eGlobal Febrero 2016

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 NIIF 16 Arrendamientos: Incrementar la transparencia de los activos y los pasivos en los arrendamientos Después de más de cinco años, el Consejo de Normas Internacionales de Contabilidad (IASB, por sus siglas en inglés) finalmente ha emitido la Norma Internacional de Información Financiera (NIIF) 16 Arrendamientos, que es la nueva norma que reemplaza la Norma Internacional de Contabilidad (NIC) 17 Arrendamientos. La NIIF 16 fue emitida para enfrentar las críticas relacionadas [...]

El FASB emite una norma para el reconocimiento y la medición de instrumentos financieros El Consejo de Normas de Contabilidad Financiera de los Estados Unidos (FASB, por sus siglas en inglés) emitió una muy esperada actualización de normas de contabilidad para el reconocimiento y la medición de instrumentos financieros, la cual se ha estado desarrollando por aproximadamente una década en conjunto con el Consejo de Normas Internacionales de Contabilidad (IASB, por sus siglas en inglés). La norma tiene efectos en compañías públicas y privadas [...]

La tecnología para los contadores: una ventaja comparativa No hace mucho que la mayor parte de los ingresos de una firma se generaba por servicios de fin de año y cumplimiento tributario. Las condiciones económicas actuales y la tendencia creciente de subcontratación han causado que el trabajo de cumplimiento se haya convertido en una carrera hacia el abismo, donde los trabajos se asignan a la oferta más baja [...]

¿Es deuda o patrimonio? El problema de utilizar instrumentos financieros híbridos El documento discute aspectos de la clasificación deuda/patrimonio al utilizar instrumentos financieros híbridos bajo la ley tributaria estadounidense y cuando los tratados tributarios entran en juego. Este artículo analiza los problemas derivados de la calificación de instrumentos financieros híbridos (HFI, por sus siglas en inglés) bajo la perspectiva de la ley tributaria estadounidense y el tratado modelo de la OECD [...]

NIIF 15: Ingresos de Actividades Ordinarias Procedentes de Contratos con Clientes - Canadá El Consejo de Normas Internacionales de Contabilidad (IASB, por sus siglas en inglés) emitió la NIIF 15 con el fin de proporcionar una sola norma global que establezca cómo una entidad que reporta reconocería los ingresos por contratos con clientes. Aunque el IASB y el Consejo de Normas de Contabilidad Financiera de los Estados Unidos (FASB, por sus siglas en inglés) sostuvieron reuniones para determinar la manera de implementar la NIIF 15 [...]

SOCPA: el principal objetivo es aplicar las NIIF en Arabia Saudita para finales del 2016 ¿Cómo se comparan las normas contables en Arabia Saudita con los GAAP en Estados Unidos o las Normas Internacionales de Información Financiera (NIIF) en Europa? ¿En vista de que la ley en Arabia Saudita es la Sharia, cómo se ajustan estas prácticas al contexto local? […]

Reacción de la industria al lanzamiento de la NIIF 16 El Consejo de Normas Internacionales de Contabilidad (IASB, por sus siglas en inglés) ha emitido una nueva norma de contabilidad, la cual exige que todos los arrendamientos sean reportados en el balance de situación como activos y pasivos, en un esfuerzo por proporcionar más transparencia a los inversionistas [...]

El FASB propone cambios en los informes sobre pensiones y retiros El Consejo de Normas de Contabilidad Financiera de los Estados Unidos ha emitido dos propuestas de actualización de normas contables con el fin de mejorar la información financiera de los empleadores acerca de pensiones con beneficios definidos y otros planes posteriores al retiro. Una de las actualizaciones propuestas (Compensación — Beneficios de Retiro — Beneficios Definidos) [...]

Contable Las firmas se han tardado en la implementación de la nueva norma sobre ingresos

¿Qué consecuencias tendrá la nueva norma sobre arrendamientos en su balance de situación?

Menos del 29 % de los preparadores financieros encuestados por KPMG afirmaron que sus compañías tuvieran un plan claro para realizar cambios en el reconocimiento de ingresos. Las compañías aún tienen algo de plazo para empezar a aplicar la nueva norma para el reconocimiento de ingresos, pero muchas parecen progresar lentamente en la preparación para [...]

El Consejo de Normas de Contabilidad Financiera de los Estados Unidos (FASB, por sus siglas en inglés) ha decidido cerrar una década de controversias con la nueva norma de contabilidad de arrendamientos. Si su compañía arrienda equipo o bienes raíces, la nueva norma podría alterar significativamente lo que se reporta en su balance de situación, lo cual, a su vez, podría alarmar a acreedores e inversionistas poco preparados [...]

El nuevo tratamiento contable impactará a las pequeñas empresas Los propietarios de pequeñas empresas podrían verse forzados a renegociar sus préstamos bancarios debido a normas del IASB recientemente implementadas, de acuerdo con una prominente firma mediana. La NIIF 16 Arrendamientos fue introducida por el IASB en un esfuerzo por generar transparencia a estas obligaciones, exigiendo que todos los arrendamientos sean reportados en el estado de situación de la compañía [...]

Auditoría Normas de auditoría para PYMES La propuesta de crear una norma de auditoría diferente para las pequeñas empresas está causando revuelo en Escandinavia. ¿Necesitamos algo similar en el Reino Unido?, pregunta Caroline Biebuyck. Los cambios en las normas de auditoría durante las últimas dos décadas parecen haber estado dominados por la idea de un enfoque único basado en las necesidades [...]

El IAASB terminó los cambios a la información del auditor sobre Estados Financieros con Propósitos Especiales El Consejo de Normas Internacionales de Auditoría y Aseguramiento® (IAASB®) emitió hoy la NIA 800 (revisada) Consideraciones especiales: Auditoría de estados financieros preparados de acuerdo con marcos para propósitos especiales y la NIA 805 (revisada) Consideraciones Especiales: Auditorías de un Solo Estado Financiero [...]

Las firmas deben ser más rigurosas en el control de calidad de la auditoría Si se quiere mejorar y mantener los estándares, las firmas de auditoría deben proporcionar más recursos y auscultar sus procesos de auditoría tan de cerca como a las organizaciones que examinan. Ese es el mensaje del Consejo de Información Financiera del Reino Unido (FRC, por sus siglas en inglés) en su Audit Quality Thematic Review: Firms’ audit quality monitoring report (Revista Temática sobre Calidad de Auditoría: Informe sobre el monitoreo de las firmas a la calidad de la auditoría), que se publicó esta semana [...]

El IAESB publica una directriz para la norma sobre requisitos de competencia para socios encargados de auditorías El Consejo de Normas Internacionales de Educación Contable™ (IAESB™, por sus siglas en inglés) ha emitido material de apoyo para la implementación de la IES 8, Competencias para Socios Encargados Responsables de Auditorías (Revisada).

Esta Norma Internacional de Educación™ reglamenta la competencia profesional [...]

Gestión Financiera Los rasgos fundamentales de un líder ético En el 2015 hubo muchos ejemplos de fallas éticas. Entonces, ¿qué le falta a los líderes de las compañías? El año que acaba de pasar vio muchos escándalos grandes, incluidos los de Volkswagen, 7-Eleven y Turing Pharmaceuticals. Todos apuntaban a una cultura corporativa que utilizaba el argumento de “el fin justifica los medios” para defender [...]

Responsabilidad colectiva de los empleados con la ética en la compañía: encuesta Un sondeo reciente mostró que la mayoría (64 %) de los encuestados cree que todos los empleados tienen la responsabilidad de ser éticos en los negocios, y un 20 % considera que la compañía es responsable de establecer un código de conducta fuerte. Titulada Ethical Leadership: Views from the Mena region (Liderazgo Ético: perpectivas desde la región Mena) y llevada a cabo […]

Definir la ética en los negocios Uno de los temas de discusión más frustrantes es la definición de la ética en los negocios. Es frustrante ver cuán compleja e inútil se torna la discusión al definir la ética en los negocios. Tengo dos pruebas para lidiar con este asunto: ¿utiliza términos simples que pueden comunicarse fácilmente dentro de una compañía? […]

Sostenibilidad ¿Por qué la responsabilidad social empresarial tiene sentido para las comunidades, las compañías y los inversionistas?

Las compañías mineras y sus accionistas han llegado a la conclusión de que hacer lo correcto en las comunidades donde operan es importante por muchas razones, incluido el resultado financiero. Los ejecutivos mineros también le aseguraron a The Gold Report (El informe del oro) que los programas de Responsabilidad Social Empresarial (RSE) más efectivos [...]

La Responsabilidad Social Empresarial: tendencias y beneficios actuales

5 tendencias de RSE que brillarán en el 2016

¿Por qué medir la Responsabilidad Social Empresarial?

La Organización de Negocios existe y prospera en la sociedad. Los trabajadores y los consumidores que constituyen la sociedad permiten a las empresas generar ganancias y sostenerlas. En el proceso de su existencia y su operación, una organización de negocios, sin importar su tamaño o su naturaleza, afecta negativamente [...]

Cada enero de los últimos 5 años hago una pausa para reflexionar sobre el estado de la Responsabilidad Social Empresarial (RSE), y cada año llego a la misma conclusión: las cosas están mejorando.

En la medida en que la RSE sigue madurando, año tras año trae voces nuevas y únicas a la mesa, innovaciones vibrantes y más esparcidas, adopción integrada [...]

Existen expresiones de moda que a menudo aparecen en las conversaciones aquí en Davos: vinculación del sector privado, sociedades público-privadas, sociedades con múltiples partes interesadas, etc. En efecto, el equilibrio económico global ha cambiado y el mundo de hoy está más interconectado que nunca. Ya no hay duda [...]

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IFRS 16, Leases: Increasing transparency on lease assets and liabilities After more than five years, the International Accounting Standards Board (IASB) has finally issued International Financial Reporting Standards (IFRS) 16, Leases, which is the new standard that will replace International Accounting Standards (IAS) 17, Leases.

IFRS 16 was issued to address the criticisms surrounding IAS 17, primarily around the fact that many leases are off balance sheet, thereby making it difficult for users to get an accurate picture of an entity’s lease assets and liabilities; to compare companies that lease assets with those that buy assets; and to estimate the amount of off balance sheet obligations.

The changes that will be brought about by IFRS 16 are expected to address many of these criticisms and will better facilitate capital allocation by enabling better credit and investment decision-making by both investors and companies.

IFRS 16 was issued as part of the IASB’s joint project with the Financial Accounting Standards Board (FASB). Although FASB has yet to issue its revised leases standard, it is expected that like IASB, FASB will require lessees to recognize most leases on the balance sheet. However, since

both standard-setting bodies made different decisions during the deliberations, differences are expected to arise between the two new standards.

Among the key changes to the current lease accounting that will be brought about

by IFRS 16 are the definition of a lease, the lease accounting models, and the separation of the lease and non-lease components of lease contracts.

Determining whether an arrangement contains a lease IFRS 16 defines a lease as a contract (or part of a contract) that conveys the right to control the use of an identified asset for a period of time in exchange for a consideration. This retains the requirements of IAS 17 but emphasizes the concept of “right to control the use of an identified asset”.

Determining when a customer has the right to direct the use of an identified asset may require significant judgment, particularly for arrangements that include significant services. Most contracts that qualify as leases under the current IAS 17 are generally expected to be considered as leases under the new standard; however, it is expected that IFRS 16 will exclude from

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IFRS 16, Leases: Increasing transparency on lease assets and liabilities its scope some service contracts that may have been considered leases under IAS 17 (e.g., supply contracts).

Lessee accounting Perhaps the most significant change that will be brought about by IFRS 16 is lessee accounting. IFRS 16 prescribes a single lessee model that will be applied to generally all leases. IFRS 16 requires all leases to be put on the lessee’s balance sheet, resulting in the recognition of a right-of-use asset and a corresponding lease liability.

The lease liability is measured at the present value of the lease payments to be made over the lease term. The right-of-use asset, on the other hand, is measured at the amount of the lease liability, adjusted for lease payments, lease incentives received, lessee’s initial direct costs and any estimate of restoration and dismantling costs.

The amounts that will be capitalized are generally based on the fixed lease payments, including inflation-linked payments. This means that variable lease payments linked to sales, or use of the underlying asset, or optional payments where extension of lease term is not reasonably certain, will be excluded from the capitalized right-ofuse asset.

Subsequent to initial recognition, the rightof-use asset will generally be depreciated over the lease term, applying the depreciation requirements in IAS 16, Property, Plant and Equipment. Meanwhile, the lease liability will be increased to reflect interest accretion and decreased to reflect lease payments over the lease term.

The right-of-use asset is subject to impairment testing in accordance with IAS 36, Impairment of Assets.

Exemptions Relief is provided under IFRS 16 in that lessees have the option not to recognize on their balance sheets short-term leases (i.e., a lease that, at the commencement date, has a lease term of 12 months or less and that has no purchase option) or those leases for which the underlying asset is of low value (e.g., a lease of a personal computer). A lessee that opts to invoke the exemption shall recognize lease payments associated with those leases similar to the accounting for operating leases under IAS 17 (i.e., as expense on a straight-line basis or another systematic method that is representative of the pattern of benefit derived by the lessee).

As the relief is optional as far as short-term

leases are concerned, this can be an area where judgment may be involved and can pose structuring opportunities. Another area of judgment is determining whether a lease is “low value”. IFRS 16 does not specify what “low value” means, although the Application Guidance to IFRS 16 gives direction on how to determine if an underlying asset is of low value to the entity.

Lessor accounting The IASB decided not to change the lessor accounting as it has gathered that the cost of currently changing lessor accounting would outweigh the related benefits. Instead, the principles for lessor accounting under IAS 17 are carried forward under IFRS 16. This means that for lessors, there will still be a dual model approach applying either operating lease accounting or finance lease accounting. The IASB, however, decided to enhance the disclosure requirements for lessors, particularly disclosures on the exposure to residual value risk, in response to concerns regarding the lessor’s risk exposure and the lack of information of such exposure.

While it is perceived that lessors will not be as affected by the new standard as the lessees will be, the IASB acknowledges that the change in lessee accounting mi-

ght have an impact on the leasing market if companies decide to buy more assets and as a consequence, lease fewer assets.

However, it is expected that the reasons why companies lease their assets will continue to exist even after the effectivity of IFRS 16.

Separating the components of a lease contract IFRS 16 also provides for the separation of lease from non-lease components based on the relative stand-alone prices of those components. This is highly relevant to contracts that contain a lease coupled with an agreement to purchase or sell other goods or services (i.e., non-lease components such as maintenance).

As a practical expedient, however, a lessee may elect (by class of underlying asset) not to separate the non-lease components, and instead account for each lease component and any associated non-lease component as a single lease component. This practical expedient may result in differences considering that treating a non-lease component as a lease may put it on the balance sheet which could be avoided had it been treated otherwise. The practical expedient is not available for lessors who are required to allocate the consideration

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IFRS 16, Leases: Increasing transparency on lease assets and liabilities among the various components in accordance with IFRS 15, Revenue form Contracts with Customers.

Key effects of IFRS 16 From a lessor standpoint, because IFRS 16 carries the key features of IAS 17 (aside from the additional disclosure requirements), no significant effect is anticipated.

On the other hand, from a lessee standpoint, since current operating leases will be capitalized and accounted for similar to finance leases under IAS 17, the financial statements are expected to significantly change. On the balance sheet, right-ofuse assets will increase, financial liabilities will increase, while equity is likely to go down. On the income statement, the

general effect on net income before tax is not expected to be significant because while operating expenses are expected to go down (i.e., no operating lease expense but depreciation of leased assets), finance costs will go up because of the accretion of lease liability.

EBITDA (earnings before interest, tax, depreciation and amortization) and operating profit are expected to increase for companies with material off balance sheet leases. Finally on the cash flow statement, operating cash outflows will go down and financing cash outflows will go up.

On the lessee’s performance metrics, debtto-equity ratio is expected to increase. On the other hand, asset-based ratios like asset turnover are expected to decrease because of the bulking up of the assets.

EBITDAR (EBITDA and rent), on the other hand, is not expected to change.

The use of off balance sheet leases is highly concentrated within some industry sectors and within some companies. Among the industries identified by the IASB that have significant operating leases are airlines, retailers, travel and leisure, transport, telecommunications, energy, media, distributors, information technology, and health care. It is expected that IFRS 16 will significantly affect these industries.

Effective date IFRS 16 is effective for annual periods beginning on or after 1th January 2019. Early application is permitted but only if IFRS 15 is applied at or before the date of initial application of IFRS 16.

A lessee can apply IFRS 16 either: a) Retrospectively to each prior reporting period presented, following IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors; or b) Retrospectively with the cumulative effect of initial application recognized at the date of initial application.

In case Option b) is applied, a lessee shall not restate comparative information.

On the other hand, a lessor is not required to make any adjustments on transition for leases in which it is a lessor, and shall account for those leases applying IFRS 16 from the date of initial application.

Source: Business World Online - John T. Villa

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FASB issues standard for financial instruments recognition and measurement The Financial Accounting Standards Board issued a long-awaited accounting standards update for the recognition and measurement of financial instruments that it has been developing for over a decade with the International Accounting Standards Board.

The standard affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities.

FASB also plans to issue this year a separate standard on the impairment of financial instruments that will differ markedly from the IASB’s. The IASB issued its own financial instruments standard, IFRS 9, in 2014. “The recognition and measurement”, standard was formerly referred to as “classification and measurement” but was changed to better reflect what FASB was trying to address.

“The new standard is intended to provide users of financial statements with more useful information on the recognition, measurement, presentation, and disclosure of financial instruments”, said FASB Chairman Russell G. Golden in a statement. “It improves the accounting model to better meet the requirements of today’s complex economic environment”.

The new guidance makes targeted impro-

instruments measured at amortized cost on the balance sheet; and • Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

vements to existing GAAP by: • Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; • Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; • Requiring separate presentation of financial assets and financial liabilities

by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; • Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; • Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial

The accounting standards update on recognition and measurement will take effect for public companies for fiscal years beginning after Dec. 15, 2017, including interim periods within those fiscal years. For private companies, not-for-profit organizations, and employee benefit plans, the standard becomes effective for fiscal years beginning after Dec. 15, 2018, and for interim periods within fiscal years beginning after Dec. 15, 2019.

The update allows for early adoption of the “own credit” provision referred to above. In addition, it permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost.

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FASB issues standard for financial instruments recognition and measurement Although FASB and the IASB worked jointly to improve the accounting for financial instruments and to achieve convergence on a single recognition and measurement model, FASB said it decided to make only targeted improvements to GAAP and retain the current framework for accounting for financial instruments in GAAP. FASB said it made that decision after evaluating the potential costs and benefits of pursuing the changes that would result from complete convergence with IFRS 9, Financial Instruments.

Even though differences will exist between the guidance in GAAP and the guidance in IFRS related to the accounting

for financial instruments, FASB said the amendments achieve convergence with IFRS in a number of areas. For example, FASB now requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability that results from a change in the instrument specific credit risk for financial liabilities that the entity has elected to measure at fair value in accordance with the fair value option is the same as the guidance in IFRS 9 for those liabilities. However, the guidance on the type of liabilities that can be measured at fair value is different between GAAP and IFRS.

In addition, the guidance in IFRS does not allow amounts recorded in other comprehensive income to be recycled to net income upon derecognition of the liability, whereas GAAP requires those amounts to be recycled to net income.

FASB’s amended update now requires most equity investments to be measured at fair value, which generally is consistent with the results of applying the guidance in IFRS 9. However, IFRS 9 allows an entity to make an irrevocable election at initial recognition to present subsequent changes in fair value in other comprehensive income (without recycling) for parti-

cular investments in equity instruments that otherwise are measured at fair value through profit or loss. In addition, the amendment in FASB’s update clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets is the same as the tentative decision that the IASB has reached on this issue when considering amendments to International Accounting Standard 12, Income Taxes.

Source: Accounting Today – By Michael Cohn

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Technology for accountants: a competitive advantage profit margins on compliance work and is forcing firms to look to other revenue streams. Some accounting firms are starting to reevaluate their business offerings and move away from the traditional reactive model to a proactive approach.

Higher value services are now needed to better engage clients, and these services need to also provide a deeper level of engagement with the client’s overall business. Greater revenue streams can be found in services such as virtual CFO consulting and financial planning.

For accounting firms to make these services profitable, they must be able to work smarter and more productively.

Accounting firms need to see technology as a competitive advantage, in other words not to look at IT as an overhead, but an enabler.

It wasn’t so long ago that the majority of an accounting firm’s revenue was generated through end-of-year services and tax compliance. Today’s economic conditions and the ever-growing trend of outsourcing has meant that compliance work has become a race to the bottom with jobs awarded to the lowest bidder.

This kind of undercutting has slashed the

Cloud computing allows you to access your business from anywhere. This means accountants can be sent out on-site to offer services like virtual CFO consulting. This kind of flexibility allows you to have all information and applications on hand, build better relationships with clients, add more value, and ultimately generate a higher profit margin.

Using collaborative tools, such as skype for business, in the cloud environment gives you the ability to communicate easily with your team outside of traditional methods.

A project doesn’t have to come to a grinding halt just because certain employees are out of the office. This is especially handy for accounting firms that have multiple offices, contractors or just want their different departments to interact more.

Collaboration software can also help decrease the number of phone calls and meetings needed as everyone is up to date on projects and tasks. Every time there’s a new version of a document, everyone can see and comment in real time. Obviously regular meetings are important, but frequent needless meetings can drain staff and the labour hours lost add up.

plication centers and keeps the data stored in Australia. As with any service you must make sure that a provider isn’t cutting corners just to save a few extra bucks.

With all this talk of offering more in-depth and higher-end services to clients, you need to make sure you have the right staff. If you are looking to expand, you’ll need to attract the right people. This is where the cloud can also help in terms of offering an attractive workplace. Work/life balance is an important part of attracting quality candidates, and a perk that can make your accounting firm stand out from the rest.

The cloud can allow you to offer employees flexibility, whether that is working from home, working outside standard business hours or staggering starting times.

These tools can also help you to manage projects and keep an eye on the workload of your employees. The goals are clearer and the timeline can be followed precisely. Not to mention the nature of these tools can encourage greater relationships between departments and foster innovative and creative ideas.

Overall, the right cloud platform can allow your accounting firm to step up its service offerings, create a more productive and collaborative office and attract the right employees. Once you start looking at technology as an enabler and not an overhead, you will begin to grow your bottom line and gain a competitive advantage.

The cloud can also provide a safe space to save all your data; just make sure the provider in question has multiple data re-

Source: Public Accountant - The journal for the Institute of Public Accountants – By Chris Boswell

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ÂżIs it debt or is it equity? The problem with using hybrid financial instruments The paper discusses the debt/equity classification issues of using hybrid financial instruments under U.S. tax law and when tax treaties come into play.

tions whose treatment by other authorities (for example, foreign jurisdictions, regulatory bodies, or accounting boards) is different from that determined under U.S. tax laws regarding the deductibility, inclusion, timing, or character of payments made thereunder.

This article analyzes the problems derived from the qualification of hybrid financial instruments (HFIs) under the perspective of the U.S. income tax law and the OECD model tax treaty.

HFIs have acquired importance in international business and play an important role in raising capital in a cost-efficient manner, accommodating investor’s demands, hedging risks, and increasing capital flows and investment opportunities that would not have been made otherwise. They also permit the monetization of assets, and because of their flexibility may be used to accommodate the regulation requirements of different countries. This last characteristic intensifies its use mostly in cross-border transactions.

Section I of this article provides a general understanding of HFIs under U.S. income tax law, including an analysis of section 385. Also included are brief comments regarding Notice 94-47, which was issued as a warning to taxpayers that used instruments designed to se-

cure equity treatment for regulatory or financial accounting purposes, but debt treatment for U.S. federal income tax purposes. Section I ends with an analysis of Nestle Holding Inc. v. Commissioner, 70 T.C.M. 682 (1995), and Laidlaw Transportation Inc. et al. v. Commissioner, 75 T.C.M. 2598 (1998), exposing the always complicated distinction between debt and equity, and the costs that can be generated.

Section II focuses on the analysis of articles 10 and 11 of the OECD model tax treaty. It also highlights the role of the commentaries and the effects derived from integration between the tax treaty requirements and the tax regime and qualifications of the income arising from HFIs.

Section III discusses how HFIs are commonly used in U.S. cross-border transactions involving hybrid entities. A brief explanation is included of the controlled foreign corporation netting rules (special allocations of interest expenses) under reg. section 1.861-10(e), as well some types of transactions normally used as planning strategies to obtain a U.S. interest deduction and foreign income exemptions.

U.S. Tax Rules A hybrid instrument can be defined as a financial instrument that has both debt and equity characteristics and is primarily used to provide specific desired characteristics not present in purer forms of debt or equity.

They are part of a broad class of transac-

This section analyzes section 385 to organize the general rules to distinguish between debt and equity, including brief comments on Notice 94-47, issued as a warning to taxpayers that used instruments designed to secure equity treatment for regulatory or financial accounting purposes but debt treatment for U.S. federal income tax purposes. This section finishes with an analysis of Nestle Holding Inc. and Laidlaw Transportation Inc., exposing the problem of distinguishing between debt and equity.

The Debt-Equity Distinction Even though it is not always clear whether an instrument qualifies as debt or equity, this distinction is essential for tax purposes because different taxation schemes may be applied. Interest can usually be deducted from taxable income, whereas dividends do not reduce taxable income.

Another important difference between debt and equity is the timing of the taxation

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多Is it debt or is it equity? The problem with using hybrid financial instruments of payments. Most countries accrue interest income or deductions throughout the term of an instrument that leads to an additional income or a reduction of taxable income, and therefore to an increase or decrease in taxes. In other words, taxes can be reduced or must be paid even though no cash flow of the interest payments took place.

Equity is typically seen as a participation in the entrepreneurial risks and

profits of a business. Contributors of capital undertake the risk because of the potential return in the form of profits and enhanced value on their underlying investment. On the other hand, debt is typically seen as an unqualified obligation to pay a sum at a fixed maturity date along with a fixed percentage of interest. As a result, although creditors are preferred in the sense that they are entitled to payment before the common shareholders, they are limited in that

their rate of return is generally fixed.

The creditor does not take entrepreneurial risk, has no managerial rights, and can enforce the payments of interest and principal.

Is It Debt or Is It Equity? The Problem With Using Hybrid Financial Instruments Source: ValueWalk - By Leopoldo Parada

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IFRS 15: Revenue from Contracts with Customers - Canada IFRS 15 was issued by the International Accounting Standards Board (the IASB) to provide a single global standard prescribing how a reporting entity would recognize revenue from a contract with a customer.

performance bonuses, penalties or other similar items).

Although the IASB and the Financial Accounting Standards Board (FASB) held meetings to determine how IFRS 15 would be implemented, consensus was not attained and both the FASB and the IASB agreed to defer the effective date of the new standard to annual periods commencing on or after January 1th, 2018, with early adoption permitted.

If there are multiple performance obligations in a contract, an entity needs to allocate the transaction price to each performance obligation by referencing the relative standalone selling price of the performance obligation.

To understand why a consensus was not reached, we need to look at what IFRS 15 was proposing.

The Five Step Model Framework: IFRS 15 proposed a five-step framework to recognize revenue.

Step 1: identify the contract with the customer A contract is an agreement between two or more parties that creates enforceable rights and obligations. Contracts may be combined and accounted for as a single

Step 4: allocate the transaction price to the performance obligations in the contract

contract if they were entered into at or near the same time with the same customer and they comply with certain conditions.

Step 2: identify the performance obligations in the contract At the inception of a contract, the entity should assess the goods or services that have been promised to the customer and identify the performance obligations in the contract. For some contracts, there may be multiple performance obligations and the entity needs to determine what method or methods could be used to measure satisfaction of the performance obligations.

Step 3: determine the transaction price The transaction price is the consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. In determining the transaction price, an entity should consider past customary business practices and whether there is non-cash consideration or elements of variable consideration that arises (if the consideration is contingent on the occurrence of a future event or as a result of discounts, rebates, refunds, credits, price concessions, incentives,

Step 5: recognize revenue when (or as) the entity satisfies a performance obligation Revenue is recognised as control is passed, either over time or at a point in time. Revenue would be recognised over time if certain criteria are met; otherwise, revenue would be recognised when control is passed at a specified point in time.

To assist with the implementation of this standard, the IASB and FASB have formed a Joint Transition Group for Revenue Recognition to solicit, analyze, and discuss stakeholder issues arising from the implementation of IFRS 15 and its US counterpart, ASU Topic 606. The

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IFRS 15: Revenue from Contracts with Customers - Canada purpose of this is to inform the IASB and FASB about implementation issues, which will help the boards determine what, if any, action will be needed to address those issues. This process has resulted in some issues being forwarded to the boards for their consideration. The IASB has completed its exposure draft process proposing certain clarifications and is drafting changes to IFRS 15. The clarifications are expected to deal with performance obligations, principal ver-

sus agent, and licensing.

Comments On first read, IFRS 15 may not seem too controversial but a closer read of the standard raises questions on how the steps would be applied in practice. Specifically, companies that are required to follow IFRS need to comply with the recommendations set out in IFRS 15 and document how they have complied with the standard. Auditors of

the financial statements of those companies need to assess whether the companies have recognized revenue in compliance with the standard.

Another complicating factor is the difference between U.S. GAAP and IASB standards. U.S. GAAP tends to provide detailed guidance on the application of standards while IFRS tends to provide underlying principles, then leave it up to companies and their auditors to apply professional

judgement in deciding how the standards should be applied.

Stay tuned as the boards continue to grapple with this complex issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Collins Barrow – By Tom Gee

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SOCPA: main objective is to apply IFRS by the end of 2016 in Saudi Arabia loans, or for buying stocks. The IFRS is based on principles; therefore, each country must do interpretation for applying those standards.

What have been the quality procedures that you have put in place in order to improve the quality of auditing?

Interview with Dr. Ahmad A. Almegames, Secretary General of Southern Orange County Pediatric Associates (SOCPA) How do the accounting standards in Saudi Arabia compare to GAAP in the United States or to the International Financial Reporting Standards (IFRS) in Europe? Because Saudi Arabia has Sharia law, how do you then adjust these practices to the local context?

Saudi Arabia has decided to move towards the IFRS and they will be applied in early 2017. All companies trading in the market must apply the IFRS. The GAAP is based on rules but the IFRS

is based on principles. The two systems have major differences. Since the IFRS is now becoming accepted in more than 120 countries, Saudi Arabia has decided to move towards the International Financial Reporting Standards in order to be compatible with other countries worldwide.

Doing business has two parts: managing the capital of the companies (management), and the auditors who check that the management have applied the accounting standards and that the financial statements give a true and fair view in conformity with IFRS. If there are any departures from the accounting standards, auditors will issue either an adverse opinion or qualified opinion.

When it comes to localizing the IFRS, we actually did not find that there was a need to localize the IFRS except in the area of disclosure. More disclosure is required in some specific areas than are required by IFRS, especially when it comes to investments and loans.

Over the past few years, the regulations and compliance in Saudi Arabia have become stricter. The Capital Markets Authority and the Ministry of Commerce are now supervising companies. Entities that do not follow the standards and laws are punished. Saudi Organization for Certified Public Accountants (SOCPA) approves of the stricter regulations.

We require more disclosure to aid investors to be able to look into which companies are suitable for their investment,

How does Saudi Arabia compare to other countries particularly in the MENA region?

The International Federation of Accountants (IFAC) has proclaimed that SOCPA is number one in the region. SOCPA is becoming part of the foundation of the Trustees of the IFRS and is the translator of choice of IFRS into Arabic for the use in the Arab world.

International organizations recognize SOCPA as a professional organization capable of supervising the accounting profession in Saudi Arabia. This is one of the reasons why we are number one in the Arab region.

What are your plans?

We have many plans. Our main objective is to apply IFRS by the end of 2016. Concurrently, we have a program, which is unique in the region. It is a depository system of financial reporting.

“Saudi Arabia is the only country in the Arab region that requires each company to deposit their financial statements or accounting firm’s clients financial statements besides their audit reports through a pilot program called `Qawaem´”.

The program uses eXtensible Business Reporting Language (XBRL). This language is being used in other countries such as Great Britain or New Zealand. It is beco-

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SOCPA: main objective is to apply IFRS by the end of 2016 in Saudi Arabia ming very popular worldwide and Saudi Arabia is the only country in the region that uses the system.

to invest or do business with this company.

This is what we are looking for. In Saudi Arabia, our mission is to oblige companies to disclose more information about transactions and present them in the financial statements.

The benefits of the program are numerous: companies, investors, banks and governments will have one source of information.

In the past the decision maker had many sources of information; there used to be specific financial statements for the banks, another for the tax authorities, another for another organization etc. but now there is only one source of information.

With the electronic method, we can do a lot of analysis, view financial ratios and the most important benefit is that we will have only one unique financial statement used in the banks, with the tax authorities, by the Ministry of Commerce or by any other organization.

These financial statements give you a good indication of where the economy is heading by looking at the historical data and projecting into the future. What is happening at the moment with the economy? Are the companies doing well?

SOCPA is ensuring that the auditors are performing their duties responsibly and correctly and that they are using the audi-

When it comes to Sharjah law, it normally concerns loans (interest) and source of income. Sharjah is not actually driving us; we are just objectively informing stakeholders about the details of the transaction.

ting standards to make sure that the financial statements are prepared according to the IFRS. From the published financial statements, I opine that the economy is very strong.

Many companies have accumulated retained earnings that are not being used and will help to propel the economy in the future. Once the depository system has been running for a few years, we can look at the trends and forecast the economy.

What is the difference between the Sharjah law and IFRS? IFRS is a way of recording business acti-

vities and disclosures. Accountants record all economic transactions, they do not opine if the transaction is in accordance or not in accordance with Sharjah principles.

CPAs provide information to the final users of the financial statements: investors and other stakeholders. The information will be used in decision-making process for the users. The will decide if the information violates some of their beliefs.

For example, if I am interested in the environment and I see a company that has published in their financial statements that they are not adopted measures to protect the environment, by looking at these numbers and this information I may decide not

For example how about prohibition on interest rates?

For example if a company has taken a loan from X bank, they will describe and present the transaction as follows “we have taken a loan from X bank�. The investors or partners have available information, presented and reported in the financial statements so they can make an educated decision.

Tell us about the organization itself. Tell us about the size of SOCPA and the level of Saudi compliance. “SOCPA was established in 1992. We have two types of membership, full membership for people who have passed

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SOCPA: main objective is to apply IFRS by the end of 2016 in Saudi Arabia our fellowship exams and have received a certificate; there are around 600 full members and they are working with the CBAs, banks, private companies or the government�.

We are pleased with our auditors. Our goal is to develop them further, increase responsibilities for the auditor’s report and to stress independence. We have about 250 certified accountants.

The others are associate members who apply for our membership and have a Bachelor’s degree in accounting or business and there are more than 3.000 members.

We are satisfied with compliance and that companies are following our accounting standards.

How many companies are required to have their statements audited?

It is required by law that limited liability companies and traded companies like public companies be audited. They are around 25.000 companies.

What are some other measures to improve the reputation of the profession?

just how many financial statements have been audited and who the auditors were.

The extensible business reporting language depository system will improve the quality of auditing in Saudi Arabia.

It would also help us to draft new laws and regulations.

At the same time, the system will allow us to know how long the auditor has worked with each company. This information will facilitate more procedures and regulations to increase the number of auditors and the quality of the auditors.

With the new system and cooperation between the banks, tax authorities and the Ministry of Commerce, we will know

Source: MarcoPolis

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Industry reaction to the release of IFRS 16 vices leader and a partner at Ernst & Young Accountants LLP (Netherlands):

The International Accounting Standards Board (IASB) has issued a new accounting standard which requires all leases to be reported on a company’s balance sheet as assets and liabilities in an effort to provide greater transparency to investors.

“The IASB has addressed some of the concerns raised by respondents about the cost and complexity of implementing the new standard. However, because most leases will be recognized on the balance sheet under the new standard, lessees will put more focus on whether an arrangement is or is not a lease. For contracts that include significant services, this assessment may be challenging.

The new accounting standard, entitled IFRS 16 Leases, will come into force on January 2019.

Presently companies using IFRS and US GAAP are estimated to have leases commitments worth $3.3trn, however over 85 % of these do not appear on the balance sheets, suggesting net debt for global companies will surge once the new leasing standard takes effect.

It will not converge with US GAAP standards, despite the US Financial Accounting Standard Board (FASB) and IASB working together to develop IFRS 16. However, FASB is expected to release its own version of the new leasing standard in early 2016.

“These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligation”, Hans Hoogervorst, IASB chairman, said. “The new Standard will provide much-needed transparency on companies’ lease assets and liabilities,

meaning that off balance sheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy”.

Industry reaction Andrew Collier, director of Quality and Professional Standards, Kreston International: “The release of the new Leases standard IFRS 16 is welcome as it now brings clarity for preparers and will enable them to plan

for the transition. The standard should improve comparability and transparency between the financial statements. It is positive that FASB are introducing a similar standard in the US although there are a number of differences that will hamper comparability. Auditors will also have an important role to play in ensuring any restatements are dealt with appropriately and that leases are correctly identified.

However, the removal of the distinction between operating and finance lease should ease one area of complexity”.

Leo van der Tas, EY Global IFRS ser-

The separate IASB and FASB standards will bring more leases onto lessees’ balance sheets. However, the differences between the standards are likely to reduce comparability between IFRS and US GAAP in respect of lease transactions compared to current standards”.

Brian O’Donovan, UK partner in KPMG’s international standards group: “The new requirements are less complex and less costly to apply than the IASB’s earlier proposals. However, there will still be a compliance cost. For some companies, a key challenge will be gathering the required data. For others, more judgmental issues will dominate - for example, identifying which transactions contain leases.

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Industry reaction to the release of IFRS 16 Companies won’t have the full picture until other accounting and regulatory bodies have responded. For example, the new accounting could prompt changes in the tax treatment of leases.

It’s ironic that the outcome of this long-running convergence project will be divergence in accounting for common lease types. The new IFRS and US GAAP standards will introduce differences in the profile and presentation of annual lease expense where none currently exist, reducing comparability between the two major accounting frameworks”.

Matthew Stallabrass, partner at Crowe Clark Whitehill LLP: “It is disappointing, however, that after a project lasting 10 years the new standard is not fully converged with USGAAP. Whilst both standards bring operating leases on balance sheet USGAAP will retain the distinction in the Income Statement, continuing to recognize a rental expense. In my opinion this treatment better aligns financial reporting with the underlying cash flows and hence gives a fairer presentation than the approach taken in IFRS 16.

The new standard, which is applicable for periods commencing on or after 1 January 2019, will require leases to be reassessed and adjustments made on transition.

This will impose costs on companies which many will not welcome given that they will have incurred costs, and processed restatements, in applying IFRS 15 Revenue in the previous year. Having two significant changes in such quick succession may impose a particular burden on smaller listed companies with fewer resources and the IASB should give this problem greater consideration when deciding effective dates for future standards”.

James Chalmers, PwC’s UK assurance leader: “All leases going ‘on-balance sheet’ should not be a surprise.

Despite some challenges, it should be a relief that the IASB has put an end to years of uncertainty by finally issuing its new standard. The IASB has taken on board the considerable amount of feedback it has received over the years in order to publish a standard that is more workable than some earlier versions. However, adopting it in time for the 2019 effective date will still be a challenge for some companies”.

Nigel Sleigh-Johnson, Head of Financial Reporting Faculty at ICAEW: The publication of this standard is one of the most significant developments to date in the world of international financial reporting.

There is much work for companies to do to understand and implement the changes, not least in the area of data collection, and this work should be started sooner rather than later. The potential implications also go way beyond a mere change in accounting.

The standard will have a significant effect on financial ratios and debt covenants because of the leased assets and liabilities newly recognized on lessee balance sheets.

Employee compensation arrangements, dividend planning and taxation may also be affected.

“One concern is the need for the EU to formally endorse the standard before it can be used by European companies. I would urge the European Commission to get the complex process of endorsement underway as soon as possible, especially considering that some businesses may wish to adopt the new standard early”.

UK FRC executive director for codes

and standards, Melanie McLaren: “The FRC is pleased that this standard has now been issued and will be fully involved in considering its endorsement in Europe”.

Veronica Poole, global IFRS leader and UK head of accounting at Deloitte: “It has been a long haul with many twists and turns along the way. But the real challenges start now and the volume of work in the lead up to a 2019 implementation must not be underestimated. Identifying all the relevant transactions is challenging enough, not least the boundary between what is now considered a ‘lease’ and a ‘service’. What is in and what is out will result in a series of difficult judgements”.

The new standard means that companies will be viewed and compared by their investors differently.

The final result should be clearer for both preparers and investors, since a very obvious part of financing will become explicit rather than remain implicit. Ultimately, today’s standard will ensure a more accurate outcome that investors will welcome.

Source: The Accountant Online – By Franchesca Hashemi

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FASB proposes changes in pension and post-retirement reporting The Financial Accounting Standards Board has issued two proposed accounting standards updates to improve financial reporting by employers related to defined benefit pension and other postretirement benefit plans.

FASB said many stakeholders have observed that the current presentation of defined benefit cost on a net basis combines elements that are distinctly different in their predictive value. This makes it more costly for investors and other users to analyze and understand that information, resulting in financial statements that are more opaque and less useful than they could be.

One of the proposed updates, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 71520): changes to the Disclosure Requirements for Defined Benefit Plans, is part of the FASB’s broader disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements by focusing on the information considered to be most relevant to users of financial statements.

As part of that project, FASB decided to reexamine the existing disclosure requirements in certain areas within the context of the proposed disclosure framework. Pensions were one of four areas—including income taxes, inventory, and fair value—to be reexamined.

FASB’s sister organization, the Governmental Accounting Standards Board, has also been making changes in the standards for financial reporting on pensions and

other post-retirement benefits in recent years, but those apply to state and local governments.

The other proposed update, Compensation—Retirement Benefits (Topic 715): improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, seeks to improve guidance related to the presentation of defi-

ned benefit costs in the income statement.

Under U.S. GAAP, defined benefit pension cost and post-retirement benefit cost (net benefit cost) comprise several components that reflect different aspects of an employer’s financial arrangements, as well as the cost of benefits provided to employees.

Those components are aggregated for reporting in the financial statements.

FASB’s proposed accounting standards update aims to address these issues by requiring a reporting organization to separate the service cost component from the other components of net benefit cost for presentation purposes.

It also would provide explicit guidance on how to present the service cost component and other components of net benefit cost in the income statement. The proposed ASU would allow only the service cost component of net benefit cost to be eligible for capitalization.

FASB is asking stakeholders to comment on the proposed ASUs by April 25, 2016.

Source: Accounting Today – By Michael Cohn

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Firms slow to implement new revenue standard Less than 29 % of corporate financial preparers polled by KPMG say their companies have a clear plan to make the change in revenue recognition.

Companies still have some time before they must begin applying the new standard for revenue recognition but many seem to be making slow progress in preparing for the change.

According to a KPMG survey, less than 29 % of corporate financial preparers say their companies have a clear plan to implement the new standard, with less than 13 % saying they have completed an assessment of the effects of the new standard and are planning implementation.

As many as 82 %, however, say they are still assessing its effect or have taken no action while they await the completion of the standard setting.

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued their converged standard on revenue recognition in May 2014. The standard is intended to increase financial statement comparability across companies and industries and significantly reduce the complexity inherent in

today’s revenue recognition guidance.

The standard is still undergoing clarifying changes as a result of questions raised with the boards. In July, both FASB and IASB voted to delay the effective date of the new revenue recognition standard by one year.

The boards are also working on new lease accounting standards. Just 13 % of the KPMG survey respondents said they have a clear plan for implementation of those standards and most participants expect to implement them in 2018 or 2019.

“Both standards will require significant effort, and these results demonstrate the complexity of implementation across entire organizations”, John Ebner, KPMG’s national managing partner–audit, said in a news release.

Public companies, some nonprofits, and some employee benefit plans must apply the new revenue recognition standard in annual reporting periods beginning after Dec. 15, 2017, including interim reporting periods within that reporting period. Other entities have an additional year for implementation.

Source: CFO – By Matthew Heller

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What will the new lease standard mean for your balance sheet?

The Financial Accounting Standards Board (FASB) has decided to wrap up a decade of controversy with a new accounting standard on leases. If your company leases equipment or real estate, the new standard could significantly alter what’s reported on your balance sheet — which, in turn, could alarm unprepared lenders and investors.

A long and winding road In 2005, the Securities and Exchange Commission (SEC) estimated that about $1.25 trillion in operating leases wasn’t being recognized on public company balance sheets. The SEC’s Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 on Arrangements with Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers concluded, “Many issuers see leasing as an attractive form of financing asset acquisition in part because leases can be structured so as to avoid recording debt”. In the wake of the Enron scandal involving off-balance sheet financing scams, the SEC urged the FASB to take action.

So, in 2006, the FASB added the project on accounting for leases to its agenda. But long before that, investors and analysts complained that existing lease

accounting guidance offered companies too much leeway to structure leases to stay off their balance sheets.

Companies that don’t record their leases as liabilities look like they have healthier debt-to-equity ratios and more available funds than companies that finance new pieces of equipment or take out mortgages to build offices and stores. For some bu-

sinesses, such as airlines that lease their fleets of planes or retail chains that rent all their storefronts, lease payments make up significant financial obligations.

Most critics said they wanted these costs to be more transparent, but there has been little to no consensus on the best way for the FASB to require this. In 2013, the FASB released Proposed Accounting Stan-

dards Update (ASU) No. 2013-270, Leases (Topic 842), which was largely aligned with the International Accounting Standards Board’s Exposure Draft (ED) No. 2013-6, Leases.

The boards didn’t see eye-to-eye on several issues, however, and now will publish separate final accounting standards. But, they agree on the key premise that almost all leases should be recorded on company balance sheets.

A significant change Under the new standard, which is expected to be published in early 2016, businesses will record the effects of leasing storefronts, factory equipment, airplanes and other types of fixed assets as debt on their balance sheet. This ends a decades-old practice in U.S. Generally Accepted Accounting Principles (GAAP) of keeping lease costs off company balance sheets.

The board approved the standard with a 6-1 vote. FASB member Marc Siegel voted against it. “This is a really hard decision for me. On the pro side of what the standard is doing, I think obviously an amount [will be recorded] on the balance sheet”, Siegel said. “On the con side, while we will have an amount on the balance sheet, I

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What will the new lease standard mean for your balance sheet? think it’s going to be mismeasured”.

The rest of his FASB colleagues, however, said the forthcoming standard would benefit analysts and investors, even if it was not as broad of a change as the standard-setter once envisioned.

“This is not the standard I would have written; many of my concerns still exist”, FASB member Harold Schroeder said. “Is this an improvement to where we are today? I’ve come to the conclusion that yes, this is a notable improvement to where we are”.

Delayed effective date The bad news is that this standard could result in loan covenant violations for some companies, because it could make them appear more leveraged. The silver lining?

Companies will have several years to implement the change and be able to forewarn lenders and investors about how the change will affect key financial statement ratios.

For public companies, the standard is expected to go into effect for annual periods that begin after December 15, 2018. In other words, compliance would start in 2019 for calendar-year entities. Private companies would have an extra year to comply.

Still no consensus on global lease accounting standard In other news, differences in business practices between U.S. and overseas companies caused the project to produce a converged accounting standard on leases to fall apart. One of the key differences is the treatment of leases on companies’ in-

come statements.

Under the Financial Accounting Standards Board’s (FASB’s) model, some leases are treated as purchases and considered financing arrangements with interest and amortization expenses built into the amount recorded on the income statement. Others are considered simple rentals with even payments over time. In contrast, the International Accounting Standards Board (IASB) treats all leases like financing arrangements.

The lack of consensus has proven too hard to bridge. U.S. accountants have been dividing leases into the two categories for decades and had no problems with it. In addition, they told the FASB the split-reporting works with the U.S. tax and regulatory regimes.

Conversely, accountants overseas felt the decision to divide leases into two categories was a complexity that should be eliminated from current financial reporting.

Overseas businesses said accounting for low-value leases would be onerous under the proposed accounting overhaul.

The IASB responded by carving out an exception for small-ticket leases, such as photocopiers, cash registers and office equipment. The FASB heard no such complaints and decided not to add an exception.

Although the FASB and IASB won’t publish identical standards, the central goal of the final standards will be the same: to improve transparency when reporting future lease obligations.

Source: Weaver (Assurance - Tax - Advisory)

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New accounting treatment to impact small business Small business owners could be forced to renegotiate their bank loans as a result of newly implemented IASB standards, according to a prominent mid-tier firm.

IFRS 16 Leases was introduced by the IASB in attempt to bring transparency to lease obligations by requiring all leases to be reported on a company’s balance sheet as assets and liabilities.

Ralph Martin, audit technical director for mid-tier firm Crowe Horwarth, has noted that an unintended consequence of the new standard could force those small business owners who currently lease their premises to negotiate their loan agreements with their banks, if they are now breaching their loan covenants.

“Many loan agreements contain covenants based on ratios such as debtto-equity or interest cover. The new standard could significantly affect those

calculations”, said Mr Martin.

“What was treated in the past as an operating lease will now sit in the balance sheet as a liability. The effect could be to trigger a breach of their loan covenants that could give the bank the right to demand repayment of the loan in full”, he added.

Mr Martin noted that retailers and distributors would be the most likely to be affected, but he urged all small businesses to prepare for the 2019 implementation date as soon as possible.

“It’s easy to think that 2019 is nearly three years away, but our advice to small businesses is to start preparing for the change now”, he said.

Source: Public Accountant - The journal for the Institute of Public Accountants – By Mitchell Turner

Auditoría

Audit standards for SMEs Evidence

A proposal for a separate audit standard for small companies is making waves in Scandinavia. Do we need something similar in the UK, asks Caroline Biebuyck.

Changes to auditing standards over the past couple of decades appear to have been dominated by the idea of a one-size-fitsall approach based on the needs of large, multinational companies. Smaller practitioners in particular feel that the resulting international auditing standards (ISAs) have been designed from the top down, with the procedures and requirements becoming increasingly extensive and difficult to follow, not to mention expensive.

Where does this leave small companies?

While the continual increase in the audit exemption threshold means they might not need to have a statutory audit, a good number of them would like to have some kind of independent check to lend credibility to their financial statements. If, as expected is possible in the UK, the audit exemption threshold rises to £10.2m to bring it in line with new UK GAAP for smaller companies, the question is whether it is right for companies of this size to potentially escape any kind of external scrutiny.

“While we don’t get too many routine errors in the data we get from our clients, the figures in the financial statements can change

The SASE moves away from the ISAs by stipulating more generic criteria for audit documentation while still insisting on “sufficient and appropriate” audit evidence.

It pushes auditors to use their professional judgement in designing audit procedures rather than having to perform specific pre-designed tests – for instance, the auditor can decide whether they need to attend the stock count, and to evaluate the need for a management representation letter to support other types of audit evidence. quite significantly from those we were given at the start of an assignment, whether we are performing a compilation, a review or an audit”, says Catherine Willshire, partner at Price Bailey. “If having a separate standard for small company audits enabled an independent check of their financial position, this would have to be good for markets overall in making sure these companies’ financial information was more reliable”.

The idea of having a separate stand-alone set of rules for small company audits has been mooted for some time. Now the debate has had a shot in the arm with publication by the Nordic Federation of Public Accountants (NRF) of a consultation on its proposed new standard of audits of smaller entities (SASE).

“An audit performed according to the Nordic standard is an audit that enables the auditor to express an opinion with the same level of assurance as an audit performed in accordance with the ISAs”, it says.

This makes sense to Robert Holland, managing partner at James Cowper Kreston.

“In reality, about 90 % of the audit issues we face with, say, a £2m turnover trading company, are stock valuation, a debate about collectability of debts, and revenue recognition if this falls outside the obvious categories. If you can document simply what you are doing and why without having to fill in endless checklists as the ISAs require, you can perform the fundamentals of an audit quite quickly and within a simpler framework”, explains Holland.

“Most business around the world is small.

The question is how you develop trust and make sure there is confidence in them as, by their nature, they tend to have more risk associated with them”.

“The audit work we were doing in the late 1980s isn’t very different from the audit work we do now. The tests are the same but they take twice as long because of the extensive documentation process required of detailed

This standard uses the same core audit principles that are found in the ISAs, with the distinction being that it is ISA-compatible rather than ISA-compliant. However, the NRF is adamant that quality is not compromised.

Auditoría

Audit standards for SMEs judgements that aren’t terribly relevant in the context of a small company audit”.

Validation It’s not just professional advisers who think smaller enterprises benefit from some kind of validation: a surprising number of small companies do too. Just over a quarter of respondents to an ICAEW survey of small businesses carried out in 2014 felt it would be better for the economy if businesses like theirs were required to have an audit. Nearly half of businesses with between 10 and 50 employees said they would have an audit even if this were not compulsory.

“There’s definitely a group of businesses that fall well below the current threshold that have audits, largely because they are ambitious for growth and know that having an audit will enhance their financial reputation”, says Clive Lewis, head of small and medium enterprises at ICAEW. “When a company reaches a certain level, with turnover of more than £1m, then I think the benefits of the audit become quite clear.

Until you hit that level the audit is a bit of an investment but one that is still worth making”.

However, the survey findings also showed that there is some confusion about the services professional firms perform for their clients.

UK companies below the audit threshold can opt for anything from accounts preparation to assurance over certain aspects of the financial statements and on to a full ISA audit. But small businesses often don’t understand all the options that are available to them or the pros and cons of each, says Willshire.

“Part of me thinks if you give more choice to people and they can see it has the word ‘audit’, then that’s fine. But I don’t think they would necessarily understand what an audit would be under the proposed Nordic standard compared with an ISA audit, or whether they would care”.

Regulation While ICAEW supports the idea of having another tool in the audit and assurance service armory, it points out that introducing a different audit standard would raise a big question around regulation. “Applying full ISAs can be expensive because of the level of documentation required, not only to justify what you have done but in some cases what you haven’t”, says Henry Irving, head of ICAEW’s Audit and Assurance Faculty.

“As revenue recognition may not always be a risk for all audits you should not have to explain why you have not tested it in accordance with the standards every time. The SASE offers a different approach and invol-

ves practitioners using their skill and judgement to arrive at their opinion. It’s unlikely you could have this kind of standard coming out and not affect audit inspection and regulation”.

And while some smaller practices would like to be able to provide a more cost-effective audit service for their clients, having another standard and different associated regulation would add to the costs and complexity of practitioners’ operations. In the recent past when firms were using three different sets of accounting standards they had to ensure their staff knew UK GAAP, the FRSSE and IFRS and make sure the appropriate standards were being applied. “If the ICAEW student training were on the full auditing standards, would we have to provide training internally for the small one?” asks Willshire. “That would mean we would bear the additional cost of trying to provide cheaper audits”.

However, Holland feels the proposed standard could help bring the focus back on to small businesses – to companies that often want the comfort of having an audit. “I think we approach audit the wrong way around.

We need to start small and build up, overlaying a more complex structure for public interest areas. Where you have a process of endless checklists then you face death by checklist: it’s too easy not to rise above

the detail and you run the risk of not seeing an overall problem. We need to get back to a process that says: this stuff is important while this other stuff is only interesting”.

Valuable Whatever decision the Nordic accountants take, their consultation has put the idea of a separate audit standard for small companies back on the international agenda, a result which Irving feels is valuable. “This is a global challenge. Most business around the world is small. The question is how you develop trust and make sure there is confidence in these small businesses as, by their nature, they tend to have more risk associated with them than larger companies with a longer track record. That’s why this is worth exploring at the IAASB level, despite the substantial challenges to having a non-unitary audit”.

And UK businesses could benefit from this being tackled at an international level, says Holland. “Smaller businesses are becoming increasingly international in nature. For instance, one of my clients is a £10m turnover group based in the UK that is trading out of three countries. We need a more broadly international view on this subject”.

Source: The Institute of Chartered Accountants in England and Wales - Caroline Biebuyck

Auditoría

IAASB finalizes changes for auditor reporting on Special Purpose Financial Statements The International Auditing and Assurance Standards Board® (IAASB®) today released ISA™ 800 (revised), Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, and ISA 805 (revised), Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement.

rector Kathleen Healy.

Reporting on special purpose financial statements is linked to the IAASB’s new and revised auditor reporting standards issued in January 2015, in particular ISA 700 (revised), Forming an Opinion and Reporting on Financial Statements, and new ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report. The amendments to ISA 800 and ISA 805 are limited to auditor reporting and are not intended to substantively change the underlying premise of these engagements in accordance with the extant ISAs.

ISA 800 (Revised), Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks and Conforming Amendments to ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements

“As a result of our more general work on auditor reporting, we found it necessary in the public interest to also make chan-

“The board and its staff remain committed to promoting awareness of its new and revised Auditor Reporting standards and facilitating their effective implementation” Ms. Healy added.

For more information, visit www.iaasb. org/auditor-reporting.

ges to ISA 800 and ISA 805”, explained IAASB Chairman Prof. Arnold Schilder.

“Feedback from our stakeholders has helped us finalize these proposals and provide greater clarity about how the new auditor reporting enhancements apply in the context of special purpose financial statements”.

ISA 800 (revised) and ISA 805 (revised) will become effective at the same time as

the auditor reporting standards addressing general purposes financial statements for audits of financial statements for periods ending on or after December 15, 2016.

“The issuance of ISA 800 (Revised) and ISA 805 (Revised) marks another significant milestone in the IAASB’s continued work on the topic of auditor reporting”, noted IA ASB Technical Di-

ISA 800 (Revised), Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks and ISA 805 (Revised), Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement Source: IFAC Global Knowledge Gateway

Auditoría

Firms must be more rigorous in audit quality control Audit firms must provide more resource and interrogate their audit processes as closely as the organizations they examine if standards are to improve and be maintained.

That’s the message from the FRC in its Audit Quality Thematic Review: Firms’ audit quality monitoring report, released this week.

The review considers the monitoring performed by nine audit firms over both the quality of completed audit engagements and the effectiveness of their overall quality control systems. Audit firms’ internal quality control procedures are designed to ensure that audit engagement teams consistently deliver high quality audits for the benefit of investors.

“Overall, firms allocate substantial resources to their monitoring of the quality of audits and this is commended”, the report

finds. “However, given the importance of the firms’ quality controls in supporting the consistency of the quality of audit work performed across the firm, firms do not devote a similar level of resources to their monitoring of the firms’ quality controls”.

The regulator added that historically, most firms only identify “a relatively small proportion” of audits requiring significant improvement - “a smaller proportion than we [the FRC] find through our own reviews”.

Where it has been able to make direct comparisons, the FRC said it has found “instances where our monitoring has identified required improvements that have not been identified by the firm’s reviews or have been treated as less significant”.

The FRC aims to see 90 % of FTSE 350 audits requiring no more than limited im-

provements as assessed by its monitoring by 2019, adding it “expects the firms’ own monitoring programmes to be as robust and challenging as our own”.

FRC executive director of conduct Paul George (pictured) said: “We welcome audit firms’ commitment to audit quality and ensuring that their quality control systems for audit are effective. Given the importance of these control systems to deliver high quality audits we would expect firms to challenge individual audit engagement teams more rigorously and applies a consistently equivalent level of resources to monitoring the effectiveness of the firms’ overall controls”.

Audit Quality Thematic Review: Firms’ audit quality monitoring report Source: Accountancy Age – By Calum Fuller

Auditoría

IAESB publishes guidance for standard on professional competence for audit engagement partners that professional accountants are required to develop and maintain when performing the role of an Engagement Partner responsible for audits of financial statements.

The IAESB has prepared a Questions & Answers publication and a webcast series to address questions or issues that might arise on implementation of IES 8 by professional accountancy organizations, public accounting firms, or engagement partners.

The International Accounting Education Standards Board™ (IAESB™) has issued support materials for the implementation of IES™ 8, Professional Competence

for Engagement Partners Responsible for Audits of Financial Statements (Revised).

This International Education Standard™ prescribes the professional competence

“The Education Board’s new standard on audit engagement partner competence comes into effect July 1, 2016, and many around the world are actively preparing to meet its challenging requirements,” said IAESB Chair Chris Austin. “These support materials aim to assist those who have a role and responsibility for effective implementation of IES 8”.

IES 8 builds upon educational requirements of redrafted IES 7, Continuing Professional Development (2014), IES 2, Ini-

tial Professional Development – Technical Competence (2015); IES 3, Initial Professional Development – Professional Skills (2015); IES 4, Initial Professional Development – Professional Values, Ethics, and Attitudes (2015); IES 5, Initial Professional Development – Professional Experience (2015); and IES 6, Initial Professional Development – Assessment of Professional Competence (2015).

Professional Competence for Engagement Partners Responsible for Audits of Financial Statements Professional Competence for Engagement Partners Responsible for Audits of Financial Statements (Revised) Implementation support for international education standard (IES 8) professional competence for engagement partners responsible for audit of financial statements (Revised) Source: IFAC Global Knowledge Gateway

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The vital traits of an ethical leader There were many examples of ethics failures in 2015. So what’s missing from company leaders?

from day to day. This was as true in ancient China as it is today, nicely summed up by Lao Tzu who observed that:

The year just past saw many major business scandals including those at Volkswagen, 7-Eleven and Turing Pharmaceuticals. All pointed to a business culture using the “end justifies the means” argument to justify unethical if not illegal practices.

“A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves”.

Selflessness Ethical leaders are strong on selfless service in the interests of the greater good.

They would probably resonate with this quote from Nobel Prize winner George Bernard Shaw:

While hopefully the exception and not the rule, these cases all left the public asking whether getting caught was seen by some leaders as the worst crime of all.

What are the qualities of an ethical leader and how might someone with those qualities think and act?

The personality to defy group-think Good leaders display certain personality traits that are common across cultures and history; those of intelligence and imagination to create a compelling vision of the future, and bring those who can deliver it with them.

A good leader must also be trustworthy and display unshakeable integrity, be action-oriented, resilient in the face of set-

The ability to set a good example.

backs while treating people with respect, not as mere units of production. They have rid themselves of delusion and are brutally honest with themselves, know when to take risks and when to play it safe. Leaders are courageous, defy groupthink and accept the backlash against their unorthodox practices.

The defining feature of the ethical leader is that in addition to the foundational qualities mentioned above, they are seen to act from their own well developed set of ethical principles, setting a consistently good example for others to follow.

Outwardly, leadership can be expressed in countless ways, yet if a person embodies these traits, they will be perceived as a leader by those around them.

The steady force of their attitude over time trickles down and becomes embedded in the culture. They have created a moral matrix that people internalize and operate

“This is the true joy in life, the being used for a purpose recognized by yourself as a mighty one; the being thoroughly worn out before you are thrown on the scrap heap; the being a force of Nature instead of a feverish selfish little clod of ailments and grievances complaining that the world will not devote itself to making you happy”.

Their door is always open The whole topic of ethics is open for discussion, and everyone is encouraged to become part of the ongoing conversation.

The moral DNA of the organization is a work in progress; a living entity that evol-

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The vital traits of an ethical leader ves becomes stronger. It is not enshrined in a framed mission statement, then forgotten about.

They’re not afraid to be challenged Having one’s subordinates call you out, disagree with you, challenge your judgement; all of this calls for great understanding and tolerance. Ethical leaders understand that it’s part of a culture of continuous improvement.

There can be no “I’m the boss, don’t

you dare challenge my authority”. It is part of not taking oneself too seriously. Self-deprecating humour is used to good effect.

Ethical leaders do not identify too closely with the position they occupy, such that they will be tempted to overstay their welcome. They cultivate successors and know when to step aside, leaving on a high rather than being pushed. New blood rejuvenates; it’s often the best strategy for moving with the times.

They take responsibility for everything The ethical leader accepts that they are either directly or indirectly responsible for everything that happens in the organization. They understand that blame shifting and finger pointing is a failure of leadership as we saw in the VW fiasco when the CEO sought to put the blame on the engineers and technicians. The ethical leader does not resort to the “plausible deniability” defense.

Ultimately, good ethics is good business.

The organization that does the right thing, and is seen to be doing the right thing is the one that will prosper in today’s more connected and accountable world. The community expects moral behavior in our leaders, and will punish those that transgress through loss of reputation and jail.

The old paradigm of win-lose is giving way to win-win.

Source: The Rand Daily Mail (South Africa) By David Tuffley & Amy Antonio

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Ethics collective responsibility of employees in company: poll A recent poll showed a majority (64 per cent) of respondents believe that all employees have a responsibility to be ethical in business, with 20 per cent holding the company responsible for establishing a strong code of conduct entitled Ethical Leadership: Views from the Mena region’, and conducted by Bayt.com and the Canadian University Dubai (CUD), the poll demonstrated the importance of leaders’ role in setting the right example, creating an environment that encourages good corporate citizenship, and in motivating employees to perform better and more innovatively.

This poll takes a look at a distinct type of leadership - ethical leadership - where leaders are both moral people and moral managers. It was conducted between September 18 and October 14, 2015 with respondents from Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Saudi Arabia, Morocco, Oman, Qatar, Tunisia, the UAE, and Yemen.

When asked to define what business ethics meant to them, almost half of the surveyed respondents (47 per cent) held a legalistic view, i.e. conducting business according to

the legal requirements and not breaking laws, while 37 per cent related it to being socially responsible.

Decision-making process To gauge whether managers in Mena engage in ethical decision-making processes, the poll asked respondents whether their managers make fair and balanced decisions. Of the poll respondents 43 per cent said ‘sometimes’, while more than a third (36 per cent) think their managers are ‘usually’ fair in their decision-making processes.

Based on the poll results, the majority of managers in Mena are not of the view that the ends justify the means. In fact, almost 6 in every 10 respondents (58 per cent) agree that their managers define success not just by results, but also by the way results are obtained.

Ethics outside workplace When asked whether their managers conduct themselves in an appropriate manner outside the workplace, 39 per cent of respondents said ‘yes, most of the time’. A majority of poll respondents felt that their

managers had their best interests in mind at least ‘some of the time’ (27 per cent) or to ‘a large extent’ (39 per cent). On the other hand, a third felt that their managers did not care about their best interests with 21.5 per cent stating that their managers ‘never’ had their best interests in mind and 12.5 per cent responding ‘rarely’.

On a positive note, 70.5 per cent of respondents confirmed that their managers listen to them, with 38.5 per cent saying they listen ‘to a large extent’. However, almost a third (29.5 per cent) hardly ever have the opportunity to be heard by their managers.

Leaders lead by example When employees were asked if their managers set an example of how to do things ethically, almost half (45 per cent) of the respondents conveyed that managers are ‘often’ good role models in displaying ethical behavior, with the other half split between only doing so ‘sometimes’(29 per cent), ‘rarely’ (14 per cent) or ‘never’ (12 per cent). According to the poll, 62 per cent of managers discuss business ethics and values with their employees, with 28 per cent discussing them ‘often’.

Moreover, disciplinary procedures when employees breach ethics standards do exist. In fact, 72 per cent of respondents say that their managers discipline or reprimand employees for violating ethics standards; of these, 28 per cent do so occasionally.

When asked whether they consider their manager to be an ethical leader, close to half (46 per cent) said ‘yes, to a large extent’, while a quarter thought so, but only ‘some of the time’.

“In terms of ethical leadership, we can conclude that managers set the tone for how the entire company runs on a dayto-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example and guide them in making decisions that are not only profitable, but also ethical”, said Suhail Masri, VP - Employer Solutions, Bayt.com. It is important to recognize that being ethical is not just about doing what is required by law, but living by moral values in both your personal and professional life.

Source: Emirates 24|7

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Defining business ethics My two favorite terms used to define a culture of ethics are obvious – trust and integrity. If defined with these terms, the actual steps needed to build an ethical culture will become easy to identify. If senior executives operate in a manner designed to promote trust and integrity among its employees, shareholders, vendors/suppliers and other stakeholders in the community, I am sure the culture created will maximize the ability of the company to maintain sustainable growth and financial performance.

One of the more frustrating topics for discussion is defining business ethics. It is frustrating to see how complex and unhelpful the discussion turns when defining business ethics.

sophisticated philosophical ideas. Aristotle, Socrates, Sarte and Camus have no role to play in defining business ethics– sorry to disappoint all you philosophy majors.

I have two tests for how to deal with this issue:

The first step is not to kill all the lawyers, but throw out everything you ever learned about philosophy and rigorous philosophical analysis of complex issues.

1. Do you use simple terms that can be easily communicated internally in a company?

2. Do the terms embrace the kind of values important to the company?

One thing that can quickly be decided on this issue – there is no need for complex theories, mumbo-jumbo and reliance on

In the end, business ethics can easily be translated into two inquiries: 1. How do you build trust with your stakeholders?

2. Have you built a culture that is founded on integrity?

A culture of trust is one in which senior executives conduct themselves in a way to promote collaboration and respect with its managers and employees. Trust depends on transparency, equal treatment of similarly situated personnel, consistent conduct that is repeated in the face of different challenges.

Similarly, a culture of integrity is reflected in the treatment of other stakeholders, most especially employees and shareholders. A culture of integrity means that senior executives conduct themselves at a high standard, promoting the company’s code of conduct, and adhering to ethical standards designed to promote the welfare of its stakeholders.

The values of trust and integrity are exemplified in a number of areas, including: se-

nior executive performance and rewards; elevation of the compliance function; business decisions and weighing of tradeoffs; organizational justice in the company; equal treatment of similarly-situated executives, managers and employees; incentives to encourage behaviors that promote trust and integrity; and clear disincentives against behaviors that undermine trust and integrity.

Contrary to many suggestions from consultants and so-called experts in this area, the key to promoting a culture of ethics is defining a simple message that can be communicated easily to stakeholders, and around which company behaviors and expectations can be defined.

In the end, this is not rocket science (although last time I used this expression, the General Counsel at a prospective client told me his last job before becoming a lawyer was “rocket scientist”), and companies, if committed to creating a culture of ethics can do so without hiring a band of consultants and public relations consultants to help them navigate the issues. You would be surprised at how effective common sense can be in creating an effective culture of ethics.

Source: Lexology – By Michael Volkov

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Why corporate social responsibility makes sense for communities, companies and investors isn’t about telling them what they need and then doing it for them. We need to get to know each other and build trust in each community where we operate because their needs and realities are different. Afterwards, we work in a partnership approach to achieve shared goals”.

Mining companies and their shareholders have come to the realization that doing the right things in the communities where they operate is important for a lot of reasons, including the bottom line. Mining executives also tell The Gold Report that the most effective corporate social responsibility programs (CSR) are orchestrated cooperatively instead of applied prescriptively.

In 2014 Endeavour Silver planted more than 40,000 trees as part of its commitment to reclaiming and restoring land disturbed during the mining process. Photo courtesy of Endeavour Silver.

The emphasis of mitigating the economic, social and environmental impacts of mining on local communities can be seen in the billion-dollar price tags on education and clean water projects in Ghana underwritten

by Rio Tinto Plc, training programs in Burkina Faso co-financed by IAMGOLD Corp. and small business loan programs in Peru funded

by Barrick Gold Corp.

development, build environmental expertise and reduce poverty in the areas where we operate”.

As the Mining Association of Canada puts it on its website, corporate social responsibility (CSR) standards “are one way that companies can help manage risks and avoid potential conflicts. As an industry we also support community development to help spur local business

Companies large and small have found that an investment in the people living where they work can have outsized returns in human impact terms, permitting time and even the ability to continue operating. But they have also learned that programs have to be designed in cooperation with local communi-

ties rather than imposed on them to have a lasting impact.

A social license Great Panther Silver Ltd. has taken a measured approach to its good neighbor policy.

“Our main priority”, according to Mariana Fregonese, director of Corporate Communications and Sustainability, “is to listen to what our stakeholders have to say. This

At the San Ignacio mine, a half-hour from the main Guanajuato mine facility in town, the needs are much different. “We met with our neighbors when we started developing this new mine and quickly learned that the community had an active environmental problem because they were importing bottled water and burning the plastic containers, thereby releasing toxins in the air. We developed an easy training program to separate different types of plastics and set up recyclers to come every two months, with the profits from selling the materials matched by the company and used for community events”, Fregonese said. By the end of the year, she anticipates that 1.5 tonnes of plastic will have been recycled in a community of only 500 people.

One woman approached Fregonese after the company opened a community center closer to its Guanajuato mine and processing plant, and explained how having that place to go and connect with other women of

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Why corporate social responsibility makes sense for communities, companies and investors the community had changed her life and helped her recover from a difficult situation. “She is now employed full time and helping other women in similar situations in our community center. That is an example of a true partnership having a real impact. It is highly rewarding”.

CSR has become part of doing business for Great Panther. When the company acquired Cangold Ltd. and its option on the Guadalupe de los Reyes exploration project in the Sierra Madre range in Sinaloa, Mexico, in May, a social assessment was launched the same time as the environmental study. In this case, it came back that the handling of

drinking water was a challenge.

“We held a hands-on clinic to work with local women to address health issues associated with hygiene, water sanitation and food handling”, explained Fregonese.

“With 90 local women participating in these workshops, we anticipate that approximately 80 % of the local population benefited from this program”.

“It doesn’t cost a lot of money, but it shows we understand and care. Throwing money around is not always the answer; it is normally counterproductive” said Bob Archer, Great Panther Silver CEO and president.

It seems to be working. When a landowner built a fence and tried to block the drills from getting to the project site, the community came out in support and convinced him to let them by. “That is an example of how building a social license can make a huge difference”, Archer said.

Fregonese is involved in the Prospectors & Developers Association of Canada and the Association for Mineral Exploration in British Columbia CSR committees and finds it important to share best practices among CSR practitioners and to adopt international environmental and social standards. “We, as an industry, can generate economic develop-

ment and bring better sustainable lives to the local communities”.

“The word sustainability gets kicked around a lot” said Archer. “But it is key to moving forward in this environment.

Shareholders need to know which companies are taking a sustainable approach and are properly managing their social risks. You can have all the money you want, but when it comes to community support, a CSR can trump money in the bank”.

Source: Resource Investor - By JT Long

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Corporate social responsibility: present trend and benefits

Business Organization exists and thrives within the society. The workers and consumers which constitute the society enable the business to earn profits and sustain it.

In the process of its existence and operation, a business organization, irrespective of its size or nature of business, adversely affects the environment directly or indirectly. Thus, it is essential for the business organization to contribute toward the interest of the society.

They are also required to preserve and enhance the quality of environment in which they operate. Corporate Social Responsibility is one such approach or practice adopted by Companies toward this end.

According to the World Bank Council for sustainable Development defined Corporate Social Responsibility “as the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and the society at large”.

Corporate Social Responsibility is a concept whereby companies integrate social and environmental concerns into their business operations and in their interaction with their stakeholders (employees, customers, shareholders, investors, local communities, government), on a voluntary basis.

Today, many Multinational Corporations like IBM, Dell, Verizon, Deloitte, Cisco, PG&E LinkedIn, Toms etc. are engaged in Corporate Social Responsibility activities through contributions and donations towards charities; employees’ volunteer in environmental efforts; initiating community development programs in education, health care, literacy; providing relief assistance to communities affected by natural disaster etc.

Even in India, Corporate like Reliance Industries, ONGC, SAIL, BHEL, Indian Airlines Coca- Cola Company, Mahindra & Mahindra, GlaxoSmithKline Pharma-

ceuticals, Bajaj Electricals Ltd and many others are involved in serving the community in various ways.

BHEL & Indian Airlines focus on disaster management and adopts 56 villages having nearly 80,000 inhabitants.

The Reliance Industries’ CSR projects focus on health, education and environment. Its CSR activities includes “Project- Drishti” initiated to bring back the eyesight of visually challenged Indians from the economically weaker sections of the society; Running medical facility center and providing free health checkups; building school at the site for the children of the Project Affected Families and the children of the villages around the sites; provide free school bus facility for the students, stipend to every child who attends school, free uniforms; organize study tours for children; provide teaching aids to the teachers, training of teachers, as well as night schools for uneducated adults etc.

Coca-Cola initiated 5by20 to empowerment of 5 million women entrepreneurs across the Coca-Cola value chain by 2020.

ONGC’ s CSR projects emphasize on higher education, grant of scholarship and aid to deserving young pupils of less privileged sections of society, facilities for constructing schools etc.

SAIL’s focal areas of CSR activities are environmental conservation, health and medical care, education, women upliftment and providing drinking water.

Mahindra & Mahindra launched a unique kind of ESOPs- Employee Social Option in order to enable Mahindra employees to involve themselves in socially responsible activities.

GlaxoSmithKline Pharmaceuticals’ CSR programs primarily focus on health and healthy living. Provide medical check-up and treatment, health camps and health awareness programs at tribal areas. Donate money, medicines and equipment to non-profit organizations that work towards improving health and education in under-served communities.

Bajaj Electricals Ltd. corporate social responsibility activities include Education, Rural Development & Environment.

Corporate Social Responsibility programs can be very beneficial to the company, the community and the environment in which the business operates. The benefits accrued to the company can be felt

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Corporate social responsibility: present trend and benefits through improved financial performance; lower operating costs; enhanced brand image and reputation; increased sales and customer loyalty; greater productivity and quality; more ability to attract and retain employees; reduced regulatory oversight; access to finance, capital and resources ; workforce diversity; product safety and decreased liability.

The community and the general public enjoy benefits in the form of increased in charitable contributions; employees’ volunteer programmes; corporate involvement in community education and employment programmes. Environmental benefits derived from CSR are greater material recyclability, better product durability and functionality

and greater use of renewable resources.

No matter the size of an organization or the level of its involvement with Corporate Social Responsibility every contribution is important and provides a number of benefits to both the community and business. Contributing to and suppor-

ting Corporate Social Responsibility does not have to be costly or time consuming.

Thus, the business organization in Nagaland can also initiate programs and activities that would make a difference in the society and improve the overall quality of life.

Source: The Morung Express – By Moa Temsu

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5 CSR trends that will blossom in 2016 Every January for the past five years, I pause to reflect on the state of corporate social responsibility (CSR). And every year, I come to the same conclusion: things are looking up. As CSR continues to mature, year after year brings new and unique voices to the table, vibrant innovations and more widespread, integrated adoption among our world’s most powerful companies as well as small and mid-size enterprises. While CSR challenges remain and grow increasingly complex, 2015 proved that companies cannot and will not shy away from addressing them. Below are some of the most prevalent CSR trends from the past year that will shape the industry in 2016 and beyond.

transgender models in campaigns. That said, there still remains room for brands to take a bigger leadership role in the transgender conversation, whether it’s in the context of employee policies or public-facing storytelling campaigns. In addition, brands are continuing to take a leadership role in addressing growing inequality in the neighborhoods they work.

For example, Twitter launched a program, NeighborNest, that provides support for San Francisco’s central Market Street and Tenderloin neighborhood communities, and Zendesk announced its Zendesk Neighborhood Foundation, which provides support for nonprofits committed to neighborhood renewal in San Francisco.

Business is (finally) around climate change

Even luxury brands more transparent

galvanizing

According to Kathrin Winkler, chief sustainability officer at EMC, “2015 will be especially remembered as the year when business, governments, civil society, and even the church ALL stepped up action on climate change”. She’s right. Not long ago, corporations were seen as adversarial in the fight against climate change.

Today, they are an integral part of the solution. At COP21 in Paris, corporate players stepped up to lead talks and deals aimed at curbing the consequences of climate change. We saw coalitions and conversations across a range of indus-

tries, including agriculture, transportation, technology, retail and everything in between. Many believe the success of the climate conference had a lot to do with the increased involvement from the private sector. In 2016, the onus will be on these companies – ranging from Coca-Cola to Proctor & Gamble to Sony – to follow through with commitments and continue to keep up the momentum.

Social justice is no longer considered

off limits for businesses In case there was any doubt, the Supreme Court’s historic decision on gay marriage confirmed that mainstream brands have no reservations about taking a stance on social justice issues – especially gay rights. From American Airlines to Macy’s to Jell-O, there was no shortage of brands voicing support for the #LoveWins campaign. We also saw more brands, such as H&M and Clean & Clear, include

are

becoming

Reflecting on CSR trends, author and consultant Alice Korngold talked about the rise of fairness. “Get it right”, she said.

“Everyone can see you”. Transparency has become an expectation of companies today, and this year we saw more of it from the luxury sector in particular. Here’s how Diana Verde Nieto, co-founder and CEO of Positive Luxury, explains the change: “Pivotal events, including the passing of the Modern Slavery Act, the UN’s Sustainable Development Goals and COP 21 have moved integrating sustainability into business models from a ‘good thing to do’

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5 CSR trends that will blossom in 2016 to a legal obligation and has increased demand from stakeholders for transparency and action”. Millennials in particular – a group with increasing disposable income – expect the brands they purchase from to operate sustainably, ethically and openly.

Nieto says that luxury brands are stepping up to meet this expectation, citing the example of Kering’s decision to make their environmental profit and loss accounting

statement public for the first time in 2015.

Collaboration continues to be key Most companies understand that a collaborative approach across departments is necessary for CSR success. The smartest companies also know that collaboration outside of the organization is critical. In 2015, we saw companies including Unile-

ver, Nike, General Motors and IKEA join together against climate change under the We Mean Business coalition. Additionally, major brands such as Starbucks, FedEx, JCPenney, Pizza Hut, Target, Walmart and many others are collaborating to address inequality through the 100,000 Opportunities Initiative, a coalition of employers committed to hiring young Americans who are out of school and not cu-

rrently working. As mentioned, there was also a great deal of collaboration between companies happening at COP21, including Bill Gates’ Breakthrough Energy Coalition, which brings together leaders from Amazon, Salesforce.com, LinkedIn and Facebook, among others. Look out for more of these types of collaborations in 2016.

Source: Forbes – By Susan McPherson

Sostenibilidad

Why measure corporate social responsibility? sustainable development. The 2030 Agenda for Sustainable Development is clear: to end extreme poverty, fight inequality and injustice and protect our planet, we need a multitude of partners, including governments, civil society and the private sector.

There are buzzwords that come back very often in conversations here in Davos: engagement of the private sector, public-private partnerships, multi-stakeholders partnerships, etc. Indeed, the global economic equilibrium has changed and today’s world is more interconnected that ever before. There is no more doubt on the key role of the private sector can play in

In 2000, the United Nations launched “the Global Compact”. The initiative encouraged companies around the world to adopt a socially responsible attitude, commit to integrate and promote principles relating to human rights, international labour standards and fight corruption. The Global Compact has engaged more than 8,000 companies in 160 countries. Recently, in the context of the COP21 in Paris, many companies have also committed to climate action: to either establish targets to reduce their emissions or to finance the energy transition. Many CEOs have realized that they have a key role to play for climate and for the planet. But also that reducing CO2

emissions will require greater innovations, and therefore more business!

But engaging the private sector is not enough. It must be done with respect for social responsibility and responsible practices. For this, we need to be able to measure the social responsibility of enterprises. That is why I am delighted with today’s announcement, in Davos, of the creation of the Global Sustainability Index (GSI). The GSI will make it possible to answer the following questions: is an entity engaged in environment-friendly sustainable practices? Is this same entity supporting social justice and creating a value that benefits the community?

The long term objective is to establish a new standard of social responsibility. The WEF was one of the first organizations to promote cooperation between the public and private sectors so it’s no coincidence

that the sustainability index is launched during the Davos Forum, with 1500 business leaders present. I and colleagues in the UN family strongly support this timely initiative.

When businesses conduct their activities in an economically, socially and environmentally responsible way, while carefully managing social and environmental risks, it helps them succeed. The benefit is for all: for the local economies and communities, but also for the company itself. Sustainable business is good business!

I am convinced of the need to measure the level and impact of private companies’ social commitment. This will give us the means to implement a real global partnership for the achievement of a truly sustainable development.

Source: The Huffington Post – By Michael Møller

“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.”