10 Aug

Three former members of AssetCo management excluded from the accountancy profession​

The FRC has announced exclusions from the accountancy profession for three former executives of AssetCo plc, after a Disciplinary Tribunal found they had committed Misconduct in relation to the preparation and approval of the company’s financial statements for the financial years ended 31 March 2009 and 31 March 2010. Please see FRC AssetCo report here.

John Shannon (former Chief Executive Officer) has been excluded for 16 years, Raymond “Frank” Flynn (former Chief Financial Officer) for 14 years and Matthew Boyle (former Financial Controller) for 12 years. Additionally, fines of £250,000, £150,000 and £100,000 respectively have been imposed.

Former members of AssetCo excluded from the profession​

AssetCo was an AIM-listed fire and rescue services business that provided fire engines to the London Fire Brigade. As a result of the Misconduct, AssetCo substantially restated its financial statements in 2011 (£146m reduction in assets, £25m reduction in profit) and significant loss was caused by the collapse in share price from 60p to 1.75p.

The dishonest conduct of management was concealed. The FRC opened its investigation in late 2014.

The FRC’s Executive Counsel brought a total of 27 allegations of Misconduct against Mr Shannon, Mr Flynn and Mr Boyle before the tribunal. The tribunal, chaired by Sir Bernard Eder, made findings of misconduct in relation to all of them. These included findings of dishonesty and failing to act in accordance with core standards of integrity, objectivity and competence, which related to dealing with company funds, the preparation of financial statements, and the recognition of fictitious assets and revenue. The tribunal also found that they had each misled the auditors, Grant Thornton UK LLP.

Claudia Mortimore, interim Executive Counsel at the FRC, said,

The misconduct of the three accountants in this case is the most serious the FRC has put before a Tribunal. In addition to the financial harm caused to the company and to many investors, the actions of these individuals have damaged public confidence in the profession. The Tribunal has recognised this and it is reflected in the imposition of lengthy periods of exclusion (being the longest ordered to date), as well as substantial financial penalties. These sanctions should send a clear message that the manipulation of financial statements, and in particular dishonesty, will be dealt with robustly

26 Mar

Anti-Money Laundering – Time to spring into action

With the January 31st tax filing deadline well out of the way, Tim Pinkney, Director of Compliance at the Association of International Accountants, says it’s time for firms to think about ‘spring cleaning’ their risk processes to avoid falling foul of new money laundering regulations.

As the march of technology continues to revolutionise the way financial flows move around the world, the battle to stamp out money laundering and terrorist financing becomes ever more challenging.

The response from the UK Government and professional sector has though, been robust. In addition to the revised Money Laundering Regulations published in June last year, regulatory bodies and the Government have joined forces to promote profession-wide awareness-raising initiatives such as the Flag It Up campaign, in order to ensure that professionals are in the strongest possible position to meet their statutory obligation to report suspicious activity to the National Crime Agency (NCA).

As supervisors, we appreciate that the anti-money laundering (AML) landscape is hugely complex.  Nevertheless, our expectation is that all practices are working to ensure they are 100% compliant with the new regulations. With the hectic January tax filing period behind us, now is the perfect opportunity to carry out a comprehensive spring clean of approaches to managing exposure to all forms of financial crime and AML obligations.

The risks posed to different firms by money laundering activity will not be of the same nature in every case, which is why the key to preparedness is to take what’s known as a ‘risk based’ approach to AML – particularly in relation to client due diligence and staff training procedures.

If we were inspecting a member business tomorrow, at the very least we would expect to see that it had money laundering procedures in place that are shaped around the 2017 regulations or were moving towards them.

The firm’s policies and procedures should clearly outline what its risk appetite is and what it does to mitigate risks. In addition, it should be clear who the Money Laundering Reporting Officer (MLRO) is, and what approach is taken to training.

The exact shape of this risk-based approach will ultimately be defined by a firm’s risk appetite. For example, you could have a policy that says you’re very risk-averse, or you might decide you don’t mind taking on higher risk clients – but in either case the overall approach to managing risk will need to be proportionate.

What should be classed as a client risk? In short, we would define it as the chance of a client or their associates having attributes known to be associated with money laundering. This may sound obvious, but our experience is that it can be far from clear-cut.

Considering client risk, businesses should look for some of the telltale signs that all might not be as it seems. Client secrecy, unnecessary structures, not being able to contact the client, being out of the country a lot and opaque ownership are common red flags. So too are being based in geographic jurisdictions known to be associated with money laundering or being associated with certain political regimes. It is particularly important to bear in mind that these flags don’t just apply to your clients, but also to their clients and associates.

Of course, you should always carry out due diligence at the start of a new client relationship – the usual checklist of things such as verifying identity, personal circumstances, addresses, VAT and company registration numbers – but circumstances can and do change during the course of the year, which is why an annual due diligence refresh is a sensible step.

Depending on the risk-rating of the clients you decide to take on, you may be required to carry out enhanced due diligence to satisfy professional supervisors that you have done everything you can by way of AML mitigation.

By way of example, if the police believed one of your clients was involved in money laundering and was moving illegal funds through your business, they would want you to be able to demonstrate what you have done everything you can to mitigate against that eventuality. And unless you have a documented audit trail showing what action you took to assess the validity of the client, you could find that it’s you, as well as your client, who is facing criminal proceedings.

Another important reason to carry out a regular spring clean on your client portfolio is the introduction last year of the requirement for all businesses, with the exception of sole practitioners, to carry out a ‘whole firm risk assessment’.

This key document will provide evidence that you as a firm have attempted to identify and codify where your weak points are – showing that you know where you are vulnerable if criminals were going to target you. It acts as the cornerstone of your fight against financial crime and is something that we as supervisors will be looking for when we start our rounds of visits, desktop reviews and telephone interviews in the spring.

Carrying out regular, proportionate due diligence on your client base could flag up the discrepancies that might prompt you, either directly or through your designated MLRO, to complete a Suspicious Activity Report (SAR).  Doing so will contribute to the combined intelligence pool that is often required to unravel criminal activity. Now’s the time to polish up those procedures.

Article by Tim Pinkney, Director of Compliance at the Association of International Accountants
17 Dec

Simplification of UK GAAP benefits up to 4 million businesses

The FRC has completed a triennial review of FRS 102 and confirmed the simplification of the measurement of directors’ loans to small entities, following the interim relief granted earlier this year.

The other principal amendments to FRS 102:

  • require fewer intangible assets to be separated from goodwill in a business combination;
  • permit investment property rented to another group entity to be measured by reference to cost, rather than fair value;
  • expand the circumstances in which a financial instrument may be measured at amortised cost, rather than fair value; and
  • simplify the definition of a financial institution.

Amendments are also made to provide relief from recognising tax payable when a trading subsidiary expects to make a distribution of a gift aid payment to its charitable parent, and to incorporate the new small entities and micro-entities regimes in the Republic of Ireland (the latter by amendments to FRS 105). Editorial amendments and clarifications will increase the ease of use of the standards.

Paul George, Executive Director, Corporate Governance & Reporting, said:

We are grateful for stakeholders’ engagement with the triennial review, which has enabled us to identify and respond to implementation issues following the introduction of FRS 102 from 2015. As a result of these amendments, FRS 102 has been simplified and will be more cost-effective and easier to use

In general these amendments are effective for accounting periods beginning on or after 1 January 2019, with early application available. The amendments to incorporate the small entities and micro-entities regimes in the Republic of Ireland are effective for accounting periods beginning on or after 1 January 2017.

17 Jul

FSB publishes statement on IFRS 17

The FSB has published a statement welcoming the new insurance contracts Standard, IFRS 17, which was issued by the IASB) in May 2017.

The FSB identified the completion of IFRS 17 as a high priority at its September 2015 Plenary meeting. Now, the FSB has published a statement welcoming the issuance of the Standard, stressing the importance of insurers starting the process to implement the Standard as soon as possible and highlighting the significance of proper application.

Insurers have until 2021 to implement the new Standard, which requires all insurance contracts to be accounted for in a consistent manner. IFRS 17 will help investors and others better understand insurers’ risk exposure, profitability and financial position.

Hans Hoogervorst, Chairman of the Board, said:

IFRS 17 will provide important insight into insurance companies’ risk exposure and performance, which—in turn—will contribute to financial stability. It is therefore an important contribution to the FSB’s mission of strengthening the stability in the financial sector

The Board is a member of the FSB, and IFRS Standards are among the Key Standards for Sound Financial Systems defined by the FSB.

FSB’s statement can be found here.

Further information about IFRS 17 Insurance Contracts can be found here. The IFRS Foundation also has a dedicated web section to support those implementing the Standard. It can be found here.

03 Jul

ACCA: Companies must be aware of the financial impact of climate-related risk

ACCA has welcomed the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) as an important step towards the better allocation of capital, by incorporating the effect of climate change in investment decisions.

Yen-pei Chen, subject manager – corporate reporting at ACCA said:

The four thematic areas of the TCFD’s recommendations – governance, strategy, risk management and metrics and targets – provide a useful framework for disclosure.
The detailed implementation guidance in the annex will be particularly helpful for companies preparing to report under the EU’s Directive on the disclosure of non-financial and diversity information.
Climate-related disclosures, in our view, will be best integrated into the reporting of the impact of other material factors within the four thematic areas

ACCA also welcomed the inclusion of references to the financial impact of climate-related risk, and the ensuing recommendation that this be reflected in companies’ financial statements.

Ms Chen, added:

In particular, climate-related risks could affect the carrying value of assets and goodwill, and in some cases the going concern status of the business
Accounting standard setters such as the IASB should be giving greater priority to closing the long-standing gap that exists in reporting the effect of pollutant pricing or emissions trading systems

Professional accountants play an important role in helping companies to manage and report climate-related risks more effectively. This is particularly clear in light of this week’s EU adoption of non-binding guidelines for non-financial information reporting, which is another example of the global momentum towards better-informed capital markets and companies fit for the challenges of today’s world.

ACCA is committed to educating the professional accountants of the future, giving them the skills they need to respond to this wider set of challenges, and contribute to a more sustainable future for businesses and our planet.

21 Jun

AICPA Praises House for Passing Mobile Workforce Bill

The AICPA applauded the U.S. House of Representatives today for passing the Mobile Workforce State Income Tax Simplification Act of 2017, H.R. 1393.  The bill would simplify state income tax reporting and withholding rules for employees who sometimes work outside their home states.

“The House’s passage of the Mobile Workforce State Income Tax Simplification Act of 2017 is a victory for taxpayers and their employers,” Barry C. Melancon, CPA, CGMA, president and CEO of the AICPA, stated.  “Enactment of H.R. 1393 would eliminate the need for much of the complex record-keeping that employers face when their employees cross state lines to work.  It also would relieve many workers of the burden of filing state income tax returns for states in which they worked only a few days during the year.” 

Melancon explained that the legislation would create a uniform national standard that would eliminate the compliance maze many employers and employees currently face because they have to keep track of numerous state income tax withholding laws and varying de minimis exemption periods imposed on nonresident workers.  Employee earnings would not be subject to state income tax and withholding outside their home state unless the employee worked in a state for more than 30 days during the calendar year.

However, Melancon noted that under H.R. 1393 notable individuals, such as professional athletes, professional entertainers and public figures, do not qualify for the 30-day de minimis exemption.  They would still have to pay tax to the state where they are appearing.  Non-headline performers, including dancers and musicians, would be covered by the 30-day national standard. 

H.R. 1393 was introduced by Representatives Mike Bishop (R-Mich.) and Hank Johnson (D-Ga.).

“The AICPA has strongly supported the passage of mobile workforce legislation for many years,” Melancon stated, “and we appreciate the leadership shown by Representatives Bishop and Johnson.”

“We urge the Senate to pass its companion bill soon so that thousands of employers and employees can be relieved of the burden imposed by inconsistent state tax laws,” he added. 

11 May

IESBA Enhances International Code of Ethics; Proposes New Guidance for Professional Skepticism and Professional Judgement

The IESBA has released for public comment the Exposure Draft, Proposed Application Material Relating to Professional Skepticism and Professional Judgment.The proposed guidance for the first time links key concepts in the IESBA Code of Ethics for Professional Accountants (the Code) and clarifies their application, namely:

  • how compliance with the fundamental principles in the Code supports professional skepticism by auditors and assurance practitioners for audit, review, and other assurance engagements; and
  • the importance of professional accountants obtaining a sufficient understanding of the facts and circumstances known to them when exercising professional judgment in applying the conceptual framework underpinning the Code.

Dr. Stavros Thomadakis, IESBA Chairman said:

Compliance with the fundamental principles and professional skepticism are essential obligations of professional accountants for audit and other assurance engagements
We are articulating for the first time the linkage between the two, making clear the important role that the fundamental principles play in enabling auditors and assurance practitioners to meet the public’s expectations about exercising professional skepticism

The proposed guidance addressing the fundamental principles and professional skepticism responds to a recommendation from the tripartite Professional Skepticism Working Group established by the IESBA, the International Auditing and Assurance Standards Board (IAASB), and the International Accounting Education Standards Board (IAESB).

Ken Siong, IESBA Technical Director noted:

While developing this guidance, the IESBA also emphasises the importance of professional accountants not simply accepting information at face value when exercising professional judgment

Once finalised, this material will be included in the clarified and restructured Code that the IESBA plans to complete by the end of 2017. Beyond this, the IESBA will continue to explore further issues relating to professional skepticism in close coordination with the IAASB and IAESB, and in consultation with stakeholders.

How to Comment
The IESBA invites all stakeholders to comment on the Exposure Draft by visiting the Ethics Board’s website at www.ethicsboard.org. Comments are requested by July 25, 2017.

06 Oct

New small company accounting rules may mean filings are rejected, warns ICAEW

blind businessNew accounting rules for small companies has led to Companies House rejecting accounts filed with them, due to uncertainty over filing options ICAEW has warned. The accountancy and finance body has published updated guidance to help small companies and others understand the filing options under the new regime.

Recent changes to UK company law mean small companies no longer have the option to submit so-called abbreviated accounts for periods beginning on or after 1 January 2016. Small companies are still able to take advantage of some filing options under the new regime, but the change has led to some misunderstandings, and in some cases to rejection of company accounts filed with the Registrar of Companies.

After liaising with Companies House and member firms, ICAEW has produced a set of Frequently Asked Questions, together with background information to help small companies and other interested parties navigate the new rules.

Dr Nigel Sleigh-Johnson, head of ICAEW’s Financial Reporting Faculty, said:

The new regime reflects UK implementation of a new EU accounting directive and means that small companies can no longer file an abbreviated version of their full accounts at Companies House – they have to file the version they prepare for members. But they can, for example, prepare abridged accounts for members and file those, provided shareholders all agree. There are other options too, such as choosing to remove the profit and loss account from the accounts filed on the public record

There are a number of different scenarios identified in the guidance, which explains the requirements in each case

The new ICAEW guidance is available at:

http://www.icaew.com/-/media/corporate/files/technical/financial-reporting/factsheets/uk-gaap/small-company-filing-options-faqs-final.ashx and will also be available through the Companies House website.
06 Oct


IFAC and ICAEW have announced the release of their new report From Crisis to Confidence: Good Regulation, Governance, and Culture.

ifac-icaew-reportThe report is an output of a July 2016 roundtable discussion convened by IFAC and ICAEW, which brought together 50 UK and EU chief and senior executives from business and regulatory bodies. The executives met to discuss and debate how the global regulatory environment can be enhanced—with an ultimate goal of improving confidence in the financial and capital markets, business, and government.

Fayez Choudhury, IFAC Chief Executive Officer, said:

The expertise of the roundtable’s participants makes their clear and candid call for stronger organisational governance all the more important. At a time when we are seeing citizens express a deepening mistrust of government and institutions through the political process, reframing the thinking around how to develop smart and effective regulation is vital

Other topics discussed at the roundtable summarised in the report include:

Governance and culture: Why almost ten years after the global financial crisis, rebuilding public trust in financial and capital markets, business, and government remains a vital goal, despite the significant progress achieved from a regulatory perspective.
Regulatory fragmentation: How differences in cultures and expectations concerning regulation, and different legal environments, are leading to an increasingly fragmented international regulatory environment.

Complexity of regulation: Why it is important to achieve the right balance in the regulatory environment and how unnecessary complexity is sometimes created when we seek compliance-based regulatory solutions.
The future of regulation: How a holistic view that seeks to create a stronger system for today and tomorrow, rather than addressing past issues, is the right one for the global regulatory environment.

The second in a series of discussions, the roundtable reinforced the need for effective and smart regulation in a global economy amidst global political unrest.

Michael Izza, ICAEW Chief Executive, said:

Although regulation is only one piece of the puzzle, we cannot rebuild trust unless society has faith that those regulations protect the public interest. This trust is undermined when the rules are too complex, too fragmented, or their purpose is unclear. At the same time, we need to recognise that regulation can’t do it all. Companies must take responsibility for the way they operate. This is why we are calling for everyone to work together to end the culture of piling on more and more rules and find answers that achieve the primary aims of protecting the public and encouraging ethical behaviour
06 Oct

Aligning the interests of business and society

FRC_LogoThe FRC supports the need for change in the relationship between business and society. As the guardian of the UK Corporate Governance and Stewardship Codes, the FRC is keen to explore how it can ensure governance and investment are more closely aligned with the broad public interest.

Commenting after the Prime Minister’s speech, Stephen Haddrill, Chief Executive of the Financial Reporting Council said:

FRC haddrill Global AccountantWe share the objective of wider stakeholder engagement by companies and are considering how corporate governance principles can best meet the demands of all stakeholders or be amended to do so. We look forward to responding to the Government’s consultation later this year and will propose measures to realign the interests of business and society.
Tackling important issues such as diversity in boardroom representation and executive pay is in the interests of society and business. In particular we need to look at how Boards set pay, respond to votes at annual general meetings on remuneration and align pay and culture. We should also look wider at other issues including how directors are held to account in relation to their obligations to all stakeholders.
The success of business is essential to our prosperity and wellbeing. The UK is home to many high-performing companies with excellent reputations, products, services and working environments. But there has been a loss of confidence in business – particularly big business. If we ignore this, damage will be done to our economy and prosperity. There are no simple solutions. We need the right balance of reform of governance requirements and focus on corporate culture to improve the relationship between business, wider stakeholders and society

The FRC consults on changes to the Corporate Governance Code to test and build support as it is voluntary in nature and will do so if the Government’s own consultation suggests a role for the Code in the absence of legislation.