Comment

Claire Lord considers the arrival of the central register of beneficial owners. Under Irish legislation, corporate and other legal entities incorporated in Ireland are required to obtain and hold adequate, accurate and current information in respect of their beneficial owners and put in place their own beneficial ownership register. A beneficial owner is a natural person who ultimately owns or controls the share capital or the voting rights, or has control by any other means. The relevant legislation states that a holding (direct or indirect) of 25% plus one share will be indicative of ownership and control. This information required to be contained in a company’s beneficial ownership register includes name, date of birth, nationality and residential address. New requirements New legislation introduced in March 2019 now requires that, in addition, relevant entities must obtain their beneficial owners’ PPS numbers, where the beneficial owner has been issued with one. This new legislation also requires that from 22 June 2019, Ireland will have a centralised register of beneficial owners. Companies and industrial and provident societies incorporated in Ireland will have five months from that date to submit the information they hold on their beneficial owners to this central register. Such legal entities incorporated after that date will have five months from their incorporation to submit the required information. The current requirement for submission of information to this central register relates to companies and industrial and provident societies only. Therefore, it is not yet clear how and when entities that are not companies or industrial or provident societies (for example, ICAVs) will be required to submit information on their beneficial owners to a central register. Access to information While companies and societies will be required to submit all of the details they hold on their beneficial owners to the central register, the only information that will be available to the public will be a beneficial owner’s name, country of residence, nationality, month and year of birth and nature and extent of ownership and control. Individuals acting on behalf of An Garda Síochána, the Financial Intelligence Unit (FIU), the Criminal Assets Bureau, the Revenue Commissioners and other competent authorities will be entitled to all the information submitted to the central register, save for PPS numbers. Any such authority (save for the FIU) may disclose the information they receive from the central register to a corresponding authority in any member state of the EU. Remedies and sanctions If any details are entered incorrectly in, or omitted from, a beneficial ownership register, or unnecessary delay takes place in updating a register to reflect that a person has ceased to be a beneficial owner, that person – or any other member or beneficial owner of that entity – can apply to the High Court for the register to be amended. The High Court may refuse the application, order for the register to be amended or require the entity to compensate the aggrieved person for any loss sustained. An entity that breaches the new legislation may be liable to a fine of up to €5,000 or, on indictment, a fine not exceeding €500,000. In addition to these fines, custodial sentences of up to 12 months can be imposed on any person who knowingly or recklessly makes a statement to the registrar of the central register which is false. Where an offence is found to have been committed by an entity under the new legislation, and is proved to have been committed with the consent or connivance of any of its directors, those directors will also be guilty of an offence. Conclusion Relevant entities should prepare for the establishment of the central register by ensuring that their internal beneficial ownership registers are up-to-date, include PPS numbers where they have been issued, and that their beneficial owners are aware that their details will soon become centralised and open to public inspection. Directors of Irish companies also need to take responsibility for ensuring that their companies are complying with the new legislation, given the potential risk of not doing so. Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

What is stress, and is it bad for you? The dictionary definition of stress is “a state of mental or emotional strain or tension resulting from adverse or demanding circumstances”. In a medical or biological context, stress is viewed as a physical, mental, or emotional factor that causes bodily or mental tension. Stresses can be external (arising from environmental, psychological or social situations) or internal (stemming from an illness or a medical procedure). Stress can initiate the ‘fight or flight’ response, a complex reaction of neurologic and endocrinologic systems. And so we start to see the see-saw relationship we have with stress. It is needed to charge our body and mind, so we can best prepare to deal with challenging situations. It also releases adrenaline to make us the strongest and most productive we can be – this is our friend. However, it is when this delicate balance is tipped that it becomes our foe. The two sides of stress For me, good stress is the feeling before an Ironman – I am nervous, tense, anxious (and indeed, often questioning why I am here!) However, I know that this feeling means my body is preparing for pressure and that the adrenaline being released will fuel my muscles. It is the feeling before a presentation in work or a tough meeting – to some extent, it is a comfort as I know that this will ensure my reactions are charged and I will deal with unanticipated questions. However, stress becomes a problem when it significantly affects our emotional well-being and our ability to function at home, work or in our relationships. For a professional accountant, this pressure can sometimes arise from our work environment and as a member of the community of accountants, we should all be aware of the warning signs in others. Critically, the pressure often begins at the start of our career when we are juggling study, lectures, learning the tools of our trade with clients and dealing with our peers. However, throughout our careers, the lifecycle of an accountant exposes us to different pressures at different times.  It is okay not to be okay While we have come a long way in our ability to talk about our mental health, our profession appears slow to fully embrace the acknowledgement that it is okay not to be okay. From my interaction with students in the profession and my peers, who are often employers, we are still not 100% comfortable, or indeed perhaps don’t fully understand the impact stress can have on a person. Also, not all places of work have a safe environment in which individuals can talk openly. Yes, I am generalising here, but would you honestly feel 100% comfortable telling your employer that you were off on sick leave with mental health issues? If the answer is no, then as an employee or an employer we have an issue. And let us be honest, statistics demonstrate that we should see these sick certs as, on average, stress, anxiety and depression account for nearly half of all sick days taken in Ireland and the UK. Stark statistics Is stress, and the related side-effects when it becomes too much for us, more prevalent in accountants? Research by the Chartered Accountants Benevolent Association in the UK shows that more than eight out of 10 accountants suffer from stress-related problems. Over a quarter of accountants said they drink more than the recommended level and the study revealed that the suicide rate for female accountants is three times higher than the average for other occupations. Stark statistics. So, what can we do as a profession?  Well, we can ensure that our workplaces are open and transparent and that, most importantly, all staff can talk, voice their concerns and articulate when they are feeling stressed. We don’t need to go full throttle and bring in the massage chairs and yoga mats (even though this has been proven to help). However, we do need to ensure that as a community of accountants, we are there to assist each other and spot the warning signs. It is okay not to feel okay – and the more we say it and really believe it, the more we will help break the stigma of mental health and ensure that the profession is a compassionate one that supports its members and enables and empowers people to speak up. If any of the above strikes a chord with you, please note that CA SUPPORT is available to all members to help with matters of mental health. Sinead Donovan FCA is a Partner in Financial Accounting and Advisory Services at Grant Thornton.

Critical behavioural errors can dog investment decisions. Here are seven of humanity’s most prominent weaknesses. At one point in the 1973 movie, Magnum Force, Inspector Harry Callahan (played by Clint Eastwood) uttered the line: “A good man always knows his limitations...” It is important that investors should know their limitations too. Behavioural finance is the study of the influence of psychology on the behaviour of investors. It finds that investors are not always rational, suffer from systemic biases and are limited in their rational self-control. The first step to combatting these often unconscious biases is to be aware of them. What then are the critical behavioural errors that can dog our decisions? The following errors were identified recently by Joe Wiggins, a fund manager with Aberdeen Standard Investments. Myopic loss aversion We are more sensitive to losses than gains and overly influenced by short-term considerations. Often, investors check their portfolios frequently – even if they are operating with a long-term investment horizon. Making frequent investment decisions can worsen your investment results. A 2015 study by the Central Bank of Ireland found that 75% of the retail contract for difference (CFD) clients who invested in CFDs during 2013 and 2014 made a loss. Integration We seek to conform to group behaviour and prevailing norms. Like a limping wildebeest at the back of a herd in the Serengeti, we want to keep pace with the herd for fear of being picked off. The problem is that, in investment markets, the herd is more often wrong than right. That is why Warren Buffett said it is wise to be “fearful when others are greedy and greedy when others are fearful”. Recency We overweight the importance of recent events. In 2006, one had to look back over a decade and a half to observe a year-on-year decline in Irish residential property prices. Accordingly, most market participants grievously underestimated the possibility of a severe property bear market. Today, memories of the property crash are fresh in people’s minds, and many are fearful of another residential property crash. However, that is quite unlikely with rent yields considerably above mortgage rates. Risk perception We are poor at assessing risks and gauging probabilities. We allow the emotional hope of investment gains to override logic in evaluating risks. At the height of the residential property price bubble, houses in some parts of Dublin (such as Howth, Dalkey and Blackrock) were selling for more than 100 times the annual rental income those properties could command. However, many investors were more fearful of missing out on continued gains from the property market despite the dismal long-term return prospects those valuations suggested. Overconfidence We overestimate our abilities. Not only is the recorded investment performance of retail investors poor, but so too is the record of professional fund managers. The empirical evidence strongly suggests that the vast majority of investors would be better off buying low-cost funds that track market indices. Nevertheless, millions of us persist with the belief, hope or illusion that we can do better managing our funds ourselves. Results We focus on outcomes when assessing the quality of our decisions. Even as the Irish property market got more and more overvalued between 2004 and 2007, and risks continued to mount, investors mostly stuck with it because they were enjoying positive outcomes. Stories Captivating stories often persuade us. If you get the chance, watch Alex Gibney’s documentary, The Inventor: Out for Blood in Silicon Valley about the rise and fall of Elizabeth Holmes and Theranos. It depicts the journey of a woman and her company, propelled forward by several captivating stories: replacing injections with thumb-pricks for taking blood samples; replacing an expensive blood-testing duopoly with access controlled by clinicians with cheap tests that individuals could order; having a female entrepreneur enjoy the same success as Apple’s Steve Jobs. But it was all a fraud. In making financial decisions, it is a case of the forewarned being forearmed: the more we are aware of our limitations, the better we can avoid them.   Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

There are many good reasons to operate a practice through a limited company, but doing so brings its own problems. It is now common for accountants to carry out practice through a limited company. While there are good commercial reasons to do so, complications will eventually arise through the elapse of time and the realities of company law. The result can be difficulties and, more likely than not, acrimony. Heading off trouble through a shareholders’ agreement (SA) is best. An SA in the context of a professional practice is the equivalent of a partnership agreement, but more complicated. In effect, it is best for an SA to mirror as far as possible what would otherwise be a normal partnership agreement. Partnerships are governed by the Partnership Act 1890, a concise and well-written law that has never been amended. Originally drawn up to oversee business relationships before the advent of the limited company, the Act’s relevance since the early 20th century has largely been to professional partnerships; though this was not the intended purpose. The Act itself, in effect, constitutes a partnership agreement, though it can be amended by written agreement. There is an ease to the formation, administration and dissolution of professional partnerships. This is not the case with limited companies. In time, partnerships dissolve through resignations, retirements and death, or are restructured into new arrangements through mergers, new partners and so on. However, an actual ‘share’ in a partnership has no independent status and has no title or continuity save vis-à-vis the other partners; unlike a shareholding in a limited company, which has a distinct legal status and continuity. Also, in a professional practice operating through a limited company, the ‘partners’ (i.e. the shareholders) will be paid salaries, taxed in the normal way, as compared to drawings in a partnership. All is well in trading as a limited company until, inevitably, an event happens. It may be the resignation, retirement or death of a shareholder; or it may be difficulties regarding a marital separation or a row with a difficult or non-performing partner. One way or another, the partner concerned or his/her estate will have a shareholding in the company that will continue to hold rights and entitlements. In the absence of a properly constituted SA, the disentanglement of the outgoing partner’s shareholding will be problematic and probably acrimonious. Remember too that clients belong to the limited company. It follows that an SA is essential to the good order and continuity of a professional practice. Legal advice thereon is essential, particularly to ensure that the SA does not contradict the constitution of the company and that the SA is capable of being interpreted and understood, rather than being vague and aspirational. This includes a careful review as to the ability to enforce all aspects of the SA. The primary focus of an SA in the context of anticipating events, as referred to above, falls under three headings. First, the relevant shareholding may be compulsorily acquired by the other shareholders (probably by the company itself acquiring the shareholding); second, a basis of valuing the shareholding; and third, a structure or schedule as to payment for the shareholding. Realistically, that basis of valuation is likely to be the outgoing partner’s issued share capital together with his or her share of undrawn profits. It is almost always contentious as to whether or not a profit share in an accounting practice has a capital value beyond the above basis of valuation. The existence of a limited company will make this more contentious. A short article cannot encompass the arguments thereon. The Valuation of Businesses and Shares, written by the author of this article and published by Chartered Accountants Ireland, sets out the fundamentals on valuing a professional practice. It also covers the area of partnership agreements and related matters. There are a range of issues not yet tested by experience as to professional accountants trading through a limited company. Remember that company law prevails, and not the traditional embodiment of professional practice. For example, a row with a partner may develop into a claim for minority oppression as set out in company law. A surviving spouse of a deceased partner may pursue a continuing share of the practice profits through inheritance of the related shareholding. There will be difficulties should a partner go through a marital separation. As always, there will be tax complications – quite different from partnerships – in the acquisition or devolution of shareholdings. Practitioners, late in life, can find themselves embroiled in disputes simply through the elapse of time. A careful, well-thought out SA is therefore essential. Des Peelo FCA is author of The Valuation of Businesses and Shares, 2nd edition, published by Chartered Accountants Ireland.

Welcome to a new edition of Accountancy Ireland, the final edition before our annual general meeting on 17 May in Dublin. Annual Dinner Our Annual Dinner took place on 7 February at Croke Park, a venue which fittingly echoes the all-island (and indeed international) spread of our membership. Our guest speaker, Mr Pat Cox, former President of the European Parliament, underlined the stark climate change challenge facing the world and our profession’s key role in driving the sustainability agenda. Accounting for sustainability is an area where we must be prepared to take the lead. A chance to play a leading role in good governance and integrated reporting represents both a significant challenge and a huge opportunity for our profession going forward. I would like to congratulate Deborah Somorin, a truly outstanding recently-qualified member who was presented with a Chartered Accountants Ireland Inspiration Award. The award recognised her commitment to changing lives by establishing Empower the Family, a charity that changes the trajectory of families from disadvantaged areas through education. Sporting success The selection of Croke Park as our venue on 7 February also reflected our focus on the links between business and sport. Throughout the year, we have sought to celebrate members who make us proud in the sporting arena while also excelling in their professional career. They are a fantastic example to young people and tremendous ambassadors for our profession. This edition includes contributions from some of these remarkable members. They provide a valuable insight into the mind-set of those who excel in top-level sport and can perhaps inspire some thoughts on how we can bring that determination into our own lives. Influence Our next major event is Influence, a new one-day event which takes the place of our traditional Annual Conference. Taking place at Lyrath Estate in Kilkenny on Friday 10 May, Influence will examine what members can do to position themselves and their organisation to harness the latest in disruptive technologies.  Thought-provoking sessions will include a Davos speaker on organisational transformation, the CFO of a $100 billion US tech giant, an Irish networking guru and an Australian martial artist and TED speaker. Further details are available on the Institute’s website. Looking ahead At the time of writing, the practicalities of Brexit remain uncertain. As things become clearer, the Institute will continue to help members come to terms with the new trading reality. We will do everything we can to support our members, who will have a vital role to play in helping businesses across the island of Ireland to adapt. In the months and years ahead, our Institute will continue to do all it can to facilitate a thriving all-island economy and to promote closer mutual respect and relationships between the UK, Ireland and Europe. During my term as President, it has been my privilege to engage with members both at home and overseas. In particular, it was a great honour to represent Chartered Accountants Ireland at the White House at the recent St. Patrick’s Day Shamrock Ceremony in Washington DC. Finally, as this is my last comment article as President, I would like to thank everyone who has contributed to our programme of events, education and support throughout the year. I would like to give special thanks to the Deputy President Conall O’Halloran, the Vice-President Paul Henry, Immediate Past-President Shauna Greely and all of the Council members, along with CEO Barry Dempsey and all Institute staff. Your support is greatly appreciated. Feargal McCormack President

Populism seems to have taken hold across the world, but can it sustain itself outside of the spread of social media? There has been apparent chaos in so many democratic institutions recently – from the US government shutdown to a dysfunctional Parliament in Westminster to the violent protests of the Gilets Jaunes in France against fuel tax hikes. You could be forgiven for thinking that somewhere along the way, the traditional political parties which usually comprise the backbone of elected governments had stopped listening to their citizens. Instead of the conventional ideologies of left- and right-wing politics, populism seems to have taken hold instead. The core idea of populism is that there is a ruling elite which, in some way, is separated from the concerns of, for want of a better expression, “ordinary people”. It is neither necessarily “left-wing” nor “right wing”, but rather “my wing and not your wing”. It seems to me that this is a barren philosophy with little in it ultimately for anyone other than its most strident adherents. Perhaps of more interest is not the rise of populism, but the circumstances in which it is coming to the fore.  Over the centuries, ruling elites of all types have often been suspicious of any spread of knowledge or better communications among those whom they rule. Scholars distrusted the printing press, clergy showed hostility towards church services being conducted in the vernacular. Government of all types have long cherished the belief that the popular message should be disregarded. But in this era of mass communication, the popular message refuses to be disregarded. Among the consequences is the emergence of populist leadership – Trump in America, Bolsanaro in Brazil, Duerte in the Philippines and so on. In Europe, we have seen the rise of the German AfD, UKIP, Orban in Hungary, the flurry of support for Marine Le Pen in France and the extent to which Italy’s Five Star movement now holds sway. It does not seem to matter that their political messages have little by way of long-term viability.  What remains to be seen is whether the messages of populist thinking, often spread through the convenience of social media, will have the same enduring impact as political thinking developed from the grind of committee meetings, election campaigns and town hall rallies. These require serious effort over an extended period of time by the promoters of the political ideologies and commitment and stamina from those who support them. For example, the US civil rights movement was not born out of a social media hashtag campaign. It has endured since the 1950s and is still of relevance and has much still to achieve. In 70 years’ time, will we be saying the same thing about the Gilets Jaunes? Even if social media can help win over hearts and minds, it may not be sufficiently powerful to retain them. UKIP has already faded out of mainstream politics because it has nothing more to say. The French National Front has rebranded itself as the National Rally. Populism in its current incarnation only survives as long as it can keep communicating effectively.  Yet, there is little sign of any re-evaluation of the liberal, conservative, environmental or socialist values which have long informed the policies of traditional politics as a way to address populism. Unless political parties of every hue reassess the policies they use to attract support and win power, we will all be stuck within a cycle of short-term fixes and protectionism – border fences, trade wars and backstops – until all the populist ideas eventually run out of steam. That reassessment should start by political leaders tuning in to the messages from their own elected representatives, and tuning out the messages from the quangos, the special advisers and the spin doctors. Dr Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland.