By Declan McEvoy In light of recent Brexit activity, and the threat of a no-deal, the Government has specifically ring-fenced €110 million for the exposed agri-food sector in Budget 2020, with specific conditional investment supports attached to the funding: €85 million for beef farmers; €14 million for fisheries; €6 million for the livestock and mushroom sectors; and €5 million for the food and drinks processing industry.  There was also an increase of €1.6 million in Bord Bia's budget to market beef and sheep meat. There are a few other things accountants should know when assisting their clients in agriculture. Farm schemes Existing farm schemes were rolled over but there was a €3 million fund earmarked for pilot environmental agri-schemes. These environmental schemes still have to be worked out but are climate action-related and so funded out of the carbon tax fund. The Targeted Area Measure Scheme (TAMS) budget for on-farm capital investment has an increased funding of €12.1 million, granting aid to 5,800 farmers. While, in forestry, €103.5 million has been allocated to forestry planting premium to support an additional 8,000 hectares of new planting and the construction of 125 kilometres of forest roads. Taxes Budget 2020 didn’t just see the Minister giving money away, but impose taxes on the sector, as well. Stamp duty There is an increase in stamp duty to 7.5%. However, there was no mention of consanguinity relief, which is due to end next year. Restructuring relief The current relief available for farmers for consolidation of farm holdings has been extended to 2022. This capital gains tax measure allows a farmer to dispose of a holding and purchase a holding nearer to his or her base to consolidate the farm.  Income tax changes No different from other sectors, the €150 increase in the earned income credit applies and the €100 increase in the home carer credit applies, as well. Carbon tax The big buzz in the budget was around carbon tax and the increase of €6 per tonne, applying to all carbon-based fuels, and adding approximately €0.02 a litre to agri-diesel. However, because agri-diesel is considered a marked gas/oil, this effect will not take place until 1 April 2020. This carbon tax will come at a great cost to agri-contractors and farming, in general. Succession planning In regards to succession, the Budget has changed the threshold for Category A Parent to Child, from €320,000 to €335,000. It’s a small but welcome change. For the agri-food specifically, the extension/widening of the Keep Employee Engagement Programme (KEEP) scheme, Employment and Investment Incentive scheme (EIIS), and the changes to research and development should benefit the sector. Brexit As the Budget was set against the background of a no-deal Brexit, the level of funding will have to be monitored. As with everything, the impact of a no-deal Brexit cannot be measured until it happens, and a quick response will be necessary once it does.  Declan McEvoy is the Head of Tax and a Partner at ifac accountants.

If you have a strong team of business analysts or people in functions like finance working with manual processes, the implementation of RPA should be a smooth process, but there are still challenges you need to overcome, says John Ward. Most companies have processes that require manual effort. However, with robotic process automation (RPA), rather than an administrator taking information from one system, analysing and exporting it to another, the technology sits in the middle and automates the process for you.  Historically, RPA has been best deployed for repetitive tasks requiring little in the way of decision making and intuition, but with the ongoing growth and accessibility of artificial intelligence, synergies are starting to emerge.  Ultimately, RPA allows staff to do work that adds value, and removes the manual effort that could be better used elsewhere.  Better experience Typically, where you have a significant back-office headcount or people answering calls and queries such as in HR, finance and call centres, there are opportunities for RPA. In any of those roles, people are usually working around the constraints of a system. Let’s take the example of order fulfilment where, if a customer rings, the employee might have an internal system for checking whether an order has shipped, and an external one for checking its location – a manual task the agent must repeat each time.  An RPA process, however, could obtain the original reference and log in to each system to retrieve the status in one automated step rather than two manual ones. That’s empowering for the employee, and a far better experience for the customer.  Four key challenges when adopting RPA While we can clearly see the benefits of RPA in the example above, adopting any new technologies has its challenges, especially when it comes to the finance function. Here are a four key challenges organisations encounter. Selecting the right process to automate: Sometimes there are processes that we think would be the best candidates for automation, but are too complex or require too many decisions to automate easily. You need to decide if there are other ways you can make that a more efficient process outside of RPA. Knowing which software is right for you: Some tools have better capabilities for specific industries or requirements than others. For example, in a regulatory environment, the monitoring and auditing of bots may be high priority, whereas they might not be useful at all in a call centre. It’s important to map out your company’s needs before buying into any one system. Integrating RPA with your organisation: Every development process goes through a methodology. Developing one that’s fit-for-purpose for your organisation is very important.  Scaling RPA across your business: There are different models for scaling RPA, so it’s important to look at how your organisation’s structure and how scaling a project would work. Lower barrier to entry The barrier to entry with RPA is lower than for big software change projects because code is not being developed – instead, the people who understand the business process need to be the ones who implement the tools. If you have a strong team of business analysts or people in functions like HR and finance working with the process, they can help implement RPA more easily. You still have to get the software depinternalloyment and architecture right, but in terms of automating the process, you don’t need a big team of software engineers. You have the talent already under your roof, so it’s important you use it. John Ward is the Head of Emerging Technology in EY Ireland.

By Moira Dunne Most business owners and managers are stretched and would love more time to dedicate to steering the business rather than the all-consuming, day-to-day tasks. Owners and managers need to step back and consider things from a high-level occasionally so they can make strategic decisions, but this can only be done through delegation. Benefits for you and your team Delegation is an essential leadership skill that allows you to do more than steer your business without the distraction of the day-to-day tasks; it also allows you to develop your team through opportunities to expand their experience, skills and knowledge. This will increase their engagement as they see a development path within your business. Delegation can be difficult So, if delegation is good for our business and our team, why don’t we delegate all the time? Why do people avoid it? First, it can be hard to let go of the work you have been doing for years. It can be hard to trust others to do things as well as you do. What you don’t see is that a fresh pair of eyes on a task can not only rejuvenate a project but can make processes more efficient, improving overall office performance. Second, delegating tasks can initially slow things down as you need time to explain what needs to be done and how, and learning curves can take a while. Five steps to successful delegation Here are five ways to master the skill of delegation so you and your team can benefit from the experience without losing much time or productivity. Match the task to the person Pick the right job for the right member of your team. Consider their current knowledge and skill level. Don’t overwhelm them with a task that may be too difficult. Break difficult tasks down into stages and progress one stage at a time. Consider people’s preferences: are they more creative or analytical? If you have the flexibility, ask people to work on the tasks that will motivate them best. Provide clear guidance It is crucial to communicate the essential information required to complete a piece of work. Remember, the steps involved may be evident to you but not to others who are new to the task. Break the instructions down into steps, describing the process flow from the start of the job to completion. By doing this, you are starting to document your key business processes. Let it go Once you have provided instruction, it is vital to give the person space to do the work on their own. Be available for questions but don’t let this become a dependency. Encourage the person to try to work things out themselves before asking you. Check-in frequently As you encourage independence, you want to keep an eye on progress and quality by checking-in regularly. This is essential so you can make sure that: the work is being done correctly; and the person is not stuck and reluctant to ask questions. Frequent check-ins allow you to fix errors before they become a risk to the business. Give praise and redirection Finally, while it is important to praise the person so that they are motivated to keep developing and learning, it is also important to be honest if things are not done well. Discuss what further training or support is needed. Build on their good performance by stretching them further with the next task you delegate. View the learning as a process: each step or new task builds on the progress previously made. Look for opportunities to give recognition for a job well done. Bring the team member to a client meeting or make sure their name goes on a report. This is a simple, low-cost gesture that can strengthen the trust levels between you and your team. Pitfalls to avoid Nothing is fool-proof, so if delegation doesn’t work the first time, you should stop and ask yourself if you ran into any of the following pitfalls: Did you expect perfection straight away? Did you expect the job to be done exactly as you do it? Were you open to alternative ideas? Did you resist the temptation to take back the task and do it yourself? Delegation for growth Delegating is an essential skill that is fundamental to the growth of your business. Mastering this skill helps you grow as a leader. It enables you to identify and standardise your key business processes, and this helps with training, quality control and continuous improvement. Delegation also helps minimise business risk as you spread the workload and knowledge amongst your team, so the business is not solely dependent on you. Moira Dunne is the Founder of beproductive.ie

Companies have responded positively to newly introduced reporting requirements for Revenue Recognition and Financial Instruments, but there is still considerable scope for them to improve the quality of their annual report disclosures. The findings relate to three thematic reviews conducted by the Financial Reporting Council (FRC) to analyse companies’ disclosures for the new requirements and for existing requirements on the impairment of non-financial assets. The implementation of IFRSs 9 and 15, which applied for the first time to 2018 year-ends, represented significant challenge and change for many companies, following a period of relative stability in terms of financial reporting requirements. The FRC recognises the significant work that was undertaken in preparing for, and complying with, the new requirements. It takes time for such wide-ranging standards to be embedded, but there were many examples of good disclosures within the accounts sampled and which are shared in the reviews published recently. However, as expected, there is considerable scope for companies to improve the quality of their disclosures, which will be a focus of future reviews in the early years of application of the new standards. The FRC encourages all companies to review the reports in detail and consider the findings carefully when preparing their future reports and accounts. Impairment is a matter of particular interest to investors in sectors that are experiencing structural change and across all sectors in periods of heightened macroeconomic uncertainty. The thematic review of IAS 36 disclosures in relation to non-financial assets found opportunities for improvement in a number of areas. The FRC therefore encourages companies to consider how they can improve their disclosures. Each thematic review selected a sample of company accounts, skewed to focus on those sectors most affected by the relevant accounting requirements. IFRS 15 ‘Revenue from Contracts with Customers’ The FRC found that, in general, companies provided helpful and meaningful explanation of the impact of the new standard. However, there was still scope for all companies sampled to improve the quality of their revenue disclosures, specifically by:   Improving the descriptions of accounting policies and ensuring that these are tailored to their own particular circumstances; and Providing more detailed information about the judgements significantly affecting the amount and timing of revenue.  IFRS 9 ‘Financial Instruments’ The FRC identified instances of better practice across the sample of companies reviewed. However, it also identified that there was still room for companies to improve disclosures by:   Analysing the credit quality of trade receivables by non-banking companies; and Providing details of the indicators of a significant increase in credit risk, particularly by the smaller banks. Impairment of non-financial assets While the review identified instances of better practice across all key aspects of disclosure, it also identified a number of common disclosure omissions and opportunities to clarify and enhance disclosures. Specifically, the FRC encourage companies to pay greater attention to:   Providing relevant information around significant judgements and key assumptions made in estimating the recoverable amount of assets and cash-generating units; and Explaining the sensitivity to changes in key assumptions, where reasonably possible changes could give rise to impairment of goodwill or material further adjustments to already-impaired assets.  A link to the three thematic reviews can be found here.   Source: Financial Reporting Council. Published: 10 October 2019.

The call for papers and proposals for the Larry Sawyer Educators' Symposium, in association with the Internal Audit Foundation, is now open. They are seeking submissions of recent research and proposals for future research and/or teaching techniques, including innovative ways to teach topics related to the profession. The symposium is scheduled for Sunday 19 July 2020 in Miami, Florida, and will be held in conjunction with The Institute of Internal Auditors’ 2020 International Conference. For more information, go to theiia.org. (Source: The Institute of Internal Auditors)

Member states, with the support of the Commission and the European Agency for Cybersecurity, published a report on the EU coordinated risk assessment on cybersecurity in Fifth Generation (5G) networks. This is part of the implementation of the European Commission Recommendation, adopted in March 2019, to ensure a high level of cybersecurity of 5G networks across the EU. The report is based on the results of the national cybersecurity risk assessments by all EU Member States and identifies the main threats and threats actors, the most sensitive assets, the main vulnerabilities (including technical ones and other types of vulnerabilities) and a number of strategic risks. This assessment provides the basis to identify mitigation measures that can be applied at national and European level. Main insights of the EU coordinated risk assessment The report identifies a number of important security challenges, which are likely to appear or become more prominent in 5G networks, compared with the situation in existing networks: These security challenges are mainly linked to: key innovations in the 5G technology (which will also bring a number of specific security improvements), in particular, the important part of software and the wide range of services and applications enabled by 5G; the role of suppliers in building and operating 5G networks and the degree of dependency on individual suppliers. European Agency for Cybersecurity threat landscape To complement the Member States' report, the European Agency for Cybersecurity is finalising a specific threat landscape mapping related to 5G networks, which considers in more detail certain technical aspects covered in the report. Next Steps By 31 December 2019, the Cooperation Group should agree on a toolbox of mitigating measures to address the identified cybersecurity risks at national and Union level. By 1 October 2020, Member States – in cooperation with the Commission – should assess the effects of the recommendation in order to determine whether there is a need for further action. This assessment should take into account the outcome of the coordinated European risk assessment and of the effectiveness of the measures.   (Source: European Commission)

The OECD Secretariat recently published a proposal to advance international negotiations to ensure large and highly profitable multinational enterprises (MNE), including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits. The new OECD proposal brings together common elements of three competing proposals from member countries, and is based on the work of the OECD/G20 Inclusive Framework on BEPS, which groups 134 countries and jurisdictions on an equal footing, for multilateral negotiation of international tax rules, making them fit for purpose for the global economy of the 21st Century. The proposal, which is now open to a public consultation process, would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where MNEs have their markets. It would ensure that MNEs conducting significant business in places where they do not have a physical presence, be taxed in such jurisdictions, through the creation of new rules stating (1) where tax should be paid (“nexus” rules) and (2) on what portion of profits they should be taxed (“profit allocation” rules).  The Inclusive Framework’s tax work on the digitalisation of the economy is part of wider efforts to restore stability and certainty in the international tax system, address possible overlaps with existing rules and mitigate the risks of double taxation. Beyond the specific elements on reallocating taxing rights, a second pillar of the work aims to resolve remaining BEPS issues, ensuring a minimum corporate income tax on MNE profits. This will be discussed in a public consultation foreseen to take place in December 2019. The ongoing work will be presented in a new OECD Secretary-General Tax Report during the next meeting of G20 Finance Ministers and Central Bank Governors in Washington DC, on 17-18 October. (Source: OECD)

  Between Trump, Brexit and the unrest in Hong Kong, you might think twice before investing. Eoin McBennett gives some tips for investing in uncertain times. Looking at the headlines over the last two years, you could be forgiven for thinking that investors have experienced poor returns. It has been a rocky ride, as trade disputes between the US and China have escalated, the chances of a no-deal Brexit have risen, and the protests in Hong Kong threaten to undermine an important financial hub for China. All this should point to poor returns for investors, right? On reviewing returns, however, we have found investors had done reasonably well over this period. Both European and American shares are up over the twelve months to the end of August, and investors in other asset classes like government bonds and gold have done well. The Irish stock market, however, has lagged more recently, affected by the ongoing uncertainty being played out in the House of Commons. The truth is that heightened political risk often does not translate into lower market returns over the medium term. This is not to say that issues like US–China trade tensions or Brexit don’t matter; they do. Triggers for market uncertainty can come from a variety of macro-economic factors such as interest rates, inflation, unemployment and economic growth. One thing we can be certain about when investing is that there will be volatility. So if you are looking for tips on how to grit your teeth and invest even when the outlook seems uncertain, here are mine: 1. Time in the market, not timing the market Avoiding the temptation to time the market is perhaps the most important lesson for investing in uncertain times. American Century Investments have shown the effect on portfolios by trying to time markets. Their analysis highlighted that staying invested throughout a cycle resulted in the best return for long-term investors. Investors in shares benefit from both capital growth and dividends. Over time, the contribution of reinvested dividends to your total return can be substantial, sometimes even contributing more than half of your return. Trying to time the market, or buy low and sell low, means you miss out on the power of reinvested dividends. 2. Diversify your investments Diversifying your investments can shield you from some – though by no means all – of investment risks. Spreading your assets across a range of companies, countries and markets reduces your dependence on any one area, and the risk of one bad event making a dent in your portfolio. By investing in a range of asset classes, you can produce a portfolio which has smoother returns over time, and include exposure to assets which tend to perform well during times of uncertainty, such as gold or government bonds. 3. Don’t forget the cost of not investing People tend to see investing as a binary thing, where you are either doing it and taking a lot of risk, or not doing it and taking no risk at all, but the truth is more complicated. By not investing, you run the risk that your money will decline in value as inflation erodes away at your wealth. The cost of things around you will rise over time, but with banks offering a meagre level of interest, your money will not keep up and will not be able to buy as much for you in future. Investing before a market crash Having said all this, I know people still want to know what happens if they pick the wrong time. Let’s assume the worst and look at what would have happened if you only ever invested before a market crash. One of my colleagues has done just this for UK shares, running the numbers to see what would happen if you invested at the market peak right before the Asian Financial Crisis (1998), bursting of the dotcom bubble (2001) and financial crisis (2008). After those three peaks, the UK market saw declines of 25%, 30% and 40%. You would be feeling pretty sick. But if you had invested equal amounts right before these three crashes, you would have doubled your money by the end of 2018. You can run the analysis for US shares and reach a similar conclusion. Even if you invest right before a market crash, staying invested over the long-term tends to pay off. Make a plan Investing in uncertain times requires us to recognise that our long-term financial needs are not going away. The need to save for a pension, your children’s education or any other financial goal, does not generally disappear overnight. Keeping that in mind should help to make investing in uncertain times easier, even when we are watching the latest news report. How to invest in uncertain times? Make a plan, and stick to it. Eoin McBennett is an Investment Manager at Quilter Cheviot. This article is the sole opinion of the author. This article was originally published in The FM Report.

Leadership involves making decisions and taking actions in order to solve problems and achieve objectives, but what makes it so challenging is its unique responsibility for influencing and developing people. That’s why it’s important to develop your inner stance, says Patrick Gallen Many endeavours in life are a matter of acquiring skills and knowledge and then applying them in a reliable way, but leadership relies most strongly on less tangible and measurable things like trust, inspiration, attitude, decision-making, and personal character. These are not necessarily the result of experience; they are facets of humanity, enabled partly by the leader's character and, in particular, by their ‘inner stance’. The good news is that anyone who wants to be a more effective leader in any situation can do so by developing the ability to adapt their inner stance. In other words, they can easily alter their starting position so they come out of the gate the right way. Dusan Djukich, in Straight Line Leadership, describes inner stance as “the mental posture you assume”. Like a golf stance or yoga pose, it can be adjusted at any time to achieve a better result. You can choose the stance of serving the people you lead, rather than a stance of pleasing them. You can choose to be an enabler of others, rather than dictatorial. There are many different types of leadership stances to choose from.  Some people have only one stance, which may be right for certain situations and wrong for others. People think that stance is a personality trait, but they are simply working from an inner stance chosen at an earlier stage of life and have stuck with it, regardless of the consequences. Adaptability of stance is an increasingly significant aspect of leadership, because the world is increasingly complex and dynamic – it is essential to have a keen understanding of relationships, often within quite large and intricate networks. There is nothing false about changing your inner stance. In fact, it is about honestly assessing your stance on an ongoing basis and committing to improve it from a place of integrity. Adaptability stems from objectivity which, in turn, stems from emotional security and maturity. Again, these strengths are difficult to measure except in terms of results. The world is more transparent and connected than it has ever been and the actions and philosophies of organisations are scrutinised by the media and the general public as never before. The ability to be aware of and adapt your inner stance is more important than ever. In order to lead people and achieve greatness, it is essential that the modern leader has the ability to understand and apply the correct inner stance to a myriad of situations. Patrick Gallen is Partner – People and Change Consulting in Grant Thornton Northern Ireland.

The uptick in the economy has brought with it an increased focus by Revenue on the withholding tax that is relevant contracts tax (RCT). Ciara McMullin explains. Although RCT is a withholding tax aimed at ensuring that those working in certain sectors (primarily construction, forestry and meat processing) are tax compliant, all businesses need to be aware of RCT as misdemeanours can be extremely costly, mainly when there has been a blatant failure to operate RCT or it has been incorrectly applied. What is RCT? RCT applies to payments made by those considered ‘principal contractors’ for services known as ‘relevant operations’ received from suppliers referred to as ‘subcontractors’. Legislation obliges principals to operate RCT on payments to subcontractors by real-time input of contract notifications and payment authorisations via the eRCT system. Once within the scope of RCT, a principal contractor should ensure the principal never make payments to subcontractors without registering the contract and receiving confirmation as to the appropriate withholding tax rate. Rates can be 0%, 20% or 35% and are dependent on the subcontractor’s tax compliance record with Revenue. Tenant carrying out landlord’s Category A works  Increasingly, tenants enter into lease arrangements with landlords which see landlords agreeing to make payments to the tenant for work to be carried out (for example, towards the premises being finished out) to induce them to enter into a lease. The obligation to operate RCT in respect of this arises for the tenant by virtue of being ‘stuck in the middle’ of a construction supply chain. Given that occupants usually enter into one building contract with their building contractor and do not differentiate between landlord’s works and their own fit-out works, the entire contract comes within the remit of RCT. The tenant, in these circumstances, is unable to avail of the ‘own use exemption’. Where the tenant is carrying out fit-out works on behalf of the landlord, they are considered the principal and they must operate RCT on all payments made to the contractor. If the landlord is also a principal, they must also operate RCT on the payment they make to the tenant.  Real-time operation  Revenue regularly carry out eRCT bulk rate reviews, most recently in April and September 2019, to consider the appropriateness of the RCT rates for active subcontractors, bearing in mind their tax compliance record. A considerable number of subcontractors have been reclassified under a different withholding rate, highlighting the importance of operating RCT on a real-time basis as rates are linked to ‘live’ data. Subcontractors rates can, and do, change regularly and, therefore, a principal cannot rely on the RCT withholding tax rate quoted on a payment authorisation from last year (or even yesterday, for that matter!). Unreported payments The cornerstone of RCT is the obligation for a principal to appropriately operate this withholding tax. In advance of making any payment to a subcontractor, a principal must obtain a payment authorisation. Where a payment is made to a subcontractor without having obtained a payment authorisation first, the principal is immediately obliged to submit an unreported payment notification to Revenue, bringing with it the risk of sanction by way of penalties and, can ultimately result in prosecution. Penalties depend on the RCT status of the subcontractor who has received the payment and can range from 3% to 35% of each unreported amount paid to the subcontractor. In short, a principal must always ensure that they have a payment authorisation in advance of making a payment to a subcontractor.  Historically, Revenue applied a somewhat lenient approach to this aspect of RCT if the principal was generally tax compliant. More recently, however, Revenue has begun to enforce legislation strictly and apply penalties automatically. While assessments can be appealed, taxpayers need to have a bonafide basis for seeking non-application and/or mitigation of penalties. Merger & Division Legislation (Companies Act 2014) In August 2019, Revenue issued Tax and Duty Manual Part 38-00-01 which includes guidance on tax administration and compliance with regards to mergers/divisions of companies and devotes over four pages to RCT, indicating the importance of this guidance from a practical perspective for those dealing with mergers and divisions where RCT is in scope. Ciara McMullin is a Senior Indirect Tax Manager in Deloitte.

Following the recent £16 million investment to provide funding towards training and IT costs for businesses that complete customs declarations, HMRC has announced that it will provide a further £10 million in grants for customs agents and intermediaries to build capacity in managing customs declarations. This additional wave of grants has been developed to directly respond to industry feedback on what is needed to help build capacity ahead of, or after, Brexit on 31 October, alongside the additional training and IT support already available. The further £10 million in grants is open to businesses based in, or with a branch in, the UK that currently complete customs declarations for importers and exporters and are available to support costs of hiring staff, including £3,000 for recruitment costs, and up to £10,000 for salary costs, to help build business capacity. Businesses are encouraged to apply early as applications will close once all the funding has been allocated, and by 31 January 2020 at the latest. Those that applied for the first and second wave may apply again as part of this new wave of grants. PwC is administering the grants on behalf of HMRC as an accredited grant administrator. Businesses that want to apply for funding should not contact HMRC, but can apply online. (Source: HMRC)

According to a new study carried out on behalf of the Health and Safety Authority, the proportion of the workforce aged 55 and over grew from 10% in 1998 to almost 20% in 2018. This is forecast to rise further. Almost one in five of those who left employment between the ages of 55 and 59 did so because of illness and disability. A similar proportion left because of job loss, while 7% left for reasons of family care. Just over 50% cited ‘retirement’ or ‘early retirement’ as the reason for leaving. The authors explore differences among early leavers, finding occupational and sectoral differences between those who retire early and those who leave for non-retirement reasons such as illness, care responsibilities and job loss. Leavers who previously held manual jobs are more likely to leave due to non-retirement reasons, compared to managers/professionals.  Workers in the construction sector and the retail sector are more likely to leave for non-retirement reasons, when compared to those in the industry sector.  Early leavers from the public sector are more likely to cite retirement reasons.  Women are five times more likely to have left early for care reasons than men. You can read the full study here. (Source: ESRI)

Tax and Duty Manual Part 45-01-04 – Taxation of non-resident landlords has been updated to clarify: the obligation of a tenant to deduct standard rate income tax from rents paid directly to a non-Irish resident landlord, and remit such tax to Revenue; the obligation of a local authority or other body to deduct standard rate income tax from rent paid directly to a non-Irish resident landlord, and remit such tax to Revenue; the obligations of an Irish collection agent of a non-Irish resident landlord; that a "collection agent" is a chargeable person in that capacity and the self-assessment provisions apply to those obligations. (Source: Revenue)

The Irish Auditing & Accounting Supervisory Authority (IAASA) has issued a Guidance Note on the audit of credit unions. This Guidance Note provides guidance to auditors on the application of International Standards on Auditing (Ireland) (ISAs (Ireland)) adopted by the IAASA to the audit of the financial statements of credit unions in the Republic of Ireland. It also contains guidance on special factors to be considered in the application of ISA (Ireland) 250: Section A - Consideration of laws and regulations in an audit of financial statements (Revised July 2017) and ISA (Ireland) 250: Section B - The Auditor’s statutory right and duty to report to regulators of public interest entities and regulators of other entities in the financial sector to audits of credit unions. The Guidance Note is available here. A Consultation Paper on the draft Guidance Note was issued in May 2019, available here.   IAASA has also released a Feedback Paper on the responses received to its Consultation Paper. The Feedback Paper is available here. (Source: IAASA)

There is an infinite amount of things a board could and should focus on, but here are five trends boards should consider to help their organisations thrive into the future. By Kieran Moynihan As we count down to 2020 and a new decade, it is very timely to reflect on the significant changes that have happened in the last decade in the areas of boards, directors and corporate governance – and importantly, the major trends that are happening right now that will shape boards across Ireland over the next decade. This time 10 years ago, many company boards were in a firestorm in the middle of the financial crisis. Despite the significant strengthening of corporate governance codes between 2000 and 2010, a significant number of companies and boards, from large Plcs to SMEs ultimately failed to protect the interests of their shareholders, employees and broader stakeholders. This pattern was common across the world and resulted in the major strengthening of corporate governance codes and national company laws, with the result that now – both in Ireland and across the world – there has never been stronger corporate governance codes, company law and regulation in place to ensure that boards and their directors discharge their stewardship duties to secure a sustainable long-term future for their organisation, shareholders and stakeholders. As we stand now, there has never been greater scrutiny placed on boards and directors – not only in large companies listed on the stock market, but across the full range of companies, charities, non-profits and state boards. All shareholders, employees, stakeholders and the public at large have a strong understanding that the behaviours, culture, effectiveness, performance and decision-making of the board of directors have a fundamental impact on the organisation. Despite the strengthening of our corporate governance and company law framework, we continue to see serious issues with boards. Unfortunately, this will continue to be a pattern. The collapse of Carillion in the UK with the catastrophic loss of jobs and significant impact on many state projects in the UK and Ireland sent shockwaves through the UK and Irish business world. When serious problems arise in Plcs and large charity, non-profit and public sector boards, there is significant media attention with in-depth analysis forensically examining how experienced boards made up of executives and non-executives with decades of experience could preside over significant destruction of shareholder value and very poor levels of stewardship that severely impacts on employees, broader stakeholders and – in some cases – the very future of the organisation. In reality, while the scale of the organisation might differ and the board directors may have a lot more experience on high-profile boards, the complexity of the “people equation of the board” means that any board in the large private company, SME, charity, non-profit and public sectors can struggle to deliver on the leadership, performance and responsibilities that their shareholders and stakeholders have entrusted to them. Boards are, by their very nature, complex and while all strengthened corporate governance and company law are very important, the reality is that the behaviours of the individual board members and the board team collectively will ultimately impact on whether the board can genuinely excel as a high-performing board team, demonstrating the highest standards of ethics and ensuring a long-term sustainable future for all their shareholders, employees and stakeholders. It is also important to highlight that in our work week-to-week supporting board teams across Ireland, the UK and internationally across all sectors, we see truly outstanding and committed board teams and directors who are excelling for their shareholders and stakeholders with a genuine commitment to “always do the right thing” and continually improve their board effectiveness and performance. We will now look at the key themes that are impacting boards, both in Ireland and internationally, as we approach 2020. While many of these themes are particularly relevant to Plcs on the stock market, these themes are already finding their way into private companies and charity, non-profit or public sector boards. Progressive board teams, irrespective of scale, are also embracing these trends as key components of the board’s leadership and drive for genuine, long-term sustainable success. 1. Focus on environmental social governance (ESG) One of the most dramatic changes in company boards around the world throughout 2019 was the significant shift away from “shareholder primacy” to a much broader focus on both shareholders and all stakeholders including employees, customers, suppliers, partners, environment, state and the public at large. This is quite a radical shift in thinking for boards and companies. The business and broader community across the world was quite shocked when a highly influential group of 181 CEOs representing many of the largest US and global companies (e.g. Walmart, UPS, Amazon, Johnson & Johnson) issued a radical statement on 19 August which outlined: “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to: Delivering value to our customers. Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect. Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions. Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses. Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.” This represents a truly seismic shift in how the boards of companies look at their role. While delivering and maintaining shareholders’ best interests will always be a fundamental responsibility of a board of directors, it will now need to be shared with a broader set of responsibilities to operate and behave in a way that takes into account the needs and concerns of all its stakeholders. The emergence of a “multi-stakeholder model of corporate governance” in companies has been coming for some time as globally, there is a very high level of soul-searching going on in terms of “the role of business in society” and the business sector’s responsibility in supporting increasingly challenging social and environmental issues. While this is currently playing out in publicly listed companies, this change is starting to trickle down to large private companies and SMEs will also be affected in time. A key catalyst for this will be that investment, asset management and pension funds globally are now placing a key emphasis on ESG and this in turn is resulting in all types of investment and financial firms – from venture and private equity investors to debt providers, sovereign wealth funds, banks and private investors – now asking a lot more of companies and their boards in the area of ESG and stakeholder engagement in return for their financial investment and support. What does this mean for companies? We are already seeing large companies listed on both the Dublin and London stock exchanges place a very significant emphasis on ESG and broader stakeholder engagement. The boards of progressive large private companies take their lead from their Plc counterparts and over the coming years, a lot more will be expected of the boards of companies and organisations to demonstrate that their actions are not solely driven by profit and financial performance but by a balanced, sustainable commitment to all shareholders and stakeholders for a sustainable future. There is also a strong school of thought globally that this more long-term approach to business and profit will help reduce the enormous impact on jobs and communities caused by excessive corporate pursuit of profits and risk-taking. 2. Engagement between the board and employees  One of the areas that has come into focus as part of this shift to a multi-stakeholder model is the relationship between the board and employees. The vast majority of employees in companies and organisations, large and small, would legitimately ask “what relationship?” Since the first boards of directors formed in the early 1600s (the Dutch East India company is considered by many to be the first company board of directors), the absolute focus of the board and company on financial performance made it very difficult for the board to genuinely partner with employees and incorporate their perspectives and concerns into the board’s thinking and the company’s decision-making. We recently completed an external board evaluation for a FTSE-listed company in the UK. As part of the external evaluation and alignment with the UK Corporate Governance Code (2018), one of the newer areas in the 2018 UK Code we closely evaluated was the engagement model between the board and employees, and how the board and senior management team enabled the “voice of the employees” to be heard and taken into account in the boardroom. In this case, the board and executive team had an outstanding approach to employee engagement and this was reflected in an extremely talented, loyal workforce and an excellent reputation in the market for quality and customer-centricity. The UK’s Financial Reporting Council (FRC), as part of its guidance on board effectiveness, has issued some new far-reaching guidelines as follows: “With the aim of strengthening the ‘employee voice’ in the boardroom, the Code asks boards to establish a method for gathering the views of the workforce and suggests three ways this might be achieved, consisting of: A director appointed from the workforce; A formal workforce advisory panel; and A designated non-executive director.” The FRC also suggested that employee engagement with the board could be further strengthened through: Hosting talent breakfast/lunches, town halls and open-door days; Listening groups for frontline workers and supervisors; Focus or consultative groups; Meeting groups of elected workforce representatives; Meeting future leaders without senior management present; Social media updates; Visiting regional and overseas sites; Inviting colleagues from different business functions to board meetings; Employee AGMs; Involvement in training and development activities; Surveys; Digital sharing platforms; and Establishing mentoring between non-executive directors and middle managers. The vast majority of Plcs in the UK and, by extension, Irish Plcs are finding this a very radical change. In nearly all cases I have seen, Plcs in the UK and Ireland are opting for a designated non-executive director to represent the employee voice and interest in the boardroom. Outside of some European countries like Germany, where employee representation at the board is mandatory for larger companies, Ireland and the UK do not have a history of employee directors at the board. In a survey in October 2018 by the ICSA Governance Institute in the UK, 91% of companies surveyed indicated that they are not considering adding employees to their board, despite the strong encouragement and guidance in the UK Corporate Governance Code and FRC guide on board effectiveness. In my discussions with a number of Plc board chairs, they indicated that their biggest concern was that an employee could lack the overall breadth of experience and judgement to not only contribute effectively at board level and take the overall shareholder and stakeholder perspectives into account, but to handle very difficult issues involving – for example – potential employee layoffs, change of work conditions, etc. This is a very complex area, with sensible arguments on both sides of the debate. In terms of company and organisation boards in Ireland, I believe progressive boards will assess what is happening in this area globally and find ways to increasingly engage employees and to ensure that their perspectives and concerns are genuinely integrated into the board’s decision-making process. In his wonderful new book, Future Proof Your Career, John Fitzgerald provides far-reaching insights into how the workplace has changed fundamentally and that employees today, particularly younger employees, are re-assessing their overall approach to work and their employers. The era of “a job-for-life and unstinting loyalty to an employer who does not genuinely value you” is over and boards are increasingly nervous of the difficulty in attracting and retaining high-calibre employees. When I see a very high-quality board, whether it’s in an SME, Plc or non-profit, charity or public sector board, they have an emphasis on building a genuine relationship with their employees, on nurturing the talent in their organisation, on inspiring their employees to go the extra mile for their clients and colleagues, on treating and supporting their employees with the utmost respect and dignity. Progressive boards also see the very strong link between customer satisfaction and the attitude and performance of employees engaging with customers. We have all seen over the course of our lives the difference it makes, whether as a consumer or a business, when you have employees of a company or organisation who are genuinely customer-centric, who take great pride in delivering for their team and company. 3. A step-change in the value being added by the board As we go into 2020, the boards of companies and organisations have never been under such pressure to demonstrate the genuine value they add to the executive team and the company/organisation. A very wise board chair once said to me that if all the board is doing is merely oversight, and does not add any genuine value in terms of strategic “move-the-needle” thinking, helping the executive team optimise their decision-making and supporting the executive team in times of crisis, the board is ultimately doing a disservice to the shareholders and needs to be refreshed and strengthened to enable the board to add serious value. Every company, no matter how big or small, faces a very challenging set of headwinds, ranging from major business model and technology disruption in their market segment, significantly reduced barriers for new market entrants, unprecedented levels of competition, Brexit, volatile trading and geopolitical considerations as well as attracting and retaining outstanding employees. Clearly, oversight and the board acting as a key line of defence in safeguarding the financial, legal and operational health of an organisation will always be a critical responsibility for a board – but this in itself is not enough to deal with all the headwinds and chart a course of long-term sustainable success for the organisation. A high-performing board team that excels for its shareholders and stakeholders has a great mix of executive and non-executive directors (NED). Successful NEDs bring serious strategic firepower to the board team that both compliments the CEO and executive team, but also brings different thinking. They stretch the strategic envelope of the CEO and executive team in terms of disruptive fresh thinking around new business models, innovation areas, mergers and acquisitions, and new product/service/geographic market areas while helping the CEO and executive team face up to the brutal reality that it’s time to walk away from a once highly successful product or market area. In working with boards, I often highlight the role of the board and NEDs as a lighthouse that shines a light in front of the executive team and, in many cases, illuminates dangerous rocks that could threaten the organisation. As a former CEO and in working with so many CEOs and board teams, I can testify first-hand that many CEOs and executive teams are working so hard and are so close to the day-to-day cut and thrust of the organisation that they can find it very difficult to step back, take a very objective look at their competitors, where customers are at, disruptive trends and the many significant threats and opportunities that are appearing in today’s marketplace. An outstanding NED has a great work ethic, curiosity and interest in the organisation to go the extra mile to not only engage in high-quality challenge and debate with the CEO and executive team, but to roll up the sleeves, add serious value in the strategy area and ultimately increase the quality of executive and board decision-making. 4. Diversity and independence of mind One of the challenges every board faces is group-think, where “a psychological phenomenon in which the over-riding desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome”. While this is a well-documented problem that had a serious role to play in company boards in the financial crisis, it is a problem that can affect any board in any sector, sometimes with quite serious consequences. It is human nature; we can all be uncomfortable with having a contrary viewpoint and being an outlier in a group that manifests itself in a board team. Boards can therefore attempt to minimise conflict and reach a consensus decision without critical evaluation of alternative viewpoints by actively suppressing dissenters and isolating themselves from outside influences. The two proven antidotes to group-think are genuine diversity in the board team and an outstanding board chair who nurtures and encourages high-quality challenge, debate and who legitimises either a single or small sub-set of board members who have a significantly different viewpoint to the majority of the board or major concerns with a key proposed strategy or decision. The critical area of “independence of mind” is very topical in the financial services sector, as regulators focus on ensuring that the non-executive directors are genuinely independent and putting this independence into action in the board team. Alfred P. Sloan ran General Motors from 1923 to 1956 and exemplified this quality of board chair leadership before one of his top committees, saying: “Gentlemen, I take it we are all in complete agreement on the decision here?” Everyone around the table nodded in assent. “Then,” continued Mr Sloan, “I propose we postpone further discussion of this matter until our next meeting, to give ourselves time to develop disagreement and perhaps gain understanding of what the decision is all about.” In recent years, I have watched on in amazement at the debate around female representation on boards in Ireland and why there is still a strong need to impose gender quotas and so on, as there is still a portion of legacy-oriented boards resistant to adding female board members. Anyone who still feels, as we get ready to enter a new decade, that the addition of female directors, younger directors, directors with deep technology expertise and directors with diverse professional and industry backgrounds does not improve a board’s effectiveness, performance and decision-making hasn’t seen a genuine high-quality board in action. The critical objective of diversity on a board is diversity of thinking styles. The highest-performing board teams see diversity as the foundation of their board team’s ability to not only drive optimal decision-making, but also avoid serious group-think problems. As we enter 2020, we are finally starting to get to an era where it will be commonplace to have a wide mix of gender, age, professional, ethnic and industry sector backgrounds where the sole criteria is to have the best mix of the best people who excel as an outstanding, diverse board team on behalf of shareholders and stakeholders. 5. Culture, ethics, behaviours and values Throughout 2019, we have witnessed a series of scandals and serious crises involving the boards of a wide range of organisations throughout Ireland. We are not alone in experiencing this, as board scandals and crises are commonplace in most countries throughout the world. In many cases, there are common denominators such as an overly dominant CEO who rides roughshod over the board; or a CEO and board chair who are too close and, thereby, serious robust challenge and debate are suppressed. In the House of Commons Special Committee report on the collapse of Carillion, the following two conclusions are a frightening insight into how a board can lose its way so badly and drag everybody over the cliff-edge, resulting in tens of thousands of job losses: “Corporate culture does not emerge overnight. The chronic lack of accountability and professionalism now evident in Carillion’s governance were failures years in the making. The board was either negligently ignorant of the rotten culture at Carillion or complicit in it.” And: “Carillion’s directors, both executive and non-executive, were optimistic until the very end of the company. They had built a culture of ever-growing reward behind the façade of an ever-growing company, focused on their personal profit and success. Even after the company became insolvent, directors seemed surprised the business had not survived.” In contrast to these findings is the following recommendation in the Carillion report, which highlights the importance of courage and “conviction to do the right thing” in a board team: “Emma Mercer is the only Carillion director to emerge from the collapse with any credit. She demonstrated a willingness to speak the truth and challenge the status quo, fundamental qualities in a director that were not evident in any of her colleagues. Her individual actions should be taken into account by official investigations of the collapse of the company. We hope that her association with Carillion does not unfairly colour her future career.” Early in my own career, I often wondered about the famous phrase from Peter Drucker that “culture eats strategy for breakfast”. For board teams facing into a new decade, it has never been more critical to focus on culture and the board’s key role in working with the CEO and executive team to define and embody the culture, behaviours and values of an organisation. I sometimes hear board members from companies and organisations say that “culture is only for multinationals with tens of thousands of employees – we don’t have time to worry about things like that, we have a business to run”. Yet around the world, organisations and their boards are significantly increasing their focus on culture, ethics, behaviours and values as they recognise that a strong, healthy and vibrant culture in an organisation is a fundamental enabler of long-term sustainable success. Where an organisation has a healthy, vibrant and respectful culture that is embraced and put into practice day-to-day from the board chair and individual board directors right down to the most junior employee, you have the foundation for a sustainable organisation that is genuinely customer-centric. In this scenario, everyone’s default approach in the organisation is to do the right thing, inappropriate behaviours – irrespective of the seniority of the individuals involved – are not tolerated, and all employees, stakeholders and shareholders are genuinely proud to be a part of the organisation. In hyper-competitive and challenging markets, the stewardship and leadership of the board and executive team will influence an organisation’s employees, culture and customer-centricity. This will, in many cases, make the fundamental difference in terms of which companies and organisations will be still standing in 2030. Kieran Moynihan is the managing partner of Board Excellence, a specialist board practice that helps boards and individual directors excel in the areas of effectiveness and performance. Kieran has over 20 years’ experience serving on boards as a CEO and executive director, non-executive director and board chair.

Could joint audit help improve audit quality and reduce market concentration? By Tommy Doherty Joint audit is a proven means of facilitating the emergence of a diverse audit sector and, in the case of France, has already led to the creation of the least concentrated audit market of any major economy. If undertaken in a spirit of collaboration, it can reinforce governance arrangements on the conduct of audits and deliver real improvements in audit quality. What is a joint audit? In a joint audit, two separate audit firms are appointed by a company to express a joint opinion on its financial statements. It is fundamentally different from a ‘dual’ or ‘shared’ audit, whereby one audit firm (or sometimes more) audit parts of a group and reports to another audit firm, which ultimately signs off on the group audit. Statutory joint auditors must belong to separate audit firms. Joint audits usually involve two audit firms, but a small number of companies have decided voluntarily to appoint three audit firms to perform their joint audit. Joint audit, audit tendering and rotation The 2014 EU Audit Regulation introduced incentives to encourage the adoption of joint audit by allowing joint auditors to benefit from a longer rotation period (i.e. a maximum tenure of 24 years with no tendering required). By contrast, sole audits are subject to tendering after 10 years and a maximum tenure of 20 years. The preamble to the Audit Regulation states that: “The appointment of more than one statutory auditor or audit firm by public interest entities would reinforce the professional scepticism and help to increase audit quality. Also, this measure, combined with the presence of smaller audit firms in the audit market, would facilitate the development of the capacity of such firms, thus broadening the choice of statutory auditors and audit firms for public interest entities. Therefore, the latter should be encouraged and incentivised to appoint more than one statutory auditor or audit firm to carry out the statutory audit.” Nine member states have decided to encourage joint audit through an extension of the maximum tenure allowed, including (in addition to France) Germany, Spain, Sweden, Finland, Norway, Belgium, Greece and Cyprus. Joint audit has long been regarded as a French peculiarity. But in the context of significant corporate failures and unsustainably high levels of market concentration, the UK’s competition regulator, the Competition and Markets Authority (CMA), is now recommending the introduction of mandatory joint audit. In April 2019, it published The Future of Audit report, recommending mandatory joint audit as part of a broader reform package for most FTSE 350 companies with at least one of the joint auditors being a non-Big Four auditor. The benefits of a joint audit From the company’s perspective, joint audit: Enables companies to benefit from the technical expertise of more than one firm; Encourages “coopetition” (cooperation and competition) between joint auditors, resulting in improved quality of service; Leads to a real debate on technical issues and offers additional scope for benchmarking; Allows for the smooth and sequenced rotation of audit firms, where appropriate; and Retains knowledge and under-standing of group operations, which minimises the disruption caused when one audit firm is changed. How joint audit works in practice The practice of joint audit is well-established in France, as it has been a legal requirement there for over 50 years and has gone through several phases of evolution to reach a level of maturity ‘signed off’ by the market. The following steps explain how the joint audit of consolidated financial statements works for the audit of large French listed groups like BNP Paribas, and how it could work in Ireland and deliver similar benefits. Joint audit of consolidated financial statements is the most common form of joint audit, and a professional French auditing standard exists (NEP-100). Step 1 Determine the annual audit approach: the yearly audit approach is jointly determined and includes the preparation of a joint risk-based audit plan. A single set of joint audit instructions (i.e. a manual of the audit procedures to be applied on a coordinated and homogeneous basis to the group’s subsidiaries by each joint audit firm or network) is issued. In practice, both joint audit firms contribute to these documents, which are consolidated before joint approval of the overall audit approach. The audit approach is almost invariably the subject of a combined annual presentation to the group’s audit committee by the joint auditors. Step 2 Overall allocation of work between the joint auditors: whatever the basis of appropriation, a balance between each of the joint audit firms is sought. This is provided for by NEP 100, which stipulates that the audit work required should be split between the joint auditors on a balanced basis and reflect criteria that may be quantitative or qualitative. If a quantitative basis is used, the split may be by reference to the estimated number of hours of work required to complete the audit. If a qualitative basis is adopted, the split may be by reference to the level of qualification and experience of the audit teams’ members. Step 3 Allocation of work on the different phases of the audit: for the accounts of consolidated subsidiaries, for joint and single audit, the parent company’s auditors are deployed as widely as possible over its subsidiaries worldwide. The allocation of subsidiaries to one or other of the joint auditors may be based on business, product or geographical location criteria. When geographical criteria are used (countries, zones, etc.), each joint auditor is deployed over one or several territories. In the case of significant groups, the joint audit approach is often applied within each of the group’s businesses to ensure oversight by ‘two sets of eyes’ for each business line. Step 4 Levels of group audit reporting: up to four levels of group audit reporting are distinguished: individual entities; geographical zones or business lines (aggregating several entities); group financial and general management; and those charged with governance. For individual entities, for example, the auditor in charge of each entity is responsible for reporting the audit conclusions by way of audit summary meetings with the local management and for expressing an audit opinion on the entity’s consolidation package. Step 5 The group audit opinion on a joint audit: the joint auditors prepare a joint audit report addressed to the group’s shareholders, which is presented during its annual general meeting. The audit opinion expressed is a single joint opinion. Special provisions exist in the event of disagreement between the joint audit firms as to the formulation of their audit opinion. In practice, they are rarely needed.  Step 6 Joint and several responsibilities: each joint auditor is jointly and severally responsible for the audit opinion provided. The exercise of joint and several obligations implies that each joint auditor performs a review of the work performed by the other. The sharing and harmonisation of the audit conclusions and the audit presentation prepared for the audited entity constitute the first step in that review. In addition, the audit summary memoranda and working paper files for the engagement are subject to reciprocal peer review. The two most common criticisms of joint audit relate to the cost and the additional risks involved. However, most of the tasks brought about by a joint audit situation are highly value adding as they are dedicated to the ‘professional scepticism’ necessary to express an audit opinion. In practice, the additional cost is borne by the audit firms involved rather than being passed on to the audited entity. The UK as a benchmark In 2020/21, the EU audit reform will be up for review. The UK reform will strongly influence the dynamic of this debate. Given the importance of its financial market, decisions in the UK will also have an impact beyond Europe. The Commonwealth countries look to the UK for best practice financial regulation and adopt rules that they consider beneficial for their markets. More countries are therefore likely to seriously consider joint audit as a measure to diversify their audit markets. Mazars believes that the UK will go ahead with the reform and that other countries will start to seriously consider joint audit for large corporates as part of a package of solutions to improve audit quality and reduce market concentration. Interestingly, on 28 May 2019, the prospect of Ireland preparing a similar report on The Future of Audit was raised at a Joint Committee on Finance, Public Expenditure and Reform. As an audit firm with a proven track record in joint audit, we believe that this is a solution than can provide tangible benefits to all stakeholders.   Tommy Doherty FCA is Head of Audit and Assurance at Mazars Ireland.

There is no active market for the sale and purchase of privately owned businesses. Any belief that there is a constant search by active purchasers is false. The reality is that many businesses – probably half, or more, of medium-sized companies – are likely not saleable. Erratic history, poor profitability, inadequate finances and uncertain prospects are the usual reasons cited for this circumstance. Realistically, the realisable value of a business to its owners may only be in its continuity. The surprise is that even profitable and well-run businesses are not necessarily saleable. Obviously, this is a disappointment for the owners and an enigma as to why this happens. After an initial flurry of interest in purchasing such a company, the closer assessment takes place. The cooler review by a potential purchaser is guided by the rule that there must be a worthwhile commercial reason to acquire a business, and not simply because it is for sale. Experience suggests that the principal reasons why one business acquires another are as follows: The acquired business is complementary to the acquiring business – for example, a light engineering business acquiring a metal fabrication business, or a transport company acquiring a warehouse business; The businesses share common characteristics that enable synergy and/or joint cost reductions as an added-value benefit to the purchaser; The acquisition protects and/or enhances an existing advantageous relationship between the two businesses; and The acquired business has knowledge, expertise, intellectual property or a location that provides added value to the acquiring business. It follows that the potential for the sale of a ‘standalone’ business (i.e. with none of the above reasons) is limited and only likely in the form of a management buyout. A further restricting factor, and this is true for acquisitions generally, is financing the purchase. Marketplace experience suggests banking caution on lending for acquisitions. There are many reasons why, not least that the underlying assets in the acquired company are not likely available as security due to company law and tax complications. The ‘asset’ being financed (i.e. the shares in the acquired company) is not tangible security, being no more than an expectation of future profitability. In any event, it takes time to sell a business. In an ideal world, the decision to sell would be made up to two years beforehand (although this will likely only be known to the owner). It isn’t that the best market conditions for a sale can be confidently predicted that far ahead; instead, there will be a readiness for sale that can be deferred if necessary, or brought forward if the pre-sale planning is in good order. As with most decisions, timing is important and good forward planning gives flexibility. This planning means not being your own advocate. An experienced corporate finance advisor is essential to a successful sale. Once a sale is contemplated, an informal discussion with an advisor will help you decide whether to sell or not and what will happen subsequently with regard to timing and process. Advance due diligence work means identifying and tidying up awkward circumstances that could derail a sale or adversely affect a sale price. The entire sale and purchase process, when commenced, will likely take between three to six months from start to finish.  It is the job of the corporate finance advisor to direct, coordinate and manage the process from start to finish. The advisor will operate in parallel with a legal advisor; and the same for the purchaser. The process, and the transaction itself, will generate an amount of legal and related documentation – all of which has to be identified, drafted, negotiated and completed. Third parties such as banks, landlords and regulators may also be involved and could, in turn, require documentation and cause delays. Properly done, the sale of a business is a backwards process known as ‘begin with the end’. In other words, the thrust at the outset is to identify prospective purchasers or sectors that likely fit one or more of the reasons for an acquisition, as set out above. Then, ensure that the information and sales approach is directed accordingly. Des Peelo FCA is the author of The Valuation of Businesses and Shares, published by Chartered Accountants Ireland and now in its second edition.

Claire Lord explains why it’s better to get your business’s record-keeping right in your own time and on your own terms. "Run your company like you are planning to sell it” was a piece of advice given to a room full of early stage companies attending a talk being delivered by a tech entrepreneur, who had successfully navigated the pathway from idea through development and scaling to a lucrative exit. He was calling it as it was: you are pursuing your respective endeavours to make money, so do everything you can to maximise that return. When great ideas are being converted into profit-generating businesses, the focus is often on the development of complex technologies, the routes to market, the sales strategies, the hiring of the very best employees quickly. Often the paperwork, the record-keeping, the ‘routine’ pieces of the puzzle are put on the long finger, to be dealt with when there is time. But rarely is there ever time and the longer the record-keeping is neglected, the harder and more expensive it becomes to put right. Irish companies are required by law to maintain a number of books and registers. These include proper accounting records that correctly record and explain the transactions of the company and that enable its assets, liabilities, financial position and profit or loss to be determined with reasonable accuracy at any time.  A company must keep registers of its members, directors and secretary, and disclosable interests. It must also keep copies of instruments creating charges and copies of directors’ service contracts. The Companies Act 2014 further requires companies to keep minutes of shareholder and director meetings. In respect of minutes from shareholder meetings, the minimum detail to be recorded is a summary of the proceedings of the meeting and the terms of the resolutions passed. In respect of minutes from board meetings (which includes meetings of committees of the board), the minimum detail to be recorded is the appointments of officers made by the directors, the names of the directors present, a summary of the proceedings and details of all resolutions passed. In the case of both meetings of the shareholders and directors of a company, the minutes should be prepared “as soon as may be” after the meeting has been held. Certain of the registers and documents required to be kept by a company can be inspected by the shareholders of that company. These are its registers of its members, directors and secretary and disclosable interests, and the instruments creating charges and directors’ service contracts. Members of the public are entitled to inspect a company’s registers of members, directors and secretary and disclosable interests. A company is permitted to keep any of these registers and documents electronically (other than minutes of meetings of shareholders) once it puts adequate measures in place to guard against, and detect, falsification and once they can be easily reproduced in legible form at a place in Ireland. When it comes to the day-to-day running of an Irish company, it would be unusual for a request to be made by a shareholder or a member of the public to inspect the registers and documents that the law permits them to inspect. On the other hand, if a company was the subject of an interested investor or acquirer, it would be most usual for them to require production of all these registers and documents for due diligence purposes without delay (subject, where the need permits, for obligations of confidentiality to be agreed and documented). When there is a gap in record-keeping, which is likely to occur when ‘the paperwork’ has been neglected, not only is the prospective investor or acquirer unable to satisfy themselves that they have the full history of the company in terms of its governance proceedings and compliance with its statutory obligations, but the impact in terms of cost on the target company and its owners to rectify that neglect under time pressure and the scrutiny of an impatient investor or acquirer can be significant. Record-keeping is one of the things that you as a business owner can control. Record keeping can be routine and inexpensive when the time is taken at the outset to get the processes, procedures and resources right. Even if you don’t have plans to sell your company, run it like you are planning to sell it. It’s better to get the record-keeping right in your own time and on your own terms, rather than it being one of the elements that undermines or adds unnecessary cost to that lucrative exit when it does come.   Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Could the fall in interest rates result in an economic ice age for western economies? By Cormac Lucey Across the developed world, interest rates have collapsed over recent decades. Yields on German government 10-year bonds fell below -0.7% this month while yields in Japan were hovering at -0.3%. Japan has struggled to combat low growth and low interest rates for 30 years. Only America, where rates on government bonds remain at about 1.6%, has avoided Japanification. So far. The trouble is the US may be headed that way too – its rate has halved since last October. Why have interest rates fallen so far, and where might they now be headed? Several factors influence underlying interest rates. The first is the rate of inflation. In theory, real interest rates (after we exclude the inflation factor) should be relatively stable. So, if inflation drops sharply, we would expect a sharp drop in interest rates. And inflation has indeed dropped sharply in western countries over recent decades since it peaked in the inflationary 1970s. Nonetheless, in recent times real interest rates have also dropped. It used to be the case that bank depositors got a rate of interest that exceeded the rate of inflation and provided them with real capital appreciation. That is no longer the case. Today, depositors get negligible or nil rates of interest income even though inflation persists and erodes the underlying value of their savings. There are other factors at play. The biggest cause of ultra-low rates is weak economic growth. If growth rates are high, there is substantial demand for investment funds which stokes demand for deposits (so that banks will have sufficient funds to lend) and supports higher interest rates. Low economic growth pushes interest rates down. Over the twentieth century, productivity per worker grew in the developed world at about 2% per annum. Since the turn of the century, underlying growth amounts to half or less than half of that rate. This problem has been described as “secular stagnation”. There has been extensive academic debate on the subject, but nobody has come up with a convincing explanation for this drop in underlying economic growth. Ageing populations are another factor propelling interest rates downwards. The longer we anticipate our life after retirement will be, the more we need to save to fund our retirements. If the supply of savings increases then, all other things being equal, we would expect the price of savings (i.e. the rate of interest) to fall. There are several problems with interest rates being this low. Central bankers have less interest rate-cutting ammunition with which to fight the next recession. It is notable that the European Central Bank is already contemplating monetary policy relaxation to fight the next downturn without having once felt able to increase its base rate of interest during the economic recovery since 2010. Commercial banks also have big problems as a significant element of their profits – interest income generated from current account deposits on which they pay no interest – has dried up in today’s low interest rate environment. That helps explain why the index of euro area bank equities has fallen in value by over 40% since January 2018. Albert Edwards, a strategist with the French investment bank, Société Générale, has long predicted this fall in interest rates and an economic ice age for western economies. He recently asked: “Do market participants really believe fiscal stimulus and helicopter money will save us from a gut-wrenching global bust that will make 2008 look like a picnic?” He argues that the current government bond rally is not a bubble, but an appropriate reaction to the market discounting the next global recession. This means that “the bubbles are not in the government bond market in my view. They are in corporate equities and corporate bonds”. Ouch! Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

The UK’s Financial Reporting Lab recently spoke to companies and investors about what they wanted from cash disclosures, outside of the cash flow statement. This is what they found… By Thomas Toomse-Smith It has been said that investing is as much art as science. Numbers can tell you so much, but at the heart of every investment decision is a story – either that which the company tells or which investors interpret for themselves. But to allow investors to interpret that story correctly, they need disclosures that help them better understand the generation, availability and use of cash. This allows them to make an assessment of management’s historical stewardship of a company’s assets, as well as support analysis of future expectations. Cash and flow The core disclosure that supports investor needs on cash is often conceptualised to be the cash flow statement. However, while it clearly provides information about the flow of cash, does it do a good job of explaining how that cash is, and (more critically) will be, generated and used? Our discussions with investors suggest that the disclosures that help answer this question are often provided outside of the cash flow statement, and perhaps outside of the annual report completely. Our project focused on this supplemental, but nevertheless fundamental, set of disclosures; disclosures that are principally about the sources and uses of cash. What do investors want? Our discussions with investors concluded that what they want, at a high level, is an overall direction on companies’ cash position but that this should be supported by further details. We have summarised investors’ needs in the model outlined in Figure 1. A focus on drivers Companies note that communicating their strategy and performance are essential objectives of their investor communications. However, for many companies, their attention is on a number of performance-focused metrics (such as profit or adjusted profit) with cash metrics featuring as a supporting, rather than a leading, metric. While companies often do a good job of explaining some aspects of their wider performance, cash metrics and cash generation are often not fully explained. This wider cash story deserves better explanation. Both numbers and narrative are crucial for investors. However, the most effective disclosures are those where numbers and narrative are combined in a way that shows how future cash generation is underpinned by current cash generation. Two ways in which we saw companies trying to communicate this was through better disclosure around selection and use of key performance metrics (in line with the practices suggested in our recent KPI report), and through the use of narratives (that bring all the cash-related elements together). A focus on sources of cash Understanding the link between the operations of a company and its generation of cash is a key objective for investors. However, it is something that is not always easy to do from the information a company discloses. Investors that participated in our project noted that this lack of clarity is prevalent and that it can be challenging to understand how the operations of businesses are generating cash. Key areas where further enhancements would be welcomed include working capital and groups. While the generation of cash is important, to fully understand the health of a business, investors also need to understand their approach to working capital. Disclosures that provided more clarity were narratives about differing working capital requirements, cycles and metrics within different elements of a group, and disclosures detailing less common approaches to financing such as factoring or reverse factoring. While investors are interested in the overall capacity of a group to generate cash, it can also be important to understand where within the group the cash was generated, especially for credit investors. This is an area where there remain limited examples of good disclosures in the marketplace, but an area where investors were keen to obtain more information such as how much capacity was within the group and how the group manage capital and cash between its subsidiaries. Uses of cash Once investors have considered how a company generates cash, and the quality and sustainability of that generation, they then want to understand what a company intends to do with the resulting resource. While many investors feel that, in general, disclosure about the use of cash is relatively well-reported, they would like more information that supports their assessment of the future use of cash – namely, understanding priorities and the risks attached to them. Setting priorities for generated and available cash At its simplest level, capital allocation is a balance between maintaining and growing a business. However, there is a significant nuance in how these various priorities are balanced within any business and at any point in time. Differing considerations of the relative priorities will lead to a very different view when assessing a company. That is why information about how companies prioritise different stakeholders is useful. Many businesses have therefore taken to creating more formal disclosure, often in the form of a capital allocation framework. This approach is particularly popular with companies that are launching a new or refreshed strategy. While the disclosure of a framework often provides only a high-level picture of a company’s allocation priorities, it can serve to focus investor and management conversations on key aspects of the business. As such, investors often welcome such disclosure. Priorities in action Once investors are clear on management’s priorities, they then want information that supports their understanding of how those priorities are represented in the period, and how current decisions might impact future flows. Detail regarding capital expenditure, dividends and other returns are critical to achieving this understanding as they help establish whether management actions are aligned to the priorities. Variabilities, risks and restrictions To properly assess the future potential upside of a business, investors need to be able to assess the downside. Investors understand that returns are variable and should reflect the changing focus and priorities of the company, the call of other stakeholders and the availability of resources. Investors therefore value information that helps them understand the potential uncertainties and management’s reaction. When thinking about future availability of cash, they need information on: Variability of future outcomes: how does the company consider the range of possibilities for future cash use and how does that feed through to the prioritisation of decisions? Risks: what is the link between the risks facing the company and the outturn in cash generation, use and dividend? Restrictions: are there any restrictions on current or future cash, either through capital or exchange controls, availability of dividend resources or other items? Concluding message Overall, investors are not seeking to overburden preparers but they do want preparers to focus disclosure on the areas that are most fundamental to their investment story. The full Lab report is available on the Financial Reporting Council’s website, and gives more insight and examples. Thomas Toomse-Smith is Project Director at the Financial Reporting Council’s Disclosure Lab.  

Businesses in Ireland are working towards a low-carbon future, but the transition to a low-carbon economy needs to urgently accelerate. By Kim McClenaghan & Dr Luke Redmond Irish businesses are responding to the climate action challenge and to date, 47 companies in Ireland have signed Business in the Community Ireland’s (BITCI) Low Carbon Pledge. Signatory companies have committed to reducing their direct carbon intensity by 50% by 2030, and to report on their progress on an annual basis. The pledge companies operate in traditional carbon-intensive sectors such as agribusiness and energy/utilities, along with a range of other cross-sectoral companies from pharma/med-tech, beverages, transport, retailing, communications, technology and professional services. The pledge aims to demonstrate the commitment of Irish businesses to supporting the country’s transition to a low-carbon economy. The Low Carbon Pledge requires companies to reduce the intensity of their Scope 1 and Scope 2 carbon emissions by 50% by 2030. Scope 1 emissions refer to emissions produced directly from sources owned and controlled by a company, such as fuels used in boilers or vehicles, for example. Scope 2 emissions refer to those produced during the generation of electricity purchased by a company. The narrowing window of opportunity PwC was commissioned by BITCI to produce the inaugural Low Carbon Pledge Report. This work was conducted against a backdrop of mounting evidence that points to a rapidly closing window in which business and society can successfully tackle climate change and its principal driver: carbon emissions. The Environmental Protection Agency’s most recent pronouncements warn that Ireland faces an unfavourable emissions reduction environment due to ongoing challenges in successfully decoupling economic and emissions growth. Ireland is not on track to meet its 2020 and 2030 EU emissions reduction targets, and failure to achieve the 2020 target could result in financial penalties of up to €150 million. What’s more, the latest Intergovernmental Panel on Climate Change report estimates that countries and businesses have a window of just 11 years in which to successfully tackle the carbon challenge. Meaningful progress According to the PwC report, signatory companies have engaged positively with the decarbonisation challenge and have already delivered meaningful emissions reductions. The 47 pledge signatory companies have achieved an overall reduction of 42% in their absolute carbon emissions between the baseline period and 2018, and are on course to secure a 50% decrease in carbon intensity by 2030. Pledge companies have achieved a 36% reduction in average emissions intensity, in part by reducing their electricity usage by 60 million KwH between the baseline period and 2018. This equates to a cost saving of roughly €6.6 million. Energy efficiency-focused rationalisation and strategic investment programmes, coupled with an increasing use of electricity generated from renewable sources, has underpinned the emissions reduction activity to date. Upping the ante The PwC report, and the dataset that underpins it, provides a benchmark against which to assess the future carbon reduction efforts of the signatory companies. With an ever-increasing awareness of the risks of climate change and the importance of accelerating abatement activity, it is critical that the ambition of the Low Carbon Pledge also evolves. While the initial pledge group of 47 signatories is a significant achievement, it will be important to grow this number while extending the carbon commitment scope. Because of the significant intensity reductions over the baseline period to 2018, BITCI has upped the scope and ambition of the 2030 greenhouse gas reduction targets. A critical challenge for companies will be sustaining such reduction efforts and focusing on the delivery of further intensity improvements up to the 50% target and out to 2030, or an earlier date. Enhanced robustness To maintain the integrity of the Low Carbon Pledge, it is critical that businesses seek external assurance of their non-financial data. This is critical to enhancing the robustness of the emissions reduction actions and commitments reported as part of the Low Carbon Pledge. Seeking third-party assurance also provides companies with another opportunity to demonstrate their commitment to decarbonisation, while at the same time enabling companies to prepare for a transition to an increasingly onerous and transparent reporting environment. Scenario analysis The Low Carbon Report analysed four companies – Gas Networks Ireland, Dawn Meats, ESB and Heineken Ireland – to examine how companies are seeking to enhance the sustainability and decarbonisation of their business operations. The analysis found that senior management leadership is central to driving a meaningful response to the challenges of decarbonisation. Businesses should seek to embed decarbonisation and sustainability policies and actions in their business strategy, from both risk mitigation and value-enhancing perspectives. To test corporate strategies, scenario analysis should consider, for example, a high future carbon price, climate change impacts on global and regional GDP growth rates, or climate disruption within the supply chain. Evolving target-setting, coupled with the use of energy management systems and data analytics, can help ensure that companies make informed energy efficiency investment decisions. Strong leadership can help businesses prepare for a carbon-constrained world and ensure that their businesses are aligned with an increasingly carbon-conscious investor and consumer. While delivering carbon reductions through the procurement of electricity generated from renewable sources represents a positive mitigation action, companies could further enhance the integrity of such actions by procuring green-certified renewable electricity. Decisions by senior management to embed renewable energy sourcing targets, underpinned by green certificates, into company strategy could act as an important catalyst for driving further decarbonisation efforts. The case study analysis identifies investors as being increasingly interested in companies’ financial and non-financial metrics. For companies to truly demonstrate a commitment to decarbonisation and sustainability, it is important to place equal emphasis on their financial and non-financial reporting. Leading companies also seek to align the publication of their sustainability and annual financial reports. Such actions demonstrate that sustainability has become an integral part of the company’s core strategy, and associated metrics form part of the business’s key performance indicators.   Kim McClenaghan is Partner in Consulting and Energy, Utilities and Sustainability Lead at PwC. Dr Luke Redmond is Senior Manager, Strategy Consulting at PwC.