2011 and Beyond Strategies and Solutions for the Profession
The roller coaster of Irish political and issues thrown up by the crisis of the last Development Board at its meeting in economic life continues unabated. The few years. There will come a time when January. I would like to take this last days of the 30th Dáil have seen the rights and wrongs of what has opportunity to thank members who many twists and turns, and a happened will be subject to objective submitted views and suggestions. The diminution of the limited stability that study by historians, but that time is not report is centred on five key strategic was brought about by the IMF/ EU deal, yet upon us. There are a number of themes to ensure the viability and the 2011 Budget and the publication of inquiries underway and their standing of the Institute going forward. the 4 Year Plan. Confidence and conclusion will be a critical element in Those themes are: certainty are vital elements to the allowing us to move on. 4 business climate for all companies and On that point I welcome the progress Repairing the reputation of the for consumer spending. Hopefully the made by the Chartered Accountants profession 4 coming election, whatever the Regulatory Board and its Special Reconnecting with members 4 outcome, will prove a cathartic Investigator John Purcell in his Recruiting new members into the moment that allows us to move on as a inquiries into matters relating to Anglo profession 4 nation and tackle the issues that lie Irish Bank. Mr Purcell set out his Reducing the level of fees to ahead. findings in respect of four individual members 4 Reshaping our governance Budget 2011 was as tough as promised members before Christmas and will be procedures. and a new government has limited determining his findings in respect of fiscal flexibility in framing Budgets the audit firm in a number of months. I am confident that we will proceed to 2012 and 2013: they will be no better. While Mr Purcell has determined that implement the recommendations of Nonetheless, the conclusion of the there are a number of prima facie cases the Report. IMF/EU deal has provided funding against these members it is important certainty for the state for the next few to remember that it rests with a In conclusion I would like to years. It is critical that we use the time tribunal to make determinations of recommend that you take time to read to put in place the building blocks of culpability. the Institute’s paper on the future of the new and sustainable Irish economy Despite the cost of these processes we audit. My predecessor Tom Fitzpatrick including a viable banking sector. It is as an Institute have tried to respond to made the point that it was not in the already heartening to see our export our members’ concerns. Members who interest of the audit profession that sector recover and that recovery is have received and paid their there be such a gap between what the broader based than the multinational subscriptions via the new My Account audit delivers and public sector. The news from the agri-food portal will have seen a further 5% understanding of that process. Our sector is particularly pleasing. It is reduction in their subscription over last future of audit paper discusses the heartening too to hear reports that we year. It is our intention, following a issues around audit and the audit have regained much of the strong recommendation from the expectation gap and arises from an productivity lost over the last decade, Strategy Development Board, to extensive consultation process which however painful that process has been. continue with this reduction process has continued since its publication. We must never take our eye off that until the subscription is 20% lower That consultation will help the ball again. In managing our economic than it was in 2010. We believe that Institute finalise its thoughts on this well-being in the future, this process will bring Chartered issue and influence the public debate at competitiveness rather than relative Accountants Ireland more into line national and European level. We wealth must be our primary KPI. with our international sister bodies. would love to hear your views. Part and parcel of preparing for the I am pleased to report also that Council Paul O’Connor, FCA challenges ahead is dealing with the signed off on the Report of the Strategy President
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 3 Contents Contents Vol.43 No.1 February 2011
Bull Market For Gold Demand is rising but is it sustainable?
By Rory Gillen, FCA...... 7-9
Cover image: © Roberto Pirola | Dreamstime.com Valuation of Development Land An Approach for the Auditor 27 Forensic Accounting By Nigel Anderson, FCA Investment Losses – The Role of the Forensic Accountant By Andrew Brown, FCA...... 10, 12
Statutory Audit Charities Practising Firms Charities in Crisis ...... 22-23 Investment Business Spotlight on Statutory Audit...13-14 By Teresa Harrington, FCA Opportunities ...... 32-33 By Aidan Lambe, FCA By Michelle Kane Financial Reporting Benefits of Incorporating ....34-36 Business Failure By Patrick Spicer and Aidan Fahy A ‘FRED’ Letter Day! By Irene O’Keeffe, FCA and Bankruptcy Laws Set for Change Fiona Hackett, ACA...... 24-26 Managing the Business By Warren Baxter, CA ...... 16-18 Five Practical Approaches to Reduce Labour Costs...... 38-40 Corporate Failure.– Low Take up Capital Budgeting By Tim McCormick, FCA of the Examinership Process 20-21 Capital Budgeting Practices of By Neil Hughes, FCA Listed Irish Companies...... 28-30 How Early Payment Discounts By George Kester and can Support your Business. 41-43 Geraldine Robbins By Padraic Moran ISSN: 0001-4699 ADDRESS: CIRCULATION: PUBLISHER: Institute of Chartered Accountants in Ireland. 47-49 Pearse Street, Dublin 2. Tel: (01) 637 7200 25,879 (average net circulation for the period STAFF: 1st July 2009 – 30th June 2010) certified by the COPYRIGHT © 2011 Editor: Ms Daisy Downes Audit Bureau of Circulations (ABC). Institute of Chartered Accountants in Ireland. Subscriptions & Admin Executive: Ms Liz Riley Articles may not be reproduced without prior permission. Advertising Manager: Ms Joyce Kelly Email: [email protected] Accountancy Ireland subscribes to the Code of DISCLAIMER: Telephone: (01) 637 7241 Practice of The Press Council of Ireland and the The views of contributors to Accountancy Ireland may Website: www.accountancyireland.ie Press Ombudsman. The code and further details differ from official Institute policies and are not SUBSCRIPTION RATES: can be obtained from: necessarily endorsed by the Institute of Chartered 1 year: Europe €47, Rest of World €99. The Office of the Press Ombudsman, 2 year: Europe €84, Rest of World €190. 1, 2 & 3 Westmoreland Street, Dublin 2. Accountants in Ireland, its Council, its committees, or [email protected] Locall 1890 208080; Fax 01-6740046. by the editor. MAGAZINE DESIGN: Atomic (www.atomic.ie) Email: info@ pressombudsman.ie www.pressombudsman.ie www.presscouncil.ie The publishers, editor, and authors accept no PRINTING: Boylan Print Group, Drogheda. responsibility for loss resulting from any person acting, or PLEASE RECYCLE refraining from acting, because of views expressed or A member of the Magazines Ireland. advertisements appearing in this publication.
4 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Anglo Irish Bank Investigation among the key challenges for the Chartered Accountants Regulatory Board 78-79 By Heather Briers, FCA
Regulars Financial Services Credit Union Supervisory Jobs in Financial Services Comment ...... 3 By Emer Murphy, ACA...... 44-45 Committee Chariot Updates ...... 74 District Societies...... 75 Reports Membership Changes...... 76-77 Hotel Accounts and the auditor’s reporting CARB...... 80-81 responsibilities Student Societies...... 83 A Uniform System - Management News...... 84-87 Information for Hotels...... 47-49 By Nigel Anderson, FCA Member Benefits...... 88-91 By Con Quigley, FCA and 46 Books...... 92 Patrick Angwin Recruitment...... 93-100 Tax History of Accounting Not ‘More’ but ‘Better’ Regulation How to get more from That’s Summa Story! By Liam Lynch, FCA...... 58-60 Accountancy Ireland By Derry Cotter, FCA...... 50-53 Legal Professional Privilege The Accountancy Ireland Focus on By Mark Lonergan, FCA ...... 61-62 Interactive button indicates additional Family Law Capital Gains: TCA 1997 S 817 content is available in our digital edition. Estate Planning By John Ward, FCA and Dara Burke, ACA...... 63-65 Implications of the Civil Accountancy Ireland Magazine Partnership Legislation Republic of Ireland Deadlines By David Fennell, FCA ...... 66-67 twitter.com/accountancyire By Cormac Brennan youtube.com/ 55-56 Northern Ireland Tax Notes accountancyireland By Phillip McMaw, FCA ...... 68-69 www.accountancyireland.ie
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 5 Realise your staff’s potential
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AcAccountingcounting TechniciansTTeechniciansechnic IrelandIreland is the tradingtrading name of the InstituteInstitute of AccountingAccounting TechniciansTTeechnicians in Ireland Ireland LimitedLimited The Gold Bull Market Demand is rising, but is it sustainable?
By Rory Gillen, FCA
The gold bull market, which started remarkable physical attributes can discovered, an average tonne of gold from a low of $255 an ounce in early help us understand why gold came to ore yields only 6 grams of gold: that is 2001, looks as strong as ever after be a currency in the first place six parts to a million. Its durability, hitting a new high price of $1,420 an thousands of years ago. rarity and divisibility make it valuable ounce in late December 2010. In the and tradable and allow significant Gold is the heaviest metal (highest initial years, gold’s rise had more to wealth to be stored or transported density), it is virtually indestructible do with it being a cheap asset with relative ease. It is easy to and its melting point is 1,064 degrees following a 20-year bear market understand, therefore, how gold has Celsius. It is the most stretchable pure through the 1980s and 1990s. More been an accepted form of money for metal known to man – a single gram lately, its strength reflects deep-seated thousands of years. In contrast, paper can be crafted into a sheet one metre investor concerns regarding ongoing currencies are liabilities – they squared, which is so thin that the sun global monetary instability which has represent promises by government to can shine through. It does not oxidise been created by persistent global trade make good on the debt behind the (rust) in air or water, it has no taste in imbalances, quantitative easing and currency. its purest form and it is an excellent the intervention by central banks to conductor of electricity. Its physical weaken their own currencies, of Demand/Supply Profile of beauty has seen it used as jewellery for which Japan is the latest example. Gold is Highly Favourable thousands of years. In addition, gold’s The principle areas of gold supply are robustness and dependability has Gold’s Remarkable Physical mine production, recycled jewellery seen it in increasing demand in many Attributes and industrial gold, and intermittent new complex industrial applications While the gold bull market is all central bank selling of gold reserves. where price is less of a consideration. about gold’s superior monetary Mine production provides the biggest attributes compared to paper In geological terms, gold-bearing rock source of annual gold supply. But currencies, a reminder of gold’s is very rare and, even when it is existing production supplies
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 7 Investing in gold obviously have a finite life and money after inflation) negative for a assisting the US to fund its trade exploration activity for new mines considerable period. imbalance at interest rates far below has become an increasingly difficult what they should have been for as far task, even with the advances in Why hold gold? back as 2001; and most of Far East technology. The bottom line is that In a low to negative real interest rate Asia is at the same game. gold production from mines globally environment, it costs investors little is declining. or nothing to hold gold – which is In Europe, Germany has been the The higher gold price has increased significant to the extent that gold exporter and has funded the Euro- the supply of recycled gold, a trend yields no income. Of course, gold zone periphery countries at interest that should continue for several years does not have to offer a yield as there rates that were too low – and we now yet. is no debt behind gold and so there is have the euro-zone bank and bond But the supply from central bank no risk of the asset going bust. market crisis. selling, which was a feature through the late 1980s and up until recently, has reversed and central banks are now net buyers of gold for the first time in 21 years. Indeed, a fallout from the global credit crisis in 2007–08 is that central banks are now even more aware of gold’s attractions as a financial reserve. From being the sellers near the bottom of the bear market in 1999-2001, central banks globally are now net buyers after a four-fold rise in the gold price!
Rising Demand for Gold The annual demand for gold has been rising and the trend looks sustainable. The largest source of annual gold demand has traditionally been from jewellery and industrial usage. With the global economic downturn and higher gold price, demand from this area has fallen significantly in the past few years. But investment demand has more than made up the gap, although clearly investment demand can be more fickle. As I outlined at the start of the article, the strength in investment demand is being driven by a number of factors: Global trade imbalances add to Increasing national debt loads is the money supplies. For example, the US most significant threat and investors 4deep-seated investor concerns imports too much and pays for these know only too well that central bank regarding ongoing global monetary money printing is the age-old instability created by persistent imports in dollars. China, on the solution to debt constraints. Using global trade imbalances; other hand, exports to the US for which it receives dollars. Instead of the analogy of a company – if you 4 ongoing quantitative easing which converting those dollars back into have a choice to invest in either expands a central bank’s balance renminbi, the Chinese central bank Company A or Company B, and sheet and could lead to money builds dollar reserves and invests Company B is heading towards printing eventually; and those reserves back into dollar assets, bankruptcy then there is no price too 4the intervention by central banks to principally short dated US treasuries. high you could pay for Company A weaken their own currencies, of Hence, too many dollars end up in relative to Company B in your quest which Japan is the latest example. the global financial system all looking to preserve capital. All of these activities have a common for a home. Instead of a strongly Quite simply, investors fear for the thread – they add to the borrowing rising Chinese currency, which would solvency of several countries and load of nations and to the supply of start to correct the trade imbalance know that money printing is the most money in circulation globally and with the US, we have the competitive likely answer. With that threat have left real interest rates (the cost of devaluation of the renminbi. The hanging over the dollar, sterling, yen consequence is that China has been and the Euro, and the Chinese
8 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 A new book from Chartered Accountants Ireland CORPORATE FRAUD By Andrew Brown
Fraud represents a significant risk for all organisations. In his new book, Andrew Brown a Chartered Accountant with Deloitte & Touche and an experienced fraud investigator, renminbi shadowing the dollar, gold, We are, therefore, confronted with draws on his experience to as a hard currency that cannot be three relevant facts – interpreting help the reader understand increased at will and which has no them is the hard part. The first fact is how much fraud there is and why it happens; what can be debt against it, has rightly reclaimed that investment demand, driven by done to reduce the risk of its 2,000-year-old position as the the desire to preserve capital and fraud; and how to respond if currency of choice. central bank buying, is likely to remain strong – a huge positive on fraud is suspected. Nonetheless, an investor should never the demand side. The second point is pay too much attention to the that demand for gold has been steady, demand/supply arguments as a quiet and patient, and not irrational. justification for any asset price – and And the third point is that relative to gold is no different. Gold maintains reported inflation the gold price could its purchasing power against inflation already be overvalued. in the long term and, in that respect, But as the song goes ‘two out of three the current gold price (Chart A) is ain't bad’. My own view is that you already well ahead of the long-term can't price an asset (or currency) inflationary trend by my (admittedly when the very solvency of the rough) estimates. Gold’s possible alternative asset is in doubt and I overvaluation throws a major spanner would stay aboard this gold bull in the gold bull market hypothesis. market to see where it goes. But we are That said, those who claim that gold in dangerous territory and it would be is a bubble have a hard time justifying well to recognise that a strong rise in the trends indicated in Chart B, the gold price from here is more likely which show what real bubbles in to signal the end than any new liquid assets are like and how they beginning in this gold bull market. Using real-life examples, the end. The chart depicts the 12-year book provides practical advice gold bull market of 1968–1980 and to anyone responsible for the 12-year technology bull market as dealing with fraud; on how represented by the progress of the US they can reduce the risk of Nasdaq Index from 1988–2000. Both being a victim of fraud, and bull markets experienced near how they should go about parabolic price rises in their final investigating it if it occurs. stages before entering long-term bear markets thereafter. Price: €40.00 ISBN: 978-1-907214-22-6 In comparison, this current gold bull market, which started in 2001 (in green on the chart), shows no signs of You can order this and all the irrational exuberance that is Chartered Accountants Ireland normally typified by rampant retail publications from investor demand near the end. By no [email protected] or online at stretch can we argue that this gold Rory Gillen, FCA is founder of The InvestR bull market has the characteristics of a Centre (www.investRcentre.com ), an online www.charteredaccountants.ie/shop subscription-based website dedicated to bubble. uncovering value for investors.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 9 Forensic Accounting Investment Losses and the role of the Forensic Accountant
By Andrew Brown, FCA
Following the economic downturn, all investment asset classes have suffered serious declines in value. As a result, the Irish Courts are dealing with a large number of cases brought by disgruntled investors against investment promoters and advisers. These cases involve investors who have suffered losses in a variety of investments including bonds and syndicated property schemes in Ireland and elsewhere. In this article, Andrew Brown examines some of the forensic accounting issues which arise in these cases.
No one likes to lose money, but match between the investment simply because an investor has lost opportunity and the investor in terms Investment description money does not mean that they have of the level of risk and also the Investors may claim that they have a legitimate claim for compensation proportion of the investor’s wealth been the victims of mis-selling if they against the promoter or the being put into the investment. investment adviser. In order to think that the documentation did not To take an extreme example, a ten- examine the validity of such a claim, a describe the nature of the investment year, high risk investment of €750,000 forensic analysis of the situation will properly. A detailed review of what be required, which will include is unlikely to be suitable for a single the documentation actually said is consideration of the following: pensioner with €1million of total vital in these cases, and it may also be investment funds available and who is relevant to look at other material 4 Was the investment suitable for the dependent on that income for their made available to investors such as investor? income in retirement. Firstly, the ten- slide presentations, follow up letters 4Was the investment properly year time horizon of the investment is and even verbal explanations which described? unlikely to match the investor’s were made and which might requirements and secondly, it would constitute a representation in relation 4What risks did the investor accept? tie up 75% of their available wealth. to the investment. 4What caused the loss? On the other hand, if the individual is Since the initial information is the a younger and more sophisticated basis upon which the investment investor with a track record of similar decision was made, the investor may investments and the investment Suitability of investment have a cause of action if that represents a small proportion of their information is subsequently found to available wealth, then the suitability Many of the cases which have come have been inaccurate in a material argument is less likely to succeed. before the Courts to date have centred way, whether because of deliberate on the issue of the suitability of the Not only must a consideration of error or a failure to verify the investment with investors claiming suitability have taken place for each information included in the that the investment was too risky for investor but it should also have been promotional material. It is likely that them and they should not have been properly documented at the time the the investor will be able to prove that invited to participate. investment was made so that the he was owed some duty of care in the There is a legal requirement on information can be reviewed to preparation of the material and that it promoters and advisers to ensure that establish whether a proper was reasonable to expect that due they consider whether there is a consideration took place. diligence would have taken place to
10 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 PRACTICE TOOLKITS Creative Solutions to Practical Problems
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For more information on these or any of our toolkits, call Practice Consulting at +353 1 6377300, email us at [email protected] or see our website www.charteredaccountants.ie Forensic Accounting support statements made. The the investor. The documentation placed without giving the investor evidence of this due diligence should should have properly described the an opportunity to reconsider the have been retained by the promoter risks inherent in the investment so risks; or and its advisers and a forensic review that the investor was in a position to of this will help identify whether it make an informed decision. Hindsight 4the promoter may not have put in was comprehensively and accurately may demonstrate that risks place proper procedures to actively undertaken. highlighted have had a more severe manage the investment and so impact than could have been Questions regarding the adequacy of failed to spot things going wrong at anticipated, but if that was beyond due diligence may be more likely to an early stage. For example, if a the possible knowledge of either the arise in the case of transactions which promoter or the investor, and if the development company was took place at the height of the existence of the risk was brought to involved in the scheme, did the economic cycle, where promoters the attention of the investor, then the promoter obtain regular financial perhaps took the view that there was possibility of a successful claim by the little downside risk to investments. and operational updates to assess investor is reduced. It must be Many promoters were working on whether the development was established which risks were not the multiple projects simultaneously to proceeding as expected? If it did not responsibility of the investor and with take advantage of the exceptional obtain this information, or did not whom responsibility for those risks market conditions. In their eagerness rested. The documentation should act on it, the investor is justified in to get these opportunities to market, have clearly set out: asking whether the loss would have promoters and their advisers may been reduced if more active have overlooked some basic due 4Who is going to receive the diligence procedures which investors investor’s funds? management had been in place. may have assumed were being 4What documentation is required The required analysis should examine undertaken. But even where some before the investment can proceed? the total loss incurred and then try failure of due diligence is identified, the investors will still need to 4How will the investment be and ascertain what elements of that demonstrate that some loss arose as a managed and who will be loss may have been attributable to result of that failure. responsible? different failures. Typically there will Particular issues can arise where 4How often will investors receive be an element that can be attributed changes were made to the nature of updates and who will be responsible to market conditions, but there may the investment following the issue of for collating and verifying this be an argument that failures by the the initial documentation. If these information? promoter or other advisers have changes meant that the loss suffered It may seem obvious but a claim will exacerbated the problem, perhaps was higher than might have been the probably only arise if someone can be because of faulty decisions made at case otherwise, then the investors may seen to have failed in a specific duty the outset or a failure to adequately be able to claim that they should have which was their responsibility. been informed of any changes and monitor the scheme resulting in the given the opportunity to withdraw failure to identify potential losses at from the investment. There is UK case an early stage with the result that no law which holds that an investment What caused the loss? steps were taken to mitigate the loss. adviser is under a duty to correct information which it has provided on The loss may have arisen simply In these situations it is essential to an investment product if the because the value of the underlying take a dispassionate and forensic information changes. However, for a investment asset has fallen due to approach to examining the issues. Few market conditions. In this case, claim to succeed there does need to be things rouse the emotions like the loss a demonstrable link between the provided that the promoter complied of money and the natural response for apparent misdescription of the with best practice in terms of the an investor is to think that someone investment and an actual loss which suitability of the investment and had the investor claims to have suffered. If properly identified the risks to the must be to blame. Both investors who the misdescription had no real impact investor, it is hard to see that the are considering taking action and on the performance of the investor has a cause of action against promoters and advisers facing claims investment, and if the losses would the promoter. But there may be will need to examine exactly what led situations where the promoter could have arisen anyway, then a claim to the loss and assess whether based solely on an alleged have done something to prevent the anything could have been done misdescription is unlikely to succeed. loss or to limit the amount which was lost. For example: differently to prevent some, or all, of that loss. 4the promoter may have decided to change a key element of the scheme Accepted risks Andrew Brown, FCA, leads Deloitte’s Forensic and failed to advise the investors. and Dispute Services practice in Ireland. He is A forensic review of the investment An extreme example might be to the author of Corporate Fraud, part of the Governance Risk Compliance series published documentation will be required to change the city or country in which by Chartered Accountants Ireland. establish what risks were accepted by investment funds were going to be Email: [email protected]
12 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Spotlight on Statutory Audit The Irish accountancy profession’s response to issues raised by the financial crisis
By Aidan Lambe, FCA
Chartered Accountants Ireland recently published a Discussion Paper on the future of the statutory audit. Aidan Lambe outlines the key issues it seeks to address.
Recent editions of Accountancy Ireland isolation. There is also a role for Central Bank, Patrick Honohan2 and, have included articles on the future of legislators, policy makers and other indeed, the Paper quotes from his the statutory audit reflecting stakeholders in identifying what is report as follows: questions raised in the wake of the needed and assessing the costs and These [accounting] rules reduced the financial crisis. This topic has some benefits of new measures; and so the degree to which expected but not incurred way to run, both locally and beyond. Discussion Paper stops short of loan losses could be provisioned. It had making definitive recommendations The recent EU Green Paper on Audit the effect of understating expected losses but sets out possible alternatives Policy1 attracted a considerable under a number of headings that and potentially reducing the transparency number of responses from Ireland might be considered as the debate of accounts as an indicator of future reflecting an obvious interest in continues. The possibilities for reform regulatory problems. statutory audit and the role of considered are: The Discussion Paper notes that the auditors and its continuing relevance International Accounting Standards in providing investors with 4Complexity of financial independent assurance on financial statements/financial reporting; Board (IASB) has already moved to information published by entities. 4Improving communications address this issue. Indeed, both the between Boards, auditors and IASB and its US counterpart, the Chartered Accountants Ireland, of shareholders/other stakeholders; Financial Accounting Standards course, has itself responded to the 4Extending the scope of the Board (FASB) have agreed to work European Green Paper. Readers will statutory audit; jointly on an ‘expected loss’ be aware that the Institute has been 4Auditor independence and related approach. actively considering the future of the issues. statutory audit for a number of The Discussion Paper acknowledges months, beginning with a Forum in that, in recent years, the content of June of 2010, to hear views from Complexity of financial financial statements and annual various stakeholders followed up with reporting/statements reports has expanded significantly a series of meetings with interested and substantively and that this has parties to hear views on what more, if The Paper begins, not by analysing attracted some negative criticism to anything, can or should be provided audit related issues, but rather those the effect that information is by the statutory auditor and how this relating to financial reporting. This is inaccessible, particularly in respect of might be achieved. perhaps not surprising. financial institutions. The charge appears to be not that relevant The Chartered Accountants Ireland One issue that appears to have information such as risk exposures, Discussion Paper, Statutory Audit: achieved widespread acceptance is business models, and other What the Future Holds, sets out a the need review and reform the uncertainties aren’t disclosed (as range of possible reforms that relate current accounting rules addressing required by IFRS 7 and company law) to financial reporting by companies the recognition of loan impairments – but rather that there is a need to and to the role of the auditor. As is the incurred loss vs expected loss recodify this information into a more acknowledged by Paul O’Connor, debate, particularly relevant in a readily digestible format. Institute President, in his Foreword, banking context. This issue has been many of the issues raised cannot be identified already in an Irish context A number of possible options to addressed by the profession in by the report of the Governor of the address this are proposed. For
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 13 Statutory Audit example, the Institute of Chartered exposures or difficult issues appointment and remuneration of Accountants in England & Wales encountered during the audit. The auditors. It avoids making categoric (ICAEW) has suggested that banks sharing of such information is proposals on these topics but it does should provide a ‘summary risk invaluable to audit committees in the set out a range of possible policy statement’ in the Annual Report. discharge of their functions. options for further debate ranging Another proposal suggests the from banning the provision of non- The Discussion paper explores the introduction of a narrative report, audit services to ‘systemically formal reporting to shareholders by similar to the Operating and Financial important’ audit clients, mandatory audit committees of key issues Review that once existed in the UK rotation and joint audits. It also discussed with auditors, with a and whose reintroduction is currently highlights the role that audit requirement on the auditor to report under consideration. Of course, committees need to play in these publicly on the consistency of such legislative measures are likely to be areas and proposes that audit disclosures with the auditor’s own needed to effect such a proposal. committees might adopt a much knowledge. more proactive role providing more Further measures considered in the transparency for shareholders around Improving Discussion Paper include: the awarding of non-audit service contracts and being more communications 4 amending the current audit report accountable in justifying the requirements to require the reappointment of an auditor who The Discussion Paper acknowledges inclusion of company specific may have held the role for some that the current methodology, as set information; and time. out in law, for communication 4 between the auditor and shareholders improving transparency around the and other stakeholders, the audit conduct of the audit by creating a report, has certain limitations. mechanism to allow shareholders Miscellaneous issues Criticisms include: to pose questions to auditors at Annual General Meetings. Other issues considered in the 4 the audit opinion is focussed on Discussion Paper include how to historical financial information, improve dialogue between auditors and gives no insight or comfort on Extending the scope of and regulators – particularly in the what is expected in the coming the statutory audit financial sector – audit firm period; governance, and the recently 4it gives no insight into the The scope of the audit is determined announced changes to the ‘quality significant judgements made by by legislation and auditing standards. assurance’ regime for auditors of directors in framing the financial A key question to be answered is ‘public interest entities’ which statements, nor the auditor’s views whether the statutory audit continues involve direct inspection of audit on such judgements; to meet the needs of investors and firms by the Irish Auditing & Accounting Supervisory Authority 4 other stakeholders. Possible it does not allow for comment from (IAASA). alternatives advanced in the the auditor on an entity’s risk Discussion Paper include reporting on management on corporate The Discussion Paper concludes by internal control processes and governance structures; and acknowledging that the issues under operations, reporting on compliance consideration are aimed primarily at 4the report by auditors focuses with specified criteria (for example, restoring confidence in the role of entirely on financial information. particular laws and regulations), and auditors. As such, they represent only The Discussion Paper suggests that on the operation of governance one component of legal, regulatory there are additional issues to those on procedures. In the case of financial and behavioural changes that are which the auditor traditionally institutions, reporting might also be likely to follow. Changes to the role reports that might be commented extended to include regulatory and scope of audit therefore need to be debated in this wider context, and, upon. Auditors already share views returns. in particular, have regard to with audit committees, for example, international developments. on key accounting judgements underlying financial statements, the Auditor independence The foreseeable future looks busy. quality of earnings, and material and related issues Notes internal control weaknesses 1 Audit Policy: Lessons from the Crisis (European Commission Green Paper, October 2010). encountered during the course of an Auditor independence is fundamental 2 The Irish Banking Crisis: Regulatory and Financial Stability Policy 2003-2008 (Central audit. They also share with audit to the underpinning of the objectivity Bank of Ireland, May 2010) committees any significant and integrity of the statutory auditor. unadjusted/adjusted audit differences Not surprisingly, the issue has arising during an audit. Other issues received close attention from policy Aidan Lambe, FCA is Director for Representation & discussed between auditor and audit makers, regulators, and standard Technical Policy at Chartered committees might include views on setters. The Discussion Paper Accountants Ireland. the potential impact on financial examines two issues in particular: the For more on this topic, tune in to our February 2011 statements of significant risks and provision of non-audit services, and podcast.
14 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1
Bankruptcy Laws Set for Massive Change
By Warren Baxter, CA
The Law Reform Commission’s eagerly anticipated report entitled Personal Debt Management & Debt Enforcement was finally released in December 2010. Its proposals on bankruptcy, in particular, do not disappoint. Warren Baxter discusses the implications.
There is an almost universal In relation to the proposed new debt agreed proportion of his debts within consensus that Ireland’s bankruptcy settlement system, the Commission a set time not exceeding five years. laws are in urgent need of reform. clearly wants a system to be Once this amount has been paid, the Their punitive nature means that implemented which is quick and person’s debts would be considered debtors are reluctant to use them, inexpensive to operate and, in order fully repaid, allowing the debtor to while the high costs and the lengthy to achieve this, it appears to be the avoid bankruptcy. bureaucratic process that a creditor Commission’s view that personal In order to facilitate such agreements, must go through to have a person insolvency should be resolved outside the Commission’s proposals provide declared bankrupt deters all but a the court process whenever possible. the DSAs with a framework for handful. As a result, our bankruptcy This would reduce the Courts’ debtors and creditors from which to legislation is largely unused despite involvement in personal insolvency operate. This framework would allow the huge increase in the number of to primarily dealing with the debtor the ability to obtain a people who are personally insolvent. bankruptcies of sufficient size, concern or complexity that they merit protective order preventing This situation, where creditors remain the attendant costs. enforcement actions proceeding while unpaid, while debtors are left in he attempts to reach a settlement. This has led to the Commission’s key limbo, benefits no one. As the However, it would also require the proposals of introducing Debt recession deepens and more and more debtor to fully disclose all his assets Settlement Arrangements (DSAs) and people’s financial problems escalate, and liabilities to his creditors in the Debt Relief Orders to Ireland. These the need for reform in this area has form of a Standard Financial new processes would be overseen by a become increasingly urgent. The Law Statement. newly created Debt Enforcement Reform Commission has recognised Office and would be aimed at Another important point within the this and, following extensive individuals who have become proposals is that the debtor would be consultation, has now delivered its personally insolvent due to consumer allowed to maintain a reasonable proposals on bankruptcy reform as debts or business-related debts. standard of living for himself and his part of its report on Personal Debt dependents and would not be Management & Debt Enforcement. required to sell essential business Its most significant recommendations Debt Settlement assets that would otherwise deprive are, firstly, the automatic discharge of Arrangements him of the ability to earn a living. The a person from bankruptcy after three framework would also be structured in years, a substantial change from the DSAs would be geared towards such a way so as not to discourage the current position where no automatic individuals who are able to pay some, debtor from earning a living. discharge exists; and, secondly, the but not all, of their debts. In a DSA, a Ultimately, for the arrangement to introduction of a comprehensive out debtor would make a legally binding become binding, a creditors’ meeting of court debt settlement system. agreement with his creditors to pay an would be held, in which at least 60%
16 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 in value of the votes cast at the terms of reduced legal fees and the Debt Relief Orders meeting must be in favour of it. freeing up of court time from actions that might otherwise occur. It should In each DSA, the implementation For debtors who are not able to offer would be assisted by a Personal also give greater certainty to both their creditors a DSA, the Commission Insolvency Trustee. These Personal debtors and creditors. is proposing to introduce Debt Relief Insolvency Trustees would be Orders (DROs). These would be aimed appointed to manage and implement The opportunity to avoid bankruptcy at debtors who have no assets or the arrangements. They would be should encourage debtors to use income and, as such, have little chosen from the private sector and Debt Settlement Arrangements to prospect of paying back any of their would operate on a commercial basis. resolve their problems and such a debt. In such circumstances, where They would be licensed by the Debt system is likely to prove very popular bankruptcy proceedings would not be Settlement Office (part of the if the UK’s experience with Individual appropriate, the Debt Enforcement proposed Debt Enforcement Office) Voluntary Arrangements is anything Office would be able to grant a DRO via a public tendering process, for a to go by. to the debtor, discharging him from three-year period. his debts. Applications for these The introduction of DSAs would add orders would require the debtor to pay For secured creditors, the Commission much needed structure to the current a small fee and would be made proposes that they would be given situation whereby a variety of non- through the Money Advice and three possible options in a DSA. They judicial debt management plans Budgeting Service. Creditors would can: struggle to succeed through a lack of have certain limited grounds to object any agreed format. Their failure is 4realise their security and claim the to them via the courts during a one- often due to differing expectations as balance due ; or year moratorium period prior to the to what constitutes a reasonable debts being discharged. 4 settlement offer, not just between a value their security when proving debtor and his creditors, but their debt and claim the balance frequently between the creditors due after deducting the valuation Bankruptcy Act themselves. amount; or DSAs should result in substantial cost 4surrender their security and claim The Commission’s proposal to savings for creditors and the State in the full amount in the DSA. provide a bankrupt with an automatic
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 17 Business Failure discharge from bankruptcy after three Other proposals include: pushing for their implementation. In years is a major step in improving the fact they have gone so far as to make 4reducing the number of creditors existing provisions as set out in the their implementation a condition of eligible for preferential status in a 1988 Bankruptcy Act. The current the bailout for Ireland and, more bankruptcy, such as the Revenue position is that a person remains in specifically, have set a deadline for the Commissioners; bankruptcy for twelve years unless he Government to achieve this by the meets certain requirements that are 4increasing the minimum debt first quarter of 2012. often beyond him. needed by a creditor to bring a While inevitably there are points that bankruptcy petition from €1,900 to Even after twelve years, there is no will need to be teased out and automatic discharge, instead the High €50,000; and debated, the proposals should be Court has to be satisfied that a 4improving the bankruptcy wholeheartedly welcomed. They discharge is reasonable. As a result, application process. provide a clear and effective some people never manage to emerge framework to individuals facing from bankruptcy during their personal insolvency, as well as to their lifetime, a situation that is both Support for the creditors, and do so in a way that clearly unfair and counterproductive. Law Commission’s recognises the reality of consumer The Commission is keen to ensure proposals credit in our economy. that the new system is not abused The Commission’s bold and and, as such, has proposed that Now that the Commission has imaginative approach to the problems sanctions be introduced which can be delivered its proposals the question is surrounding bankruptcy law sets out a applied against any bankrupts who if and when they will be enacted into radical new direction and is no less have acted either irresponsibly or legislation. Often such a process can than what is needed. Its dishonestly in the period leading up take years, a luxury that Ireland implementation would be a huge to bankruptcy. simply cannot afford. However, there improvement on our current system These sanctions would be similar to is good reason to think that the and the sooner it happens, the better. the restriction and disqualification legislation will be fast-tracked, processes currently in place for because not only do the proposals Warren Baxter, CA is a member of the Institute directors of companies that have gone have cross-party support in the Dáil, of Chartered Accountants of Scotland and a Director in Reorganisation Services at Deloitte in into liquidation. but also the EU and the IMF are Dublin. Email: [email protected]
Auditing Practices Board because the perception, as well as the 4 To prohibit the provision of tightens Ethical Standards for reality, of auditor independence is restructuring services in certain Auditors critical to investor confidence in the circumstances; and quality of audit. The Auditing Practices Board (APB) 4 To broaden the definition of a has published a Feedback Statement Respondents to the consultations contingent fee and further and revised Ethical Standards for were overwhelmingly supportive of prohibit the circumstances in Auditors while the Financial proposals to address perception which non-audit services may be Reporting Council (FRC) has also concerns through a combination of provided on such a basis. issued revisions to its Guidance on measures to: Audit Committees. The publications 4 Increase the rigour with which follow parallel consultations in July auditors assess threats to their Public Sector Accounting 2010. independence; The International Public Sector Accounting Standards Board 4 Introduce a new non-audit (IPSASB) has released an exposure Non-audit services services disclosure regime; and draft (ED) and two Consultation Respondents to the APB’s 4 Increase the role of Audit Papers related to its project to consultations on its Ethical Standards Committees in overseeing the develop a Conceptual Framework for indicated that a total prohibition was retention of a company’s auditors the general purpose financial not appropriate but acknowledged to undertake non-audit services. reporting of public sector entities. that there can be a perception of a The Conceptual Framework is the loss of independence where certain The APB consultation also included IPSASB’s key strategic objective for non-audit services are provided by proposals to address certain concerns 2010–2012 and is of fundamental the auditor. This is heightened where identified by respondents, namely: importance to the future of global the ratio of non-audit fees to audit 4 To extend the guidance to public sector standard setting for at fees is high. auditors in relation to conflicts of least the next 10–15 years. The Such concerns are entrenched, re- interest and to require them to exposure draft and consultation emerging after consecutive corporate consider the consequential papers are available online at failures. The APB believes that it is implications for their www.ifac.org and the comment important to address these concerns independence; period closes on 15 June 2011.
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Closing date for applications 31st March 2011, for full details go to www.charteredaccountants.ie/elp Business Failure Corporate Recovery Take-up of the Examinership Process surprisingly low in 2010
By Neil Hughes, FCA
Why are Irish companies less likely to enter a formal restructuring process than their international peers and could more jobs be saved if companies and their advisors took a different approach? Neil Hughes takes a look at some real and perceived deterrents.
Although the second half of 2010 saw a return to minimal growth in the Irish economy, the year as a whole will be remembered as horrendously difficult for business. However, despite a low rate of appointments, the examinership process enjoyed a successful year with most of the petitions presented resulting in enterprises and jobs being saved. That said, given the economic landscape, it is somewhat surprising In 2010, following a prolonged confirmation hearing, 300 jobs were that the utilisation of Ireland’s formal saved at Aer Arann through the examinership process. corporate recovery mechanism remained low in 2010 with only a for the process in the first place. The Thirdly, the perceived cost of the couple of dozen appointments over cases in question were dismissed as examinership process is a deterrent. the course of the year from over 1,500 quasi asset recovery exercises which Examinership is associated with corporate insolvencies. Worryingly, did not meet the job-saving purpose expensive High Court legal charges. Irish companies continued to show a of the legislation as reiterated by However, many advisors remain low propensity to enter into a formal Clarke J in the seminal Traffic Group unaware that there is no requirement restructuring process, by judgement. The failure of these for funds to be in place 'up front' for international standards. In the USA, petitions adversely impacted the an examination as the costs of the 23% of insolvent businesses enter the process are typically funded from perceptions of directors and their equivalent process 'Chapter 11'; in investment or sale of assets at the end advisors. the UK, 16% of insolvencies result in of the protection period. In addition, the trading 'administration' process. Secondly, a lack of awareness of how the real costs of examinership fell in In what should be a very similar type the examinership process works 2010 with some examinations being of market economy, Ireland struggles persists. This is a self-perpetuating carried out in Ireland for an all-in cost to reach figures of 2% per annum. So problem since the less the process is of €50k. why do Irish businesses not embrace used, the fewer the number of Finally, the continuing hostility of the chance to restructure and survive? advisors who feel comfortable in certain sections of the secured Firstly, in the last 2 years there have advising clients to use it due to a lack creditor community to the process been a number of very high-profile of experience of the benefits it can has hindered its more widespread unsuccessful examinership petitions bring to a struggling business. This development, as illustrated by the for property development and contrasts with the routine nature of ultimately unsuccessful McInerney construction companies, which, in providing Chapter 11 advice in examination. Perhaps reality, were inappropriate candidates the USA. understandably, certain banks have
20 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 difficulty in accepting that their take up of the process, there were a must be paid in full as part of any normally unassailable fixed charge number of successful examinerships scheme of arrangement and that the security can, in certain instances, be in 2010. More than 400 jobs were scheme must also provide for a compromised by an examiner's saved in the health services agency substantial preferential dividend. No scheme of arrangement. Banks also Servisource, 200 at the Jackie Skelly definition of what a ‘substantial’ fear the costs of the process, as these chain of fitness clubs, 50 jobs in the preferential dividend should be has will rank ahead of a bank’s fixed Grand Hotel in Wicklow and over 300 been offered by Revenue. The charge. However, the 'cramming jobs at Aer Arann, to name some Revenue has indicated that they will down' of secured debt (to use the examples. object to any scheme in the future rather inelegant Chapter 11 that does not meet these criteria even expression) remains almost unknown The examinership of Aer Arann if the scheme does not unfairly in Ireland from the hundreds of resulted in a prolonged confirmation prejudice them in comparison to their examinations that have taken place hearing for the examiner's scheme recovery position in a winding up. since 1990. Nevertheless, taking into arising from the objection of the There appears to be two reasons for account the collapse of property Revenue Commissioners, who the Revenue’s change in policy. prices, it seems likely that objections signalled a change in policy directly Firstly, and quite obviously, they wish from secured creditors to compulsory after that case. to recover greater sums from write downs of their debt are likely to insolvent companies with the continue since longer term ‘NAMA continuing background pressure on style’ receiverships may ultimately Preferential Creditors government finances. Secondly, they return a greater amount on foot of a wish to set an example across the bank’s security than an amount Against the backdrop of depleting economy that company directors payable by cutting the bank out at the government coffers, in recent weeks must pay over fiduciary taxes bottom of the current property Revenue has told examinership deducted from employees, especially market cycle. practitioners that their heretofore the employee 'super preferential' largely neutral stance in portion of PRSI. examinership cases may change going Successes forward, in particular in relation to super preferential PRSI (employee Neil Hughes, FCA is Managing Partner of Notwithstanding these reasons which PRSI deductions). Revenue now Hughes Blake and author of Beating the Recession - The Seven C’s of Business Recovery published by go some way to explaining the low requires that super preferential debt Chartered Accountants Ireland. €14.95.
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 21 Charities Charities in Crisis ‘Governance’, ‘Reporting’, ‘Accountability’ are the watchwords for 2011
By Teresa Harrington, FCA
Reduced funding, diminishing donations, and increased scrutiny are just some of the challenges facing charities. In this difficult climate, good planning has never been more important, explains Teresa Harrington.
The turbulent economic climate has continue to suffer reduced funding sector. Reduced income will threaten put an unprecedented amount of from Government. the level of service that some charities pressure on charities. Tougher 4Reliance on restricted funding offer while for others it will threaten economic times have resulted in Charities are finding it difficult to their very existence. Many charities significant cuts in statutory funding, operate in a quasi-commercial way are too small to benefit from a critical reduced donations from the public with funders only interested in mass that would enable them to and a sharp rise in the demand for the providing funds to cover direct function efficiently and to leverage services that charities provide. The costs and not overheads. charity sector is also being called on the buying power that size could to play increasing role in delivering 4Governance and reporting afford them. public services. At the same time, Charities are finding it difficult to charities are under intense scrutiny recruit quality trustees with internally and by the public and must concerns of solvency and survival Are there too many be increasingly transparent and cost- on many peoples’ minds. Limited effective. They face significant management information may charities in Ireland? strategic and operational challenges make the prediction of changes in to improve efficiencies and income and costs difficult thus There is currently no register of demonstrate value-for-money while leading to weak governance. charities in Ireland, however there are delivering high quality services. More Charities may enter into contracts circa 7,800 organisations listed on the and more charities will find it difficult or projects that are not properly Revenue Commissioners’ website as to continue to operate in this costed and be drawn into having been granted charitable tax environment. Good governance, attempting to deliver services for exemption. With so many charities, accountability and clear and concise less than the cost of delivery. the question arises as to whether reporting will be critical to survival. there is too much duplication and competition for funds. There are Strategies to cope with reduced income many benefits to be realised from Warning signs collaboration or merger with another charity. Frequently, obstacles such as Charity trustees and managers need Now, more than ever, there is a need to be alert for warning signs such as: to plan – to get your strategy right, the perceived loss of independence in manage risk and work smarter. decision making, or dilution of a 4Significant reliance on one source Charities need to set priorities and brand, are cited as reasons not to of funding explore all options to reduce costs and merge. These concerns need to be Government sponsors, either maintain services. addressed. Trustees should question through core funding or grants, are a large part of the voluntary sector. It is likely that market forces and whether it continues to be We have seen much ‘belt increased public scrutiny will result in appropriate for the organisation to tightening’ over the past two years more collaboration and we are likely remain as a stand-alone entity over and more is to come. Charities will to see a number of mergers in the the next few years.
22 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Governance 4 Understanding the annual report, financial statements and the monthly reporting pack. Governance and reporting were never more important. Inadequate The Act provides for the information for decision making may establishment of a Charity Regulatory lead to the demise of a charity. As in Authority (CRA) and for the all businesses, trustees must have appointment of a Regulator. Charities The Charities Act 2009, signed good quality management will be required to register with and into law on 28 February 2009, information on which to base submit annual reports and accounts sets out trustees’ duties in decisions and be able to react quickly to the CRA. The form and content of relation to governance, to critical funding situations. This can these will be determined by the only be achieved with access to Minister, however it is widely accounting and reporting. While regular and reliable financial and anticipated that it will follow that many sections of the Act have operational information that is adopted in the UK and set out in the not yet commenced, trustees, reported on frequently. Statement of Recommended Practice – management, staff and advisors should be aware of the Charities need to review their Accounting and Reporting by Charities requirements and begin to management information systems (SORP) (revised 2005). prepare for compliance. and ensure that there is a proper audit Irish charities, in the absence of trail for all transactions, that income regulations governing their financial and costs are recognised in the correct period, that assets are carried at appropriate values in the balance sheet and that all liabilities are recognised. An over-reliance on spreadsheets can result in poor management information. Management accounts with appropriate details of activities, including key performance indicators, should form part of the management reporting pack. There should be a focus on cash flows and regular monitoring of the income and
expenditure account and balance © Chris Brignell | Dreamstime.com sheet. Trustees should query and Too many charities in a small marketplace leads to challenge assumptions, especially in duplication and competition for scarce funds. cash strapped charities that are taking on new projects. reporting requirements, should Charities are a component part of the consider the requirements of the PBE sector. The ASB also recognises SORP as best practice reporting and that there is an ongoing role for the Board induction follow it in the preparation of their development of guidance by the financial statements. sector in the form of SORPs.
Today, potential trustees of charities In tandem with the change in charity The year ahead will be one of law in Ireland, Accountancy Ireland are more aware of their duties than in challenge and change for charities. readers will be aware that the nature the past. These duties are set out in Trustees need to plan now for the the Charities Act 2009 (the Act) of UK and Irish GAAP is changing. In future. Good quality financial and (sections of which are not yet August 2009, the Accounting operational information will be commenced). Board induction days Standards Board (ASB) issued a critical to enable this planning will be more important.The agenda consultation paper entitled, The process to be effective. Charities need for these meetings should include: Future of UK GAAP, and requested comment on the policy proposal. At to review their strategy with a 4 Background and introduction to the time of writing we await the particular focus on the needs they the charity; publication of the Financial Reporting serve and the most cost effective ways 4 Understanding the charity’s Exposure Draft (FRED) for Public of serving the best interests of their governing document; Benefit Entities (PBE) which will be beneficiaries. Charities should also completed in 2011. The ASB is actively challenge their need to exist – 4 Understanding the charitable proposing that the PBE standard will consider mergers, or, at a minimum purpose and the needs of be a ‘differences only’ standard – collaborate. beneficiaries; identifying where there are omissions Teresa Harrington, FCA is a partner in PwC’s 4 Understanding the risks that the from UK financial reporting standards Audit practice and the author of Accounting and Reporting by Charities in the Republic of Ireland charity needs to address; that need to be addressed for PBEs. published by Chartered Accountants Ireland, €25.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 23 Financial Reporting A FRED Letter Day Reforming UK and Irish GAAP
By Irene O’Keeffe, FCA and Fiona Hackett, ACA
Not for the first time, a revolution in financial reporting standards may be on the cards, as Irene O’Keeffe and Fiona Hackett outline in this review of the ASB’s recent proposals.
The Financial Reporting Exposure introduction of IFRS due to the far- request and has actually gone one step Drafts, FRED 43 and FRED 44 reaching scope of the proposals. further in the FREDs by proposing a published by the Accounting reduced disclosure regime within tiers Standards Board (ASB) at the end of What do the proposals mean? 1 and 2 (tiers 1S and 2S) for all October 2010 mark the beginning of At the heart of the proposals is a three- ‘qualifying subsidiaries’. the end of Irish and UK Generally tier reporting framework that would This major change from the Accepted Accounting Practice (GAAP). determine the accounting by all Irish discussion paper is welcome and is an The FREDs propose withdrawing the and UK entities (illustrated opposite). attractive option for Irish subsidiaries current suite of Financial Reporting The three-tier framework works of IFRS reporters. Such subsidiaries Standards used by Irish and UK around the concept of ‘publicly would be able to use their IFRS group entities that currently don’t apply EU- accountable’ entities. ‘Publicly reporting numbers in their statutory adopted international financial accountable’ entities are in tier 1 and accounts without needing to include reporting standards (IFRS) and the proposals require tier 1 entities to all IFRS disclosures; for example, such requiring all but the smallest Irish and report using IFRS. subsidiaries would not have to disclose UK entities to prepare financial information about financial statements under a version of IFRS. Small entities, that are not publicly instruments under IFRS 7. The FREDs are the result of several accountable, may elect to report under FRSSE – so-called tier 3. years of deliberation and consultation What does ‘publicly by the ASB, aimed at developing a All other entities would be required, at accountable’ mean? cohesive IFRS-based framework for a minimum, to prepare their financial The ASB is proposing to largely adopt financial reporting in Ireland and the statements under the ASB’s version of the public accountability definition United Kingdom. the IASB’s IFRS for SMEs known as the developed by the IASB for its standard, FRSME (Financial Reporting Standard IFRS for SMEs, with an amendment to for Medium-sized Entities). include a reference to deposit-taking Would the ASB’s proposals Entities in tiers 2 and 3 would be entities. Therefore “An entity has have a significant impact? permitted to elect to report under the public accountability if: Yes. The proposals represent a radical requirements of a higher tier. a) its debt or equity instruments are reform of financial reporting in traded in a public market or it is in Ireland and the UK. All entities that The ASB’s initial proposals and the process of issuing such currently prepare their financial concept of a three-tier framework were instruments for trading in a public statements in accordance with Irish or originally put forward in a 2009 market (a domestic or foreign stock UK GAAP are impacted by the discussion paper. A number of exchange or an over-the-counter proposals. Revolution is not a one- responses to the ASB’s 2009 discussion market, including local and time event. In 2005 and 2006 we had paper urged the ASB to incorporate a regional markets), or the first revolution when Irish and UK reduced disclosure regime for quoted groups adopted IFRS. The subsidiaries of IFRS reporters, as the b) at its reporting date, as one of its recent proposals would have a much original proposals did not contain any primary businesses, it holds assets wider impact on business throughout concessions for subsidiaries of IFRS in a fiduciary capacity for a broad Ireland and the UK than the reporters. The ASB has addressed this group of outsiders and/or is a
24 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 interpret in practice. The ASB has ASB’s Proposed Three-Tier Structure addressed these concerns and a second major change from the discussion paper is the inclusion in Tier 1 the FREDs of application guidance on the meaning of ‘publicly accountable’. Publicly accountable Tier 2 entities The FREDs also include the following All other entities indicative, but not exhaustive, list of Apply EU-adopted Tier 3 entities considered to have public IFRS Apply UK-adopted accountability: IFRS for SMEs Small entities eligible Subsidiaries (FRSME) to apply FRSSE 4Quoted companies; 4Pension schemes; (Tier 1S) Subsidiaries Apply FRSSE 4Insurance entities; (Tier 2S) Reduced disclosures 4Credit unions;
Reduced disclosures 4Building societies; 4Friendly societies; 4Banks; 4Employee benefit trusts; and deposit-taking entity for a broad Is there more guidance on 4Investment trusts. group of outsiders. This is typically ‘publicly accountable’? the case for banks, credit unions, A number of responses to the What is the FRSME? discussion paper expressed concern insurance companies, securities The proposals require all tier 2 entities that the definition of ‘publicly to prepare financial statements under brokers/dealers, mutual funds or accountable’ without explanatory the FRSME or IFRS. The FRSME is the investment banks.” guidance might be difficult to ASB’s version of the IASB’s IFRS for
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 25 Financial Reporting
impacting companies Timeline for adoption of the FRSME contemplating an IPO. Introduction of Tiered Approach What else should tier 2 October 2010 ASB released FRED on the entities consider? proposed mandatory adoption of FRSME would not be suitable for all IFRS for all UK/Irish entities tier 2 entities. When deciding (excluding those that qualify for whether to use IFRS or the FRSME reporting under the FRSSE). management should consider the broader business implications of adopting IFRS over FRSME, such as April 2011 Deadline for comments on the the consequences on tax, FRED. distributable reserves, systems and data requirements and corporate structures. For example: Mid 2011 Final standard expected. 4Tax There may be tax advantages for July 2013 Effective date for the proposals. companies that move to full IFRS. Depending on their structure and other factors, companies could June 2014 First balance sheet that would be enjoy a cash tax advantage, where required to be prepared under the IFRS would either slow down the new framework. rate at which income is recognised or speed up recognition of cost.
4Distributable reserves SMEs, which has been amended for What are some of the A change in accounting some UK- and Irish-specific advantages of using FRSME? circumstances. framework may reduce The advantages of using the FRSME distributable reserves − for standard include: example, due to the impact of What are the differences 4Simpler accounting – there are recognising derivatives at fair between the FRSME and the fewer options in relation to value. IFRS for SMEs? accounting treatments; for 4Systems and data requirements The IFRS for SMEs, as issued by the example, land and buildings are Information requirements for IASB, is currently not fully compliant never measured at valuation under measurement and disclosure with Irish and UK company law. The the FRSME, easing the burden on would be more onerous under FRSME reflects necessary amendments preparers of financial statements. to the IFRS for SMEs to achieve both full IFRS and the FRSME. 4 company law compliance. Fewer disclosure requirements Where the capture of additional than IFRS – notably in the area of data may require more than a Other than the necessary legal financial instrument disclosures. simple system modification, this changes the ASB has made the may not be straightforward. following four pragmatic changes to the IFRS for SMEs: What are some of the 4Corporate structures disadvantages of using Large groups with many 4Replaced the IFRS for SMEs section FRSME? subsidiaries may wish to take the on income tax accounting with the FRSME is different from IFRS, it is opportunity to simplify their IASB’s standard on Income Tax, not just a simplified version of IFRS. structure to reduce the time and IAS 12; The disadvantages of using the cost of converting to IFRS or 4Provided an exemption to parent FRSME include: FRSME. entities from presenting a parent 4The simplified accounting may company cash flow statement when result in accounting policies that the parent is preparing consolidated For most Irish entities the future of companies do not find attractive; accounts; financial reporting looks likely to be for example, immediate expensing the FRSME. Adequate planning will 4Aligned the requirements to prepare of development and borrowing consolidated accounts in costs and amortisation of be critical to a successful accounting standards with the goodwill. implementation. requirements in Company Law; and 4FRSME financial statements would 4Provided transitional relief to not be accepted for use in a listing Irene O’Keeffe, FCA is an Assurance Partner with PwC. Fiona Hackett, ACA is a Senior dormant companies in the UK. document or subsequent filings, Manager with the same firm.
26 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 ValuationValuation ofof DevelopmentDevelopment LandLand AnAn ApproachApproach forfor thethe AuditorAuditor
By Nigel Anderson, FCA
The International Auditing Standard, ISA 620, states auditors may determine the need to use an expert. Nigel Anderson argues that the valuation of development land is an instance where an expert opinion may be called for.
Development land values are material to property developer Applying this model to developers’ accounts where land has and builder financial statements. SSAP 9–IAS 2 requires that been recently acquired gives horrendous results. One can stock of land and buildings be stated at the lower of cost understand the desire of directors to leave stock at cost. and net realisable value. However this does not satisfy their statutory duty to prepare accounts that show a true and fair view. The view has been expressed that due to market conditions and limited transactions it is not possible to obtain a Directors have stated that valuers will not give valuations in valuation for development land and so directors have the present market. This is not correct – the surveying decided to leave stock at cost. profession has not gone away. It has been stated that the The value of development land is directly related to the valuation would not be meaningful. I disagree; such a value of the buildings that can be erected on it. In the case valuation is very meaningful. Cost is another reason cited of residential development, valuations are available, indeed for not getting a valuation however compliance with must be available for a transaction to take place. Accounting Standards is not optional on the basis of cost/benefit analysis. In the absence of transactions the value of development land can be estimated using a model. Such an approach, Auditors should not lend credibility to such assertions. with appropriate explanation, can enable accounts to International Auditing Standard ISA 620 states auditors present the information that readers would reasonably may determine the need to use an expert and this is a classic expect to be made aware of to give a true and fair view. case. Here is a model that I use in estimating the value of a site: If accounts do not comply with Accounting Standards auditors must disagree, unless the departure is justified and adequately explained and all information necessary for a proper understanding of the financial statements is -20% -40% -50% disclosed. Selling price 500 400 300 250 If the auditor issues an opinion that is other than Cost 200 200 200 200 unqualified a clear description of the reasons should be 75 60 45 38 Builder’s profit (15%) included in the report and, unless impracticable, a Land value 225 140 55 12 quantification of the possible effects on the financial Fall in value 37% 75% 95% statements should be disclosed (ISA 700). In either case, details of the land, when it was purchased, and its cost, together with an estimate of the extent of the You can add noughts as appropriate to the figures. As a rule fall in value would normally be relevant for a proper of thumb, development land values fall approximately understanding of the financial statements. double proportionately to the fall in house prices. The recognition of the losses will speed up the process of Naturally no transactions take place – no-one will pay the reconstruction that many companies require. previous prices and no-one wants to take the large loss. Nigel Anderson, FCA is head of Quality Assurance for the Chartered Banks aren’t pressing owners to sell and realise large losses Accountants Regulatory Board. The views expressed in this article are personal and do not necessarily reflect the views of the Quality Assurance and they have lost their appetite for lending. Committee.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 27 Capital Budgeting The Capital Budgeting Practices of Listed Irish Companies Insights from CFOs on their investment appraisal techniques
By George Kester and Geraldine Robbins
A survey conducted in late 2009 provides insights into the investment appraisal techniques being used by Irish listed companies, as George Kester and Geraldine Robbins explain.
With limited credit and other sources in combination with other non-DCF of financing in today’s uncertain and methods such as Payback.2,3 Not The Results challenging economic environment, surprisingly, larger companies, or One of the goals of the capital the need to carefully evaluate the companies that were subsidiaries of budgeting portion of our study was to profitability of proposed capital large multinational companies, determine which quantitative investments and allocate scarce tended to use more sophisticated DCF investment evaluation techniques capital is more important than ever. techniques. were used by listed companies in In November 2009, we conducted a Ireland. Several techniques are survey of chief financial officers of available for use in evaluating companies listed on the Irish Stock The Survey projects. Two of these, NPV and IRR, Exchange regarding their views on consider cash flows and the time various theoretical issues and their To update the previous studies, we value of money and, hence, are DCF companies' financial policies and used postal questionnaires that techniques. Although there are practices in three major areas: capital included various closed-end and numerous non-DCF techniques, two structure policy and financing open-ended questions to obtain of the more widely-used are Payback decisions, dividends, and capital information regarding the capital and Accounting Rate of Return budgeting. In this research project, we budgeting practices of listed (ARR).4 were also interested in how the companies. current global financial crisis has The previous surveys of Irish affected listed Irish companies in The questionnaires, which did not ask companies asked executives to these areas. The overall results appear respondents to identify themselves, indicate which quantitative methods in the Winter 2010 issue of Irish their titles, or their companies, were were used in their companies to Accounting Review.1 mailed with explanatory cover letters evaluate proposed capital under the letterhead of the National investments. However, this approach University of Ireland, Galway to the has a weakness in that it does not Background Chief Financial Officers of companies provide information about the weight listed on the Irish Stock Exchange that executives place on each method in making final accept-reject Previous surveys conducted in 1989 (ISE). Companies listed in both the decisions. To overcome this weakness, and 1993 of the capital budgeting ISE’s Main Market and the Irish we asked executives to rate the practices of Irish companies reflected Enterprise Exchange (IEX) were importance of various methods. This increased sophistication in the included. Companies in the finance approach not only reveals which of techniques used to evaluate the and real estate sectors were excluded. the methods are used, it also provides profitability of proposed capital In total, the survey questionnaires information on the relative investments, with an increasing were mailed to 43 companies in importance of each method in number of companies using November 2009. Eighteen making final accept-reject decisions. discounted cash flow (DCF) methods, questionnaires were returned such as net present value (NPV) and resulting in a survey response rate of Whereas previous surveys found internal rate of return (IRR), alone or 41.9%. Payback to be the most frequently
28 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 used method among the surveyed size of their capital budgets. Nevertheless, the majority (70.6%) of Irish companies, all of the respondents indicated that limits are A common reason for capital respondents in our survey indicated not placed on the size of their that they use a DCF method. rationing is reluctance to obtain companies’ annual capital budgets. Moreover, the respondents in our external financing. There may be a An important component of DCF survey indicated that NPV was the limit placed upon the firm’s analysis is the choice of discount rate most important measure for decision- borrowing by internal management – the minimum acceptable rate of making, followed closely by Payback. or external lending institutions. In return on proposed capital IRR was ranked third. The least the case of external equity (selling investments. important technique according to the shares), there may be a fear of losing respondents was ARR. To further assess the use of DCF voting control or reluctance to sell analysis among listed companies in Another area of interest in our survey shares at depressed prices. Ireland, we asked was the method used to respondents to indicate assess risk. Again, in whether their firms used order to obtain a single discount rate for information on the all investments, relative importance of multiple risk-adjusted each method, we discount rates, or a elicited ratings of discount rate based various methods for upon the cost of the assessing risk, including specific capital used to scenario analysis finance proposed capital (optimistic/most likely/ investments. pessimistic forecasts), sensitivity analysis, The majority (66.7%) of decision trees, and the responding probabilistic simulation. executives indicated that they use a single Scenario analysis and discount rate based on sensitivity analysis were their firms’ overall perceived to be the two weighted average cost of most important capital (WACC) to methods for assessing evaluate all proposed risk. More sophisticated capital investments. probabilistic Theory tells us that in techniques, such as order to use the WACC Monte Carlo as the discount rate for simulation, appear to be all proposed capital seldom used by listed investments, the companies in Ireland. proposed investments Respondents were also must have the same risk asked whether level as the average risk estimated cash flows (or of the firm. If the risk of earnings) of proposed a proposed investment capital investments differs substantially were evaluated before or from that of the overall after corporate taxes. firm, then it is necessary The majority (64.7%) to determine a specific indicated that cash minimum acceptable flows are evaluated return for that before corporate taxes. investment. In other words, if proposed Monte Carlo methods (or Monte Carlo experiments) are a class of According to classic capital investments vary computational algorithms that rely on repeated random sampling to microeconomic theory, with respect to risk, a compute their results. a firm should expand multiple risk-adjusted (accept investment discount (hurdle) rate projects) to the point where its In today’s economic environment, it system should be employed, with marginal return is just equal to its would seem that the limited riskier investments requiring higher marginal cost. In other words, firms availability of debt financing and low minimum rates of return. Otherwise, should invest in all positive NPV share prices would cause companies accept/reject decisions will be biased capital investments. However, some to place limits on the amount of in favour of high-risk investments firms place an absolute limit on the capital investments undertaken. and against low-risk investments.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 29 Capital Budgeting
to estimate the company’s cost of capital rationing. In estimating the equity capital. Of the remaining cost of equity capital, the most respondents, one uses the dividend popular method is the CAPM yield plus growth rate method and followed by the risk premium the remaining respondents indicated method. that their companies use the risk In selecting the discount (hurdle) premium method. rates to be used in project evaluation, only four of the respondents indicated that multiple risk-adjusted Effects of Global discount rates are used. The Financial Crisis remaining respondents use a single discount rate for evaluating all To identify some of the effects of the investments. As previously current financial crisis on capital mentioned, this result is not budgeting policies and practices in consistent with a basic principle of Ireland, our questionnaire included finance theory, that the return two open-ended questions asking required on an investment should executives to identify (1) how it has reflect the riskiness of the investment affected their companies’ capital and the return available elsewhere budgets, and (2) how it has affected from investments of similar risk. If their companies’ capital investment proposed capital investments differ analysis procedures. with respect to risk, a multiple-risk- Four respondents indicated that the adjusted discount rate system should financial crisis has had no impact on be employed. When a single discount their companies’ capital budget. Nine rate is used, as is reported to be the respondents indicated that their case among the majority of companies have reduced, and in one respondents to our survey, capital case eliminated, the amount of capital budgeting decisions will be biased in Surprisingly, only four of the expenditures due to limited funding favour of high-risk investments, even respondents indicated that their availability. Regarding the effects on though the potential returns may not companies use multiple risk-adjusted the capital investment analysis be high enough given the perceived discount rates. procedures used, ten of the risk. Conversely, decisions will be Two of the respondents indicated that respondents indicated that the biased against low-risk investments. their firms base the discount rate on financial crisis has not resulted in Because the discount rate is too high the specific capital used to finance the changes to their companies’ capital for low-risk investments, too few low- investment under consideration. investment analysis procedures. The risk investments would be This, of course, also conflicts with the other respondents cited the undertaken. Over time, a firm’s risk theory of WACC which implies that requirement for more rigorous and will increase, but without higher investments are financed out of a detailed analysis, the use of higher commensurate returns, thereby pool of funds, as opposed to being discount rates, and more emphasis on reducing the value of the firm. individually financed out of debt, pessimistic forecasts. Notes: 1 Kester, George W and Geraldine Robbins, preferred stock, or ordinary shares. “Financial Policies and Practices of Companies Listed on the Irish Stock Exchange: Capital Finance textbooks usually describe Structure Policy, Dividends and Capital Conclusion Budgeting”, Irish Accounting Review, Vol. 17, three methods to estimate a No. 2, 2010. company's cost of equity capital. Capital budgeting practices in Ireland, 2 Green, Peter J and Philip McIlkenny, “Capital These usually include: Budgeting Practices in Irish Listed at least among listed companies, Companies”, Conference Proceedings of The Irish Accounting and Finance Association, University ... (1) the capital asset pricing model appear to have improved over the of Ulster, 1991, pp. 70-84. (CAPM) based upon the firm's beta, past decade or so with an increasing 3 Lucey, Brian.M, Patrick McCabe and Gerard number of companies using more McHugh, “An Analysis of the Investment ... (2) dividend yield plus expected sophisticated DCF techniques. To Appraisal Practices of Irish Companies”, Irish growth rate, and Business and Administrative Research, Vol. 16, assess risk, scenario analysis and 2010, pp. 101-114. ... (3) the risk premium method (cost sensitivity analysis are perceived to be 4 Accounting rate of return (ARR) refers to expected average earnings return on assets. It of debt plus risk premium). the two most important techniques. is a non-DCF method based on accounting More sophisticated probabilistic earnings (profits) rather than cash flows. To determine which methods are used techniques appear to be seldom used. George Kester, DBA, the Martel Professor of by listed companies in Ireland, we The survey results also indicate that Finance at Washington and Lee University, asked respondents which method Lexington, Virginia, USA, was a Visiting most of the firms evaluate project Professor of Finance at the J.E. Cairnes School their companies used. of Business and Economics, National University cash flows on a before-tax basis and of Ireland, Galway at the time of this research study. Geraldine Robbins, BComm. ACMA, MBA, The most popular method was the that, despite the current economic Ph.D is a Lecturer in Accountancy & Finance at CAPM, with half of the respondents environment, the majority of the J.E. Cairnes School of Business and Economics, National University of Ireland, indicating that their companies use it responding firms do not practise Galway.
30 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 The National Asset Management Agency Act 2009 A Reference Guide Máire R. Whelan SC, Mark Kennedy FCA and Feargus Ó Raghallaigh MA Foreword by Brian Lenihan TD, Minister for Finance
A comprehensive, authoritative and accessible guide to Ireland’s National Asset Management Agency Act 2009. References a wide range of relevant sources, including legal, administrative and accounting texts, text of Dáil Éireann and Seanad Éireann debates, EU Commission pronouncements and, in relation to specific sections and amendments, the speaking notes and supporting papers of the Minister for Finance, Brian Lenihan.
Presented in two parts – commentaries and legislation with annotation. AVAILABLE PART 1: FEBRUARY Annotators’ commentaries deal with a number of high-level themes posed by the Great Recession as it has affected Ireland, including: 2011
• Resilience or the vulnerability of the Irish economy and banking system as shaped by the boom of the preceding decade.
• The need to provide for a Special Resolution Regime (SRR) as has been done in the UK, US and elsewhere.
• Consideration of the exceptionalist nature of certain provisions of the Act, by reference to relevant existing legislation in response to the economic crisis.
• Commentary on the status of NAMA as an involuntary creditor.
• Consideration of the role of the European Commission in the context of the development and implementation of the legislation. The National Asset Management Agency Act 2009 print • Obligations placed on directors and senior management of will be published simultaneously in participating institutions which suggest comparison with the US (loose-leaf format) and digitally in February 2011. Sarbanes–Oxley provisions, as well as corporate governance issues more generally. Loose-leaf edition: €350 Digital edition: €250 per concurrent user for PART 2: the first 4 concurrent users; €200 per text of the Act is reproduced in full • The with the legal concurrent user for 5+ concurrent users. significance of each and every section clearly explained. Relevant court decisions are identified and their significance considered. THE AUTHORS Máire R. Whelan BA, LLB, LLM (Lond), DipIntRels (Vienna) is a Senior • There is particular emphasis on the European Union (EU) Counsel and practises predominantly in chancery law. context and the impact of the law of the Union, specifically EU Mark Kennedy is a Fellow of the Institute of Chartered Accountants in competition law, undistorted competition and the regime of the Ireland (FCA) and lead audit partner in the Dublin office of Mazars, an single market. An overview commentary locates the legislation international audit and accountancy practice. in its wider, global context and relates it to themes of concern to policy-makers and to the realm of jurisprudence. Feargus Ó Raghallaigh MA, Econ (UCD) is a journalist with significant political and parliamentary advisory experience and expertise in economic • Includes amendments and statutory instruments enacted up and social policy formulation, parliamentary procedure, legislative to June 2010. processes and EU and international economic and political affairs. TO ORDER (FREE DELIVERY) CALL NOW TEL: +353 1 500 9556 Gill & Macmillan Publishers Hume Avenue Park West Dublin 12 Practice Development Investment Business An opportunity for practising firms?
By Michelle Kane
There may not be much money around but it is still important for individuals to plan for the future and, when it comes to finding a trusted advisor, where better to look than to a Chartered Accountant? While there are onerous compliance and technical considerations for practitioners in the investment business arena, there are nonetheless opportunities for those with the relevant skills, as Michelle Kane explains.
Some 700 accountancy firms hold service helping clients plan for their Investment Business Authorisation future and for retirement. Competency from the Chartered Accountants Regulatory Board. Many firms in the Why refer your clients to The European Communities lowest category (IA1) hold this others for advice when you (Insurance Mediation) Regulations authorisation simply to protect know their needs better than 2005 came into effect on 14 January themselves against the risk of straying anyone else? 2005 and gave effect to Directive into a regulated area by mistake 2002/92/EC which, amongst other which would be a criminal offence things, was designed to ensure that all under the terms of the Investment Chartered Accountants are well investment advisors provide an Intermediaries Act, 1995, as amended. placed to provide this advice and to adequate and measurable level of skill Whether these firms utilise their provide it well. You understand how and service to their clients. This was ability to conduct investment your clients think and their long-term implemented in Ireland fully from the end of last year for accountants in the business or not, once authorised they goals, in fact you are already helping Financial Regulators Minimum must: them achieve those goals through the Competency Requirements, July 4 have internal procedures that other services you provide – such as 2006.1 These requirements changed reflect the size and activities of the tax planning. You are therefore well the definition of those who can be practice; placed to provide independent advice deemed competent to provide that is in their best interest, so why 4 conduct investment business investment business advice and not seize the opportunity to compliance reviews; services at anything other than very proactively offer a good in-house 4 basic levels. pay authorisation costs; investment business service ? 4 pay compensation levies; and Concern about compliance is the Being a Chartered Accountant 4 undergo monitoring visits. most commonly cited deterrent. alone is not sufficient to prove “Compliance costs money,” I hear you are ‘competent’ to Hand in hand with Investment you say and, yes, it does, but if provide investment advice Business Authorisation comes a appropriate robust procedures and under the EU competency compliance requirement and requirements so you may associated costs but, despite the fact processes are introduced within the firm and this area is treated seriously need to consider obtaining that times are difficult and many additional qualifications. clients do not have much money to as a value added service, rather than invest at the moment, there is an something you may utilise now and opportunity for practitioners, with a then, then those costs will more than There was a window of opportunity to bit of thought, to offer a beneficial pay for themselves in the long run. obtain a quasi qualification by virtue
32 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 of experience since the new you have not achieved grandfathering There is of course an additional cost provisions allowed an individual to be status then you must obtain a to pay for competency, irrespective of ‘grandfathered’ if they met certain relevant qualification to do so. whether you grandfather or have criteria: four years’ worth of achieved an accredited qualification experience in investment business Practices should bear in mind and that is an additional CPD activities in the period between 1 that the new requirements are requirement equivalent to 60 hours January 1999 and 1 January 2007 far-reaching – providing a over a 3-year period. Of the 60 hours, including at least two years’ simple referral to a multi- experience gained within the state. It agency intermediary requires 45 must be structured, and there is worth noting that experience that you comply with the should not be less than 15 hours of gained whilst a student or in training competency requirements. CPD in any one year. The Financial contract counts for this exercise. To Regulator’s first 3-year CPD period benefit under the ‘grandfathering’ ended on 31 December 2010 and Firms authorised by the Chartered arrangements, however, you must individuals will have to have achieved Accountants Regulatory Board that compile evidence to back up your the bulk of the requirement by then claim of eligibility for the refer a client to a Multi-agency making up for any shortfall in early qualification. This evidence must Intermediary (MAI) are expected to 2011. These requirements are include samples of the activity you meet significant compliance marginally higher than the conducted in the relevant period such requirements, including: Institute/CARB’s investment business as copies of the letters of engagement 4 the know your client (KYC) issued to clients, ‘reason why’ letters, requirement; requirement which is a minimum of samples of your market research, and 10 structured hours per annum when 4 product selection; third-party verification by way of using the input method of CPD. commission statements issued and 4 market research in respect of the In this ever-evolving area further received within the relevant period. If provider; and you were still in training or a junior changes were hinted at by the 4 ensuring that the MAI holds member of staff during the relevant Financial Regulator recently, such as a appropriate letters of period, then a partner may provide shelflife for the grandfathering appointment. third party verification as evidence opportunity of around five years in that you gained experience in this In reality, firms are making the which time those individuals who area. selection for the client right down to have availed of it will have to obtain a the final choice of provider and For those who opted to take recognised industry qualification, and therefore must demonstrate that they advantage of the grandfathering the introduction of accredited CPD. are competent to do so. arrangements, it is important to compile adequate evidence to ensure Most intermediaries are now MAI. that you achieved grandfathering in Without meeting the competency all relevant areas. There is a requirements you will only be able to 1 http://www.financialregulator.ie/processes/ misconception that grandfathering is refer to investment advisors who are minimum-competency-reg/Documents/ Minimum% Competency%Requirements.pdf a blanket qualification: this is not so, deemed to have Authorised Advisor you will only be able to provide status. Likewise if you are acting as a advice and services in the areas in deposit agent or giving advice on which you can show that you are deposits with a term of more than 12 Michelle Kane works with OmniPro, an independent solutions provider for accountancy competent and have relevant months then, whilst in the lowest firms (www.omnipro.ie). She previously spent experience. Should you wish to category of authorisation, these over 19 years with the Practice Regulation conduct an activity within your activities also require a level of Directorate of Chartered Accountants Ireland and subsequently with the Chartered category of authorisation for which competency. Accountants Regulatory Board.
Money Laundering and Terrorist Financing Act 2010: Annotated
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 33 Practice Management The Benefits of Incorporating Your Audit Practice
By Patrick Spicer and Aidan Fahy
With the implementation of the Statutory Audit Directive last year, Irish auditing firms can now avail of the benefits of incorporation. Patrick Spicer and Aidan Fahy summarise the issues to be considered when deciding whether incorporation might be appropriate.
Since the recent implementation of being the shareholder’s personal Limiting Liability the Statutory Audit Directive (S.I. No. property. The transfer of such shares Contractually 220/2010), which amends section 187 (where they are fully paid up), of the Companies Act 1990, auditors generally speaking relieves the Auditors in Ireland are effectively of companies can now incorporate. transferor of all his obligations to the prevented under statute from Now is an opportune time for company. contractually limiting their liability to statutory auditors to consider incorporation to avail of the benefits By contrast, where a partner transfers the companies they audit. Section 200 of separate legal personality and his interest in a partnership, the of the Companies Act 1963 effectively limited liability as well as certain tax transferring partner will continue to prohibits a company from limiting advantages. be liable for the pre-transfer the liability of an auditor in respect of obligations of the partnership unless any negligence, default, breach of duty or breach of trust of which he the partnership’s creditors agree to may be guilty in relation to the Benefits release him from, or the remaining company. partners agree to indemnify him in Section 200(1)(b) of the Companies Limited Liability respect of, such obligations. Act 1963 provides that a company It is a well-established principle of The transfer by a sole trader of his may indemnify an auditor of the Irish company law that a company is interest in an audit practice may also company against any liability an entirely distinct and separate legal give rise to difficulties because the incurred by him in defending person from its shareholders. sole trader himself is required to proceedings, whether civil or Accordingly, it is the company (as a discharge the obligations of the criminal, in which judgment is given separate legal person) which is liable business and accordingly the transfer in his favour or in which he is for its debts and obligations. A benefit of those obligations may require the acquitted. Accordingly, the for an auditor, who incorporates as a consent of the parties to whom those indemnity will not apply if the limited liability company, is that the obligations are owed. auditor has been found guilty of liability of the shareholders in respect negligence, for example. of the debts and obligations of that Perpetual Succession company is limited to the amount, if In contrast with Irish law, Chapter 6 A company only ceases to exist where any, remaining unpaid on the shares of Part 16 of the UK Companies Act held by them, save in exceptional it is wound up or struck off the 2006 permits auditors and companies circumstances. register of companies. This makes it to enter into liability limitation easier to sell on the business by way of agreements in order to limit an Transferability share sale, because the existing auditor's liability to a company for The shares of a private limited contracts continue in place with the negligence, default or breach of duty company are (as a general rule) easily company until a winding up or or trust in relation to the audit of that transferable by virtue of the shares strike off. company’s accounts.
34 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 If an auditor chooses to incorporate as a private limited liability company, TheTTheHE BDOBDOBDO BinderBinder BIND HamlynEHamlynR HAM CaseCaseLYN CASE the provisions of section 200 will still apply, such that the audit company is A Practical Example of the Benefits of Limited Liability A Practical Example of the Benefits of Limited Liability prevented from contractually limiting A Practical Example of the Benefits of Limited Liability its liability to the companies it audits. The UK case of BDO Binder Hamlyn illustrates the benefit of limited liability: The UK case of BDO Binder Hamlyn illustrates the benefit of limited liability: Thus, for example, should the audit Thethe HighUK caseCourt of awaBDOrded Binderstg£105 Hamlynmillion illustratesagainst thethe benefitpartners of limitedof BDO liability:Binder the High Court awarded stg£105 million against the partners of BDO Binder be carried out negligently, it is the theHamlyn. High CourtThe claim awaradedrose stg£105from the millionacquisition againstof theBritannia partnersSecurity of BDOSystems Binder Hamlyn.Hamlyn. TheThe claimclaim aarroseose ffrromom thethe acquisitionacquisition ofof BritanniaBritannia SecuritySecurity SystemsSystems audit company, as opposed to the (Britannia) by ADT, the electronic security group. auditor individually (or as a firm), (Britannia)(Britannia) byby ADADTT,, thethe electelectrroniconic securitysecurity ggrroup.oup. that will be liable to the company As part of the due diligence process, ADT reviewed Britannia’s accounts. that it audits. The audit company will AsAs partpart ofof thethe duedue diligencediligence pprrocess,ocess, ADTADT rreviewedeviewed BritanniaBritannia’s’s accounts.accounts. be liable, up to the extent of its assets, ShortlyShortly befobeforree thethe acquisition,acquisition, aa rrepeprresentativeesentative ofof ADTADT metmet thethe BDOBDO BinderBindler HamlynShortly befoauditr epartnerthe acquisition, who had signeda representative off Britannia'sof ADT accountsmet the elevenBDO auditweeks including in respect of insurance Hamlyn audit partner who had signed off Britannia's accounts eleven weeks earliepartnerr. Thewho audithad partnersigned oconfirmedff Britannia's at theaccounts meetingeleven that heweeks stoodearlie by ther. The cover that the audit company has. earlier. The audit partner confirmed at the meeting that he stood by the audited accounts. Should the assets of the audit auditauditedpartner accounts.confirmed at the meeting that he stood by the audited company be insufficient to pay the accounts. The Court found that by giving this confirmation the auditor assumed respon- damages arising, then the audit sibilityThe Court for the found reliability that by of giving the accounts this confirmation to ADT. (The ther auditore was no assumed dispute that the company would be insolvent. accountsTheresponsibilityCourt hadfound beenfor thatthe audited rbyeliabilitygiving negligentl ofthis theconfirmation accountsy.) The judge tothe AD consideTauditor. (Therredeassumed was that no the dispute size of However, the shareholders of the potentialrthatesponsibility the accountsliabilityfor andthe had thereliability been comme auditedofrcialthe negligentl paccountsroblemsy over.)to TheAD insurance Tjudge. (The considere wasdid notnored dispute that audit company should not have any outweighthatthe sizethe accountsof other potential relevanthad liabilitybeen factors andaudited in the determining commenegligentlrcial yBDO.) pTheroblems Binderjudge overHamlynconside insurance’sr edliabilitthat didy. liability for the debts and obligations thenot sizeoutweighof potential other relevantliability andfactorsthe incomme determiningrcial pr BDOoblems Bindlerover Hamlyninsurance’s did of the audit company (beyond their Tnotliabilito theoutweigh yextent. thatother BDOrelevant Binderfactors Hamlynin’sdetermining insurance didBDO not’s liabilitcover ythe. entirety paid up share capital) and of the award, the balance would have been financed by recourse to the partners’ personal assets. Were the BDO Binder Hamlyn auditing entity to accordingly, as noted in the example To the extent that BDO Bindlerinsurance Hamlyndid not’s insurancecover the didenti notrety coverof the theawa entird,rety on the right, there should not be have been a limited liability company, ADT would not have had recourse for thetheof the balancebalance award, towould the the balance shahavereholders’been wouldfinanced personalhave beenby assets.r ecoursefinancedto bythe recoursepartners’ to thepersonal recourse to the shareholders’ personal assets.partners’W personalere the BDO assets.auditing Wereentity the BDOto have Bindlerbeen Hamlyna limited auditingliability entitycompan to y, assets, in the event that the assets of have been a limited liability company, ADT would not have had recourse for ADTADT Ltdwould v BDOnot Binderhave had Hamlynrecourse [1996]for BCCthe balance808. to the shareholders’ the audit company are insufficient to the balance to the shareholders’ personal assets. personal assets. pay the damages arising.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 35 Practice Management Transfer of Undertaking Future Developments Consequently, there are certain tax implications for close companies to consider. To benefit from this right of an The issue of limiting the liability of auditor to incorporate, it will be auditors is currently under review at a 4The PRSI position for shareholders necessary for firms who carry on European Commission level and it of the new company will need to be statutory audit work to transfer this appears likely that there may be carefully considered, particularly part of their business to a company. A further uniformity of rules introduced where there is to be a large number business transfer agreement should be on this matter. More particularly, it of shareholders in the new put in place in order to effectively has been examined as to whether company. transfer the relevant business and there is scope to introduce limits on liability in one of the following ways: assets which in turn may require the novation or assignment of a number 4a European-wide monetary cap on of existing contracts. Such a transfer audit claims; Other considerations of the business is also likely to trigger 4a cap on the quantum of claims by 4Incorporating your practice may the European Communities reference to the size of the audit give rise to savings in insurance (Protection of Employees on Transfer firm; costs. of Undertakings) Regulations 2003, 4 which (broadly speaking) entitles the a cap on the claims based on a 4The ability to incorporate does not employees of that business to transfer multiple of the audit fees charged; apply to a ‘public auditor’. For to the company on the same terms. and example, credit unions, friendly 4the introduction of proportionate societies and industrial and liability which would mean that an provident societies must be audited auditor is only responsible for the by a public auditor. Administrative & Filing portion of the claim which 4Various regulatory requirements Requirements corresponds to the auditor’s degree will also need to be complied with of responsibility. in the incorporation process. There are additional administrative and filing requirements which apply 4Where firms have already to a company but not to a Tax implications on incorporated part of their practices, partnership. These include the incorporation the ability to incorporate the audit requirement to keep proper books of function should simplify account which give a ‘true and fair' The tax heads to be considered on operational arrangements and lead view of the state of affairs of that incorporation include capital gains to cost savings. company, to present annually the tax, income tax, stamp duty and VAT. 4Depending on the existing accounts to shareholders at the Where possible, it will be necessary to structure of the firm, a valuation of annual general meeting and to file the structure the incorporation so as to the audit practice may be required. accounts with the annual return in avail of existing reliefs and the Companies Registration Office. If exemptions in respect of these tax there is concern in relation to the heads. With appropriate planning it is public availability of a company’s possible to minimise any potential Conclusion accounts, it is possible to implement a tax costs arising. structure such that the company Now is an appropriate time for audit would not have to file its accounts, firms to consider incorporation but it whilst maintaining the protection of Main tax implications is important to consider the legal, limited liability. following incorporation regulatory and tax aspects. This article is not intended to be 4Corporation tax at the rates of comprehensive or definitive, but, 12.5% (on profits derived from the Shareholders’ instead, to give you a flavour of some professional services provided by Agreement of the legal and tax issues arising in the company) and 25% (on passive determining whether or not to income such as rental income and It would be prudent for the incorporate. This article cannot be deposit interest) should apply. shareholders in the company to put relied upon as professional advice and in place a comprehensive 4Additional tax only becomes it is recommended that appropriate shareholders’ agreement (to deal with payable when the shareholders professional advice be obtained before matters which may previously have wish to extract the income from proceeding. been managed in accordance with a the company. partnership agreement), including for 4The new company will, in many Patrick Spicer is a partner in the Corporate and Commercial Law Department of Matheson example: company structure, cases, be regarded as a close Ormsby Prentice. Email [email protected] administrative issues, financing and company (i.e., a company that is Aidan Fahy is a partner in the Tax Department of shareholder rights and obligations. controlled by five or fewer persons). the same firm. Email [email protected]
36 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 UK and US regulators agree ASB says more informative The ASB will continue to monitor the arrangements for sharing disclosures about capital quality of capital disclosures in view information and cooperation management are needed of the importance of adequate capital on audit inspections Adequate capital is essential to well- during this phase of the business Regulators in the UK and US have run businesses, particularly those cycle. signed an information-sharing seeking to fund future growth or For details see www.frc.org.uk/ agreement aimed at increasing the manage a crisis. Investors have told asb/press/pub2458.html level of cooperation on the oversight the Accounting Standards Board (ASB) and inspection of audit firms. that they are interested in how much Irish Stock Exchange The Statement of Protocol between financial capital a business needs and publishes additional new the UK’s Professional Oversight Board whether there is a surplus or a deficit. Rules on Corporate (POB) and the Public Company This ASB study of the quality of Governance Accounting Oversight Board of the capital management disclosures The ISE has published new Listing United States (PCAOB) is a statutory concludes that there is good practice Rules which require Irish listed requirement necessary to facilitate in places. But too often there is companies to comply or explain effective cooperation between the two excessive boilerplate text and too against additional corporate organisations and pave the way for many companies have missed joint work on inspections, including governance provisions which arise essential elements of the required exchanges of information and from the recommendations contained interviewing firm personnel. disclosures. in the report on Compliance with the Informative disclosures made by some Combined Code on Corporate companies highlight good practice. Governance by Irish listed companies. Insolvency For example, some linked capital to These Rules, contained in a new Irish The Chartered Accountants Ireland, business strategy and to dividend Corporate Governance Annex, Diploma in Insolvency will be offered policy. Markets are keen to avoid supplement the existing provisions in Dublin and Cork from March 2011. surprises so these disclosures need to which require Irish listed companies For the course outline and details see explain the potential for future events to comply or explain against the www.charteredaccountants.ie/ such as a rights issue or a share buy requirements of the UK Corporate diplomas back programme. Governance Code.
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 37 Cost Reduction Five Practical Approaches to Reduce Your Labour Costs
By Tim McCormick, FCA
Although difficult to contemplate, reducing labour costs is a challenge that continues to face many Irish companies. Here, Tim McCormick presents five different approaches with supporting practical action points.
Tackling the cost of labour is never an agreeable task. Given that it is likely to lead to a reduction in living standards of employees it is also likely to meet considerable opposition. Yet, if it is ignored, the consequence may CORE be loss of employment for everybody. In service industries labour tends to EMPLOYEES be the largest cost and therefore cannot be omitted from any credible cost-reduction programme. Few people now can deny the need for cost reduction. The recent SUB TEMPORARY national budget and the four-year CONTRACTORS WORKERS austerity plan have spread the message to every household in Ireland. Public sector reforms agreed under the Croke Park agreement have made clear the need to reduce public sector remuneration and change work practices to promote greater efficiency. The downturn in trade which has resulted from the recession and unseasonable weather conditions has similarly brought cost reduction on to the agenda of the private sector, if it were not there already.
Irish writer on management, likened a to perform and are rewarded with a modern organisation to a shamrock, fee when the work is satisfactorily The Shamrock comprising three elements in one completed. They may be former Organisation whole. employees and may become ‘teleworkers’. A good starting point is to consider The first leaf of the shamrock what labour force would be represents the professional workers, The third leaf is the casual workers, appropriate for your organisation if managers and other professionals, who may be part-time and will not you were starting from scratch. who are pursuing a career. They tend necessarily have a long-term Permanent employees may have to work hard and need to be highly commitment to the business. They greater understanding of the business, rewarded by salaries, bonuses and expect fair pay for their contribution but lead to inflexibility, since they are other benefits. when they work. expensive, particularly when they are no longer required. Over twenty years The second leaf represents contract Such a model has been commonplace ago Charles Handy, the well-known workers. They have a specific function in the building industry. In the past
38 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 builders employed a large full-time different jurisdictions, but will also be workforce, but in this business which impacted by agreements with trade Reduction of Non-pay has always been notoriously cyclical, unions, staff associations, trade Elements in lay-offs could not be avoided. A more associations and individual 2 Remuneration effective alternative was developed, employment contracts. Corporate 4Change pension scheme which required only a very small values may prescribe employment contribution rates and defined permanent labour force. Most terms, but may mean that the benefits building was undertaken by cheapest solutions are vetoed. subcontractors, while casual labour Unfortunately many organisations 4Abolish company cars was recruited for a particular contract. now face a more severe crisis than at 4Cancel fee subscriptions (e.g. health The resulting flexibility meant that any other time in their history. the business could shrink to a insurance or clubs) or subsidies (e.g. minimum in recession and expand In the current recession, many canteen) organisations have been obliged to re- rapidly when contracts were won. 4Tighten discretionary expenditure examine their attitudes to While not all practices were perfect, (eg travel & entertainment, such as periodic tax evasion by employment norms. In Ireland, the attendance at conferences) subcontractors and forced minimum wage rate has been reduced renegotiation of terms after the start by 12%, while in the public sector, Pension schemes have proved to be of the contract, nevertheless the where salaries typically exceed those an expensive imposition for many model endured in the industry. of their UK counterparts, pay and organisations, so many are now pensions have also been targeted. closed for new employees, while rates This type of model has been adapted Defined benefit schemes, once of contribution are introduced or effectively in many service industries. considered sacrosanct, have now increased for existing employees to Software companies, for example, come under the microscope. reduce the deficits. Some of the may find it high risk to retain a large remaining perks are no longer tax full-time workforce when contracts advantageous and are regularly are uncertain. The core expertise will targeted by financial controllers. probably need to be full-time, but Five approaches programming may be undertaken by self-employed contractors, operating Fundamentally businesses may decide from their own homes, while peaks in to choose from a mixture of five Change Individual demand may be met by short-term distinct routes. Naturally, the more Workloads employees. IBM, facing competitive voluntary the choice for the 3 pressures 20 years ago, adopted the individuals concerned the easier will 4Flatten the organisation with shamrock concept. be the change. The alternatives below greater individual responsibility will vary in their acceptability to any 4 given organisation. Some may already Introduce mandatory job-sharing Alternative ways to be in place, others would not be 4Introduce mandatory sabbaticals considered, while some might be reduce labour costs 4 possible candidates for change. Introduce short time working (shorter week or month) Naturally, transforming a traditional organisation into a shamrock Enhance Natural Wastage Flattening organisations is often seen organisation cannot happen as a way of permanently taking out overnight. If labour costs must be costs by removing one or more layers reduced quickly, more surgical tools 1 of supervision and delegating greater are appropriate. Occasionally it may 4Ban recruitment responsibility. Naturally, it needs to be possible to improve productivity be approached with care to ensure 4Introduce early retirement scheme by better training or removing that neither quality nor key controls obvious inefficiencies, such as 4Introduce voluntary sabbaticals or are sacrificed. The remaining methods excessive absenteeism and overly unpaid leave aim to spread more thinly the existing restrictive work practices. But such workload in preference to dismissing 4Introduce voluntary severance opportunities are comparatively rare employees. The plan may benefit scheme in the private sector. Typically from social welfare benefits available businesses facing the necessity to All these aim to reduce the size of the from short- time working. reduce costs heavily and quickly will labour force voluntarily, whether by have to choose between unpopular eliminating entrants or encouraging alternatives. exits either on a temporary or Reduce the Price of Facing such a dilemma, any given permanent basis. Unfortunately the Labour organisation is likely to consider not inducements required may be 4 only the legal situation in making its substantial to achieve the desired 4Change the mix of pay between choices, but also organisational values reduction and, therefore, while they fixed and variable elements and the severity of the crisis. The legal should not be strongly opposed, may situation varies enormously between prove inadequate as well as expensive. 4Eliminate or reduce bonuses
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 39 Cost Reduction
4Cancel payment for overtime The last set of measures is both radical and Frequently effective short-term 4Freeze or reduce rates of pay involuntary, often meeting serious economies can have serious employee resistance and facing legal adverse longer-term Reducing core salaries, while allowing repercussions, affecting employee employees to earn commissions or obstacles. Accordingly, redundancy with minimal compensation may only be morale, which ultimately impacts bonuses dependent on performance, the ability to recruit and retain first- enhances flexibility. However, any chosen in an extreme crisis, such as a class people. Devising an attempt to reduce overall pay is likely restructuring under the control of the to attract strong opposition from appropriate strategic plan will courts to ensure solvency. sectional interests. Bankers may require a mix of skills from human resources, operations and finance consider that large bonuses are vital Relocation, however, need not be as a minimum. to retain their peculiar and undertaken purely with statutory supposedly rare talents. Judges may termination payments. insist that, whatever about the From a myriad of possibilities this article remainder of the public sector, their Many multinationals may choose to pay has set out twenty alternative ways to remuneration can only be reduced on generously and offer retraining or reduce the cost of labour. The choices are a private, voluntary basis. employment elsewhere in the group. rarely easy or pleasant and the more severe the crisis the more draconian the cuts may Moving towards a shamrock organisation have to be. But, where competitiveness can be achieved gradually over time, as Radically Restructure needs to be restored urgently, adopting a the Labour Force various activities are outsourced and can be policy of ‘masterly inactivity’, based more 5 more acceptable than formerly in an era on hope than expectation, may prove foolish. 4Target redundancy on a selective basis when many workers do not expect a job 4Introduce general redundancy on for life. Tim McCormick, FCA, has spent much of his statutory terms Different organisations respond to these career in financial training after a long spell in investment banking. He is co-author (with 4Relocate the labour force to a cheaper options in contrasting ways. Some Dermot Duff) of Strategic Cost Reduction - Cutting Costs without Killing Your Business published by destination measures may lead to unwanted side Chartered Accountants Ireland. 2009. Email: [email protected] 4Convert into a shamrock organisation effects.
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40 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Competitive Edge How early payment discounts can help your business
By Padraic Moran
Early Payment Discount programmes and Supply Chain Finance support key suppliers in a supply chain. The financial benefits to both buyers and suppliers are significant, and these programmes can be straight-forward to implement, as Padraic Moran explains.
Scenario How can an Early Payment Payables Outstanding (DPO), even if Discount programme help? you self-finance the early payment. You’re the Finance Director of a With an Early Payment Discount DPO is one of the major components manufacturing, distribution and (EPD) programme, suppliers give a of working capital, and extending trading business, and you have a big discount in return for having their DPO helps with your ‘other big problem. invoices paid early. This isn’t a new problem’. It frees up cash, allowing concept, but what has changed you to pay down debt, maintain a The competition is eating your lunch. recently is that processes, standards healthy balance sheet, or expand your Their cost of materials is up to 5% and platforms now exist that allow business. less than yours; they have lower trading partners to collaborate in real administration costs, strong supplier time to provide fully-secure How does an EPD relationships, cheaper sales prices programmes at a very low cost. programme work? and a better bottom line. Supplier invoices are approved by Suppliers are happy to offer Accounts Payable as soon as they are reasonable discounts in return for How come they can do it if you can’t? received. Where everything is in early payment. For them, it improves order, invoices are approved within cash flows and locks in receivables. days of receipt, and made available for As if that weren’t bad enough, you Bad-debt risk is removed at a very early payment. Suppliers are informed have another big problem: your early stage, and their Days Sales through a supplier portal; they can shareholders are watching. The €10m Outstanding (DSO) is reduced view the details of the invoice, see the loan you took out to buy that new significantly which improves their approval status, and request a quote machine two years ago may not have working capital position. A recent for early payment. Dynamic been such a great idea after all. Your report showed that 35% of suppliers Discounting procedures calculate a liquidity is still ok, but you need to would take early payment all of the financing quote there and then – watch your working capital ratios. time, while 65% of the rest would take early payment some of the time. usually based on a daily rate set by the buyer, and the difference in days Cash is valuable and you can’t afford A functioning EPD programme with between the early payment date and to take on any additional long-term good supplier engagement can give the normal payment terms that the liabilities. Your customers are the buyer a number of percentage supplier normally enjoys. The extending payment terms on your point savings on the cost of materials supplier decides if they are happy invoices; you’d like to do the same – a saving that goes straight to the with the quote, and if so, they accept with your own suppliers, but already bottom line. This allows you to the early payment. The money is they’re saying that they can’t handle outperform the competition on price transferred by EFT immediately. it any more. and margin – and helps with your first big problem. What if you don’t have cash? You feel like the meat in the supply Providing an early payment option A common variant on an EPD chain sandwich and the Chairman’s for your suppliers allows you to programme is called Supply Chain about to take a big bite. maintain, or even extend, your Days Finance. In this case, the buyer either
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 41 Early Payment Discounts
does not have, or is not in a position to use, free cash to fund early payment themselves. However, they Suppliers would still like to offer early payment Fully-managed EPD Service to suppliers. In this case, they may be able to reach agreement with one or more banks or financing institutions, Electronic Invoices Payments & Early Payments who are prepared to fund the early payment in return for some or all of the supplier discount, and on the back of a commitment from the buyer Supplier that the invoice has been approved Invoices Management for payment, and will be paid by sent for approval Payments them in due course. This has a significantly different risk profile to invoice discounting – fraud risk is Payment Invoice Approval removed, default and liquidation risks Management are minimised and, because of this, the costs of financing are lower. Funding Payments Approved & Returns There are three main reasons Invoices why a buyer would choose Invoice Invoice Fund Management Platform such an arrangement Approval Payments & Status Funding Commitments To support vulnerable or & Contracts key suppliers in the 1supply chain Buyers may have strategic Buyers Funders relationships with – or dependencies on – some or all of their suppliers. In these cases, it makes sense to support Figure 1: Diagram of a fully-managed Early Payment Discount Service those suppliers by brokering early payment, even if there is little direct financial benefit to the buyer. Your industry and your own specific added benefits of complete visibility business conditions will determine of upcoming and committed To access a portion of the relevance and importance of each payments, solid Accounts Payable the supplier discount of these three factors. (AP) control over invoice approval and payment reducing the risk of 2 Operational requirements fraud and errors, and advance notice While the bulk of the supplier It is fundamental that early payment of cash requirements, payment spikes discount will be taken by the funder on an invoice can only be made after and foreign currency needs. as a return on their investment, it is the invoice has been fully and Apart from invoice matching, a large standard for the buyer to take a share correctly approved. This implies that part of the effort in invoice processing of the discount as a reward for purchase invoices must be approved is spent purely in capturing the facilitating the transaction. early enough in the payment cycle to provide substantial value to suppliers invoice data from paper. Electronic through paying early. Invoicing systems which capture the data at source – in the suppliers’ To improve their working Many companies don’t currently systems – provide a step-change capital position approve invoices immediately on improvement in efficiency and 3 receipt from a supplier – rather, they accuracy over traditional data capture Some buyers will introduce early follow a ‘just in time’ approval solutions, including scanning and process, where invoices are approved payment programmes in tandem with optical character recognition (OCR). an extension of their standard just in time for payment. To take payment terms. This allows them to advantage of early payment Best-in-class buyers use Purchase improve their own working capital discounts, this needs to change, but Order-based invoice matching for position (through increasing Days that doesn’t have to be a big deal. materials and supplies, and contract- Payable Outstanding or DPO) without There are accepted, industry-standard based matching for exceptional or impacting the financial stability of processes and tools available to assist recurring items such as utility bills, their suppliers. with up-front approval, with the rent, maintenance and one-off large
42 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 projects. This removes much of the traditional on-boarding interactions longer standard payment terms once approval effort from invoice approval; with suppliers, and particularly in EDI an early payment option is available when an invoice is received it is a and electronic invoicing, where too to their suppliers. simple task to match against the much ‘stick’ and not enough ‘carrot’ Businesses that process large numbers original agreement. This can be was used to force suppliers to comply of invoices, and from a large supplier automated partially or fully, and with unilateral, proprietary base, will benefit greatly from the current best practice shows that over initiatives. However, the offer of early improved processing efficiencies. For 90% of purchase invoices can be payment is seen as a very attractive them, removing the overhead of automatically approved without carrot by suppliers, and is a very good capturing and approving large manual intervention. Benchmark reason for them to engage in a buyer- volumes of invoices will return figures show that this can save 50% or led, standards-based campaign which significant value. more of purchase invoice processing provides significant services and costs. benefits to all parties. A specialist The buyer will need to set aside service provider will have enough cash to finance a portion of The benefits of streamlining methodologies to deal with supplier their payables. As a rule of thumb, the the invoice capture and engagement. buyer will require a cash float to cover approval processes are: the standard payment terms for all Supplier self-service portals are participating suppliers. Where all essential if your programme is not 4Making the majority of purchase going to consume whatever savings suppliers – or all high-value invoices available for early payment you have made in AP. A portal will suppliers – participate, this float could immediately allow suppliers to check the status of be sizeable, so there are additional invoices online; view and resolve any mechanisms that can be put in place 4Drastic savings in the cost of issues and disputes with their to prevent the float impacting on processing invoices invoices; get quotes for early important working capital ratios. 4 Greatly increased visibility, control payment; and manage the discount The buyer may choose not to self- and predictability of invoices and and payment request process finance, or to partially self-finance. If payments themselves. they want to incorporate external financing, they will need access to Getting started What type of company will funding partners, who could be Implementing an Early Payment find this useful? banks, corporate treasury operations, Discount programme with your Savings from Early Payment Discount private equity, etc, who are prepared supplier base is quite straight-forward. programmes are typically expressed as to finance early payment on invoices With an opt-in early payment model, a percentage of total procurement once they have been approved by the where the supplier offers a discount spend. The best-in-class company buyer. for early payment on an invoice-by- with 60-day payment terms will see a invoice basis, early payment can be reduction of up to 5% of total spend – Conclusion made even with existing purchase that being the total discounts received Early Payment Discount programmes agreements. from all suppliers. As such, any and Supply Chain Finance provide Online tools will manage all of the company can benefit from an EPD opportunities to improve supplier dynamic discount calculations, programme, and the more you spend, stability, working capital and bottom- present all of the necessary the more you save. The saving is line returns. Processes and tools are information to the supplier, and related to the total spend amount, available to coordinate the supplier manage any additional Terms and rather than the number of invoices or base, to share information between Conditions that cover the early suppliers. Obviously, having all of buyers and suppliers, and to payment and the discount elements your suppliers involved in the coordinate and audit the payment of of the transaction. They will also programme, or at a minimum your invoices using a variety of funding manage your reconciliation of highest-value suppliers, is important. sources. An integrated approach gives payments, discounts, bank and The potential saving is also related to significant financial returns to both accounting information. your standard payment terms. The buyers and suppliers alike. Supplier engagement may be seen as longer they are, the greater discount an inhibitor by some buyers. There is you can receive for early payment. Padraic Moran is Managing Director of a left-over impression from Some buyers will choose to introduce Lighthouse BCS. www.lighthousebcs.com.
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 43 Financial Services Jobs in Financial Services Opportunities at all levels for candidates with the right skills
By Emer Murphy, ACA
Compliance, risk and regulatory are amongst the areas where there are currently opportunities for Chartered Accountants.
With words such as recession, tax hikes, the budget, unemployment Where is the activity? Skillsets in Demand and the bailout on everyone’s lips, 4 one might assume that the jobs It may seem counter-intuitive that Regulatory there is such movement within the market is also in the doldrums. 4Risk (Operational, Credit & Market) Thankfully, all is not as it may appear! financial services sector given the current economic climate. However 4Compliance It is fair to say that the market is tight, the current climate has brought with 4Audit (Internal & External) that searches on average are taking it demand for accountants to focus on 4 longer than before and that certain specific areas. Financial Control employers are being more specific 4Treasury (Funding, Liquidity & about required skill sets. However, we As mentioned above, there has been a ALCO) have seen plenty of opportunity for particular focus in the areas of movement within financial services compliance, risk and regulatory. This 4Leveraged & Corporate Finance over the past 12 months. has been driven by economic 4Insurance circumstances and by increased After a slow start to 2010, recruitment scrutiny from the Regulator. 4Quantitative Disciplines activity has steadily gathered Candidates with these skill sets are in momentum with a continuous flow high demand. As close scrutiny of the in demand for accountants within the sector will continue over the coming sector. Opportunities have been at all Who’s hiring? levels, from recently qualified years, demand in this area is likely to accountants through to very senior continue to grow. We have seen demand in all areas of board level hires. We expect to see a the financial services market and are continuation of this trend in 2011. Other areas where we have working with clients hiring in the following areas: We have identified two clear spheres seen strong demand are: of recruitment activity within the financial control, internal audit, 4Insurance (General, Life & sector at present: financial planning and Reinsurance) 4 analysis, leveraged and 4 Internationally focused businesses – corporate finance, treasury Banking (Primarily Middle & Back these companies are typically and taxation. Office) growing again and have been 4Fund Administration actively recruiting. Companies have also been hiring to 4Start-ups 4Domestically focused businesses – it backfill roles vacated by existing is still a challenging time and employees who have made internal 4Leasing recruitment activity continues to be moves to focus on specific 4Big 4 Accountancy Practices relatively slow. Where there is requirements/projects. Clients are (Financial Services Audit & Risk / activity the focus has been on roles hiring externally to meet these Compliance Advisory) supporting financial control, specific project requirements also, regulatory, risk, internal audit and especially given that many such roles The Regulator has also successfully compliance requirements. require specialist expertise. hired some excellent staff over the
44 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 last 12 months. In addition some This year we have also seen more international financial institutions long-term 12 and 18-month contracts Interview Preparation have sought accountants coming on offer. Many of these contracts With strong competition for roles, from the Irish market. have been related to long-term making the right impression is more business requirements but have been important than ever. offered on a contract basis due to Insurance head count constraints. Many have Do... good prospects of permanency. ... Research the company (financial The insurance sector is one that we In general these long-term contracts information, etc.) have noted as being particularly have been viewed positively by ... Map your skill set to the required strong. In addition to the well-known candidates, who feel that 12 or 18 competencies incumbents a number of new players months is a reasonable length of time have entered the Irish market over the to gain valuable experience and ... Prepare your pitch well (sell your last few years. Many of these new strengthen their CVs. There is also the skill set) entrants have chosen Ireland as a expectation that the market will have ... Show enthusiasm , interest, location to headquarter their group improved further in this timeframe. hunger operations, thus bringing with it There has been continued steady greater certainty regarding their ... Be punctual and wear business demand for accountants on a contract commitment to Ireland as a location attire and interim basis to cover particular and the likelihood of continued projects, busy periods, maternity growth in the sector as their Don’t ... leave cover, backfill requirements, etc. operations here expand. Candidates ... Be late with insurance experience are highly ... Be unprepared sought after at present. Remuneration ... Give ‘yes’ or ‘no’ answers ... Ramble In some areas, such as insurance, we International have seen modest salary increases in ... Be negative about previous opportunities 2010. Some companies have also positions recommenced bonus payments. A new trend has emerged recently However, for some in the banking with a number of oversees banks and sector, remuneration levels have Make the interviewer’s job easy by financial services companies looking remained static since 2008. being well-researched on the company to source strong accountants from the and the role and by having relevant Irish market to meet their growing For those moving roles we have examples at hand of when you have demands. We have been specifically typically seen small salary uplifts demonstrated the skills and engaged to conduct searches here for although in general the motivation competencies that they are looking roles at all levels within the UK for moving has not been financially for. Remember an interview is an market. In the main these driven. It has been driven by the opportunity to sell your skill set and opportunities are London and desire to develop and broaden what you can offer. It is important to Channel Islands based. experience and/or to move to a role with long-term developmental emphasise anything that will make opportunities. you stand out positively from the competition. Employment basis
Employers are hiring on a permanent, Job security is becoming an contract and interim basis. We have increasingly important factor to Outlook for 2011 seen the return of good demand for candidates when making a Overall the recruitment outlook for candidates on a permanent basis. move. 2011 within financial services is Employers appear to have more positive. We expect to see continued confidence about the future and are demand across all sectors with areas keen to attract strong candidates who Advice for those such as risk, regulatory and will develop with their companies considering a move compliance being particularly strong. over the longer term. Competition for opportunities You might expect me to say it, but it is From an employer’s perspective with remains very strong. Time invested on important to use a reputable recruiter. the return of competition for strong preparation is key. Be well prepared in candidates, companies have seen the advance of any interview. Your CV need to offer roles on a permanent should be tailored to the specific basis in order to attract candidates requirements of the role so that at a with specific skill sets or those who glance the prospective employer can Emer Murphy, ACA, AITI is a Recruitment are a particularly strong match to pick out the relevant skills that they Manager with FK International specialising in Financial Services and Taxation Recruitment. their requirements. are searching for. Email: [email protected]
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 45 Credit Union Audits Credit Union Supervisory Committee Reports Auditors’ Reporting Responsibilities
By Nigel Anderson, FCA
Where a Credit Union Supervisory Committee is not functioning as it should, that gives rise to a reporting obligation for the auditor as Nigel Anderson explains.
Supervisory Committees are a vital findings of the Committee. If the be brought to the attention of the part of the internal control and Committee is not functioning as it Directors in the management letter governance of Credit Unions. Their should, or if its examinations and and also to the attention of the importance was recognised as such in report are inconsistent with the members by way of the Supervisory the Credit Union Act 1997 which set auditors’ work, they need to report Committee’s report which should out their statutory duties and made the matter to the directors in their accurately reflect the work carried out their annual reports the only ones management letter and copy it to the and identify and explain any that must, by statute, be made in Financial Regulator/Registrar of omissions. writing to the members at the Annual Credit Unions as part of their As a member of a Credit Union, I General Meetings. reporting responsibilities under would place great reliance on, and Section 27C, CBFSAI 2004 – Copy of Despite this, Supervisory Committee take comfort from, the work of the Communications with management. reports tend to follow very much a Supervisory Committee. Similarly, as ‘boiler plate’ wording. I believe this a Regulator, I would place reliance on can under-represent the importance The auditor has a duty to the proper working of such a control and onerous nature of the identify and resolve any and would take a poor view if its Committees’ responsibilities. inconsistent information in the deficiencies were not brought to my attention. Section 60, CUA 1997 requires the Annual Report Supervisory Committee to make a Section 122, CUA 1997 requires the written report to the AGM on the Deficiencies in the Supervisory auditor to report forthwith defects in results of its examinations and Committee’s work or in its reporting the accounting system or system of enquiries on its: of failings by management also need control of the business. Deficiencies to be brought to the attention of in the Supervisory Committee 4 Twice yearly examination of books members. The auditor has a duty to functions or reporting would fall and all records relating to loans; read the other information in the within this category. 4 Comparison of 10% of pass books Annual Report and identify and If, as auditor, you have signed the with records; and resolve any matters that are audit report and not brought defects inconsistent with his knowledge (ISA 4 how it has ascertained that all to the attention of the Directors , I 720). actions and decisions of officers suggest that you take advice and (directors, committee members ISA 700 states that the auditor should inform the Regulator forthwith under and employees) are in accordance not date the audit report earlier than Section 122, send a supplementary with the law and the rules. the date on which those charged with management letter to the Directors governance have approved all other and copy it to the Regulator. You will information in the Annual Report also need to consider your Auditors’ Reporting and the auditor has considered all the responsibilities to the members. Obligations evidence. It is not a defence that the information was not available at the Nigel Anderson, FCA is head of Quality time of signing the audit report. Assurance for the Chartered Accountants Auditors would recognise the Regulatory Board. The views expressed in this importance of the control function Again, if the Committee has not fully article are personal and do not necessarily reflect the views of the Quality Assurance and pay close attention to the complied with its duties, this needs to Committee.
46 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Management Information for Hotels How a system developed in the USA could assist Irish operators
By Con Quigley, FCA and Patrick Angwin
Con Quigley and Patrick Angwin describe an internationally accepted template for producing hotel accounts. Most large branded operators use this system but smaller hotels are missing out on some real benefits by failing to adopt it.
The Uniform System seeks, as its under management contract by Background name suggests, to implement a larger, established operators. standard accounting method for the However, many Irish hotel owners The first Uniform System of Accounts hotel trade. In particular it seeks to and/or managers are either not for the Lodging Industry (the identify the profitability or otherwise familiar with the Uniform System or Uniform System) was produced in of the separate operating departments have not yet implemented it. 1926 by the Hotel Association of New that make up the typical hotel. In York City. More recently, order to do this, it sets out how responsibility for producing editions Many of the hotels built in certain items should be treated – of the Uniform System has been the Ireland in recent years were specifically in relation to the responsibility of the American Hotel driven by tax incentives rather allocation of revenues and expenses & Lodging Association (AHLA). than by sound business plans; to their correct department. Although clearly US-originated and to as a result many new owners Historically, this departmental some extent a US-centric system, the do not have access to analysis was in keeping with the 9th edition – produced in 1996 – professionally trained and delegated responsibility (in larger allowed international contributions experienced management. hotels) for each operated department for the first time, including some by to a departmental manager who was the British Association of Hospitality accountable for its revenues and costs. Barriers to implementing the Uniform Accountants (BAHA), illustrating the System include : global impact which the Uniform The Uniform System is widely and System has achieved. The current commonly used in internationally 4 a (misguided) assumption that it is (10th) edition was released in 2006. branded hotels and those operated complex to implement, when in
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 47 Hotel Accounts
fact it follows a very simple and The Uniform System underpins a USALI Summary Operating Statement logical structure that can be disciplined approach to producing implemented in more or less detail clear, usable management € as appropriate for different types of information which in turn leads to Revenue establishment; more effective management. It provides good, clear analysis on the Rooms x 4 a belief (again misguided) that the profitability of each key element of system has been designed by and Food and Beverage x the business. for large-scale operators and is not Other Operated Departments x suited to smaller hotel operations. Hotels – including smaller hotels – One of the main advantages of the need to be aware of the difference Rentals and Other Income x Uniform System is that it provides between so-called ‘operated Total Revenue x a framework that can be applied to departments’ (departments such as a greater or lesser degree of detail rooms, food and beverage that generate revenue) and ‘non-operated according to the type and scale of Departmental Expenses operation; departments’ (those that do not generate revenue, including Rooms (x) 4 a lack of understanding of the administration, sales and marketing) benefits of adopting the system; Food and Beverage (x) and their relative cost burdens. 4 a lack of resources (especially hotel Other Operated Departments (x) The allocation of costs, especially accountancy professionals) and a payroll costs, can have a significant Total Departmental Expenses (x) lack of professionally trained and impact on determining the financial suitably experienced senior performance – possibly even the managers to drive the process. financial viability – of a given Total Departmental Income x Often these smaller operators rely on department. Hotels that do not general accountants to produce their properly analyse and allocate payroll Undistributed Operating Expenses
Administrative and General (x)
Sales and Marketing (x)
Property Operations and Maintenance (x)
Utilities (x)
Total Undistributed Expenses (x)
Gross Operating Profit x
statutory accounts but do not have costs to the correct department as a Management Fees (x) access to any real management matter of course will often find when information. they go back and apportion them correctly that one or other Income before Fixed Charges x department has been loss making for Advantages a significant period of time without management even realising it. Fixed Charges
With the exception of limited service The Uniform System ensures such Rent (x) hotels, most hotel operations, costs are correctly allocated and including small hotels, are by their Property and Other Taxes (x) highlights the difference between the very nature relatively complex cost of making the sale and the other Insurance (x) businesses comprising a range of costs of running each department. smaller sub-businesses: rooms, Fixed Charges (x) restaurants, conference and The Uniform System can provide an banqueting, leisure facilities, and so early warning of impending problem on – each with their own revenue areas, aid budgeting and long-term Net Operating Income x streams, staffing and other cost planning and support good strategic structures. Without effective decision making. Moreover, when management accounting systems, communicating with the bank, use of Less: Replacement Reserves (x) many operators simply do not know the Uniform System can show that how well the different parts of their management properly understands Adjusted Net Operating Income x businesses are performing. and is in control of its business.
48 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Implementation the biggest issues facing hotels is a lack illustrative purposes. This illustrates of effective management information. how clearly the Uniform System Adopting the Uniform System will help Although the Uniform System is presents financial information for each operators’ under-stand how their straightforward to implement, the steps operating department for management business is working (or not as the case involved in adopting it from scratch – which is useful for industry may be), and allow them to manage can be quite a challenge requiring a benchmarking, internal analysis and their way more effectively through the certain amount of careful planning. The decision making. current difficult times. Use of the first step should be to invest in a copy of Uniform System can also help retain Use of the Uniform System assists the the 10th edition, which can be the support of the banks and the purchased directly from the American identification and reporting of relevant industry as a whole by demonstrating a Hotel and Lodging Educational KPIs and the benchmarking of more professional approach to Institute, from your favourite online individual hotel performance against management information. The retailer or even through your local industry surveys such as the Horwath grouping of revenues and costs in line bookshop. Thereafter, there is much Bastow Charleton Ireland and Northern with the Uniform System facilitates and information and advice available online is consistent with the presentation of a Ireland Hotel Industry Survey. The or you may wish to get professional true and fair view of the results of a Horwath survey, like all professional advisors to help you through the hotel business under IFRS. While the surveys in the industry worldwide, process. Even if you ultimately choose P&L formats required under Irish collates and reports its findings in line not to adopt the Uniform System, it is a Company Law are very prescriptive and with the Uniform System – making it good idea to clearly track payroll broken by their nature are intended to be easier for more smaller hotels to down by department and to make sure sector-neutral, the structure of the participate in surveys, thereby you understand the difference between Uniform System ties directly into the facilitating clearer measurement of how what should be defined as ‘cost of sales’ presentation of Gross Profit and the industry as a whole is doing. and what should not. Operating Profit for Company Law
purposes and is easily prepared from the Con Quigley, FCA, is the Managing Partner of same trial balance groupings without Horwath Bastow Charleton in Limerick and Chairman of Horwath HTL London. Benefits for Hotels any reclassifying journals or Email: [email protected]. adjustments. We have included a Times are tough for the Irish hotel template P&L in the Uniform System Patrick Angwin is a Senior Advisor with Horwath HTL in London. market; there is no denying it. One of Statement of Income format for Email: [email protected]
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 49 History of Accounting
That’s Summa Story! From the caves to Cafe Pacioli
By Derry Cotter, FCA
Accountants are generally recognised were exchanging their surplus for One is reminded of the Andaman as making a valuable contribution to commodities owned by different cave Islander, carrying his surplus possession society, by providing the information dwellers. This exchange, which to the marketplace and waiting there, that allows entrepreneurship to constituted a form of barter, was the sometimes for days, in the hope of flourish, business to operate first step in the development of a finding another trader who wanted his efficiently, stakeholders’ interests to system of commerce.1 goods and had something of equal value be protected, shares to be fairly which he in turn wished to have. Record keeping is thought to have priced, and taxation and audit begun around 4,000 BC in Babylonia Traders therefore began to seek a unit requirements to be satisfied. 2 of value, or currency, in which the Accounting, however, has not always and Assyria. Chatfield describes the enjoyed such an established position, Babylonians as obsessive bookkeepers, worth of all commodities could be 1 and today there is often a tendency to with records being kept by scribes, measured. Woolf observes how the take our profession’s status for who are regarded as the predecessor of Lydians are credited with the granted. It is interesting, therefore, to today’s accountants. Hundreds of invention of coinage around 900 BC, examine the factors that have scribes were recruited by the and how gradually this became the brought accounting to the governments of Babylonia to record common unit of currency. Paper preeminent place that it occupies the collection of taxes, which were money was invented in China at the today. paid in the form of cereals, cattle and end of the 8th century AD. other farm commodities. Our story begins in primitive times, A system of numeration was then when cave dwellers collected enough Although barter remained popular as required. Woolf recalls Sir Francis food to satisfy their daily a method of exchange, its limitations Galton’s travels of Africa where ‘… he requirements. Before long, the more soon became apparent. For a trade to found men from whom he was enterprising among them would set take place the parties needed to want required to buy one sheep at a time, aside some for future use. In effect what each other had, and the items because they could not understand that was surplus capital, and it needed to be of similar value. that for two sheep, at two plugs of represented the first step towards the Chatfield describes the dilemma tobacco each, he must give them a accumulation of wealth. Soon, they vividly: lump sum of four plugs of tobacco.’
50 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 It was common at that time to Arithmetic, Geometry and revolution in the 19th century. The UK represent numbers with pebbles Proportion). The Summa contained Joint Stock Companies Act of 1844 arranged in sets of ten, a practice the first printed description of double provided access to incorporation, which which was to lead to the invention of entry bookkeeping, and facilitated by had previously been possible only by the abacus. Although these pebbles improved literacy levels, and the royal charter or by private act. This provided the stepping stones for the invention of paper two centuries resulted in the widespread separation of advancement of accounting, earlier, the Summa was translated into ownership from control, and with most Chatfield describes how the five languages as the Italian Method companies adopting double-entry backwardness of accounting systems spread throughout Europe. bookkeeping after 1850, the used by the Greeks and Romans can preparation of financial statements for be attributed to their methods of shareholders bolstered an emerging numerical notation. These methods Although double-entry accounting profession. The importance were inferior partly due to the large bookkeeping facilitated the of double-entry bookkeeping at that variety of symbols used for numbers move from a feudal to a time cannot be overstated, some even (the Greeks, for example, used twenty commercial society, its use controversially viewing its existence as a eight). A second problem was that the was limited mainly to prerequisite for the spread of Greeks and Romans failed to summarising accounting capitalism.4 represent the value of a number by records, and bringing order to reference to its position in relation to the venture accounts of The accounting profession continued to other numbers. Thus, as numbers business merchants. expand during the following decades, could not be added like Arabic with 1888 being a landmark year, numbers, there was little point in marking the foundation of the Institute arranging amounts in columns. As No effort, however, was made to match of Chartered Accountants in Ireland. Chatfield points out, without a income with the expenditure incurred Accounting succeeded in establishing columnar separation of receipts and in creating it, and consequently there itself as a conservative discipline, its payments, giving rise to the concept was no clear concept of profit, nor any primary function seen as the recording of debit and credit, double-entry means of evaluating the performance of of business transactions and events, and bookkeeping was not possible. a business over time. Given the lack of the provision of reliable information on outside investment in firms, there was firms’ performance and financial This problem was overcome by the little external accountability and the position. development of Arabic numerals in production of financial statements was India by the Hindus around 600 AD. Throughout much of the 20th century, not considered important. Nonetheless, The most important event in the accounting maintained its traditional a knowledge of double entry history of accounting, however, role as an impartial and neutral bookkeeping was seen as promoting occurred in 1494, with the observer of the business world. Indeed, economic expansion at the beginning publication by Italian friar, Luca during that time, the entire corporate of the 16th century.3 Pacioli, of Summa de Arithmetica, world was benignly regarded as the Geometria, Proportioni et Accounting was to come centre stage primary driver of wealth creation. Proportionalita (everything about with the arrival of the industrial Employees and other stakeholders
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 51 History of Accounting offered unconditional loyalty to the could have a significant economic employers to replace defined- corporate ethos, and accountability was impact, and the perception of benefit pension plans with rarely an issue. Such a neutral role accounting as an impartial observer of defined-contribution plans. The provided accounting with little scope to the business world began to change. allegation related to the effect change, or to be regarded as a publication of FRS 17, Retirement discipline with the potential to have Benefits, which required that economic consequences. Economic impact of pension scheme deficits should be recognised immediately as a Zeff,5 however, explains how in the financial statements liability, rather than continue to be 1970s, society began to hold its amortised over the expected institutions responsible for the Today, it is widely accepted that service lives of employees in the financial statements affect overall consequences of their actions. scheme. An example was the link between wealth levels, and can lead to the re- asbestos and lung disease which, distribution of wealth between 4During the 2008 US presidential although established as far back as interest groups. There are several election, the Republican candidate, 1924, did not result in the first documented examples of the John McCain, blamed accounting’s fair value rules for contributing to the global financial crisis. Those concerns were echoed by Nicolas Sarkozy, who held the presidency of the European Union at that time. Amid falling stock prices, investment banking firms such as Lehman Brothers were forced to write down the value of their assets, spreading panic among investors, and triggering further falls in stock prices which led to a deepening of the crisis. 4When the IASB issues a new leasing standard later this year, it is expected that lessees will be required to include all leased assets and the associated liability in their balance sheet. This will result in higher gearing ratios, and in a lower return on investment ratio for lessee firms. The effect will be significant, for example, in the airline industry, where some carriers own few of the aircraft in their fleet. In terms of economic Image: Cafe Pacioli at Chartered Accountants House, Pearse Street, Dublin 2. consequences, the capitalisation of operating leases may result in successful litigation against an economic consequences of investors adjusting their share asbestos manufacturer until 1971. accounting standards, and some portfolios, leasing becoming less The late 1970s also saw an explosion examples are outlined below: attractive as a means of financing, of lawsuits in the United States. Huge and providers of goods and services awards were made against companies, reassessing the credit limits of resulting in an insurance crisis, as 4In 1975, the ASSC’s proposal in ED customers that make extensive use 14 to write off all R&D expenditure insurers refused to provide companies of operating leases. with an adequate level of product to expense provoked an angry liability cover. response from the UK aerospace industry, on the grounds that Consequently, as society demanded government funding was based on Conclusion increased accountability of its balance sheet asset levels.6 Under institutions, regulatory bodies such as Since the first known records were intense pressure to withdraw its the Financial Accounting Standards kept in 4,000 BC, accounting has proposal, the ASSC issued ED 17, Board (FASB) in the US and the provided the means for business and later SSAP 13, which permitted Accounting Standards Steering transactions to be recorded. The the inclusion of certain R&D Committee (ASSC) in the UK were development of Arabic numerals expenditure as an asset. increasingly judged on the economic around 600 AD provided the consequences of their rules. It became 4In 2000, the ASB was held partly foundation for double-entry apparent that financial statements culpable for the decision by bookkeeping, which was first
52 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 documented in Luca Pacioli’s Summa maintains that the technological Note in 1494. The industrial revolution of revolution has, in fact, given our A facsimile edition of Luca Pacioli’s Summa de Arithmetica, Geometria, Proportioni et the 19th century brought about the discipline a new-found standing. Proportionalita is held in the Chartered separation of owners and managers, Accountants Ireland library. Enquiries: [email protected]. greatly increasing the demand for ...... Once upon a time financial external accountability, and leading reporting was little more than just References to the development of today’s the figures … And then there was accounting profession. an evolution of information 1 Woolf, A. H. (1912). A Short History of technology. As soon as screens Accountants and Accountancy. Gee, London. The perception of accounting as an appeared on everyone’s desks 2 Chatfield, M. A. (1974). History of Accounting unbiased recorder of business everyone was involved in all of the Thought. Krieger Publishing Co. Inc. New York. transactions continued throughout business. Finance was no longer a 3 Eucken, W. (1951). The Foundations of most of the 20th century. Since the back-room function. Everyone had Economics: History and Theory in the Analysis of 1970s, however, there has been a been given the ability to Economic Reality. University of Chicago Press, Chicago. realisation that accounting participate. information also has the power to 4 Sombart, W. (1916). Der Moderne Kapitalismus, Munchen, Leipzig: Duncker and Humbolt. affect wealth levels in our society. Our story ends with a visit to the This impact is called economic beautiful new headquarters of 5 Zeff, S. A. (1978). ‘The rise of economic consequences, and it emphasises the consequences’, Journal of Accountancy 146 (6), Chartered Accountants Ireland in pp. 56–63. fact that accounting is a living Dublin. science that shapes and changes the 6 Gray, R. and Hope, A. J. B. ‘Power and Policy On the ground floor is the Luca Making: The Development of an R&D world in which we live. Standard’, (1982). Journal of Business Finance Pacioli restaurant, and considering and Accounting, Vol.9, No.4, pp 531–558. Throughout its history, accounting his influence on modern accounting, 7 has adapted to a myriad of changes, it is appropriate that such a place Bruce, R. Accountancy, Aug 2005. Vol. 136, Issue 1344; p 25. not least of which have occurred should be set aside where people can during the last century. Although socialise and debate the state of the economic influences have shifted world. Fittingly, the restaurant has and changed over time, as a two entrances, a detail that would no Derry Cotter, FCA is a lecturer in Accounting & discipline accounting has continued doubt have satisfied the great man’s Finance at University College Cork, and the author of the business novel, Great Eagle Wood, to increase in importance. Bruce7 reputation for exactness. published by Chartered Accountants Ireland.
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 53 GREAT VALUE FOR MONEY CPD COURSES
Chartered Accountants Ireland is proud to officially launch its 2011 CPD programme which introduces an even greater variety of courses across a wide range of career streams at dramatically reduced prices.
For information on our courses visit our website: www.charteredaccountants.ie/cpd Focus on Family Law Estate Planning Implications of the Civil Partnership Legislation
By Cormac Brennan
The recently enacted Civil Partnership legislation marks a watershed in Irish family law. Accountancy Ireland invited Cormac Brennan to outline some of the key changes.
In the current economic climate, Granatino1 has given further weight to creates rights broadly similar to the many individuals who remain of the enforceability of pre-nuptial rights under a marriage in the event significant net worth are taking agreements, and that ruling is of a dissolution of the Civil advantage of lower asset values in persuasive under Irish law. Therefore, Partnership. transferring assets to their children, entrepreneurs who wish to pass However, the part of the Act that has with reduced taxation costs in the business or other assets to the next caused most controversy is that part form of capital acquisitions tax, generation unencumbered by any dealing with certain rights accruing to capital gains tax and stamp duty. unforeseen divorce proceedings cohabiting couples, whether of the should take note of the potential of same or opposite sex, who are neither Loss of control is a major concern for pre-nuptial agreements to be an married nor civil partners of each individuals passing assets on to their effective means of protecting assets. children during their lifetimes, other. particularly where a family business is Prior to the Act, the legal position for involved. If their children should cohabiting couples was precarious. undergo marital breakdown in the Civil Partners and Cohabitants The length of a relationship or the future, there is a broad understanding time during which a couple resided that the Courts can make various and However, aside from the marital together gave them no legal status wide ranging orders in allocating position, there are also significant against each other and no legal rights assets between the spouses by way of implications arising out of the recent arose akin to those on marriage. Ancillary Relief Orders in any enactment of the Civil Partnership Therefore, on the termination of the separation or divorce. Orders for and Certain Rights and Obligations of relationship, the financially weaker Ancillary Relief can in some Cohabitants Act 2010 (the ‘Act’). That party could be left in a very circumstances be so substantial that legislation marks a watershed in Irish vulnerable position. one of the spouses may be forced to law and constitutes the most ground- hand over or sell significant assets, breaking piece of family law and particularly where assets have legislation since the introduction of Redress Scheme for been transferred by parents in the divorce in 1996. form of interests in a family business, Cohabiting Couples this can give rise to significant issues The Act deals with two distinct areas. Under the Act, automatic rights are for the business as a whole. First, it provides for the introduction of a registration system for same-sex not conferred on cohabiting couples. The uncertainty of the outcome of couples, affording them rights akin to Instead, the Act establishes a redress matrimonial proceedings can be married couples for property, scheme for certain opposite-sex and tempered to a degree by way of pensions, maintenance and same-sex cohabiting couples who are couples entering into pre-nuptial inheritance. Effectively, from the not married or registered in a Civil agreements, although the perspective of parents passing on Partnership. The redress scheme will enforceability of those agreements assets to their children who are in a act as a safety net for those vulnerable under Irish law remains uncertain. same-sex relationship and might cohabitants who are financially However, a recent UK Supreme Court formalise this by way of becoming dependent. The redress scheme may judgment in the case of Radmacher v civil partners, this part of the Act be activated at the end of the
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 55 Civil Partnership relationship, whether by break-up or the redress scheme on determination the Court is entitled to make death, and proceedings must be of the relationship, if they can prove provision from the net estate of the issued within two years of the end of financial dependence on the other deceased. the relationship, and are held in cohabitant arising from the private. A financially dependent relationship. If the Court is satisfied cohabitant can apply to Court for on the evidence, it can, if it is just and Conclusion certain remedies including equitable in all the circumstances to maintenance, property or pension do so, make certain orders as The current low value of assets, adjustment orders. On the death of a appropriate. cohabitant, provision from the estate particularly property assets, provides While the redress scheme is similar to of the deceased cohabitant may be an environment for tax-efficient relief that can be granted on a judicial made for the survivor in certain lifetime estate planning. Clearly, separation or divorce, it is much more circumstances. many considerations need to be taken limited. However, there is a into account when individuals are significant new power afforded to the Court under the Act to make property considering gifting assets to the next Cohabitation adjustment orders as between the generation. However, where there are Agreements cohabitants. Previously, a non- surplus assets, there are considerable owning cohabitant had no property tax savings involved in taking action The Act also makes express provision rights unless they had made a at this time. for the recognition of Cohabitation financial contribution to the There are a number of options open Agreements which regulate the shared property. However, under the Act, the financial affairs of cohabiting couples, Court can take into account to individuals in attempting to and enables couples to opt out of the contributions in the home, and the safeguard the assets transferred, in so redress scheme if they enter into such overall contribution to the welfare of far as this is possible. an agreement. This is an important the couple in determining whether a However, there is no absolute method provision for those couples who do property adjustment order should be of putting assets beyond the reach of not wish to have the redress scheme made. The Court has the power to a spouse in the event of marital imposed on them, and could transfer property from one cohabitant breakdown, and entirely new therefore be an important to the other. The Court also has the consideration for any individual power to settle property on one of the considerations now arise under the considering passing on assets to the cohabitants for their benefit or for the Act outside of the pure marital next generation in circumstances benefit of a dependant child, if in all situation, namely for civil partners where a child would be in a the circumstances it is just and and qualified cohabitants. cohabiting relationship that the Act equitable to do so. The Court can also Individuals should give careful would apply to. make pension adjustment orders and consideration to these issues in maintenance orders as between the cohabitants. advance of transferring assets to the Qualified Cohabitants next generation and legal advice Previously, on the death of a should be obtained in respect of cohabitant, the surviving cohabitant possible options, perhaps including It is recognised that there are a variety had no right to apply for relief from pre-nuptial agreements, pre-civil of categories of people who live their estate. While the Act does not partnership agreements or together, some of whom are not in an grant any automatic Succession Act intimate relationship. Those who live rights for cohabiting couples, it does cohabitation agreements. In together include siblings, friends and introduce provisions permitting a particular, where a transfer of a family other combinations. The Act provides qualified cohabitant, after the death business is involved it is common for that only ‘qualified cohabitants’ can of their partner and within six the transferees to enter into pre- apply for relief under the redress months of the Grant of Probate nuptial (or post-nuptial) agreements scheme. issuing, to make an application to in addition to shareholders’ Court for provision out of the net Qualified cohabitants are defined as agreements. The same issues should estate. In deciding whether or not to two adults of the same or opposite sex now be considered for civil partners make an order in favour of the who live together in an intimate and and cohabitants under the new applicant, the Court must have regard committed relationship, and who are legislation. to the rights of any other person who not related within the prohibited may be affected by the order and the degrees of relationship or married to conduct of the applicant (if relevant). each other or civil partners of each If the Court is satisfied that proper other, and must have been residing provision in all the circumstances was Notes together for a two-year period where not made for the cohabitant during 1 [2010] WLR (D) 260. there are children, or a five-year the lifetime of the deceased period where there are no children. (including by way of pension, A qualified cohabitant can apply to property and maintenance orders Cormac Brennan is a solicitor in the Private the Court for financial relief under available under the redress scheme), Client Group of McCann FitzGerald Solicitors.
56 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1
Tax Policy Not ‘MORE’ but ‘BETTER’ Regulation The importance of balancing the needs of all stakeholders
Defending what Ireland got right is as important as correcting what we got wrong, Liam Lynch, FCA told delegates at a recent conference on regulation. Mr Lynch is a Partner with KPMG and chairs the Tax Committee of the Consultative Committee of Accountancy Bodies – Ireland. In a powerful and well-received address responding to remarks by the Chairman of the Revenue Commissioners he put forward five practical suggestions to simplify the tax code. His remarks are carried in full below.
Good morning. My thanks to the must remember as well that we got a Chairman of Revenue, Josephine lot right. It is interesting to note that a Feehily, for her comments. significant element of the recent international debate on Ireland’s There is a cold wind blowing from the economy has been about east, and it is bringing not just snow! undermining something that we have The chant is out there, we need more definitely got right – the 12.5% regulation, everything needs more corporation tax rate. Through both regulation, everything needs more high profile and behind the scenes governance, we need more data. work by politicians, public office holders and concerned public interest Actually what we need is better organisations, not least Chartered governance, better regulation and Accountants Ireland, we have better, more understandable safeguarded this. We need to defend information (rather than data). In all the other things we have got right of this I believe that the Chairman with the same level of intensity. and I are in agreement. That the first solution to any problem is to appoint a commission, or a committee, or a Why Regulation? Liam Lynch, FCA regulator is a worrying tendency. Chairman, Tax Committee Consultative Committee of Accountancy Bodies Now, don’t get me wrong, there is a We have regulation for a very simple Ireland (CCAB-I) need for institutional reform in reason – to protect what is important several areas, but this does not mean in society. If regulation starts to harm Year Plan. I know that the Revenue simply adding additional that society, or unduly protects one Chairman has been keen to point out requirements – often it means tearing part over another (even where that is the strides that Revenue has made in down at least part of what is there Government interests over private the simplification process and the and improving from the ground up. sector interests, or the interests of the removal of barriers to doing business We need better, which is not consumer at the expense of fiscal in Ireland, but there is much more necessarily the same as ‘more’. responsibility), then regulation needs that can be done. It is not possible to rest on the laurels of the Revenue There is a lot of talk at the moment to be rethought. There are few things Online Service (ROS) which, while an about what we have got wrong in worse than a useless piece of excellent system, is not a substitute Ireland, and that is understandable. regulation which merely serves to for real simplification and However, and although it is no obstruct without discernible benefit elsewhere. administrative reform. excuse, we are not alone. When we look past the rhetoric and through to The commitment by Government to a As Adam Smith pointed out, in order the fundamentals we are probably 25% reduction in red-tape and for a tax system to work properly, it neither significantly worse nor unnecessary complication for must be simple to understand and appreciably better than most. We business was reiterated in the Four operate. I take this as meaning it
58 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 should be simple to understand and Today I am concentrating on how This is one for our elected operate both for Revenue and for things can be made simpler for representatives rather than taxpayers. ROS has certainly taxpayers in such a way that there is 2 Revenue – the UK are now simplified matters for Revenue, but it either a saving for Revenue, or at the suggesting that Finance Bill is not clear that it has had the same very least a neutral outcome, and in scrutiny should be improved by positive impact for taxpayers. I such a way that does not undermine having a Joint Cross-Party appreciate the need for simplifying the integrity of the tax system as it is Committee on Taxation. This the process from Revenue’s side and, constructed. I will limit myself, due to looks like an idea which could, I in particular, the need to become time constraints, to just five believe, greatly enhance the more efficient in the current suggestions: usefulness of the Finance Bill environment. This efficiency however process in the Oireachtas. That must be achieved through real Stop introducing everything at process often suffers from being simplification for everyone, and not the last minute in the Finance rushed and truncated. by simply shifting the burden towards Bill – there is no reason why 1 Extend the self assessment the taxpayer. significant legislation cannot be process as widely as possible. For produced well in advance and Some cynics might quip that we, as a example, it could be introduced be subject to a full transparent 3 profession, should be happy with this for various treaty reliefs, such as consultation process. True, this as it would mean more fees for our from withholding tax on has begun to happen more in members. That is false economy and royalties. It would be much it is not good for the business, and in recent years, but not to a simpler from both the particular the businesses that will get sufficient extent. It is always taxpayer’s perspective and from us, and indeed are getting us, out of more difficult to make Revenue’s to leave this in the this recession. We all prosper where appropriate changes to normal self-assessment system business in freed up from bureaucratic legislation after it is enacted. or, at most, to have a report of impediments – the job of regulation is This really should be more such payments in the annual to impose wider controls to protect straightforward in the context tax return. everyone from excesses. If regulation of a Four-Year Plan where all of does not demonstratively do this, the important fiscal measures The self-assessment regime has then it is useless and should be are set out in advance. And who been hugely successful, and is a scrapped. knows, it may be habit forming. model of good regulation. In a
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 59 Tax Policy
recent meeting with the EU a simple report, maybe even less representation at board level. Commissioner for Taxation, Mr than a page long, that should be However, Revenue must understand Semeta, he mentioned self- published within one month of that tax is a cost to business. Not only assessment as an example of a decision being formed. This light touch regulation – which is would eliminate a lot of that but the cost of administering all a worrying indicator of that cold needless speculation on the various tax obligations is a wind from the east. Self- interpretation by taxpayers and relatively expensive exercise. The assessment has worked because practitioners, together with the benefit to be obtained by a tax must of the combination of clear rules attendant queries to Revenue. be greater than the cost to administer and clear penalties, and the The current non-transparent it, and that is not just the cost to public confidence it has system has no place in a modern administer it by Revenue but also the engendered. It is the classic democracy. cost to administer it by the businesses carrot and stick. The alternative affected. Equally, the benefit of a as practised in many other reporting requirement must not place jurisdictions is constant tax What of governance? too great a burden on a business audits that focus on petty relative to what is achievable through details. In my experience, I have So much for better regulation, what that requirement. The purpose of to admit that the Irish Revenue about better governance? are better than many, if not good corporate governance is most, in this regard. Indeed, our There are clear, demonstrable, links primarily to manage the company system has served us well as a between good regulation and good effectively, and to manage the various nation, and we have levels of governance of companies. stakeholders. Not all stakeholders tax compliance that are high by It is increasingly accepted that a have the same objectives. Good international standards. We company’s approach to managing its corporate governance is about should protect and enhance it as tax affairs needs to be considered and balancing these competing objectives. one of the good things in the set by the board itself. The Revenue It’s not about satisfying one to the Irish system. Chairman and I are, I think, ad idem detriment of the others. The introduction of new on this point at least. This acceptance reporting rules should not is clearly driven by the risks associated 4always simply add to existing with getting it wrong – the other side Good regulation and rules. Ultimately this just of the self-assessment system mentioned earlier. The risks include good governance are increases the level of reporting intrinsically linked to unsustainable levels. For financial penalties and reputational example we are shortly to have a issues, both with Government and Regulation that makes sense mandatory reporting regime with the general public. encourages good governance. Bad, which extends much wider than The proper place for the tone to be set pointless or overbearing regulation any matter that could be for an organisation is indeed at board considered tax avoidance in any level, rather than at any sub- engenders a more negative attitude sense of the word. At the same committee such as an Audit towards governance. There is a happy time the requirement to report Committee or a Risk Committee. balance that can probably only be potential tax avoidance Indeed, given that risk is what drives found through some trial and error. transactions remains under the level of profit (or loss!) in an We do need to improve in many Section 811A. By definition, organisation, it is an integral function areas, but it is important that the cold anything reportable under of the main board rather than wind from the east does not push us Section 811A will be disclosed something that may be delegated to too far in the other direction and under mandatory reporting, so anywhere else in an organisation. force us to drop the things that are why have two reports? I have Tone is only ever set from the top, working well for us. The east may yet to hear a convincing and the principles of good corporate from time to time benefit from a fresh argument for retaining both. governance must become second breeze from the west! We need timely and relevant nature to each and every member of information on decisions of the the board of directors. Any rules on The Chairman and I agree on at least 5Appeal Commissioners. corporate governance must only aim some of the principles – but there is a Interpretations are being to create and reinforce this sense of lot of work to be done on the details. formed, and the only people responsibility as an integral part of It’s about time we really got started. that know the outcome are how a company is governed, and Self-flagellation has no place in a those closely involved. There must not become simply a box ticking mature discourse about the has recently been what can only exercise. This is as much an establishment of a sustainable future. be described as a half-hearted educational process as it is a question attempt to provide some reports of form. It must operate in substance Thank you. on these proceedings, but these and, as far as tax is concerned, the are both late and over- strategic and risk issues facing an Liam Lynch, FCA is a Partner with KPMG and complicated. What is needed is organisation must have some direct chairs the CCAB-I Tax Committee.
60 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Legal Professional Privilege An Irish practitioner’s perspective on the UK Court of Appeal Decision in Prudential vs HMRC
By Mark Lonergan, FCA
Although Prudential v HMRC is a UK case and the Court of Appeal’s decision is not binding in Ireland, the outcome will be of interest to Irish tax professionals and their clients as Mark Lonergan explains.
The decision in Prudential v HMRC but are no less important today: in communications with any other provides a reminder of the differences order to obtain accurate and valuable person giving advice. It is a matter between the procedural protections legal advice, a client has to be able to of public policy as to where the afforded to tax advice given by put all the facts before its adviser bounds of the privilege should be accountants and lawyers. The case without fear that those facts may be and the position needs to be certain concerns the thorny issue of legal disclosed and used to its detriment. so that there is no ad hoc balancing professional privilege (LPP) and of competing interests; and whether particular information about Prudential's case 4if the privilege were extended, it is a tax scheme has to be disclosed to Prudential had been issued with a not clear to which kind of adviser it HMRC. The case has far-reaching section 20 notice requiring it to would extend since there is no implications for the boundaries of deliver documents which HMRC recognised profession of LPP and whether it extends to advice believed to contain information ‘accountant’ as such, and a on tax law given by suitably qualified relevant to its tax liability This substantial degree of uncertainty non-lawyers including accountants. included documents provided to could be introduced for advisers Prudential by its accountant advisers such as pension consultants. The in connection with a marketed tax Court considered itself bound by Background avoidance scheme. Since a taxpayer the previous case of Wilden Pump to need not comply with such a notice hold that legal professional In October 2009, the High Court where the information or documents privilege does not extend to any confirmed that taxpayers can only to be delivered are subject to legal professional other than a qualified obtain confidentiality against HMRC professional privilege, Prudential solicitor or barrister, or when advice is given by lawyers. sought to be able to claim legal appropriately qualified foreign Prudential appealed against this professional privilege in respect of lawyer. In any event, however, Lord decision, asserting that taxpayers these documents. Justice Lloyd concluded that he often obtain advice about fiscal could not accept Prudential's liabilities from accountants, and that Court of Appeal decision arguments even if the Court were such advice should be just as much The Court of Appeal dismissed not so bound. In his view, whether protected from disclosure as advice Prudential's appeal on the basis that: the scope of legal professional from a solicitor or barrister. The Law privilege should be extended is not 4the question of whether legal Society, the Bar Council and the a matter for the courts to decide – it professional privilege should be Institute of Chartered Accountants in requires legislation. England & Wales all intervened and extended to accountants by statute For the time being, therefore, legal made representations to the Court of has been addressed on a number of professional privilege remains the Appeal, however, in a unanimous occasions over the last 40 years or so and Parliament's failure to preserve of the lawyers. decision, the Court dismissed change the law, having considered Prudential's appeal. By confirming the scope of LPP, the the recommendations of several case puts tax lawyers and their clients responsible bodies, is not an Legal professional privilege at a distinct advantage when it comes accident; Legal professional privilege is valuable to disclosure, particularly in the in that it entitles clients to refuse to 4while Article 8 of the Human Rights context of what HMRC would call tax disclose documents or answer Act guarantees protection for avoidance schemes. Increasingly, the questions asked by HMRC. The correspondence with a lawyer, it ability to rely on relieving and principles of the privilege were first cannot be taken to require the exempting provisions depends on the established in the sixteenth century extension of that privilege to taxpayer's motive or purpose for
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 61 Tax entering into a transaction. A and it is now vastly different to the the US and New Zealand. There is a taxpayer will feel more comfortable original Elizabethan concept of model in the US in Section 7525 of having a frank and open discussion confidentiality. The courts are the Internal Revenue Code which and/or correspondence with his constantly highlighting that the applies common law privilege to lawyers about purpose and motive privilege is an essential component of communications between a taxpayer knowing that any such information/ the adversarial system and it should and any ‘federally authorized tax correspondence need not be be confined within certain limits. practitioner’. Hence all the disclosed. jurisprudence developed in relation The essential question for to legal professional privilege will Similarly, the application of statutory accountants is whether the privilege apply to tax accountants. tax clearances generally has a main can be extended to their work in the business purpose test and discussions tax arena on the basis that they are New Zealand’s Taxation Act has a on the content of those can be a essentially involved in an adversarial section allowing a taxpayer to claim a sensitive issue. Once again, dealing contest with the Revenue, and statutory right of non-disclosure for with the lawyers may be a more whether such an extension is certain tax advice contained in attractive option. This is hardly consistent with the aim to contain documents prepared by tax reflective of the realities of tax law as privilege within carefully tailored accountants. The objective in both practised in Ireland and the UK. limits to serve society. As society jurisdictions is to level the playing field for tax services provided by tax Tax professionals come from both the evolves so ‘privilege’ must change lawyers and tax accountants. accountancy and legal professions. and adapt. When the concept of Legislative intervention in Ireland Tax is neither pure accounting nor ‘privilege’ was being formulated in and the UK on similar lines would be pure law, both disciplines being common law the accounting most welcome. critical to the provision of tax advice. profession did not have the status The courts in this case are attempting that it has in modern society. In the (unsuccessfully) to draw a line tax arena – particularly in Ireland and between what constitutes the UK – it is the tax accountant’s accountants’ work and what advice to the taxpayer that is directly constitutes lawyers’ work in the tax concerned with the rights and consultancy arena. liabilities enforceable in tax law.
Legal professional privilege has What is needed is a legislative Mark Lonergan, FCA, is an Associate with evolved through the common law response such as has been adopted in Ormsby & Rhodes.
IPSASB Publishes Revised Guidance IAASB Proposes Standard Reporting to Assist Public Sector Entities on Greenhouse Gases
The International Public Sector Accounting Standards Board The International Auditing and Assurance Standards Board (IPSASB) has released an updated and improved version of (IAASB) has released for comment proposed new Study 14, Transition to the Accrual Basis of Accounting: International Standard on Assurance Engagements (ISAE) Guidance for Governments and Government Entities. The third 3410, Assurance Engagements on Greenhouse Gas Statements. edition of Study 14, which features links to many useful The proposed standard, ISAE 3410, has been developed resources, provides guidance on how to migrate to the through a robust program of consultation, including a series accrual basis of accounting in accordance with International of global roundtables and feedback received on an earlier Public Sector Accounting Standards (IPSASs), and is relevant Consultation Paper. to governments and other public sector entities, including international governmental organisations. ISAE 3410 addresses the practitioner’s responsibilities in identifying, assessing, and responding to risks of material The latest edition of Study 14 covers all 31 IPSASs, including misstatement, and contains illustrative assurance reports on first-time coverage of the five IPSASs issued in late 2009 and greenhouse gas statements. early 2010: IPSAS 27, Agriculture; IPSAS 28, Financial Instruments: Presentation; IPSAS 29, Financial Instruments: The proposed requirements and guidance also recognise Recognition and Measurement; IPSAS 30, Financial Instruments: that most engagements will be undertaken by a Disclosures; and IPSAS 31, Intangible Assets. In light of the multidisciplinary team, so they address the need for the much increased global knowledge and experience in assurance practitioner to integrate experts – in engineering or environmental science, for example – into various stages adopting IPSASs, the non-technical sections of Study 14 of the engagement. were also substantially improved. They now reflect the current state-of-the-art in adoption and implementation. The IAASB invites all stakeholders to comment on its proposals. To access the exposure draft or submit a The full text of Study 14 can be downloaded free of charge comment, visit the IAASB’s website at from the IPSASB section of IFAC’s Publications & Resources www.iaasb.org/ExposureDrafts.php. site: web.ifac.org/publications. It is available in electronic form only. Comments are requested by 10 June 2011.
62 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1
Tax not apply even though the cash is Even where the conditions of scheme or arrangement. This is a being effectively extracted from Y the charging provisions are highly restrictive condition; it is not Ltd, which is a close company. satisfied, there are additional sufficient that the shareholders of the company enter into, or are party to, It is also important to appreciate that limitations on the ability of the an arrangement or scheme; it must be the significant reduction test is Revenue Commissioners to the close company itself which does applied by reference to any trade or charge tax under the section. so (although of course a company can business carried on by the close only act through its directors or company at the time of the disposal. shareholders, depending on the Logically, the time of disposal must provisions.’ The only qualification is circumstances). Thus, under Scenario be determined by reference to the that it seems that S 817 (2) must be I, it is hard to see how A Ltd could be relevant CGT rules. Accordingly, it is read in the light of S 817 (7), as either treated as the moving force generally the date of contract or the discussed further below. behind the scheme or as a party to the date on which a conditional contract S 817(2) provides inter alia that the formation of B Ltd. Under Scenario II, becomes unconditional, and not the section is to apply: ‘for the purposes for example, even if Y Ltd could be date of transfer or conveyance, which of counteracting any scheme or shown to have been a party to a is the date of disposal. In the case of a arrangement undertaken or arranged scheme, this would be irrelevant, company which is being wound up, by a close company, or to which the since it is X Ltd which is the company there will be a separate deemed close company is a party, … the whose value has been realised in disposal on the receipt of each capital purpose of which, or one of the capital form. distribution. It follows that S 817 purposes of which, is to secure that S 817 (2) indicates that the section can cannot apply where the close any shareholder in the close company only apply where the avoidance of tax company has ceased to carry on any avoids or reduces a charge or under Schedule F is one of the trade or business prior to the relevant assessment to income tax under purposes of the scheme or disposal (subject to an express Schedule F ...’ exception in the case of certain arrangement. The better view is that holding companies). Therefore, under The first point to note is that there this restriction must be construed in Scenario I, it would not seem to must be a ‘scheme or arrangement’ in the light of S 817(7) (see below), matter whether it could be argued place. Neither the term ‘scheme’ or which provides a detailed mechanism that the trade previously carried on ‘arrangement’ is defined for the for the taxpayer to assert this defence. by A Ltd was subsequently carried on purposes of S 817. One typical The Revenue’s Guidance Notes by B Ltd (which would depend on a dictionary definition of a scheme is ‘a endorse this view, observing (without fuller analysis of the facts). This systematic plan or arrangement for further comment) that S 817(7) would follow because A Ltd would achieving a particular object or ‘... complements S 817 (2) in so far as not be carrying on a trade at the date effect’, while a typical dictionary it ensures that disposals of shares will of the relevant disposal(s), i.e. on the definition of ‘arrangement’ is ‘a only result in a charge to income tax receipt of capital distributions from structure or combination of things for by virtue of this section where they the liquidator. a purpose’. Given that S 817 (2) are part of a scheme or arrangement expressly refers to the purpose or to avoid income tax under purposes of the scheme or Schedule F’. Restrictions on arrangement and also envisages that it chargeability may be arranged or undertaken by the close company etc., it seems evident Exemption for that there can only be a scheme or Even where the conditions of the commercial transactions arrangement within S 817 where the charging provisions discussed above transactions concerned form part of a The test under S 817(7) is two- are satisfied, there are additional premeditated plan designed to secure pronged. Under the first prong, it limitations on the ability of the one or more specific objectives. On must be shown that the disposal was Revenue Commissioners to charge tax this analysis, if the sale of X Ltd to Y made for bona fide commercial under the section. It is accepted by Ltd under Scenario II was a single, reasons. The term ‘bona fide’ seems to the Revenue Commissioners (in the discrete transaction, it would fall mean no more than ‘genuine’, i.e. not writers’ view, rightly so) that S 817(2) outside the scope of S 817. Similar a sham. The term ‘commercial’ is (the so-called ‘purpose clause’) is considerations apply if it could be notoriously vague and tends to derive substantive in effect and is more than shown that the liquidation of A Ltd in its colour from its context. It seems to a mere interpretative aid. The Scenario I was not undertaken in the writers that given the general Minister for Finance justified the contemplation of the incorporation of thrust of S 817 it should be construed changes to S 817(2) effected by FA B Ltd. here in a broad sense, denoting a 2006 (which removed the implication genuine alienation of an interest in that the charge only applied to the Crucially, the scheme or arrangement the close company in order to realise a extent that the close company must have been either undertaken or financial advantage in pre-tax terms. concerned had distributable reserves) arranged by the close company which as replacing ‘words that have would otherwise have paid a taxable The second prong requires that it unintentionally enabled taxpayers to dividend or distribution, or else that must be shown that the disposal was circumvent the anti-avoidance same company must be a party to the not made ‘as part of a scheme or
64 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 arrangement the purpose or one of From a lawmaker’s perspective, S 817 Finance Bill Note the purposes of which was the suffers from over-particularisation. avoidance of tax’. Some guidance This creates a number of inviting At the time of writing, the Finance may be derived from the following blind spots for the taxpayer, rendering Bill was expected to pass all stages passage from Lord Upjohn in IRC v the section surprisingly toothless, by the 29th January 2011. Brebner 43 TC 705, albeit delivered in despite its menacing appearance. a different statutory context: Developments will be carried in the ‘... when the question of carrying out April issue of Accountancy Ireland. a genuine commercial transaction, as this was, is reviewed, the fact that there are two ways of carrying it out – one by paying the maximum amount of tax, the other by paying no, or Mandatory Electronic Filing and much less tax – it would be quite Payment of Tax wrong, as a necessary consequence, to Revenue issued a consultation draw the inference that, in adopting document in July 2010, which the latter course, one of the main outlined the proposed extension of objects is, for the purposes of this mandatory electronic filing and section, avoidance of tax...’ payment for certain tax returns and tax liabilities. In the light of feedback Presumably, the taxpayer will fall on received from a range of the wrong side of the line where the John Ward, FCA, FITI is Professor of Taxation at stakeholders, Revenue has refined arrangements under review are the University of Ulster. He was formerly a senior tax manager with one of the big four accounting the scope and timing of the next deemed to be ‘artificial’ or ‘contrived’, firms in Dublin. He has contributed articles to virtually all of the major professional journals in phase - Phase 3 - of this Project. i.e. where all or some of the elements the UK and Ireland and is the principal author of Revenue's response to the feedback is thereof are judged as being Irish Income Tax. Email: jd.ward@ ulster.ac.uk. available on the Revenue website. dominated, or explicable mainly, by tax considerations. Under Scenario I, The obligations under Phase 3 are if the purpose of liquidating A was, being introduced in two stages - for example, to remove surplus cash Stage 1 from 1 June 2011 and Stage 2 from the reach of potential future from 1 October 2011. Revenue will creditors, this would arguably now commence a process of writing comprise a proper commercial to all those encompassed by phase 3 justification. Under Scenario II, it of the mandatory electronic filing might be possible to demonstrate and payment requirement [including valid commercial grounds for the relevant tax agent] advising creating a group. Dara Burke, ACA, AITI is a principal of McAvoy them of the obligation that will and Associates, a specialist tax consultancy based in Cork. Dara has particular expertise in apply from 1 June or 1 October next, the areas of estate planning, property transactions, VAT and tax-efficient employment as appropriate, and of the steps that and pension arrangements. She has been a need to be taken to facilitate and Conclusion coauthor of Irish Income Tax for several years and has contributed articles to both ensure compliance from the professional journals and the popular press. Email: [email protected]. appropriate date.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 65 Tax Republic of Ireland Tax deadlines
By David Fennell, FCA
As the content of Finance Bill 2011 continues to be digested, it is easy to overlook the following deadlines in February and March.
General year ended 31 December 2010. A 28 February 2011 similar deadline applies in connection Last date for filing third party with reporting obligations for payments return 46G for companies 15 February 2011 forfeitable and convertible shares with a financial year ending on 31 Last date for filing form P35 for 2010. given to employees and directors. May 2010. If this is filed and paid using ROS, this date is extended to 23 February 2011. Latest date for payment of dividends for the period ended 31 August 2009 Last date for principal contractors to Dates for companies to avoid Sections 440 and 441 TCA97 file form RCT35. If this is filed and surcharges on investment/rental/ paid using ROS, this date is extended 14 February 2011 professional services income arising in to 23 February 2011. Dividend withholding tax return that period (close companies only). 1 March 2011 filing and payment date (for 14 March 2011 Introduction of a standard rate of Air distributions made in January 2011). Dividend withholding tax return Travel Tax of €3. 21 February 2011 filing and payment date (for Due date for payment of preliminary 31 March 2011 distributions made in February 2011). Persons owning Irish residential tax for companies with a financial 21 March 2011 properties (but not principal private year ended 31 March 2011. If this is Due date for payment of preliminary residences) on 31 March 2011 will be paid using ROS, this date is extended tax for companies with a financial liable, where applicable, to pay the to 23 February 2011. year ended 30 April 2011. If this is €200 local authority charge for 2011. Due date for payment of initial paid using ROS, this date is extended instalments of preliminary tax for Finance Act 2010 provided for a to 23 March 2011. companies (not ‘small’ companies) termination date for capital with a financial year ended 31 August Due date for payment of initial allowances on childcare facilities. 2011. If this is paid using ROS, this instalments of preliminary tax for Where planning permission is not date is extended to 23 February 2011. companies (not ‘small’ companies) required, the termination date is 31 with a financial year ended 30 March 2011 provided at least 30% of Last date for filing corporation tax September 2011. If this is paid using the construction work etc. was return CT1 for companies with a ROS, this date is extended to 23 March incurred on or before 30 September financial year ending on 31 May 2010. 2011. 2010. If this is filed using ROS, this date is extended to 23 February 2011. Last date for filing corporation tax Final deadline for submission of return CT1 for companies with a refund applications in respect of VAT Due date for any balancing payment financial year ending on 30 June 2010. expenditure incurred in 2009 by in respect of the same accounting If this is filed using ROS, this date is taxable persons not established in the period. extended to 23 March 2011. Member State of refund but Loans advanced to participators in a established in another Member State. Due date for any balancing payment close company in the year ended 31 This extended deadline is a one off in respect of the same accounting May 2010 may need to be repaid by 21 transitional measure. period. February 2011 to avoid the assessment Return of information in relation to (on the company) of income tax Loans advanced to participators in a share options or rights granted in the thereon. close company in the year ended 30
66 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 June 2010 may need to be repaid by Revenue Commissioner Michael O’Grady 21 March 2011 to avoid the addresses Chartered Tax Consultant Students assessment (on the company) of income tax thereon. 31 March 2011 Last date for filing third party payments return 46G for companies with a financial year ending on 30 June 2010.
Latest date for payment of dividends for the period ended 30 September 2009 to avoid Sections 440 and 441 TCA97 surcharges on investment/ rental/professional services income arising in that period (close companies only).
Dates for individuals Revenue Commissioner Michael O’Grady recently addressed the inaugural 31 March 2011 session of the new Chartered Tax Consultant Professional Qualification Deadline for claiming Separate Programme being run in Chartered Accountants House. The Commissioner spoke about the evolution of jurisprudence concerning tax avoidance and the Assessment and nominating role of the proposed new Mandatory Disclosure Regime as Revenue see it. Assessable Spouse for 2011. Commissioner O'Grady was the first of a panel of distinguished and influential Note: At the time of writing, Finance Bill 2011 had not been published. Matters contained guest speakers who will address the Chartered Tax Consultant participants over therein may affect the above deadlines. the coming months. The year-long programme has attracted unprecedented interest and the take up of places has been very encouraging. A waiting list for David Fennell, FCA is Tax Director with Ernst & Young. the 2012 programme is already growing prior to specific dates being confirmed.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 67 Tax Northern Ireland Tax Notes
By Phillip McMaw, FCA
commercial analysis when been well-established since the Canada Taxation of business considering if EIS relief is likely to be Safeway judgment that has been applied available. The case of HMRC v Mr NRJ for almost 40 years. Accordingly, I Further developments in Taylor and Mr N Haimendorf consider that it is clear that issued share corporation tax reform FTC/43/2010 considered the meaning capital in paragraph (b) refers to the In December a range of consultation of ‘connected’ where an individual nominal value of the shares.” holds both share capital and has documents and updates were The facts of this case are a useful made loans to the company. Whilst published on HMRC’s website. The reminder of the complexity of EIS this case concerns an EIS investment, areas concerned include controlled legislation and the difficulties of the same criteria are also used to foreign companies, the treatment of satisfying the many conditions to determine the meaning of corporate groups for CGT purposes obtain relief. In 2005 the total ‘connected’ in the rules for the (in particular degrouping charges), amount subscribed for shares (1p purchase of own shares. the future of the R&D tax credit nominal value plus approximately regime, the introduction of a 10% The case concerned the interpretation 49p share premium) was £2.1million reduced rate of corporation tax for of the phrase ‘more than 30 percent and the total amount loaned to the qualifying patent box companies and of… the loan capital and the issued company was only £450,000. The the taxation of foreign branches of share capital of the company’ and taxpayer investors held respectively, UK companies. Some of the measures whether it meant: only 3.6 percent and 7.3 percent of will be the subject of further the nominal share capital, but their consultation and the intention is a) 30 percent (loan capital plus issued short-term loans to the company of that, where possible, legislation will share capital); or £150,000 each, were 33.3 percent of be enacted in the 2011 Finance Act. the total loan capital. b) 30 percent of loan capital and 30 Proposed amendments to percent of issued share capital? These shareholders were not able to PAYE system benefit from EIS because they loaned HMRC have published a consultation The overall conclusion of the Upper a relatively small amount to the document on improving the Pay As Tribunal was that a) was correct. company, even though they and You Earn system (PAYE) by collecting Consequently as the taxpayers each others had invested substantial real time information. If owned more than 30 percent of (the amounts by way of equity primarily implemented, it would be the largest loan capital plus issued share capital) as share premium. If the nominal change to PAYE in many years and they were ‘connected’ with the value of the shares had been higher so will impact all employers. Comments company and did not qualify for EIS. that no share premium existed, EIS would have been available. This case on the consultation have been In addition the Upper Tribunal highlights the need for great care requested by 28 February 2011. confirmed that ‘issued share capital’ when structuring investment in referred to the nominal value of the companies and how the nature and shares, and did not include any share amount of investment by others can Taxation of individuals premium created on subscription. influence the relative percentage This applied the analysis as set out in holdings of individuals wishing to Canada Safeway Ltd v IRC [1973] 1 Ch Upper Tribunal case on qualify for EIS relief. ‘connected’ for purposes of 374, a stamp duty case. EIS and definition of issued “In the absence of such special New advisory fuel rates share capital definition, I consider that the phrase HMRC has published its new advisory A recent case has re-affirmed the need must receive the same meaning fuel rates that are effective from 1 for both detailed technical and throughout the ICTA. That meaning has December 2010. These revised fuel
68 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 rates are in line with their The review will be undertaken under allowances across three major commitment to review rates twice a published terms of reference and is headings: year. expected to be completed by 31 i) Reliefs that may be potentially October 2011. The new rates are as follows: retained (i.e. capital gains tax relief In addition, the Government has on disposal of private residence); announced that it will be amending Engine size Petrol Diesel LPG ii)Reliefs that may need legislation to counter tax avoidance simplification (i.e. VAT supplies to 1400cc or less 13p 12p 9p schemes involving: charities/sales by charities; gift aid; 1401cc-2000cc 15p 12p 10p (i)...Group mismatches; lease premium relief; capital Over 2000cc 21p 15p 15p allowances – enhanced capital (ii) .Accounting de-recognition; allowances for energy and water (iii) Disguised remuneration schemes efficient technologies) These fuel rates may be used as an involving the use of trusts or alternative to reimbursing actual iii) Reliefs that may be potentially other vehicles to reward business mileage costs for company abolished (exemption from benefit employees; car drivers and also in situations charge for late night taxis; vaccine where such employees repay to the (iv). Functional currency of an research relief; luncheon vouchers company the cost of private mileage investment company; and – daily income tax relief for the undertaken in company cars. An first 15p). (v) ..VAT supply splitting. employer may be able to agree A keen interest in the final outcome The amendments on Group different rates with HMRC if able to of the OTS review is likely from those mismatches and accounting de- prove a more appropriate amount who currently benefit from a relief recognition have effect from 6 based on employees' expenditure. that may potentially be abolished December 2010, and the legislation when the OTS publishes its final for the other measures will be report in March 2011 General tax avoidance included in the 2011 Finance Act. measures The Finance (No. 3) Act 2010 The Finance (No. 3) Act 2010 received In times of austerity governments are Other Matters Royal Assent on 16 December 2010. focused on protecting tax revenues Readers with a particular interest in and the UK Government’s strategic Tax Simplification Review the background to any of the sections approach to tax avoidance is under included in the Finance Act can refer Given that the UK tax code is one of review. HMRC has announced that to the dedicated Finance Bill page on the longest in the world, containing Graham Aaronson QC will lead a the UK Parliament website which 1042 tax reliefs and allowances, the team to determine: includes links to transcripts of all the establishment of The Office of Tax associated debates in both Houses. “whether a General Anti-Avoidance Rule Simplification (OTS) was a welcome (GAAR) could be framed to meet the development. The OTS has published 2011 Budget date objectives of deterring and countering an interim report on its ongoing In a break with tradition, the date of tax avoidance in a fair way, while review of tax reliefs. The interim the 2011 UK Budget has been providing certainty, retaining a tax report identifies 883 reliefs that will announced significantly in advance. regime that is attractive to business and not be part of the review, and It will be given on 23 March 2011. minimising compliance costs to explains that it intends to examine Phillip McMaw FCA Iis Tax Partner with KPMG in businesses and HMRC…” and categorise the remaining reliefs / Belfast.
ACCOUNTANCY IRELAND DATE FOR YOUR DIARY! FEBRUARY PODCAST Chartered Accountants Ireland Get more from Accountancy Ireland when Annual Conference you log on and listen to our bi-monthly podcast. Download the show from www.accountancyireland.ie/podcast or Dates: 5th-6th May 2011 http://itunes.apple.com/ie/podcast/accountancy-ireland- Venue: Chartered Accountants House, podcast/id261170668 Pearse Street, Dublin 2. The Accountancy Ireland Interactive Button indicates where additional information is available in our pageflip Further details will be posted to digital edition which, from February, will also be readable on the iPad. See www.accountancyireland.ie. www.charteredaccountants.ie/CPD/
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 69 Chartered Accountants Ireland Annual Dinner 2010 Left page (from left): Toastmaster, Albert Gillespie; Chartered Accountants Ireland President, Paul O’Connor; Microsoft Ireland Managing Director, Paul Rellis.
Right page (clockwise): The Round Room at the Mansion House; Paul Rellis, Paul O’Connor and former right head prop for the British and Irish Lions rugby team, Paul Wallace; Secretary General of the Chartered Institute of Tax, Bob Domnett with Pat Costello; Irish Tax Institute President, Andrew Cullen and Chairman of CARB, Chris Gibson. Chartered Accountants House
President Mary McAleese officially opened Chartered Accountants House in December 2009. She said the building Central Bank Governor Mr Patrick Honohan spoke at the Financial Services represented a ‘statement of intent’ lecture series in November and said, “Bottom line: the banks might do well to call by the Institute and that it would be in the leading credit analysts and find out what information would be of greatest a place not just of education but of use to them in identifying and quantifying tail risks. And then provide it.” formation of the accountancy profession for the coming years.
Watch video footage of President McAleese’s speech given at the official opening of Chartered Accountants House by clicking on the Interactive button. Chartered Accountants House Busy first year saw more than 400 events take place in the Institute’s new premises
An Taoiseach Brian Cowen officially opened the 2010 Annual Conference in May 2010. Alan Dukes, chairman of Anglo Irish Bank, spoke at the October 2010 Leinster Society lunch.
Hear Alan Duke’s speaking at the Leinster Society Lunch in Accountancy Ireland’s December 2010 podcast
72 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Past President of Ireland Mary Robinson visited Chartered Accountants House in May 2010 as a guest of Irish charity Former All-Blacks captain, Sean Comhlamh. Fitzpatrick, spoke at the Chartered Accountants Ireland Annual Conference in May 2010. In an inspirational address entitled, ‘What We Can Be’, he talked about the importance of loving what you do, taking every chance you get, and building a culture of success in your business.
Chartered Accountants House was officially opened by President Mary McAleese in December 2009. Since the opening it has won widespread critical acclaim from Institute members, students and the wider business community and has quickly become a favoured city centre venue for board meetings and international Professor Robert Kaplan, conferences. inventor of the Balanced Scorecard, led a masterclass for 150 senior Irish In one of the most high-profile events to grace the city this year, Ireland’s largest web business executives at an event and tech event, the Dublin Web Summit, brought a stellar cast of speakers to hosted by Staff Balance in Chartered Chartered Accountants House. The list of speakers included Chad Hurley, founder of Accountants House in October. YouTube, Jack Dorsey, founder of Twitter and Niklas Zennstrom, founder of Skype. His advice? Focus on strategy and avoid the race to the bottom. The Institute is committed to supporting our members at every juncture, and in this You can read about Professor regard Chartered Accountants House provides members with an ideal city centre Kaplan’s visit to Chartered Accountants House in the base from which to work and arrange meetings. Meeting rooms may be reserved by December 2010 issue of Accountancy Ireland and hear members for up to one hour on a complimentary basis(space permitting), a facility the interview in full on the particularly useful for members outside Dublin. Accountancy Ireland December 2010 Podcast.
In addition, the seminar rooms and lecture theatres are available for hire for any business meeting, conference or other event. These rooms offer the most modern design, facilities and state of the art technology such as live streaming. These rooms will be available at discounted rates for members and member firms. Please don't hesitate to contact our Facilities Team at (01) 637 7268 or for more information, visit www.charteredaccountantshouse.ie.
Frank Daly, Chairman of NAMA addressed the members of the Leinster 73 Society in May 2010. Chartered Accountants Reference and Information Tool Updated Version of CHARIOT Online
CHARIOT (The Chartered SORP EU Recommendations Accountants Reference and Financial Statements of Authorised Recommendation 2008/473/EC Information Tool) has recently been Funds (October 2010) concerning the limitation of the civil updated online. Members (including liability of statutory auditors and student members) can access Amendments to IASB Standards audit firms CHARIOT online for free by logging Disclosures – Transfers of Financial Recommendation 2008/362/EC on on to: Assets (Amendments to IFRS 7) external quality assurance for https://www.charteredaccountants.ie Amendments made to IFRS 1 & IFRS 7 statutory auditors and audit firms /en/Members/ Technical1/CHARIOT/ auditing public interest entities You will need your Member/Student Corporate Governance Recommendation 2002/590/EC ID and password to access CHARIOT. FRC Update for users of actuarial Statutory Auditors' Independence in If you have forgotten your password, information 2010 the EU: A Set of Fundamental please email webmaster@ Principles charteredaccountants.ie and a new FRC Update for Audit Committees 2010 password will be issued to you. Recommendation 2001/256/EC on quality assurance for the statutory Legislation audit in the European Union: minimum requirements Content added and/or EU Legislation/Regulations relocated Regulation 2008/1289/EC amending Commission Regulation (EC) No EU Material Chartered Accountants Ireland 809/2004 implementing Directive EU Green paper: Audit Policy: Lessons 2003/71/EC as regards elements from the Crisis Professional Update Bulletin related to prospectuses and Professional Update Bulletin advertisements UK Legislation (November 2010) Regulation 2008/297/EC amending Regulation 2002/1606/EC on the The following Acts and SI have been Information Sheets application of international updated since the last build. Information Sheet 05/2010 – accounting standards, as regards the Data Protection Act 1998 (c 29) Independent reconciliation with POBAL implementing powers conferred on expenditure returns the Commission Pensions Act 1995 (c 26)
Regulation 2001/2157/EC on the Financial Services and Markets Act Statute for a European Company Auditing 2000 (c 8) Charities Act 1993 (c 10) APB Practice Notes EU Directives PN 10 (Revised) Audit of financial Directive 2009/49/EC amending Charities Act 2006 (c 50) statements of public sector bodies in the Council Directives 78/660/EEC and Companies (Audit, Investigations and UK (October 2010) 83/349/EEC as regards certain Community Enterprise) Act 2004 disclosure requirements for medium- (c 27) Miscellaneous sized companies and the obligation to Implementation of the clarified ISAs draw up consolidated accounts Companies Act 2006 (c 46) BIS: A long-term focus for corporate Directive 2009/109/EC amending Enterprise Act 2002 (c 40) Britain Council Directives 77/91/EEC, Limited Liability Partnerships Act 78/855/EEC and 82/891/EEC 2000 (c 12) Directive 2003/38/EC amending Accounting Directive 78/660/EEC on the annual SI 2008/496 The Statutory Auditors UITF Information Sheets accounts of certain types of Order 2008 UITF Information Sheet 90 - Draft companies as regards amounts UITF Abstract Accounting implications expressed in euro Content Removed from site: of the replacement of the Retail Prices Information Sheets Eleventh Directive 89/666/EEC Index with the Consumer Prices Index IS 12/2007 update on anti-money concerning disclosure requirements for Retirement Benefits laundering (December 2007) in respect of branches opened in a Member State by certain types of company governed by the law of UITF Abstract CHARIOT online is updated by the another State Representation and Technical Policy UITF Abstract 10 Disclosure of Department of Chartered Accountants Ireland directors' share options (September The following documents are now on a bi-monthly basis to reflect new guidance and/or technical material. The next build will be 1994) – re added located under a new sub-heading in February 2011.
74 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 CHARTERED ACCOUNTANTS ULSTER SOCIETY MUNICH CONFERENCE LAUNCHED
Following successful conferences in recent years in venues such as New VENUE York, Dubai, Toronto and Hotel Sofitel & Spa Munich, Bayerstrasse 12, 80335, Copenhagen, the Chartered Munchen, Germany Accountants Ulster Society has www.sofitel.com/gb/hotel-5413-sofitel-munich-bayerpost/index.shtml announced that the venue for the CONFERENCE DATES 2011 Conference will be the Bavarian capital, Munich. Depart Belfast Thursday 26th May 2011, returning Sunday 29th May 2011.
The 2011 Conference will offer COST members an exclusive insight into The cost of the conference is £745 pp. This includes transfers to/from one of Bavaria’s most famous global Munich Airport, all conferencing, Gala Dinner on the Saturday companies – BMW – with a key event night, hosted event and reception at BMW, lunch for at BMW Welt where Dr Uwe conference delegates on Friday. Ellinghaus, Global Head of Marketing for BMW, will address the As places are expected to fill quickly conference. and as the organising committee Summary of details: Due to the date of Easter, the shortly need, to make financial • Direct charter flight from Belfast; Conference will take place slightly commitments to travel partners, later than usual over the May Bank delegates are encouraged to secure • Luxury coach transfers; Holiday Weekend (26th to 29th May) their booking for Munich 2011 by • 3 nights accommodation at the 5 and, as with last year’s Conference, it completing and returning the Star Sofitel Munich, a luxury hotel will adopt a 4-day format. reservation form along with a deposit and heritage listed building in the heart of the city; Northern Bank has agreed to sponsor as soon as possible. the Conference. The partnership with The Conference Committee is • An exclusive insight into one of Northern Bank stretches back to working hard to ensure that the Bavaria’s (and the world’s) biggest brands – BMW; Boston in 2001 and now covers 10 Conference offers excellent value for Conferences. money for members and has • Free time to explore the city; A flyer can be downloaded from the highlighted that the cost includes • Full-day conference session with ‘upcoming events’ section at: direct charter flights from Belfast and afternoon activity for guests; 3 nights in a 5 star hotel. www.charteredaccountants.ie/ulster. • 6 hours CPD is available; Places are limited and therefore early The Society hopes that Conference • Quality guest speakers; booking is highly recommended. regulars and new faces alike will be For more details and a booking form drawn to the intriguing venue of • Gala Dinner at the Olympic Tower’s revolving restaurant; see the Ulster Society website: Munich and the State (or Bundesland) www.charteredaccountants.ie/ulster of Bavaria. • And much more.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 75 Chartered Accountants Ireland
Chartered Accountants Ireland Membership Changes
Admissions Connaughton, Ronan Erskine, Amy E Hughes, Urszula Conneely, Aoife Fagan, Niall Hunt, Wayne F Agnew, Kiera Connolly, Colin Fagan, Suzanne Hutchinson, Deborah Ahern, Claire Connolly, Eleanor Fahy, Marita Jiang, Zhi Fang Aherne, Sarah Considine, Carmel Fahy, Tiernan Jin, Min Annesley, Stuart Convery-Kane, Nathalie V Farrell, Michael W Joyce, John Arora, Pankaj Cooke, Aisling M Ferguson, David Kane, Ailbhe Atcheson, Isobel J Cooke, Ciaran Joseph Ferris, Briege Kavanagh, Alan Banatwala, Ramla Coombes, David Finan, Conor Kavanagh, Catherine Bane, Killian Cooney, Kevin Finnegan, Amanda Keady, Martina Bardon, David Corbett, Sarah A Finucane, Louise Keane, Johnathan Barry, Marian Corcoran, Suzanne Fitzgerald, Thomas Gerard Kearney, Aidan John Bedford, Roisin V Corroon, Conor T Fitzgerald, Marina Keegan, Brian P Beegan, Karina Corry, Lisa Fitzgerald, Maurice Keegan, Rachel Ben, Xiaofei Costello, James Fitzpatrick, Vincent Kehoe, David Bernie, Patrick B Coughlan, Rebecca Flanagan, Amanda Kelly, Kathrynn Bingham, Wendy A Coulter, Kim Flanagan, Amy E Kenneally, Edmund Michael Blake, Sarah L Cowman, Niall Fleming, John Kennedy, David John Bollard, Joanne Coyne, Sean Flood, Laura Kennedy, Leeann Bonner, Ciara Crampton, Carol Flynn, Susan Kennedy, Shane T Borza, Claudio A Creedon, Paul Foley, David Kennelly, John Boylan, Paul Cronin, Conor Bernard Forde, Conor D Kenny, Brian Austin Bradley, Michelle Cronin, Frankie Fox, David Kenny, Ronan Fintan Brady, Gareth Crossan, Mary C Gallagher, Patricia Keogh, Carmel Mary Brady, Sean Crowley, Helen Gallagher, Sinead L Keogh, Cian Brannelly, Siobhan Crowley, Laura M Garvey, Grace Kerley, Anita Breen, Noeleen Cullen, Helena M Gatenby, Barry Kilcullen, Helen Brennan, David Cullen, Melanie Gaughan, Macartan Kilgannon, Linda Brennan, Gerard Cullinane, Karen Gaynor, Sally King, Lorcan Brennan, Jonathan Cunningham, Anthony Geoghegan, Graham Kinsella, Ross Brennan, Martina Curran, Louise Gilligan, Sharon Kirwan, Amanda Broderick, Paul Daly, Bronagh Glackin, Siobhan M Kirwan, Fiona A Browne, Adam J Daly, Orla Glennon, Claire Kirwan, Gerard Browne, Robert Dardis, Deirdre Gormley, Anne-Margaret Laffey, Colette Bruton, Laura Davidson, Hollie M Gouk, Sean Benjamin Lalor, Karen E Buckley, Brendan Davis, Colm M Graham, Karen Lamb, Ruairi Burke, Adrian Dawson, Jane Grant, Sarah Lavin, Patrick Burke, Jayne Day, Emily Graves, Claire Lawlor, Bryan W Byrne, Ciaran Deane, James Gribben, Martina Lawlor, Richard Byrne, Daniel Coleman Deegan, Fiona E Grogan, Marion Le Mahieu, Ciara B Byrne, Karl Delaney, Eamonn Guckian, Eveline Leacy, Tanya Byrne, Robert Devlin, Christopher Guckian - Charles, Therese Lee, Patrick M Cahill, Brian T Devlin, Fiona Margaret Hamilton, Steven Lehane, Barry F Cahill, Mary Di Camillo, Veronica Hammel, Eimear L M Leonard, Charlene A Cahill, Zara A Doherty, Roisin Hanrahan, Tim Leslie, Lisa M Cahillane, Kevin Dolan, Michelle Harte, Aoife Levins, Maria Caldwell, Emma Dolan, Michelle Hartnett, Ciara Linehan, Eoghan Camblin, Conor Dolan, Paul Harty, Valerie Liu, Wenhan Campbell, Caoimhin J Dong, Hongmei Haughton, Laragh Loughran, Bronagh M Campbell, Stephen Donnellan, David Hayes, Cathal Donal Lynch, Cathal Cao, Yang Donnelly, Claire Healy, Darren Lynn, Aoife Carroll, Aoife Dougal, Ruairi Healy, Elaine Lynn, Barry Carson, Paula Douglas, Robert Healy, Eoin Lyons, Adrian Cashell, Conell M Doyle, Cormac Hennessy, Aine Lyons, Anna Cassidy, Louise M Doyle, Shane A Hennessy, Aoife MacKen, Patrick Joseph Cheung, Rachel Drake, Laura L Hennessy, Gearoid MacNamara, Lorna Clancy, Brian Dufficy, Kevin Hewson, Louise K MacSweeney, Jillian Clear, Emma-Jane Duffy, Aidan Hickey-Crowe, Morgan Madigan, Ciaran Clerkin, Ronan Duggan, Joseph A Hickey-Crowe, Nicola Maguire, Paul Coffey, Sinead Duignan, Linda Hillen, Mark Robert James Maher, Conor James Coleman, Brian Dunne, Laurence Honeyford, Mark Maher, Declan Colleran, Emmet Dunne, Michelle Howard, Donnacha Maher, Kim Colleran, Ruth Durr, Aoife Howe, Eloise Mary Malone, Patrick Collins, Alan Eastwood, Tara Siobhan Howie, Christopher John Martin, Aoife Collins, Daniel Egan, Ruth Howley, Catherine Martin, Bryan Collins, Tadgh Ennis, John Hubbard, Pamela Masterson, Joseph Condon, Louise Enright, Patrick Hughes, Ronan Peter McAleese, Justin
76 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 McAleese, Paula Murray, David Regan, Tony Zhang, Mingdi McArdle, Teresa B Murray, Sinead Reynolds, Michael Zhang, Tao McCabe, Ian Naughton, Brian Rice, Siobhan Zhu, Qin McCafferty, Tara Neary, Fiachra J Robinson, Lauren McCann, Pearse Neill, Chris Robinson, Luke Re-Admissions McCann, Vanessa Neville, Donal Rocca, Dario Begley, John McCappin, Carolyn Nevin, James Rock, Garvan King, Leonard McCarthy, Brian New, Kelly Rockett, Jonathan Lonergan, Martin Mark McCarthy, Clare Ni Chinneide, Orlaith Rogers, Brendan J Pate, Alastair Iain McCarthy, Darragh Ni Chuanaigh, Caoimhe Rogers, Nicola Quinlan, M Brid McCarthy, Ian Nolan, Kiera Roman, Shelly McCarthy, Jennifer Nolan, Louise Rooney, Una A McCarthy, Joseph M Noonan, Sara Rosborough, Tracy Deaths McConville, Garth Noone, Mark C Roulston, Alan Ahern, Fergus Daniel James McCoy, Brendan Nwajei, Judith Rush, Gillian C Donnelly, James Francis McDonnell, James O'Brien, Carol Russell, Stephen Hull, Sharon P McDonnell, Marie O'Brien, Elaine Ryan, Ciaran Mooney, Laurence Joseph McElligott, Mark O'Brien, Niamh Salter, Paula B Neylon, Joseph Flannan McElroy, Thomas O'Brien, Stefanie Sammon, Aoife McEvoy, John Paul O'Brien, Stephen W Sang, Shuang McGarrigle, Aisling O'Brien, Tracey Scanlon, Elizabeth Resignations McGarrity, Seamus O'Brien, Val Scullion, Sinead Beattie, Gillian A McGill, Kerry L O'Broin, Michael Sheehan, Claire M Booysen, Wessel C McGrath, Tadhg Joseph O'Callaghan, Georgina Shinnors, George Chambers, Evelyn May McGroary, Caroline O'Connell, Aine Staerke, Michelle Dargan, Orla Catherine McGuane, Aisling O'Connell, Patrick Stafford, William Holland, William Mary McGuane, Natalie O'Connor, Aileen Staunton, Donal Leonard, John Aloysius McHugh, Brendan O'Connor, Kieran Sterritt, Sharon Lyall, Andrew James McIlwaine, Fiona O'Connor, Niall J Stewart, Jennifer A McGinty, Patrick Cyril McInerney, David Patrick O'Connor, Noelle Stone, Sinead McKeown, John David McKiernan, Danice M O'Connor, Paul Stout, Lisa O’Meara, Assumpta McKinley, Mary O'Donnell, Laura Swail, Peter Ryan, Denise McKinstry, Karen O'Donovan, Martha Tighe, Derek Simpson, Richard David McKnight, Jemma O'Driscoll, Annmarie Tobin, Edward B Thornton, John Marcus McLaughlin, Jonathan O'Driscoll, Eimear Tolan, Sandie A Walsh, Caroline McLaughlin, Michael A O'Driscoll, Patrick C Trayers, Nigel V McLaughlin, Sabrina V O'Dwyer, Kieran M Traynor, Deirdre McMahon, Niamh O'Dwyer, Nicholas A Automatic Cessation Trihy, Anne M McMenamy, Olivia O'Flynn, Carol Bye-Law 34(B) Tully, Deirdre McMorrow, Tracey O'Halloran, Patrick Michael Ijaz, Hassan Turley, Marie McMunn, Sara O'Hare, Niall Tutty, Susan McNeill, Therese O'Kane, Stephen Twomey, Ciaran O McRory, Cara O'Keeffe, Siobhan Cessation of Twomey, Donna McRory, Diarmuid O'Keeffe, Steffi Membership Underwood, Kate McSherry, Fiona O'Leary, Andrew Council has decided, in the Urell, Jenny Midzio, Marek O'Loughlin, Mary-Louise case of the following Vaughan, Justine Millar, Andrew O'Mahony, Emer member/s, whose Wade, Emma Mitchell, Jennifer O'Neill, Brian Patrick subscriptions for the year Wall, Raymond Molloy, Caroline O'Neill, Mark 2010 remained outstanding Walsh, Darragh F Moloney, Eamon O'Regan, Elizabeth A for more than four months, Walsh, Donna Moloney, Steven R O'Rourke, Claire G that the provisions of Bye- Walsh, Stephanie Monaghan, Ian T O'Sullivan, Deirdre Law 38 (e) should be Watson, Linda Monnelly, Suzanne O'Sullivan, Grace M permitted to take effect Webberley, Mary Jane Moran, Karla O'Sullivan, Jane whereby those named Moynihan, Elaina O'Sullivan, John Weir, Mervyn hereunder have ceased to be Mullan, Damien M O'Sullivan, Paddy Whelan, Conor members of Chartered Mulligan, Aoife O'Toole, Aoife Whelan, Denis M Accountants Ireland: Mullins, Ciaran O'Toole, Audrey E Wherity, Eoghan Mullins, Patrice O'Toole, Marise Whyte, Eilish Colton, Tom Mulvihill, Fearghal Owens, Graham Williams, Jennifer ....Co Kildare Wilson, Gemma Munnelly, Elizabeth Parsons, Shane McDermott, Paul A Winters, Caroline J Murnane, Dermot Patterson, Nicola ....Co Kildare Murphy, Aidan Power, Killian P Wong, Lee C Murphy, Declan Prendergast, Barry Worrell, Brian Page, Mark Murphy, Mary Prior, Barry Wu, Yali ....London Murphy, Paul Quigley, John M Wylie, Cassandra Murphy, Robert Quinn, Ciaran Yang, Emma Xjaoe NOTE: It should be noted any Murran, Damien T Quirke, Sarah Yin, Li right to audit for the individuals mentioned above, which derives Murray, Aoife J Rafferty, Colm Young, Helen from Institute membership, ceases Murray, Ciara Marie Rafferty, Michelle Zhang, Guanghui with that loss of membership.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 77 Chartered Accountants Regulatory Board Anglo Investigation amongst key challenges for the Chartered Accountants Regulatory Board
The Chartered Accountants Regulatory Board (CARB) was established in April 2007 to regulate Chartered Accountants independently, openly and in the public interest. CARB has recently published its Regulatory Strategy 2011–2013 and Operating Plans for 2011. Accountancy Ireland spoke to Director, Heather Briers.
What were the main challenges for CARB last year? and functions by continually developing and improving Each year since CARB was established has thrown up new our website and by publishing detailed Annual Reports and challenges both for CARB itself and for the Chartered Operating Plans. Accountants it regulates; 2010 was no exception. There We have also provided additional guidance in relation to were many changes in legislation which led to the revision our complaints process for complainants and members or complete re-write of many of our regulations, in and we have revised our Disciplinary Bye-Laws to simplify particular the re-write of the Audit Regulations to the process as much as possible. implement the European Commission’s 8th Directive on Statutory Audit, and the revision of the Investment However, it is fair to say that the recent publication in Business Regulations to take account of the new relation to the investigation of certain Anglo matters competency requirements introduced by the Financial certainly raised CARB’s profile. Regulator. However, the biggest challenge of 2009 and, 2010 has been the impact of the global economic crisis What is CARB’s relationship with the Irish Auditing and and, in particular, the Irish banking crisis. CARB appointed Accounting Supervisory Authority? John Purcell as Special Investigator in February 2009 to CARB believes a system of independent regulation subject investigate the conduct of four Institute members and a to independent oversight is the best way to ensure fair, member firm in certain matters relating to Anglo Irish efficient and effective regulation in the public interest. We Bank Corporation Limited (Anglo). Mr Purcell concluded recognise that CARB is one part of the whole infrastructure his investigation in relation to the members in early of regulation set up in Ireland in recent years. As the December 2010 and will conclude the related investigation regulator of Irish Chartered Accountants we are subject to into the Bank’s auditor, Ernst & Young, in Spring 2011. the oversight of six statutory bodies, including IAASA. And some of those matters have now been referred to Over the last three years we have sought to develop CARB’s Disciplinary Committee? constructive working relationships with all our oversight Yes, Mr Purcell delivered his report to the Complaints bodies whilst fully recognising our different roles. We have Committee in December. Following that, in relation to the worked closely with IAASA in developing our various four members who were investigated, a statement was regulations, which they must approve, with any issued by the Complaints Committee advising that formal investigations they conduct and in keeping up to date on complaints have been referred to the Disciplinary important regulatory and disciplinary matters. Committee. IAASA recently published some decisions taken by it The Complaints Committee has provided Mr Purcell’s following investigations into the Institute’s disciplinary reports to the Chairman of the Disciplinary Committee processes, which are of course within CARB’s functions – and Disciplinary Tribunal hearings will now be held in how has CARB addressed the issues raised? accordance with the provisions of the Disciplinary Bye- CARB is committed to ensuring the thorough investigation Laws. of complaints against Chartered Accountants in a fair and To what extent do you think the public is aware of CARB proportionate manner to determine if misconduct has as a regulator and how do you think perception is occurred and will take disciplinary action when required. evolving? To ensure this, we have invested heavily in our disciplinary When I considered this question in 2008, I felt the public processes over the last three years, increasing the number had little awareness of the regulatory structure that existed of staff to ensure the efficient investigation of complaints. in Ireland. During the last three years CARB has We have also increased the size of the Complaints endeavoured to make all stakeholders aware of CARB’s role Committee, Disciplinary Committee and Appeals Panels to
78 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 The Board believes in a risk-based approach to regulation, particularly monitoring, and targets its resources at the areas of highest risk. It has adopted this approach in the further development of the quality assurance regime. This risk-based approach will continually evolve. The monitoring functions of CARB have also expanded with CPD monitoring and new supervisory functions under the Money Laundering Regulations in both Ireland and the UK. In 2011, the Board will be looking at applying its quality assurance regime to tax compliance and insolvency practice in Ireland.
Everyone is experiencing increased pressure at the moment and the focus is very much on controlling costs. How is CARB responding to that pressure on firms? CARB’s first priority is to ensure it fulfils the functions set out in the Institute’s Bye-Laws. To do this it is essential that it has the necessary resources. However, the Board is mindful of the need to be both efficient and effective in the use of its resources so we have increased our use of Chris Gibson chairs the Chartered Accountants Regulatory Board. He is pictured (above left) with Heather Briers, Director, CARB. technology for providing information to Chartered Accountants and the public; we have moved our regulatory returns online which both assists members in complying ensure there are sufficient experienced people to consider and allows staff resources to be utilised in other areas; and the cases coming before them. In addition, using our we have reviewed and restructured the management team experience of the IAASA investigations, reviews by the and the functions of support staff. Professional Oversight Board (UK) and the recommendations of an independent review You have published your Regulatory Strategy 2011-2013 commissioned by the Board, we have reviewed and re- and your Operating Plans for 2011 – what are the goals? written the Disciplinary Bye-Laws which have been In 2010 CARB’s Board, committees and executive approved by IAASA and come into effect this month. fundamentally reviewed CARB’s achievements to date and CARB has dedicated and experienced committee members assessed the current, and expected future, environment in and staff but, on occasion, errors do occur. However, we do which CARB, and those it regulates, operate. This our best to make sure this doesn’t happen and when it does environment is subject to continual change. The recent we look to correct it immediately and to learn from the global recession has led to an increased focus on the role experience. played by accountants and regulators, which will inevitably result in changes to the regulatory environment. Has the volume of complaints increased as a result of the CARB is aware of the need to work with all its stakeholders, economic climate? particularly its oversight bodies, in meeting future The level of complaints has remained fairly constant over challenges so our key projects for the coming year include the last five years with around 100–120 complaints each reviewing the various regulations to streamline and year. However, there has undoubtedly been a change in the simplify them as far as possible; increasing the focus on type of complaints, with more relating to insolvency ethics and integrity which will include updating our new engagements. In this regard, it is early days and the ethics web page to provide more information and number of complaints could increase in 2011 as the educational tools, and holding an ethics forum; developing number of insolvencies rises. our monitoring regime with a view to including tax compliance and insolvency practice in Ireland; and working with IAASA to ensure the orderly transfer of CARB is also responsible for monitoring – how has responsibilities in relation to the monitoring of limited CARB’s approach developed since 2007? company audits in line with the EC Quality Assurance One of CARB’s strategic objectives is to ensure Chartered Recommendation. CARB has and will continue to play an Accountants provide services of the highest quality, important role in the regulation of Chartered Accountants. competently, honestly and with integrity. CARB was very Its operational autonomy from the Institute and oversight fortunate to inherit a well-established monitoring by IAASA and others is key to ensuring Chartered structure from the Institute which had invested Accountants operate to the highest standards in the public considerable resources in developing a system of interest. CARB, the Institute and oversight bodies all have Quality Assurance covering audit, accountancy, and the same ultimate goal – to increase public confidence in investment business, as well as insolvency in the accountancy profession. All those involved in CARB are GB/Northern Ireland. committed to working towards this goal.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 79 Chartered Accountants Regulatory Board
ADMISSIONS TO PRACTICE CONSENT ORDERS
NAME STATUS LOCATION
Geraldine FCA Co Meath At a recent meeting of the Complaints Committee the following Fagan Consent Order was applied and accepted by the respondent: Paul ACA Co Cavan McKiernan That a member of the Institute, with an address at Belfast did; John FCA Co Meath McMahon
Grace Nyhan FCA Co Cork act in breach of the Institute’s Ethical Guide for Members: Fundamental Principles 1 and 4: Integrity and Performance, by failing to co-operate fully Kevin ACA Dublin 8 with his regulator, in that he did not comply with hot file review restrictions Gannon placed on him whilst a partner in a member firm. Roisin ACA Derry McKinney Ryan ACA Dublin 2 McCarthy The Complaints Committee determined that in relation to the complaint a Teresa sanction of Reprimand, fine in the amount of €500 and costs in the amount of ACA Co Down Nugent €1,000 were appropriate. Christopher ACA Co Down Adams *** CESSATIONS FROM PRACTICE That a member of the Institute, with an address in Cork did; NAME STATUS LOCATION
Miriam ACA Co Kilkenny act in breach of Fundamental Principle: (c): Professional Competence and Due Dunne Care, in that he did, Alan Palmer FCA Co Sligo (i) fail to make a report to the ODCE in a timely manner in compliance with Cliodhna O Section 194(5) of the Companies Act 1990, regarding a breach by an audit ACA Co Limerick Cianain client of Section 31 of the Companies Act 1990; David FCA Co Dublin Murray (ii) provide incorrect advice to an audit client’s director regarding the Denis Ryan ACA Co Galway legislation governing company loans to directors.
Denis Walsh FCA Co Wicklow The Complaints Committee determined that in relation to the complaint a Paul Mortell FCA Co Cork sanction of Reprimand, fine in the amount of €1,300 and costs in the amount of Michael €1,000 were appropriate. FCA Dublin 4 Doody Patrick J *** FCA Co Clare Shanley Seamus That a member of the Institute with an address at Cork did; FCA Co Donegal MacRory Laurence act in breach of Fundamental Principle: (c): Professional Competence and Due FCA Dublin 2 O’Dwyer Care, in that she failed to make a report to the ODCE in a timely manner in Raymond compliance with Section 194(5) of the Companies Act 1990, regarding a FCA Cork Gordon breach by an audit client company of Section 31 of the Companies Act 1990. Graham FCA Belfast Cash The Complaints Committee determined that in relation to the complaint a Michael FCA Belfast sanction of Reprimand, fine in the amount of €800 and costs in the amount of McDonnell €600 were appropriate.
80 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 That a member of the Institute, with an address in Australia, did;
act in breach of the Institute’s Code of Ethics for Members: Fundamental Principles (a) and (e): Integrity and Professional Behaviour, in that, whilst employed in practice, he sent emails of an inappropriate nature to a fellow employee.
The Complaints Committee determined that in relation to the complaint a sanction of Reprimand, fine in the amount of €750 and costs in the amount of €1,000 were appropriate. The Chartered Accountants That a member of the Institute, with an address at Sligo did; Regulatory Board has twelve act in breach of the Institute’s Code of Ethics for Members: Fundamental members, seven of whom are ‘lay’ Principle (c): Professional Competence and Due Care and the Institute’s Audit (i.e. not members of any recognised Regulations and Guidance paragraph 3.07 requiring members to comply with accountancy body). Chris Gibson is relevant legislation in that he acted as auditor of a company in respect of the Chairman and Don Thornhill is which he was disqualified to so act under Section 187(2)(c) of the Companies Deputy Chairman. Information Act 1990 by reason of his brother being a director. including notices, determinations and press releases concerning cases The Complaints Committee determined that in relation to the complaint a that go before the Chartered sanction of Reprimand, fine in the amount of €500 and costs in the amount of Accountants Regulatory Board are €500 were appropriate. carried online at www.carb.ie
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 81
Chartered Accountants Student Society – Cork Busy start to the year Annual Black Tie Charity Ball for CASS-Dublin
It’s the start of a new year and 2011 is looking like being an exciting year full of activities for the Chartered Accountants Student Society – Dublin. Two career events have already taken place and the society’s annual Table Quiz is coming up on 10 February 2011 at the Stakis Hilton, Charlemont Place, Dublin 2. The event is being sponsored by Brightwater Recruitment Specialists and proceeds from a raffle on the night will go to the St Vincent de Paul. This is always a fantastic evening of craic so be sure to register your team early. For bookings and further information see www.cassd.ie.
In March, CASS-D are hosting a wine- tasting evening which the Committee promises will be an occasion to relax and feast on the variety of wines on offer. It’s the first step in the Pictured above (from left) at the CASS-C Charity Ball were (back row) Robert O' Mahony, Conor O' Donoghue, Fintan Neville, Bernard McCarthy and (front row) Michelle O' Connor, Liza Bowden, Karen blossoming career of any would-be Lawton, Brian O' Leary, Joanne O' Sullivan, and Joy Allen. wine connoisseur. Further details on The 2010 CASS-C Annual Black Tie Charity Ball, sponsored by Morgan this upcoming event will be McKinley, took place on Saturday 27 November in the Silversprings Moran circulated to students in due course. Hotel. The ball was enjoyed by students from Cork and the surrounding areas. Also, in March, the Society is hosting On entrance, attendees were treated to a champagne reception. This was a ‘Wii Night’ sponsored by Robert followed by a lavish four course meal and accompanied by complimentary wine. Walters. Play as friends or foes in a The night’s entertainment, enjoyed by all, was from a superb local Cork band variety of competitive minigames. (UV5) followed by a DJ who played into the early hours of the morning. This party night lets competitors play A charity raffle was minigames together in fun and held on the night hilarious ways. There will be plenty of with an array of entertainment with spot prizes, finger excellent spot prizes. food and drinks promotions. The All proceeds from the event takes place on 3 March 2011 in raffle were donated to the Baggott Inn. the Cork Simon The annual CASS-D Charity Ball will Community. be held in early April. This black tie event has become one of the most Pictured (right) are Niamh popular in the CASS-D calendar with McCarthy of Morgan McKinley with Paul O' over 350 trainee accountants Sulllivan Prize Winner, and Conor O' Donoghue, Chair attending last year. Order forms for of CASS–C. tickets will be available on www.cassd.ie and if last year’s event is anything to go by this is one event Accountancy Ireland Extra! that you do not want to miss. Further events later in the year, such Accountancy Ireland has launched a new monthly electronic newsletter with a as the Summer Soccer Tournament dedicated Student Section. The first issue was published at the end of January 2011. and Summer Barbeque are also in the pipeline and updates will be released Subscribe FREE on our website www.accountancyireland.ie/extra soon. If you have any ideas for events please contact the Committee.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 83 News Ireland India Business Future of Audit Association
At a lunch held by the Ireland India Business Association late last year, the Indian ambassador, Mr PS Raghavan spoke of the significant increase in the activities of the association and of its increased membership that now stands at 150. He stated that this is largely due to the greater awareness in Ireland of India in terms of the opportunity to do business with a market that is over one billion people in size, growing annually at a rate equivalent to the population of Australia, is English speaking and operates a legal system that is broadly similar to that of Ireland. At the same function, Gerry McInerney, managing partner at Pictured above are delegates attending a Future of Audit discussion at Chartered McInerney Saunders, who had Accountants House on 26 January 2011 following publication of the Institute’s recently returned from India, Future of Audit Discussion Paper. See also p3 and pp 13-14 of this issue. mentioned that his firm is actively involved in providing practical and professional assistance to foreign CEO confidence restored to pre crisis levels inward investors from India and elsewhere when setting up business in Two years removed from the depths of recession, CEOs' confidence in future Ireland. growth has returned to nearly pre-crisis levels, according to PwC's 14th Annual Global CEO Survey. In the worldwide poll of 1,201 CEOs, 48% said they were As part of the firm’s membership of “very confident" of growth in the next 12 months. That's a major shift from the IAPA International and the UK 200 31% who were "very confident" last year and approaches the 50% reached in Group of Chartered Accountants the 2008 before the onslaught of the economic crisis. firm has close relationships with firms throughout the world and actively In total, 88% of CEOs said they now have some level of confidence for prospects promotes Ireland as a base for in the next 12 months, up from 81% last year. Longer term, 94% now are businesses seeking to avail of Ireland’s confident of growth three years from now, an increase of two percentage points. skilled, industrious and entrepreneurial workforce, the benefits of the attractive 12.5% rate of Promotions at BDO in Limerick Corporation Tax, the relative ease of establishing a business in Ireland and easy access to the European market. Gerry McInerney welcomed the government’s recent decision, announced in the budget, to lower the rate of airport charges as a means of attracting greater leisure tourism to Ireland. Gerry had argued for this at a recent conference focussed upon the golf industry in Ireland.
Accountancy Ireland welcomes brief news and announcements from Chartered Accountants Ireland members and member firms. Contributions for the next issue should be emailed to [email protected] Please note items submitted will be BDO recently announced that Margaret Ryan (seated, left) and Dermot Gleeson edited and publication is not (seated, right) have been appointed managers with the firm. They are pictured guaranteed. above with (left) Ger Holliday, Partner and Denis Herlihy, Managing Partner.
84 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Rónán Murphy Deloitte boosts pension team with 12 new hires appointed to Board of UCD Smurfit School
Deloitte’s Belfast office is boosting its expanding UK pensions practice with the hire of 12 new employees providing a range of expert pensions services to Northern Ireland clients. These services will target both pension scheme trustees The Michael Smurfit Graduate and corporate sponsors, and will cover the full range of pension services – Business School at University College consultancy, actuarial and administration. Pictured above (from left) are Dublin has appointed Rónán pensions director Richard Morrow from Deloitte Belfast; Tony Clare, head of Murphy, Senior Partner, pensions at Deloitte; and Glenn Roberts, Senior Partner at Deloitte Belfast. PricewaterhouseCoopers (PwC), to its Irish Advisory Board. Murphy, who is Chartered Accountant elected Vice-President of the a UCD Business School graduate, will Federation of European Securities Exchanges join the board in providing Irish Chartered experience, influence and direction Accountant, Deirdre in an effort to ensure the success of Somers, CEO of the Irish students at the School. Stock Exchange, was elected Vice President of Rónán Murphy has been Senior the Federation of Partner of PwC in Ireland since 2007. European Securities Prior to that, in 2003, he was Exchanges (FESE) at the appointed as the Partner in Charge of General Assembly meeting the firm’s Assurance practice – a late last year. The position he held for four years. appointment is for a term of two years. A new Rónán joined PwC in 1980 and was President of FESE has also admitted to the partnership in 1992, been elected, Hans-Ole following a two-year secondment to Jochumsen, of NASDAQ PwC in Boston. OMX Nordic.
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Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 85 News iPhone app helps PwC names Belfast native Martyn Curragh US manage energy costs Transaction Services leader
VAYU has launched a new iPhone PwC LLP has announced that Martyn app, allowing businesses to access real Curragh has been appointed Leader of time energy market information. The the US Transaction Services practice. service is relevant to companies facing In his new role, Mr Curragh leads a large energy bills. The new Vayu app practice comprised of over 1,000 offers subscribers and existing Vayu experienced professionals who advise customers up to date information and clients throughout the entire life cycle of news on a range of issues which affect a transaction, providing due diligence the price of natural gas. This for M&A transactions, along with advice knowledge helps companies to buy on accounting and financial reporting their energy in a more proactive and valuations, M&A strategy and manner. The app was designed by integration, capital raising, restructuring, Irish company, Big Top Multimedia. and divestitures options. The app is available through the iPhone app store. Mr Curragh is a Fellow of Chartered Accountants Ireland and received his undergraduate degree in Economics from Deloitte acquires the Queen's University of Belfast. Curach Consulting
Deloitte Ireland has acquired Curach Chartered Accountants become Santa’s Helpers Consulting, an Irish owned consultancy firm. Curach Consulting provides business advisory, delivery and diagnostic services to a range of significant blue chip clients across a number of sectors, notably the financial services, technology and public sectors. The deal will see Curach’s entire workforce of 70 join Deloitte Ireland’s 300 strong Consulting and Advisory practice. David Dalton, the Managing Director of Curach, will join Deloitte as a partner. David has over 25 years’ of consulting experience including 15 years in Accenture where he led the Strategy Consulting practice. David joined Curach Consulting in 2005 bringing extensive financial and banking consultancy expertise. Bruce Curtis, Head of IT Consulting at Curach, will join Deloitte as Director of Technology Integration services. Bruce also brings 25 years’ experience in financial services and IT consulting. Curach has an annual turnover of approximately €7 million. Core areas of expertise at Curach include customer/channel management, IT, Oracle, programme and project management. The combination with Deloitte will lead to Ulster’s Chartered Accountants helped Santa before Christmas by presenting over £10,000 worth of one of the largest teams of toys to the Salvation Army and St. Vincent de Paul Christmas Toy Appeal. Chartered Accountants consultants and IT professionals Ulster Society also raised £5,000 for the Northern Ireland Cancer Fund for Children. Pictured before focused on the Irish and financial the charity lunch with a few of the toys collected are Richard Gardiner, Chartered Accountants Ulster Society Chairman (centre), and some of the girls from St. Bernadette’s Primary School Choir (from left services marketplace. to right Erin McKeavney, Patrice Fox, Leah Clarke, Kirsty Canavan, Saoirse Crane, Chloe Wilson.)
86 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Standard Life allows NUI Galway Masters of Accounting Programme investors build their own low risk/higher return alternative to deposits
Standard Life has launched a new Combination Option which allows investors build their own bespoke investment portfolio, ranging from low risk upwards. This option is available within its Synergy Investment Bond for lump sum investors. Investors can have up to 25% of their total investment earning 5% AER fixed for 12 months with Nationwide UK (Ireland) while the remainder can be invested in Standard Life’s 38 Synergy funds/deposit options or Exchange Traded Funds (ETFs). Amongst the attendees at an Alumni Reunion marking the tenth anniversary of The minimum amount that can be the Masters in Accounting Programme at University College Galway were (from invested in Standard Life’s left): Dr Breda Sweeney (NUIG), Lawrence May, Simone Doran (Chartered Combination Option is €20,000. Accountants Ireland), Keith Warnock (NUIG) and Emer Mulligan. The minimum deposit in Nationwide UK (Ireland) 12 month fixed term is Rising oil prices could dampen Eurozone recovery €5,000. particularly in peripheral and weaker countries The closing date for applications is 28 February, 2011 Research from the Ernst & Young Eurozone Economic Forecast (EEF) shows that the significant rise in oil prices that we have seen in the last few months will add to recently rising inflation concerns in the Eurozone. It will also dampen an New cloud based already fragile recovery in peripheral and weaker countries including Ireland accounting software and could widen further the divergence in economic conditions across the area. launched However, the ECB should not respond to oil-price driven inflation by tightening monetary policy as that would further endanger the Eurozone recovery via bluQube, a company selling financial higher borrowing cost and, consequently, reduced investment and management software has recently consumption. launched its inQube cloud Using the ECB’s New Area Wide Model, EEF finds that if oil prices were to accounting software. Based on remain at around $100 per barrel during 2011 and 2012, Eurozone inflation established technology, the new would rise by around ½% in each year. If oil prices were to rise to and stay at solution helps solve interoperability $120 per barrel, the impact on inflation would become large, at close to 1.5% in concerns associated with cloud technology as well as offering rich 2011 and 1% in 2012, thereby pushing Eurozone inflation to around 3%. functionality including full Given the current weak labour markets, employees would be unlikely to recoup compatibility with a range of mobile this in higher wage increases and would therefore face losses in purchasing devices such as iPhones. The product power, which would result in lower consumption. Moreover, by cutting growth is aimed at professionals from the in the Eurozone’s trade partners, higher oil prices would also have a negative finance manager needing to impact on the region’s export performance. Overall, with oil prices at $100 per automate and distribute reports to barrel, GDP growth would be reduced by 0.1% in 2011 and by 0.2% in 2012. disparate stakeholders, to the Finance Thus the level of economic activity would be €26 billion lower than in Ernst and Director relying on dashboard views Young’s December forecast in 2012. Should oil prices rise to $120 per barrel, for an instant snapshot of an 2012 GDP would be lowered by €60 billion or around 0.8% of GDP. organisation’s financial health. The company claims the software This would also mean that 115,000 more persons would enter unemployment enables FDs and CFOs to adopt cloud in 2011 under the $100 oil price assumption, with the number increasing to technology and reap all its benefits 182,000 in 2012. As a result, what is already perceived to be an anaemic and without having to consider what on- fragile recovery would be weakened even further. A further slowdown in site or hosted technologies their Eurozone growth due to higher oil prices could also put fiscal consolidation at organisation is on now, or in the risk, as a considerable part of the measures relies on increased revenue via future. higher growth and tax increases which higher oil prices would jeopardise.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 87 Affinity Schemes Premium offers for Members
Welcome to a brief overview of the 2011 Chartered Accountants Ireland Member Benefit Offers. There is again a wide range of exclusive MEMBERS tangible benefits and offers specifically developed for you, your family but also for your BENEFITS 2011 company or firm. Premium Member Benefits for you, your family and for your company/firm. In terms of corporate offers, there is a practical focus on the latest business products, services and technologies that can benefit members by adding value to your role and your organisation. The 2011 Member Benefit Offers include a comprehensive list of useful and relevant business solutions in IT software, hardware, anti money-laundering search facilities, business banking, insurance, events, practice specific, business specific, accommodation/conferencing and corporate incentives.
Lifestyle benefits include premium offers in the following areas: shopping, motor and home insurance, health insurance, personal banking, publications, entertainment, restaurants, accommodation, affiliate memberships, eyecare leisure and sports.
All offers have been negotiated with partners and promoted to the membership base at no cost to the members.
The members support of these offers is vital for their continued success. Offers will also be communicated to you via quarterly ezines. If you would like to propose offers from your own company or your favourite service provider please contact Stephen Molloy on 01 The full list is available in the Member Benefits 6377222 or [email protected] Booklet and online at
www.charteredaccountants.ie/memberbenefits
Chartered Accountants House Conference Facilities One of Dublin’s newest and premium training centre, offering a selection of 25 separate meeting and training rooms for all capacities. Special rates for members.
With a 600 seater lecture theatre with audio visual and broadcasting technologies is available for international conferences, product launches and events.
Chartered Accountants House 47 - 49 Pearse Street, Dublin 2 T:01 637 7200
88 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 Bank of Ireland has a comprehensive business and personal banking package designed to meet the needs of Chartered Aon offers up to 20% discount on Commercial Insurance and a Accountants Ireland members. free insurance review for Members and their clients. Republic of Ireland members: Contact Fergus Hickey. Contact: Gareth Dixon (01) 637 5257 or [email protected] Northern Ireland members: Contact Anthony McVeigh [email protected] 028 9043 3780 or [email protected] Ph: +353 1 266 6000
Opticks, the only opticians in Ireland that offer Carl Zeiss’s most advanced AA Ireland is offering diagnostic equipment, lens special discounts to all solutions and the Carl Zeiss Cinemizer - 2D/3D, offers Chartered Accountants Members a 10% discount on their wide range of frames, Ireland members. prescription lenses , sunglasses and sports eyewear.
You can save €67 on AA Roadside Rescue cover. You can make an appointment on the web at See www.aaireland.ie/cai or call (01)617 9977 www.opticks.ie, call on +353 1 611 1864 or at their offices on 1 South Anne Street, Dublin 2
Starwood is offering Complimentary Membership to Corporate Special Offers on Preferred Level which entitles you to earn Starpoints that can be Sage Software for redeemed against selected benefits.
Chartered Accountants Always quote your unique SPG number and the Chartered Accountants Ireland Corporate Ireland Account Number 373241. See www.starwoodhotels.com/preferredguest/index.html.
To avail of and find out about the Sage offers, or discuss your needs further. Contact Sage’s Product Advice Team on 1890 88 20 60 or [email protected] Be sure to quote ‘Chartered Accountants Ireland Offer’ and give your Chartered Accountants Ireland membership number. Purchase an Open Fairways Golf Privilege Card for the discounted rate of just €55 to avail of savings on your green fees at many of the great courses in Ireland!
Hampers & Co is To avail of this offer go to www.openfairways.com offering a 12% or call 048 9039 3990 (from ROI) and quote the reference discount to all ‘CAI2011’ Chartered Accountants Ireland Members when purchasing online.
Log on to www.hampersandco.com to make your Meadows & Byrne are offering Chartered Accountants Ireland selection or email your order to members a 10% discount on all purchases, exclusive promotions [email protected] declaring your CAI and special invites to sale previews and other shopping events. membership. Contact Audrey Porter at [email protected] Phone 01 8511098 for any help or advice you may need.
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 89 Affinity Schemes
Dell is offering 10% off on any Dell Vostro or XPS product above €549 Ex Vat (on each unit). You also get Free Delivery on individual Vostro Systems with a total value of €479 Ex. Vat or above. Valid until 30/11/11. This offer can be combined with Hi-Life Diners Club is offering Chartered Accountants Ireland existing offers available on these members the Two for One Dining Scheme for just €49.95 at over products. 300 of Ireland’s best restaurants See www.hi-life.ie click on ‘join now’ Contact Dell Ireland Sales on 1850 964024. Or www.dell.ie/b2b or phone 01 526 2463 and quote ACCOUNT and quote C2B33D7GJNNNF3 at checkout.
Intelligence Information Systems have build an exclusive website for Members and offer a tool to assist with your basic AML due diligence. With this, you are able to search again Global Sanctions, Glennon Insurance Schemes offer great value to Chartered Global Political ly Exposed Accountants, their Spouses, Partners, Staff and Clients for home, Persons and the UK Local motor, business and personal insurance. Register. Simply call (01) 707 5999, Email [email protected] In early 2011, this will be Fax: +353 1 707 5858 enhanced to include Irish data sets such as telephone directories, Visit us online charteredaccountantsireland.glennons.ie Irish media and CRO records. All services are offered to Members with a 10% reduction in annual costs.
For further information go to secure.c6-intelligence/cai or www.c6-intelligence.com.
If you would like to discuss your requirements, email [email protected] or call +44 (0)1264 889745. PFP, providers of Tax Investigation Insurance, offers preferential rates to Chartered Accountants Ireland. To apply or for more information please call Derek Granger Mobile: 0044 7545 610 215 Chartered Accountants Ireland has joined Office: 0044 845 307 1177 with AIB to offer a special Affinity Credit Fax: 0044 845 307 1166 Card issued exclusively to its members. Email: [email protected] Website: www.pfp.uk.com Though this affinity scheme, every time you make a purchase using your AIB Chartered Accountants Ireland Gold Affinity Mastercard, AIB will make a contribution to your professional body.
Bearers of this card are entitled to a special introductory rate on purchases and Balance Transfers for the first 12 Business Plus is offering Chartered Accountants Ireland months from the Account opening date, after which the members a specially reduced subscription offer of €20 for a one APR will revert to a highly competitive rate on purchases. year subscription. You can also avail of up to 56 days interest-free credit. Contact Rachael Salman For info call +353 1 668 5500 or email [email protected] (01) 660 8400 or [email protected]
KBC Bank Ireland has been working with 10% off all products members of Chartered on CD WOW for Chartered Accountants Ireland for over 20 years. We Accountants Ireland can provide a range of finance solutions for Practice - Members. Professional Fee Finance; CAI payment finance For you - Tailored tax and pensions ; Competitive mortgages; Enjoy even greater value at CD WOW with Exclusive Discount across all CDS, DVDs and Games. 10% discount on your home insurance. Contact Information: Email: [email protected] Phone: 01 664 6385 Website: www.cdwow.ie/go/cai Email: [email protected] Phone: 01 664 6206 The site has already been discounted.
90 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 énergie fitness clubs are offering Chartered Accountants Ireland members an opportunity to join for only €44 per FBD is offering Chartered Accountants Ireland members up to a month from January 2011. 20% discount on business insurance for your accountancy practice and up to 10% discount off your motor insurance. You will also get their émpower programme free of charge which gives you six personal guidance sessions on exercise, diet and Contact 1890 617 617 or go to www.fbd.ie relaxation.
Go to www.energiefitness.ie to find your local club and get a free 5 days VIP pass. Then call or drop in to sign up, quoting the reference ‘CAIjd11’. enowine are offering a Unique special discount scheme Perspectives exclusively for Chartered is a full Accountants Ireland service Members. You will be entitled to a 15% discount when you buy marketing wine from their website or purchase from either of their shops on agency and the Crescent in Monkstown or in the IFSC. has extensive experience working with owner managers and SMEs across Walk into either shops and tell staff you are a Chartered Ireland. They would like to offer Members a free Marketing Accountants Ireland Member and they will deduct your 15% Review & Consultation. discount at the till. Or buy online at www.enowine.ie code:cai15 Visit www.uniqueperspectives.ie/CAIfreeconsultation and complete the form outlining the issues you want advice on and then they will arrange your free consultation.
Ireland’s leading Employment Law and Health & Safety Roomex has reduced it’s rate in all 80,000 hotels worldwide for consultancy, is providing a complimentary initial risk profiling members of Chartered Accountants Ireland. and analysis of your Employment Law and Health & Safety compliance procedures exclusively to Chartered Accountants To avail of this offer logon to their website cai.roomex.com or Call Ireland Members. Mark Trimble at +353 1 296 6275 for any help for advice you may need. To take advantage of this special offer call 1 890 252 923 and quote ‘CAI005’.
Hospital and Medical Care Association (HMCA) has Become a Friend of The National Concert Hall today and receive provided membership benefit plans to 20% off your first year of membership as well as invitations to Chartered exclusive events! Accountants Ireland Members. Book The National Concert Hall for your meetings, workshops Contact Liam / Donna at 01 6130316 and seminars and receive 25% off your first booking and 15% on or www.hmcaireland.ie/cai.htm all further bookings thereafter! Contact the Membership Office - Northern Ireland www.hmca.co.uk/cai.htm Phone: 01 417 0067 or email [email protected]. www.charteredaccountants.ie/memberbenefits
Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 91 Books
Alternative Assets: RIS Bookshelf Investments for a Post-Crisis World
By Elisha Caulfield, Research & Information Services by G. Fraser- Sampson, Wiley, 2011. Corporate Fraud Public Private Partnership Financiers’ Perceptions of This book guides investors through by Andrew Brown, Risks the new-look alternative investment Chartered arena, providing post-financial crisis Accountants Ireland, by Istemi Demirag, Iqbal Khadaroo, perspective and investment advice on 2010. Pamela Stapleton and Caral the alternatives landscape. Each Stevenson. Institute of Chartered chapter provides useful background Accountants of Scotland, 2010. knowledge on a particular asset type, including whether a satisfactory beta This title is part of the Governance Public private partnerships (PPP) are return level exists and, if so, the Risk Compliance series from used extensively in the provision of different ways in which it might be Chartered Accountants Ireland. public services. Who actually bears accessed. The book advises the Written by an experienced fraud the risks in such schemes? This new investor on where to allocate in the investigator, the book provides advice research report looks at PPP schemes new climate and provides a primer on to anyone responsible for dealing from a new and different viewpoint each alternative asset class, as well as with fraud on how they can reduce by examining financiers’ perceptions practical tips on the pros and cons, the risk of being a victim of fraud, of risks and then comparing them to implementation, returns analysis, and how they should go about the perceptions of their public sector fees and costs. Gold, currency, investigating it if it occurs. Real-life partners. commodities, works of art, energy, examples are used which depict The report explains the complex hedge funds, gem stones and frauds that have affected the public, network used in PPP schemes and antiques are some of the suggested private and voluntary sectors. The investigates how financiers perceive alternative assets. reader’s understanding of corporate fraud is enhanced as is the various the risks associated with PPP; how methods of preventing and reducing financiers manage these risks; how ID No: 125770 fraud. changes in the PPP industry, including the impact of the credit ID No: 125821 crunch, have affected financiers’ perceptions of risks; and how A Practitioner’s Guide to financiers’ perceptions of risks differ Trusts, 8th edn. And The Clients Went Wild! from those of their public sector by J. Thurston, Bloomsbury How Savvy Professionals Win partners. Professional Ltd, 2010. All The Business They Want The report is available for download by M. Kuzmeski, Wiley, 2010. This title provides trust and estate free of charge from practitioners with the guidance they www.icas.org.uk/demirag This is a marketing book in which the require when dealing with clients and author advises on the use of contains the information needed to combining social media with create and administer a trust in traditional methods to achieve Requesting books compliance with the latest UK trust business success. Part 1 dwells on the listed on this page law. Part I deals with matters five core principles for cultivating common to all trusts, from the clients and Part 2 covers online and Books listed on this page are essential elements, appointment and available for loan to Chartered traditional marketing techniques in powers of trustees to breach of trust Accountants Ireland and Accounting depth. The importance of building a and removal of trustees. Part II covers Technicians Ireland members and brand identity, Internet presence, particular trusts under such headings students. traditional methods of advertising as life insurance, pensions, charities, and direct mailing, events and To order, contact the Research & employee trusts, options and seminars are covered. The last chapter Information Service at Chartered incentives. It has been fully updated entitled ‘Special Tactics for Financial Accountants Ireland. and revised to take into account the Advisors’ has advice on what is Email: [email protected] Finance Act 2010 and Finance (No.2) working best right now to build small or phone (01) 637 7227 / 028 Act 2010. and large financial services practices. 90435845, citing membership ID No: 125740 number and the Item’s ID number. ID No: 125741
92 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1 WWW.CAREERCOMPASS.IE
FINANCIAL SERVICES INDUSTRY Alternative Investment | Head of Finance FMCG | Treasury Manager Role will report to the CFO, managing a team (7) responsible for Due to recent expansion, our client is seeking an experienced back office, fund accounting, corporate accounting and related Treasury Manager to review loan portfolio, prepare cash flow finance functions. The candidate will be a qualified accountant with forecasts to minimise costs and maximise returns in addition to min. 5 yrs' PQE in a senior audit or finance role in the asset managing the Group’s FX exposure and currency risk. Suit ACA management or funds industry. with min. 3 yrs’ PQE in treasury with strong technical, analytical c. €90k + significant bonus potential Ref: 2433 and project management skills. €Neg + package Ref: 2501 Alternative Investment | Dir Client Services PLC | Financial Analyst Heading up a team within this high profile alternative investment Working for one of Ireland's high profile PLCs, this team management company, the role will broadly involve strategic orientated role will involve compilation of the budget, production of planning, managing KPIs, preparation of MIS data, system management accounts and review of all capital investment and implementation and identification, in addition to managing all client acquisition proposals to include ongoing analysis and presentation relationships. The ideal candidate will have an in-depth knowledge of financial information to senior management whilst adhering to of the funds industry gained in the management of a client strict deadlines. Suit newly qualified ACA (Big 4) with first-rate services department for min. 5 yrs.€Neg + package Ref: 2493 academics. c. €50k + package Ref: 2510 Investment House | Equity Research Analyst PLC | International Internal Auditor Equity Research Analyst required to join a team of analysts who Working for an Irish PLC with operations across the globe, the provide investment ideas to management, institutional clients and role will include full risk based audit assessment for subsidiaries a private client sales team. Role will involve modelling company to include preparation and execution of audit plan, analysis and accounts, producing company specific and sector research whilst reporting of findings to HO. Suit newly qualified ACA. Knowledge of also assisting the Head of Research to prepare presentations and a second language is essential. €45k + package Ref: 2504 attending investor road-shows. The candidate will be ACA qualified with min. 2 yrs’ PQE. c. €60k + package Ref: 2497 PRACTICE
Asset Management | Investment Analyst The following roles are available in Big 4, Top 10 and Top 20 firms: Exciting opportunity for a first-rate newly qualified ACA to join an ■ € Irish asset management company and work with a team of highly Audit Senior | c. 40-50k Ref: 2482 qualified and experienced professionals. The role will include ■ Tax Senior | c. €40-50k Ref: 2474 carrying out detailed analysis of investments, preparing and presenting reports, detailed industry research and managing ■ Insolvency Senior Manager | c. €65-75k Ref: 2425 relationships with financial institutions and private equity houses. ■ € Suit ACA with exceptional technical skills and strong commercial Audit Manager | Neg Ref: 2395 awareness. c. €50k + package Ref: 2429 ■ Audit Director/Partner Designate (FS) | €Neg Ref: 2464
As Ireland's specialist Financial Recruitment Company, we would like to offer you something special! Simply follow us on Twitter or Facebook, post a message telling us where you work and hey presto! You're in with a chance to win a free Apple iPad (Terms & Conditions apply). For further information, visit CAREERCOMPASS.IE
For further information on the above positions or our services please contact Julianne Hatton, Robin Craig or Alannagh Byrnes on 01 6787010 or email [email protected] CAREERCOMPASS, 15 Herbert Street, Dublin 2. www.careercompass.ie Pictured left to right: Killian O'Sullivan, David Burke, Jeannette Naughton and Ronan Colleran, Managing Director of Accreate. ACCREATE CONTINUES TO GROW
Accreate Executive Search & Interim (part of Irish-owned Premier Group) has announced three recent appointments at the Associate level. The new hires are based in Accreate’s Dublin and Cork offices and report directly to Managing Director, Ronan Colleran.
Jeannette Naughton | Associate Jeannette joins Accreate as an Associate managing executive search assignments for blue chip clients. Jeannette has 12 years’ experience in the recruitment industry, having previously worked at SpenglerFox where she was instrumental in establishing their executive search business in Ireland. She also gained relevant industry experience with PricewaterhouseCoopers’ Executive Search team.
Killian O’Sullivan | Associate Killian has been appointed as an Associate in Accreate’s Business Development team. Killian joins from marketing services company The Merchandise Factory, where he was Managing Director. Prior to that, he gained experience with Award International Holdings PLC, a UK based marketing services company, where he worked as Group Operations & Commercial Affairs Manager. Killian also previously worked as a Senior Buyer with C&C Group.
David Burke | Associate David joins Accreate as an Associate providing executive search services to the firm’s multinational client base. David moves across to Accreate from Morgan McKinley’s technical recruitment division where he worked for more than 10 years managing recruitment requirements for multinational corporations. David also brings a wealth of experience in supply chain management, having previously worked for major brands Apple Inc and Johnson & Johnson. Ronan Colleran, Managing Director, commented: “I am very pleased to welcome Jeannette, Killian and David to the Accreate team. Each has the talent and experience to strengthen our reputation as Ireland’s leading executive search consultancy."
www.accreate.com Assistant Financial Controller
A leading educational campus on Dublin’s Southside (c. 1800 Students) wishes to recruit an Assistant Financial Controller. Reporting to the Campus Financial Controller and Boards of Management, the role holder of this newly created position will be tasked with: Strengthening the Financial Controls throughout the Campus Supporting the Responsibilities of the Boards of Management Providing a Back Up for the Campus Financial Controller
General Responsibilities include the following: Specific Responsibilities include: • Ensure Financial Systems and Procedures are in Line with • Financial Administration within the Schools issued Guidelines • Preparation of Budgets, Financial Plans and Management • Assist with monitoring and review of Campus Capital Accounts Development Plan • Upgrade and implementation of Accounting Systems for • Management and Group Reporting – Preparing Timely and Campus Accurate Information • Administration of Salaries and Wages Records • Work and Liaise with Auditors, Campus Pensions Consultant • Debtor Control for Campus and Insurance Broker • Campus Fund Raising (Database Management) • Liaise with Bank and other Financial Institutions • Assisting the Campus Financial Control as required • Organise the set up of a Fixed Asset Register • Coordination of School Lettings and review of other The ideal candidate will be a technically astute ACA commercial activities with at least 5 years’ PQE in an organisation of similar • Identification of appropriate Efficiencies and Cost Cutting scale. He/she will have strong analytical ability along Measures with good communication skills. Salary will be • Maintain Excellent Working Relationships with School competitive and commensurate with experience. Managements and 3rd Parties • Play a Proactive Role in Process Enhancement and Please email - in strictest confidence - enclosing a Implementing Change Curriculum Vitae and cover letter to: • Direction and Management of Financial Administration Staff 2011workseeker @gmail.com • Ensure that dealings with Suppliers are undertaken on the Best Commercial terms and Interest of the Campus Closing Date: 5pm on Fri 4th March 2011. Short listing will apply. ■ ■ ■ ■ FK International...... Your financial recruitment partner for 2011
Since 1998 we have specialised in placing Chartered Accountants with a well-established, diverse and blue chip client base. Our dedication to the cause is borne out by the fact that this is our 73rd consecutive advertisement placed with Accountancy Ireland! After a strong 2010, we look forward to partnering with our clients and candidates in 2011. We specialise in financial recruitment for permanent, contract and interim staff. Our areas of specialism are:
BANKING & FINANCE INDUSTRY & COMMERCE
PRACTICE TAXATION
INSURANCE & FUNDS EXECUTIVE
RECENTLY QUALIFIED INTERNATIONAL www.fkinternational.com
■ view client solutions ■ view live jobs ■ discuss your plans for 2011 ■ register your details
www.fkinternational.com
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Partner Designate Firm Acquisition Progressive firm with 2 offices seeks a partner designate to take responsibility for busy office in the South East. Progressive firm of Chartered Accountants and Registered Tax Consultants looking for the acquisition of a block of This long established office is profitable, has 6 employees fees or practice in Dublin area. and has a broad range of clients serviced from new Would ideally suit a practitioner planning their premises. retirement strategy or withdrawing from audit. All replies dealt with in the strictest confidence. The right person will be professional, outgoing and Please contact [email protected] dynamic. Please reply in confidence to [email protected]. Our clients seek to invest in / acquire: Delaney Locke & Thorpe Hardware, Plumbing and Bathroom We are a client relationship and people focused business Distribution Businesses; advisory practice, based in Sandyford, South Dublin. We are In Ireland / Northern Ireland with turnover of €1m plus seeking to acquire or merge with an accounting and business and a mature customer base. advisory practice during the course of the next 18 months. We would welcome contact with prospective principals who may be Apply in the strictest confidence to: interested in this notice to establish whether our respective Mr. Keith Mooney, Leonard & Company, ethos, client values and practice objectives are congruent. Our 4 Lower Dundrum Road, Dublin 14. firm thrives on ideas, respect, collaboration and solutions. Tel: (01)2988766. If you are an interested principal please contact Patrick Thorpe Email: [email protected] (01) 295 3500 or (087) 68 49 611
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98 Accountancy Ireland FEBRUARY 2011 Vol.43 No.1