September / October 2015 issue 83

FRAUD
BAROMETER
What does fraud really cost us in 2015?

ARTICLES, INTERVIEWS, ANALYSIS FROM THE WORLD OF ACCOUNTANCY

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 EDITORS LETTER
W
ith exam entry now open for the November 2015 exam session, proper
preparation is the key to success. There are many resources available to
help AIA students, helping them to prepare effectively for their exams.
These include hints and tips on study technique, as well as in-depth resources for
each paper, including past papers and technical articles.
In addition, live webinars for the details are available online and in fast. Held at BAFTA 195, the home
professional level 2 papers are the Events section of the magazine. of the British Academy of Film
being hosted by AIA e-tutors. Elsewhere in the magazine, we and Television Arts on Thursday 8
Rachel Rutherford These offer paper and question look at some legal aspects of the October 2015, this special black tie
editor@aiaworldwide.com specific lectures, enabling students profession, including the rise in event is an opportunity to celebrate
to develop a better grasp of what tax litigation and what alternative the accountancy profession. It also
an examiner will be looking for in options there are. We also have gives members the opportunity to
Read my blog: your answers and the opportunity the results from KPMGs Fraud reconnect with old friends or make
www.aiaworldwide.com/ to engage with the e-tutors and Barometer, which offers an insight new ones in a spectacular setting.
international-accountant/ ask them questions. Sessions are into the UK fraud trends and top tips If you would like to book tickets
editors-blog.html scheduled for Paper 13 Financial for protecting your data. for the event, please visit www.
Accounting III; and Paper 14 Tickets for the AIA Presidents aiaworldwide.com/presidents-
Financial Management. Further Dinner and Awards are selling out dinner-and-awards.

CONTENTS: ISSUE 83: September October 2015

7 10 12 14

22 2 Contributors
Meet the team
10 Data protection
Top tips for data security
22 Insolvency
Understanding liquidation

4 News and views 12 Customs duty 25 Dates for your diary

Green finance booming in China True costs to emerging economies Upcoming events

6 AIA news 14 Crime 29 Technical

Success of AIA council member Fraud related offences in 2015 Updates from around the world

7 Alternative funding 18 Tax law

Embracing the new norm The rise of tax litigation

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Nicola Perry Copyright Association of International Accountants

ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 1

 [CONTRIBUTORS]
Contributors to this issue
NIGEL GRIFFIN
The UK Financial Concierge Service was founded by
its managing partner Nigel Griffin, and teamwork is at
its heart. Nigels ethos and thinking is to bring together
a selection of the best brains in the UK, working
across the entire financial and legal spectrum. He
aims to deliver his services to both personal and SME
clients, enabling much greater control and flexibility
over personal and business finances.
Nigel has over 35 years experience in financial
services and is very well respected in the market.
His areas of expertise cover many aspects of
financial services, including pensions, wealth
management and investments, with detailed
knowledge of commodities, property and land
assets. He also has a strong understanding of wider
financial and political markets, including tax and
product structuring.
DIETRICH BENJES
Dietrich Benjes leads the sales, support and
operations of Varonis in the UK, Ireland and the
Middle East. He frequently speaks on the tenets
and merits of data governance, big data and
data management at technical trade shows and
conferences throughout EMEA.
Having held both highly technical as well as
strategic business development roles, Dietrich is
able to draw on his experiences to educate on the
technological challenges, as well as the benefits
of implementing company wide data protection and
control.He has experience of managing and deploying
data protection solutions across multiple vertical
sectors and in varying organisational sizes.He has
advised on a number of enterprise wide deployments
for PCI, data governance and has excellent knowledge
of the pitfalls of big data management.
KEVIN HINDLEY
Kevin Hindley is a managing director with Alvarez
& Marsal Taxand UK in London, with more than 13
years of experience in corporate and international
tax. He focuses on multinational companies across
UK and US jurisdictions, including UK-inbound and
UK-outbound work.
Kevin has assisted clients ranging from rapidly
growing, privately held companies to Fortune 500
businesses across a wide range of industries,
including technology, telecoms, pharmaceutical,
professional services, hotel, leisure, retail,
automotive, manufacturing and real estate sectors.
He has also worked with intermediary professional
tax advisory firms, providing expert advice from a
technical perspective.
2 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
HITESH PATEL
Hitesh Patel is the UK head of forensic for
corporates, and also leads KPMGs forensic life
science sector. He has over 24 years of specialist
experience in fraud investigation, litigation
support and regulatory compliance. He is one of
the UKs most senior and experienced authorities
on fraud, misconduct and white collar crime,
having undertaken over 400 investigations cross
sector across 30 jurisdictions. He was appointed
to the board of trustees of the Fraud Advisory
Panel in 2015 and has overseen KPMGs Fraud
Barometer for 10 years. Hitesh is a regular
commentator on topical matters with respect
to fraud and white collar crime and has written
numerous articles and co-authored books on the
subject, including Managing risk and resolving
crisis for the Financial Times.
LADISLAV HORNAN
Ladislav Hornan is chairman of Urbach Hacker
Young International Ltd (UHY) and is based in
UHYs UK London office. Born in Prague, Ladislav
came to London in 1968, where he completed his
education and professional qualifications. He has
specialised in insolvency and corporate recovery
since the early 1970s, becoming a partner with
UHY Hacker Young in 1980, and has since worked
as an advisor to UK clearing banks and other
financial institutions, as well as clients of law firms
and other accountancy practices. He was elected
managing partner of UHY Hacker Youngs London
office in 1995 and continues to hold this post. UHY
Hacker Young was one of UHYs two founding
members and is one of the UKs Top 20 accounting
firms, with more than 100 partners and 24 offices
across the UK.
RICHARD SIMMS
Richard has been managing director for FA
Simms & Partners since 1999, in the same year
passing his JIEB exams to become a fully licensed
insolvency practitioner. Before that, he worked
in accountancy and finance roles in London and
around the country.
FA Simms has worked with the AIA for a number
of years providingbusiness rescue and insolvency
guidance. The AIA helpline number is 08450 70
59 59. For further information, please visit www.
aiaworldwide.com/business-rescue-and-insolvency.
 [NEWS]

[U P D A T E ]
COOPERATION IN News, views
and comments
THE OVERSIGHT OF
AUDITORS AGREED
BETWEEN IRELAND AND
CANADA
The Irish Auditing and Accounting

GREEN FINANCE BOOMING

Supervisory Authority (IAASA) and
theCanadian Public Accountability
Board(CPAB) have agreed a

AMONG CHINESE BANKS

Memorandum of Understanding
(MoU) to facilitate cooperation
between the bodies in the areas
of public oversight, registration,
Green finance is quickly becoming an effective
inspections and investigations
of auditors of Irish or Canadian credit tool in Chinas fight to curb pollution and
companies which have issued develop a green economy.
securities on the capital markets of At least 2 trillion yuan ($326.8 billion) of
the other jurisdiction. investment in industries related to environmental
IAASA and CPAB believe it is in protection will be needed every year in the next five
their common interest to cooperate
years, said Ma Jun, economist with the Peoples
in the oversight of such auditors,
to the extent such cooperation is Bank of China, the central bank, in August. However,
the governments financial budget can only afford

compatible with respective laws and
regulations, key areas of interest and
available resources. Cooperation
is intended to permit the bodies
to meet their respective statutory
oversight mandates and also to assist
in determining the degree of reliance
with regard to oversight activities of
auditors that fall within the jurisdictions
of both bodies.
IAASA and CPAB will assist each
other in the performance of their
respective functions by providing
timely information, where possible.
Where information shared is subject
to confidentiality undertakings,
both regulators will handle the
information in accordance with those
requirements.
300 billion yuan of the investment, which leaves
huge market opportunities worth around 8.5 trillion
yuan for the banks in the coming five years, Ma said.
China introduced the green credit concept
in July 2007, as part of its enforcement of
eco-friendly economic policies. Communications
between environmental monitors and banks saw some
plants blacklisted from receiving loans because of their
pollution record.
Environmental protection is a fairly new industry
with huge opportunities, which means big profits for
banks, said Gong Hailei, assistant to the Beijing branch
president of Evergrowing Bank, a Chinese joint stock
commercial bank.
It has only been eight months since our Beijing branch
was established, but the loans we issued for green
iStock.com/Rawpixel Ltd
industry have already accounted for more than 20% of
the total lending, Gong said.
In a set of green credit guidelines released in March
last year, the China Banking Regulatory Commission
(CBRC) urged Chinese banks to use green credit as a
tool to support carbon emission cuts while achieving
sustainable growth.As of the end of 2014, Chinas
21 major banks had a total of 6.01 trillion yuan in
outstanding loans to green credit related customers.
This is 15.67% more than the number registered at the
beginning of the year, according to the CBRC.

PENSIONS REGULATOR CALLS ON 1.8

MILLION UK EMPLOYERS TO ACT NOW
The UK Pensions Regulator has issued a warning to
hundreds of thousands of small and micro employers in
the UK to check when they must meet new workplace
pension duties.
The call to action from The Pensions Regulator
followsresearch showing that almost two thirds of small
and micro employers still do not know the exact date they
need to start complying with automatic enrolment laws.
The research, published twice a year, tracks
awareness of automatic enrolment amongst employers
and intermediaries, and how they are preparing to act.
The regulator estimates that, over the next two years,
around 1.8 million small and micro employers will need
iStock.com/Gajus
The latest employer survey highlights how the majority
of employers due to stage between now and November
2015 have started preparing and are aware of their
staging date, but that awareness amongst those due
to stage in 2016 and beyond drops significantly. It also
shows that most will seek the help of business advisers.
According to the intermediary research, advisers
are now far better placed to help employers meet
their pension duties with almost all accountants,
bookkeepers and payroll administrators planning to
provide a service to micro employers.
Executive director of automatic enrolment Charles
Counsell said: It is encouraging that, according to

to act as a result of automatic enrolment duties. Every our latest research, most small and micro employers
employer is given a date set in law when their duties due to stage this year are well underway with their
start this is their staging date. preparations, but there is no room for complacency.

4 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015


UK GOVERNMENT SET TO
SPEND 1 IN EVERY 3 WITH
SMALL BUSINESSES
The government is setting an ambitious
target that 1 in every 3 that it
spends will be with small businesses
by 2020, in a drive that it claims will
bring big opportunities for small
firms.
Matt Hancock, the Minister for
the Cabinet Office has announced
an ambitious new target to get more
small businesses working on central
government contracts.
In 2013 to 2014, central
government spent an
unprecedented 11.4 billion
with small and medium-
sized businesses those
employing 250 employees
or less. This is equivalent
to 26% of central
government spend.
FINANCIAL RED TAPE TARGETED IN
UK REVIEW
A review to improve the effectiveness of rules designed
to prevent money laundering and terrorist financing
has been launched, as the UK government commits
to improving the efficiency and effectiveness of its
anti-money laundering regime.
The review has been launched as part of the
governments Cutting Red Tape review programme. It
will target the way in which regulation is implemented
in the UK, as businesses are encouraged to submit
evidence of overcomplicated and ineffective
requirements.
TAX REFORM HIGH ON AGENDA OF
INDIAS NEW REVENUE SECRETARY
Indias new Revenue Secretary,Hasmukh Adhia,has
said that bad elements in the tax department will be
identified and taken care of so that they dont spoil the
investment climate.
The Indian Finance ministry is reviewing the status
of readiness for the Goods and Services Tax (GST)
of the Union government and state government.The
[NEWS]
[U P D A T E ]
ASEAN SMES URGED TO
VENTURE INTO ONLINE
TRADING
Small and medium enterprises (SMEs)
in the Association of Southeast Asian
Nations (ASEAN) have been urged
By 2020, the government wants to increase this
to venture into e-commerce or online
to a third of its spend. This would mean an extra trading to extend the reach of their
3 billion per year (in 2013 to 2014 terms) products or services.
going to small and medium-sized firms directly ASEAN Business Advisory Council
or through the supply chain. (ABAC) chairman Tan Sri Dr Munir
Earlier this year, thegovernment improved Majid said that this was the future.
However, at the present time in
the way that it buys goods and services to
ASEAN only 1% of the total retail
help more small businesses bid for public business turnover is being conducted
sector contracts. It has required the entire via the internet. Most developed
public sector supply chain to be paid within 30 economies, he added, see online
days; and abolished pre-qualification trading at 9%.
questionnaires for low value There is potential growth for the
public sector contracts, sector if e-commerce is used as the
medium to do business. However,
making it simpler and
there are certain things that must
quicker to buy. It has be addressed, such as having an
also required the public e-commerce payment system, as
sector to publish its well as good logistics services.
contracts in one E-commerce is something that must
REX Shutterstock
place on Contracts be paid for and there has to be a
Finder. standard system to facilitate the retail
industry, Munir told Bernama.
He was speaking on the sidelines
of the 14th meeting of the High Level
Task Force on the ASEAN Economic
Integration Working Group on
Post-2015, which took place in Kuala
Lumpur in August.
According to Munir, as SMEs are
the backbone of the economies of
ASEAN member states, comprising
up to 97% of the working population in
Businesses have expressed concerns that current some, it is vital to have a concrete plan
guidance, rules and proof of identity requirements for them and stick to it.
can be cumbersome and complicated. Inconsistency We must ensure the plan works.
and confusion over how rules to stamp out money Otherwise, SMEs will turn away from
laundering are applied leads to a less effective regime, the ASEAN integration process and
this will impact the national economies
which disproportionately affects legitimate businesses.
and the region as a whole, he said.
The government wants these rules to protect the
country and safeguard the UKs world leading financial
services industry, without putting disproportionate
SMALL BUSINESSES
burdens on legitimate businesses or those companies
STILL USING INEFFICIENT
that use their services.
ACCOUNTING METHODS
More than half of UK micro-business
owners are still using inefficient or
antiquated accounting methods to
manage their finances, new research
from FreeAgent suggests.
More than half (54%) of micro-
businesses surveyed said that their
main method of managing their
accounts was with pen and paper or a
spreadsheet.
government intends to roll out the GST from 1 April Almost a quarter (23%) said they
2016. MrAdhia stated:Whenever the Constitution spend more than one working day
amendment bill for GST is passed, government should per month personally managing their
accounts. However, almost one in ten
be ready with the preparedness part of it. He has
(8%) said that they spent at least 3
highlightedtransparency in the tax department through
working days per month on this part of
the use of technology, as the well as simplification of the business.
rules and procedures, as his top priorities.
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 5
 AIA Members News
AIA COUNCIL MEMBER SHORTLISTED FOR
SCOTTISH BUSINESS OF THE YEAR AWARD
AIA Council Member and accountant of nearly
20 years, Gloria Murray, director of Murray
Associates known to her clients as the
Queen of Profit has been shortlisted as
one of the five finalists by the Association of
Scottish Businesswomen (ASB) for their award
for Business of the Year 2015. The winner will
be presented with the accolade on Friday 18th
September at the Awards Ceremony to be held at
the Grand Central Hotel in Glasgow.
This wont be the first time that Gloria has
experienced the tension of an awards night
announcement, though, as she also won an
award for being the most Innovative Accountant
in the UK in 2014.
Gloria said: Last year at the 2020
Accountancy Awards I was so pleased to have
been shortlisted. On the awards night, though,
I found out that not only were we the smallest
firm to have entered the awards, but we were
the only Scottish firm to have won any of the six
awards available. And also I was the only woman
accountant to have won any.
NEW AIA PARTNERS
THE UK FINANCIAL
CONCIERGE SERVICE
The UK Financial Concierge Service (UK
FCS) is well placed in the current market to
offer SMEs a range of solutions to issues and
problems they encounter on a day to day basis
and we are able to extend this offering to AIA
members.
The UK FCS has access to some of the
best brains in the UK, operating on a first class
basis, with specific involvement in assisting
businesses to improve their sales and cash
flow, business management, tax structuring,
training, asset protection, corporate simplification,
auto-enrolment solutions, pensions, investments,
cash extraction, exit and succession planning and,
importantly, funding and finance.These services
can be extended to private individuals seeking
similar objectives from a personal point of view.
6 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
AIA Council Member Gloria Murray the Queen of Profit
URICA EARLY PAYMENT
NETWORK
URICA early payment is a groundbreaking
debt free cash flow solution for SMEs funded
by The British Business Bank and RSA,
allowing suppliers and their customers to
trade on better terms. It improves cash flow
for both parties, requires no security and no
personal guarantees from either party and
can be used for exports. For a small early
payment discount, URICA buy your invoices
as early as day 1, take on all the credit risk
and give your customers extended credit
of up to 90 days on your behalf, so you no
longer need to.
To find out more about AIA preferred partners,
visit: www.aiaworldwide.com/member-benefits-
resources
At the ASBs awards, I wont be the only
woman but Im hoping to be recognised at home
in Scotland too. However, I know the competition
is fierce, which is great as it proves Scottish
businesswomen are starting to really achieve!
To help small business owners in Scotland,
I have evolved my role for my clients not just to
be their accountant, but also to be their financial
director, trusted advisor and mentor. Our focus
on helping clients to get the best results for their
business means we really help them become
bigger, better and more effective entrepreneurs.
Criteria for the ASB award includes:
Sustainable, profitable business
performance
Evidence of a clear risk and reward strategy
Innovation in products, services or processes
and/or the ability to generate jobs
Customer advocacy
Effective leadership and management
An ethical approach to business.
AIA EXAM
ENTRY IS OPEN
Entry to the November 2015 exam session is
open. All students must register to sit the exams
before the 1 October 2015 deadline and can do so
online via My AIA.
We have a wide range of resources available
to help you prepare effectively for your exams.
These include hints and tips on study technique
to in-depth resources for each paper, such as
past papers, and technical articles.
Webinars for the professional level 2 papers
are also being hosted. These sessions will be
presented by one of AIAs expert e-tutors, who
will guide students through the knowledge and
technique required to answer the questions
successfully.
Students should see the Events pages for
further details.

EMBRACING
THE NEW NORM
T
Nigel Griffin explores here is a growing movement
in motion, revolutionising the
alternative funding in the world of funding and finance.
new economy A lack of bank support for UK
SMEs, historically low interest
rates for monies on deposit and the
introduction of new pension legislation
NIGEL GRIFFIN have presented a unique opportunity
Managing Partner in the marketplace. Alternative funding
The UK Financial
Concierge Service providers, in particular, with new and
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT
[FEATURE] F UNDING
innovative structures have stamped
their mark on the industry. It would
appear that they are here to stay
and that many business owners are
embracing alternative finance as the
new norm.
Mainstream reluctance?
As businesses successfully emerge
to face the new economy, post credit
7
 [FEATURE] F UNDING
crunch, the stark reality remains that
over the past eight years they have
been starved by a significant lack of
capital. And, for those businesses that
did survive the recession, faith has
not necessarily been renewed in the
mainstream banking system.
In addition, banks are still relatively
reluctant to lend to SMEs. Almost
without exception, even where banks
are prepared to lend, they demand
much higher levels of security collateral,
taking guarantees over personal assets
and often in tandem with high charges.
Unsurprisingly, business owners are
consequently seeking alternative routes
to funding.
But lets not take a cynical view.
One quote that always sticks in my
mind is Winston Churchills comment:
The market has more than doubled year on year, growing from
2012 2013
267 666 1.74
million million
8 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
The pessimist sees difficulty in
every opportunity. The optimist sees
opportunity in every difficulty. This seems
to be how a lot of alternative funding
providers are thinking, including us.
When the economy is in tatters,
it often paves the way for alternative
opportunities. Business owners are
grabbing these by the horns. It appears
that alternative finance is rapidly being
accepted as the new norm and, in many
instances, the first port of call.
New models
Alternative finance covers a plethora
of new funding models, which have
emerged outside of the traditional
financial system and connect
fundraisers directly with funders, often
via online platforms or websites.
2014
billion
With the likes of Funding Circle,
Crowdcube and Peer to Peer Lending
bringing their innovative structures
to market over the last few years,
alternative finance is increasingly
becoming the default choice. It is often
used as a substitute mechanism to
raise expansion capital, development
finance, start-up cash and more. Even
high profile brands are raising funds in
this way, such as Hotel Chocolat and
River Cottage.
To put it all into perspective and
highlight the demand for alternative
finance solutions, the market has more
than doubled year on year, growing
from 267 million in 2012 to 666
million in 2013, and then to a whopping
1.74 billion in 2014.
In the process, this has given
business owners a far greater degree
of control over their finances, as well as
new outlets to expand. This is evidently
great news for the vitality of the UK
economy.
Pension based funding
Despite the rapid growth of the
alternative finance industry as
a whole, one area that remains
relatively untouched, despite being
in existence for well over 20 years, is
pension based funding. This method
only accounts for 1.4% of the total
alternative finance raised.

iStock.com/J614
Pension based funding offers SME
owners and directors the opportunity
to rechannel and reinvest their pension
funds back into their own ventures and
companies, mostly as working capital
and expansion capital, through a highly
tax efficient Small Self-Administered
Scheme (SSAS).
A loan from the SSAS to the
company is arranged on commercial
terms and the added benefit is that
interest payments are then payable
straight back into the business
owners pension fund, instead of to a
third party bank.
This way, not only does the business
receive the welcome boost of capital
that it might so greatly need, but it also
helps to increase the pension fund at
the same time. Better yet, many people
remain unaware that they can utilise
their intellectual property and unquoted
shareholdings as security, or that
pension funds can be used to purchase
an asset which is then leased back to
the company, such as a commercial
premises.
Business owners may want to
consider using an SSAS for raising
business finance, if:
a lack of capital is not allowing the
business to move forward or expand
or is, in some cases, affecting profits;
the bank has refused their application
for a loan or it is becoming increasingly
SEEKING A CORRECT VALUATION
Kelvin King, arguably the UKs leading
intellectual property and intangible
asset valuer, sheds some further light
on the use of IP linked to pension
funds. He emphasises the importance
of seeking a correct valuation:
The increasing use of unquoted
shareholdings, intellectual property
and intangible assets such as
trademarks, brands, patents, copyright
and design rights in the pensions
area is a particularly interesting recent
development. The IP securitisation
technique used to address deficits in
corporate pension funds with these
assets is being successfully used
to help SMEs secure more modest
amounts of funding.
For general business funding, the
specific scheme types which are used
are either an SSAS or a Self-Invested
Personal Pension (SIPP). The main
difference between the two is that
an SSAS has to attach to a limited
company, but has greater flexibility
in terms of what it can do, including
lending to a business. The opportunity
to use these assets in the context of
difficult and more onerous to borrow
from traditional lending sources;
the directors are paying extortionate
levels of income or corporation tax;
they have expensive and tax
inefficient corporate or personal debt;
there is a threat of future or potential
high capital gains tax or corporation
tax;
they are unable to access equity in
corporate or personal assets which
could otherwise be owned tax
efficiently; and
they are looking to have more control
generally over their company finances
and growth plans.
A perfect match: intellectual
property and pension based
funding
In the UK, the true value of a company is
quite often hidden and cannot be seen
on face value, as it lives in the intangible
assets of the business intellectual
property (IP). The most common IP
assets include patents, trademarks,
designs, copyrights, databases and
domain names, all of which have an
intrinsic monetary value. More often
than not, a business will have some IP,
yet many business owners are unaware
that this is a valuable asset.
Pension based funding simply looks
to unlock the value of these assets by
utilising the IP and/or a proportion of
both SSAS and SIPP schemes arose
from the Finance Act 2004; broadly,
this permitted a non-tangible asset to
be used for pensions.
The financial instruments most
frequently used for pensions are:
a sale and leaseback mechanism,
where one or more assets are
acquired by the pension fund and
then leased back to the business in
exchange for a stream of payments
over an agreed fixed term; or
in the case of an SSAS, the
pension fund will provide a loan to
the business which uses the IP as
security.
A thorough knowledge of HMRC
practice in the valuation of these assets
is essential to avoid an unapproved tax
levy to recover tax relief.
Our strategic partner Valuation
Consulting LLP, with ex-senior
members of the shares and assets
valuation team and RICS Registered
Valuers, regularly undertake the
valuations to make this happen
successfully.
their unquoted shareholding, either by
selling it or a portion of it to the pension
scheme. It can also be used as collateral
to secure a pension loan, instantly
introducing a funding stream that a
business did not have access to before.
In summary
With this type of funding, a business
owner instantly has flexibility and
control. Any interest due is paid back
into the members pension fund, subject
to commercial rates applying, set
typically at 1% above the average base
lending rate of six high street banks.
This method of funding can eliminate
some of the demands frequently
placed on a business when using more
traditional lending routes. There is no
credit check or intrusive underwriting;
and, once approved, there is no chance
of having the funding withdrawn or the
risk of a lender changing its terms.
By taking advantage of this method,
not only would a business owner
be adding value to the pension, but
it would allow the pension fund to
become a silent partner of the business,
which opens up present and future
funding opportunities. n
Pensionbasedfunding.uk is a trading
style of The UK Financial Concierge
Service LLP and is the AIAs preferred
corporate solutions provider.
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 9
 [FEATURE] DATA PRO T EC T ION

TOP TEN
Dietrich Benjes considers the best way to keep
your data secure.

W
ith breaches happening on an almost daily basis, its
critical to establish rules and processes to keep your

TO KNO
data safe and secure. The following tips, designed to
DIETRICH BENJES help you build a sustainable path towards data security,
VP UK, Ireland and were inspired by the Federal Trade Commission.
Middle East
Varonis

1
Dont make security an afterthought
Think before you collect. Is it necessary and does it
add value to capture personal, sensitive information
from your customers and prospects? Or does it
just open up additional risk? If you absolutely need to
collect sensitive information, dont hold on to it for longer
than necessary. Set an end date and follow through with
securely destroying the information. Security shouldnt be
reactive but proactive.

2
Stay in control
If you need to hold on to sensitive data (if its a
business must), then how do you keep it safe
from prying eyes both inside and outside your
organisation? The answer is to limit access. Does your
summer intern need wide open access to corporate
IP to do her job? Probably not. Implement a system for
periodically reviewing entitlements to ensure people only
have access to the information they need. Your auditors will
thank you.

3
Passwords and authentication, please
Youve got sensitive data and want to keep it
safe. Requiring complex passwords (by the
way, password is NOT complex) that include
multiple elements (caps, numbers, minimum characters)
and changing them on a quarterly basis makes it hard for
hackers. Even better is to require two factor authentication,
disable access after a specific number of failed login
attempts, and protect against authentication bypass to really
up the proverbial ante.

4
Share it securely
Sure, your internal network is secure, but what if you
need to share your data outside the firewall? One
way to do this securely is with a data file sync and
share solution that works with your existing permissions and
authentication infrastructure.

5
Whos knocking on your door?
Do you know who is accessing specific computers
at all times? Probably not. So protect yourself and
your sensitive data in a separate, secure place
on your network. Limit access. Even better, continuously
monitor your file access activity with a solution that makes
it easy to see and address suspicious, unusual behavior
before its too late.

10 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015

N NEED 6
Remote control
Isnt telecommuting great? It allows employee
freedom and increased productivity. But it can be a
security nightmare. The key idea is to allow remote
connections, but to restrict the ability to re-login to other

W TIPS
desktop and servers. We really want to make it difficult
for hackers to leapfrog around your network. This can be
accomplished by enhancing the security of the remote
desktop feature in Windows.

7
Keep it under wraps
Is your organisation developing a hot new product
or solution? Have you thought about how your
customers will use it and whether it needs to be
secure? Make sure your developers are up to scratch
with privacy by design principles, and the latest best
practices in safe coding. In addition, know thy platform
security guidelines there is no need to recreate the
wheel. Finally, testing is key! While not every threat can
be anticipated, testing for common vulnerabilities ensure
security at the gate.

8
Whos got your back?
You probably work with service providers and
other contractors, but do they share your passion
for security? Make sure your standards are being
met by including your security requirements (for example,
encryption, two factor authentication and data retention
limits) in contracts and service level agreements. Remember
to stay active and always monitor your controls to ensure that
your security expectations are followed and that your users
arent inadvertently exploited.

9
Make a plan, Stan
Youre secure for now. Unfortunately, security
isnt static and so, to remain compliant, youll need
to stay on top of your systems and technology. This
means making a plan that includes monitoring third party
software, performing updates and faithfully implementing
patches. In addition, pay heed to security warnings and
notifications. Develop an action plan. If a vulnerability has
been exposed, be proactive and take the steps necessary
to protect your data.

10
Physical security
Network security is critical. But what about
computer hardware, as well as your paper
files and all the miscellaneous stuff that
makes up a typical office environment? Does your company
have a security policy for the non-virtual world? Rule
number one is to keep your important papers and any other
physical IP in a secure place (locked file cabinets, secured
server rooms, etc). Your laptops should have secure login
and hardware level password protection should be set.
What about old computers, servers, tapes and disk drives?
What may appear as trash to you could be a gold mine to
hackers. n

ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 1 1

 [FEATURE] customs dut y
GETTING A
RAW DEAL?
Are consumers in emerging economies paying too much for their goods?
Ladislav Hornan takes a look at the figures.
C
onsumers in emerging
economies are still paying
comparatively high prices
for goods, relative to their
counterparts in developed
countries. This is due to a far higher
tax take from import duties in these
countries in proportion to the size of
their economy, according to a new
study by UHY. It studied the customs
duties levied by 18 economies
around the world as a percentage of
each economys size1, as a simple
indicator of the impact of a countrys
trade barriers.
Customs duties
It found that emerging economies
charge import taxes equating to
an average of 0.81% of their GDP,
compared to a global average of 0.47%.
By contrast, the major EU economies
surveyed raised proportionally the least
in customs duties, at just 0.13% of their
GDP on average; this is less than a sixth
of that raised by emerging economies.
Those countries which are part of the
North American Free Trade Agreement
(NAFTA) the US, Canada and Mexico
levy, on average, a sum equivalent to
0.2% of their GDP in customs revenues.
Many emerging economies are
implementing protectionist policies
to safeguard the interests of their
domestic producers. In the process,
they risk continuing to adversely
impact consumers in those countries
by creating artificially high prices
for imported goods. The UHY study
adds that this may also suppress
the competitiveness of domestic
manufacturers and producers by
insulating them from global markets.
1 2 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
Market distortions
Consumers in emerging economies
may still be getting a raw deal, as
their national governments continue
to strike a highly protectionist stance
in an attempt to boost their domestic
agricultural and manufacturing sectors.
LADISLAV By creating distortions in the
HORNAN market, the unintended consequence
Chairman, UHY Hacker is often that consumers are left
Young
facing higher prices, while the
duties fail to stimulate
uncompetitive domestic
industries. They often
simply amount to another
tax on businesses and consumers,
which leaves less money available
for spending and investment locally.
Ambitious emerging economies,
which are keen to be able to compete
on the global stage, need to think
carefully about whether protectionist
policies are really the best way to
develop their potential. Excessive
trade barriers can prevent them
from focusing on industry sectors
where they do have a comparative
advantage, and can risk stifling
innovation and efficiency.
While the amount levied in duties
is a useful measure of the impact of a
countrys trade barriers, other factors
do also have a bearing. For example,
the geography of some countries may
mean they simply have no choice but
to import most of the goods that they
use. In this situation, the total amount
of import duties paid will reflect the
volume of imports, rather than an
unusually high rate of duty.
Other countries may also
impose additional taxes which
disproportionately affect imports. For
 instance, in addition to higher import
duty rates on foreign luxury goods,
China also charges a consumption tax
Emerging economies
on goods such as alcohol, tobacco, charge import taxes
cars and cosmetics; these are all
categories in which the most popular equating to an average
brands are often foreign.
In addition to the numerous import of 0.81% of their GDP,
duties in Brazil, some of the taxes
affecting imports are calculated compared to a global
based upon the value of the goods
themselves, plus the other taxes
average of 0.47%.
levied.This makes for a very complex
system and high costs of import, if
business is not planned well.

Diverse range of competitive

free trade agreements
Creating more free trade agreements
(FTAs) or customs unions with a more
diverse range of countries is becoming
increasingly important to increase
US, Canada and competitiveness. Many are benefiting
from spreading their net far wider Country Customs Customs
Mexico levy, on than purely upon the shores of their duties
collected
duties
collected as
average, a sum immediate geographical neighbours.
For example, Mexico has a network
US$
(millions)
% of GDP

equivalent to of ten FTAs with 45 countries, as well

as 30 investment agreements and India 30,000 1.78

0.2%
nine other limited scope agreements. Jamaica 231 1.61
The US has 14 FTAs with countries, Nigeria 4,988 0.96
including Korea, Singapore and
Russia 181,495 0.92
Morocco. Australia has just signed an
Emerging economies average 0.81
of their GDP in FTA with China, one of its key trading
partners, which should help it to Uruguay 421 2
0.74
customs revenues. reduce the import duty costs borne by
consumers in line with other developed
Global average 0.47
economies. Consumers in the EU have Australia3 7,236 0.46
clearly benefited from the European China 46,138 0.44
free trade zone.
Netherlands 2,400 0.38

A British exit from the EU Canada 3,831 0.21

While the UK currently has one of Japan 9,755 0.21
the lowest customs duties burdens NAFTA average 0.20
in the world, there is a risk that this
could shoot up, if it leaves the EU US 33,926 0.19
following its forthcoming referendum Mexico 2,150 0.17
and relationships deteriorate. A Germany 6,327 0.16
so-called Brexit could jeopardise
France 3,581 0.15
Britains continued participation both
in the EU free trade zone and in trade Ireland 298 0.15
agreements agreed by the EU with Spain 1,780 0.15
third party countries.
Major EU economies average 0.13
So much would depend on what
the UK could achieve in establishing Croatia 76 0.13
a whole new raft of bilateral trade Italy 2,691 0.13
agreements, should it vote to leave
Denmark 452 0.12
the EU.
On a global level, these figures UK 2,900 0.11
indicate a clear difference in approach Brazil figures not
between emerging and developed available
economies. As globalisation gathers UAE figures not
pace, the question of whether
Getty Images/Fusion

protectionist policies are a benefit or a
hindrance to individual economies is an
increasingly important debate. n
available
1. Information on the total amount of customs duties received on imports only
2. 2012 tax year (the most recent data available)
3. Tax year to 30 June 2013 (the most recent data available).

ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 13

 [FEATURE] Crime
FRAUD
BAROMETER
After an in-depth analysis of fraud related offences in the UK, Hitesh Patel
analyses the statistics and asks what fraud really costs us in 2015.
S
ince 1987, KPMG Forensic
in the UK has been issuing
The Fraud Barometer, a piece
of research which monitors
cases coming before the
UK Crown courts that involve a
fraud related offence with losses of
HITESH PATEL 100,000 or more. As the longest
running study of its kind in the UK, it
Partner Forensic
KPMG. enables KPMG to offer insight into the
fraud trends facing the UK economy.
The first half of 2015 has seen
the value of fraud on the rise. While
volumes remained virtually unchanged
with 160 cases prosecuted in the UK
courts, losses increased to 385m in
the first half of the year an increase
of 22% when compared with the same
period in 2014 (317m).
While the economy as a whole
continues to be blighted by the impact
of fraud, the private sector suffered
significantly in the first half of 2015,
accounting for 49% of all losses
(189m). This is a marked increase
from the same period last year, when
only 25% of fraud losses (79m)
occurred in the private sector.
Conversely, the volume of fraud
perpetrated against the private sector
has dropped by 21%, with 63 cases
prosecuted in the first half of the year
compared to 80 during the same
period in 2014. As a result, the average
losses faced by the private sector
have increased threefold to 3m. In
the continuing competitive economic
climate, the impact that such a loss has
on liquidity can be crippling, especially
14 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
Often, losses are
the result of control
weaknesses, as
fraudsters will strike
wherever they
perceive vulnerability.
for small and medium sized enterprises,
which have on occasion been driven to
bankruptcy by a single large fraud.
The threat from within
The 2015 Fraud Barometer figures
highlight an increasing internal threat
that is faced by all organisations. In
the first half of 2015, the combined
losses from fraud perpetrated by either
management or employees rose to
290 million a 77% increase on the
losses recorded during the whole of the
previous 12 months (164 million).
All aspects of a business present an
opportunity to fraudsters, however; and
those functions dealing with significant
payments, both in terms of volume
and value, are particularly vulnerable.
The procurement, payroll, finance and
treasury functions are prime examples of
high risk areas which can be manipulated
or abused, if control systems are not
robust or if the ability to authorise
expenditure or payments is heavily
concentrated amongst a small number of
 Getty Images/Image Source

ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 1 5

 [FEATURE] Crime
senior individuals or a sole signatory. This
vulnerability is demonstrated within the
data, as losses to both procurement and
accounting fraud committed by internal
perpetrators have seen significant rises in
the first half of 2015, totalling 9.6m and
8.7m respectively.
In the largest of the procurement fraud
cases, a general ledger accountant
was able to defraud his employer of
5.9m over the course of three years
simply by altering supplier invoices and
diverting payments to his own account.
The perpetrators actions were only
uncovered when his work was subjected
to scrutiny as part of an audit sample.
Given the vulnerability that exists
within the procurement function,
emphasis should not just be on
companies own internal controls but on
those of their suppliers as well.With the
economic climate driving companies
towards variable over fixed costs, the
move to flexible workforces means that
more organisations are reliant upon
agency workers and contractors.As
such, companies should ensure that
the screening performed by their
suppliers, particularly those providing
temporary staff, is as robust (if not more
so) than that undertaken internally. Due
diligence remains a critical proactive
tool that companies can use to protect
A general ledger themselves against fraud.
More broadly, embezzlement where
accountant was funds are simply withdrawn from the
able to defraud business fraudulently over time
his employer of increased by 63%, compared to the
5.9m
first half of 2014, resulting in losses of
11.4m. Often, losses are the result of
control weaknesses, as fraudsters are
over the course opportunistic and will strike wherever
of three years they perceive vulnerability.
16 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
While fraudsters are often incredibly
adept at masking their intentions, there
are many red flags in perpetrators
behaviours which can provide an
early indicator for organisations. This
is particularly pertinent for detecting
internal fraud. Indicators such as working
long hours, refusing to take holidays or
any extended break from the office, and
the guarding of certain relationships
are often observed in the cases we
investigate. Furthermore, unusual or
unexplained lifestyle indicators, such as
an unexpectedly expensive car in the car
park, should always be considered. An
increased standard of living remains one
of the most prevalent motivating factors
for fraudsters.
The march of the middle men
Further highlighting the threats that
organisations face, the data for the first
half of the year has revealed a substantial
rise in supply chain fraud. Criminals
sought to pass themselves or their
products and services off as genuine;
and customers were often unaware that
they had been tricked by an imposter or
that they had bought counterfeit goods.
This type of fraud accounted for 99m in
the first two quarters of 2015, an increase
of 70m on the same period last year.
As criminals insert themselves into
the supply chain, unwitting buyers often
do not realise that they are dealing with
an intermediary when they do not need
to. As a result, legitimate businesses
can often see their customers angry at
being overcharged or disappointed by
poor quality goods and services. This
issue has been aggravated by the sheer
volume of the transactions conducted
online. Criminals are inherently
adaptable and many have seamlessly
moved with the times, adapting the
way in which they target victims to
take advantage of the advances in
technology and the anonymity afforded
by digital commerce.
The global nature of business,
and consequently of supply chains,
increases the risk inherent in doing
business.It is vitally important that
organisations take all possible steps
to ensure that risks around suppliers,
such as procurement fraud and supplier
account takeover, are mitigated as far as
possible. Comprehensive, holistic due
diligence and rigorous controls around
external suppliers and outsourced
functions are a vital tool for mitigating
risk and protecting staff, customers and
shareholders alike. Organisations must
leverage the data sources available to
them, overlaying that with the information
they have on the potential third party
suppliers they plan to do business
with.Joining up the data and information
dots is a key tool in building a more
informed picture of potential risks.
Prevention, better than a cure
Businesses should always remain alert to
threats of fraud, both internal and external,
and therefore need to ensure that they
implement a robust anti-fraud strategy.
Effective fraud risk management
starts with a clear message that a
zero tolerance attitude will be adopted
towards fraud and misconduct. This
message should come from the top,
with senior management leading the
discussion and by example.
In order to protect themselves,
organisations must supplement
the culture with a robust fraud risk

management framework. They should
undertake regular risk assessments,
considering controls, perceived
vulnerabilities, the current fraud
landscape and risk appetite.These
should also take into account any lessons
learnt from incidents in the past and be
properly sponsored within the business.
Implementing a proactive control
framework is vital to preventing fraud
and should consist of:
early warning systems based on
proactive mechanisms to detect fraud
and misconduct;
controls that are properly calibrated
to the identified risks; and
anti-fraud measures that target all levels
of employee, including management.
In the event that a fraud is uncovered,
resolute action must be taken to both
act as a deterrent and to reinforce the
cultural values. Any instances should
be thoroughly investigated and effective
and consistent action should be taken,
irrespective of seniority, against those
who have engaged in wrongdoing.
Companies operating in todays
technologically enabled environment
have a wealth of data available to
them. This can be monitored using
advanced analytics, so as to identify
anomalies and population outliers that
could in themselves be indicative of
fraud. As companies implement more
technological solutions within their
operations, they should seek to utilise
The
private
sector
suffered
49%
of all losses
2015
189m
25%
of all losses
2014
79m
the data within their control framework,
potentially making detection easier.
Closing thought
As the statistics show, fraud remains
a serious problem. With many frauds
going unreported, KPMGs figures are
likely to just reflect the tip of the iceberg
as far as losses are concerned. It is
important that, given the prominent
media profile of large cases, we
do not become desensitised to the
seriousness of all fraud. Even so called
small cases can cause extreme stress
and suffering to those involved, and
create major reputational and even
financial difficulties for companies and
innocent individuals. n
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 1 7
 [FEATURE] TA X L AW

THE RISE
OF TAX
LITIGATION
As tax litigation is on the rise on both the national
and the international arena, Kevin Hindley asks what
is leading tax authorities to the courts and what
alternatives might we be able to turn to.

18 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015

 I
n recent years, litigation over tax
matters has become increasingly
common across the world.
With mounting regulation being
introduced, such as the OECD and
G20s base erosion and profit shifting
(BEPS) initiative, the introduction of
KEVIN HINDLEY general anti-avoidance rules, treaty
Managing director anti-avoidance measures and the
Alvarez & Marsal Taxand information exchange provisions
UK LLP
included within double tax treaties,
this trend is only set to continue.

Mounting pressure
We have recently seen several high
profile, high quantum tax cases before
the courts that have been sparked by the
exchange of information between different
tax authorities. The ever more complex
relationship between multinational
companies and tax authorities means that
more and more dispute resolution is being
channelled to the courts.
In the wake of the global economic
crisis, austerity measures are partly to
blame for increased levels of tax litigation.
A push for increased tax yields by many
governments is undoubtedly driving
the relevant tax authorities into higher
levels of scrutiny of taxpayer affairs.
Combined with an ever greater focus
on the supposed abuse of law by tax
authorities, and a particular concentration
on ensuring that businesses are providing
valid commercial rationales for their
tax planning activities, this is driving an
increase in litigation over tax affairs for
multinational companies.

Practical solutions
Central to the increased litigation activity
is a rising trend that tax authorities will
challenge a taxpayers transaction on the
basis of anti-abuse provisions or general
concepts of treaty abuse. Worryingly
for multinationals, the tax litigation may
actually start years after the challenged
transaction took place.
This makes it ever more important
for companies to ensure that they
hold robust documentation recording
the valid commercial reasons for the
transaction. Ideally, this should be
debated at board level and recorded
in the minutes and resolutions. This
ensures that the commercial rationale for
a transaction is captured in a meaningful
way and is available in the future,
should tax authorities challenge the tax
treatment of the transactions concerned.
From a practical perspective, this can
be critical. The length of time that it can
take for a tax issue to get to court (ten
years is not uncommon) may mean that
there are completely different personnel
dealing with the dispute resolution
than were present at the time of the
transaction itself.

ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 19

 [FEATURE] TA X L AW
Technical strategies can significantly decrease the risk of
The political environment has also future challenges from tax authorities
changed in relation to tax planning and into particular transactions. This is
this has had an impact on litigation. particularly important in the area of
Before the recent economic crisis, it was transfer pricing, which is often the battle
usually enough to have a fully reasoned ground between revenue authorities and
and robust technical argument to defend multinationals in the courts. Obtaining
tax planning strategies in the courts. certainty of position through an APA in
particular can be invaluable.
However, multinational companies
Multinationals should expect should also be mindful of the proposals
for tax rulings to be exchanged (shared
increased scrutiny of international with other relevant tax authorities)
within the EU, and possibly more widely
transactions by tax authorities. still. This has led to some cases being
There are no simple answers. abandoned by taxpayers, in case a tax
authority on the other side of a cross
border transaction obtains details of
While this is still important, it is now the ruling. A good starting point for any
also important to have personable and transaction with a cross border element
credible witnesses, who will verify a is to assume that all documentation
multinationals commercial rationale for relating to the transaction will ultimately
conducting the transaction. be in the hands of all tax authorities that
Businesses would also be wise to may take an interest.
ensure that they are obtaining certainty Similarly, it is vital to ensure that
on as many tax positions as possible multinational companies are structured
through rulings, clearance applications, in such a way that the economic reality
advance pricing agreements (APAs) and of any transaction reflects the underlying
open engagement with tax authorities, substance of the business. Profits that
where possible and appropriate. This are earned in jurisdictions where there
is little or no economic substance for an
international group are unlikely to stand
up to scrutiny. However, substance
based tax planning where the
economics of the transaction aligns with
the location of the functions (people)
and risks of the business is much more
likely to prevail over time.
Potential causes for rising
litigiation
Anti-avoidance legislation that
is introduced in a hurry can also
exacerbate the problem of the increased
risk of litigation on tax matters. A good
example of this is the UKs new diverted
profits tax (DPT). Ostensibly, this aims
to impose a punitive rate of tax on
arrangements that either erode the
base of taxation within the UK or avoid a
taxable presence within the UK, without
requisite economic substance. However,
the legislation is highly complex and very
broad, leading to the conclusion that
many innocent transactions could now
fall within the scope of the new law.
DPT came as a surprise to business,
as there was no prior consultation on
the introduction of the legislation. In
the absence of any firm plans from the
Getty Images/Fanatic Studio
BEPS initiative, it seemed to have been
introduced at least a year too early,
making any integration with rules in other
jurisdictions all the more difficult. Several
other jurisdictions are currently seeking to
introduce similar regimes and we could
see a raft of these being implemented
globally, adding another dimension of
20 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
additional complexity to the tax affairs of
multinationals. Clearly, this would drive
significant tax litigation going forward.
India is a clear example of a
jurisdiction in which tax litigation
is on the rise. It is estimated that
approximately USD 67 billion of tax in
dispute is currently locked up in litigation
before the courts in India. Some of
the key reasons for this increase have
been overzealous tax administrations,
complex laws and inadequate dispute
resolution and settlement forums, all
of which are providing a heightened
sense of uncertainty for multinationals
with Indian operations. There are also
major concerns over the time, cost and
administrative burden required by what
is a long and drawn out process, even in
comparison to other jurisdictions.
The answer?
Tax litigation is also on the rise in the UK
and the courts have recently appointed
30 new first tier tax tribunal judges.
Although this is partly to replace some
judges that were retiring, the trend of
increasing tax litigation is expected to
continue.
In the UK, there are other options for
settling disputes with HMRC. The less
burdensome alternative dispute resolution
(ADR) process is even acknowledged
by HMRC as being more effective than
litigation in some cases. ADR is an
informal process outside of the courts,
which allows taxpayers to try to find a
compromise with HMRC. It is very much
a discretionary process for both parties,
but is becoming more common as an
option to seek settlement.
A cynical view is that HMRC will
only use ADR when it suits it to do
so. However, we have had success in
settling disputes on behalf of clients that
would otherwise have required litigation
to move HMRC from its position, so in
some cases there is clearly value to be
derived from the process. In other cases,
ADR can be a step in the path towards
litigation. There is still some value to
this, in that it may allow some aspects
of a complex dispute with HMRC to
be settled prior to litigation, so that the
litigation itself can focus on the issues
which are at the core of the dispute.
Multinationals should expect
increased scrutiny of international
transactions and structures by tax
authorities going forward. There are no
simple answers and no one size fits all
approach to dealing with tax planning
and the risk of tax litigation in a cross
border context. This can be costly in
terms of the resources needed and the
potential reputational impacts in the
current environment. Perhaps the best
advice is to be prepared! n
 [FEATURE] INSOLV ENC Y

UNDERSTANDING
LIQUIDATION
Richard Simms explains the benefits that businesses can gain from liquidation,
whether their company is solvent or insolvent.

22 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015

 M
any people hear the
word liquidation and
automatically think it is
a negative process for
businesses that are in
trouble and suffering from insolvency
through the fault of the directors.
RICHARD SIMMS This article is going to explain the
Managing Director different reasons as to why insolvency
F A Simms occurs and highlight just how helpful a
liquidation process can be for both an
insolvent and solvent company.
How can insolvency occur?
There are many reasons why insolvency
occurs within a limited company.
Putting aside the reasons that would
be classified as director misconduct,
below is a list of five other reasons why
a company may become insolvent:
1. receiving late payments from
customers;
2. a company they have been dealing
with has entered a formal insolvency
process, which has had a knock-on
effect;
3. a dip in their marketplace means
sales are low;
4. increase in competition; and
5. incorrect pricing on goods.
These unfortunate incidents can
impact negatively on a trading
company. Ultimately,
they can result in that
company having to deal
with insolvency and entering a
liquidation process, if there are
no alternatives available. Entering
into a voluntary liquidation process
means the directors are trying to
minimise the risk to creditors, which
in an insolvent situation is the correct
thing to do.
Why choose a liquidation
process?
Whether a company is struggling with
insolvency or is just looking for a way
to close down its solvent business
effectively, there is a liquidation
process to suit.
For an insolvent company, many
directors may think that they can
trade out of their troubles or just
stop trading with the hope of no
one noticing. However, choosing a
liquidation process will ensure that
all loose ends are tied up and that
there is a clean break for all directors
involved, with no angry creditors
chasing after the money that they are
owed.
What is a solvent liquidation?
The term solvent means that a
companys assets must exceed its
liabilities and that it is able to pay all of
its creditors in full within 12 months,
including statutory interest.
A members voluntary liquidation
(MVL) is the formal liquidation process
which is used to close down the affairs
of a solvent company. The alternative
process, which is an informal option, is
called a strike off.
Since changes to the legislation
in 2012, an MVL process must be
used in order for final shareholder
distribution of funds that exceed
25,000 to receive automatic
capital tax treatment. (This is where
distributions are classed as capital
receipts rather than income.) This
system replaces the former HMRC
concession known as ESC C16, which
would have previously been used in
order to receive the tax benefits.
These tax benefits are the main
reason that companies use an MVL
process. There is also the possibility
of receiving the tax treatment known
as entrepreneurs relief. If this relief
is available, it can reduce the tax rate
down to a low 10%. This saving
therefore usually outweighs
the cost of the liquidation
process itself.
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 23
 [FEATURE] INSOLV ENC Y

The actual process is also deemed so begins legal proceedings to try and
to be a huge benefit to the directors,
as it provides the chance to dissolve
A members voluntary obtain the funds it is owed.

a company in the correct way and not

leave any unattended issues behind.
The process can also be seen as a
benefit to the accountant, as it would
provide further chargeable hours of
work for them in order to prepare the
accounts needed in this process.
liquidation is the Why is this important?
As the role of the accountant has
formal process used to developed into a more advisory role for
some of their clients, it is important to
close down the affairs understand these different processes,
which could benefit or help their
of a solvent company. clients. Being able to offer advice on

What is an insolvent The alternative, which insolvency, and the best practice in
closing down a solvent company, will
liquidation? is an informal option, help to show that you have researched
The term insolvent means that a and understood the best options
company cannot pay its creditors as is called a strike off. available. It will also highlight your
and when the payments fall due, and its efficiency and dedication to providing
liabilities exceed its assets. the best service possible for your
A creditors voluntary liquidation clients across a wide range of areas.
(CVL) is a formal liquidation process To understand more about how
used to close down the affairs of an a liquidation process can help your
insolvent company. clients and their limited company,
A CVL is the voluntary liquidation contact our Insolvency Practitioners
process initiated by the shareholders on 0845 705 959; you can request
of the company. It is the process of a selection of help sheets from
closing down the insolvent company enquiries@fasimms.com. n
and selling its assets, in order to pay
back a pence in the pound amount to
its creditors (if there are funds available
for this). This process will require an
Insolvency Practitioner to be appointed
as liquidator, in order to manage and
oversee the process accordingly.
This process, compared to a court-led
liquidation process, gives the directors
the flexibility of deciding who the
Insolvency Practitioner will be. It also
offers the directors the chance
to purchase the assets and
goodwill of the business at a fair
value, if they wish to start afresh in
a new trading company. This highlights
a benefit of this insolvency process.
The directors can choose to restart
their business, if they so wish, by using
a CVL as a business rescue process;
alternatively, they can go ahead with the
full closure of their company.
The court-led liquidation process
is called a compulsory liquidation.
This process is usually initiated by
a disgruntled creditor that is tired of
waiting to receive its payments, and

24 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015

 [DIARY DATES]

Events
Facetoface events
LONDON MANCHESTER DUBLIN
27 October 2015 20 October 2015 1 December 2015
Charity Accounting Seminar Charity Accounting Seminar Business Management & Development
Holiday Inn Bloomsbury, Coram Street, Ramada Salford Quays, 17 Trafford Road, Conference
London, WC1N 1HT Salford Quays, Manchester, M5 3AW Camden Court Hotel, Camden Street,
18:00 to 20:00 18:00 to 20:00 Dublin 2
09:30 to 15:30
24 November 2015
Business Management & Development
Conference NOTTINGHAM
Holiday Inn Bloomsbury, Coram Street, 26 November 2015
London, WC1N 1HT Business Management & Development
09:00 to 17:00 Conference
The University of Nottingham,
University Park, Nottingham, NG7 2RD
09:00 to 17:00

Please note that AIA will adhere to the above programme in as far as possible. However, events may be subject to change
and you should always refer to the website for the most current information: www.aiaworldwide.com/events

Online CPD courses

CPD CPD
COURSE TITLE COST COURSE TITLE COST
UNITS UNITS
Managing your Transition to IFRS 4 70.00
NEW: Tax Tips
Preventing Financial Crime 4 70.00
Partnership Tax Tips for Accountants 4 70.00
Professionalism and Ethics for
Property Tax Tips for Accountants 4 70.00 4 70.00
Accountants
Self-assessment Tips for Accountants 4 70.00
Risk Management 4 70.00
Tax Investigations Tips for Accountants 4 70.00
Understanding New UK & Ireland GAAP 4 70.00
Accounting and Governance
Business Compliance
Anti-Money Laundering 4 70.00
Data Protection 4 70.00
Assessing Going Concern 1 25.00
Employment Law for Accountants 4 70.00
Automatic Enrolment A Guide for
4 70.00 Equality and Diversity 4 70.00
Accountants
Freedom of Information 4 70.00
Corporate Governance 4 70.00
Health and Safety 4 70.00
Ethical Compliance 4 70.00
Ethical Issues for Accountants 4 70.00 Finance
Ethical Issues in Professional Relationships Alternative Finance 4 70.00
(Module from Ethical Issues for 1 FREE Building a Financial Model 4 70.00
Accountants)
Financial Control in SMEs 4 70.00
Forensic Accounting 4 70.00
Financial Management in Turbulent Times 4 70.00
Getting to Grips with IFRS102 4 70.00
Introduction to Financial Modelling 4 70.00
Intellectual Property and New Ideas 4 70.00
Managerial Megatrends and Financial
Managing the Transition to New UK 4 70.00
4 70.00 Controls
GAAP

ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 25

 [EVENTS]

Online CPD courses

CPD CPD
COURSE TITLE COST COURSE TITLE COST
UNITS UNITS
Strategic Financial Management 4 70.00 Due Diligence in Mergers and
4 70.00
Working Capital Optimisation and Cash Acquisitions
4 70.00
Flow Management Growing your Company through
4 70.00
Acquisition
Financial Briefings
Selling a Business 4 70.00
(Republic of Ireland)
Capital Acquisitions Tax 1 25.00 Practice Management
Capital Gains Tax 2 40.00 Building and Growing your Firm 4 70.00
Planning for your Firm 4 70.00
Management Control
Practice Models and Networks 4 70.00
Activity Based Management 4 70.00
Promoting your Professional Practice 4 70.00
Business Performance Management 4 70.00
Succession Planning 4 70.00
Dynamic Budgetary Control 4 70.00
Key Performance Indicators 4 70.00 Professional Skills
Making Budgeting Work in the Real Advanced Negotiation for Accountants 4 70.00
4 70.00
World Becoming an Expert Witness 4 70.00
Managing through a Recession 4 70.00 Communicating Complex Ideas 4 70.00
Outsourcing 4 70.00 Conversations with Customers 4 70.00
The Road to Continuous Improvement 4 70.00 Customer Service 4 70.00
Management Thinking Decision Making for Managers 4 70.00
Coaching Skills for Accountants 4 70.00 Developing Your Professional Career 4 70.00
Conducting Performance Appraisals 4 70.00 Effective Communication 4 70.00
Corporate Social Responsibility 4 70.00 Grammar and Effective Writing for
4 70.00
Accountants
Enterprise & Entrepreneurship 4 70.00
Managing Workload for Accountants 4 70.00
Innovation for Accountants 4 70.00
Negotiation Skills The Principles 4 70.00
International and Remote Working 4 70.00
Negotiation Skills for Accountants 4 70.00
Leadership Skills for Accountants 4 70.00
Managing Risk in Social Media 4 70.00
Managing Change and Transformation 4 70.00
Project Management for Accountants 4 70.00
Managing from within the Team 4 70.00
Problem Solving for Accountants 4 70.00
Managing High Performing Teams 4 70.00
Social Media for Accountants 4 70.00
Managing Professionals for Results 4 70.00
Market Analysis for Accountants 4 70.00 The Professional Training
Recruitment and Selection 4 70.00 Academy
Thinking Strategically for Accountants 4 70.00 The Excel Club 2007 & 2010 110.00

Working in Accounting and Finance The Excel Club 2013 140.00

4 70.00
Teams Basic of IRFS Reporting 90.00
Writing a Business Plan 4 70.00 Power Pivot for the Excel User 90.00

Mergers and Acquisitions

Buying a Business 4 70.00

For more information on these courses please go to www.aiaworldwide.com/online-cpd

26 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015

 Student webinars
AIA is pleased to announce the upcoming schedule for the
AIA Achieve Past Question webinars, available for students
studying Papers 13 and 14 at the Professional 2 level. To
help students develop their ability to tackle the wide range
of questions that appear in the exams for these papers,
AIA has developed a series of live webinars that take the
questions as their basis and look at how students should go
about answering them.
The sessions will be presented by one of the AIAs expert
e-tutors, who will guide students through the knowledge
and technique required to answer the question successfully.
There will also be time for questions and discussion.
PAPER 13 FINANCIAL ACCOUNTING III
18 September 2015
Past question(s) considered: May 2014, Paper 13
Question 2concerns environmental and social reporting,
involving financial reporting and narrative reporting. It
covers environmental and social reporting and provisions,
contingencies and events after the reporting period.
Question 3involves the translation of a subsidiarys financial
statements for the purpose of a consolidation exercise. It is
taken from foreign currency translation.
16 October 2015
Past question(s) considered: May 2014, Paper 13
This question requires the preparation of a group
statement of financial position involving a sub-subsidiary,
acquisition costs, contingent consideration, impairment,
leasing and a possible associated company. It requires
application of knowledge from the presentation of published
financial statements, revision of basic groups, complex
groups, non-current assets: tangible assets and leasing
contracts.Please note: this webinar is part one of two
considering this 40 mark question.
2 November 2015
Past question(s) considered:May 2014, Paper 13
This question requires the preparation of a group
statement of financial position involving a sub-subsidiary,
acquisition costs, contingent consideration, impairment,
leasing and a possible associated company. It requires
application of knowledge from the presentation of published
These webinars are included as part of ourAIA Achieve distance learning course. To attend any of these webinars
independently, please log in to the AIA members area and purchase the webinar that you wish to attend from the online store.
For more information on these courses please go to www.aiaworldwide.com/online-cpd
financial statements, revision of basic groups, complex
groups, non-current assets: tangible assets and leasing
contracts.Please note: this webinar is part two of two
considering this 40 mark question.
PAPER 14 FINANCIAL MANAGEMENT
17 September 2015
Past question(s) considered:May 2014, Paper 14
Thisquestion tests the candidates ability to calculate the
net present value of a project including an overseas element,
use purchasing power parity to calculate future exchange
rates, evaluate the uncertainties associated with business
planning and assess political risk.
24 September 2015
Past question(s) considered:May 2014, Paper 14
Question 3tests the candidates ability to calculate cost of
capital for a company using CAPM, calculate cost of capital
to use in appraising an investment including understanding
the effect of debt on beta factors and advise on raising
finance and how it may impact upon cost of capital
including demonstrating understanding of beta factors and
diversification.
Question 4tests the candidates ability to calculate the
outcome of hedging using futures contracts and calculate
the outcomes of accepting a project under portfolio theory.
1 October 2015
Past question(s) considered:May 2014, Paper 14
This question tests the candidates ability to prepare
calculations to value a business and advise on the difficulties
inherent in these calculations and evaluate the working
capital position of a company.
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 27
Apply for An AIA AudIt ScholArShIp

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[TECHNICAL]
INTERNATIONAL
IFAC WELCOMES PUBLICATION OF SPANISH
TRANSLATION OF THE HANDBOOK OF THE CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTS
The International Federation of Accountants(IFAC) has published
in the Spanish language theHandbook of the code of ethics
for professional accountants,2014 edition, developed by the
International Ethics Standards Board for Accountants(IESBA). The
2014 edition incorporates several revised pronouncements that
were published previously and are now effective. It addresses a
breach of a requirement of the IESBA Code, conflicts of interest,
and the definition of those charged with governance. It also
contains the revised definition of engagement team.
The IESBA Code has now been adopted or is in use in over 100
jurisdictions around the world, said Ken Siong, IESBA technical
director. Spanish is a widely spoken language; indeed, it is an
official language in 20 countries, which is why high quality Spanish
translations are critical to supporting the IESBAs efforts to further
the adoption of the Code globally and, importantly, to facilitate its
consistent application.
This Spanish translation was performed by theInstituto de
Censores Jurados de Cuentas de Espaaand is a result of the
Ibero-American cooperation framework, known as theIberAm
project.Established in 2012, the IberAm project which includes
IFAC and its member organisations in Argentina, Mexico and Spain
is an IFAC-authorised translation and review process. It strives
to achieve longer term, sustainable processes for single, high
quality Spanish translations of international standards and other
IFAC publications. TheInteramerican Accounting Association,
IFACs regional organisation for Latin America and the Caribbean,
is an observer to the project. In addition, the project involves a
review committee of technical experts representing IFAC members
in nine Spanish speaking countries.
IAASB PROPOSES CHANGES FOR REPORTING ON
SUMMARY FINANCIAL STATEMENTS
The International Auditing and Assurance Standards
Board(IAASB) has releasedan Exposure Draft proposing changes
toInternational Standard on Auditing(ISA) 810, Engagements to
Report on Summary Financial Statements. ISA 810 deals with the
auditors responsibilities relating to an engagement to report on
summary financial statements derived from financial statements
audited in accordance with ISAs by that same auditor. The IAASB
is proposing limited conforming amendments to ISA 810 as a result
of the issuance of itsnew and revised Auditor Reporting standards,
which address auditor reporting on general purpose financial
statements.
In light of its overall efforts to enhance auditor reporting, the
IAASB believes it is also in the public interest to provide users
of summary financial statements with greater transparency in
circumstances when additional information, such as key audit
matters, are communicated in the related auditors report on the
audited financial statements, explained Prof. Arnold Schilder,
IAASB chairman.
The proposed changes to ISA 810 represent a balanced
approach, considering the objective of an engagement to report on
summary financial statements and the report that is required to be
issued.
The boards approach also recognises that the manner in
which summary financial statements are prepared and presented
may vary on a national basis depending on the criteria used, and
therefore national auditing standard setters may further tailor ISA
810 in their jurisdictions, noted Kathleen Healy, IAASB technical
TECHNICAL
director. The board is therefore particularly interested in hearing
from stakeholders in those jurisdictions where ISA 810 reports are
frequently issued to understand whether its proposed changes will
be capable of being implemented and would be expected to benefit
users of these reports.
The IAASB has issued its proposals with a 90 day comment
period, in order to finalise them on a timely basis and align the
effective date of ISA 810 (Revised) with the effective date of the
new and Revised Auditor Reporting Standards (ie for audits of
financial statements for periods ending on or after 15 December
2016).
IPSASB PUBLISHES EXPOSURE DRAFT 56, THE
APPLICABILITY OF IPSASS
The International Public Sector Accounting Standards Board
(IPSASB) has released for comment Exposure Draft (ED) 56, The
Applicability of IPSASs.
ED 56 proposes to:
revise the preface to International Public Sector Accounting
Standards to provide the characteristics of public sector entities
for which IPSASs are intended;
delete the definition of Government Business Enterprises
(GBEs) in IPSAS 1, Presentation of Financial Statements; and
amend the scope section of each International Public Sector
Accounting Standard (IPSAS) and Recommended Practice
Guideline (RPG) by removing the paragraph that states that
these pronouncements do not apply to GBEs.
ED 56s proposed changes address constituents concerns about
the application of IPSASs to public sector entities. Currently, each
IPSAS includes a statement that it does not apply to GBEs, which
are expected to be commercially oriented public sector entities.
The term Government Business Enterprise is defined in IPSAS 1,
Presentation of Financial Statements.
The IPSASB received feedback that a wide range of entities are
described as GBEs, but some of these entities clearly do not meet
the IPSASB definition of a GBE. In other cases, there are different
interpretations of the GBE definition.
The proposals in this Exposure Draft provide a more transparent
way to communicate the types of public sector entities that
the IPSASB considers when developing IPSASs and RPGs,
said IPSASB Chair Andreas Bergmann. They use a high level,
principles based approach that draws on The Conceptual
Framework for General Purpose Financial Reporting by Public
Sector Entities.
These proposals acknowledge the role of regulators in
determining the accounting standards to be applied by different
entities in their jurisdictions, and address constituents concerns
about differing interpretations of the GBE definition, Professor
Bergmann added.
We look forward to hearing whether constituents support the
changes to IPSASs and RPGs proposed in this Exposure Draft or
present alternative views.
Publication of ED 56 follows the IPSASBs consideration
of responses to a Consultation Paper (CP), The Applicability
of IPSASs to Government Business Enterprises and Other
Public Sector Entities. The CP proposed two main approaches
to communicate the IPSASBs view of the entities for which it
develops IPSASs. The first approach involved describing the
characteristics of public sector entities for which IPSASs are
intended. The second approach would have retained the definition
of a GBE in modified form, potentially narrowing it to profit seeking
public sector entities.
A large majority of respondents to the CP supported the first
approach of providing the characteristics of public sector entities
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 29
 [TECHNICAL]
for which IPSASs are intended using IPSASBs current literature,
rather than retaining and improving the definition of a GBE. The
proposals in ED 56 give effect to that approach.
IFAC EXPLAINS HOW ACCOUNTANTS CONTRIBUTE
TO MEETING ORGANISATIONS SUSTAINABILITY
CHALLENGES
To support accountants in developing a greater awareness of how
they can help their organisations address issues of sustainability
and more fully incorporate these issues into business decisions, the
International Federation of Accountants (IFAC) releasedAccounting
for sustainability. From sustainability to business resilience.
The briefing highlights the important role accountants can, and
must, play in embracing sustainability challenges and ensuring that
the organisations they serve are resilient by linking these challenges
to a broader business agenda and strategy.
Businesses are resilient when they are able to create and
continue to deliver value to stakeholders, which involves considering
both the risks and opportunities presented by sustainability issues,
including environmental and social aspects, that ultimately affect
financial performance and value creation, according to IFAC
president Olivia Kirtley. Accountants in the public and private
sectors have a significant role to play in supporting and making the
decisions that guide an organisations ability to be resilient.
The briefing examines the link between sustainability and
business resilience, how integrating sustainability leads to better
performance, and the key elements of developing a sustainable
strategy and business model.
It clarifies how professional accountants can make a difference
and includes references to some of the many resources and tools
available to help develop knowledge and skill sets.
The briefing was previewed earlier this week during the Institute
of Certified Management Accountants of Sri Lankas Global
Management Accounting Summitin Colombo, Sri Lanka, by Ms
Kirtley. The conference, themedBusiness resilience through
integrated reporting,addressed many different issues related to
integrated reporting, including sustainability.
IASB PROPOSES TO POSTPONE ACCOUNTING
CHANGES FOR ASSOCIATES AND JOINT VENTURES
UNTIL COMPLETION OF BROADER REVIEW
The International Accounting Standards Board (IASB) has
published for public consultation a proposal to postpone the date
when entities must change some aspects of how they account for
transactions between investors and associates or joint ventures.
The proposed postponement would apply to changes introduced
by the IASB in 2014 through narrow scope amendments to IFRS
10Consolidated Financial Statementsand IAS 28Investments in ETHICS FOR AN EVOLVING, GLOBAL PROFESSION
Associates and Joint Ventures.Those changes affect how an entity
should determine any gain or loss it recognises when assets are
sold or contributed between the entity and an associate or joint
venture in which it invests.The changes do not affect other aspects
of how entities account for their investments in associates and joint
ventures.
The proposed postponement would remove the current
requirement to make these particular changes by 2016.Instead,
entities could wait until after the IASB has carried out a planned
broader review that may result in the simplification of accounting for
such transactions and of other aspects of accounting for associates
and joint ventures.
IASB PROPOSES CLARIFICATIONS TO REVENUE
STANDARD
The International Accounting Standards Board (IASB) has
published for public consultation some proposed clarifications
30 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
TECHNICAL
to and transition reliefs for IFRS 15Revenue from Contracts with
Customers.
The proposed targeted amendments follow discussions at
meetings of the Transition Resource Group (TRG), which was set
up jointly by the IASB and the US Financial Accounting Standards
Board (FASB) to support companies in implementing the new
revenue Standard after it was issued in May 2014.
The Exposure Draft proposes to clarify:
how to identify the performance obligations in a contract;
how to determine whether a party involved in a transaction is the
principal (responsible for providing the goods or services) or the
agent (responsible for arranging for the goods or services to be
provided to the customer); and
how to determine whether a licence provides the customer with a
right to access or a right to use the entitys intellectual property.
In addition, the IASB proposes two reliefs to aid the transition to
the new revenue Standard.
IASB CONFIRMS ONE YEAR DEFERRAL OF EFFECTIVE
DATE OF REVENUE STANDARD
The International Accounting Standards Board (IASB) confirmed a
one year deferral of the effective date of the revenue Standard, IFRS
15Revenue from Contracts with Customers,to 1 January 2018.
The Board voted to confirm the one year deferral, following a
public consultation.
The revenue Standard was issued jointly by the IASB and the US
Financial Accounting Standards Board (FASB) in May 2014 with an
effective date of 1 January 2017. Both Boards have now confirmed
a one year deferral of the effective date. Companies applying IFRS
continue to have the option to apply the Standard earlier if they wish
to do so.
The formal amendment to the Standard, specifying the new
effective date, is expected to be issued in September.
Later this month, the IASB will publish for public consultation
some proposed clarifications to the Standard to help companies
with implementation. These clarifications follow discussions at the
Transition Resource Group (TRG), which was established by the
IASB and the FASB to support companies in implementing the
Standard.
Hans Hoogervorst, Chairman of the International Accounting
Standards Board, commented: The deferral will give companies
more time to implement the Standard in view of the clarifications
that we will propose shortly. It also keeps the effective date aligned
for IFRS and US GAAP.
IESBA RELEASES 2014 ANNUAL REPORT, ADVANCING
The 2014 IESBA Annual Report presents the boards work framed
within the following interconnected strategic themes from its
Strategy and Work Plan, 20142018 (SWP):
maintaining a high quality Code of Ethics for Professional
Accountants (the code) for application by professional
accountants globally;
promoting and facilitating the adoption and effective
implementation of the code;
evolving the code for continued relevance in a changing global
environment; and
increasing engagement and cooperation with key stakeholders.
In 2014, the IESBA worked to enhance its responsiveness
to emerging issues of international relevance in the context of
continued heightened scrutiny on ethics following the global
financial crisis, and an ever-evolving global environment, all
while consolidating its efforts to deliver on its existing strategic
[TECHNICAL]
commitments, including advancing the development of international
standards and guidance in the code; developing a new structure
for the code to enhance its usability and clarity, thereby facilitating
its consistent application and enforcement, and furthering its
global adoption; and proactively pursuing its stakeholder outreach
program.
The report includes a message from the incoming independent
chairman Dr Stavros Thomadakis. It also discusses the boards
operating environment, highlights achievements from 2014, and
summarises the progress made on each of the projects in the
boards SWP.
2015 AGENDA CONSULTATION PROCESS STARTED BY
THE IASB
The International Accounting Standards Board (IASB) has
published for public comment a document seeking views on its
work plan and priorities until 2020.
The Agenda Consultation provides an opportunity for interested
parties to have their say on how the IASB prioritises and balances
its work to deliver International Financial Reporting Standards
(IFRS) for the world economy.
The IASBs work plan is split into three main categories, which
reflect the different stages of the standard setting process:
research projects, which are designed to help the IASB better
diagnose problem areas in financial reporting, and to consider
whether changes are warranted before proceeding;
standard setting projects, which the IASB moves forward by
initiating a project to deliver fundamental improvements to IFRS
most likely resulting in amendments to existing requirements or
the introduction of entirely new requirements; and
maintenance and implementation projects, by which the IASB
fine tunes IFRS to deal with practical problems or a lack of
consistency in applying the Standards.
In the Request for Views 2015 Agenda Consultation, the IASB
seeks feedback on whether it has correctly identified the most
important issues in its research programme and whether any
adjustment is needed in how its Standards level programme is
prioritised.
UK AND IRELAND
UK RESPONDS TO EUROPEAN COMMISSIONS
RECOMMENDATION ON THE QUALITY OF CORPORATE
GOVERNANCE REPORTING (COMPLY OR EXPLAIN)
The FRCs director of corporate governance, David Styles,
on behalf of the UK, has responded to the European
CommissionsRecommendation on the quality of corporate
governance reporting(comply or explain):
The comply or explain method of adherence has given
companies flexibility and made it possible to set more demanding
standards than can be done through hard rules.
Experience has shown that the vast majority of companies
attain these standards. In 2014, the Grant Thornton survey of
compliance by FTSE 350 companies found that 94% of companies
complied with all, or all but one or two, of the 54 provisions in the
code. And by requiring companies to report to shareholders rather
than regulators means that the decision on whether a companys
governance is adequate is taken by those in whose interest the
board is meant to act.
The FRC has commenced a communications exercise to raise
standards and promote the flexibility of comply or explain. Through
this we will be reminding both companies and investors that simply
complying without giving due consideration to what is appropriate
TECHNICAL
and relevant reduces the flexibility that this approach aims to
achieve. To this end, further work will be conducted during the rest
of this year to monitor reporting by companies on explanations given
when they are not compliant with the code.
NEW ACCOUNTING STANDARDS OFFER
SIMPLIFICATION FOR MICRO-ENTITIES AND SMALL
ENTITIES
The Financial Reporting Council (FRC) has issued a suite
of changes that update and, in many cases simplify, UK and
Ireland accounting standards.Key amongst the changes are
new requirements for micro-entities and small entities, and the
withdrawal of theFinancial Reporting Standard for Smaller
Entities(FRSSE).
The changes are largely in response to the implementation of the
new EU Accounting Directive, and include:
a new standard, FRS 105The Financial Reporting Standard
applicable to the Micro-entities Regime;
new Section 1ASmall Entitiesof FRS 102The Financial
Reporting Standard applicable in the UK and Republic of Ireland;
and
other changes necessary for continued compliance with company
law.
Melanie McLaren, executive director of codes and standards.
said: These new accounting standards support the implementation
of the micro-entities regime, further simplifying accounting
requirements for up to 1.5 million of the UKs smallest entities. They
also respond to the new legal framework for disclosure in small
company reporting, providing guidance for applying it and improving
transparency relating to financial instruments, and they further
improve the cost-effective reduced disclosure framework for listed
groups by permitting IFRS-based presentation requirements in
subsidiaries financial statements.
Changes made also relate to the annual review of FRS
101Reduced Disclosure Frameworkand address an
implementation issue in relation to FRS 102.
The main changes are effective for accounting periods beginning
on or after 1 January 2016, with early application permitted for
accounting periods beginning on or after 1 January 2015.
CONSULTATION ON THE AMOUNT AND TERMS OF
INDEMNITY AGAINST LOSSES AND CLAIMS ARISING
IN RESPECT OF CIVIL LIABILITY BY LIQUIDATORS
IAASA has published a consultation on the amount and terms
of indemnity against losses and claims arising in respect of civil
liability of liquidators.
The Companies Act 2014, which came into force on 1 June 2015,
affords IAASA with responsibility for setting Regulations for the
amount and terms of such insurance. IAASA is therefore seeking the
views of stakeholders and invites interested parties to provide their
comments on the proposals, which are set out in a consultation paper
which can be accessedon the IAASA website.
UPDATE ON THE IMPLEMENTATION OF THE EU AUDIT
DIRECTIVE AND REGULATION
The Department of Business Innovation and Skills has published
an update on the implementation of the EU Audit Directive and
Regulation.
Following Baroness Neville-Rolfes written ministerial statement
of 20 July 2015, which named the Financial Reporting Council
(FRC) as the intended UK Competent Authority for the regulation
of auditors, the Department for Business, Innovation and Skills
(BIS) is continuing to work with the FRC, the Financial Conduct
Authority (FCA), the Prudential Regulation Authority (PRA) and
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 31
 [TECHNICAL]
the professional bodies to implement the requirements of the Audit
Directive and Regulation. The reforms take effect on 17 June 2016.
BIS consultation
BIS intends to publish a formal consultation in the next few weeks,
focusing on the definition of a public interest entity (PIE), FRC
powers and professional bodies responsibilities, mandatory
retendering and rotation of PIE auditor appointments and other
issues.
FRC consultation
The EU reforms introduce changes to auditing and ethical
standards. The FRC will, in September, report on the decisions it
has reached in the light of responses to its preliminary consultation,
and consult further on the detail of implementation.
This will include in particular, types of entities in scope, prohibited
non-audit services to audit clients, application of independence
principles across firms networks and audit firm and key audit partner
rotation.
The FRC will also amend existing auditing standards resulting
from recent revisions to international auditing standards. The
consultation will also include proposed changes to the UK
Corporate Governance Code and its associated Guidance on Audit
Committees. At a subsequent date, the FRC expects to consult
on other issues, including possible changes to its disciplinary
arrangements.
FCA and PRA consultations
The EU reforms introduce new audit committee requirements
applying to all PIEs, ie to undertakings with securities admitted to
trading on a regulated market, as well as to other banks, building
societies and insurers.
The FCA will consult in early September on audit committee
requirements applying to entities with securities admitted to trading
on a regulated market, as an update to the Disclosure Rules
and Transparency Rules (DTR) in the FCA handbook, which are
supported by the FRCs Corporate Governance Code.
The PRA will be consulting in mid-September on audit committee
requirements for banks, building societies and insurers, regardless
of whether or not they have issued transferrable securities. If a firm
falls within both the scope of the FCA and PRA audit committee
rules, the PRA intends it should comply with both sets of rules.
EUROPE
FEE WELCOMES THE PCAOBS INITIATIVE TO REVISE
THE STANDARD ON THE AUDITORS USE OF THE
WORK OF SPECIALISTS
FEE welcomes thePCAOBs initiative to revise the standard onThe
auditors use of the work of specialists, such as appraisers and
actuaries. The role of specialists has become imperative for both
auditors and their respective clients, underlying the importance of
this initiative. These specialists bring necessary expertise to audits
at a time when business processes and transactions are becoming
increasingly complex.
In its work overall, FEE advocates for global alignment of auditing
standards, which enhances both the quality of audits and the
acceptance of audit work world wide.
FEE SUPPORTS THE EUROPEAN COMMISSIONS
POSITIVE ASSESSMENT OF IFRS
FEE president Petr Kriz spoke at a major internationalconferenceon
10 years of International Financial Reporting Standards (IFRS)
in theEU. The Latvian EU presidency hosted this conference
32 INTERNATIONAL ACCOUNTANT ISSUE 83: SEPTEMBER/OCTOBER 2015
TECHNICAL
to discuss the European Commissionevaluation reporton the
International Accounting Standards (IAS) Regulation, which
adopted IFRS in the EU legal framework back in 2005.
The FEE president welcomed the outcome of Commissions
evaluation as it shows broad support for the use of IFRS, based on
the views of EU companies, investors and other stakeholders after
10 years of experience.
He commented: IFRS provide the high quality financial reporting
that Europe needs to enhance access to global markets and attract
foreign investment for stimulating growth and jobs. The benefits of
comparable, reliable and transparent financial information brought
about by IFRS are crucial for Europe, now and in the future. Ten
years ago, Europe was unable to agree on accounting standards.
Europes inability to agree was further evidenced by the many
options included in the recently adopted Accounting Directive.
Therefore, entrusting the International Accounting Standards Board
(IASB) to set reporting standards for listed entities was the right
way forward for Europe.
To keep up the good work, FEE also concurs with the
Commissions report in finding room for improvement. Europe needs
to remain at the forefront of developing IFRS, by providing input
to the IASB as early as possible. To this end, FEE has proactively
contributed to the reform of the European Financial Reporting
Advisory Group (EFRAG). We are happy to see that stakeholders
recognise that the renewed EFRAG is achieving its objective of
providing a stronger EU voice in the international standard setting
process.
Reducing complexity of IFRS is another area of work in progress.
Simplifying disclosures will facilitate the practical and proportional
application of the international standards. This is especially critical
in view of integrating European capital markets to further the
Commissions Capital Markets Union (CMU) initiative. If Europe
wishes to achieve the objectives of the CMU, IFRS remain the only
realistic option for European listed corporations.
FEE DEMONSTRATES DIFFERENT SCOPE OF BANK
AUDITS OF REGULATORY REPORTING ACROSS
EUROPE
A FEE survey reveals that the scope of audits of European banks
regarding regulatory reporting vary widely between EU member
states.
FEE members in 27 EU countries provided information on how the
audit profession is involved in assuring the reports banks provide
to their regulators. This is a task auditors can provide in addition to
the annual statutory audits of a banks financial statements, which is
required by EU law.
FEE has informed the European Central Bank (ECB), as the direct
supervisor of 123 EU banks, about this divergence in practice and
has offered the ECB its support in developing a more coordinated
approach. The full report is available on www.fee.be.
ASIA PACIFIC
MORE TRANSPARENCY AND AUDIT INSIGHTS WITH
ADOPTION OF ENHANCED AUDITOR REPORTING
STANDARDS
From 2017 onwards, auditors reports of listed entities will be more
transparent and contain more information on key audit matters
with the adoption of the enhanced auditor reporting standards in
Singapore. This will enable investors and other stakeholders to draw
deeper insights from the auditors reports of listed entities.
The enhanced auditor reporting standards were issued by the
Institute of Singapore Chartered Accountants (ISCA), the national
accountancy body. These standards were first issued by the
[TECHNICAL]
International Auditing and Assurance Standards Board in January
2015 to national audit regulators and professional bodies for
localised adoption.
This was in response to strong calls by investors and users of
financial statements for more pertinent information to be included
in the auditors report to augment their decision making. The
Accounting and Corporate Regulatory Authority (ACRA)s Public
Accountants Oversight Committee (PAOC) has since reviewed
and approved the application of these enhanced standards for
Singapore.
The enhanced standards take effect for audits of financial
statements for periods ending on or after 15 December 2016.
Two key changes are being introduced under the enhanced
standards. First, auditors will be required to communicate key audit
matters (KAMs) in the auditors reports on the financial statements
of listed entities beyond the traditional pass/ail audit opinion.
KAMs may include significant risk areas of the financial statements
most susceptible to misstatements, the entitys major transactions
during the year that required extensive auditing efforts or areas
involving key management judgments and estimates such as the
valuation of investments.
This will enable investors to focus on specific and critical areas
in the entitys financial statements and equip them with more
information to deepen their engagement with directors (especially
audit committees (ACs)), management and even the auditors at
shareholders meetings.
It will in turn require directors, ACs and management to respond
with more insightful disclosures. The enhanced standards will also
require auditors to engage in upfront and more robust conversations
with management and ACs as they discuss and agree on KAMs and
how those KAMs would be described and eventually communicated
in the auditors reports.
The second key change relates to the aspect of going concern
(ie the ability of an entity to continue its operations). Currently,
when circumstances arise (such as loss of a major customer) that
result in a material uncertainty over an entitys going concern,
the auditor will be required to highlight this matter in the auditors
report.
The enhanced standards now impose an added responsibility
on the auditors to ensure that the entity has made adequate
disclosures in its financial statements regarding managements
judgement and assessment on going concern, even if the
circumstances do not result in a material uncertainty (for example
the loss of a major customer being mitigated by secured orders
from other customers). This ensures more transparency on an
entitys viability, which is of significant public interest.
Welcoming the enhanced standards, Mr Kenneth Yap, chief
executive of ACRA, said: The expanded auditors report supports
our efforts to introduce more transparency in the marketplace
by providing greater insight into the audit process and raising
the quality of disclosure in financial statements. This will boost
stakeholder confidence in our markets, and reinforce our reputation
as a trusted place for business.
Mr Lee Fook Chiew, chief executive officer of ISCA, said: This is
probably the most significant development impacting the auditing
profession in recent times. Auditors are now positioned to adopt a
more significant role in presenting their professional judgement on
the financial health and accounting practices of an entity.
To ensure robustness and relevance of the standards in serving
the public interest, ISCA has engaged key stakeholder groups
in constructive feedback sessions. Since 2012, ISCA has also
spearheaded outreach initiatives to raise the awareness level and
will continue to do so in 2016.
Noting the key role that public accountants will play in ensuring
greater transparency in audited financial statements, Professor Tan
TECHNICAL
Cheng Han, Chairman of the PAOC said: The enhanced auditor
reporting standards recognise the key role that public accountants
play in ensuring the integrity of financial statements.
The profession must take these added responsibilities seriously
and seize this opportunity to bring the quality of audits to a new
level.
UNITED STATES
FASB ISSUES GUIDANCE DEFERRING EFFECTIVE
DATE OF REVENUE RECOGNITION STANDARD BY ONE
YEAR
The Financial Accounting Standards Board (FASB) has issued
an Accounting Standards Update (ASU) that defers by one year
the effective date of Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers. The new ASU reflects
decisions reached by the FASB at its meeting on 9 July 2015.
Accounting Standards Update No. 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective
Date, is available for review at the FASB website.
PROPOSED 2016 GAAP FINANCIAL REPORTING
TAXONOMY AVAILABLE FOR PUBLIC REVIEW AND
COMMENT
The Financial Accounting Standards Board (FASB) has released
the proposed 2016 GAAP Financial Reporting Taxonomy for public
review and comment. The deadline to submit written comments is
31 October 2015.
The proposed 2016 taxonomy contains updates for accounting
standards and other recommended improvements to the official
taxonomy, which is used by public issuers registered with the US
Securities and Exchange Commission (SEC). The 60 day comment
period is intended to allow users of the taxonomy to provide
feedback on these updates.
It also is intended to afford SEC filers, service providers, software
vendors and other interested parties the opportunity to become
familiar with and suggest revisions to the taxonomy, including
incorporating new elements for current filings.
Those interested in learning more about the proposed 2016
GAAP Financial Reporting Taxonomy are invited to participate
in a live CPE webinar called IN FOCUS: Proposed 2016 GAAP
financial reporting taxonomy changes, simplification, filer counts,
and context sensitive guidance.
Offered free of charge, the webinar takes place on 22 September
2015, from 1:00 to 2:15pm Eastern Daylight Time. Participants in
the live broadcast will be eligible for up to 1.5 hours of CPE credit.
(Please note that CPE credit is not available for group viewing of
the live broadcast.)
The 2016 GAAP Financial Reporting Taxonomy is expected to
be accepted as final by the SEC in early 2016. The proposed 2016
GAAP taxonomy and instructions on how to submit comments are
available at the FASBs website.
FASB PROPOSES CLARIFICATION TO PRINCIPAL
VS AGENT GUIDANCE IN REVENUE RECOGNITION
STANDARD
The Financial Accounting Standards Board (FASB) has issued
a proposed Accounting Standards Update (ASU), intended to
clarify the implementation guidance on principal versus agent
considerations contained in the new revenue recognition standard.
Stakeholders are encouraged to review and provide comment on
the proposal by 15 October 2015.
The proposed ASU is available for review at www.fasb.org.
ISSUE 83: SEPTEMBER/OCTOBER 2015 INTERNATIONAL ACCOUNTANT 33
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The information in this document is current as of February 2015 and is subject to change without notice.