible assets unless they are capable of being sold or licensed independently from the other assets of the business, and noncompetition agreements.
By doing so, private companies would be able to forgo a preferability assessment the first time they elect the accounting alternatives contained in those updates. The Financial Accounting Standards Board (FASB) will consider the PCC’s decision and whether to issue a standard that would remove the effective dates at an upcoming meeting. The PCC advises the FASB on the appropriate accounting treatment for items under the board’s consideration and on possible alternatives within US GAAP that address the needs of private company financial statement users. The four Accounting Standards Updates that could have their effective dates removed are: • ASU No. 2014-02, Intangibles— Goodwill and Other (Topic 350), which permits a private company to subsequently amortize goodwill on a straight-line basis over a period of 10 years, or less if the company demons-
trates that another useful life is more appropriate. It also permits a private company to apply a simplified impairment model to goodwill. • ASU No. 2014-03, Derivatives and Hedging (Topic 815), which gives private companies – other than financial institutions – the option to use a simplified hedge accounting approach to account for interest rate swaps that are entered into for the purpose of economically converting variable-rate interest payments to fixed-rate payments.
• ASU No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, which allows a private company to elect – when certain conditions exist – not to apply variable interest entities (VIE) guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement. • ASU No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Bu-
Any subsequent change to an accounting policy election would require justification that the change is preferable under Topic 250, Accounting Changes and Error Corrections, according to a FASB memo. Also during its Dec. 4 meeting, the PCC voted to add a project to its agenda concerning the application of VIE guidance to companies under common control that are not already addressed in ASU No. 201407. The PCC directed FASB staff to work with private company stakeholders to develop examples to help clarify application of VIE guidance to such situations. Source: Accounting Web - By Jason Bramwell
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IASB to consult on temporary measures relating to effective dates for IFRS 9, new insurance contracts standard The International Accounting Standards Board (IASB) says it will consult on a package of temporary measures to address concerns about issues arising from implementing the financial instruments Standard before the new insurance contracts Standard comes into effect. The financial instruments Standard, IFRS 9 Financial Instruments, was issued in July last year and has an effective date of 1 January 2018. At that time, the IASB said it would consider potential challenges arising if IFRS 9 is implemented before the new insurance contracts Standard. The measures confirmed today would amend IFRS 4 Insurance Contracts to give companies whose business model is to predominantly issue insurance contracts the option to defer the effective date of IFRS 9 until 2021 (the ‘deferral approach’).
It would also give insurers who implement IFRS 9 the option to remove from profit or loss some of the accounting mismatches and temporary volatility that could occur before the new insurance contracts Standard is implemented (the ‘overlay approach’). The insurance contracts Standard is currently being deliberated by the IASB and a final Standard is expected to be issued in 2016. An Exposure Draft setting out these measures will be published later this year for public consultation. If confirmed after the public consultation, these measures will not affect companies that do not issue insurance contracts. Source: CFO Innovation
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IFAC, ANAN laud reforms in public sector financial reporting - Nigeria The International Federation of Accountants (IFAC) and the Association of National Accountants of Nigeria (ANAN), has commended the country’s reforms in the public sector financial reporting. The development, according to the accounting bodies, is capable of enthroning a regime of fiscal responsibility, transparency and informed decision making for the good of all.
“Nigeria has to be commended for the fact that it is reforming Public Sector Financial Reporting. IFAC believes that if there is sound public financial management of which financial reporting is the cornerstone, there will be improved decision making in government’’, Prinsloo said. The IFAC chiefs also commended ANAN for contributing to the public sector’s capacity building.
The Chief Operating Officer of IFAC, Ms. Alta Prinsloo, gave the commendation on arrival in Nigeria with the Accountability Now Leader of IFAC, Vincent Tophoff, on the invitation of ANAN.
Prinsloo, who described ANAN as an important member of IFAC, noted that the international body was really honored and privileged to be with Nigerian counterpart to look at the good works in relation to financial reporting.
She pointed out that this will give rise to improved public services which will enhance the citizen’s trust in government.
She said the accountancy profession “is an important partner to government on this journey of public financial reporting’’.
According to her, it had always been the wish of African accountants to do what was right, adding that each time she left an African country, she felt proud of being an accountant. IFAC officials were invited to visit ANAN’s establishments, including the Nigerian College of Accountancy (NCA) Jos, the training arm of the association and take part in a one-day workshop titled: “Making Change Happen in the Public Sector’’, in Abuja, tomorrow. The workshop is jointly organized by the Office of the Accountant-General of the Federation and ANAN in collaboration with IFAC. Source: The Guardian (Nigeria) – By Chijioke Nelson
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China seeks to deepen ties with global accounting rules ving its book-keeping rules substantially in line with the IASB, used in more than 100 countries, including within the European Union, but not the United States. The Group of 20 economies (G20) has set a goal of a single set of high-quality, global accounting rules to make it easier for capital to flow across borders and for investors to compare companies. China’s assistant minister of finance Dai Bohua said China wanted to meet the G20 goal through full convergence with IASB’s rules, known as International Financial Reporting Standards or IFRS. “This objective is compatible with China’s reforms and development”, the statement said. • China says committed to single, global set of rules. • China to have “enhanced” involvement in IFRS rulemaking. • China moves throws spotlight on U.S. use of IFRS. China will look at how its international companies could make greater use of cross-border accounting rules to better
inform investors, the Chinese authorities and a global accounting body said it. The London-based International Accounting Standards Board (IASB) and the Chinese Ministry of Finance said they had created a working group to build on a decade-old cooperation agreement. The earlier agreement led to China mo-
More widespread use of international rules could help reassure investors from outside China about the quality of accounts published by Chinese companies. The U.S. Securities and Exchange Commission, which regulates U.S. stock markets, has de-registered dozens of Chinese companies in response to accounting scandals that began surfacing in 2010.
While stopping short of outright adoption of IFRS, such backing from the world’s second-largest economy is a shot in the arm for the IASB, as the United States conducts a protracted debate on whether to back full convergence. In return for the commitment to IFRS standards, China will be kept fully involved in the development of the rules. “Such involvement is fully consistent with the request of the G20 to deepen the participation of emerging economies in the work of the IFRS Foundation and the IASB”, the joint statement said. Strengthening ties between China and the IASB will put the spotlight back on the United States and its use of IFRS rules. The U.S. authorities could opt for a “third way”, allowing international companies to file statements to U.S. regulators based on IFRS rather than the U.S. GAAP system. The United States already allows foreign companies listed on American exchanges to. Source: Reuters - By Huw Jones
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SEC considering support for supplemental use of IFRS Securities and Exchange Commission chair Mary Jo White said the SEC is considering a recommendation from SEC chief accountant James Schnurr that would allow for the supplemental use of International Financial Reporting Standards by U.S. companies in addition to their U.S. GAAP financials. “With respect to the issue of possible further use of IFRS in the United States, as I have said in the past, I believe it is important for the Commission, as a Commission, to make a further statement about its general views on the goal of a single set of high-quality global accounting standards—a topic that the Commission itself has not spoken on since 2010”, White said at the American Institute of CPAs’ Conference on Current SEC and PCAOB developments. “At this conference last year, Jim Schnurr discussed the possibility of allowing domestic issuers to provide IFRS-based information as a supplement to GAAP financial statements without requiring reconciliation. This proposal has the potential to be a useful next step, and the staff has now developed a recommendation for the Commission’s consideration, which staff will be discussing with all of the Commissioners so that we can determine the path forward.” One SEC commissioner, Michael Piowar, told attendees at a Financial Executives In-
U.S. capital markets. The staff will be in discussions with the Commissioners regarding certain regulatory changes that would facilitate the ability of domestic issuers to provide IFRS-based information as a supplement to U.S. GAAP financial statements.”
ternational conference last month that the approach is ”worthy of serious consideration,” and while the specific details would need to be worked out, the SEC “should take this additional step forward.” Partner insights At the AICPA conference, White noted that since 2007, the SEC has permitted foreign private issuers to include financial statements prepared in accordance with IFRS, as issued by the IASB, in filings with the SEC without requiring reconciliation to U.S. GAAP, and today, over 500 issuers representing tri-
llions of dollars in aggregate market capitalization report to the SEC using IFRS. “The Commission staff monitors and reviews the application of those standards in filings with the SEC in the same manner that it monitors and reviews the application of GAAP, making IFRS very much a focus in the SEC’s work,” White added. Schnurr also addressed the conference, saying, “As I mentioned at this conference last year, Chair White asked me to make a recommendation to her as to what action, if any, the Commission should take regarding the further incorporation of IFRS into the
In the meantime, he believes the Financial Accounting Standards Board and the International Accounting Standards Board should continue their convergence efforts. “In the near term, I encourage the FASB and IASB to continue to focus on converging the financial accounting standards,” said Schnurr. “In my view, continued collaboration is the only realistic path to further the objective of a single set of high-quality, global accounting standards. This collaboration should include the FAF, IFRS Foundation, FASB, and IASB along with appropriate outreach to the various jurisdictions that use the accounting standards. The converged revenue recognition standard is a good example of where, through collaboration, we expect to see improved financial reporting. The transition from a reporting model that currently consists of industry specific and at times disparate models, to a single comprehensive model grounded in core concepts and clear principles is a shift that has the potential to benefit investors by providing more decision useful information”.
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SEC considering support for supplemental use of IFRS SEC deputy chief accountant Julie Erhardt discussed how the U.S. is already engaging with the IASB on developing international standards. “The first observation that I have is that the U.S. was a strong supporter and active participant in the global accounting profession’s decision to convert the former volunteer-based International Accounting Standards Committee into the permanently-staffed IASB,” she said. “If nothing else, this genesis suggests that there are many companies and organizations in the United States with a connection to the IASB’s work and the ongoing international efforts to support it. This would suggest to me that we in the U.S. should continue to be actively involved with IFRS. Or by way of metaphor, we should continue to water the tree that we helped to plant. Two ways that the SEC staff itself helps to do this today are to serve as an Observer to the IASB’s IFRS Advisory Council and to serve on behalf of IOSCO as an Observer to the IFRS Interpretations Committee.” Erhardt argued that the U.S. needs to continue to play a role in developing international standards. “I would next observe that the U.S. is perceived as a perennial leader on financial reporting policy matters, possessing a lot of historical perspective as well as current real world experience”, she said. “I think this leads to the conclusion that those in the U.S. may have financial reporting re-
lated experiences that others do not, and of course others have experiences that those in the U.S. do not. The potential benefits to everyone of sharing their experiences across borders would suggest to me that the U.S. should, and for that matter can’t afford not to, be involved with the work of the IASB. The question then becomes how to harness the unique U.S. experiences to support the work of the IASB. Certainly, the Financial Accounting Standards Board does some of this by its participation in the IASB’s Accounting Standards Advisory Forum and the SEC staff does as well via its leadership of and participation in IOSCO’s multi-country Committee on Accounting, Audit and Disclosure. Also, for example, there are those from the audit firms
who participate in the work of the IFRS Interpretations Committee“. Erhardt sees a number of benefits for the U.S. in staying involved in developing international standards. “The third observation I would like to make is at more of a grass roots level”, she said. “This observation is how I see that the U.S. benefits from IFRS today. Perhaps understandably I first think of the SEC’s decision to allow IFRS reporting by its foreign private issuers without reconciliation to U.S. GAAP. This decision provided the opportunity for the U.S. capital markets to have a common financial reporting framework on which the listed foreign companies could prepare their financial statements”.
She acknowledged that the relationship between FASB and the IASB has been changing, but a further statement by the SEC might provide some reassurance. “Among at least some within the accounting profession overseas there may be concern when it comes to the intentions of the U.S. for engagement with IFRS now that the known terms of engagement, as set out by the FASB and IASB convergence work program, are running their course”, said Erhardt. “If U.S. involvement with IFRS is now to come in a completely ad hoc manner, this could give rise to concerns that there is no memorialized intention or longer term plan for parties from the U.S. to stay engaged with and be supportive of IFRS. A further statement by the Commission on global accounting standards, as discussed by the Chair earlier today, might help to provide reassurance and clarity in this regard. Moreover, I think U.S. practitioners could look for ways to provide input directly into the IASB’s work. This would give the IASB direct input from the U.S. companies and firms that are affected by and benefit from the current reach of IFRS. This input could also be helpful in fostering even further convergence between IFRS and U.S. GAAP”. Source: Accounting Today – By Michael Cohn
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Quality financial reporting is a growing challenge
Financial reporting is increasingly complex, and many companies find it challenging to comply with the disclosure requirements of the standards while providing readers with information that is meaningful and understandable. As a result, boards are looking for innovative ways to communicate the most important messages to their shareholders. There continues to be significant focus internationally on the content and presentation of financial statements by the standard setters and regulators. In the U.S., the Financial Accounting Standard Board has been engaging with financial statement preparers, users, auditors and other stakeholders to support the reduction of the cost and complexity of financial repor-
ting while improving or maintaining the usefulness of information, including more effective disclosures. When Russell Golden became FASB’s new chairman in 2013, he conveyed a hopeful new approach toward change. The groundwork had been laid in the prior year with the Private Company Council, newly formed to challenge questionable complexity in standards. Mr. Golden, while committed to “putting the interests of investors first” and “working to make financial reporting as clear, transparent and useful as possible”, also stressed the importance of “never losing sight of the balance between costs and benefits”. FASB followed through by launching an initiative to simplify accounting standards. Even so, the FASB Outlook newsletter cautioned, “You may think that reducing complexity and promoting simplification is, well, simple. While desirable in concept, in practice achieving both is often easier said than done”. FASB has to date completed and simplified the accounting and disclosure projects for extraordinary items, presentation of debt issuance costs, and the measurement date of defined benefit pension plan assets. It is still working on simplifying the accounting and disclosure requirements for other projects, such as share-based payment, income taxes, measurement of inventory, equity method of
accounting, business combinations, and balance sheet classification of debt. In addition to those projects, the staff is researching other simplifications for income taxes, employee benefit plans, and employee stock compensation for private companies. The Private Company Council has suggested a few ideas for stock compensation, and the FASB staff is working closely with the PCC to evaluate alternatives. To be successful in meeting financial reporting obligations, financial reporting preparers, managers, directors, and executives need to drive the process, obtain the support of management, engage with their auditors and ask the right questions. Planning for Year-End High quality financial reporting requires the appointment of skilled staff, the implementation of appropriate processes and controls, and careful planning by management. Management should establish a process to ensure the quality and integrity of financial statements including their relevance, faithful representation, verifiability, comparability and timeliness. In order to do so, management should dedicate enough time early in the financial year
to focus on the year-end reporting process, establish a timetable for the completion of year-end reporting, and allow adequate time for all issues to be properly addressed. This will require from management enough time to deal with unexpected events and material matters and for the board and the auditors to properly review the financial statements before concluding them. Management should frequently evaluate and streamline this process to confirm the financial reporting obligations of the entity under existing rules and obligations, the appropriate old and new standards which the financial statements are prepared and presented under, the materiality of disclosed information in the financial statements, the assessment of the going concern assumption in the preparation of the financial statements, and the outdated financial information and disclosures that should be considered in advance. How well all participants in the preparation and completion of financial reporting of the entity interact with auditors plays a key role in producing the desired high quality financial reporting. It is important for management to establish a process to engage itself with auditors throughout the reporting period to discuss materiality, significant transactions, and changes to accounting policies, including what impact these may have on the financial
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Quality financial reporting is a growing challenge statements and to address any matters raised by the auditors in the current and prior reporting periods. Moreover, the board will need to consider the audit plan presented by the auditors and how current risks have been addressed in their plan. It should set enough time aside to discuss with the auditors its own list of key matters and ensure these are properly described in the financial statements and the matters that auditors are considering for inclusion in the “Key Audit Matters” section of the audit report. What should be presented in the financial statements? What matters need to be communicated in the financial statements? Management should evaluate whether the financial statements and annual report consider the information needs of investors and other key shareholders. To accomplish this, management will need to consider the logical structure of the financial statements and if the information to be communicated is easy to navigate and understand. There are several strategies available to management to communicate information more effectively and make the financial statements easy to read and follow. Management can
include a table of contents, group relevant and important information together, display notes in order of importance, use boxes and shading to highlight key information, include significant accounting policies in the notes with the items to which they relate, use subheadings within notes to highlight topics of information, use plain English and remove boilerplate wording. Well-informed and transparent financial statements will have critical note disclosures prominently displayed and all disclosures should be clearly written using plain English. Disclosures should be tailored to the entity’s circumstances. All boilerplate wording should be removed, and content pages or cross-referencing in the statements should help users navigate the important information. For an entity to decide what to communicate to its users, the application of materiality is critical to ensure that relevant information is not omitted. Conversely, too much information might obscure the important information for users. Materiality is an entity-specific consideration of what is relevant to the decision-making needs of its financial statement users and therefore there are no uniform thresholds for calculating materiality. As a result, professional judgment is required and consultation with the auditor is recommended.
Materiality is more than just a quantitative threshold over which items are disclosed. As materiality references the size and nature of items (individually or collectively), then the qualitative nature of an item could be material even if the amount is small. For example, related-party transactions on non-market terms may be material to users regardless of the amount. In the SEC Staff Accounting Bulletin No. 99 – Materiality, the staff stated, “A material is ‘material’ if there is a substantial likelihood that a reasonable person would consider it important.” In its Statement of Financial Accounting Concepts No. 2, FASB stated the essence of the concept of materiality as follows: “The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.” This formulation in the accounting literature is in substance identical to the formulation used by the courts in interpreting the federal securities laws. The Supreme Court has held that a fact is material if there is a substantial likelihood that the fact would have been viewed by the reasonable investor as having
significantly altered the “total mix” of information made available. One issue relating to materiality is the accounting policies, estimates and judgments adopted by management in the financial statements. Management normally concentrates more on compliance with the established rules and regulations than on communicating the company’s results and performance to the readers of financial reports. High-quality financial reports should help users understand the performance and position of the business. Instead of being a compliance tool, financial reports should tell the story of the entity’s current-year financial performance, cash flows and financial position using narrative that is specific and relevant to the entity. To evaluate what is material to present and disclose, the board will need to examine if the financial statements reflect its knowledge of the company and its performance for the year and convey the appropriate messages and the narrative in the financial statements and annual report is consistent with the financial information presented. Investors are normally interested in having transparent financial statements in order to make rational and accurate financial and investment decisions. If a company’s bad
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Quality financial reporting is a growing challenge news is obscured and not properly disclosed, the notes do not adequately explain the economic substance of transactions and performance of the entity, and the financial statements do not reflect the key decisions made by management and the board during the period, investors will be misled and risky decisions will be made by them. In addition, the financial statements of an entity should communicate to outsiders the risks involved with that entity. The financial statement should include risk and all other material disclosures, as required by regulations, and informative documentation stating why specific disclosures are excluded. As a rule of thumb, considering the presentation and disclosure of material items, management will need to assess the company’s materiality level to determine the appropriateness of results and disclosures. As the adopted accounting policies by the board and estimates and judgments made by management can influence these decisions, the entity will need to ensure that it is using the appropriate standards and methods to present its information. The board will need to consider whether the adopted accounting policies are appropriate to the circumstances of the company and whether alternative policies (where permit-
ted by the relevant framework) will be more appropriate. The accounting policies should be clear, concise, complete and appropriate for the entity. Management should regularly update accounting policies as accounting standards change and remove immaterial or no longer applicable policies. Management will need to regularly evaluate the impact of new accounting standards in advance to determine if the entity can early adopt the changes to standards or disclose the likely impact for the material impact for the entity, when adopted. Any accounting policies that contain judgmental areas will need to be highlighted (e.g., timing of revenue recognition). The board will need to carefully consider information on ac-
counting estimates and satisfy themselves that the judgments made by management are reasonable. It will need to evaluate if management used an objective and neutral way, and if other alternatives have been considered when they were making judgments. The board may consider engaging other parties, for example, internal auditors or specialists to analyze and evaluate these estimates and assumptions. Management discussion & analysis The purpose of Management Discussion and Analysis (MD&A) is to provide investors with information that the company’s management believes to be necessary to an understanding of its financial condition, changes in financial
condition and results of operations. It is intended to help investors to see the company through the eyes of management. It is also intended to provide context for the financial statements and information about the company’s earnings and cash flows. In 2003, the Securities and Exchange Commission issued an interpretative release providing guidance regarding Management Discussion & Analysis of Financial Condition and Results of Operations. The guidance was designed to elicit more information and transparent MD&A that satisfies the principal objectives of MD&A. In September 2010, the SEC issued guidance regarding MD&A liquidity and capital resources disclosures to advise companies to identify trends, demands, commitments and uncertainties relating to liquidity and capital resources. As described by the SEC staff, MD&A is management’s opportunity to provide investors with its view of the financial performance and condition of the company. It is management’s opportunity to tell investors what the financial statements show and do not show, as well as important trends and risks that have shaped the past or are reasonably likely to shape the company’s future. The objective when preparing the MD&A should be to improve your enterprise’s ove-
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Quality financial reporting is a growing challenge rall financial disclosure by giving a balanced discussion of your enterprise’s financial performance and financial condition including, without limitation, such considerations as liquidity and capital resources, openly reporting bad news as well as good news. A high-quality MD&A narrative will help current and prospective investors understand what the financial statements show and do not show, and discuss material information that may not be fully reflected in the financial statements, such as contingent liabilities, defaults under debt, off-balance sheet financing arrangements, or other contractual obligations. It should also discuss important trends and risks that have affected the financial statements, and trends and risks that are reasonably likely to affect them in the future. The MD&A should also provide information about the quality, and potential variability, of your enterprise’s profit or loss and cash flow, to assist investors in determining if past performance is indicative of future performance. To achieve these high quality measures, the board should be up to date on any new or amended disclosure requirements, consider the balance between positive and negative news in the discussion, review information about future prospects and the degree of uncertainty attached to these prospects as actual results may differ, and ensure that the document is written in plain English and avoids boilerplate text.
By meeting with management, discussing and documenting any findings arising from the board review and the independent auditor’s assessment of the MD&A, the board will be able to evaluate the information presented in the document and if it provides the quality and potential variability of the entity’s earnings and cash flows to assist investors in determining if past performance is indicative of future performance. Other information An entity may face difficult economic conditions and significant adverse events that may require additional consideration and disclosure in the entity’s financial statements. Many entities now report non-GAAP financial measures as performance measures, liquidity measures, or both. A non-GAAP measure is defined as “financial information that is presented other than in accordance with all relevant GAAP.” Many times, these disclosures tend to be boilerplate or too general to help readers understand how they should use a particular measure. The board will need to carefully consider why the alternative measures presented are useful and not misleading to investors. The board will also need to read the non-GAAP disclosures and examine the following: the presentation of non-GAAP
measures is not given undue prominence (the order of presentation and the degree of emphasis) to measures calculated and presented in accordance with GAAP in the SEC filing or a press release; the non-GAAP financial measures are presented with quantitative reconciliations to the most directly comparable GAAP measures; and the non-GAAP measure that is used as both a performance and liquidity measure is reconciled with the most directly comparable GAAP measure. Other information presented in addition to the financial statements might include summary financial statements, press releases containing financial information or a discussion of financial matters, correspondence broadly disseminated to shareholders, presentations to analysts, financial press, shareholders, and investment professionals, and information and documents filed with regulators such as proxy statements, annual reports, exhibits, etc. The board will be required to ensure that disclosures in the financial statements and other presented information are consistent, the financial statements should reflect all the information previously released in other announcements. The financial information included in the in public announcements should be consistent
with the figures or measures presented and discussed in the full financial statements. In addition, the board will need to establish a process to ensure the information filed with regulators is accurate, consistent, and complete. Some of the most valuable sources of information about a public company are the exhibits attached to its Form 10-K. The most significant category of these documents is material contracts, such as material contracts made outside the ordinary course of business, contracts with a director, officer or shareholder named in the reports, contracts where the entity is substantially dependent, material lease contracts, contracts involving the acquisition or sale of property, plant, and equipment for consideration exceeding 15 percent of the entity’s fixed assets, and management contracts or compensatory plans for directors or executive officers that are not generally available to employees. The board must satisfy itself that there is a process in place to examine and ensure that all additional presented information is being prepared, approved and filed appropriately. Source: Accounting Today - By Ashraf Elkotaney
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Malaysian companies to adopt international financial reporting standards by 2018 Malaysian companies are all set to adopt the global accounting standards by 2018, according to the Malaysian Accounting Standards Board (MASB). Its chairman, Mohamed Raslan Abdul Rahman said the transition is being done in three stages.
The MPERS is almost identical to the IFRS for small and medium enterprises (SMEs) except on the requirements relating to real estate. The MPERS replaces the current outdated PERS, which has not been changed since 2006. By January 2018, companies involved in the
Leng said the board wanted all non-private entities to toe the line in 2012. However, the agriculture and real estate industries were allowed the choice of the MFRSs or to continue with their current practices as the board was mindful of potential changes to the IAS 41 (namely on bearer assets) and the IFRIC 15.
He said the first wave of change took place in January 2012 when non-private entities used the Malaysian Financial Reporting Standards (MFRS), which were identical to the International Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB).
“The second wave of change is scheduled to take place in January 2016, when private entities are mandated by law to apply a new reporting framework, the Malaysian Private Entities Reporting Standard or MPERS,” Mohamed Raslan told Bernama.
IASB had in May 2014, issued a new Revenue Standard, IFRS 15, which when effective, will supersede IFRIC 15. “Unlike IFRIC 15 where there were diverse interpretations on how revenue should be recognised by our property developers, IFRS 15 provides clarity and addresses the issues faced by our real estate industry,” Tan added. She said the MASB had consistently used the effective date of the IFRS 15 as the basis for setting the effective date for the agriculture and real estate industry to apply the MFRS framework.
However, only about 80 per cent of the companies listed on Bursa Malaysia adopted the MFRS in 2012. The remaining 20 per cent, comprising real estate and plantation companies were allowed to continue with their current practices in view of the unresolved accounting issues on the agriculture standard, ‘IAS 41’ and the interpretation of accounting for construction of real estate, ‘IFRIC 15’, he added.
“IASB took up the MASB recommendation and issued the Amendments to IAS 41 in June 2014”, she said.
“Now that the IFRS 15 becomes effective in January 2018, real estate and plantation companies would be mandated to comply with the MFRSs in January 2018”, she added. agriculture or real estate industry are mandated by law to comply with the MFRS framework.
Tan said these changes were driven by the MASB as the board wanted the IASB to address the issues.
“Therefore by 2018, all companies in Malaysia are reporting on the global accounting standards”, said Mohamed Raslan.
The MASB recommended that bearer plants, such as the oil palm and rubber trees, should not be measured at fair value as required by IAS 41, instead these bearer plants should be carried using the cost model.
Meanwhile, MASB executive director Tan Bee
The MASB was established under the Financial Reporting Act 1997 as an independent authority to develop and issue accounting and financial reporting standards in Malaysia. That Act gives the standards issued by the MASB legal authority. Source: Astro Awani Network
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Assessing audit rotation’s impact on quality and cost It’s probably fair to say that most CFO’s were initially unenthusiastic about proposals to mandate tendering and rotation of their PLC external audit service.
In addition, some 13% of the FTSE 250 are expected to have tendered in 2014/5 with a majority choosing to rotate. Much of this was however before the UK requirements had been fully finalized and there is a belief that this percentage will also increase significantly from 2016- 2018.
While they acknowledged the argument that a PLC that had employed the same audit firm for many years (some over 100 years) could be accused of complacency or even lethargy, they refuted suggestions that independence was being compromised by such longevity. They cited the requirement that an audit partner had to rotate every five years – as well as the fact that the average PLC CFO’s tenure was similar – as evidence that cozy relationships could not develop and they worried about the workload in tendering and the subsequent reduction in expertise when a whole new audit team arrived on site. It was, however, difficult for CFO’s to refute the legitimate perception that the guardian of the company’s finances should be prepared to seek competitive bids for a significant corporate cost on more than an occasional basis. They cited alternative, but less transparent ways, of keeping audit fees down, akin to settling things in the corporate equivalent of going behind the bike sheds. There was also a wide held belief that the large and mid cap audit market was too concentrated in the hands of the Big Four
Audit Fee trends
and that regular tendering would allow smaller, mid tier audit firms to penetrate the plc. large and mid cap market. CFO’s expressed scepticism, based on capability and geographic reach outside the Big Four. So, although still in the early stages of the new rotation requirements, it’s fair to ask the question; who was right? The sceptical CFO community, or the guardians of best buying practice and champions of
competition and public perception? The experience so far: Audit tendering and rotation As shown in a 2015 FTSE 100 audit fees survey (published by Accountancy Live, November 2015), nine constituents had changed their audit firm in the last 12 months, with significantly more indicating they will tender over the next 2 years.
In the same 2015 survey, the FTSE 100 audit fee market grew 1.1% to £534m compared to a 1.7% increase in the 2014 survey. As the constituency of the FTSE 100 does not remain entirely stable over a two year period; Company’s tend to grow (bringing more entities into audit scope) and exchange rates can be a factor, it is difficult to isolate pure inflationary pressures, but it appears that the overall FTSE 100 audit fee market is not seeing significant price inflation. However when the audit fees for the 9 FTSE 100 Companies who changed auditors in the past year are assessed, the overall increase for them was 4%. Intriguingly there was a wide range of outcomes within the 9, with some double digit increases and reductions. Is it possible that Audit Chairs, who are now more influential in the tender process, are that little bit less focused on the cost of the
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Assessing audit rotation’s impact on quality and cost audit than their Executive colleagues? Audit quality The definitive view of audit quality comes from the FRC’s annual report on audit quality arising from their inspection of auditors. In their 2014/5 report, published in May 2015, 54 FTSE 350 Company audits in the prior 12 months had been subject to FRC review, a 50% increase on the coverage in 2013/4. Of those reviewed this year, 67% were assessed as either good or requiring only limited improvement, up from 60% on a year earlier and continuing the trend seen since 2011/2.
There is little doubt that audit quality overall is improving, although it would be interesting to see data arising from the FRC reviews in the first year of a new audit firm, to see how quickly incoming auditors reach the required standard. Big Four concentration It was always optimistic to believe that firms outside the Big 4 would quickly break into the FTSE 100 audit market, even if they wanted to (which some doubted). Mid tier audit firms always suggested that a break through would take time and that they were more focused on selling other services into the FTSE 100 market, which indeed appears to be happening. Within the
FTSE 100, all rotations to date have been just that; rotations between the Big Four. Of greater relevance is what has happened in the FTSE 250 market over a longer period. Data from Deloitte suggests that since 2012 the number of non Big Four audit firms present in the FTSE 250 market has actually shrunk, from 13 to 10. The biggest winners? None other than KPMG (up 11) and PWC ( up 3); we appear to be headed in the exact opposite direction desired, if indeed reduced Big Four concentration was an objective of increased tendering. Summary It’s early days in the brave new world
of audit tendering. The data to show the impact it’s having is so far limited and inconclusive. However the direction would seem to favour higher quality, even if it comes at higher cost, with Audit Chairs tending to prefer Big 4 firms. Whether rotation has been influential in delivering that higher quality or whether the work of the FRC’s inspection unit has been the key driver, we can only speculate. Some CFO’s, however, are likely to remain unenthusiastic, or even sceptical, about the benefits of rotation for a little while longer. Source: The Institute of Chartered Accountants in England and Wales – By Robin Freestone
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Creating an optimized environment for audit quality The business environment around the globe is in constant change and getting more and more complex almost on a daily basis. Auditors have been challenged by regulators and other stakeholders to demonstrate that they can keep pace with such changes while maintaining a high level of quality in their work. While initiatives taken by auditors are essential on the path to enhancing audit quality, external factors also play an important role. An analysis as to how to enhance audit quality should consider a holistic view that includes auditors, preparers, other market participants, and regulators. First, we need to step back and understand the quality of education in a country. Colleges and universities are the backbone of an appropriate professional education. The quality of their educational programs will drive the quality of professionals entering the market as accountants in business (preparers) or auditors in the future. Afterwards, effective continuous education programs for preparers and auditors are key to keeping those professionals up to date with relevant changes in rules and regulations. For many years, the continuing education program in Brazil was focused on auditors only. However, more recently, the Federal Accounting Council (CFC) has taken a significant step forward by requi-
ring preparers of larger entities, regulated entities, and listed entities to obtain a minimum number of training hours starting in 2016 on an annual basis. Companies can also contribute to audit quality by having a robust corporate governance structure. The adoption of an ethical culture within the organization, as well as a recruitment and training policy for employees, especially those involved directly or indirectly in key internal control and financial reporting processes, is critical. These factors contribute to improving the quality of information prepared by the entity, which directly affects the evalua-
tion of nature, extent, and timing of audit procedures. The Audit Committee is also a valuable tool for improving interactions between the entity´s governing bodies and the auditor, supervising the financial reporting activities, and the work of auditors. Internally, audit firms of different sizes, including small- and medium-sized practices (SMPs), in Brazil have been continually investing time and resources to enhancing audit quality. ISA™ and ISQC™ 1, which are the International Standards on Auditing™ and International Standard on Quality Control™ developed exclusively by the International Auditing and Assurance
Standards Board®, are required by all audit firms in Brazil—contributing to an improvement in process for firms of all sizes. This continuous improvement process is affected directly or indirectly by several factors, such as: a) Markets: due to the increasing complexity of transactions and constant development of new technologies, auditors need to consider a wide range of specialists to address specific risks, such as information technology, valuation, actuarial, forensic, and financial instruments, just to name a few. For this reason, nowadays, auditors are required to have not only technical skills to adequately perform the audit but also the ability to effectively coordinate the work of all those specialists due to the fact that the auditor retains ultimate responsibility for the work performed by them when the audit report is issued. b) Internal and external inspections: regulators are more active, connected, and collaborative (e.g., formation of the International Forum of Independent Audit Regulators) and have expectations regarding systems of audit quality control, regardless of the size of the firm. External inspections performed by regu-
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Creating an optimized environment for audit quality lators, then, tend to be more focused, consistent, and with common goals. For this reason, it is essential that auditors devote appropriate time to analyzing the deficiencies identified in internal and external inspections in order to properly identify their actual root causes. By developing a structured and adequate process to getting to the root causes of deficiencies, audit firms will be able not only to resolve the specific findings identified in the inspection but also to minimize the risk of finding other potential deficiencies in the firm´s audit processes. c) Litigation: an environment with a higher risk of litigation is an additional ingredient that can influence an audit firm´s capacity to develop and retain talent. Some jurisdictions are currently more litigious than in the recent past, which can result in fewer professionals being interested in entering in or building a career that may last for more than twenty years in that jurisdiction. Ultimately, this can have a negative impact on the ability of such firms to attract and retain talent (a recent Gateway viewpoint sees this as a major challenge for the profession). d) Mandatory firm rotation (MFR): many countries are considering or imple-
menting rules imposing MFR, which brings more complexity to the objective of enhancing audit quality. Such requirements may result in severe consequences to the profession in the medium and long term, including the ability of an audit firm to specialize in certain industries (especially in emerging markets), the career of professionals who devote years of experience to better understanding the industry and the related risks of entities subject to rotation, and the ability of the audit firm to attract and retain talent. Further, it may have a significant impact on a firm´s decision to invest in technology. e) Laws and regulations: in Brazil, the enactment of law 12683 included auditors in the list of “obliged persons” to report suspected acts and evidence that can be configured as money laundering crimes and concealment of assets, rights, and values identified in the course of their audit work. Other countries also have similar requirements for auditors. Although the law definitely contributes to a more ethical business environment, auditors are required to develop a robust internal process to ensure that communications to authorities occur on a timely basis (24 hours when the auditor concludes that there is a suspected
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Creating an optimized environment for audit quality act). Failure to comply with such law may result in significant damage to the audit firm, including, but not limited to, monetary penalties. The Institute of Independent Auditors of Brazil (IBRACON), together with other market participants and regulators, has worked on several initiatives with the objective of contributing to audit quality in firms of different sizes, which are periodically disseminated to all its members through training, roundtable discussions, and issuance of technical communications. Some of these key initiatives are: a) Discussion forums: the structure of the institute includes working groups specialized in certain industries (e.g., financial institutions, real estate, agribu-
siness, insurance, energy, SMPs, etc.). These working groups meet regularly with the objective of discussing emerging issues that may have a pervasive impact on the profession. Regulators and other industry representatives are often invited to participate in the discussions, which result in more robust and comprehensive analysis of the issues included in the agenda of the institute. There is a special focus on SMP activities, including the quality of their services; b) Training programs for university professors: since 2008 through a project partially funded by the Inter-American Development Bank to contribute to the convergence of Brazilian accounting practices with international standards, IBRACON has been providing a complete online training for university profes-
sors. The program aims to reach at least one professor at each university in Brazil that provides undergraduate degree programs in accounting sciences. This online training is free of charge, covering modules on how to prepare classes on International Financial Reporting Standards (IFRS) and ISA. After completion of the training, professors are also entitled to updates deployed in the training platform. More than 500 teachers have already completed such training, which will positively affect future generations of accountants and auditors in Brazil. c) Support for SMPs: the institute also believes that all of its members, regardless of their size, should have equal access to information. The institute take specific actions to provide SMPs with training and tools that contribute to their
engagement performance, including practical guidance in quality control and in performing audits of lower complexity. Enhancing audit quality should be a constant goal for all market participants. The capital market has changed significantly in the past decade and the audit profession remains an important vehicle for increasing users’ confidence in financial information. IBRACON is proud to contribute in this process in Brazil and will continue to welcome any initiative that can support our professionals in fulfilling our responsibility to serve the capital markets. See audit implementation and related resources, on the Resources tab. Source: IFAC Global Knowledge Gateway – By Monica Foerster and Rogério Garcia
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Enhancing confidence in audit Confidence in audit is a foundation for confidence in UK capital markets. The EU Audit Regulation and Directive (ARD), designed to promote enhanced confidence throughout Europe, comes into effect on 17 June 2016. In implementing ARD in the UK, government plans to establish the Financial Reporting Council (FRC) as the UK’s “competent authority”. Whilst in practice much will feel unchanged, the current UK audit regulatory regime will need to be modified. The FRC will have regulatory responsibility for setting audit standards; oversight of audit; and direct monitoring and enforcement of the quality of audits of public interest entities (PIEs). The FRC will delegate other regulatory tasks as much as possible to the audit professional bodies, including the ICAEW, which have a recognized, ongoing and important role. The Department for Business Innovation and Skills is consulting on various aspects of the new regime. The ARD is a complex legislation. The directive applies to all statutory audits. The regulation applies to audits and auditors of PIEs (essentially companies listed on a regulated market, banks, building societies and insurers). The regulation has direct effect in European law and therefore cannot be definitively interpreted by member states. It contains various member state options and derogations. Accordingly
the government, the FRC, other regulators and the professional bodies are working closely together to ensure that the new requirements are implemented and embedded effectively, having appropriate regard to the UK’s well-established and regarded practices. Building on an earlier consultation in December 2014, the FRC is now specifically seeking views on implementation of ARD requirements into its ethical and auditing standards. Key to enhancing public confidence in audit is the strengthening of arrangements to protect auditor independence, and reduce the risk that an auditor faces a conflict of interest when undertaking an audit engagement. The proposed changes also strengthen reporting requirements for the auditor to communicate the results of their work to those charged with governance, and regulators. Where possible, the FRC has avoided gold-plating the requirements necessary to ensure auditors are able to meet their obligations. The FRC has also responded to investor feedback, which supported retaining existing, more stringent, FRC ethical requirements to protect auditor independence, and support public confidence in audit.
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Enhancing confidence in audit The proposed new ethical standard brings all FRC ethical material together into a single document. It sets high-level ethical principles, which are supported by ethical provisions to deliver the behavioral outcomes necessary for auditor independence and objectivity. The proposed standard includes: • The EU required ‘blacklist’ of prohibited non-audit services for public interest entities. • A fee cap on the provision of non-audit services which are not prohibited by law. The cap is proposed at the maximum level of 70% of the average audit fee for PIEs, calculated on a rolling three year basis, for Non-audit services required by EU or national law or regulation are exempt from the cap.
• For all statutory audits, independence requirements that apply to all persons placed at the disposal of the audit firm, or under its control, who are involved in an audit engagement. These apply in a group engagement to the auditor’s ‘network firms’. Where an auditor is used from outside of the group auditor’s network firm, then the provisions of the international code will apply. • Restrictions on gifts and hospitality to a level where an objective, reasonable and informed third party would consider them to be trivial or inconsequential in value.
ting as an advocate for an audit client. The FRC has proposed certain reliefs available for smaller listed entities, where their market capitalization is below £100m, or where they do not have freely tradeable securities. The revised auditing standards incorporate the new EU requirements, and the IASB’s projects on auditor reporting, other information and disclosures. The main changes proposed are:
• A prohibition of the use of contingent fees for tax advice.
• More transparent and granular auditor reporting, both within the auditor’s report, and the report to those charged with governance.
• A clearer prohibition on the auditor ac-
• Explicit reporting on other information,
and an opinion stating whether the other information has been prepared in accordance with an appropriate framework. • Additional reporting by exception on the going concern basis of accounting and related uncertainties. • Additional reporting requirements for the auditors of public interest entities, to regulators. Confidence comes from market participants and so the FRC encourages views from investors, companies and auditors to help secure it. Source: The Institute of Chartered Accountants in England and Wales - By Melanie McLaren
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Internal auditing is a strategic function gamut of organisational activities beginning with compliances, relationships with Board Directors, an evaluation against key performance indicators to actively adding value to organisational processes. It is arguable that audit or internal audit process must, by definition, concern itself with risk management and governance systems of the originations. Predictably this will impact the overall articulation and architecture of the audit process. One of the outcomes will be flexible risk-based audit plans.
It is a powerful diagnostic tool for understanding organizational health, in all in its manifestations. In this day and age, most domains are under a state of transformation. That being so, there is a need to re-examine, and if need be, re-invent the relevance of each area of concern. This applies to the subject area of audit as well. Audit can no longer to be focused exclusively on internal financial controls or statutory checks or external financial dealings. Audit, especially internal audit, is among other things a powerful diagnostic tool for understanding organisational health, in all in its manifestations. It covers the entire
The internal audit must operate from a value which has the touchstone of a purposeful focus. Indeed, the audit committee cannot function without adequate communication and relationship with all the key stake holders and their priorities. It is a positive input that the international internal audit systems have developed internal standards for the professional practice of internal auditing, and it is mandatory by its very nature. To make the operationalization of standards come alive, there must be the will and competency to operate them and make them durable. Like any other area, internal audit requires talented people. They have to be adequately developed and retained. This puts the competency to train for internal audit operations
at the core of the activity. The practitioner of internal audit must know the principles to analyse the data and assess the appropriateness of the results he or she obtains. This will help the organisation analyse performances across the audit parameters and take corrective action as appropriate. Typically the internal auditor reports to senior management. As against this, if audits are conducted by external organizations, there are external auditors, and often they have a statutory obligation. These external auditors have their work open to review and scrutiny by the company management and the shareholders. In certain cases, external auditors can apply their own independent audit mechanism. An obvious area of their work is to certify that financial statements of the organisation give a true and fair view of the firm’s state of affairs, in accordance with the financial reporting framework. As noted above, the internal audit determines the operational efficiency and the appropriateness of resource management of the firm. In many cases, special attention is given to verification of cost records and adherence to acceptable cost accounting procedures. Thus, audits could cover the performance of safety, security and information systems and much more. As newer areas, come under the ambit of the audit process, domains
such as energy audit, organizational health check audit, audit and assessment of current state of projects to ensure project success, are some of the areas where internal audit has been found useful. The average time taken from the staff accountant’s position to a partner’s status can be around 15 years. Obviously this cannot be taken as a rigid framework. Roles at each level of the hierarchy can and do vary. Conducting the auditprocess, among other things, require observation skills, communication skills, skills of sales, marketing and of course, ethics. The other competencies are domain knowledge, technical experiences, reading, comprehension, active listening, analytical skills, open-mindedness and, inevitably, managerial skills. All in all, it will be fair to assume that the audit process is central to understanding what is happening to the organization. For keeping this understanding relevant, organizational audit is needed. What is also needed is an imaginative scenario building for the future. The auditors should be prepared not only for today but also for tomorrow. Auditors are critical for not only keeping the organization going but to prepare it for the future. Audit, especially internal audit, is truly a strategic function. Source: The Pioneer - Andrew Cox
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How corporate social responsibility affects company value by CSR Europe, Deloitte, and Euronext (2003), 79 percent of fund managers and analysts indicated that social management has a positive impact on firm value in the long-term. More importantly, 51 percent of fund managers and 37 percent of financial analysts would grant a stock price premium to socially responsible companies.
While there may not be a perfect formula to directly convert ongoing investment in social responsibility to a realized financial return, you can generally expect to see an increase in sales, profitability and value. This thought-provoking question was recently presented to me by a business owner interested in establishing a corporate social responsibility (CSR) program to designate a portion of the company’s annual profits to benefit the communities in which it operates. I have to admit I was initially puzzled as to how this would impact business value. When presented with the question, my first instinct was to indicate that the overall value of the company would go down. Since valuation is typically a function of available cash flow to the investors and a multiple or capitalization rate, it stands to reason that if a company is designating a portion of the profits for another purpose, albeit a charitable one, less money is flowing to the investors, decreasing the overall business value. That answer gave me pause, though. Should a company’s value be penalized because it has chosen to give back and, in theory, enhance our communities? Being
naturally curious, this led me to undertake a plethora of research.
• Enhanced ability to attract qualified personnel.
Numerous articles and research papers state that CSR has the potential to increase company profits, which is why most large companies are actively engaged in the practice. However, the research could not identify a direct link since CSR is composed of many abstract variables that are generally difficult to define or quantify.
• Greater employee engagement.
Seeing the benefits Having a defined and active CSR initiative can increase marketplace respect for a company, potentially resulting in:
• Increased sales and profitability. From a valuation perspective, how do you devise a formula that will convert consumer respect into a quantifiable increase in sales or profitability? Maybe a better question is, “Will investors pay a premium to invest in a socially responsible company?” The answer is yes. Based on a joint survey of 388 fund managers and financial analysts initiated
While there may not be a perfect formula to directly convert ongoing investment in CSR to a realized financial return, the research suggests that socially responsible companies generally can expect to see an increase in sales, profitability and value. As such, when valuing a company with a newly initiated CSR policy, the valuation analyst should spend significant time with management in preparing a forecast to reflect the CSR investment, ongoing costs and the expected impact on other financial metrics, such as sales, employee and client retention, and improved employee productivity. At the conclusion of my research, this naturally curious valuation analyst reaffirmed the old adage that companies really can “do well by doing good.” Source: The Business Journals – By Rachel Flaskey
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How corporate responsibility affects recruiting and retention According to a 2014 survey by Nielsen, 67% of respondents prefer to work for a socially responsible company, and, according to a recent survey by Deloitte, 50% of millennials want to work for a company with ethical practices.
Companies that champion social initiatives also improve their employer brand, and ultimately their ability to recruit employees. Corporate social responsibility (CSR) is no longer a choice for Indian companies of a certain size: It’s a legal requirement.
$77 million USD), turnover above 10 billion INR (about $155 million USD), or annual profits greater than 50 million INR (about $770,000 USD).
A competitive talent market has proven to be a strong motivating factor behind CSR programs in North America, but measuring their social impact is difficult. While you can quantify financial contributions, you can’t measure the impact those contributions have, or compare one company’s authentic commitment to social change against another’s. The challenge in measuring social impact
In April 2014, the hotly debated Companies Act forced approximately 3,000 organizations to form a CSR committee, and spend 2% of their average net profits over the past three years on social development and environmental projects.
In theory, the mandate has its appeal; it’s comforting to think that “too big to fail” is, at least in one country, also associated with “big enough to do their part.” In the highly competitive North American talent market, however, companies that champion social initiatives also improve their employer brand, and ultimately their ability to recruit employees.
In the United States, where CSR is voluntary, determining a company’s true level of commitment remains a challenge for job seekers. That was the consensus among a group of human resources and corporate social responsibility experts who gathered in New York City in late October as part of a speaker series hosted by the Bigwin Group, a Toronto-based global executive search and talent strategy firm.
The initiative only affects Indian companies with a market cap over 5 billion INR (about
How corporate responsibility attracts job seekers
“Right now, there’s no mandated reporting around corporate responsibility, and the-
re’s different global entities that have tried to create standards about what CSR could look like”, said Tara Cardone, the head of employee engagement and volunteerism at JPMorgan Chase, during the event at Soho House New York. “I think transparency is a good thing in the extent that there’s mandated transparency around CSR metrics, but what are the right metrics to measure?” While there is no universal measurement tool for social impact, pressure from job seekers has forced organizations to recognize the impact they have on the world, which may ultimately prove more effective than any government legislation. “Everyone has a different definition, and its called different things at different companies, but it’s about more than philanthropy; it’s about how you operate as a corporate citizen”, said Karyn Margolis, the director of CSR and sustainability at Avon Products Inc. “It goes back to authenticity; it has to be about how the company operates, and philanthropy and social programs are an extension of that, but it’s much broader than giving away money”. Should corporate mandatory?
responsibility
be
While governments in North America often
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How corporate responsibility affects recruiting and retention play a role in tackling social issues, mandatory CSR has never been on the radar, and perhaps for good reason.
believing that mandatory CSR undermines the objective of socially responsible initiatives.
“The positive of the India example is a broader awareness that there’s challenges here we have to solve; I think that’s a silver lining to what I think is a negative in terms of legislating anything”, said Mike Dallas, senior vice president of human resources and global operations for Hewlett-Packard. “When things get legislated and mandated, you spend a lot of time on accounting and talking a good game, versus letting things happens organically, and we’ve had a much better experience when things are organic”.
“It’s an opportunity for rash decisions, which concerns me”, said Margolis. “As an idealist, I think, ‘This is great, force these companies to give back,’ but practically I just wonder if this will end up being one of those check-the-box things, where at the end of the year if they realize they haven’t donated, maybe they don’t properly vet the charity, maybe it’s not a cause that’s even aligned with their business objectives”.
Other panelists echoed Dallas’s sentiment,
Instead, Margolis believes that the best way to encourage companies to engage in socially conscious business practices is to man-
date transparency. Social responsibility, she believes, will follow. “For example, the conflict minerals legislation here in the U.S. requires companies to report conflict minerals in their supply chain, which is a huge headache for companies, because it’s very difficult if there’s no chain of custody, but it’s mandated, so the companies are focusing on it”, she said. “When that happens, it forces your suppliers to think about it, which forces their suppliers to think about it, so in those situations, government intervention, especially around transparency and reporting, is very beneficial for making change happen”. While the government has a role to play in
getting large organizations to do their part, panelists agreed that there were better approaches than mandating financial contributions. “I would take the John F. Kennedy, ‘We want to put a man on the moon in 10 years,’ approach,” said Dallas. “If it’s a greenhouse gas emission reduction, if it’s a number of people who have literacy, if it’s an amount of clean water, whatever it is, if the government took on an objective, and everyone partnered to accomplish that, however much you want to commit to it, there could be some universal benefit.” Source: Fast Company - By Jared Lindzon
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Why employers should use CSR to lead a benefits strategy – UK Using a CSR strategy to guide a benefits programme can support corporate goals. Conservative plans to mandate volunteering leave have had a mixed reception. Dairy Crest is using health and wellbeing benefits to help secure its supply chain. Like it or not all businesses in the UK need to have a corporate social responsibility (CSR) strategy. While not mandated by law it is becoming an increasingly important part of corporate life. Even not having a CSR policy speaks about how an organisation is run and its attitude to interacting with the wider community. The Chartered Institute for Personnel and Development (CIPD) uses a broad term to help define corporate responsibility. It includes financial as well as social and environmental responsibility and agrees that it should include methods of sustainability. “Underlying all these concepts is the belief that a business that damages the societal, economic and environmental systems on which it depends will ultimately be unsustainable”, it adds. This wider view is increasingly something being considered and appreciated by customers. The Business to Society Survey found that 57% of business leaders belie-
says it is great to see a lot of business leaders and consumers agreeing on the importance of CSR policies. “We know there are many exciting examples of businesses working around core issues, such as employability. However there remains a real opportunity for progressive organisations to look beyond the expected and find ways to tackle less popular issues such as loneliness or mental health, that have a critical impact on individual quality of life”, she says.
ved they should be doing more to tackle social issues, while 63% of consumers said the same.
Clear trends appeared in the areas that business leaders thought were most important to address as part of a CSR strategy.
Indeed 53% of consumers added that they were more likely to give custom to businesses with a strong stance on social and environmental issues.
Perhaps unsurprisingly, the most popular issues that businesses felt they should be involved in subjects that had a more direct relationship with business practices.
And the need for employers to be driving corporate responsibility was even stronger among younger business leaders under 35 years old with 82% of those saying business should do more.
These were helping people into employment (80%), supporting local communities (71%) and tackling environmental issues (68%). Encouragingly, these were well aligned with what consumers thought businesses should be focusing on.
“Businesses that engage on causes, starting from their own employees through to their suppliers and customers, become better businesses, simple as that”, she adds.
Meanwhile, wider social and societal issues were the least likely to draw employer interest. These were: reducing loneliness (25%), tackling homelessness (25%) and providing better care for older people (28%).
Volunteering commitment
The survey of more than 700 business leaders and 2,000 consumers was commissioned by Forster Communications. Social and commercial purpose It said it wanted to highlight the role businesses were playing in social change and the increasing link between social purpose and commercial purpose.
Commenting on the results, Forster Communications CEO Amanda Powell Smith
We believe social good is not a bolt-on but an essential, profitable ingredient in new business models and this survey backs that up.
It appears the Conservative government agrees.
One of its more surprising pre-election manifesto announcements was a commitment to legally entitle employees in businesses of more than 250 staff three days of paid volunteering leave each year. This would be funded by those organisations at a potential annual cost of £2.34bn.
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Why employers should use CSR to lead a benefits strategy – UK The announcement drew immediate praise from the CIPD which noted that corporate volunteering benefited business, employees and the wider community. A survey conducted by the CIPD found that 39% of large organisations already offered paid time for their employees to take part in volunteering opportunities, with an additional 23% offering unpaid time. And those employers participating in such projects were almost unanimous in their praise with 93% saying that they provide a personal development opportunity for employees; teamwork (82%), communication (80%) and an understanding of the local community (45%) being the main skills gained. “Our research shows that corporate volunteering benefits businesses and their employees, as well as the communities in which they work”, says CIPD chief executive Peter Cheese. Not only does it help businesses build stronger roots in their local communities, but it also gives employees an invaluable opportunity to develop new skills and give something back. It can also form part of a new relationship between organisations and their employees, helping them to attract and retain the right talent to meet their wider business objectives.
“We’re pleased to see this agenda being championed”, he adds. Uncertain engagement However, while some employers are embracing volunteering, such as participating in the annual national Give and Gain day, as a benefit to staff and as part of a CSR strategy, many are far more hesitant. This is particularly so when considering the possibility of mandating the practice as is currently proposed.
face an uphill task persuading the majority of employers who don’t currently support volunteering that this is a sound and pragmatic policy”.
“The farmers don’t work for us, they are suppliers (around 1,100 all around the country), but we have been thrilled in the uptake and interest”, he said.
Volunteering is not the only way to embrace corporate responsibility as part of a workplace benefits programme.
You see that their focus is on the animal health not their own. And you saw some interesting pressures going on at the show stands with families pushing the farmers to go and have a check and see what their numbers are, saying ‘Go on, you’ve not been to the GP in 10 years’.
Sharing practical tools and engaging the suppliers, customers and the wider community can also prove fruitful. Cream of the crop
A survey of 226 employers by Jelf Employee Benefits found the majority (61%) were opposed to the policy, with only just over a quarter (27%) supporting it. Its survey also revealed that 28% of employers already offered paid voluntary leave to some (9%) or all (19%) of their employees - slightly lower than the CIPD data.
Dairy Crest has done just that.
“While the intention may be a worthy one, it overlooks the significant impact on employers”, says Jelf head of benefits strategy Steve Herbert.
The take-up and results from the workforce were eye-opening and so last year it decided to take the show on the road to various trade shows, offering the check-ups to farmers attending.
“The two sets of responses show a distinct correlation: 27% of employers support the proposal and a very similar number already offer some level of paid voluntary leave for employees. The government may therefore
The organization already offered a good health and wellbeing benefits package to its employees including regular on-site health checks for conditions such as cholesterol and blood pressure checks.
Speaking at Health at Work 2015, Dairy Crest head of group health and safety and Melachrino explained why this was so important to the business.
“But it was a great way of engaging them and we got lots of positive feedback”. In all 219 farmers were checked at local shows with almost one in three (28%) being referred to GP for a condition they had no idea about. The strategy has proved an important one for the firm as it looks to secure its supply chain and also support those that it works with. It is a key example of how a CSR and workplace wellbeing programme working together can provide a real benefit to the business at a modest outlay. Source: Workplace Savings & Benefits By Owain Thomas
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5 tangible ways CSR can impact your business Secondly, Shukla advised that there be a systematic metric for measuring “hardcore incremental sales” during the period of the CSR campaign that’s been launched. For instance, companies can tie up with partnering retailers for their brands such as Watsons, NTUC, Cold Storage, and engage in market research to measure the total sales for the participating brand during the active period of the CSR campaign in question. Any increased sales during that period can be attributed to the topline and the CSR initiative, Shukla said.
The link between a company’s strong Corporate Social Responsibility (CSR) is inevitably tied to its brand perception.
business future for both KC and the communities that it has adopted as part of its CSR drive.
Speaking at Marketing’s PR Asia 2015 conference, Shweta Shukla, director of communications & government affairs – Asia Pacific, Kimberly-Clark (KC), presented a case study on how a company can go beyond corporate green-washing to implement truly effective CSR policies that enhance corporate reputations.
Here are the five tangible ways CSR can impact your business:
For KC, it partnered with various NGO’s to increase local participation for its CSR initiatives. This helped to forge a new, profitable and more sustainable
1. Build the topline for participating brands Focusing on an impact is important to CSR goals in order it to be effective and aligned with business objectives. Firstly, KC worked with various social entrepreneurs to create an impactful CSR initiative at the local as well as national levels.
In addition, measuring the equity of the brand is just as important: “Do customers end up trusting and loving the brand more after CSR? Did brand perception change in any way?” Shukla explained that the purchase intent of the consumer before and after the CSR initiative is a measurable pursuit and that for companies like KC, it has become a standard practice for its market research teams. Similarly, she advised other companies to conduct such standard practices if they want to truly gauge the efficacy and effectiveness of their CSR efforts. 2. Create a competitive edge with customers
Shukla advised that having strong ethics and CSR policies would also make an effective brand differentiation. According to a Nielsen study, 53% of consumers prefer to buy brands that are making a difference to a relevant cause. Naturally, with enhanced brand perception, a well publicisied and impactful CSR campaign can help to further propel a brand’s name among its competitors. Shukla cited the effect of its CSR campaign ‘Keep Korea Green Campaign’ that has led to KC’s strong corporate reputation in the country. “We are ranked among the other bigwigs such as Samsung for over 11 years in Korea. That’s a track record we attribute to our CSR drive”, she said. In Singapore, it launched a ‘Kleenex-Look after our forests’ campaign to educate the consumer about responsible forestry during the haze crisis. For this, Shukla pointed out that it was a cause that intersected with its corporate business interest as it helped to drive support and sales for the brand. For a successful CSR cause, the campaign must be commercialised across all touch
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5 tangible ways CSR can impact your business points and include a social media campaign, TV roll outs and plenty of point-ofsales materials to drive sales. 3. Facilitate market entry/expansion Building an effective CSR program gives a brand competitive edge with key partners and consumers. Because many customers have their own agenda and CSR priorities, brands must ensure that their CSR efforts align with these values in order to drive footfall and support for the brand. Consequently, CSR can help facilitate entry into a new market before a company decides to set up. For instance, a CSR initiative requires interactions with the government, communities and stakeholders prior to its launch. This first impression is crucial in setting up a successful launch pad for future business opportunities and can help aid the brand’s debut in the market. This is especially true for emerging markets, said Shukla, where competitor brands flood the market while consumers are still learning about the brands they can trust.
Thus, CSR can build the right reputation and trust for smooth entry into a new market. Likewise, these efforts also help for market expansion goals in the brand’s existing markets. 4. Can attract and retain talent As more consumers want to align their purchase intent with socially responsible companies, so too employees who want to be associated with a company that helps resolve social issues. Over 69% of employees choose to work for companies that are socially responsible, according to a Nielsen report. Unsurprisingly, a strong CSR reputation can attract and retain talent for a company. When asked how and why KC engages its employees in CSR campaigns, Shukla said that such an engagement helps to ensure the campaigns sustainability while helping increase retention rate among its employees. For example, its CSR initiative to promote sanitation in India managed to galvanise employee advocates from its offices in Chicago to Bangladesh. These employees continue to be a part of a capabilities building team that
partners with a local NGO in Swadha, India where the CSR drive still runs. In Korea, its CSR campaign was initiated more broadly at the corporate level, with KC visibility ensured on pack and via corporate advertising to increase brand and corporate pride among its employees who participate in the campaign. “Our ‘Keep Korea Green’ campaign was completely employee-driven; our employees wait for that time of the year to plant trees with their colleagues. Increasing employee engagement in our CSR programmes is important; we continuously look for ways to include that and how we can keep building that through every program”, Shukla said. 5. Create a safety net during crisis Having a solid CSR approach can be a great safety net for when issues and crises arise. However, “You have to talk the talk and walk the CSR walk for this to actually work”, she said. A company that is known to be proactive in social causes has built its reputation positively, and this can act as a
buffer for when a PR crisis strikes. What is the future of CSR? Shukla predicted that there will be a paradigm shift in CSR: “It’s going to be less about standalone philanthropy, and more about creating a shared value that everyone supports”. At the same time, a CSR approach for a company will move from a PR or comms responsibility to a board room initiative: “CEOs need to ask themselves, ‘Can I impact a societal issue or cause, while being profitable and making economic sense’?” When these concerns align, a company’s CSR can have more scalable growth in terms of business opportunities. The power of digital will also mean that brands have the opportunity to pass the torch to their consumers when it comes to making genuine impact. Social media provides the platform for brands to empower consumers in their CSR efforts, further elevating its social impact. Source: Marketing Interactive - By Noreen Ismail
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Tackling questions of ethics in business In business, just as in life, there will always be differences in the interpretation and application of ethical principles.
position passionately against anyone who may take a different view, sometimes even to our own detriment.
What may be normal practice for some will be off limits for others. However, as a society, we do have rules to follow, to protect us all.
However, there are times when we must follow our own “moral high ground” even if that means not giving in to the temptation to take the easy or more favorable option. While that is often not an easy choice, it is one that most of us will face at some time during our lives.
Recently, I have encountered a few situations where ethics have been questioned in business, such as the interpretation of the “spirit” of a written contract or agreement versus the exact wording or in relation to the conduct of an individual or business as a whole. It’s also interesting to reflect on how we, as human beings, form our own ethics and morals (guided by society, family, friends, religion etc.) and how we will defend our own
At the end of the day, each of us has to be able to look in the mirror and know that we have done our very best to follow society’s rules and to serve and respect others. Source: Gladstone Observer
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‘Ethical investing’ surges as activist`s ramp up corporate campaigns making money”, said Dr Ian Woods, AMP capital head of environmental, social and governance investment research. It’s about a fundamental element of being a successful business is gaining that trust. “It’s about having clear ethics which I think extend beyond just self interest.” The RIAA report found the broad responsible investment industry in Australia was made up of 11 asset managers who managed $597.9 billion worth of funds.
“Ethical investing” is becoming more popular in Australia as activists target corporations to push for change on issues such as asylum seekers and mining, according to analysts. Research shows demand for investment in companies deemed “ethical” is growing, according to the most recent figures from the Responsible Investment Association of Australasia (RIAA). Demand for ethical funds had doubled in two years, from $15.2 billion to $31.6 billion in December 2014, the report said. Meanwhile, activists have been pressuring shareholders in companies such as Transfield - which runs detention centres - to consider the moral implications of their investment. “When you realise trust is such a critical aspect of any business, then it’s not just about
“The trend for people to take greater interest and greater ownership and decision in their superannuation is going to increase”, Dr. Woods said. He said one reason for the funds’ growing popularity was a rise in social activism that had driven investors to closely examine company ethics and influence change in corporate behavior. Vocal opposition by those activists groups could influence investment decisions that affected company performance, he added. “Being an ethical fund is not just about excluding companies, it’s about leveraging the relationship you have with the companies... to improve their performance on a particular issue”, Dr. Woods said. Mainstream investment firms have branched out, with many providing funds that only invest in companies deemed to be ethical.
Depending on their guidelines, some funds refuse to invest in companies that manufacture weapons, produce alcohol or tobacco, or have been subject to environmental or human rights offences. One such example is Divest from Detention, which targets companies it considers complicit in human rights abuses at Australia’s immigration detention centers. “We’ve been finding that once we’ve told fund members that their funds are invested in companies like Transfield they’re very keen to ensure that their fund managers divert their funds to other companies”, spokeswoman Angela Mitropoulos said. Last month, asylum seeker advocates protested outside Transfield’s annual general meeting, and two protesters interrupted the meeting after gaining entry as proxies. In a statement released on the day, Transfield defended its involvement in Australia’s detention center network and said it had zero tolerance for abuse and was working to improve the lives of asylum seekers under a strict code of conduct. Transfield Services was awarded a new four-month contract to continue running processing centres in Nauru and Manus Island in October. Analysts said some ethical funds were outperforming the broader market, with some beating the ASX by around 11 to 15 per cent. Market analyst Evan Lucas, from trading firm IG, said the ethical funds with the strictest
guidelines generally performed in line with other funds, while those with more relaxed guidelines were more likely to beat the broader market. “They have an ethical view on what they want to invest in but they do look at it in a point of view that their mandate is probably not as sticky as some”, he said. “They’re not as strong on what classifies as ethical investment”. Recent campaigns have also targeted environmental issues including coal mining near the Great Barrier Reef. The Commonwealth Bank, Australia’s largest bank, has been targeted repeatedly by groups including 350.org for investing in coal mining. Analysts say investor divestment from coal mining could be due to plummeting coal prices rather than ethics-based decisions. “The interesting thing to be aware of is they are slowly but surely withdrawing [from coal mine investment]”, Mr. Lucas said. “Now, whether or not it comes down to the protests you’re seeing physically or if whether or not it’s just their ethical investment is up for debate”. Source: Australian Broadcasting Corporation - By Thuy Ong
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Investors x embrace ethics More than half of the world’s largest sovereign wealth funds, and around a third of the largest US state pension funds, have a disclosed code of ethics for their staff.
and will complete their acknowledgment during the orientation training”. The Korea Investment Corporation also has a very strict adherence to a code of ethics and periodically.
According to the Public Fund Investment Policies 2015 annual review produced by the Ohio State University Moritz College of Law, a code of ethics helps to ensure that investments are made in accordance with the fund’s investment policies and regulations. Singapore’s Government Investment Corporation, for example, states “we expect the highest standards of honesty from everyone in GIC, both in our work and in our personal lives. This includes abiding by the laws of the countries we invest in, and observing our code of ethics in letter and in spirit”. While most funds disclose only the existence of an internal code of ethics, a few funds disclose the entire code of ethics. The report highlights Mubadala’s report as “exemplary”, with its code of ethics covering a wide variety of ethical issues including “preventing improper payments in cash or kind”, “preventing money laundering”, and “protecting intellectual property and confidential information”. But the ethical aspirations of a company
It has adopted ethics and transparency as basic principles of its operation promotes ethical awareness and transparent management. All employees are required to sign a pledge to comply with the code of ethics and code of conduct upon joining KIC. In addition, assessment of employees’ compliance with the code of ethics is conducted at regular intervals, and counselling on related issues is provided on an on-going basis.
are only as good as the behaviors of its employees. The Mubadala code of conduct requires a personal commitment by each employee to make the company’s aspirations of being an ethical and compliant company a reality. “Our Code of Conduct clearly states our aspiration to remain an ethical and compliant company. However, words are not enough. It requires the personal commit-
ment of each of us to make it a reality. By working for or with the Mubadala Group, you are agreeing to uphold this commitment. Each one of us is required to acknowledge annually that we have read, understand and will comply with the requirements contained in our Code of Conduct. Those who fail to follow our Code put themselves, their colleagues and the entire Mubadala Group at risk. This annual acknowledgment will be made in writing or electronically. New employees will be provided a copy of the Code of Conduct
Further an ethics training is offered periodically to employees to provide them with guidelines for sound decision-making and ethical judgment, and an ethics hotline has been set up which can be used to report inappropriate or unethical conduct by employees. Separately the CFA Institute has developed a code of ethics for pension fund trustees which outlines 10 fundamental ethical principles. Source: Top1000funds - By Amanda White
“El INCP se une a la consciencia ecológica para la conservación del equilibro ambiental. Sabías que de un árbol de 2,5 metros de alto se pueden producir 10.000 hojas? Pero según estudios mundiales el 70% resulta en la basura. Con el eGlobal no solo damos alcance a las necesidades de nuestros socios si no también ayudamos a preservar el planeta.”